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International Disputes: Nondomestic ADR has its Quirks

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International Disputes: Nondomestic ADR has its Quirks

Source: The National Law Journal
Date: October 29, 2001
Learning the Nuts and Bolts of International ADR

Discovery and motion practice are virtually nonexistent, and parties often use interpreters.

When one compares international arbitration and mediation with their domestic counterparts, several aspects of the international side stand out, including differences in language, in cultural and legal traditions and in process. This article will focus on those elements and will highlight the important differences between international and domestic alternative dispute resolution.

Nonjudicial resolution of commercial disputes anywhere in the world principally involves either arbitration or mediation (or, at times, a combination of both, usually called med-arb). Internationally, mediation is sometimes referred to as conciliation.

On the domestic side, the practitioner engaged in an arbitration is faced with a generally familiar structure. The parties on both sides of the dispute will probably speak English; the arbitrator will also speak English and will usually be a retired judge or an American lawyer (by training if not by current practice); the rules and statutes governing the process will have been written by American institutions whose primary language is English and will be based on or derived from the common law tradition. None of those attributes of the dispute resolution process may be present on the international side.

International and domestic arbitrations are essentially contractual in nature, but the agreements and clauses in an international arbitration require important details that are rarely considered in a domestic clause. Many domestic arbitrations are non-administered (or ad hoc, as they are sometimes called). Typically, international arbitrations are institutional or at least employ a detailed set of rules to govern the arbitration such as the UNCITRAL (United Nations Commission on international Trade Law) Arbitration Rules.

The typical, bare-bones domestic institutional arbitration clause (as recommended by JAMS or the American Arbitration Association) is as simple as the following:

"Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by [JAMS under its Comprehensive Arbitration Rules and Procedures] [the American Arbitration Association under its Commercial Arbitration Rules], and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof." 1

The International Arena

An international institutional clause is likely to include the selection of a recognized arbitral institution such as the International Chamber of Commerce or the LCIA Court (formerly the London Court of International Arbitration). International institutions are experienced in administering arbitrations in which parties are from different legal cultures and speak different languages and reside around the world. The institutional rules attempt to accommodate the differences inherent in different legal traditions and to set fair procedures that will he acceptable to both sides and will be respected by reviewing courts worldwide in the recognition and enforcement of arbitration awards.

The clause and the applicable rules are likely to require three arbitrators, two of whom will be appointed by the parties and the third by the party-appointed arbitrators or by the arbitral institution from a country different from that of either side. In domestic practice, sole arbitrators are the norm and party-appointed arbitrators, when used as part of a tripartite panel, are usually expected to be non-neutral. Party-appointed arbitrators in international matters are expected to be independent of the parties. 2 Additional qualifications of the arbitrator might be important to the parties, and, if so, should he specified in the clause.

The language of the proceedings will affect the expense of translation and may affect the credibility of witnesses whose testimony may be required to be translated. Anyone who has tried to cross-examine effectively with translation knows how difficult that is. The language chosen by the parties might also affect the selection of the sole or presiding arbitrator because the institution might be expected to select an arbitrator fluent in the language of the proceeding. A party from either a common law or civil law tradition may prefer a presiding arbitrator who shares that background and the chosen language might affect that choice. For example, if proceedings are conducted in German or French, selection of a civil law arbitrator is more likely; if the prescribed language is English, a common law arbitrator is more likely to be appointed.

The choice of the arbitration's location will affect many things, including the procedural law which will govern the arbitration; the enforceability of the award;3 the selection of the sole or presiding arbitrator by the institution; the scope of discovery which may be allowed;4 the cost of the proceeding; and the convenience of the process for the parties, counsel, the arbitrators and witnesses.

The choice of law applied by the arbitrators will likely have an effect on the selection of the third arbitrator. The choice-of-law provision should specify whether the parties intend only substantive issues to be governed by that law or procedural issues as well.5

Differences in Process

An international arbitration is conducted differently than a domestic arbitration in several respects:

  • Reliance on the prehearing conference. Although both domestic and international arbitrations use prehearing conferences, the practitioner will find that the international arbitration prehearing conference6 will be more thorough; indeed, those hearings will set the stage for the conduct of the hearing itself and the practitioner who is not prepared for a full prehearing conference may well end up on the short end of rulings that flow from the prehearing conferences.
  • Exchange of information and discovery. Most rules7 authorize the arbitral panel to order the production of documents and exhibits. Discovery as it is known in the United States, and which may be authorized by statute8 or by rule,9 is virtually nonexistent in international arbitrations. Thus, depositions, interrogatories, and requests for admission are not typically part of an international arbitration.
  • Motion practice. Motion practice has historically not been a part of international arbitration. The result of that rule has been that many cases have gone to full hearing which might well have been disposed of in a prehearing motion. To deal with that problem, both the International Bar Association Rules of Evidence and the American Arbitration Association International Arbitration Rules have adopted provisions that support some motion practice.10
  • Tone. International arbitrations are conducted with quiet civility and decorum. U.S.-trained litigators will find that aggressive tactics will be met with a cool reception. This attitude also affects the "vigor" of cross-examination (a concept not fully embraced in any event by civil law lawyers).
  • Form of evidence. With few exceptions, evidence is given orally in domestic arbitrations. That is not the rule in a significant number of international arbitrations. In those arbitrations that are civil law driven, direct testimony in written form is the norm, not the exception. That evidence is submitted before the hearing and made available to the other party (or all parties in a multiparty dispute). Some cross-examination at the hearing is usually permitted, but it may be conducted by the panel rather than counsel, and it is common that the witness may not confer with counsel during the course of the cross-examination. The importance of the evidentiary submissions cannot be overemphasized.
Civil-based arbitrators do not regard "interested" testimony to have much credibility. Party-affiliated witnesses and retained expert witnesses are regarded with skepticism. Experts are sometimes employed by the panel of arbitrators if expert testimony is important.

When the arbitration panel allows a retained expert to testify, the panel will decide how that testimony is to be received. Although domestic arbitrations do not normally struggle with that question, the point is a real issue in international arbitrations. The answer to the question lies with the panel and its predominant legal tradition.

Mediation Worldwide

Classifying a mediation as "domestic" or "international" is more of a matter of judgment than a matter of science. One may suggest that a mediation that occurs in Los Angeles between two local residents is obviously a domestic mediation. But that assessment may change if one of the parties is Chinese, having only arrived in Los Angeles a few years ago, and the other is Indian, also a recent immigrant. Each party to the mediation brings his own culture, his own language, his own beliefs and his own prejudices to the table. Although that statement is true for a truly "domestic" mediation, in the international context those differences are exacerbated.

For the purposes of this article, "international mediation" is defined as one in which at least one party brings a distinctly different culture to the table from that of the other parties. This broad definition is useful because international mediations are inherently more complex than their domestic counterparts.

Convening an international mediation can be more costly than a domestic mediation. Distance and the perceived need for a neutral site add to the costs, as would the selection of a mediator of a nationality different than the parties if that is perceived as desirable by the parties. The choice of the mediator is also more difficult in international matters, not only because of the special skills required (discussed below) but also because the parties are less likely to agree on who is "appropriate."

Differences in culture, language and background are, perhaps, the most difficult element of an international mediation. More often than not, the parties will not speak the same language as their primary tongue. Thus, meanings of words will not he conveyed with consistency, so one party may hear something different than the speaker meant. The issue of accurate communication is present even when all parties speak the same language, so it should not be surprising that this problem is accentuated in international matters. Attitudes about resolution of disputes, negotiating styles and expectations about the process all contribute to potential bases for impasse or roadblocks to effective communication.

When an interpreter is needed, the process is slowed and may even be sidetracked by the interpreter's mistake in translation. If the matter is large enough, sometimes each side has its own interpreter. The selection of the mediator is therefore even more important in international matters than in domestic.

A major issue facing parties and the mediator in a non-U.S. based mediation is the extent to which the comments and statements made in the course of the mediation are confidential.

Generally, U.S.-based mediations are confidential. 11 Outside the United States, however that result is not as clear. Certainly, a mediation agreement that sets forth the parties' agreement to keep the process confidential will be helpful, but it may not override a foreign court's determination that the agreement will not be enforced or that it will be enforced only partially.

Because the object of a mediation is to arrive at a settlement that finds its way into a settlement agreement, the issue is how to create such an agreement that will be enforced in a foreign court.

At the end of a successful mediation or settlement conference the process is not complete until an enforceable agreement is reached. There are several layers of issues regarding enforcement of mediated settlement agreements. The first is crafting an agreement that a court will admit in evidence so that it is capable of being enforced. Domestic mediation statutes12 may establish standards for creating an enforceable agreement - there are not equivalent measures in many countries.

A settlement agreement is a contract and, as with all contracts, is subject to interpretation and local laws regarding the extent of its enforcement. Enforcement is eased if there is an arbitration pending between the parties and the settlement can be entered as an agreed award.13 Enforcement will likely be more expensive as well. At least counsel should consider where the agreement may need to be enforced and obtain local counsel's advice on what the agreement should contain.

1 See ICC Rules of Arbitration Art. 9(5) UNCITRAL Arbitration Rules, Art. 6(4).

2 Compare the Code of Ethics for Arbitrators in Commercial Disputes (canon VII) (AAA/ABA 1997) with the ICC Rules of Arbitration, Art. 9(2), 11(1).

Those two conventions are the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, 21 U.S.T. 2517; (New York Convention) and the Inter-American Convention on International Commercial Arbitration, 9 U.S.C. 301-07 (Panama Convention).

Discovery may addressed directly in the clause to the extent that the selection of the rules and the site do not result in procedures, which are otherwise acceptable to the parties.

See Volt Information Sciences Inc.v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1989).

ICC Rules, Art 18; AAA Int., Art 16.2; LCIA Rules, 14.1.

See UNCITRAL Rules, Art 24.3; ICC Rules, Art 20.5; AAA Int. Arb. Rules, Art. 19.3; LCIA Rules, Art. 22.12(e).

See, e.g., Calif. Code Civ. Proc. § 1283.05.

See, e.g., JAMS Comprehensive Arbitration Rules and Procedures, Rule 15.

IBA Rules of Evidence, Preamble, ¶3; AAA Int. Arb. Rules Art 16.3.

See, e.g., California's Rule, found in Calif. Evidence Code §1115 et seq.; Federal Rules of Evidence, Rule 408 (excludes from evidence offers to compromise and evidence of statements made in compromise negotiations otherwise not discoverable); and Uniform Mediation Act § 5. See also Nancy H. Rogers and Craig A. McEwen, Mediation-Law, Policy, and Practices §§ 9:03-9:08(2d Ed. 1994).

See, e.g., Calif. Evid. Code § 1115 et seq.

See UNCITRAL Rules, Art 34; ICC Rules, Art 26; AAA Int. Arb. Rules, Art 29(1).

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