The 77km Panama Canal expansion is an engineering marvel that promises to speed up international commerce and might be a boon for global ports. It also involved lots of disputes over cost overruns and construction delays, which pushed completion beyond the canal’s 100th anniversary last month.
Rather than hash out any of the issues in Panama, where the court system could have an intrinsic bias toward the Panamanian government, the feuding parties mutually agreed to iron out US$1.6 billion in disputes in Miami.
It is not that Miami had any special connection to the construction in Panama. The city worked to attract the proceedings as part of a concerted effort to become an international hub for arbitration proceedings.
Illustration: Yusha
The weeks and months of billable hours and protracted talks can translate to an economic lift for a host city catering to out-of-town investors, and their lawyers and support staff, making municipalities worldwide eager to woo bickering parties.
For all the expense involved, most investors still see arbitration as a preferred route to going to court in any particular country to settle such problems.
“People know when they have such a dispute that they will be forever foreigners,” said Jan Paulsson, an international arbitration specialist who teaches at the University of Miami School of Law. “They would rather be in a place where the other side does not have advantage and everyone is equal.”
In an effort to avoid protracted courtroom battles, most business contracts these days specify that disputes will be settled by binding arbitration done outside the public spotlight. Choosing an impartial location can be just as important.
“Arbitration has grown steadily because it provides a forum for the selection of neutral decisionmakers attuned to cultural and legal differences,” said Edna Sussman, an arbitrator and lawyer who teaches at Fordham Law School.
Local courts often make a venue important, because parties look to the readiness and training of judges to apply arbitration law while proceedings are under way and enforce any big-dollar awards that result, she said.
Details of commercial arbitrations are often murky because private investors want to keep them confidential. Filings against governments usually become public because they involve taxpayer money, thus offering a window into the global arbitration system.
International locales like London and Paris traditionally have been favored — as well as centers of commerce like Hong Kong and Singapore for Asian disputes — but parties can agree to settle matters elsewhere. New York has long been a major site for global arbitration proceedings because its contract law is predictable and does not allow for appeals on specious grounds.
Proprietary research for the New York State Bar Association projected that an increase of 10 to 20 percent in such proceedings in the city could add as much as US$400 million annually to law firm coffers.
These expensive squabbles show no signs of abating. Last year, investors filed 1,165 new international cases at the International Center for Dispute Resolution, the international division of the American Arbitration Association, a New York nonprofit group. That number is up from 888 cases in 2010 and 204 in 1992.
Another major organization, the International Chamber of Commerce, in Paris, had 767 new filings last year, compared with 337 in 1992.
Miami, with 128 cases last year compared with 49 in 2010, is second to New York among US cities in the number of arbitrations conducted by the International Center for Dispute Resolution. The Florida bar has helped attract foreign lawyers to practice in the state during arbitration hearings without having to become members of the state bar. Its court system also has a specialized tribunal — the International Commercial Arbitration Court — with judges trained to handle arbitration matters.
Miami also has been recruiting well-known law firms to open offices in the city, and the University of Miami School of Law is offering special degree programs in international arbitration.
The city is also promoting the city’s lower costs, bilingual professional force and a location that it is easily reachable from South America, Europe and Asia. The cost of holding an arbitration proceeding, with Miami’s average hotel cost at US$261 a night, can be half the US$554 nightly cost in Paris, according to the city’s research.
The biggest feather in Miami’s cap so far has been landing the disputes involving the US$5.25 billion expansion of the Panama Canal, which is being enlarged to accommodate newer ships whose bulk prevents them from passing through the waterway. The Panama Canal Authority, which oversees the canal, is wrangling with a consortium of construction companies from Spain, Italy and Belgium, with three mutually chosen arbitration experts set to examine the claims and decide the outcome.
There will be meetings in other cities as well, but Miami’s economy will reap the benefits of negotiation-related spending, like fees for conference facilities and offices, and the employment of legal support personnel, including court reporters and translators, in addition to overnight hotel stays, restaurant meals and entertainment.
“What was once a subset of the legal sector is now becoming a stand-alone industry,” said Eduardo Palmer, lawyer and secretary for the Miami International Arbitration Society.
Not to be outdone, Atlanta, Georgia, which garnered 17 arbitration cases last year from the International Center for Dispute Resolution, is also stepping up efforts to attract such legal business. A new arbitration resource, the Atlanta Center for International Arbitration and Mediation, is set to open in May next year in a building under construction to house the Georgia State University College of Law, said Shelby Grubbs, the center’s executive director.
Florida and Georgia’s legislatures have aligned their state statutes with international commercial arbitration rules, making it easier for the parties to opt out of some grounds for judicial review once an arbitration award is determined. Also, Georgia State’s law school is adding to its course offerings on arbitration and mediation.
Other cities lining up for — and winning — international arbitration business include Los Angeles, San Francisco, Houston, Dallas Chicago and Washington.
New York is also burnishing its arbitration credentials. Last year, the New York International Arbitration Center opened in Manhattan, as a space where arbitrators can hold hearings to examine the facts and settle cross-border grievances. Thirty-seven law firms funded the site.
The center, which celebrated its first anniversary in June, has hosted 20 hearings. Most involved commercial arbitrations between two private parties involving issues such as oil and gas, construction and intellectual property, and one dispute arose from a bilateral investment treaty in which investors could invoke arbitration in a dispute with governments and governmental entities.
The opening of an International Chamber of Commerce office in Manhattan this year is also likely to help funnel more cases to New York.
Thus far, the cases filed increasingly involve parties from North America, said Alexandra Dosman, the center’s executive director, adding that this “reflects the importance of the American market, and that it is growing.”
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