Conduct of the Parties in Arbitration

September 2005

One objective of the 1996 Arbitration Act was to give the parties more freedom to determine how their disputes in arbitration in London would be dealt with. From an arbitrator's point of view, the less intervention required of them in the preliminary stages of an arbitration the better. Sadly, though, cases in which the parties are able to reach an advanced stage of an arbitration themselves without the tribunal's intervention are relatively few and far between. All too often the arbitrators' intervention is needed at every stage of the reference as the parties argue over procedural aspects of the case, concerning, for example, questions as to when submissions should be served, whether security for costs should be provided, what evidence is relevant to the dispute (and if, and when, it should be provided) and whether an oral hearing is necessary and when it should take place.

Negative Correspondence

Parties and their advisors often fail to appreciate, or forget, that every piece of correspondence increases the cost of the arbitration whilst correspondence involving the tribunal does so even more.

At the end of each arbitration someone will have to pay for the costs generated by such correspondence. All too often, parties and their advisors treat correspondence in an arbitration as if charged free on broadband only to discover at the end of the case that they were in fact on dial-up, by which time the costs incurred may have become an obstacle or bar in themselves to settlement.

The obvious answer to this is to (a) keep correspondence to a minimum and (b) try to avoid or limit the tribunal's involvement as much as possible. There should be no need to argue over differences in timetables of as little as 3 or 4 days, or even a week, or over the disclosure of documents clearly relevant to the dispute when this will merely increase the costs of the arbitration with little or no benefit to either party at the end of the day.

It is with precisely this situation in mind, and to reduce needless costs, that the LMAA Terms (2002) require the parties to contact each other and attempt to reach agreement on interlocutory issues before involving the arbitrators, rather than merely going straight to the tribunal. Pleasingly, the effect of this has been to reduce the level of unnecessary correspondence generated by such matters, saving costs to all concerned whilst at the same time giving arbitrators more time to concentrate on the important task of writing their awards.

Positive Communication

One of the biggest failings of parties and their advisors from an arbitrator's perspective is the lack of positive or constructive communication with their opponents. The usual result of this is that more, largely negative, correspondence is generated between the parties, often involving the tribunal and leading to more expense. Fax and e-mail have made communication easier and quicker but have produced a generation of parties and advisors who seem to have forgotten the use of the telephone as a means of business communication. Everything, therefore, is put in writing, often copied needlessly to the arbitrators for perceived tactical advantage, and in increasingly aggressive terms as the arbitration reference proceeds.

Aggression may be intended to impress clients but rarely impresses arbitrators and certainly does not assist the smooth and cost effective running of arbitrations.

Experience proves that direct and personal communication between parties or their respective legal advisors is almost always beneficial. The cases that proceed most smoothly are usually those in which the parties or their advisors have dealt with each other on a more personal basis, through telephone contacts or by meetings in person, rather than merely dealing with each other as names on a fax or e-mail message. This may be because it is human nature to be less aggressive and more positive towards people whom one has either spoken to or met. Whatever the reason, such contact is to be encouraged, not least because direct communications of this nature open up the possibilities of settlement more readily than written correspondence.

Arguing Bad Points

That trivial arguments occur as often as they do during the course of so many arbitrations suggests that many parties and their advisors still consider any concessions made during the course of an arbitration to be a sign of weakness and somehow harmful to their case. This can prove to be a costly mistake.

Just as counter productive as this is the mistaken belief some negotiating advantage may be gained by advancing numerous arguments on every conceivable point to impress or overwhelm an opponent.

Whether this approach has any benefit at any stage of a dispute is doubtful. What is clear, though, is that as an arbitration progresses so it become increasingly counter productive for a party to maintain bad or weak arguments as these soon become a liability as the parties incur more and more costs in dealing with them, making it harder for the arguments to be easily withdrawn or settled.

Under the LMAA Terms (2002) arbitrators have the power to make discrete costs orders. If, therefore, a party advances ten arguments and succeeds in only three of those, then even if the overall result is an award of money in their favour they may nevertheless be held liable to pay the other party's costs in relation to the seven points on which they lost. The intention behind this is to discourage parties from wasting each other's time with tactical, but unmeritorious, arguments and to encourage a far more realistic appraisal by the parties of the true value of their claims and the arguments that make up their claims. Parties that continue to run bad arguments, therefore, now do so at their risk of being exposed to paying their opponents' costs.

Taking a Realistic View

When necessary, parties can, and should, look to the arbitrators for assistance during the course of an arbitration. Nevertheless, they must also appreciate that it lies within their own hands to make their arbitrations run more smoothly and cost effectively. As well as taking the above points into account, parties in arbitration should always be prepared to take a critical view of their case as the reference progresses. An arbitration claim is not like a bullet that can be fired by a claimant and then be expected to follow a straight line in the hands of the claimants' legal advisers. Rather, a claim in arbitration can change course more than once as evidence is uncovered and its effect on the legal position assessed. Parties need therefore to maintain a close involvement in the arbitration as their progresses to understand the effect that developments may have on their prospects of success and the need, or otherwise, to seek a settlement.

Settlement is not weakness

About 70% of cases referred to arbitration settle before the arbitrators proceed to an award. Whilst obviously in some cases settlement may only be possible when full disclosure has been given and an opportunity gained to assess the strength of the evidence, in many cases settlements could be achieved at a much earlier stage of proceedings then is usually the case and certainly before significant costs have been incurred. Too many parties still appear to think that making the opening move in settlement negotiations is (or will be considered) a sign of weakness on their part and that it is always therefore for the other party to make the first move. A case will, however, have a settlement value, or "bottom line", whichever party opens the negotiations and questions as to who made the first move are likely to be long forgotten by the time that negotiations reach a critical stage. If a party makes the mistake of viewing the others opening of settlement discussions as a sign of weakness, they will soon find out when the other refuses to go below their "bottom line" for settlement. Pragmatism in such cases is more important therefore than pride and parties should always be aware of the risk of their own stubborness becoming the main obstacle to settlement.

Although the points made in this article may seem obvious, it is surprising how easily parties in the heat of an arbitration can tend to lose sight of the obvious. Keeping things simple and straightforward often, though, offers its rewards at the end of the day in arbitration.

With thanks to Clive Aston, LMAA Arbitrator, for preparing this article.

Also by Clive Aston: "An Arbitrator's Perspective - Balancing The Interests Of The Parties".