Arbitration: The Last Word in Saving Time and Money

James W. Durham is former General Counsel for Portland General Electric, PECO Energy and Exelon Corporation, and is currently an independent arbitrator. John W. Hinchey is a former partner with King & Spalding, LLP and a full-time JAMS arbitrator and mediator. Both are members of the executive committee of the College of Commercial Arbitrators.

In today's business climate, every general counsel is being required to do more at a lower cost. To the bottom line of a business, legal costs look no different than any other overhead cost. In other words, less is better; and lower costs equal higher profits. For many years, arbitration of business disputes provided for a more cost-effective and timely resolution of disputes than litigation. However in recent years the business community has complained that arbitration of commercial disputes is becoming just as time-consuming and costly as litigation. Consequently, businesses and their general counsel are looking for other options to resolve disputes.

The legal community has taken notice. Fulbright & Jaworski commissioned an independent research firm in 2009-2010 to survey corporate counsel in the United States and the United Kingdom on their experiences with litigation and arbitration ([email protected].) Some of the highlights of this study were:

• More than 25% of the responders expect the number of disputes their companies face to rise in the next year;
• In disputes that are not international in character, and when given a choice, 58% of all responders would opt for litigation; only 38% would choose arbitration; and approximately 10% say, “it depends”;
• More than 40% of corporations plan to increase their budgets for electronic discovery in coming years, and they firmly believe that applicable discovery rules should be stricter in limiting the scope of electronic discovery.

As to corporate attitudes toward international arbitration, White & Case, acting with the Queen Mary School of International Arbitration, University of London, has just published the results of its 2010 survey on corporate attitudes and practices regarding international arbitration (www.arbitrationonline.org/research/2010/index.html). Reporting on complaints about excessive time and cost, the White & Case survey reported:

• Disclosure of documents, written submissions, constitution of the tribunal and hearings are the main stages of the arbitral process that contribute to delay; and
• According to the respondents, parties contribute most to the length of the proceedings, but it is the tribunal and the arbitration institution that should exert control over them to keep the arbitral process moving quickly.

As further evidence of the widespread concern among business users of domestic and international arbitration, virtually every arbitration provider institution have commissioned similar studies or published protocols, guidelines and rules ' all with a view to addressing business users' concerns about excessive time and cost of arbitration to resolve commercial disputes.

National Summit on Reducing Time and Cost

The College of Commercial Arbitrators decided in 2008 to address these complaints head-on and drill down on the causes and possible cures. They convened in October, 2009 a National Summit on Business-to-Business Arbitration in Washington, DC. Five of the principal organizations involved in commercial arbitration, namely, the American Bar Association Section of Dispute Resolution, the American Arbitration Association, JAMS, the International Institute for Conflict Prevention and Resolution (“CPR”), The Chartered Institute of Arbitrators, the Straus Institute for Dispute Resolution of Pepperdine University School of Law and 72 CCA Fellows, all leading U.S. and international arbitrators, joined the College as co-sponsors of the Summit. The goals were to identify the chief causes of the complaints and explore concrete, practical and remedial steps. The concept of a National Summit arose from two key insights: 1) each of the “stakeholders” in arbitrations, including business users, in-house counsel, outside counsel, arbitrators and arbitration providers must be involved; and 2) all of these “stakeholders” must collaborate in identifying the causes and cures of cost and delay in arbitration. Their conclusion: Arbitration is still a cost-effective and timely way to resolve business disputes, but only if administered effectively. Most importantly, general counsel must be a significant player in guaranteeing effective arbitration proceedings.

The Lessons and Cures

The Summit discussions revealed that promoting efficiency and economy in arbitration must be a mutual effort among the four constituencies: 1) business users and in-house counsel; 2) institutional arbitration providers; 3) outside counsel; and 4) arbitrators, because each has significant control over the arbitration process. Based on discussions among representatives of these four constituencies, the College developed and published in the fall of 2010 a significant document entitled “Protocols for Expeditious, Cost-Effective Commercial Arbitration ' Key Action Steps for Business Users, Counsel, Arbitrators and Arbitration-Provider Institutions” (www.thecca.net/CCA_Protocols.pdf).

The lessons of the Protocols are premised on the National Summit consensus that the time and costs of commercial arbitrations are driven by specific actions that each constituency can take to reduce the time and expense of business-to-business arbitration. For example, if the arbitration provider whose rules control a case provides no option for accelerated time frames or limited discovery, and, if the parties and their counsel are battling every issue, the arbitrator's ability to contain discovery costs is seriously constricted. The overarching principles for each constituency in the Protocols are the following:

Be deliberate and proactive. Promoting economy and efficiency in arbitration depends, first and foremost, on deliberate, aggressive action by the stakeholders, starting with choices made by businesses and counsel at the time of contract planning and negotiation and continuing throughout the arbitration process.

Control discovery. U.S. style discovery is the chief culprit of current complaints about arbitration morphing into litigation. Arbitration providers should offer meaningful and limited alternative discovery routes that the parties might take. Also, the parties and their counsel should work to reach pre-dispute agreement with their adversary on the acceptable scope of discovery, and arbitrators should exercise the full range of their power to implement a discovery plan.

Control motion practice. Substantive motions can be the enemy or the friend of the effort to achieve lower costs and greater efficiencies. Some see current motion practice as adding another layer of court-like procedures, resulting in heavy costs and delay. Others see current motion practice as missing an opportunity for reducing costs and delay, where clear legal issues that might be disposed of at the outset are instead deferred by arbitrators, to allow parties to conduct discovery and then offer their proofs. The key is recognizing whether in a particular case a substantive motion would advance or reduce the goal of lower cost and greater efficiency in the particular case.

Control the schedule. Since work expands to fill the time allowed, it is critical to place presumptive time limits on activities in arbitration or on the overall process, coupled with “fail-safe” provisions that ensure the process moves forward in the face of inaction by a party. At hearings, for example, the use of a “chess clock” approach is of proven value in expediting examinations and presentations.

Use the Protocols as tools, not as a straitjacket. While there are certain categories of cases that are alike except for the identity of the parties and other participants, most commercial arbitrations with a substantial amount at stake are distinct in at least some way, be it the twist of circumstance that sparked a dispute or the array of legal issues presented. These Protocols offer actions that might apply to the broad range of cases, and yet embedded in them is recognition that parties' needs vary with circumstances and that a well-run arbitration will at some level be custom-tailored for the particular case

Remember that arbitration is a consensual process. Arbitration is rooted most often in an arbitration agreement made when the parties were in a constructive, “let's get the deal done” mode. If and when a dispute arises, reactions will vary. Some parties, looking to do business again in the future or accepting of the occurrence of a dispute, will be able to cooperate productively towards a common goal of cost containment. Other parties, by the point of a dispute, are entrenched in their respective perspectives of what occurred and why the other side is to blame. Parties in this mind-set face a daunting challenge to look beyond grievances in order to find cost savings that might benefit each side. The Protocols aim to meet the diverse settings in which cases arise, recognizing that the prescribed behavior ultimately cannot be imposed but can only be encouraged, in a context where the constituencies' efforts permit formulation of the best plan for the particular case.

The Central Lesson

In the final analysis, the central lesson of the National Summit is that the core value of arbitration is choice. The business users and in-house counsel who draft the deal start with the greatest range of choice in what procedures and limitations they place in the arbitration agreement ' because arbitration is a creature of contract. Of course, the business users and in-house counsel can be greatly aided by arbitration providers and institutions who offer a range of draft agreement clauses, rules and guidelines. The outside counsel who play a key role as expert advisers to the users should be certain that they are fully aware of and advise their clients of the costs, benefits and potential risks of all of the procedural options available to them, so that fully informed choices can be made.

Conclusion

Finally, the arbitrators must be good arbitration process managers, and fully committed to an optimal balancing of efficiency, economy and fairness. Court litigation, by contrast, does not offer this range of choice. The unique and inherent value of the Protocols is that they are perhaps, to date, the most succinct and comprehensive analysis of the causes, cures and remedies for cost and delay in commercial arbitration.

James W. Durham is former General Counsel for Portland General Electric, PECO Energy and Exelon Corporation, and is currently an independent arbitrator. John W. Hinchey is a former partner with King & Spalding, LLP and a full-time JAMS arbitrator and mediator. Both are members of the executive committee of the College of Commercial Arbitrators.