Control Your Arbitration Costs

Take Control of Your Arbitration Costs

By Jeff Benz, Esq., MBA

Surveys and studies demonstrate that the overwhelming costs of commercial arbitrations are not arbitrator fees or fees charged by arbitration providers, but the costs incurred by the parties to present their cases. Generally between 75% and 80% of the total expenses of an arbitration are attributable to the parties’ own legal fees/costs.

What can we learn from this?

First and foremost, the parties incur the greatest portion of costs themselves as they endeavor to present their case.
Second, limiting or making efficient the parties’ presentation of their case can dramatically impact their costs.
Third, what the parties choose to present and how to present it impacts arbitrator fees.

When parties lament the costs of arbitration, I wonder if as an arbitrator I need to undertake a review of what can be done to make things more efficient. But I also have to balance the parties’ rights to a fair hearing of their dispute and recognize that, as an arbitrator, I am providing the parties with their day in court rather than before a jury or a judge and the bases for appealing my decisions are far more limited.

Volumes have been written about this subject, and I am not going to attempt to cover all of the details and nuances that are out there in the literature. But I have devised a handful of observations in the control of the parties that I think could make arbitration far more efficient, and have the potential to make them less expensive, while still affording the parties a fair opportunity to be heard.

1. Spend more time and devote more attention to drafting the arbitration clause; be purposeful about defining the rules that will govern the parties.

How much effort is spent on drafting or negotiating the arbitration provision in a commercial contract? Litigation and arbitration lawyers almost never know this or have little experience with answering this question because they are not consulted. On the other hand, in house counsel and transactional lawyers know the answer almost immediately: Relatively little, especially when compared to other agreement provisions. Often the arbitration clause is thrown in as “boilerplate” provision, copied from somewhere, and inserted at the end of negotiations. The main issue discussed between friendly parties trying to get into business together tends to be where the arbitration hearing will occur. Sometimes the parties will discuss the arbitration provider, with very little substance to the analysis, more often than not having had only limited experience with a handful of outcomes using a particular provider as their benchmark. And often very little thought is put into defining the qualifications of the arbitrator, defining the scope of the arbitration procedure, determining whether the decision is to be final or appealable for misapplication of facts or law, the nature of the rules referenced in the arbitration clause, and similar issues. Yet all of these issues can creep into arbitration, engender their own costs, and can substantially affect a party’s outcome or arbitration experience. Commercial lawyers and in house counsel need to become educated on how arbitration works so they can draft better, more thoughtful arbitration clauses that meet that party’s needs when a dispute arises, rather than relying on a form clause picked up from a prior agreement or from another transaction.

2. Actively regulate yourself and your own procedural conduct; exercise judicious restraint.

Don’t go fishing for discovery in arbitration. Many arbitration rules are crafted to limit discovery while requiring the parties to disclose the evidence, including documents and witnesses, upon which they intend to rely at the hearing. Do not assume you have a right to take depositions of party witnesses. If you are inclined to take a deposition rather than hearing testimony of a third party witness, you better research your views. Arbitrators, in my experience, do not take kindly to efforts to uncover every last shred of evidence that might possibly be relevant to your case through the arbitration proceedings. However, targeted discovery focused directly on issues in dispute does not rankle.

3. Insist on the arbitrator(s) being active case managers.

Arbitrators are service providers and their customers, the disputing parties, hire the arbitrators to do one thing: Solve their dispute impartially, fairly, and efficiently. If your arbitrators are not doing this, you should insist on it. Request a preliminary hearing if one is not scheduled. Seek a procedural order that is workable, but tight, and that comprehensively, but practically, addresses the likely issues that will need to be addressed before the parties reach the hearing (after all, much of arbitration is about managing process and procedures). Try to agree with opposing counsel on procedural matters; you are more likely to get what you want if you present it unopposed to the arbitrators. Given the contractual basis for arbitration, rare is the case where arbitrators reject a procedure agreed upon by the parties. Ensure the arbitrators stick to the deadlines they set and do not seek to waive them yourself unless absolutely necessary to a fair presentation of your case. Of course it goes without saying that counsel should show up for pre-hearing conferences, oral argument, and at the hearing prepared, well-versed in their case, organized, and able to present their position clearly and succinctly to the arbitrators. Likewise, counsel should also insist and observe that their arbitration panel is similarly prepared. Give feedback to the arbitration provider after the case is concluded on how the arbitrators performed their tasks (without regard to the outcome for your client), and demonstrate your views by nominating or not nominating the arbitrators for future cases. In short, view this as a process where you are an active participant in forging an outcome for your client that resolves their dispute as efficiently as possible with leadership from a prepared, impartial, and efficiency-oriented panel.

4. Ask for what the arbitrator can give, and give clear reasons for it.

I cannot count the number of times I have seen a party either ask for relief that the arbitrator cannot grant or fail to ask for the relief that they should have until it was too late. Practitioners must think through carefully what relief they seek and provide the bases for it clearly and succinctly. Barring that, arbitrators are going to review that topic extensively because it cuts directly to the scope of the agreement to arbitrate, arbitrator jurisdiction, and the final and binding nature of the arbitral award.

5. Present enough of your case to meet your burden but not so much that it becomes a burden.

How many of us have sat through hours and hours of witness testimony at a hearing that is circuitous, redundant, repetitious, or full of irrelevant or unhelpful facts or opinions? How many of us have weathered an opening or a closing statement that has overstayed its welcome, and its effectiveness? Arbitration is simply not litigation. While a neutral decision maker decides the dispute, arbitration is a process by which the parties have some freedom to define by mutual agreement the way that outcome will be determined (to be contrasted with litigation where a third party decision maker, using mandatory, relatively unchangeable procedures, makes a decision).

In sum, don’t just react to being in arbitration as a party. Take control of it. Define it. Mold it to serve the needs of your client or the parties. If that fails, then exercise your consumer choice rights and find new arbitrators or providers to hear the next dispute.

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