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One of the concerns foreign companies face in doing business in the US is the threat of litigation. After all, the US is the most litigious society in the world – a society where juries hear civil cases, award damages and the unsuccessful party does not (as a rule) pay the successful party’s costs. However, at least between contracting parties (for example, principal/agent, joint venture partners, vendor/purchaser, employee/ employer, or builder/client), there is an alternative to a dispute being heard in the courts – it can be resolved through mediation or arbitration, collectively referred to as Alternative Dispute Resolution or ADR.

Mediation is a process that is implemented prior to commencing litigation or arbitration, in an attempt to resolve a dispute amicably. In a mediation, the parties appoint a mediator who meets with each side, considers the facts, legal documents and commercial equities of the dispute, and then makes a settlement recommendation in an attempt to finalise the issues between the parties and avoid litigation or arbitration.

One of the advantages of mediation is that it is relatively inexpensive, can be arranged quickly, can be treated confidentially and will provide the parties with an indication of the possible outcome of the matter if it were to proceed to arbitration or litigation. Unless the parties agree otherwise, mediation is non-binding and does not jeopardise the rights of either party to proceed to litigation or arbitration.

Arbitration is a process by which disputes are settled before either a single arbitrator or a panel of three. The award of the arbitrators is final and binding and, with limited exceptions, is not subject to appeal. The arbitral process is designed to be efficient, costeffective, speedy, flexible, informal and manageable. Unlike litigation, the proceedings are held in private and the pleadings are not a matter of public record. With the increase in arbitration in both the UK and the US – due both to the court backlog in litigation and the advantages of arbitration over litigation – it is important that certain fundamental guidelines are followed in order for the arbitration in the US to proceed successfully, expeditiously and economically:

• Arbitrator selection – This is key. Remember that three arbitrators triple the cost of one. However, three arbitrators can bring balance to a hearing. If the subject matter is specific to a certain industry, it is advisable to have an arbitrator who is familiar with that industry’s practices, even if he or she is not a lawyer. In international cases, an arbitrator who is familiar with the legal and commercial cultures of both parties’ country is a major asset.
• Discovery and Hearing Schedule – This is where a strong chairperson (or single arbitrator) is important. Generally, discovery (the process whereby each side exchanges relevant documents and other information pertinent to the case so that there are no surprises at the hearing) should be kept to a minimum in arbitration proceedings. US lawyers are accustomed to depositions (crossexamination of a witness prior to the hearing) – their British counterparts are not. Depositions are frequently excluded from the discovery process in arbitrations or, at the very least, limited to one or two witnesses. At the first hearing, which often occurs by telephone or video conference, it is important for the parties and arbitrators to familiarise themselves with the issues surrounding the case, identify any problem areas and to schedule such matters as the exchange of documents, submission of briefs, scheduling of witnesses, submission of expert reports and the general procedural timeline leading up to the hearing.
• The Hearing – Substantial time can be saved by submitting witness statements in lieu of direct examination of the witness by the lawyers, and offering the witness only for cross-examination. It can also be helpful to allocate to each side a time limit, for example, 40 hours, in which to present its case. This avoids the risk of overrunning allocated hearing days. Whether post-hearing briefs will be required should also be addressed at this time.
• The Award – It should be made clear at the outset the type of award that is required, that is, a fully reasoned written award with findings of fact and conclusions of law or whether an abbreviated version will suffice. Parties often forget that sometimes more time can be incurred in preparing the award than hearing the case.

Arbitration institutions

There are numerous arbitration administrative institutions whose rules govern the conduct of arbitrations, such as the American Arbitration Association (AAA), the International Centre for Dispute Resolution (ICDR), the International Chamber of Commerce (ICC), and the London Court of International Arbitration (LCIA), to name a few. The respective rules of these institutions govern all aspects of the arbitration. Although the rules issued by each of the institutions cover the same points in general terms, the actual procedure varies considerably between the institutions. It is very important that the parties to an arbitration familiarise themselves with the rules under which the arbitration will be governed.

The arbitration clause

It is puzzling why an arbitration clause is invariably found at the end of an agreement – often buried in the “miscellaneous” section and using “standard form” language – and yet in the event of a dispute, it is the first clause that is read. Although the use of standard clauses is suggested by all the arbitration institutions, a carefully prepared and comprehensive arbitration clause is essential. The clause should contain all the relevant points governing the arbitration, such as a prior mediation requirement (if necessary), the number of arbitrators and how they will be appointed, the timeframe in which they will be appointed, the administrative institution and rules applicable to the arbitration, the discovery process, the place of hearing, governing law, allocation of costs and the form of the award. It should also state that an arbitration is final and binding and not subject to appeal.

Enforcement of the award

Unlike judgments issued by an English court, arbitral awards issued in the UK are enforceable in the US and vice versa, pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (otherwise known as the New York Convention). Additionally, awards issued within the US are enforceable through the courts of the US. The growth of arbitration in both the UK and the US is indicative of the advantages arbitration holds over litigation in the courts. However, in order for the process to be effective, the lawyers, the parties and the arbitrators need to manage the process economically and expeditiously.

David N Kay OBE is Chairman of the British-American Business Council, Chicago, and Vice-President of the British-American Business Council. He sits as an arbitrator on major international disputes and is Chairman of Gardner Carton & Douglas’ Corporate Department.

Tel: +1 312 569 1121
E-mail: dkay@gcd.com
Website: www.gcd.com

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