The FINANCIAL -- Introduction --The basic steps in an arbitration broadly resemble those in litigation. However, arbitration offers substantially more flexibility when it comes to the process. This adaptability is one of the key advantages of arbitration. In order to harness those benefits, it is necessary to first understand the basic elements of arbitration. Once they are comprehended, specific components may then be tailored to suit the case and client at hand.
Overview of the process
Arbitration begins when one side files a request for arbitration. The other side answers that request and may also file any counterclaims which it may wish to bring. Following this, key procedural stages include the appointment of the tribunal who will decide the case, document production, pre- and possibly post-hearing written submissions and oral hearing(s). Once the award is rendered, the post-award period may include actions for recognition and enforcement and/or setting aside of an award.
A demonstrative chart below sets out the most common form of the arbitration procedure (referred to as “memorial style”,which involves the submission of written pleadings, supported by evidence):
This is explained in further detail below, following the same color-coding as the chart.
The arbitration process may be split into two or,occasionally, three separate phases: jurisdiction (where the tribunal assesses whether it has the power to hear the case); merits (where issues of liability are decided) and damages (where the amount of compensation is determined).Splitting proceedings like this is known as “bifurcation”. This can happen by agreement of the parties (which is rare in practice) or more commonly, by a decision of the tribunal at the request of a party.A default procedure is usually provided in the applicable arbitration rules.
Bifurcation between jurisdiction and merits can be advantageous – especially for the respondent who is interested in having the case dismissed – if there are strong arguments that the tribunal lacks jurisdiction. In those instances, it will make sense to address the issue of jurisdiction first, so that a lengthy and costly merits phase may be avoided.Further bifurcation between merits and damages usually only makes sense in complex cases where extensive analysis is necessary (often with the assistance of expert witnesses)to ascertain the appropriate level of compensation.
Appointment of arbitrators
As a general rule, the parties agree how many arbitrators will sit on the tribunal. In the absence of agreement, the responsible arbitral institution usually fixes the number.
Where there are three arbitrators, the normal procedure is for each side to nominate one arbitrator and then for those two arbitrators to agree together on a third presiding appointee. However, in the absence of the party agreement, it is common for the arbitral institution to appoint any arbitrator which the parties have failed to select, including the president of the tribunal.When the choice is in the hands of the parties, it can offer a key strategic advantage. It enables parties to take into account the background, expertise and language capabilities of potential arbitrators and ensure that they entrust their dispute to the right hands.
The hearing is preceded by an exchange of written submissions, in which the parties set out their respective claims, counter-claims and defenses. The purpose of written submissions is to enable the parties to clearly identify the issues in dispute, distill their arguments on those issues, and present evidence in support of their positions.
Usually, there are two rounds of pre-hearing submissions, and sometimes the hearing is also followed by extra round(s) of post-hearing submissions.
The fact that each submission increases the length and cost of arbitration should be taken into account when considering how many rounds are appropriate in a particular case.
Usually after the first round of written submissions, parties engage in the document production process, through which each party asks the opposing party to produce documents relevant to the case. If a party does not comply with the request voluntarily, the tribunal will then decide which documents a party is required to produce.
As a general rule, the tribunal will order disclosure if the following conditions with regard to the request are met:it is sufficiently defined; it is relevant and material to the outcome of the case; and, the requested document is not in possession, custody or control of the requesting party.
From the outset of the dispute – even before commencing arbitration – a party should keep in mind that in the course of the arbitration, it might be required to disclose the documents it possesses provided such documents are relevant to the other party’s case, even if detrimental to its own.
Therefore, a party must exercise caution with regard to the documents it internally creates and possesses and/or controls, the production of which might become necessary.
Not every arbitration has (or needs) a hearing. However, when a hearing occurs, it is very much a focal point of the entire arbitration process. This is because it affords unique opportunities to advance a party’s case that no other step in the process can provide.
For example, hearings are the only venue for oral examination of witnesses (whether factual or expert), which can be crucial in establishing or undermining credibility. Cross examination affords counsel the opportunity to question the opposing side’s witnesses in front of the tribunal.
Additionally, there is direct, unscripted engagement between the tribunal and the parties at the hearing. These exchanges can be valuable, as they provide insight into which arguments and factual narratives the tribunal finds convincing, or whether there needs to be strategic recalibration.
Arbitration hearings, unlike court proceedings, are almost always completely closed to the public.
Again, there is a high degree of variability in what procedural elements a hearing will include. The hearing usually includes opening and closing statements where each party presents its case orally (increasingly with the support of technology). However, the manner and extent to which the witnesses are examined is largely a matter of procedural discretion.
Post hearing period
It has become more and more common to submit written post-hearing submissions, which present another opportunity to emphasize the decisive points established at the hearing, usually as a result of cross-examination of witnesses.
Importantly, parties also make submissions as to who should bear the costs of the arbitration. It is common, but by no means uniform, that the prevailing party recovers costs of arbitration by virtue of the “costs follow the event” approach. Under this approach, the costs are allocated by the tribunal in proportion of each party’s degree of success.
Once an award is handed down by the tribunal, a party can make a petition to the court(s) of the country(ies) where the losing party has assets,seeking there cognition and enforcement of the award. At the same time, the dissatisfied party may seek to challenge the award before the national courts of the country in which the award was rendered. Most countries will refuse to enforce an award that has been set-aside by a court in the arbitration seat;therefore, choosing an appropriate seat is a key strategic consideration in this context.
A separate article on recognition and enforcement of awards as well as setting aside procedure will follow in the coming months.
Arbitration is highly custom is able. This provides an opportunity for parties to ensure that the procedure by which their dispute will be resolved caters to their particular needs. However, it also represents a risk that the procedure itself will be used to obfuscate the real issues and prolong resolution of the dispute. An awareness of the basic procedural architecture of an arbitration should aid parties to maximise the opportunity that arbitration offers and eliminate the risk of misuse.
Additional helpful guidance on how to conduct arbitration is provided by the ICC (the International Court of Arbitration of the International Chamber of Commerce, based in Paris, France): “Effective Management of Arbitration – A Guide for In-House Counsel and Other Party Representative”, available here: https://iccwbo.org/publication/effective-management-of-arbitration-a-guide-for-in-house-counsel-and-other-party-representatives/
See also: Why arbitration? A basic overview and pointers - by Ketevan Betaneli