Arbitration is dying a slow death in Australia, thanks to a "hopelessly out-of-date" legislative framework and a lack of understanding and training in its distinctive processes, Zoe Lyon reports
Despite once paving the way in the development and uptake of alternative dispute resolution processes, Australia has allowed its domestic arbitration regime to fall into "a state of malaise" - to quote a recent submission by the Chartered Institute of Arbitrators (CIArb).
An archaic legal framework, combined with the conservative and excessively procedural approach taken by many practitioners, has seen domestic arbitration die a slow death, and it will take a serious shake-up to revive it.
A "hopelessly out of date" legislative framework
Domestic arbitration is currently governed by a uniform legislative scheme - drafted 25 years ago and untouched since - which was implemented into state and territory law nationally.
In his speech at the 2009 Opening of the Legal Term in February, New South Wales Supreme Court Justice James Spigelman commented that this uniform legislation is now "hopelessly out of date and requires a complete rewrite".
"The national scheme implemented in 1984 has not been adjusted in accordance with changes in international best practice," he said. "Of course, in our federation, agreement on technical matters such as this in multiple jurisdictions is always subject to delay. The delay with respect to the reform of the commercial arbitration acts is now embarrassing."
His view is shared by Derek Minus, an arbitrator and mediator and president of CIArb. "Arbitrators and the arbitration associations have been trying to get the arbitral laws updated for about 15 years," he told Lawyers Weekly. "It's not viewed by many of the states as dynamic, current legislation, nor by the players, so there is a drastic and urgent need to reform the legislation."
The Commonwealth-State divide
Perhaps spurred on by Justice Spigelman's and other's forceful remarks, or perhaps by the Rudd Government's commitment to updating the Commonwealth legislative scheme governing international arbitration, the Standing Committee of Attorneys-General (SCAG) in its meeting in April committed to "re-invigorate its efforts" to update the uniform domestic arbitration laws.
However, Minus believes that - rather than the reform process being run through SCAG and implemented through state legislation - it would be preferable for the Commonwealth Government to take full control of governing both domestic and international arbitration.
Ideally, Minus says, the Commonwealth should adopt a unified, national law - based on the UNCITRAL Model Law on International Arbitration - which would govern both international and domestic arbitration and ensure consistency between the two regimes.
Spigelman, too, has highlighted the need for consistency between laws for domestic and international arbitration. "The adoption of the UNCITRAL Model Law ... as the domestic Australian arbitration law would send a clear signal to the international community that Australia is serious about a role as a centre for international arbitration. Our competitors in this regard, such as Hong Kong or Singapore, do not create a rigid barrier between their domestic and international arbitration systems. Nor should we."
Minus is mindful, however, that shifting domestic arbitration to the Commonwealth's domain now could delay the reform process even further.
"It would be preferable for it to be a combined act, it would be better if it subsumed in Commonwealth legislation - but the potential complexities in all that, and the consultation process, would probably be so lengthy that it might outweigh [the benefits]," he says. "If we had a modern act now, and we hadn't been waiting for the last 15 years to get it, there might be a stronger push for [the Commonwealth to take control]. But now we're all so desperate just to see something happen."
More power to the arbitrators
Minus believes one of the key downsides of existing domestic arbitration legislation is that it provides relatively broad scope for the courts to step in and review decisions.
This, he says, is right out of step with arbitration practice internationally, and it takes away from what is often perceived to be one of the greatest advantages of arbitration over litigation - the finality of outcomes.
"Generally, in international arbitration, appeals are precluded under very limited grounds, and that's why the UNCITRAL model is a good model and we'd like to see the same thing apply [with domestic arbitration]," he says. "Because if they are two commercially astute parties, properly advised, and they embark on a process which they've agreed - you should leave them to it. And if they say that there shouldn't be an appeal from that because they want certainty in their relationship, then that should be the outcome.
"Commercial companies want certainty - they want to move on. They don't want to get caught up in a process that winds its way through the courts."
Another failing of the legislation, he says, is that it doesn't adequately arm arbitrators with sufficient powers to effectively manage proceedings - such as to set directions for the parties and hold the parties to them - to maximise the efficiency of proceedings.
A litigation imitation
While out-of-date legislation certainly isn't helping, the lawyers Lawyers Weekly spoke to believe that the profession itself has to bear some of the blame for arbitration's demise. Particularly problematic, they agree, is the trend towards appointing retired judges as arbitrators, and briefing barristers to represent the parties - neither of whom necessarily have any specific training or experience in arbitration procedures.
"The effect of that can often be a duplication of courtroom processes, because that's what retired judges are familiar with and that is what the barristers are familiar with," says Mallesons Stephen Jaques partner Max Bonnell. "While most are very good courtroom advocates or judges, they're not necessarily good arbitration lawyers."
Minus agrees: "If you speak to most senior arbitrators and said: 'So and so a judge wants to start doing arbitrations', there's usually a groan because judges assume that just because they've run processes in the court that necessarily makes them good arbitrators. It doesn't."
Arbitrators, for example, are not bound by the rules of evidence, and they can play a much more proactive role in sourcing evidence and information on which to base their decisions. However, according to Minus, a lack of training and understanding of arbitration processes means these key advantages aren't being effectively utilised.
In fact, despite holding significant power in being able to make legally binding decisions, there is no requirement under the current legislative framework for a person to undertake any training - or hold any qualification - to practice as an arbitrator. As Minus points out, "arbitrator" isn't even defined in the uniform law.
However, bodies such as CIArb and the Australian Institute of Arbitrators and Mediators Australia (IAMA) actively work to promote the development of specialised arbitration skills. IAMA president Michael Kirby recently told Lawyers Weekly: "My own view is that being a lawyer in court is not necessarily a perfect preparation for alternative dispute resolution. There's a need to upgrade your knowledge and experience and learn from others and that's what I'm going to do."
Minus says that while he considers that these bodies have a "vital" role to play in developing arbitration skills, with training and the attainment of qualifications still voluntary - and many judges not sharing Kirby's outlook - it's not a perfect system.
"Many judges will come out of the court and be immediately selected [as arbitrators], and they'll never want to join an association because they will generally have to do some form of exam, and they're at a level where they think 'I don't need to do an exam, I know all about this'," he says.
"So, as president of CIArb, I'd argue that everyone who wants to be an arbitrator should have to achieve a qualification and a minimum standard. Training is important, practical skills are important, as well as a recognition that arbitration is not identical to litigation, and that simply having skills in litigation ... doesn't necessarily equate to being a good arbitrator."