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ADR preparation: how should you prepare for an arbitration, a mediation or an expert determination?


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Grant Jones - unfortunately in my experience too many disputants are insufficiently prepared. This is especially the case in documents-only arbitrations and expert determinations.

Reducing costs in arbitration.

ADR should be about dispute resolution cost reduction. Unfortunately Arbitration in my experience often does not reduce cost. This is not the fault of the process, but rather the fault of the parties to the arbitration, the Arbitrants. In this article I offer advice to prospective Arbitrants, more especially prospective Arbitrants who may appoint me as the arbitrator. Inevitably this article is subjective and consequently I will seek to support my contentions by reference to quoted sources.

(A). Choose an appropriately qualified arbitrator. If the dispute is about accounting, choose an accountant arbitrator and avoid the tribunal having to appoint experts, especially multiple experts.

"What is not appreciated is that the whole object of arbitration is getting an expert to decide the dispute. Why should arbitrators always be lawyers? What we can do is appoint arbitrators expert in the field if the case is on issues of law select a retired judge or top QC, if there are technical issues appoint an arbitrator with technical expertise. We should also appoint more commercial people as arbitrators because they will adopt much more of a commercial approach"i .

As to expert evidence, especially if an expert arbitrator is appointed, there should be a: "Presumption that expert evidence [is] not required...It is helpful to start with a presumption that expert evidence will not [generally] be required [even if a non expert arbitrator is appointed]. Depart from this presumption only if expert evidence is needed in order to inform the arbitral tribunal on key issues in dispute”ii.

(B). Using a sole arbitrator rather than a three-man panel iii.

After a dispute has arisen, consider agreeing upon having a sole arbitrator, when appropriate. Generally speaking, a one-person tribunal will be able to act more quickly than a three-person tribunal, since discussions between tribunal members are not needed and diary clashes for hearings will be minimized. A one-person tribunal will obviously also be cheaper iv”.

Unless the arbitrator’s services are provided free (as in some friendly society disputes) a three-man tribunal will result in three times the cost of a one-man tribunal. Rarely in my opinion, except for international disputes with a cross-cultural aspect, are three-man tribunals absolutely necessary. It is sometimes argued that a three-man tribunal should consist of a lawyer, or perhaps two lawyers and a technical expert or two technical experts: this is so as to ensure a rounded understanding of the problem. I disagree. There are enough dual qualified lawyers, whether it be in engineering, construction, accounting, et al, to provide the required rounded analysis.

(C). Agreeing a procedure that is appropriate for the dispute and not necessarily wedded to any legalistic 'pleading' process v.

All too often lawyers slavishly follow court procedure in arbitrations. It is best to agree a procedure at the outset when the Arbitrants are more amenable to procedural agreement. As Karen Goughvi states:

"Parties that go to arbitration very often don't really understand what arbitration is about. They understand it's not court but they don't understand that there is the capacity to be really flexible and produce a procedure that is appropriate to the dispute. Arbitrators seem to get hung up on the rules and what they should be focusing on is how to solve it. Flexibility is absolutely key and arbitrators have to have the courage to come forward and say, 'Let's do this or that'. All the tools are there to be flexible".

Karen is correct in what she says. Unfortunately however if both Arbitrants insist (often at the behest of their lawyers) that they should slavishly follow court procedure, then given that the Arbitrants ‘own’ the arbitration procedure, it is a brave arbitrator who will go against the Arbitrants wishes. As an arbitrator I will however suggest deviations from court procedure.

(D). Limited pleadingsvii and witness statements

Ideally pleading directions should be agreed at the outset when the Arbitrants are more amenable to procedural agreement. For most arbitrations with a particular accountancy bent, the number of witnesses should be reduced: "...Every witness adds to the costs, both when a witness statement is prepared and considered and when the witness attends to give oral evidence. Costs can be saved by limiting the number of witnesses to those whose evidence is required on key issues. The arbitral tribunal may assist in identifying those issues on which witness evidence is required and focusing the evidence from witnesses on those issues. This whole process will be facilitated if the parties can reach agreement on non-controversial facts that do not need to be addressed by witness evidence. Minimizing the number of rounds of witness statements - ...If there are to be witness statements, consider the timing for the exchange of such statements so as to minimize the number of rounds of statements that are required. For example, consider whether it is preferable for witness statements to be exchanged after all documents on which the parties wish to rely have been produced, so that the witnesses can comment on those documents in a single statement.viii

(E). Using witness summaries rather than detailed statements of evidenceix.

The logic of witness summaries is obvious. However if, as is hoped, the Arbitrants can agree a documents-only arbitration then witness summaries are of less relevance as the witnesses will not be examined. There is a play-off between the length of the witness statement and the benefit of the document-only arbitration.

(G). Making estimates of costs and managing them so that they do not become disproportionate to sums in issue.

In a number of partnership disputes I have seen the costs escalate disproportionately. What constitutes disproportionality? Karen Goughx has the answer:

"Any dispute were costs of carrying out the arbitration far outstrip the amount all value of the dispute". If the Arbitrants agree at the outset that the costs that they can claim should be minimised (i.e. that costs will not exceed the value of the dispute) that becomes an excellent break on the lawyers over engineering the problem. As to what can and cannot be agreed as to the claiming of costs, wrongly in my view, the Arbitration Act 1996 limits the powers of the Arbitrants:

Section 74 provides more conventionally for the arbitrator to make costs awards although it goes into the subject in considerable detail. It reads:

...(5) Subject to section 75, the arbitral tribunal must - (a) assess the amount of costs to be awarded or ordered to be paid under this section (other than the fees and expenses of the tribunal); and (b) award or order those costs (including the fees and expenses of the tribunal).

(6)Subject to subsection (7), the arbitral tribunal is not obliged to follow the scales and practices adopted by the court on taxation when assessing the amount of costs (other than the fees and expenses of the tribunal)[my emphasis] under subsection (5).

(7) The arbitral tribunal - (a) must only allow costs that are reasonable having regard to all the circumstances; and (b) unless otherwise agreed by the parties, may allow costs incurred in the preparation of the arbitral proceedings prior to the commencement of the arbitration. [my emphasis].

(8) A provision of an arbitration agreement to the effect that the parties, or any of the parties, must pay their own costs in respect of arbitral proceedings arising under the agreement is void. [my emphasis].

(9)A provision referred to in subsection (8) is not void if it is part of an agreement to submit to arbitration a dispute that had arisen before the agreement was madexi.” [my emphasis].

It follows that agreements to minimise and/or reduce costs are best made at the commencement of the arbitration process.

(H).Fixing any hearing in a location that is the most cost-effective for the parties and tribunalxii.

I am prepared to be highly flexible and hold hearings where the Arbitrants reside. However I would go one stage further. Remember that the arbitration process is very flexible. Hearings can be held in cyberspace. Skype conferencing with web cams allows a cost-effective oral hearing. As to: "Telephone and video conferencing - For procedural hearings in particular, consider the use of telephone and video conferencing, where appropriate. Also, consider whether certain witnesses can give evidence by video link, so as to avoid the need to travel to an evidentiary hearingxiii.

(I). E-pleadingsxiv.

Whilst I still prefer to receive an agreed hardcopy bundle I also like to receive that bundle in a soft copy format. This is for two reasons. First, if there is an oral hearing and I have an agreed bundle on my PC I can search more quickly than if the bundle is just paginated. However I accept that the incremental time-saving in oral hearings of e-searching as opposed to pagination is minimal. Second and more importantly when I write an award I will need to cut and paste and/or highlight extracts from the bundle. If I can both e-search and cut-and-paste from the bundle, that saves considerable time in award writing.

(J). documents-only arbitrations

Accountancy-orientated disputes are perfectly suited for documents-only arbitrations. Arbitrants should always consider thexv:

Need for a hearing.

"36. Consider whether or not it is necessary for there to be a hearing in order for the arbitral tribunal to decide the case. If it is possible for the arbitral tribunal to decide the case on documents alone, this will save significant costs and time."

Need for a physical meeting.

"28. Consider whether it is appropriate to agree upon and sign the Terms of Reference without a physical meeting, e.g. by way of a telephone or video conference, as appropriate. In making that decision, the advantages of having a physical meeting at the start of the proceedings should be weighed against the time and cost involved...If there is no physical meeting for signing the Terms of Reference, the arbitral tribunal should consider having the Terms of Reference signed in counterparts."

(K). Bifurcation and partial awards.

"41.The arbitral tribunal should consider bifurcating the proceedings or rendering a partial award when doing so may genuinely be expected to result in a more efficient resolution of the casexvi”.

The use of bifurcations and partial awards is particularly suited to accountancy orientated disputes. A classic example would be a partnership breakup dispute and the question of goodwill. In valuing the share due to the exiting partner, the exiting partner may claim that he is entitled to a share of the partnership goodwill and calculates that share as £X. It is cost-effective to consider whether there is an entitlement to partnership goodwill initially by ay of an initial award, that is before considering the value of goodwill if necessary as a further award.

(L). Consider the need for disclosure and manage the same.

The common law Anglo-Saxon tradition of disclosure is often looked upon with surprise from those coming from different traditions. Speaking as an arbitrator it is the issue which often causes me the greatest difficulties regarding cost. Delay equals costs. Discovery often equates with delay. In accountancy orientated arbitrations disclosure presents particular issues. In one sense the necessity for disclosure is often limited. The information is available: rather it is a question of how that information should be interpreted. A classic case will be a joint-venture. Both sides in a commercial joint-venture will tend to have all of the accounting information, but disagree how that information should be interpreted. In such a case the lawyers should fight shy of adopting classic disclosure demands. At the other end of the spectrum are professional partnership disputes. Again I suspect that the information claimed is often available to all parties and/or is irrelevant; but the psychological issues involved in partnership disputes lead to a sense of distrust. In the apocryphal 'can goodwill be claimed by the exiting partner and if so how can it be valued’ example, more often than not the primary issue (‘the initial award issue’) is entitlement to goodwill in the first place: that tends not to be an issue involving disclosure. If goodwill is claimed and needs to be calculated it tends to be calculated on historical information which the exiting partner will have to hand. Disclosure will however be required in partnership disputes where there is a requirement to calculate profit up to the point of partner exit.

Arbitrants should maximise, “Managing requests for production efficiently... Time and costs associated with requests for production of documents, if any, can further be reduced by agreeing upon one or more of the following: Limiting the number of requests; Limiting requests to the production of documents (whether in paper or electronic form) that are relevant and material to the outcome of the case; Establishing reasonable time limits for the production of documents; Using the Schedule of Document Production devised by Alan Redfern and often referred to as the Redfern Schedule, in the form of a chart containing the following four columns:

First Column: identification of the document(s) or categories of documents that have been requested;

Second Column: short description of the reasons for each request;

Third Column: summary of the objections by the other party to the production of the document(s) or categories of documents requested; and

Fourth Column: left blank for the decision of the arbitral tribunal on each requestxvii.

i Sarosh Zaiwalla of Zaiwala & Co, The Resolver Magasine, February 2011.

vi President of the Chartered Institute of Arbitrators: 2001-2002.

x President of the Chartered Institute of Arbitrators: 2001-2002.