Do we really know our Arbitration?

There were attempts to define Arbitration universally except that with different national legal systems, there are diverse processes of applying arbitration procedures subject to multifaceted political and judicial systems as well as possible corporate influences.

 In spite of all debates, it is known that the core definitive principles of arbitration are to be found in almost all arbitration agreements and they simply are:

  • the arbitration agreement itself for without it we do not have an arbitration process,
  • a defined dispute; and
  • a reference to a third party (the arbitrator) for the determination of an outcome of the dispute in an award.[1]

Arbitration Awards are supposed to be final and binding as to the matters it decided upon. In practice it is usual that the award is voluntarily complied with.

However, the law that determines if the agreement had become binding is the law applicable to the agreement. In certain countries the law stipulates that a judicial enforcement is required and especially if the seat of the tribunal is different from the applied law of the country of enforcement. [2]

The choice of seat of arbitration is therefore important since it will normally determine the procedures adopted by the arbitral process. The courts having jurisdiction are the national courts of the state where the seat is chosen and they will have exercisable supervisory role over the arbitral process within the framework of the national law applied.

In many countries the award becomes binding when it is issued and declared while in other countries the award will become binding only after registration or after certain formalities have been completed.[3]

Almost all parties to contracts find Arbitration Awards’ effective conclusiveness appealing. However, this can only be true if the award is adequately enforced and the successful claimant is ensured to recover awarded damages.

The right to challenge an award is considered to be ‘a fundamental part of the arbitral process because it provides a system of checks and balances against corruption, arbitrariness and biases.[4]

The principle in the English Common Law after the enactment of Arbitration Act 1996 is that, in the absence of the parties’ agreement, the seat of the arbitration is treated as the place where the award is made thus ascertaining the country in which to challenge the award.[5]

 In other countries such as Egypt, Jordan or even France the same principal applies, where the national Arbitration Law applies to arbitral proceedings if the seat of arbitration is in the country of the seat.[6]

Challenging an award however in the 1996 Act under s.67, s.68, s. 69 and s.70 provide the losing party limited courses to take by which to challenge an award.[7]

These include:

  • party was incapacitated at the time of arbitration agreement;
  • Arbitration agreement is not valid under law of which parties agreed to subject it to;
  • party was not properly notified of the appointment of arbitrator or proceedings;
  • award is dealing with a matter different from the agreed terms of submission to arbitration;
  • the award was set-aside, annulled or suspended;
  • the award is contrary to public policy.[8]

Is Arbitration the Cure for the ills of our modern legal systems?

As we see, arbitration initially has taken indistinguishable forms away from whatever process occupied the form of litigation.

It was one of man’s inventiveness in response to the inadequacies of the legal systems.

Arbitration, like the wheel, became an appropriate tool.

A tool of dispute resolution for any normal person whether a poper, a trader or in some cases even a king.[9]

Today societies became sufficiently large and complex and disputes became larger and more elaborate even beyond the capacities of some countries’ national legal systems.

Profiteering:

The Greek debt crisis case stands out as just one example in a highly lucrative investment arbitration business. It suggests a new breed of international ‘ambulance chasers’ has emerged on the global stage. The term ‘ambulance chasers’ originated in the late 19th Century and referred to new lawyers who sought to profit from someone’s injury or accident, following hospital wagons to the emergency room in search for legal clients.

But that was not what the arbitration industry had in mind. To influence the debate, firms such as Hogan Lovells, Herbert Smith Freehills and Baker McKenzie invited EU policy-makers to “informal but informed” debates with their multinational clients – including several which have sued states under investment treaties such as Deutsche Bank and Shell.

Professor Gabriele Crespi Reghizzi says that in any arbitration, the primary cost is the cost of the lawyers.[10]

In a study published by Corporate Europe Observatory and the Transnational Institute; it quotes an anecdote in the Global Arbitration Review (GAR 100), a yearly survey of specialised arbitration firms, indicates why arbitration lawyers have become such high-priced actors.[11]

The yarn is about a university lecture on international arbitration by Matthew Weiniger from the UK-based law firm Herbert Smith Freehills, who regularly appears before arbitration tribunals. He compared the UK’s two volumes of court rules and procedure with a thin booklet produced by the International Chamber of Commerce. “The difference between those two thicknesses,” Weiniger explained to his students, “is what international arbitration lawyers know. And it’s not written down”[12].

It is this “lack of rules and regulations to consult” that causes clients as well as many young lawyers who enter the field of international arbitration to be unsettled, according to GAR. “Clients and some lawyers may feel disoriented to be in a world where case procedure can be entirely ad hoc.”

International arbitration does not even look like a legal proceeding. An outsider would “see two small groups of lawyers wearing lounge suits, occupying a hotel room or training room. On the other side of the room: a trio of types with possibly a bit more grey hair. There’s no audience, no usher and little hint of spectacle or ceremony. It could perhaps be mistaken for a training course” or a business meeting. [13]

Let’s not kill the goose:

It is the creation of mythical theories such as by hiring some of the rare advocates whom their relation will “guarantee” inside knowledge with the Arbitrator sitting-in on the case or giving the impression of having unique know-how about the mysterious universe of ARBITRATION so to offer significant advantages to the hiring claimant, these yarns help feed the continuous tell tale of the Arbitration Super Lawyers and give feed to the endless gold rush to the magical world of ADR.

A practitioner from Swiss firm Schellenberg Wittmer explained that claimed knowledge is not sufficient. The main issues are:

Who should we choose as arbitrators?

How many witnesses should we have?

How many written submissions?

Should we allow written witness statements?

You have to be aware of these issues to know what’s good for your case and what is not.

Even countries which can’t afford this kind of expertise may often find their defense cases suffer from scattered and incomplete sources of arbitration laws and jurisdictions. [14]

The Czech Republic, for example, only managed to successfully defend its cases when it turned away from domestic lawyers and hired some of the costly international elite firms. [15]

Today’s ambulance chasing has gone global, with some international law firms encouraging multinationals to sue governments in international investment disputes – wreaking havoc on public finances, social, health and environmental policies.

Others debate that many senior lawyers in the top firms also act as arbitrators [16], which some claim is opening a Pandora’s Box of potential conflicts of interest because of their vested interest in growing their own business.

An arbitrator might, for example, be tempted to make a decision that will favor a client whom they represent as counsel in another case. Some suggest that the dual role of arbitrator and counsel is “one of the most significant problems of the investment arbitration regime”

According to one of the leaders in the arbitrator market, Swiss firm Lalive: “the lawyer who regularly sits as an arbitrator is the more astute advocate”.[17].

In contrast I hereby copy word for word a study by Alan Dabdoub of Trey Cox (on December 6, 2012) [18]

The numbers game:  Outside counsel fees, arbitration costs and number of months to resolution

Of the 19 cases in the study, nine were resolved through arbitration; 10 were litigated in court. The study focused on outside counsel fees, arbitration costs, results and time to resolution. The study demonstrates that arbitration—on average—is more expensive and slower than litigation. Although the study analyzed employment-related disputes, the results can be extrapolated to estimate costs and time to resolution in all types of disputes, including business and consumer-related disputes.

The numbers in the study are telling: The nine cases resolved through arbitration incurred a total of $710,323.50 in outside counsel fees, with an average outside counsel bill of $78,924.84. The 10 cases in litigation cost an aggregate $631,443.28 in outside counsel fees but averaged roughly $63,144.33 per case—less than $15,000 per case! The arbitration cases incurred $921,042.22 in total costs and outside counsel fees, with an average per-case expenditure of $102,338.02. But in the litigation cases, total costs and outside counsel fees were $704,908.20, with an average per-case expenditure of $70,490.82a difference of more than $30,000 per case! Arbitration fared no better in getting to the finish line faster. For cases litigated in court, the median case lifecycle was 19 months. By contrast, the median arbitration case lasted 21 months.

One outlier case showed the arbitration process running amok. This arbitration case lasted 10 months longer than the longest trial and resulted in 62 percent higher costs than the most expensive trial! This was due to having to reconvene a three- arbitrator panel several times—months apart—to conclude the hearing.

Whether in court or arbitration, moving the matter quickly is always important to overall costs.

So where did we go wrong?

 

Posted by: Mohamed Raffa, LLM, FCIArb

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[1] Fouchard, Gaillard & Goldman, Traite’ de l’arbitrage commercial international, Paris, Litec, (1996).

[2] Inter-Arab Investment Guarantee Corp v. Banque Arabe et Internationale d’Investesments, Cour de Cassation, 5th June 1998, Journal des Tribunaux (1998).

[3] Egyptian Arbitration Law 27/1994 Article 47

[4] Kerr, Arbitration and the Courts: The UNCITRAL Model Law (1985) 34 ICLQ1 15, as cited by A. & K. Tweeddale, Arbitration of Commercial Disputes, Oxford (2007) p.372

[5] English Arbitration Act 1996 S.53

[6] Egyptian Arbitration Law 27 for 1994, Article (1).

[7] Van Der Geissen-de-Noord Shipbuilding BV v. Imtech Marine BV (2008)

[8] Metropolitan Property Realizations Ltd. v. Atmore Investments Ltd. (2008)

[9] 1648 Count Maximilian mediates an end to the Thirty Years War for the Holy Roman Empire, establishing contours of Europe for a century.

[10]   Professor Gabriele C. Reghizzi , Arbitrator and of counsel Lombardi Molinari e Associati Casley Gera, Ravinder (2009) The Globalisation of Arbitration,The Chambers Magazine, http://www.chambersmagazine.co.uk/Article/The-Globalisation-of-Arbitration [16-05-2012].

[11]  A study published by  Corporate Europe Observatory and the Transnational Institute and conducted by the two teams: Pia Eberhardt & Cecilia Olivet, and Tyler Amos & Nick Buxton, (Brussels / Amsterdam, November 2012)

[12] Global Arbitration Review (2012) Global Arbitration Review 100. The guide to specialist arbitration firms 2012, p. 3

[13] Casley Gera, Ravinder (2009), see endnote 24

[14] Gottwald, Eric (2007) Leveling the Playing Field: Is it Time for a Legal Assistance Center for Developing Nations in Investment Treaty Arbitration?, American University International Law Review 22:2, 237-275, pp. 252ff.

[15] Bouc, Frantisek/ Aust Ondrej Cesko naslo rcept na arbitráze, Lidove Noviny, 9 July, 2009.

[16] With 25 lawyers sitting as arbitrators Freshfields is the market leader, see: Global Arbitration Review (2012) Freshfields  Bruckhaus Deringer, http://www.globalarbitrationreview.com/journal/article/30337/freshfields-bruckhaus-deringer/[16-08-2012].

[17] [ibid.] Corporate Europe Observatory and the Transnational Institute p.31 footnote 36

[18] www.insidecounsel.com/2012/12/06/which-costs-less-arbitration-or-litigation