John D. Roesser is a partner in the New York office of Alston & Bird LLP. Mr. Roesser is a member of Alston's litigation & trial practice group and co-chair of its International Arbitration and Disputes Practice Group. Mr. Roesser has extensive experience representing clients in complex international disputes before the leading arbitral tribunals and state and federal courts. He focuses on the arbitration and litigation of a broad range of disputes, including complex commercial, investment treaty, financial services, joint venture, pharma, insurance, construction and corporate governance disputes. Louis A. Russo serves as a senior associate in the New York office of Alston in the litigation & trial practice group and is a member of the firm's International Arbitration and Disputes Practice Group. Mr. Russo has extensive experience in commercial and international litigation, arbitration and mediation in the areas of commercial fraud, securities fraud, corporate governance, employee raiding and trade secrets, bankruptcy, maritime law, musical copyright infringement and product liability matters.
International arbitration is now one of the most popular methods for resolving disputes: in PricewaterhouseCoopers' recent study, International Arbitration Survey 2013: Corporate Choices in International Arbitration, 52 percent of those surveyed globally ranked arbitration as the “most preferred” dispute resolution mechanism, with only 28 percent ranking court litigation as most preferred. While the United States has lagged behind Europe in its use of arbitration, here too, arbitration is on the rise. The opening in 2013 of the New York International Arbitration Center (NYIAC) and this month's launch of the ICC Court of Arbitration's Secretariat in New York (SICANA)--only the second secretariat to be opened outside of Paris--demonstrate this trend.
As international arbitration becomes more popular in the United States, both in-house counsel and practitioners are becoming familiar with its benefits and its complexities. Three such complexities that can significantly alter the course and outcome of arbitration are (i) the arbitration clause, (ii) the choice of arbitrator and (iii) the scope of disclosure. Becoming familiar with these key points will help in navigating international arbitration and achieving a process that truly is faster, less expensive and less uncertain.
The key benefit of international arbitration is the opportunity for parties to a dispute--or future dispute, as it is when the parties are in the drafting stage--to create their own dispute resolution process. Parties can choose the applicable rules, the size and make-up of the arbitral tribunal, the governing law, where it will take place, the language, whether to have narrow or broad discovery (or discovery at all), the procedure for the hearing and many other elements of the process. By tailoring the process, parties in a cross-border context can avoid litigating their dispute in an unfamiliar court in a foreign country whose procedures and rules may be vastly different than the courts with which the parties are familiar.
But too often, dispute resolution clauses are not given the attention they deserve. Arbitration counsel is called at the last minute to provide an arbitration clause or advice about how it should be drafted, if they are called at all. Or, the drafters will simply copy a clause from a prior agreement. However, if the parties want to create a beneficial process that reflects their goals and concerns, then the most important element is the arbitration clause. The first step in navigating international arbitration, then, is to ensure that you have drafted a clause that takes into consideration the types of disputes that are likely to arise and the rules that provide the best fit for such disputes (e.g., ICC Rules on Arbitration), as well as a number of additional elements.
Companies that engage in cross-border transactions on a regular basis would be well-advised to put together best practices for developing tailored arbitration clauses, including putting together model arbitration clauses and determining what arbitral institution's rules fit best with the company's objectives, options that will take into account different-sized disputes and differing levels of complexity. Most critically, such companies should involve international arbitration counsel at the drafting stage.
As for the arbitration clause itself, there are two principal schools of thought. One school of thought is to draft a very simple and short clause that says, in effect, all disputes will be resolved through arbitration pursuant to the rules of a particular arbitration institution. This type of clause ostensibly gives you maximum flexibility to create a process once you know what the dispute is and what side of the dispute you are on.
The opposing school of thought is that a clause should be more detailed and include some or all of the following elements:
(1) the number of arbitrators;
(2) the governing law;
(3) the seat of the arbitration;
(4) the language of the arbitration;
(5) whether there will be any disclosure, including whether to adopt the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration;
(6) whether costs should or should not be shifted to the prevailing party; and
(7) the inclusion of appellate rules (e.g., the AAA's recently released appellate rules).
The idea behind a detailed clause is that if this is to be a less expensive and less time consuming process, it is easier to agree to many of these elements when the parties initially enter the contract containing the arbitration clause than to spend the first several weeks or months addressing these issues after a dispute has arisen.
At a minimum, we include the following:
(1) that any and all disputes will be resolved through arbitration;
(2) the applicable rules (e.g., the ICC Rules);
(3) the controlling law of the arbitration;
(5) where the arbitration will take place; and
(6) the number of arbitrators that will hear the dispute.1
Inclusion of these elements provides a level of certainty and avoids time-consuming disputes at the outset of arbitration, thus saving time and money.
The next key element in an international arbitration is the choice of an arbitrator. It is important to consider an arbitrator's expertise and experience arbitrating disputes similar to the dispute for which you are considering him or her. Also central to your choice is whether the arbitrator has enough time to devote to your dispute so that he or she can timely administer the arbitration and issue a decision without much delay. The question that arises--particularly where there is to be a three-arbitrator tribunal and each side nominates an arbitrator--is how to determine whether the potential arbitrator is appropriate for your dispute. Can you interview prospective arbitrators? And if so, what can and cannot be discussed?
Recently, on the heels of mounting data that parties were interviewing potential arbitrators on the substance of the arbitration, the IBA published Guidelines on Party Representation in International Arbitration. Pursuant to these guidelines--as well as the guidelines issues by the American Bar Association in its Code of Ethics for Arbitrators in Commercial Disputes2--the IBA suggests that parties should notdiscuss the merits of the case with potential arbitrators. You can, however, discuss a potential arbitrator's expertise, experience, ability, availability, willingness to serve, potential conflicts of interest, the identities of the parties and party counsel, the general timetable for the proceedings and the arbitrator's publications. These guidelines also permit you to provide a general description of the dispute, but you should not seek the views of the arbitrator on the merits of the dispute.
Once your tribunal is in place and the parties have agreed to the procedures and timetables for various pre-hearing submissions and the hearing itself, the next consideration will be disclosure. For lawyers familiar with American discovery practices, discovery--or disclosure--in an arbitration will be somewhat of a departure from what they are used to. Regardless of whether the parties have addressed the scope of disclosure in their clause, it is unlikely that the disclosure process will come close to the broad discovery afforded in U.S. litigation.
One way to bring structure to the disclosure process is to incorporate the IBA's Rules on the Taking of Evidence in International Arbitration into your arbitration clause. Key provisions of these rules include:
(1) the requirement that a party submit to the tribunal and the other parties all documents on which it will rely in the arbitration;
(2) document requests are limited to narrow and specific categories of documents and accompanied by a statement “as to how the Documents requested are relevant to the case and material to its outcome”; and
(3) there are no depositions.
The rules also address fact witnesses, expert witnesses, the hearing and the admissibility and assessment of evidence.
This more limited and streamlined process ensures that the parties will not engage in discovery practices that often account for most of the time and expense associated with more traditional court litigation. Of course, one should only agree to these rules if such limited discovery is beneficial to its case.
If the right decisions are made at these three key points in international arbitration--the drafting of the arbitration clause, the appointment of the arbitrator(s) and decisions about scope and governing rules for disclosure in arbitration--the parties are likely to achieve the more certain, less expensive and less time consuming dispute resolution process for which they hoped.
In addition, there are several steps parties can take to rein in the process thereby making it less expensive and more efficient. Parties should:
(1) hold a conference very early on setting forth the procedural steps required for resolution of the disputed issues;
(2) limit the size and number of written submissions;
(3) consider the use of teleconferences and video conferences;
(4) do away with the need for courtesy hard copies by agreeing to electronic service and production;
(5) consider agreeing to realistic timing for a tribunal to render an award and the length of the award; and
(6) build a provision into the formative contract requiring the losing party to pay the prevailing party's attorneys' fees.
The practice of international arbitration is a growing and dynamic one. In addition to the opening of NYIAC and SICANA, there are a number topics that currently have the focus of the international arbitration community. One such topic is third-party funding. Of course, this is a hot topic right now for litigation as well. But the practice in arbitration of the prevailing party recovering costs provides an added complexity to third-party funding.
Another hot topic is the creation by certain arbitral institutions of appellate rules. The American Arbitration Association recently rolled out its Optional Appellate Arbitration Rules, which became effective November 1, 2013, joining the CPR Arbitration Procedure and the JAMS Optional Arbitration Appeal Procedure, in establishing limited grounds to appeal an arbitration award beyond those afforded in the Federal Arbitration Act. Namely, parties agreeing to this procedure may only appeal on the grounds that the underlying award is based on errors of law that are material and prejudicial and/or on determinations of fact that are clearly erroneous.
Under these new rules, appeals generally would be determined solely upon the parties' written submissions, although the appeal tribunal could request oral argument. The appeal process would be completed in roughly three months, which is significantly less time than the 10 months it took on average to complete an appeal in the U.S. appellate courts in 2012. The appellate tribunal would be comprised of former federal and state judges and neutrals with strong appellate backgrounds. The appealing party would be responsible for administrative fees associated with the appeal, and may, subject to the appellate tribunal's discretion, be responsible for the respondent's costs, including attorneys' fees, if it does not prevail.
The reaction to the introduction of these rules has been mixed. However, it was clearly an attempt by the domestic institutions--AAA, CPR and JAMS--to respond to the criticism that arbitration does not afford the parties the same ability to appeal that court litigation does and to position themselves as distinct from the more international arbitration institutions.
1 Claims involving small sums do not need a three-arbitrator tribunal, whereas a complex, $100 million claim should not be heard by one arbitrator. I often suggest one arbitrator will hear the disputes of $2 million or less, and for claims above $2 million, a three-arbitrator panel will hear the dispute.
2 The IBA guidelines are only applicable if the parties have opted in. Other guidelines may be applicable. But regardless, it is best to follow the guidelines to avoid any allegations of inappropriate ex partecommunications with the arbitrator outside the presence of your adversary.
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