Affordable Arbitration and the Arbitration Act 1996 a paper presented at 39 Essex Street on Monday, 17 February 2003 by Richard Gray QC and Bruce Brodie Contents Affordable Arbitration and the Arbitration Act 1996 .................................................................................1 Introduction..............................................................................................................................................1 Is Arbitration today perceived as too expensive and too rigid?..............................................................4 Are the competing forms of ADR a threat to arbitration? ......................................................................9 Are the CPR a threat to Arbitration? .....................................................................................................11 What has the Arbitration Act 1996 done (if anything) to confirm the process of arbitration as value for money? And has the Act conferred autonomy on the parties to enable them to control costs?....13 The Arbitration Agreement ...............................................................................................................15 Party Agreement in the Course of Arbitration ..................................................................................19 Control through the Arbitrator...........................................................................................................21 Is value for money in fact an important factor in opting for arbitration?.............................................24 Conclusion .............................................................................................................................................25 Annex 1 ..................................................................................................................................................28
Affordable Arbitration and the Arbitration Act 1996
Is Arbitration today perceived as too expensive and too rigid?
Are the competing forms of ADR a threat to arbitration?
Are the CPR a threat to arbitration?
What has the Arbitration Act 1996 done (if anything) to confirm the process of arbitration as value for money?
Party autonomy and what can the parties and their advisers do to contain cost?
Is value for money in fact an important factor in opting for arbitration?
Introduction 1.
The turn of a century traditionally gives rise to great upheavals. The turn of this 21st Century certainly lived up to tradition in the field of the resolution of civil disputes. For eons it seems there had been only the choice between litigation and arbitration as the means of resolving a dispute. Yet over the last few years the parties and their advisers have had a sometimes bewildering array of Alternative Dispute Resolution formats to choose from. As to the two stalwarts, litigation itself has changed dramatically, courtesy of Lord Woolf and the introduction of his Civil Procedure reforms.
Arbitration too had
already seen the introduction of the new Act of 1996. 2.
That such a degree of change has taken place more or less at the same time is obviously not a function of its moment in time. The two reasons generally given as to the causative motivation for this proliferation of change are firstly
1
consumer dissatisfaction with the length of time necessary to arrive at a judgment or award, and secondly the burgeoning cost of such resolution. These twin ‘evils’ (together with other influences, the most notable of which must be a desire to avoid the adversarial approach with its heavy drain on management resources and destructive effect on inter-party commercial relations – compared with the win-win claimed for ADR) have spawned the varieties of ADR we see now, and they feature prominently in the litigation and arbitration reforms. We have only to look to the ‘overriding objective’ enshrined in the very first Rule of the CPR for verification that these Rules were expressly formulated with time and cost implications firmly in mind and do not just amend the old Rules: they completely replace them. Thus the Court is obliged to deal with a case justly and this will include inter alia the saving of expense and dealing with the case in ways which are proportionate to the amount of money involved and the financial position of each party; as well as ensuring the case is dealt with expeditiously and fairly. 3.
Similarly, under the Arbitration Act sections 1 and 33, time and cost considerations are expressed to be fundamental objectives of the arbitration process. Thus: Section 1 The provisions of this Part are founded on the following principles, and shall be construed accordingly – the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense; (emphasis added) 2
the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; (emphasis added) …….. Section 33 The tribunal shall……… adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined. (emphasis added) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it. 4.
So with this introduction we arrive at the already half-answered first question – we pause only to draw attention to another of the 1996 Act’s fundamental principles (also emphasised in the Section 1 quotation above), to which we return later. It is the principle of party autonomy: that the parties should be free to agree how their dispute is resolved.1 That freedom to agree necessarily includes the right to agree time and cost questions.
1
Section 1(b) 3
Is Arbitration today perceived as too expensive and too rigid? 5.
With the above introduction in mind, it is clearly the case that the powers that be, responding to widespread consumer soundings, had concluded that there was dissatisfaction among users as to the time and expense involved in traditional arbitration and litigation and they set out to try and achieve a framework that would address these concerns. They did this in a climate where consumer concerns were already well rooted and in which alternative methods had been born and were already gaining ground. The chief attraction of the various forms of ADR were and are their flexibility, their speed and so their relative cheapness as well as added informality.
6.
Remember that arbitration was, in times long past, much vaunted as being quicker, cheaper and more informal than litigation. But, until the Act of 1996 at least, much arbitration had become as expensive (if not more so) and as lengthy and formal as litigation.2
Its conduct is adversarial in nature,
frequently conducted by lawyers trained for litigation, who were wont to handle the arbitration in like manner to litigation, both in its preparation and in the advocacy. Its potential to be the more expensive of the two options lies in the additional layers of expense that have to be catered for. In addition to the parties’ legal costs there are the fees and expenses of one or more arbitrators that have to be paid3; the cost of hiring a venue for interim and main hearings has also to be taken into account, as do the administration costs of any governing institution such as the ICC. 2
Since most arbitrators are also in
It is recognised that this is a generalisation and that there are some specialist arbitrations, such as commodity arbitrations, which are marked generally by speed, economy, informality and, sometimes, the exclusion of lawyers. 3 At say £1,000 an hour the fees of a tribunal of three mount rapidly – see, for example, the LCIA rates of £150-£350 per hour for each arbitrator for all but exceptional cases.
4
practice on their own account within their own areas of expertise, hearing dates can be troublesome to obtain and awards can be some time in the gestation process. 7.
The rigidity we talk about under this heading is really a reference to the fact that arbitration in many instances seemed before the Act to have become settled into patterns of procedure and conduct that mirror litigation, for the reasons given above. Both litigation and arbitration impose on the parties a binding solution reached by an independent third party. The predominant feature of most ADR solutions is that the parties only reach binding solutions if and when they agree. In other words, until they are agreed, their options remain open. Therefore in that very real sense the parties remain masters of their own destiny under most forms of ADR, which they are not in arbitration.4 The spectre that is so often used in ADR as the instrument for arriving at settlement is the time and cost of pursuing litigation/ arbitration in the event of a failure to agree.
8.
There is the further factor that once reached, an arbitrator’s award is likely to be harder to appeal in arbitration than in litigation (apart from a jurisdiction point or a point on serious irregularity (respectively sections 67 and 68)). Thus the decision to arbitrate is in many cases a last port of call, following unsuccessful ADR. In arbitration (apart from the section 67 and 68 challenges) only points of law are appealable and then only in closely circumscribed circumstances. This was the already the case under The Nema guidelines5
4 But, as we shall see there are now under the 1996 Act extensive provisions by which the parties may control their own destiny in other respects 5
[1982] AC 724 5
given by Lord Diplock under the old Arbitration Act 1979; the new section 69, while influenced by these Nema guidelines, is nonetheless a new set of statutory guidelines, rather than judicial. That it should not be easy to appeal an arbitral award follows from the fact that the parties have deliberately chosen to resolve their disputes by arbitration, not by the Courts.6 But it does add to the perception of inflexibility (though not perhaps the injustice) of arbitration as a solution. 9.
The other side of this particular coin, certainly in the international context, is that the Departmental Advisory Committee on Arbitration Law responsible for the new Act gave serious thought to not permitting any appeal at all on law.7 Since many arbitrations within the jurisdiction involve entirely foreign parties and foreign law, there was a powerful argument that although they may have chosen say London as a place of arbitral excellence, the parties nonetheless very probably were unfamiliar with the English Courts and would not wish to be caught up in any appeal procedures. In many foreign jurisdictions a choice to arbitrate means the exclusion of any appeal to the local courts.
10.
To return shortly to the formalistic theme, it is worth noting that in CMA CGM SA v Beteiligungs-Kommandit Gesellschaft MS,8 Lord Phillips MR. interprets part of the new provisions under section 69 of the 1996 Act thus: …“The statutory criteria are clearly strongly influenced by the Nema guidelines. They do not, however, follow these entirely. We have concluded that they open the door a little more widely to the granting
6 Section 1(c) gives another general principle of the 1996 Act – that the courts do not intervene in arbitration except as the Act provides. 7 See Report of February 1996, paras. 284 to 292
6
of permission to appeal than the crack that was left by Lord Diplock.”… 11.
A feeling for just how hard it is to obtain leave to appeal under the 1996 Act can be got from this rehearsal of the hoops to be gone through: “(1) Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings. … (2) An appeal shall not be brought under this section except(a) with the agreement of all the other parties to the proceedings, or (b) with the leave of the court. … (3) Leave to appeal shall be given only if the court is satisfied(a) that the determination of the question will substantially affect the rights of one or more of the parties, (b) that the question is one which the tribunal was asked to determine, (c) that, on the basis of the findings of fact in the award(i) the decision of the tribunal on the question is obviously wrong, or
8
[2002] EWCA Civ 1878 7
(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and (d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.9 12.
In approaching the conclusion of this section we would contend that arbitration certainly has been and probably still is widely perceived in the market as being an expensive means of dispute resolution and one from which there is little or no prospect of appeal if the arbitrator goes wrong in law. This is particularly so when arbitration now has several rivals in the form of the various types of ADR each of which offers its own blandishments. The features of these alternatives most attractive to the customers are (1) speed and (2) relative cheapness, plus (3) the fact that these ADR forms are usually not final in the event the parties do not reach settlement. However the fact that arbitration may be seen as relatively expensive should not mean its demise so long as its reputation can be maintained as giving value for money in the form of good quality arbitrators giving a reliable service.
13.
To conclude this topic then, it is important that legitimate concerns about the cost of arbitration generally, should not be allowed to hide the fact that by no means all arbitrations are (in any objective sense) expensive. In this context, commodity arbitrations have been mentioned already. But every year there are thousands of other arbitrations which are conspicuously inexpensive.10 One
9
1996 Act, section 69 This excludes the very large volume of small claims quasi “arbitrations” conducted in the County Courts for over 25 years and now allocated to the CPR’s small claims track. 10
8
example, in the consumer field, is the several Chartered Institute of Arbitrators consumer schemes which handle over 2,000 cases a year, almost on a shoestring.11 Another is arbitration under the small claims procedure of the London Maritime Arbitrators Association. Yet another set of schemes has been promulgated under the title “Arbitration – A Commercial Initiative for Dispute Resolution” which has a set of general Governing Rules which apply to all its Schemes, but then the parties choose a particular set of rules as they deem appropriate, being the Standard Rules, or the Fixed Fee Rules or the Fast Track Rules. And then, as a final example, though case volume has been low, there are the Chartered Institute’s Controlled Cost Arbitration Rules and its Commercial Arbitration Scheme Rules – in particular, the short form procedure as a cost and time saver – which are likely to evolve into a new scheme to be launched as the eponymous Bloomsbury Rules. Are the competing forms of ADR a threat to arbitration? 14.
What do we mean by a threat? Arbitration generally is a long established and well-respected form of dispute resolution. But in recent years a series of competitors has arrived on the scene, some of which have proved to be most effective. Obvious examples are mediation, which has scope for a much wider range of possible solutions than arbitration. In the construction sector in particular, the advent of the statutory adjudication procedures has earned the reputation of being quick, inexpensive but of dispensing fairly rough and swift justice; an adjudicator’s award of course is binding immediately and must be complied with unless and until overturned in litigation, arbitration or by the parties’ agreement.
11
Most awards are modest but some have exceeded £50,000. Generally cases are documents only with
9
15.
Then there is the hybrid ‘med/arb’ or mediation/arbitration, where the parties have the opportunity to use mediation to reach agreement, but agree that each will then be bound by a decision by the neutral tribunal on any matters on which they cannot agree. If the same neutral is to be used for both parts, very real problems may arise as to confidential information imparted to him in private sessions. Also there is ‘ENE’ or early neutral evaluation where a neutral outsider gives an advisory opinion which may assist the parties in settling.
Finally, there is expert determination, where the parties jointly
instruct a third party to decide an issue between them. This is not new, but there is evidence that it is evolving and gaining ground. From the above it is manifest that there is now available to the customer a bewildering selection of methods from which to choose, and there will in the near future doubtless be still further models added to the basket. 16.
The main appeal of these methods (adjudication and expert determination apart) is the prospect of an economic and rapid resolution to a dispute, by a process, which does not bind the parties without their both agreeing the result. In other words the process is not final if no settlement is concluded. Both parties live to fight another day if they so wish, and remain masters of their own fate, rather than having a decision imposed.
17.
The mere fact that there is such competition which has now firmly established itself on the scene as effective and as being here to stay, must mean that the process of arbitration has rivals for its affections. But firstly, as we see from the examples given above, arbitration has responded by offering its own array of differing rules and procedures with both speed and costs savings as their
no costs awards and administration expenses and arbitrators’ fees limited to a few hundred pounds. 10
rationale. Secondly, it must be remembered that arbitration is essentially a different animal from these other parvenus – these alternatives usually will only bind where the parties agree they shall. Arbitration always binds, subject to a virtually non-existent right of appeal to the Courts. But the question is whether what we are seeing is a change of mindset, where, because of time and cost considerations, parties are more inclined to pursue non-adversarial avenues to arrive at a result which they can decide whether they can live with it before it is imposed. The feeling persists that arbitration is costly and time consuming. Thus, like most creatures that have been around for a while, arbitration needs to be leaner, fitter and more adaptable to compete. It is therefore under threat to this extent – many disputes are now, and will in the future, be resolved by one form or the other of ADR, which would formerly have been arbitrated. Therefore if the number of disputes had remained static, clearly arbitration might well be in a state of parlous decline. Yet this is not the case. There is anecdotal evidence to indicate that there is some decline in the amount of arbitrations, but that as yet this is not serious. From the above we can see that arbitration has begun to respond with new initiatives based on appreciation of the need for time and cost savings. Add to this the fact that we live in an increasingly claims conscious environment and this should ensure that the number of disputes generally is on the increase, so that arbitration may have to share the loaf of disputes with more mouths, but as the loaf gets larger each year, arbitration may get a little leaner but it will not starve. Are the CPR a threat to Arbitration? 18.
This is at the other end – of the public/private dispute resolution balance – from the question covered in the preceding section. One is tempted to answer
11
it flippantly by saying that the Court Service is hardly likely to be a “threat” to any form of private dispute resolution, arbitration included, while it remains apparently hostile to litigants who have come to it without first resorting to mediation or some other ADR procedure.12 But the temptation has to be resisted. The question is legitimate if the CPR delivers expeditious, expert, just and publicly funded dispute resolution, why go private and hire the tribunal and meet the other additional expenditure of arbitration? 19.
For a number of generations past, the courts, in particular the Commercial Court and the TCC (formerly the Official Referee’s Court), mainly in commercial and construction cases respectively, have been highly respected rivals of arbitration.
Both these courts have led the field in developing case
management procedures, a number of which are reflected in aspects of both the CPR and the 1996 Act. And the Commercial Court at least has secured the confidence of foreign business to an extent which is probably unrivalled by any domestic court elsewhere in the commercial world. 20.
There are therefore many disputes, which might be arbitrated in England, for which the courts provide an excellent alternative forum. It may be said that the consumer is almost spoilt for choice. And, as we have seen, the court option may be the less expensive one. But that does not mean that the arbitration case load will drain away to the courts. For, as we see in the sections of this paper which follow, there are a number of respects in which arbitration (particularly
12
See Dunnett v Railtrack [2002] EWCA Civ 303 and other authorities on the risks in costs run by the successful litigant who has unreasonably refused to mediate first. 12
since the 1996 reforms) will better suit the needs of many consumers. And in fact there are in arbitration very strong mechanisms for cost control. 21.
We go on to consider some of those mechanisms and ways in which arbitrators and, of great importance, the parties themselves may bring them into play.
What has the Arbitration Act 1996 done (if anything) to confirm the process of arbitration as value for money? And has the Act conferred autonomy on the parties to enable them to control costs? 22.
There are a number of tools provided by the Act of 1996 by which the parties may tailor their arbitration to provide cheaper and speedier results than hitherto may have been the case, as well as powers given to the arbitrator. The objective must be to achieve what the parties will accept as being value for money. It is in this sense that we suggested the title for this seminar as ‘Affordable Arbitration and the Arbitration Act 1996’. It is not intended to mean a ‘cheap or bargain’ solution. We doubt if arbitration will ever be cheap13, because of it nature. Unlike other forms of ADR14, it seeks to arrive at an imposed answer on the facts as found and as applied to the relevant law. It thus seeks a different type of solution to the dispute via as comprehensive an examination of the issues in dispute as the arbitration agreement will permit. This process will usually take some little time and be more costly than less thorough examination of the facts and law behind a dispute, (such as for example in an adjudication under the Housing Grants Construction and Regeneration Act 1996 [- ‘HGCRA’]).
13
But see the examples given earlier of genuine bargain basement arbitration. There has been much debate, not all semantic, as to whether arbitration should itself be treated as a member of the ADR family. While arbitration is now generally regarded as a dispute resolution method outside that family, for the purposes of the CPR it is an ADR method and therefore a procedure which the court must encourage in appropriate cases under its case management duties under CPR 1.4(1)(e). 14 supra 14
13
23.
It will usually be for the parties to decide on which kind of solution they want to pursue, though the Courts now advocate the merits of ADR and mediation in particular as a precursor to litigation. Indeed in Dunnett v Railtrack plc15 the Court of Appeal emphasised that parties have a duty to help the Court in furthering the overriding objective and thus a duty to consider ADR seriously; parties who fail in this duty may have to face “uncomfortable costs consequences”. Thus under the rubric of active case management, the Courts now encourage ADR both at first instance and on appeal. Unfortunately parties and/or their advisers may feel safer going through mediation, both before the hearing at first instance and (if apposite), an appeal, even though both may have little confidence of success in the process and may prefer to avoid the costs. It is not hard to see how an arbitration tribunal might consider this decision as justification for imposing costs consequences as part of “the fair resolution of the dispute” and under its general duty under section 33 of the Act to proceed so as to “avoid unnecessary delay or expense” and of complying with that general duty in the exercise of all other powers conferred on it. If an arbitrator considers that it would have been eminently reasonable for a party to have mediated the dispute, that that party unreasonably refused to do so, and that great cost would have been saved, the conditions are ripe for “uncomfortable costs consequences”.
24.
What then are the means provided to the parties/arbitrator to speed things up and/or reduce cost? The parties in a very real sense have a range of freedoms to agree that matters shall apply or not apply according as they please. One has only to go through the Act to see that the overwhelming majority of sections
14
begin with “Unless the parties otherwise agree …..” or “the parties are free to agree ….”. The only things the parties are not free to do is change the mandatory provisions set out in Schedule 1 of the Act.16 25.
But not only do the parties have a range of particular freedoms to agree how their arbitration will proceed. It is, as we have already seen, a fundamental principle of the Act that the parties are free to agree how their disputes are resolved, subject only to any public interest safeguards. It is in this sense that the parties are autonomous – they have a very large measure of freedom to decide the course of an arbitration. This is expressly reinforced in relation to procedural and evidential matters by section 34 of the Act. It provides that the power of the tribunal is “subject to the right of the parties to agree any matter” (emphasis added).
26.
The measures available to the parties, to assert their autonomy to control their arbitration and thereby to contain its cost, may be grouped under three main heads. They are (1) the arbitration agreement, (2) party agreement in the course of the arbitration, and (3) control through the arbitrator.
The Arbitration Agreement 27.
The most obvious way for the parties to shape an arbitration is through the agreement they reach in the arbitration agreement itself. Most frequently the agreement is entered into before there is any dispute between the parties. That opportunity to shape and control any arbitration which there may be is too often lost. Agreement later, after there is a dispute, is much harder to achieve.
16
See section 4(1) and Annex 1 herewith for a list of these provisions 15
28.
The simplest, and generally most workable, method is to incorporate suitable institutional or industry rules into the arbitration agreement by reference. As we have seen there are now numerous schemes on offer.
That does not
preclude improving the rules by adding bespoke provisions. The alternative is for the parties to agree their own arbitration scheme. But, except perhaps in very large contracts, it is unlikely that the parties will put in place a scheme and, in any event, there is little or no place for it in a considerable body of contracts which incorporate standard terms and conditions. 29.
Whether existing rules are incorporated or another method is adopted, the provisions of any scheme which will effectively control cost are likely to include a number of the following features: (1)
limitation to a single arbitrator;
(2)
for the administering institution (if any) to drop out after the arbitrator has been appointed;
(3)
completion of the arbitration within a specified period;
(4)
limitation of total costs (including arbitrator’s fees) to a given percentage of the true amount in dispute;
(5)
costs capped at a given figure;
(6)
limitation of the arbitrator’s hourly charging rate by reference to the true amount in issue;
(7)
power to the arbitrator to grant provisional relief;
16
(8)
short specified periods for service of statements of case with key documents annexed;
(9)
limited document disclosure;
(10) single joint or arbitrator appointed experts; (11) evidence by witness statement only (except with permission); (12) witness examination by conferencing; (13) documents only except at the arbitrator’s discretion for clarification only; (14) limitation of the length of the hearing; (15) equal sharing of hearing time; (16) exclusion of reasoned awards; (17) exclusion of appeals; (18) determination of and allocation of recoverable costs.17 30.
It will be obvious that a number of these headings are given as alternatives to others. Equally we do not claim that the list is comprehensive and it no doubt omits many well-tried and favoured devices. And there is scope (but not space in this paper) for much debate on the practical application of each item, let alone its possible variants. That said it is useful to draw a few conclusions from the list:
17
This list draws on published material such as the Commercial Arbitration Scheme Rules and TecBar Review (March 2002), anecdotal evidence and personal experience. 17
(1)
More experienced arbitrators than might be supposed are willing to take
some appointments at modest rates. The Commercial Arbitration Scheme rates are £70 per hour for claims up to £100,000 and they never exceed £120 per hour. (2)
Time constraints also constrain lawyer and arbitrator expenditure of time
and with that cost. (3) Time-limited / time-shared hearings promote the elimination of peripheral issues. (4) Provisional awards promote settlement. (5)
Nevertheless few parties will adopt the additional cost saving of
eliminating reasoned awards, even if they exclude appeals. 31.
The promoters of the Bloomsbury Rules are among those who recognise the privotal importance of the arbitration agreement and arbitration rules – institutional or ad hoc but more usually institutional – in achieving their stated objectives of delivering efficient, economic arbitration. They rightly consider that the 1996 Act offers significant advantages over litigation in this respect but that they are under-used. And their means to achieve much more extensive use of this under-used but “considerable force inherent in the Act” is through their new Rules, which are also to incorporate a set of precedents to assist the drafting of contract terms and ad hoc agreements.18
18
Literature for the Chartered Institute of Arbitrators, London Branch, conference on 12 March 2003. 18
Party Agreement in the Course of Arbitration 32.
It is unlikely that many will disagree that the optimum time for the parties to reach agreement on the shape of any arbitration to come is before there is any dispute between them. Once there is a dispute, then each party will almost inevitably be seeking to position itself to its own perceived best advantage in the dispute. That may mean, in the early stages at least, that attention and effort is unduly concentrated on establishing and reinforcing the merits of the proposed claim or defence; and that the result is that real consideration of cost effective procedures for the arbitration goes by default so that the arbitration travels down the familiar tramlines of the well-established procedures with which the protagonists and the arbitrator are most familiar.19 Or it may mean that one party, when it does come to consider procedure, decides that its best advantage lies in slow and/or expensive over quick and/or cost effective arbitration. Thus, relative size and economic strength in one party may tempt it to try to overwhelm its less well resourced opponent with lengthy and expensive arbitration – and there are many other examples which could be given.
33.
Those are factors which may be overcome by the parties only with difficulty, and they may not be overcome at all. But we believe that they are capable of being mastered in a significant percentage of cases. Indeed, it seems clear that, in fact, in an increasing number of arbitrations the nature, scope, scale and expense of the arbitration is being refashioned significantly by consensual arrangements between the parties even after the dispute has arisen. This trend is encouraging. Undoubtedly its healthy growth has been fostered by the value
19
See Russell on Arbitration (21st Edition) para 5-117 19
for money climate which has developed from the global warming effect of the reforms of the 1996 Act. This has been assisted by the Woolf winds of change (to conclude this climatic analogy) and also probably by the present economic downturn and uncertainties for the future. 34.
In this climate what might a party to an arbitration do to promote sensible agreement on the procedural aspects of the arbitration with a view to limiting and controlling its expense? We suggest the following basic approach: (1)
early analysis of the case to establish a likely true amount in dispute / total
arbitration costs ratio; (2) early consideration of how a package of some of the measures suggested in paragraph 29 above (or such others as may be devised) might improve the ratio; (3)
early clear proposals – in open form for the benefit of the arbitrator later, if
sensible agreement cannot be reached – for a costs limitation package. The word “early” has been repeated in these rather simple suggestions to emphasise the importance of front end loading in the shaping of an arbitration. For once it has started its procedural journey down those familiar tramlines, it will be hard to divert. 35.
Such an approach should overcome inertia in the opposing camp. Equally, where resistance to cost control is of the tactical kind, it should serve as a shot across the bows of the other side, carrying with it twin messages: first, as the carrot, that sensible agreement will take the matter out of the hands of the arbitrator and avoid the risk of his imposing an unduly restrictive regime; and, secondly, as the stick, that adverse costs orders may well follow where sensible 20
proposals are rejected out of hand and perhaps countered with those which do not have proper regard to the guiding principle of fair resolution without unnecessary delay or expense. 36.
To conclude this part of the discussion: there is anecdotal evidence of very radical steps successfully applied to cost control which have been initiated by the parties and agreed between them, sometimes even at very advanced stages of the arbitration. In one such case it was agreed that the party appointed experts would meet with the arbitrator alone, that is in the absence of the parties or their lawyers. The result was a very large reduction in the issues to be decided and in the length of the hearing from months to a matter of days. That example, so dramatically successful in cost saving terms, is probably not representative, if only because few parties to a major dispute would ever be inclined in the ordinary way to allow such unvigilated contact between arbitrator and experts. But it is indicative of what may be achieved through party agreement.
Control through the Arbitrator 37.
It is an apparent contradiction in terms to consider cost containment through the arbitrator under the rubric of party autonomy.
But there need be no
contradiction where the party seeking to contain cost is active to promote it through the arbitrator when it has not been implanted in the arbitration agreement and cannot be agreed with the other party. 38.
The passage of six years since the effective date of the 1996 Act has provided ample time for all arbitrators to become fully conversant with the Act’s guiding principles, their general duties and their wide powers (in the absence
21
of agreement between the parties) to decide procedural matters to give effect to those principles and duties.
Few arbitrators will be unaware of those
provisions. But that does not mean that each arbitrator applies in the same way his section 33 duty to avoid unnecessary delay or expense. In practice, some arbitrators seem almost hyperactive in this regard; but there are others who pay little more than lip-service to it. 39.
If the arbitrator is rather soporific in this respect, then he will need to be woken up. Obviously he should not be shaken rudely. Rather he will be provided with well thought out and sensible proposals and subtly reminded of his duties. In this way, cost control through the arbitrator is effected.
40.
The most productive point of departure to achieve effective cost control through the arbitrator is likely to follow from well documented proposals to the other party of the kind suggested earlier. This is not the place to rehearse the detail. That will be determined by the particular nature of the case. However, it is perhaps worth emphasising two points, obvious as they probably are. The first is concerned with timing: if the arbitrator is allowed to proceed along old conventional lines, it will be difficult to get him to change course. That means that procedural proposals and subtle reminders to the arbitrator should come early. They need to be well formulated by the time of the preliminary meeting or directions hearing which takes place in most arbitrations. Secondly, the proposals need to be reasonable, credible and defensible. If they are not, then the party advocating the cost control measures will find the arbitrator hard to persuade. For example, where the key questions in a large case are likely to turn upon difficult questions of fact, as to which different witnesses have
22
different recollections, it will probably be counterproductive to propose to an English arbitrator that oral evidence be dispensed with for all witnesses in the interests of costs saving. On the other hand, it might be very persuasive to propose, say, that of the dozen or so witnesses from whom there will be witness statements on a variety of issues, only three need to be examined at the hearing, and perhaps even that the examination could be carried out by conferencing, so that they are examined together rather than individually. 41.
Concluding this part of the paper, we touch on one power of the arbitrator specifically directed to cost control. It is the power under section 65 to direct “unless otherwise agreed by the parties …that the recoverable costs of the arbitration, or any part of the arbitral proceedings, shall be limited to a specified amount.”
42.
On the face of it this cost-capping power must a key tool for the effective control of arbitration expense. However, although no arbitrator would admit to not having considered using this power, many would have to say that they have yet to do so, and most would agree that it is difficult to apply.
Its
characterizations range from that of being a non-starter, through not being very useful to those who consider it a great leap forward. 43.
A particular problem which arbitrators experience in applying this costcapping power is the requirement that although any such direction may be made or varied at any stage, it must be done sufficiently in advance of the incurring of costs to which it relates, or the taking of any steps in the proceedings which may be affected by it, for the limit to be taken into
23
account.20 Arbitrators find it difficult to reconcile the concept of fairness with what may be a relative lack of knowledge of what is involved in the case at the time when a capping direction might be given. In most cases, the arbitrator’s knowledge of the case will not be sufficiently advanced at the time of the preliminary meeting or directions hearing for him to come to a sufficiently informed view of it for the purposes of the exercise of this power. 44.
Although there appear to be no reported cases on it, the application of section 65 poses sufficient questions for another paper devoted to it alone. We must therefore leave the subject rather hanging in the air, though it is interesting to note that such an order was recently made in the Divisional Court.21
Is value for money in fact an important factor in opting for arbitration? 45.
We would expect value for money to be an important factor in opting for almost anything, but to be only one of several factors in deciding on arbitration as the method for resolving one’s dispute. Others include whether the dispute could better be mediated; whether the parties can choose an arbitrator each considers to be of sufficient calibre and at an acceptable fee; whether there is available a short form of procedure; whether there is a fast track scheme. In other words each needs to be considered in relation to the nature of the dispute and which method might best achieve a solution and at a cost that the parties hope to find acceptable. Some of the specialized arbitrations give wonderful value for money. But the process of arbitration we believe are still mostly perceived to be, and are still,
20
Section 65(2) R v The Prime Minister and ors re: Campaign for Nuclear Disarmament [2002] EWHC 2712 Admin 21
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expensive. As such initiatives as the Bloomsbury Rules, the ACI Schemes and others take hold (with the needs of efficiency and economy which drive them), a significant body of larger arbitrations may become truly good value. In that case, perhaps the courts will be referring the parties to arbitration (rather than mediation) under the CPR powers! But there is a large body of arbitration, particularly big cases in construction, shipping, perhaps insurance and so on, where the parties opt for arbitration particularly for reasons of expertise, with apparently very little regard to what it costs, though no doubt they would prefer it to cost less – see, for example, the recent case22 on the question of appeals, where a tribunal of three consisted of Sir Christopher Staughton, Sir Brian Neill and Alexander Kazantzis – these illustrious gentlemen must have cost the earth! Also, in international arbitration, costs concerns are forced out of the window, because in so many cases neither party will accept litigating in the jurisdiction of the other. Conclusion 46.
Arbitration, in common with other forms of dispute resolution, has undergone quite considerable change since the 1996 Act, partly as there has been greater familiarity with the powers given by the Act, and partly in response to the competition. As the range of successful alternative methods available has become more widely known and experienced, then the consumer and their legal advisers have become much more discerning of the availability of tailormade solutions, and of the need for cost control. With the passage of time these solutions are likely to proliferate.
22
The “Western Triumph” [2002] 2LlR 1 25
47.
Take for example the statutory adjudication in construction contracts introduced by the HGCRA. Despite criticisms of it as giving rough justice and enabling the initiating party to “ambush” his opponent with a lengthy and complex case to be answered, and a decision given, within 28 days, it seems to be generally a success in that few cases go on to litigate/arbitrate later. In construction, it is virtually impossible to contract out of the Scheme. But there are other spheres in which it is being suggested the formula might be tried, and that an arbitration scheme might be the means.
48.
In the article in the TecBar Review for March 2002, the author suggested the best features of adjudication (relative speed and economy) might be matched with safeguards against the worst features (the extremely short and sometimes unfair period available; and no power to award inter party costs) and powers under the 1996 Act to produce a tailor made scheme. Broadly the author was suggesting a time limit of no more than 100 days from beginning to end of process, with the arbitrator’s entitlement to remuneration dependent on his giving an award. by no later than the 100 days. Claim document together with witness statements, documents and expert reports to be provided within 7 days of the start of the arbitration, and the defence within 21 days thereafter. At that point the arbitrator is bound to consider within 7 days whether some kind of provisional order is appropriate. From then on the arbitrator is to use his powers under the 1996 Act to decide the future conduct of the arbitration. The arbitrator is given power to award inter party costs, but these are subject to an overall cap of an agreed figure or £25,000.in default.
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49.
With the various new arbitration schemes already in place (see supra) and what is likely to be a spate of still further variants (such as that in the preceding paragraph), arbitration has proved itself to be eminently adaptable to the newly focussed demands of the consumer. That consumer will always want value for money. That consumer we believe to be more discerning than hitherto, inasmuch as he is aware that there are alternatives to the traditional litigation/arbitration route. But for the reasons given above arbitration has shown itself to be capable of adapting to compete in the market place and that metamorphosis is one which makes arbitration a leaner and fitter creature capable of multiple persona.
Bruce Brodie
Richard Gray QC February 2003
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Annex 1 ARBITRATION ACT 1996 Section 4(1): The mandatory provisions of this Part are listed in Schedule 1 and have effect notwithstanding any agreement to the contrary. SCHEDULE 1 MANDATORY PROVISIONS OF PART I sections 9 to 11 (stay of legal proceedings) section 12 (power of court to extend agreed time limits) section 13 (application of Limitation Acts) section 24 (power of court to remove arbitrator) section 26(1) (effect of death of arbitrator) section 28 (liability of parties for fees and expenses of arbitrators) section 29 (immunity of arbitrator) section 31 (objection to substantive jurisdiction of tribunal) section 32 (determination of preliminary point of jurisdiction) section 33 (general duty of tribunal) section 37(2) (items to be treated as expenses of arbitrators) section 40 (general duty of parties) section 43 (securing the attendance of witnesses) section 56 (power to withhold award in case of non-payment) section 60 (effectiveness of agreement for payment of costs in any event) section 66 (enforcement of award) sections 67 and 68 (challenging the award: substantive jurisdiction and serious irregularity), and sections 70 and 71 (supplementary provisions effect of order of court) so far as relating to those sections section 72 (saving for rights of person who takes no part in proceedings) section 73 (loss of right to object) section 74 (immunity of arbitral institutions, c.) section 75 (charge to secure payment of solicitors' costs)
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