Making Arbitration Less Costly: Submitting Written Instead of Live Testimony
Many companies, energy and otherwise, have soured on arbitration, particularly in complicated commercial disputes. They have concluded that the ostensible benefits of arbitration—lower cost, less disruption to business operations, and faster decisions—no longer hold, as arbitrators permit broader discovery and allow proceeding to drag on for years. By contrast, the main drawback of arbitration—no right of appeal—remains unchanged.
One potential means of controlling arbitration costs is to alter the traditional format for presenting evidence. Rather than submitting all testimony live at the hearing, parties can agree instead to follow the model that federal and state energy regulatory agencies use for introducing evidence. Under that model, parties serve direct, responsive, and rebuttal testimony in writing in advance of the hearing, with the hearing being limited to cross and redirect examination. A recent arbitration we handled for an energy company confirmed that this procedure, which is authorized by most arbitration rules, can significantly reduce costs in complex commercial disputes.
The most significant cost savings from using written testimony probably accrue from dispensing with depositions. With direct, responsive, and rebuttal testimony submitted in advance, there usually would be no need to depose adverse witnesses to understand and respond to the other side’s case or to prepare cross-examination. Each side could be spared the significant expense and burden of both taking and defending depositions.
The overall cost of presenting and responding to testimony also is likely to be less expensive if direct, responsive, and rebuttal testimony is served in writing before the hearing. Preparing a cross-examination can be much simpler if the scope of the adverse witness’ testimony is known well before the hearing. Although drafting written testimony requires extensive collaboration between the witness and counsel, that collaboration can consume less time than is required to script and present a direct examination at hearing.
The benefits of providing written testimony before the hearing are not solely financial. The procedure ensures that each side gets advance and detailed notice of the other side’s case, thereby avoiding any unfair surprises at the hearing. Advance submission of written testimony also allows the arbitration panel more time to absorb the written testimony, to follow the cross-examination and re-direct at the hearing, and to prepare their own questions for the witnesses. Dispensing with live direct examination further reduces the strain on witnesses of having to both “tell the story” on direct and stay focused during cross-examination.
Some might argue that having testimony submitted in writing deprives the arbitrators of the chance to compare the witness’ demeanor on direct versus cross. To be sure, witnesses can provide important context and observing demeanor may be important where the case hinges on witness credibility. But in most commercial disputes, applicable contracts and contemporaneous communications, not witness testimony, are the most critical pieces of evidence.
In short, energy companies that utilize arbitration to resolve commercial disputes should consider adopting the administrative hearing model followed by FERC and state regulatory agencies. Rather than relying on the other side to agree to this model after the arbitration has been initiated, companies should weigh amending their contractual arbitration clauses specifically to require the parties to submit their direct, responsive, and rebuttal testimony in writing before the arbitration hearing.