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First Printing, 2006 10 9 8 7 6 5 4 3 2 1 If you are interested in purchasing the book this chapter was originally included in, please call 1-866-Aspatore (277-2867) or visit www.Aspatore.com. Domestic and International ADR Processes Alexander S. Vesselinovitch Partner Katten Muchin Rosenman LLP Inside the Minds – Published by Aspatore Books In my role as an alternative dispute resolution (ADR) attorney, I primarily handle domestic arbitrations in civil law disputes involving breach of contract, licensing agreements, and joint venture disputes. From time to time I am also called upon to handle international arbitrations in civil law disputes involving multi-national parties. In addition, I often counsel clients who are looking to draft and incorporate dispute resolution clauses into their domestic and international contractual agreements. These clients often want to know what options are available to them in terms of ADR organizations, and what types of dispute resolution clauses would typically lead to either mediation or arbitration. I believe that the greatest value that I bring to my clients lies in the fact that I know a great deal about the different options that ADR organizations bring to the table in terms of their procedures, reputations, and the quality of their rosters of arbitrators and mediators. Much of that experience and knowledge derives from my practice, as well as my involvement with the American Bar Association’s International Section with respect to the International Commercial Dispute Resolution Committee. I have also gained a great deal of knowledge from giving speeches on ADR options and from attending meetings of various international arbitration organizations. Components of ADR The two main components of ADR are mediation and arbitration. Which one is chosen often depends on whether or not the parties to a contract, which may lead into a dispute, want to mediate the dispute prior to arbitrating it. Mediation provides an opportunity to settle the dispute on an expeditious and inexpensive basis before the parties turn to the far more expensive process of arbitration. Another very important component of the ADR process is discovery. Discovery includes the production of documents and, in some cases, the taking of sworn statements or depositions of key witnesses. In ADR, the scope of discovery is generally very limited, so the parties must draft a clause that gives them the right to more expansive discovery proceedings if they wish. Generally speaking, arbitration rules and procedures limit discovery; indeed, some of them almost abolish it because the most expensive part of litigation is usually incurred in an extensive and Domestic and International ADR Processes burdensome discovery process. A very important consideration in the ADR process is the degree of discovery, if any, that the parties want to be able to have in ADR. A party to a contract must try to predict whether they will be advantaged, or disadvantaged, by limited discovery should a dispute arise from the contract. Another component of the ADR process is the various options that are available in multi-national arbitrations. Clients need to know the differences between the rules and default procedures of the various international arbitration organizations such as the International Chamber of Commerce (ICC), the SCC (Stockholm Chamber of Commerce Arbitration Institute), or the London Court of International Arbitration (LCIA). Successful Strategies A critical strategy for success in this practice area involves making sure that the client drafts the appropriate ADR clause in their contract. For example, they need to determine whether they want one or three arbitrators; whether they want mediation to precede arbitration; and what the applicable choice of law is. One arbitrator may be sufficient for disputes where the amount in controversy is $1,000,000 or less, and the choice of substantive law can be crucial in determining the outcome of the dispute. All of those considerations are important In addition to counseling clients in those areas, we also advise clients as to whether it may be better to litigate a claim as opposed to arbitrating it in certain instances; in other words, we evaluate the strategies for the types of cases or disputes that are more conducive to arbitration versus those that may be better resolved through litigation. International disputes between multi-national parties may be particularly well suited to arbitration because the parties can choose a neutral forum and neutral arbitrators to adjudicate the matter. We do not recommend that every client arbitrate every kind of dispute; indeed, more than half of my practice is in litigation, and the rest is in ADR. In order to achieve success in ADR, it is critical to choose the right arbitrator or arbitrators to adjudicate the dispute. The quality of an Inside the Minds – Published by Aspatore Books arbitration proceeding is only as good as the arbitrator or arbitrators who preside over it; therefore, we make every effort to become very familiar with the reputations and experience of arbitrators, as well as those who have a specialty for handling certain types of disputes over others. Unlike litigation where judges have a more general knowledge of the matters in dispute, arbitrators such as engineers can be chosen for their specialized backgrounds in the field that is the subject of the dispute. The successful practice of ADR also depends on staying on top of your knowledge in this practice area. I read various journals that are published by arbitration organizations such as the ICC, LCIA, and SCC. I strive to stay up to date on the more recent changes and revisions to the arbitration rules; I attend an annual meeting of international and domestic arbitrators where recent developments in arbitral rules and proceedings are covered. The Art of Negotiation in International ADR Perfecting the art of negotiation in ADR proceedings involves having a full command of the facts of the case and having an equal command of the applicable law. You must also follow the arbitration organization’s procedural rules meticulously. In other words, you must make certain that you are familiar with the procedural rules that apply, know what choice of law applies to the dispute at hand, and become familiar with that law as it pertains to the facts. For example, if you are dealing with an international dispute, and the applicable law derives from a foreign jurisdiction or territory, then hiring and consulting with lawyers from that jurisdiction to provide opinions and input on their own substantive law is critical. If the law of Germany applies to the dispute, then a German attorney should be brought in to assist with the case. Indeed, international negotiation strategies are somewhat unique to the extent that you have to be familiar with the cultural and attitudinal differences that foreign lawyers bring to the table. American litigators are very aggressive in their presentations and positions, but that style may be counterproductive in an international arbitration or before a multi-national arbitral panel. Our normal way of doing things as American litigators can be viewed as rude or even coarse by foreign arbitrators or attorneys. Often the best way to handle these concerns is to retain or hire a lawyer from your Domestic and International ADR Processes opponent’s jurisdiction; he or she can help you become familiar with the habits and patterns of negotiation that they are accustomed to. It is often much more difficult to negotiate with parties from Japan, for example, than it would be to negotiate with parties from England because one culture may have a more indirect and subtle way of negotiating disagreements. Mediation Strategies Mediation requires a unique negotiation strategy. I believe that it is very important to give a succinct and powerful statement to the mediator because mediation is usually a short and quick process, although that can be very difficult to do when you are dealing with a complex case that involves tons of facts, witnesses, and information. Indeed, it can be very challenging to distill a great deal of information into a simple and direct form that can be put into a very short memorandum. However, meeting that challenge successfully is very important and key to any successful mediation. Good lawyers can boil down complex facts to simple form. Success in mediation also depends on whether both sides want to be there. If one side or the other does not really want to mediate the case, then that is generally a recipe for disaster. Mediations work best when both sides enter into the process with the attitude that they want to settle or reach resolution. It is also important to maintain one’s credibility with the mediator at all times. You need to make sure that you are as straightforward as you can be with the mediator. At the same time, you need to make sure that if some information, including the maximum amount that your client will accept or pay in settlement, is to be kept private by the mediator and not to be disclosed to the other side during the course of mediation, that you make that position very clear. The lawyer is typically the advocate and the principle negotiator on behalf of his or her client in the mediation process. While the client is generally there as well and should play a role in approving the ultimate terms for a settlement, their role is usually secondary to that of their advocate. Indeed, I believe that in any form of ADR negotiations the principle attorney for the Inside the Minds – Published by Aspatore Books client should be the main talking head, and usually is. Benefits of the ADR Process Preparing for negotiations in ADR is typically less formal than it is for litigation, and should be. Indeed, a major benefit of mediation is that the attorney can be more candid at times than he or she would be in litigation or even arbitration. There is a very different human dynamic involved in mediation because it is a non-binding process; the parties recognize that is so, and the mediator is merely there to assist them in reaching a resolution on their own. Arbitration, on the other hand, is a binding process. The arbitrator or arbitrators are there to adjudicate the dispute and everyone who is involved treats the process much more like a judicial proceeding than is the case in mediation, which lends itself to a less formal and possibly even more candid approach. At the same time, there are significant benefits to engaging in ADR in international disputes rather than engaging in international litigation. Most importantly, the parties can choose a neutral site to arbitrate their dispute, so that the proceedings will not take place on the home turf of either one side or the other. As a result, you will not feel as though you are at a disadvantage because you are adjudicating the dispute in the other side’s home court. Both sides can control the applicable law and choose the arbitrators who will resolve the dispute, whereas in litigation you cannot choose the judge you end up with. As a result, the parties in international arbitration typically have more confidence that the outcome and process will be fair, which is important when you are trying to avoid a situation where one side or the other might be favored simply because they happen to be of the same nationality as the judge of the court in which they are situated. Drawbacks to International ADR One major drawback to the international ADR process, however, is that Domestic and International ADR Processes you typically do not have a right to appeal. Indeed, the rights to appeal are very limited in arbitration and many clients are uncomfortable with the dilemma that if they get a bad or poorly reasoned decision, there is very little relief. Another disadvantage of international ADR is the limited scope of discovery; one has a much greater ability to include discovery and thus submit a wider range of evidence in litigation than one can in arbitration. Therefore, you often must go blindly into the arbitration process whereas in litigation you can uncover evidence more fully through a discovery process that has a much wider scope. Indeed, in cases where you are representing a party that really needs witness testimony and numerous exhibits in order to support their claim, as in a case where the opposing party worked a deception or a fraud, then you are much better off litigating, because in arbitration there is no assurance that you will be able to introduce any or most of the exhibits you need. In addition, there are generally no depositions allowed in international or even domestic arbitrations so if you want depositions you are much better off litigating. Finally, if you want to preserve your right to appeal a decision, that right to appeal is much better served in litigation than in arbitration. It should also be noted that the most widely misunderstood aspect of international ADR is that it is cheap. In fact, it can be very expensive, partly because in any major international arbitration the parties are paying not only their own attorney’s and counsel fees, they are also paying the arbitrator’s costs, which are generally shared, not to mention the travel and other expenses that often attend an international arbitration proceeding. Clients must also be aware that arbitrators generally have the right to shift the fees and costs, which is not the case in litigation. Therefore, the client can be exposed to the risk of paying not only their attorney’s fees but the other side’s attorney’s fees, depending on the outcome of the award—and that can be significant. Inside the Minds – Published by Aspatore Books ADR Contract Language In order to ensure that the proper form of ADR will be used to resolve any potential dispute, the parties to a contract must include a dispute resolution clause that explicitly chooses mediation or arbitration as the form of ADR that will be used to resolve any future disputes. If arbitration is chosen, the clause must also explicitly choose the ADR organization and the applicable rules of that organization that will apply to any and all disputes arising from the contract. The parties should also choose the location of the arbitration; whether they want one or three arbitrators to adjudicate it; and they should choose the applicable substantive law that should apply to the dispute. In many cases, the parties to an international contract will agree to arbitration over mediation because it is binding and they know they are going to get a final decision one way or the other that will resolve the case. In mediation, however, there is absolutely no guarantee that the dispute will be resolved, or that any dispute will be adjudicated, because mediation is non-binding. In essence, there is no certainty if you go to mediation that your dispute will be settled. With arbitration you have the certainty that there is a mechanism in place to resolve the dispute one way or the other. If a dispute does in fact arise under a contract that has an arbitration clause, you have to abide by that clause, and follow the rules of the ADR organization that has been selected in the contract. It is important to become completely familiar with that ADR organization’s rules before you go forward, in order to comply with all the necessary steps to initiate or defend arbitration under the rules and procedures which govern the dispute in the contract. Stages of an Arbitration Proceeding An international arbitration proceeding follows several stages. Once you have ensured that you are abiding by the chosen arbitration organization’s rules for making a timely and formal notice of a claim, you should also then determine that you are drafting the claim appropriately in the manner required by the rules you have chosen. A careful review of the international Domestic and International ADR Processes arbitration organization’s procedures and rules is a critical predicate to any successful arbitration. Next, you must go through the standard procedures to choose your arbitrators or single arbitrator, as the case may be, in a way that complies with the rules, but also results in selecting the highest quality arbitrator or arbitrators to preside over the dispute. Indeed, there is nothing more important in my mind than choosing the appropriate arbitrator or arbitrators to preside over the dispute. This can be accomplished by speaking to other lawyers or advocates who either know or who have appeared before the arbitrator. You must then hold a meeting or initial conference for scheduling the arbitration proceedings; that meeting may take place in person or by telephone. This meeting is followed by preparation of the arbitration brief or memorandum that is required by the arbitrators. This brief or summary of the dispute, which addresses the claims at issue, is probably the most important document that you are going to prepare in the case. It must provide a full overview of the claims and issues to be resolved in the arbitrations, and no claims should be omitted. Laws Governing International Arbitration Procedures: Present and Future Trends The Federal Arbitration Act, often known as the New York Convention, is probably the most important law governing arbitration in the U.S. It is a formal statutory recognition, which has been upheld by the Supreme Court, that foreign arbitral awards will be enforced by the U.S. district courts under the proper circumstances. In essence, the New York Convention gives teeth to the enforceability of foreign arbitration awards in U.S. federal courts. It is very important for every company to determine in advance of international arbitration whether the opposing party is a resident or citizen of a nation state that is a signatory to the New York Convention; otherwise you cannot guarantee enforceability of the arbitral award. The New York Convention is essentially the result of a steady trend in the U.S. courts towards enforceability of international arbitral awards. The U.S. Inside the Minds – Published by Aspatore Books federal courts are very deferential to arbitration clauses; U.S. case law supports that deference to arbitration. The U.S. district courts are disinclined to allow parties to litigate claims where they have previously chosen an arbitration clause to do so; therefore, they are favorably inclined to enforce arbitration clauses, and even to enforce foreign arbitral awards that fall within the scope of the New York Convention. This is certainly a positive trend, because when parties choose arbitration clauses as a way to resolve a dispute they want certainty and enforceability. In the future, our U.S. court system will likely be embracing arbitration in many ways. Our arbitration-friendly judiciaries seem to be looking for new ways to enforce arbitration clauses and make parties abide by them. Success in ADR: Final Thoughts The three most important areas that make a successful ADR attorney include being familiar with the arbitration rules and procedures; knowing the differences between arbitration and litigation; and becoming familiar with the quality arbitrators who are available. A successful ADR negotiation is one whereby the dispute is resolved; the parties reach a settlement of the claims; and they do not need to litigate or arbitrate the matter any further. In order to reach such a conclusion in an arbitration matter, I always advise my clients to be careful what they wish for. They have to decide going forward what they really expect from the proceeding; they have to determine how much discovery they want versus how much is available under the arbitrator’s rules; and they have to know that arbitration is a final and binding process, one that more likely than not cannot be challenged effectively by judicial review or post-arbitral award review—indeed, it is sometimes an all-or-nothing proposition. Once you entrust the case to arbitration, you are going to have to comply with the decision that results from the process. Alexander S. Vesselinovitch practices civil and criminal litigation, including breach of contract, anti-fraud, health care, and antitrust. Further, he handles domestic and Domestic and International ADR Processes international commercial arbitration matters involving various contractual and licensing disputes. Mr. Vesselinovitch has handled a variety of complex cases involving both the presentation and defense of civil RICO, fraud, antitrust, and health care claims. He also has extensive experience conducting internal corporate investigations involving serious allegations of misconduct. Mr. Vesselinovitch served as a law clerk to Judge Charles P. Kocoras, U.S. District Court for the Northern District of Illinois from 1980 to 1982. Mr. Vesselinovitch then worked in the criminal division of the United States Attorney's office, Northern District of Illinois, where he was deputy chief, Criminal Receiving and Appellate Division, and he also served as deputy chief of the Organized Crime Narcotics Task Force. He was lead counsel in numerous complex and multi-defendant trials involving fraud, banking, health care, organized crime, and public corruption. Mr. Vesselinovitch received the Attorney General's Special Commendation Award, September 1987, and he received the Department of Justice Special Achievement Award in August 1988. He is recognized as a 2007 Illinois Super Lawyer. Mr. Vesselinovitch is a member of the American Bar Association, where he serves as vice chair of the International Commercial Dispute Resolution Committee of the ABA Section of International Law. He is admitted to practice in Illinois and before the U.S. Supreme Court, the U.S. Court of Appeals 7th Circuit, the U.S. District Court for the Northern District of Illinois, including the Trial Bar, and the U.S. District for the Central District of Illinois. Mr. Vesselinovitch is proficient in Russian and SerboCroatian. Mr. Vesselinovitch received his B.A. from the University of Chicago and his J.D. from the Columbia University School of Law. www.Aspatore.com Aspatore Books is the largest and most exclusive publisher of C-Level executives (CEO, CFO, CTO, CMO, Partner) from the world's most respected companies and law firms. Aspatore annually publishes a select group of C-Level executives from the Global 1,000, top 250 law firms (Partners & Chairs), and other leading companies of all sizes. C-Level Business Intelligence™, as conceptualized and developed by Aspatore Books, provides professionals of all levels with proven business intelligence from industry insiders – direct and unfiltered insight from those who know it best – as opposed to third-party accounts offered by unknown authors and analysts. 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