Virtual Arbitration – An Overdue Addition or a Ticking Time Bomb?

The effects of Covid-19 have been evident throughout the legal sector, primarily causing the English legal system to be dragged hastily into the 21st century. The once traditional formal hearings, now, have a consistent utterance of ‘can you put your microphone on?’, and ‘your connection dropped, could you repeat that?’.

The intent has always been to slowly introduce technology into the court system by giving it the necessary time to adjust and iron out any teething problems. Instead, the industry underwent an abrupt shift to incorporate virtual meetings, which allow hearings to go ahead despite global physical distancing measures. The use of virtual hearings has now flourished due to the certainty in scheduling and the safety from the pandemic. It was time for some form of modernisation for UK hearings, but the drastic changes rising from the pandemic may not be at all sufficient and permit abuse from those who understand the loopholes of telecommunications.

The international arbitration community was no stranger to virtual proceedings, even before the Covid-19 crisis. Efforts to transfer to the online interface started a few decades ago, but growth remained almost stagnant compared to the exponentially growing popularity of alternative dispute resolution in general. Most dispute resolution centres – including the ICC, LCIA, and ICDR, can facilitate virtual hearings if needed. Despite the versatility of most institutions, completely virtual proceedings have been the crushing minority of cases.

Ironically, the situation is rapidly changing due to Covid-19 and the parallel need for social distancing and dispute resolution accommodation. Even though a year has passed since the beginning of the pandemic, governments are still placing physical restrictions on an ad hoc basis, which causes uncertainty in scheduling hearings. This has led to counsels advising parties to proceed with virtual hearings or online arbitration whenever possible. As virtual hearings are coming to the limelight, it is worth exploring some relevant challenges and asking: is the current system sufficient?

Due process complications: a potential challenge to the award?
It is straightforward that when both parties consent to virtual proceedings, there will be no issue of due process and any related challenge to the award is likely to fail. When the motion to transfer to virtual hearings is made by one of the parties or by the tribunal itself, that might compromise the enforceability of the arbitral award on due process grounds.

According to Article 18 of the UNCITRAL Model Law on International Commercial Arbitration, the parties must be ‘treated with equality’ and must be ‘given a full opportunity to present their case.’ Under Article V(1)(b) and (d) of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) a national court might refuse the recognition and enforcement of the arbitral award if due process was not observed during the proceedings. While there is no apparent reason why a party’s procedural rights might be compromised during virtual hearings, the practical implications of transferring to the new interface can have a considerable impact on a party’s ability to participate.

Concerningly, the processes involved in arbitration are at risk of exploitation through virtual hearings. One risk is that parties and witnesses can have other people in the room, potentially coaching answers to questions, which can be detrimental to the opposing party. [i] This could breach Article 18 of the Model Law, as the parties are not on equal footing when this occurs. However, guidance has suggested 360-degree video conferencing to mitigate this risk. [ii]

Similarly, there are issues with timing in global arbitration. When there are multiple time-zones involved, there can be a need for more breaks due to the risks associated with the overuse of screens. [iii] When the so-called ‘Zoom-Fatigue’ sets in, parties are less aware and less receptive to the presented information.[iv] When one party has to participate late at night, further breaks may need to be provided due to the lack of sleep. In such cases, not providing breaks could grant the opposition an unfair advantage.

If the parties are unaware of how to resolve connection issues, the flow of proceedings may be interrupted and may even need to be postponed, which can be detrimental and time-consuming for all stakeholders.[v] This is also an aspect of virtual hearings, which is vulnerable to manipulation by uncooperative parties. Some may exploit the freedom to cut off their Internet to postpone a hearing which is not working in their favour. This phenomenon, essentially ‘rage quitting,’ is not preventable during a hearing, and it may negatively impact the other party. Of course, there is always the risk of due process claims at the recognition and enforcement stage.

Not granted: the cost of access to technology
Virtual hearings tend to be more cost-effective than court litigation; however, it should not be taken for granted that virtuality necessarily results in less cost for some parties. Although technology has advanced vastly over the past decades and is still advancing exponentially, it has evolved unevenly around the world. Many states have the infrastructure and the tools to support virtual arbitration hearings, while other states do not, resulting in a significant disparity of cost of access from state to state.

The unevenness is evident when comparing developed to developing nations. According to the World Bank, only 35% of developing countries have access to the Internet, in stark contrast to the 80% in developed nations.[vi] Even amongst developed nations, the cost of access to technology can be a ‘make or break’ factor for a party participating in virtual hearings. For those who have access to data, that comes at vastly different price tags, making the cost of participation significantly different from country to country. According to Cable’s report on Worldwide Mobile Data Pricing, the disparity in data cost can be large even in the developed world, where reportedly 80% of the population have access to the Internet.[vii] As of February 2020, the UK’s average price of 1GB of data was $1.39, with Russia’s average price being $0.52 and Canada averaging at $12.55.[viii]

Given these numbers, the cost of an hour’s streaming of virtual hearings is bound to be significantly more expensive at a state with higher rates, whereas its counterparty might be facing a fraction of the cost. Instantly, the burden of the virtual hearings becomes tangible for one party but remains a hustle-free option for the other. The stark inequality of expenses associated with participating in virtual hearings across the globe will not improve until the use of data is made more readily available globally.

Privacy and confidentiality
Another issue presented by virtual hearings is confidentiality, as additional steps are required to ensure it is maintained. Hacking or the parties covertly recording the proceedings are more likely to occur in the virtual interface, breaching the rules of the arbitration and leading to unfairness. In an attempt to prevent issues of this kind, Annex I Paragraph C of the ICC practice note requires parties to have a meeting with the tribunal to discuss what needs to be established to protect the parties.[ix] This involves discussing privacy issues, such as whether to record the session or if they wish for 360-degree views of each participant’s room. Parties can also consult about confidentiality in the context of establishing minimum requirements of encryption against hacking. The American Arbitration Association issued a virtual hearing guide, which lists more detailed guidance on maintaining confidentiality, including preventing the use of public internet connections. [x]

The above aim at protecting the parties as much as possible in a virtual hearing. However, issues such as the breach of confidentiality are always a risk, as they can only be mitigated to an extent and are very difficult to be entirely prevented. While privacy & confidentiality will likely remain an issue in virtual arbitration, all the add-on elements available by arbitration institutions are bound to increase the cost of arbitration significantly, even though they are essential to safeguard against the frustration of the arbitral process and tactical proceedings at the recognition and enforcement stage. The lack of standardised rules, in this regard, is evidence of how hastily the world moved to virtual hearings and provides food for thought; it is perhaps time for online arbitration rules to name elements such as encryption as the base standard, given their cruciality.

Final thoughts
Awards made during virtual hearings are widely considered to be valid alternatives to traditional awards in arbitration.[xi] Covid-19 has ensured a quick turnaround in introducing these hearings, meaning that teething problems are underway and may continue to be for some time. There are issues with fairness within the system, but it is possible to take steps to mitigate the risk of injustices occurring. The development of virtual hearings is ongoing, and while they remain adequate, further steps will likely be taken to improve their quality.

[i] Norton Rose Fulbright, ‘Institutional responses to the COVID-19 pandemic’ (2020) accessed 3rd March 2021.
[ii] International Court of Arbitration, ‘ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic’ (ICCWBO, 2020) accessed 1st March 2021.
[iii] Ibid.
[iv] Correia, Fleury, Gama e Silva Advogados, ‘Virtual hearings on the merits of the arbitration: a step too far or the only path to follow?’ (The legal 500, 2020) accessed 3rd March 2021.
[v] International Court of Arbitration, ‘ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic’ (ICCWBO, 2020) accessed 1st March 2021.
[vi] The World Bank, ‘Connection for Inclusion: Broadband Access for All’ accessed 3rd March 2021.
[vii] Ibid.
[viii]Dan Howdle, ‘Worldwide Mobile Data Pricing’ (Cable.co.uk, 2020) accessed 2nd March 2021.
[ix] International Court of Arbitration, ‘ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic’ (ICCWBO, 2020) accessed 1st March 2021.
[x] American Arbitration Association, ‘AAA-ICDR® Virtual Hearing Guide for Arbitrators and Parties’ (AAA, 2020) accessed 3rd March 2021.
[xi] Norton Rose Fulbright, ‘Institutional responses to the COVID-19 pandemic’ (2020) accessed 3rd March 2021.

The original version of this article was first published in The Legal Compass by Konstantina Kalaitsoglou, Stephanie Stephenson