I attended the local Netherlands Chapter meeting for the Chartered Institute of Arbitrators on Tuesday evening in The Hague. I will not provide a recount of this meeting with its intriguing presentation from Peter Rees, Legal Director of Royal Shell plc as the Paris Journal of International Arbitration will no doubt do an excellent job in their upcoming report on the event. In any case, I would like to explore one topic – confidentiality – which has been inspired by Mr Rees’ remarks.

When new to arbitration, I was also convinced that confidentiality was a true hallmark of the benefits which international arbitration offers. Over time, with experience and increased knowledge I learned – is that truly so? Some jurisdictions protect confidentiality within dispute resolution, true. Yet, confidentiality of the proceedings or even the very existence of the arbitration itself may not automatically be protected. Mr Rees pointed out (1) that Australia was an example of a jurisdiction getting away from this protection, and (2) general counsel WANT this protection, especially in industries in which a dispute may arise in one part of the world between businesses while in another part of the world amiable and profitable projects are still ongoing. These parties do not want their dirty laundry aired.

Most arbitral institutions do indeed somehow address confidentiality in arbitration, but either they simply encourage the tribunal to respect the confidentiality of sensitive information or perhaps require the parties to, very few have an all-encompassing, mandatory confidentiality provision; Although, the LCIA does appear to have such a clause (see LCIA Arbitration Rules Clause 30). Also note that the 2012 ICC Arbitration Rules Article 22 authorizes the tribunal to “take measures for protecting trade secrets and confidential information”, but it is not compulsory. This does not mean that in practice tribunals do not strive to protect the privacy of the parties, but there is often not a concrete protection already in place.

Moreover, key jurisdictions’ arbitration acts also vary dramatically. The US Federal Arbitration Act does not address confidentiality, although courts generally recognize this as important to arbitration. The United Kingdom courts do generally also protect the privacy of the proceedings and associated documents; however, other countries grant no such confidentiality assumption without a specific provision for confidentiality in the arbitration agreement. Even though this is not a guarantee, it is worth including confidentiality protection in the arbitration clause. As Mr Rees noted, in-house counsel take risks and sometimes that means a tighter arbitration clause even when they do not know yet the circumstances which may lead to a dispute. So for those representing in-house counsel – they want confidentiality protected. For in-house counsel – be alert to the confidentiality protections.

One funder also pointed out the need to consider looking at the issue of disclosure at two different time periods. The first is at the early stage and most funding agreements contain a requirement that prohibits disclosure without the funder’s consent. The second period is when the proceedings are already underway. Then the question of whether to disclose or not may be in the arbitral tribunals’ hands. This then leads to the question of how far should the disclosure extend – to simply the funder’s presence, etc or too all communications between the client and lawyer with the funder? A key distinction between funding in litigation cases versus arbitration cases is that the funding agreement may play a larger role (with its corresponding confidentiality provision) in arbitration than in litigation. With arbitration the likely reason to require disclosure may be limited to potential conflict of interests with an arbitrator.

Suggestions to handle the outstanding questions of should disclosure be required are varied. They include leaving it to the applicable arbitral institutions; although this does not address the situation for ad hoc arbitrations. Or one funder suggested simply looking to the legal situation in insurance law. Protection in some jurisdictions is already given on whether insurance coverage is available and to what extent; the public policy reasoning being that this may inappropriately impact the award. This captures the bottom line fear from the funders: disclosure adversely impacting the outcome. As arbitrators – will it? Should it?

One panelist commented to me, “Here, it is the same.” Yikes. Granted, the parties and selected arbitrators ultimately rule the game. This may mean that an arbitration – with parties from different jurisdictions and/or the subject matter being “international” – may run a course with all the hallmarks found in the domestic dispute resolution practices. If that is the comfort zone of the parties, then so be it. I would argue, though, that international arbitration truly has harmonized its own patterns which vary significantly from domestic arbitration and litigation. I guess this answers the second question. No, it is not the same. How it may be similar and how it may differ, of course, varies from jurisdiction to jurisdiction and from panel to panel. But it is not the same.

Now to answer their first question, it is but one key tool: networking. Perhaps other industries would self describe using the same idea, must know the right people to get your hands wet. But that is most certainly true in international arbitration. A small group – although not as small as some tiny circles flatter themselves – but small nonetheless. There are simply only so many of these arbitrations to go around and to claim working on them means to actually work on one. Find those with thriving arbitration practices and get involved. Somehow. Make sure they truly practice international arbitration.
How do you network? Conferences, conferences, conferences. The arbitration world seems to be a steady following of conferences globally, all the while constantly dragging laptop and Blackberries in tow to ensure meeting deadlines on the arbitrations.

Attend the conferences and see who is speaking. Particularly target conferences sponsored by organizations without smaller regional ties (such as those by the global arbitral institutes or national or international bar associations). Approach the panelists; ask for informational interviews and good resources to help learn more about what distinguishes international arbitration from domestic counterparts. Read this blog and start the hunt for an arbitration team who is willing to let you somehow get involved.

I was approached with a possible BIT claim with a very strong case on the merits. The damages were also quite high –certainly high enough in terms of the legal and expert costs and then ultimately sharing some with the third party funder should the arbitral tribunal agree it is a meritorious claim. I felt confident that this claim, after all of my research, would prove attractive to most third party funders, and at the very least one. And, of course, we only needed one.

What I learned instead is that it is quite difficult to get a third party funder on board. From researching my book and my PhD, I had made several contacts within the third party funder community. All of the third party funders I know are friendly professionals who were great about taking the time to discuss this possible claim with me and consider whether it was worth pursuing from their standpoint. By pursuing, I mean for them to fund. I was impressed with their availability and willingness to discuss the case with me to at least see whether it was worth a deeper dive into.

This is what I further learned: First, a good third party funder is going to appreciate the need for a confidentiality agreement to be in place before sending over the client’s information. This is a dynamic, unresolved field and that includes how to treat information sharing with these third parties. It is important to get this covered immediately. Second, they are typically very approachable and very happy to consider a case based on what information you have. This may not mean they are ready to then negotiate a funding agreement, but they may be able to look at a well-prepared overview memorandum in order to spot some initial red flags before spending a considerable more amount of time (which you may or may not get paid for) essentially preparing the entire Statement of Claim or such before they determine that it is not the right case for them to fund. This piece of information was especially useful and I think is a great way to get an idea about a case before committing to a significant amount of time. No doubt, it still takes a good amount of effort as the memo should at a minimum provide a summary of the facts, which legal claims will likely be made and key measures establishing these legal claims, rough litigation budget, and, of course, damages. Damages are probably the biggest key, which leads me to the next learning point. Third, even with a high amount of damages backed by strong liability claims, it is not so much the amount of damages that matter or even that you can prove them but more the amount of sunk costs. By sunk costs I am referring to the amount already spent on the investment. It is this number that is truly the magic number since, at the very least, with a meritorious claim, one would expect to get that amount back. This should typically be in several million to tens of millions before being a true attention getter of a third party funder.

This information was interesting and useful to learn, making it worthwhile to share. Third party funders are incredibly approachable and truly willing to look at prospective cases with you, one which has not yet been initiated or those already happening. Sunk costs, though, is a crucial number. Incidentally, we are still considering funding options for this particular case, even though it has a lower sunk costs amount.

The first questions to address, perhaps, is why not a female? A fellow colleague of mine, a male, who is active in the international arbitration arena asked me this very question. From a male’s perspective – is there anything that a male arbitrator or even male counsel representing a party could do which the female counterpart could not? Honestly, I cannot think of one thing. Yet, referrals seem – and this is purely based on anecdotal evidence – go more to males than the female counterparts. In fact, after recently attending a conference in Dublin, I overheard one female practitioner saying to another female practitioner, “Women simply do not refer cases to other women.” Are we then the culprits ourselves? It would be rather ironic if the women are contributing to holding women back. I actually can imagine this being the case. There are a few women out there who have worked exhaustingly to build up a reputation landing them in this prestigious male-dominated club and for those of you having appointed female arbitrators or referred cases to a female practitioner, it is likely one of very very few.

This leads back to a former post of mine on this blog, Choosing the Young Buck or the Weathered Veteran, which looked how clients can take the lead in making changes to their bottom line by going outside the standard circle of names. This occurs amongst the female arbitration circle as well. What referrals do go to females, go to the very same core small group of females. It’s a double hit to the rest – females are underrepresented in international arbitration and what does come in may go predominantly to the very same ones. These females presumably have referrals to pass out on occasion – I ask them – do you refer them to females or males? All things being equal of course, would you choose the male? Naturally, these are rhetoric questions and not ones I would expect anyone to have to publicly address, but it would have been interesting to see those statistics.

Clients themselves can help level the playing field for women by also giving equal thought – not just to the young bucks in order to get fresh ideas and truly rein in costs – but also to diversity. Many in-house counsel are women. How many of them are in the position to choose the arbitrator or outside counsel, I do not know as I do not have these statistics, but I wonder whether the “best” candidate is ever female? Women are sufficiently and perhaps even over represented at arbitral institutes. This could imply that the arbitration community is at least comfortable with women administering arbitrations.

There is no easy answer to this concern. Many female attorneys are flocking to conferences, getting on arbitral institute arbitration lists, working hard at firms of all sizes and statures to break into the fold. Therefore, the availability of ambitious, intelligent and experienced female arbitration practitioners exists. It is not a lack of supply and quality candidates that stands in the way. What is then? Is it us, the females ourselves? I certainly do not think there is an active movement against women (and surely not by women themselves) – indeed there are wonderful organizations sprouting up to assist females in networking and growing their careers, including in the arbitration industry. Those key, famous female arbitration practitioners are some of the best mentors to many. I only wonder, when it comes down to providing the actual work and opportunities whether we hesitate to choose a fellow woman. If so, how can we overcome this?

This past spring, I moderated a panel at a joint ABA Section of International Law and Los Angeles Bar Association Conference on International Arbitration. This panel provided a view from the client on choosing international arbitration versus going to the local courts. In other words, the idea was to hear what the client really thought. Among the panelists were representatives from a large, well known international food company who provided us practitioners with some candid thoughts to chew on. One of the representatives made it very clear that rarely would they choose international arbitration. Although a past preference, the process has become too long and too expensive. Trusting attorneys to reign in overburdened arbitrators appeared to be one of the reasons given. Another was that it simply made more sense to them to go to a country (I believe the example given was the Ukraine) and take their chances on their court system. With a judgment from the local courts, the client felt there would be a better chance of getting their judgment enforced than with an arbitral award. It would likely not take as long and there would not be a window for, let’s just say, interesting behind the scene events, to happen which prevent an otherwise sound arbitral award from being enforced.

I know I was not alone in being a little surprised to hear this and as an international arbitration practitioner, a little disheartened. However, it appears that predicting what a client wants, as a whole, would be fool hearted. Why? No two clients think alike.

This past week, as I enjoyed Dublin while attending the ABA International Law Section’s Fall Meeting, I enjoyed listening to a panel about mining in Africa. From joint ventures to dispute resolution mechanisms, the panel addressed the entire gambit. This included giving us the privilege of hearing from a client – a large, multinational mining company. The thoughts I heard were – in Africa, we are definitely not risking the courts, we will choose for international arbitration. It sounded like the complete opposite of the thoughts expressed at the panel in Los Angeles.

OK – so hope remains. Perhaps it is the region, perhaps it is the industry, perhaps it is simply the personal preference of the General Counsel for a client that influences which path is chosen. But international arbitration’s is alive and well. That being said, I cannot deny the increasing interest in international litigation over international arbitration. It is not a blank – this is always better over this. Instead, it is something to consider with every single jurisdiction. The panel I moderated in Dublin addressed exactly this issue – a client wanted to expand and the panelists from varying jurisdictions advised on whether litigation or arbitration would be preferred and why. That would make for a fascinating in-house counsel handbook.

Maintenance refers to the funding or providing of financial assistance to a holder of a claim, which allows the claim to be legally pursued, when the funder or provider of financial assistance holds no connection or valid interest in the claim itself. Champerty takes it one step further by adding that this funder or financial provider has a direct financial interest in the outcome of the claim. Here the funder provides the money in exchange for a portion of the damages should the claim prevail. The reasons surrounding why these acts were considered morally and ethically against public policy such as to make them illegal can best be described by the following quotes.

In 1843, Jeremy Bentham was quoted when describing the circumstances surrounding the origination of maintenance and champerty. He stated, “A mischief, in those times it seems but too common, though a mischief not to be cured by such laws, was, that a man would buy a weak claim, in hopes that power might convert it into a strong one, and that the sword of a baron, stalking into court with a rabble of retainers at his feet, might strike terror into the eyes of a judge upon the bench. At present, what cares an English judge for the swords of a hundred barons? Neither fearing nor hoping, hating nor loving, the judge of our days is ready with equal phlegm to administer, upon all occasions, that system, whatever it be, of justice or injustice, which the law has put into his hands.”

This description of the doctrine’s birth circumstances was later echoed in 1908 in the case of British Cash and Parcel Conveyors v Lamson Store Service Co, “The truth of the matter is that the common law doctrine of maintenance took its origin several centuries ago and was formulated by text-writers and defined by legal decisions in such a way as to indicate plainly the views entertained on the subject by the courts of those days. But these decisions were based on the notions then existing as to public policy and the proper mode of conducting legal proceedings. These notions have long since passed away, and it is indisputable that the old common law of maintenance is to a large extent obsolete.” The final sentence in British Cash reveals already the changing landscape of this public policy, reflecting the more modern perspective.

Therefore, it is quite clear that very distinct circumstances arising out of times past led to the public policy doctrine of maintenance and champerty. This doctrine resulted in both civil and criminal penalties. However, in modern times the courts grew more relaxed towards this doctrine (as noted in the final sentence quoted above from British Cash).

The next logical question to ask is, does this principle of maintenance and champerty extend to arbitration. With respect to the United Kingdom, the answer appears to be yes.

In arbitration, even though it is a private dispute resolution mechanism which allows parties to avoid some of the constraints encountered when appearing before the courts, there are also several similarities. Arbitrators do consider and decide disputes similar to judges in the national courts. Arbitration, and in particular international arbitration, can involve large amounts of damages, such as is commonly involved before the courts and judges. Moreover, arbitral awards are just as binding as court judgments and have less ability to appeal (at least in the United Kingdom and arguably most other jurisdictions which are parties to the New York Convention of 1958). Despite these evident similarities, the concept of maintenance and champerty and its relationship to arbitration was not clearly decided until 1998.

In the case of Bevan Ashford v Geoff Yeandle, the Vice Chancellor Sir Richard Scott stated prohibition on contingency fees does extend to arbitration, when he said

“Arbitration proceedings are a form of litigation. The lis prosecuted in an arbitration will be a lis that could, had the parties preferred, have been prosecuted in court. The law of champerty has its origins in, and must still be based upon, perceptions of the requirements of public policy. I find it quite impossible to discern any difference between court proceedings in the one hand and arbitration proceedings on the other that would cause contingency fee agreements to offend public policy in the former case but not in the latter. In principle and on authority, the law of champerty ought to apply, in my judgment, to arbitration proceedings as it applies to proceedings in court. If it is contrary to public policy to traffic in causes of action without a sufficient interest to sustain the transaction, what does it matter if the cause of action is to be prosecuted in court or in an arbitration? If it is contrary to public policy for a lawyer engaged to prosecute a cause of action to agree that if the claim fails he will be paid nothing but that if the claim succeeds he will receive higher fee than normal, what difference can it make whether the claim is prosecuted in court or in an arbitration?”

Although the tort and criminal laws pertaining to champerty and maintenance have been abolished in the originating jurisdiction, the principles of common law champerty and maintenance applying to funding agreements remain. They also extend to private dispute resolution methods, such as arbitration. Many other jurisdictions, though, either do not follow these principles of maintenance and champerty or do not consider a private dispute resolution mechanism subject to principles which bind parties in a court setting.

In discussing this very situation with representatives of countries in Latin America, including Brazil, I received mixed reports. First, they had not encountered a market for third party funding in their respective jurisdictions and guessed that it would be unlikely that one would thrive due to the instability of the region. Another pointed out, though, that with respect to international arbitration, it would not be a problem as this is completely private. However, at least one other attorney felt contrary. The attitude seemed to be – if it is not specifically allowed per law, assume it is not allowed.

In contrast, in the United States there is variation amongst all the fifty states, with some still clinging to maintenance and champerty and others not in varying degrees. Some argue that third party funding should not thrive in the United States and others openly welcome it, within certain constraints…I would be interested in hearing from the readers how their respective jurisdictions would view third party funding in litigation or international arbitration. Is there a distinction between the public dispute resolution mechanism (ie the court systems) and the private (ie international arbitration)?

How does it work? A fund is created which operates to finance a dispute proceeding. This includes covering the attorneys’ fees and the tribunal’s fees. In exchange, the fund shares a portion of the awarded damages, but also takes on the risk that no damages are awarded. It is possible that the third party funder will also cover the costs of the winning party, which in large part may depend on the agreement involved and the norm of the applicable jurisdiction. In the United Kingdom, for example, the norm is that the loser pays; however, in the United States the loser only pays if a statute indicates such, which is definitely not the norm. This may or may not control the terms of the agreement with the funder, but is interesting nonetheless.

Could this be the answer to greater access to justice? Possibly, but not all claims are created equal. And, when looking at it from an investor’s standpoint, not all are worth the risk. Therefore, a significant amount of due diligence may be required early on in the process. The funders are going to want to know the ins and outs of the claim – whatever is available. This means already knowing and planning the entire case strategy – which witnesses are available and what can they say? What documentation exists? How likely is it that this claim will succeed on the merits? And, if it does, (and arguably most importantly) what do the damages look like? This often means bringing in valuation experts to already access the quantum stage. Often funders are looking for a claim with a likely success rate of 60% or even more.

In other words, a deep, thorough look into the party’s claim and its likelihood of success may already happen very early on –perhaps even before the request for arbitration is filed. Of course, evaluating and researching a case is always an important part of an attorney’s process from the start, but this may require already being “prepared” for presenting everything to the third party funder, right from the start. Moreover, the funders will consider the reliability of the damages being collected. What is the asset situation of the other party and how does their history on paying up look? In other words, what does the other party’s credit look like?

It is easy to already see what kinds of concerns and considerations could arise. Not only ethically but just the practical aspects. Timing may be very important when bringing a claim and not knowing about financing the claim may delay the timing. On the other hand, of course, this could provide a very appealing alternative to a client bearing the entire financial risk. There are presumably many worthwhile claims that may not go pursued in part or even entirely due to the funding limitations.
To date, my experience has been only with third party funders as they have traditionally developed – those focusing on claims with large damages (large enough to provide them with a significant return after paying the costs of the proceedings). There are often claims from parties who neither have the cash flow to handle a full proceeding (despite a great likelihood of success), but whose prospective damages, although small to BigLaw or third party funders, are nevertheless quite a large sum from the perspective of the client – this then begs the questions, does it matter? Would the costs of the attorneys make a smaller claim simply not economically smart anyhow? Not always, with the recent rise in boutique law firms offering more competitive rates and flexible billing structures, smaller claims which are simply too small for BigLaw, have a viable chance at pursing a claim with a price tag more appropriate for their claim.

Are there also funders popping up who may also be in a position to target these smaller clients? From the financial risk-return-rewards and economic reality of pooling the funds to finance the funder itself, is it possible? I welcome comments and input on this.

Recently, a significant amount of unrest has occurred in Egypt in which traditionally the leading arbitral institute for the Middle East resides. The Cairo Regional Centre for International Arbitration (the Cairo Centre) has enjoyed being the leading international arbitration in the Middle East region for several years; however, the regional unrest may dissuade international businesses from going to Egypt for its international arbitrations. In its wake, though, another institution has planted its own roots and is working hard, and successfully so, to challenge the Cairo Centre as the leading international arbitration centre.

The Dubai International Arbitration Centre (DIAC) is conveniently located in one of the more modern business capitals of the Middle East. Already a region with a highly concentrated ex-pat community and several foreign businesses with joint venture locations, it is a location which can easily accommodate arbitrations amongst international parties. It has access to modern facilities and an international airport.

In 1965, the Dubai Chamber of Commerce and Industry was created as a non-profit entity representing the interests of those businesses located in Dubai. Stemming from this, in 1994, came the DIAC. In the past few years, the DIAC has worked rigorously to increase the breadth of backgrounds represented on its Panel of Arbitrators and overall global awareness of its services. This past March, the DIAC hosted its fifth Arbitration Dialogue in Soeul, Korea – tying on its event to the 14th Annual IBA International Arbitration Day. This forum provided an opportunity for leading practitioners and arbitrators worldwide to discuss trends in international arbitration and the growing role of the DIAC in the Middle East region. This Arbitration Dialogue followed two previous internationally held dialogues, one in London and the other in Paris. It has yet another planned for later this year, again in conjunction with an Annual IBA International Arbitration Day; this one to be held on October 30 – November 4 in its own backyard, Dubai.

During the Arbitration Dialogue in Soeul, Korea, the Dubai Centre reported receiving 431 arbitration cases in the year 2010; this represents a 47% increase from 2009. That is a remarkable jump and may indicate its growing importance in the region.

The DIAC may be one to watch for in the coming years.

Having worked for most of my career in The Netherlands before returning to my home country, the USA, I was a little surprised by what I noted and what I heard. Yes, I know about party appointed arbitrators. No, I did not realize that they could be so “non-neutral” as to be able to actively ensure the side of the party appointing is adequately considered and understood. Is that truly impartial and fair? Yes, this debate can be heard elsewhere and I have located a couple quality articles on the topic. Yet, my shock remains. I understand that in theory, if both parties have someone at least sympathetic to their culture, side, etc. then that may provide a balanced and fair panel. The party-appointed party may ensure that culture mistakes in communication are understood or approaches appreciated.

The question I ask myself should this be allowed? What concerns me is when you can actually tell who appointed the arbitrator by the questions they ask. Is that not taking it too far? Is the actual practice failing to reflect the fairness of the theory?

I have not witnessed this one-sided practice – at least not to such an obvious extent. Everyone knows that with a three arbitrator panel, the third arbitrator typically comes from a neutral country. This is completely understandable as to ensure no bias towards a certain culture, style or system exist. However, why would anyone want any member of the panel almost advocating for the other party – even if allegedly they have someone doing that for their own side? How can the parties ensure that the arbitrator they appointed will advocate to the same degree as the other side?

The concept of party appointed arbitrator – i.e. a non-neutral arbitrator so-to-speak is not universal and certainly not everyone would accept such a notion. Moreover, not every arbitrator agrees with or supports this notion. Therefore, they may either avoid any quasi-advocating activity or simply do it to a lesser degree because their personal views on it differ from the other party-appointed arbitrator. Then is the process truly fair? Some promote the practice of selecting an arbitrator who perceives your side favorably (or at least you believe it does) as one of the perks of international arbitration – the ability to shop around for the arbitrator. True, but shopping around for the most qualified arbitrator would remain a perk even if such an arbitrator is not free to ensure that your side is fully heard (versus the other party’s side). All arbitrators should equally ensure they fairly hear the evidence and understand both sides. Advocating a parties’ side – isn’t that the attorneys’ job? What I would recommend to clients is: shop for the RIGHT attorney to advocate your case and the RIGHT arbitrator who will fairly ensure all parties are being heard. If you have the right attorney, your side will be adequately advocated.

If this practice of overtly asking questions, etc to the favor of the party who appointed you continues, however, there is no way to ensure an entirely fair process for the reasons already set out above. It requires all panelists to openly consider every angle of both parties’ side to ensure a fair hearing. Perhaps simply looking to a neutral sole arbitrator is something to consider.