Limiting discovery in arbitration: Should you write discovery out of the deal?

Parties often choose arbitration because they believe it will be less costly and more efficient than domestic litigation, but that's not always the case

As a general rule, corporate defendants do not hold discovery in high regard. Discovery is viewed — at best — as a necessary evil to be carefully managed lest it turn into a nightmare. Arbitration, which is contract-based dispute resolution, can provide relief from discovery-related concerns. Parties can simply contract-away discovery in their agreement to arbitrate (or, perhaps more cautiously, contract to greatly limit discovery rather than banish it altogether).

Given the potential benefits of limiting discovery, and the relative freedom to do so, two questions come to mind. First, should parties include limitations on discovery in their agreement to arbitrate? Second, in the alternative, are there times when a party should affirmatively stake out a right to discovery in the arbitration clause?

Freedom of contract permits tailored discovery practice

Arbitration is a creature of contract. Within very broad limits, parties to an agreement to arbitrate are free to fashion any agreement they wish. Particularly as it concerns discovery, parties have a free hand. They may limit discovery, eliminate certain type of discovery (e.g., no depositions or no discovery from third parties), or affirmatively provide for discovery and the means by which it may be sought.

Liberal discovery — call it “U.S.-style discovery” — has demonstrated benefits. Chief among these is the ability to uncover the truth. The right to obtain the production of documents, whether relevant to the dispute or only potentially so, allows one to make a deep dive into the circumstances that underlie a dispute. Depositions, requests to admit and interrogatories only add to counsel’s ability to dig, connect the dots, ferret out the truth and narrow the issues.

As a point of comparison, however, U.S.-style discovery is the exception rather than the rule. Outside the U.S., for example in civil law countries such as those in continental Europe, discovery practice is greatly restricted; there are no depositions. Specifically-identified documents may be obtained from a litigation adversary, but only under limited circumstances of demonstrated need. In the normal course, in these legal systems, a party is expected to have the proof in support of its position without the need to gather evidence from its adversary.

There is no right or wrong answer as to which approach one should choose. Rather, the choice should be dictated by a variety of consideration, including efficiency and strategy. However, while familiar to U.S. counsel, it is important to realize that U.S.-style discovery is but one method and should not be chosen due to mere familiarity alone.

Limiting arbitration discovery

Limited discovery, too, offers many benefits. The first of these benefits is cost. While U.S.-style discovery can help to uncover the truth, this comes at a premium. The cost of formulating document requests, fighting over document productions, searching for and producing documents, drafting privilege logs, and preparing for (and taking) depositions is considerable. While certainly justified in some cases, the truth is that not every case calls for such powerful discovery machinery. Particularly in breach of contract cases, which tend to predominate in arbitration for obvious reasons, the salient facts are often not hotly disputed. Rather, it is the consequences that follow from those facts that are in dispute. Even where the facts are disputed, an acceptable resolution may often be obtained with no more than limited discovery.

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Second, discovery usually takes up a lot of time. Time has a cost, of course, not the least of which is the toll imposed upon business people pulled away from their normal duties to search for documents and prepare for depositions. The amount of time a dispute is pending, particularly in the case of an on-going relationship between the disputing parties, can also be a distraction. In addition to reducing discovery-related work, and keeping business people out of time-consuming and stressful depositions, limitation of discovery can also reduce the time to a decision.

Third, limiting discovery can also be useful in focusing the parties’ attention. If the evidence in the case is that which the parties have at hand — that which they present in support of their claims and defenses plus limited, additional, relevant documents available through discovery — it can tend to promote a more grounded understanding of the case, its value and whether business goals might be better advanced by an early settlement.

Should a party affirmatively provide for discovery?

There may be circumstances where limited discovery may not be appropriate. Although most institutional arbitration rules provide for some disclosure, it is usually left to the discretion of the arbitral tribunal to order the discovery that it deems relevant or necessary to a determination of the issues in the case. While tribunals will seek to implement fair procedures, it may be advisable in certain circumstances to affirmatively provide for a right to discovery.

In any context where one party is likely to have exclusive control of relevant evidence in the event of a dispute, it would be advisable to affirmatively provide for discovery. In such circumstances, a party should not simply assume that discovery will be available later. Rather, to guarantee disclosure of the evidence, it should be written into the agreement. In addition, some situations may lend themselves to providing for limited depositions. For example, if it is foreseeable that parties will rely on experts in dispute, it may be helpful to provide for expert reports and depositions to narrow the issues and prepare for the arbitration hearing. The focus should be on envisioning the possible disputes in advance and formulating a discovery strategy to match.

Conclusion

Whether — and how — to deal with discovery in arbitration should be confronted when parties are negotiating the agreement to arbitrate. Parties often choose arbitration because they believe it will be less costly and more efficient than domestic litigation. Unless deliberate decisions are made when the agreement to arbitrate is drafted, a party risks resorting to U.S.-style discovery by default. This is particularly true where both parties are represented by U.S. counsel accustomed to such discovery. This can lead to a lost opportunity to realize the significant savings that properly limited discovery should provide.

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Philip D. Robben

Philip Robben is a partner in Kelley Drye’s New York office and co-chair of the firm’s international arbitration practice. He has extensive experience with...

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Melissa E. Byroade

Melissa Byroade is an associate in Kelley Drye’s New York office.  Her practice focuses on  international arbitration and complex commercial litigation.  Ms. Byroade’s broad...

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