Editor: Since our interview with you in 2006, what are some of the significant trends affecting the conduct of international arbitration?
Sherwin: We are seeing a continued trend toward multiple parties and multiple related contracts being addressed in a single arbitration. Arbitration was historically between one claimant and one respondent who were the parties to one specific contract. Because transactions are often more layered with multiple related entities and multiple levels of agreements, major international arbitration organizations are becoming more willing to allow all of the relevant parties to a dispute to participate in a single proceeding provided there are compatible arbitration agreements or sufficient consent.
The organizations and arbitrators are also starting to be more open to at least the possibility of early dispositions, similar to motions to dismiss or for summary judgment. For now arbitrators are still generally very hesitant to deny a claim before the proceedings are over, but we may see that change if counsel make these applications more often in appropriate situations.
And a subject of great discussion recently is e-discovery, with a tension existing between civil law and common law jurisdiction practitioners. Especially in Western Europe, there is a big concern that requiring searches of electronic information is going to open the door to embracing more of the U.S.-style of discovery and moving further away from the highly targeted civil-law disclosure of a few specifically identified documents. But I think the trend, although young, is that electronic document disclosure will be accepted if kept reasonable and focused.
Editor: How would you describe the principal advantages of international arbitration as compared to other means of resolving disputes?
Sherwin: A primary advantage is enforceability. There is a widely adopted multi-lateral treaty called the New York Convention that essentially says the courts of signatory countries must enforce an international arbitration award unless one of a very limited number of situations is established. So, if needed, enforcement wherever the assets are or performance is to be had is relatively simple. That is not at all the case with enforcing a court judgment in another country because there is currently no broad treaty concerning enforcement of foreign judgments. Although U.S. courts rather easily recognize and enforce non-U.S. judgments, courts in many other countries do not. Many will examine the procedures that were followed, and some will also reassess the merits of the dispute at least to a certain extent. Also, a number of other countries' judicial systems are somewhat hostile to foreign court judgments, especially those from the United States.
Another advantage is that arbitration is not linked to the courts of any of the parties. In a cross-border transaction, often neither party wants to rely on the court system of the other party to resolve a dispute. That can be understandable especially with cultural differences. This is often why parties agree to arbitration at the time they go into the transaction.
A third point is that the parties can select members of the arbitration panel. Each of the arbitrators is still neutral, independent and not beholden to the party that appointed him or her, but the ability to appoint an arbitrator makes the parties more involved in the process and gives them greater comfort and confidence that the decision will be fairly reached and one they can abide by.
Editor: We have compared arbitration to litigation. For another comparison, how do international and domestic arbitration differ?
Sherwin: One of the most important legal differences between international arbitration and domestic arbitration is that in the U.S. under the Federal Arbitration Act you only have one year to confirm a domestic award, but you have three years to seek recognition here of an international arbitration award.
Significantly, in international arbitration there is less discovery and more reliance on written submissions than even in domestic arbitration. For example, generally, there are no depositions, and direct examination of witnesses is in a written statement submitted with your pre-hearing briefs. Cross-examination is now widely accepted in international arbitration but usually it is shorter and more focused.
They also differ a great deal because necessarily various social and legal cultures are often involved in international arbitration. A non-U.S. party, counsel, or arbitrator may well approach factual and legal issues differently, and even within the international arbitration bar, practitioners bring with them a lot of assumptions and habits based on how cases are handled in their home country. This adds a further dimension to presenting your case effectively.
Editor: Assuming there is no arbitration clause in a contract between the parties, in the event of a dispute what criteria should be used in deciding whether to consider pursuing arbitration rather than litigation?
Sherwin: One of the biggest reasons parties might agree to arbitration at that late stage is flexibility as to procedure. They can tailor how the specific dispute is going to be resolved without having to convince a judge that is the right way to do things. For example, they can agree up front how long the case is going to take, what types of submissions are going to be made, and what is going to be the focus, and basically the arbitrators will follow whatever the parties decide.
Confidentiality is another good reason to agree to arbitrate a specific dispute. Arbitration isn't always necessarily confidential, but confidentiality is a lot easier to achieve in private arbitration than in court.
Another reason parties might want to agree to arbitrate even when there is no contract with an arbitration clause is because they want to maintain a business relationship but still have the issue in dispute resolved. This is often psychologically easier to accomplish with arbitration because litigation has become so much more contentious, whereas arbitration, even though it is certainly adversarial, is usually much more amicable.
Editor: Do you find that arbitral decisions require court intervention for enforcement? Or are they mostly self-enforcing?
Sherwin: Most of the time they are complied with spontaneously, and the parties just go ahead and do what they are supposed to do. This is especially the case when there is an ongoing relationship between them. And court enforcement is generally straightforward with very strict and limited grounds for challenging enforcement. So court intervention is usually seen only when emotions are still very high or in the rare case where there was something fundamentally wrong with the arbitration.
Editor: Has the global economic downturn affected the volume or subject areas covered in international arbitration?
Sherwin: Yes and no. In today's worldwide economic environment, cash flow is more important than ever. For some potential claimants this means holding off pursuing disputes, but others see their dispute as possibly a way to generate or recoup needed revenue. In general, though, a lot of the smaller cases are not being brought because of tighter cost-benefit analysis. And unfortunately we are seeing situations where companies are clearly owed money or damages but the other side may essentially be judgment-proof so the practical advice sometimes may well be not to "throw good money after bad."
Editor: How does one best prepare for an arbitration hearing? Does it differ from preparing testimony or responses to government investigations, for example?
Sherwin: A critical difference between international arbitration and U.S. court litigation is that in a vast majority of international arbitrations most of your case has already been submitted before the oral hearing, which then becomes very focused and essentially limited to the cross-examination of key witnesses. There often are no significant opening statements and sometimes closing arguments will only be made in writing in post-hearing submissions where you argue the significance or lack of significance of the cross-examination testimony.
But in many respects the fundamentals are the same as for any trial or any other oral proceeding. Witnesses must be really well-prepared for cross examination. The style of cross is often different from that in the United States and that has to be worked on with the witness, but the basic preparation has to be the same in terms of really knowing your facts, your documents, your themes, and what the other side is going to focus on. For counsel, you've always got to know what is going to appeal to your audience, whether it is a jury, a federal or state court judge, or a panel of international arbitrators. Just as you would get all sorts of information about what a judge would like to know and how he runs a court room, you must prepare for how the arbitrators like to run their hearings and what they are looking for from a cross or oral argument.
That just highlights the critical importance of your selection of arbitrator on the panel. You can't be all things to all people, especially at the same time, and you need to present your client's case in the strongest way possible, given the type of evidence you have and the legal arguments available. So you want to make sure that at least the person you appointed to the panel is going to be appreciative of your presentation and be able to discuss its significance with the other two arbitrators during deliberations. That is another reason that selection of arbitrators is such a key aspect of the whole case and something that in-house counsel can and should play a big role in.
Editor: Would you like to discuss some of the cases you have been involved in recently?
Sherwin: In one recent case that I found very exciting, I represented one of the top five pharmaceutical companies in a matter involving the expiration of an important long-term licensing and distribution relationship. The issues involved exactly when the relationship expires and what a transition from one to the other would look like. It was interesting from the practitioner's side because the contracts were governed by Swiss law, the arbitration was taking place in Zurich under the Swiss Rules of International Arbitration, and the arbitrators were Swiss - but none of the parties was Swiss and the dispute was actually very U.S.-centered because that was the primary territory at issue.
Another very interesting aspect was that after the dispute arose the parties agreed to expedited treatment - only six months to go from selection of the arbitrators to final award. We held to that, even though there were two rounds of briefing, cross-examination hearings and even a post-hearing submission. This was an awful lot of work compressed into a very short period of time, and you usually don't see that in high stakes cases. At the end of the day I think both sides were pleased with how the proceedings were conducted - we were able to get a high quality result in a short period of time, and both sides achieved the finality they needed in a timely manner.
This is something that everybody should think about when a dispute arises: "Can we agree to resolve this quickly?" This is definitely something I will consider going forward because it allows the parties to move on quickly without sacrificing quality. It just makes the lawyer's life hectic.
Published August 5, 2009.
