Part Two: Arbitration in Evolution

In Part One of this series, Disputing highlighted the survey group profile described in “Arbitration in Evolution: Current Practices and Perspectives of Experienced Arbitrators,” authored by Pepperdine University School of Law Professor Thomas Stipanowich and Straus Institute for Dispute Resolution Research Fellow Zachary Ulrich. The article examines data obtained in a unique 2013 survey of 134 members of the College of Commercial Arbitrators (“CCA”).  The information collected from survey respondents concerns the state of commercial arbitration practice in both U.S. and international disputes.

The second installment in this series focuses on “the scope of the group’s collective arbitrator practice, including practice as an arbitrator in international cases; kinds of disputes arbitrated; and experience with a variety of arbitration variants including: single-arbitrator proceedings, tripartite arbitration involving party-appointed arbitrators, appellate arbitration, ad hoc arbitration and arbitration under non-administered arbitration rules, streamlined or “fast track” arbitration, “baseball” or final offer arbitration, arbitration with “bracketed” awards, emergency arbitration procedures, and multi-disciplinary tribunals.”

According to Professor Stipanowich and Mr. Ulrich:

A major focus of the CCA/Straus Institute Survey was the nature and breadth of practice by Survey subjects. The Survey produced a wide range of information regarding the experiences of respondents and, by inference, the skill sets they have developed that should be taken into account by parties and counsel considering the use of arbitration and the procedural choices available to them.

The authors began this section of the paper by stating, “the CCA/Straus Institute Survey included a series of questions intended to glean information regarding subjects’ experience as arbitrators of international disputes.”  Nearly 85 percent of respondents indicated they served as an arbitrator in at least one international dispute.  In addition, the survey responses tended to indicate that “the group’s international arbitrator caseload for the prior five years was greater than before” and many of the arbitrators expect to participate in an increasing number of international arbitrations in the coming decade.

When asked about the types of international disputes each arbitrator participated in, almost 83 percent of survey respondents indicated they served as an arbitrator in an international contract dispute.  According to the authors,

Given the fact that binding arbitration is normally founded on agreement by the parties, and, furthermore, is most often entered into under the terms of pre-dispute arbitration provisions in other contracts, it was to be expected that the great majority of respondents would report arbitrating “contract” disputes.

Professor Stipanowich and Mr. Ulrich continued by stating,

Respondents who reported arbitrating “Other” kinds of disputes most frequently reported arbitrating disputes pertaining to: foreign investment (5 individuals), bankruptcy (4), transportation and shipping (4), telecom (2), antitrust actions (2), expropriation (2), and sales, licensing, and distribution agreements (2).

Next, the authors compared whether arbitrators normally served alone or as part of a multi-member tribunal based on the amount in controversy:

Because sole arbitrators appear to be used most frequently when the stakes are low, it was to be expected that many respondents would report experience as sole arbitrators in disputes involving relatively small amounts in controversy. This was certainly true: a large majority of respondents reported such experience. More surprising, however, was the large percentage of respondents who had served as individual arbitrators in “big” cases: almost a third (32.1%) claimed such experience with disputes involving $50 million or more. This reality should be of great relevance in the debate over the use of single arbitrators versus multi-member tribunals.

After that, Professor Stipanowich and Mr. Ulrich stated more than 90 percent of survey respondents had participated in a tripartite arbitral tribunal.  When asked about their experience participating on such a tribunal, over three-quarters of the individuals surveyed “indicated that usually (if not always), “[t]ripartite panels [usually] work very well”; almost as many (73.5%) reported that usually (if not always), arbitrators appointed directly by parties were as qualified as other arbitrators; and 78.7% indicated that tripartite panelists worked together as cooperatively as arbitrators that were jointly selected.”

The authors continued,

However, group responses to some other queries tend to reinforce some of the concerns that have been expressed regarding wing arbitrators appointed unilaterally by individual parties on tripartite panels.77 More than half the respondents (59.9%) perceive that at least sometimes, party-appointees are “unqualified due to lack of experience as arbitrators.” Moreover, almost nine-tenths (88.8%) believe that at least sometimes, party-appointees “are predisposed toward the party that appointed them even when the applicable procedures require them to be independent and impartial.” A similar number (87.2%) perceive that party-appointees at least sometimes decide close questions in favor of the party that appointed them even when the applicable procedures require them to be independent and impartial. These data offer ample bases for a thoroughgoing re-examination of the dynamics of tripartite panels and party-appointed arbitrators.

Next, Professor Stipanowich and Mr. Ulrich stated less than 11 percent of the arbitrators surveyed participated in appellate arbitration:

Long utilized in some arbitration programs, optional appellate arbitration procedures were put forward by leading institutions such as the CPR Institute for Dispute Resolution and JAMS some years ago as an alternative for arbitrating parties who desired the opportunity for a “second look” at arbitrators’ decisions on the merits. … This is presumably because appellate arbitration is not often employed and, moreover, because applicable procedures may establish special qualifications for appellate arbitrators, such as prior service on the bench.

According to the authors, nearly three-fourths of the survey respondents had participated in ad hoc proceedings “in which the parties were responsible for determining and agreeing on their own arbitration procedures rather than relying on the procedures of an arbitral institution.”  Interestingly, “almost half (45.8%) viewed ad hoc proceedings as entailing similar costs while almost as many (41.7%) perceived ad hoc arbitration as less costly. About sixty percent (59.4%) thought ad hoc proceedings entailed similar dispute resolution cycle time while about a quarter (24.0%) believed ad hoc proceedings took less time.”  In addition, “more than eighty percent (80.9%) of respondents had arbitrated under non-administered rules,” and those surveyed provided similar responses regarding the perceived expense and cycle time.

Approximately 76 percent of the individuals surveyed by the authors indicated experience serving as an arbitrator in a streamlined arbitration.  Still, the amount in controversy in 88 percent of those arbitrations was less than $100,000.  The authors stated,

Because widely-used commercial arbitration fast-track rules are aimed at cases of relatively low value, it is not surprising that the greatest body of experience among respondents was in cases involving less than $100,000 and, secondarily, to cases involving between $100,000 and $499,000. However, a minority of respondents have experience with streamlined procedures in large cases, including some in excess of $50 million. This latter body of experience should be carefully examined in order to assess possible opportunities for more expansive use of fast track or streamlined procedures.

Professor Stipanowich and Mr. Ulrich also found that less than one-third of those surveyed participated in at least one final offer arbitration, only about 14 percent of arbitrators who responded had experience with bracketed awards, and over one-third previously served “as an arbitrator under procedures for interim / emergency measures of protection.”

With regard to multi-disciplinary panels on which non-lawyers served, “over four-fifths (84.5%) of respondents indicated that they had previously served with non-lawyer arbitrators on at least one arbitration panel.”  After analyzing the data collected, the authors added that “respondents collectively have relatively little experience with multidisciplinary tribunals, and that in recent years the relative usage of tribunals involving non-lawyer arbitrators is diminishing.”  Survey respondents also indicated that construction and securities/brokerage disputes are the most the most common type of issues for which they served on a multidisciplinary panel.

According to Professor Stipanowich and Mr. Ulrich, “nearly all respondents perceived that, at least sometimes, “[n]on-lawyer arbitrators’ expertise is a necessary complement to lawyer expertise” and that non-lawyer arbitrators may be “able to probe some factual questions more effectively.” At the same time, however, more than forty percent (41.7%) of respondents believed arbitrators usually (if not always) “need legal expertise in order to serve effectively”, and almost sixty percent (58.3%) believed non-lawyer arbitrators never make effective chairs of arbitration panels.”

The authors concluded this section of their forthcoming article by stating:

The foregoing data raise important questions regarding the makeup of arbitration panels and the role of non-lawyer arbitrators. Ideally, such issues should be brought to the attention of the business users and others whose interests are affected by arbitration in various settings.

For more information about the CCA/Straus Survey, please review the authors’ full article.  We also invite you to read Professor Stipanowich’s companion paper entitled, “Reflections on the State and Future of Commercial Arbitration: Challenges, Opportunities, Proposals,” which provides readers with additional context related to a significant portion of the data summarized in the authors’ work.

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