Part Three: Arbitration in Evolution

In Parts One and Two of this series, Disputing  focused on portions of “Arbitration in Evolution: Current Practices and Perspectives of Experienced Arbitrators,” by Pepperdine University School of Law Professor Thomas Stipanowich and Straus Institute for Dispute Resolution Research Fellow Zachary Ulrich. The authors’ work examines much of the data obtained in a recent survey concerning the state of commercial arbitration practice in both U.S. and international disputes.  Through their research, Professor Stipanowich and Mr. Ulrich received timely and useful information from 134 members of the College of Commercial Arbitrators (“CCA”).

The third installment in this series looks at “the rich array of techniques reflecting more proactive pre-hearing management by experienced arbitrators, including strategies for addressing dispositive motions and pre-hearing discovery,” as well as “many approaches used in the management of hearings.”  In addition, the authors highlight “practices and perspectives regarding adherence to legal standards and other key issues associated with arbitrator deliberation and award-making,” and touch “on recent increases in the incidence of settlement during arbitration proceedings and a variety of topics associated with this rarely treated subject.”

According to the authors:

One of the most important developments in commercial arbitration in recent decades is the increased emphasis on pre-hearing process, particularly information exchange (or, in U.S. parlance, discovery) and motion practice. This enhanced focus on the pre-hearing stage has presented new challenges for arbitrators as process managers. In recognition of these developments, the CCA/Straus Institute Survey placed considerable emphasis on subjects’ pre-hearing management activities.

When asked about tailoring the arbitration process, more than 96 percent of survey respondents indicated they had “worked with parties to tailor arbitration procedure to better suit the needs of the parties and the nature of the dispute.”

More than a third of respondents (35.1%) made reference to modifying procedural timetables, schedules and other hearing logistics. More than two-thirds (66.7%) reported working with parties to tailor and limit discovery processes. Some (14.9%) indicated that they actively promoted informal resolution or narrowing of issues to be addressed. Some (11.4%) used dispositive motions to resolve issues that may have otherwise unnecessarily lengthened proceedings, while some (13.2%) placed limits on motion practice.

Another two-fifths of respondents (41.2%) said they helped tailor evidentiary hearings and methods of introducing evidence, including various activities associated with witness testimony (29.8%).Some (13.2%) reported having bifurcated proceedings for various purposes. A few respondents tailored proceedings through case consolidation and the organization of class certification and notification processes.

Professor Stipanowich and Mr. Ulrich also addressed the use of dispositive motions in arbitral proceedings.  The authors stated,

…responses to the CCA-Straus Institute Survey suggest that most experienced arbitrators are making efforts to effectively manage motion practice and not decline the opportunity to come to grips with opportunities to resolve all or part of the case in a summary fashion, early on. Many arbitrators also appear to be taking steps to avoid abuse in the filing of motions by requiring moving parties to show there will be a net savings in arbitration time, cost, or both.

When examining the discovery role of commercial arbitrators, Professor Stipanowich and Mr. Ulrich found that more than 90 percent of survey respondents normally “work with counsel to limit or streamline discovery.”

The subject of the scholarly paper then turned to hearing management:

Along with discovery and motion practice, effective management of arbitration hearings is a key challenge for arbitrators seeking to promote speed, efficiency and economy in proceedings. An extensive series of Survey queries sought information about experienced arbitrators’ use of a wide variety of approaches to managing arbitration hearings. The questions were based on a variety of “major steps” proposed by the Commentary accompanying the CCA Protocols for Expeditious, Cost-Effective Arbitration.

After examining the survey responses received, the authors found,

If the Survey data are any indication of general trends, it appears that experienced arbitrators are now placing great emphasis on a wide range of tools for actively management hearings, just as they are tending to take proactive approaches to the handling of dispositive motions and to discovery.

Professor Stipanowich and Mr. Ulrich next addressed the topic of deliberating and rendering arbitral awards:

Recent empirical studies indicate several interrelated concerns about arbitration lie at the heart of resistance to its use by some businesses. These include the difficulty of successfully appealing arbitration awards, the fear that arbitrators will not follow applicable legal standards in making an award, and the perceived propensity of arbitrators to indulge in inappropriate compromises in award-making.

The authors stated,

The data indicate that where legal issues are in play, experienced arbitrators tend to be conscientious in paying heed to them and addressing them in a manner consistent with applicable law. All respondents claimed, usually or always, to “carefully read and reflect upon legal arguments and briefs presented by counsel.” Nearly all asserted that, in the absence of an agreement to the contrary, they “do [their] best to ascertain and follow applicable law in rendering an award.” There was also a strong tendency among respondents to “invite counsel to brief legal issues in the case.”

There remain, however, two responses that indicate the need for further inquiry. First of all, although nearly three-quarters (74.2%) of respondents never “feel free to follow [their] own sense of equity and fairness in rendering an award even if the result would be contrary to applicable law,” the other quarter (25.8%) do, at least some of the time. It is not entirely clear how these latter arbitrators interpret their mandate, but their response should encourage deeper discussion about the ethical as well as legal implications of such choices.

In light of longstanding concerns regarding arbitrator compromise, moreover, it is also quite interesting to see that nearly nine-tenths of respondents (89.9%) acknowledge that, at least sometimes, they “negotiate with other members of a tribunal respecting the quantum of damages to be awarded.” In order to understand the precise import of these responses and their implications for users, further investigation and discussion is appropriate.

After turning to the issue of settlement during arbitration, the authors said:

Early settlement of a dispute can be a uniquely effective way of minimizing cost and cycle time in dispute resolution. But the role of arbitrators in setting the stage for or facilitating settlement has not been given significant attention, at least in places like the U.S. For this reason, the CCA/Straus Institute Survey included questions seeking information regarding their experiences with and perceptions of settlement during arbitration.

A section of the survey asked respondents to compare arbitration settlement rates in the past five years with those experienced more than five years ago.  The authors found, “respondents indicated that higher proportions of their caseloads settled pre-hearing during the last five years than prior to that time.”  According to Professor Stipanowich and Mr. Ulrich,

Experienced arbitrators indicate that, during the past five years, higher proportions of their caseloads settled pre-award than before that time. However, while the data reflect a general upward shift in the extent of pre-award settlement as well as the overall number of arbitrators whose cases are settling pre-award, the data also reflect dramatic variances in settlement rates among arbitrators.

As might be expected, the data indicate that some disputes that did not settle prior to hearings are settled during hearings. (For example, while 15.3% of respondents indicated “[m]ore than 50%” of their caseload settled pre-hearing in the past five years, 22.9% of the same respondent pool indicated that proportion of their cases settled pre-award (including those that settled after the hearing had begun). These results underscore the potential impact of arbitrators’ case management at all stages of the arbitral process.

Additionally, the authors addressed the informal settlement of arbitration cases.  Professor Stipanowich and Mr. Ulrich found that over half of survey respondents indicated they never concern themselves with informal settlement, while approximately one-third stated they sometimes concern themselves with settlement.  In contrast, less than 12 percent “of the respondents indicated they concern themselves with settlement as much as half the time.”

After stating the responses were surprising and offering various possible explanations, the authors concluded this section of the paper by stating, “the Survey results also indicate that many arbitrators tend to recognize and actively embrace opportunities to promote settlement of arbitrated cases through their management of the arbitration process.”

We invite you to review the authors’ full article as well as Professor Stipanowich’s companion paper entitled, “Reflections on the State and Future of Commercial Arbitration: Challenges, Opportunities, Proposals.”

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