THE THREE OS OF ARBITRATION: ORIGIN, OPERATION AND OUTCOMES.
In lieu of litigation, arbitration has become a widely accepted technique for resolving business related disputes between contracting parties. As an ADR, arbitration has been used to resolve labor, asset expropriation, intellectual property and commercial disputes on an international basis. International law has also promoted the extraterritorial recognition and enforcement of arbitral decisions. The paper uses the three Os typology (origins, operations, outcomes) to examine both the evolution of this methodology and techniques for improving its performance as a global dispute resolution process for business.
Keywords: Arbitration, ADR, International Commercial Dispute Resolution
In the 10th century B.C., two women were involved in a dispute over the control of a very precious commodity. All informal attempts to resolve this dispute had proven unsuccessful. Therefore, the aggrieved parties sought the services of an arbitrator in order to resolve the conflict and return the precious commodity to the rightful person. This arbitrator was known throughout his nation for wisdom and the ability to render equitable and lawful decisions (Cohen, 1998). During the arbitral proceedings, the arbitrator listened to the cases presented by both individuals. Both these individuals made impassioned arguments supporting their right to possess the precious object.
Sensing that additional fact finding might be necessary to render an accurate/lawful judgment, the arbitrator deployed a novel "discovery" technique. The arbitrator proposed that the precious commodity (i.e., a child) be subdivided by sword such that each of the women could possess part of the disputed child. One of the women indicated her acceptance of the arbitrator's proposal. However, the second woman realized that this strategy would result in the death of the child and tearfully offered to abandon her claim in order to save the life of the baby. This latter's heartfelt response convinced the arbitrator that the second woman was the likely mother of the child. Therefore, the arbitrator (King Solomon) ruled that possession of the child should be granted to the second woman in the custody dispute (Cohen, 1998; Third Kings 3:23-27, 1957).
Since biblical time periods, arbitration has emerged as an acceptable alternative to traditional litigation for the purpose of resolving a variety of domestic and international business-related disputes (Stromberg, 2007; PriceWaterhouseCoopers, 2014). As an alternative dispute resolution [ADR] technique, arbitration offers the promise of being able to more quickly and economically resolve commercial disputes that were once the exclusive province of the court room (Repa, 2014; Thompson-Reuters, 2014; Sussman & Wilkinson, 2012). Both domestic laws and international treaties have granted this ADR technique legal status. This legal recognition of arbitration as an ADR method requires governments to both recognize and enforce arbitral decisions/awards (Federal Arbitration Act, 1925; Alternative Dispute Resolution Act, 1998; Nickerson, 2005; New York Convention, 2014; UNCITRAL, 2014). Use of arbitration to resolve a variety of commercial, labor/employment, asset expropriation and intellectual property (IP) disputes has been increasing on a global basis (PriceWaterhouseCoopers, 2014; American Arbitration Association, 2012).
Some researchers and practitioners have observed that evolving arbitral paradigms may be eroding some of the traditional advantages of this dispute resolution methodology (Stipanowich et al., 2010). They argue that the procedural guidelines of arbitration organizations and the extensive use of legal counsel have resulted in arbitral proceedings resembling litigation. This transformation may have significant consequences for the continuing efficiency and effectiveness of arbitration as an ADR (Stipanowich et al., 2010; Hornick, 2001; Kennedy, 2002).
The current paper seeks to provide a comprehensive review of this important dispute resolution technique and offer suggestions as to how its traditional advantages may be preserved. Through use of the Three Os typology, the paper will review (1) the historic and modern origins of arbitration ([O.sup.1]; (2) operational parameters associated with arbitration processes and its potential effectiveness as a method of dispute resolution ([O.sup.2); and (3) arbitral outcomes and methods for enhancing the effectiveness of arbitration in resolving business-related disputes ([O.sup.3).
ALTERNATIVE DISPUTE RESOLUTION AND ARBITRATION
Alternative Dispute Resolution Techniques
When developing commercial, intellectual property (IP), labor and investment agreements, contracting parties frequently anticipate the emergence conflicts or disagreements over contract issues (Marighetto, Prieditis, & Sgubini, 2004; California Courts, 2014). In lieu of settling these disagreements through litigation, many contracting parties elect to structure their agreements to include the option of alternative dispute resolution [ADR] (Marighetto et al., 2004; California Courts, 2014; Legal Information Institute, 2014). A number of conflict resolution techniques comprise ADR. These techniques include (1) negotiation; (2) neutral evaluation; (3) mediation; (4) conciliation; and (5) arbitration (Legal Information Institute, 2014; California Courts, 2014).
Negotiation is often used as either an initial attempt to resolve disagreements between contracting parties or as a prelude to the implementation of other ADR techniques (Legal Information Institute, 2014). The technique seeks to broker an out of court settlement regarding disputed issues and may possibly utilize legal counsel to craft the settlement (Clarkson, Miller, Jentz, & Cross, 2004). In contrast to other methodologies, negotiation permits contracting parties to control both the process and solution of the dispute (Legal Information Institute, 2014).
Neutral evaluation generally attempts to aid contracting parties in the resolution of technical disputes or matters where the estimate of damages/compensation is a critical matter (California Courts, 2014; Bishop, 2014; International Chamber of Commerce, 2003). Neutral evaluation is generally nonbinding on the conflicting parties (Bishop, 2014) and may not be appropriate in situations where there are significant personal/emotional barriers to the resolution of the dispute (California Courts, 2014).
As an ADR technique, mediation also utilizes the services of a neutral party (i.e., a mediator) in order to affect the resolution of the dispute (Marighetto et al., 2004). In this ADR technique, the "mediator does not decide the dispute but helps the parties communicate so they can try to settle the dispute themselves" (California Courts, 2014, p. 1). The mediator seeks to accomplish this task by encouraging conflicting parties to better clarify their respective needs, priorities and settlement requirements (Marighetto et al., 2004). The goal of the mediator is not to dictate a solution to the problem but to assist conflicting parties in discovering their own solution to the dispute. In this fashion, the conflicting parties control and determine the parameters within which the dispute will be settled or if subsequent litigation may be required (Marighetto et al., 2004; California Courts, 2014). As a dispute resolution technique, mediation may be inappropriate in situations where (a) there exists significant differences in the power of the negotiating parties; and/or (b) these parties demonstrate an unwillingness to cooperate/compromise (California Courts, 2014).
Unlike mediators, "conciliators" assume a more direct role in promoting dispute resolution among contracting parties (Marighetto et al, 2004):
In conciliation, the neutral is usually seen as an authority figure who is responsible for the figuring out the best solution for the parties. The conciliator, not the parties, often develops and proposes the terms of settlement. The parties come to the conciliator seeking guidance and the parties make decisions about proposals made by conciliators. In this regard, the role of a conciliator is distinct from the role of a mediator. (Marighetto et al., 2004, p. 6)
Among ADR techniques, arbitration most closely resembles traditional litigation activities (Legal Information Institute, 2014). In order to resolve disputes, contracting parties may engage the services of an ad-hoc arbitrator or pursue institutional arbitration in order to affect a resolution to their conflict (out-law.com, 2014). In the ad-hoc model, contracting parties have the responsibility of identifying a mutually acceptable arbitrator. In conjunction with the arbitrator, the contacting parties determine the rules/procedures which will be used in order to resolve the dispute (out-law.com, 2014). In contrast, institutional arbitration is generally accomplished under the auspices of an independent organization with well-established credibility, procedures, personnel and facilities dedicated to dispute resolution (JAMS, 2014; American Arbitration Association, 2013). The procedures articulated by these organizations serve to create a quasi-judicial environment for the arbitral proceeding (Legal Information Institute, 2014). These procedures serve to manage the manner in which arbitrators conduct hearings, "discovery" or procurement of evidence and the issuance of arbitral awards/decisions (JAMS, 2014; American Arbitration Association, 2013). Arbitral decisions may be either binding or nonbinding on the contracting parties (California Courts, 2014). Binding arbitration decisions are legally enforceable under a variety of domestic statutes and international treaties/agreements (Federal Arbitration Act, 1925; New York Convention, 2014; UNCITRAL, 2014; Nariman, 2009; Nickerson, 2005).
Advantages of Arbitration over Litigation
Proponents of arbitration argue that the technique yields a variety of advantages when compared to litigation-based dispute resolution (California Courts, 2014; Repa, 2014; Sussman & Wilkinson, 2012; Mazirow, 2008). These advantages include (1) time and cost efficiency associated with dispute resolution; (2) increased perceptions of fairness/equity; (3) confidentiality and elimination of future judicial precedents; and (4) finality of dispute resolution (California Courts, 2014; Thompson-Reuters, 2014; Sussman & Wilkinson, 2012; Repa, 2014; Mazirow, 2008; Mann & Roberts, 2011; WIPO Arbitration and Mediation Center, 2013).
Time and Cost Efficiency of Arbitration
Many of the time and cost savings associated with arbitration emerge from its more simplified procedures in adjudicating disputes (Thompson-Reuters, 2014). The civil procedure guidelines associated with most judicial proceedings permit litigants to engage in extensive pre-trial depositions, other discovery activities and legal motions on procedural issues related to trials. These activities prove to be both time consuming and costly for litigation participants (Repa, 2014). Conversely, arbitration rules often place significant limitations on these activities and result in greater time/cost efficiency for parties seeking to resolve their dispute (Repa, 2014; Thompson-Reuters, 2014; Sussman & Wilkinson, 2012). Arbitration may also be superior to litigation with respect to efficient resolution of disputes. This superiority stems from (a) arbitrators generally having smaller caseloads compared to their judicial counterparts; and (b) the use of defined timelines/schedules for the collection of evidence, presentation of cases and issuance of decisions/awards (Thompson-Reuters, 2014; California Courts, 2014). Arbitration is often more flexible than traditional litigation in that these timelines/schedules can be tailored to meet the needs of the participants rather than the case loads of the judicial system (Repa, 2014).
These procedural and time management characteristics of arbitration are associated with the more rapid resolution of contract disputes (California Courts, 2014; Repa, 2014; Sussman & Wilkerson, 2012). Citing evidence from The Federal Mediation and Conciliation service, Repa (2014) reports that the average amount of time needed to resolve disputes through arbitration is 475 days. Similarly, the American Arbitration Association reported that domestic commercial arbitration cases were on average resolved within 7.9 months (Sussman & Wilkinson, 2012). Similar cases adjudicated through traditional litigation took from 18 months to 3 years to achieve resolution (Repa, 2014). Since disputes settled through arbitration are settled more quickly, the fees for legal counsel and other court-related costs are significantly reduced (Sussman & Wilkinson, 2012; Mann & Roberts, 2011).
Increased Perceptions of Equity or Fairness
One of the significant concerns of parties seeking dispute resolution is the neutrality of the decision process (Sussman & Wilkinson, 2012). Arbitration can enhance this perceived neutrality by permitting contracting parties to influence the selection of (1) the arbitrator; (2) the geographic venue; and (3) laws governing the conduct of the arbitral process (Mann & Roberts, 2011; WIPO Arbitration and Mediation Center, 2013; Sussman & Wilkinson, 2012; Thompson-Reuters, 2014). When litigation is instituted, courts will assign a judge to preside over the case. This judicial assignment to a case may be random or based on other criteria. These additional criteria often include the geographic location of the trial and/or specialized expertise required to adjudicate the dispute (Federal Judicial Center, 2014). In contrast, arbitrators are appointed to resolve a dispute based upon the mutual agreement of contracting parties. By participating in the selection of the arbitrator, contracting parties generally perceive that arbitration is characterized by greater fairness when compared to litigation (Thompson-Reuters, 2014).
When resolving international commercial disputes through litigation, litigants often express concern as to whether they will receive an unbiased judgment by foreign judiciary/courts or if the opposing party may have "home field advantage" in the law suit (WIPO Arbitration and Mediation Center, 2013). Arbitration clauses in contracts can eliminate this problem through the specification of legal venues and domestic laws which regulate the conduct/enforcement of arbitral decisions (Hornick, 2001; Sussman & Wilkinson, 2012; International Chamber of Commerce, 2014).
Confidentiality and Elimination of Future Judicial Precendents
Arbitral proceedings are not conducted in an open/public venue (Repa, 2014). Unlike trials, documentary evidence and transcripts of the arbitral proceedings are not part of the public record (Thompson-Reuters, 2014). Contracting parties can also ensure confidentially with respect to evidence/decisions which emerge in dispute resolution processes through adoption of nondisclosure agreements (Mazirow, 2008). This lack of a public record can reduce the probability that the arbitral decision will be used to establish a precedent for either subsequent dispute settlements or future litigation in other cases (Mazirow, 2008; Thompson-Reuters, 2014). Confidentiality can also limit the disclosure of unflattering information which may have a negative impact on either the parties or their subsequent business activities (Repa, 2014).
Finality of Dispute Resolution
When electing to implement binding arbitration, contracting parties often waive their subsequent rights to judicial appeal (Thompson-Reuters, 2014; Sussman & Wilkinson, 2012). This waiver of appellate rights is sometimes integrated into the arbitration clause of contracts and is generally rescinded only in the event of fraud or arbitrator misconduct (Stipanowich et al., 2010). By eliminating this judicial oversight of arbitral decisions, binding arbitration can offer parties both faster resolution and closure to their contract disputes (Thompson-Reuters, 2014; Sussman & Wilkinson, 2012).
Use of Arbitration in Business and Commercial Activities
Recent survey data from multiple studies have indicated that arbitration may be a preferred ADR methodology by approximately 50% of firms involved in either domestic or international business disputes (Bassler, 2013; PriceWatershouseCoopers, 2013). In their study of "in-house" corporate counsel, PriceWatershouseCoopers [PWC] (2013) report that 53% of the respondents rate arbitration as the most preferred method for resolving international commercial disputes. PWC also reported industry differences with respect to the popularity of arbitration. As an ADR technique, arbitration had its highest popularity (68% approval) in the construction industry. In contrast, the technique had lower attractiveness (23% approval) as a dispute resolution technique in the financial services industry. The American Arbitration Association's Fulbright & Jaworski's 8th Annual Trends Survey Report concludes that the use of international arbitration by "in-house" corporate counsel has increased by 43% since 2009 (American Arbitration Association, 2012).
Data from both the 2013 PriceWatershouseCoopers [PWC] study and a parallel investigation of Fortune 1000 firms (Bassler, 2013) also provide evidence that arbitration may not be the first ADR technique utilized by firms in order to resolve disputes. Fifty seven percent of respondents in the PWC study utilized negotiation and mediation as an initial ADR technique before referring the dispute to subsequent arbitration or litigation. Bassler (2013) concludes that "increased use of mediation should not be seen as undermining arbitration but rather as complementing it" (Bassler, 2013, p. 104).
The PWC (2013) study also sought to identify factors influencing organizational choice of arbitration as a dispute resolution technique. Emergent findings from the study indicate that when
...deciding whether to commence arbitration, the most important factors are the strength of an organization's legal position, followed by the strength of the available evidence and thirdly, the amount of recoverable damages. While the costs of arbitration are a repeated concern, the prospect of high legal fees was not cited as an important factor in deciding whether to commence arbitration. (PriceWatershouseCoopers, 2013, p. 4)
[O.sup.1]: ORIGINS OF ARBITRATION
Historical Antecedents of Commercial Arbitration
As noted in the introduction to this paper, the origins of arbitration are ancient and have been utilized in order to facilitate the resolution of custody, territorial and commercial disputes throughout recorded history (Dynalex, 2012; Wolaver, 1934; Buhring-Uhle, Kirchoff, & Scherer, 2006; Stromberg, 2007). As a form of dispute resolution, arbitration appears to be consistent with early religious philosophies which stress the desirability to achieve peaceful coexistence with one's neighbors and seek expeditious resolution of disagreements with adversaries. In this manner, the arbitral process may have emerged as an important predecessor of formal legal systems and both common and statutory law (Wolaver, 1934). Evidence of arbitration as a precursor to formal litigation can be found in early Greek and Roman cultures. To assist parties in resolving their differences, the Greeks were reported to use a court of reconcilement (Heraldus, 1600). There is also documented use of private tribunals in order to arbitrate disputes prior to the establishment of public court systems (Wolaver, 1934).
Commercial arbitration was also formalized by various craft guilds in Europe during the 13th century (Stromberg, 2006). Organizations known as guild merchants were organized "for the purpose amongst others of mutual arbitration. Members of the same guild were bound to bring their disputes before the guilds before litigating the matter elsewhere" (Carter, 1896, p. 268). King Edward I of England (reign: 1272-1307) originated arbitral tribunals that became known as the Court of Piepowder (Buhring-Uhle et al., 2006; Stromberg, 2007). The development of these tribunals served to expedite the resolution of disputes or conflicts between merchants which occurred in public fairs or markets. The arbitrator for these disputes was to be a "loyal and discrete man... [that] ... shall be appointed a judge from among the merchants... [and] ... decide questions which arise among merchants and in accord with the law of the merchant'" (Wolaver, 1934, p. 136). In resolving vendor disputes, these latter individuals were to craft remedies compatible with merchant traditions in their locality or market place (Wolaver, 1934). These legal traditions or lex mercatoria (merchant law) largely concerned themselves with negotiable instruments used by merchants in order to finance their foreign trade activities. Originating during the medieval period, both the lex mercatoria and merchant arbitrators sought to resolve disputes surrounding the use and payment of bills of exchange. In England, the use of arbitration to deal with these issues was required because royal courts did not recognize the validity of these bills of exchange pursuant to commercial transactions (Clarkson et al., 2004).
During the 17th century, growth in mercantile activity in England prompted the extensive use of private arbitrators in order to resolve disputes/conflicts among merchants (Dynalex, 2012). However, these private arbitration activities were frustrated by the lack of legal statutes which legitimized contractual agreements to resolve commercial disputes through ADR methods. Thus, conflicting parties (a) could withdraw from a formally convened arbitration process; and (b) initiate subsequent litigation at their discretion (Dynalex, 2012; Wolaver, 1934). English common law appears to have supported these types of actions due to the low regard and hostility that judges directed toward arbitration/arbitrators (Wolaver, 1934). Additionally, English law of this period provided no statutory mechanism to enforce awards made by arbitrators (Dynalex, 2012). This statutory oversight was not addressed until 1854 with the passage of the Common Law Procedure Act (1854 Chapter 125 17 and 18 Victoria). The Act permitted English courts to utilize their
...judicial power to refer a complex matter to arbitration. This reference being an extension of the ruling of a formal court allowed the court to employ its penal powers to ensure compliance with an award made through arbitration. (Dynalex, 2012, p. 2)
The 18 century evidenced several developments which reinforced the viability of commercial arbitration. The French Constitution of 1791 legitimized the constitutional right of citizens to seek dispute resolution through arbitration. This legal right to arbitration was subsequently recognized in the French Code of Civil Procedure in 1806 (Seppela, 1982; Rees, 2010). Prior to the American Revolution, individual states enacted a variety of measures which facilitated commercial arbitration (Szalai, 2007). For example, the Chamber of Commerce of the State of New York established a formal arbitration committee in order to facilitate the settlement of merchant disputes in 1768 (Szalai, 2007). Following the Revolutionary War, the United States government also sought to utilize arbitration as a means for resolving financial claims/disagreements between British creditors and U.S. nationals (Stromberg, 2007). Articles 6 and 7 of the Jay Treaty of 1794 was used to create an bilateral commission in order to investigate, evaluate and order financial restitution to aggrieved parties in these international commercial disputes. Decisions of the Commission were to be final and binding on all parties (i.e.: binding arbitration) involved in these commercial discords (Jay Treaty of 1794). During the 19 century, the American industrial revolution also gave rise to the inclusion of arbitration clauses in the constitutions of craft guilds and labor unions. This is evidenced by the inclusion of (a) arbitration clauses in the constitution of the Journeymen Cabinet-Makers of Philadelphia in 1829; and (b) a grievance arbitration clause placed in the constitution of the United Mine Workers of America at their initial labor convention in 1890 (Dynalex, 2012). In 1855, the U.S. Supreme Court rendered a landmark ruling in Burchell v. Marsh which reinforced the legitimacy of arbitration activities originating within the United States. In this case, the Court ruled that:
If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court will not set it aside for error, either in law or fact. A contrary course would be a substitution of the judgment of the judiciary in place of the judges [the arbitrators] chosen by the parties, and would make an award the commencement, not the end, of litigation. (Burchell v. Marsh, 1855, p. 344)
Evolution of Arbitration in the 20th Century
The 20th century saw the emergence of a variety of domestic/U.S. laws and international treaties which served to reform many of the deficiencies characterizing earlier European and American experiences with arbitration. These statutory and treaty based initiatives are characterized by (1) the U.S. Federal Arbitration Act of 1925; (2) the Alternative Dispute Resolution Act of 1998; (3) the Geneva and New York Convention; (4) the UNCITRAL Model Law; (5) the 1CSID Convention; and (6) Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) that exist among most nations of the world (Stromberg, 2007; Szalai, 2007; Fitzpatrick & Diluito, 2012; Peterson, 2007; Trainer, 2008; Rajkumar, 2005; Drahos, 2002).
U.S. Statutory Arbitration Initiatives
The United States Congress has enacted two major statutes which legally recognize, regulate and establish parameters within which arbitration can be used to resolve commercial disputes. These statutes are respectively (a) the Federal Arbitration Act (1925); and (b) the Alternative Dispute Resolution Act (1998). In the aftermath of World War I, the passage of the Federal Arbitration Act (1925) was viewed to be critical in permitting the discovery of "a peaceful way to resolve economic disputes that could lead to violence and war" (Szalai, 2007, p. 368).
As amended, the Federal Arbitration Act of 1925 (43 Statute 883) sought to (1) establish/facilitate the legitimacy, irrevocability and enforcement of arbitral awards; and (2) define the role of the court system in relation to the arbitration process (Alliance for Education in Dispute Resolution, 2014). Sections 3 thru 10 of the Federal Arbitration Act (FAA) sought to delineate the legal oversight of the U.S. court system on arbitration activities. The FAA granted the courts the authority to (1) stay judicial proceedings and refer disputes to arbitration when conflicting parties are signatories to arbitration agreements; (2) compel reluctant parties to submit to arbitration consistent with prior contractual agreements; and (3) appoint umpires to adjudicate disputes when contracts or contracting parties fail to specify or agree upon the selection of an arbitrator (Federal Arbitration Act, 1925). The FAA also codified the authority of the courts to confirm or vacate arbitral awards and empower arbitrators to manage witness/evidentiary activities. In the event that a contracting party disregards an arbitral decision, plaintiffs may petition courts to confirm and compel compliance to the arbitrator's findings/award. The courts are also empowered to vacate and rehear cases previously adjudicated through arbitration. This judicial intervention is authorized when there is evidence of an arbitrator's corruption, fraud, duress, partiality, misconduct and/or a failure to hear relevant evidence. Judicial oversight can also be implemented if "arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made" (Federal Arbitration Agreement, 1925: Section 10). The FAA empowered arbitrators to summon witnesses and compel them to produce relevant evidence in support of the arbitral proceedings. Pursuant to this objective, arbitrators were given the authority to petition the U.S. District Court in order to compel reluctant witnesses to testify or produce documents relevant to the arbitral proceedings. Finally, the FAA was subsequently amended so as to be compatible with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (i.e., The New York Convention).
The Alternative Dispute Resolution Act of 1998
The Alternative Dispute Resolution Act (1998) was motivated by a Congressional desire to reduce the cost and volume of civil litigation addressed by Federal courts (Baum, 1999). This statute requires U.S. District Courts to encourage civil litigants to consider the use of alternative dispute resolution techniques for purposes of resolving their legal issues. These alternative dispute resolution (ADR) techniques can include mediation, early neutral evaluation, minitrial and arbitration. The courts are authorized to make "neutrals" available for use in these ADR activities. These neutrals can include magistrates or other individuals trained in ADR techniques. Arbitration awards by these neutrals
...shall be entered as the judgment of the court after the time has expired for requesting a trial de novo. The judgment so entered shall ... have the same force and effect as a judgment of the court in a civil action, except that the judgment shall not be subject to review in any other court by appeal or otherwise. (ADR, 1998: Section 657)
The Geneva and New York Conventions
The Federal Arbitration Act (1925) and Alternative Dispute Resolution Act (1998) served to pave the way for the legitimacy and enforcement of arbitration decisions rendered in the United States. Shortly after passage of the FAA, the legal community sought to craft an international framework for the enforcement of arbitration activities and arbitral awards involving parties from different nations (Stromberg, 2007). This international framework was viewed as being critical in facilitating both the recognition and enforcement of foreign arbitration awards (Nickerson, 2005; Stromberg, 2007; Dynalex, 2012). Prior to 1927, successful plaintiffs in arbitration cases were often frustrated by their inability to enforce arbitral decisions in nations other than where the dispute was initially adjudicated. Motivated by a desire to deal with these enforcement issues, the international community crafted the 1927 Convention on the Execution of Foreign Arbitral Awards [Geneva Convention] (Stromberg, 2007; Davis, 2002).
While the 1927 Geneva Convention purported to facilitate international arbitration, it actually created an additional barrier to the enforcement of arbitral awards. This additional barrier or legal hurdle involved the doctrine of double exequatur. Under this legal doctrine, extraterritorial enforcement of an arbitral award was contingent on judicial review/confirmation of the arbitrator's decision by the national court system of the country where the arbitration case was first adjudicated (Davis, 2002). Arguably, the legal doctrine of double exequatur and other provisions of the Geneva Convention may have (a) eroded judicial independence of arbitrators; and (b) complicated the efficient international enforcement of arbitral decisions. These perceived inadequacies proved to be problematic for the international community and subsequently motivated corrective action through development of the 1958 New York Convention (Davis, 2002; Stromberg, 2005; Dynalex, 2012; Nariman, 2009).
The 1958 New York Convention [i.e., Convention on the Recognition and Enforcement of Foreign Arbitral Awards] sought to overcome the aforementioned double exequatur constraint by requiring signatories to the agreement to mutually honor and enforce arbitral decisions/awards originated in any of their respective nations (Nickerson, 2005; New York Convention, 2014). The treaty concerns itself only with the exterritorial enforcement of arbitration outcomes. This is characterized by activities which seek court sponsored enforcement of arbitral awards in countries other than where the arbitration decision was originally rendered. Enforcement of domestically-oriented arbitration decisions remains under the jurisdiction of courts in the country where the arbitration process originated (International Council for Commercial Arbitration, 2014). As of 2013, 149 countries have become signatories to the New York Convention (Bassler, 2013; New York Arbitration Convention, 2014b). Given the global acceptance of this agreement, the New York Convention has become a "uniform standard for recognition and enforcement of arbitration agreements]" for the international community (Stromberg, 2007, p. 1346).
The development of the Convention recognized from the outset the importance of national court systems in the administration and enforcement of arbitral decisions (Nariman, 2009). Prior to enforcing an arbitration decision, the courts of signatory nations must determine if (a) a valid arbitration agreement formally exists and that the arbitration process was entered into voluntarily by its participants; (b) the arbitration process has yielded a "final and binding resolution of the dispute" (International Council for Commercial Arbitration, 2014, p. 17); and (c) parties to the agreement have actually elected to forgo litigation in favor of arbitration as an alternative dispute resolution method (International Council for Commercial Arbitration, 2014). The Convention also places limitations on the manner in which national courts may implement foreign arbitral decisions. The Convention mandates that its provisions shall not abrogate the terms of bilateral or multilateral treaties which signatory nations have enacted for purposes of facilitating commercial arbitrations activities (International Council for Commercial Arbitration, 2014). An additional judicial requirement of the New York Convention involves achieving parity in the enforcement of both foreign and domestic arbitral awards. As noted in Article 3 of the Convention,
There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards. (New York Convention, 1958: Article 3)
Article 5 of the Convention also provides procedural mechanisms and criteria that affected parties may utilize in order to judicially challenge the findings of an arbitrator. Courts may repudiate foreign arbitral decisions if a contracting can provide evidence that (1) the initial arbitration agreement is invalid under either the laws of the enforcing nation or the nation where the arbitration agreement was originated; (2) they were not given adequate notification of the appointment of the arbitrator and/or commencement of the arbitration proceedings; (3) they were unable to present their case at the arbitration proceedings; (4) the arbitrator's decision contains rulings which exceed or are beyond the original scope of the arbitration filing; (5) the selection of the arbitrator or arbitration procedure was not in accordance with either the original contract between the parties and/or the laws of the country in which the arbitration hearing was conducted; (6) the arbitral award has not become binding on the contracting parties or has been set aside by authorities in the country where the award was rendered; (7) the arbitral award is contrary to the public policy of the country where the arbitration occurred; and (8) the dispute between the parties cannot be resolved in manner consistent with the laws of the country hosting the initial arbitration process (New York Convention, 1958).
Overall, the U.S. court system has been supportive of enforcing foreign arbitral awards in a manner consistent with the New York Convention (McLaughlin & Genevro, 1986; Scherk v. Alberto-Culver, 1973; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 1983). In Scherk v. Alberto-Culver (1973), the U.S. Supreme Court noted that
A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages. (Scherk v. Alberto-Culver, 1973, p. 516-517)
The UNCITRAL Model Law
An arbitration clause or agreement will generally specify the location and associated legal system that will govern the arbitration process (Nickerson, 2005). Unfortunately, due to variations in legal systems and the associated legal status of arbitration, there exist many differences in country-specific laws which govern the conduct and enforcement of arbitral decisions (United Nations Commission on International Trade, 2006). This variation in domestic arbitration statutes has led to inconsistencies in both the governance and oversight of arbitral processes on a global basis (Nariman, 2009; United Nations Commission on International Trade, 2006). As noted by the United Nations Commission on International Trade [UNCITRAL],
Problems stemming from inadequate arbitration laws or from the absence of specific legislation governing arbitration are aggravated by the fact that national laws differ widely. Such differences are a frequent source of concern in international arbitration, where at least one of the parties is, and often both parties are, confronted with foreign and unfamiliar provisions and procedures. (UNCITRAL, 2006, p. 25)
In 1985, UNCITRAL attempted to address these problems through the promulgation of a model arbitration law. This Model Law provides a legal template for countries interested in developing domestic arbitration statues consistent with global practice (UNCITRAL, 2014). This template suggests both the common language and legal issues that should be codified into a country's domestic arbitration statutes (UNCITRAL, 2014). Notable aspects of the Model Law include specific of provisions governing (a) the appointment of arbitrators and challenges to these appointments (Articles 11 and 12); and (b) the enforcement, correction and/or refusal to enforce an arbitral award (Articles 33, 34, 35and 36). Many of the legal requirements of the Model Law have been modeled after provisions contained in the New York Convention (1958). Since 1985, 94 nations, territories/states and provinces have utilized the Model Law in the development of their own domestic arbitration statutes (UNICITRAL, 2014).
Bilateral Investment Treaties, Free Trade Agreements and the ICSID Convention
During the 20th and 21st centuries, Bilateral Investment Treaties (BITs) have come to represent an important international mechanism for protecting the rights of investors throughout the international community (He & Sappideen, 2013). Globally, 2781 BITs have been negotiated by nations with 2095 of these agreements remaining in effect (United Nations Conference on Trade and Development, 2014). Currently, the United States has 41 active BITs with other countries (United States Department of State, 2014). In formulating these international treaties, participating countries will generally negotiate an investor-state arbitration (ISA) provision or clause to the agreement (He & Sappideen, 2013). The ISA feature of these treaties "give[s] investors from each party [i.e., nation] the right to submit an investment dispute with the government of the other party to international arbitration. There is no requirement to use that country's domestic courts" (Office of the United States Trade Representative, 2014, p. 1). However, many of these BITs require investors to attempt negotiation of the settlement prior to filing an arbitration request. Under some treaties, there is a three to six month negotiating requirement before other ADR techniques [i.e., binding arbitration] may be used in order to resolve investment disputes (He & Sappideen, 2013).
Free Trade Agreements (FTAs) may also permit nations to secure investment protections and arbitration rights for the citizens/businesses of their signatory nations. Frequently, these agreements will include an ISA clause in the chapter or article dealing with investments (He & Sappideen, 2013). This is exemplified by Chapter 11 of the NAFTA treaty (Organization of American States, 2014). Chapter 11 of NAFTA offers potential relief/compensation through the ADR techniques of negotiation, consultation and arbitration (Organization of American States, 2014). "This mechanism allowed NAFTA investors to bypass the local courts of a host government through access to binding arbitration under the ICSID or the ICSID Additional Facility Rules, or the rules of the UNCITRAL" (He & Sappideen, 2013, p. 217). The arbitration provision of this treaty "depoliticizes investment disputes, assures adjudicative neutrality and independence" in the settlement of investor/host country economic disputes (United Nations Conference on Trade and Development, 2010, p. xxii).
Many investor/host country investment disputes are referred to ICSID [International Center for the Settlement of Investment Disputes] for subsequent arbitration. ICSID was established in 1965 under the auspices of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID, 1965). The ICSID Convention attempts to lower the risks associated with foreign direct investment (FDI). This is accomplished by providing facilities, arbitration and conciliation services in order to resolve investment disputes involving signatory nations to the Convention (ICSID, 1965). Currently, 159 nations have become signatories to the ICSID Convention (ICSID, 2014a).
In dealing with arbitration matters, the ICSID Convention permits either signatory countries or nationals of these countries to initiate a request for arbitration of an investment dispute (ISCID, 1965). The Convention specifies that an arbitrator or arbitration tribunal must be convened as quickly as possible after the receipt of this request. In order to facilitate arbitral neutrality, Article 39 of the Convention specifies that the arbitrator should not be a citizen of the countries which are parties to the dispute. Should a panel or tribunal be appointed to resolve the dispute, Article 39 requires that the majority of arbitrators should not be citizens of the nation of either of conflicting parties. However, these requirements can be waived by mutual consent of the disputing parties.
Unless otherwise specified by the conflicting parties, Article 42 specifies that the arbitrator/tribunal will adjudicate the dispute based upon the laws of the contracting state. Decisions of the arbitrator/arbitration tribunal are binding upon the parties to the dispute (Article 53) and the contracting state shall
...enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state. (ICSID, 1965: Article 54)
Parties to the dispute can petition the Secretary General of ICSID to revise the arbitral award/decision. This appeal must be (a) based upon the discovery of new facts or evidence not previously presented in the arbitration process; and (b) be submitted within three years of the original arbitral decision (Article 50). Since the establishment of the Convention in 1965, ICSID has been the recipient of 477 cases. Of these cases, 285 have been resolved and 192 remain pending (ICSID, 2014b; 2014c). Approximately 80% of these investment disputes were submitted to arbitration (Wikipedia, 2014).
[O.sup.2]: ARBITRAL OPERATIONS
Arbitration has been utilized to assist contracting parties in resolving a variety of commercial, asset expropriation, intellectual property (IP) and labor disputes (He & Sappideen, 2013; Trackman, 2014 ; Fakih, 2013; Slater, 2013; Fry & Chance, 2013; Nobles, 2012). In resolving these types of conflicts, arbitrators and contracting parties need to structure this ADR technique in order to better manage an array of operational matters. These matters include (1) achieving compatibility between arbitrational objectives and settlement methodologies (Slater, 2013; Tulis, 2010; Fry & Chance; International Chamber of Commerce, 1990; International Center for Dispute Resolution, 2010; Inc., 2014); (2) forging an agreement on processes and procedures which will be used to manage arbitration activities (American Arbitration Association, 2013; JAMS, 2014); and (3) dealing with legal and political issues which may impact the success of the dispute resolution process (Alexander v Gardner-Denver Company, 1974; 4 Penn Plaza LLC v. Pyett, 2009).
Arbitration al Objectives and Settlement Methodologies
Prior to implementing arbitration processes or activities, contracting parties must select dispute resolution techniques which correspond to their objectives (Slater, 2013; Fry & Chance, 2013; Tulis, 2010). Frequently, these objectives are associated with the desire of contracting parties to achieve either a quick settlement of the dispute (Tulis, 2010; Fry & Chance, 2013) and/or a balancing of stakeholder interests in the resolution of disputes (Slater, 2013; Anderson & Krause, 1987; Delaware State Troopers Association v. State of Delaware, Department of Safety and Homeland Security, 2009). These latter stakeholders can include the contracting parties, governmental entities and the public (Slater, 2013).
In order to achieve these objectives, ADR practitioners have developed three arbitration options for contracting parties. These dispute settlement methodologies include (1) final-offer arbitration (Tulis, 2010); (2) expedited arbitration (Inc., 2014; Fry & Chance, 2013); and (3) interest arbitration (Slater, 2013). Both final-offer and expedited arbitration respond to the needs of contracting parties for reaching a quick resolution to their dispute (Tulis, 2010; Fry & Chance, 2013).
Final Offer Arbitration
Final offer arbitration, sometimes referred to as "last, best offer" or "baseball arbitration," is commonly used to resolve disputes in both the sports industry and in public sector collective bargaining activities (Tulis, 2010; Carrell & Bales, 2012). Under this form of arbitration, parties to the dispute present settlement proposals and then the arbitrator must make a selection from among these alternative proposals (Inc., 2014). By limiting their activities to adjudicating the settlement proposals of the contracting parties, the arbitration process can be streamlined and achieve a more rapid resolution of the dispute (Tulis, 2010).
In evaluating settlement proposals, final-offer methodologies permit arbitrators to select either a complete settlement package in its entirety or implement portions of the settlement proposals on an issue-by-issue basis (Tulis, 2010). Advocates of the issue-by-issue approach propose that arbitrators may be able to "mix and match" options from each of the settlement proposals in order to develop a more reasonable or equitable solution to the dispute (Tulis, 2010). Unfortunately, this issue-by-issue approach may not result in the best integrated solution to the dispute (Carrell & Bales, 2012).
The existence of final-offer arbitration often encourages risk management behaviors among disputing parties. This risk management behavior is exemplified by actions which reduce the probability of negative outcomes if a party's settlement proposal is rejected by the arbitrator (Tulio, 2010). Frequently, conflicting parties may reduce these risks/uncertainties through pre-arbitral negotiation/settlement of differences (Carrel & Bales, 2012; Hebdon, 2014) and/or the construction of settlement packages which contain reasonable demands (Tulio, 2010). These latter activities may also have a positive effect on both the efficiency and perceived fairness of the dispute resolution process.
Expedited arbitration is designed to assist contracting parties in achieving a swift resolution to their dispute. The technique was first used in 1971 for purposes of settling labor disputes in the steel industry (Inc., 2014). The World Intellectual Property Organization (WIPO) has also created an expedited arbitration process for settlement of intellectual property disputes (WIPO Arbitration and Mediation Center, 2007). In the WIPO expedited procedure, strict time limits are imposed for the accomplishment of specific dispute resolution tasks. Thus, (a) WIPO is required to respond to the contracting parties request for arbitration within 20 days after the filing of the initial arbitral claims; (b) appointment of an arbitrator, conduct of hearings and closure of the proceedings must be completed within approximately 105 days; and (c) a final award/decision must be issued within one month after hearings have been completed (WIPO Arbitration and Mediation Center, 2007).
In its recent dispute resolution survey, WIPO compared the relative cost and time efficiency of expedited arbitration to litigation in the resolution of IP disputes. Survey data indicated that IP litigation generally took three to three and a half years to resolve. Litigation costs also averaged $475,000 for domestic cases and up to $850,000 when litigation was initiated in foreign jurisdictions. In contrast, expedited arbitration cases were resolved in less than one year and at an average cost of approximately $400,000 (WIPO Arbitration and Mediation Center, 2013b).
Frequently, parties to international commercial disputes require rapid interim relief before a final settlement has been crafted through either arbitration or the courts (Fry & Chance, 2013). This has led to the deployment of emergency arbitrators. Typically, emergency arbitrators seek to provide interim relief to contracting parties prior to the appointment of an official arbitrator or arbitrational tribunal (Fry & Chance, 2013). The emergence of these types of arbitrators began in the 1980s at the behest of the International Chamber of Commerce [ICC] through the creation of a pre-arbitral referee (International Chamber of Commerce, 1990). Under ICC regulations, pre-arbitral referees were permitted to issue "conservatory measures" in order to protect or prevent loss/damage to property and/or preserve evidence relevant to the arbitral proceedings (Fry & Chance, 2013). The need for preventive pre-arbitral actions was also recognized by the International Center for Dispute Resolution (ICDR) in 2006. This international subdivision of the American Arbitration Association, developed new rules/procedures which (1) originated the concept of emergency arbitrators; and (2) sought to provide interim relief to contracting parties in critical situations. Paralleling ICC regulations, these emergency arbitrators are empowered to provide both injunctive relief and initiate actions to preserve/protect property (International Center for Dispute Resolution, 2010). To date, the majority of emergency arbitration decisions have centered on either contract compliance issues or injunctions on the disposal of assets (Fry & Chance, 2013). The decisions of emergency arbitrators must be rendered quickly and may be subject to subsequent review, modification or rescission by duly appointed arbitration panels (ICC Rules Appendix V, 2012; ICDR Rules Article 37 , 2010). Evidence suggests that the majority of emergency arbitration decisions are rendered within five days (Fry & Chance, 2013).
Interest arbitration largely concerns itself with the resolution of disputes between public sector unions and governmental entities. As a technique, its goal is to (a) overcome some of the restrictions of final offer and binding arbitration; (b) permit arbitrators greater flexibility in selecting and combining settlement options developed by unions and government entities; and (c) craft arbitral decisions in a manner which serves to increase the fairness of the process for both participants and other relevant stakeholders (Slater, 2013; Anderson & Krause, 1987).
Interest arbitration is sometimes implemented by arbitrators when the settlement proposals of local governments and unions contain a number of both satisfactory and onerous options (Slater, 2013). This permits the arbitrator to "mix and match" different proposals generated by each of the contracting parties so as to maximize the overall utility, fairness and acceptance of the arbitral decision. In the spirit of balancing policy requirements, expediency and fairness, arbitrators often expand their traditional decisional role by determining "what the contract rights ought to be... [and] ... determine what... [the parties] ... should, by negotiation, have agreed upon" (Slater, 2013, p. 402-403). Interest arbitration in public sector collective bargaining activities may also be required to consider not only the objectives of the governmental entity and union but also the interests/welfare of the general public (Slater, 2013; Ohio Revised Code Ann. s4117.14[G], 2012). For example, the state of Ohio has indicated in its interest arbitration statute that arbitral decisions, should consider (1) issues of comparable worth; (2) compatibility with prior collective bargaining agreements; (3) governmental authority to comply with settlement proposals; (4) public interest/welfare; and (5) the ability of public employers to pay for settlements crafted through interest arbitration (Ohio Revised Code Ann. s4117.14[G], 2012). By specifying these types of decisional criteria/objectives, statutory law can attempt to balance stakeholder goals or requirements in the resolution of public sector collective bargaining disputes (Slater, 2013).
Operational Processes and Procedures
Designing and managing arbitral processes is critical in achieving an effective, time/cost efficient and amicable settlement to contract disputes (Stipanowich et al., 2010; California Courts, 2014; Sussman & Wilkinson, 2012; Repa, 2014; Mazirow, 2008). These arbitration processes generally consist of seven definitive stages. These stages are respectively (1) filing and initiation of an arbitration dispute; (2) arbitrator selection; (3) a preliminary hearing; (4) information preparation and exchanges between disputing parties and the arbitrator; (5) the arbitration hearing; (6) post hearing submissions; and (7) arbitral decision and awards (American Arbitration Association, 2014; Nationwide Academy for Dispute Resolution, 2000).
Filing Arbitral Disputes/Claims
Filing an arbitration dispute/claim is generally initiated by one of the contracting parties. To facilitate the efficient processing of the dispute, the American Arbitration Association [AAA] requires the filing to provide a complete description of the contract claim and type of arbitral relief which is sought in order to resolve the dispute (American Arbitration Association, 2013). Focusing the nature of the dispute serves to eliminate ambiguities, focus the arbitral proceedings and promote a more efficient adjudication of the dispute (Stipanowich et al., 2010; Kennedy, 2002). Efficiency of the process is also fostered by limiting the time period for the initial response/rebuttal of the plaintiff's claim. Under AAA guidelines, the defendant is given 14 days in order to submit their response to the plaintiffs claim (American Arbitration Association, 2013).
Once an initial complaint/claim has been filed, both the AAA and the Judicial Arbitration and Mediation Service [JAMS] provide some additional pre-arbitral services which may speed resolution of the dispute. In claims which exceed $75,000, the AAA requires that parties pursue dispute resolution through the concurrent use of arbitration and mediation (American Arbitration Association, 2013). This hybrid approach to dispute resolution offers significant cost advantages to contracting parties and can lead to a rapid and amicable resolution of the dispute (Smith, Gambrel and Russell LLP, 2014; Neiman Mediation, 2014). Successful settlement of the dispute through pre-arbitral mediation permits contracting parties to avoid significant arbitrator fees associated with arbitral hearings/decision making. These fees emanate from the amount of time arbitrators devote to activities associated with (a) review of legal briefs; (b) presiding over the hearing; and (c) rendering/providing a formal written decision in the case (Neiman Mediation, 2014). Conversely, when successful, pre-arbitral mediation is generally resolved in one to three days and results in total costs of less than $10,000 (Smith, Gambrel, and Russell LLP, 2014).
JAMS also provides contracting parties with the option of requesting emergency relief procedures in their initial arbitration filing (JAMS, 2014). As noted previously, these emergency or expedited arbitration measures are designed to facilitate rapid resolution of disputes in critical situations (Fry & Chance, 2013; International Chamber of Commerce, 1990). In furtherance of this objective, JAMS promises to appoint an emergency arbitrator within 24 hours of the receipt for a request for emergency/expedited arbitration (JAMS, 2014).
Arbitrator selection for contracting parties varies based upon whether ad-hoc or institutional arbitration is utilized (Stromberg, 2007). Parties electing ad-hoc arbitration are required to seek out and agree on the selection of an independent arbitrator in order to resolve their dispute (Stromberg, 2007). Should the parties be unable to agree on the selection of an independent arbitrator, they may choose to invoke the UNICTRAL Arbitration Rules which permit the contracting parties to utilize an "appointing authority" in order to select an arbitrator to resolve their dispute (United Nations Commission on International Trade Law, 2010). When arbitration organizations are selected to resolve a dispute, contracting parties must select and utilize arbitrators affiliated with these institutions (Kennedy, 2002). In general, JAMS tends to have more former judges on their roster than the American Arbitration Association (Kennedy, 2002). Employment of former judges as arbitrators may serve to enhance the efficiency of arbitral processes by virtue of their legal knowledge and ability to rapidly evaluate motions submitted by legal counsel (Sander, 2010). Due to their judicial expertise, JAMS arbitrators tend to be more expensive than their AAA counterparts (Kennedy, 2002).
Arbitral Hearings and Decisional Processes
Arbitral procedures are also implemented in order to effectively/efficiently manage (a) a preliminary hearing; (b) information preparation and exchanges between disputing parties and the arbitrator; (c) the arbitration hearing; (d) post hearing submissions; and (e) arbitral decision and awards. When using ad-hoc arbitration, contracting parties may facilitate the efficiency of the arbitral process by placing constraints on the operation of these dispute resolution activities.
For example, the nature and scope of discovery (including whether to allow depositions), the conduct of the hearing (including testimony by live video), the length of time for the entire process, as well as pre-screening the arbitrators for disclosure issues and availability can all be determined by the parties, both at the contractual stage and after the arbitration has commenced. (Sussman & Wilkinson, 2012, p. 1)
In contrast, both the AAA and JAMS provide comprehensive procedures for the conduct arbitration activities. Participants have very little autonomy in deviating from their procedural requirements (American Arbitration Association, 2013; JAMS, 2014). For example, in order to expedite dispute resolution, the AAA guidelines permit the waiver of oral hearings/presentations in arbitral proceedings where either (1) claims does not exceed $25,000; and (2) the oral hearing is not requested by either the contracting parties or the arbitrator. Under these circumstances, the case is decided on the basis of documentary submissions by the contracting parties. Arbitrators are then required to render a decision within 30 days (American Arbitration Association, 2013).
JAMS (2014) rules governing ADR provide specific prohibitions on the unilateral withdrawal of contracting parties from arbitration once arbitral proceedings have commenced. The procedural rules also establish a strict time schedule for evidentiary discovery processes. Parties must mutually exchange all non-privileged documents and witness lists within 21 days after the original arbitration claim has been filed with JAMS. In the event of conflicts over evidentiary discovery, the arbitrator may appoint a "special master" to adjudicate this procedural issue. There are also limitations on deposing or securing pre-arbitral testimony from parties to the arbitration. Opposing parties may depose each other or persons under their respective control one time. Additionally, JAMS (2014) recognizes the importance of maintaining the confidentiality of information disclosed in arbitral hearings. Arbitrators are granted the authority to issue orders necessary "to protect the confidentiality of proprietary information, trade secrets or other sensitive information" (JAMS, 2014, p. 28). Finally, JAMS' arbitrators are required to issue their decision/award within 30 days after the conclusion of the arbitration hearing. Collectively, these procedural constraints and time schedules are designed to promote greater time/cost efficiency in the arbitration process (JAMS, 2014).
Practitioners and participants in AAA or JAMS' sponsored arbitrations have reported significant differences in their respective cost effectiveness/efficiency. Some contracting parties have found "AAA arbitrations to be potentially expensive, disjointed affairs that can drag out for years and produce less than satisfying results" (Kennedy, 2002, p. 113). In contrast, JAMS arbitrator fees are generally higher than the AAA fee schedule. Additionally, JAMS arbitration procedures "include more of the formalities and procedures of litigation than are found in the AAA's Commercial Arbitration Rules" (Kennedy, 2002, p. 113).
As an ADR, arbitration has been utilized to resolve a variety of different types of contract disputes. These contract disputes include labor/collective bargaining, intellectual property (IP), asset expropriation and commercial matters (Nobles, 2012; 4 Penn Plaza LLC v. Pyett, 2009; Trackman, 2014; Nickerson, 2005). However, the use of arbitration to resolve these types of contract disputes is significantly influenced by a variety of both legal and political issues (4 Penn Plaza LLC v. Pyett, 2009; Nobles, 2012; Trackman, 2014).
Legal Issues in the Arbitration of Employment Discrimination
Title 7 of the 1964 Civil Rights Act (Public Law 88-352) prohibits discrimination in employment based on race, color, religion, sex and national origin. Frequently, employers have sought to create employment contracts and collective bargaining agreements which resolve employment discrimination issues through arbitration. In response to using ADR as a method for dealing with employment discrimination, U.S. courts have had to determine whether employees have the right to litigate discrimination claims after they have been adjudicated through arbitration (Alexander v Gardner-Denver Company, 1974; 4 Penn Plaza LLC v. Pyett, 2009). The U.S. Supreme Court initially addressed this issue in 1974 with its appellate ruling in the Alexander v Gardner-Denver Company case. In this case, the labor/collective bargaining agreement governing employment disputes required that they be settled through arbitration. After the arbitration decision, the plaintiff (Alexander) sought to litigate the same matter in order to achieve a more favorable outcome. In this initial litigation, the district court held that an employee could not litigate a claim of discrimination under title VII following a decision by an arbitrator on the same issue. However, on appeal, the U.S. Supreme Court reversed this decision. The Supreme Court concluded that (a) employees should be permitted to litigate employment discrimination claims after arbitration; and (b) courts should consider arbitral findings/decisions as evidence in these subsequent judicial proceedings (Alexander v Gardner-Denver Company, 1974; Carrell & Bales, 2012).
However, in 2009 the U.S. Supreme Court appears to have modified this ruling in an age discrimination case (4 Penn Plaza, LLC v Pyett, 2009). Unlike the Gardner case which was decided under Title 7 of the Civil Rights Act, the Supreme Court decided this issue based on the Age Discrimination in Employment Act [ADEA] (1967). In the Penn Plaza case, the Court narrowly interpreted the Gardner decision and concluded that the case did not preclude enforcing an arbitration agreement to bar litigation of a claim of discrimination based on a federal statute. Thus, the U.S. Supreme Court appears to permit employees to explicitly waive their right to litigate employment discrimination claims through the construction of mandatory arbitration agreements. Additionally, the Court also ruled that mandatory arbitration agreements can effectively waive the rights of employees to file class action law suits (Tulis, 2010) and that an arbitral decision to limit class action arbitration will also be upheld by the courts (Carrell & Bales, 2013; Primm, 2010).
Legal and Political Issues in the Arbitration of Asset Expropriation by Sovereign Nations Under their right of eminent domain, governments are permitted to expropriate/nationalize assets, intellectual and other "real" property in order to support a public use or purpose (United States v. Jones, 1883; Kelo v. City of New London, 2005). Internationally, this right of governments to expropriate property is paired with a parallel responsibility to equitably compensate owners for the value of these "property takings" (U.N. Resolution 1803, 1962; U.N. Charter for Economic Rights and Duties of States, 1974; Baughen, 2006; Hunter, 2006). The Hull Rule (Department of State, 1938) articulated that expropriating nations had to provide prompt, adequate and effective compensation to property owners for their nationalized assets. The ambiguity of these compensatory terms has led to significant conflicts between owners of assets and the governments that have expropriated these assets. Many developing countries believe that prompt payment for expropriated assets might have a deleterious effect on their economies and economic stability. Additionally, they typically want to utilize a valuation model which minimizes their payments for expropriated assets (Hunter, 2006). In the event that these differences cannot be resolved amicably, governments and property owners often resort to dispute resolution methods that are (1) contained in bilateral investment treaties [BITs]; and (2) available to signatories of the ICSID Convention (Franck, 2007; He & Sappideen, 2013; International Center for the Settlement of Investment Disputes, 1965).
Relief under these agreements is in the form of litigation in the host/expropriating countries' court system or through international arbitration of the dispute (Julien & Puneeth, 2014). The use of arbitration to resolve these disputes is particularly beneficial to investors/property owners. It permits them to avoid (1) diplomatic pressures to settle the dispute in favor of the host country; (b) exposure to the uncertainties of a host state's laws and regulations; and (c) gives the host country a "home field" advantage in its own judicial system (Julien & Punteeth, 2014).
The ICSID Convention and many BITs specify that arbitration of international disputes should occur under the auspices of International Center for the Settlement of Investment Disputes in Washington, D.C. (International Center for the Settlement of Investment Disputes, 1965; Romero, 2008; Milbank, Tweed, Hadley, and McCloy LLP, 2012). The majority of cases heard by ICSID arbitration panels involve disputes in the oil/natural gas, electrical generation/distribution and mining industries (Uchkunova, 2012). Seven nations account for the majority of arbitration disputes currently being reviewed by ICSID. These nations are respectively (a) Argentina; (b) Venezuela; (c) Egypt; (d) Ecuador; (d) Congo; (e) Peru; and (f) the Ukraine (Uchkunova, 2012). As of 2012, ICSID was in the process of reviewing 49 arbitration disputes filed against Argentina. Venezuela has been reported as having the second largest number of current arbitration disputes (i.e., 36) under review at ICSID (Uchkunova, 2012).
The International Chamber of Commerce in Paris is another institutional arbitrator frequently used in disputes associated with asset nationalization (Vyas & Gonzalez, 2012). This was the arbitration venue used in order to resolve the first of two disputes associated with the nationalization of Exxon assets in the Orinoco basis by the Venezuelan government (Ellsworth & Parraga, 2012). Exxon had originally invested approximately $750 million in the development of its Cerro Negro facility in the Orinoco basin. The facility was nationalized by a Venezuelan national oil company (Petroleos de Venezuela SA) in 2007. Venezuela had originally offered to settle the expropriation case for $1 billion. However, Exxon sought damages in the amount of $7 billion in order to compensate them for both investment costs and market value of the facility (Neuman, 2012). In deciding this investment dispute, the International Chamber of Commerce awarded Exxon $908 million. This arbitral award was just slightly higher than Exxon's original investment cost and fractionally lower than the financial settlement offered by the Venezuelan government (Neuman, 2012). A second arbitration case involving nationalization of the Cerro Negro assets is also currently in arbitration at ICSID (Ellsworth & Parraga, 2012). "ExxonMobil therefore may be able to recover in the ICSID arbitration the difference between the ICC award and its true economic loss, reported to be in excess of $19 billion" (Milbank, Tweed, Hadley and McCloy, LLP, 2012,2).
Many developing countries have been highly critical of ICSID arbitration (Boeglin, 2013). These criticisms evolve from a number of issues. Some developing countries believe that ICSID has inadequate capabilities to conduct its global arbitration workload (Boeglin, 2013). ICSID arbitration panels have also been disparaged due to their (a) lack of transparency; (b) perceived arbitrator bias that favors investors; and (c) lack of an appellate process for arbitral judgments (Fach, 2010). It has also been alleged that ICSID lacks true independence from its World Bank parent organization. This has resulted in some developing countries believing that criticism of ICSID may negatively impact their access to loans through the World Bank (Boeglin, 2013).
Dissatisfied with ICSID, many countries have canceled their participation in the both ICSID Convention and BITs which specify ICSID as the designated arbitrational institution for resolution of disputes (Boeglin, 2013; Milbank, Tweed, Hadley and McCloy, LLP, 2012). Bolivia, Ecuador and Venezuela officially withdrew from the ICSID Convention in 2007, 2010 and 2012 respectively (Boeglin, 2013; Milbank, Tweed, Hadley and McCloy, LLP, 2012). These same countries have also withdrawn from a number of BITs which provide for ICSID arbitration of investment disputes (Milbank, Tweed, Hadley and McCloy, LLP, 2012). Denunciation and withdrawal from the ICSID Convention has no impact on the status of cases which have been filed and are awaiting arbitration. The Convention would also appear to permit the filing of additional cases within a 6 month window of a country's formal denunciation of the treaty (Milbank, Tweed, Hadley and McCloy, LLP, 2012). Additionally, withdrawal from BITs does not insulate host governments from arbitration disputes associated with asset expropriation.
"These treaties have long sunset periods, some running for 15 years. While these treaties are in force, or in their sunset period, the consent to arbitration they provide should remain undisturbed" (Milbank, Tweed, Hadley and McCloy, LLP, 2012, p. 3).
Arbitration and the Resolution of IP Disputes
Intellectual properties are commonly represented by patents, trademarks, copyrights, trade secrets and/or proprietary business methods (Fitzpatrick & Dilullo, 2012). In a recent survey, the World Intellectual Property Organization [WIPO] Center for Arbitration and Mediation sought to document the resolution of IP disputes through litigation and ADR techniques (WIPO Arbitration and Mediation Center, 2013b). This survey yielded a sample of 393 respondents from 62 different nations. Respondents included governmental entities, colleges/universities, research organizations, commercial organizations and law firms (WIPO Arbitration and Mediation Center, 2013b).
Survey respondents indicated that the majority of IP disputes encountered by their organizations involved issues associated with patent/copyright infringement and proprietary information related to "know how" or business methods. Twenty five percent of cases dealt with licensing issues. Contract issues associated with R&D and nondisclosure agreements were a source of dispute among 18% and 16% of the sample respectively. Claimants in these disputes utilized a variety of techniques and relief mechanisms in order to seek resolution of their conflicts. Litigation and expedited arbitration were the most popular dispute resolution techniques reported by survey respondents. At 30% of sample respondents, the utilization of arbitration was only slightly less popular (2% lower) than litigation of disputes. Mediation was the third ranked method for resolving IP disputes (WIPO Arbitration and Mediation Center, 2013b).
In negotiating IP agreements, contracting parties prioritized cost, time, confidentiality and enforceability as significant in their selection of a dispute resolution methodology (WIPO Arbitration and Mediation Center, 2013b). These objectives coincide well with the selection of arbitration as an ADR for resolving IP disputes (Kowalchyk, 2006). Cost and time savings in IP arbitrations generally emerge from "greater informality and flexibility of these processes over litigation, and the limitations on discovery. The greater flexibility and informality means that arbitrators can promptly decide discovery disputes and procedural motions. The parties also can agree to a deadline for the completion of discovery and the submission of briefs" (Kowalchyk, 2006, p. 32). Additionally, arbitral proceedings can also implement a variety security measures in order to safeguard against the loss of proprietary information (JAMS, 2013; Gatto & Hennessy, 2014; Casey & Rosengard, 2014). These may be represented by arbitral orders which enjoin parties from disclosing proprietary information (JAMS, 2014) and/or forgoing the publication of a transcript of the arbitral hearing (Gatto & Hennessy, 2014; Kowalchyk, 2006).
Enforceability is a critical issue for IP arbitration (Kowalchyk, 2006; WIPO Arbitration and Mediation Center, 2013b). As previously noted, the New York Convention (1958) specifically authorizes the extraterritorial enforcement of arbitral decisions by signatory nations unless it is contrary to their domestic laws or public policy. This requirement can be particularly problematic for IP arbitration due to significant global variations in intellectual property laws (Baldia, 2007; 2013; Hanson, 2014). Thus, (a) contracting parties should structure their arbitration agreements in a manner consistent with the national law governing the arbitration process; and (b) arbitrators should ascertain that their arbitral decisions/awards are compliant with domestic laws in the nation where the award will be enforced (Hanson, 2014; Baldia, 2007).
[O.sub.3]: ARBITRAL OUTCOMES
Arbitration processes often generate three outcome contingencies for contracting parties. These outcome contingencies are characterized by (1) binding or nonbinding arbitral decisions (Hill & Hill, 2008; American Arbitration Association, 2014); (2) proactive and/or post arbitration activities needed to enforce or attain compliance with arbitral awards; and (3) "reality gaps" which may exist for participants regarding the degree to which arbitration has met their goals regarding the efficiency, cost and speed of dispute resolution (Stipanowich et al., 2010). These latter "reality gaps" are often a stimulus for implementing subsequent changes to the arbitration processes by contracting parties (Stipanowich et al., 2010; American Arbitration Association, 2013).
Binding and Nonbinding Arbitration
Arbitrators may issue either binding or nonbinding decisions in order to resolve disputes among contracting parties (Hill & Hill, 2008). The arbitration clause of the contracting parties will generally instruct the arbitrator which of these decision options should emerge from the arbitral process (Hill & Hill, 2008; Repa, 2014; American Arbitration Association, 2014). In general, most of these arbitration clauses mandate the use of binding arbitration (Hill & Hill, 2008; Stim, 2014). Under this methodology, the decision/award rendered by the arbitrator must be accepted and subsequently implemented by the disputing parties. Additionally, these binding decisions are subject to the legal doctrines of res judicata and collateral estoppel (Hill & Hill, 2008). As a legal doctrine, "res judicata is the principle that a matter may not, generally, be re-litigated once it has been judged on the merits" (Legal Information Institute, 2014, p. 1). In a similar fashion, under collateral estoppel, "once an an issue of fact has been determined in a proceeding between two parties, the parties may not re-litigate that issue even in a proceeding on a different cause of action" (Legal Information Institute, 2014, p. 1). Thus, courts generally (a) accept the decisions rendered in binding arbitration to be a final and non-appealable resolution of the dispute; and (b) will therefore enforce the decision made by the arbitrator or arbitral tribunal (Hill and Hill, 2008; Federal Arbitration Act, 1925; New York Convention, 2014).
Non-binding arbitration provides the procedural processes of arbitration but with an informal hearing on the dispute's merits and without the finality of a binding decision. Non-binding arbitration can be especially valuable for less complex business to-business and business-to-consumer disputes where the parties may be too far apart in their viewpoints to mediate or are in need of an evaluation of their respective positions. (American Arbitration Association, 2014, p. 2)
By ruling on the merits of the dispute, non-binding arbitration may permit contracting parties to discern the likelihood of their prevailing in a subsequent litigation and/or if a more desirable outcome might be achieved through mediation and negotiation (Repa, 2013).
Pre and Post Arbitration Enforcement Actions
Judicial Review, Enforcement and Vacating of Arbitral Awards
Evidence suggests that most disputing parties exhibit conformity to the binding decisions of arbitrators. Therefore, subsequent judicial/governmental enforcement or modification of these decisions is generally unnecessary (McLaughlin & Genervo, 1986). However, statutory law and international agreements do provide legal mechanisms in order to facilitate the judicial review, enforcement, modification or vacating of arbitral awards (UNICITRAL, 2014; New York Convention, 2014; Federal Arbitration Act, 1925). The New York Convention, the Federal Arbitration Act and the UNCITRAL Model Law provide for the recognition and extraterritorial judicial enforcement of valid arbitration decisions (UNICITRAL, 2014; New York Convention, 2014; Federal Arbitration Act, 1925). The reopening, re-litigation or vacating of these arbitral decisions can only implemented under restricted circumstances (Hill & Hill, 2008). These circumstances would be exemplified by evidence in the arbitral proceeding of (a) fraud/corruption; (b) arbitrator misconduct in the administration the arbitral process or adjudication of the dispute; (c) a failure by the arbitrator to craft "a mutual, final and definite award" (Hill & Hill, 2008, p. 1); and (d) of binding decisions which are contrary to the laws or public policy of the country in which the arbitration process was conducted (UNICITRAL, 2014; New York Convention, 2014; Federal Arbitration Act, 1925; Hill & Hill, 2008). Vacating arbitration agreements/awards on the basis of incompatibilities with a country's domestic statutes or public policy was a factor influencing Supreme Court decisions in both Wilko v. Swan (1953) and in a second case involving the United Paper Workers Union (United Paper Workers International Union, AFL-CIO, et al. v. Misco, Inc., 1987). The first of these cases concerned the purchase of securities by Wilko from defendant Swan. Prior to initiating this commercial relationship, Wilko and Swan had executed an arbitration agreement which was to govern potential disputes between the contracting parties. Subsequent to this agreement, Wilko alleged that Swan had made false representations in order to motivate the purchase of securities. Wilko sought relief through recovery of damages under the auspices of section 12(2) of the Securities Act of 1934. Swan contended that lawsuit lacked legal standing and should be dismissed due to the existence of a prior arbitration agreement executed between the parties. In adjudicating this case, the Supreme Court concluded that section 14 of the Securities Act of 1934 "declares void any 'condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision" of the act... [and] held the arbitration agreement to be void" (Wilko v. Swan, 1953: 428). In the second case (i.e., United Paper Workers International Union, AFL-CIO, et al. v. Misco, Inc., 1987), a union member was discharged by Misco, Inc. for alleged drug use. The union objected to this employment action and requested arbitration of the dispute as provided for by their collective bargaining agreement with Misco, Inc. Pursuant to this agreement, the arbitrator recommended reinstatement of the employee. However, the firm decided to challenge the arbitrator's decision and have the arbitral award vacated by the federal courts. The U.S. Court of Appeals found that reinstatement of the employee would be a violation of public policy forbidding the operation of machinery while under the influence of drugs or alcohol. While the Supreme Court eventually overturned the lower court's vacating of the arbitral decision, it did note that
A court's refusal to enforce an arbitrator's award under a collective-bargaining agreement because it is contrary to public policy is a specific application of the more general doctrine, rooted in the common law, that a court may refuse to enforce contracts that violate law or public policy. That doctrine derives from the basic notion that no court will lend its aid to one who founds a cause of action upon an immoral or illegal act, and is further justified by the observation that the public's interests in confining the scope of private agreements to which it is not a party will go unrepresented unless the judiciary takes account of those interests when it considers whether to enforce such agreements. In the common law of contracts, this doctrine has served as the foundation for occasional exercises of judicial power to abrogate private agreements. (United Paper Workers International Union, AFL-CIO, et al. v. Misco, Inc., 1987: HN16)
Securing Assets for Fulfillment of Arbitral Awards
In some circumstances, arbitrators award financial compensation or damages to a contracting party as part of their decision in a case. For these financial awards to be realized, the victorious party must be able to gain access to appropriate assets in order to satisfy the arbitral judgment (Atkins & Goins, 2011). Evidence suggests that debtor (i.e., losing) parties (a) occasionally exhibit resistance in both the recognition and payment of these awards (Atkins & Goins, 2011); and (b) are sometimes foreign nations which attempt to utilize their sovereign immunity in order to avoid compliance with the arbitral decision (Abbott, 1985; Crowell & Morning LLP, 1985; Hulston, 2012). Therefore, the victors in these disputes will often seek judicial intervention in order to attach or seize assets in order to fulfill arbitral awards (Atkins & Goins, 2011).
Attachment is a pre-emptive strategy undertaken by plaintiffs in order to secure asset availability in advance of an anticipated arbitral award (Atkins & Goins, 2011). This legal strategy was utilized by Exxon-Mobil in their arbitral dispute with Venezuela over the nationalization/expropriation of the firm's assets in the Orinoco basin (Anonymous, 2008; Romero, 2008). In the United States, courts have sanctioned the pre-arbitral attachment or freezing of defendant assets in foreign arbitration proceedings under restricted circumstances (Atkins & Goins, 2011). The U.S. District Court recently ruled that pre-arbitral attachment of assets by courts is permissible if a plaintiff can demonstrate that "(1) there is a cause of action; (2) they will probably succeed on the merits... [of the case] ...; (3) the award would be rendered ineffectual without the attachment; and (4) the amount demanded exceeds all known counterclaims" (Shah v Commercial Bank 'Ob'Edinennyi Investitsionnyi Bank, 2010, p. 4-5.) From an evidentiary perspective, plaintiffs can achieve compliance with this third judicial requirement by demonstrating that the defendant (a) is in imminent risk of insolvency; (b) has attempted to liquidate assets necessary to fulfill an arbitral judgment; and/or (c) has transferred assets to other geographic locations in order to avoid payment of a potential arbitral award (Atkins & Goins, 2011; In RE Sojitz, 2009).
Successful plaintiffs in arbitration proceedings are often required to secure court confirmation of the arbitral judgment prior to initiating legal actions seize defendant (Atkins & Goins, 2011). Legal action in state courts often requires successful plaintiffs to demonstrate that they, the debtor/defendant or other parties controlling assets of the debtor (i.e., garnishees), have a "presence" in the jurisdiction of the court (Atkins & Goins, 2011; In Re Sojitz, 2009). The jurisdictional "presence" of a garnishee can sometimes be established if this individual/organization possesses a subsidiary or operating entity in the court's jurisdiction. This was recently demonstrated in Koehler v Bank of Bermuda Ltd. (2009). In fulfillment of an arbitration award, Kohler sought to seek a court order to seize assets of a Bermudian citizen who had assets deposited in the Bank of Bermuda (BBL). The defendant in this litigation claimed that a New York Court lacked jurisdiction in the case due to a lack of presence by either the debtor or the garnishee within the jurisdiction of a New York State court. However, Kohler was able to establish a legal "presence" for the garnishee on the grounds that the Bank of Bermuda operated a subsidiary in New York. As a result of this legal "presence," the court authorized seizure of appropriate assets from the defendant's BBL account in Bermuda for purposes of satisfying the arbitral award (Koehler v Bank of Bermuda Ltd., 2009).
Plaintiffs have often been successful in securing court authorized asset attachments and seizures in commercial arbitration cases against non-governmental actors (Atkins & Goins, 2011). However, this type action against foreign governments and/or government controlled entities (GCEs) has often been frustrated by the doctrine of sovereign immunity (Hulston, 2012). Sovereign immunity is "a doctrine which immunizes foreign nations from the jurisdiction of U.S. courts" (Clarkson et al., 2004, p. G31). This legal immunity is codified in the Foreign Sovereign Immunities Act (1976). The Foreign Sovereign Immunities Act [FSIA] provides several exceptions to the sovereign immunity provided to foreign governments and their associated agents/GCEs. These exceptions include certain commercial claims, asset expropriation, tortuous acts and terrorist activities which can be attributed to defendant nations (Crowell & Morning, 2008). When the activities of a foreign nation or its agents correspond to one of these exceptions, these nations and their agents will be subject to the same legal actions and protections afforded to private individuals or commercial organizations (Crowell & Morning, 2008).
U.S. courts have sometimes asserted their jurisdiction and waived the sovereign immunity of foreign countries in litigation involving the actions of the government's agents or GCEs (Heroth v. Kingdom of Saudi Arabia, 2008). In order for sovereign immunity to be waived, plaintiffs in these cases must demonstrate that the defendant GCE or agent's primary activities are commercial. This issue was critical in litigation involving Rimkis v. Islamic Republic of Iran (2008). In this case, Rimkis was the father of a serviceman killed during the bombing of the Khobart Towers in Saudia Arabia in 1996. One of the key issues in this case involved the application of the "core functions test" in order to determine whether the Islamic Revolutionary Guard should be granted sovereign immunity from the lawsuit (Crowell & Morning, 2008). The "core functions test "is initiated by the courts in order to determine if the government agent's or GCE's activities are primarily political or commercial. If the activities of the agent/GCE are commercial, then sovereign immunity is waived and the foreign entity becomes subject to the jurisdiction of the court (Roeder v. Islamic Republic of Iran, 2003). Rimkis claimed that a waiver of the Islamic Revolutionary Guard's sovereign immunity was merited because the organization operated a variety of commercial activities associated with engineering, the petro-chemical industry and drug/alcohol smuggling. In reviewing the entire scope of this GCE's activities, the court decided that (a) the Islamic Revolutionary Guard was primarily a paramilitary organization of the Iranian government; and (b) refused to waive its sovereign immunity so that the civil suit could proceed (Rimkis v. Islamic Republic of Iran, 2008; Crowell & Morning, 2008).
Expropriation or "takings" of private property also constitute a potential exception to enforcement of the FSIA (1972) statute. Property takings or expropriation activities are often initiated by governments under their eminent domain authority and have frequently been used to support the nationalization of the assets of companies throughout the world (Fitzpatrick & Dilullo, 2009). Section 605(a)(3) of FSIA grants jurisdiction of the U.S. courts over foreign countries if property takings (a) were done in a manner which circumvented international law; (b) resulted in an exchange of property/assets which are now located in the United States or used to support commercial activity in the U.S.; and (c) resulted in the ownership of expropriated assets by a foreign government or a GCE which conducts commercial activity in the United States. This latter exception can permit U.S. courts to assert jurisdiction over a foreign government/GCE in matters that are not specifically related to the original property taking (Crowell & Morning, LLP, 2008).
Reality Gaps and Improving Subsequent Arbitration Processes
Advocates of alternative dispute resolution believe that arbitration produces some viable outcomes not experienced with traditional litigation (Nickerson, 2005; Stipanowich et al., 2010). As previously noted, when compared to litigation, arbitral proceeding are expected to be characterized by (1) greater brevity/efficiency in adjudication; (2) prompt resolution of disputes; (3) lowered expense; (4) less effort/time devoted to pre-arbitral discovery issues; and (5) expertise and effectiveness in the management of the dispute resolution process ((Nickerson, 2005; Stipanowic et al., 2010; Gage, 2005).
Unfortunately, the evolution of arbitration has demonstrated that (a) it is beginning to more closely resemble litigation activities; and (b) many of its expected benefits have been potentially eroded (Stipanowich et al., 2010). Evidence of this "reality gap" in expected outcomes is reported in a recent survey of participants at the 2009 National Summit on Business to Business Arbitration (Stipanowich et al., 2010). This survey attempted to measure respondent assessments of the degree to which expected benefits/outcomes (i.e., speed, cost effectiveness and efficiency) actually emerged in arbitral processes. Data reported from the survey indicated that 70% of respondents felt that more than half the time arbitration failed to meet their expectations regarding the brevity, efficiency and economy of the arbitral process. One hundred percent of the survey respondents believed that these aforementioned expectations had been eroded by excessive discovery processes which have come to characterize pre-arbitration evidentiary activities. Excessive discovery in these arbitration activities frequently emerge when counsel for the contracting parties agree to follow Federal Rules of Civil Procedure in conducting their cases before an arbitrator (Stipanowich et al., 2010).
Survey respondents also indicated that arbitrator mismanagement of the dispute resolution process may have also lessened the performance benefits of arbitration relative to litigation. The survey reports that 95% of respondents believe that "motion practice" during arbitration proceedings have been inappropriate, excessive or mismanaged by arbitrators. Finally, 95% of respondents indicate that the arbitration hearings have become too lengthy and this has contributed to the erosion of expected benefits [i.e., speed, efficiency and economy] (Stipanowich et al., 2010).
In order to correct these outcome deficiencies, many legal scholars and arbitrators have suggested an overhaul of the arbitration process (Stipanowich et al., 2010). This overhaul is largely based upon the restructuring of arbitration clauses that constitute important components of business contracts (Stipanowich et al., 2010; Hornick, 2001; Bishop, 2014; Kennedy, 2002). In general, eight key contracting issues have been identified as being critical in both the (a) development of these agreements; and (b) fostering improved efficiency/effectiveness of arbitration activities (Stipanowich et al., 2010). These issues include (1) specification of pre-arbitration activities for disputing parties; (2) identifying the laws or domestic statutes governing arbitration processes and the enforcement of arbitral decisions; (3) defining the scope of the arbitration agreement; (4) selecting the use of a single arbitrator or multi-person arbitration panel to decide the dispute; (5) conducting due diligence investigations of both arbitrators and legal counsel to be used in arbitral proceedings; (6) determining arbitral cost allocations and placing limits on damages that may be awarded by the arbitrator; (7) mandating that the arbitration decisions will be binding on contracting parties; (8) waiver of appellate rights for contracting parties except under extraordinary circumstances; and (9) creating expedited requirements for the conduct of the arbitration proceedings and placing limits on discovery activities related to evidence procurement.
When drafting arbitration clauses, contracting parties may wish to craft agreements which specify a series of pre-arbitration activities which serve to both accelerate dispute resolution and reduce costs for their participants (Stipanowich et al., 2010). These pre-arbitrai activities include (a) isolating critical issues associated with the dispute; and (b) seeking the resolution of the dispute through use of other potentially more efficient ADR techniques. These pre-arbitration ADR techniques could involve the potential use of mediation, negotiation or "Expert Determination" to either settle lesser issues or to encourage pre-arbitral conciliation between the parties (Hornick, 2001; Stipanowich et al., 2010; Bishop, 2014). Stipanowich and his colleagues propose that pre-arbitral mediation
...not only offers significant opportunities for effective resolution of claims and controversies but may also reap dividends for commercial relationships. Moreover, even if mediators are unable to help the parties reach a complete settlement of substantive issues, they may be in a position to facilitate the tailoring of arbitration procedures most appropriate to the resolution of those same issues. (Stipanowich et al., 2010, p. 25)
Bishop (2014) advocates the use of "Expert Determination" as alternative to arbitration in disputes which require highly specialized expertise in order to resolve emergent conflicts. Experts may be obtained through the auspices of the International Chamber of Commerce [ICC]. Under the ICC Expert Rules, disputing parties are required to provide the expert with access to all information needed in order to render a decision (International Chamber of Commerce, 2003). Experts then assume the responsibility for crafting an expeditious decision to the dispute based upon an examination of the technical information or data obtained from the disputing parties (Bishop, 2014; International Chamber of Commerce, 2003).
"Expert Determination" and other ADR techniques have the advantage of lowering the time requirements/costs associated with fact finding and dispute resolution through conventional arbitration techniques (Bishop, 2014; Jones, 1997; Hornick, 2001). However, it should be noted that unless otherwise agreed to by the contracting parties, decisions rendered through "Expert Determination" are non-binding. While evidence or decisions created through this technique are admissible as evidence in subsequent arbitral or judicial proceedings (International Chamber of Commerce, 2003), they are not considered to be a formal arbitration decision/award (International Chamber of Commerce, 2003). Thus, decisions by these "experts" are not enforceable under the New York Convention (Bishop, 2014; Jones, 1997).
Specification of Laws or Legal Systems Governing Arbitration Processes and Enforcement Activities
The UNCITRAL Model Law has attempted to create homogeneity in domestic arbitration statutes across nations (UNCITRAL, 2014). However, there has not been universal adoption of this statute and many nations have modified it to serve their own unique national purposes (UNCITRAL, 2014). Given these emergent differences in domestic arbitration statutes, it is recommended that arbitration clauses specify the governing law/legal system under which the arbitration process will be conducted (Hornick, 2001; International Chamber of Commerce, 2014). The selection of governing law and legal systems should be amenable to both contracting parties. Specification of these legal parameters is critically important in (1) permitting contracting parties to preserve their rights to seek either judicial enforcement or waivers of arbitral decisions (Hornick, 2001; International Chamber of Commerce, 2014; Atkins & Goins, 2011); and (2) eliminating the possibility that parties may seek legal relief through a variety of different domestic arbitration laws or national court systems (Kennedy, 2002).
Scope of Arbitration Agreement
It is generally recommended that arbitration clauses should be crafted in order to meet the specific legal needs, requirements, protections and expectations of contracting parties (Bond, 1990; Bishop, 2014). In structuring these agreements, parties have the ability to restrict arbitral decisions to a narrow range of contract issues or to permit arbitrators to have greater autonomy in defining the parameters of the dispute resolution process (Bond, 1990; Bishop, 2014; Kennedy, 2002; Stipanowich et al., 2010). Kennedy (2002) observes that broadly defined arbitration clauses are advantageous to contracting parties that want to seek more comprehensive resolution of disputes through arbitration processes. In contrast, Stipanowich et al. (2010) find that general/broad arbitration clauses open up arbitral proceedings to many tangential issues and contribute to less efficient, more time consuming and costly resolution of the dispute. By limiting the scope of arbitrator autonomy, narrowly defined arbitration clauses streamline arbitral processes (Stipanowich et al., 2010) and can permit contracting parties to better determine what issues should be specifically resolved through either arbitration or litigation (Kennedy, 2002).
Therefore, arbitration processes are simplified and contribute to the more time/cost efficient resolution of contract disputes (Stipanowich et al., 2010).
Use of Single Arbitrators or Multi-person Arbitration Tribunals
The International Chamber of Commerce [ICC] model arbitration clause provides for specification of an arbitration panel using either a single arbitrator or multi-person arbitration tribunal. The ICC typically recommends the appointment of an arbitration tribunal of three persons when disputes are valued at $1 million or more (Hornick, 2001). In contrast, Stipanowich et al. (2010) prefer contracts to appoint single arbitrators to resolve disputes. Their argument is that single arbitrators serve to reduce the complexity and improve the temporal efficiency of arbitral decision making.
Due Diligence Investigations of Arbitrators and Legal Counsel
Due diligence is an investigative process that is designed to assist individuals and organizations in determining whether business specialists/legal counsel meet required levels of expertise and professionalism. This activity is generally implemented prior to engaging the services of these individuals (Clarkson et al., 2004). In arbitration activities, due diligence investigations are generally initiated for both arbitrators and attorneys which are utilized in the dispute resolution process (Stipanowich et al., 2010). Prior to their selection, arbitrators are generally screened/evaluated for their (a) neutrality; (b) efficiency and case management skills; and (c) availability. The breadth of experience, litigation and negotiating skills possessed by external legal counsel is also assessed prior to their assignment to the arbitral proceedings. Assessment of this skill set is viewed as being critical to both achieving a speedy resolution to the dispute and providing clients with realistic expectations regarding arbitration outcomes (Stipanowich et al., 2010).
Allocating Costs and Limiting Damages Awarded by Arbitrators
As noted previously, cost management and efficiency have become important priorities in the conduct of arbitration activities (Stipanowich et al., 2010). Pursuant to this objective, Hornick (2001) recommends that contracts be modified to grant arbitrators the authority to both determine and allocate arbitration costs among contracting parties. Given this authority, arbitrators may be able to (1) equitably allocate arbitration costs among parties to the dispute; and (2) provide these individuals with a more accurate pre-arbitral estimate of expenses. Preliminary estimates of arbitration expenses may also encourage pre-arbitral settlement of the dispute as a means of lowering costs associated with these ADR activities (Hornick, 2001).
Kennedy (2002) proposes that arbitration agreements should also be structured so as to limit the financial risks of contracting parties. Thus, arbitration clauses/agreements should contain contractual provisions which limit the amount of financial settlements, punitive damages, and compensatory damages that may be awarded by arbitrators. Conceivably, knowledge of these financial "caps" may also encourage contracting parities to pursue pre-arbitral settlements or other ADRs as a means of potentially reducing the financial risks associated with adverse arbitrator decisions.
A number of researchers and practitioners have suggested that the arbitration contracts should be modified to encourage the more rapid enforcement of arbitral decisions (Hornick, 2001; Kennedy, 2002; Stipanowich et al., 2010). This can be accomplished by adopting arbitration clauses which require immediate implementation of arbitral decisions and the waiver of rights to appeal the arbitration award. Under this rationale, appeals of arbitrator decisions would only be available in circumstances characterized by fraud, arbitrator bias/misconduct or where the arbitrator has exceeded their authority in rendering award/settlement (Hornick, 2001; Stipanowich et al, 2010). "An express waiver of appeal may be especially useful where an award is likely to be enforced in countries having statutory rights of appeal in arbitration" (Hornick, 2001, p. 6). Stipanowich and his colleagues believe that these contractual actions will significantly improve the efficiency of the arbitration process and reduce subsequent litigation costs (Stipanowich et al., 2010).
Expediting Arbitration Activities and Limiting Evidentiary Discovery Activities
Many of the criticisms directed at arbitration evolve from its current litigious character. Both arbitrators and the legal counsel of contracting parties would appear to have joint responsibility in eroding the speed, responsiveness and cost efficiency of arbitration processes (Stipanowich et al., 2010). The erosion of these benefits is significantly impacted by ineffective methods for managing both "discovery" and "motion practice" activities in arbitration settings (Stipanowich et al., 2010). Discovery activities represent an attempt by opposing counsel to secure relevant information from each other or relevant third parties in order to better prepare their cases (Clarkson et al., 2004). Current practice has demonstrated that these discovery activities have become more protracted and have significantly increased the costs and length of arbitral proceedings. Therefore, the arbitration community has strongly suggested that strict time limits be established by arbitrators for evidentiary discovery and the collection of witness testimony/depositions (Stipanowich et al., 2010). Additionally, contracting parties and arbitrators should inform legal counsel "that discovery in arbitration is not for the litigator who will leave no stone unturned" (Stipanowich et al., 2010, p. 26).
The number of legal motions submitted by counsel during arbitration proceedings has also significantly increased (Stipanowich et al., 2010). Motions constitute procedural requests that are submitted on behalf of clients by counsel and require a subsequent judicial ruling by a judge/arbitrator (Clarkson et al, 2004). In their desire to enhance the objectivity and neutrality of the proceedings, arbitrators have undertaken a "motion practice" in which they are willing to accept and adjudicate most rulings submitted by legal counsel on behalf of their clients. This has significantly increased the time duration, complexity and cost of arbitral proceedings (Stipanowich et al., 2010).
The American Arbitration Association [AAA] has attempted to circumvent some of the time delays and costs associated with discovery and "motion practice" issues by providing a template for an expedited 100 day arbitration process (American Arbitration Association, 2013). The template provides certain maximum time frames for managing evidentiary preparation, arbitration hearings and issuing arbitration awards. The AAA limits pre-hearing evidentiary preparation and discovery processes to 60 days and actual arbitration hearings are not to exceed 30 days. After conclusion of the hearing, arbitrators are required to issue a decision/award within 10 days (American Arbitration Association, 2013). This schedule places significant constraints on the ability of legal counsel to (a) engage in excessive discovery activities; (b) proliferate applications for procedural rulings by arbitrators; and (c) prolong the arbitration process. By conforming to this time line, arbitration processes may yet again come to represent a more efficient and less costly alternative to litigation (Stipanowich et al., 2010).
For centuries, arbitration has been viewed as an acceptable alternative to traditional litigation for resolving commercial disputes (Wolaver, 1934) and its recent use by businesses has been on the rise (PriceWatershouseCoopers, 2014; Stromberg, 2007). In response to the popularity of arbitration as an ADR, the global community has devoted significant effort to develop both domestic arbitration statutes and international treaties which (a) assure the neutrality of arbitral proceedings; and (b) facilitate the international judicial enforcement of arbitral decisions (McLaughlin & Genervo, 1986; International Center for the Settlement of Investment Disputes, 1965; United Nations Commission on International Trade, 2006; UNCITRAL, 2014).
As an alternative to litigation, proponents of arbitration have argued that this ADR technique serves to promote more amicable, cost effective and rapid resolution of contract disputes (California Courts, 2014; Sussman & Wilkinson, 2012; Repa, 2014; Mazirow, 2008). Unfortunately, many of these benefits have been eroded by both the codification of arbitration processes through domestic statutes/international agreements and the evolution of arbitration into a more adversarial/litigious process (Stipanowich et al., 2010).
ADR practitioners and researchers have proposed substantive changes in the structure and management of arbitration processes. Their objective is to assist contracting parties in recapturing both the low cost benefits and responsiveness of arbitration (Stipanowich et al., 2010). However, the long term maintenance of amicable commercial relationships between contracting parties often depends upon their own willingness to (1) pursue arbitration as a means of discovering a fair and equitable resolution of the dispute (Slater, 2013; Anderson & Krause, 1987); and (2) avoiding judicial oversight or review of arbitral decisions (Hornick, 2001; Stipanowich et al., 2010; Kennedy, 2002). Ultimately, these latter behaviors require contracting parties to forgo situational advantage in favor of a long-term relationship based on cooperative advantage and trust (McLaughlin & Genervo, 1986; Nickerson, 2005). The value of these amicable and trusting commercial relationships cannot be understated. For, as noted by Persian philosopher Bahaullah, "Commerce is a heaven whose sun is trustworthiness and whose moon is truthfulness" (Bahaullah, 1918, p. 355).
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William M. Fitzpatrick, Villanova School of Business, Villanova University Samuel A. Dilullo, Villanova School of Business, Villanova University
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|Author:||Fitzpatrick, William M.; Dilullo, Samuel A.|
|Publication:||Journal of Competitiveness Studies|
|Date:||Jun 22, 2017|
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