In-house and outside counsel urged to communicate to avoid disputes

In-house counsel must become involved with ­arbitration proceedings from the outset if they want to avoid lengthy and costly proceedings, delegates at a London dispute arbitration conference organised by The Lawyer heard last week (21-22 October).

General Electric (GE) senior counsel and chief compliance officer Jean-Claude Najar warned that there needed to be greater coordination between in-house counsel and private practitioners to ensure the arbitration process runs more smoothly.

“Law firms must involve in-house counsel more often when it comes to arbitration,” he said. “Very often we’re surprised that the in-house counsel isn’t involved and part of that blame lies with us. I’m amazed at how little in-house counsel get involved with arbitration.”

Nevertheless, Najar added, some blame also lies with outside counsel. “Still we find in our experience that some private practitioners don’t take advice easily or co-ownership of the case very well,” he said.

And more blames lies with those institutions overseeing arbitration proceedings. “Arbitration institutions play a key role in monitoring ­proceedings and they must use this role,” concluded Najar.

Northrop Grumman European legal director Wolf von Kumberg agreed, saying: “In-house counsel have to become more involved to be in the ­position where they can complain about the system.”

In the UK the Arbitration Act 1996 was intended to make it easier for all to participate in dispute resolution without going to court. But critics argue that stakeholders have failed to grasp the concept of the act and ­arbitration has become cumbersome, lengthy and in some cases extremely costly.

Technology and Construction Court head Mr Justice Ramsey, who helped formulate the 1996 act, said: “The principal problem has been that the act hasn’t resulted in the arbitrators grabbing the opportunities before them to be innovative and make arbitration proceedings in the UK any different from anywhere else.”

Hilary Heilbron QC of Brick Court Chambers argued that, while the Arbitration Act was generally viewed as a success, the ­current economic climate presents an opportune moment for stakeholders to make London the arbitration capital of the world.

“The current global meltdown and its long-term ramifications present the corporate and legal fraternity with a remarkable opportunity to consider international arbitration, particularly in London, in a wider context,” she said.

“It seems to me that just as there’s a concerted global response to the financial ­crisis emanating from ­London, both business and lawyers, particularly in the international context, should be considering a ­concerted global response to ;dispute ;resolution. ­London and international arbitration is ideally suited to play a significant role.

“It may be the time for those involved in the ­international arbitration community and corporate lawyers and their clients to think outside the box as to how they want their ­disputes resolved.

“There is room for a more consolidated and tailored approach.”
However, this can only happen if stakeholders take a coordinated approach towards settling disputes.

Von Kumberg explained that the effectiveness of international arbitration is essential to international commercial activity.

“Northrop Grumman is a global defence and technology company and we’re active in 54 countries,” he said. “If we didn’t have international arbitration it would be very difficult. There are many jurisdictions where political influence and ­corruption is rife. In those countries arbitration is to be avoided, so that leaves ­international arbitration as an effective tool.”

He reiterated Najar’s point, saying: “It comes back to in-house counsel. We have to participate in the process and be part of the process from very early on.”

This, he said, included being involved with the negotiation of contracts within corporate entities from the outset.

“The legal departments of large corporations do not usually negotiate contracts,” he said. “This is usually left to a certain department which has set terms and conditions that they follow, and the ­disputes clause is relegated to the bottom of the pile.”

In many instances, he continued, this was a ­standard disputes form that companies fail to tailor to specific contracts, which can cause problems for
in-house counsel at a later point.

“Early involvement would prevent any problems and costs associated with that,” he added.

An economic recession is likely to cause an upsurge in disputes, and those firms that embrace innovative methods of arbitrating will reap the rewards.

But Heilbron warned: “There ;will ;be ;initial ­resistance from many ­quarters, because everyone wants his day in court or his own tribunal, and some lawyers will also be ­reluctant to change. But there’s scope for consensus in many instances, and the impetus has to come from business.

“The advantages are huge – it will be quicker, less expensive and largely out of the public domain. This must be attractive for ­business, but it needs a groundswell of support.”