ALTERNATIVE DISPUTE RESOLUTION
JANE MICHAELS, J.
This article explores the benefits of arbitration over litigation and provides practical pointers for trial lawyers who want to sharpen their advocacy skills in arbitration.
Parties to arbitration proceedings frequently comment that they appreciate the arbitration process because it is a faster, more efficient, and less costly way to resolve their business disputes. Unlike litigation, arbitration provides the parties with an opportunity to exercise significant control over the entire proceeding—from the expedited exchange of information to the prompt resolution of discovery disputes, to the determination of customized procedures for the hearing on the merits.
At the outset, the parties can choose arbitrators who have specialized knowledge and expertise in the substantive area of the dispute. As a result, arbitrators can decide prehearing matters quickly. In addition, arbitrators have flexibility in working with the parties to determine the location of the arbitration hearing and the hours during which the hearing will be held. If it is more convenient for counsel and the witnesses, hearings can even be conducted in the evening or during the weekend.
Because discovery is generally limited and the grounds for challenging arbitration awards are narrow, arbitration is far less expensive than most litigation. Every arbitration dispute can be decided in a timely manner—fairly, cost-effectively, and with finality. In addition, arbitration in a private setting has greater potential than litigation to preserve business relationships.
This article is based on the author's 25 years of experience serving as an arbitrator in commercial and intellectual property cases. It is intended to assist trial lawyers in maximizing the benefits of arbitration and optimizing their prospects for effective and successful advocacy in arbitration proceedings.
Why Trial Counsel Should Care about Drafting Arbitration Clauses
Although in-house counsel or outside corporate counsel typically draft arbitration clauses in business contracts, litigators should make an effort to educate their colleagues regarding the importance of concepts to be considered in the drafting process. The language of an arbitration clause becomes critical once a dispute arises. Knowing in advance the important issues that need to be addressed in an arbitration provision will provide the client with additional security if a dispute occurs after the contract has been signed.
An arbitration clause must clearly define the scope of arbitrable claims. Important considerations about the scope include:
■ Will any dispute relating in any manner to the subject matter of the contract be arbitrable?
■ Do the parties want to include, or exclude, disputes regarding claims that are not necessarily connected to a cause of action for breach of contract, such as antitrust claims, patent infringement claims, or certain tort claims?
■ What law will govern the procedural and substantive issues in dispute?
■ In what city will the arbitration take place?
■ Will the dispute be decided by one arbitrator or a panel of three arbitrators?
■ What qualifications do the parties want the arbitrator or arbitration panel to have?
■ Do the parties want specific administrative rules to apply, such as the Commercial Rules of the American Arbitration Association (AAA), the rules of the International Chamber of Commerce (ICC), or those of another administrative body?
■ Before arbitration, will formal mediation or an informal dispute resolution process be required?
■ Will there be any limitations on discovery in the arbitration?
■ If there is a dispute regarding whether a claim is arbitrable, who will determine arbitrability?
■ Will there be any limits on available remedies? For example, do the parties agree that no punitive damages may be awarded or that the arbitrator may not impose injunctive relief?
■ How will attorney fees and arbitration expenses be handled; will costs be divided equally between the parties or will the non-prevailing party pay all attorney fees and expenses incurred?
■ Do the parties want to include a statement that all documents, testimony, and proceedings in the arbitration will be treated as confidential?
■ How will the arbitrator's award be enforced? 2
All of the foregoing issues must be considered when drafting a meaningful arbitration provision in a business contract. In my experience, most litigators get involved well after the fact, sometimes years after the governing arbitration clause has been written by others and without any input from trial lawyers who will actually handle the arbitration proceedings. This can compromise the efficacy of the arbitration proceedings. Advocates in arbitrations should get involved in counseling clients and their corporate colleagues regarding best practices in drafting arbitration clauses.
Make a Positive First Impression
A well-presented demand for arbitration or a carefully substantiated response to a demand for arbitration provides the arbitrator with a positive first impression. When claims and defenses are clearly described, the arbitrator is better prepared to assist the parties from the outset of a case. Advocates do a disservice to clients when a demand for arbitration is nothing more than a cryptic reference to breach of the operative contract, without any meaningful supporting factual information or specific legal claims. Likewise, clients are disserved if the response to the demand for arbitration is nothing more than a litany of denials.
The arbitral tribunal needs to understand the nuances of the case, both factually and legally, to do its job properly. In addition, clients better understand the scope of the factual and legal...