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How to defend arbitration proceedings: Part 3

Running the early case assessment and appointing arbitrators

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 three deals with how best to run the early case assessment and the appointment of arbitrators. Click here to read parts one and two.


The early case assessment (ECA) should take into account the value of the case, its merits, any relevant commercial factors and the overall strategy to be adopted.

Value. As the value of the claim will, to a large extent, dictate the strategy, the next stage is to quantify, as far as possible, the amount in dispute, in addition to any potential counterclaims that may be offset against the amount of liability. It also is important to analyze the impact the dispute will have on the company and whether it is worth trying to salvage and preserve the relationship with the claimant.

Merits. Though the evidence at this stage will be limited, an assessment of the legal and factual merits of both the defense and the claim are essential to determine the overall chance of success. As a part of this assessment, showing that the contract or arbitration clause is invalid for any reason may considerably strengthen the defense. Issues such as jurisdiction, the validity of the arbitration clause, liability and quantum should be considered in more detail at this stage.

An approximation of the costs that will be incurred by defending the proceedings should be calculated, taking into account the fees for external counsel, the arbitrator(s) and the arbitration institution (if applicable), as well making an allowance for a proportion of those costs which are likely not to be recoverable.

While this latter amount is not an issue in the U.S. where parties bear their own legal costs, in countries such as the U.K. it is the norm for costs in litigation and arbitration to “follow the event”—that is for the loser to pay the winner’s costs.

It may be the case that there are third parties who can be joined to the dispute or which the organization may in turn have a claim against, either now or in the future. Thought must be given therefore to the question of whether it is worth (and possible under the arbitration agreement) adding them to the dispute.

There may be valid grounds on which to block or challenge the referral to arbitration. If these grounds are not fundamental enough to get the referral dropped, a challenge may at least serve to delay proceedings. This could be advantageous depending on the proposed strategy.

Commercial factors. Each company will have its own commercial factors to take into consideration, such as:

  • Whether there is a desire to preserve an existing business relationship
  • Whether it is involved in other concurrent disputes
  • How affordable the dispute is
  • Other commercial projects and ventures that could be affected by the dispute
  • Whether the dispute relates to particular trade knowledge

Strategy. Consideration of the best strategy for defending the claim will include the possibilities of making an offer of settlement, suggesting mediation or seeking interim relief.

The appointment of an arbitrator, or arbitrators, is of major significance and, when counsel is able to make the choice, care should be taken to appoint the best possible arbitrator for the defense. Typically, the arbitrator should be suitably qualified from either a legal or industry perspective (i.e. with particular sector expertise relevant to the dispute). Whether they have presided over similar arbitrations should also be taken into account, as should their fluency in the language of the arbitration.

Keep in mind that even if the arbitrator of choice is available, they may well be too busy to dedicate the time needed to preside over the arbitration. The cost of the arbitrator also is relevant.

Arbitrators should automatically be ruled out if there are any reasons to question their impartiality or independence. Such reasons could arise because:

  • They have presided over a previous arbitration with the claimant as a party or possibly have a close relationship with the claimant’s external counsel
  • They, or someone connected to them, has an affiliation with the claimant – this is often when the claimant is a company and either the arbitrator or connected person has previously held office as a director of the company, or held significant shares in that company
  • There is another conflict of interest

When there is to be a sole arbitrator, it may be impossible to come to an agreement with the claimant over who should preside over the arbitration. In such circumstances, the court or arbitration institute can intervene and appoint the arbitrator. This, in effect, nullifies the choice of the individual parties, though the rules do at least ensure that arbitrators are appointed based on objective factors as outlined above.

By contrast, where three arbitrators are selected, each party typically nominates their first choice of arbitrator and those two arbitrators, or an arbitration institute, will nominate a third to act as a chairman. While this prima facie appears to be fairer, it is also more expensive.

Checklist

Appointing the arbitrator(s)

  • Experience—legal or industry sector
  • Availability
  • Impartiality
  • One or three? (Depends on the arbitration agreement or pre-determined procedural rules.)

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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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