Revisiting Efficiency in Arbitration - Part One

Updated: Apr 27

This year, many of us have experienced or witnessed dramatic change over a relatively short period of time. From my post here, in Brooklyn, the streets are quiet amidst our continued quarantine - save for the steadier cadence of sirens in the background. While public health concerns involved in tr

rsist and evolve, the economic impact also continues to unfold. Businesses are shuttered or placed on indefinite hold. The state of contracts, insurance coverage, real estate, corporate governance, dissolution, collateralized financing, and so forth are now the subject of legal periodical speculation as to what the future will hold in the wake of Covid-19.

Within this environment, the need for efficiency in dispute resolution is particularly heightened. From my perspective, efficiency in the context of dispute resolution processes (whether arbitration or mediation) leads to resolution of the matter with the least amount of wasted time and effort. (See prior post on arbitral waste...)

This article provides you with an overview of efficient dispute resolution approaches and outlines considerations for how to choose the best path for you.

Emergency Arbitration vs. Expedited Arbitration

Emergency arbitration and expedited arbitration are not the same thing. While both have the potential to provide a fast-tracked solution, the circumstances under which each may be utilized are entirely different.

"Emergency arbitration" is a term often applied to parties' ability to make an application for emergency measures of protection prior to the constitution of a panel. Most arbitral rules allow for emergency measures of protection. For example, the AAA Commercial Arbitration Rules (See R-38.) and ICDR International Dispute Resolution Procedures (See Article 6) provide similar guidance. Both the AAA and ICDR rules specifically provide that these proceedings may be conducted via telephone, video or written submissions, as alternatives to formal in-person hearings. Both sets of rules allow the emergency arbitrator to make an interim award or order that provides for some kind of injunctive relief, measures for the conservation of property or disposition of perishable goods, for example. The emergency arbitrator has no further power to act once the arbitrator is appointed or the tribunal constituted.

Generally, unless the arbitration/dispute resolution clause specifically excludes emergency measures of protection, it is available for application by parties under these rules.

On the other hand, in order to take advantage of the efficiencies offered in expedited arbitration, you must contract for it or the amount in dispute falls below a certain threshold referenced in the arbitration rules, thus triggering an expedited process.

Parties may opt into an institution's rules for expedited arbitration process by making this plain in the arbitration or dispute resolution clause. In this way, regardless of the amount disputed, an expedited process will be made available.

However, you may also agree to such a process at the onset of a dispute (if your preexisting dispute resolution provision did not include expedited arbitration) by mutual agreement of the parties.

An expedited arbitration may be attractive because it provides for a truncated process, and as such, a lower cost is likely as well.

Ad hoc vs. Institutional Arbitration

The primary difference between ad hoc and institutional arbitration is who administers the process. In ad hoc arbitration, the parties develop a system for administering the process. Whereas, institutional arbitration is governed by the rules of an arbitral institution. Depending upon the parties and the dispute before them, each process offers opportunities for driving efficiency - or potentially driving you up the wall.

Ad hoc arbitration often arises among parties that wish to maintain control over the manner in which the arbitration is conducted, rather than subscribe to an institution's arbitration rules. This is achieved in the parties' agreement to arbitrate, which should include guidance on how the process will be initiated and handled or refer to the arbitration law that will guide such decisions. Further, where parties are unable to agree on every facet of the process, they may wish to stipulate that controversies or disputes will be addressed by UNCITRAL Arbitration Rules or the CPR Institute Non-Administered Arbitration Rules, for example.

In an ad hoc process, parties are free to craft an arbitration that is unique to their needs and not reliant on any third party for such guidance. However, this is not for everyone. Parties must be willing to approach the ad hoc arbitration in a more collaborative way and have a clear understanding of what is required of an arbitration process, likely based on past experiences.

Ad hoc arbitration has the potential to address parties' most common complaints over arbitration - cost, time, flexibility and autonomy. It should also be approached with care in order to prevent against a runaway proceeding.

Final Offer Arbitration & Mediation

Final offer arbitration (FOA) is often known as "baseball arbitration," but don't let the moniker fool you. FOA is applied to mergers and acquisitions, real estate, tax, insurance and other commercial disputes,

FOA is offered here, in this post, alongside mediation because the two go well together and can serve as an ideal driver for efficiency.

Mediation offers parties with a collaborative environment for dispute resolution. It is a flexible process that gives you space to explore options for resolving a dispute with the assistance of a mediator. Where arbitration is guided by rules and the outcome is largely in the hands of an arbitrator, the parties remain the decision-makers in mediation.

Where mediation reaches an impasse (perhaps your counter-party is inflexible in negotiations...) FOA can provide an opportunity to reignite the discussion. In an FOA process, each party provides the arbitrator with their final award proposals and the arbitrator is obligated to choose one of these numbers at the conclusion of the process as the final (and binding) award.

By way of example, here's how you might introduce the concept of FOA in stalled negotiations...

"If you really feel that your valuation is the right one, and that our assessment is way off, then let's take this to final offer arbitration. The AAA has rules for it. If we can't resolve this for ourselves, let's let an arbitrator decide. You're confident in your position, so there's nothing for you to worry about..."

Now the key here is that in making such an offer, you are confident that your own valuation is the right one.

In my experience, discussion of FOA leads to more negotiation rather than more arbitration. Either way, it helps to move the conversation closer to a solution, thus driving efficiency. For more FOA reading, click here and here.

Virtual Arbitration vs. Arbitration by Documentary Submissions

Arbitration needn't always proceed in the traditional fashion, with in-person hearings - or with any hearing for that matter.

Virtual hearings are all the rage now. While lawyers have been writing about online dispute resolution for roughly 20 years (here's proof - and it's a good read), there was not as much activity as there were articles on the topic until now. In our current environment, the choices often presented to users are widely reported as (1) transfer the proceedings to video conference or (2) delay until we are all back together.

I have participated in virtual hearings from the neutral's chair and as a party. While I understand the proliferation of cyber concerns, most proceedings move forward without any fanfare. In short, I have never found mediating or arbitrating online to be an overly-complicated endeavor.

That said, virtual hearings do require additional attention in order to protect confidentiality, efficiency and enforceability. Click here to read the joint statement from a number of international arbitral institutions on their commitment to protecting the process and making best use of digital tools during his difficult time. Click here for practical advice on virtual arbitration.

Perhaps this is also a moment for pause, to have a look at the documentary processes offered in many institutional rules and ask:

  • Given current pressures you're possibly under and the nature of this dispute, is oral argument necessary?

  • If yes, why?

  • Could any of your objectives in oral hearing be achieved through more efficient means?

  • What are the potential repercussions of a document-based proceeding?

Voluminous filings, coupled with lengthy presentations, can do more to drive up the cost associated with creation and review of these materials rather than provide an efficient road map for the process.

By way of example, guidance on proceeding in arbitration solely on the basis of documentary submissions can be found in the AAA Commercial Rules Expedited Procedures, ICDR International Expedited Procedures and in the CPR Institute’s Global Rules for Accelerated Commercial Arbitration.

Conclusion

The ideas shared in this post are offered for your consideration as many parties review their dispute resolution strategy in our current environment. In the wake of Covid-19, parties' need for efficiency in dispute resolution is particularly heightened, so it is my hope this will clarify some of the options available.

Part Two of this post will offer further considerations for driving efficiency into the arbitration process including increased use of mediation as a tool to streamline arbitration, leveraging opportunities for negotiation within the arbitration, utilizing motion practice to effectuate better processes, and considering the use of dispute boards.