Considerations and Tips for your Next Arbitration
Rahat Godil, Partner, Blake, Cassels & Graydon LLP
Joe McArthur, FCIArb, Partner, Blake, Cassels & Graydon LLP
Seumas Woods, Partner, Blake, Cassels & Graydon LLP
Prepared for the Association of Corporate Counsel Annual Meeting, October 15-18, 2017
51053344.3
The Art of Arbitration: Role of In-House Counsel
Considerations and Tips for your Next Arbitration
Contents
Introduction 1
Stages of Arbitration 2
Stage 1: The Decision to Arbitrate or Litigate 2
Stage 2: Commencing Arbitration 4
Stage 3: Selecting and Managing Outside Counsel 6
Stage 4: Arbitrator Selection 8
Stage 5: Case Management Conferences 10
Stage 6: Arbitration Strategy and Process 12
Stage 7: Organizing Internal Resources, Working with Experts and the Role of In-house Counsel at Hearing 14
Stage 8: Settlement 16
Conclusion 18
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51053344.3
Introduction
Arbitration can be a preferable process for resolving international and domestic commercial disputes. It provides benefits such as cost and time efficiency, privacy, the ability to select decision-makers, flexibility in rules and procedures, internationally enforceable awards, and finality.
As managers of the conduct of an arbitration, in-house counsel play an integral role in all aspects of the process, beginning with the initial decision of agreeing to arbitrate, right through to the hearing or settlement that brings resolution to the dispute.
This paper outlines significant stages and common junctures in an arbitration. It offers considerations and tips to guide your involvement and input at each stage to ensure the process of the next arbitration you are managing is tailored to your business objectives, and provides a final resolution for your dispute in an efficient and effective manner.
Stages of Arbitration
Stage 1: The Decision to Arbitrate or Litigate
As a best practice, companies should consider at the beginning of a new business relationship or transaction whether arbitration or litigation will be used to resolve some or all potential future disputes. While parties can decide to arbitrate at the time a dispute arises, it can be more difficult to obtain all parties’ consent when tensions are high. Agreeing to arbitration at the outset will ease the process if a dispute arises.
There are a number of considerations which should be taken into account when agreeing to arbitration. First and foremost, in-house counsel will need to consider the nature of the business relationship between the parties and the objectives of the company. Counsel should negotiate arbitration clauses at the outset of the business relationship, and mandate arbitration as the forum for dispute resolution. As arbitrators only have jurisdiction to determine disputes which the parties have agreed to submit to arbitration, the arbitration agreement should also clearly identify the scope of disputes to be resolved by arbitration. For instance, it may suit the objectives of the country to limit the scope of arbitration to contract claims, and to exclude claims arising out of tort. Subjective concepts and condition precedent language should be avoided.
Much of the differences between litigation and arbitration derive from the rules and procedures to be applied. When parties agree to arbitrate, they agree to contract out of the public process and procedural rules of the judicial system, creating a private process with a great deal of potential for flexibility and customization. It is here where company objectives such as the preservation of confidentiality, reputational issues, reduced cost, and the preservation of business relationships may be built into the arbitration. For instance, costs and efficiency are a commonly-touted benefit of choosing arbitration, but this will depend greatly on the procedures adopted. Except in specific circumstances, the law of the arbitral jurisdiction must be applied to the resolution of disputes, and in this respect commercial arbitration may have a great deal in common with litigation.
On the other hand, the approach to discovery of documents and examinations for discovery, in particular, may be very different than the approach to discovery in the context of litigation. In-house counsel must consider the nature of any likely disputes in the context of the company’s business, and anticipate the optimal procedures to be applied in arbitration. The agreement should specify the need for institutional arbitration or procedural rules, and tiered dispute resolution clauses should be avoided wherever possible.
Counsel should also consider the form and timing of the award, and take care when setting the timing for resolution. An arbitrator will lose jurisdiction once the mandated period for the delivery of an award has expired, and the arbitrator will not typically have the jurisdiction to extend time absent an agreement to an extension between the parties. The ability to appeal or set aside an award, and any agreed or statutory limits on grounds for appeal, should also be considered. Similarly, as neither the arbitrator nor the contracting parties have any means of enforcement, the enforcement of the award will also depend on the assistance of the courts of jurisdiction. The international enforceability of arbitral awards may be one of the principal advantages of international arbitration, however it is always advisable to consult an arbitration practitioner when drafting the arbitration agreement.
Stage 1: The Decision to Arbitrate or Litigate
Considerations & Tips
Considerations:
· The nature of the business relationship
· The objectives of the company
· Expected or existing dispute(s)
· The importance of a private versus a public process
· The need for confidentiality
· Reputational issues
· The ability to choose the decision-maker
· Flexibility in rules and procedures
· Costs
· Timing for resolution
· The ability to appeal
· Enforceability
Tips:
· Negotiate arbitration clauses at the outset of the relationship
· Mandate arbitration as the forum for dispute resolution
· Clearly identify the scope of disputes to be resolved by arbitration
· Specify the need for institutional arbitration and procedural rules
· Avoid tiered dispute resolution clauses wherever possible
· Avoid subjective concepts and condition precedent language
· Consult an arbitration practitioner
Stage 2: Commencing Arbitration
When a dispute arises that cannot be settled, and parties have agreed to arbitration, a decision will need to be made about whether and when to commence arbitration. Here again, counsel should consider the nature of the relationship between the parties, the nature and significance of the dispute between the parties, and the impact of loss or damages on the objectives of the business.
Counsel should avoid commencing arbitration proceedings prematurely, and evaluate objectively the merits of the claim. In-house counsel should consider the risks and potential impact on the business relationship, particularly where the parties’ continuing business relationship is one of the principal reasons informing the decision to execute an arbitration agreement. Arbitration may be seen by the parties as less adversarial than court proceedings, but this will depend largely on the way in which the arbitration is in fact conducted. The parties should always explore settlement options before commencing arbitration.
Stage 2: Commencing Arbitration
Considerations & Tips
Considerations:
· The nature of the relationship between the parties
· The nature and significance of the dispute between the parties
· The impact of loss or damages on the business
· Costs
Tips:
· Avoid commencing arbitration proceedings prematurely
· Evaluate objectively the merits of your claim
· Conduct a risk assessment analysis
· Consider the impact of the dispute on your business relationships
· Always explore settlement options before commencing arbitration
Stage 3: Selecting and Managing Outside Counsel
One of the most important tasks in successfully managing an arbitration is choosing external counsel with the right knowledge and experience, and effectively supervising them throughout the process. As in litigation, counsel must be prepared to advance their client’s case on its merits, applying the relevant legal principles, based on the evidence adduced. However the flexibility inherent in the arbitration process opens the field to a fluidity of tactical opportunities that are not available in court proceedings. Pleadings, procedures, and the conduct of the arbitration will vary greatly between arbitration proceedings. Counsel drawn from different jurisdictions, for instance, will undoubtedly bring very different schools of thought to issues such as disclosure and discovery. This implies a need for retaining knowledgeable and experienced external counsel who are comfortable using a tailored and flexible process. The location of the dispute, including the parties’ jurisdictions and seat of arbitration, should be considered when evaluating the suitability of external counsel. Costs, counsel’s reputation in the local arbitration bar, and the availability of in-house company resources to effectively and efficiently support external counsel, are also crucial considerations.
It is important to choose counsel who are collaborative and capable of aligning the legal strategy in the arbitration with the goals of the business. Counsel who want to use rules of court and civil procedure (unless there is a good business reason to do so) should be avoided, as important opportunities may be missed. Counsel who adopts a litigation mindset may miss opportunities to turn the flexibility in the process to their client’s advantage, or may inject the very litigious tension the parties wished to avoid in the first place.
Stage 3: Selecting and Managing Outside Counsel
Considerations & Tips
Considerations:
· The nature of the dispute
· The significance of the dispute for the business
· Counsel’s arbitration experience
· The availability of in-house company resources
· Location, including the parties’ jurisdictions and seat of arbitration
· Costs
Tips:
· Choose counsel who are knowledgeable and experienced in arbitrations
· Choose counsel who are collaborative and can align the legal strategy with your business goals
· Choose counsel who are comfortable using tailored and flexible processes
· Ask counsel about their schedule and availability before retaining them
· Consider counsel’s reputation in the local arbitration bar
· Avoid counsel who adopt a litigation mindset for arbitration
· Avoid counsel who want to use rules of court and civil procedure (unless there is a good business reason to do so)
Stage 4: Arbitrator Selection
Arbitrator selection is a key decision generally undertaken after an arbitration has commenced in accordance with the agreement of the parties. An arbitration is only as good as the arbitrator, and, as with the arbitration procedure, it is here where the benefits of arbitration may best be realised.
Internal counsel should be actively involved in selecting the arbitrator(s). When selecting an arbitrator, counsel should consider the qualifications, reputation, and availability of the arbitrator. Counsel should consider the arbiter’s relevant experience with similar disputes, the arbitrator’s background (e.g., former judge, counsel, etc.), and the arbitrator’s reputation with respect to process expertise, conducting a fair and efficient hearing, and timeliness in issuing rulings. The weight of these considerations may vary greatly depending on whether the arbitration is domestic or international, whether the arbitrator is single or a tribunal, and the technical or business context of the arbitration.
In most cases both parties will benefit greatly from cooperation in the selection of the arbitrator. Litigation offers no equivalent opportunity for parties to choose the judge or judges who will hear their case. If the arbitrator is single and the parties are unable to agree on an arbitrator, the appointment may be made by an administering institution or by a court. In that case, one of the principle benefits of arbitration may have been lost.
A tribunal of three arbitrators may provide more flexibility, and more scope to find agreement. Where a single arbitrator possessed of the relevant technical expertise may be unable to dissociate their own external knowledge from the actual evidence introduced by the parties, for instance, an expert on a tribunal may be able explain evidence without necessarily swaying the result. Here again the parties will usually benefit from cooperation, but counsel should be congnizant of tribunal dynamics and collegiality among arbitrators. If the parties are unable to agree on all three arbitrators, each of the parties may have to make an independent appointment. Here, counsel may seek to ensure that their own jurisdictional, cultural, or legal values will be reflected in the composition of the tribunal. It must be borne in mind, however, that party-appointed arbitrators are not advocates for the party that appoints them: arbitral awards may be set aside for bias or lack of essential qualifications such as independence and impartiality. Counsel will want to consider any possible conflicts.
An arbitration may be administered by an arbitration institution, which will perform similar functions to a court registry, or whatever specific functions the arbitral process requires. If the arbitration agreement does not contemplate an arbitration institution, then the arbitration will be ‘ad hoc,’ and whatever administration services are required may be provided by the arbitration tribunal (at the expense of the parties). The manner in which the arbitration is administered will affect the costs and procedures borne by the parties, and counsel should weigh these costs carefully when making their appointments.
Stage 4: Arbitrator Selection
Considerations & Tips
Considerations:
· An arbitration is only as good as the arbitrator
· Domestic versus international arbitration
· Institutional versus ad hoc arbitration
· Single arbitrator versus a tribunal
· Qualifications and reputation
· Costs
· Availability
· Conflicts
· Diversity
Tips:
· Be actively involved in selecting your arbitrator(s)
· Confirm an arbitrator’s availability and ensure they can devote time to the case before retaining them
· Consider an arbitrator’s relevant experience with similar disputes
· Consider an arbitrator’s background (e.g., former judge, counsel, etc.)
· Consider an arbitrator’s reputation with respect to process expertise, conducting a fair and efficient hearing, and delays in issuing rulings
· Be cognizant of tribunal dynamics and collegiality among arbitrators, if your case involves multiple arbitrators
Stage 5: Case Management Conferences
The initial case management conference is the key stage for discussing the conduct of the arbitration. It generally takes place shortly after a sole arbitrator is selected or the tribunal has been constituted. Additional meetings and procedural case conferences may be scheduled as necessary.