“Is the Honeymoon Over? How to Bring Arbitration back to its intended place “

The glow that Arbitration once enjoyed has now become a dull light. Many feel that it is nothing more than “litigation-lite,“ a sort of a mixture of the informal evidence taking of arbitration, and the burdens of pre-trial “discovery” that was never the intention when this “alternative” was invoked.

Introduction

8d-tom-valentiWith commercial contracts becoming more and more complex, it has become increasingly important for expanding economies to not only recognise the value of arbitration, to have all alternative dispute resolution mechanisms available, and also to constantly adapt their laws and regulations to reflect the best practices in alternative dispute resolution. Foreign investors, when facing a dispute, need to be able to rely upon effective and updated ADR procedures.

This Article, intended to be more practical than scholarly, more of a self-assessment than a hardcore critique, and more of a guide to the future than a condemnation of the past, is a review, focusing on International Arbitration, of the current situation, primarily from the perspective of parties. After looking at what are generally thought to be its advantages, there will be a critical review of what are commonly thought to be the disadvantages of arbitration. Finally, and more importantly there will be suggestions and ideas of simple and effective methods to address the disadvantages. It is intended to demonstrate that, with decisive leadership and thoughtful action, the glow can and should be put on arbitration so that it once again best serves the parties needs as was always intended.

A. Arbitration has grown and will Continue to Expand

The expansion of cross-border investment and trade has led to commercial relationships between businesses, investors and states. Arbitration has been the standard method for resolving disputes. Certain industry sectors such as construction, commodities, shipping and insurance have always found arbitration to meet industry needs, primarily where the arbitrators’ technical expertise was particularly valued. The international business community, as its primary method of resolving complex transnational commercial disputes.[1]

The international business community, as its primary method of resolving complex transnational commercial disputes, is increasingly adopting arbitration. Both Arbitrators and arbitration counsel have found fertile ground in the field, and have found it to be a lucrative and interesting practice area. Many of the world’s large firms no longer have “litigation” departments but have chosen to adopt the term “dispute resolution” departments, reflecting the need to offer clients teams to support all forms of dispute resolution. The companies that administer cases have grown in number and size, having found that there is a substantial need to support this growing industry. These companies have been active in meeting current needs and creating tools for administration of cases that serve their clients well. They have supported the industry well, and have demonstrated willingness and capacity to meet the growing needs of the industry. This growth has been seen across the board.

For example at the non-governmental international level, entities such as the ICC and the LCIA have become widely accepted institutions for arbitration between private enterprises and for international government contracts. Both of these entities report growth in international cases that they administer.

The ICC has seemed a 40% increase in arbitrations in the past 10 years. The ICC has seemed a 40% increase in arbitrations in the past 10 years. The LCIA saw a 10% increase in filings from 2012 to 2013 alone [2]. The World Bank tracks the dispute systems in place on International Arbitration matters, primarily with regard to foreign investor cases. “Moreover, a robust ADR framework, including laws and private institutions that provide ADR services, contributes indirectly to the rule of law. Because ADR is particularly attractive for foreign investors, it is usually an incentive for greater accessibility to the legal system, online and in English, thus attracting the international business community.[3]

Arbitration is becoming recognised as a “growth industry” (and benefits the reputation of an economy in the international arena.”[4] The arbitration industry also is fully supported at the regional level. The European Union has a fully available court system for the vast body of European law from the European Court of Justice in Luxemburg. The European Human Rights Convention offers legal protection to Europeans against their own and foreign states through its separate court in Strasbourg. In Asia, the Kuala Lumpur Regional Centre for Arbitration (KLRCA) has been available for a long time. In North America, NAFTA is a widely used arbitration system for the protection of investors in North America, and for Central America, CAFTA has provided a similar resource.

On a national level, there has been a growing recognition of the need for arbitral institutions to support this growth industry. Arbitral institutions exist, among other reasons, to assure the efficient conduct of the arbitration proceedings, a greater likelihood that time limits assigned by the arbitral tribunal will be respected and greater certainty that the arbitral award will withstand the scrutiny of a domestic court. Most institutions have existing rules that can be adopted.[5]

These arbitral institutions have become great resources for multinational companies and their counsel. Almost uniformly they have resources that assist parties in addressing the needs of the parties in considering dispute resolution mechanisms for cross-border transactions. The following is a non-exhaustive list, by region, of some of the best-known “national” Arbitral institutions:

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There are many other private institutions, too numerous to mention, that exist which also provide the same or similar services as the “nationals” listed above. They are great resources, have many tools available through their websites, and should be consulted whenever doing business internationally.

B. The Challenge Faced

As a party-driven process, only the parties can take the steps to effectuate the change that is needed to have the system meet their needs and interests. International arbitration is recognised as an integral part of the larger global trading system. It is a tool of choice, and cottage industry now surrounds it to support it. As a consensual binding method of dispute resolution, it can easily meet the needs of parties no matter where they’re situated. While many of these organisations exist, globally, to support the growing needs of the arbitration community, they cannot ensure, by themselves, that the arbitration meets the needs of each party who uses their services.

Even, so-called ad-hoc arbitrations cannot do so. Clearly, the capacity exists to manage cases worldwide. However, managing the cases is only and a very small element of meeting interests Global trade. The time has come to assess what the international arbitration community is doing right and what is doing wrong. It is the parties whose interests need to be met. Those who can respond best and adapt to the criticisms from parties will be best positioned going forward.

C. Protecting its Advantages

Is important do not lose track of what has made arbitration attractive in global trade. There is no doubt that arbitration has attributes that have proven beneficial to parties in cross-border transactions over and over again.

 The primary features that have led to the prominence of arbitration in the international arena are:

  • Enforceability: Arbitration awards are more widely and readily enforceable than court judgments as a result, primarily, of the 1958 New York Convention, a multilateral treaty for the enforcement of arbitral awards to which more than 150 states are a party. [6]
  • Neutral forum: A party will often prefer not to submit to the jurisdiction of another party’s national courts. International arbitration can provide a neutral forum for dispute resolution.
  • Procedural flexibility: Arbitration rules are streamlined, flexible and far less complex than most national rules of civil procedure, making them better suited to parties from different jurisdictions.
  • Arbitrators with the appropriate experience: Arbitrators can be selected for their familiarity with relevant commercial practices, trade usages and legal structures, and their ability to apply different national laws and deal with comparative law issues.

These advantages are well accepted and remain today. However, there has been a growing concern that the disadvantages, which have come into the international arbitration arena, have tarnished the glow of arbitration in recent years. These well-accepted criticisms have now caused parties to reconsider whether the advantages are now outweighed by the disadvantages in what arbitration is said to have become.

D. A Critical Assessment of Current Arbitration Practices

Self-awareness is the responsibility of each of us. In the era of 360-degree reviews, it is also helpful to take a realistic look at what we do not so well.

No matter what jurisdiction one practices in, it is commonly accepted that commercial arbitration was intended to replace that jurisdiction’s courtroom – not just the physical courtroom, but the rules and procedures customarily followed in that courtroom as well. Arbitration is a process that was created by and for the business community to specifically deal with business disputes. Self- determination and efficiency was at its core. Parties decide and negotiate for the procedures that they want to follow in resolving a particular dispute that may occur in the context of a particular transaction they envision. Institutional rules are convenient and helpful in many cases. However, the procedural rules of almost all commercial arbitration institutions permit the parties to modify the procedures to give the arbitral tribunal almost unlimited control over the conduct of the process. As cross-border transactions grew, arbitration was found to have additional benefits to the parties engaged in cross-border transactions.

Many involved in international arbitration is aware of the recurring complaint from civil law lawyers that international arbitration has been afflicted with “Americanization.” The “formalised” American arbitration model is, not surprisingly, prevalent in the international sector because of the significant role played by large American law firms.[7] The U.S. influence has been softened by measures taken by the “international bar” and efforts at creating international arbitration standards, such as the IBA Rules on the Taking of Evidence in International Commercial Arbitration (2010).[8]

Even though criticised by many, these “Americanized” practices are present in International Arbitration cases. The question is not whether they are uniformly bad or good for the system, but rather, whether they create value for the parties in terms of reaching a fair, fast and final decision relative to the dispute at hand. If they do create value, is there a way to use them effectively, and economically. If they do not, why are they being allowed to burden the cases both in terms of cost and time?

Looking more closely at this, the American litigation is designed to meet the needs of all disputants, and society, itself. It was never viewed as a means of addressing the needs of commercial disputes. Civil codes and procedures were not targeted to resolve business disputants. They are, rather, procedures intended for all kinds of disputes—family disputes, boundary disputes, personal injury disputes, disputes over real and personal property rights, civil rights, and many other categories of legal disputes.

Broadly speaking, the most common American litigation practices found to burden international arbitration are:

  • Discovery, which was almost unheard of in international arbitration, is now becoming routine.
  • Aggressive cross-examination conducted by common-law practitioners, unknown in civil law practice, has found its way into almost all cases where a party is represented by American counsel.
  • Motion practice, both as to procedural and substantive matters, is increasing. The question is whether motion practice creates value or does not. If a claim is meritless, then allowing dispositive motions, lessons time and expense. Allowing non-dispositive motion results in additional time and expense, so a blanket approach is not wise.

The question is whether motion practice creates value or does not. If a claim is meritless, then allowing dispositive motions, lessons time and expense. Allowing non-dispositive motions results in additional time and expense. So a blanket approach is not wise. The difficulty with these practices can often be traced back to the question of common law vs. civil law jurisdictions. However, rather than fixing blame on why the practices found there way into arbitrations, or who brought them, it is more productive to think in a more targeted and productive fashion, namely:

Are any or all of these practices necessary to resolve a dispute between the parties to this contract? Perceptions of Arbitration Parties and In-House Counsel Since it is the parties please needs are to be met, it is most important that we consider how the present systems are failing them. However, this is not to say that modifications to the system can are should be made without their active an integral participation. In fact is only with their leadership and willingness to think about arbitration in a different light we’ll be able to make modifications that make International arbitration work well for the parties as well as for those others who play roles in a larger system.

The PricewaterhouseCoopers LLP study by the School of International Arbitration, Queen Mary, University of London. The independent study tested the various perceptions of international arbitration among in-house counsel at leading corporations around the world. The study included responses from 103 online respondents and 40 face to face and telephone interviews for up to three hours on their experience and perceptions.[9] The study resulted in some interesting conclusions. Three key benefits of arbitration emerged from the interviewees: flexibility of process, enforceability of awards and privacy. Not surprisingly, international arbitration is perceived as having downsides. Cost and time head the list with 85 percent of respondents citing the expense as one of their three top concerns and have as their primary concern.

Going hand in glove with cost is the time it can take from filing to getting an award; 18 months is typical. Although the length of time that international arbitration takes is, more often than not, less than transnational litigation, it remains negative. This response reflects a concern that international arbitration increasingly simulates court proceedings in the length of time it takes to complete a case, and as such, the length of time is now perceived as a disadvantage.

Other disadvantages cited are the possibility of national courts intervening in an arbitration hearing – this meant the decision on where to arbitrate can be critical – and the difficulty of involving third parties after the process has begun.

The perceptions about cost – arbitration costs and counsel’s fees – are considered important enough to rate their own series of questions. Nearly two-thirds of respondents (65 percent) say it’s more expensive than transnational litigation and another 23 percent say it’s just as costly. When asked to give a cost estimate of their latest arbitration, just over half (52 per cent) gave a figure ranging between US$100,000 and US$500,000; 12 per cent, however, had to pay more than US$5 million.

In a later study, focusing exclusively on the views of in-house counsel, Price  Waterhouse Cooper conducted a study in 2013 that provides insights from in-house counsel. The study found that major corporations, across different industry sectors, agreed that arbitration is a preferred choice to resolve transnational disputes. However, concerns over costs and delays in proceedings persist and[10] in-house counsel are increasingly focused on getting value from the arbitration process.

The survey’s goal was to help inform all concerned with international arbitration and to help it meet the needs of the parties who look to it as not only a risk management strategy but also a business development strategy. Companies can and will enter growing markets only if they can rely on a competent and trustworthy legal mechanism to resolve disputes which are bound to occur in their cross -border transactions.

Between October 2013 and January 2014 ever sheds in association with Kings College London and the University of Surrey conducted 82 telephonic interviews of general counsel Friends or similarly situated senior decision-makers) relative to their attitudes towards dispute resolution methods. The data was compiled and analysed by Carnaby CA are an ABY company and my academics at Kings College London and the University of Surrey. It should come that “recovery of financial loss” is the primary reason for engaging in commercial disputes. Similarly, the primary disincentive for pursuing cases are the financial costs involved and the risk of loss at trial/Arbitration.[11]

What is interesting is that the study reflects that skilful efficacy from outside counsel is highly valued. Other influential values our quality of territory work, Evidence gathering, testimony witnesses, as well as the performance of judges or arbitrators. So we need to have a system that honours the value placed by disputants in these attributes while at the teen time paying he’d to their concerns about cost and length of time in resolving these disputes.

Before looking at solutions, let’s take a closer look at these common specific, and recurring criticisms that Arbitration faces today:

1. Arbitration is Too Expensive

In an arbitration setting, everything is paid for by the litigants. Most clients will find that experienced arbitrators will charge hourly rates that are comparable to those of the most experienced attorneys in the region. Thus, a client is often faced with additional fees – the advocate they retained plus a percentage of the arbitrator’s fees. These fees are often the fees of all three members of the tribunal split by the parties. These are usually substantial.The common practice of using a 3 arbitrator tribunal increases the costs of the proceedings considerably. It is common practice, but there is no clear data which suggests that a fairer result is reached with 3 arbitrators. The conventional methodology of parties appointing one arbitrator, and the two of them, or the tribunal, appointing the third, often creates considerable power in the neutral arbitrator. If he/she has so much power as one of three, why not vest the same power by choosing only on neutral. This will cut down expense considerably, not only with fees but also with duplication costs, travel, lodging, etc.

Most arbitrations are administered through an administrative clearinghouse which typically charges fees depending upon the amount in controversy. Most clearinghouses require that a percentage of the fee be paid before the case is allowed to proceed to the merits. Forum costs are often an added cost. Ad-hoc arbitrations can be considered in smaller cases, single arbitrator cases, or smaller value cases.

Costs are driven up by the prolific use of expert witnesses. This can be controlled by the decision, in some cases, to use a single, arbitrator appointed, expert. Needless to say, there is a great deal of merit to this criticism.

2. Arbitration Takes too Long

In its early stages, Arbitration was designed to be a fast process, which provided a streamlined “alternative” to traditional litigation. Parties, now, find that their case progresses much like a standard lawsuit. Absent a clear agreement of the parties to the contrary – the dispute will likely progress similarly to a traditional lawsuit, with a scheduling order that provides for fact discovery, expert discovery, motion practice, pretrial disclosures, and an evidentiary hearing.

Expedited arbitrations, can and do occur. This is the result of parties agreeing to do so because it is in their best interest to do so. However, in the absence of a clear party mandate, the arbitrators will seek a compromise between the parties’ respective scheduling proposals, often deciding in favour of a lengthier schedule to avoid criticism of being unfair to one party.

3. Arbitrators Allow Excessive Discovery.

Unfortunately, many attorneys and clients find that they are still subjected to the burdens of discovery, even in an alternative dispute resolution forum. Most arbitration clauses do not contain any limits on the scope or amount of discovery that the parties may conduct, and parties often find that the arbitrators liberally allow the discovery of any information likely to lead to “admissible evidence

4. Arbitrators make compromise decisions

Another common complaint from practitioners and clients is that arbitrators tend to “split the baby.” Arbitrators are reluctant to grant dispositive motions, issue discovery sanctions, or exclude evidence at the hearing. Many practitioners also express complaints regarding their ultimate results, since they may feel like their arbitrator found a way to get to a compromise number as opposed to making a “decision.”

As a result of all of this, despite the advantages of arbitration, increasingly, in recent years, many attorneys are looking at whether a traditional litigation path would better meet their clients’ needs.

E. What is the Solution?

As a party-driven process, the parties, namely In-House or General Counsel must adopt policies that foster the drafting of Arbitration Clauses on a specific, rather than generic basis. They must lead in insisting that drafters incorporate a timeline, rules and process practices that are specifically necessary and addressed to resolve a dispute between the parties to this specific contract, within an appropriate budget for the dispute anticipated.

While there are still opportunities for in-house counsel and law firm draftspersons to use institutional clauses that will save time and money and may achieve a fair and just result, the risk remains that the generic clauses may, too often, result in an arbitration much too similar to a court trial, for it to be deemed an alternative at all, or much less “party self-determined.”

So, what can be done to restore arbitration to the place it once held as a process controlled by the parties to meet the needs of their particular commercial dispute, rather than the needs of their counsel or of the arbitrators?

This is not an all or none proposition. Rather, the old way of looking at drafting a dispute resolution clause must be re-thought so that it is client focused, and just as importantly, focused on the needs that appear as a result of the parties to the contract in dispute. If there is an aspect of arbitration which you find inadequate or burdensome, carefully drafting your contract’s arbitration clause can provide the desired solution. Negotiators of these provisions should have experience in dispute resolution methods on a macro level, understanding the company’s culture, reputation, place in the market, and goals.

When adopting this contract specific approach, it is helpful to have some broad framework in mind at the outset, such as:

  • Is this a transaction that is not likely to occur again between these two parties?
  • What will be the effect on the business relationship if the case drags on?
  • Are there other contracts between the parties?
  • What cultural issues need to be considered?
  • What is this company’s appetite for contested conflicts?
  • What are this company’s budgetary concerns for the dispute?
  • What are this company’s budgetary concerns if the dispute is protracted?
  • Are there reputational issues at stake?

The above considerations will inform  more specific issues, which should include:

  • What is the value of the contract?
  • What is the value of the dispute?
  • Should there be a different scheme depending upon the amount of the claim?
  • What damages can be claimed by a breach?
  • How will those damages be proven?
  • Are the parties from civil or common-law states?
  • What skills are needed in an arbitrator?
  • Should there be 1 or more arbitrators?
  • Should motion practice be permitted?
  • Should dispositive motions be allowed?
  • Is there a need for an expedited hearing?
  • Do you need a reasoned award? Why?
  • Do you need a finding of fact? Conclusions of law? On which issues?
  • Are you using a tiered ADR clause?
  • Should you limit the number of hearing hours?
  • Should hearing days be consecutive?

Virtually every business has entered into a contract that contains an arbitration provision,such as a vendor contract, a supplier agreement, or consumer sales contract. We have all been told that arbitration has numerous benefits – it is supposedly cheaper, faster, private, and more flexible than traditional litigation, and can eliminate the risk of a runaway jury or large punitive verdict.

General Counsel for Parties Need to Set the Policy and make sure Contract Planners and Drafters Need to Make Affirmative, Appropriate Choices Regarding Arbitration

Institutional rules are convenient and helpful in many cases. However, the procedural rules of almost all commercial arbitration institutions permit the parties to modify the procedures to give the arbitral tribunal almost unlimited control over the conduct of the process.

Most importantly for our purposes herein, the parties may make such modifications to the institutional clauses, either at the time that they enter a commercial contract, by including an arbitration provision that spells out the process by which they will resolve any disputes that arise in connection with their contract. Further, the parties can agree to procedures that are crafted at the time a particular dispute arises, through the “submission agreement.”

The agreement to arbitrate or mediate can empower the parties with a great deal of control—over the process and the arbitrator who hears the case, or the mediator who assists the parties in settlement efforts. A well-constructed dispute resolution clause can provide certainty by defining the process prior to a dispute.

1. Use a Tiered Clause to its Maximum Benefit

Current thinking suggests that a tiered ADR clause is used, something as simple as If any dispute arises out of or in connection with this agreement or its

If any dispute arises out of or in connection with this agreement or its formation, directors or other senior representatives of the parties with authority to settle the dispute will, within [ ] days of a written request from one party to the other, meet in a good faith effort to resolve the dispute.

If the dispute is not wholly resolved at that meeting, the parties will attempt to settle it by mediation in accordance with ( xxx) . Unless otherwise agreed between the parties within [ ] days of notice of the dispute, the mediator will be nominated by ( xxx) To initiate the mediation a party must give notice in writing (“ADR notice”) to the other party(ies) to the dispute requesting mediation.]

If the dispute is not settled by mediation within [ ] days of commencement of the mediation or within such further period as the parties may agree in writing, the dispute shall be referred to and finally resolved by arbitration. ( xxx) shall be the appointing body and administer the arbitration. ( xxx) shall apply the UNCITRAL rules in force at the time arbitration is initiated.

So once you have this tiered Dispute resolution clause, It is easy to fall back into the lazy mind-frame and think that you have done your work as a drafter on ADR clause. Doing so completely ignores not only the needs of the parties but also any benefits that may have been derived from the stages provided for in the tiered clause.

It is helpful to use information gathered in each of the steps to make the succeeding step more efficient. For example, In the first stage of Negotiation, the parties would’ve shared information and documents that were helpful in their negotiation. The ADR clause can be drafted to require that those documents, any agreed facts, and any negotiation parameters be the basis proceeding in the next phase, the mediation. Likewise, if the mediation is not successful chances are some progress was made. If the mediator is unable to settle the dispute, Perhaps the issues have been narrowed, the damages refined, the Scope of work to find, or any other possible progress.

The ADR clause can be drafted to provide that the arbitration will proceed using the benefits derived from the mediation. For example, the mediator could have the parties agree that the arbitration Award you can find to an amount between X and Y dollars. Similarly, a mediator could have the parties agree relative to the documents to be submitted, the issues to be decided, the witnesses to be called, the length of time of the hearing, the identity of a shared expert witness, or any other number of possible agreements.

This is just a small example, an overview, of how thoughtful drafting can result in an ADR process it is more efficient in cost and time. When confronted with a specific contract, drafters can using the needs and the interests of the parties described above, achieve very specific goals. Again, General Counsel for the contracting parties should be setting policy based on their needs and interest with regard to each contracted matter so that where should draft contracts are drafting dispute resolution clauses that manage risk well, Contain costs well, and produce the fairest result for all parties.

Let’s look again at the primary criticisms and some suggestions to correct the perceived inefficiencies.

2. Discovery

An interesting review of the mindset of practitioners has been done at Harvard. The study explores the reasons for this present tendency, and argues, as a tentative thesis, that the overuse of discovery is a consequence of cognitive illusions on the part of both parties and arbitrators. Based on insights provided by behavioural law and economics, studies on cognitive psychology, and human behaviour, it will be argued that arbitrators have failed to properly exercise their role as the gatekeepers of discovery.

More specifically, it will be shown that heuristics and biases affect their decision-making process when it comes to discovery. This study suggests that arbitration institutions should more strictly regulate the use of discovery and reduce arbitral discretion in order to restore arbitration’s original efficiency and fundamental values.[12]

The International Bar Association has adopted Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration. These rules do not automatically apply to an arbitration proceeding; they must be adopted by either the parties or the arbitrators. When applicable, they provide for limited production of documents, falling into two categories: (1) documents to be relied upon by the parties at the arbitral hearing, and (2) documents that can be identified with specificity and that are exchanged with third parties (e.g., correspondence). The Arbitration Clause can eliminate some discovery by stating that documents be attached to the Claim and Defense, such as:

* The Statement of Claim shall contain a comprehensive statement of the facts including the legal arguments supporting the claim, including a statement of the relief sought. It shall be accompanied by the documentary evidence upon which the Claimant relies.

* The Statement of Defense shall reply to the particulars of the Statement of Claim required pursuant to Article. It shall be accompanied by the corresponding documentary evidence

It is not common for arbitration clauses in international agreements to address whether discovery will be allowed. Parties should provide, in the arbitration clause, the discovery that will be permitted and the procedures to be used. The types of discovery that may be specified in the arbitral clause include the following: (1) documents and information contractually required to be provided; (2) audits of books and records; (3) documents to be relied upon by the parties in the arbitral proceeding; (4) documents exchanged with

(1) documents and information contractually required to be provided;

(2) audits of books and records;

(3) documents to be relied upon by the parties in the arbitral proceeding;

(4) documents exchanged with third parties;

(5) documents in the care, custody or control of the parties;

(6) sworn oral depositions or depositions by written questions;

(7) written interrogatories;

(8) inspection of premises; and

(9) interviews of employees.

In international arbitration, documents must generally be requested with specificity. Some clauses explicitly restrict discovery by providing it shall be limited. Parties should provide in their arbitration clause for a tailored discovery program, preferably to be managed by the arbitrator. The use of interrogatories, requests for admission, document requests, and depositions, the common discovery tools, and the resolution of disputes concerning their use are expensive and generally do not produce anything of value in return for the time and money spent. The parties can and should agree that there shall be no or only very limited discovery in their arbitration. Clauses can exclude all discovery, or have permitted only discovery that can be shown to be “absolutely essential to the presentation of a party’s case.” The use of interrogatories and requests for admission should not be permitted nor should be deposition discovery.

Where the parties have failed to agree on such limitations in advance, the tribunal should exercise its influence to forge such an agreement, and in any event, impose acceptable limitations.

If absolutely necessary, depositions should be limited to only certain witnesses, This might occur, for example, if the parties anticipate the need for distant witnesses who would not be able to testify except through deposition in order to conserve time and expense. Depositions should occur in a specified short deposition period, with each side permitted a limited number, none of which would last more than three hours. All objections would be reserved for the arbitration hearing and would not even be noted at the deposition except for objections based on privilege or confidentiality.

For a set of guidelines on Pre-Hearing Disclosure see JAMS Efficiency Guidelines for the Pre-Hearing Phase of International Arbitrations.[13]

TAKES TOO LONG

2. Witnesses

Parties should provide in their arbitration clause for a tailored evidentiary hearing. The contract or submission agreement can put time limits on the presentation of each parties’ case. If they have not agreed in advance, the tribunal should work to encourage such an agreement. An agreement on the total number of hours each side has to present its case is preferable and achievable.

3. Written Submissions

Parties should provide in their arbitration clause for a tailored evidentiary hearing The number of submissions and number of pages per submission should be strictly limited.

4. Motions

Parties should provide in their arbitration clause for the limitation of motions to one telephonic discovery motion and one dispositive motion to be decided by written submission only.

5. Expert Witnesses

Parties should provide in their arbitration clause for the limitation of experts to one per side per issue. Alternatively, they can provide for the tribunal to appoint a single independent expert. If they have placed trust in the arbitrator to decide the case, he/she should be trusted with such an appointment.

In the event of the experts who testify on the same issue, they should testify together, side by side when they give their testimony. The experts, then, answer each question posed sequentially. Counsel (or the arbitral tribunal) poses the first question, which is first answered by the expert for party A. Following the completion of his answer, the expert for party B answers the same question. The second question posed is first answered by the expert for party B, which is immediately followed by an answer of the question by the expert for party A. The procedure serves to highlight differences and to minimise expense and time.

This might occur, for example, if the parties anticipate the need for distant witnesses who would not be able to testify except through depositions or, in the alternative, by the arbitrator holding a hearing where the witness is located and subject to subpoena. In most cases where parties provide for depositions, they do so in very limited fashion, i.e., they might specify a 30-day deposition period, with each side permitted three depositions, none of which would last more than three hours. All objections would be reserved for the arbitration hearing and would not even be noted at the deposition except for objections based on privilege or extreme confidentiality. Sample language providing for such depositions is set forth below.

An arbitration agreement that seeks to expedite the hearing itself should contain language, or similar to, the following: The parties may agree that the dispute shall contain the language, or similar, to the following:

The parties may agree that the dispute shall be decided solely on the basis of documentary evidence. A hearing shall be held only if requested by a party and if deemed necessary by the sole arbitrator. In advance of a hearing, the arbitrator may order the parties to identify each witness they intend to call and specify the circumstances the parties intend to prove by each witness’s testimony.

The arbitrator may, after consulting with the parties, direct those witnesses be examined through means that do not require their physical presence at the hearing, including by videoconference or by telephone.

A hearing shall be held only if requested by a party and if deemed necessary by the sole arbitrator.

In advance of a hearing, the arbitrator may order the parties to identify each witness they intend to call and specify the circumstances the parties intend to prove by each witness’s testimony. The arbitrator may, after consulting with the parties, direct those witnesses be examined through means that do not require their physical presence at the hearing, including by videoconference or by telephone.

The arbitrator may, after consulting with the parties, order that the evidence of fact and expert witnesses shall be presented in the form of written witness statements or reports. Such written statements or reports shall be signed by the witness and submitted within the time limit set by the arbitrator.

The arbitrator shall establish the sequence and schedule of the hearing after consulting with the parties. Any witness who gives oral evidence may be questioned by the parties in such manner as the arbitrator shall determine.

After consulting with the parties, the arbitrator may appoint one or more experts to report to him or her in writing on specific issues to be determined by the sole arbitrator. Any expert appointed by the arbitrator shall be impartial and independent of the parties, their counsel and the arbitrator.

Upon receipt of the expert’s report, the arbitrator shall transmit a copy of the report to the parties and give them an opportunity to submit comments. A party may examine any document on which the expert has relied in the report.

At the request of any party, the arbitrator shall give the parties an opportunity to question the expert at a hearing, where the parties may also present party-appointed expert witnesses to testify on the points at issue. Additional strategies can be employed that shorten the time:

  • Strategies to shorten time
  • Limiting the number of witnesses
  • Identification of the issues to be decided by the tribunal as soon as possible after it is constituted
  • Limiting or excluding document production
  • Med- arb
  • Selecting arbitrators with strong case management skills
  • Time limits for rendering the final award
  • Use of a sole arbitrator
  • Bifurcation and partial awards
  • Managing requests for production efficiently
  • Use of written statements as direct evidence
  • Witness conferencing
  • Limiting cross-examination
  • Number of experts
  • Final Offer Arbitration
  • Form of Award
  • IBA Rules of Taking Evidence?
  • IBA Guidelines on Party Representation?

F. Award

Parties should provide in their arbitration clause for an award within 30 days in the case of an expedited arbitration and 60 days in all other cases, of the closing of the hearing, Parties can also contract for a prompt award by providing in the arbitration clause, for example, that there will be an award within a specified number of months of the notice of intention to arbitrate and that the arbitrator(s) must agree to the time constraints before accepting appointment. Before adopting such language, however, the parties should consider whether the deadline is realistic and what would happen if the deadline were not met under circumstances where the parties had not mutually agreed to extend it (e.g., whether the award would be enforceable). It thus may be helpful to allow the arbitrator to extend time limits inappropriate. Arbitrators make compromise decisions “Baseball” arbitration is a methodology used in many different contexts in addition to baseball players’ salary disputes, and is particularly effective when parties have a long-term relationship. The procedure involves each party submitting a number to the arbitrator(s) and serving the number on his or her adversary on the understanding that, following a hearing, the arbitrator(s) will pick one of the submitted numbers, nothing else. A key aspect of this approach is that there is an incentive for a party to submit a highly reasonable number since this increases the likelihood that the arbitrator(s) will select that number. In some instances, the process of submitting the numbers moves the parties so close together that the dispute is settled without a hearing. This is the single most effective tool to avoid “split the baby” awards. It is in the exclusive control of the parties. It eliminates, completely, the ability of an arbitrator to compromise. It also will eliminate the criticism of arbitrators not being able to decide. It also will cut down the time of the award. The parties could even require that each side drafts an award for their side, and the arbitrator is empowered to enter only one of the two awards submitted. This will further enhance the ability to enter awards timely. Where parties fear or are uncomfortable with “baseball arbitration” or “ high-low” arbitration. With this approach, the drafter provides that each party will propose a monetary figure for resolving any dispute over damages, and the arbitrator is required to choose one party’s proposal as the award. This technique limits the discretion of the arbitrator and prevents a compromise award. It also pressures the parties to make realistic proposals rather than seeking outrageous sums or offering unreasonably low amounts.

This is a particularly useful tool that builds on the prior “tiers” of ADR if such a clause was utilised. The mediation agreement can memorialise that last positions of the parties, and those can be used as the parameters of the high-low agreement This will produce a better negotiation and mediation when the parties know that their final positions lock them into a final position in the arbitration as well. In doing so, the parties are able to eliminate extreme risk, while gaining the benefit of the extent to which their negotiations were successful in the prior “tiers.” Arbitration Costs too much Clearly, all of the above strategies to shorten and make more efficient than hearing Will naturally drive costs down as well. Some additional strategies to contain costs that can be part of the arbitration agreement are:

  • Using allocation of costs to encourage efficient conduct of the proceedings
  • Telephone and video conferencing
  • Online arbitration can be especially effective for small commercial disputes, making them shorter and less administratively demanding and cheaper than larger international disputes. The drafter can provide that all disputes be handled by on-line arbitration, that only certain types of disputes be handled on-line)or that damage claims to a certain limited extent (e.g., $500,000 or less) be handled on-line. Of course, the parties may wish merely to authorise the filing of documents such as pleadings and briefs through the Internet. There are technologies that exist that can make presentations of witnesses, documents and other exhibits (even site visits) very convenient and affordable. Video conferencing can be another ay to avoid delay, by using it to receive a testimony of witnesses who may not be available to travel on the hearing date.
  • Use of written statements as direct evidence
  • Number of experts
  • Fast-track

Conclusion

Arbitration has, as all methods of “alternative” dispute resolution have, always, been anchored in party self-determination. By this, we mean, that the parties determine the willingness, scope and methodology (admittedly, with some discretion provided to process decisions by the neutral) of the dispute resolution mechanism they have chosen. For reasons some explained herein, self-evident, or and easily deduced by those involved, Arbitration has conceded control to non-parties. It is the writer’s position that the criticisms of arbitration that are frequently lodged today are valid. However, correcting these issues, and returning the glow to mediation is something within the control of the parties, those who are voicing these concerns. It takes leadership by parties, guidance by those that draft dispute clauses, and firm oversight by their general counsel. It takes knowledgeable and confident arbitration counsel to use their best skills to prosecute and defend claims according to the drafted clauses. And, finally, it takes arbitrators willing to follow the drafted clauses, and who are willing, despite pressures from their peers, and those who practice before them, to make decisions in accordance with the mandate of the arbitration agreement, from which they obtain authority. With the suggested changes, arbitration will be able to meet the needs of the future, in light of what will surely be an increased demand for effective dispute resolution methods in light of growing cross-border transaction trends.

References

[1] A 2006 survey of international corporate counsel conducted by Queen Mary College and PriceWaterhouse Coopers suggests that the vast majority of companies expect to continue using arbitration as a preferred method of international dispute resolution and that the expansion of international trade will produce a commensurate increase in the volume of arbitration. QUEEN MARY, UNIV. OF LONDON, SCH. OF INT’L ARBITRATION & PRICEWATERHOUSECOOPERS, INTERNATIONAL ARBITRATION: CORPORATE ATTITUDES AND PRACTICES 22 (2006), http://www.pwc.com/en_BE/be/publications/ia- study-pwc-06.pdf

[2]http://www.iccwbo.org/Products-and-Services/Arbitration-and ADR/Arbitration/Introduction-to-ICC-Arbitration/Statistics/

[3] http://www.lcia.org/LCIA/reports.aspx

[4] Pouget, Sophie. 2013. “Arbitrating and Mediating Disputes: Benchmarking Arbitration and Mediation Regimes for Commercial Disputes Related to Foreign Direct Investment.” World Bank Policy Research, Working Paper no. 6632.http://iab.worldbank.org/~/media/FPDKM/IAB/Documents/FDI-Arbitrating-and Mediating-Disputes.pdf

[5] The question raised, herein, however, is whether these rules become the default and have therefore been a factor in contributing to the delays and costs of arbitration. Do their existence, passively, deter drafters from thoughtful and incisive contract provisions that serve the parties needs better? This will be explored later.

[6] New York Arbitration Convention http://www.newyorkconvention.org/

[7] Roger P. Alford, The American Influence on International Arbitration, 19 OHIO ST. J. ON DISP. RESOL. 69, 80–88 (2003).

[8]IBA Rules on the Taking of Evidence in International Commercial Arbitration (2010http://www.ibanet.org/Publications/publications IBA guides and free materials.aspx

[9] See Note 1 supra and also The study can be found at www.pwc.com/arbitrationstudy

[10] Corporate choices in International Arbitration Industry perspectives, 2013 http://www.pwc.com/gx/en/arbitration-dispute-resolution/assets/pwc-international-arbitrationstudy. pdf

[11] Eversheds, 2014 “Companies in Conflict” http://www.eversheds.com/global/en/what/services/commercial-disputeresolution/ companies-conflict-report.page

[12] Giacomo Rojas Elgueta , UNDERSTANDING DISCOVERY IN INTERNATIONAL COMMERCIAL ARBITRATION THROUGH BEHAVIORAL LAW AND ECONOMICS: A JOURNEY INSIDE THE MINDS OF PARTIES AND ARBITRATORS, 16 Harv. Negot. L. Rev. 165

[13] JAMS Efficiency Guidelines for the Pre-Hearing Phase of International Arbitrations http://www.jamsadr.com/international-arbitration-guidelines/#tools

 

 

 

 

 

 

 

Published :
November 9, 2016
Author:
Tom Valenti