How to structure efficient international commercial arbitrations
When I started my career at the law firm Pestalozzi in Zurich back in the nineties, I had once the occasion to assist at a witness hearing conducted by Pierre Karrer, the outstanding Swiss arbitrator who, at the time, was a partner at Pestalozzi. I was deeply impressed by his multilingualism, capacity to grasp with astonishing facility the most complex non-legal technical issues, and by his authority vis-à-vis the participants in the hearing. Having had my office at Pestalozzi during a certain period next to Dr Karrer’s office, I also witnessed from time to time how he handled procedural issues that came up in the arbitrations conducted under his direction. According to my recollection, he handled such issues swiftly and authoritatively.
Later in my career, but still at Pestalozzi, I had the chance to participate in an important commercial arbitration which was conducted before the panel consisting of the professors Peter Forstmoser, Pierre Tercier and Peter Gauch. Although the stakes in this arbitration were high, I remember how the proceedings, particularly the witness hearings, were conducted in a civilised, constructive and efficient manner, and that the proceeding overall was efficiently brought to its conclusion.
These two examples of commercial arbitrations that took place around twenty years ago shall illustrate the first point that I wish to make: At the time, commercial arbitrations were supposed to be a relatively straightforward process. The parties presented their case to the arbitrator(s) who was an experienced, highly intelligent, impartial and independent personality (all that in plural, if the tribunal was not formed by a sole arbitrator but by a panel of typically three arbitrators). Unlike in civil proceedings before state courts, the proceedings before the arbitrator(s) were less formalistic, but despite this increased flexibility they were still efficient. However, today, the situation seems to be quite different, at least when the number of rule-making initiatives and of publications dedicated to the topics of simplifying arbitral proceedings and of making them more efficient and less costly is taken into consideration. In terms of personal experiences, I have been involved some years ago in an international commercial arbitration in which the motion practice was so extensive that one had the impression of being involved in US civil proceedings.
The above, obviously, raises the question why arbitral proceedings that, as mentioned, were supposed to be (and in the past generally indeed were) rather straightforward became so costly, complex and lengthy. A comprehensive answer to this question would be difficult since the development at issue is certainly not monocausal, but based on various contributing factors. Not all factors can be influenced by the parties or the arbitrators, such as the circumstance that the business world has become more complex, global, technical or rather technological, etc., which has a complexity-increasing effect, for instance in the form of augmenting the need for highly specialized technical experts. That said, what strikes me is that one of the cornerstones of arbitrations, i.e., the wide-reaching party autonomy in relation to the structuring of the arbitral proceedings, would permit the parties to streamline their arbitration to make it as efficient as they wish. The parties could, for instance, agree on an arbitration with documents as sole permitted means of evidence, which would eliminate the need for time-consuming and costly oral hearings; they could, to give another example, severely limit the possibility of document production requests, dispensing with time-consuming and costly exercises of handling Redfern Schedules, etc.; or they could, in the sense of a last example for illustration purposes, agree on only two exchanges of written briefs, without any further written submissions such as written closing statements. In light of, particularly, the jurisprudence of the Swiss Federal Tribunal in relation to parties’ right to be heard, there is no doubt that the parties to arbitrations in Switzerland have extensive possibilities to streamline their arbitral proceedings without having to fear an annulment of the arbitral award from this perspective, i.e., a violation of the right to be heard. Why do parties to arbitral proceedings not use this freedom more often to significantly streamline the way their case is dealt with?
I do, unfortunately, not have an answer to the question above. However, what seems pretty obvious to me is that the users of commercial arbitrations are not in a position to complain about the increased complexity, length and/or costs of these proceedings, since it is them who, as mentioned, have the power to decisively influence these factors. In other words, unlike commercial litigations before state courts, which take place in a tight, state-imposed corset, with the more or less limited judicial resources made available by the state, the parties in (international) commercial arbitrations have it in their hands to tailor the proceedings to their needs and, particularly, limit the complexity and costs of the proceedings, if they wish to do so.
It would seem to me that there are three principal decisions to be taken by the parties to the arbitral proceedings to shape the complexity, length and expensiveness of the procedure:
(1) The first, crucial decision concerns, of course, the appointment of the arbitrator(s). If the parties shall agree on a sole arbitrator, this should be obvious, but it is also true when a multi-arbitrator-panel is to be composed. The quality and availability of the arbitrators are crucial in general and specifically with regard to the length and costs of an arbitration. The parties should make sure that the arbitrators that they appoint do indeed have the required time to treat their case as a priority. The most capable arbitrator is a suboptimal choice if he or she is so overloaded with work that he or she cannot dedicate the necessary attention to the parties’ case. Another crucial aspect in the present context would appear to be the strength of the arbitrators’ personalities, especially of the chairman’s personality. The parties should look for a sole arbitrator or chairman that has the required independence, experience and firmness to take decisions that can be tough on the parties or rather on their counsel. For example, the sole arbitrator or chairman should be able to impose a schedule agreed upon with the parties and their counsel, because experience shows that otherwise the proceedings will be protracted and significantly delayed and also more expensive. The same is true regarding, to give another example, the bad habit of certain counsel to permanently file non-solicited submissions, which can lead to a real submission spiral that delays the proceedings and creates significant extra-costs. An experienced and powerful sole arbitrator or chairman should be able to stop such practice before it negatively impacts the effectiveness of the proceedings.
(2) The second important aspect relates to the structuring of the arbitral proceedings, which lies, as mentioned above, to a significant extent in the hands of the parties to the arbitration. The users should actively shape the structuring and management of their arbitration, according to their preferences. Consequently, it would appear to be inexcusable if parties do not personally participate at the case management conference in which the cornerstones of the proceedings are determined. In such (phone / video) conference, the parties (and not exclusively the arbitrators and counsel) should determine the scheduling of the proceedings and other important issues, such as the questions to what extent document production shall be possible, witness and/or expert hearings shall be held, etc.
(3) Finally, for the success of an arbitration, it would appear to be crucial also to carefully select and retain the lawyers that shall advise and represent the parties to the arbitration, i.e., their counsel. Of course, there are important companies that have in-house counsel who are very experienced concerning arbitrations. These companies, represented by their savvy in-house counsel, know how arbitrations work and what their requirements regarding external arbitration counsel are. However, not all parties to arbitrations have gained prior experience with this type of dispute resolution mechanism. For such parties, it is even more important than for the experienced users of arbitrations to retain experienced and competent counsel. Some time ago, I witnessed how a German company that had no prior exposure to international commercial arbitration proceedings retained its regular local lawyer for an international arbitration in Switzerland, who had no experience regarding such arbitrations. This was not a smart decision. The German local lawyer might have been the right go-to contact for standard issues under German law, but for the international commercial arbitration at issue he was overwhelmed, and later in the proceedings, he has been replaced by his client by a Swiss top-tier arbitration practice. Especially for parties that are inexperienced in arbitrations it is crucial that they retain experienced counsel who know what they are doing and also meet the highest ethical and professional standards, to ensure that they are exclusively committed to protecting the interests of the client.
To sum up my thoughts above, in a very condensed fashion, I would submit that the users of arbitrations have it in their hands (at least to an important extent) to make such dispute resolution mechanism successful and efficient, provided that they pay attention to the three crucial points mentioned above: The smart appointment of the arbitrator(s) and of counsel as well as actively insisting on an efficient structuring of the proceedings.
Philipp H. Haberbeck, Zurich, 24 February 2020 (www.haberbeck.ch)
The information contained in this post is for general informational purposes only and is not intended to constitute legal advice. Readers of this post should not take any actions or decisions without seeking specific legal advice. Any mandate is subject to the full execution of an engagement letter.
Rechtsgebiete: Allgemeines Vertragsrecht