By Greig Taylor| Managing Director | Alix Partners
In September 2018, I spoke at the International Chamber of Commerce (ICC) New York conference on a panel titled Efficiency Is Money: Techniques to Improve International Arbitration.
The large number of actors involved in any given international arbitration, coupled with the differing interests in desired outcomes, makes the process highly complex. AlixPartners is experienced in working with clients and counsel to help them overcome such challenges, and in this article I summarize some of the efficiency propositions the panel discussed.
Clear Instructions to Experts
Experts are typically instructed by counsel for each party, who want to best advocate their client’s position. Consider the following example, with Expert A—retained by claimant—and Expert B—retained by respondent.
Expert A submits a report on damages.
Expert B, whose side believes it has a strong liability position, has been instructed to critique only Expert A’s damages calculation. Expert B has been instructed neither to produce an alternative damages calculation based on adjustments to Expert A’s work nor to provide the tribunal with an opinion on what the damages amount would come to.
If expert witnesses in international arbitration were instructed to provide their opinions based on the same set of assumed facts and to then work either together or independently to formulate their damages conclusion(s), efficiency would improve. Genuine differences would still exist with regard to the ways quantum would be determined, but this approach would minimize variances and focus the questions to the experts on only those issues still in dispute.
In the foregoing example, the tribunal members are left with just one damages amount if they find any liability on the part of respondent. If the tribunal members are comfortable selecting the only damages amount documented in the record, the arbitration process would be relatively efficient. If they do not select the only damages amount documented in the record, there could be additional submissions on damages, thereby extending the process and delaying the outcome.
Strict Procedural Orders
The development of strict procedural orders can help integrate efficiency into the arbitration process. However, as with instructions to experts, each party will still want to present its case in the most advantageous manner, and therefore the parties may not always select the most-efficient options.
Tools that can help reduce areas of disagreement in the damages phase of an international arbitration include the use of joint expert reports, witness conferencing, and meetings between experts. Each of those tools can help reveal major differences between experts. However, tools that result in too many areas of disagreement translate into a waste of time, energy, effort, and money.
The decision to use such tools is a judgment call influenced by multiple factors, including the level of complexity of a case, the tribunal’s amenability to such a process, counsel’s willingness to cede some control to experts, and experts’ familiarity with such a process.
Overall, any opportunity to get experts working together serves as a useful check and balance on their credibility, ultimately reducing the number of differences and enabling the tribunal to decide which position it can place more reliability on.
In 1974, in a salary dispute between the Minnesota Twins Major League Baseball team—offering $23,000—and the team’s pitcher Dick Woodson—asking $30,000—the concept of baseball arbitration got established. The approach uses a single-choice mechanism: the arbitrators are not permitted to split the difference or make an alternative determination, which encourages both parties to take a reasonable position. The theory is that good-faith bargaining and the risk of losing facilitate settlements.
Baseball arbitration is most appropriate in interests-based cases, such as those in which the parties have a continuing or long-term relationship and want a more amicable one. It’s not the best choice, though, for bet-the-company, rights-based disputes such as contractual disagreements.
In a case involving the question of the fair value of a joint venture entity for the purposes of a buyout provision, baseball arbitration may serve to eliminate the costly, time-consuming back-and-forth of differences between experts. Baseball arbitration also provides a tribunal with an agreed-upon answer on quantum, which would become relevant only after the tribunal’s determination on liability, thereby eliminating the entire dynamic of competing expert opinions from which the tribunal must make a determination.
Woodson ultimately got the $30,000 salary he wanted, but both he and the Twins were unhappy with the outcome. Woodson said the owner had treated him poorly throughout the process, and the owner expressed frustration based on limited control over the resolution process. The owner eventually further expressed displeasure by trading Woodson to the New York Yankees that same season. So, efficiency in the arbitration process can sometimes backfire.
As you can see, there are ways to improve efficiency in international arbitrations, but they have their limitations. The interests of the parties and their counsel and their presentation of the stronger case will take precedence over efficiency.
How do you propose making international arbitration more efficient? What is your experience with the methods discussed above? Would love to hear your thoughts in the comments below.
Compliments of AlixPartners, a member of the EACCNY