Group Works to Reform International Arbitration Process (Law.com)

The global recession has led to a spike in cross-border commercial disputes, which in turn has led to a rise in international arbitration.

But even as more companies turn to arbitration, many inhouse lawyers complain that the process, at its worst, can be as costly and time-consuming as litigation. Now an advocacy organization called the Corporate Counsel International Arbitration Group is highlighting the problems in order to encourage reform.

Though CCIAG was launched three years ago, it's just beginning to make its influence felt. The Paris-based group is composed of 50 large multinationals, including General Electric Company, Exxon Mobil Corp. and Siemens AG.

Roland Schroeder, a member of CCIAG's steering committee, said that no one he knows who uses arbitration regularly is happy with it. A senior counsel in General Electric's Connecticut headquarters, Schroeder coordinates GE's international arbitration policy. And the dissatisfaction he hears from other in-house lawyers goes well beyond the common complaint that arbitrators resolve disputes by splitting the baby.

Schroeder said that in his own experience, one of every ten arbitrations may be excellent, and another one or two pretty good, but the rest are generally unsatisfactory. Some disappointing results may technically be "victories," after which an arbitrator will demand: "How can you be unhappy?  You won!" To which Schroeder counters: "Yeah, but it took six years. And it should have been two. Or six months."

The problem with an interminable arbitration isn't just that it costs more, Schroeder explained. A dispute may revolve Law.com: Group Works to Reform International Arbitration Process around language also used in other contracts. And until the dispute is resolved, the business doesn't know whether it needs to change the language.

Nevertheless, most major institutions that administer international arbitrations report that their caseloads in 2008 (the most recent year for which data is available) increased over 2007. The jump at the London Court of International Arbitration was 55 percent; at the China International Economic and Trade Arbitration Commission, 28 percent; and at the American Arbitration Association's International Centre for Dispute Resolution, 13 percent.

Arbitration's attraction has a lot to do with companies' aversion to litigation. "No one has liked [litigation] for a long time," says MaryBeth Wilkinson, a partner in the Chicago office of Lovells, "but it's coming to resemble paranoia." This attitude is most commonly directed at the United States and other common law countries where discovery can be especially burdensome. According to Wilkinson, more businesses now seek to "U.S.-proof" their transactions by
insisting on international arbitration clauses. She added that electronic discovery "is the key factor because of its expense."

Plus, when a dispute is cross-border, few companies want to face trial in an adversary's home court. Arbitration is seen as cheaper, faster, and fairer -- because the parties can choose the arbitrators. It's also confidential. And if it's held in one of the 144 countries that signed the New York Convention of 1958, the award is enforceable in all signatory countries. That's a big advantage over court judgments, which may be difficult to enforce. "Arbitration is like a tough
game of golf rather than the war of litigation," Wilkinson said.

Not everyone is convinced that arbitration delivers what it promises. Michael McIlwrath, a senior litigation counsel for GE's oil and gas business who's based in Italy, has had plenty of experience with international arbitration. General Electric does business in many countries where it doesn't want to land in court due to corruption, politics, or both, said McIlwrath. Yet, the company isn't pushing to ramp up arbitration. "We feel it's become just another form of litigation in many countries," he said.

Though McIlwrath is often disappointed by the way arbitration plays out, he isn't down on the process itself. In fact, he said one of his most satisfying experiences had a bad outcome. A few years ago, a German panel of three arbitrators heard a dispute about a complex M&A deal. What distinguished the proceedings was how solicitous the arbitrators were, McIlwrath said. While the decision went against GE, he said the arbitrators empowered the parties and provided
what they needed: the certainty of a clear answer.

His worst experience isn't over. It started a decade ago in an emerging country in Asia that he declined to name. The only question in the case was whether certain events were due to forces beyond the parties' control, and a decision by the panel of three retired judges was expected within two years. "We keep thinking the arbitration will end next year," he lamented, "but it never does."

McIlwrath knows other lawyers who have sworn off arbitration as a result of their experiences, but he can't afford to.

He and his GE colleagues include arbitration clauses in the company's contracts "because the alternatives are so much worse. We don't think in terms of satisfaction," he said, "we think of the available alternatives."

Some of arbitration's most ardent champions concede its flaws. Kathy Bryan, chief executive of the International Institute for Conflict Prevention and Resolution, has called it "broken." Even Loukas Mistelis, director of the School of International Arbitration at the University of London, said: "Arbitration has been a necessary evil." He pronounced himself a big supporter of the lawyers pushing for change.

CCIAG steering committee member Schroeder said that while he can't speak for the group, he can outline the reforms that it has discussed. Arbitrators should be willing to resolve key legal questions early. Arbitral institutions should encourage parties to agree from the start on rules that guarantee light discovery and a quick result, or more discovery and a slower process. Institutions should also promote greater transparency to allow users to compare the
performance of arbitrators and institutions themselves.

Bryan at CPR and Josefa Sicard-Mirabal at the International Chamber of Commerce responded that their organizations have made progress. Both offer discovery options and are working to be more transparent. At press time CPR was planning a service that will allow its members to read reviews of arbitrators' performances ["Online Reviews on the Way," October 2009]. ICC issues annual reports that break down its statistics, and it's also put out a booklet that explains how to control costs.

Schroeder acknowledged that he's seeing improvements: "But it's at the early stages, and it's not yet the kind of dramatic reform we're looking for."

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