Frederick T Davis, Mark W Friedman, David W Rivkin, Christopher K Tahbaz

Debevoise & Plimpton LLP

The biggest challenge facing international arbitration today is to make the process sufficiently rapid to reflect the growing pace of international commerce itself. Unfortunately, as disputes have grown more complex and have involved larger sums, too often international arbitration proceedings have become longer and more costly.

This chapter will examine some of the procedures that practitioners and arbitrators have developed to make the international arbitration process more efficient and effective. It will also present significant trend in international arbitration in the United States that may have the opposite effect.

Significant trends in international arbitration procedures

International arbitrations generally do not contemplate the scope of motion practice that exists in American litigation. One disadvantage of international arbitration is that issues that may be dispositive of a case and appropriate for a motion to dismiss or summary judgment in court litigation may often be considered by arbitrators only after a full evidentiary hearing on all of the issues. In such cases, international arbitration may in fact take longer than domestic US litigation that could potentially be concluded on a summary basis.

Some arbitrators have begun to use recent changes to international arbitration rules to ameliorate this problem. The intent of these rules is not to permit broad or unnecessary motion practice, but rather to provide the opportunity to dispose of cases at an earlier stage when it may be appropriate and possible to do so. For example, the IBA Rules of Evidence encourage each arbitral tribunal to identify to the parties, as early as possible, "the issues that it may regard as relevant and material to the outcome of the case, including issues where a preliminary determination may be appropriate." The AAA International Arbitration Rules are even more explicit, stating that the tribunal "may in its discretion direct the order of proof, bifurcate proceedings, exclude cumulative or irrelevant testimony or other evidence, and direct to the parties to focus their presentations on issues the decision of which could dispose of all or part of the case." The LCIA Rules give arbitrators the power to "take the initiative in identifying the issues and ascertaining the relevant facts and the applicable law(s) or rules of law", and they also reflect the general duties for arbitrators set forth in the English Arbitration Act "to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay or expense."

Such motions should not be overused in international arbitration. Arbitrators generally will not be pleased with a litigation-style, all-out approach. Nevertheless, when an issue may dispose of all or part of a case, such as a time limitation, the validity of a release, the application of res judicata or collateral estoppel or the application of law to undisputed facts, a party should seek to have arbitrators consider the issue at an early stage in the name of efficiency. Parties should not have to present all of the evidence on all of the issues only to have the arbitrators decide the case on an issue that could have been decided early, with much more limited evidence.

Discovery

The availability of discovery depends on the law of the jurisdiction in which the arbitration is held and the applicable rules. Most international arbitration rules provide that the arbitrators may order the parties to submit or to exchange documents in advance of the hearing. For example, the UNCITRAL Rules provide that "[a]t any time during the arbitral proceedings the arbitral tribunal may require the parties to produce documents, exhibits or other evidence within such a period of time as the tribunal shall determine." The ICC Rules state: "At any time during the proceeding, the Arbitral Tribunal may summon any party to provide additional evidence." The AAA International Arbitration Rules state: "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 LCIA Rules list among the powers of the arbitrators the ability "to order any party to produce to the Arbitral Tribunal, and to the other parties... any documents or classes of documents in their possession, custody or power which the Arbitral Tribunal determines to be relevant."

These rules reflect the common practice in international arbitration with respect to discovery. In short, some document discovery is generally permitted, even in arbitrations in Latin America where discovery is rarely permitted in litigation. The difficulty in every case is for the arbitrators to determine how much discovery is appropriate. Tribunals now frequently apply the principles of the IBA Rules of Evidence, which generally permit the parties to obtain documents necessary for them to prove their case, but avoid the possibility of fishing expeditions. The IBA Rules of Evidence provide that the parties shall first submit to each other and the Arbitral Tribunal the documents on which they intend to rely. Following such an exchange, any party may submit to the Arbitral Tribunal a request that the other side produce additional documents. The request to produce must be more detailed than an American litigation document request. It must contain:

a discussion of a requested document sufficient to identify it or a description in sufficient detail (including subject matter) of a narrow and specific requested category of documents that are reasonably believed to exist.

The IBA Rules of Evidence also require the requesting party to include in its request certain additional information: (i) a description of how the documents requested are relevant and material to the outcome of the case; (ii) a statement that the documents are not within the possession, custody or control of the requesting party; and (iii) why the requesting party believes the requested documents are within the other party's possession. If the party to whom the request is directed objects to some or all of the requests, based on certain objections described in the IBA Rules of Evidence, then the Arbitral Tribunal will decide what requests to produce, if any, shall be enforced.

The ever-present use of electronic communication has made dealing with these discovery issues substantially more difficult. Even when discovery requests are narrowly and properly framed, they may still require a party to review and to produce thousands of email exchanges. This has complicated the arbitrators' task of determining, generally at a relatively early stage of the case, what discovery should be permitted and what should be denied as being irrelevant, excessive or improper for other reasons. The challenge for arbitrators now will be to exercise this control and to develop innovative techniques - for example, potentially by ruling that only documents fitting certain electronic search terms shall be produced - in order to allow discovery of relevant material without overwhelming the arbitration process.

Presentation of evidence

In order to make hearings more efficient, practitioners and arbitrators are increasingly using whichever techniques from civil law or common law procedures work best for that particular case. In particular, some of the following methods can significantly focus the presentation of evidence and shorten the duration of hearings:

Significant efficiency can be gained by requiring all witnesses to submit their direct testimony in writing in advance of an appearance at the hearing. This procedure permits the arbitrators and the parties to review the evidence in advance and to focus cross-examination and the arbitrators' questioning on the most relevant and important issues. It is important for arbitrators to hear directly from witnesses and to be able to judge their credibility and the weight to be given to their evidence. This may be achieved, however, by requiring that any witness submitting direct testimony be available for cross-examination at the hearing, as provided in the IBA Rules of Evidence.

The use of written direct testimony may significantly shorten hearings. While there may be some additional cost in the preparation of such statements, it is usually not significantly different from the time that would be spent in preparing the direct testimony if it were given orally. Admittedly, written direct testimony is often drafted by counsel, rather than by the witness. It lacks the spontaneity and candor that may be present in oral direct evidence. However, arbitrators can gain sufficient experience with a witness in cross-examination to enable them to make the necessary judgments as to credibility and weight.

Written direct testimony is not appropriate for every case. In some cases, it is more important for a witness to be able to speak directly to the arbitrators, particularly where there are complex facts or significant details that need to be understood. In each case, however, parties and arbitrators should consider whether the presentation of evidence would benefit from this procedure.

Confrontation testimony

Confrontation testimony - simultaneous questioning of two or more witnesses on the same issues - has been used by some arbitrators with great success. Where one or more issues have great importance in reaching the final determination on the merits, such as what occurred at a particular meeting or expert opinions on the viability of product design, it can be significantly more efficient to hear the evidence on that issue at once. Rather than hear one witness on the subject several days after an opposing witness testified on the same subject, it may be better to hear the witnesses' versions of the events together. Such a confrontation allows arbitrators immediately to determine where the witnesses are in agreement and where they have differences. Through questioning both witnesses simultaneously about those differences, the arbitrators can more easily draw conclusions as to whose testimony is more credible, more persuasive or more supported by documents.

The conduct of such confrontation testimony requires signifi- cantly greater preparation than the usual hearing. It is important for the arbitrators to understand the evidence that has already been submitted prior to such testimony, so that they can intelligently question the witnesses on their areas of agreement and disagreement. Moreover, the structure of the questioning must be carefully arranged in advance with the parties, and the parties must have ample opportunity to ask their own questions, particularly of the other side's witness.

A related procedure, also suggested in the IBA Rules of Evidence, is the standard English procedure of requiring experts to meet to discuss their conflicting reports following their submission and prior to any hearing. The experts attend the meeting without counsel, and they are instructed to prepare a list of those issues on which they have been able to reach agreement. Such a meeting can frequently lead to agreement on a substantial number of points and thus limit the testimony to be given at the hearing. Opposing experts are almost always professional colleagues. When forced to meet, they find it difficult to hold on to opinions espoused by the party that hired them if they are difficult to justify under the standards of their profession. An expert does not want to lose face to a professional colleague, and usually they do not want to leave without some areas of agreement. In some cases, the experts are able to reach agreement on so many issues that their appearance at the hearing becomes unnecessary.

Significant trends in US arbitration law

Given the vast number of US courts decisions dealing with arbitration law, there are far too many issues to cover in a short chapter like this one. However, for the international practitioner operating in the Americas, one trend particularly worth noting is the impact on US international arbitration law of the arbitrability of consumer, employment and other public policy-related disputes. US law permits the arbitration of virtually any dispute, so long as there is a valid agreement to arbitrate - even one contained in a form contract. Therefore, many domestic arbitrations now involve claims by consumers, employees and others whose rights bear on the public interest.

As a result, courts have been increasingly active in supervising such cases to ensure their essential fairness to claimants. Courts have required increasingly strict standards of disclosure for arbitrators and have found conflicts of interest to exist where they did not before. Similarly, while in commercial and international cases it has been rare for a court to set aside awards, consumer and employment cases receive greater scrutiny and have more often been overturned. The doctrine of 'manifest disregard of the law', which is not found in US Federal Arbitration Act, has been applied with greater frequency in such cases in order to set aside arbitral decisions with which the courts have disagreed. So far, such decisions have generally been limited to the public policy areas, but it is possible that their logic may increasingly be applied to international commercial cases. If so, that would reflect a significant setback for international arbitration in the US.

The arbitrability of consumer and employment disputes has also led to the availability of class actions in arbitration. In signifi- cant part because of the expense and uncertainty of jury trials in civil matters in the US, many companies include arbitration clauses in their contracts with consumers, in public company articles of association and in other contexts where disputes about the company's relationship with groups of individuals are anticipated. In the 2003 decision in Green Tree Financial Corp v Bazzle, a plurality of the US Supreme Court held that, at least where the arbitration clause is silent on the issue, the arbitrators have authority under the Federal Arbitration Act to decide whether claims on behalf of a class can be pursued in arbitration as a class action.

A number of companies have responded to Bazzle by including in the arbitration clause a provision limiting or excluding class proceedings. However, companies that prefer arbitration as a means to resolve disputes should take note of recent US federal and state court decisions invalidating limitations on class actions contained in arbitration clauses. These recent decisions indicate that a US court may read a company's arbitration clause to require class action arbitrations, even if the clause contains no mention of class action arbitration, and even if the clause expressly excludes class arbitration. These decisions may pose particular problems and uncertainties for transnational businesses.

Until recently, the prevailing view had been that arbitration clauses prohibiting class action procedures would be respected. Recently, however, some courts have struck down class arbitration exclusions on the ground that they were unconscionable, either under state law or under the federal law principle that an arbitration agreement may be unenforceable if it prevents effective vindication of statutory rights.

The decisions, all arising in the context of consumer cases, have reasoned that class action exclusions would effectively insulate the defendants from liability for illegal conduct when arbitration costs would exceed the value of individual claims and plaintiffs otherwise lack sufficient incentives to seek redress. The First Circuit's April 2006 decision in Kristian v Comcast Corp, for example, applied this reasoning to hold that class exclusions prevented effective vindication of both federal and state consumer antitrust claims. The reasoning of these decisions could be read to suggest that all arbitration clauses applicable to a company's relationships with a sufficiently large group of persons must be viewed as allowing class arbitration, even if the unambiguous language of the parties' agreement prohibits them.

No US court has yet considered whether the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards would require a different result in an international arbitration to which the Convention applies. Some European countries do not recognize all aspects of class action judgments, so it is possible that a "class action arbitration" award issued in the US might be difficult to enforce in Europe.

It is too early to tell whether the recent decisions summarised here will be broadly followed, and the US Supreme Court has not addressed the issue of class action waivers in arbitration clauses. Because of the many monetary and financial advantages that claimants and their attorneys see in class action procedures, however, it is certain that claimants will continue to try to develop this law to multiply the number of 'class action arbitrations'.