Arbitration Thoughts

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Taking Full Advantage of the Benefits of Arbitration


There are many reasons why arbitration is chosen to resolve disputes. The reasons, and their order of importance, can differ for different parties, and for different types of disputes.  Nevertheless, the key reasons parties choose to arbitrate are (1) confidentiality; (2) speed; (3) ability to choose the procedures, location, language, law and the decision-makers (arbitrators); (4) finality of resolution, (5) cost efficiency and (6) limited discovery. In international dispute contexts, an overarching reason to choose arbitration is international enforcement ability in hundreds of countries under the New York Convention. In order to make these rationales a reality, however, requires planning on the part of contracting parties in drafting arbitration provisions and thoughtfulness in the positions they will take during arbitration. I discuss a number of these issues below. 



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Confidentiality

For many businesses, confidentiality in the resolution of their disputes is of major importance.  Consider pharmaceutical, technology or industrial companies, where the confidentiality of formulas, testing and development ideas represent much of a business’s value. The same can be true of other businesses as well, such as professional services, retail, etc. While confidentiality protective orders can be obtained in court litigated actions, a party cannot know in advance how broad a protective order it can obtain in court and confidentiality orders run up against “sunshine laws” and public access rights once a litigation reaches the stages of summary judgment motions and trials. Arbitration, which is private adjudication, can provide confidentiality of documents and evidence throughout the proceeding. Further protection can be gained by providing for the level of confidentiality desired in the contract arbitration clause and/ or choosing in that clause a governing arbitration organization to administer the arbitration (or, at a minimum, an arbitration organization’s rules) that provide the desired degree of confidentiality.  Within the arbitration itself, further protections can be sought from the arbitrators. 

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Speed


In general, parties look to arbitration to resolve disputes quickly and without an appeals process, although some arbitration organizations’ rules permit parties to agree to an appeal process.  Of course, arbitration does not always lead to a speedier result:  Some trial courts move cases to judgment very quickly as well. Some arbitrations can take longer than a party might desire due to (1) a party “dragging its feet,”  (2) an arbitrator being so busy that his or her schedule will not permit early hearing dates or (3) a party seeking to challenge the arbitration award in the courts. However,  arbitrations can provide for speedy, final results. Here, again, parties can use their contract arbitration clause to select as administrator an arbitration organization whose rules require both arbitrator and party adherence to certain time deadlines unless the administrator grants an extension or the parties agree to it. Federal Arbitration Inc. (“FedArb”) rules have this feature, for example. The parties’ selection of arbitrators should also take note of potential arbitrators’ time availability and commitment within the desired timeframe. If one party is unduly “dragging its feet” in the arbitration, that fact should be highlighted to the arbitrator(s).  Of course, speed should never be a substitute for fairness and due process, and no party’s legitimate aims to prepare for the hearing should be thwarted by slavish adherence to speed of the process. 

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Choice Of Location, Governing Law and Arbitration Procedures

Although parties can in their contracts provide for choice of law and choice of forum clauses for their disputes, whether they are to be resolved in the courts or by arbitration, the ability of parties to define their own applicable procedures (and to select their decision maker(s)), are unique benefits  of arbitration. To begin with, the parties can select a given arbitration organization and/ or its rules, with some different options being afforded by each of the major organizations (AAA/ ICDR, CPR, ICC, FedArb, JAMS, ARIAS-US, UNCITRAL, etc.).  Moreover, these organizations generally allow the parties to vary the case procedures by agreement, whether in their contract arbitration clause or by agreement at the time of (or during) arbitration. Interestingly, FedArb generally specifies application of the U.S. Federal Rules of Civil Procedure subject to modification by the parties, thus providing the parties with very familiar rules as a starting point, yet with the confidentiality, ability to select the decision maker(s), ability to vary the rules by agreement, and speed and finality that are the hallmarks of arbitration.  

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Cost Efficiency and Limiting Discovery

Arbitrations impose the cost of paying arbitrators and arbitration organization fees. These costs, however, must be weighed against the parties’ ability in arbitration to (1) maintain confidentiality; (2) choose their own decision makers and/or method of decision maker selection, (3) choose the applicable procedures and (4) generally obtain a speedy resolution without appeal. Moreover, parties will often choose arbitration because generally the arbitral organization rules and/ or the parties’ arbitration agreement will provide for only limited discovery that will reduce the biggest cost of all modern litigation: discovery.  Indeed, even in civil litigation, the overwhelming costs of discovery have resulted in revisions of the Federal Rules of Civil Procedure and various State rules to emphasize  “proportionality” requirements.


Arbitrators should exercise vigilance to try to see to it that the case is resolved cost efficiently under the circumstances. In general, when the parties disagree on the scope of discovery and the answer is not provided for in the parties’ own dispute resolution agreement or the arbitral rules chosen by the parties, discovery should be allowed only if it demonstrably relates to a significant disputed issue, is proportionate in cost to the amount or issue in dispute, and is required for a fair determination of the dispute.  This approach should apply to the breadth of electronic and hard copy discovery allowed, the number of custodians to be searched, and the nature, number and parameters of allowed depositions, as well as to time allowed for discovery. At the end of the day, fairness and not gamesmanship should dictate the scope of allowed discovery.


Counsel in their arguments should take care that they do not appear to be overreaching in either the breadth of discovery they are seeking or the categories of discovery they are disputing so as not to (even unwittingly) convey a weakness in their positions on the merits of the case itself. Counsel should be prepared when discovery disputes arise to show that their position is fully reasonable and has been thought out in terms of demonstrable actual needs and actual costs.

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International Disputes

One very important reason that contracting parties often agree to arbitration is when the contract is among parties of different countries. This allows the parties to agree in advance on the applicable law, hearing location, language, administering organization, rules, procedures and decision maker selection. This provides  parties far greater confidence than a race to the courthouses of different countries, although in complex cases involving both contracting and non-contracting parties, sometimes forum fights are inevitable. The New York Convention allows for enforcement of arbitration awards in hundreds of countries worldwide. 


For the above reasons, arbitration is often the best way to resolve international disputes. 

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Summary Judgment In Arbitrations

There is little question that Rule 12(b) motions to dismiss and summary judgment motions are one area where courts, in the United States at least, have been ahead of arbitrations in quickly disposing of certain cases. However, summary judgment is in fact permitted under most arbitration rules and has in fact been granted, either on particular issues or in whole cases, in arbitrations. However, sometimes moving promptly to an arbitration hearing can actually turn out to be faster and more cost effective than providing for lengthy and costly summary judgment motion briefing and argument only to be followed by a full arbitration hearing because there were material issues of disputed fact that could not be summarily resolved.  


When parties believe that a motion for summary judgment  (often in arbitration referred to as a motion for an award without the necessity of a hearing) is appropriate in a particular arbitration, they should no doubt pursue the motion, but consideration should be given to the costs and time involved, whether that party’s case actually presents better in that format and the chances of the arbitrators agreeing that there are no material disputed issues of fact requiring an evidentiary hearing.  

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Mediation With Arbitration

Mediation should be an important tool to resolve arbitrations as well as court disputes. Many parties sensibly provide in their contracts’ dispute resolution provisions for a mandatory mediation process before arbitration can proceed or at some point during the arbitration process. 


Indeed, even without such a contractual requirement, I have found that a significant percentage of the mediations I have handled have been in cases that were otherwise headed to (or were in) arbitration.  The benefit here to both parties is that they can fully control the result in a mediation whereas they are leaving their dispute to the uncertainties of a third party’s decision when they proceed with arbitration or court litigation. 


There can also be benefit found in hybrid procedures such as Med-Arb, in which a  neutral first attempts to mediate the case before the case moves to a final arbitration hearing, or Arb-Med, where the arbitrator(s) complete the arbitration hearing and award but hold it abeyance pending a final round of mediation to attempt to resolve the case consensually. 


The major point is that the parties can , if they can agree , control the process in arbitrations. That is a huge advantage that should not be overlooked.