bratschi arbitration blog: Efficiency in Arbitration revisited - Can we have it all?
In June 2019, the 11th AIJA Annual Arbitration Conference on the topic «Towards Greater Efficiency in International Arbitration» took place in Zurich. The Conference was not only interesting from the ideas that were discussed, but shows that efficiency in international arbitration is still a hot issue. This raises the questions whether today, international arbitration is an efficient dispute resolution mechanism, and how the level of efficiency can still be increased in the future.
The discussion about efficiency in international arbitration arose over two decades ago, mainly in the context of disruptive and dilatory tactics of parties in arbitration proceedings, but also in the wake of increasing formalization and regulation of arbitral proceedings. In contrast to state courts, arbitral tribunals are party-chosen. Their authority to decide disputes is not awarded by states, but derives from the parties' choice to submit their case to arbitration. Parties expect more from arbitral tribunals: Better knowhow in the subject-matter at issue, more extensive experience to conduct and decide complex cases in international settings in a cost- and time-efficient manner, and better enforceability on an international level than they would have with state courts: Citius, altius, forties. Therefore, efficiency in arbitration is key - today as well as tomorrow.
Much has been done during the last decade to improve efficiency in international arbitration. Today, the arbitration rules empower arbitral tribunals with procedural discretion to ensure effective case management and to avoid unnecessary delay or expense for the sake of a fair, efficient and expeditious procedure (see, e.g., Article 22 ICC Rules, Article 15 Swiss Rules, or Article 14.4(iii) LCIA Rules). Most arbitration institutions, such as the ICC, the SCC, the LCAI, etc. have promulgated rules to speed up the constitution of the arbitral tribunal and to facilitate multi-party proceedings. They have set limits to render the award (including consequences if these limits are not met) and provide for expedited procedures in cases of limited values in dispute. Notes to the parties and arbitral tribunals, issued among others by the UNCITRAL, the ICC, the LCIA or the SCC, offer guidance for efficient proceedings. In the International Arbitration Law Review of 2017, issues 2 and 3 (download available on our website), we have extensively examined various arbitration rules and best practice recommendations allowing efficient arbitration proceedings. Also in this blog series, we have reported on the Rules on the Efficient Conduct of Proceedings in International Arbitration launched on 14 October 2018 in Prague as a recent measure to achieve greater efficiency in international arbitration (> Link). We may therefore truly say that today, it is all there, available at the fingertips of the arbitration stakeholders. Efficient arbitration is possible and is happening.
Nevertheless, the recent 11th AIJA Annual Arbitration Conference on the topic «Towards Greater Efficiency in International Arbitration» as well as the Queen Mary 2018 International Arbitration Survey regarding the Evolution of International Arbitration (> Link) suggest that international arbitration is still considered inefficient by its stakeholders in some aspects. The AIJA conference dealt, inter alia, with the question of whether arbitration has become too expensive and with the issue of shaping efficient procedures. It further looked at the issue of efficiency from the client's, the counsel's and the institution's as well as the arbitrator's perspective and examined how technology can be used to improve efficiency. Generally, the tenor was that international arbitration has become more efficient in the past years, but there is still room for improvement, in particular with regards to the case management and the use of information technology. Similarly, 67% of the respondents to the Queen Mary 2018 Survey identified the high level of costs as the «worst» feature of international arbitration, followed by «lack of effective sanctions during the arbitral process» (45%), «lack of power in relation to third parties» (39%), «lack of speed» (34%) and «lack of insight into arbitrators' efficiency» (30%).
In particular, respondents to the Queen Mary 2018 Survey still complained about the various dilatory tactics employed by counsel that go unsanctioned either because the arbitrators are reluctant to order appropriate sanctions or because they do not possess the right instruments to do so. This has already been the second most common complaint for respondents to the Queen Mary 2015 International Arbitration Survey regarding Improvements and Innovations in International Arbitration (> Link). Therefore, despite the recent efforts by arbitral institutions to include new or more developed mechanisms to address this issue, user perception nevertheless continues to suggest that these tools are not being sufficiently utilized. And yes, all the guidelines, additional rules and soft law instruments did not only have a positive effect - to the contrary: «Due process paranoia» continues to be one of the main issues that respondents of the Queen Mary 2018 Survey believe is preventing arbitral proceedings from being more efficient. Respondents also believe that an increased use of technology would lead to more efficiency in the conduct of arbitration proceedings.
All this raises the question, can we have it all? Can we have cost-, time-efficient and high-quality arbitration? Cost, time and quality of the award can be regarded as an equilateral triangle. If one of the factors is overemphasized, the others suffer. Efficient arbitration is the right relationship between time, money and quality, as for example Jennifer Kirby in her article Efficiency in Arbitration: Whose Duty Is It? (> Link) rightly states. Less time and money spent on an arbitration will have a negative impact on its quality. And at the end of the day, quality comes first, arbitration is about rendering a high-quality and enforceable award in a due and fair proceeding. Only when time and money are wasted on things that do not contribute to improving the arbitration, time and money can be reduced without affecting the quality of the arbitration procedure and its final award.
Potentially, the parties as well as their counsel and the arbitrators are in a position to weeding out such unnecessary costs of an arbitration procedure: The toolbox is available, or as we noted above: «It's all there». The arbitration institutions can and already have developed arbitral rules and practices that encourage the efficient resolution of disputes, but as administrative bodies do not have the task, the power or even the possibility to check and intervene in case resources in an ongoing arbitration are being wasted. Reality shows that the parties and their counsel are not best suited to ensure an efficient procedure either: After a dispute has arisen, what one party considers efficient, the other often considers a violation of due process. And before the arbitration really started, parties are often reluctant to tie their hands by agreeing to conduct the case in an efficient manner.
Arbitrators are particularly well suited to help make arbitration more efficient as it is their job to run the particular cases. Therefore, an effective case management by the arbitrators that realizes when resources are wasted and puts a stop to it while ensuring that the award will be both correct and enforceable is in our view key to an efficient arbitration. This, of course, is no easy task and often involves making judgment calls. How can arbitral tribunals best promulgate efficiency in arbitration? In our view, the following remedies are particularly helpful and well established in practice: (i) The arbitral tribunal should give clear guidance to the parties as to how it expects the arbitration to proceed - in the organizational conference, procedural orders, telephone conferences and at the hearing. (ii) The arbitral tribunal should set rather short, but reasonable deadlines and should resolve procedural issues swiftly. (iii) Although due regard should be held to the level of experience of the parties and their counsels in arbitration and to their cultural background, dilatory tactics should be prevented rigorously. The procedural benchmark is due process, i.e. equal treatment and the right to be head. Accordingly, the Queen Mary 2018 Survey found that arbitrators need to adopt a bolder approach to conducting proceedings and, if need be, apply monetary sanctions for dilatory tactics employed by counsel. Of course, the lack of proactiveness of arbitrators might not have anything to do with the «due process paranoia», but correlates to the «lack of effective sanctions during the arbitral process» found by 45% of the respondents to the Queen Mary 2018 Survey the «worst» feature of international arbitration. (iv) To the extent possible, the case management, communication and written submissions should be made in electronic form. It is no use in printing out binders and binders of exhibits. Cross examinations can be made with iPads, or with a printed core bundle, if needed.
And of course, we cannot let the parties «off the hook»: The parties cannot dispense with their responsibility, either. Despite their goal of winning the case, they are obliged to conduct the proceedings in an expeditious manner, and in particular without dilatory tactics.
Consequently, the solution to efficiency in international arbitration lies in a stringent case management by the arbitrators and cooperation by the parties, in the use of electronic form to the extent possible, but also in the application of effective sanctions in case of dilatory tactics. Then «we have it all».