Cross-border in court
23 May 2011
The system’s flaws may be legion, but a better alternative to the use of international arbitrators to resolve disputes in cross-border commercial agreements has yet to be discovered, argues Charles Adams
Since the 1960s international arbitration, under the rules of the principal arbitral bodies, has been the default method of dispute resolution in major international commercial agreements.
Practitioners have asserted that international arbitration, compared with conventional litigation in domestic courts, is quicker, less burdensome, more economical, fairer and more equitable.
These days, users of the international arbitral process - CEOs and general counsel of multinational corporations, plus senior legal officers of sovereign governments and parastatal entities - are beginning to ask themselves whether arbitration is in fact none of the above and instead is lengthier, more complicated, more expensive and more arbitrary in result than ordinary litigation.
Mind your language
This is for a number of reasons. The first is the increasing influence of civil procedure derived from Anglo-Saxon common law. The vast majority of international agreements are drafted in English, even if they are not governed by English or US law, and comprise arbitration clauses specifying English as the language of the proceedings.
It is therefore unsurprising that UK and US law firms have gained a dominant share of the market for legal services in the prosecution or defence of international arbitration claims. There are no official statistics, but anecdotal evidence suggests that UK and US firms appear on behalf of one or both parties in over 60 per cent of proceedings.
There is nothing inherently wrong in this, but there is a perception that Anglo-Saxon lawyers import elements of common law civil procedure into international arbitration, in particular so-called ’fishing expedition’ document discovery and the motions practice it frequently entails.
Continental European lawyers, arbitrators and the end users by whom they are retained and appointed see the prevalence of US-style discovery as an unwelcome intrusion adding to the duration, complexity and expense of arbitration. It is their view that arbitral tribunals must exercise discipline in restraining demands for more documentary disclosures. Timorous arbitrators are sometimes loath to impose such discipline for fear of encroaching on the sacrosanct right to be heard.
Another reason why the arbitration process is viewed as more complicated than litigation is the reluctance of tribunals to rule dispositively in limine. Critics point to the disinclination of tribunals to dispose of matters on the basis of threshold challenges to jurisdiction or on the arbitral equivalent of motion to dismiss for failure to state a claim upon which relief can be granted.
It is often said by end-users that this reluctance stems not so much from concern for parties’ right to be heard as from arbitrators’ profit motive in having the case spin out to the bitter end.
This misperception has been fuelled by the large number of treaty investor cases in which a respondent government’s preliminary jurisdictional challenge to a claimant’s dubious standing as a foreign investor is ultimately upheld by the tribunal, but only at the end of the case and thousands of dollars in fees and expenses later.
Critics also point to the existence of a ’club’ of professional arbitrators as a cause of concern. In its medieval origins within guilds, arbitration was a means of dispute resolution governed by members themselves, with no external professionals involved - least of all lawyers.
The resolution of intra-guild disputes eventually devolved to the legal profession owing to the increasing prevalence of written agreements and the development of related case law. Lawyers acted as advocates or arbitrators and arbitral actions were not viewed as hermetically distinct.
Today there exists a class of professional arbitrator that frowns on the practice of those to be found on either side of the divide between arbitral bench and arbitral bar.
Some argue that this is a healthy development, insulating tribunals from jealousies and conflicts of interest in the rather closed universe of international arbitration and promoting the evolution of a uniform body of international arbitral jurisprudence.
End-users do not agree. It is often said that, to locate professional finders of fact and law distanced from the rough and tumble of advocacy, one should look in national courts rather than instances of international arbitration.
On the other hand, the view is held by many, including the author, that it is healthy for the arbitral process to have lawyers acting as advocates here and arbitrators there, bringing to bear in either capacity a holistic sense of arbitration as a practical, consumer-driven mechanism for dispute resolution.
Many other criticisms of international arbitration have been expressed by the business community that are beyond the scope of this commentary. The good news for those labouring in this discipline, however, is that international arbitration, to paraphrase Winston Churchill, is the worst form of dispute resolution except for all the others. The system, for all its faults, is likely to be with us for a long time to come.
Charles Adams is a partner at Akin Gump Strauss Hauer & Feld in Geneva