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How to defend arbitration proceedings

Determining the possibility of alternative dispute resolution and assembling the team are the first steps.

Having an international arbitration claim land on your desk is one of the most challenging scenarios in-house counsel can face. It is vitally important to the business for in-house counsel to come to grips with the claim quickly and effectively coordinate the strategy and response on behalf of the company.

This series of brief guides will review some of the most pertinent points to consider when coordinating the defense to an international arbitration claim.

Part one covers the initial steps in-house counsel should take once they are alerted to the dispute.

The first thing to do when facing an international arbitration claim is to check the contract and arbitration clause. This will require comparison of the complete finalized version of the original contract with the document relied on by the claimant to ascertain whether it is the same document. Any other documents relevant to the dispute should be identified at the earliest stage.

It is also key at this early stage of claim preparation to check for time limits. If there is a time limit outlined in the contract or in an applicable statute within which a claim must be brought, it must be adhered to by the claimant. With any luck, the limit will have passed and the claim will be out of time.

Finally, the contract itself should be read to see if it includes an arbitration clause and if so, whether it corresponds with the clause relied upon by the claimant. Consideration should be given to whether it appears to have been validly formed under the applicable law (e.g. the applicable national arbitration act) and whether there are any obvious issues in terms of jurisdiction.

Any such arbitration clause may give reference to a statutory regime, to the rules of an arbitration institution or may outline the rules which will govern the arbitration procedure. It is vital for all parties to familiarize themselves with these rules and note their requirements for the next stages in the proceedings, such as when and how to file a response and appoint an arbitrator.

Creating a simple table or spreadsheet and diarizing key dates with reminders is a simple but effective way to manage the dispute and ensure the defendant’s continued compliance with the applicable rules.

Deadline

What?

Rule

Completed? (Y/N)

1 January

Response to the Request for Arbitration

Article 2, LCIA Arbitration Rules

No

Sometimes arbitration clauses are part of a stepped dispute resolution clause, which outlines that the breach can be remedied within a certain period, or provides for mediation or negotiation as a prerequisite for or as an alternative to arbitration. If mediation is listed as an alternative, then specific mediation rules will probably apply and should be checked.

It may be the case that the claimant has prematurely referred the dispute to arbitration. In such a situation, it is advisable to insist on following the alternative methods named in the dispute resolution clause when the initial response is submitted.

Checklist

  • Are the parties obliged to comply with other resolution mechanisms before arbitrating the dispute?
  • Is it worth insisting on the parties complying with the other methods in your initial response?

After establishing the identity of key employees, the next step is to assemble a dedicated arbitration team. This should include the in-house counsel, outside counsel, a final decision-maker and the staff members most involved in the dispute.

It is advisable to nominate a final decision-maker who can represent the company in the dispute and act as the “client.” It is important that this person be someone who is able to make decisions on behalf of the company and is easily contactable when urgent decisions need to be made.  

Given the expertise, knowledge, resources and support that they can offer, it is almost inevitable that outside counsel will be required to help defend an arbitration claim. In appointing outside counsel, the following factors should be considered:

  • Experience in the field – The relevant factors here are the arbitration experience of the outside counsel and the experience they have of working on matters in the sector relevant to the dispute. The closer the fit on both counts, the more likely it is that counsel will be able to appreciate the company’s position and concerns, while delivering the best possible value. Outside counsel’s advocacy ability may also need to be considered; solicitors in the U.K., for example, often do their own advocacy within arbitrations.
  • Fees - Most law firms charge by the hour. However, alternative fee arrangements may be available, such as fixed-fee arrangements or monthly cost caps combined with a final payout to counsel, should the case be successful. Whether or not outside counsel can offer certain types of alternative fee arrangements may depend on where the arbitration is located, as some jurisdictions are more flexible than others about contingent fee arrangements. It is therefore desirable to select a firm that can offer both transparency and effective management of its fees. Some degree of cost predictability will enable the company to budget for the dispute. Accurate cost projections will also help keep the dispute in perspective, especially in terms of whether it is worth pursuing. In addition, it may be worth considering whether engaging a third party funder would be appropriate.
  • Chemistry - Working chemistry is also important when selecting outside counsel, especially given the extent to which all parties will be working in close proximity; arbitrations can often last for years.
  • Jurisdiction - It is natural to select outside counsel from the jurisdiction most closely aligned with the dispute, given its seat and governing law. In the case of multijurisdictional disputes, the international capabilities of outside counsel will also need to be considered.

Once the arbitration team has been assembled, a clear chain of communication should be established between the decision-maker, in-house counsel and outside counsel. Simply clarifying who at the company will be the liaison to external counsel can be an effective way to help control the costs.

Checklist

Assembling an arbitration team:

  • Key employees
  • In-house and outside counsel
  • Decision-maker

Appointing outside counsel:

  • Expertise
  • Cost transparency and management
  • Chemistry
  • Location and international capability

Contributing Author

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Andy Moody

Andy Moody is a senior associate at Eversheds LLP, specializing in international arbitration, international litigation and international law.

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