To maximize the advantages of institutional arbitration, corporate counsel should choose an institution that gives them control over the process, says Michael Lee of ICDR-Singapore
“The arbitration clause is important but we generally spend the majority of our time negotiating the essential terms of contract.” This comment by a general counsel of a well known electronics company illustrates the stark reality about the arbitration clause: it is overlooked at the start of a business negotiation, but is inevitably the first section of a contract that corporate counsel look up when a potential dispute surfaces.
The following will help reverse this situation and ensure that companies are ready to tackle disputes when they emerge.
Making the right choice
The failure to correctly specify an arbitration institution could cause unnecessary delays and cost. The following are factors to consider when choosing an institution.
1. How much control do you have over arbitrator appointment and compensation?
Almost all reputable institutions allow parties to appoint their party-appointed arbitrators. However, when an institution appoints a chair arbitrator, sole arbitrator or all the members of a tribunal, the parties’ participation is limited.
The “strike and rank” list method used by the International Centre for Dispute Resolution (ICDR) allows parties to be involved in the process of appointing such arbitrators. The process is as follows:
- Parties specify the qualifications they require of an arbitrator.
- The ICDR uses this information to put together a list of 10 to 15 arbitrators from its international panel of arbitrators. The panel consists of about 650 leading arbitrators, 65% of whom are non-US nationals.
- The list includes the compensation arrangements for each arbitrator, and full CVs. Parties review the list, strike out arbitrators they want to avoid and rank the remainder in order of preference.
- The institution combines lists received from the parties to appoint arbitrators.
As compensation rates are displayed prior to an arbitrator’s appointment, market competition tends to keep the rates reasonable and manageable.
2. Does the institution promote and encourage mediation?
Mediation should be at the heart of an arbitral institution because of the tremendous benefits it offers. However, parties are often concerned about the added time and costs of any mediation effort. To address these concerns and to create an incentive for mediation, the ICDR charges no separate filing fee for mediation. It also allows mediation to begin at any stage of the arbitration, either on a parallel track or while staying with the arbitration.
Over 85% of ICDR mediations have resulted in settlements. Of those unable to settle through mediation, 15% reduced their issues considerably to decrease the time and cost of subsequent arbitrations.
3. Is the institution forward-thinking?
Emergency measures of protection – contained in article 37 of the ICDR International Arbitration Rules – were pioneered by the ICDR. Similar versions were subsequently adopted by other institutions.
Accordingly, an emergency arbitrator is appointed within 24 hours of filing for emergency protection and a preliminary hearing or conference takes place within 48 hours.
Emergency measures can be used to preserve the status quo until a hearing on the merits takes place. Such interim relief was traditionally provided by national courts and was often costly, unpredictable and subject to delays.
The ICDR is also an innovator in the area of fee arrangements. It may be the only institution that provides two options for filing fees: a standard fee where the filing fee depends on the claim amount; and a flexible fee that allows parties to file their claim at a significantly reduced rate.
The latter helps parties to use the act of filing for arbitration to send a strong message to the opposite party, which can prompt negotiations towards a settlement. The case is closed if negotiations succeed. If the parties cannot settle within 90 days, they can pay the remainder of the filing fees to proceed to arbitration.
4. Location: does it compare with ICDR-Singapore Maxwell Chambers?
A place of arbitration needs appropriate legal and social infrastructure. This includes neutrality and the perception of neutrality, transparency in the legal system, a legal structure and court system that supports international arbitration, a pool of capable international arbitration practitioners and arbitrators, geographical convenience and language proficiency.
Singapore is one of the few places where all these factors are strongly present. Maxwell Chambers, which embodies the strengths of Singapore and serves as a home for many leading international institutions, enhances the suitability of Singapore as an arbitral location. Not even New York or Paris has anything like it.
The ICDR’s extensive experience and the strength of Singapore as a seat ensures that arbitrations proceed with efficiency under one of the most transparent environments.
Getting the dispute clause right
Before deciding on a dispute clause, corporate counsel must identify and anticipate the type of potential disputes and assess the best course of action. Arbitration may not always be the best option especially when a relationship with the other side has more value than winning a case. Model clauses on the websites of institutions provide tried and tested options for companies to consider.
Michael Lee is the head of ICDR’s Asia office in Singapore. ICDR is the international division of the American Arbitration Association, one of the world’s largest, oldest and best known arbitral institutions. The author also serves as a co-chair of the Legal Committee for the American Chamber of Commerce in Singapore.