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ASA Annual Conference, Zurich, 1 February 2013 – Inside the black box: how arbitral tribunals operate and reach their decisions

28.02.2013 - Conference organiser Dr Bernhard Berger was first to peer into the black box, focusing on the legal framework. A number of seasoned practitioners then examined multiple aspects of the decision-making process.

The ASA Annual Conference held on 1 February 2013 was dedicated to the topic “Inside the black box: how arbitral tribunals operate and reach their decisions”. It attracted nearly 300 participants from Switzerland and abroad. ASA President, Michael E. Schneider, welcomed the participants and a moment of silence was held in memory of ASA Vice-President
Dr Daniel Wehrli. Michael E. Schneider then introduced the topic of the conference.

Dr Bernhard Berger, who was one of the main organisers of the event, was the first to look into the black box, with a focus on its legal framework, namely the rights and obligations of arbitrators in the deliberations and in their decision-making functions. He pointed out that the arbitrators have both the right and the obligation to determine the timing and the process of the deliberations, but that the right of an arbitrator to participate in the deliberations has limits, in particular in case of a lack of impartiality. Dr Berger then warned arbitrators against the temptation to use arbitration as a tool to decide cases in equity instead of according to the law which the arbitrators have a duty to apply. He also recalled that arbitrators must perform their duties in person and that delegation is not permissible, although they can consult with third parties provided they have the final word. He then stressed the confidentiality of the deliberations and the importance of the parties not knowing of the award prior to its notification. Dr Berger concluded on dissenting opinions and his view that they should not be disclosed systematically.

The first panel then examined the steps and issues in decision-making and deliberations. It was moderated by Julian D.M. Lew Q.C., who introduced the topic by commenting that when and how decisions should be made by an arbitral tribunal also depends on the personalities of the members of the tribunal. Piero Bernardini examined how to identify the issues that have to be decided by the tribunal, generally be extracted by the tribunal from the parties’ pleadings and recalled that the tribunal is bound by the parties’ petita. He made a distinction between questions of procedure, which are decided by an order and can be delegated to the Chairperson or to another member of the tribunal, and questions of substance, which are decided by an award and cannot be delegated. He explained that the Chairperson should not advance his/her position on a given case before the co-arbitrators, bearing in mind the potential risk of leak to the parties. He also indicated that a change of view was possible and that the Chairperson should not press the co-arbitrators to reach their final decision too soon. He recommended that the Chairperson take the lead during the drafting process by preparing and sending to the co-arbitrators a check-list of issues outlining alternative solutions to allow for an open discussion and take position only after the co-arbitrators. Finally he indicated that compromises within the tribunal should be avoided and the common objective should always be to render a well-reasoned award.

The next speaker, David Rivkin, stressed that the black box should be as open as possible. He commented on the importance of shaping the process to be the most appropriate and of starting deliberations on the issues to be addressed as early as possible, an early dialogue having the advantage of making the members of the tribunal work as a unit and not as individuals. He also considered it useful for the arbitrators to discuss their views with the parties between the procedural conference and the hearing under the proviso that their views were preliminary and based on the evidence presented. He explained that, in his opinion, there should be no concern about prejudgment since the parties have by that time already had the opportunity to present their case, but specified that he would not favour such an exchange in writing since it tends to lock the arbitrators into their positions. He more generally advocated a regular dialogue among the arbitrators so as to build up trust and so as to make it easier to deal with dissenting opinions. In his view, deliberations must take place immediately after the close of the hearing and arbitrators ought to focus the post-hearing briefs only on what is needed.

Matthias Scherer then examined how arbitrators reach decisions before the award is drafted. He first stressed the importance of reaching actual decisions during the deliberations to avoid problems arising during the drafting process. He also explained that the drafting of the award was the prerogative of the Chairperson and recommended against collective drafting, although there could be exceptions, for example when the Chairperson is not qualified in the applicable law. He reminded the audience that the award has to meet the applicable form requirements and stressed the importance of making sure that the arbitrators are available to sign the award, although for tribunals seated in Switzerland there is no requirement as to the actual place of signature of the award. He then recalled that, as obvious as it may seem, the law actually had to be explained in the award. On the question of whether the tribunal could rely on authorities that have not been quoted by the parties, he indicated that this was permissible in Switzerland provided it did not amount to a surprise application of the law; whether a tribunal should do so depended, in his view, on the quality of the parties’ briefs. He also mentioned the arbitrators’ VAT liabilities and time limits as other factors to be taken into account when drafting an award. He concluded by a reminder that excessively lengthy deliberations could constitute a denial of justice under most arbitration laws.

Following this session, participants were able to comment and ask questions. Most interventions concerned dissenting opinions, the timing of deliberations and post-hearing briefs. On the tribunal sharing its views with the parties on factual issues, one of the problems raised was the risk of ignoring the burden of proof.

The second panel focused on conflict in the deliberations, in particular how to deal with bias and obstruction, and was moderated by Markus WirthPhilip Capper launched the discussion by defining bias. He distinguished actual bias, which must be dealt with by the arbitral tribunal, from apparent bias, which the parties have to deal with. He commented that parties want to have a say in the appointment of the Chairperson which necessarily involves ex parte communications between the arbitrator and the party who appointed him or her, which he recommended. He noted the conundrum in the arbitrator selection process because one person’s characteristic is at the same time that person’s bias. He then examined different forms of bias. Finally, he deplored the problem of arbitrators appearing at too many hearings having read too little and being insufficiently prepared. Pierre Mayer commented by explaining why a progressive and informal way of deliberating is a more efficient way to deal with potential bias. He indicated that when one co-arbitrator is biased, the other co-arbitrator’s goal is to rationally convince the Chairperson that the truth lies on the other side. Mr Wirth added that, in his experience, the natural reaction of a Chairperson was to distance himself/herself from a co-arbitrator who takes position for a party too aggressively and commented on the difficulty in distinguishing between bias and stubbornness.

Bernhard Meyer illustrated the next topic on bargaining within the tribunal by referring to a case in which a balanced decision was obtained as a result of an issue-by-issue decision-making process carefully crafted by the Chairperson.

The question of whether it is legitimate, necessary or advisable to write a dissenting opinion was then addressed in detail by Pierre Mayer. He stated that the disclosure of dissenting opinions was permissible once the award was rendered and did not infringe the secrecy of the deliberations. In his opinion, the arbitrators have a legitimate right to draft and communicate their dissenting opinions to the parties. He explained why dissenting opinions play a more important role in investment arbitrations (ICSID) than they do in commercial arbitration. In his opinion, arguments against dissenting opinions in commercial arbitration are that they underscore the link between party and arbitrator and may aim at weakening the award. He distinguished between those dissenting opinions which expose irregularities in the proceedings and are necessary, and those criticising the reasoning made in the award. He concluded by stating that what is important is to render a just award, regardless of whether or not it is the result of a unanimous decision and warned against the risk of arbitrators feeling obliged to render dissenting opinions.

The issues of bias and dissenting opinions again gave rise to a lively debate during the discussion that followed. Participants shared war stories on how they dealt with bias and discussed practical ways to include dissenting opinions in the award. The question of the enforceability of an award obtained as a result of bargaining within the tribunal was also raised.

In the afternoon, the third panel, moderated by Michael E. Schneider, was dedicated to the assistance to the tribunal, its options, advantages and dangers. After the moderator’s introduction, Dr Andrea Meier presented the main forms of assistance to the tribunal, in particular expert assistants and expert teaming. She raised the question of whether special masters, who are appointed by US federal judges to oversee specific aspects of litigation proceedings such as the management of document production, could be used in arbitration. She then addressed various forms of assistance provided by arbitral institutions and the role of the secretary to the tribunal. She submitted the question of whether organisational tasks should not be handled by the Chairperson’s administrative assistants rather than by a legally trained secretary to the tribunal and opined that the role of the secretary should be limited to the drafting of abstract memoranda, leaving the application of the law to the facts and points of substance to the arbitrators.

Insight into the assistance relied upon by the Iran-US Claims Tribunal was then provided by Hans van Houtte. He explained the role of the document production master and the problems arising out of document production, namely the determination of what is relevant and material and confidentiality issues. He then turned to the expert coordinator, whose role is to coordinate the work of the parties’ experts and to help them to establish a joint report but should not have any contact with the tribunal.

Prof. Zachary Douglas then condemned the hypocrisy surrounding the role of secretaries to the tribunal in the drafting of awards. He pleaded for more transparency and for an informed choice of the users of the system. He stressed that some users accept not to have the assurance that the Chairperson will draft every single sentence of the award, because they know that it expedites the process. Others do not. His view is that the safeguard should be the intellectual control of the arbitrators. Prof. Douglas concluded by suggesting a process in which the candidate Chairperson sets out a proposal on how he or she intends assistance to be used and on the related fee structure for the parties’ approval prior to his/her appointment.

Finally, Geoffrey Senogles relayed in detailed his experience as a forensic accountant expert to the United Nations Compensation Commission (UNCC).

During the discussion that followed, Douglas Reichert shared his experience as a hired legal assistant to the US-Iran Claims Tribunal. Other participants referred to their personal experiences as expert to the tribunal or as advisor to a tribunal-appointed expert. Prof. Pierre Tercier and Michael E. Schneider commented on the scrutiny of the ICC Court and its added value to the arbitrators’ work. Michael E. Schneider concluded the session by stressing that the assistance to the tribunal improved the quality of the arbitral process but had to be transparent to the parties.

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