October 24, 1997, Geneva, Switzerland
A Users Perspective on the Arbitral Process: What are the Current Needs?
Mr. James H. Carter
Co-Chairman, Corporate Counsel Committee
American Arbitration Association (AAA)
Sullivan & Cromwell
(New York, United States of America)
What does the User of arbitration want? Settlement, of course. He or she wants to be out of arbitration, not in it. The ultimate Userthe client who pays the billwants settlement and expects an arbitral institution to make available procedures that will achieve that result, if possible, as quickly and cheaply as reasonably can be done.
There is, of course, another set of users of arbitration: the lawyers. Some might be tempted to say that we (for I am one of that group) have a contradictory interest: the natural instinct to see the battle, once begun, resolved by combatto win a glorious victory. When in that mood, such "users" seek arbitral procedures that will permit (or perhaps even favor) whatever type of legal warfare the advocate in question considers most familiar and congenial.
But in fact, we practitioners generally manage to step back from the fray sufficiently to see our needs from arbitral institutions in a more rational light. Lawyer users actually want above all predictability, so that we can tell the client what to expect and have a reasonable hope of delivering on what we predict. We need rules and procedures that are transparent and accessible and potential arbitrators whose qualities are at least capable of assessment, if not entirely predictable. As a result, the lawyer users press the institutions for ever greater specificity: rules that give detailed guidance in more areas, publication of information about institutional procedures, and access to information about potential arbitrators. For perfectly natural reasons, the lawyers press, in essence, for what has been called "judicialization" of the process.
I would like to address first the needs of the lawyersthe "small u" users of arbitration, and then say a few words about the problems of the "capital U" Users, the clients. Those perspectives are not the same and may be to some extent inconsistent.
1. The Lawyer Users Needs
The principal need of the lawyer users is, as I have said, greater predictability in the process. This is best served by more detailed rules, available to all, as well as more information about a larger group of potential arbitrators and a greater role in choosing them.
With respect to rules, the lawyers want more description of the precise procedures that will be either permitted or required. They want that information published, so that the occasional user will not be unduly disadvantaged and so that the "black letter" may be cited to arbitrators and courts.
The greatest pressure for predictability from lawyer users of arbitration in my country today comes in the area of disclosure, or as Americans usually say, "discovery" and related evidentiary issues, where practitioners know many of the most important battles will be fought. Will there be a mandatory exchange of documents, even if the parties do not agree? By what method will the arbitrators resolve disclosure disagreements, and when? What will be the role of written witness statements? Will there be a mechanism for obtaining the testimony of non-party witnesses who are beyond the jurisdiction of any subpoena power the arbitrators may have, such as by oral or written deposition through the assistance of national judicial authorities available in aid of arbitration? Will there be telephonic or videotape testimony for presentation to the tribunal? What standard will the arbitrators use to decide whether to permit such testimonial variations if a party objects? Exceptional circumstances? Mere convenience?
For the most part, arbitral rulemakers have chosen to remain silent about these issues, not in hopes that they will go away, but recognizing that flexibility may require different answers under differing circumstances. In the case of the American Arbitration Associations 1997 revisions to its International Rules, for example, there was no change to the prior language of Article 19(3), which merely states:
"At any time during the proceedings, the tribunal may order parties to produce other documents, exhibits or other evidence it deems necessary or appropriate." The Task Force responsible for the revisions noted in its Commentary that "this language strikes the appropriate balance and places the necessary discretion and control over discovery in the power of arbitrators. The article does not provide a presumption of American-style discovery ..." (1)
But many lawyer users tend toward the view that at least some guidance from the institutions on the disclosure process, to put it neutrally, is necessary, so that parties and counsel will know what to expect and so that arbitral flexibility will have some boundaries. The AAAs Commercial Rules, which have been written into many international agreements, are now undergoing review. They may point the way toward a more extensive treatment of disclosure issues.
A second area in which lawyers often seek greater guidance from the institutions, either through the rules or in the form of guidelines that arbitrators would be encouraged to accept as the norm for the usual case, is arbitral management of the proceedings. A few years ago Sir Thomas Bingham said that arbitration has an opportunity to move toward a procedure that is "more piecemeal" in approach than common law litigation and away from what he called the "Waterloo School of Procedure, under which months or years of careful preparation and training culminate in an adversarial blood-bath in which all the reserves are thrown into the line to secure victory in a once and for all final and magnificent trial by battle."(2) But the effort to do so is proving harder than might have been expected.
The desire to encourage such "gradualist and case-specific" piecemeal thinking is widespread. For example, when the AAAs International Rules were amended earlier this year, language was added to make clear that the tribunal "shall conduct the proceedings with a view to expediting the resolution of the dispute," may conduct a preparatory conference and may in its discretion "direct the order of proof, bifurcate proceedings, exclude cumulative or irrelevant testimony or other evidence, and direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case" (Article 16) (3).
This elaboration of arbitral procedural powers, and the admonition/encouragement to use them, came as the result of practitioners desire for a template that would both increase the speed of resolution of proceedings and also give the lawyers a basis for suggesting the use of techniques familiar to them in court management of proceedings (4).
That having been done, however, it remains to be seen whether much will change. Arbitrators, at least in common law systems, instinctively set an ambitious schedule but then let the proceedings develop toward a conclusive Waterloo-type battle more often than not. The practicalities of assembling arbitrators and counsel regularly to move forward with some bite-sized piece of the case are daunting. Papers addressing specific issues submitted by the parties can be read by the arbitrators at distant locales, but what if the facts are in dispute and a hearing is required? When the arbitrators do step in with a heavy hand to attack the case piecemeal, the lawyers may feel that justice is threatened by undue haste to decide issues in a vacuum and without proper context. Additional thinking by institutions about how to deal with this issue would be useful.
A third subject on which lawyer users would like more help from institutions is information about and participation in the selection of arbitrators. My first two examples of such users needs have involved situations in which the lawyers want to make arbitration more like litigation. This third, I submit, is similar. Broadly speaking, users have a greater ability to choose the decision makers in arbitration than they do in litigation. But the litigation ideal is to know that, if your case is to be heard by Judge X, the lawyers will be able to make an accurate prediction, from knowledge of the law that Judge X must apply and from Judge Xs own rulings, about what is likely to happen. In arbitration, lawyers may know much less about what to expect from an arbitrator to whose selection they have agreed than they know about the likely outcome in Judge Xs courtroom. I therefore cite arbitrator selection as another example of pressure from lawyer users for a type of judicialization of the process.
Users typically want to know about any roster or panel of potential arbitrators when making a selection, and they need meaningful information about those who might be available. This may be to some extent inconsistent with the interests of arbitral institutions, whose lists of arbitrators and information about them are valuable assets not to be donated to the public domain. Finding a solution therefore will not be easy; but users are urging institutions toward compromises that will make this process more transparent.
Similarly, institutions will be faced with increasing user requests for a list procedure in selecting arbitrators, so that users may consider multiple candidates and exercise a degree of choice, rather than being given the name of an arbitrator ex cathedra. Selection unilaterally by the institution of course is most efficient, but many users would choose to compromise efficiency in the interest of participation.
All of this should be recognized as movement in the general direction of making arbitration more transparent and judicialized, more like litigation. Rules, predictability and information for use in the selection of the arbitrators: that is what most lawyer users want. Although those users differ considerably regarding how far they want to go in the direction of judicialization, there is a consensus, in my view, particularly among the non-specialists, that they want greater transparency in rules and procedures. Some arbitral institutions move readily toward greater transparency in response to this pressure, while others see reasons not to make much change in what has worked thus far. All of them, happily, are responsive to requests that they review and streamline procedures and are attentive to complaints about the length of time required for completion of arbitral proceedings.
2. Needs of the Clients
But judicialization of the arbitral process is exactly what the client Users generally do not want. The major challenge in better serving those "capital U" Users now, I believe, is finding ways to fine-tune the arbitral process so that it encourages more and earlier settlements; and that may be contradictory to the transparency/judicialization drive of the lawyer users.
In the United States, there have been at least two recent surveys of the client Users, both suggesting lack of satisfaction with the arbitral process. The first, released January 30, 1997, by the Rand Institute, studied several of the court-annexed arbitration and other alternative dispute resolution schemes developed under the Civil Justice Reform Act of 1990, in which cases in the federal judicial process are referred to court-selected arbitrators (often volunteer lawyers) (5). While a variety of types of proceedings may occur within that framework, the mandatory arbitrations imposed on parties who never agreed to such a process may be atypical of most arbitrations. In a sense, they may be the most judicialized of all forms of arbitration: imposed from outside and answerable to a government bureaucracy. In any event, the 450-page Rand study concluded that a statistical analysis of cases referred to mandatory arbitration detected "no major effect of arbitration on time to disposition, lawyer work hours, or lawyer satisfaction." The Rand study was promptly criticized by arbitration proponents, who pointed out that a focus on court-annexed proceedings may not be typical of much voluntary arbitration, and that the study may have had defects.
Still more recently, the Cornell University/PERC Institute on Conflict Resolution and the Price Waterhouse accounting firm announced a summary of the results of a survey of the use of alternative dispute resolution among 1000 of the largest U.S. corporations (6). They found that ADR techniques are widespread among large U.S. corporations, but that Users are more optimistic about the future of mediation than traditional arbitration. The survey in fact elicited two kinds of responses: those of a group of in-house lawyers for corporations who often complained of a lack of sufficient judicialization of arbitration, and those of business people (and the in-house lawyers closest to them), who had a different view. The latter group saw mediation as more likely to be subject to the control of the parties themselves than arbitration and more effective in producing settlements.
For example, the lawyer respondents on behalf of Users said that some companies that do not use arbitration for such reasons as lack of discovery, the fact that arbitrators are not confined to legal rules such as those governing the admissibility of evidence in courts, and the lack of an effective opportunity to appeal from an award on the merits. On the other hand, the more typical business voices of the User community surveyed were less concerned with these issues but saw a likelihood for "extensive growth" in mediation.
The increasing use of mediation, and the fostering of it by arbitration institutions, is an important subject that will be addressed by others today. But is there something that can be done to improve the settlement opportunities in arbitration proceedings themselves? Can rules and guidelines help? I recently learned of an important arbitration that settled, after a liability determination and full damage hearings, on the eve of final argument, as a result of a request by the parties that the three arbitrators at that point become mediators. They did so and achieved an agreed result; but the participants were left wondering why a resolution was only possible at such a late stage. Could the arbitrators have taken a more active role in promoting settlement earlier? How? Should the parties have asked them to do so earlier?
The lawyer users instinct, and a strong one it is in most lawyers, is to be suspicious of arbitrators stepping outside the role of decision makers and becoming mediators. Most of us are not entirely sure what an amiable compositeur or a dispenser of justice ex aequo et bono (7) looks like, but U.S. lawyers have been rather certain that they do not want to meet oneat least not in an arbitration hearing room. Mediators can speak confidentially with the parties, requesting and receiving information about their true settlement goals and limits, while arbitrators must act quasi-judicially and deal with the parties openly and "on the record."
But perhaps that instinct should be reexamined. The fact is that mediators get cases settled more often than arbitrators, and the "capital U" Users seem to be more satisfied with that outcome than with a longer and more expensive process leading to an imposed arbitral solution. We are told that in some parts of the world intervention by arbitrators to promote settlements is more customary than in common law countries (8).
From the survey of conflict management practices on which his recent book (9) is based, Christian Bühring-Uhle concluded that Users felt the arbitration process did not hinder the settlement process but did not substantially assist it either. Indeed, respondents said that settlement is less common in arbitration than in national courts! Perhaps the lawyer users of arbitration have managed to make it so much more desirable than litigation that they are willing to pursue cases to an award in situations where they would not dare to do so in court.
Bühring-Uhles conclusion is that arbitration and mediation processes should be integrated. He proposes the use of mediation "windows," where appropriate, in the midst of the arbitration process, and he cites the well-known IBM-Fujitsu case (10) as an example of the use of such an approach. I think there is much to recommend more experimentation is that direction, and arbitral institutions had best devise procedures for doing so before the real Users become more impatient with the settlement ratio for arbitrations.
Another proposal devised a few years ago by the AAA is a mechanism called "Medaloa": a mediation and last offer arbitration in which, if the mediation process does not result in settlement, the mediator would be entitled to put on the arbitrators hat and decide between the parties final offers. The AAA even published a pamphlet outlining the procedure (11). I am not aware of any use of it, however, due no doubt to the lawyer users reluctance to blur the distinction between arbitrator and mediator. Maybe the time has come for a further consideration of Medaloa, as well.
Amidst the continued growth of arbitration around the world, it is well to listen to those who speak of unsatisfied needs. The "capital U" Users ultimately will determine how well the institutions and the practitioners meet their needs; and they are capable of voting with their feet.
3. See AAA Commentary at 520-21. The International Chamber of Commerce too, in its Rules revisions effective January 1, 1998, takes a small step in the direction of management policing. Article 18(4) will require each arbitral tribunal to prepare and submit "a provisional timetable that it intends to follow for the conduct of the arbitration" and to advise the ICC Court and the parties of any subsequent modifications.
8. See, e.g. Yasuhei Taniguchi, "Arbitration Procedures-Harmonization of Basic Notions-Differing Approaches" in Globalization and Harmonization of the Basic Notions in International Arbitration (IFCAI Third Arbitration Conference, 1995), at 89, 96-97.