May 3, 2019
By Alvin F. Lindsay
Disagreements among multinational parties on large-scale global construction projects are perfectly suited to international arbitration. Without arbitration, those parties might be forced to resolve their disputes in unfriendly courts with unskilled judges applying undeveloped law. In arbitration, parties are free to choose the applicable law, retain sophisticated arbitrators with expertise in the field, and have the matter heard in a comfortable and neutral site.
For these reasons, among others, as many as 9% of all actions filed with the world’s leading arbitration institutions are construction disputes.
Some common-law lawyers, in fact, bemoan the lack of new case law involving construction, the result of what has become nearly exclusive use of arbitration clauses in commercial construction contracts.
This article intends to provide professionals who represent parties in international construction arbitrations with tools for winning the arbitration, while offering insight on the differences between trying a case in arbitration versus court.
THE PANEL: TOOLS FOR SELECTING THE ARBITRAL TRIBUNAL
Unlike the random selection process most courts use to assign judges, one of the great advantages of arbitration is that parties are free to agree on who their finders of fact will be, or at least agree to the method they will use to select the arbitration panel. Parties in arbitration should never ignore or minimize this advantage, or they will fritter away an asset they agreed to and for which they are paying.
Usually, an arbitration panel will consist of three arbitrators and, although different institutions encourage different selection techniques, the institution’s rules can always be supplanted by the parties’ agreement. Generally, in a two-party dispute, each party will select one of the arbitrators, and those two arbitrators will then agree upon a chair. The chair, of course, has much of the real power. The ability to agree upon and customize a panel is one of the great benefits of arbitration, and must be approached carefully.
When selecting or agreeing to an arbitrator, cultural considerations are critical. Where is the potential arbitrator from? Is he or she trained in the common law or civil law? Is there any evidence the potential arbitrator might favor contractors over owners? What is their background? Does the potential arbitrator have a history of strictly enforcing contract language, or may equitable arguments prevail?
Even something as simple as language is critical. If the contract documents are in one language, but the main language spoken orally and in writing during the project was another, should the arbitrator speak one language or both? If interpreting a particularly complex or novel contract clause is important, it may be that the language of the contract should also be the arbitrator’s native tongue. If the testimony of the most important witnesses is critical and will be in another language, even if translated, that could be a factor in selecting a panel.
Because most arbitrators are lawyers, someone from a civil-law country where court disputes are centered on an inquisitorial system with no disclosure or discovery procedures is less likely to permit broad and open document disclosure than someone from a common-law system, where broad discovery is ingrained in the culture.
But where the parties each choose one arbitrator and those two arbitrators select the chair, what can be done to influence that selection? The rules of two of the world’s leading arbitration institutions, the International Chamber of Commerce and the International Centre for Dispute Resolution, provide that unless the parties have agreed upon another method, the institution itself will select the chair. While the associations often have excellent stables of arbitrators and will often work with the parties to appoint someone with relevant experience, why would parties want to cede that control to anyone? Even if the arbitration agreement is silent as to the selection process or requires that the chair is selected by the party-appointed arbitrators, or so-called wingmen, it might be of mutual advantage to negotiate a better process at the outset.
Industry expertise and sometimes specific expertise in discrete areas of construction (e.g., tunnel building) can be an important factor for both sides in a case. Where the process involves the party-appointed wingmen mutually deciding on their chair, the parties are still usually permitted to inform either both the selected arbitrators jointly, or their appointed arbitrators individually, the general types of qualifications they want from the chair. Again, these are important considerations and because arbitration is a creature of contract, if the parties agree to a process, it will happen. Thus, it is generally in all parties’ interests to take advantage of this freedom and ensure a custom panel.
Of course, many times parties who think ahead will realize that an important aspect of the case may depend on how strictly an arbitrator might read an otherwise onerous contractual provision or requirement in the face of strong equities against enforcement. Whether the system used for appointments involves lists, mutual agreement of the parties or their appointed arbitrators, or third-party appointments, the only way to learn and understand a potential arbitrator’s legal worldview is by reading everything ever written about and by that person. This can be difficult, as most arbitral decisions are unpublished, but putting out feelers to friendly professional networks can sometimes turn up examples of a potential arbitrator’s written decisions. Also, many arbitrators are retired judges who do have archives of publicly available opinions. Even where no actual judicial or arbitral decisions by the potential arbitrator exist, parties must still research major news media for any reporting on all potential arbitrators.
A final but important point regarding the selection and appointment of arbitrators is that in situations where the parties each select a party-appointed arbitrator, that person must be credible to the other arbitrators and especially the chair. Party appointed arbitrators don’t advocate for the party that selected them, but the unspoken expectation is that they will at least ensure that all of that party’s arguments will be fairly considered. But the minute that arbitrator’s credibility is lost to the other members of the panel, any attention that arbitrator can direct to one of the appointing party’s arguments will only be negative. Thus, parties should not only attempt to determine whether arbitrators have successfully worked together in the past, but they should ensure that their appointed arbitrator is credible, persuasive, and a good communicator.
DISCOVERY: TOOLS FOR FINDING INFORMATION WITH LIMITED DISCOVERY
This issue of discovery is of special concern in construction disputes given the web of contractual arrangements and massive quantities of documents and information generated in even relatively small projects.
US courts allow practically every discovery device imaginable, including depositions, document requests, interrogatories, depositions upon written question, and requests for admission. Moreover, the scope of discovery in court is broad, allowing parties to obtain practically any information in the possession of their opponents that might relate to the claims or defenses at issue.
Arbitration is different. The rules of most arbitral institutions provide that the extent and scope of any discovery will be within the sound discretion of the panel. As noted above, civil law-trained arbitrators may be far less likely to permit full-blown discovery, but even with US arbitrators discovery in arbitration will generally be far more limited in both scope and method than the US rules of civil procedure contemplate. At minimum this means forgetting about document requests that seek “all documents referring, relating to, or otherwise concerning the project,” and really honing in on the needed facts that will be important to the outcome.
This is one area where experts can play an important role. The delay expert, for example, may be in the best position to articulate specifically which project schedules are necessary to obtain and why. Defect experts can assist the legal professionals in identifying specific underlying drawings, purchase orders, field reports, inspection reports, or other documents that may be necessary to explain the nature and extent of the defect.
Thus, it is critical for parties in arbitration to be able to define not just what they really want, but what they really need, and focus on getting that. The benefit of discovery in arbitration done right is that all parties can be spared the time and expense of reviewing and turning over the entire project file, and can spend their limited resources working on what is important.
WITNESSES: TOOLS FOR PRESENTING AND CROSS-EXAMINING WITNESSES
Arbitrations, like court cases, have trials, although they are called final hearings. Unlike court trials, in most international construction arbitrations the direct testimony of party witnesses is not presented live through friendly questioning, but in written form through sworn witness statements that are usually prepared with lawyer assistance. At the final hearing, after perhaps a short introduction and verification that the witness’s statement is accurate, the opposing party will begin cross-examining the witness almost immediately. Thus, the witness statement is incredibly important to the process.
Of course, the first step in the witness-statement process is identifying the right witnesses. Witnesses must not only have firsthand knowledge but must be able to communicate that knowledge under the harsh environment of cross-examination. Many international arbitrators come from jurisdictions where human testimony is considered inherently biased and therefore suspect. So, again, credibility is everything. While, of course, each party might have to present certain project managers or other key personnel, they should always be alert to the possibility of non-parties or others who can be shown to have no material interest in the action supporting the claim. All else being equal, arbitrators will be swayed by someone with no horse in the race.
In terms of drafting the statements, while it is understood that lawyers play a substantial role, care must be taken to avoid conveying the impression that the lawyers simply write what they want the witnesses’ testimony to be. So, any hint of legalese should be avoided in witness statements. Even legal footnote and citation styles should be avoided. While there is no need to attempt to mimic the folksy writing style of a certain witness, the most persuasive written testimony often rings true because it is transcribed from something the witness actually said.
After garnering the witness’s knowledge and assisting the witness to present that testimony in writing, the lawyer’s most important role in the process may be to protect the witness by guarding against the making of unsupported statements or any other comment the opposing side may use to cross the witness. As compelling as the witness’s story on a particular point may sound, if it can be easily impeached by other facts or even by the lack of supporting facts, perhaps that story is better left untold. The lawyer’s job is to anticipate those infirmities and make the sometimes hard call to jettison even ostensibly helpful statements if there is any possibility they could be turned around against the party.
WRITTEN SUBMISSIONS: TOOLS FOR PRESENTING A COMPELLING CASE IN WRITING
In arbitration, a written legal brief, often called a memorial, usually goes hand in hand with the submission of witness statements. Claim memorials are akin to motions for summary judgment in court, to the extent that they provide both the legal argument and the facts supporting a party’s claims or defenses. Unlike motions for summary judgment, they do not result in a pre-trial ruling. Nonetheless, they are critical to prepare the panel and persuade it for the ultimate decision.
A good memorial will weave together the fact witness statements, expert reports, and document discovery, as well as the applicable law. Like many things in arbitration, there is no rule or universally accepted standard in the format of a memorial. Some memorials will footnote every sentence with citations to exhibits or witness statements. Some will include a section after each paragraph detailing the proofs supporting that paragraph. Any style is correct as long as it allows for presenting both the arguments and the evidence in a clear, understandable, and supported manner.
In large cases, the memorials with their underlying statements, reports, and exhibits can take up scores of binders (often called bundles) of paper. While the paper format is still required, the trend in arbitration is to simplify and reduce the burden through what some call the electronic brief. Along with submitting
the required paper copies, many parties will also submit a disk or thumb drive containing electronic versions of the submission. The best of these will hyperlink exhibits directly from the memorial or witness statements. Allowing arbitrators the convenience of immediately clicking on a cited document encourages them to look at and really consider that document.
WITNESSES: TOOLS FOR CROSS-EXAMINING WITNESSES WHO HAVE NOT BEEN DEPOSED
Like court proceedings, after whatever discovery permitted is completed, and the witness statements and claim or defense memorials are submitted, in arbitration the case goes to trial or final hearing. Unlike court, where as many as 99% of all cases filed are settled or otherwise disposed of before trial, in construction arbitration more than 49% of all cases filed actually go through hearing and a final decision by the arbitration panel. Thus, while some litigators never actually go to trial, in arbitration lawyers need to know how try a case and, specifically, how to cross-examine witnesses.
The well-known adage about never asking questions when you don’t know the answer still holds true, but the problem is that with most witnesses in arbitration there will be no previous deposition to use for impeachment, so holding to the rule can be difficult. Instead of looking to a deposition transcript, the questioning lawyer must instead impeach with any other document that will prove the point. Thus, instead of “Were you lying then or are you lying now?” the proverbial question becomes “Who should we believe, you or this document that was created at the time?”
There are times, however, when this won’t be enough and the lawyer simply will have to ask a question with no proof to back it up. Those are best saved for after the questioner has already trained the witness through other questions to expect that the contrary support for wrong answers in fact does exist. It also helps if those are questions that could conceivably be proved one way or the other, even if the examining lawyer might not have the proof at hand. The witness doesn’t know. Of course, that technique carries risk and can only be used in circumstances where the risk is justified.
Given the importance of experts in construction disputes, crossing experts will usually be a critical aspect of the arbitration hearing. Questioning lawyers will almost always be defeated if they try to out-expert the experts on their own terms. Thus, many times, the best approach with experts is to make them yours by avoiding or minimizing discussion on the opinions they delivered for the other side, and instead focus on eliciting other opinions on facts and themes that help the cross-examiner’s theory of the case. Thus, as with selecting arbitrators, good research into the experts’ past opinions, testimony, and writings is critical. Obviously, anything contrary to the expert’s current opinion will be fodder for impeachment, but the expert’s background may also be helpful in limiting the scope of their claimed expertise, or otherwise demonstrate a lack of experience with the subject at hand.
Many big case litigators erroneously believe that if they can persuade a jury in court, convincing a panel in arbitration will be no different. This is wrong. Arbitration requires developing and honing a different set of tools. In court, lawyers don’t select their judges, are not required to submit witness statements or draft memorials of their cases, and usually have the luxury of questioning every witness in advance of trial. These are major differences that cannot be minimized or ignored, but the tools discussed above will go far in helping to build the winning arbitration.
ABOUT THE AUTHOR
Alvin F. Lindsay is a partner in the Miami office of Hogan Lovells US LLP, where he focuses on large-scale construction disputes in international arbitration. This article is based on a panel titled “The Ultimate Toolkit for Winning the International Construction Arbitration,” presented at the Construction SuperConference in Las Vegas, Nevada, on Dec. 5, 2015.