Improving Corporate Arbitration
Corporate arbitration is increasingly important for settling transnational business disputes. How can the process be improved?
A 2013 survey of corporate counsels Price, Waterhouse Coopers revealed that corporate arbitration is an increasingly popular and vital platform for settling transnational business disputes. However, the increase in popularity is not consistent across all industries; the energy sector and construction are more likely to view arbitration as the best option for settling disputes while the financial sector may prefer litigation. Arbitration was the “most preferred” or “preferred” option for over 80 percent of respondents, while court litigation was “most preferred” or “preferred” by 56 percent of respondents.
As for why corporate counsels preferred arbitration to all other dispute resolution frameworks, the following factors were considered most important:
- The expertise of the decision-maker (47 percent)
- Neutrality (43 percent)
- Confidentiality (37 percent)
- Enforceability (35 percent)
- Procedural flexibility (26 percent)
- Speed (21 percent)
- Cost (2 percent)
However, several respondents felt that corporate arbitration was in danger of becoming “judicialized,” or increasingly formal and rule-bound, which could potentially increase cost and delays. Even to in-house corporate counsels, the possibility that arbitration could become more like litigation could greatly reduce the appeal of this dispute resolution framework.
What makes this judicialization particularly ironic is that the form, format, rules of evidence and other features of arbitration are negotiated between the two parties, so it is well within their capability to simplify and speed up the arbitration in which they are about to engage.
What would be recommended best practices for corporate arbitration to create a streamlined process? We have identified three:
- Choice of the arbitrator(s). There are several factors that make for a good choice for arbitrator(s). First, they should be able to devote their attention to the arbitration at hand and not be overscheduled and distracted. While the schedule for the proceedings is determined by the participants, the arbitrator ensures the proceedings stick to the schedule imposed, or the arbitration could become protracted and expensive, or even delayed unnecessarily. Indeed, the best choice for sole arbitrator or chairman is a person of sufficient reputation and forcefulness to garner the respect of all parties, counsel included, and to enforce all of the provisions agreed to by the parties in dispute, including rules regarding motions and filing submissions. It is the arbitrator’s role to keep the arbitration focused on the task.
- The case management conference. The parties must agree, prior to beginning the arbitration, to the structure and management of the proceeding, scheduling, whether and how document production shall be possible, whether to allow and how to structure witness and/or expert hearings, etcetera. Agreement on all of these is critically important to the efficiency, speed and cost, and ultimately the success, of the arbitration. Therefore, full and engaged participation in the case management conference by the parties in the arbitration, as well as arbitrator(s) and counsel, is essential.
- Choice of counsel. The choice of counsel by the parties involved is also important to the efficiency and outcome of the arbitration. Some companies will have in-house counsel with considerable experience in arbitration, but many more will not and will have limited experience in arbitration themselves. It is important that these parties choose their counsel well. These parties may appoint a counsel, perhaps a local attorney, whom they trust and are comfortable with, but arbitration experience and the highest professional and ethical standards, gleaned from references from prior arbitrations, are by far the most important factors for participants to get what they want out of the arbitration.
There are many advantages to choosing to arbitrate as opposed to litigate, adjudicate, or mediate a business dispute. A successful outcome is the goal of both parties, and that requires the parties set up a flexible process, find the best arbitrator(s) they can, and hire professional counsel to create an efficient and optimal arbitration.