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Arbitration Anguish

When a business deal turns sour, most in-house counsel in the U.S. would rather resolve the dispute in front of an arbitration panel than a jury or judge. That's because most lawyers believe it's much faster to resolve a dispute in arbitration than court, according to a 2003 ABA study on ADR. Just over half of the lawyers surveyed by the ABA also felt arbitration was less expensive. And according to a two-year-old survey by InsideCounsel (then known as Corporate Legal Times), 83 percent of in-house counsel felt that arbitration was either equally fair or fairer than traditional adjudication processes.

The love affair with arbitration, though, doesn't seem to extend across the Atlantic.

At a recent Martindale-Hubbell Counsel to Counsel forum in Paris, in-house counsel from European companies had few good things to say about international arbitration. Most thought arbitrators took too long to resolve disputes and that it was more costly to arbitrate than to litigate. Most also felt the process had become too "Americanized."

"I was recently involved in an arbitration in which opposing counsel was an American," said Catherine Fox, general counsel of Alcatel Space Industries in France. "He would constantly say, 'objection, objection, objection.' Finally the Swiss president had to remind him he wasn't in a U.S. court."

About the only time panelists thought arbitration made sense was when a dispute arose with a party from a developing country.

"We had a case just this week where we were asked to agree to the law of Afghanistan, which was clearly a non-starter as far as we were concerned," said Jonathan Stevens, head of global litigation for Atos Origin in London. "We knew nothing about Afghan law."

American Justice

By far the greatest complaint panelists voiced was how American litigation techniques had crept into international arbitration. Those techniques include the use of expert witnesses, depositions and document production--the latter being the target of most of the panel's ire.

"We aren't used to these kinds of procedures," said Ulrich Hadding, in-house counsel for Schott AG in Germany. "European lawyers aren't trained to comply with these requests."

The rising cost and difficulty of arbitration was another concern. "Arbitrations are becoming much more complex and costly," said Christine Guerrier, legal director of litigation for Thales SA in France. "That's no longer acceptable to upper management."

Another area of concern was the difficulty of locating skilled arbitrators who have time to serve on a panel. "There is a very small world of arbitrators," Guerrier said. "They have busy schedules and it's difficult to schedule tribunal hearings when someone's calendar is fully booked for the next two years."

And then there's the issue of enforcement. Just because a country signed the New York Convention on Recognition of Arbitral Awards, its courts won't necessarily enforce the award. One panelist, for instance, said he was party to arbitration in the U.S. that involved a company in Saudi Arabia. The Saudi company lost the case, but a court in Saudi Arabia refused to enforce the judgment because a woman served on the panel. That,

the court said, was a violation of Sharia (Islamic law).

Former U.S. Ambassador to Saudi Arabia Robert Jordan reiterated that problem during a Middle East Policy Council roundtable in January. During a discussion about Saudi Arabia's accession to the WTO, Jordon said, "I think one of the things to watch, and frankly an area of concern, is the extent that Sharia Law will trump ... decisions of arbitration panels."

Good Contracts

Although there's little anyone can do about enforcing a judgment in another country, there are things in-house lawyers can do to minimize some of the other risks. The first step, the panelists said, is to ensure arbitration clauses in contracts are specific and well thought out.

Ronald Goodman, a partner at Winston & Strawn, gave a few examples of bad clauses. In his first example, a contract referred to "arbitration in Seoul, Republic of Korea, before the Korean Arbitration Tribunal in accordance with the ICC [International Chamber of Commerce] Rules." The parties ended up fighting for years over which of the two institutions should hear the case. In another example a French company built a road for a state agency in Papua New Guinea. The contract called for arbitration in Port Moresby under the PNG Arbitration Act. The PNG Act had never been used in Papua New Guinea, but was identical to the 1889 English Arbitration Act. When a dispute arose, the lawyers had to fly to London to research the Act.

"There are often too few lawyers involved during the drafting of the arbitration clause in a contract," Goodman said. "It is often a last minute exercise undertaken by lawyers who are experts in substantive transactional detail but not in the procedure that would govern arbitration proceedings."

Additionally, not all arbitration institutions are created equal. For instance, if you are working on a deal involving technology or entertainment law, you may want to consider the Geneva-based World Intellectual Property Organization Arbitration and Mediation Center. If the deal involves investment issues, your best bet would be to use the Washington, D.C.-based International Centre for the Settlement of Investment Disputes. By far the most popular institutions for general business disputes in Europe is the Paris-based International Court of Arbitration.

Standard Clauses

To ensure that the right institution is identified in the contract and that arbitration clauses are properly drafted, Hadding relies on flow charts.

"We ask ourselves a number of questions, such as are we more likely to be the plaintiff or the defendant? Which countries are involved? Which applicable law should be involved? This helps limit the choices you have to make," he says.

Other panelists have developed standard clauses and guidelines for their staff lawyers to follow. In addition, a few of the panelists said that once they have gone through arbitration they go back and review their arbitration clauses and make any necessary adjustments.

"Every time there is a problem with an arbitration clause it's reported to the practice group--a loose-knit committee of in-house lawyers from all over the company," said Stephen Douglas, legal director of TOTAL SA in Paris.

As for the introduction of American discovery techniques into arbitration, none of the panelists had much of a solution to that problem.

"Sometimes I include language in the arbitration clauses specifying that neither party will produce documents," Hadding says. "I don't know if it works. It's not well proved, but I do that in an attempt to limit these kinds of possibilities."

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