Kluwer Law International

Posts Tagged ‘Anti-arbitration’

Consortium Centro América Abogados

A brief history
Arbitration has been a part of the laws of El Salvador for more than a hundred years. The Constitution of 1983 clearly states in Article 23 that every citizen of the country has the right to terminate his or her civil or commercial matters through arbitration.

July 2002 marked a dramatic change in the arbitration landscape, when the Salvadoran Congress passed the Mediation, Conciliation and Arbitration Law (Ley de Mediacion, Conciliacion y Arbitraje or LMCA). Until then, arbitration was used more commonly among international companies doing business in the country or most commonly between companies doing business with the central government. The law was greatly modeled after the UNCITRAL model law of 1985 and like most arbitration laws around the world, it did not allow for the appeal of any type of arbitral awards.

What happened next…
Then came Legislative Decree 141 of October 1, 2009 amending and adding articles to the LMCA. Article 66-A was added and now states in part: The arbitral award issued in a de jure arbitration, is appealable with suspensive effect… before the Appellate Courts with jurisdiction in civil matters.

A Constitutional challenge.
After the amendments and additions surprisingly passed through congress, in July 2010 two appellate courts – using the constitutional authority granted to them – decided not to apply Article 66-A of the LMCA because they considered that it violated Article 23 of the constitution. Under the legally established procedure, the files for these cases were sent to the Supreme Court for it to make a decision whether the appellate courts were correct in not applying the recently added article.

Before any decision was made by the Supreme Court an attorney acting as a citizen filed a request for a declaration of the unconstitutionality of the new Article 66-A of the LMCA. His request was admitted by the Constitutional Chamber of the Supreme Court (the Chamber) on April 14, 2010 and marked in the docket as 11-2010.

This challenge to Article 66-A of the LMCA was that de jure arbitral awards should not be appealable before Civil Appellate Courts because it conflicts mainly with Article 23 of the Constitution.

The Decision
The Chamber started by making reference to Article 23 of the Constitution which initially establishes freedom of contract and finishes by establishing the freedom to arbitrate. The Chamber stated that the freedom of contract is a manifestation of the right of freedom, understanding it as the possibility to “act or not without being forced or objected to it, as well as the right of persons to guide their will towards an objective, that is to say, the ability to take decisions without being determined by the will of others including the State”. Then it goes on to explain that as a materialization of such right, Article 23 also provides for a specific “constitutional permission” referring to the way in which individuals want to solve their civil and commercial disputes.

It further clarified that the freedom of contract is applicable also to the content of all the clauses in the contracts including “protecting the right of the parties to opt for any of the legally recognized means to resolve a conflict”. It continues to make reference to party autonomy based on the fact that parties are “conferred” the ability to subject their controversies to the decision of an arbitrator or arbitration tribunal different from judges or magistrates of the common jurisdiction”. The decision also states, without much explanation, that the right of the parties to decide to arbitrate is protected by article 23 of the Constitution but is “naturally not absolute, because for reasons of constitutional importance, it may be justifiably limited”.

The decision continues by establishing the phases of arbitration including what it calls the control phase. It describes it as the phase in which in order to not have areas “outside a zone of control [by the State], the parties are provided with a right to challenge the decision”. The control phase is based on the Chamber’s recognition of the “fallibility of the arbitrators and the guarantee that a judicial tribunal will correct a possible error made by an arbitrator or tribunal”.

Based on existing jurisprudence it then goes to define jurisdiction as the “authority that arises from the sovereignty of the State that materializes in the irrevocable application of the law to the protection of subjective rights, impose sanctions and control legality and constitutionality through objectively sustained and legally supported parameters carried through independent and impartial judges.”

For the Chamber, such characteristics are “guaranteed” by the Constitution only to the Judiciary. It calls this authority “The Principle of Jurisdictional Exclusivity”, then it tries to explain it by stating that it is not referring to “the exclusion of the possibility that other entities different from the judiciary can apply the law, but that the decisions issued by such entities are susceptible to jurisdictional review”. It further states that any decision from such entities lacks the “irrevocable” nature of jurisdictional decisions because having decisions that are not controlled ex post by judges is incompatible with Article 172 paragraph 1 of the Constitution, because an irrevocable decision can only be issued by a judge – who has been assured a status of impartiality and independence”.

When referring to arbitral awards the Chamber states that there is a “constitutional requirement that there not be zones exempt of control in the activities of arbitral tribunals”. But in the case of arbitration clauses, private parties may agree that the decision of the tribunal be final, except in the case in which a party is the State where the Chamber was clear that awards may always be appealed due to the “public interest that may be at stake in the arbitration”.

Constitutionality under the right to terminate civil and commercial matters under Art. 23…
The Chamber states that arbitral tribunals once they provide their award to the parties, they effectively “resolve the conflict”. In this way, this ADR mechanism is completed and the arbitral phase concluded, at this time the control phase begins through the activity of the Judiciary through the Appellate Courts. The fact that there could be an appeal on an arbitral award “does not prevent arbitrators from carrying their work as requested by the parties”. It concludes that the “appeal can only be accessed after the award has been issued; which presupposes that the conflict has been resolved, at least in that instance”.

It concludes with this issue by pointing out an “award issued in a de jure arbitration is appealable, unless there is an agreement exclusively between private parties by which they have decided that it will not be appealable”. The Chamber then argues that because the LMCA and the agreement between private parties allows them to choose in their arbitration agreement not to make the award subject to appeal and even the conditions by which it will be appealable, Article 23 of the Constitution is fully applied and respected with regards to party autonomy. It finally closes the issue by stating that “therefore if the interested parties can agree to something different than what is stated in Article 66-A, it is not true that such provision prohibits the right of parties to terminate their controversies through the arbitral system”.

Against the argument posed by the plaintiff that establishing the appeals procedure against arbitral awards would always depend on the activity of the State through the judicial branch; the Chamber revisited its arguments regarding the constitutional mandate not to have areas exempt of control and closed by stating that it is not unconstitutional to have such control. It also made reference to the fact that in the law there already exists an annulment procedure for arbitral awards, which in a strict sense, has not been challenged and therefore accepted, which already forces the parties to “end up” in the judicial branch.

Is arbitration in El Salvador moot and useless?
After this decision, parties doing business in El Salvador and their attorneys must know that unless carefully drafted and the right to appeal expressly excluded, they will end up in the local courts if the law of El Salvador is applicable. For those dealing with the government there is no option, one may arbitrate and win but at the end of the day, the local courts will review the award. At least one knows that in El Salvador´s local courts one is as close as one can get to legal heaven because, as the Supreme Court´s Chamber clearly states it, arbitrators are “fallible” and only the judicial courts are assured with “independence and impartiality”. Maybe El Salvador has become an anti-arbitration jurisdiction because its courts are infallible?

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	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
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	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

General Electric Company

Construction work at the Florence Chamber of Commerce has forced the city’s arbitration and mediation services to relocate to new offices the city was able to scrounge up.

View from new offices of Florence Chamber of Commerce

This is the view from the fourth-floor conference room assigned to a mediation I attended yesterday. Talk about coping well in the face of adversity…

Throughout many parts of Europe, municipal chambers of commerce have long helped businesses resolve their disputes. Historically, they have provided arbitration services; more recently, and more frequently, they are adding mediation.

In broad terms, the chambers are structured according to two models, at least in the way there are perceived by parties.

In a country of fierce individualists like Italy, the prevailing model seems to be every city equipped with its own rules and panel of arbitrators and mediators. This approach promotes local commerce by promoting prominent local professionals to resolve their disputes, but at the expense of non-locals who may justifiably fear being pitted against a formidable home-court advantage.

By contrast, the model adopted by the DIS, the German Arbitration Institute, is more disciplined, centralized and, well, let’s just say more… German.

The DIS provides the arbitration and mediation services for over a dozen municipal chambers of commerce of many large cities in Germany. It makes no difference, for example, if a party files a claim with the Frankfurt Chamber of Commerce or the Stuttgart Chamber. In both cases, the DIS will receive the request for arbitration and administer the proceedings.

The DIS model may sacrifice the interests of local professionals who would benefit from locally-made appointments, but it has the advantage of making the resolution process appear more neutral, consistent, and reliable in the eyes of those who hail from outside the city’s walls.

Given the growth in the DIS’s caseload over the last several years, it is also a successful model and the source of international ambitions. This much was confirmed last year when the DIS recruited Francesca Mazza, formerly a senior manager of the ICC, as the institution’s new secretary general.

In Italy, I am proud to say that my adopted home of Florence has embraced a similarly cooperative approach to international arbitration and mediation, bucking the national trend of fragmented individualism. The Florence Chamber has signed a pact with its northernly sister, the Milan Chamber of Commerce’s Court of Arbitration, one of the leaders in dispute resolution services in this part of Europe.

Under the cooperation agreement between the chambers, if a foreign party files an arbitration or a request for mediation with the Florence chamber, the rules applied to the dispute will be those of the Milan organization, which will also co-administer the proceedings.

It’s not surprising that Florence would be among the first of Italian cities to accept that surrendering local control is a path to becoming more attractive to foreign parties. After all, this is a city whose grandeur was built on the economic force of trade guilds dependent upon the power of cooperation and reciprocity, centuries before reliable judicial systems came into existence.

Perhaps Florence can now hope to add international dispute resolution to the list of reasons that so many choose to visit the city each year. And why not? While the DIS may be ahead in achieving broad multi-city cooperation and building an international reputation, there is one thing they do not have…

….our views.

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

General Electric Company

The new international survey on arbitral practices has just been released.

Now in its fourth iteration, the survey has come a long way since its inception in 2006 at the School of International Arbitration of Queen Mary, University of London. While the first three surveys purported to measure in-house counsel attitudes about arbitration and the enforcement of arbitral awards, this year’s survey questioned a broader group of stakeholders and seeks to answer questions about preferred practices.

Not just about in-house counsel anymore

With the support of lawyers from White & Case, the 2012 survey captured data from 710 respondents, a much larger sample than the school’s past surveys. And this time in-house counsel are not the sole respondents. In fact, they account for only 10% of those who answered, with 53% being private practitioners, 26% arbitrators, and 11% consisting of employees of arbitral institutions, experts, and academics (a truly mixed bag).

The survey also attempted to measure the extent of the respondents’ experience in international arbitration. 71% stated that they had been involved in more than five arbitrations in the previous five years. Thus, the survey’s reported data can be said to include a fair degree of experience with the subject matter, although the survey did not give less weight to the 29% who said they had been involved in fewer than five arbitrations in five years.

Unsurprising consensus views

International arbitration practitioners will not find many surprises in the general consensus reported by the survey. Most of those responding said they believe that tribunals should award costs to the prevailing party (80%); that the IBA Rules on the Taking of Evidence are useful for the management of proceedings (85%); that pre-appointment interviews with arbitrators are appropriate (86%); and a whopping 87% said having tribunals identify issues to be determined soon after their constitution would move proceedings more quickly.

These are often referred to as accepted practice in international arbitration; the survey just purports to provide some data about how widely accepted.

Indeed, the survey hints at the existence of a stubborn but substantial minority view. For the same practices above: 20% do not think prevailing parties should recoup costs; 15% do not find the IBA Rules to be useful; 14% will not talk to a party-appointed arbitrator before appointing them; and 13% don’t think it’s more efficient for tribunals to identify issues to be decided early in the arbitration.

Seriously?

Rather than legitimate, considered views, the minority position may simply represent the third (29%) of respondents who have little experience with international arbitration. Perhaps they just did not understand or appreciate what was being asked. If so, the consensus view among experienced practitioners, the acceptance of preferred practices, is even stronger than what the raw percentages suggest.

He said/she said

The survey gets more interesting (and is unique) where it segments answers according to the categories of the respondents, providing interesting contrasts and potential sources of tension over the quality of arbitral proceedings.

For example, respondents indicated that arbitrators had “split the baby” in 17% of their arbitrations. That’s already a significant number of cases. But the segmented data underlying this statistic suggests a severe misalignment of perceptions.

In-house counsel and private practitioners roughly agreed on how frequently baby splitting occured, at 20% and 18% of their cases, respectively. That’s one in five arbitral awards decided on the basis of accommodation rather than the merits. One would think arbitrators would be especially sensitive to such a widespread problem.

Yet according to the survey, they barely acknowledge a problem exists. Arbitrators said that only one in twenty of their cases (5%) had produced a split baby.

If these statistics are genuinely representative of these constituencies, they show that arbitrators believe they halve the baby only 25% as often as parties and their advocates say they do.

The segmented data, therefore, indicates a huge gap in perceptions of the quality of arbitral awards, between those who write them and those who pay for the results. That’s a problem for arbitration generally.

And, honestly, we need to come up with a better metaphor for this type of decision.

The 2012 survey results can be downloaded at:

http://www.whitecase.com/files/Uploads/Documents/Arbitration/Queen-Mary-University-London-International-Arbitration-Survey-2012.pdf

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	Arbitration Law and Practice in China - 3rd Edition by Jingzhou Tao € 125
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	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Private International Arbitration Law Clerk at The Honorable Charles N. Brower

During a bitter battle with anti-doping authorities, international cycling champion Lance Armstrong publicly campaigned against the anti-doping arbitration process. Armstrong’s offensive provides insights into widespread misconceptions about arbitration.

On 20 August 2012, a U.S. Federal District Court dismissed Armstrong’s petition to enjoin the U.S. Anti Doping Agency (USADA) from further pursuing allegations that he was part of a doping conspiracy that powered his seven Tour de France victories. The court also rejected Armstrong’s attempt to transfer jurisdiction of the dispute going forward to U.S. federal courts from an arbitral tribunal to be constituted under the Supplementary Procedures for the Arbitration of Olympic Sport Doping Disputes (the Supplementary Procedures), a modified version of the rules of the American Arbitration Association. Three days after the court put a spoke in Armstrong’s wheel, the cyclist announced in a sharply worded statement that he declined to proceed to arbitration to contest the charges against him, brushing off the agency’s protracted pursuit of him as “nonsense.” He also had less than flattering things to say about arbitration:

If I thought for one moment that by participating in USADA’s process, I could confront these allegations in a fair setting and – once and for all – put these charges to rest, I would jump at the chance. But I refuse to participate in a process that is so one-sided and unfair.

Rejecting outright the legitimacy of any arbitral tribunal, Armstrong offered the public his own final and binding conclusion:

I know who won those seven Tours, my teammates know who won those seven Tours, and everyone I competed against knows who won those seven Tours. . . . Nobody can ever change that.

In his lawsuit, Armstrong went further, calling the would-be arbitration panel a “kangaroo court” and declaring that “truth is not its goal.” The U.S. District Court chastised Armstrong for submitting a brief consisting mainly of “wholly irrelevant” allegations “which, the Court must presume, were included solely to increase media coverage of this case, and to incite public opinion against Defendants.”

Armstrong’s court challenge to an as-yet uninitiated arbitral proceeding relied on two lines of argument: first, that he had no valid arbitration agreement with USADA and, second, that because USADA was acting as an agent of the United States seeking deprive him of fundamental rights, arbitration would violate due process.

Because the Supplementary Procedures expressly relegate jurisdictional decisions to the arbitral tribunal, the jurisdictional challenge was bound to fail under the Federal Arbitration Act and U.S. judicial precedent. Armstrong’s brief focused on his due process objections. He blasted not only the USADA’s past conduct but also the applicable arbitration procedures and the pool of arbitrators, attempting to frame the entire arbitral process as inextricably linked to and controlled by the USADA.

Drawing a line from USADA’s alleged past misdeeds, Armstrong contended that the arbitration process does not “afford requisite due process for a situation . . . in which there is no positive test result, and where Defendants have worked in concert with the United States government to investigate the athlete.” He objected that his available appeal under the Supplementary Procedures would be to the Court of Arbitration for Sport (CAS), which he called an “infirm forum,” in part because it is not obligated to hold a hearing as part of its de novo review. He argued that no arbitration panel would be impartial, contending that the pool of arbitrators is selected “by sports governing bodies, without any official participation by athletes. . . . The arbitrators are paid for by the [U.S. Olympic Committee]. As a result, arbitrators are incentivized to side with USADA.” Finally, Armstrong appealed to the public interest, arguing that the public

should be able to trust in the legitimacy of the anti-doping system, and has an interest in ensuring that the system for adjudicating allegations of athletic doping is fair and meets procedural due process requirements.

It is easy to see why the district court judge chastised Armstrong for using the court as a platform for his media campaign against the USADA. Armstrong’s pleas echoed arguments that U.S. courts have repeatedly and roundly rejected, but they did make for juicy PR to accompany his decision to very publicly throw in the towel. Armstrong’s media blitz was aided by the court’s observation that the preliminary notice that USADA provided Armstrong was vague and therefore “of serious constitutional concern.” However, USADA’s counsel informed the court that during the course of the arbitration Armstrong would receive detailed disclosures and have adequate time to respond. The court rejected Armstrong’s speculation that arbitrators who have been nominated by the International Olympic Committee or the U.S. Olympic Committee would somehow be biased in favor of the USADA, a separate organization. Indeed, one might instead wonder whether those committees would not be predisposed to side with a wildly popular athlete who has brought untold glory to their realm of authority. The court agreed that the arbitration process offered an adequate check on any overzealousness by the USADA and was “sufficiently robust to satisfy the requirements of due process.” Of course, the only part of the court’s opinion that made it into Armstrong’s public opt-out statement was the concern expressed about the preliminary notice.

As the judge observed, the highly public nature of this dispute has the potential to tarnish the reputation of the sport of cycling. It also feeds negative public perceptions of arbitration in the United States, adding to criticisms mainly targeted at consumer and labor disputes. Forbes ran a scathing article by contributor Trevor Butterworth criticizing as “Kafkaesque” the arbitral process that Armstrong would face. The article, which relies entirely on an interview with a former U.S. federal prosecutor, misleadingly contrasts the procedural protections in arbitration with those available to a criminal defendant. It vilifies the arbitral process as making “a meaningful defense all but impossible,” because “the protections afforded a defendant in a court of law simply aren’t there.” The article is filled with statements that are either flatly wrong or grossly misleading, such as:

• There’s no discovery in USADA arbitration. In reality, Rule 28 of the Supplementary Procedures permits arbitrators to order production of documents and to subpoena documents and witnesses.
• Unlike in a criminal trial, the USADA would not have to turn over exculpatory evidence. In fact, exculpatory evidence does not have to be handed over in a civil proceeding in U.S. courts, which is the appropriate point of comparison.
• The USADA would be able to avoid cross-examination of its witnesses by relying solely on written affidavits. While it is true that USADA could refuse to present its witnesses for cross-examination, the article falsely implies that the consequence is that the arbitral tribunal would blindly adopt those witnesses’ testimony. Tribunals regularly disregard the testimony of witnesses who are not presented for examination.

The Armstrong affair is a case study in arbitration’s public relations problem. Even sophisticated media outlets do not understand the process and, apparently, neither do former federal prosecutors. By zeroing in on differences in approach and taking particular procedural features out of context, media reports misrepresent arbitration. While the district court, following clear judicial precedent, rejected Armstrong’s challenges, the court of public opinion is less sedate. Unfortunately, a full explanation of arbitral procedure does not make for gripping journalism, so Armstrong’s public lambasting of the arbitral process has been effective. A vocal bipartisan contingent of lawmakers in California, a state with a history of cool sentiments toward arbitration, has requested a Congressional investigation of whether the “quasi-judicial” process available to athletes charged with doping is “fair and just.”

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	Arbitration - The Next Fifty Years by Albert Jan Van Den Berg € 110
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	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

General Electric Company

LONDON OLYMPICS, August 1, 2012 — Badminton officials took the extraordinary step today of tossing out four teams for deliberately trying to lose their preliminary matches. The eight disciplined players were found to have conducted themselves “in a manner that is clearly abusive or detrimental to the sport.”

Imagine immediate (and less severe) consequences for behavior that is abusive and detrimental to the conduct of arbitral proceedings. Would this generate only protests, or also respect for institutions and arbitrators who show they have an Olympic backbone?

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	Challenge and Disqualification of Arbitrators in International Arbitration by Karel Daele € 160

General Electric Company

Here are some recent issues colleagues or acquaintences tell me they are facing with international arbitration, without (or with slightly altered) information that might identify a particular proceeding or party.
My own comments follow each. I invite readers to amplify with their own views on how to handle these situations, or compare with issues they are facing.

I recently received this note from a transactional lawyer who is engaged in a contract negotiation in Asia:
The customer’s terms and conditions specify dispute resolution before a local arbitration chamber, ABCD. We rejected this and offered instead a number of different options, both institutional and UNCITRAL arbitration.
We just received the following ultimatum from the customer: “As per our legal advice, your proposed options are not acceptable. Arbitration is only admissible under ABCD rules, in [city of customer]. Please confirm by COB today you will withdraw your exception to the arbitration clause and accept what is stated in our terms and conditions.”
Our sales team really wants to close the deal, but I do not think we can accept this institution.

Problems like this are not uncommon in international commercial contract negotiations. There has been a proliferation of local or regional institutions in recent years, and which should be carefully vetted before being accepted. Typically, we would start with information available on the institution’s website, but ABCD’s website is not helpful. Over half the site’s pages are under construction or broken links. We tried to contact their offices by phone and e-mail, but never received an answer.
While the sales team will always want to close a deal, my colleague’s instincts are right. The term “dealbreaker” was invented for rare situations like this when a lawyer will play a decisive role.
In this case, there is nothing to indicate that ABCD could manage an arbitration fairly and competently, especially with the complexities of international parties. It is also suspicious that the counterparty will not even consider any of the other options proposed.
The would be folly to tell the sales team they can accept ABCD.

A colleague involved in negotiating large infrastructure contracts mentioned a recurring problem:
A repeat issue we are seeing is that major [certain heavy industry] companies in Europe, with sites located in France and Netherlands, will not agree to arbitration as our contractual dispute resolution. They have told us that arbitration is a waste of money and that the Paris courts in particular are better and neutral enough to address issues between international companies.

My colleague’s company finds the court option unattractive but not necessarily a “dealbreaker” as in the first example. Most of their project documents are in English and it would be costly and cumbersome to translate them for use in Dutch or French courts in the event of a dispute. Her company also believes that the court of first instance in Paris is not well suited to deciding the legal issues that can arise in large international contract disputes.
She is looking for options. One is to try to find a compromise mechanism that suits the interests of both parties. Perhaps the other side prefers courts because their disputes are highly technical and they believe they prefer resolution via an expert by the court to determine where fault lies (and Paris courts are well-known for doing this). If so, my colleague could propose a bespoke arbitration process in which technical issues will be decided by a neutral expert appointed either by the tribunal or an arbitral institution, with a simplified (and less costly) resolution process. (But she should check first whether the institution will appoint technical experts.)
If, however, the other party will not budge from its preference for the courts, then the options will be more limited: (a) insist on arbitration at the risk of losing the deal (not usually a desired outcome); (b) accept the courts but in exchange for something else of value in the contract’s terms and conditions, such as better price (to cover the perception of increased risk of a non-preferred forum); and/or (c) include a step-mediation requirement, as a means to mitgate acceptance of a sub-optimal forum by increasing the likelihood of settling before a court is called upon to decide any disputes.

Here is an issue raised by an acquaintance in-house counsel whose company is not regularly involved in arbitration:
Our contract provides for arbitration, UNICTRAL rules, and specifies three arbitrators. The claims and counterclaims in our dispute total [less than $500,000] and the respondent rejected our proposal to agree to have a sole arbitrator instead of three. We appointed the tribunal, which then asked the parties to pay a deposit that is half the amount of the total dispute. Both sides voiced a concern, and the tribunal just answered that their advance is based on the complexity of the claims, and that there will be a cost allocation in the final award. That was no consolation to my business manager, who is furious that we will pay these fees upfront, before we even pay the lawyers. She is demanding we either force the tribunal to reduce their fee or we stop including arbitration clauses in our contracts.

While your manager’s anger is understandable from a business point of view, you might want to show you have a spine as well. Point out that the advance could be interpreted as a means of encouraging the parties to settle befor they incur substantial costs, either of the arbitrators or appointed counsel. (The arbitrators could have billed in phases for the same or a greater amount, but they are telling the parties upfront what the proceeding will cost them.)
There is also the option of revisiting the cost issue with the tribunal. Obviously, it would be more effective to do this together with the other side. It would be even more helpful to present a change in circumstances that justify the issue being given new attention. For example, you could propose to the other side to reduce the number of claims or simplify the issues in dispute. In response, the tribunal might accept to modify its advance in proportion to the reduced complexity.
For the future, however, you might consider adapting your arbitration clauses to provide for either a sole arbitrator or the common language of “one or three arbitrators”. This will avoid situations like this, in which three arbitrators are unlikely to be worth the added cost.
Another protection, especially if your business is not regularly involved in arbitration, would be to specify an arbitration institution instead of ad hoc proceedings. An institution will administer the tribunal’s compensation and, perhaps more importantly, provide each of the parties a protected channel to convey unhappiness to the tribunal about their handling of certain matters, such as this one.

More from our authors:

	Arbitrating Under the 2012 ICC Rules. An Introductory User’s Guide by Jacob Grierson, Annet van Hooft € 140
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350
	The Core Standard of International Investment Protection. Fair and Equitable Treatment by Alexandra Diehl € 160
	Challenge and Disqualification of Arbitrators in International Arbitration by Karel Daele € 160

This is the time of year when law students and young lawyers begin to apply for their summer internships or jobs in international dispute resolution. Many – probably most – will carefully draft their curriculum vitae to show their serious commitment to relevant academic studies, experience in international disputes or with law firms, and participation in recently completed international competitions (mock mediation and arbitrations, and moot courts).

This is, of course, very important in order for their CV’s to be given serious attention. It is the document that will open the door to interviews, and employers will not consider applicants who do not have the right professional background, skills, or interests.

But, in having read thousands of CV’s over the years, I have found that those that remain at the top of my desktop pile, and prompt calls for interviews, tend to convey qualities of something more in the applicant: that they will be a good cultural fit for this kind of position, will have a passion for what we do, and that they will be enjoyable to work with.

It’s not easy to get all this across on a single page document, especially when most of it must cover the considerable time spent developing relevant skills and experiences in international dispute resolution. Yet a few applicants manage to do this. How?

Thinking back on the people we’ve hired or retained for internships over the past several years, what I recall of their CV’s – what grabbed and kept attention – was how they boldly and proudly described some element of their lives or past accomplishments.

For example, in the summer of 2011 we received CV’s from two interns that included the following information:

“Was listed in Guinness book of records for most books published by a 12 year-old.”

“Wrote, directed, and acted in one-woman play while at university.”

These short lines, included on the bottom half of each CV, had an effect. They showed the candidates as rounded human beings, already leading interesting lives. You could tell they did things with a passion, set high goals for themselves, were undeterred by obstacles, and would probably be enjoyable to work with. We hired both. Who wouldn’t want to work with the former 12-year old novelist, or the one-woman production?

International dispute resolution is an unusual area, unlike anything else in the practice of commercial law, which I can say without being accused of hyperbole. No case is like the last one, in almost any way. The countries will be different, as will the legal and factual issues and the people involved. Even when there’s an agreed formal process, arbitration, you have to be ready to consider negotiation or mediation as well. And arbitral procedure itself is hardly a straightjacket; it changes depending on place, parties, and arbitrators. You learn as you go.

Employers want to hire people who will be successful. For international dispute resolution, those who flourish are those who can adapt to circumstances that could not have been predicted at the time when they were hired, and who are not afraid of taking on challenges they were never taught in school to expect.

I still remember lines from the CV’s of those we have hired over the past dozen years and that helped convey the candidate might have the right stuff.

“Was a muffin man in New Zealand”, included in the prior work experience section of the CV submitted by a German lawyer at a well-regarded international law firm in Brussels. (Hired for full time position, where he is still flourishing.)

“Worked for children’s organization while a Mormon missionary in Sicily.” (This was the first summer intern we hired; she went on to become a partner at a law firm in California.)

These applicants felt it was important to put these items on their CV’s, as if to say, “there’s more to me than just my legal background. I’ve done things in life. I intend to do more, whether you hire me or not.” You don’t let CV’s like these sink to the bottom of the pile.

In fairness, and as guidance, I should note there are other items that, once a CV has gotten a prospective employer’s attention, will help land that position in international dispute resolution:

- Breadth of relevant interest. Studies or professional background showing experience or interest in different types of dispute resolution: arbitration, civil litigation, mediation, negotiation. It’s all good. The broader, the better.
- Language skills. Speaking more than one language really helps. If you don’t have the languages, it won’t hurt to show that you’re at least trying by taking courses.
- International work experience. Having done anything at all outside of your home country is good to show, if you can.

In the end, though, you want your character to come through. Life experiences and accomplishments outside of the field of dispute resolution may be the best way to do this.

And if you don’t have life experiences to show your adaptability and mental agility, maybe you should get some before embarking on a career in international dispute resolution.

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It has become fashionable in recent years, each time an ICSID annulment decision is released that takes issue with the procedures or reasoning of an ICSID tribunal, for commentators to bemoan the lack of certainty, predictability and finality that this reflects in the ICSID system for adjudicating investment treaty disputes between investors and host States. Some commentators urge a return to greater use of ad hoc UNCITRAL arbitration, or arbitration before institutions other than ICSID, to avoid the perceived vagaries of the ICSID annulment process. Yet commentators often forget that these alternatives carry their own risks of uncertainty, inherent in the national court review process that can be invoked with respect to any arbitration subject to challenge and enforcement under the New York Convention. Last week’s U.S. court decision in Argentina v. BG Group (D.C. Court of Appeals, No. 1:08-cv-00485) reminds us that whatever arbitral mechanism the parties select, some risk of uncertainty is unavoidable. The debate between ICSID and alternative forums thus should not be framed as one about avoiding uncertainty and promoting finality, but rather about a more fundamental question: who decides?

Much to the surprise of many seasoned international arbitration practitioners, the D.C. Circuit vacated a US$ 185.3 million Final Award against Argentina, essentially nullifying a hard-fought, four-and-a-half year arbitration between the parties. The court vacated the Award on the basis that the “arbitral panel rendered a decision . . . without regard to the contracting parties’ agreement establishing a precondition to arbitration,” namely the clause in the Argentina-UK bilateral investment treaty (BIT) requiring claimants to submit disputes to the Argentine courts for 18 months before resorting to arbitration. In the underlying UNCITRAL arbitration, the tribunal had considered whether the dispute was admissible without having been first submitted to the Argentine courts. It ruled that such submission was not essential because it in this case it would have been an exercise in futility: the claimant could not have obtained relief anyway from the Argentine courts, given the Republic’s apparent interference with access to the courts and its punishment of all would-be local court litigants by excluding them from contract renegotiations. The tribunal concluded that in these circumstances, the 18-month provision could not “be construed as an absolute impediment to arbitration,” and therefore deemed BG Group’s arbitration claims admissible.

By contrast, the D.C. Circuit concluded that this entire analysis was misplaced, since in its view the BIT terms—which it analyzed principally by reference to U.S. domestic law on contractual intent to arbitrate, rather than under the Vienna Convention—were clearly designed to require prior recourse to the Argentine courts. The court found that the tribunal had exceeded its powers by permitting direct access to arbitration contrary to that expressed intent. Indeed, the court suggested that under U.S. case law, the tribunal should not have even engaged in an analysis of the feasibility or usefulness of prior resort to the Argentine courts, because as a threshold matter it had no proper authority under the BIT to admit such issues for substantive consideration.

In the most narrow sense, the D.C. Circuit’s decision did not directly repudiate the years of fairly consistent rulings by ICSID and UNCITRAL tribunals with respect to the 18-month local court requirement under similar Argentine BITs. That is because the BG Group tribunal had not relied on the BIT’s most-favored-nation (MFN) clause, upon which prior tribunals had rested their decisions, even though BG Group did argue that point. Nonetheless, the D.C. Circuit’s analysis implicitly suggests that it also might have overturned an MFN-based decision, since by the Court’s logic, the tribunals who rendered those decisions likewise would have had no authority to bypass the BIT parties’ allegedly clear intent to require local court proceedings in all circumstances. If the decision is read in this broader way, it can be seen as impugning the core logic of many prior decisions. This would include Maffezini v. Spain (ICSID Case No. ARB/97/7, 1 September 2000), where the tribunal allowed an Argentine investor to invoke (by way of an MFN clause) the Chile-Spain BIT to avoid the domestic court prerequisite in the Argentina-Spain BIT; Siemens v. Argentina (ICSID Case No. ARB/028, Decision on Jurisdiction, 3 August 2004), where the tribunal permitted a German investor to invoke the Argentina-Chile BIT to proceed directly to arbitration; National Grid plc v. Argentina (UNCITRAL, Decision on Jurisdiction, 20 June 2006), where the tribunal permitted a British investor to invoke a more favorable term in the Argentina-US BIT to avoid 18 months of litigation in the Argentine courts; and several other cases in the same line. Until the D.C. Circuit’s opinion, the jurisprudence appeared to be converging on consensus regarding the 18-month waiting requirement, even though much controversy remained about the broader application of MFN clauses in other, less procedural, contexts.

Now, with one 17-page decision, a national court not only has completely up-ended the result in one major case, but also in the process unsettled what most observers had thought to be a progression towards certainty, predictability and finality with respect to this issue. Much can—and undoubtedly will— be written about the substance of the court’s analysis. But at heart, it serves as a reminder that some degree of uncertainty is inherent in international arbitration in any forum, so long as there is any mechanism for review and challenge of arbitral awards. This is just as true for the “alternative” routes of ad hoc UNCITRAL or non-ICSID institutional arbitration as it is for ICSID arbitration, since all non-ICSID mechanisms allow for national court challenges under the New York Convention, and national courts (once vested of the matter) may be tempted to apply their own national laws, including on core issues such as arbitrability. Arguably, the uncertainty of national court review may be even greater than that of ICSID annulment review, since most national court judges are comparatively unfamiliar with investment treaty jurisprudence and may be less concerned about contributing to the growth of consensus or emerging doctrine. The choice between the two systems, thus, should not be framed as a quest for predictability and finality, but rather as something more fundamental: a decision about which decision-makers will evaluate challenges, and what rules and standard of review they will use in deciding.

By Jean E. Kalicki and Dawn Yamane Hewett

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Even when I think I know what I’m doing (be it self-confidence or self-deception), I still find checklists can be useful. Sometimes they can help validate or compare processes with others, but mostly they are good at making sure I haven’t forgotten some critical step.

Below is a checklist for when someone – a business client, my boss, or a legal department colleague – has informed me that an arbitration is possible, likely, or has just been filed.

1. Check for any pre-arbitration procedures and assess whether to comply with them

Of course, the first thing any litigator will do when presented with a contractual dispute is to check the contract’s dispute resolution and governing law clauses (assuming they were included). But what if the contract requires certain procedures before a claimant may initiate arbitration? For example, there may be a cooling-off period to negotiate, mediate, or escalate disputes to senior management; or the contract may provide that issues are deemed to be waived unless raised within a certain time period. In addition to investigating how best to comply with these procedures, a party may ask whether to comply. A claimant concerned about the clock (and time bars) may prefer to proceed directly to arbitration if doing so will not have unduly adverse consequences.

2. Consider sending letters before action

In his negotiation best-seller, Getting Past No, William Ury describes the value of keeping an objective distance in negotiations over hotly contested issues. He quotes American humorist Ambrose Bierce, “Speak when you are angry and you will make the best speech you will ever regret.”

This is also true of letters, especially those exchanged by parties just before their dispute reaches an arbitration. It can be useful to try to calm the waters with a balanced and well-reasoned letter that summarizes the dispute, avoids any inflammatory language or characterizations, and makes clear exactly what you are requesting and whether you are open to resolving the dispute through negotiation or mediation before arbitration.

Consideration should also be given to sending the letter under the signature of the party rather than counsel, absent a “without prejudice” disclaimer. Even if it does not unblock negotiations, the letter will still make a better exhibit in the arbitration than the nasty correspondence that may have preceded it.

3. Mitigating risks of internal and external communications on the issues in dispute

When a dispute arises, it is natural for the people involved to speculate about the possible causes and potential consequences, often via e-mail. They should be warned that their informal internal communications may be produced in an arbitration (even if they would not have been subject to production in litigation in the party’s own country). Directing communications to the attention of counsel, or at least keeping counsel informed, may help preserve arguments of privilege, where such documents may be subject to production.

While it may not be feasible to cease corresponding with the opposing side, relevant people in the party’s organization should be advised of the importance of conferring in advance with counsel. This may seem common sense, yet often witnesses will be surprised when see their e-mails or faxes produced by the other side in the arbitration. This does not necessarily mean counsel must take over the drafting process, although sometimes they must do so. Even with minimal involvement, counsel can help avoid having letters sent MS Word file that contain meta data with the identity of each person who contributed to the draft.

4. Document retention notices

Although some jurisdictions (mainly the USA) require lawyers to take positive steps to avoid the deletion of relevant documents (spoilation), it generally makes sense to advise all involved in a dispute to preserve their documents. In an international arbitration, documents will often be more important than any witnesses. Once employees have been advised to retain their documents, they can be gathered and reviewed at a future date.

For small and large organizations, a Document Retention Notice (DRN) can be a simple e-mail to employees believed to have documents (“custodians”) explaining the existence of the dispute, the nature of the documents that should be preserved, and how to preserve them. Some companies use software programs that will automatically send DRNs, update them periodically, and flag for human resources any custodians who may be about to exit the company.

5. Identifying and notifying key employees and witnesses

A good reason for preferring the civil-law style of arbitration over the common law is the preference for contemporaneous documents over witness testimony as evidence. This makes obvious sense for most business disputes, where there will generally be a written record of the parties’ course of dealings. (Given recent research on the unreliability of witness testimony, the preference for documentary evidence probably makes sense for most or all forms of dispute resolution, but that’s beyond the scope of this post….)

Where witness testimony is anticipated, it would be wrong to assume that employee-witnesses will be readily available by the time of an arbitration hearing. They may no longer be with the company (or even alive), and those do remain may feel overburdened or reluctant. Thus, it is important to reach out not only to potential witnesses to help set their expectations, but also to human resources and supervising managers who can take steps to ensure they will be available at the time an arbitration hearing takes place.

6. Notifying insurers or prior owners

This may seem obvious to others, but I include this step on my list because it is too easy to overlook despite its importance. Even when there is doubt over insurance coverage, there is no downside to preserving the right to claim coverage later. Many insurance policies require notification within a short time period after the party becomes aware of a covered event, giving the insurer the opportunity to assume the defense and appoint counsel. Notice can usually be short and skeletal, with just enough detail to explain why coverage may exist.

The same is generally true of a seller’s indemnity. Because business acquisition agreements tend to be more restrictive than insurance policies in the scope and timing of what may be claimed, it is advisable to review and carefully follow any contractual requirements for notifying claims.

7. Preparing for any media inquiries

Despite what one may read about concerns over confidentiality in international commercial arbitration, the truth is that only the parties themselves will have any interest in most contract disputes. Investment arbitration, where broader public interests will often be at stake, is an entirely different matter. For cases that generate public attention and interest, parties should be careful about litigating in the media.

First, they should disabuse themselves of any notion that the media will tell the story as they believe it should be told. Good journalists will always want to have the arguments of the other side to present (no matter how ridiculous they may sound to you), and less qualified journalists will just want to present the dispute, ignoring reality. Second, asserting an aggressive position in the media may constrain the other party to escalate in kind, forcing each side to adopt rigid and extreme positions in public that will undermine any settlement efforts.

Where media inquiries are expected, it usually makes sense to have ready a short, general statement (sometimes called a “holding statement”). This can summarize the party’s position, or simply acknowledge the existence of dispute and the parties’ intention not to comment on it.

8. Briefing management (or the client)

When a dispute is about to reach the point of arbitration, counsel cannot over-communicate about its consequences to the party, including to a company CEO or division president. Counsel should be prepared to field questions of what the arbitration will be about, why the parties have been unable to resolve their dispute, how long the arbitration will take, what it is expected to cost, and what the outcomes could be.

9. Conducting an Early Case Assessment (ECA)

Many companies, my own included, consider an ECA to be an essential tool at the onset of a significant dispute, to be completed within a reasonably short time period and updated periodically as the arbitration progresses. The ECA, which is typically (but not always) performed by external counsel, should include a review of relevant documentation, interviews with witnesses, and discussions with potential experts. It should give a party an early sense of probable outcomes and costs of the arbitration, which may also force more realistic and informed negotiations to take place.

In the words of a wise general counsel for whom I used to work, “what the business leader wants to know is whether the deal I can get today is better than the result that I’ll end up with in arbitration.” A good ECA will do exactly this. Many lawyers lose respect and even client relationships because they limit themselves to saying “it depends”. If you have the courage and competency to translate the uncertainty of an arbitration into terms that a business leader can use, you will have a friend for life.

10. Exploring informal resolution options (negotiation and mediation)

The best resolution of a dispute, at least from a party’s perspective, will usually be no dispute at all. There are often multiple paths to attempting a settlement before reaching the arbitration with the usual default being another round of negotiations between the parties. This may be effective at times, but it may also waste an opportunity to engage in mediation at a critical moment.

If mediation is an option, counsel will want to begin preparing the foundation for it almost immediately. The party itself (its employees and management) will need to understand the process, the reasons for proposing mediation, and have reasonable expectations for an outcome.

A frequently asked question is, when is the right time to propose mediation to the other side? In most cases, the answer is the sooner the better. There is a common misperception among some litigators that mediation is effective only after the case has been sufficiently developed. From an in-house counsel’s perspective, this just sounds like a request to spend more of the client’s money before settling.

As with most checklists, it is likely that important items have been omitted, and hopefully these will be pointed out here so the list can be improved. I should note that my checklist purposely does not include appointing external counsel. The issue merits a separate checklist of its own, which should be for another post….
Note: a version of this checklist appears in International Arbitration and Mediation: A Practice Guide (Kluwer 2010), where it is enhanced and improved by my co-author, John Savage.

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This month marks two interesting developments in arb/med.

First, as Kluwer wants you to know, they have added a mediation blog in addition to the arbitration blog. Well, it’s about time.

Second, September heralds the much celebrated debut of the ICC’s new “Arbitration and ADR Rules”, at least for people who celebrate such things.

As the name of the volume implies, the ICC is now linking its arbitration and mediation practices, described in the introduction as “two discrete but complementary dispute resolution procedures.”

Again, it’s about time.

From all that has been said and written about arb/med in the field of international dispute resolution, one could be forgiven for thinking that engaging in mediation during arbitral proceedings is a complex and difficult endeavor, fraught with the risks of prejudicing the tribunal and adding costs and delay.

Trust me, if mediation were either hard or added any serious costs, the last group on earth to promote it would be overworked in-house counsel managing our tight budgets. Yet we appear to be the main proponents.

It’s Easy for an Arbitral Tribunal to Promote Mediation

The truth is, there’s nothing particularly risky or difficult about mediating a dispute during a pending arbitration. On the contrary, the conditions are often ideally suited to mediation, even if past settlement efforts (or mediation attempts) have proven fruitless.

This point was brought home to me this past summer after we settled in mediation during pending arbitral proceedings, and the experience is worth sharing.

There had been a long-standing series of commercial disputes between the same parties under different contracts, all of which had gelled into two ad hoc arbitrations and a court proceeding in a southern European country. The disputes themselves were unremarkable in their nature. Unexpected things happened (as they can be expected to) causing each side to incur costs in three different countries. Each side blamed the other, leading to claims and counterclaims totalling a bit less than $1 million.

This is exactly the sort of dispute that makes in-house counsel gripe that the costs of arbitration are disproportionate to any amounts that might be recovered. In fact, when our joint tribunal (for both arbitrations) was constituted, our chair himself observed that, “the costs of these arbitrations are going to be disproportionate to the amounts that might be recovered”.

In truth, there was nothing unusual about his making this observation. Arbitrators will often tell parties, usually with a pitiful gaze over the top of their eyeglasses, that we would save money if we would just settle our dispute. I doubt the comment is genuinely intended to provoke a settlement, because it never does. I suspect tribunals just feel better about their jobs if they can be assured the parties appreciate what they are signing up for. “Yes,” they want us to say, “we understand how expensive this will be, but here we are anyway, come to waste company assets…”

But in our case the chair went a good deal further than offering a gratuitous (if sympathetic) comment. Having commented on the proportionality of things, he then asked the parties if they would permit him to discuss the possibility of subjecting all three pending disputes to mediation before one of the co-arbitrators, noting her qualifications in the field.

Both sides expressed interest.

The co-arbitrator (now a potential mediator) indicated she would accept such a joint appointment by the parties, subject to the condition that they would allow her to resign as arbitrator if a settlement was not reached or if she or either of the parties felt that her impartiality as arbitrator had been compromised by information she had received. In case of her resignation, the party that had nominated her (the respondent in this case) would be permitted to appoint a new co-arbitrator to replace her, without prejudice to its position or any delay in the arbitration.

In a nutshell, the only technical “difficulty” to be overcome was this: the need to safeguard the appointing party’s right to designate an arbitrator of choice should the mediation fail and there might exist any doubts about confidential information that had been shared.
The parties agreed to mediation under these conditions, and the hearing was thus adjourned. We reconvened the following week with the co-arbitrator now acting as mediator (and the arbitration’s procedural timetable unaffected).

All three disputes were rapidly settled.

Surprisingly, each side felt it had achieved a fair resolution considering the time that had lapsed since the start of our disputes. The parties’ business representatives used the good feelings of the settlement to re-establish relationships that had been lost. At the time of this writing, the claimant is receiving invitations to bid again on the respondent’s business.

Of course, one might say, parties settle commercial disputes every day. It’s the nature of business to resolve differences and move on. In this case, however, we had clearly been unable to resolve our disputes in the past, and proceedings had multiplied across three fronts. We all agreed that our settlement was made possible through the intervention of the chair of the arbitral tribunal in suggesting mediation.

One might argue this was a particularly altruistic chair or tribunal, willing to act against its own financial interests, and without regard to the financial interests of the counsel who stood to earn fees from litigating the dispute. But I don’t think that would be accurate.

While the tribunal may not earn all of the fees that would have been paid had these two cases proceeded to final awards, they still received compensation up to the point where settlements were reached. And all three arbitrators, and the counsel, are in the fortunate position of having earned significant respect from the parties who appointed them, which will undoubtedly foster future appointments and referrals.

A Point Not to Be Overlooked in the ICC Rules Booklet

The above case came to mind as my e-mail in-box began to fill up with commentary from law firms about what the new ICC rules will spell for arbitration practice. But I’d draw your attention, just briefly, to a page in the booklet that may not receive as much attention in the commentary as it deserves.

At page 57 of the new rules, in Appendix IV, Case Management Techniques, arbitrators are advised that they should be “informing the parties that they are free to settle all or part of the dispute either by negotiation or through any form of amicable dispute resolution methods such as, for example, mediation under the ICC ADR Rules.”

In other words, the ICC is now expressly encouraging arbitral tribunals to do exactly what the chair did in our two ad hoc proceedings: propose mediation during an arbitration that is already underway. It will be interesting to see if tribunals actually implement this sound guidance.

It wouldn’t be hard for them to do.

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