[author: John Bowman]
In-House Arbitration Counsel’s “Job Description”
The job of in-house arbitration counsel in international commercial and investment disputes involving energy companies can be best described in its simplest terms as two-fold. On the transactional side, the company’s arbitration specialist should be able to draft, negotiate, and advise concerning contractual dispute resolution provisions. In most cases, the job of drafting a workable and enforceable dispute resolution agreement is not difficult, unless the parties needlessly make it so. Part of the job of in-house arbitration counsel should be to ensure that the company’s commercial representatives keep things simple and avoid common drafting mistakes. The company’s in-house international arbitration counsel should also be directly involved in formulation of the company’s dispute protocol, or at least fully familiar with it. This protocol constitutes an important resource for in-house counsel, covering guidelines for drafting dispute resolution provisions and key tasks relating to management of the disputes process, particularly at the early intake stage.
On the disputes side, he or she manages disputes, overseeing their progression through the dispute resolution process from initial intake to arbitral award or settlement. At each stage of this process, company counsel performs a multifaceted role frequently crucial to the successful conclusion of the dispute, a role that ranges from selection, engagement, and supervision of outside arbitration counsel to the more substantive, significant, and collaborative responsibilities as part of the trial team. In order to perform this part of the job effectively, he or she must be knowledgeable concerning the legal framework in which arbitration occurs, the applicable arbitration agreement and arbitral rules, and the arbitration process, as well as familiar with the client, its business, and the industry in which it operates. Throughout this entire process, the in-house arbitration lawyer performs the oftentimes difficult job of managing client expectations. To achieve a successful result in arbitration, in-house counsel should practice, just as outside counsel must, the art of anticipation. If he or she can do all these things, and more, the in-house energy lawyer deserves to be recognized as the company’s international arbitration expert.
This short article highlights a few of the many and varied tasks that form part of in-house energy counsel’s job description when a dispute goes to international arbitration. [1]
New Case Intake
Among other things, the dispute protocol should outline those key steps that in-house counsel, including arbitration counsel, should take even before engagement of outside lawyers or commencement of formal proceedings. Naturally, an initial evaluation of the dispute ─ parties, contract, claims, exposure, and venue ─ must be made quickly by interviewing company personnel and reviewing the contract at the center of the dispute, any memoranda by commercial representatives about the dispute, and all correspondence, faxes, and emails with the adverse party connected to the dispute. In-house arbitration counsel should also pay particular attention to any dispute resolution provisions in the contract(s) at issue and review any arbitration rules referenced there. If in-house arbitration counsel learns of the dispute for the first time on receipt of a demand, notice, or request for arbitration, he or she will want to review that document immediately. Once counsel completes these initial steps, he or she will need to report up the chain of responsibility within the law department and to the key manager on the business side concerning the dispute. If commencement of arbitration appears the appropriate course, many companies require compliance with an approval process that includes submission of a formal written recommendation to the General Counsel and/or company management.
Document Retention Policy
The dispute protocol should be sure to address the company’s document retention policy and indicate the urgent need to place a “hold” on destruction of all potentially relevant documents, including emails, once a dispute arises. While U.S.-style depositions, interrogatories, and requests for admission are almost never used in international commercial arbitration (the one widely recognized exception being the deposition of the ship’s captain before his ship leaves port), the exchange of documentary evidence constitutes an important part of any arbitration. [2] In recent years, arbitrators, counsel, and commentators have focused increasing attention on e-discovery in international arbitration, narrowing the gap in expectations and requirements between U.S. litigation practice and international arbitration practice in this area. [3] The customary sanction in international arbitration for failing to produce documents requested by the opposing party or the tribunal remains the power of the tribunal to draw a negative inference that the missing documents would have supported the other side’s legal position in the case. A party should not underestimate, however, the adverse impact on the tribunal’s perception of its case because of its failure or refusal to produce documents whose relevance and existence have been sufficiently established by the requesting party. For this reason, in-house arbitration counsel should move quickly to prevent destruction of potentially relevant documents on learning of the existence of a dispute subject to arbitration.
Ongoing Communications Oversight
A matter of some delicacy, requiring diplomacy but also firmness, in-house arbitration counsel should also move quickly to instruct the company’s commercial representatives to channel all written communications with the adverse party touching on their dispute “through Legal” for review prior to transmission. The commercial representatives sometimes dislike this extra step when communicating with their counterparty, but serious damage to the party’s legal position can be avoided by early institution of this practice, and most commercial representatives understand the need for these measures. If the commercial representatives indicate some reluctance to implement this procedure, in-house arbitration counsel should not hesitate to call on the General Counsel to communicate the importance of this practice to the Senior Vice President responsible for this commercial relationship. When the stakes are high enough, regular monthly or even weekly meetings or conference calls may be necessary during the pendency of the dispute in order to speak with one voice concerning the issues and to make sure that “the left hand knows what the right hand is doing.”
The same need to channel written communications “through Legal” should also apply to press releases and internal write ups (e.g., the company employee newsletter) regarding the contract or related projects and to filings with the Securities and Exchange Commission and other regulatory bodies. Counsel should also put a “Google alert” on his or her personal computer for news about the contract, project, and opponent, a prudent step that can uncover the good, the bad, and the ugly concerning issues relevant to the dispute. Failure to take these simple precautions can lead to disaster in litigation, with senior management demanding to know: “How did this happen?!”
Website Inspection and “Beautification”
As soon as possible once a dispute arises, in-house arbitration counsel should review the company’s website for references to the contract, the project, or the adverse party and promptly remove any “wrongheaded” statements. Company websites frequently contain statements and information, even photographs, inconsistent with current litigation positions. Although websites now exist that take and store periodic “snapshots” of corporate websites, [4] so that today almost no corporate website can ever really be erased, no reason exists to make opposing counsel’s job of impeachment easier. As with communications with the party-opponent, press releases, and SEC filings, information relating to the contract, project, and parties in dispute should not be posted to the corporate website without first being vetted “through Legal.” The dispute protocol should include website inspection on in-house arbitration counsel’s initial task list.
Coordinate with Co-Venturers
Another task best performed by in-house arbitration counsel, coordination of litigation decisions and case strategy with co-venturers can prove of critical importance, especially when co-venturers fund their percentage interest shares of litigation costs. This situation arises often in the context of a joint operating agreement among international oil companies, with the operator taking the lead in supervising handling of the arbitration and the non-operators paying their proportionate shares of litigation costs charged to the joint account. Important decisions, such as engagement of outside counsel, commencement of arbitration, and appointment of arbitrators, may require approval of all co-venturers, and periodic communications among in-house counsel will enhance alignment of the parties’ interests over the course of the arbitration.
Litigation Budgets
Today most in-house disputes counsel prepare litigation budgets for significant cases on at least an annual basis. Preparation of these budgets should form part of any dispute protocol. Although usually only estimates of future fees and expenses, rather than absolute limits on expenditures, these budgets perform several important case management functions. Prepared initially by or with substantial input from outside counsel, these budgets allow in-house counsel to identify, question, and potentially control significant sources of legal costs. Litigation budgets also enable the company’s law department to give senior management an estimate of legal costs for the coming year, facilitating better understanding of the impact of litigation on the company’s bottom line. Budgets also provide a yardstick for measuring actual versus predicted costs so that attention can be focused on those factors having a greater than expected impact. A dialogue between in-house and outside counsel concerning fees and expenses should be encouraged as part of the budget process, and last minute, perfunctory submissions should be discouraged. For some reason, in-house and outside counsel rarely sit down together to go over budget entries, either in their preparation or as part of a year-end post-mortem.
Because arbitration proceedings generally follow a predictable pattern of pre-hearing, hearing, and post-hearing phases, these proceedings lend themselves to preparation of detailed budgets. Likewise, when asked by a prospective client to provide an estimate of fees and expenses for handling a new arbitration, outside counsel can educate the client about the arbitration process as well as provide a breakdown of estimated fees and expenses by providing an estimate for each stage of the process. The typical stages of an international commercial arbitration consist of:
(1) initial review and analysis of claim;
(2) preparation of request for arbitration or answer and counterclaim;
(3) appointment of arbitral tribunal;
(4) preliminary hearing and Procedural Order No. 1;
(5) document disclosure and review;
(6) witness interviews and written statements;
(7) expert witnesses and reports;
(8) pre-hearing memorials (briefs);
(9) witness and exhibit preparation;
(10) preparation of cross-examination and opening statement;
(11) hearing on the merits; and
(12) post-hearing memorials (briefs).
In preparing an arbitration budget, counsel should keep in mind that some proceedings can involve large administrative fees and hefty advances on costs, the latter to cover the fees and expenses of the tribunal. The rules and the websites of most arbitral institutions will help counsel estimate those fees.
Periodic Case Evaluations
The dispute protocol should also call for periodic case evaluations by in-house disputes counsel. These evaluations summarize the case status, report significant developments, mark important milestones, describe next steps, note deadlines, indicate sensitive issues, and from time to time provide an overall assessment of the strengths and weaknesses of the company’s legal position.
As part of this evaluation, some companies want counsel to quantify the likelihood of success, either by means of a “gut check” by outside counsel or by means of a more elaborate decision-tree analysis of the dispute and its possible outcomes. Computer software now exists to aid in-house counsel in developing a decision-tree analysis of the company’s legal position, although at the end of the day it is legal counsel relying on his or her experience and considered judgment who assigns a percentage to the alternative outcomes at each fork in the road. The end result discounts a claim based on procedural and substantive obstacles to arrive at the claimant’s ultimate chance of success. Hardcore advocates of this analytical, quantitative approach then multiply the dollar amount in dispute by the predicted percentage of success to determine the value of the claim.
In recent years in major (usually multi-billion dollar) cases, some energy companies have retained international private intelligence/investigation firms, even prior to commencement of arbitration, to locate assets owned by the respondent that could be seized in the event of a favorable arbitration award, discounting the value of the claim when those assets appear unable to satisfy the amount in the dispute. In some of these ultra-high stakes cases, some companies have also hired outside consultants to conduct an intensive (and expensive) game-theory analysis of the respective positions, legal and otherwise, of the parties in or related to the dispute in order to determine the strength of the claims, alignment of parties, possible settlement strategies, and best, likely, and worst case litigation outcomes.
Managing Client Expectations
An essential part of in-house arbitration counsel’s responsibilities involves managing client expectations regarding arbitration. Commercial representatives and executive management may have unrealistic expectations concerning the likelihood of success in an arbitration, especially those representatives closest to the dispute, who may not see the dispute objectively or may have vested interests in pursuing a particular outcome. If the client lacks prior experience in arbitration proceedings, the client may also hold unrealistic expectations concerning the time it takes from commencement of arbitration to rendition of award and concerning legal and other costs of engaging in this process. Armed with knowledge of the process and working with outside disputes counsel, company counsel can manage those expectations by providing the previously mentioned periodic case evaluations, decision-tree analyses, timelines, and budget estimates, by holding regular telephone or video conferences or in-person meetings to update the client on the status of the case and discuss current issues and tasks, and when appropriate by engaging a private asset search firm to identify available assets in the event of a favorable award, in order to avoid an unpleasant surprise later.
Art of Anticipation in International Arbitration
To be effective, the in-house arbitration lawyer, no less than trial counsel, should constantly practice the art of anticipation. Anticipation in the context of a contentious legal proceeding like an arbitration consists not merely in exercising foresight, but in identifying and preparing for every possible material question, issue, answer, and argument that may arise as the arbitration proceeds, whether from opposing counsel, client, witnesses, or the tribunal.
Anticipation and preparation are two aspects of one action: the art of anticipation. Being prepared builds credibility with client and tribunal, maximizes persuasiveness, and when done right, is beautiful to behold. In an international commercial or investment arbitration, careful study of the case (parties, facts, law, and procedure), knowledge of the process gained through experience in prior matters, and the ability and willingness to look ahead provide the basis for practicing this art.
At the initial stage of case evaluation, in-house counsel should look to the future while focused on the nature and history of the parties’ dispute, making sure to implement the dispute protocol with respect to document retention, future communications with the adverse party, and public disclosures relating to the dispute. Counsel must also anticipate counterclaims, attempt to mitigate damages, monitor future commercial developments that could affect the parties’ relationship, and decide the form of relief needed with regard to past and future damages. In-house arbitration counsel must also explain the arbitral process to the client, preferably by providing a step-by-step description of the process overlayed with a provisional timeline. An estimated arbitration budget should also be prepared. The initial written submissions, which provide the first opportunity to persuade the arbitral tribunal, should articulate a compelling theme, be based on anticipated evidence, anticipate the opponent’s litigation strategy, and take into account weaknesses in the case and reflect how best to address them.
The art of anticipation extends to appointment of the tribunal, and in-house arbitration counsel should confer with outside counsel concerning arbitrator qualifications best suited to the particular dispute, such as legal training, industry experience, language skills, and ability to interact effectively with other members of the tribunal. Obviously, appointment of arbitrators involves a great deal of anticipation and speculation concerning which arbitrators would be right for the case.
During the pre-hearing phase of the arbitration, in-house arbitration counsel should actively participate in formulating case strategy, setting the pre-hearing schedule, determining the documents needed to meet his or her client’s evidentiary burden, identifying the appropriate witnesses and experts, and anticipating opposing parties’ arguments as part of drafting pre-hearing briefs and witness preparation. As the arbitration unfolds, company counsel should provide management with periodic reviews of the case status and progress. Needless to say, during this often lengthy pre-hearing phase, in-house and outside counsel need to practice the art of anticipation at every turn in order to arrive at the hearing on the merits with the client’s case in the best possible shape.
The merits hearing itself is all about anticipation: anticipating the tribunal’s questions and requests; anticipating opposing counsel’s tactics, arguments, and evidence; and anticipating witness testimony, including knowing what the witnesses’ answers will be on cross-examination or anticipating all possible answers. More than anything else, counsel must anticipate what remaining questions and doubts the tribunal has after having reviewed the parties’ extensive written submissions, and be prepared to answer and assuage any lingering concerns regarding the relative merits of the parties’ positions. While lead trial counsel takes the laboring oar in this part of case preparation, in-house arbitration counsel should actively participate in this process, especially given his or her unique perspective as company counsel.
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