[This is the outline of my presentation at the Chartered Institute of Arbitrators Asia-Pacific Conference 2011, in Sydney over 27-28 May. (A PDF version including full references and hyperlinks can be downloaded here.) It draws on research for the project, ‘Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific‘, supported by the Commonwealth through the Australia-Japan Foundation which is part of the Department of Foreign Affairs and Trade.]
Concerns about growing delays and (especially) costs in International Commercial Arbitration (ICA) have spread from West to East:
Advantages of ICA over Cross-Border Litigation (‘East’ vs ‘West’)
Response: ‘highly relevant’ or ‘significant’(* Statistically significant at 99% confidence level)
Region of Practice: East (Ali study ‘06) West (CBU ‘94)
Forum’s neutrality 88 (%) 78 (%)
Forum’s expertise 83 76
Results more predictable 36 42
Voluntary compliance* 42 24
Treaties ensure compliance abroad 85 69
Confidential procedure* 76 56
Limited discovery 47 56
No appeal 64 58
Procedure less costly 36 20
Less time consuming* 57 35
More amicable 52 35
This is also a major and longer-standing concern about Japanese corporations, for example, which explains why they still do not contest many ICA cases (even at the JCAA) despite increasingly incorporating arbitration clauses in cross-border contracts. The ICC, which has a growing Asia-Pacific caseload, has produced a useful Report suggesting various means to manage costs and delays. Yet the ICC distinguishes itself as a ‘high-quality, high-cost’ arbitral venue, evidenced eg by the hands-on service provided by its Secretariat and its ‘Court of Arbitration’. My presentation therefore proposes measures that are often more radical, and which may be particularly suited for ICA involving Australian and Asian parties.
Innovations in Drafting Arbitration Clauses
i. Chose ad hoc arbitration only for very large cases, now that (regional) arbitration institutions often offer similar Rules, experience and charges.
ii. Mostly chose a sole arbitrator:
a. but get the institution to provide a list with biographical information, eg statistics on past cases arbitrated and underway, sample/redacted awards, other experience, substantive law and sector knowledge as well as procedural law expertise, familiarity with foreign languages and legal/cultures, willingness to charge fixed fees or time charge caps and to accept payment in foreign currencies; or
b. allow institution to choose number depending on complexity of eventual dispute (see eg ACICA Arbitration Rules); and/or
c. create internal/arbitral appeals mechanism to a different (sole) arbitrator even for serious error of law, but eg only on documents (ie no hearings).
iii. Agree that each party and the institution will propose (at least) a variety of persons as sole (or presiding) arbitrator:
a. not just (ex-)lawyers or ex-judges, but also law professors with relevant experience, and non-jurists unless the dispute overwhelmingly involves legal rather than technical issues;
b. including ‘next generation’ (40s-50s) arbitrators;
c. arbitrators willing to waive or diminish any contractual/Rules-based immunities for negligence etc in conducting an arbitration (although this may make them more cautious / slow, depending on the disputes at issue).
iv. Maximise tribunal powers to order interim measures, including eg ex parte preliminary orders (unless clearly prohibited, as now in Australia).
v. Limit documentation in arbitral proceedings:
a. Adopt (or at least require consideration of) IBA Rules on Evidence-Taking (revised 2010);
b. Possibly even stricter at least re certain defined/agreed issues, eg
i. ‘no discovery’ (ACICA Expedited Rules);
ii. joint expert witness reports (or at least conclaves / ‘hot-tubs’), otherwise require tribunal (not party) appointment if one party requests expert evidence;
iii. no or only one or ‘exceptional’ oral hearings (and then by telephone conference, unless parties want internet-based video-conferencing).
vi. Applicable substantive law:
a. Consider a simpler, tailored, neutral set of norms like the UNIDROIT Principles of International Commercial Contracts (at least to supplement the application of a specified national contract law governing the underlying dispute).
b. Especially after or during dispute, require tribunal to give the parties the opportunity to specify that some narrowly defined issues should be decided based on general fairness (et aequo et bono) rather than any system of law, or only with ‘summary reasons’ or ‘without any reasons’.
vii. Require (or require tribunal to consider) partial awards eg re:
a. Applicable law(s);
b. Quantum of compensation (even first!) vs liability;
c. Interpretation of limitation of liability clauses.
viii. Authorise tribunal (in writing) to facilitate settlement during proceedings (Arb-Med):
a. Only in open session; unless
b. by further written agreement (possibly only after getting further legal advice), parties allow ex parte meetings (caucusing) – eg with parties from China or Japan (much less likely: those from HK, Singapore, Europe – where caucusing uncommon).
ix. Set strict but realistic time limits for award (from date tribunal constituted).
x. Party costs:
a. Consider adopting ‘American rule’ (also found eg in Japanese law) where party costs born by each side (even if win) – deters claims.
b. If instead parties maintain the ‘English rule’ (more common now in ICA), require arbitrators to award:
i. only ‘reasonable’ costs of winning party’s lawyers based on itemised bills;
ii. including in-house counsel costs (typically cheaper than outside counsel) – this will focus the parties’ minds on (minimising) the real costs of arbitration.
c. Negotiate with outside lawyers to stage and cap at least parts of their legal work – including eg significant incentive for settlement.
xi. Opt-in (if necessary) to allow ‘compound interest’ awards; specify rate(s).
xii. Incorporate strict confidentiality requirements (as under ACICA Arbitration Rules ), so the tribunal can ‘get on with the job’ without being overly concerned about public scrutiny of findings.
xiii. Specify overarching general principles for conduct of the arbitration: eg that ‘(i) arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and (ii) awards are intended to provide certainty and finality’.
In determining the seat of the arbitration, apart from usual considerations such as geographical convenience and critical mass in arbitration caseload, parties and their legal advisors should determine whether the lex arbitri promotes or at least allows these and other measures to minimise costs and delays in ICA.