I recently spoke at a conference co-sponsored by the Milan Chamber of Arbitration and the ICC on the occasion of the publication of the new Italian arbitration treatise entitled Commentario Breve al Diritto Dell’Arbitrato Nazionale ed Internazionale (CEDAM 2010) by my colleague Massimo Benedettelli, along with co-authors Claudio Consolo and Luca Radicati di Brozolo. The topic of my panel was general trends in international arbitration.

Although I would have liked to have spoken on a substantive trend in international arbitration, I decided I could not ignore a much bigger, procedural trend that has been the topic of conferences in both the United States and Latin America – that is the growing discontent of corporate users with international arbitration.

The criticisms regarding international arbitration center around cost and efficiency. A recent study of the Corporate Counsel International Arbitration Group (CCIAG) found that 100% of the corporate counsel participants believe that international arbitration “takes too long” (with 56% of those surveyed strongly agreeing) and “costs too much” (with 69% strongly agreeing).

Three main questions arise from these criticisms. The first is whether these criticisms are justified? The second is, if so, then what (or who) is to blame? The third and final question is what can the arbitration community do about these critiques? The answers to the first two questions depend on where one sits. But I am increasingly impatient with our responses to the third, as I think there are relatively simple solutions if we are willing to be creative and proactive.

First, much of the criticism regarding cost and efficiency in international arbitration is targeted at investor-state arbitration. These by their nature involve a more transparent and political process than international commercial arbitration, and the problems and solutions are, in part, different in each.

Second, there is plenty of blame to go around. Many blame complaints on outside counsel – especially those from the United States – for requesting too many documents, making too many motions, and generally filing too many pages. Others blame in-house counsel for not using their authority to rein in practices they criticize as inefficient or wasteful. And some blame the arbitral institutions themselves for not constructing a system that reins in everyone.

My most negative experiences recently, however, have been with arbitrators – and especially chairs – who are oftentimes overscheduled, unprepared, disorganized, reactive, timid and slow. Without suggesting I am blameless as a chair, there is no way to defend arbitrators who cannot schedule hearings for months or produce awards for years. But don’t take it from me. The CCIAG survey lists the following factors as contributing to the rising inefficiency of international arbitration: (i) 100% of those surveyed identified arbitrator availability and excessive document disclosure; (ii) 95% identified the “failure of tribunals to narrow issues, evidence and argument leading parties/counsel to feel need to cover all bases” and (iii) 90% identified excessive concern for due process over efficiency, leading to a free-for-all on timing.

So, then, what are the solutions? Fortunately several have already been identified and implemented. The CEDR and ICC have published rules and techniques for controlling time and costs. The ICC has revised its Arbitrator Statement of Independence to include information on availability, in the form of data about other cases in which an arbitrator candidate is serving. Despite the many complaints regarding the “Americanization” of document discovery, it is the AAA that has issued international guidelines calling for arbitrators to manage document disclosure strictly, using cost assessment as a control mechanism.

We can go farther. Institutions should require more than the ICC’s disclosure on availability. Why not require a simple calendar with black-out dates for scheduled hearings and deliberations as arbitrator, teaching commitments, hearings and major filings as counsel? No disclosure of details, of course, but just calendar dates – based on then-available information – on when an arbitrator is and is not available for hearings.
As for efficiency in issuing awards, why not require arbitrator candidates to disclose not just how many prior cases they have handled as arbitrator, but also, for each case, how much time passed between the close of the record and the issuance of the award? Provided there is a field for an explanation, i.e., delay caused by suspension, or illness, this is simply objective ‘data’ helpful to the parties.

How about building into the procedural calendar a one or two day private (and paid) meeting of the tribunal to allow (and in some cases, force), the arbitrators to study the record together, prepare focused hearing directions, and (ideally) issue (neutral) questions to parties to prioritize use of witnesses and hearing time. (This is the “Reed Schedule” I mentioned in prior talks and blogs.)

Finally, if these proposals seem radical, consider that the CCIAG has proposed a far more radical solution: linking arbitrator remuneration to achieving milestones in the procedural calendar.

Whether or not concerns about international arbitral efficiency are exaggerated, the international arbitration community must face this discontent and, more importantly, take steps to fix these problems if it is to maintain legitimacy with its users.


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4 comments

  1. Lucy’s post and suggestions are both useful and pertinent. There is no doubt that the CCIAG plays a very important role in formulating a coherent and informed voice of corporate counsel in matters of dispute resolution. The 2006 and 2006 SIA/PwC surveys (available at http://www.arbitrationonline under “Research”) work in the same direction trying to ascertain what corporations think about arbitration. The third survey is underway and will be completed this October.

    Some more general comments were expressed in a blog post in August 2009: http://kluwerarbitrationblog.com/blog/2009/08/19/is-arbitration-changing/. In my view most corporations still like arbitration. After all arbitration is a tool and the challenge is to decide how to best use it. Since disputes are inevitable, arbitration is also inevitable for international transactions.

    Lucy’s conclusion is commendable. The international arbitration community must face the discontent and address problems by discussion and action.

  2. If I may be forgiven for stating the obvious, could I submit that part of the solution, more than disclosure statements and schedules, lies in broadening the pool of arbitrator candidates beyond those few whose overburdened schedules reflect poorly on the majority who, when appointed, do manage the process speedily and efficiently.

    Regards

    Sophie

  3. I agree that widening the arbitrator pool seems to be part of the answer. This may require screening of new arbitrators. One check on a proposed arbitrator may be whether he or she has attended the ICC Masterclass for Arbitrators.

  4. In the ICCA Conference 2010, held in Rio de Janeiro, there were a lot of discussion regarding the availability of the arbitrators and the efficacy of the arbitration. It is acceptable some disappointment of parties because of some delay in arbitration, however it must be stressed that, at least from my perspective, the greatest advantages of the using of arbitration in international contracts instead of the judiciary are: the possibility of the choice of law, the choice of the seat of the arbitration and the confidentiality.
    Moreover, in the international arbitration field the Arbitral Tribunals generally deals with challenges on the jurisdiction of the tribunal, on the validity of the arbitration agreement, on conflicts of choice of law, and that is something that takes them a precious time when rendering awards. There are some other difficulties, such as different legal cultures of the parties involved (common and civil law grounds).
    Furthermore, an international arbitration hearing (for example) can not be taken without the presence (or the participation) of at least 9 or 10 persons, and an international travel or even a conference call demands to be fit in a schedule of a business man (whose schedule if tight also).

    Maybe this long time spent in arbitrations would take (force) parties to reach to an agreement, what would save time for them also.

    I believe there is a lot to be improved, specially on ways to summarize the arbitral proceeding without give rise to an annulment afterwards, however it is complicated to blame only the arbitrators.

    Some good faith of parties’ counsel in not seeking for interim reliefs in order to delay the proceedings would also be great.

    In Brazil the arbitration law evidences that the arbitration must run with some acceleration. The article 23 states that the award must be rendered within 6 months. However the practice is showing that counsels and arbitrators always include a provision in the Terms of Reference that the dealine to render the award is 60days from the submission of the final memoranduns, avoiding the provision of the article 23. Obviously the six months deadline is difficult to accomplish, however this is a signal that the laws trend is to demonstrate the importance of the arbitral proceeding do not take too much time.

    In conclusion, consult arbitrators schedule before appointing them, appoint new arbitrators, find methods to simplify the procedure, stop the endeavor to get interim reliefs, get conscious of the fact that an international discussion is not something so easy to deal, are all factors that would help the community to develop the system of the arbitration.

    Best Regards,

    Leonardo Mäder Furtado
    maderfurtado@gmail.com

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