Do arbitrators make effective use of their discretion in managing the arbitral procedure?

By Kassi Tallent (Counsel, Crowell & Moring LLP, Washington, D.C.)

As another contributor pointed out in a prior blog post, the notion that parties choose international arbitration so that they can select experts in a particular subject matter to resolve their disputes does not seem to be borne out in reality.[1]  Instead, parties to these proceedings tend to select from a relatively small pool of arbitrators, few if any of whom have an academic or professional background that is related to the subject matter of the parties’ dispute.  Presumably, these arbitrators are selected because of their experience in international arbitration as a form of dispute resolution, which includes experience resolving complex procedural questions and managing the overall arbitral process. This experience may be particularly important given that most arbitration rules are quite general, leaving much to the discretion or “inherent powers” of the arbitrators.

Several considerations should guide the arbitral tribunal in the exercise of its inherent procedural powers.  On one hand, arbitrators must provide the parties with a reasonable opportunity to present arguments and evidence in support of their positions, and must give due consideration to those positions.  On the other hand, the right of either party to present its case or to define the issues for consideration cannot be unlimited. The tribunal has a duty to impose order on the proceeding, and in that regard it should take into account considerations of procedural economy and proportionality.  Furthermore, the tribunal should not ignore issues that it deems to be relevant and material to the outcome of the dispute simply because the parties may not have called attention to them.

In practice, tribunals tend to vary widely in terms of how they strike the balance between these competing considerations. This variation may manifest itself in several ways, for example: in the number or timing of written submissions requested or accommodated by the arbitrators; in the arbitrators’ treatment of sua sponte submissions by the parties; in the tribunal’s approach to document production; in the content and timing of procedural orders; and in the management of hearings and witness examination.

Although the arbitrators should in theory respect party autonomy in regard to these issues, parties often cannot or do not proactively reach an agreement about such matters once an arbitration has commenced.  Moreover, it may be a delicate matter for parties to inform the tribunal that they are dissatisfied with the manner in which the procedure is being handled, as they may be afraid of alienating the people who will ultimately render a decision on the substantive issues in dispute. The unfortunate result is that some parties end up feeling cheated by the arbitral process.  Indeed, the perception that “justice has been done” tends to be based as much if not more on procedural considerations than on actual substantive outcomes.

For example, I once represented a respondent in an international commercial arbitration in which our client fully prevailed on all the substantive issues in dispute.  Nevertheless, the arbitration became so drawn out and (in our view) unnecessarily complicated due to the procedural machinations of the other party that the case ended up feeling like a loss rather than a win for the client.  The tribunal, rather than actively controlling the proceeding, seemed happy to accommodate whatever request the opposing party made.   Among other things, the tribunal granted the opposing party’s very broad requests for document production; did not hold the opposing party to strict time limits for cross-examination of fact witnesses at the hearing, with the result that the hearing could not be completed in the allotted timeframe; and allowed the opposing party to raise new legal and factual issues at the hearing, which ultimately required new fact witnesses to be called to testify.  After the second merits hearing was completed, the tribunal went on to grant the opposing party’s requests for multiple rounds of post-hearing briefing before it finally issued its award approximately 18 months later.

Ultimately, all the claims raised against the respondent were dismissed in their entirety for lack of evidence put forward by the claimant.  Evidently, due process had been more than fully afforded to the claimant and therefore there was little danger that the award might be set aside.  On the other hand, the respondent had expended millions of dollars and spent years waiting to achieve an outcome that could have been achieved much sooner if the tribunal had been more proactive, and had imposed a greater burden on the claimant to put forward evidence in support of its claims from the outset.  The tribunal also declined to order the claimant to pay costs.

Unfortunately, I have also seen the opposite end of this spectrum, where an interventionist tribunal disallowed opening statements; essentially deprived the parties’ counsel of their ability to conduct their cross-examinations by constantly interrupting and altering their questions; and then went on to render a decision (without benefit of post-hearing briefing) on an outcome-determinative issue based on a set of considerations that had never been subject either to briefing or oral argument by the parties.

In both of these cases, the negatively affected parties certainly felt strongly that justice had been denied to them, and understandably so.   Most cases probably do not reach such extremes, but there is nevertheless a broad middle ground wherein one may observe significant differences among tribunals in terms of the amount of control they are willing to exercise over the proceedings, particularly against the wishes of one or both parties.  The place where a particular tribunal strikes the balance may not appear to be beyond the pale, but may still frustrate the expectations of the parties.

Based on purely anecdotal observations, it seems to me that one aspect in which arbitral tribunals could almost universally improve – particularly in large and complex cases – is in providing the parties with more directed questions during the pre- and post-hearing phases of the proceedings.  In my experience, tribunals frequently neglect or decline to do this.  Yet, I would suggest that this practice tends to serve the interest of procedural economy as well as that of due process.

First, providing the parties with specific questions generally ensures that they have an opportunity to address the issues that are likely to ultimately determine the outcome of their dispute.  Second, it helps to minimize extensive and costly submissions on matters that the tribunal already has in hand, but that the parties may nevertheless feel compelled to address further for the avoidance of doubt.   Third, it tends to enhance party satisfaction with the process because it demonstrates that the tribunal has taken the time to review and understand their dispute by the time the hearing is held (something that unfortunately does not occur in every case).

Of course, asking targeted questions may entail some risks, which probably explains (at least partially) why it is not done more often.  Most notably, tribunals may fear that parties will construe their questions as being indicative of some level of pre-judgment of the merits of the case.  This is a real risk and it should not be discounted.  On the other hand, it does not in my view generally provide a compelling reason for tribunals to avoid providing the parties with questions and/or “issues of interest” to guide them in the presentation of their cases.

In cases involving the application of multiple bodies of law, open-ended standards such as “good faith,” and multiple years of factual history, it is simply not efficient for parties to fully address (or even anticipate) all the issues that could potentially be relevant to the resolution of their dispute.  In such cases, I believe that arbitral tribunals must take a more proactive role in guiding the parties’ submissions if international arbitration is to remain viable as an effective dispute resolution option.