Efficiency in the context of arbitration leads to resolution of the matter with the least amount of wasted time, effort, and money. Maximizing efficiency without sacrificing the integrity of the process is something I always think about in my practice.[i] Of course, saving time and money is of utmost importance, and efficiency is a cornerstone of arbitration. But parties also deserve a process that is fair and final, in which the award will not be challenged because due process was sacrificed in favor of speed or cost savings.
In this article I will discuss the tensions that exist when parties and arbitrators seek to “have it all,” and then offer some strategies for ensuring that each arbitration process is both of a high caliber and efficient.
A (Seemingly) Impossible Balancing Act?
It is commonly accepted that the term “efficiency” refers to both time and money. The dictionary definition of “efficiency” is “the ability to do something or produce something without wasting materials, time, or energy,”[ii] and scholars agree that — in arbitration —“materials” means money.[iii]
However, efficiency is not only about saving time or money. It’s also about doing so while safeguarding the quality of the proceeding. According to some scholars, due process always supersedes efficiency in importance.[v] Procedural due process requires an arbitrator to “treat the parties equally, fairly and impartially, ensure that each party has an opportunity to present its case and deal with that of its opponent[, and] deal with all of the issues that are put to it.”[vi] This desire for procedural due process can be in conflict with the desire to proceed faster and with fewer costs.
Party Desires vs. Arbitrator Priorities
Often, the question of efficiency centers on the arbitrator’s role as the facilitator and fiduciary of the process. However, those who benefit from — and indeed who have the power to design — the process are the parties. Both sets of stakeholders have an important role in ensuring that an arbitration proceeds both smoothly and fairly, and I will share some helpful strategies for both stakeholders below.
So, what is the hurdle requiring these special strategies? Sometimes, arbitrators and parties disagree, and if there is an ambiguously drafted arbitration clause, it can’t provide the answer.
Common Disagreement #1: Parties may want to save time and money at the expense of (the other side’s) due process, whereas the arbitrator(s) may be more concerned that this will jeopardize the finality of the award. In fact, a 2015 survey by the University of London, Queen Mary revealed that respondents found “cost” to be the absolute worst characteristic of international arbitration, followed closely (in fourth place) by “lack of speed.”[vii] On the other hand, the same study found that a phenomenon called “due process paranoia” is an enormous threat to efficiency. This phrase “describes a reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully. Many interviewees described situations where deadlines were repeatedly extended, fresh evidence was admitted late in the process, or other disruptive behavior by counsel was condoned due to what was perceived to be a concern by the tribunal that the award would otherwise be vulnerable to challenge. Notably, even arbitrators identified this phenomenon as both problematic and commonplace.”[viii]
Common Disagreement #2: As alluded to above, sometimes parties may want to prolong arbitration. It’s their process, after all. Should the arbitrator allow it even if he or she sees that the parties are wasting time and/or money? The short answer is “no,” and indeed, arbitral institutions provide guidance to arbitrators on the matter. For example, the LCIA Arbitration Rules (in Art. 14(4)(ii)) provide that arbitrators have a “duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense, so as to provide a fair, efficient and expeditious means for the final resolution of the parties’ dispute,” and the ICC’s Rules (in App. III, Art. 2(2)) go as far as to consider an arbitrator’s “diligence and efficiency” when fixing their fees. [ix] One caveat is that arbitrators should be careful not to skip a full hearing if the facts of the case are complex, or if a foreseeable challenge to the award on due process grounds later will “add rather than reduce cost.”[x]
Strategies for Maximizing Efficiency Without Sacrificing Quality
Make time at contract initiation to understand your business partner’s interests and be sure to negotiate. If you do this while tailoring the dispute resolution clause in your contract, it will save colleagues the time and expense later when re-negotiating terms to make them workable for dispute resolution purposes. Consult the Kluwer Arbitration Blog entry entitled "Negotiation in the Context of Arbitration” for helpful advice on this topic.[xi]
On that note: agree on the structure of the arbitration in advance. At the drafting stage, there is no dispute yet and neither party knows whether they will be claimant or respondent. This is the optimal time for parties to be objective and fair to one another while working towards an efficient future dispute resolution process.
Consider setting up a dispute board (they are not just for construction projects). Dispute boards, also known as standing neutrals or adjudicatory boards, are panels set up to accompany the formation or performance of a contract. They can also assist in avoiding or overcoming disagreements and disputes by ensuring that there is already a qualified neutral, or panel of neutrals, readily available to assist parties when a problem arises.
Agree to an arbitral institution. Institutions can be helpful in increasing efficiency by: developing rules and practices that encourage the well-organized resolution of disputes, encouraging parties to select sole arbitrators if appropriate, ensuring that their roster of arbitrators are qualified for any given dispute, and incentivizing arbitrator efficiency by tying their pay to certain benchmarks, as noted above.
Try mediation before going to arbitration. Arbitration does not foreclose the opportunity for mediation. Have a look at the CPR Institute Mediation Best Practices Guide for In-house Counsel (available to members)[xii] and also the CPR Concurrent Mediation-Arbitration Clauses and Protocol.[xiii]
Consider expedited arbitration. In order to take advantage of the efficiencies offered in expedited arbitration, parties must have contracted for it in their arbitration clause (or the amount in dispute must fall below a certain threshold referenced in the arbitration rules), thus triggering an expedited process. Many institutions now offer “fast-track” rules as well.
Agree to arbitrate over video conference (and choose an arbitrator who is technologically savvy). During a pandemic, this is not only the faster and less expensive choice, but the safer one.
Consider proceeding to arbitration solely on the basis of documentary evidence. This will avoid a lengthy proceeding. Guidance on proceeding in this manner 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.
Think like a project manager. Project management school changed the way I oriented my approach to work — with a heightened focus on being efficient, promoting efficiency and working toward clearly defined goals. Combining the “Lean” and “Six Sigma” approaches together (explained in my previous article here) offers arbitrators the opportunity to streamline processes, promote efficiency, and focus on better outcomes. In commercial arbitration disputes, the most relevant waste categories to avoid are: (1) over-production (i.e. reliance on excessive processes or the rendering of more services than is reasonably necessary), waiting (i.e. time wasted), and defects (i.e. mistakes).
Motion Practice. At the 2019 ICC Annual Conference in New York, I participated in a panel discussion entitled, "Radical Proposals for Dispute Resolution: An Efficiency Revolution." Here, motion practice was introduced as a tool for encouraging efficiency. At the conference, we posited that "arbitration should more routinely include motions similar to those used in U.S. litigation (e.g., motions to dismiss on the pleadings or for failure to state a claim, motions for summary judgment and motions in limine to exclude evidence at the hearing)." Roughly 44% of the audience agreed with this idea.
Immediate disposal of unmeritorious claims. In 2017, Alexis Mourre, then-President of the ICC International Court of Arbitration, explained that the decision to immediately dispose of such claims “may be taken when a party, at the appropriate stage of the proceedings, has entirely failed to substantiate a claim or a defense, and when disposing of it immediately would enhance the efficiency of the arbitration.” Hard to argue with this advice.
Limit document production. The 2015 Queen Mary Study on International Arbitration referenced above found that 62% of respondents wished that parties and arbitrators worked together towards limiting document production.[xiv] An arbitrator can set reasonable limits on discovery to increase efficiencies, where appropriate, without curtailing due process.
Arbitrators should be willing to proactively manage proceedings. The Queen Mary study also found that arbitrators with a decisive case management style are preferred to those with a reactive style.
At the start of an arbitration, arbitrators should “commit to and notify parties of a schedule for deliberations and delivery of final award.” Queen Mary interviewees “indicated that they were often kept in the dark about when awards would be rendered, and would welcome being better informed” and receiving their awards faster.
Whether you are a party to a dispute, or an arbitrator seeking to assist in the resolution of a dispute, efficiency is of utmost importance. With some advanced planning and awareness of all the tools and strategies at your disposal, you can work to ensure that any dispute is resolved both efficiently and fairly.
Special thanks to Gloria J. Medina for her assistance in researching the writing this piece.
[i] Erin Gleason Alvarez, Using Project Management to Identify "Waste" in Arbitration, Gleason Alvarez ADR (Oct. 26, 2018) https://www.gleasonalvarezadr.com/post/using-project-management-to-identify-waste-in-arbitration; Erin Gleason Alvarez, Revisiting Efficiency in Arbitration - Part One, Gleason Alvarez ADR (Apr. 20, 2020), https://www.gleasonalvarezadr.com/post/revisiting-efficiency-part-one; Erin Gleason Alvarez, Revisiting Efficiency in Arbitration - Part Two, Gleason Alvarez ADR (Apr. 22, 2020), https://www.gleasonalvarezadr.com/post/revisiting-efficiency-in-arbitration-part-two. [ii] Efficiency, Merriam Webster Online, https://www.merriam-webster.com/dictionary/efficiency. [iii] Veijo Heiskanen, Key to Efficiency in International Arbitration, 30 ICSID Rev. - Foreign Inv. L. J. 481–485 (2015), https://doi.org/10.1093/icsidreview/siv026. [iv] ICC Arbitration Commission Report on Techniques for Controlling Time and Costs in Arbitration, ICC (March 2018), https://iccwbo.org/content/uploads/sites/3/2018/03/icc-arbitration-commission-report-on-techniques-for-controlling-time-and-costs-in-arbitration-english-version.pdf; Draft UNCITRAL Expedited Arbitration Rules, 54th Sess, UN Doc A/CN.9/1082 (2021), https://undocs.org/en/A/CN.9/1082. [v] Jennifer Kirby, Efficiency in International Arbitration: Whose Duty Is It?, 32 J. of Int’l Arb. 689–696 (2015) (referring to Yves Derrains). [vi] Fabricio Fortese & Lotta Hemmi, International Arbitration and Procedure Procedural Fairness and Efficiency in International Arbitration, 31 Groningen J. of Int’l L., https://www.researchgate.net/publication/328959147_Procedural_Fairness_and_Efficiency_in_International_Arbitration. [vii] Queen Mary, University of London, Improvements and Innovations in International Arbitration 11 (2015), http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2015_International_Arbitration_Survey.pdf. [viii]Queen Mary, University of London, Improvements and Innovations in International Arbitration 11 (2015), http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2015_International_Arbitration_Survey.pdf. [ix] Jennifer Kirby, Efficiency in International Arbitration: Whose Duty Is It?, 32 J. of Int’l Arb. 692 n.9, 694 n.18 (2015). [x] William Park, Arbitration and Fine Dining: Two Faces of Efficiency, No. 17–25 Boston University School of Law, Public Law Research Paper 21 (2017), https://scholarship.law.bu.edu/faculty_scholarship/796. [xi] Erin Gleason Alvarez, Negotiation in the Context of Arbitration, Kluwer Arbitration Blog (July 29, 2019), http://arbitrationblog.kluwerarbitration.com/2019/07/29/negotiation-in-the-context-of-arbitration/. [xii] Mediation Best Practices Guide for In-House Counsel, CPR, https://www.cpradr.org/news-publications/store/mediation-best-practices-guide-for-in-house-counsel. [xiii]CPR Model Clause for Concurrent Mediation-Arbitration Clause and Protocol, CPR, https://www.cpradr.org/resource-center/protocols-guidelines/concurrent-mediation-arbitration-clauses-and-protocol. [xiv] Queen Mary, University of London, Improvements and Innovations in International Arbitration (2015), http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2015_International_Arbitration_Survey.pdf.