X-Dispute LLC
Arbitration Thoughts
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.
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.
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.
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.
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.
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.
Arbitrator Selection is a Key Component of the Arbitration Process
Arbitrator selection is a critical component of any arbitration proceeding given that the selection will determine who will adjudicate the dispute. Commercial arbitration is a creature of contract. The parties in their contract provide for the governing arbitral organization and rules, if any, and how the arbitrator or arbitrators are to be selected. The parties, assisted by their counsel, can also agree to revise any of these provisions for the arbitration at issue.
Sole Arbitrator or Three Arbitrator Panel?
The use of a sole arbitrator is definitely less expensive in terms of arbitration costs and more efficient because the parties will only need to compensate a single arbitrator and will not have to deal with three different arbitrators' schedules and deliberations as to the numerous issues presented during the course of the arbitration. It can work very well when both sides can agree on the arbitrator and therefore have confidence in who will manage and hear their case.
However, there are potential advantages to the three- arbitrator tribunal that make that choice popular in contracts. First, there is the perception that three arbitrators working together are more apt to get to correct results and are less likely to make a mistake or overlook an issue. Related to this, most arbitration agreements and arbitral organization rules provide that for three-arbitrator tribunals, each party will select an arbitrator, who, in turn, will select the third arbitrator or tribunal Chair. This allows each side to itself select at least one of the arbitrators in whom it will have confidence, even if, as is most often the case, the arbitration agreement and/or applicable arbitral rules require the arbitrators to be fully disinterested and neutral. As for cost and efficiency concerns, a tripartite panel can share the workload to be certain that the schedule can flow expeditiously. Moreover, the parties have the option to agree during the proceeding to submit any or all pre-hearing matters such as discovery disputes solely to the panel Chair. In international arbitrations, a tripartite panel also allows for selection of arbitrators of different nationalities to provide greater comfort in the decision making.
Selecting the Arbitrator(s)
Having served in all of these roles--sole arbitrator, party-appointed arbitrator and Chair--as well as having served as counsel in my prior life as a litigator, I fully understand the importance of arbitrator selection to the parties. Here are some thoughts:
A. Sole Arbitrator
You want someone who is smart, adept at understanding the type of dispute you are facing, fair and considerate to both sides and all witnesses, who knows how to manage the process and the players from the initial organizational hearing to the Award, and who listens and is willing to dig in to the case to get it decided correctly in the time allotted. You are best off trying to agree with your adversary on a choice for sole arbitrator because otherwise you will be left with a selection by the arbitral organization or, if there is none, a court. Of course, there are "list and strike" methods that arbitral organizations provide (or you can use on your own) to get to an agreement, but in the end, you and your client should feel better if you have maximum input into the choice. Counsel for both sides can together interview candidates via Zoom or other video to help you get to agreement should you feel that would help.
Party Appointed Arbitrator
The party appointed arbitrator is a key appointment because this arbitrator, appointed by each side, will be responsible along with the other side's party appointed arbitrator for selecting the tribunal Chair and will be one of the three arbitrators working together to decide the issues. Even in the vast majority of arbitrations in which all of the arbitrators are bound to be neutral and disinterested, the party appointed arbitrator is someone each side had the confidence to select.
In my view, the best attributes for a party appointed arbitrator are all of the sole arbitrator qualities described above, but also the ability and to communicate credibly with the other arbitrators in the tribunal's private group-decision making environment. To be effective, the arbitrator must be able to "play well in the sandbox" and have both the motivation and ability to listen and communicate well (orally and in writing) with fellow arbitrators.
Also super-important is the fact that the party appointed arbitrator is explicitly permitted to consult with the appointing counsel/party for input into selection of the tribunal chair by the two co-arbitrators at the outset of the proceeding. This is a truly important opportunity to provide the parties and counsel with confidence in the selection of the panel Chair. When serving as a party appointed arbitrator, I take this process very seriously, using my experience, my network and research to propose the very best qualified arbitrators as Chair candidates. In virtually all of my arbitrations in which I have been party-appointed, I have been able to agree with my co-arbitrator on the Chair appointment rather than having to default to a selection by "coin-flip" or selection by the arbitral organization. That gives both sides maximum "buy-in" and confidence in the process.
Party appointed arbitrators can interview the top candidates if they feel that they would benefit from such a meeting in making an agreed selection.
Chair
The arbitrator selected to serve as Chair should be someone who is very organized, will listen well to, and communicate well with, the other arbitrators, counsel and witnesses, and who can manage the proceeding and the final hearing in a way that affords both sides the opportunity to present their case without wasting undue time or permitting any party to abuse the process. The Chair should be someone who will be collaborative with the other arbitrators, and be sure to solicit and understand their inputs and views. The Chair should also have the time and willingness to devote to the case so that the case will not be held up due to other matters on the Chair's schedule.
In sum, arbitrator selection is a key component of every arbitration.
I am always happy to share my thoughts and experiences with counsel and fellow arbitrators.
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.
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.
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