Best Ways To Handle International Arbitration At JAMS: Lessons Of The ALI/UNIDROIT Project

Saturday, July 1, 2006 - 00:00

Sheldon Elsen
JAMS

International disputes have long been the special province of arbitration, and JAMS has promulgated a set of rules to deal with them. At the same time, the American Law Institute and UNIDROIT, the legal arm of the European community, have developed a set of uniform principles looking toward enactment by legislatures for courts. ALI/UNIDROIT, "Principles of Transnational Procedure" (Cambridge University Press, Eng., 2006).

Courts may not work for most of these disputes, however, because the U.S. Constitution's Seventh Amendment guarantees that many litigants will have a right to a jury, provided they have federal jurisdiction, while the civil law rejects civil juries, as does the UK for most civil cases. Thus these principles may not be enacted, or if enacted may prove ineffective, and parties may in any event opt for arbitration. Arbitration will probably still dominate at least the near future, with some infusion from the ALI/UNIDROIT project, whose rules can be adapted for arbitration.

The author, who is a JAMS arbitrator and mediator, served as an American advisor for the ALI-UNIDROIT project, and found that the debates during the ALI/UNIDROIT project, combined with the procedural flexibility of the JAMS International Arbitration Rules, contain some important lessons on how parties can protect themselves procedurally when the dispute and/or the panel is transnational and JAMS administers the case. This article is about those lessons.

Consider a procedural dispute that sharply divides Americans from their civil law counterparts: whether the lawyers or the judge initially and primarily conducts the questioning of witnesses. Civil law looks to the inquisitorial method, run by judges, but Americans think that most questioning, and particularly cross-examination, is better left to lawyers than to judges. The questioner needs a meticulous understanding of the evidence in order to test the witness's testimony effectively, and judges usually lack such knowledge. Normally they have not investigated a case the way lawyers have and know much less about its details and nuances.

This would be true even where a judge has studied the files, as civil law judges often do. Cross-examination also requires an instinct to pursue questionable answers, which civil law judges typically do not demonstrate. Evasions may go unexplored.

JAMS Rule 18.2 provides that while the arbitrators have ultimate discretion, procedures will generally follow the arbitration law of the forum, unless the parties agree on another procedure. Such agreement presumably can be reached in the arbitration clause, and it is best placed there before disputes arise. Thus, when American counsel can influence the drafting of a JAMS arbitration clause, if the forum is not in the U.S. or the UK they might consider a clause that explicitly provides that the questioning of witnesses should follow the American procedure.

Many civil law jurisdictions also prohibit counsel from interviewing and preparing non-party witnesses. This restriction is an ethical one, and is intended to prevent the coaching of witnesses. It also stems from the civil law emphasis on documentary evidence, with its concomitant downplaying of oral testimony, and the frequent absence of probing cross-examination, which American courts rely on to flush out the improperly coached witness. JAMS Rule 24.5 allows for witness preparation, subject to ethical restrictions, but such restrictions would apply in civil law countries. Problems may be avoidable through a carefully drafted arbitration clause and care in choosing the forum.

Civil law and UK litigants usually agree to document discovery but rarely to depositions. Civil law lawyers in the ALI-UNIDROIT project, however, confessed to me that it is common to hold back important documents unless directly ordered to produce them. The arbitration clause might well provide for limited depositions to inquire into the existence of documents. It might also deal with questions about experts' neutrality.

As to fee shifting, many Americans consider this practice unfair to the less wealthy litigant, who is more risk averse, while civil law litigants treat it as a matter of course. The JAMS rules and most other institutions leave the question open, though the arbitrators have some flexibility to shift costs and typically international arbitrators do. Here again, early attention to the problem in the arbitration clause may save later grief and bitterness that could jeopardize future business relations.

These are only some of the lessons from this project. Lawyers would do well to study both the JAMS rules and the report by ALI/UNIDROIT, "Principles of Transnational Civil Procedure," before drafting arbitration clauses for transnational disputes.

Sheldon Elsen is well known nationally and internationally as a practitioner in securities and international litigation, and for handling complex commercial matters. Mr. Elsen has extensive experience in transnational disputes, both in the U.S. and abroad on behalf of American companies and individuals, and also many foreign companies and individuals.

Please visit www.jamsadr.com for further information.