Making the Case for the Self-Administered Case (ABA Quarterly)

Monday, June 11, 2007

Strategic Advantages of Self-Administered Proceedings in Selected Cases

If the self-administered international arbitration is appropriately designed and competently executed for selected disputes and contracts, it can offer distinct advantages for both counsel and client. The most obvious advantage is the absence of what is often a very substantial alternative dispute resolution (ADR) institutional administrative fee. Other benefits are (i) a less bureaucratic and faster proceeding; (ii) reduced risk of delayed communications or even miscommunication between counsel and the tribunal, since all communications are direct and not through an intermediary body; and (iii) the ability to make the promptest possible contact with the tribunal in the event that urgent action is required.

Growing awareness of these benefits has resulted in an increase in international self-administered proceedings when counsel believe that the necessary preconditions for effective self-administration have been met.

Foundation for the International Self-Administered Proceeding

It is conventional wisdom that litigation counsel ordinarily prefer an administered proceeding for their international arbitration cases by an established ADR provider. Organizations such as the International Court of Arbitration at the International Chamber of Commerce (ICC), the International Center for Dispute Resolution (ICDR) of the American Arbitration Association (AAA), the London Court of International Arbitration (LCIA), and the Hong Kong International Arbitration Centre have long been recognized for their effective administrativehandling of international arbitration cases.

The extent to which these and other international ADR organizations apportion specific administrative responsibilities to itself or the arbitral tribunal varies. The ICC Rules, for example, go so far as to reserve to the court itself significant authority for review of the tribunal’s draft arbitration award and to direct changes in the form of the award:

Before signing any award, the Arbitral Tribunal shall submit it in draft form to the court. The court may lay down modifications as to the form of the award and, without affecting the Arbitral Tribunal’s liberty of decision, may also draw its attention to points of substance. No award shall be rendered by the Arbitral Tribunal until it has been approved by the court as to its form.2

The ICDR, on the other hand, never has assumed such responsibility, nor has the International Institute for Conflict Prevention and Resolution (CPR)3. In fact, CPR always has favored self-administered, or as it calls it, “Non-Administered,” arbitration.

The primary aspects of a self-administered proceeding are (i) management of all administrative matters by the tribunal rather than the ADR appointing authority; and (ii) submittal and exchange of all communications — both procedural and substantive — directly between counsel and the tribunal. “Direct communication,” of course, does not imply the acceptance of unilateral, ex parte communication with the tribunal by a party regarding a substantive aspect of the case.

There are four keys to the successful execution of the self-administered international arbitration: (i) a wellcrafted set of rules that address the realities of the international legal environment and current international arbitration practice; (ii) a rule providing the direct management of the case by the neutral arbitrator or panel chair once the tribunal is impaneled; (iii) rules providing for an institutional appointing authority in the event the parties are unable to agree to selection of the tribunal within a fixed period of time; and (iv) an appointing authority that is knowledgeable of the international arbitration processes and which has a roster of well-qualified international arbitrators.

Additional provisions that counsel might want to consider in any set of international rules designed for effective self-administration include:

• A default mechanism calling for a party-appointed tripartite tribunal in the absence of tribunal composition being specified in the governing ADR contract clause;

• A speedy mechanism for nominating qualified arbitrator-candidates and selecting and impaneling the tribunal;

• Direct and full management of the case by the tribunal as soon as it is formally constituted;

• Authority for the appointing authority to address matters of arbitrator withdrawal or incapacitation, or motions to challenge or recuse an arbitrator;

• A default mechanism for appointment of a partyselected arbitrator should a party fail to do so;

• The granting of the traditional and essential powers to the tribunal that international counsel would expect and that a tribunal would require for effective control of the process. Such powers include, among other things, the authority to control the proceedings, hold a pre-hearing conference, schedule hearings, rule on evidence, grant provisional remedies and interim relief, grant pre-hearing orders, and award attorney fees and other costs of the proceedings;

• Authority of the tribunal to rule on challenges to its own jurisdiction and to the scope or validity of the arbitration agreement or the underlying contract; and

• A requirement that the tribunal issue a reasoned award.

CPR meets all of these requirements, through its roster of experienced international neutrals, its senior staff of experienced international arbitration professionals, and its Rules for Non-Administered Arbitration of International Disputes.4 When specifying the CPR Rules, the parties have designated a “one-stop shop” in that CPR provides a governing set of procedures that govern the full arbitration process, serves as an appointing authority, and remains available following appointment to rule on any challenges for cause to an appointed arbitrator.

In addition to addressing the key elements for international rules enumerated above, CPR procedures expressly require the expeditious conduct of the proceedings and authorize the arbitrators to establish time limits for each step of the proceeding. In fashioning the arbitration award, it also should be noted that CPR International Rule 16.3 states:

The Tribunal ... may apportion the costs of arbitration between or among the parties ... taking into account ... the conduct of the parties during the proceeding ...

Rule 10.5, regarding the awarding of damages, elaborates on this language. It provides that, while the tribunal is not empowered to award punitive or exemplary damages unless authorized by statute to do so, it is permitted pursuant to Rule 16.3 to take into account a party’s dilatory or bad faith conduct in apportioning arbitration costs between or among the parties.

International Institute for Conflict Prevention and Resolution

CPR is a membership-based nonprofit organization that serves as a multinational resource for the avoidance, management, and resolution of businessrelated disputes. Its members primarily are general counsel and senior lawyers of Fortune 500 companies and partners in large law firms around the world.

CPR was founded in 1979 as the Center for Public Resources, as a coalition of leading general counsel dedicated to identifying and applying alternative solutions to disputes to mitigate the high costs of complex business litigation.

Law firms and corporations that provide for CPR as an appointing authority in their contracts, or counsel who choose to stipulate to utilizing CPR services on a post-dispute ad hoc basis, need not be members of CPR.

While CPR recognized that fully-administered arbitrations offer identifiable benefits, it believed that an alternative method — the “Non-Administered” case — could prove to be a viable alternative for circumstances in which the arbitrators and parties’ counsel were sophisticated in arbitration law and practice.

As CPR’s activities became increasingly global, it correspondingly increased its focus on international ADR. Its global initiatives now include holding an annual European Mediation Congress, collaborating with ADR organizations abroad, fostering a European Committee comprised of leading European counsel, maintaining a set of international arbitration rules and model European mediation procedures, and continuing to expand CPR’s roster of experienced neutrals for service on international commercial arbitration and mediation matters.

CPR Arbitration Rules: History and Framework

In 1992, CPR promulgated its first set of international arbitration rules as an alternative to the UNCITRAL Rules, even while maintaining many of the underlying UNCITRAL precepts. In 1999, CPR created an advisory committee to conduct a review of its domestic and its international procedures, to ensure that they reflected the then-current best practices in light of the most recent developments in the law and the thencurrent practices of experienced international arbitration providers. That review resulted in substantial changes to both the CPR domestic and international rules, effective August of 2000.

Under both sets of rules, CPR essentially terminates its role as case administrator once the tribunal has been formally impaneled, except in the event of a challenge for cause to the service of a paneled arbitrator5 or the incapacitation or withdrawal of an arbitrator.6 The Rules outline a method and timetable for tribunal selection and for further administration of the case thereafter by the tribunal panel itself; the CPR administrative practice being to delegate case management in the first instance to the panel chair. As a necessary safeguard, the Rules further provide that CPR shall appoint a party’s party-appointed arbitrator should the party fail to do so.7

After four-plus years of experience with the year 2000 International Rules, CPR’s International Arbitration Committee assessed the procedures for further updating in order to assure they reflected the best practices for international arbitration in general and international ad hoc processes in particular. The result was the June 15, 2005 revision, which are the applicable rules as of the date of this publication. While a number of ministerial “housecleaning” changes were made, the most substantive changes were to Rule 10.3 regarding applicability of the amiable compositeur doctrine and Rule 10.5 regarding punitive damages.

CPR International Rule 10.3 provides:

The Tribunal shall not decide as amiable compositeur or ex aequo et bono unless the parties have authorized it to do so in writing or on the record.

The Committee looked to the standard adopted by the ICC as the model for this provision. This provision was added to reflect the commonly accepted view of most international counsel that, simply put, arbitrators should be required to follow the law in deciding the award and fashioning the remedy, and that generalized equitable concepts should not be applied unless the parties have expressly so agreed, whether that agreement is pre- or post- dispute.

CPR International Rule 10.5 provides that:

Unless the parties agree otherwise, the parties expressly waive and forego any right to punitive, exemplary or similar damages unless a statute requires that compensatory damages be increased in a specified manner. This provision shall not limit the Tribunal’s authority under International Rule 16.3 to take into account a party’s dilatory or bad faith conduct in the arbitration in apportioning arbitration costs between or among the parties.

As the CPR Commentary to the Rule discusses, this change was intended to reverse the presumption that Mastrobuono v. Shearson Lehman Hutton, Inc.,8 established in the domestic context when the United States Supreme Court held that, unless the parties expressly agreed otherwise, arbitrators are authorized to award punitive damages.

While the debate over punitive damages is not yet fully resolved, the Committee added Rule 10.5 in order to allay concerns that non-U.S. parties may have about U.S. punitive damage awards. This provision, of course, does not preempt parties from otherwise agreeing to the awarding of punitives in their arbitration clause, because the courts generallydefer to express contract provisions that amend or even conflict with an arbitration rule which the parties have incorporated by reference into their contract.

The CPR Neutral Nomination and Selection Process

Whether the matter involves the need for a nomination slate of arbitrators or mediators, CPR staff engages in essentially the same practices, some, but not all, of which may be found at other international ADR provider organizations.

CPR vets prospective candidates before the slate of nominees is submitted. Vetting occurs following the initial pre-case conference call between counsel and a CPR senior staff person. The conference call is held in order to address such matters as preferred neutral qualifications and subject-matter expertise, estimated hearing date range and length, venue, any unusual ADR provisions that may impact the process, and the identities of any individuals and entities for which counsel would want the arbitrators to conduct a conflicts check.

It is an axiom that it is far better for counsel to be aware of candidate conflicts or limited calendar availability before, rather than after, counsel decide on their candidate preferences. CPR, therefore, vets all prospective candidates before nominating them. The result is that candidates will be nominated only when they have reviewed in advance the nature of the dispute, the hearing locale, and the identities of the participants. They also must affirmatively have stated their willingness and availability to serve. Additionally, if there are any specific substantive qualifications desired by the parties that CPR cannot identify within its own panelist database, CPR can ask the prospective candidates to detail their experience in that particular area in their response to the vetting query.

This process also assures that all nominees will have completed their conflict checks and that their disclosures will be included with the nomination slate. The nomination materials also will show each candidate’s current rate of compensation and his or her calendar availability for the targeted hearing date range.

Counsel usually stipulate as part of this process that CPR staff is to exercise its discretion to withhold from nomination any candidate whose disclosure appears to show a clearly disqualifying conflict or unavailability for the hearing date range counsel prefer. There is an average processing time of four-tofive weeks for the CPR process to be completed, from the pre-case conference call through candidate identification, vetting, nomination, ranking, selection, and formal impaneling of the tribunal. Absent a contrary agreement among counsel, CPR exercises its discretion in breaking any tie rankings
among the candidates.

In addition to offering the obvious advantages of a vetting review, CPR adheres to the well-established ADR principal that, to whatever extent counsel may stipulate, the arbitration process should belong as much as possible to the parties rather than to a third party — whether that third party be the panel of arbitrators, the court, or the ADR provider organization. Consistent with this principle, CPR will vet and nominate any candidates to which the parties can agree, whether or not the candidates are members of CPR’s own roster of neutrals.

Mediation of Transnational and Domestic Business Disputes Abroad

Arbitration has been an accepted method for the resolution of international business disputes for centuries. It is increasingly becoming the preferred transnational method of international lawyers since the adoption of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The use of formal mediation processes for international business disputes has not been nearly as widely used, but has recently gained acceptability both within and outside the United States. CPR offers both a general set of mediation procedures9 and a set of mediation procedures developed by the CPR European Committee for use in Europe.10

Due to the inherently less formal, less adversarial, and more voluntary nature of the mediation process, most ADR organizations, including CPR, routinely apply a self-administered process wherein the organizational role is limited mostly to the identification, nomination, and selection of the mediator.

Mediation offers many obvious advantages. Among these are its great speed and informality, very low cost and risk, privacy, potential for preserving the business relationship, and the capacity of skilled neutrals to identify and create innovative resolutions that counsel who are “too close” to the matter may not see. Impediments to its more frequent use for crossborder business disputes and “domestic” controversies located abroad hinge on a number of factors, including the relatively recent development of non-governmental mediation institutions abroad and different approaches to the mediation process between differing cultures and legal systems.

Despite these impediments, the establishment of formal business mediation institutions abroad — in the private sector and in the courts — has grown significantly in recent years, especially in Europe and Asia. This growth is due in part to a growing emphasis on international commercial mediation by such organizations as CPR, ICDR, and the ICC. CPR’s own heavy commitment to the international arena is evidenced not only in its increasing global initiatives, including its joint U.S.- China Business Mediation Center, but also in its change of name in 2005 from the CPR Institute for Dispute Resolution to the International Institute for Conflict Prevention and Resolution.

Adding to this growth is the establishment of such indigenous and well-regarded Western European ADR centers as the Center for Effective Dispute Resolution (CEDR) in England, the ADR programs at the Barcelona and Milan Chambers of Commerce, the ADR Center in Rome, the Warsaw University Mediation Center, the Chartered Institute of Arbitrators in London, and the CMAP program of the Paris Chamber of Commerce and Industry.

Other commercial mediation centers more recently have been established in Eastern Europe, including Bulgaria and Croatia. CPR instituted a public policy initiative in Croatia which was funded in part by the United States Agency for International Development (USAID). CPR designed and implemented Croatia’s private mediation center infrastructure. The most successful of these centers are the Conciliation Center at the Croatian Chamber of Commerce and the mediation program of the Court of Honor located at the Croatian Chamber of Crafts and Trades.

These local mediation centers are a helpful resource for the low-cost settlement of transnational business disputes. They are also an aid to U.S. corporations desiring an effective, indigenous program for resolution of their local, domestic disputes that occur at their business operations located abroad. Simply put, U.S. counsel who already are aware of the benefits that mediation offers at home are now starting to seek out local, indigenous mediation programs abroad as well as established transnational mediation providers such as CPR, ICDR, and the ICC.

Conclusion

Law firms and corporations drafting ADR clauses in international business contracts should consider selfadministered international arbitration as an efficient, lower-cost alternative to administered arbitrations in selected ADR contract clauses where cost control of the arbitration proceedings are particularly important, where all counsel to any future arbitration will be experienced international ADR counsel, and where it is felt that pre-screening of all arbitrator candidates for conflicts and calendar availability before nomination is preferred.

1 Neal Blacker (blackern@aol.com) is a consultant in international and domestic ADR program design and operations. He wrote this article in his capacity as a Senior Vice President for Dispute Resolution Services of the International Institute for Conflict Prevention & Resolution, overseeing case and panels management for the CPR Institute. He has served as the ABA International Law Section’s Liaison to the ABA Dispute Resolution Section, as a member of the Dispute Resolution Section Council, and was founding chair of the International Subcommittee of the California State Bar ADR Committee. Detailed information on CPR rules, initiatives, membership, and case services can be found on the CPR web site at www.cpradr.org.

2 Rules of Arb. of the ICC, art. 27 (Jan. 1, 1998).

3 F/k/a CPR Institute for Dispute Resolution. Originally incorporated as the Center for Public Resources.

4 Effective date of June 15, 2005. Copyright © 2006 by International Institute for Conflict Prevention and Resolution, Inc. All rights reserved.

5 CPR Int’l R. 7.5-7.7.

6 CPR Int’l R. 7.9, 7.10.

7 CPR Int’l R. § 6.5.

8 514 U.S. 52 (1995).

9 CPR Mediation Procedure (April 1, 1998).

10 CPR European Mediation Procedure (1996).

By: Neal Blacker

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