The Top Ten Questions People Ask About Ad Hoc, Non-Administered or Self-Administered Arbitration (MCC)
August 6, 2008
August 2008By: Helena Tavares Erickson
Non- or self-administered arbitration is not new, with the UNCITRAL Arbitration Rules promulgated by the United Nations Commission on International Trade Law (www.uncitral.org) in 1977 being the best known of the so-called ad hoc rules. Nevertheless,questions about the use of nonadministered rules still abound. This article surveys the top ten questions received on this topic by the International Institute for Conflict Prevention and Resolution (“CPR”), a leading non-profit advocate of the non-administered approach.
1. Why would I want non-administered arbitration? What are the advantages?
Ad hoc rules provide a vehicle for sophisticated parties to resolve disputes with minimal intervention by third parties. Arbitrators and counsel are capable of performing most of the functions generally performed by an administering organization. Thus, the principal advantage of non-administered arbitration is that it allows the parties to control the process. They can write their own rules, set their own timetables and proceed at their own pace whether that pace is quicker or slower than an institutional setting might provide. This flexibility inures to the benefit of sophisticated counsel and parties in complex commercial matters, who do not need a conduit for service of pleadings or to arrange conference calls and meeting locations. The non-administered rules act as gap fillers in areas where the parties have not otherwise agreed. Another major advantage is that such arbitrations usually cost less than institutional processes because there is usually no need to pay the institution a percentage of the claim as a filing fee, or indeed any fees, if the parties can proceed on their own without the institution’s intervention.
2. How do I file a case?
Participants in non-administered arbitration processes do not “file” cases with an institution. When they wish to initiate a proceeding, they simply serve pleadings on each other and the relevant rules provide for the date upon which the arbitration is deemed commenced. See, e.g., UNCITRAL Rules Art. 3(2); CPR Non-Administered Arbitration Rules, Rule 3.2. References herein are to the CPR’s Non-administered Arbitration Rules (2007). CPR also provides a separate set of non-administered rules for international disputes. For a comparison of CPR’s International Rules to UNCITRAL and others, see S. Certilman, A Comparison of Selected International Arbitration Rules, 26 ALTERNATIVES 91 (May 2008).
3. What happens if the respondent does not participate?
The governing rules provide what happens when the respondent (or any other party) does not participate. For example, under the UNCITRAL Rules, if the claimant fails, without cause, to communicate its claim, the tribunal may terminate the proceedings. UNCITRAL Rules Art. 28. Under CPR’s Rules, the tribunal is empowered to set times for compliance and issue an award on default provided that the non-defaulting party produces such supporting evidence and legal authority as the tribunal deems appropriate. CPR Rule 16.
4. What if the parties cannot agree on a tribunal?
Both CPR and UNCITRAL provide arbitrator selection processes. In both cases, the default is for each party to appoint a neutral and for those neutrals to select the third “presiding” arbitrator or chair. CPR Rules 5 and 6; UNCITRAL Arts. 6-8. Under the UNCITRAL Rules if a party fails to appoint its arbitrator, the previously designated appointing authority or, if none has been designated, an authority designated by the Secretary- General of the Permanent Court of Arbitration at the Hague will appoint that arbitrator and if necessary the presiding arbitrator. Under the CPR Rules, CPR performs this function. CPR and other appointing authorities maintain lists of qualified neutrals for these purposes. The designated appointing authority or CPR charges a fee for this neutral selection service. These fees can vary from a minimum of $2,500 charged by CPR and the ICC to $3,250 charged by the International Centre for Dispute Resolution/American Arbitration Association.
CPR includes a unique alternative referred to as the “screened selection process.” CPR Rule 5.4 allows parties to select party-appointed arbitrators while not advising the arbitrators who designated each of them. The procedure is intended to offer the benefits, while avoiding drawbacks, of having party-appointed arbitrators. Any tendency (subtle or otherwise) of partyappointed arbitrators to favor the position of“their” parties is avoided because they are approached and appointed by CPR and are not told which party designated each of them. Other rules contain specific provisions designed to preserve the “screen” for the party-designated arbitrators under Rule 5.4 throughout the arbitration. See e.g., Rules 7.4-5. Parties may choose the “screened” selection procedure in pre-dispute arbitration clauses (see standard pre-dispute clause at www.cpradr.org), or agree to the procedure post-dispute.
5. What if something comes up and there are grounds to seek removal of an arbitrator?
Under the UNCITRAL Rules, the appointing authority decides the challenge and appoints a substitute arbitrator. Arts. 9- 12. CPR’s procedure for challenges is similar (see Rule 7). In most complex commercial matters, CPR ordinarily refers the challenge to a Challenge Review Committee comprising three independent neutrals who serve on a pro bono basis.
6. Can ad hoc arbitrators order discovery?
Arbitrators in a non-administered proceeding have the same ability to order prehearing discovery as arbitrators in institutional proceedings. Whether discovery is available, and from whom, is governed first by the parties’ contract, applicable rules and forum law. UNCITRAL’s Art. 24(3) provides that at any time during the arbitral proceedings the tribunal can require the production of documents, exhibits or other evidence within a period of time. CPR’s Rule 11 provides only for discovery deemed appropriate by the tribunal, taking account of the parties’ needs and the desirability of making discovery expeditious and costeffective. As highlighted in the Commentary to the Rules, CPR arbitration is not for the litigator who will leave no stone unturned. Some courts have held that pre-hearing discovery in arbitration is incompatible with the goals of arbitration. See, e.g. Hay Group,Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 408 (3d Cir. 2004); COMSAT Corp. v.Nat’l Science Found., 190 F.3d 269, 278 (4th Cir. 1999). Other courts have allowed limited discovery. See, e.g., In re Sec. Life Ins.Co. of America, 228 F.3d 865 (8th Cir.2000); American Fed’n of Television and Radio Artists, AFL-CIO v. WJBK-TV, 164 F.3d 1004, 1009 (6th Cir. 1999).
7. Can I get interim relief?
The 2007 CPR Rules provide a special procedure prior to the constitution of the Tribunal for the appointment of a Special Arbitrator on an expedited basis (one business day) who will rule on a request for interim measures. (CPR Rule 14) Under Rule 13, the parties remain free to petition a court for interim measures and, of course, the tribunal once constituted can always order interim measures. The UNCITRAL Rules provide that the tribunal once constituted may order interim measures and preserves the parties’ right to resort to judicial authorities for such measures. (Art. 26) The UNCITRAL Working Group on arbitration has been working since 2000 on special provisions for interim relief before the constitution of the tribunal. The latest drafts are available at www.uncitral.org. It will meet again in September 2008.
8. Are awards by arbitrators in a nonadministered process enforceable?
Neither the Federal Arbitration Act (“FAA”) nor the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), 9 U.S.C. Sec. 201 (note) distinguishes for enforcement purposes between an award rendered pursuant to non-administered or administered arbitration procedures. Parties devising their own procedures without reference to established rules should, however, take care to use clear language to indicate that they are engaging in binding arbitration to avoid court challenges that the award is not enforceable under arbitration laws. The New York Convention, one of the most adopted treaties in the world, is operative in over 140 countries. Nevertheless, parties should consult local counsel regarding a particular country’s enforcement record under the Convention, as there have been instances of local courts interfering with the enforcement of awards against their citizens. Similarly, in the rarer case where the enforcement of a domestic award would proceed under a state statute because neither interstate nor international commerce is involved, the particular state’s law should be checked to determine its requirements.
9. Can non-administered awards be appealed?
As noted above, enforcement of awards proceeds according to state, federal or treaty law. All three bodies of law provide exclusive limited grounds for judicial review of an arbitral award. These include improper notice to parties, arbitrator misconduct,improper constitution of the tribunal, or arbitrators exceeding their powers. See, e.g. FAA Sec. 10, New York Convention, Art. V. Generally, awards cannot be reviewed for errors of law. In the United States, a judge made ground – manifest disregard of the law – has allowed relatively few awards to be overturned. The viability of this doctrine has been called into question following the Supreme Court’s decision in Hall Street Assoc. v. Mattel, 128 S. Ct. 1396 (2008). Parties desiring a review of an arbitral award for errors of law can contract for an arbitral appeal of their award under CPR’s Arbitral Appeal Procedure. For more on CPR’s Appeal Procedure, see H. Erickson, So You Still Want Judicial Review of Your Arbitration Award?, 26 ALTERNATIVES 121 (June 2008).
10. Will the resulting award be made public?
Unless the award is filed in court for postaward procedures or the parties consent to its publication, arbitral awards are not public. Indeed, Rule 18 of the CPR Rules expressly provides for confidentiality. Awards may, however, be discoverable in U.S. litigation. Further information on the CPR Rules and other procedures can be found at www.cpradr.org.
At A Glance
Active involvement of a separate administering entity as a matter of course throughout the process. The administering entity typically charges a fee for its services in addition to that of the neutral(s). The American Arbitration Association (AAA) commonly administers ADR processes for a fee.
Tasks in which the administering entity participates include logistical, administrative and secretarial support.Administering entity also handles neutral’s fees and billing.
Institutional procedures and rules are available (e.g., AAA Mediation Procedure, AAA Arbitration Procedure).
Other available services include appointing of mediator or arbitrator, resolving challenges to neutrals and reviewing arbitral award for compliance with organization’s applicable rules.
The particular process (e.g., mediation, arbitration) is designed to proceed without the involvement of a separate administering entity. Services may be provided by an administering entity upon request of the parties. The CPR Institute performs this form of service. No filing fee or other fee is paid to CPR to conduct a proceeding under its procedures and rules in the ordinary course.
The neutral(s) and parties administer the process (e.g., keep the necessary files, arrange for where the proceedings will be held, agree upon a fee rate and collection process.)
Institutional procedures and rules are available (e.g., CPR Rules for Non-Administered Arbitration and CPR Mediation Procedure). In the event the parties reach an impasse in the course of selecting a mediator or arbitrator, or a challenge arises, CPR is available to provide assistance and an appropriate fee is charged for only the service requested. Sophisticated client and counsel often find an ad hoc approach appealing in business-to-business deals because it ensures maximum flexibility and party control of the process.
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