The enforcement question

There are three key questions that any claimant wants their lawyer to be able to answer positively: 'Are we going to win?', 'How much is it going
to cost?', and 'If we win, how
do we get paid?'

For the first of these questions, the lawyer is paid
to predict the answer. The second is an art, not a science, but at least the lawyer has the benefit of being able to forecast a result based on
past experiences and various budgeting, insurance, and funding tools.

However, the answer to
the third question - evaluating the outcome of enforcement proceedings - is notoriously difficult to prophesise, especially when the respondent is a state. Following an investor-state arbitration, there can be a variety of reasons for the non-recognition of awards, such as public policy, jurisdictional issues,
or judicial activism, which
may be influenced by the social, economic, and
political situation within the respondent state at the time payment is due.

If this wasn't difficult enough, an element of crystal ball gazing is also demanded by clients, given that most arbitrations take many years to conclude and the inevitable enforcement proceedings make the road
to recovery even longer. Within that period, the political or economic situation can change dramatically, especially in emerging markets.

In certain cases, the lack
of confidence in being able
to make a prompt recovery
can mean that an otherwise meritorious claim will never reach the arbitration arena,
as no client enjoys triumph
in a pyrrhic victory.

So, the lawyer who was able to provide certainty around the first two questions longs for
the same degree of confidence around the third, which was the genesis for arbitration proceedings award default (APAD) insurance, which answers the enforcement question by providing certainty in place of unpredictability.

The policy is taken out
before the award is rendered and negates the need for lengthy and expensive enforcement proceedings by indemnifying claimants to the value of an arbitrator's award, making full payment if the defendant fails to honour their payment obligation. It allows claimants to claim under the policy just 60 days after a default, and addresses the primary purchaser motivations of certainty, speed, and value
- with the claimant retaining 100 per cent of their award.

Naturally, the risk varies from state to state, and the risk of an award not being honoured is more acute in certain geographical areas than
others. However, even in the most developed nations, late payment is a cause for concern for organisations (and, increasingly, for their lawyers acting on a contingent fee basis) which are depending
on a monetary realisation of
the value of the dispute.

Real change and increased confidence in the arbitration process will, of course, only come in time, if and when accountability and sanctions against defaulting nations are increased. Until then, solutions like APAD can make claimants' questions that bit easier
to answer. SJ

Steve Jones is director of the dispute resolution practice at Arthur J Gallagher

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