The irrationality of document production in international arbitration

By José María de la Jara¹

Discovery and document production allow parties in international arbitration to obtain new information. It is presumed that the newly obtained documents should lead them to become aware of their own weaknesses and strengths and therefore encourage a settlement. That rarely happens. In fact, if the extent of the disclosure is not tailored to the particular dispute, it may only cause a waste of time and money to the parties.

In this regard, the 2010 International Arbitration Survey conducted by White & Case and the Queen Mary University of London (“W&C Survey”) concludes that disclosure of documents is the stage that contributes the most to the length of arbitration proceedings.²

As lawyers tend to charge an hourly fee, the longer the arbitration takes the higher the costs for clients.  Furthermore, 64% of the respondents of the International Arbitration Research conducted by Berwin Leighton Paisner (“BLP Report”) said that document production adds significantly to cost.³

Given the time it consumes and how much it costs, one would expect that document disclosure would have a direct impact on the award. That is not the case either: the information obtained rarely affect the final result. In the 2012 W&C Survey4, 41% of the respondents said that document disclosure had affected the award only 0 to 2.5 times out of every 10 cases they had in the last 5 years, while only 8% of respondents of the BLP Report felt that this procedure had significantly contributed to a favorable outcome.

Therefore, the evidence shows that the disclosure of documents could be more efficient. This has been usually explained by pointing out that there is a clash between legal cultures in international arbitration. In one corner of the ring, Common Law practitioners –who are accustomed to the discovery procedure – prefer wide-ranging document production where no stone is left unturned, while, on the other hand, a limited approach is prevalent in Civil Law jurisdictions (BLP Report). Thus, there is still controversy on the extent of document production, which leads to a certain degree of uncertainty on the applicable standards and a rise in transaction costs.

However, a deeper analysis shows the litigators’ psychological complexities may be at the root of the problem. As advised back in 1991 by the former President of the American Arbitration Association, Robert Coulson, arbitration studies should leave behind discussions about the applicable law or procedural rules and start analyzing how human beings make up their minds.

In this regard, research from cognitive psychologists suggest that document production in international arbitration could lead to confirmation bias, a psychological shortcut that hinders one’s ability to evaluate evidence in a rational manner and makes us ”interpret new information in ways that are consistent with what we previously knew or believed or with our theory case”5.  The implications of this cognitive shortcut for international arbitration are insightful.

Confirmation bias may tilt lawyers in document production to seek evidence that confirms their original views rather than challenging them. Accordingly, the newly obtained information would be interpreted in a manner consistent with each side’s case, while damaging documents may receive less attention6.  In addition, claimants and defendants may be leaned to interpret ambiguous evidence through the prism of their own beliefs, each concluding that it supports their cases7.

Hence, confirmation bias inclines litigators in a document disclosure to request more evidence than what is necessary. To account for this cognitive shortcut, Honorable Andrew J. Wistrich and Professor Jeffrey Rachlinski conducted a discovery mock experiment with 111 lawyers, which were specifically warned not to request more evidence than was strictly necessary. The results, however, showed that 75% of the lawyers incurred in excessive discovery8.

Consequently, the exchange of information between parties may not always help to align their perception of the weaknesses and strengths of their own cases. In fact, the psychological evidence shows that confirmation bias in document production may lead to overconfidence, polarization and could actually end up pushing parties away and keeping them from settling the case.

For that reason, arbitration practitioners should perform a cost-benefit analysis before diving into document disclosure. We propose the following three-step examination for that purpose:

(1)    Necessity examination. Does my client really need document production? If so, to what extent? Is there any alternative?

To prevent a cultural clash and reduce the uncertainty of the disclosure’s extent, litigators should evaluate if the International Bar Association Rules on the Taking of Evidence in International Arbitration (“IBA Rules”) should be included when drafting the arbitration agreement. The standard applied to these rules (“relevant to the case and material to its outcome”) is widely accepted and it should be easier to adopt before any controversy arises.

Next, in-house lawyers should decide if an outside litigation team is needed. A proper litigator has the experience to decide which evidence to gather before a controversy arises, reducing the need for document production. Also, a litigation team knows how to protect confidentiality, personal and private information in a document disclosure (e.g. attorney-client privilege). Finally, litigators know how to prevent information leaks, contradictory evidence between team members and, most importantly, loss of documents (e.g. if an employee stops working in the project, all his information needs to be stored). Therefore, if a litigation team takes over the case early on, most of the information should already be organized and a disclosure of documents may not even be necessary.

Finally, less expensive alternatives should always be kept in mind. For example, public agencies are obliged to provide documents that are subject to Freedom of Information Act requests. In Perú, this process is faster than discovery and document production, as it lasts around a month.

(2)    Efficiency examination. How may I promote efficiency? Which measures are advisable?

According to the 2015 W&C Survey, seeking to work with opposing counsel to narrow issues and document production are the top choices to reduce time and cost in international arbitration.9  However, very few practitioners do so. In fact, only 4% of the respondents of the BLP Report declared meeting their opponents to discuss the document disclosure process.

The answer, then, is clear: litigators should evaluate whether it is advisable to work with the opposing counsel on narrowing document production. On that scenario, they could also check if there is enough negotiation margin to include the IBA Rules or at least a commitment to use a Redfern Schedule – which surprisingly is only used by 37% of arbitration practitioners (2012 W&C Survey).

(3)    Cognitive examination. Should my client keep a “settlement mind”? How may I deal with confirmation bias?

Encouraging settlement or promoting mediation are two of the most praised measures to reduce time and cost in international arbitration. Even when every client is not willing to negotiate nor every case can be easily settled, litigators should always evaluate if settling and “closing chapters” is gainful for their clients.

As we have shown, confirmation bias prevents litigators from evaluating new evidence obtained during document production in a rational way and may prevent parties to settle. Hence, litigators should try debiasing techniques as considering the opposing party’s perspective (consider-the-opposite), asking a member of the team to act as a “devil’s advocate” or have a lawyer take a fresh look at the file. Moreover, clients could hire a settlement counsel, as his advice would not be tainted by the litigation team’s biased perspective and might find a reasonable way to encourage parties to settle.10

In sum, parties and litigators need to be aware of the psychological biases that are present when analyzing new evidence and work on tailoring the disclosure procedure to the requirements of the specific case. If not done properly, document production may end up pushing parties away and costing more time and money that they initially anticipated. A proper litigation team should always be prepared beforehand to avoid such irrational investment by their client. As Benjamin Franklin wisely said: “by failing to prepare, you are preparing to fail”.

1 Associate at Bullard Falla Ezcurra + (Lima, Perú). Professor of Law & Psychology at Universidad del Pacífico. Executive Director and Director of the Persuasion and Justice System Unit at PsychoLAWgy. 
2 White & Case 2010 International Arbitration Survey: Choices in International Arbitration.
3 Berwin Leighton Paisner International Arbitration research based report on perceptions of document production in the arbitration process
4 White & Case 2012 International Arbitration Survey: Current and Preferred Practice in the Arbitral Process.
5 Robbennolt, J. K., & Sternlight, J. R. (2012). Psychology for lawyers: Understanding the human factors in negotiation, litigation, and decision making. Chicago: American Bar Association. 350.
6 Idem.
7 Rabin, M., & Schrag, J. L. (1999). First Impressions Matter: A Model of Confirmatory Bias. The Quarterly Journal of Economics, 114(1), 71.   
8 Rachlinski, J. J., & Wistrich, A. J. (n.d.). How Lawyers’ Intuitions Prolong Litigation.SSRN Electronic Journal, 124-133.
9 White & Case 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration.
10 Rachlinski, J. J., & Wistrich, 133