International Arbitration Outlook And the Selection of the International Litigator
01 March 2007
If you read the press – or at least the law firm marketing materials that land on the desks of corporate in-house counsel – arbitration is in a full growth mode. In 2006, a major accounting firm even issued a purported study of international business and concluded that companies increasingly rely on arbitration as the preferred method of dispute resolution for their international contracts. But the old saw about not believing everything you read applies to international arbitration. These happy reports stand in stark contrast to the frustration being voiced – both in corporate hallways and at conferences – that arbitration has become a slow, cumbersome procedure obsessed with due process at the expense of the efficiency and clarity of the parties’ rights.
Michael McIlwrath, Senior Counsel - Litigation, GE Oil & Gas
While painting an unreasonably rosy picture of international arbitration would be out of place, so would making dire predictions about its possible demise, and this article will attempt to do neither. Despite the complaints, the end is not near for arbitration. On the contrary, the practice is a robust and healthy one for many law firms, and the problems are probably best characterised as growing pains. The causes of discontent have less to do with any changes in the practice, and more with the increasing sophistication of clients who are aware of their dispute resolution options, and consequently more demanding in the quality and cost of the services being provided.
Not every international Contract needs an Arbitration Clause
International business has evolved, and many multinationals commonly do a good deal more than just transact with foreign parties; they now have a multinational presence, with significant operations in places outside their headquarters country. In circumstances in which both parties might consider themselves ‘local’ (or at least more local than they were previously), it may be difficult for one of them to insist on arbitration as an alternative to local courts that are known to be both fair and efficient. As discussed below, the challenge is in knowing when local courts may be a viable means for resolving disputes. Although some parties may still prefer arbitration no matter how good the courts, the days may be over when they could insist on arbitration only because some element of the contract was international.
Party-Driven Initiatives to Improve Arbitration
Instead of abandoning arbitration altogether, some parties simply modify their arbitration clauses so as to address their concerns. One example is to impose strict time periods, such as providing that the arbitrators will have a specified number of months in which to issue an award. Another is to adopt the “fast track” arbitration procedures of some arbitration institutions, or simply move their business to institutions that claim to offer superior case management.
Such efforts are not limited to procedure. There is increasing demand in complex international projects for some type of consolidation of disputes among different parties and contracts – or joinder – as a means to bring all potential parties and issues into a single proceeding. Few such clauses have been tested in practice, and without experiential data, parties would be well advised to tread lightly before introducing such initiatives in their own contracts. If disputes are likely to involve more than two parties, court litigation may be a better alternative, assuming jurisdiction can be had over all potential parties.
For an arbitration that is already underway, one or more of the parties may push for the early resolution of potentially dispositive issues, or bifurcation of proceedings in an effort to dispense at an early stage with significant arguments or the need for evidence. Despite the good sense such measures can have, not all arbitrators are inclined to adopt them, especially if one of the parties objects.
Competition Between Arbitration Institutions and Arbitration Fora
International arbitration is a buyer’s market, at least when it comes to choosing the relevant rules and place of arbitration. Increasingly, the major providers of international dispute resolution services – the ICC, ICDR/AAA, LCIA, and SIAC – compete not only with each other, but with regional arbitration institutions, chambers of commerce, and various forms of ad hoc arbitration available in different countries. Even cities are getting into the act, with both Paris and London vying to pull the continent’s arbitration work to their side of the Channel, and Singapore and Hong Kong seeking to establish themselves as Asia’s premier centre for international arbitration. For international contracts, corporate users can afford to be picky in their dispute clauses.
Choosing Counsel and Arbitrators: Plan Instead for the Procedure You Want
Many parties wrongly assume when they hire counsel or appoint arbitrators that an international arbitration will be conducted according to a particular procedural script. conventional wisdom, drawn from experience litigating in courts, may convince a party to choose counsel form the same legal background as the law of the contract or the place of arbitration. By doing so, at least without giving due consideration to other options, a party may be missing an opportunity, as arbitration is a script that will be written along the way. Before hiring counsel or appointing an arbitrator, a party may wish to consider how it would like the proceedings to be conducted. The question worth asking is: strategically, who would be the best counsel and most appropriate arbitrators to steer it in a direction that we prefer?
Just because the contract calls for dispute resolution in one place or under a given law does not lead to the necessary conclusion that the parties should appoint counsel or arbitrators from the same place or legal background. The real question is whether there is reason to favour a domestic-style arbitration, a result that is virtually guaranteed if counsel and arbitrators all hail from the same country or legal background (regardless of where the parties may be from). Thus, strategic decisions may lead a party to appoint counsel and arbitrators who will steer the proceedings either towards or away from local idiosyncrasies.
Choosing the Right Lawyer for this Arbitration
Many law firms tout themselves as being ‘international’ – usually meaning the firm has offices in different countries. Unfortunately, looking at a firm’s office locations is no basis for deciding whether it is equipped to handle a dispute of any type, let alone one that crosses borders.
In international arbitration, cultural styles and expectations converge, blend, and very often even conflict with each other. What clients want to know is whether their lawyer brings the right skills and experience to bear in this dispute.
In fact, clients should probably ask themselves whether they even need to retain outside counsel at all. If the client has in-house lawyers, they may be as wellplaced as anyone to represent the company in international arbitration proceedings, particularly if the amount in dispute is such that retaining counsel could be prohibitively expensive. Many law firms are more than happy to partner with their client’s legal departments and assist them in managing arbitration proceedings.
Conflicts and the Need for Multiple Law Firm Relationships
As arbitration grows, large international law firms and companies find themselves increasingly bumping into each other on both sides of the table. The conflict problem only intensifies when it comes to the appointment of arbitrators, with many highly qualified candidates being unable to appear neutral due to work performed by other lawyers in their firm. Sometimes a conflict will be waived so that parties can proceed with their counsel or arbitrator of first choice. More often, however, at least one of the parties may be reluctant to waive a conflict, or the relevant ethical rules may not allow them to.
This cloud, however, has more than one silver lining. One is that because clients no longer have the luxury of always being able to count on their first choices, they are forced to seek out and identify new talent. Another is the growth of boutique firms specialising in international arbitration. In Europe, where conflict problems can be acute, excellent arbitration boutiques now exist in London, Brussels, and Paris, some founded by highlyregarded professionals who themselves grew frustrated with conflicts they encountered at large law firms.
Selecting Arbitrators
At the risk of repeating an obvious truism, the choice of arbitrators is by far the most important phase of any arbitration, and it would be unwise not to take this into account when selecting counsel.
When parties choose arbitrators, they want to know how one person or another is likely to manage the proceedings, and past arbitrations is clearly the best indicator. Such information, however, is virtually nonexistent in any publicly available form, and what is in the public domain – mainly articles or appearances at conferences – does not indicate whether an arbitrator will exercise a firm or weak hand, dispense with straightforward issues in a straightforward fashion or mangle them beyond recognition, or require the presentation of unnecessary evidence. Similarly, as arbitrations are confidential, there is usually no publicly available information about the quality of an arbitrator’s past awards.
As a result, the most useful information about arbitrators is transmitted by word of mouth and will exist only in the minds of experienced international arbitration professionals. Thus, to be in a position to choose a good arbitrator, one often needs access to information that only experienced and well-connected counsel are in a position to provide. This is not something for the profession to boast about, but at least until an alternative source of information is created it will be a fact of life that any responsible client will need to consider at the start of an arbitration.
Specialist Expertise
International arbitration encompasses a number of sub-specialties that may require particular expertise, such as insurance, construction, and energy disputes. One rapidly growing sub-specialty, for example, involves the arbitration of investment disputes with countries. Many governments are parties to Bilateral Investment Treaties (BIT’s) by which they consent to resolving disputes with private investors before the International Centre for the Settlement of Investment Disputes (ICSID), an organisation with links to the World Bank. The number of ICSID cases has increased significantly in recent years, with investment arbitration earning the right to be considered its own sub-specialty area.
Counsel as Business Partners not Risk Avoiders
It is probably the case that the vast majority of international contracts are negotiated by people who are not dispute specialists. In fact, often they are not even lawyers. And while the size or nature of a transaction might cause parties to seek occasional advice from the experts, it is a rare day indeed when they invite the litigator to sit with them at the deal table.
That said, input from an international arbitration lawyer can be invaluable before the parties have actually included a dispute resolution clause in their international contract. In today’s reality, parties that insist on home-court provisions as a ‘deal breaker’ may be disheartened to discover either that their deals get broken, or that the premium they place on having the comfort of a familiar procedure gets paid via expensive concessions to the other side.
While many lawyers may feel their primary calling is helping a client avoid risks, successful businesses are built on finding appropriate ways to accept risk. Given the constant novelty and shifting sands of international business, good arbitration specialists will always be the ones who do not just think outside the box, but live outside of it. They are never parochial, usually speak more than one language, and are forever open-minded. When advising on contracts, they will provide the client with a variety of acceptable options and recommend court litigation where appropriate, even when it means any disputes will necessarily be handled by a local counsel in that country instead of themselves. (Still, they will probably be a good source of information in identifying the right lawyer in the country when the need arises.) By the same token, where court litigation or a place of arbitration might not be advisable, they are the ones who urge the client to object, with reasons that can persuade the other side to change its mind.
In other words, a good international arbitration specialist is one who puts herself in the shoes of the client, and acts as a true business partner in terms not just of avoiding risk, but in advising how to accept it.
And the Courage to Win the Hard Cases
Towards the end of the Raiders of the Lost Ark film, Indiana Jones frees himself from a pit of vipers, jumps onto a stallion, and begins to chase after a receding army of Nazis. When an incredulous companion asks how he plans to stop them, the hero answers, “I don’t know – I’m making this up as I go along!”
Given the perpetual challenges and unknown dangers lurking in cross-border disputes, that might not be a bad image to keep in mind when planning for an international arbitration.