The recent issue of The Business Lawyer, a publication of the ABA Business Law Section, addresses a topic of particular interest: “the hard choices that face a general counsel when weighing the pros and cons of whether and when a particular complex business dispute is better suited for litigation in the public courtroom or through a carefully constructed alternative dispute resolution process, including mediation and/or arbitration.”

The article, of interest on its face, gains authority by virtue of its authors:  former Delaware Supreme Court Chief Justice Norman Veasey and former Chancellor of the Delaware Court of Chancery Grover C. Brown.  It gains even more credibility because it reflects not merely the observations of these expert observers of business disputes, but also extensive interviews with 19 General Counsels or their principal in-house colleagues — including companies not often heard from on this topic, such as Walt Disney, Fluor, Oracle, Walgreens, Proctor & Gamble and General Dynamics.

The “variables” that must be considered in avoiding or managing contractual disputes include whether it will be foreign or domestic; the subject of the deal; the identity of the counterparty; the likely jurisdiction; the importance of confidentiality; and the need for subject-expert neutrals.  Moreover, these concerns must be weighed, and a decision made, at the drafting stage — well before there is a dispute — and negotiated with the counterparty who is the potential adversary.

The authors note that cross-border deals tend to involve international arbitration as the final stage of a stepped or tiered, process.  But many general counsel are leery of domestic arbitration, complaining of problems that, “when viewed in hindsight, could have been avoided” by controlling or customizing the arbitration process at the contract stage.  In addition to their own informal interviews, the authors focus on certain recent studies, including the CCA 2010 Protocols, the 2011 RAND Report, and the 2014 Stipanowich/Lamare article.  They conclude:

  •  A preference for mediation is almost universal;
  • Mediation provokes commercially rational thinking and decision making;
  • International arbitration is strongly preferred to litigation in foreign jurisdictions;
  • International arbitration has features that domestic arbitration does not, including restrictions on pre-hearing information exchange and proven experts in both the arbitral process and the subject matter of the dispute;
  • Confidentiality is highly valued;
  • Not all transactional lawyers perceive that they have the ability to negotiate arbitration structures that safeguard against the flaws they fear in the process
  • Dispute resolution provisions are too often addressed too late in the deal negotiations, either by attorneys who know the deal but are insufficiently familiar with dispute resolution processes, or (ironically) by attorneys familiar with ADR but insufficiently knowledgeable of the deal at hand.

Many of the postulates reported in the article are, gratifyingly, reflections of what ADR teachers and trainers have espoused for years, for instance that mediation “not only may avoid arbitration or litigation but also… tends to introduce rationality and right-sizing into the thinking of both sides of the dispute.”  And the list of concerns about domestic arbitration are also familiar, if less gratifyingly so: cost, delay, controlling discovery, time-consuming and expensive ancillary court proceedings in compelling arbitration or challenging/enforcing an arbitrator’s award.

The article concludes with a summary that is quite familiar: “mediation with a good mediator is ordinarily a low-risk/high-reward promising scenario; international arbitration is usually preferable to relegating a transnational dispute to be resolved in some foreign court systems; and domestic arbitration is where most pro-con issues arise.”  Some of us, however, continue to await the practical impact upon businesses of the lessons of this article and of the studies upon which it relies: The day when practitioners recognize that arbitration is not some feral animal living in a cave, ready to pounce on the unwary, but rather an agreed-upon process whose very existence and contours are a function of the parties’ own agreement.  And, taking it a step further, that agreeing upon a method to resolve problems and disagreements is not, fundamentally, a question of law, but of commercial value-preservation.

 

F. Peter Phillips is an arbitrator and mediator practicing through Business Conflict Management in Montclair, New Jersey. He is also the Director of the Alternative Dispute Resolution Skills Program at New York Law School where, as Adjunct Professor, he teaches Alternative Dispute Resolution, Negotiation, and International Commercial Dispute Resolution.