Ten Ways to Avoid the Americanization of International Arbitration

by Roger Alford

The ABA Journal has an interesting article on the Americanization of international arbitration. There’s nothing particularly new to our readers in this article. It’s a theme that my friend and colleague Tom Stipanowich has written about extensively. I’ve written a bit about the subject as well. But the fact that the story is being told in the largest legal publication in the United States is significant. The focus of the story is on transplanting American practices to the international arbitration arena, almost at the request of American counsel or arbitrators. Here’s a few choice quotes:

“If arbitration is to commit suicide, it will do so of its own choosing, because the parties have chosen to make it more expensive, time-consuming and more like litigation,” said Joe Profaizer of Paul, Hastings.

“The proliferation of electronically stored information is a major cost driver in U.S. litigation, and it’s becoming a major cost driver in international arbitration,” said Christopher Larus of Robins, Kaplan, Miller & Ciresi. “As more and more companies have to delve into their electronic records, it’s becoming more and more expensive.”

“The U.S. must recognize that international arbitration is international. The system must accommodate a wide variety of traditions and practices. It can’t just accommodate the American model, or people will stop using it,” says Glenn Hendrix of Arnall Golden Gregory.

So if the parties are so concerned about the Americanization of international arbitration, why don’t they fix it? That might mean (1) embracing mediation; (2) avoiding U.S. arbitrators; (3) avoiding U.S. counsel; (4) building in pre-dispute discovery limits into the contract; (5) vesting the arbitrators with greater discretion to limit discovery; (6) imposing more serious deadlines for the different stages of arbitration; (7) adopting expedited arbitration rules; (8) embracing advanced technologies for e-discovery; (9) selecting arbitrators who are particularly adept at case management; and (10) establishing more creative fee structures for resolving disputes.

These are just a few ways that one could avoid the increased costs and delays of international arbitration. I doubt that such concerns are paramount when a billion dollars is in dispute. I don’t accept the premise that the Americanization of international arbitration is always a bad thing. But for many disputes where cost and delay are significant priorities, there are ways to avoid the Americanization of international arbitration.

http://opiniojuris.org/2010/04/21/ten-ways-to-avoid-the-americanization-of-international-arbitration/

3 Responses

  1. I am a US-trained, -qualified and -based lawyer specializing in development of major capital projects, primarily in emerging markets. My clients are principally non-US companies. Few of them have had much if any, contact with US-style discovery. What they know of it they loathe.

    Practically, few of your suggestions will have much effect.

    (1) Mediation is a waste of time on major issues. Sophisticated parties amenable to an amicable settlement will find it without a mediator. Otherwise, it is just a method for one side (or both) to impose delay and run up legal costs.

    (2) and (3). This I can foresee — not at the time of the dispute, but agreed as part of the original deal. The problem is that sophisticated parties want NY or London law (and London litigators these days are perceived as hardly better than US litigators).

    (4) Parties are not going to write discovery rules into their agreements. Period. Clients — rightly — hate the incomprehensible pettifogging legalism that muddies up their agreements; if I suggested detailed discovery procedures in an agreement, I would get fired on the spot. If I didn’t, I’d get fired thirty seconds after the other side made its first comment on that section.

    (5) Vesting arbitrators with greater discretion?  They already have it.

    (6) and (7) More serious deadlines and expedited rules? When has any litigation proceeded in accordance with deadlines set by rule? Besides that, this suffers from the same problem as suggestion (4). Besides that, it’s impractical to set deadlines without knowing how complicated the dispute will be.

    (8) Technology? As the old mathematician’s joke goes, assume a can opener.

    (9) Good arbitrators? see item (5)

    (10) Creative fee structures? Assume another can opener.

    I can see two workable alternatives:

    1. A respected organization of international should appoint a committee of litigators who are known and respected for being thoroughly unsympathetic to US litigation methods develop rules that can be incorporated by reference into agreements. Not surprisingly (as you probably know) the IBA has done exactly that. I do not know how they have fared in practice; as I say, I am no litigator.

    2. The arbitration organizations should act to protect their franchise by adopting (and publicizing) strict discovery rules and making sure they strictly enforced. I suspect that an organization that does so will attract more than its share of arbitration.

    One of the issues is that we lawyers who put the deal together are not litigators and know nothing of arbitration. We just stick our firm’s (or our client’s) boilerplate arbitration clause into the agreement, with the pious hope that no dispute will ever arise (and the knowledge that we aren’t going to be the ones to have to deal with it). A couple of years down the line our litigation partner will explain to the client that the client is about to get a US-style discovery flaying (while privately thanking his stars that his corporate partner had the foresight to provide him with three or four years of regular billings).

  2. Dear Skeptic:

    Quick response:

    1.  Opinions differ on mediation.  I just spoke with a GC at a major corporation who said the opposite.  She always try to resolve the dispute through negotiation/mediation early, and usually does.
    4.  I didn’t mean they would write discovery rules into the contract.  I meant they could incorporate discovery rules by reference that are more of a hybrid civil/common law approach, such as the IBA Rules of Evidence.  The market also could create a menu of discovery approaches that could be incorporated by reference in a contract.  Similar to Incoterms. 
    6-7.  Fair point.  But the deadlines could be in the contract initially and then modified in the early stages of the proceeding.  The absence of deadlines puts no limits, which is not a good thing.
    8.  I assume you are not serious.  There are a growing number of companies that are making e-discovery software that can search digital business documents.
    9.  Some arbitrators are chosen because they have wonderful reputations in resolving the dispute, but that doesn’t mean they are good at managing the case.
    10.  I disagree.  There is no reason that the traditional billable hour is the only viable means paying for arbitration.  And there is no reason why GC’s should not control costs through more careful and creative scrutiny of outside legal fees and expenses.

    Roger Alford

  3. 1. Mediation is great as a seed around which to settle minor or uncomplicated disputes. It’s good for a dispute that can be settled if a third party gives an unjaundiced view of a few disputed facts or legal principles, or can give an opinion on an ambiguous point.

    In my experience, those sorts of disputes rarely invite American discovery (and discovery abuse). In the disputes that arise in what I do — major engineering projects — it’s useless, other than to confirm what the other side has for facts and argument.

    4. We agree, and (as I said before) I believe that this is the only realistic tool. However, the rules need to be much tighter and much more rigorously enforced. They need to be written into the arbitral organizations’ rules.

    General counsel need to know about them and make sure that they get into agreements. Their deal lawyers don’t know and don’t care about them. To a deal lawyer, an arbitration clause is incomprehensible jargon that goes in the back of the agreement with the integration clause.

    6-7. Obviously, deadlines are necessary. They are also ignored. One of the things that drives non-litigators nuts is litigators’ constitutional inability to meet a deadline. One of my former litigation partners used to insist on every deadline, and fight every request for extension. It’s a marvelous way to fight discovery abuse: “I may not have every little fact and every email in which somebody said something stupid, but I’ve got a case and I want to try it.” Unfortunately, he was unique, and judges were a lot more forgiving than he was.

    8. I am serious. Sure, e-discovery is a great tool to respond to excessive discovery requests. But it does nothing to address excessive discovery.

    9. Agreed, but, again, this is already part of the system. If it were a solution, it would already be a solution.

    10. The creative fee arrangement is a magic bullet that clients have been looking for ever since the first lawyer sent the first hourly bill. Nobody has even suggested what the bullet might look like. The brightest legal minds of two generations haven’t even come up with a good suggestion.

    Just as a practical matter, law firm accounting software is flummoxed by anything but a hourly bill (I know; I rarely bill by the hour). Law firm executive committees don’t want their partners getting creative with firm assets, and compensation committees pay partners on the basis of their realization on those firm assets. The only asset the firm has is lawyers’ hours. Don’t expect any changes from big firms anytime soon.

    The underlying problem is that the lawyer is selling his time. That is his opportunity cost. The client can cast that risk on the lawyer, or attempt to shift it to the lawyer’s other clients. But in the end, in the aggregate, it’s still the lawyer’s time that’s being sold and bought.

    And in this context, it’s even more unlikely than usual that a creative fee arrangement will help. An arrangement with my lawyer won’t affect discovery abuse by the other guy’s lawyer. As I say, little of my work is billed based on hours, but litigators’ time at big firms (which, generally speaking, do not do contingency litigation) is all hourly, all the time. Litigators on the whole find my practice economics incomprehensible.

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