How sector preferences shape international arbitration

Hypothesis: The Energy and Construction sectors dominate in international arbitration

On the international arbitration stage, the energy and construction sectors have long held the spotlight. With their complex, high-value contracts and cross-border transactions, which often involve a political element, disputes in these sectors are well suited to adjudication by a neutral, international arbitral tribunal.

In this second report in a series of data sheets exploring arbitration topics as part of our ‘data driven disputes’ campaign we take another deep dive into the data to investigate whether our hypothesis was the whole “sector story”. Adopting a global perspective, we analysed institutional data to identify which sectors have experienced a surge in arbitrations, which have fallen by the wayside, and we queried whether specific regions have become arbitration hotspots for particular sectors. We also spoke to the institutions about which sectors they anticipate to be areas of growth in the coming years.   

Research and methodology

In order to conduct this analysis, CMS carried out desk research and qualitative interviews:

Results

The data clearly showed that, whilst energy and construction remain dominant in the arbitration world, that dominance is not universal. Indeed, other specific sectors are increasingly prominent for certain arbitral providers. For example, whereas construction takes the top spot in Dubai, the ICDR in the U.S. has seen an increase in technology arbitrations. Meanwhile HKIAC is enjoying a FinTech boom and Japan is seeing a gaming surge.  

Various factors are likely to be behind this. The regions in which the institutions are based are likely to be relevant; construction has seen significant growth in the Middle East due to tourism and foreign investment, while in contrast the gaming industry is thriving in Japan, home to some of the biggest names in the sector.  

Reputation and track record remain key. Banking and finance parties, for example, continue to look to the LCIA in light of its history of dealing with high-value and complex financial disputes. Customised rules also play a part; the ICDR’s technology-specific clauses allow tech companies to tailor their arbitration process to suit the subject matter of their contract.  

Looking to the future, there appears to be a cross-regional expectation that green energy cases will account for a significant number of disputes in due course. 

As we determined in our first report, there is clear scope for more specialist centres to emerge, with these centres coexisting with the more generalist institutions. We consider below how the existing institutions may try to adapt and evolve as a result. 

Technology and AI

Several of the institutions that we spoke to highlighted Technology as a sector that had experienced a recent uptick in cases and one that they expected to experience continued growth. The Vienna International Arbitration Centre (VIAC), for example, has seen ‘Technology’ knock ‘Commercial Contracts’ from the top spot, with 29.7% of cases relating to the Technology sector in 2022. Similarly, Technology is now number one for the International Centre for Dispute Resolution (ICDR) in the U.S. Interestingly, despite the extent to which the benefits, risks and regulation of artificial intelligence (AI) is currently dominating the public discourse, only one institution (the Korean Commercial Arbitration Board (KCAB) International) specifically highlighted AI to us as an area in which they anticipated seeing future disputes. KCAB International described the work they are doing internally to ensure they are up-to-speed on the developments for their consumers. We consider the approach of the institutions to AI in more detail in a future edition of this report.  

We want to make sure that we’re ready for AI and blockchain related disputes.

Steve Kim, Secretary General, KCAB International

Construction

It is clear that, at least in some jurisdictions, the construction sector still dominates. Construction was the top sector for the China International Economic and Trade Arbitration Commission (CIETAC) in 2022, with 15% of cases, rising from third place in 2021 and bumping ‘General Sale of Goods’ down to third place after several years in pole position. Deputy Secretary General, Brad Wang, attributes this change to the Chinese Belt and Road Initiative - a global infrastructure development strategy designed to link East Asia and Europe. Similarly, Construction accounted for 49% of DIAC’s caseload in 2022, which Registrar Robert Stephen observed was likely due to some of the turmoil in the global markets having a knock-on effect on construction. 

There has been a switch of positions between commercial commodity trading and construction disputes.

Brad Wang, Deputy Secretary-General, CIETAC Hong Kong

Banking & Finance

For the Hong Kong International Arbitration Centre (HKIAC), Banking accounted for 36.9% of cases in 2022, pushing International Trade down to third place after five years in the top spot. Secretary General Mariel Dimsey attributes this to an increase in FinTech disputes, and considered that this was likely to be a continued area of growth for HKIAC.  She noted that the regulatory framework in Hong Kong is attractive for trading platforms. Banking & Finance remained in the top three sectors for the London Court of International Arbitration (LCIA), albeit bounced from the top spot by Transport & Commodities. In its 2022 Annual Report, the LCIA attributed the increase in commodity disputes to global developments impacting energy prices, a trend they anticipated continuing into 2023. 

Fin Tech is an area of growth [for HKIAC] – 2022 is unlikely to be a one-off spike.

Mariel Dimsey, Secretary General, HKIAC

Entertainment & Gaming

In Japan, after five years at number one, the Manufacturing / Industrial Goods sector has given way to Entertainment / Media and Retail / Consumer Products, which each constitute 21% of the arbitration caseload for the JCAA. Shinji Ogawa, Manager, explained to us that the JCAA had seen an increase in cases involving gaming in 2022, and acknowledged the popularity of anime in the country as another potential source of disputes. CIETAC also reported a rise in gaming arbitrations in its Hong Kong branch, while Alexander Fessas, Secretary General of the ICC, told us that he anticipates an increase in disputes relating to the gaming industry in the coming years. 

The entertainment sectors such as the gaming and anime are popular in Japan and they like to expand into foreign countries […] there is the potential for more arbitration in these sectors.

Shinki Ogawa, Arbitration & Mediation Manager, JCAA

(Green) Energy

Arbitration continues to be the preferred method of dispute resolution within the energy sector, including oil & gas. Energy takes the number “2” spot for the ICC, behind only construction.  Several institutions also highlighted Renewables/Green Energy to us as a sector for future growth. As oil-based economies seek to diversify and shift the focus of their projects and partnerships to green energy, we are likely to see a corresponding shift in disputes. Both Jyothi Mani of the Oman Commercial Arbitration Centre (OAC) and Robert Stephen of the Dubai International Arbitration Centre (DIAC) anticipated an increase in green energy cases in the coming years. This was not specific to the Middle East, however, with Natalia Petrik of the SCC, Steve Kim of the Korean Commercial Arbitration Board and Laura Aguilera Villalobos of the Santiago Arbitration and Mediation Centre all also predicting that the green energy sector would give rise to more arbitrations. 

Renewables will be increasingly important in the future.

Robert Stephen, Registrar, DIAC

Sport

Several institutions also reported to us that they are seeing an increase in sport-related arbitrations, including the ICC, CIETAC (Hong Kong branch) and DIAC. The sector-specific Court of Arbitration for Sport also saw a significant increase in cases from 605 in 2019 to 987 in 2021. Behind that growth is likely to be the significant amount of investment flowing into the sports market in recent years, in particular in the Middle East and by Middle Eastern investors.  

Sector-specific institutions

A common theme coming out of our interviews was the lack of concern around the prospect of sector-specialist institutions - whether established or newcomers - vying for space in the market. The vast majority of institutions considered that users are more likely to opt for institutions that are established and experienced, over specialist bodies, particularly if they have the option of selecting a sector-focused arbitrator.  

So is this complacency or realism?  

Some institutions acknowledge that certain sectors might better lend themselves to being the subject of specialist arbitration institutions, particularly in certain regions. DIAC, for example, noted that sports-focused institutions could get some traction in the Middle East market, whilst technology-focused institutions could be well-received on the West Coast of the U.S.  

Indeed, given the increase of arbitrations that we have observed in certain sectors, such as sport, gaming and technology, we can well see that some arbitration users might find appealing the expertise and tailored procedures that a specialist institution could offer. It may be prudent for the established institutions to be vigilant and ensure that they are cognisant of the evolving demands of the global business landscape. That may involve the development of sector-specific sub-rules or tailored model procedures. Whilst sector-specific institutions may not pose an imminent existential threat, they may, in due course, offer valuable and viable alternatives for parties operating in certain sectors.

If you would like to discuss our findings in more detail, please get in touch with our team.

The CMS team would like to thank trainees Niluka Perera and Henry Davine (secondee) for their invaluable assistance with the research and interviews that allowed for the preparation of this report.