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Arbitration in 2018: A Global View

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  • July 16, 2018

In 2018, arbitration has become further embedded in our legal culture while also earning some of the contempt that is said to come with familiarity. The recent Epic Systems Corp. v. Lewis ruling is just the latest in a string of Supreme Court decisions making clear that arbitration agreements are fully and legally enforceable. As a method of resolving domestic business disputes, however, arbitration has a growing number of detractors. For the process to satisfy its domestic users, the parties must give a significant amount of forethought to whether it is a practice that fits their relationship and their disputes.

But when it comes to international disputes, arbitration continues picking up steam. In fact, Georgia is increasingly a place where global parties prefer to host arbitration, as we will discuss later in this blog.

Business Arbitration Within the United States

Arbitration’s allure is that it offers businesses and their partners a dispute resolution process that is cheaper, more efficient, and, notably, quicker than what is offered in court systems. In this regard, the promise of arbitration today remains the same as it was 25 years ago. Yes, there are ways in which arbitration is more expensive than the court system: The parties must pay for the time of one or more arbitrators, as well as the costs owing to the arbitration service to administer the arbitration. But, in theory, the efficiencies of arbitration make those costs worthwhile.

At least, that is the theory.

In 2018, however, it does not take a very long conversation with an in-house counsel or business representative to understand, at least in certain circumstances, there is significant doubt that arbitration is fulfilling its promises. Most practitioners of arbitration advocacy will be able to share instances where discovery in an arbitration proceeding mimicked almost exactly that which would have been done in a court system. Indeed, an expedited discovery process is often seen as the exception rather than the rule in arbitration. In addition, evidentiary hearings may still take days if not weeks. The process in general, while still in almost all instances quicker than the court system, is usually not something which can be defined as “fast.”

Given these concerns, and excluding certain specific areas of disputes such as consumer class actions, end users of arbitration are questioning not only the added costs of arbitration but the non-monetary costs as well. Specifically, arbitrations offer, at best, a limited opportunity for summary adjudication and appeal. The lack of a method to seek dismissal of claims before incurring costs of discovery is a particularly frustrating limitation to corporations who find themselves facing numerous claims – often perceived to be baseless. The fact that the ability to appeal an arbitrator’s decision is limited to the point of being, as a practical matter, almost non-existent is also frustrating to those in results-based professions.

Accordingly, many in-house counsel are trending away from the use of arbitration for domestic business disputes. The fact is people who make the decisions on whether to proceed in arbitration instead of a court system are more frequently finding it harder to balance the costs of arbitration against the sacrifices. I have often been urged by those in the arbitration profession to be sure my clients know they have the option to arbitrate. As a lawyer, that discussion must also now include educating clients as to their rights with respect to avoiding arbitrations.

But it would be a mistake to indicate that arbitration is a process whose time has come and gone. The process has more than a few supporters, including U.S. Supreme Court justices, who continue to note that the process offers a viable alternative to litigation. Moreover, the theory of arbitration is based on the premise that the parties control the process – and can therefore control the costs. Arbitrators and administrators are quick to point out that arbitration is, by definition, a creature of contract and agreement. If the parties agree to use arbitration in a more efficient way, they argue, arbitration as a process can still fulfill its promises of being more efficient.

Moreover, arbitration providers are addressing some of business’s concerns by incorporating expedited procedures and the possibility of summary resolution in their rules. Arbitrators will also understand complicated business disputes better than juries, offering some comfort to the parties who find themselves enmeshed in such controversies.

In sum, despite businesses’ legitimate concerns, arbitration remains a thriving industry and opportunity for parties to resolve their disputes. Yes, there are concerns. But the promised benefits remain in reach. Moreover, turning the trend away from arbitration is somewhat like turning a battleship. There has been so much momentum towards arbitration in recent years that countless contracts are currently being performed that contain arbitration provisions. It would therefore be a mistake to assume that simply because the end users have concerns, the process will slowly fade away.

International Arbitration     

In discussing current trends in arbitration advocacy, it is not possible to ignore the growing impact of international arbitrations. Perhaps in contrast to the stated resistance to using domestic arbitration, in-house counsel and business representatives do not hesitate to express the benefits of arbitrating cross-border disputes.

Indeed, the potential uncertainties and disruptions of business disputes are potentially greater when the parties come from different parts of the world. Seemingly mundane problems such as the language to be used to resolve the dispute are intermixed with much more esoteric issues such as whether the dispute will be governed by common law or civil law concepts. Companies will also feel threatened about the risks of being drawn into litigation in a smaller country, with fears of both the unknown and of a possibly corrupt system. The legal uncertainty of being able to collect any judgment one may receive is also a legitimate concern.

And that is where the concepts of international arbitration become so important. Agreed-upon procedures to resolve these cross-border disputes significantly reduce the amount of uncertainty that will arise as a result of the dispute. Parties can agree upon the language of the arbitration, where it is to be held, and the processes of dispute resolution. Combined with the choice of law decisions stated in the contract, the parties can essentially limit the unknown by agreeing to the substance and the process governing legal disputes.

In Atlanta, international arbitration has a growing presence. A recent survey, the results of which were published on the Global Arbitration Review website, indicate that the U.S. is the preferred seat of global arbitration for companies located in the Americas. And while New York remains, by far, the most preferred seat in the U.S., Atlanta is now ranked in the top five. Given the presence this year of some high-profile international arbitration events within the city, it is likely the growth of international arbitration in Atlanta will continue to trend upward.

People tend to think of arbitrations in the context of decades-old ideas. Is it quicker? Cheaper? More efficient? International arbitration agreements go beyond those concepts. It is not just about efficiencies; it is also about eliminating uncertainties. And that is a benefit that in-house counsel and practitioners find easy to understand.