Hot topics in - Reed Smith

Hot topics in

International ArbitrationHighlight points from the Reed Smith International Arbitration roundtable

Paris Thursday 4th October 2018

02 Reed Smith Hot topics in international arbitration - Paris

“Thought Leadership is simply about becoming an authority on relevant topics by delivering the answers to the biggest questions on the minds of your target audience”Michael Brenner

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On October 4, 2018, our international arbitration practice held its Hot Topics in International Arbitration roundtable in Paris. This event, which was held at the ICC International Court of Arbitration’s premises, was the second in a series

of roundtables we are holding in a number of jurisdictions to bring thought leaders in international arbitration together to address issues of importance in this area of dispute resolution and to generate ideas and solutions that can be disseminated more widely.

Introduction

Our eminent panel – comprising

François Doré (FCIArb), senior legal counsel, Risk

and Disputes Management, Bouygues Construction;

Karl Hennessee (FRAeS), senior vice-president,

and head of Litigation, Investigations & Regulatory Affairs,

Airbus Group Legal & Compliance;

Sophie Nappert, Avocat Bar of Quebec, Canada,

solicitor of the Supreme Court of England and Wales and

arbitrator, 3 Verulam Buildings;

and Ana Atallah, partner, Reed Smith;

and moderated by Peter Rosher, partner, Reed Smith

discussed with our guest audience four key themes:

• Independence of expert witnesses – myth or reality?

• Data security in arbitrations

• Witness statements – worth the paper they are written on?

• How much “baby splitting” is going on?

These four topics are all issues frequently raised by clients,

and were chosen both for that reason and also for their

ability to polarize views. It was not surprising therefore

that members of both our panel (comprising an arbitrator,

counsel, and legal experts) and our guest audience did not

always agree…

The following highlights from the discussion include a range

of views expressed by members of the panel and/or guests.

No comments should be attributed to any individual.


When it comes to expert independence, credibility is what counts

A hotly debated topic of significant importance in the world of international arbitration is the independence, or lack thereof, of expert witnesses. Suspicion of bias can have a very real impact on proceedings, not least due to potential challenges to expert evidence that may arise.

With our audience including a number of experts from a variety of disciplines, this first hot topic led to the longest and most animated debate of the day among those present.

Distinguishing support from bias

The panel started by acknowledging that suspicion of bias is a real concern in relation to the role of party-appointed experts. There was general agreement that, while of course not all party-appointed experts are biased, it is essential for an expert to be both convincing and credible, and that the client’s interests are best served by appointing the best-quality expert, who is aware of and abides by ethical rules. It is not in the interests of anyone to influence an expert to be biased.

Our panel recognized there is a significant distinction to be made between support and bias. While generally a party-appointed expert is expected to support the appointing party’s case, his or her report must be convincing and the expert must believe in, and be able to justify, its findings. The panelists agreed that key to this is the quality of the expert. They also agreed that, although most party-appointed experts are not inherently biased, a certain degree of subjectivity in their evidence would always exist.

Independence of expert witnesses - myth or reality?

Experts often find themselves being pulled in different directions by competing pressures that, either alone or jointly, can give rise to a perception of bias and bring the expert’s independence into question. These factors can come from various sources, and include:

• Repeated expert appointments

• Past affiliations and other long-term, commercial, or close personal relationships

• The expert’s economic remuneration

• The client’s expectations

• The expert’s duty to the tribunal

• Financial or other pressures from the expert’s own firm

• Pressures from the client’s counsel

A juggling act needs to be carried out by party-appointed experts between various interests and opposing forces – from the commercial relationship with the client and the client’s own corporate governance policy, to the expert’s duty to assist the arbitral tribunal in its deliberations, while abiding by all relevant professional rules and responsibilities.


Identifying bias – is past affiliation a real cause for concern?

One panelist was of the firm view that repeat appointment of party-appointed experts is an obvious issue that only reinforces the commercial aspect concerns of the relationship mentioned above. This can apply to experts and arbitrators alike, as is evidenced by the recent challenges made against Bulgarian arbitrator Stanimir Alexandrov in several ICSID arbitrations due to his 15-year relationship with the Brattle Group.

Another panelist was however skeptical about placing too much emphasis on past affiliations. Repeat appointments of an expert could be explained in some cases by the parties simply having built a relationship of trust through previous similar appointments, or the expert having a particular insight into the appointing party’s business or sector. Such repeat appointments may in fact yield notable advantages, including increased familiarity with the client’s organization, its strengths and weaknesses, and the technical issues it faces, enabling the expert to adopt a more rounded and robust analysis of the evidence.

Expert witnesses

Client influence

Duty to the

tribunal

Expert firm

influence

Counsel influence

One panelist also highlighted a potential cause for concern where lawyers have worked closely with an expert on one case and then in a subsequent dispute, the lawyer appears as arbitrator and the expert is a party-appointed expert. This scenario can also lead to allegations of bias or other challenges.

Is bias a problem? If so, what is the solution?

So what if party-appointed experts are biased? So what if there are repeat appointments? “So, what?” This was a question raised by one of our panelists, who drew attention to the plethora of tools at an arbitral tribunal’s disposal to identify and root out bias, including the tribunal’s incisive questioning skills, hot-tubbing and conflict of interest disclosure requirements. This Panelist emphasized that the question of repeat appointments cannot be considered in the abstract, but must rather be compared to a situation where experts new to a representation may be less able to assist the tribunal. Perfect should not become the enemy of good.

This “so what?” proposition drew strong objection, however, from another panelist. Putting the onus on the tribunal to seek out bias through such tools is a considerable waste of energy and money. Arbitrators should be focusing instead on the complex and important questions that the expert is required to address. Arbitrators have a duty to streamline the proceedings, a task made more difficult if the experts are actively trying not to agree issues.

Overall, it was felt that avoiding a perception of bias lies largely with the expert. If experts are viewed as polarized and biased, it is hugely damaging to their reputation and ultimately to their client’s case. The arbitration world is small and an expert who would squander their reputation for short-term gain is a foolish one. Efforts must be made to resist the various influencing factors, especially where, as is often the case, the evidence is not clear-cut, and while experts have to be subjective, they must use their best judgment to ensure their findings


are robustly independent. In short, all panelists agreed that “convincing” and “credible” are key words when it comes to experts. Experts should see their role as helping the tribunal come to the right decision through an impartial analysis of the evidence, which is critical to their credibility for future appointments.

However, it was agreed that all participants in the arbitration process have an interest in avoiding bias:

The client: it is equally important from the client’s perspective that the expert puts their reputation and credibility above economic remuneration. Experts should be encouraged by their clients to be open and honest. Clients should also encourage their experts not to shy away from the dangers and pitfalls of a case – rather, it will help a client’s case if any weaknesses and pitfalls are identified early and discussed, to narrow issues in genuine dispute and help promote the settlement of issues.

The expert needs to be able to manage the client’s expectations. It is in no one’s interests for experts to provide a rose-tinted view, or to push points that are not tenable. That is not always easy, and the point was made that, especially when dealing with large corporate entities, the dispute may involve a number of different stakeholders within the client organization, each with their own responsibilities, reporting lines and personal constraints, which can easily influence their approach to the services they expect from experts and counsel and make it difficult to be objective. However the point was also made that, from a corporate governance viewpoint, and from the point of view of their personal credibility within the business, clients should want an honest assessment from their experts and counsel of a dispute’s prospects, so they can make proper provision for the claim. No client will relish the prospect of getting a provision significantly wrong, especially in the face of contrary advice from the expert.

The tribunal: although multiple tools are available to arbitral tribunals to combat expert bias, priority should be given to getting to the crux of the issues addressed by the experts, as quickly as possible. The quality of the tribunal is therefore important here. A useful tool in this respect is ordering that joint expert reports be produced – when an expert refuses to engage in discussions regarding preparing a joint expert report, that expert’s behavior is telling as it suggests an unwillingness to assist the arbitral tribunal and conduct a swift arbitral process.

The panel agreed however that disclosure of repeat appointment should not necessarily be considered evidence of bias.

The expert’s firm: the temptation to prioritize economic remuneration can be an issue where experts operate within a structure. This can create another layer of tension, and should be resisted at all costs at the risk of jeopardizing a firm’s reputation and credibility.

Client’s counsel: client’s counsel should avoid directing the expert to a specific result, including a result that would automatically favor the client’s case (despite the general expectation that an expert will support a party’s case). In the interests of credibility, counsel must let the expert arrive at their own conclusion.


The following ideas were discussed:

Parties: Parties should address the issue of data security in their terms of reference and procedural orders. This may significantly help raise awareness and avoid any issues at the outset of the arbitral process.

Arbitrators: High-level security should not be up to arbitrators but embedded in the rules. Arbitrators should however be proactive in addressing the issue of data security: developing good habits, including signing a confidentiality statement, and encouraging parties to address the issues in their terms of reference and procedural orders.

Arbitral institutions: Arbitral institutions should lead the way in being proactive in dealing with the issue of data security by addressing relevant issues in their rules. An example is the ICCA’s Protocol on Cybersecurity, which is due to be finalized after the consultation period ends on December 31, 2018 and which deals with the importance of encryption.

Data security in arbitrations

A pressing need to bring arbitration into the twenty-first century

Our next hot topic, data security in arbitration, is increasingly under the spotlight.

In international arbitration, information – often involving confidential or sensitive commercial data – is shared between parties, arbitrators and institutions, often across borders. Any breach or loss of control increases a party’s commercial and, sometimes, reputational risk. Data security is therefore a consideration that arbitration users need to take seriously.

Here again, our panel was divided on the level of real concern. At one end of the spectrum, one panelist made the point that by and large arbitration deals with corporate data, not highly secret information. As such, the risk to a client’s business is limited. Another panelist however strongly disagreed, considering risk of data breaches in arbitration to be “huge”, as matters involving, for example, trade secret breach allegations or procurement of advanced technology were specifically targeted for settlement by arbitration because of the sensitivity of the subject matter.

There is a need for all stakeholders in the arbitration process, including parties and their counsel, arbitrators, and arbitral institutions, to acquire good habits. Examples of everyday factors, which are particularly likely to present risk given the international nature of arbitration, include:

• Use of insecure Wi-Fi in hotels when traveling

• Sending confidential hard copy documents by post

• Sending copies of confidential material to an internet-based email account, such as Yahoo or Gmail

• Storing confidential information on USB keys, which can easily get lost


Witness statements - worth the paper they are written on?

Witness statements – sorting the wheat from the chaff

It an inconvenient truth, but we all know that lawyers heavily intervene in the drafting of witness statements. This begs the question as to whether these interventions are legitimate, and if so, to what extent?

Witness statements and their utility in arbitration

For this, our third hot topic, there was unanimous agreement among our panel that witness statements are a useful tool. They allow the parties and tribunal to focus on cross-examination, including by building a link between the key issues in dispute and the documentary evidence. They also help arbitrators narrow the dispute, allowing them to “sort the wheat from the chaff” and to identify quickly which issues are not in contention between the parties, which can save time and money and promote settlement.

Another benefit mentioned is that witness statements offer the opportunity for witnesses to see their evidence “in black and white,” providing the opportunity for the witness to re-address any perhaps overly-bullish statements they may have made before the statement is finalized and the evidence submitted to the tribunal.

However, again, our panelists disagreed on the extent of value. At one end, witness statements were seen as “absolutely essential,” for all the above reasons. At the other, one panelist “takes them with a pinch of salt,” as it is usually obvious that they are written by lawyers. Somewhere in the middle, one panelist made the point that it is, of course, rare for a whole case to turn on a single witness statement, with a detailed review of all the relevant case documents remaining critical.


Differing legal traditions – ensuring a level playing field

The procedural law in international arbitration can vary significantly, and in particular, differing approaches toward evidence in different legal systems must be taken into account – for example, whether a party or arbitrator has a civil law or a common law background and the differences between the two systems in the value placed on documentary versus oral evidence.

These differences in evidentiary approach can pose challenges for arbitrators, especially if they result in a perception that one party to the dispute is at a disadvantage. For example, if certain key questions are not being asked of a witness by their counsel, the arbitrator may need to be proactive and step in, in order to get to the evidence. Although much faith can be put in the skills of arbitrators to balance legal cultural differences, they must exercise care, as there is often a temptation to over-intervene and come to the rescue of the “floundering party.” Regardless of their legal background, parties must be left scope to present their case in the way they see fit. Failure to ensure this could expose an arbitrator to challenge.

A potential solution that was suggested by a member of our panel to help resolve the issue of any cultural or experience-related imbalance between the parties to arbitration is to address such differences in a post-hearing brief.

Quality over quantity

Witness statements are often criticized for being overly lengthy and/or irrelevant, often dealing with too many issues (the “kitchen sink” approach) and/or with issues that are not crucial to the arbitration, increasing the length and costs of the process.

Our panel agreed that while this is often the case, this is probably not a major cause for concern. While quality over quantity should always be preferred, in general it is usually fairly easy to see which parts can quickly be disregarded. Having said that, everyone was in agreement that witness statements should serve to focus on differences where they are critical to the dispute and where there is no common ground between the parties, and it is in the clients’ interests not to have to pay for arbitrators’ time reading irrelevant statements or facts.

On the question of whether the arbitration tribunal should exert more control over the making of witness statements, one panelist noted that it is difficult for arbitrators to have any real influence as they do not have a good visibility of the case at that early stage in the proceedings. A potential solution mooted could be to impose a limit on the length of witness statements, although there was some doubt whether this would be workable or acceptable to arbitration users.


How much “baby splitting” is going on?

Playing Solomon: a temptation to be resisted?

The final hot topic focused on whether there is a perception that arbitrators engage in a practice of compromise when rendering decisions, instead of making hard decisions, a process commonly referred to as “baby splitting.” This particular debate very much divided opinion among both our panelists and guest audience.

One panelist thought baby splitting was a positive thing, noting that, in choosing arbitration, some clients are in fact seeking to compromise in the interest of maintaining relationships. By going to arbitration, the parties are often trying to “put the train back on the track” with an ongoing supplier or other commercial relationship, which requires give and take on all sides. The practice of baby splitting can help to maintain and rebuild relationships since both parties come away having compromised to some extent and there is less of a “win/loss” dynamic to the dispute.

One panelist also ventured that, in their view, the possibility of a tribunal “splitting the baby” is also a factor the parties take into account when considering the prospect of their claim or defense succeeding, and what the outcome of the arbitration might be, and this can also help to promote resolution of a dispute.

However, not everyone present agreed with this. In another panelist’s view, baby splitting is a practice that should be avoided. In their opinion, the tribunal’s duty is to reach, if possible, a collective decision, without any dissent, a view supported by a member of the audience who was also strongly against baby-splitting. While there might have to be some compromise among the tribunal members in order to achieve a collective decision, this should be limited to


minor issues such as procedural costs. In other words, “sacrifices” from tribunal members might need to be made on procedural issues, but they should not be made on merits issues or on the law itself. However, the panelist thought the term “baby-splitting” was an unfair, pejorative one, as it suggests a lazy tribunal that might just split issues in half just to keep everyone happy, which they acknowledged was not usually the case.

Picking up on the point made above, another panelist was of the opinion that even compromise on procedural issues can be problematic, notably in the face of obvious gamesmanship.

In conclusion, it was generally agreed that it is important for arbitrators to avoid making compromises on the law. Although the function of commercial arbitration is not to make law (and, as such, arbitration has been described as an imperfect system that does not create legal precedents), arbitrators must ensure that they apply the law correctly and that baby splitting in this respect has no place in arbitration.

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