Effective management of arbitration – the importance of involving in-house counsel

May 2020 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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Arbitration is an established dispute resolution mechanism. Favoured in international disputes, it possesses an array of formats given its well-known flexibility. If combined with other sorts of alternative dispute resolution (ADR) methods, such as mediation, dispute boards, negotiation, expert determination, and so on, through multi-tiered clauses, it can create a truly ‘tailor-made’ experience, and is able to combine its desirable procedural advantages with a user’s particular needs.

Due to the lack of appeals, arbitration is widely regarded as being faster than litigation before state courts. Moreover, appointing a specialist in the subject matter as arbitrator tends to lead to more technical decisions. Another benefit of arbitration is the chance to agree on the confidentiality of the proceedings, which makes it more suitable for cases involving sensitive commercial information or trade secrets. Furthermore, given the existence of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has been ratified by more than 160 countries, an arbitral award may be enforced in different jurisdictions more easily than a court judgment.

Compared to these theoretical benefits, arbitration users often complain about its speed and costs. Although some of these findings are not without merit, arbitration remains a method through which a third person, selected by the parties or someone on their behalf, can resolve a dispute by issuing a binding decision.

From a practical perspective, arbitral proceedings are largely dependent on the exercise of party autonomy. However, even though flexibility is always at the disposal of both the parties and arbitrators, it is not necessarily (or correctly) used. This article will analyse whether the active involvement of in-house counsel leads to more cost-efficient and satisfactory proceedings.

Much has been said about external counsel, arbitrators and the institutions in charge of administering arbitration cases. However, the most important parties and biggest stakeholders in an arbitration are the companies involved, generally represented by their in-house counsel. Widely used arbitration rules seem to acknowledge this, as they differentiate parties from their representatives.

In the capacity of in-house counsel, no one is in a better position to exercise party autonomy. It is through their participation, during all the steps of the arbitration, that a tailor-made proceeding can be put in place to achieve better cost-efficiency.

This position was reinforced by a study conducted by the International Chamber of Commerce (ICC), according to which the administrative fees generally amount to 2 percent of the overall costs of arbitration, arbitrators fees correspond to 16 percent of the general costs and the parties’ expenses with their legal or technical representation account for the remaining 82 percent.

It is worth pointing out that cost efficiency does not mean cheap. Complex cases will usually demand large costs due to attorney fees, production of evidence, both documentary and expert, and even travel costs, depending on where the arbitration is seated. The proposition of cost efficiency is value for money, implying that cost is only one of the facets worth analysing when making a strategic decision about an important dispute.

Having established that, this paper will look to the important role that an in-house counsel may play during the various steps of arbitration.

Arbitrations is usually commenced based on an arbitration clause. As such, the contractual phase has important implications for future disputes that may arise from an underlying contract.

In-house counsel ought to pay attention to arbitration clauses when concluding a contract, directly or with the assistance of external counsel. Either way, it is advisable to confer with an expert on the subject and to consider the characteristics of the case.

Based on a number of factors, in-house counsel can take the decisions that most benefit the company regarding the number of arbitrators, the seat of the arbitration, the administrative institution, language and so on. Ultimately, there are no right or wrong decisions. Each will have different cost implications but will also have an impact on the conduct and result of the arbitration depending of the particularities of the case.

Another important decision is the inclusion of another ADR method, in combination with arbitration, the so-called ‘multi-tiered clause’, which may include mediation, conciliation, negotiation, adjudication, dispute board resolution proceedings and other methods available to the parties. This enhances the chances that the arbitral proceeding will not be required, and the dispute swiftly resolved.

Even if no multi-tiered clause is included, settlement attempts may be considered. In these cases, in-house counsel may play an important role. First, it has direct knowledge of the case and is aware of its commercial and financial implications. Second, due to its unique position as counsel and part of the business team, it can understand the other parties’ concerns, while still exercising its role as an attorney. In addition, in-house counsel will usually not be as exposed to the crossfire between external counsel and thus achieve a consensus more easily.

However, if settlement attempts are either non-existent or unsuccessful, the commencement of the proceedings will bring new issues to the table. The first being the appointment of arbitrators.

It is often said that arbitration is only as good as the arbitrators. As such, their appointment is a strategic decision and in-house counsel’s opinions and views are highly important. Crucially, external counsel should pay attention to the in-house counsel’s expectations before presenting a list of candidates for consideration, especially on background and availability. They also play a role in vetting candidates and adding any names to the list, if needed. Companies have become increasingly aware of gender inequality and are demanding more balanced candidate lists, for example.

Regarding the early determination of the issues in dispute, the scheduling of preliminary hearings or conferences upon appointment of the arbitrators to organise the conduct of the procedure, as provided by some arbitration rules, is a useful mechanism. Proactive arbitrators may also choose to organise these conferences on their own initiative. For instance, one technique that is on the rise includes arbitrators ordering the parties to present a list of mutually agreed issues. This helps to evidence the true subject matter of the dispute, defining and limiting the scope of the discussions, thus saving time and money. This exercise may create a common ground between the parties that may later be used as the foundation of a settlement offer.

The participation of in-house counsel at this stage is paramount. For instance, some arbitration rules make express reference to the presence of the party or of an internal representative in this phase. This will have an important impact on devising the upcoming procedure and matters such as the number of submissions, early production of evidence and the drafting of the procedural timetable, all of which are relevant factors that can contribute to the efficiency of the proceedings.

In-house counsel engagement should continue throughout the presentation of the submissions. Indeed, these engagements play an important role in establishing the facts and providing input regarding the main aspects of the commercial relationship as the dispute evolves.

Regarding the production of evidence, either documentary, oral or expert, in-house counsel has control of the situation. They are responsible for furnishing documents, pointing out which witnesses have knowledge of the facts in dispute and providing technical knowledge on the dispute without having to resort to a costly party-appointed expert early on. As such, a proper presentation of the case depends largely on their engagement.

Keeping a record of the contract or transaction before the dispute starts may be crucial for an effective phase of production of evidence – something that is often entirely in the hands of in-house counsel. This includes an efficient system for organising documents related to the contract, monitoring the employees involved in the transaction, especially if they leave the company, and cataloguing all the correspondence exchanged with the opposing party before and during the dispute.

Generally, if hearings are held, in-house counsel should attend. First, they represent the party which, as the primary user of arbitration, is entitled to assist and participate in all stages of the proceedings. Moreover, as the case is laid out, in-house counsel should pay attention to settlement opportunities that may arise during hearings. If such a moment presents itself, having arbitrators that understand their role in facilitating the amicable resolution of the dispute may be a key factor.

The continuous and active participation of parties through their in-house counsel will also be important upon the receipt of the award. In-house counsel manages the risks arising from the dispute and they are accountable to the costs incurred in dispute resolution.

The co-management of a proceeding leads to a greater appreciation of the work employed in the presentation of a case and the result obtained. Parties are aware of the risks involved in arbitration and expect, above anything else, a fair and just result. As Jan Paulsson noted: “The idea of arbitration is that of a binding resolution of disputes accepted with serenity by those who bear its consequences because of their special trust in chosen decision-makers”.

In conclusion, arbitration remains an effective method of dispute resolution if it is well managed. The current practice is largely a reflection of its accelerated growth and subsequent ‘judicialisation’. However, this should not affect its inherent flexibility. Parties need to make better use of it. In order to take assertive decisions and make the most of arbitral proceedings, in-house counsel should take an active stance in co-managing disputes referred to arbitration.

Renato Stephan Grion is a partner and Thiago Del Pozzo Zanelato is an associate at Pinheiro Neto Advogados. Mr Grion can be contacted on +55 (11) 3247 8965 or by email: rgrion@pn.com.br. Mr Zanelato can be contacted on +55 (11) 3247 6110 or by email: tazanelato@pn.com.br.

Renato Stephan Grion and Thiago Del Pozzo Zanelato

Pinheiro Neto Advogados