The past few years have seen record numbers of arbitrations being registered. In-House Perspective explores the attraction of arbitration for in-house lawyers, and what they should bear in mind when opting to resolve disputes in this way.

The Covid-19 pandemic has seen an increase in commercial disputes as companies have been unable to fulfil their contractual obligations due to lockdowns, supply chain disruption, staff absences and remote working. Yet while litigation may have once been the obvious choice for businesses in some jurisdictions to resolve disputes, other mechanisms have steadily gained traction.

Arbitration, in particular, is growing in popularity, especially for international disputes when at least one of the parties involved doesn’t believe it would receive a fair hearing in the national court in the country where the dispute may have arisen, or where the legal remedies – and level of damages – available are deemed inadequate.

In law firm White & Case’s 2021 International Arbitration Survey, some 90 per cent of respondents said they prefer arbitration – either standalone or in conjunction with alternative dispute resolution methods – to litigation, especially as businesses try to cut costs and plan ahead during the ongoing economic uncertainty.

And despite pandemic woes, 2020 set records for the number of arbitrations filed, with many arbitral institutions registering more new cases than any previous year. At an institutional level, the Singapore International Arbitration Centre (SIAC) registered 1,080 cases, the London Court of International Arbitration (LCIA) 444 cases, the German Arbitration Institute (DIS) 162 cases, and the US-based International Centre for Settlement of Investment Disputes (ICSID) 58 cases, for example. Experts believe that the figures for 2021 will show a continuing upwards trend.

Behind the trend

Harpreet K Sidhu, Publications Officer for the IBA Corporate Counsel Forum and General Counsel, Corporate Secretary and Privacy Officer at pet welfare and insurance company Pethealth in Canada, says arbitration has obvious attractions. From a general counsel’s viewpoint, she says, organisations can have more control – and more options – if they go through arbitration. She also believes that generally, the process is less painful. ‘Arbitration demonstrates good faith: two or more parties that have a dispute are prepared to come together to resolve the matter quickly,’ she says. ‘Litigation, however, shows that other options have simply not worked.’

‘As in-house lawyers, your instinct is to always have control of the process,’ Sidhu says. ‘The problem with litigation, however, is that you outsource control to a law firm. It can also be a very lengthy and expensive process.’

As such, she says, litigation is often seen as a last resort, unless the company bringing proceedings ‘is so aggrieved that arbitration or mediation will not resolve its complaint’ or it has such an aggressive risk and litigious culture that ‘fighting its case in a courtroom is its preferred move’.

If a company does litigate, general counsel should make the board aware of the potential costs. ‘Companies that go to court always think they will win, as well as get their legal costs back after the judge decides in their favour. That’s wrong on both counts,’ says Sidhu. She highlights that court cases can go either way, and even if a company does win, the other side can always appeal, spinning the process out for longer and for even more money.

‘Additionally, a company that loses in court can declare itself bust, meaning you don’t get your costs back, or a judge can decide that a company doesn’t need to indemnify all the costs, which means the company that wins its case can still have a large legal bill to pay,’ adds Sidhu.

Sidhu believes in-house counsel also have a duty to make boards aware of the other potential downsides of litigation. ‘Executives forget that litigation is a matter of public record, so if a company goes to court, the dispute – and every detail of it – can hit the headlines. General counsel should ask the CEO if the company really wants a potential PR disaster on top of an expensive, open-ended legal bill.’

Discovery – which can also be time-consuming and financially draining – can also produce embarrassing material and correspondence that a company would regret making public, she says. ‘The discovery process can mean that material that is not privileged can become public,’ says Sidhu. ‘Despite the best efforts of companies to prevent employees circulating potentially damaging information, emails sent in haste are often a treasure trove of embarrassing material.’

The path forward

Xavier Favre-Bulle, Senior Vice-Chair of the IBA Arbitration Committee and a partner at Swiss law firm Lenz & Staehelin, says in-house lawyers need to ask themselves a series of questions, with the assistance of outside counsel, to determine what’s the best route for resolving their dispute.

To prepare their case from a legal standpoint, in-house lawyers should ensure they’re prepared for document production requests within the company, and check with outside counsel that the contractual/legal provisions they’re hoping to invoke are solid. ‘If there are any hurdles that the opposing party could raise, one needs to find them and resolve them,’ says Favre-Bulle.

From a practical standpoint, in-house counsel should determine a reasonable budget for fully-fledged proceedings. They should also examine the profiles of the most suitable arbitrators and consider an efficient timetable of the proceedings, taking account of their needs.

From a tactical perspective, says Favre-Bulle, in-house lawyers counsel should ask whether arbitration is the only route or if there are alternative dispute resolution methods available, such as mediation. ‘In-house counsel should also ask if it is the right moment to commence arbitration proceedings, especially if there is a risk of a time-bar. They should also question what evidence is available, whether key individuals will be available to testify, whether expert witnesses will be required, and whether there are sufficient documents to support the case,’ he says.

Favre-Bulle says arbitration has grown in popularity since arbitral institutions have increasingly taken onboard concerns from users about the length and costs of proceedings by introducing mechanisms aimed at encouraging tribunals to render awards within certain timelines, as well as by simplifying procedures for disputes involving smaller amounts or less complicated matters. ‘Arbitration will therefore often be cheaper and faster than court proceedings in many jurisdictions, if one takes into account that most judgments at first instance are appealed,’ says Favre-Bulle.

More generally, he says, arbitration in Switzerland has additional distinct advantages over court proceedings. For example, the process is relatively quick. Setting-aside proceedings directed against arbitral awards are heard in a single instance directly before the Supreme Court, which usually issues its decisions in a few months.

Other advantages include having a sole instance with very limited review, where the parties can agree on arbitrators specialised in the subject matter of the dispute and/or familiar with the governing law, as well as make best use of tailor-made procedural rules applicable to the dispute. Arbitral awards are also usually easier to enforce than court judgments.

Furthermore, since most arbitrations in Switzerland are international and involve parties hailing from different jurisdictions, Favre-Bulle believes Switzerland will maintain its position as a major arbitration centre.

The future for arbitration

In the near future, he expects to see an increase of disputes related to smart contracts using blockchain technology, cryptocurrency and sanctions arising from the latest geopolitical changes. He also predicts an increase in disputes arising from supply chain failures and shipment delays.

Favre-Bulle says the pandemic resulted in many arbitration hearings being conducted remotely, though there doesn’t appear to have been any negative impact on the time required for concluding proceedings. He believes the use of a ‘hybrid’ format where not all attendees are necessarily physically present in the same location ‘will have gained increased acceptance for the future’. 

If arbitration is to continue to gain ground as a viable dispute resolution mechanism, efforts by arbitral institutions to streamline costs and processes must continue, says Samaa Haridi, Senior Co-Chair of the IBA Arbitration Committee and a partner at King & Spalding in New York. She adds that a particular focus should be making it easier for smaller and medium-size businesses to make use of them.

‘The “one size fits all” approach doesn’t work for all businesses that could benefit from arbitration,’ says Haridi. ‘At the moment, arbitration is often perceived a useful tool for larger multinational companies, while smaller companies sometimes believe that they are effectively barred from using it as a form of dispute resolution because of the time and costs involved,’ she says.

Haridi explains however that with the development of rules for more streamlined and expedited arbitration by the major institutions, arbitration is increasingly used by businesses around the world.

The past few years have seen a marked increase in initiatives and cross-border protocols seeking to regulate the procedure and conduct of various aspects of international arbitration, notably the International Council for Commercial Arbitration’s (ICCA) Guidelines on Standards of Practice and the Code of Conduct for Adjudicators in International Investment Disputes, both published in 2021. These publications aim to codify professional standards and ethical rules for the arbitration community.

Evidence also suggests that procedural tools such as expedited procedures and summary dismissal have also improved efficiency in commercial arbitration procedure in recent years.

Haridi adds that the legacy issues of the pandemic could work in favour of making arbitration a more palatable option for more companies. ‘The use of video-conferencing tools means hearings can be increasingly carried out remotely, which is great when many arbitration cases are often multi-jurisdictional and hearings take place in a third country,’ she says. ‘It also means witnesses can be more readily available because there is no travel requirement and costs can be significantly reduced.’

She also believes that more transparency and information about arbitrators would encourage more companies to consider arbitration as an option. She adds that some institutions now publish information about the identity of arbitrators sitting in cases they administer, which allows parties to evaluate how busy and/or in demand arbitrators are. Also, many members of the international arbitration community increasingly advocate for public feedback to be made available on arbitrators. 

Opting for arbitration

Chris Helmer, Senior Vice-Chair of the IBA Litigation Committee and a partner at law firm Miller Nash in Portland, believes the route to opt for arbitration depends on a number of factors. ‘From a US perspective, arbitration is only cheaper/faster if discovery is limited, as discovery is still such an expensive and time-consuming part of US litigation, unfortunately,’ she says.

‘Rather than being useful for only specific disputes, I would say that arbitration is only really a better choice than litigation if you get a very experienced, good arbitrator, because that arbitrator, if the dispute is international, will restrict discovery rather than take the US approach and will also often be more involved in deciding who can testify as a witness,’ she adds.

For Helmer, whether or not a company will choose litigation over arbitration in its contracts often depends on how sophisticated the company is, what its lawyer knows about the benefits of international arbitration and how well the company listens to its lawyers.

The pandemic has highlighted other advantages of arbitration that may appeal to companies. For example, litigation cases were delayed because in many US courts, some judges would not set trials to be held remotely unless both sides agreed, while some court systems did not have the technology to hold remote court proceedings. Criminal cases also take priority over business cases, which has led to a backlog.

Arbitrations, on the other hand, have not been so delayed, as arbitrators are usually seen as having the authority to order that the merits hearing will be held remotely. As a result, arbitrations have proceeded more rapidly.

Helmer says that companies need to consider several factors once they have taken the decision to arbitrate, and that in-house lawyers have a crucial role to play in the process. For example, if the arbitration is a cross-border one, in-house counsel should involve a local lawyer familiar with arbitration in the country where the dispute will be arbitrated, even if the actual hearings and briefs will be handled primarily by a lawyer from a different country – for instance, in the situation where the company arbitrating is doing so in a foreign jurisdiction and wants to use its regular lawyer or at least a lawyer from its own country.

She adds that companies should ‘always involve a litigation/arbitration lawyer from your own country, as even if everyone speaks the same language, a foreign lawyer will not know the assumptions you are making about certain things being the same from country to country – particularly with procedures.’ In Helmer’s view, a good lawyer from your own country familiar with international arbitration will know the differences and be able to explain them to the businesses and plan accordingly.

She also advises that companies should use a lawyer familiar with arbitration to arbitrate – particularly in international disputes – and a lawyer familiar with litigation to litigate. ‘The two dispute resolution processes are different. Most US disputes lawyers do both, and if the proceeding is domestic, that works,’ says Helmer. ‘But US lawyers who arbitrate domestically and are not familiar with international arbitration will not do a good job in international arbitration. They just don’t know the rules and even when they read them, they really don’t understand or believe them.’

It's also vital that companies get a realistic budget from their external lawyers before beginning the process. ‘Lawyers hate to have to do budgets, but there is no way for an in-house lawyer to evaluate the value of settlement without an arbitration/litigation budget,’ says Helmer, adding that it’s important to ‘always re-evaluate that budget as the process goes on as things do change.’

Another key issue for in-house lawyers to consider is to avoid doing more discovery than needed in an arbitration. ‘US companies will be used to a lot of discovery. That isn’t allowed in international arbitration and is often not necessary. Think about the value of particular testimony before you opt to obtain it,’ she says.

Companies should choose a foreign lawyer for international arbitration cases carefully, too. ‘Always get a recommendation from someone who knows what they are talking about. And, if the foreign lawyer seems to be doing things in an unusual fashion and is unable to explain why to you in a way you understand, get a new lawyer,’ says Helmer. ‘Good lawyers are the same in every country and if you don’t understand why a foreign lawyer is doing something and he/she can’t explain it, you probably don’t have a good lawyer – certainly don’t pick someone off the internet based on their website.’

Helmer also advises in-house lawyers to make management aware that while arbitration may be regarded as a cheaper option than litigation, it’s still not necessarily a cheap or easy option. ‘Be prepared for the arbitration or litigation to cost a lot more than you thought it would and to take a lot longer than you thought it would,’ she says. Ultimately, in-house counsel should ‘take what you learn from any arbitration or litigation and re-evaluate your contract dispute resolution clauses to get the best clause you can.’