Proskauer Rose International Practice Guide Proskauer Rose LLP |
      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
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  1. Once a party has decided to bring an arbitration, commencement of the arbitration involves a number of initial claim-definition and administrative procedures, generally culminating in the selection and appointment of an arbitral tribunal.
    1. Of course, the precise procedures to be employed in commencing the arbitration may be dictated by the agreement to arbitrate that forms the basis for the arbitration, the rules and procedures of any arbitral organization selected to administer the arbitration and/or the results of any pre-dispute proceedings before a national court.
  2. Administrative Filings and Fees
    1. For the most part, a party commencing an international arbitration does so by filing various papers with the organization administering the arbitration (e.g., ICC, LCIA, ICDR/AAA) and making payment to that organization of the necessary filing fees.  Although the paperwork and fee amounts required by each of the arbitral organizations to commence an arbitration differ, each organization generally requires them.
    2. It is perhaps only the rare case where a party’s larger dispute-resolution strategies and objectives are affected by these administrative issues.  That is not to say, however, that considerations surrounding the payment of registration fees and advancement of costs are unimportant.  Indeed, one of the important factors that a putative claimant must take into account when deciding whether to resolve a dispute through arbitration, rather than before a national court, is that judicial resolution does not come with the added costs associated with the fees and expenses of the arbitral organization, the arbitrators and hearing room and (other) accommodations.
    3. At a minimum, a party to an international arbitration can expect to be required to cover one or more up-front administrative expenses (not to mention readjustments as the arbitration proceeds), including, in nearly every case, the advancement of fees and costs associated with things such as administrative expenses, arbitrator fees, and/or hearing time.  Typically, refundable deposits against fees and costs are required to be made by both claimant and respondent(s) on a pro rata basis.  In general, the arbitral organization and/or the tribunal are free to suspend and/or dismiss arbitration proceedings if the requisite fees and costs remain unpaid.
    4. For example, Article 4 of the ICC Rules requires the Claimant to submit, together with its Request to arbitrate, an advance payment against administrative expenses.  In addition, under Article 30 of those Rules, upon receipt of the Request, the Secretary General of the ICC may request that Claimant pay a provisional advance in an amount intended to cover the costs of the arbitration until the Terms of Reference have been drawn up.  The Rules also provide a mechanism for the Court to fix an advance on costs in an amount likely to cover the fees and expenses of the arbitrators and the ICC administrative costs for the claims and counterclaims at issue in the arbitration.  Such an advance on costs is payable by the parties in equal shares; although, if a party fails to pay its portion, any other party is free to pay the whole of the advance on costs in respect of the principal claim or counterclaim.  Under the ICC Rules, if a request for an advance on costs has not been complied with, after consultation with the arbitral tribunal, the Secretary General may direct the tribunal to suspend its work and set a time limit (which must not be less than 15 days), on the expiry of which the relevant claims or counterclaims will be considered withdrawn.
  3. Appointment of an Arbitrator or Tribunal
    1. As alluded to above (see Section III(B)), regardless of the particulars surrounding the initial filing fees, forms and pleadings that may be required to officially “commence” an international arbitration, it can fairly be said that, as a practical matter, an arbitration has not gotten underway unless and until an arbitrator or arbitral panel has been constituted.
    2. There are a number of ways whereby arbitrator(s) may be appointed, including:
      1. By agreement of the parties (a fairly common method);
      2. By use of a list system whereby each party compiles a list of potential arbitrators, and/or the arbitral organization sends a list to each party, as an aid toward the goal of achieving some sort of consensus among the parties regarding the arbitrator appointed or the composition of the arbitral panel (there are a number of variations on the way in which such lists may be used to arrive at a final list);
      3. By an appointment mechanism of the applicable arbitral organization (another fairly common method);
      4. By the use of nominating arbitrators (the most common example of which involves a three-person arbitral panel where each party nominates one arbitrator and those arbitrators jointly select a third arbitrator);
      5. By means of listing the president or senior officer of a professional institution or trade association (or by the institution or association itself) to choose arbitrator(s);
      6. By a national court (assuming the court has the jurisdiction and power to do so); and/or
      7. By the designation of some other authority to appoint the arbitrator or arbitral tribunal.
    3. Because arbitration is, at its core, consensual in nature, the method(s) by which arbitrators may be appointed can be quite varied.  Whatever the method employed, however, the importance of the arbitrator/tribunal-selection process cannot be overestimated.
    4. Some parties may find desirable the opportunity to interview a prospective arbitrator.  The Chartered Institute of Arbitrators in England has issued a Practice Guide setting forth some ground rules for the conduct of arbitrator interviews.  Whether or not those ground rules are applicable to a particular arbitration, and assuming a party even wants to interview a prospective arbitrator (some call into question the real value of such an interview), a party should proceed deliberately and carefully when conducting such an interview.  After all, an arbitrator’s independence and impartiality should be carefully guarded, and parties may be apt to take advantage of any actions taken by the opposing party that might threaten (or even create the appearance of a threat to) an arbitrator’s ability to fairly and objectively hear the case.
    5. Independence and impartiality
      1. Of paramount importance to any international arbitration is the maxim that arbitrators should remain independent and impartial.
      2. Such neutrality – which some might distinguish from impartiality (citing the notion that a party may be free to appoint an arbitrator who is predisposed to a particular position, so long as the arbitrator remains capable of fairly considering and applying the facts and the law) – is particularly important in the case of a sole arbitrator or the presiding arbitrator of a tribunal.  It ensures that both the proceedings and any rulings/awards that may result are fair to all parties.
    6. Challenging and replacing arbitrators
      1. Although perhaps rare, a challenge to the appointment of an arbitrator or an arbitral tribunal often represents a party’s earliest opportunity to gain a tactical or strategic advantage (or, conversely, avoid a tactical or strategic disadvantage).  Yet challenging the appointment of an arbitrator can also arise later on in the life cycle of an arbitration, particularly where some material circumstance affecting an arbitrator has changed – for example, where an arbitrator takes on new employment or receives a political appointment creating a conflict or otherwise calling into question the ability of the arbitrator to fairly and objectively decide the merits of the dispute.
      2. For the most part, a successful challenge to the appointment of an arbitrator should focus on the lack of independence or impartiality of the arbitrator.
      3. Of course, apart from a vacancy that may result from a challenge to an arbitrator, the need for a replacement arbitrator can arise in a number of ways (e.g., the death, ill-health or resignation of an arbitrator).
      4. In general, the procedures employed to appoint a replacement arbitrator are dictated by national law or the arbitration rules agreed upon by the parties.
    7. Organization of the arbitrators
      1. One of the real advantages that comes with the administration of an arbitration by an arbitral organization concerns the organization and functioning of the arbitrator or arbitral tribunal.
      2. An arbitral organization can greatly assist the arbitrators’ efforts to organize both themselves and the arbitration more broadly, including logistics surrounding conferences, hearing days, translators, and a variety of record-keeping functions.  Such behind-the-scenes activities carry with them the added benefit of enabling both the parties and the arbitrators to focus on the more substantive aspects of the dispute.
    8. Fees and expenses
      1. Although the amount of the arbitrators’ fees are usually fixed by the arbitral organization under whose auspices an arbitration is conducted, where an arbitral organization is not involved, there are a number of way in which those fees might be assessed.  Available options include:
        1. The “ad valorem” method, whereby the arbitrators’ fees are assessed as a percentage of the amount in dispute;
        2. The “time spent” method, whereby the fees are assessed in accordance with an hourly rate (this is a common method); and
        3. The “fixed fee” method, whereby the arbitrators are paid a set amount.
      2. In addition to the arbitrator’s fees, a party to an international arbitration should bear in mind that, unlike many domestic arbitrations (and certainly unlike many proceedings before national courts), the expenses incurred by the arbitral tribunal (e.g., airfare, taxis, car rentals, hotels, telephone/fax charges) can be significant.
      3. As with the arbitrators’ fees, there are a number of mechanisms by which the arbitral tribunal’s expenses might be reimbursed, including:
        1. Straight reimbursement, whereby the arbitrators simply keep a record of their (appropriate) expenses and the parties cover them;
        2. Per diem reimbursement, whereby the arbitrators are paid a fixed daily rate to cover their expenses; and
        3. Some combination (or mix) of straight and per diem reimbursement
    9. Obligations and Powers of the Arbitrator or Tribunal
      1. By definition, an arbitrator or arbitral tribunal has been vested with the responsibility of adjudging – albeit “informally” (i.e., outside the province of a national court) – the parties’ disput
      2. In addition to a variety of additional obligations that flow from this responsibility, arbitrators are given certain powers to assist them in accomplishing this task.  The possible authorities relevant to the twin questions of an arbitrator’s obligations and powers include
        1. The parties’ arbitration or submission agreement
        2. Any law selected by the parties to govern their dispute
        3. The law of the seat of the arbitration; an
        4. The rules and procedures of the applicable arbitral organization (if any)
      3. It is critical that any person who has agreed to act as an arbitrator fully understand his or her duties in that role.  In addition to obligations that arise by operation of law and/or ethical constraints, duties may be imposed either by arbitral organizations or the parties themselves.  The vagaries of any such duties may be legion, and it is incumbent upon both the arbitrator(s) and the parties to apprise themselves fully regarding the arbitrators’ obligations
      4. Similarly, the arbitrator’s or arbitral tribunal’s powers generally are defined by the parties, as circumscribed and delimited by any applicable law or rules.  As the final arbiters of the merits of the parties’ dispute, once selected, the arbitrator or arbitral tribunal generally has near-plenary power to conduct and control the proceedings.
  4. The Place (i.e., “Seat”) of the Arbitration
    1. One aspect of an international arbitration that can affect a variety of circumstances surrounding the arbitration is the “seat” of the arbitration (i.e., the place where the arbitration will be conducted).  Quite naturally, given the nearly unlimited geographic scope that can attend to international arbitration – as opposed to, for instance, the geographic scope of purely domestic arbitration – the place where the arbitration will be held can really be material.
    2. Aside from, among other things, the practical implications related to the geographical proximity of the parties, witnesses, and/or arbitrators, the communications and other infrastructure required to conduct hearings (particularly where the dispute involves complex commercial issues), and the social or political (in)stability of the host forum, the seat of the arbitration can have a very real impact on the enforcement of any award to be rendered at the conclusion of the arbitration.
  5. Request to Arbitrate (Statement of Claim)
    1. Among the initial materials submitted by a putative claimant in an international arbitration is the Request to Arbitrate. 
    2. Although each of the arbitral organization’s rules set forth the particular requirements of a Request to Arbitrate (or Statement of Claim), they each tend to require the same or similar things.  For example, Article 4, Section 3 of the ICC Rules requires that the Request to Arbitrate include:
      1. The full name, description, and address of each of the parties;
      2. A description of the nature and circumstances of the dispute giving rise to the claims;
      3. A statement of the relief sought, including, to the extent possible, an indication of any amount(s) claimed;
      4. The relevant agreements and, in particular, the arbitration agreement;
      5. All relevant particulars concerning the number of arbitrators and their choice in accordance with Articles 8, 9, and 10 [of the ICC Rules], and any nomination of an arbitrator required thereby; and
      6. Any comments as to the place of the arbitration, the applicable rules of law and the language of the arbitration.
    3. Accordingly, the Request to Arbitrate is typically the first document (or pleading) that sets forth – at least as articulated by the claimant – the nature of the dispute, the factual allegations, the applicable law, the claims being asserted, and the relief sought.
    4. For this reason, the Request to Arbitrate is arguably the most important document in the arbitration; indeed, at a minimum, it can be expected that the Request to Arbitrate will be among the first documents that any arbitrator reads.  Its effect on the ultimate outcome, therefore, cannot be overestimated.
    5. The Request to Arbitrate is also important because it can have a very real effect on a party’s efforts to procure relief from a national court (e.g., to stay the arbitration).  For example, New York’s CPLR 7503 which, in appropriate circumstances could be used to stay an international arbitration, requires that a party seeking to stay an arbitration (and who has not participated in the arbitration) must make its stay application within twenty days following receipt of the Request to Arbitrate.  If the application is not made within the twenty days, the moving party is precluded from objecting that a valid arbitration agreement was not made or has not been complied with and from asserting in court the bar resulting from a time limitation.  It is important, therefore, that a party that has received a Request to Arbitrate quickly consider its strategic alternatives and act as soon as possible.
  6. Statement of Defense/Counterclaims
    1. In most arbitrations, the claimant’s request for arbitration/statement of claim is followed by a respondent’s statement of defense (or answer) and, with some frequency, counterclaims.  Although the name given to such a pleading can vary (e.g., statement of reply, points of defense, rebuttal, replique), as in most adversarial dispute-resolution contexts (including in litigation before national courts), the purpose of the statement of defense is to provide the respondent an opportunity formally to respond to claimant’s allegations.  This response often includes allegation-by-allegation assertions (e.g., admissions, denials or other responses), affirmative defenses, and any claims for set-off (which arguably fall somewhere in the middle ground between a defense and a counterclaim).
    2. Much of what has been said above about the statement of claim (seeSection III(B)) applies equally to any counterclaims a respondent might bring.  Arguably chief among these issues is the fact that any counterclaim must come within the applicable arbitration or submission agreement.  Where a counterclaim does not properly fall within the scope of such an agreement, a counterclaim may be excluded (or dismissed) from the arbitration on that basis.
  7. Necessary Parties
    1. Arbitration is a matter of contract, usually a writing binding its signatories to arbitrate any disputes that might arise between them.  This requirement, however, does not mean that, in appropriate circumstances, a non-party to such an agreement may be required to arbitrate. 
    2. There are a number of legal bases on which a third party might be compelled to arbitrate, including:
      1. Concepts and principles involved in piercing the corporate veil; and
      2. The common-law doctrines of assignment, agency, and succession and novation.
    3. In the absence of these (or similar) bases, however, a party likely will find it difficult (if not impossible) to compel a third-party to arbitrate, even where that third-party is arguable “necessary” for the resolution of the dispute.
  8. Interim Measures/Relief
    1. Throughout the life-cycle of an arbitration (and particularly during an arbitration’s early stages), it may be necessary for the arbitrator(s), or national court, to take action designed to protect/preserve assets, evidence, and/or the status quo.
    2. The rules of the arbitral organizations each empower such measures.  For example, Article 23(1) of the ICC Rules states:  “Unless the parties have otherwise agreed, as soon as the file has been transmitted to it, the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate.”  Similarly, Article 21(1) of the AAA Rules provides:  “At the request of any party, the tribunal may take whatever interim measures it deems necessary, including injunctive relief and measures for the protection or conservation of property.”
    3. Also, where a party requires speedy resolution of a dispute (for example, during the course of a long-term contract where there is no time to obtain a decision from an arbitrator or a court), “emergency” procedures may be employed to that effect.  In this regard, the ICC has a formal Pre-Arbitral Referee Procedure designed and the ICDR/AAA has an emergency arbitrator procedure (under its Article 37) to provide relatively rapid (although usually temporary) resolution.

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