KEYS TO EFFICIENT ARBITRATION
BEFORE THE DISPUTE AND ALONG THE WAY
The key to efficient arbitration is making good agreements. The speed, cost and overall efficacy of arbitration is largely dependent on the procedure followed in arbitration proceedings.
The arbitration procedure is prescribed by consent.
There are different sets of procedures for arbitrations but no set procedure of arbitration. The procedure of arbitration is the creation of a contract between the parties. Unlike the court procedure rules which apply as a matter of procedural law, there is no one set decreed procedure for arbitration. There are different sets of procedures for arbitrations but no set procedure of arbitration.
EXPENSIVE ARBITRATION IS BECAUSE OF BAD DECISIONS
The procedure of arbitration is the creation of a contract between the parties. Unlike the court procedure rules which apply as a matter of procedural law, there is no one set decreed procedure for arbitration.
When you find yourself obligated to follow a certain procedure, it is not the procedure which is being imposed on, it is the agreement you made to use that procedure. Parties choose the arbitration procedure, the law holds them accountable for that choice.
The procedure is chosen by the parties at two events:
- under the arbitration clause signed at the time of signing the main contract; and
- during the course of arbitration when multiple procedural decisions are taken.
Many business users believe that it is expensive to refer disputes to arbitration; to which I would say that it is expensive to make a bad agreement.
Whatever the cause, arbitration is failing to adequately meet the desires of business users.
The plight of business users
Let me tell you about last week, a company wanted to take appropriate legal action to enforce the payment of a considerable sum due pursuant to a contract of services. The company showed me cogent evidence of the other party admitting the liability and acknowledging the full amount of the ‘debt’. The predicament was that the contract contained an agreement to arbitrate any dispute or claim according to the rules of the London Court of International Arbitration (LCIA).
The client couldn’t conceive the artificiality of going through the full procedure of arbitration, obtain a judgment recognizing the arbitration award and only then be able to enforce the debt. The company’s position is that there is no dispute, the money is due, therefore, the company should be entitled to go to court and ask for summary judgment.
Indeed if the matter were to go to the court, the prescribed court procedures in most jurisdictions would have allowed the client to start execution procedures after obtaining an “Order for Payment” or “Enforcement of Debt” judgment through initiating summary proceedings.
Such a claim may be met, however, by the argument that there is an arbitration clause in the underlying agreement with the debtor, hence the remedy is to go to arbitration.
So what can parties do to ensure speed, efficiency and economy of arbitration procedures?
Limitations of the Pre-Dispute Arbitration Agreement
A lot has been written about making the right choices at the time of signing the contract. The agreement is easier to reach at the time of signing the contract when the parties are entering into their new relationship. But I think it is very dangerous to be too creative with an arbitration clause. It is too early to predict the circumstances of future disputes, and a suitable arbitration procedure for each type. The best time to reach an agreement on arbitration procedure is also the worst to choose a procedure for arbitration(s). This is the Catch-22.
The arbitration agreement should keep many procedural possibilities open, but minimize the room for obstructing the use of those possibilities. For example, instead of making expedited procedure mandatory for claims under a certain value, give the claimant the right to choose the expedited procedure.
1. what you bargain in your contract
Influence in the selection of the sole arbitrator
I got this idea from the AAA rules of arbitration. The AAA sends simultaneously to each party to the dispute an identical list of 10 names of persons. From among the persons who have been approved on both lists, and in accordance with the designated order of mutual preference, the AAA shall invite the acceptance of an arbitrator to serve.
In actions to enforce an arbitration award, service of process may become a tricky issue. Service of process outside the jurisdiction where enforcement is sought may require leave of court or compliance with complex mechanisms. Service through these channels can prove costly and time-consuming, in some cases taking a year or more. Parties may wish to consider including in their arbitration clause a designated agent for service of process by first- class mail or courier, with an express waiver of any objection based on service of process.
Whether or not arbitrators have the power to grant summary procedures in a particular case will depend, at least in the first instance, on what the parties have agreed. To begin with, consider a clause to the effect that ‘expedited procedure shall apply in any case in which no disclosed claim or counterclaim exceeds, for example, USD 1000,000, exclusive of interest, attorneys’ fees, and arbitration fees and costs.’
Absent this degree of specificity in the arbitration clause, the question shifts to the arbitral the parties have selected. A few sets of rules deal with this issue explicitly.
- SIAC permits the tribunal to dismiss a claim or defence that is “manifestly without legal merit” or “manifestly outside the jurisdiction of the Tribunal” (Rule 29.1).
- The ICDR offers two administrative fee options for parties filing claims or counterclaims: the Standard Fee Schedule with a two- payment schedule, and the Flexible Fee Schedule with a three- payment schedule that offers lower initial filing fees but potentially higher total administrative fees for cases that proceed to a hearing.
- Stockholm Chamber of Commerce Article 39 Summary procedure: A party may request that the Arbitral Tribunal decide one or more issues of fact or law by way of summary procedure, without necessarily undertaking every procedural step that might otherwise be adopted for the arbitration. (2) A request for the summary procedure may concern issues of jurisdiction, admissibility or the merits. It may include, for example, an assertion that: (i) an allegation of fact or law material to the outcome of the case is manifestly unsustainable
2. what you acquiesce along the way
Parties often do not know that they do not have to acquiesce to many of the costly and time-consuming steps taken during the arbitration. It is true that after signing the arbitration agreement, you will be bound to the framework of the set of rules you selected under the arbitration clause. Notwithstanding, there is plenty of room for parties to save costs and speed up the procedure.
Before the arbitration starts, both in-house counsel or external lawyers,
- investigate the facts of the arbitration as soon as you receive instructions to act for the client.
- identify all witnesses, the subject matter of their anticipated testimonies
- using the time between the filing of the arbitration and the initial procedural conference to prepare the first merits submission so that the schedule can commence soon after the conference.
At the preliminary conference gauge the arbitrator, hear the other side’s position and have a strong say in developing the schedule. Some of the requests and suggestions that may be made at the preliminary conference:
- focus requests for the production of documents. We believe that the standards set forth in the IBA Rules on the Taking of Evidence generally provide an appropriate balance of interests.
- seek to avoid having multiple witnesses testify about the same facts.
- the arbitrator may also allow for the presentation of evidence by alternative means
The claimant could consider:
- including a detailed statement of claim with the request for arbitration so that the tribunal will be able to set the procedures with more knowledge of the issues in dispute.
- asking for additional procedural conferences following certain submissions to consider whether the procedures could be made more efficient in light of the submissions.
- encourage meetings of experts either before or after their reports are drafted, to identify points of agreement and to narrow points of disagreement before the hearing. Expert conferencing at the hearing can also often be time-saving and more effective.
When parties choose to use a particular set of rules, those rules then become the procedure for that arbitration.
With a customized arbitration clause and careful monitoring of the proceeding, the parties are uniquely situated to rein in costs and produce speedy outcomes.