Next-Generation Rules for International Arbitration

Wednesday, February 18, 2015 - 16:43

CPR advances goals of global business community

MCC interviews Noah J. Hanft, president and CEO of the International Institute for Conflict Prevention & Resolution (CPR); Ank Santens, a partner in the International Arbitration group of White & Case LLP and chair of CPR’s Arbitration Committee; and Charles A. Beach, a former coordinator of corporate litigation for Exxon Mobil Corporation. 

MCC: What role does arbitration play in resolving international disputes?

Santens: International arbitration is firmly established as the method of choice for binding resolution of cross-border disputes. Not all international disputes will settle through negotiation or mediation, and litigation often is not an option because parties do not want to litigate in the courts of their counterparty and judgments from another jurisdiction are not always easily enforceable. Arbitration allows the parties to agree on the applicable rules and to participate in the selection of the arbitrator(s). As such, they can ensure that the procedures will be fair and that the decision makers will be neutral and have expertise relevant to the dispute before them. Arbitration results in a final, binding decision that is relatively easily enforceable in the more than 150 countries that have adopted the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  

MCC: CPR has just implemented new Rules for Administered International Arbitration (the “Rules”). Why and how were the Rules developed?

Hanft: In a nutshell, CPR was asked by the global business community to add administered arbitration to CPR’s non-administered offering for international disputes and also to address key concerns regarding international arbitrations, primarily related to duration, meaning time to award, as well as cost efficiency, confidentiality, bureaucracy and impartiality.  The new Rules build on our history of innovation and were developed by a subcommittee of CPR’s Arbitration Committee, composed of corporate and outside counsel, as well as independent arbitrators from a number of U.S. and foreign jurisdictions. The Rules reflect current best practices and offer well-conceived improvements based on the collective wisdom of the Committee.

MCC: In addressing specific concerns, what fixes do the new Rules put into place?

Beach: The Rules add administered arbitration of international disputes to CPR’s non-administered offering, in response to a preference expressed by many users for administered arbitration, which provides for an arbitral institution to lend support when necessary.

Additionally, although corporations recognize arbitration as the surest way to obtain a neutral forum and a final binding, enforceable award, many users complain that arbitration, as currently practiced, has taken on the trappings of litigation – taking far too long and costing far too much. The Rules address these concerns and, consistent with CPR's historic user focus, are flexible and non-intrusive.

Santens: For example, the Rules promote speedier arbitration. Rule 9.2 provides that "[t]he proceedings shall be conducted in an expeditious manner," and gives the tribunal power to "impose reasonable time limits" including the time allotted to each party to present its case. The Rules require the tribunal to render the final award "within 12 months of the constitution of the tribunal," a time limit that can only be prolonged with the approval of CPR (Rule 15.8). This time limit is ambitious but realistic, and therefore promotes predictability. Moreover, Rules 10.5 and 19.2 stipulate that the tribunal can take into account "dilatory or bad faith conduct" of the parties and their counsel during the proceedings when apportioning the costs of the arbitration in the final award.

Beach: The end game for the Rules is the result, not the process. For example, Rule 21 reminds the parties that they or the tribunal may propose settlement negotiations at any time. CPR is available to assist by arranging for mediation.

The Rules help make the administrative costs reasonable and predictable. Regardless of the amount in dispute, the claimant pays a non-refundable filing fee of $1,750 at the time of filing the request for arbitration. CPR's administration fees are on a sliding scale capped at $34,000. Rule 10.5 also guards against costs that sometimes arise unexpectedly in international arbitration by providing that unless the parties have agreed otherwise, they "expressly waive and forgo any right to punitive, exemplary or similar damages unless a statute requires that compensatory damages be increased in a specific manner."

Hanft: To expand a bit, many have characterized CPR’s predictable costs as extraordinarily low for a significant arbitration. They're certainly reasonable and, because of our nonprofit structure, completely non-opportunistic in nature. Also, in offering the best panels of neutrals, CPR creates a basis for confidence in a predictable outcome, obviously depending on the strength of your case. That's something all in-house counsel are focused on.

On the bureaucracy point, I’ll just add that in-house lawyers are particularly averse to excess process. CPR’s Rules impose no extra layers of management or consultation. Our case managers are highly qualified lawyers who handle matters directly, which drives the benefits of reduced costs and greater efficiency while serving the goal of avoiding excessive “back and forth” between the parties and outside counsel.

MCC: Is there a risk element being addressed along with these other concerns we’ve been discussing?

Hanft: Risk is inherent with any form of adjudication, whether it be litigation or arbitration. In arbitration you can have some degree of say over the decision maker, which some see as a real positive, but others are uncomfortable with their adversary selecting an arbitrator. To assuage this risk, a critical dimension of CPR’s Rules is a complete focus on ensuring that arbitrators are independent and impartial. We have incorporated into the Administered Rules, a screened selection process that, at the user’s option, allows for a panel in which arbitrators don’t know which party selected them, therefore bringing an entirely objective perspective to the proceeding. Characterized as an extraordinary advance, this process, which CPR developed and introduced in 2000 as a feature of our Non-Administered Rules, has proven itself over time through regular use by several industries.

MCC: Would you please describe the process laid out in the new Rules?

Santens: Simplicity is a hallmark. To reduce complexity, the Rules place control of the proceedings in the hands of the parties and the tribunal, and limit CPR's administrative duties to those that will prevent delay and reduce costs.

To commence the arbitration, the claimant delivers a notice of arbitration directly to the respondent with an electronic copy to CPR (Rule 3.1). CPR notifies the respondent that it has 30 days in which to deliver a notice of defense to the claimant with an electronic copy to CPR (Rules 3.5 and 3.6). If the respondent fails to submit a notice of defense, all claims in the notice of arbitration are deemed “denied,” and the proceedings continue (Rule 3.6).

If the parties have agreed on the number of arbitrators and the method of selection, CPR's involvement is only to contact the candidates to confirm that they are available and to request that they disclose "any circumstances that might give rise to justifiable doubt regarding the candidate's independence or impartiality" (Rule 5.1(c)). If the candidates are available and no party challenges their impartiality or independence, CPR appoints them as the tribunal to arbitrate the dispute. Parties have access to the experienced neutrals on CPR’s global and industry-specific panels, but also may designate for appointment arbitrators not on those panels (while CPR retains the last word, it would rarely refuse to appoint an arbitrator designated by a party and not opposed by the other party).

Expanding on Noah’s comment, Rule 5.4 presents an innovative screened procedure, unique to CPR’s Rules, for constituting a three-member tribunal. Each party designates one arbitrator. Those arbitrators are approached and appointed by CPR rather than the parties and are not told which party designated them. This allows parties to participate in the arbitrator selection process, while avoiding any tendency (subtle or otherwise) of party-appointed arbitrators to favor or advocate the position of the parties who appointed them. The third member (the chair) is chosen through Rule 6.2’s list process.

For any appointments to be made by CPR, CPR employs a list system that involves party input and thereby again ensures the highest possible party involvement in the arbitration selection process while preserving impartiality.

CPR also rules on challenges to arbitrators and helps replace arbitrators who may fail to perform their duties once appointed (Rules 5 and 7).

Beach: Once appointed, the tribunal takes control and "conduct[s] the arbitration in such manner as it shall deem appropriate" (Rule 9.1). Matters discussed at the pre-hearing conference may include bifurcation; scheduling of conferences and hearings; need for translations and transcripts; time allotted for presentation of each party's case and rebuttal; mode, manner and order for presenting proof; need for and manner of presenting expert testimony; necessity for any on-site inspection; identification and narrowing of issues, including the possibility of early disposition of issues in accordance with the CPR Guidelines on Early Disposition of Issues in Arbitration; possibility of stipulated facts; appointment of neutral experts; and possibility of settlement negotiations or mediation (Rule 9.3 (a-e)).

The tribunal may require parties to make pre-hearing disclosures, but Rule 11 cautions that in ordering disclosure, the tribunal should take into account "the needs of the parties and the desirability of making disclosure expeditious and cost-effective." The aim is to avoid U.S. litigation-style pre-trial discovery. The tribunal can issue orders to protect the confidentiality of sensitive information (Rule 11).

Rule 12.1 gives the tribunal authority to "determine the manner in which the parties shall present their cases." Either party can request, or the tribunal can direct, a hearing for the presentation of evidence and oral argument (Rule 12.2). The tribunal determines the following: whether evidence may be presented in writing or orally or both (Rule 12.2); the admissibility and weight of evidence, including applicability of any privilege, (Rule 12.2); and the manner in which witnesses will be examined (Rule 12.4). The tribunal also has discretion to appoint neutral experts (Rule 12.3).

MCC: How are the new Rules administered?

Hanft: CPR has an excellent global roster of arbitrators and an experienced multilingual, multicultural staff to administer the cases. In addition, the Rules provide for an International Arbitration Council, made up of experienced and reputable jurists around the world upon whom CPR can call for assistance with any issues, including issues of foreign law that may arise in relation to the cases.

MCC: Do the Rules address matters involving third parties?

Santens: A novelty of the Rules is that they include specific provisions regarding arbitrations involving multiple parties or contracts. Prior to appointment of any arbitrator, Rule 3.12(a) permits CPR to join one or more third parties to the arbitration. Similarly, Rule 3.13(a) allows CPR to consolidate two or more arbitrations under appropriate circumstances. Both rules aim to avoid redundancies, wasteful parallel proceedings and inconsistent decisions.

The tribunal can take such interim measures "as it deems necessary" and require security as a condition of ordering such measures (Rule 13). Should a party want to request interim measures in the arbitration prior to appointment of the tribunal, it may request CPR to appoint a special arbitrator on an expedited basis to hear and rule on the request (Rule 14).

MCC: What about confidentiality?

Hanft: Confidentiality is a hallmark of CPR’s approach, which allows parties to resolve disputes in a private manner, with less antagonism and a greater chance for subsequent healing of business relationships. Because it is of significant importance to our stakeholders, we have embodied confidentiality in our new Rules and ensured that it applies to the parties as well as the arbitrators themselves.

Santens: The Rules include an explicit confidentiality agreement binding the parties, the arbitrators and CPR (Rule 20). This differentiates CPR’s Rules from those offered by other arbitral institutions, which recently have moved away from confidentiality. CPR’s Rules honor feedback from its users, who continue to consider confidentiality an important feature of international commercial arbitration. Many users mistakenly assume that arbitration is always confidential and are unpleasantly surprised when they realize that confidentiality is not a given.

MCC: What are the current trends regarding cross-border disputes?

Beach: In the past decade, cross-border disputes have increased in number and complexity. A recent Hogan Lovells survey of FT Global 500 multinationals indicated that cross-border disputes represented 30 percent of respondents’ caseloads, and that the matters included not only commercial contract disputes but also product liability, IP, antitrust and competition disputes. Brazil and China have joined the UK, U.S., France and Germany as common jurisdictions with cross-border disputes. In this climate, CPR’s expanding network of collaborating institutions ­– including CMAP in France and CAMARB in Brazil, and its global roster of cross-border arbitrators with expertise in fields ranging from antitrust to trademark – is well suited for handling such disputes.

MCC: Will the Rules assist global companies in drafting cross-border contracts and lend weight on the enforceability side?

Beach: Parties drafting cross-border contracts may adopt the Rules by inserting CPR's standard provision into their contracts. CPR also has a standard provision for submitting an existing dispute to arbitration.

Establishing the “rules of engagement” at the contract stage is usually easier than after disputes arise. CPR’s Rules, protocols and guidelines provide a road map for preparing for dispute resolution and designing efficient, fair procedures that ensure predictable, timely outcomes. CPR’s Arbitration Committee is currently drafting a manual specifically to assist the corporate community at the dispute resolution design and drafting stage. The Committee hopes to complete the manual later this year.

We believe that parties and courts will generally honor and enforce awards rendered under the Rules. To reduce the risk of challenges to final awards, CPR will perform “a limited review for format, clerical, typographical or computational errors, or any errors of a similar nature in the award" before the award is issued (Rule 15.4).

MCC: In closing, place the development of the new Rules in the greater context of CPR’s heritage of innovation.

Hanft: In 1979, CPR started the legacy of bringing together corporate counsel and their firms to find ways to lower the cost of litigation. Since that time, we have become a thought leader in devising methods for resolving commercial disputes, both domestic and international. Because our membership consists of leading users and practitioners around the world –  an elite group of corporate executives, legal counsel, government officials, retired judges, highly experienced neutrals and leading academics – CPR has a unique ability, first, to understand the issues and, second, to address them in a thoughtful and creative fashion. We accomplish our mission by harnessing their expertise to change the way the world resolves conflict. In general terms, the new Rules are an extension of that legacy, with specific rules, such as the screened selection process, reflecting innovation at a more granular level in response to concerns we have heard.

Finally, I hope I have made the point well enough that we are excited about the new Rules. A number of corporations have already advised us that they are incorporating CPR’s clauses into their contracts, so the excitement is growing beyond our members and current users and into the business community.  

For further information on CPR’s New Rules for Administered International Arbitration, please visit www.cpradr.org/Portals/0/CPR_Admin_Arb_Rules_Intl_Disputes.pdf