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Can it Pay to Arbitrate Even When You Don't Have To?
- by Royden Hindle, published in NZLawyer magazine, issue 177, 10 February 2012


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An agreement goes sour. The lawyers are called in. They check the contract documents, and find no arbitration clause. The two sides square up. Proceedings are threatened; vigorous defence is promised. Nothing can be agreed. Litigation is inevitable.

This may not be the easiest moment for the parties or their representatives to stand back and have a cooperative discussion with each other about how they should have their argument, and what steps might best be taken to get the matter determined. Even so, its at this point that such a discussion could be of most benefit to both sides.

To be clear: the discussion I have in mind is not one about how the case might be settled without a decision (I am not suggesting that kind of discussion wouldnt be useful, but thats a different topic). The discussion I suggest is around what procedures will get the case to the point of decision as soon and as cost-efficiently as possible?

Going to court may seem like the only option. No doubt that is the reality in many cases. But for prospective litigants who are willing to entertain the possibility of doing things differently, and who are at least able to discuss the options with each other, arbitration might well be a pragmatic alternative.

Domestic arbitration is probably still seen by many lawyers as a technique most naturally associated with construction cases, rent reviews, asset valuation issues, and the like. But there is no reason why the arbitral process cant be used to deal with all kinds of civil disputes, and not just those in which there is a pre-existing agreement to arbitrate. Arbitration can work just as well for disputes based in contract, tort, equity, relationship property, land valuation, arguments between shareholders indeed, almost any dispute (save perhaps for those in which the outcome may require the exercise of a specific statutory power).

When the comparative merits of arbitration are considered, the benefits usually attributed to it include that:

      the parties can pick their decision maker; and

      the process is confidential.

Those can certainly both be attractive aspects in some cases. But the benefits to be gained from an efficiently run arbitration should go well beyond those kinds of things. Other important advantages include:

      Once appointed, the arbitrator has both a responsibility and a commercial incentive (in the sense of protecting a reputation
          for efficiency) to see cases moved along promptly;

      The same person (ie the arbitrator) will deal with all interlocutory matters as well as the substantive hearing, whatever form
          that ultimately takes. There ought to be no double handling;

      When there are interlocutory matters that are contested and require directions, access to the arbitrator should be
          straightforward and should not give rise to any significant delays.

Tailor-made dispute resolution

Perhaps the greatest advantage of arbitration, however, is the scope it offers to ensure that the work done along the way to hearing, and the hearing itself, is tailor-made for the dispute at hand. To give just a few examples, a case management conference with an arbitrator might consider:

To what extent are full pleadings necessary?

Effective appointment of an arbitrator demands that there must be clear consensus about the scope of the dispute in order (amongst other things) to define the limits of the arbitrators power to deal with a matter (for example, in a contract claim about the supply of seeds the submission might be of all issues arising out of, or relating to, Supplier Companys performance of its obligations under an agreement dated). After discussion, the parties may be able to go further, and agree what specific questions within the scope of the arbitrators powers ought to be decided (for example, Did the seeds supplied on such and such a day meet the specifications in clause X of the contract?). Such an agreement might be recorded and accepted by the arbitrator in lieu of pleadings.

Even if the issues cannot all be stated with precision at the outset, what might be thought of as part pleadings may suffice (for example, a claimant in a tort case might be asked to provide specific information about the losses claimed; but the prior issues as to whether there was any duty of care and, if so, whether there has been any breach of that duty, might simply be stated as agreed questions).

For those who are nervous about being committed to a fixed statement of issues before discovery has been completed and evidence statements exchanged, the timetable might leave open a possibility that formulation of the issues to be determined will be revisited at an appropriate point before the hearing. Any uncertainties or unexpected subtleties that may have emerged by then can be identified and dealt with (as long as they fall within the wider scope of matters that have been submitted to the arbitrator).

The short point is that the parties have it in their power to direct the arbitrators attention to the issues they want decided; it is not always necessary to incur the costs and delays involved in filing formal statements of claim, defence, counterclaim, and so on to do so.

What does the discovery obligation really require in the case?

Experience (certainly where the parties are represented by lawyers who are familiar with the litigation process) shows that it is seldom necessary to prepare full lists or to make any complex orders about discovery at all. Of course, an arbitrator should be ready to help the parties set up a protocol for informal discovery should that be asked of him or her. But questions about what the scope of discovery is to be, and whether there are any particular documents or classes of documents that are to be searched for, can often be resolved at an early case management conference. The processes of discovery and inspection can then be dealt with informally, on the basis that, if there are any outstanding issues by an agreed deadline, any particular orders thought to be necessary at that time can be applied for. If there are issues about discovery/inspection at that point, they are usually quite specific, and can be dealt with as they arise.

Does there need to be a viva voce hearing of the evidence and, if so, what arrangements can be put in place to keep the hearing costs to a minimum?

In some cases, there may be no dispute about the facts (or perhaps no need to examine all or any of the witnesses), so that the substantive award can be given without any viva voce hearing of evidence at all. In such a case, the parties may forego any hearing and simply ask for an award; in other cases, counsel may prefer to file submissions and then have a limited time hearing to address the arbitrator.

Even where a viva voce hearing of evidence is indicated or agreed, the hearing process should be designed to make best use of the hearing time: perhaps by allowing for opening statements that are limited by time (and if in writing, then by pages); by having all of the witness statements taken as read; by agreeing in advance to time limits on the cross-examination and/or re-examination of witnesses (on a witness-by-witness basis, if necessary); and by setting rules about how the closing submissions will be presented. There is nothing that is particularly novel in any of this; these are steps that are routinely followed in international commercial arbitrations.

Getting to the point

The point, of course, is to reduce the time that is taken in getting to the point of a substantive hearing (and, should there be a hearing, in the hearing itself). As with any litigation, estimates of the time that ought to be allowed for preparation will vary from case to case, and must be realistic. But even so, with effective case management by the arbitrator and reasonable diligence on the part of the parties and lawyers, timetabling from commencement to hearing in an arbitration should usually be measured in months.

There is no reason to suppose that the dynamic that drives the vast majority of civil disputes to be settled before substantive hearing does not apply to the arbitral process as well. If a case is going to settle before hearing, then the sooner the day of hearing starts to loom over the horizon, the sooner the matter will be settled. If the matter is not settled, then the hearing should be tailored to the requirements of the case, and an award issued promptly afterwards.

It is true that an arbitrator will expect to be paid a reasonable rate for the services she or he provides, and that is not a cost that would be incurred if the matter were to go to Court. Even so, the advantages of arbitrating a case may well justify the cost of paying an arbitrator.

At the very least, its worth thinking about at the outset of any new claim.



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