Arbitration v. LitigationYOU DECIDE

Association of Corporate Counsel – European ChapterMunich, Germany

Noah Hanft, CEO and President, International Institute for Conflict Prevention & Resolution

(former General Counsel, MasterCard)

Who is CPR?• International nonprofit organization governed by and serving corporations,

preventing and resolving commercial disputes effectively and efficiently

• Membership of best and brightest from corporations and law firms, academic and government institutions, leading mediators and arbitrators

• Unique blend of:

• “Think tank” driving thoughtful approaches worldwide to address dispute resolution

• Developer of cutting-edge tools and resources, powered by collective innovation of CPR membership

• ADR provider with innovative practical arbitration and mediation rules, and superior arbitrators and mediators, worldwide

The U.S. “Litigation Situation”

• Litigation is over 50% of legal spend• US$21.1B annual litigation spend• Most cost is in discovery• 98.8% of federal civil cases settle before trial (2009)SOURCE: 2011 Survey of Fortune 1000 ADR Study Co-Sponsored by CPR Institute, Strauss Institute for Dispute Resolution at the Law School of Pepperdine University, and the Scheinman Institute on Conflict Resolution at the ILR School of Cornell University

The U.S. “Litigation Situation”

63.6% of Legal Budgets Allocated For Outside Counsel Source: BTI Consulting Group

*All amounts referenced herein are in US$.

Principal Reasons Companies Use ADR

2011 Survey Conclusions• About 50% of companies used ADR, including arbitration, as

principal approach to resolving consumer, commercial and employment disputes

• Drop in overall arbitration usage driven by domestic fall-off• Increase in mediation

• Still about 40% of companies see litigation as the ultimate method for resolving disputes, particularly if mediation fails

• Growing proportion of major corporations using sophisticated conflict management strategies and ADR techniques

Arbitration Anxiety?

Data from 2011 survey

CONCLUSIONS – ARBITRATION

Concerns with:

-Lack of appeal rights

-Cost and time comparable to litigation

-Risk of compromised outcome

-Concern with quality of arbitrator(s) and arbitrator’s self-interest

-Resistance of opposing parties

-Senior management’s negative perception

Factors Driving Growth of Int’l Arbitration• Uncertainty about foreign courts

• Challenge getting jurisdiction

• Even if can obtain judgment, no global convention for enforcement

• Alternatives to litigation may be more culturally appropriate

• Global business relationships (sourcing, joint ventures) often call for methods of dispute resolution that preserve ongoing relationships

• Confidentiality particularly important in many cross border transactions

Arbitration v. LitigationQuestions to Consider--What do you want in terms of:

 

FLEXIBILITY?Litigation is formal and inflexible. Arbitration is more flexible, and can be customized by parties. FINALITY?Litigation provides broad right of appeal. Arbitration generally results in final and binding award by arbitrator. But some institutions, e.g., CPR, provide for optional appellate arbitral procedure. CONFIDENTIALITY?Litigation is public. Arbitration is a private and generally confidential. DISCLOSURE?In litigation (and at least in the US), disclosure/discovery is broad and automatic. With arbitration, disclosure is not as inclusive. Parties control extent of disclosure. 

Arbitration v. Litigation (Cont.)Questions to Consider--What do you want in terms of:

DECISION-MAKER?Parties to litigation cannot choose their judge. Parties to arbitration can choose their arbitrator (with specific background, subject matter expertise, etc.).  TIME FRAME AND BUDGET?Litigation is in many jurisdictions more time consuming, resulting in higher costs. Costs, including attorney fees and court costs, can be extremely high. Arbitration, if effectively managed, can be fast.

PRECEDENT?A private arbitration decision, unlike a court case, is not public and does not create binding precedent.

Arbitration Anxiety?

Concerns Solutions

Arbitration is costly Arbitration’s inherent flexibility allows greater cost control

Disclosure is too limited or too broad The parties are free to set their own discovery parameters

Arbitration decisions are final and un-appealable

New rules expressly allow parties to provide for appellate arbitral procedures

Partiality of party-appointed arbitrator CPR offers innovative unique screened selection process for neutrals

Arbitration does not offer necessary confidentiality

Some providers now including explicit confidentiality provisions in their rules

Neutrals don’t have to follow the law The basis for decision-making can be defined; most rules now require governing law and reasoned decisions

Once they start, arbitrations can’t be settled Some rules encourage settlement; this always remains an option

Key Features of CPR’s Administered Arbitration Rules

Designed to Increase Efficiency

• Time Frame Accountability - CPR must approve any time frame beyond a year• Settlement - Tribunal authorized to suggest mediation/settlement at any stage Designed to Increase Quality

• Independent and Neutral Arbitrators - No exceptions• Innovative “Screened” Selection Process Available - enhances neutrality, independence• Broad Confidentiality Default Provisions - Applies to parties, arbitrators and CPR• Independent Challenge Review Panel available to decide arbitrator challenges

Designed to Lower Costs

• Fixed Fee Scale – Scale of flat fees based on amounts in disputes provides for more predictable and lower fees for higher-stakes disputes

• Administrative Costs are Capped – For disputes above US$500 million, capped administrative fees at US$34,000, absent special circumstances

CPR Protocols and Guidelines to Increase Arbitration Efficiency

• CPR Guidelines on Early Disposition of Issues in Arbitration

• CPR Guidelines for Arbitrators Conducting Complex Arbitrations

• CPR Protocol on Determination of Damages in Arbitration

• Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration

Closing Observations

• Sometimes, arbitration is the right solution. Sometimes, litigation is the way to go.

• Decision should be made not on an inflexible or emotional basis, but applying proper analytical framework.

• The benefit of precedent versus the importance of confidentiality are major factors to be weighed.

• With arbitration, you are the master of the process. Use it wisely and you can control costs and efficiency.

• Each company has a corporate personality. Their approach to dispute resolution must mesh with that personality.

• In-house counsel must drive thoughtful approaches to dispute resolution, and not defer to outside counsel.