First, what more can the institutions do to resolve proceedings more efficiently? At the outset, they must be more proactive in confirming arbitrator availability. The institutions already remind arbitrators that availability is a critical feature of their qualification to serve. The ICC now requires them to provide data about other cases in which they serve. Before proposing arbitrators to the parties, ICSID asks them to confirm sufficient availability in the next 18-24 months. The ICDR reminds its rosters that this is a requirement for accepting appointments.

But this simply isn’t enough. I have never seen an arbitrator decline an appointment based on general questions like “do you have time?” or “how many other cases do you have?” Why not a more concrete requirement that candidates block out, on a simple calendar covering the periods for which hearings might be anticipated, all of the actual dates for which they are unavailable — whatever the reason? Arbitrators have scheduling conflicts that have nothing to do with the number of appointments they’ve accepted. Many of us teach, or serve as counsel, or have other professional commitments. All of us — I would hope — have families and friends, and take vacations from time to time. These priorities block out time just as surely as other arbitrations. The CPR, when asked to appoint arbitrators, often requires them to list the specific days on which they have conflicts, during the months when a hearing is anticipated. That exercise concentrates the mind, and leads to more meaningful disclosure than a general requirement to confirm availability. I urge the institutions to consider the same kind of specific disclosure. I would not expect them to ask potential arbitrators the reasons for unavailability, just simply the dates. But that one step will go a long way.

Indeed, I would go further, and suggest that similar questions be asked of party-appointed arbitrators, and not just institutional appointees, before their appointments are confirmed. One would hope parties themselves are asking specific questions about availability, but they may not feel comfortable doing so. There is no reason the institutions could not distribute blank calendars as a matter of course, and circulate the responses to the parties for comment before confirming a tribunal’s constitution. That would make parties think twice about appointing arbitrators whom they should know are phenomenally busy. And it would make potential arbitrators examine the parties’ concrete scheduling needs, instead of falling back on a knee-jerk reaction that there is always enough time for one more appointment.

Institutions also could do more in forcing arbitrators to render decisions promptly. The ICDR Rules contain no specific deadline, the way the AAA Commercial Rules do — they just urge tribunals to be prompt. The ICC has a stated deadline of six months from the Terms of Reference, but it is honored often in the breach, although the new Rules do require tribunals to indicate when a draft award may be submitted to the ICC Court. For ICSID, there’s a stated 120 day deadline, extendable by another 60, but it runs from the “close of proceedings,” an all too malleable concept. I have seen ICC cases where the award was issued more than a year after final hearings. I have seen ICSID tribunals instruct the parties that no further submissions are needed, but still wait 18 months to declare the proceedings closed — coincidentally just when they are finally ready to render their ruling. This is game playing. It is a fairly transparent way to simply stop the clock even from beginning to run. There is no reason institutions should not police this more actively. They should regularly ask tribunals after the hearing whether they have requested additional submissions, and if answer is no — or as soon as the last scheduled submissions are received — they should urge tribunals to declare the record closed, reminding them of their responsibility to move quickly on the award.

But even with these changes, there is a limit to how fast the institutions can move proceedings along, unless the parties and their counsel also step up to the plate. Institutional reforms always will be a mere drop in the bucket, unless the users of the system also reform their expectations and practices.

The 2011 Chartered Institute of Arbitrators cost survey revealed that fully three-quarters of the costs of arbitration were spent on outside counsel. Users agree that the system takes too long, but in the same breath, they are generally determined to have three arbitrators, which invariably increases time and cost beyond using just one. They also too often revert to the easy presumption that the “safest” choice will always be to appoint the world’s most prestigious arbitrators, regardless of the scheduling implications. In part this is a function of a perceived need to “race to the top,” to appoint an arbitrator who is more famous than the other side’s, and then to appoint a chair who is even more esteemed than the first two. But the result is predictable. No matter how much the institutions work to broaden their own pools of arbitrators — and they are doing this — cases will not proceed more efficiently if the parties themselves continue to appoint only those candidates whose schedules predictably are the most burdened.

But there is more involved than simply daring to think outside the box in arbitral appointments. When faced with an important dispute, many users demand — or at least acquiesce in their outside counsel’s recommendation — that they leave no evidentiary stone unturned, and no remotely plausible point un-argued. There is all too often a tendency to seek every possible procedural advantage, rather than working together to achieve a result that is efficient as well as fair and reasonable.

The challenge for parties and their counsel, therefore, is to recognize that they too have a responsibility of self-discipline. Arbitration is a flexible process, and like all such processes, it involves choices. The new ICC Rules oblige the parties, and not just the tribunal, to conduct proceedings in an expeditious and cost effective manner. But words alone will not do the trick, when parties perceive their self-interest lies in fighting every possible battle and briefing every possible issue.

There is no easy solution for this challenge. Some parties seek to tie themselves to the mast in advance of a dispute, by agreeing to arbitration clauses with extremely expedited timetables and rigid limits on document exchange. This can work, but it can also lead to regret, when the parties discover that the dispute that arose is not the one they anticipated, and the constraints they negotiated no longer suit the circumstances of the case. Another option is to leave the clause simple, but to negotiate reasonable procedures immediately after the dispute has arisen. One of the real tools arbitrators have is to promote such negotiations, asking the parties to confer on an expeditious schedule even before coming to a case management conference. Having the underlying clients at such conferences can help, because often delays are driven more by outside counsel’s schedules than by inherent case requirements. And self-restraint by counsel also should be rewarded. The Debevoise & Plimpton Protocol to Promote Efficiency in International Arbitration is more than just good marketing. It also sends a message internally, within a counsel team, that efficiency is an important policy goal separate and apart from winning at all costs.

Where, then, do I end up, in my progress report on efforts to control time and costs? It is to recognize that the hardest tasks lie ahead. I admire the ways the ICDR, ICC and ICSID have risen to the occasion, and I hope they will do more. But there is a limit to what institutions can do to restrain a system that by its very nature is largely controlled by parties and their counsel — and by the very arbitrators they themselves select. The next chapter must involve internal reflection by the users of the system. That is essential if we are ever to move beyond the mere tightening of institutional rules, to restore the image of arbitration as efficient and cost-effective, and not just as neutral and enforceable.

My reflections in these posts draw on remarks I offered at last week’s AAA-ICDR/ICC/ICSID Joint Colloquium, at which I was asked to address the topic of time and costs from the institutions’ perspective. That might seem an odd task for someone who has never worked at any of these organizations. But I’ve been fortunate to have a good view of all three, sitting as arbitrator and appearing as counsel. It has been said that from the outside looking in you can never understand — but from the inside looking out you can never explain. So as some sort of hybrid of outsider and insider, I have tried both to understand and explain the institutional perspective, while pressing nonetheless for further action both by the institutions and by other key stakeholders in the arbitral process.

I begin with a few basic principles.

First, there’s no denying that users of international arbitration are frustrated. Arbitration is still seen as the best mechanism to ensure neutrality and enforceability for international disputes. But a 2010 study of the Corporate Counsel International Arbitration Group found that 100% of participants believe that it “takes too long” and also “costs too much.” These complaints are of course related. It’s a truism that a given task — whether presenting a case as counsel, or resolving it as arbitrator — will take as much time as one realistically has available to accomplish it. Without limits on the duration of arbitrations, therefore, it is practically impossible to control their cost, short of fixed-fee arrangements at every level in the process.

Second, there is a disconnect between the root sources of delay and cost, and users’ expectations for a solution. The 2010 Queen Mary Survey of “Choices in International Arbitration” found that users believe the parties (and not the institutions) are largely responsible for cost and delay — but they nonetheless look to institutions to guide the solution. That is not surprising: in sport, we expect the umpires to ensure proper play. But at the end of the day, it is the players who will either take the game to new heights, or leave the fans despairing of the game.

Third, the institutions have stepped up to the plate — to continue the sports metaphor a little longer. Over the last five years we’ve seen an extraordinary number of studies and task forces on this topic, but it has not been just talk. There have been numerous real initiatives. From the ICC, we’ve seen the 2007 suggested Techniques for Controlling Time and Costs, and now the revised 2012 Rules. From the ICDR, we’ve seen the 2009 Rules amendment and before that the 2008 Guidelines for Arbitrators Concerning Exchanges of Information — which was a particularly welcome initiative, given the perception that it is American lawyers who are chiefly driving the explosion of “discovery” in arbitration. From ICSID, we’ve seen numerous efficiency initiatives in recent years, which have resulted in a remarkable reduction in the average duration of cases. The statistics show that disputes concluded during ICSID’s 2011 fiscal year on average took 12 months less than cases concluded during the previous year — whether one measures from the time of registration or from tribunal constitution. That’s an extraordinary result. The ICDR also has seen a dramatic reduction in the length of its international cases, from 395 days in 2006 to 304 days in 2010. I don’t have similar statistics from the ICC, but I would expect its initiatives also to bear fruit.

Since institutions nonetheless are an easy target for criticism, let me highlight some of the practical steps they have taken, in four basic areas.

First, at the outset of a case. ICSID has started to put its own house in order. It has reduced the average time to register a case to 27 days. The new ICC Rules require parties to provide more information upfront to expedite early processing of a case, and has introduced a “gateway” procedure so prima facie challenges to the agreement to arbitrate can be referred directly to the tribunal, rather than awaiting formal review by the ICC Court.

Second, constitution of the tribunal. Much of the time here is driven by the parties themselves, since most appointments are made directly and not through the institutions. But when the institutions are needed to play a role, they are doing so faster. The ICC Court now has direct powers of appointment if a national committee fails to do its job promptly, or where one of the parties is a State entity. The ICDR is turning around its lists of prospective arbitrators more quickly than in the past. And ICSID has reduced the average time to constitute a tribunal to 6 weeks from the date it is asked to do so.

Third, case management conferences. The ICDR has long required a preliminary conference, and suggested agendas that include early identification of preliminary motions or sequencing of issues. The new ICC Rules now make case management conferences mandatory. ICSID has always required First Sessions to organize proceedings, but no amount of planning at that stage could prevent delay, when the old rules required automatic suspension of merits proceedings for any and all jurisdictional objections. The 2006 Rules revision empowered tribunals to decide for themselves whether suspending the merits would or would not increase efficiency.

Finally, document exchange. As the Queen Mary survey found, this is one of the stages most likely to result in delay and added cost. But both the 2008 ICDR Guidelines and the new ICC Rules remind arbitrators of their responsibility to carefully police this stage, and that they can use their discretion in cost assessment as a possible control mechanism.

There is more, however, that the institutions can do. Two areas stand out: arbitrator availability at the outset, and arbitrator diligence in rendering awards at the end. In my next post, I’ll offer some concrete suggestions in both areas, as well as a cautionary note about the limits to which any institutional reforms can fully address the related problems of time and cost, without greater self-discipline (and a modicum of internal reflection) by the users of the system themselves.

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.

After the general introduction from ASA President Michael E. Schneider, Lara Bander and Mehtap Tari Hirt, two post-graduate students from the Master of Advanced Studies in International Dispute Settlement (MIDS) in Geneva, presented the results of an elaborate questionnaire directed to arbitral institutions all over the world. Twenty-one institutions responded, including the ICC, Swiss Chambers Court of Arbitration and Mediation, LCIA, WIPO, ICSID and SCC. As examples of the results obtained, the speakers reported that the institutions generally check whether there is an arbitration agreement in existence or that some institutions stated that they have no power to refuse to confirm an appointment on the basis of information that they may possess. It was also reportedly very rare for arbitrators to be removed by the institutions and many institutions were said to ask arbitrators for the reasons for delay where this occurred. Some ask for information as to the availability of the arbitrator before appointment, though this is rare. There is generally no control on procedural decisions, and scrutiny is limited to formal comments if any, the ICC being the exception in that it also provides substantive comments.

In addition, there is general agreement among the arbitral institutions that the split in the costs of the arbitration is very similar to that published by the ICC recently, namely: 82% for counsels’ fees and expenses, 16% for the arbitrators’ fees and 2% for the institutions’ fees. There is generally no offer of liability insurance by the institutions and institutions were reluctant to discuss their budget, and origin of funds.

Regarding the origin and gender of arbitrators, Bander and Hirt stated the institutions had conveyed that the first five favourite nationalities for arbitrators are Swiss, French, American, Dutch and German and less than 10% of arbitrators appointed are women.

A panel followed on the organisation of the arbitral institutions with particular reference to independence, funding, operations, and the role at the commencement of the arbitration.

Urs Weber-Stecher (Wenger & Vieli) kicked-off with a list of eight “basic principles to be respected by arbitral institutions in order to meet proper corporate governance requirements and objective standards of fairness”. Independence from any other body, organization or industry group, the efficient assignment of tasks and the possibility of appeal on important decisions were cited as some of the principles. It was also stated that the body electing the members of the arbitration body supervising and administering the arbitration proceedings must have the legitimacy and acceptance of the arbitration community and the typical users of arbitration as well as being a transparent and objective process.

Anne Véronique Schlaepfer (Schellenberg Wittmer) discussed the role of the institution at the commencement of the proceedings. It was noted that the institution has a key role at this stage and if something goes astray, it may be very difficult or even impossible to bring the proceedings back on track. For instance, if the institution refuses to accept a notice of arbitration because it erroneously considers that there is manifestly no agreement to arbitrate under the Swiss Rules, it will be the end of the proceeding. This, according to Schlaepfer, is a jurisdictional and not an administrative decision.

A debate later ensued between Phillipe Pinsolle (Shearman & Sterling) and Simon Greenberg (Deputy General Counsel, International Court of Arbitration, ICC) as to whether the decision by arbitral institution to disallow a case to proceed to arbitration on the basis of a manifest lack of an arbitration agreement was a jurisdictional decision or not. Greenberg stated that while it may technically be a jurisdictional decision, this was not the terminology used by the ICC. Greenberg recalled a case in which the ICC determined that the case should not proceed to arbitration on the basis of article 6(2) of the ICC Rules, a decision which was then challenged and overturned by the courts of New York. The ICC was thereafter required to allow the arbitration to proceed. Pinsolle stated that such recourse would not have been available in jurisdictions such as France and Switzerland. (On the other hand, the arbitral award itself could be challenged if the arbitral tribunal wrongly accepts or declines jurisdiction, irrespective of a prior decision of the ICC under article 6(2), – see Swiss Federal Supreme Court, 4A_376/2008, ASA Bulletin 2009, 745)

The following panel discussed the appointment, confirmation, removal and replacement of arbitrators.

Juliet Blanch (Weil, Gotshal & Manges) raised a series of very interesting questions on the topic of appointment and confirmation. On pre-appointment disclosure, for example, Blanch noted that WIPO, ACICA and the Cairo Regional Centre for International Commercial Arbitration all allege in the responses to the questionnaire prepared by the MIDS students that they verify the information disclosed by the arbitrator. Blanch noted that this raises the question as to whether these institutions would become liable if they were negligent in such verification.

Blanch referred to the issue of having a barrister on the tribunal who was from the same chambers as a barrister acting as counsel. In Blanch’s opinion this raises real concerns given that a chamber now markets its barristers under its banner and a clerk will market the Chambers to potential clients on behalf of all the barristers in them.

In the ensuing debate, Peter Leaver QC (Chairman of Board, LCIA) suggested a solution in order to avoid last-minute potential conflicts of interest where barristers who were in the same chambers as an arbitrator were requested to act as counsel late on in the proceedings. Leaver would write into a procedural order that the parties must within 48 hours of any change in their legal representation advise the tribunal of the same.

Nathalie Voser (Schellenberg Wittmer) gave a presentation on the removal and replacement of arbitrators. First, Voser discussed the decision of the Swiss Supreme Court of 29 October 2010 (DSC 136 III 605) where the Supreme Court found that the same standard of independence and impartiality applied to a party appointed arbitrator and to a chairperson.

The decision of the Supreme Court of 10 June 2010 (4A_458/2009) was also referred to. This CAS case involved football player, Adrian Mutu, and Chelsea Football Club where a first arbitration decision favoured Chelsea confirming a breach of the employment contract by Adrian Mutu. Chelsea then claimed compensation for breach of employment contract in a second arbitration. The chairman of the first arbitration was appointed by Chelsea as an arbitrator in the second arbitration. Substantial damages were awarded to Chelsea. Mutu requested the Swiss Supreme Court to set the decision aside. Mutu argued that the arbitrators appointed by Chelsea in the second arbitration was partial as he had presided over the first arbitration. Voser explained that the Supreme Court, in dismissing the request for annulment did not address the right issues as it limited its analysis to the issue of pre-judgment by the appointed arbitrator. In particular, Voser asked whether the issue to be looked at was not in fact whether arbitrators where in a position of “equality of information”, a position adopted by the ICC Court when confirming arbitrators and/or deciding on challenges. The Supreme Court, Voser said, went very far in confirming the arbitral award and in her opinion it does appear questionable that Chelsea could appoint the former chair of a panel who rendered a decision favorable to Chelsea in the very same dispute.

The third panel of the day looked into supervision and quality control of the arbitration by the arbitral institutions.

Daniel Hochstrasser (Bär & Karrer) addressed the control of the efficient conduct and quality of the proceedings. He touched upon a range of issues.

For example, as to the question of whether institution should refuse to confirm an arbitrator simply because he or she is known to be subject to a heavy workload, Hochstrasser stated that party appointed arbitrators are rarely the reason for delay and even high-profile arbitrators are usually responsive and provide efficient input.

Time limits imposed on the rendering of an award were remarked to be of little effect. Although institutions insist on the establishment of the schedule at the outset of the arbitration, there is no input from the institutions in the procedure chosen by the tribunal/parties. Hochstrasser suggested that it might make sense for institutions to influence the number of written submissions, the bifurcation of proceedings and document production requests, particularly in small cases. Hochstrasser regretted that institutions are rarely involved in discussions with the tribunal on the procedure chosen. It was suggested that should the institution find that extremely long deadlines are being set, it could intervene.

Greenberg then talked about the specific experience of the ICC in the scrutiny of awards. Greenberg explained that the first level of scrutiny is by the ICC counsel assigned to the case, though it can be carried out by ICC deputy counsel if counsel is away. The next level of scrutiny is carried out by management, normally the deputy secretary general or the secretary general. The award thereafter goes to the ICC Court for a further review. At the ICC Court, the discussion centres on the substantive comments rather than the procedural or formal comments by the Secretariat. It is however not always clear whether the comments are formal or substantial. In any event, three things can occur in relation to the substantive comments when these are communicated to the tribunal: i) the tribunal accepts them; ii) the tribunal informs the ICC that it has made a mistake and the ICC then withdraws the comment; iii) the tribunal does not accept the comment. The second and third possibilities rarely occur.

Greenberg expressed his conviction that the scrutiny process improves awards, though there are two main drawbacks: i) there is delay; the scrutiny process at the ICC should take no more than 2-3 weeks, though it has been the case in the past that it has taken up to 4-5 months; and ii) interference with the tribunals’ liberty of decision. Greenberg stated that in order to improve the scrutiny process there could be more training, further feedback from arbitrators and a continual search for ways to improve our efficiency.

The fourth and last panel related to costs and liability.

Wolfgang Peter (Python Peter) spoke on cost control and the striking the balance between cost efficiency for the parties and fair remuneration of the arbitrators.

As a measure of the disproportion between the arbitrator’s fees and the other arbitration costs, Peter mentioned that it is often the case that experts charge higher fees than arbitrators. Peter also mentioned that in a recent ICSID case counsel had charged more than $40 million for the jurisdictional phase and that in recent case in which he was involved where $140 million was in dispute, the parties had charged $21 million in fees.

Remuneration of arbitrators on an ad valorem basis was said to have to particular problems. The first is that Peter believes that arbitrators have a lot more work on each case than in the past because of the way international arbitration has evolved; yet the system has not taken account of this. The second is that there are issues of allocation of fees between arbitrators where one arbitrator may carry out very little of the work yet still be awarded a substantial portion of the overall fees.

However, a time based system was also said to be problematic. In particular, should there also be a cap on the hourly rate charged by an arbitrator? This would disadvantage younger practitioners in Peter’s view.

Currency fluctuation was said to be a particular issue. From 2005 to today, Peter remarked, the US dollar has dropped in value against the value of all the major currencies in the world. For example against the Swiss franc it has dropped 60% and against the Australian dollar it has dropped 50%.

Michael Moser, in the ensuing debate, referred to the situation of arbitrator remuneration at CIETAC, where arbitrator remuneration is extremely slight. As an example, in a claim for $10 million, $100,000 would go to CIETAC out of which $25,000 would remunerate the arbitrators. Moser stated that as a result, the following words from the Bible were apt to describe potential arbitrator’s willingness to act in CIETAC arbitrations: “Many are called, but few are chosen”.

Professor Hans Van Houtte (Iran-United States Claims Tribunal) spoke of the liability of arbitrators and institutions. He started off by pointing out that the threats of liability are part of the charged atmosphere that exists in international arbitration. Indeed, it is the case that annulment of a decision is no longer felt to be a sufficient remedy.

The liability of an arbitrator will depend on the seat of the arbitration, Van Houtte said. In common law systems it is considered that arbitrators have the same liability as judges which is normally on the basis of wilful misconduct or gross negligence.

In civil law systems, the basis of any liability is based on the contract said to exist between arbitrators and the parties and can derive from a failure to abide by the three tasks entrusted to arbitrators namely: to render a decision; to render a good decision; to behave diligently.

Van Houtte referred to the liability of arbitral institutions. Possible areas in which an arbitral institution could be found liable include where the institution has wrongly refused a case on the basis that the claim lacks a valid arbitration clause or where it accepts the case only for the award to be later annulled because the arbitration clause was invalid.

Richard W. Naimark (Senior Vice President, AAA) remarked that in the United States there has been a long history of attempts at holding institutions and arbitrators liable. A doctrine of quasi-judicial immunity which derives from judicial immunity exists.

The articles by the speakers in this conference will be published by ASA in an upcoming Special Series volume.

By Matthias Scherer and Jaime Gallego

“What did they spend it on? Regardless of the nature of the dispute and the amount of money that a party spent (whether claimant or respondent), the cost breakdown by percent was remarkably much the same. Six cost categories were listed in the survey; Chart 12 illustrates the percentages allocated to each one. 74% of party costs were spent on external legal costs (including where applicable barristers’ fees), with the remaining 26% spread across the other headings. For example, as Chart 12 indicates, out of a total expenditure of £1,000,000, the costs a party would incur might be distributed as follows:
■ £740,000 for external legal fees
■ £100,000 for experts’ fees and expenses
■ £80,000 for external expenses
■ £50,000 for witness fees
■ £30,000 for management costs”

“Of the 74% of costs referred to on the preceding page, Chart 13 shows that, irrespective of the nature of the dispute, parties spent 19% on the pre-commencement/commencement of the arbitration, 25% on the ex-change of pleadings, 5% on discovery, 14% on fact and expert witnesses,* and the remaining 37% on the hearing (before, during and after). To illustrate the practical application of these percentages, a party with external legal costs of £740,000 might have spent:
■ £140,600 on pre-com/com work
■ £185,000 on the exchange of pleadings
■ £37,000 on discovery
■ £103,600 on witness costs
■ £273,800 on the hearing (before, during and after)”

It has also been correctly stated that “[w]hether or not concerns about international arbitral efficiency are exaggerated, the international arbitration community must face this discontent and, more importantly, take steps to maintain its legitimacy with its users.”³

The problems of cost and delay in high value disputes are not, however, new subjects. In 1989 Lord Mustill posed the following (largely rhetorical) questions with respect to high value commercial arbitrations:

Do the parties work together to achieve a result which is fair and sensible in commercial terms, or do they not rather seek out every procedural advantage to ensure that they win, regardless of the merits? Do the parties really want a speedy decision, or will not the defendant spin out the arbitration for as long as possible? Are the proceedings any longer imbued by informality, or do they not have all the elephantine laboriousness of an action in court, without the saving grace of the exasperated judge’s power to bang together the heads of recalcitrant parties⁴

Building on the foundations laid in the 1985 UNCITRAL Model Law,⁵ the major sets of arbitral rules have gradually evolved over the last 20 years to clarify: (i) the extent to which parties are obliged to conduct arbitrations in a timely and cost efficient manner; and (ii) the circumstances in which arbitral tribunals may in fact be empowered to bang parties’ heads together.⁶

The most recent step in that evolution was the publication of the revised ICC Rules on September 12, 2011, which come into effect from January 2012.

Article 22(1) of the new ICC Rules states:

The arbitral tribunal and the parties shall make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute.

Article 22(1) thus contains an explicit contractual obligation on the parties to conduct their arbitration in a ‘proportionate’ manner. More often than not, however, when large sums of money are at stake and experienced counsel are engaged on both sides, at least one of the parties has a rational incentive to ‘intensively litigate’ the dispute, thus increasing costs and causing delays.

Once a dispute has arisen, it is unrealistic to expect either party to act contrary to its self-interest in pursuit of the ‘higher ideal’ of arbitral efficiency. In such situations, time and costs are best kept in check by empowering tribunals to take ‘proportionality’-based case management decisions. The existence of such a power is common to most modern sets of rules, and is contained in Article 22(2) of the new ICC Rules:

The innovation with regard to case management in the new Rules is Article 24, which makes it mandatory for the tribunal to convene an initial “case management conference to consult the parties on procedural measures” which may be held “in person, by video conference, telephone or similar means of communication”. Article 24 also suggests that the tribunal may adopt one or more of the case management techniques described in Appendix IV.

Appendix IV contains a useful summary of case management techniques (such as bifurcation, limiting document requests, and limiting the length and scope of written submissions and witness evidence). It also emphasizes that “[a]ppropriate control of time and cost is important in all cases. In cases of low complexity and low value, it is particularly important to ensure that time and costs are proportionate to what is at stake in the dispute.”

While the case management techniques set out in Appendix IV will be familiar to all experienced arbitration practitioners, the ‘codification’ fulfils at least two important functions. First, it can reasonably be expected that the explicit encouragement to use such techniques will increase their use by less experienced arbitrators. Second, the explicit enunciation of case management techniques serves further to legitimize their use and hence to insulate awards from challenge on due process grounds.

One member of the CCIAG has suggested that “[t]o fix arbitration, practitioners must return the process to its original state as a streamlined option for dispute resolution.”⁷ In practice, it is likely impossible to reverse the trend by which arbitration has absorbed certain features of litigation, but it remains realistic to hope that tribunals (which, unlike the national court judge, will see through a case from beginning to end) will use their case management powers to ensure that the procedure is as streamlined a possible.

Paul Friedland and Paul Brumpton, White & Case LLP

The Chartered Institute of Arbitrators (CIArb) has launched a major survey into the costs of international arbitration. The ‘Costs of Arbitration’ survey will gather data to inform parties, legal representatives and arbitrators about the overall costs of international commercial arbitration and how these are incurred at each stage.

The results will be analysed and presented at an international conference organised by CIArb and sponsored by Alvarez & Marsal on 27 – 28 September 2011 in London, aimed at uncovering ways in which costs might be reduced and the process streamlined to become more cost-effective and efficient.

International arbitration has a justifiable reputation as the preferred method of dispute resolution for international commercial disputes. The worldwide economic downturn has accelerated a rising trend in favour of the use of international arbitration, where the enforceability of awards under the New York Convention gives it a major advantage over litigation in national courts. Globally, governments have invested in bringing their arbitration laws up-to-date and building modern arbitration centres to capitalise
on this growing market.

However, as the size and complexity of disputes referred to international arbitration has increased, so too have concerns about the growing complexity, cost and time involved in the process, diminishing some of the very factors that make it preferable to the courts for commercial dispute resolution.

CIArb’s Costs of Arbitration survey will play a key role in understanding the present position and, together with the international conference on the Costs of International Arbitration, finding ways of tackling the problem and reducing the costs of arbitration.

Doug Jones SC FCIArb, Vice President of CIArb, a leading Chartered Arbitrator and a member of the organising committee for the conference said: “We invite all legal representatives, in-house counsel and arbitral tribunal members to contribute to this major survey into costs in international arbitration. The survey report and conference will provide an invaluable contribution to the debate on costs, helping to generate proposals to restore speed and cost-effectiveness to the arbitration process. This is essential if international arbitration is to maintain its position as the commercial dispute resolution method of choice.

“To make the survey effective, we need corporate counsel, party representatives, arbitrators and tribunal members to give us as much data as possible on arbitrations in which they have been involved.”

All participants in the survey will receive a report of the survey findings and a discount on the cost of attending the conference.

The launch of CIArb’s survey reflects the sustained growth of international arbitration worldwide and its importance to global corporations. Last month Queen Mary University of London released the findings of its 2010 survey exploring the factors that influence corporate choices about arbitration. CIArb’s survey will focus specifically on the crucial aspect of costs, a factor not specifically examined in the Queen Mary survey but one which is becoming ever more critical to all businesses, especially in the present economic climate.

The conference will assemble an array of distinguished speakers to discuss the impact of costs in different jurisdictions and sectors. It will include contributions from all those involved in the process, from in-house counsel in the commercial, construction, maritime and oil and gas sectors to lawyers, arbitrators and expert witnesses.

It will be an essential date in the diary for all practitioners, corporate counsel, chief executives, commercial and finance directors, international trade lawyers, investment advisers, policymakers and contract drafters.

To complete the Costs in Arbitration Survey (party representatives or arbitral tribunal members) please visit here.

To find out more information about CIArb’s Costs of International Arbitration conference or to register your interest, please visit CIArb’s conference site here.

One aspect where this particularly holds true is the issue of costs associated with the taking of (or, in most cases more accurately, the submission of) evidence. Quite a few stories have been told about how truck loads of documents were submitted in fifteen copies to various parties involved in an arbitration. While these examples are probably not representative of the average arbitration case, the costs resulting from a “generous” approach to evidence can be quite considerable even (or, in relation to the amount in dispute, especially) in smaller cases. While the submission of evidence forms an integral part of a party’s opportunity to state its case and right to be heard, it is also generally understood that the “evidentiary excess” does not necessarily serve the arbitral process well. Additionally, the way parties approach evidentiary matters in arbitration can vary greatly and may result in a gross imbalance of potential claims for compensation of costs. The application of the principle of “costs follow the event” can lead to inequitable results in these cases, presenting the losing party with a bill it could and need not have expected.

In some instances, arbitral tribunals attempt to compensate for this in their decision on costs. One principle increasingly applied in practice has been set down in the 2010 revision of the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”) which put the entire evidentiary process under the principle of good faith and provide for the possibility of penalising a party’s violation of this principle. However, excessive approaches to evidence are often not a matter of bad faith. Of course, under most arbitration laws and institutional rules, the cost decision lies within the absolute discretion of the arbitrators who can take these factors into account irrespective of whether a party has acted in bad faith. However, is it always possible to strike an appropriate balance between the reasonable expectations of all the parties involved in an arbitration? Also, considering these expectations, where do the arbitrators set the mark for excess?

Ultimately, the most reasonable option would be to prevent these questions from arising at all. The arbitrators’ power (and duty) to conduct the proceedings provides a means to do so. In providing guidelines on issues of evidence at an early point in the proceedings, an arbitral tribunal can positively influence the likelihood of evidentiary excesses and possibly even prevent an excess from occurring at all.

Readers may now think: “What’s the issue? That is exactly what we are doing in an early procedural order or an organisational conference.” The issue is not the issuance of boilerplate directions on the evidentiary process in general, the setting of requirements for the specificity of evidence presentation, or the general request to limit documentary evidence to the extent necessary. Nor am I advocating the establishment of an overly restrictive and inflexible regime on the amount of evidence to be presented. Instead, the issue is the early consideration of the particular case which enables the arbitrators to take a proactive approach to evidentiary issues. Two evidentiary aspects can be confined particularly well by this approach. One is the handling of requests for production of documents, and the other is the approach to expert opinions.

Firstly, requests for document production have become quite regular in international arbitration proceedings and the question of whether, and to what extent, document discovery is admissible in an arbitration has been the subject of a multitude of discussions. Whichever way an arbitral tribunal chooses to answer this question, a badly conducted document production procedure can impede the arbitral process and lead to substantial amounts of costs for all the parties involved. Taking a proactive approach in relating discussions with the parties is only the first step in avoiding this. Where a tribunal is confronted with substantial requests for document production, it should assume the duty of thoroughly considering the relevance, materiality and proportionality of the documents requested. An off-the-top-of-the-head decision based on a rough and abstract evaluation of reasonability might be suited to determining the proportionality of a request but will be insufficient in taking into account its evidentiary and legal relevance. In exhibiting a diligent approach, an arbitrator can channel the parties’ (or counsels’) ambitions and prevent potential discovery torpedoes from blowing up in everyone’s faces.

Secondly, the complexity of the commercial or technical issues of a dispute does not always relate to the amount in dispute. Expert evidence can therefore constitute a substantial amount of the overall costs of an arbitration, and, depending on the importance attributed to this issue by the parties, can also lead to considerable differences in the parties’ statements of costs. Discussions on this subject are frequent and opinions vary greatly. Approaches like the recent “Sachs Protocol” provide for an increased involvement of the arbitrators in selecting party experts and – although not primarily geared towards this goal – can help contain the costs of expert evidence as well as its potentially negative impact on the arbitration’s schedule. Irrespective of whether and how the arbitral tribunal is willing to contribute to the expert selection process, it can limit the experts’ work (and resulting costs) by providing specific guidance early on in the proceedings as to the issues on which it expects the experts to opine. This is, once more, a matter of relevance and materiality. Even if some parties may not be willing to relay these limitations to their experts, this approach at least helps establish a yardstick against which an evidentiary excess can be measured.

Of course, managing proceedings in such a way requires a firm knowledge of the case and the identification of the legal issues involved, already at an early stage in the proceedings. In some cases, it will not be possible or appropriate to conduct this kind of preliminary determination immediately. Nevertheless, the arbitrators’ authority over the conduct of the arbitration provides tools to flexibly structure the proceedings in a way that enables them to take these issues into account. Naturally, this calls for specialised attention and is certainly not compatible with any form of “fire and forget” or “laissez-faire” approach. Ultimately, however, the arbitrators themselves will usually benefit from such a process.

The applicability of 28 U.S.C. § 1782 to international arbitration has generated an interesting debate, especially on this blog (see lastly G. Born’s post, L. Reed’s post, E. Triantafilou’s post, adde, Y. Lahlou, l’applicabilité de l’article 28 USC 1782 à l’arbitrage commercial international, Gaz. Pal., 2009-3). The debate is essentially concerned with the question whether an international arbitral tribunal constitutes a “foreign tribunal” for purposes of § 1782 (see the recent: In re Application of Chevron, 2010 WL 1801526, at *6 (S.D.N.Y. May 6, 2010 and Roger Alford’s blog). Conflicting solutions on this issue have been rendered in the United States (against the application of § 1782 to international arbitration see e.g.: National Broadcasting Co. Inc and NBC Europe v. Bear Steans & Co., Inc et al, 165 F.3d 184 (2d Cir. 1999); El Paso Corp. v. La Comision Ejecutiva Hidroelectrica del Rio Lempa No 08-20771, 2009 US App. Lexis 17596 (5th Cir. Aug. 6 2009); In re Arbitration in London, England, No. 09-C-3092, 2009 US Dist. Lexis 49827. For the application of § 1782 to international arbitration see e.g. In re Oxus Gold plc, MISC 06-82-GEB, 2007 WL 1037387 (D.N.J. April 2,2001), In re Roz Trading Ltd, 469 F. Supp. 2d 1226; In re Hallmark Capital Corp., 534 F Supp. 2d 951 (D. Minn. 2007), Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14 2008).

A related, and somewhat minor question, has however attracted little interest, and that is whether costs incurred by the party to an arbitration procedure in court proceedings based on § 1782 (“the Discovery costs”) may be treated as costs of the arbitration and allocated by the arbitral tribunal. The question will be relevant to the parties since, as it is known, costs are not refunded to the prevailing party in the context of Discovery court proceedings in the United States.

The critical issue is whether the Arbitral Tribunal has jurisdiction to allocate Discovery costs as costs of the arbitration.
The first element of answer may be found in the arbitration agreement.
Proceedings related to a Discovery application in aid of the arbitration may well be considered as a dispute arising out or relating to the underlying contract. Hence, there should not be any difficulty to admit that, in principle, Discovery applications are related to the contract. As a consequence, a broadly formulated arbitration clause (such as a clause worded as follows “all disputes arising out of or in connection with the present contract shall be finally settled through arbitration by one or more arbitrators”) may well be construed as applying to Discovery costs. This is not the end of the story, however.

A first argument against the arbitral tribunal’s jurisdiction to apportion Discovery costs is that applications for Discovery in aid of the arbitration applications usually involve third parties in possession of the evidence sought. Such circumstance, however, should not be relevant as long as the parties in dispute in the arbitration are also parties to the Discovery court proceedings.
Another possible objection relates to the concept of “costs of the arbitration”.

In the context of UNCITRAL or institutional arbitration, it should be seen whether the applicable arbitration rules permit to treat such costs as costs of the arbitration.

It is for example doubtful that, under Article 38 of the 1976 UNCITRAL rules, Discovery costs can be treated as costs of the arbitration. Article 38 provides that “the term ‘costs’ includes only: (a) the fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39; (b) the travel and other expenses incurred by the arbitrators; (c) the costs of expert advice and of other assistance required by the arbitral tribunal; (d) The travail and other expenses of witness to the extent such expenses are approved by the arbitral tribunal; (e) the costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable; (f) Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at the Hague”.

The new 2010 UNCITRAL rules, however, include a new wording of § (e) below. The new Article 40 (e) of the Rules now provides that costs include “the legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable”. Arguably, Discovery costs are costs incurred “in relation to the arbitration”. As a consequence, Discovery costs would be treated as costs of the arbitration.

The ICC rules, with respect to costs, provide in Article 31(3) that “The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties”. Article 31(1) also provides that the costs of the arbitration include the “reasonable legal and other costs incurred by the parties for the arbitration”. Such a provision does not seem to encompass costs incurred “in relation” to the arbitration. It is generally admitted, however, that arbitrators have wide discretion in apportioning costs. Whether such discretion could be used to allocate Discovery costs remains to be seen.
The LCIA rules confer to an arbitral tribunal the power to “order in its award that all or part of the legal or other costs incurred by a party be paid by another party” (Article 28.3). However, this provision seems to relate to the costs incurred in the arbitration, and would thus not apply to costs incurred in court proceedings. The ICDR rules refer in Article 31 to “the costs of arbitration”. Although the rules also provide for a non-exhaustive list of what “may” be included as such costs, , the concept of costs of arbitration is arguably not equivalent to that of costs incurred “in relation to” the arbitration. The same observation applies with respect to Article 38 of the Swiss Rules.

Another possible ground to recover Discovery costs could be as damages for breach of the arbitration agreement. It is unlikely that the lex arbitri would prevent a party from seeking Discovery in aid of the arbitration, but it may well be that the arbitral tribunal enjoined the party from doing so or from pursuing an application made without the tribunal’s leave.

A U.S. court has, in this respect, decided that § 1782 application suppose the consent of the arbitral tribunal (see In re Bacock Borsig AG, 583 F. Supp. 2d a 233 (D. Mass. 2008)). Such principle is healthy as Discovery applications – as they include leave to depose witnesses and suppose broad discovery – are likely to be inconsistent with the tribunal’s procedural directions. In such a scenario, an application made in disregard of the tribunal’s directions or order would constitute a breach of the arbitration agreement insofar as the arbitration agreement obliges the parties to cooperate in good faith to the proceedings. There should be no valid reason why such a breach could not give rise to damages.

Alexis Mourre/Alexandre Vagenheim