The Innovator

 MARKET VIEW – ARBITRATION 

What’s next for the institution that pioneered the now-ubiquitous emergency arbitrator provision? WilmerHale partner John Pierce talks to American Arbitration Association senior vice president Richard Naimark to find out

In the context of dispute resolution, ‘US-style’ rarely denotes a positive quality. Be it for the brand of aggressive cross-examination practised in courts from New York to Nevada, or a class action system whose excesses are slammed by European legislators when introducing their own forms of collective redress, American lawyers are seen by many as having much to answer for. Such criticisms are to some extent offset by the influence such practitioners continue to exert on the global stage, with international arbitration being no exception. Indeed, London-headquartered Freshfields Bruckhaus Deringer aside, the industry’s busiest players are, to a firm, American. Given this predominance, it is to be expected that US-style practices would bleed into international arbitration – the most unloved and increasingly prevalent of which remains its approach to document production.

It is fitting, then, that the institution seeking to address concerns over that practice is itself American. Nestled within the revised arbitration rules released this summer by the International Centre for Dispute Resolution (ICDR), the international arm of the American Arbitration Association (AAA), are several provisions designed to remove the potential for US-style runaway discovery requests being made by parties to its cases. Rather, the e-discovery process would be ‘narrowly focused and structured’, while the more particular aspects of American litigation – depositions, interrogatories and requests to admit – were presumed to be ‘not appropriate procedures for obtaining information’ in ICDR arbitrations.

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‘I am finding that parties are increasingly interested in the use of emergency arbitrator procedures.’
John Pierce, WilmerHale

Richard Naimark, AAA/ICDR: A number of years ago, we issued guidelines on the exchange of documents so that arbitrators would not unnecessarily allow the process to mirror US litigation, with big fishing expeditions, countless depositions and so on. The guidelines didn’t explicitly forbid those things; rather, they were an attempt to give arbitrators the authority to rein in counsel where necessary. Under article 22 there is no ambiguity. Of course, if one party needs documentation from the other side that should have been provided, the arbitrator can allow that request, but anything considerably broader will unlikely be provided unless they can make the case for it.

John Pierce, Wilmer Cutler Pickering Hale and Dorr: How did you deal with the fact that communications to and from in-house counsel in Europe and elsewhere generally do not enjoy the same level of protection from disclosure that they would under US privilege rules? That situation often gives rise to questions about equal treatment in the disclosure process. Was that part of the motivation for article 22 of the new ICDR rules?

Richard Naimark: That’s correct. There was in fact a long debate about what standard should apply in, say, an arbitration case between an American company and a French company. The conclusion we came to is that you apply the US standard of privilege, given that the same standard ought to apply to both companies if the same discovery standard applies equally. I think it will prove to be a very positive addition to the rules. My guess is that we are going to see other institutions adopting similar provisions, as privilege and discovery have become such contentious issues in international arbitration. It is our expectation that arbitrators will use article 22 as a guiding philosophy. Those who are unwilling or unable to control the procedure in this way will be substantially less likely to be listed again unless specifically requested by the parties.

John Pierce: Your point about the need to control the procedure is an important one. One of the reasons international parties choose to arbitrate rather than to litigate is to avoid the onerous discovery procedures one might see in US litigation. They are looking instead for an international approach. And it is important that arbitrators be willing to adopt such an approach. That means being internationally-minded, taking seriously the concerns and procedural preferences of both civil law and common law parties, and having the requisite firmness and confidence to enforce an international process that is fair to all. Part of that process is developing an approach to privilege that is rational and fair, and it seems that article 22 is aimed at providing some guidance to arbitrators on how to achieve that.

Richard Naimark: Absolutely. In these difficult areas, where there can be a lot of murkiness at international level, even very experienced arbitrators tell us they would like some guidance. Article 22 is a rule of thumb for them to follow which, I think, emboldens them to make the right decisions.

Parties know best

Unlike the majority of its rivals, the ICDR does not seek to directly appoint arbitrators. Rather, the institution, which handled 1,165 cases last year, operates committee-approved lists from which nominees can be drawn. Parties who fail to agree on their selections are given 15 days to rank their preferred arbitrators and strike those to whom they object; the institution will then designate the arbitrators based on that ranking. ‘We normally try like crazy to avoid nominating arbitrators for the parties,’ says Naimark. ‘That’s not to say that we never do administrative appointments,’ he adds, ‘but they are rare’. That approach, which has long been a feature of ICDR arbitration, is codified by article 12(6) of its 2014 rules, which also introduce provisions relating to arbitrators’ independence and impartiality.

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John Pierce: What was the motivation for article 12(6) of the new rules which addresses the ICDR’s list method?

Richard Naimark: That section of the rules makes explicit what has been ICDR practice for many years, which is something that both distinguishes us from other organisations and works extremely well. Indeed, when travelling to other parts of the world I am struck by the receptivity to the fact that we don’t go out of our way to appoint arbitrators, based on the theory that we don’t believe we know better than the parties. From the very beginning of the process we ask the parties to work with us so that we can put together a list of potential chairs that addresses their interests, requirements and concerns. Similarly, we don’t determine arbitrator fees. Each arbitrator on the list posts what they will charge, typically on an hourly basis, giving complete transparency and autonomy to the parties.

American arbitration was once dogged by a perception internationally that parties would appoint what amounted to advocates for their position. Indeed, in a seminal paper arguing in favour of unilateral appointments, Jan Paulsson of Three Crowns noted that parties of every nationality still believe nominees will fight their corner, even if unintentionally. (The fact the most dissenting opinions are still written by the losing side’s appointee shows this not to be an entirely outdated position.) Naimark and Pierce argue otherwise, noting that the emphasis on independence and impartiality in the AAA/American Bar Association Code of Ethics means there is less inherent bias on the part of American arbitrators than their international colleagues. ‘Arbitrators know that a case that shows their demonstrable bias means their career as an arbitrator is over, so they’re very careful,’ says Naimark. ‘It’s completely self-defeating,’ adds Pierce.

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John Pierce: I am finding that parties are increasingly interested in the use of emergency arbitrator procedures. The ICDR was a pioneer in that regard. How successful has the ICDR’s emergency arbitrator process been in practice?

Richard Naimark: It has been profoundly successful. We were the first institution to provide what was essentially an opt-out emergency arbitrator process, in 2006, which raised a lot of eyebrows at the time. The emergency arbitrator is appointed within 24 hours of the application; within 48 hours, parties have a conference call or meeting with the arbitrator. Every interim award since 2006 has been completed in three weeks or less. People initially questioned whether an emergency arbitrator’s award would be enforceable and accepted by the parties, but instead we have seen it being embraced by the legal community to the point that virtually every institution of any international credibility is adopting emergency arbitrator provisions.

John Pierce: I find that clients are increasingly interested in such provisions – in IP-related cases, for example, where there is often a need for immediate interim relief, but where enforcement challenges can make court-ordered preliminary relief less attractive and useful. Do you have any statistics about the frequency with which emergency arbitrators are actually granting emergency preliminary relief?

Richard Naimark: Our emergency arbitrators are, generally speaking, fairly conservative about things. We’ve had 46 applications to date, and slightly less than half are granted in one form or another. A party may get part of the relief it is seeking, but not the entire amount. The ICDR rules moreover provide that the matter can be reheard with the panel on the merits, which allows the emergency ruling to be lifted or changed, so there are additional safeguards built in to the process.

The need for speed

John Pierce: One of the recurring complaints about international arbitration is that it has reached a point where it is no longer faster than many national court systems in reaching a final judgment. Can you talk about what the ICDR has done in recent years to make the arbitration process speedier, including the adoption of the international expedited procedures in articles E-1 to E-10 of the new rules?

Richard Naimark: The speed of the process is a double-edge sword, because no one wants to compromise the quality of the process. Often when people talk about arbitration getting longer it takes on the mantle of lawyer-bashing and, on occasion, that is an issue. What we do is provide tools for the lawyers, the clients and the arbitrators so that they can manage both the speed and the quality of the process. We have recently established an unprecedented default expedited procedure for claims under $250,000, in a style that borrows from civil law, in that it is designed to be front-end loaded. The awards in those cases are to be made within 30 days. A number of our advisory committee members believe that expedited procedures could also be valuable in large cases, some of which are not necessarily legally complex. It will be interesting to see whether parties opt to use those procedures in large-value cases – so that, for example, the case could be completed within six months.

John Pierce: There are indeed instances where you have a high-value dispute in which the legal and factual issues are not that difficult and for which it would make sense to try an expedited procedure. But, in my experience, that would be the exception and not the rule. Once a high-value dispute arises, the natural tendency among clients – and lawyers too – is to want the opportunity to ensure that every argument is fully aired; that interest is obviously in tension with a significantly expedited procedure.

Richard Naimark: We have over the years seen a number of parties who designed their own form of expedited procedure. I remember a very large three-way intellectual property case involving hundreds of millions of dollars of claims in which the parties expressed the desire to resolve the dispute within three months. We told them it was going to require their complete co-operation, which they provided, and the award was rendered within four months. It can be done when the desire is there.

John Pierce: One of the interesting aspects of the new ICDR rules concerns the provisions on joinder and consolidation in articles 7 and 8. This is consistent with a trend we have seen in other institutional rules to respond to the desire among users of international arbitration for more institutional guidance on the joinder of parties and consolidation of proceedings in the service of efficiency. Can you talk a bit about what motivated those changes to the ICDR rules and how you see the new ‘consolidation arbitrator’ process working out?

Richard Naimark: Whereas joinder is becoming relatively uncontroversial, the issue we wrestled with regarding consolidation was over who makes the decision as to whether or not cases should be consolidated. What we ultimately decided to do, and which I don’t think has been done before, is to appoint a consolidation arbitrator who will only decide that issue. As with the rest of the unique revisions to our rules, we focus on what is appropriate for the parties, the arbitrators and the institution. And, while we continue to provide leadership in a number of the most important areas of international arbitration, we would be foolish not to pay attention to qualitative improvements made by other institutions. We focus first on the process in the way we think it ought to be conducted, but we’re always on the lookout for good, new ideas.