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Must Arbitration be a Bloodbath?


This article is based on the 151 Winnie Whittaker Memorial Lecture presented to the Chartered Institute of Arbitrators (East Asia Branch) at the Hong Kong Club by Peter Scott Caldwell on Tuesday, 18 April 2006. The author questions the effectiveness of the current practice of arbitration under the adversarial system, suggests improvements to essential procedures under this system, including those relating to the mode of written case presentation, discovery, evidence and hearings, and proposes the wider use of two-tier arbitration.

The late Winnie Whittaker believed in the arbitral process but, like most people who are close to it, she was saddened by the confrontationalism and excessive costs so often associated with arbitration'. Winnie was not one to shy away from controversy. The title of this article is thus intentionally controversial. Must arbitration be a bloodbath? Need it be so brutal, so confrontational, so lengthy and so expensive?

Adversarial Proceedings

The 'New Scientist' magazine recently published an article by Prof Jonathan Wolff of the Philosophy Department at University College London and Prof Kenneth Boyd of the Department of Medical Ethics at Edinburgh University. Under the heading Campaigners who stand up for animal research should be careful not to oversimplify the debate, the authors said:

"Their message that research on animals is necessary and justified sounds simple enough, but is it too simple, either you're for it or you're against it.

"There are many reasons for this polarisation. The issues are highly emotive, and people are often reluctant to negotiate. An adversarial for-and-against style of debating is deeply ingrained in political and media worlds. ... Like other debates in bioethics, this one is characterised by a stark polarisation of views.

"Is there anything wrong with having a polarised debate? A great deal. It is simplistic. It is often dishonest. It also prevents progress: while polarisation may serve campaigners, politicians and some activists, it makes it very difficult for lay people to form reasoned opinions about the issues."

These observations have a much wider relevance. Hong Kong people are justifiably proud of its legal system, and the advantages offered by the rule of law. However, is the adversarial debating system a fundamental requirement of the level playing field or, as Professors Wolff and Boyd assert, does it starkly polarise the issues, make them too simplistic, encourage dishonesty, block progress and make it very difficult for a disinterested party to form reasoned opinions?

These are all potential dangers inherent in the adversarial system. Of course, the common law court system has developed safeguards to try to prevent them occurring, but these safeguards add to the cost of the process. So why use an adversarial debating procedure?

Everybody loves the cut and thrust of debate. Contest seems to be written into the human genome. War, sport, debate they are all based on opposing each other and may the best man or the best woman win!

Apart from our predilection for a trial of strength, the English legal system developed around trial by jury. If jurors were allowed to ask questions of the witnesses, the proceedings would degenerate into chaos. Each juror could pursue a different line of questions. A judge could ask questions but may not ask the questions each juror wants answered. Solution: let each side ask the questions and let the jurors sit and listen. This system may not reveal the truth but it allows a group of inexperienced but disinterested jurors to reach a decision on the case presented to them.

In most civil proceedings and in all arbitrations, however, there is no jury. So what advantages does the system offer? Many people brought up in the noble tradition of the common law will be shocked by the proposition that the system is not appropriate for complex disputes involving specialist knowledge and large numbers of documents. It is cumbersome and expensive and, being based on the Homeric tradition of heroic struggle, is not designed to seek the truth but rather to ensure survival of the fittest.

Virtually every jurisdiction, except those touched directly or indirectly by the English common law, expects judges to investigate and report, much as would a manager in making a business decision. Such a judge may ask questions in writing or require reports to be submitted, or may meet people face to face as he or she thinks fit. Judges in any court system may be thorough, competent and intelligent and make good decisions or lazy, careless and dull and make bad decisions. The decisions of a civil law court may not be better than in courts that use adversarial debate but they are almost invariably cheaper to obtain.

The civil law inquisitorial model may be one approach to avoiding the arbitration bloodbath. A strongly proactive arbitrator is likely to direct the parties and their representatives away from time wasting and the pursuit of lost causes.

Many international arbitrations are conducted in a manner that can be said to be neither inquisitorial nor adversarial, but an amalgam of the two. The parties are required to present their case, but the tribunal has an unfettered right to ask questions as it thinks appropriate.

In adversarial proceedings, questions put by .one party to the other are often used as a weapon to frustrate the decision making process. For example, requests for specific discovery of documents or for further and better particulars can be used tactically. An arbitrator who is in the driving seat of the procedure is better able to see that the questions put to a party are shaped to achieve better understanding of the case and are not used as a delaying tactic.

Pleadings

Turning to the vexed question of pleadings or statements of case, it is sometimes suggested that case development consists of four distinct stages:

  1. ascertaining facts and making allegations based upon them;
  2. gathering evidence;
  3. assembling legal arguments;
  4. analysing the evidence to support the allegations made.

How do the people preparing the case know what the facts are? To set out allegations that are not supported by evidence is to set out a losing case.

The first step must be the gathering and analysis of evidence, as that is the only way to ascertain the facts. If facts are alleged without researching the evidence, it can be expected that either they will not be able to be proved or it will be necessary to amend the pleaded case to one that is supported by the available evidence.

One of the perennial problems with pleadings in arbitration is the regularity with which leave to amend is sought and granted. This practice is, of course, encouraged by the piecemeal manner in which evidence is assembled after the case has been pleaded.

In the author's view, the courts have taken an ill-advised and too generous view when it comes to allowing amendments. In Cobbold v London Borough of Greenwich, Peter Gibson LJ stated:

"The overriding objective is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed".

This approach encourages lack of care in case preparation, causes delay and increases costs. The high cost of litigation is clearly not in the public interest and the acceptance that amendments are to be freely allowed is a guarantee of the inefficient administration of justice.

Discovery

Before digressing to consider amendments to pleadings, it was asserted that the evidence should be assembled before submitting a statement of claim. How does that assertion fit with the concept of discovery of documents? Discovery is seen by many as a cornerstone of the common law legal system. Yet, many countries have no mechanism for discovery and regard the concept as na'ive. Why would a party produce private documents that are damaging to its case? The spectacular shredding of the Enron documents rather supports this point of view. However, the norm in international arbitration seems to have moved closer to the common law view and most tribunals routinely order the disclosure of some documents.

In common law court proceedings, discovery follows the close of pleadings. Is this not putting the cart before the horse? If the discovered documents are important, how can one know the facts without having seen the other side's documents?

Of course, the traditional answer is that the pleadings define the issues and thus are determinative of whether or not a particular document is relevant. If discovery is sought before the scope of the dispute has been defined, an arbitrator may have some difficulty in determining the relevance of a particular document or class of documents. Whilst this is true, it is for a party seeking disclosure to explain the relevance of the documents and the author suggests that arbitrators should be robust in ensuring that the party seeking the order makes its case for relevance. While it may be easier to justify relevance after the case is pleaded, the disadvantage of possibly having to amend the pleading to take account of the new evidence outweighs the difficulty of early applications for disclosure of documents.

The logical order for preparing a case is to assemble and analyse the evidence in order to determine the facts. If evidence is not available that is expected to be relevant, it should be sought early to enable the allegations of fact to take it into account.

Witness evidence

Today, witness evidence is usually presented in the form of witness statements. Increasingly, witness statements are becoming an art form with all of the beauty of a Damien Hirst shark or a Tracey Emin bed. In an oral hearing, witnesses generally must not be asked leading questions. It is obvious from reading witness statements that not only have leading questions been put to the witness, but the witness has been assisted with the answers. This type of witness statement often reads more like advocacy of the case than factual evidence. In the author's view, a detailed code of conduct in relation to the preparation of witness statements is required to control the obvious abuses.

Experts

Most courts in civil law jurisdictions would not consider the opinions of an expert hired by a party as admissible in evidence. If the judges require assistance in understanding the evidence or require research or tests to be carried out, they appoint their own experts. The English courts, as a result of the 1999 civil justice reforms, have moved some way towards the civil law approach, where the parties appoint a single joint expert to assist the Bench. In appropriate cases, the use of tribunal appointed experts can save costs.

Of greater importance is controlling the scope and number of experts. Two points are relevant.

  1. Specialist expertise may be required as part of the advocacy process. This should not be confused with expert evidence. It often is. If a party wishes to lead the tribunal through evidence and present complex fact patterns in a persuasive way, it is permitted to do so in adversarial proceedings. This may involve, for example, ana lysing and presenting programme information in a persuasive manner. This is advocacy, not expert evidence.
  2. The function of the expert is to assist the tribunal in understanding the evidence. It is proposed that whether there are two party-appointed experts or a tribunal-appointed expert, it is the arbitrator and not the parties who should be drafting the instructions to any experts. How can the parties know with which aspects of the evidence the arbitrator needs assistance?

Hearings - the Bockstiegel Method

One of the most spectacular differences between adversarial and inquisitorial proceedings is the length of hearings. Few inquisitorial proceedings last more than three or four days, whereas multi-week hearings are common in adversarial proceedings. The cost is enormous.

Reference may be made to a recently published article by Jan Paulsson, entitled The Timely Arbitrator: Reflections on the Bockstiegel Method. The main points of the article may be paraphrased as follows.

All written materials should be taken as having been studied by the arbitrators. The purpose of the hearing is only to:

  1. highlight major points;
  2. provide clarifications;
  3. present and examine witnesses; and
  4. present final conclusions and requests for relief.

One could be forgiven for thinking this was a fairly wide ambit which, in the hands of a verbose advocate, could easily expand to last for many weeks, especially when read with the following hearing agenda:

  1. Introduction of the President of the tribunal
  2. First round presentations by the Claimant
  3. First round presentations by the Respondent
  4. Questions by Arbitrators
  5. Rebuttal presentation by the Claimant
  6. Rebuttal presentation by the Respondent
  7. Further questions by Arbitrators

If, however, the order for directions accompanying this agenda were set out as follows, clearly there would be an expedited hearing:

"Each Party will have a maximum of 4 hours for its first round presentation and a maximum of 1 hour for its rebuttal presentation, after deduction of time for breaks and other business. Each side is free to determine how much time it will spend on the presentation of evidence, including examining witnesses or experts, and on argument, respectively. Time not used by a party for its first round presentation may be transferred to its rebuttal time. Time used by a Party examining witnesses or experts presented by the other Party will be deducted from the time allotted to the examining Party.

"As the Hearing has to end after 2 days, the Tribunal does not intend to grant any extensions of the above time periods."

Hearings in adversarial proceedings are frequently unnecessarily long. Hearings that run for several weeks usually offer poor value for money. Short, well-ordered hearings can work well.

Adjudication

There has been much talk about construction adjudication in recent years. In essence adjudication, whether statutory or by agreement of the parties, is very like arbitration. Two major differences from arbitration are speed and lack of finality.

Despite the speed of the proceedings and concerns about rough justice, adjudicators appear to give decisions with which most people can live. Few are challenged in arbitration or in court. However, the lack of finality does make the rough justice easier to accept. The danger with arbitration schemes that seek to complete arbitrations in similar periods to adjudications is that arbitration is final and successful challenges to arbitrators' decisions are very rare.

Where some judicial reconsideration of an arbitrator's decision is possible, it is almost always only on the arbitrator's application of the law. The parties are unable to correct an arbitrator's misunderstandings of the facts. Adjudicators' decisions may be completely reviewed either in an arbitration or, if the parties have not adopted arbitration, in court. Both errors of law and of fact can be corrected. The combination of adjudication and arbitration does offer some advantages, principally:

  1. a quick rough justice decision at a lower cost than conventional arbitration; and
  2. the opportunity for review if errors are made in this quick process.

The disadvantage is that the legal apparatus for enforcing arbitral awards is global and well established. There is no similar apparatus for enforcing adjudicators' decisions. Jurisdictions that have adopted statutory adjudication have had to create new mechanisms to streamline enforcement of adjudicators' decisions. No such mechanism exists elsewhere and contractual adjudication may produce decisions that can only be enforced by an action in court, which could take many months. There are even greater problems with enforcement of adjudicators' decisions as between jurisdictions.

Can both the benefits of the existing arbitration enforcement regime and the advantages of adjudication be achieved? The author believes they can.

Two-tier arbitration

Many of the commodity trades have their own well-established arbitration systems that have stood the test of time and are widely accepted within the particular commodity trades. Some of these commodity trade schemes include a concept that is seldom discussed in the mainstream of arbitration - two-tier arbitration. Take the following example.

A two-tier arbitration normally commences with the appointment of a sole arbitrator who is required to issue an award within a short time period. The procedure may be essentially inquisitorial. The award is produced. The rules then allow a short period for a party to express its dissatisfaction with the result and request retrial. The request may be addressed to a standing board of the commodity trade. If the standing board is satisfied that a retrial is appropriate, one may be granted. If it is not satisfied or if no application is made within the specified period, the first tier award becomes final and binding and is an arbitration award that is enforceable in the normal way.

If the retrial is allowed, it normally takes place before a panel of three senior arbitrators who effectively start the proceedings from scratch, much like an arbitration following an adjudication. No special enabling legislation is required and lower tier arbitration can be as quick as is appropriate for the particular industry.

In the author's view, a similar system would be well suited to the Hong Kong construction industry. It would obviate the need for legislation and offer cross-border advantages that cannot be achieved by legislation.

Conclusion

Arbitration, as it is currently practised in common law jurisdictions, is often expensive and inefficient. The progressive stages of assembling evidence are cumbersome and ineffective. A more structured procedure is required to bring together documents that are in a party's possession, documents that are not in a party's possession and witness evidence in a single package which supports the pleaded case and can be rebutted in a similar concise manner.

Extensions of time for each stage of the process should be possible in unusual circumstances, but should not be the norm. Parties should be given a reasonable opportunity to present their cases, but the present cost of arbitration indicates that the norm is not reasonable and that strict time limits are required.

The author believes this can be done without creating the rough justice that is complained of in adjudication. If parties want a safety net to protect them against arbitrator error, this is best provided by two-tier arbitration in which there is a mechanism for filtering unmeritorious applications for retrial and a retrial that is capable of dealing with both fact and law is final. Allowing the courts to review arbitrators' decisions only permits review of error of law and can be carried up the various tiers of the court by a party with deep pockets and determined to wear down an adversary.

Peter Scott Caldwell, Arbitrator, Hong Kong
July Edition of Asian Dispute Review

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