Parties who provide for arbitration as a means for resolving commercial disputes generally do so because of the oft-cited perceived benefits of arbitration. These include confidentiality, potential time and cost savings, more limited disclosure, the ability to enforce awards in any of the New York Convention signatory countries and, notably, the ability to tailor the process.
Why parties may be reluctant to engage in arbitral proceedings
However, there are certain types of parties who are wary and concerned about the increasing costs and length of dispute resolution processes such as litigation and international arbitration. They are usually highly sensitive to time and cost, and are concerned that:
- Formal proceedings can be lengthy.
- Significant costs can accrue over a lengthy dispute.
- They may be required to divulge business-sensitive information.
- They may not be able readily to enforce an award or judgment in a timely manner.
- In the case of litigation, public judgments may contain critical commentary.
As a result, parties may prefer to use alternative dispute resolution (ADR) mechanisms, such as mediation, to find quick commercial resolutions to disputes. These can, in some cases, lead to settling legitimate and strong claims for sums considerably less than their worth.
How parties’ concerns with the arbitral process can be addressed before and during proceedings
Some of the concerns expressed above are a necessary by-product of formal dispute resolution proceedings. However, with arbitration, it is possible to design a process which goes a long way to mitigating a number of them (see, for example, the International Chamber of Commerce (ICC) Commission Report on Effective Management of Arbitration, 2014). There is, though, a lack of awareness among some types of business about how this can be done. The recent ICC Commission Report on Financial Institutions and International Arbitration found that:
“… few of the interviewed financial institutions showed full awareness of the immense flexibility that arbitration offers of the range of procedural matters on which parties may agree before or during the proceedings”.
With a little consideration, and some good legal advice, parties can design an arbitration process which is more efficient, cheaper and ultimately more commercially palatable than they may expect. Set out below are some suggestions (from a considerable menu of options) as to how this can be done. (Note that this post does not deal with specific procedures for emergency arbitrators (which can be used in circumstances where urgent issues are in play) or expedited arbitration (which typically is used when the amount in dispute is below a certain threshold).)
Negotiation prior to commencing proceedings
Providing for a period of negotiation can be a good idea, as it forces parties to the negotiating table early. However, experience shows that this time is regularly not used to its full potential. Parties will often know within days whether a dispute is capable of a negotiated settlement. In cases where it is clear that no settlement is possible, waiting for the right to bring a claim can be an unnecessary delay. Instead, parties could consider providing for an abridged period, with the right to extend by mutual agreement.
Few, if any, arbitral institutions set out in their rules a defined timetable for proceedings beyond the initial request for arbitration and answer to the request. Instead, a procedural conference is held at the start of proceedings. It is here where the timetable is set. Too often, delay is baked into the timetable. In particular, respondent parties will often push for months between pleadings, as they are often not motivated to seek an expedited timetable. It is possible to push to significantly shorten that timetable, either in the arbitration agreement itself or at the procedural conference.
Approach to pleadings
In many cases, an arbitration may involve two rounds of pleadings from each side, as well as the request for arbitration and the answer to the request. This can result in duplication of work, as each pleading will often include a restatement of the party’s case. Instead, it can be cheaper and quicker to limit pleadings to one per party, to limit their length, or to ensure secondary rounds of pleadings are filed simultaneously rather than sequentially. One option may be to agree that the request for arbitration and the answer are fulsome documents setting out the parties’ case, thus limiting the need for further voluminous rounds of pleadings. This should, of course, be proportionate to the value and importance of the dispute.
This can be a particularly time consuming and expensive element of proceedings. It necessitates parties and their counsel, collecting and reviewing vast quantities of documentation, usually with a third party document services vendor. In some simple claims, parties may agree not to have a document production phase at all (and merely rely on documents exhibited to pleadings). Insofar as parties consider that document production is necessary (which in most cases it is), it can be more efficient to agree on how electronic disclosure is going to be dealt with up front, and to agree a protocol in order to reduce the number of disputes as to the e-disclosure process. Parties can also push for certain narrow categories of key documents to be provided, rather than production of all documents which might touch upon the dispute in some tangential way.
Expert and factual witnesses
There is limited utility in adducing witness evidence to support facts which are not in dispute, or to provide evidence in respect of facts which may be disputed but which are not key to the dispute. For simple claims, parties may agree that no factual or expert witness evidence is required. Where it is required, parties could consider limiting the number of witnesses and length of witness evidence. In respect of expert witnesses, parties should consider whether there is a genuine need for two sets of experts. In some cases, it may be efficient to have one set of experts, appointed directly by the tribunal and working to terms of reference agreed by the parties.
On very simple claims, parties may wish to dispense with a hearing altogether and have the dispute determined on the papers. This will not be appropriate for larger and more complex disputes. Parties may, though, want to consider having the tribunal determine some issues on the papers, thus requiring a shorter hearing on more complex issues. If a hearing is held, steps can be taken to minimise its length and, therefore, its cost. These can include dispensing with or shortening opening and closing statements, allowing the tribunal (rather than parties’ counsel) to examine witnesses, hot-tubbing of experts, or using videoconferencing, rather than having all attendees attend in person.
Choice of tribunal
Often, parties choose eminent arbitrators who are highly respected with excellent reputations. This is understandable and in many cases the right approach. However, the price of selecting such a sought-after tribunal is that the members may have limited short-term availability (particularly all at the same time). Instead, parties could consider appointing more junior tribunal members who are more likely to have the necessary time to dedicate to the proceedings. Many arbitral institutions maintain long lists of potential arbitrators, and parties should easily be able to identify more junior arbitrators who have relevant expertise.
The above is just a snapshot of the many ways in which parties can provide for a more efficient arbitral process. It is important for parties (and their lawyers) to remember that arbitration is inherently flexible. Often this flexibility is not used to its full potential, and parties rely on boilerplate arbitration agreements and the standard “long form” approach to the procedural timetable, which can increase time and costs associated with resolving a dispute. With some careful planning, both when drafting the arbitration agreement and in advance of any procedural conference, these issues can, in many cases, be averted.