YOUR FIRST INTERNATIONAL ARBITRATION: THE DO’S AND THE DON’TS By Bette Shifman Originally published in the May 2015 issue of Alternatives to the High Cost of Litigation (a CPR/Wiley Periodicals, Inc. joint publication) “Toto, I've a feeling we're not in Kansas anymore.” —The Wizard of Oz (1939) A U.S. litigator, even one with extensive domestic arbitration experience, will quickly discover in her first international arbitration that she is “not in Kansas anymore.” This is not to imply that a previously drab, black-and-white universe will suddenly be transformed into brilliant Technicolor. It underlines the importance of understanding that it would be wrong to expect to encounter the reassuringly familiar landscape of U.S. litigation, or to assume that the very skills that have made you a successful U.S. litigator will be appreciated, or even effective, in international arbitration proceedings. Whether you represent the claimant or the respondent, the most important first step is to review and thoroughly understand the arbitration agreement. This will, in most commercial arbitration matters, be found in a clause in the parties' contract, though investor-state arbitration—which has some of its own peculiarities' and is not the focus of this article—is governed by provisions in multilateral or bilateral investment agreements and LCIA. As in domestic practice, arbitration is a creature of contract, and the parties enjoy a great deal of autonomy in fashioning the arbitration proceedings. It has been noted, however, that the dispute resolution clause is often viewed by transactional lawyers as eleventh-hour boilerplate to be lifted verbatim from a previous contract, if for no other reason than that the champagne corks are already popping as the parties celebrate their deal. Suggesting that they turn their attention to dispute resolution is as unromantic as insisting on a prenuptial agreement. This can result in arbitration clauses that are illogical, inconsistent, and even potentially ineffective—often referred to as “pathological clauses.” It is therefore important to make sure you understand the significance of the various elements of the arbitration agreement. Most arbitration agreements will stipulate the procedural rules under which the arbitration is to be conducted. These may provide for institutional support, as in the rules of the ICC and LCIA (see box on page 91 for abbreviations, acronyms, and links to international arbitration resources) or, like the UNCITRAL Arbitration Rules, be designed for use in non-administered—sometimes referred to as “ad hoc”—arbitration. If rules are provided for, a useful first step is to check any model clauses developed for use in connection with the rules, to see how closely the arbitration agreement conforms to the model clause, or where there may be the possibility of differing interpretations. Most model clauses have blanks for the parties to select the number of arbitrators (usually one or three), the language of the proceedings, and—most important of all—the place of arbitration, sometimes called the “seat.” THE ‘PLACE'S’ SIGNIFICANCE The significance of the place of arbitration far surpasses that of a mere physical location for meetings or hearings. In fact, it is entirely conceivable and not particularly unusual for an international arbitration to proceed through hearings and to an award without any of its participants ever setting foot in the actual place selected. This is because the arbitration process will be governed by—and subject to—the arbitration law of the place of arbitration. In turn, the award will be deemed to have been rendered at the place of arbitration, which can have important implications for its enforceability in other jurisdictions. This is true regardless of any choice of law the parties may have agreed up to govern the substantive aspects of their dispute. In a Paris-based arbitration this author was involved in a number of years ago, the contract provided for application of New York law, which prompted the claimant's U.S.-based counsel to file numerous discovery requests under the applicable New York Civil Practice Law and Rules provision. This was misguided, not only because (as will be discussed further) there is no U.S.-style discovery in international arbitration, but also because the choice of New York law did not encompass the CPLR. The procedural aspects of the arbitration were governed, as agreed in the contract, by the ICC Arbitration Rules, and by the arbitration provisions of the French Code of Civil Procedure. It is important to select a jurisdiction that is among the 149 parties to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, in order to facilitate enforcement of the ultimate award. In addition, a jurisdiction that has adopted, or based its arbitration law on, the UNCITRAL Model Law on International Commercial Arbitration can be relied upon to have a modern and effective arbitration system. The next important step is to develop an understanding of the applicable rules and the arbitration law of the “seat.” If you represent the party initiating arbitration, the rules should provide a roadmap for filing and serving a notice of arbitration, such as the elements to be included as well as the accompanying documents. The rules also may be helpful if you intend to seek any interim measures of protection, such as attachments or injunctions; even when the rules empower the arbitrators to order such measures, a local court may be preferable—probably requiring local counsel—for its coercive powers. A recent trend in arbitration rules involves providing for the immediate designation of an “emergency arbitrator” who can order such measures before the arbitral tribunal has been constituted. In addition to ordering interim measures, the courts—and the applicable local arbitration law—of the seat also may come into play with respect to commencing arbitration, appointing arbitrators, ruling on challenges to arbitrators, resolving jurisdictional challenges, summoning witnesses, and enforcing, or vacating, the award. ARBITRATOR APPOINTMENTS If the parties have not provided in their arbitration agreement whether there is to be a sole arbitrator or a panel of three arbitrators, the default will be found in the applicable arbitration rules or in the law of the place of arbitration. If the respondent does not participate in the constitution of the arbitral tribunal, or the parties are simply unable to agree on the appointment of an arbitrator, the applicable rules will provide for appointment by the institution involved or—as in the UNCITRAL Arbitration Rules—by an “appointing authority.” Again, if no arbitration rules are provided for in the arbitration agreement, the law of the place of arbitration usually will provide for judicial appointment. Similarly, an arbitral institution or local court may be empowered to rule on challenges to arbitrators (e.g., for lack of independence or impartiality) and, where necessary, to appoint replacement arbitrators. The most common mechanism for constituting a three-arbitrator tribunal is for each party to appoint an arbitrator, and the two party-appointed arbitrators to designate the presiding arbitrator, or “chair,” of the tribunal. Some arbitration rules provide—or the parties may do so in their arbitration agreement—for the chair to be of a different nationality than any of the parties. The arbitration agreement may also require arbitrators to have a specific background or a particular area of expertise. It is, however, never advisable to designate arbitrators by name in the arbitration agreement. With the growth in international arbitration, the appointment process has become more complex, and is often seen as an important strategic step involving extensive due diligence and an in-depth interview process often characterized as a “beauty contest.” Potential arbitrators are generally required to disclose any facts that might create the impression of a lack of impartiality or independence. This has become increasingly important as part of a growing emphasis on the development of ethical norms for international arbitration. The International Bar Association (IBA) adopted, in 2004, helpful Guidelines on Conflicts of Interest in International Arbitration, which outline the types of matters that must be disclosed. It is important to note that party-appointed arbitrators are never considered to be “hired guns,” and are held to the same strict independence and impartiality requirements—including avoidance of ex parte communications—as the chair. This is different from the traditional rule in US domestic arbitration, in which an arbitrator is allowed—if not expected—to be “predisposed” toward the party appointing the arbitrator. THE RULES All modern arbitration rules have the same essential characteristics. This can be attributed to the development of a common international arbitration culture that melds elements of different legal traditions. This development has been greatly influenced by the work of the United Nations Commission on International Trade Law, which has developed widely used arbitration rules and other instruments relevant to international arbitration that reflect the consensus of a broad-based working group made up of governments and NGOs. U.S. litigators may be surprised to discover that, unlike traditional rules of civil procedure, procedural rules for arbitration do not cover the process of arbitration in step-by-step detail. Once the tribunal has been constituted, the actual conduct of the arbitration is within the discretion of the tribunal, with input from the parties. There generally will be barebones provisions on exchange of written submissions, which, like most provisions, often can be deviated from by agreement of the parties or order of the arbitral tribunal. This requires a tremendous amount of strategic thinking about what the arbitration process should involve, all in preparation for the organizational meeting. ORGANIZATIONAL MEETING Regardless of whether the organizational meeting is expressly required by the arbitration rules or applicable arbitration law, it is customary to hold one. This is an essential part of the arbitration process, and requires appropriate preparation. While the meeting may be held by conference call or videoconference, it is customary in large, complex international arbitrations to hold an in-person meeting of the arbitral tribunal with counsel and, in some cases, representatives of the parties. It is at this meeting that many of the most important decisions will be made concerning the conduct of the proceedings, including the process for document disclosure (see below), submission of substantive pleadings, timing, conduct of hearings, presentation of witness and expert testimony, confidentiality, possible requirements for the filing or delivering of an award, and, if not provided for in the arbitration agreement, applicable rules and place of arbitration. The 1996 UNCITRAL Notes on Organizing Arbitral Proceedings consist of an annotated list of 19 matters for possible consideration in organizing arbitral proceedings, and should be carefully reviewed by counsel before the organizational meeting. Make sure you know what you want to propose with respect to the matters to be decided at the meeting. I recently heard of an international arbitral tribunal refusing to permit re-direct because it was not agreed upon at the outset. Make sure to specifically request post-hearing briefs, or “memorials,” if you want them. The decisions made at the organizational meeting are usually recorded by the tribunal in a procedural order, and the tribunal may issue subsequent procedural orders as matters arise throughout the arbitration. Some arbitration rules, most notably those of the ICC, require the formal adoption of “Terms of Reference,” which deal with the essential procedural matters and contain a summary of the parties' respective claims and of the relief sought by each party, together with an estimate of their monetary value, as well a list of the issues to be determined by the tribunal. If there are objections to the jurisdiction of the tribunal, there may be a bifurcation of the proceedings, so that the arbitrators can rule on their jurisdiction before proceeding on the merits. KEY DIFFERENCE: DISCOVERY Another key difference between U.S. litigation and international arbitration involves the concept of discovery. The United States is the only country that has such broad pretrial discovery. In fact, the term used in international arbitration is “disclosure,” rather than “discovery.” Document requests are typically far narrower than in U.S. litigation: there generally is a relevance test as to whether a document should be admitted or could be requested, and the request usually needs to be narrow and specific. You may be able to get limited discovery on key issues where you can show that the other side is likely to have documents that you do not otherwise have access to, but nothing like the US system. This forces counsel to think through the case from day one, and to base that thinking on the information available, as opposed to focusing on the case only after obtaining broad discovery. Depositions are also rare in international arbitration, and interrogatories are virtually unknown. Typically, written witness statements are submitted well in advance of the hearing. Concepts of privilege also may be very different in other jurisdictions, and may need to be considered and dealt with accordingly. WRITTEN SUBMISSIONS Unlike U.S. practice, international arbitration relies on fact pleading, rather than notice pleading. The emphasis is on written submissions, which must be detailed and must annex evidence sufficient to meet the burden of proof. The types of submission, as well as their sequence and the schedule for submission, will be determined at the organizational meeting. Parties may agree to produce joint bundles of relevant documents for ease of reference. The submissions, often referred to as memorials, are similar to briefs. It is most common for the claimant to submit a statement of claim, followed by the respondent's statement of defense— though there are situations in which certain submissions are made simultaneously. There is often a second round, consisting of the claimant's reply and the respondent's rejoinder. Again, make sure to be clear at the outset whether there will be further, post-hearing memorials. THE HEARING The anticipated length and date of hearings are addressed at the organizational meeting. There may be a separate pre-hearing meeting closer to the hearing date to deal with specific details, such as interpreters and court reporters. There is an emphasis on fairness and equal treatment of parties, so it is not uncommon for arbitrators to sit on weekends in order to avoid giving one party the benefit of additional preparation days. The arbitration hearing, which may last for several weeks, serves a different purpose than a U.S. trial. It is an opportunity to highlight the strength of your case and the weaknesses of your opponent's case. You will not normally be able to introduce any new evidence, documentary or witness, at the hearing. The members of the arbitral tribunal should always be treated with deference and respect, but need not be addressed as judges; do not call them “your honor” or “my lord.” The chair may be addressed as “Mr. Chairman” or “Ms. (or Madam) Chairwoman,” or sometimes as “President,” depending on the terminology used in the applicable rules or legislation. Remember not to refer to the chair as the “neutral,” as all members of the tribunal are expected to be neutral. Opposing counsel should also be treated and spoken to with respect; you have a far better chance of persuading the arbitrators to be “on your side” by showing your good faith. THE WITNESSES Because the case already has been presented in the written submissions, there usually will be far fewer witnesses than in a U.S. trial. In jurisdictions other than the United States, there is often a presumption that witnesses— whether or not sworn—tend to favor self-interest and not tell the entire truth—so much so that in many civil law jurisdictions, the parties to a legal proceeding are not even allowed to testify! This attitude toward party witnesses has relaxed in recent years, the rationale being that the arbitral tribunal should be sophisticated enough to evaluate the weight of all testimony. The common practice in international arbitration is to submit written witness statements prior to the hearing and to agree that these will serve in lieu of direct examination. Consequently, arbitration hearings will be limited to cross-examination of witnesses, with re-direct, if provided for. Use your uniquely American cross-examination skills to your advantage, but be sensitive to the negative perception of tactics that come across as bullying or badgering. One U.S. litigator was initially elated when, following a particularly intensive cross-examination, the chair of the tribunal—from a civil law jurisdiction—said, “Wow, that was really something.” The attorney thanked him for the perceived compliment, only to be sharply chastised for having engaged in “the most abusive bullying tactics” the chair said he had ever seen. Cross-examination style in international arbitration is fundamentally different from the litigation process in that the evidence in the case already has been submitted. Consequently, the main concern is whether cross-examination will to be effective, or whether it would be better to argue the points based on the documents submitted. Counsel often make the mistake of asking questions when they do not need to. Less is more, which can be difficult for a U.S. litigator who prides herself on her ability to “slice and dice” witnesses. There has been, in recent years, an increased focus on the ethical standards governing the conduct of counsel in international arbitration, including the issue of witness preparation, which is prohibited under the ethical rules of some jurisdictions, and encouraged under others. While it would be unethical—and may conceivably constitute malpractice—for a U.S. attorney to fail to conduct a mock cross-examination of his witnesses prior to the hearing, to do so would be a serious violation of the ethical regime governing U.K. solicitors, even in an arbitration conducted outside of the United Kingdom. The IBA addressed this, and other important matters, in its 2013 Guidelines on Party Representation in International Arbitration. In order to ensure an even playing field, expectations concerning the scope and extent of witness preparation often form part of the discussion at the organizational meeting. LANGUAGE AND CULTURAL ISSUES It can be challenging in a multi-language arbitration to cross-examine witnesses, prepare a case, and communicate with other parties through translators and interpreters. It is important to speak English in a way that non-native English speakers can understand: with clear enunciation and avoidance of slang and idiomatic expressions. You would be surprised how difficult this can be until you try. I know of a case at my former law firm in which our firm represented an Indian party; the opposing party was Japanese, and the tribunal was composed of a Pakistani, an Australian, and a Singaporean. Each spoke English as their native language, but with different accents and usage, so we used an interpreter who would just repeat what each speaker said in less heavily accented English! Non-native English speakers often have trouble with certain types of accents and confusing usage. Take, for example, the common phrase in cross examination, “Isn't it true that …?” It can be difficult for a non-native speaker to know whether to respond “yes” (it is indeed not true) or “no.” It also important to consider how witnesses from particular countries may come across. Witnesses from certain parts of India, for instance, may tilt their head to the side, which can look like shaking “no” but actually means “yes.” Likewise, respect for hierarchy is more important in certain countries. In cross-examination, for example, there may be taboos against challenging someone who is senior in age or position. A Japanese employee may be reluctant to say anything negative about his or her employer, while at the same time concerned about losing credibility if he or she is found to be lying. THE EXPERTS Although it is more common in international arbitrations for each side to hire their own experts, arbitrators from civil law jurisdictions may expect to engage their own independent experts, which can result in a total of three experts. “Hot-tubbing”—the practice of asking all experts to collaborate in preparing a consolidated report—is becoming increasingly popular in international arbitration. Unlike in U.S. litigation, there is an expectation that party-appointed experts not come across as advocates for the party that appointed them. THE EVIDENCE Evidence is handled very differently in international arbitration when compared to U.S. litigation. Most arbitration rules and modern arbitration legislation contain only the most cursory provisions concerning evidence. UNCITRAL Model Law Article 19(2), for example, provides simply that “[t]he power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence, with no further guidelines as to how the tribunal is to do so.” Arbitrators are considered sufficiently experienced and sophisticated to exercise this power, and are not expected to require “protection” from unreliable evidence such as hearsay. Constantly popping up and down with objections like a jack-in-the-box will not endear you to the arbitral tribunal. Choose your battles. Tribunals nevertheless may establish more detailed evidentiary rules to be applied in the arbitration. It is increasingly common for parties and arbitrators to agree to apply, or to “be guided by,” the 2010 IBA Rules on the Taking of Evidence in International Arbitration. Parties may also provide expressly for application of these rules in their arbitration agreement. These IBA rules, however, lack the detail and complexity of U.S. state and federal evidentiary rules, which are aimed at protecting lay juries from unreliable evidence. Most rules also empower the tribunal and the parties to seek judicial assistance in obtaining evidence from third parties—another situation in which the local law of the place of arbitration may turn out to be relevant. THE AWARD While there is a (perhaps waning) tradition in U.S. arbitration of rendering unreasoned awards that simply decide liability and award damages, awards in international arbitration are always required to be reasoned, and the reasoning tends to be quite elaborate. An arbitral award is final, and not subject to appeal. While it is theoretically possible for parties to provide in their agreement for an appellate arbitral level—and most arbitral institutions offer rules and support for this—it is not common, probably because it would be antithetical to arbitration's oft-touted cost and time savings. A party who wishes to seek annulment or “setting aside” (akin to U.S. vacatur) of the award must generally do so in the courts of the place of arbitration. All modern arbitration legislation, including the UNCITRAL Model Law, strictly limits the grounds on which an arbitral award can be set aside and excludes review on the merits. A handful of jurisdictions allow parties to opt-out of the availability of the setting-aside remedy if their only connection to the jurisdiction is the venue of the arbitration, but this is not often done. If a party seeks enforcement of the award at the place of arbitration, this will again involve the local courts and legislation. The grounds for refusing enforcement will also be limited, but are always open to judicial interpretation. Certain jurisdictions have become unpopular as arbitral venues because of the tendency of local courts to annul awards, or to refuse enforcement, on vague and ever-shifting “public policy” grounds. Even if the successful party wants to seek enforcement in a jurisdiction other than that of the arbitration (because, for example, the other party has assets there), local standards for setting aside or annulment may nevertheless come into play. The losing party may commence such proceedings in the local courts, which can delay enforcement elsewhere, and if successful, prevent enforcement. This once again underlines the importance of the place of arbitration. Enforcement in other jurisdictions will nearly always be governed by New York Convention, with 149 signatories said to be the most effective commercial treaty ever. The New York Convention is intended to facilitate enforcement of arbitral awards by providing extremely limited grounds for a court to refuse enforcement—one of which is that the award has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made. As this will be the law of the place of arbitration, how local courts interpret internationally accepted standards—for example, what might be deemed insufficient due process requirements for a valid award—and the scope of review of the substance of the arbitral award either to reconsider points of local law or to consider if an award should be annulled on the basis of public policy can take on great importance. The most important “Do” for your first international arbitration is to leave behind your expectations and assumptions. Accept that you may be less familiar or at-ease with the process. Prepare—and over-prepare—especially for the organizational meeting. Cultivate an attitude of respect; listen and watch. U.S. litigation practice may delineate your comfort zone, but that does not make it inherently superior. © 2015 by Institute for Conflict Prevention & Resolution and Wiley Periodicals, Inc. Reprinted with permission. The original article can be found here, at www.altnewsletters.com or in the Wiley Online Library (http://bit.ly/1BUALop).