Arbitral institutions must feel at times like the psychiatrist in the joke from Annie Hall:
A man goes to a psychiatrist and says, “my brother has a real problem. He thinks he’s a chicken.” The psychiatrist raises an eyebrow and says, “I see. Have you tried telling him that he isn’t a chicken?” The man answers, “I would… but we need the eggs.”
Parties to arbitration are part of our own problem. Naturally so, that’s why we’re in arbitration. We may view the other side as unreasonable or even crazy, and they may think the same about our side. So, given the choice between ad hoc or institutional proceedings, many of us prefer to have an institution manage the details of our disputes.
The question is, can arbitral institutions meet party expectations under these conditions of potentially competing, conflicting, and even self-contradictory demands?
Turns out that often they can, or at least they can try, if the parties give them the opportunity.
I learned this, with some embarrassment, following one of the first international arbitrations I experienced in my position as in-house counsel. It had been a particularly acrimonious ICC proceeding with sizeable claims and counterclaims among four distinct parties. After two years of arbitration, however, we were still at least two more years away from an evidentiary hearing. The parties’ animosity towards each other gave way to frustration with the arbitral process, and this frustration provoked a settlement.
The tribunal, after being informed of our agreement, claimed the entire advance against fees that we had deposited. This was well over half a million dollars. In a rare moment of accord, all four parties decided to protest the arbitrators’ request to the institution’s secretary general, Anne-Marie Whitesell. She agreed to review our complaint and to meet. The other parties delegated this last part to me.
I remember animatedly recounting how we had settled in spite of the arbitral tribunal, not because of it, and that after two years we were still closer to the beginning than to the end.
Whitesell had spent considerable time reviewing the case file, and patiently pointed out three things. First, none of the arbitrators had been chosen by the institution; all were confirmed after having been nominated by the parties. Second, our progress (or lack of it) appeared to be due to the tribunal’s deference to the parties’ requests to make additional, voluminous submissions.
Third, and perhaps most importantly, none of the parties had ever expressed dissatisfaction during the course of the proceedings. At least to the institution, the procedure appeared to have been what the parties genuinely wanted.
I wish I could say that I was prepared for her observations and had a ready answer. But I wasn’t and didn’t. I said only that the parties wished the institution had been more proactive in saving us from our own worst tendencies. I might as well have said, “yes, but… we need the eggs.”
Whitesell politely listened and graciously offered to look into how the institution could have played a more active role in supervising our case. As to the purpose of my visit, she indicated the ICC Court would decide the amount of the advance to be paid to the arbitrators based on how far the proceedings had progressed at the time of our settlement. (I do not recall the result, except that the parties felt we could live with the amount that was eventually refunded.)
More importantly, the meeting with Whitesell was the source of a lesson I’ve since shared with colleagues: not to play a passive role when dealing with an institution. By informing the case manager, director, or secretary general of dissatisfaction with the procedure, a party can rightly expect the institution to at least look into the concerns and potentially take steps to address them. This includes those situations where the parties themselves are responsible for derailing the process.
If any of the parties feels intimidated by the possibility that the tribunal may hear of their complaint, they can request the institution not to disclose that the issue was raised by a party.
What could an institution have done in our case, had we involved them earlier?
The case manager might have sent the tribunal an inquiry regarding the lack of progress in the case file as a gentle means of drawing attention to the lack of progress; less gently, the institution might have urged the tribunal to adopt a quicker pace despite the parties’ acquiescence to longer proceedings, or refused to grant extensions of time to render an award; or they might have used other means of persuasion in the dialogue that takes place between case manager and tribunals. Some institutions might even have invited the parties to use their mediation services to end the arbitration sooner through settlement.
In other words, they could have given us some eggs.
Next post:
Arbitral Institutions and Party Expectations, Part 2: the Rules of Arbitration of the Finnish Chamber of Commerce
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The lesson to learn is that the arbitrators, be they never so grand, are the servants of the parties. Whether an institution is involved or not, the parties (and their lawyers) have near complete control of whether the process works or not. If one remembers that they also choose institutional or private arbitration and select their own arbitrators, it’s hard to see what greater control they could have.
If the parties cooperate, arbitration in a day or two is possible. On the other hand, it may take years. Mr McIlwrath is right. You get the eggs you ask for.
There appear to be two distinct realities. “Pre-dispute”, when the contract is signed and arbitration agreed, the parties will presumably agree what they would want a tribunal (and institution) to deliver. Of course, they want a “fair” decision but business executives from both sides, and presumably also their lawyers, would immediately add that they want a quick resolution of the dispute (the business executives would also tell you that they do not want to remain in the dark about what the tribunal may think about the case until the day of the award…but that’s a different story).
And then there is the “post-dispute” reality where the parties often manage to agree on nothing…they may even argue about the lightning in the hearing room. And they will not be able to agree on swift proceedings (one party will always need more time) if left to their own devices.
When we talk about the complete control the parties exercise over the arbitral proceedings, we succumb to the “post-dispute” reality and disregard the “pre-dispute” reality and the fact that the arbitral agreement may have included very different terms.
As in-house lawyers, we ultimately accept the “post-dispute” reality. And whenever a business executive walks into my office and suggests arbitration because negotiations appear to be failing but he still wants to resolve the dispute swiftly, I’ll tell him “forget arbitration, unless you want to wait another two years or more…let’s discuss what alternatives we have…”. We’ll continue advising against arbitration unless the parties get some eggs, even if one party didn’t ask for them during the arbitration.
Michael,
Thanks for sharing your poor first experience with the process. Another way to realize one’s expectations is to retain counsel who wants to know what the client’s goal is, actively seeks to reach that goal, and proactively engages the chair and institution to that end. I’ll bet you do that now.
Dear Michael,
There was an interesting article in the International Construction Law Review on the ideal arbitration in complex construction disputes arguing for a more proactive approach of arbitral tribunals in defining the legal issues and limiting the scope of procedural tactics and documents to those that are actually relevant. Experienced arbitral tribunals using a bit of Kelsen (verification method) and decision trees (see article in the journal of the German Arbitration Institution two years ago) are completely capable to direct an arbitration without putting a party in disadvantage. Better and more efficient arbitrations finally generate more arbitrations, whereas expensive and inefficient arbitrations put the system as a whole in question. Therefore, in complex cases, arbitral tribunals should act proactively with all diligence and care but oriented to the goal, making a decision on the legal questions raised in the most efficient manner. That is what the parties pay for.