If you are right, you will win (Oh, HAPPY DAY!)
PREDICTABILITY has been praised as an important aspect of arbitration - at least that was what I was told during my last visit to London, when conversation turned to the question of why New York arbitrations are not as consistent as those conducted in London.
Firstly, is predictability the ultimate goal in arbitration? I always thought that getting it right was the most important thing.
Because of the absence of strict adherence to legal precedent, New York arbitrations yield different results on occasion. For example, delving back into the past, and the infamous six-hour disputes in tanker charters, shows that a panel of three admiralty attorneys upheld charterers’ claim for the six-hour free time, even if on demurrage, in the Atlantic Monarch (SMA Award 939). On the other hand a panel consisting of commercial men unanimously reached the opposite conclusion in the Pegny (SMA Award 1015).
Is this an indication of inconsistency? On the face of it, it certainly appears so. However, when reading these awards and those which followed with the same issues, one finds order and consistency. True to their background and training, the attorneys took a legal, and somewhat esoteric, approach, whereas the commercial arbitrators drew from their work experience, applying a more practical interpretation.
Bearing these points in mind, the non-predictability issue takes care of itself, and those closely familiar with the process and particular arbitrators can fairly well predict arbitration outcomes. There is one caveat, however, and that is that unless one deals with single, conceptual issues such as the six-hour notice time, GMT versus local time, or the COGSA time-bar, factual differences will influence the outcome of a decision and possibly lead to non-uniform results.
Predictability of results is, of course, important to the parties, particularly when arbitrating matters of principle. Those can be the single issues referred to above or they can be issues which, because of frequency of occurrence, have a significant financial impact upon the venture. Arbitrators have an obligation to be predictable in their decisions. In the event that they reach a conclusion which, on the face of it, is different from previously rendered decisions, it is necessary that the arbitrators distinguish the cases and explain what led to a different conclusion based upon what appeared to be similar facts.
This is particularly necessary because the SMA awards are published and reviewed by parties and/or lawyers for prior decisions and arbitrators’ proclivities. The absence of explanatory language could potentially jeopardise an arbitrator’s credibility, but would strengthen the benefit of the award service. Elementary as it may sound, the records show such transgression.
For example, in an SMA arbitration between owners and charterers, the arbitrator appointed by charterers dissented. In a parallel arbitration under the rules of the AAA between sellers and buyers, who were the same entity as the charterers in the SMA proceeding which appointed the same arbitrator, the arbitrator appointed by buyers formed part of the majority finding for buyers using the same arguments in support of that decision as used by the majority in the SMA case, from which he had previously dissented.
Predictability for the procedural aspects of arbitration should really not be an issue because rules and regulations by arbitration associations govern the proceedings. However, the variable factors of personal application and interpretation as well as the circumstances of the particular case can have a substantial impact on how a case develops and is being conducted.
Under the application of the Shortened Procedures, the arbitrator is provided with a “road map;” i.e., timetables are provided for submissions, limits are placed upon hearings and evidence; and there is little flexibility for the arbitrators to improvise or impose their own imprimatur. The regular, full-fledged arbitrations provide for greater flexibility, and consequently it is more likely than not that they may vary, particularly in procedure.
The complaint has been made that New York arbitrators are too ready to schedule hearings. Based upon my experience as an arbitrator, I do not agree with this contention, certainly not as a general rule. Arbitrators are cognizant of costs and carefully weigh the need for hearings.
It is a fact that, in years gone by, hearings were scheduled for cases which, in retrospect, should have been submitted on documents alone. But those were hearings called for by counsel. They were the hearings when claimants introduced a prima facie case and then called upon the defendant to respond. Maybe it was done to force the issue and bring the defendant to the table.
Similarly, this approach was also used in unopposed/default arbitrations. In those instances, the reasoning was a bit more practical. Since an award issued under those circumstances has to be made a rule of the court for subsequent enforcement, it was thought that a record, in the form of a hearing transcript, would be helpful. Because of the courts’ increased familiarity with and understanding of the maritime arbitration process, the practice is now hardly necessary any longer.
The membership of the SMA comes from all ranks of the maritime industry, and since arbitrating under SMA rules is by choice and not mandatory, arbitrators, other than SMA members, are named to panels. This diversity of background, education and experience creates, and also explains, differences in approaches to various procedural matters. The reference and comparison of legal versus commercial is not meant to pass judgment on what is right or wrong or better; those are points to be considered by the parties when selecting the arbitrators. In the context of this article, the references to legal versus commercial are made solely to attempt to explain deviations from the norm of predictability.
For example, with respect to discovery, particularly pre-hearing, it runs the whole gamut. Some arbitrators, no doubt influenced by court proceedings, favour wholesale discovery, while others do not agree with any discovery requests whatsoever. Obviously, there has to be a happy medium. If parties wanted the formality of litigation instead of the ad hoc arbitration procedures, they should have made that choice. On the other hand, certain data or documents are in the sole control of one party and the only way for the other party to gain access to them is through discovery.
If a vessel’s performance is part of the dispute, the vessel’s logs may be germane and would warrant production. Likewise, if the dispute concerns a cargo problem, it would be incumbent upon charterers to provide those particular documents dealing with the cargo and/or the loading or discharging facility. Maybe the point to remember is that discovery should not be a fishing expedition or a burdensome and expensive tactic, but rather discovery should establish an even playing field for both parties.
The panel composition can also have an impact on procedural aspects in the form of motion practice, the application of Federal Rules, UCC terms or other aids used in litigation. Lawyers or legally trained arbitrators may find those procedures to be familiar and persuasive, whereas some commercial arbitrators may reject them as being extraneous and not in the spirit of commercial arbitration. Either way, it is bound to create different results, which in turn can be viewed as inconsistent and at odds with the desire to have predictability.
On the subject of being right and winning, I should like to touch briefly on the awarding of attorneys’ fees and costs.
Under the damage concept that an injured party is to be made whole, it should follow that the injured party should also recover costs and fees. London has long affirmatively dealt with this matter, and New York, specifically under the rules of the SMA, has more recently adopted a similar approach.
Unfortunately, there are still certain misconceptions on the actual recovery of costs/fees. In a recent case, the claimant recovered his damages to the penny. The panel made an allowance of approximately 65 per cent towards the claimant’s costs. The claimant supposedly complained that, since he recovered 100 per cent of the damages claimed, he should also have recovered 100 per cent of his legal fees and costs.
Except for cases which provide in the arbitration clause, or by other agreement, for an award of all legal fees and costs to the successful party, the quantum awarded is really at the discretion of the arbitrators. How should arbitrators deal with a situation where one party uses three lawyers to attend and conduct the arbitration and the opponent relies on a single attorney? Should the use of a three-lawyer team entitle that party to claim fees for three lawyers or should the standard be set by the single practitioner?
Another issue is what determines the entitlement of an award of fees. Does the fact that a party wins an arbitration automatically trigger the award of costs? Must the successful party win on all points with the sums awarded in full? In a recent breach of contract case, a party claimed approximately $200,000, but was awarded only 25 per cent of its claim. The panel majority declined to award any fees/costs because the claimant only succeeded in a marginal fashion. This peculiar interpretation is sophistry and does not give due recognition to the breach and the entitlement to damages of whatever size.
If there is concern that arbitrators are not consistent or predictable in their procedural/administrative approaches, the parties or their counsel should voice their concerns and invite changes. Arbitrators must keep in mind that the process was not created for the benefit of the arbitrators, but it represents a form of dispute resolution in which arbitrators are the facilitators and not the principals.