Commercial Arbitration – Measures to Enhance Efficiency and Cost Optimization

In-House Counsel

Commercial Arbitration – Measures to Enhance Efficiency and Cost Optimization

Dr. Sunil Mittal | January 2016

Commercial arbitration is taking the trappings of litigation, i.e extensive discovery and motion practice, highly contentious advocacy, long cycle time and high cost (Stipanovich 2010). Cost of dispute resolution by means of commercial arbitration has gone up as it used to be in case of Court litigation. As a result, In House Counsels as well as Senior Management of the corporates are really sceptical about arbitration as a mode of dispute resolution. Immediate reaction and consequence of this feeling is an urge to drop arbitration clause from the agreement itself.

It is in this background that we need to critically examine the factors which are responsible for waning of arbitration as an alternative to dispute resolution and the ways to address the issues involved.

Arbitration offers main advantage of the ability to design and tailor the process of dispute resolution as per the requirement of the parties. This is in terms of ability to choose decision maker(s) (including subject matter experts), procedures to be followed and venue of arbitration besides time schedule, confidentiality of proceedings and language of arbitration, efficient and user-friendly case administration, fair and just results, and finality of the decision etc. These comparative benefits of commercial arbitration over court litigation cannot be undervalued in any case by any stakeholder. Moreover, these comparative benefits many a times weigh heavily in favour of Arbitration when compared with court litigation as a mode of dispute resolution.

Following are the factors to be looked into minutely for evaluating commercial arbitration as a tool for optimizing legal costs involved.

Attitude of legal counsels: Arbitration often fails to meet users’ expectations relating to speed, efficiency and economy. Experienced arbitration advocates still generally want to try cases in arbitration with the same intensity and manner as cases in routine in court of law. As a result extended arbitral motion practice and discovery have developed within the framework of commercial arbitration rules and procedures which afford arbitrators and parties considerable scope for spending time on matters of procedure.
Discovery of evidence: Arbitration hearings are generally preceded by detailed discovery including voluminous document production and depositions and this discovery has traditionally resulted in bulk of litigation‐related costs (Administrative Office of the U.S. Courts, 1999). This mining of data and records contributes a major chunk of time consumed and the cost of arbitration. Clients may go or rely on the advocate’s advise that the mining operation will give productive and useful results. If you simply provide for arbitration under [standard rules] without specifying in more detail . . . how discovery will be handled . . . you will end up with a proceeding similar to litigation (James Bender, 2004). Arbitration and conciliation Act, 1996 of India provides that there is no need to follow provision of Code of Civil Procedure for conducting arbitral proceedings.
Adverse effect of delay in arbitration: Delay in resolution of conflict prolongs uncertainty i.e. potential delay in collection of money owned, affecting the achievement of desired financial results and impairing proper reporting of profits. While business leaders ……………expect a proper and fair resolution taking excessive time that can often be just as damaging as a wrong decision (Michael McIlwrath & Roland Schroeder, 2008). Moreover Parkinson law also aptly apply on arbitration i.e. work expands so as to fill the time available for its completion. Thus undue delays in resolution of disputes leads to wastage of time, money and energy.
Constituents in Arbitration: There are four constituents in the whole arbitral process, these are: (A) Clients/Business entities, (B) Counsels, (C) Arbitral Institutions; and (D) Arbitrators.

The four constituents have to follow the basic principles which are: \

Be deliberate and proactive;
Restrict and control discovery;
Control motion practice;
Adhere to time schedule;
Use arbitration rules as tools and not as straight jackets.

The specific role of Constituents in making the Arbitral Process more efficient in terms of cost and time is:

Business Entities:

Business entities and in house counsels both have to fully understand that choices regarding arbitration are very important and cannot be left pending until eleventh hour of negotiation and so, process options should be considered and developed ahead of time (Thomas J Stipanowich, 2009). It requires that present attitude of treating arbitration clause as residuary and irrelevant by persons negotiating agreement to be seriously looked into. Similarly, Business entities shall also consciously decide time lines for completion of arbitration proceedings in the arbitration agreement itself. The Arbitration and Conciliation (Amendment) Act, 2015 has added a new Section 29A to the Arbitration and Conciliation Act, 1996 to provide a time limit of 12 months for rendering an award in every arbitration seated in India. Further, Sec. 29B has been added to prescribe a ‘Fast Track Procedure’ for resolution of disputes.
COUNSELS:

Role of In house Counsel: It has been strongly felt that corporate Inhouse- Counsels or legal advisor can contribute considerably to achieve speed, efficiency and economy in resolution of disputes by means of arbitration. They are best equipped and are fully aware about the goals, priorities and needs of their business entities in comparison to outside counsels. Moreover they have got major role to play right from selection of outside counsel, arbitral institution and arbitrator as the need arises for each individual case. To achieve efficiency, In house Counsels have to act as Principal and not as agent and that way only they get real control over the whole process.
Selection of outside counsel: Selecting competent outside counsel who can conduct arbitral proceedings in an economical and efficient manner is one of the most important function for an in house counsel or legal head of a company. While selecting outside counsel, important issues to be kept in mind are the exposure of such counsel to concerned business practices and convention area of expertise of such counsel, his understanding of arbitral process and arbitral rules, liasoning with opposite counsels and arbitrators and team at his command. Beside, Fixation of billing pattern and fees plays an important role in controlling arbitration costs.

Role of Arbitration Institutions:
These days wide variety of Arbitral Institution are available in India and abroad to business entities for making choices. Arbitration Institutions play a very important role in developing and administering straight forward dependable guidance in form of procedures upon which such Arbitral Institutions want to rely for carrying out arbitration expeditiously. From cost optimization point of view, arbitration institutions need to help business entities in incorporating most appropriate arbitration clause. For this “one size fit all” clauses and procedures will not work. These institutions need to work out arbitration clauses and procedures for different line of businesses in accordance with nature and type of each Industry and applicable laws. This will go a long way in providing real choices to industry and will certainly help in saving of time, money and energy.
Role of Arbitrator(s):
Efficiency and economy can also be achieved by Arbitrators who have to understand priorities of parties and act accordingly and they have to assume the role of moving proceedings forward with consistent fundamental fairness (Michael McIlwrath & Roland Schroeder, 2008).

Selection of Arbitrators: Selection of an arbitrator is also a very challenging task for legal cost optimization and for this in house and outside counsel both have to work together and jointly decide the arbitrator judiciously. This is a continuous exercise wherein legal heads of companies keep on collecting information about prospective arbitrators for their company matters from point of view of area of expertise, past experience, standing in the profession, knowledge about arbitral laws and procedures, case management skills, communication, time schedules and availability, attitude and acceptability of arbitrators by both side. It is reasonable for parties to expect arbitrators to give to them what they bargained for (John Tackaberry, 2002).
Number of arbitrators: At the time of drafting agreement both parties have to consciously decide about the number of arbitrators. This decision has to be taken keeping in view nature of transaction, amount involved and availability of subject expert arbitrators besides the budget available for arbitration cost. It goes without saying that appointment of a single arbitrator certainly helps in expediting proceedings besides it also help in controlling cost of arbitration provided other factors are neutral.

SUGGESTED STEPS FOR TIME EFFICIENT AND COST EFFECTIVE ARBITRATION PROCESS:

Role of Intent: Real intent plays a vital role to have an expeditious and economical process leading to successful arbitration and that is required both from the business entity and advocate/ counsel. They need to establish a proper framework for arbitration in the beginning, right from the stage of entering into agreement and then to implement the choices made in the agreement.
Use of Technology: There is complete paradigm shift in last one decade or so about the use of Information technology in communication. For instance, use of Emailing and video conferencing, storage media, skype and other application /solutions have dramatically enhanced the speed of communication and facilitated communication related even arbitration across the globe. Application of latest technology and related tools and techniques by all concerned stakeholders can substantially optimize the costs related to arbitration.
Fast track arbitration Business organizations may make efforts to agree for fast track proceedings and procedures while drafting arbitration agreements. One can refer to fast track arbitration mechanism which is has been provided under Section 29B of the Arbitration and Conciliation Act, 1996 or which have been evolved by leading arbitral institutions like Singapore International Arbitration Centre, popularly known as SIAC and other reputed institutions.
Stepped up Dispute Resolution Technique: Resolution of conflict through negotiation or mediation generally gives parties a better opportunity to control cost or delay. Even it may not produce settlement, but mediation may “set the stage” for arbitration. Therefore, arbitration clauses and procedures developed by arbitration institution should be employed with stepped dispute resolution provisions that begin with negotiation and mediation.

Cost optimization in arbitration can be achieved by proactive role of all constituents involved in a business organization including its promoters, financial heads, secretarial and legal head and senior persons involved in operations. Moreover, in India, Arbitration has not yet developed and applied fully and still the same is being practiced by Litigation lawyers. Other professionals playing pivotal role in business decision making are also expected not only to take keen interest in arbitration but contribute in the development of arbitration as an alternate dispute resolution mechanism. We have not only to review the present scenario but the practice of arbitration also needs a complete paradigm shift. The Arbitration and Conciliation (Amendment) Act, 2015 is a welcome step towards this direction and we need to see if the changes in Arbitration laws are sufficient to meet the expectations of business community in this fast changing era of globalization.

About Author

Dr. Sunil Mittal

Dr. Sunil Mittal is advising Kalpataru Group on corporate laws and arbitration matters, both domestic and international. He has an overall 25 years of experience in advising corporate houses in India.