THE INSTITUTION'S ROLE IN MANAGING THE ARBITRATION PROCESS
Michael F. Hoellering
General Counsel, American Arbitration Association (AAA)
New York, United States of America
Introduction
Within the last 35 years, arbitration, rather than litigation in national courts, has become the preferred method of resolving international commercial disputes. To a large extent, this modern day reliance on the international arbitration process would not have been possible without the pioneering work of the world's leading arbitral institutions. It was institutions like the ICC International Court of Arbitration, the London Court of International Arbitration, the American Arbitration Association and others around the globe that, from their early beginnings, have devoted their energies to promoting the use of arbitration, encouraging the enactment of modern arbitration legislation, developing procedures for the conduct of arbitral proceedings and conducting programs to educate users and neutrals concerning proper arbitration practice.
Of equal importance to the overall effectiveness of international commercial arbitration has been the role of arbitral institutions, soon to be joined by the World Intellectual Property Organization, in providing efficient and impartial administrative services in the processing of cases filed for arbitration by disputing parties. For as Redfern and Hunter have noted, "an established and well-organized arbitral institution can do much to ensure the smooth progress of an international commercial arbitration, even if the parties themselves - or their legal advisers - have little or no practical experience in the field."(1)
The Arbitration Agreement
An institution's useful participation in the arbitral process can start as early as the formulation of the arbitration agreement (2).
While most licensing and technology transfer agreements will by their terms provide for the arbitration of future disputes, controversies over patent trademark and copyright infringements seldom involve parties who are contractually bound to each other. Whether a future disputes clause or submission to arbitration are required, arbitral institutions, especially WIPO in the intellectual property sphere, can usefully guide parties in the drafting of their arbitration arrangements and, through friendly persuasion, act as an intermediary in the negotiation of arbitration submission agreements. This task will be made easier by the growing awareness that arbitration has significant advantages over litigation in this technical field: relative speed and economy; convenience; particular suitability to international problems; and, especially important, the ability of parties to select arbitrators with expertise in the subject matter of the dispute. Of particular significance also is that, unlike with respect to foreign judgements, the enforcement of international arbitration agreements and awards is facilitated by several conventions, most notably the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, now ratified by more than 90 countries (3).
Scope of Administration
The extent of services provided by the institution will generally be determined by the procedural rules which the parties have adopted as governing their arbitration. Thus, when they provide for arbitration pursuant to the AAA's Patent Arbitration Rules (4), the AAA is expected to provide full administration from commencement of the case to its conclusion, serving as a channel of communications between the arbitrators and the parties on all matters related to the arbitration. The AAA's International Arbitration Rules (5), on the other hand, provide for close AAA consultation with the parties in the early stages to organize the proceedings, sufficient administrative authority to resolve procedural impasses, and a degree of institutional oversight aimed at streamlining and expediting the arbitration process. Once the arbitral tribunal is constituted, however, the parties communicate directly with the tribunal, which has wide discretion in the conduct of the proceedings, subject only to the basic obligation that the parties be treated with equality and given a fair opportunity to present their case. The same flexible approach is reflected in WIPO's Draft Arbitration Rules (6), which likewise limit the institution's role to assistance in the appointment and replacement of the arbitrators, determination of the place of arbitration when parties cannot agree, and the setting of administrative fees and arbitrator compensation, including the modalities of payment. Neither WIPO nor AAA procedures contemplate a detailed scrutiny by the institution of the arbitration award before it is released to the parties (7). This conforms to the practice of most institutions of doing their best to facilitate the progress of an arbitration, leaving to the arbitrators entirely the handling of the substantive aspects of the dispute.
Management of the Proceedings
In theory, the arbitration process if managed by the parties. The parties can specify the details of their arbitration within the arbitration clause or submission agreement itself. In fact, by choosing the rules and administrative services of an arbitral institution, the parties have already provided for much of the management of their case. The rules also serve, both expressly and implicitly, as an aid to the tribunal in overall management of the proceeding. Primarily, they provide an overall framework for the conduct and movement of the proceedings, from initiation through award. More subtly, however, the rules establish the base of authority from which the arbitrators manage the arbitration. They grant interpretative power of the rules to the tribunal, and leave the resolution of many procedural issues throughout the course of the proceedings to the tribunal's discretion.
The parties in most instances also will choose the neutrals to serve on their case which will significantly influence its management. Beyond this, preoccupied as they are with the advocacy of their respective positions to the arbitral tribunal, the parties infrequently undertake to mutually shape the process, once the case is underway. Case management decisions, therefore, fall to the dictates of the rules, the institution and the arbitral tribunal.
Pre Hearing Phase
Administrative management of the proceedings begins under the rules with the specifications for commencing a case. The rules set forth the form that the notice of arbitration will take, which components should make up the notice and the effective dates and timeframes affecting the commencement of the arbitration. Similar structure is provided for the statement of defense, or answer, counterclaims, set-offs, and for amendments to any of the above. Strict timeframes are established for each step in the commencement process, ensuring that the case moves forward to appointment of the panel.
Under AAA procedures, if certain matters remain unsettled, an administrative conference between the tribunal administrator and the parties may be used to attempt to resolve open questions (8). Such conferences typically are held in person, although they may be conducted by conference call where the parties cannot attend for any number of reasons. Although there may be some overlap of issues discussed, the administrative conference is not to be confused with the preliminary hearing between the arbitrators and the parties. The administrative conference is useful to identify the appropriate arbitrators for a given case; to resolve scheduling difficulties; arrive at stipulations of uncontested facts and to exchange witness lists; provide for advance exchange of information and filing of exhibits; establish the approximate length of the proceedings; approach the subject of arbitrator compensation; offer the possibility of mediation; and resolve many other items. Administrative conferences also may be used at any point throughout the proceedings to resolve other difficult administrative issues which may arise.
Place of Arbitration
A choice of a proper place to arbitrate is critical to the successful outcome of any international arbitration, because the place of arbitration implies generally a choice of the applicable procedural law, which in turn affects questions of arbitrability, procedure, court intervention, and enforcement (9).
While the issue of the proper arbitration site is one which the parties should address in their arbitration agreement, all too often they do not consider the point, or fail to agree. The decision will then fall either to the institution or the arbitral tribunal. Guidelines to assure a fair and appropriate choice of the place of arbitration by the institution, therefore, should be in place. Among the factors which the AAA takes into account in international cases in determining the place of arbitration are: location of parties, their representatives, witnesses and documents; place of performance; applicable substantive law; language of the contract; nature of arbitration regime at requested locations; location of most appropriate panel; and any other relevant factors.
Arbitrability
At present, the ability to arbitrate intellectual property disputes still varies from country to country (10) and, within the framework of the New York Convention, such national policies will impact on the enforceability of any agreement to arbitrate and resultant award (11).
While most nations with modern arbitration laws will defer to the parties' choice to have the arbitrators determine their own competence, issues of arbitrability tend to arise in the early stages of a case, when arbitrators have not yet been appointed. In such instances the advantage of an arbitral institution, ready to move the case forward, becomes clear. Indeed, when a non-arbitrability or other jurisdictional defense is asserted in an AAA arbitration, it is AAA policy to proceed with the administration of the case unless the parties agree otherwise or the arbitration is stayed by an appropriate court. Consistent application of this pro-arbitration policy, once the prima facie existence of an arbitration agreement has been established, ensures that non-arbitrability or other jurisdictional defenses are not used as a weapon to achieve delay and serves to minimize the need for costly threshold litigation.
Selection and Appointment of Arbitrators
Perhaps the most important aspect of any arbitration is the selection of appropriate neutrals, well versed in the subject matter of the dispute, and skilled in conducting the arbitral proceedings. It is the tribunal that will judge the merits of the dispute, and determine the award which will bind the parties.
The arbitral institution plays a crucial role in the arbitrator selection process. Firstly, the institution will have established a panel of neutrals, defined their particular fields of expertise, and trained them in the procedural aspects of arbitration under the institution's rules. WIPO, for example, will no doubt assemble a highly respected cadre of experts in intellectual property from around the world, from which the parties may choose, and from which appointments by the Director General can be made. These experts will not only possess a high degree of knowledge and credibility in their chosen field, but will need to become familiar with the duties and responsibilities of an arbitrator, and procedures for WIPO arbitration and mediation. They will also want to be sensitive to cultural and legal differences, such as the common law and civil law approaches to arbitration and the gathering of evidence, and the need to harmonize the differences. Last, but not least, they must appreciate their responsibilities not only to the parties but to the arbitration process itself, and that the best arbitrators are those that actively manage the proceedings to achieve a just, speedy and cost-effective resolution of the dispute (12). Clearly, a basic function of arbitral institutions will be to provide ongoing training to those it holds out to parties as acceptable neutrals for the resolution of their disputes (13).
The second critical role of the institution is that of appointing authority. Under most arbitration rules, including the ad hoc procedures of the United Nations Commission on International Trade Law (14), administering agencies are called upon to move the process along when one or more parties fail to appoint arbitrators within a specified time period, or are called upon to make those appointments on behalf of the parties. Hand in hand with the appointment process goes an effective method challenging such appointments. A mechanism must exist to permit a party to raise a legitimate objection to a given arbitrator, and for permitting the arbitration to continue without delay where such objection is not meritorious (15).
Both WIPO and AAA International Rules provide for a sole arbitrator, whenever the parties have not manifested another preference (16). This provides the most expeditious track, for the process of appointment will be shortened, and matters of scheduling will be greatly simplified. A list procedure is utilized, again employing strict time-lines, to avoid delay and assure the most mutually acceptable choice (17).
As is the norm in international commercial arbitration, the WIPO rules provide that all arbitrators, whether appointed by the parties directly or by some other process, "shall be neutral, impartial and independent."(18) A full disclosure in writing to the parties and to the institution by each arbitrator of financial or personal interest, or any other circumstances, is also required. This provision is similar to that found in the AAA's rules, as established in the Code of Ethics for Arbitrators in Commercial Disputes, jointly developed by the AAA and the American Bar Association (19).
The institution reserves the right to determine the outcome of challenges, in the event that the parties do not agree, or the challenged arbitrator does not withdraw. Challenges and their resolution are also governed by the relatively short time-lines, assuring that the arbitration will not suffer inordinate delay as a result (20).
Lastly, the institution often serves as a buffer between the arbitral tribunal and the parties, especially where issues of compensation are involved. Generally, arbitrating parties will welcome the institution's involvement in dealing with questions relating to arbitrator compensation, and the failure of one or more parties to pay adequate deposits. Resolution of these issues is best achieved through the institution, after full discussion with the parties and the arbitrators.
Facilities
Of course, one of the most obvious roles of the institution is to provide the means to facilitate the arbitration process. This often involves provision of services beyond administration, arbitrators and rules, especially for institutions administering arbitrations worldwide, such as hearing rooms, translation, and transcription services. In that regard, it would be difficult almost anywhere to match the outstanding facilities of WIPO at its headquarters in Geneva.
Unless the institution establishes offices in cities around the globe, this can become an onerous task. Some institutions, such as the ICC International Court of Arbitration and the Inter-American Commercial Arbitration Commission, have met this concern by establishing national sections, which provide support and necessary services in their country. Other institutions, such as the AAA, have addressed the issue through a network of cooperation agreements with arbitral institutions around the world (21). Both approaches ensure local expertise and resources and the availability of logistical support on a worldwide basis.
Mediation
The modern dispute resolution organization should not offer only arbitration services to its users. Rather, the success and utility of mediation and other forms of alternative dispute resolution must be recognized and promoted, to meet the needs of the parties with optimum flexibility (22). Mediation, for example, is gaining popularity and respect worldwide as a highly useful method of resolving disputes, especially between parties wishing to maintain relationships. Moreover, many cultures, exhibiting a reluctance to engage in confrontation type arbitration, favor mediation and conciliation as the dispute resolution mechanism of choice. By offering mediation services in addition to arbitration, the institution presents an additional dispute resolution option which users may choose, based on their own needs.
Post-Award Issues
As part of its educational mission, the institution must serve as a repository of information regarding enforcement of arbitration awards rendered under its auspices. This is not to say that the institution should become involved in post-award proceedings, but it may be called upon to provide basic information regarding award enforcement in different States. Such information may include providing documentation from the file; tracking key statutes, such as the arbitration laws of various nations and conditions for enforcement; and compiling information on treaties such as the New York Convention. This may be accomplished through national institutions or cooperating organizations, if these have been established, and made available to the user through publications, a library, or some other source.
It also falls to the institution to protect the process of arbitration, and alternative dispute resolution in general, in post-award actions which may attack the award, the arbitrators, or the institution itself. In the United States, a significant body of case and statutory law has been established, which generally holds arbitrators immune from liability under a theory of quasi-judicial immunity. The institution, as well, has benefited from this cloak of immunity, as does the administrative arm of the courts (23). So far, no similar body of international law exists to protect the process on a global basis (24). Institutions administering arbitration worldwide may be called upon to fill that role.
In addition, the institution must also be prepared to defend any litigation which may be filed against it. Despite the protective language, such as that found in section 57 of the WIPO Arbitration Rules, or section 36 of the AAA's International Arbitration Rules, dissatisfied parties may nevertheless attempt to assess liability against the institution or the arbitral tribunal. While such instances have been rare, the institution should stand ready to defend such attacks. It must also be prepared to litigate on its own behalf, if necessary, to collect outstanding fees due to the institution or to the arbitrators.
The Institution's Ongoing Educational Mission
As mentioned above, the institution should provide continuing education and training to its neutrals on procedural matters and case management, and have available to parties general information regarding the enforcement of arbitration agreements and awards in various States. The educational mission must go farther than that, however. Through whatever means available, the institution must strive to educate the bench, bar and business community about the benefits of arbitration and other alternative dispute resolution techniques, and their responsible use. This may be accomplished through publication of books and other written materials; through sponsorship of and participation in seminars and conferences; and through active participation in specialized groups which work toward shaping dispute resolution processes in general, such as legal, business and scientific organizations which are concerned with dispute resolution. Such involvement not only provides for a valuable exchange of information, but also enhances the stature of the institution as a prominent force in the world of international arbitration.
Ethical Considerations
The institution, in its efforts to shape arbitration into a process which is fair and just, will want to establish certain ethical criteria for the conduct of neutrals and parties. The AAA, for example, with the American Bar Association, has established a "Code of Ethics for Arbitrators in Commercial Disputes," which provides guidance to neutrals on acceptable conduct and demeanor. Issues of neutrality, disclosure, challenge, and confidentiality are covered by the Code, which is recognized as the standard for the appropriate conduct of commercial arbitrators in the United States.
Confidentiality, as well, is an ethical consideration of great importance. Not only should the institution protect the confidentiality of proceedings between parties, but it must also require that neutrals and parties also maintain the confidentiality of the process. WIPO provides broad confidentiality language within its procedures, which applies the requirement both during the pendency of a matter, and after an award is rendered.
Quality Control
The arbitral institution, in its administrative role, will serve as a mechanism for quality control, as well. In a constant effort to refine the process, it should monitor closely the conduct of arbitrations under its procedures to find new ways to handle administrative steps which appear to result in delays or other problems. Recognition and incorporation of new technological advances, such as telefax and electronic filing, help to speed the process, especially where potential parties are located all around the globe.
One way to gauge the level of user satisfaction with the process is to survey parties of their counsel soon after a case has concluded. The AAA uses such a survey, asking the parties questions regarding the administration, fees, costs and billing practices, and the quality, demeanor and performance of the arbitrators. The feedback is often helpful to identify things that work particularly well or poorly, and to learn about problems with neutrals which parties might be reluctant to reveal during the life of the case.
Another way is to create advisory councils consisting of frequent users of the process, for open exchange of ideas and examination of new ways to approach areas perceived as problems. So long as care is taken to invite persons who represent all viewpoints in types of users, energy and enthusiasm about participating in shaping the process are bound to result.
Conclusion
While the actual management of the arbitration process will fall to different persons at different times, arbitral institutions traditionally have played a crucial role in advancing the cause of effective international commercial arbitration. Within the actual cases themselves, both the institution and the arbitral tribunal strive to achieve just, speedy and cost-effective dispute resolution. An institution's mission in the management of the proceedings is to provide maximum administrative and organizational support so that the arbitrators can effectively and efficiently perform their own critical function.
Notes
1. Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, Second Edition, London, Sweet & Maxwell 1991, p. 255.
2. The arbitration clauses generally recommended by arbitral institutions are broadly worded clauses designed to empower arbitrators to rule on such issues as fraud in the inducement of contract and otherwise determine their own competence as well as to minimize the need for collateral litigation in the courts.
3. 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 4739 (June 10, 1958).
4. AAA Patent Arbitration Rules, as amended and effective on November 1, 1993.
5. AAA International Arbitration Rules, as amended and effective November 1, 1993.
6. World Intellectual Property Organization Document ARB/DR/2, October 18, 1993.
7. Contrast with the practice of the International Chamber of Commerce International Court of Arbitration which reserves the right to modify an award as to form and draw the arbitrator's attention to points of substance before it is released to the parties.
8. Poppleton, Allen, "The Arbitrator's Role in Expediting the Large and Complex Commercial Case" Arbitration Journal, Vol. 36, No. 4 (December, 1981), pp. 6-10. Barrett, William B, "Arbitration of a Complex Commercial Case: Practical Guidelines for Arbitrators and Counsel" Arbitration Journal, Vol. 41. No. 4 (December, 1986), pp. 15-23.
9. Howard M. Holtzmann, "The Importance of Choosing the Right Place to Arbitrate an International Case" Private Investors Abroad, Matthew Bender 1977; J. Stewart McClendon, Survey of International Arbitration Sites, 3rd. Ed., American Arbitration Association, 1993.
10. Tom Arnold, Patent Alternative Dispute Resolution Handbook, Clark Boardman Callahan, 1991; Francis Gurry "Specific Aspects of Intellectual Property Disputes," Conference Proceedings of Swiss Arbitration Association, Zurich, November 19, 1993.
11. Albert Jan van den Berg, The New York Arbitration Convention of 1958, T.M.C. Asser Institute, The Hague, 1981.
12. "The responsibility for inhibiting delay rests squarely with the arbitrator. He is entitled to take a firm line, and provided he acts judicially, the court will support him." The Rt. Hon. Lord Justice Mustill, American Bar Association, the Senate of the Inns of Court and the Bar, the Law Society of England and Wales, Plenary Programs, London, July 15-19, 1985, p. 351.
13. The AAA's Department of Education & Training conducts workshops, seminars, conferences and skill building sessions worldwide to promote wider use and more complete understanding of arbitration, mediation and other conflict resolution processes.
14. UNCITRAL Arbitration Rules 1976; New York, United Nations 1977.
15. AAA International Arbitration Rules, Article 7; WIPO Draft Arbitration Rules, Article 20.
16. AAA International Arbitration Rules, Article 5; WIPO Draft Arbitration Rules, Article 20.
17. WIPO Draft Arbitration Rules, Article 15. Under AAA International Rules use of list is discretionary.
18. WIPO Draft Arbitration Rules, Article 19.
19. AAA International Arbitration Rules, Article 7; The Code of Ethics for Arbitrators in Commercial Disputes, as approved by the American Arbitration Association and American Bar Association, 1977.
20. AAA International Arbitration Rules, Article 8; WIPO Draft Arbitration Rule, Article 20.
21. A listing of cooperation agreements concluded between the American Arbitration Association and other arbitral institutions is contained in The International Arbitration Kit, A Compilation of Basic and Frequently Requested Documents, completed revised fourth edition, American Arbitration Association 1993; Hans Smit, "The Future of International Commercial Arbitration: A Single Transnational Institution," Columbia J. Transnational Law, Vol. 25, No. 1 (1986) pp. 9-34.
22. Henry Brown and Arthur Marriot, ADR Principles and Practice, Sweet & Maxwell, London, 1993.
23. "Immunity and the Arbitration Process," AAA Lawyer's Arbitration Letter, Vol. 7, No. 1 - March, 1983.
24. Lew, Julian D.M., The Immunity of Arbitrators, London: Lloyds of London Press Ltd., 1990.
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