CONTROLLING COSTS IN ARBITRATION

By Don Hayden

While arbitration remains the best mechanism to ensure neutrality and enforceability of cross-border disputes, it has come under fire in the last decade, particularly from some corporate counsel and practitioners given a perceived rise in the cost of arbitrating commercial disputes. Recent surveys of US corporate counsel reflect a growing concern that arbitration can “take too long” or “cost too much.” In response to those concerns, all of the major arbitral institutions have undertaken significant studies and revisions of their rules to address these complaints, and reaffirm arbitration as the ADR mechanism of choice. In 2007, the ICC put forward its Report for Controlling Time and Costs in Arbitration that was revised again in 2012. For its part, the International Centre for Dispute Resolution (“ICDR”) began to address the concerns with its 2008 Guidelines for Arbitrators Concerning Exchanges of Information. More recently, these institutions and others (e.g., LCIA, JAMS) have implemented revisions to their rules addressing the claimed delays and inefficiencies in the arbitration process. However, even with the rule revisions, costs and delays will be inherent in arbitration of a commercial dispute if the players in the arbitration process – the parties, their outside counsel and the arbitrators that they select do not undertake their own self-evaluation as to the root cause for the increasing costs and delays found arbitrating their disputes. While there may be more reforms that the leading arbitration institutions can put in place, particularly in assuring arbitrator availability and in getting arbitrators to render awards in a timely manner, plenty of practical steps can be made by the parties themselves and their appointed arbitrators to get their disputes resolved in a timely and cost efficient manner.

Here are some thoughts in that regard:

Don’t give in to the urge to turn your arbitration into US style litigation. Arbitration was always intended to be different from litigation. It is supposed to be flexible and adaptable to the needs of the particular case. Many of the old school arbitrators blame the growing number of US trial attorneys taking on representations in international arbitration disputes. In a domestic context, depositions and other US style discovery has become almost commonplace. Allowing some US style discovery, even in international disputes, has significantly played into the expense of getting a dispute to hearing. One commentator coined the term “arbrigation” to describe an arbitration process gone awry, where litigation procedures have replaced the simpler and streamlined arbitration process. Both US companies and their outside counsel need to make the “leap of faith” and break from the discovery rules and motion practice familiar to the US court system if they want to attain the cost efficiencies and flexibility that they anticipated when choosing arbitration as the mechanism for resolving their disputes.

Not all disputes warrant a three party panel. Recent cost surveys have shown that approximately 75% of the costs of arbitration were spent on outside counsel. Without reflection on the size and cost of the anticipated commercial dispute, corporate counsel seem determined to have three arbitrators as the default for resolving their disputes, which in turn substantially increases the time and cost well beyond the cost of using one arbitrator. Sole arbitrators are more appropriate unless the size and scope of the dispute being resolved warrants a tribunal. For the most part, the kinds of disputes can be anticipated at the clause drafting stage, but leaving it to the institution’s discretion may be more appropriate than attempting to obtain mutual assent to a sole arbitrator after the dispute arises if the clause expressly provides for a three person panel.
Appoint arbitrators that have the availability and willingness to take on your arbitration and manage the process to assure a timely award. In selecting the arbitrators, too often we revert to the “safest” choice – selecting the most prestigious arbitrators regardless of scheduling implications. The result is predictable; the busy schedules of the more prestigious panelists will result in delays in getting the manner to resolution. The institutions are doing better at policing their pools of arbitrators, but evaluating the schedule of the arbitrators being considered and their track record for moving arbitrations along need to be necessary components of your due diligence when considering available candidates.

Technology can be a tool to streamline the arbitration process. In the case management conference, the arbitrator and the parties should work toward the same goal- getting to award in an expeditious and cost-effective manner. One aspect is using technology toward cost-savings and attaining a more complete record without additional costs. Some exchange of electronically stored information (“ESI”) is inevitable in most commercial disputes, but the same need for “proportionality” that is found in the new Federal Rules is even more important when determining exchange of information in the arbitration process. Further, with video-conferencing readily accessible in the office of any major law firm, use of video-conference testimony should be allowed and encouraged when appropriate. Arbitration practitioners need to take advantage of document management applications and embedded links in arbitration submissions so that the arbitration panel and the parties have ready access to the necessary information on a flash drive rather than carting around the multiple three ring binders of the past.

Use parallel mediation efforts, when appropriate. Too often once the arbitration has bee filed, the parties are off to the races and opportunities for settlement are not available. While adding mediation as a necessary prerequisite to proceeding to arbitration may be used as a vehicle for delay, contemporaneous mediation when preparing for the arbitration hearing may provide a vehicle for early resolution in the right circumstances. All of the arbitral institutions provide for mediation contemporaneous with arbitration proceedings.
No matter what rule changes are put in place by the arbitral institutions, in a system that by its very nature is largely controlled by parties and their counsel – and the arbitrators that they select, arbitration needs “buy in” by the users of arbitration to attain the efficiencies and cost effectiveness expected from arbitration as the dispute mechanism of choice.

By |2017-08-28T14:51:04+00:00August 27th, 2017|PUBLISHED ARTICLES|Comments Off on CONTROLLING COSTS IN ARBITRATION

About the Author:

Mark Migdal & Hayden is a commercial litigation law firm, based in Miami, Florida.