Some thoughts on Selecting Neutrals for International Commercial Disputes

One of the first steps towards dispute resolution involves finding the right arbitrator(s) or mediator for the dispute. Many clients defer to their lawyers, hoping they “know someone good.” Some are more “hands on”, and undertake the search themselves, oftentimes relying on their own research and word of mouth.

When I was in-house, I often did the same, asking litigation counsel to identify candidates, which we would then discuss and decide upon. In the case of one mediation, we obtained a list of mediators from a prominent ADR organization, and then looked at their CVs hoping to find someone with significant ADR experience, who was familiar with our industry. We also wanted someone without any overt signs of bias against big business (such as former plaintiffs counsel or personal injury lawyers). And of course, someone our adversary would find acceptable and not outright dismiss. A tall order that was, admittedly, quite hit or miss.

As business goes international so too do comercial disputes. In this context, the selection of neutrals is even more challenging. I believe that the international nature of a comercial dispute, calls for a number of special considerations, when selecting the proper neutral.

Does the proposed neutral have international training and experience?

Firstly, and based on my experience, international disputes require internationally trained and experienced neutrals. Because international disputes very often involve parties from very distinct legal systems, those who sit as arbitrators or mediators must have a deep understanding of these very distinct systems.

I have debated this point with ADR practitioners, who counter that too much is made of the civil law/ common law divide. In my experience, different legal systems often have very different concepts on issues that can be determinative in certain cases. Examples abound, (ie doctrines such as force majeure, or the nature of property rights or the discovery of evidence).
Where a mediator, for example, is unfamiliar with doctrinal legal differences, opportunities to challenge a party’s embedded position on an issue might be lost. Where an arbitrator is unfamiliar with procedural differences, rulings on evidentiary issues, could, in some cases, give rise to allegations of unfair bias.

Does the proposed neutral have International business experience?

Often, when we seek international neutrals. we find countless publications and seminars on the fine points of law pertaining to international arbitration and mediation. The international ADR community is particularly active on this front. In this way, we can get a good idea of the quality of research and writing of many practitioners.

In my opinión, however those chosen to sit as as arbitrators or act as mediators must also have a good understanding of how international business actually operates. While it is very important to understand different legal procedures or even cultural mores, it is just as important to understand how business actually get things done.

Parties often select neutrals with considerable litigation experience, in the hopes of selecting someone as close to a “real” judge as possible. Indeed, many parties prefer selecting retired judges as mediators or arbitrators. I confess to having done this myself. The organizational and analytical skills of seasoned litigators and judges are usually quite impressive. While this is often a sound criteria for selection, sometimes it is not.

I believe that international business cases require neutrals with a particular international business skill set. Neutrals without business experience are at greater risk of getting bogged down with operational issues that have very little to do with the heart of the dispute. Or for that matter overlooking practical issues that may be central to a fair resolution of the case. I recall a case involving damaged cargo, where the neutral (a former judge who often forgot he was acting as a mediator rather than an adjudicator) all but ignored the applicable incoterm establishing where risk of loss passed. While this was understandable for someone with no experience with the international sale of goods, it suggested to me that this might not be the best neutral for the case.

How familiar is the neutral with the hidden risks of International business?

International neutrals must also have an understanding of the hidden risks of international business. Truly understanding the international operating environment involves familiarity with the not so obvious. For example, when considering an international contract dispute, one must not only consider the applicable law of the contract but also the possible interplay with the extraterritorial application of laws and regulations (such as international trade and financial sanction regimes).
This blindsight has led to instances of unenforceable awards being rendered, due to the application of sanctions. Indeed neutrals unfamiliar with anti corruption or sanctions regimes are at greater risk of having the process being hijacked or manipulated by parties seeking to illegally circumvent the application of such norms.

Is the proposed neutral familiar with international investment law?

Experienced international neutrals must also be familiar with international investment treaties when disputes involve foreign State action. Some State regulatory measures can amount to wrongful regulatory takings. Indeed States may breach contracts or concessions or deny fair and equitable treatment or frustrate investors legitimate expectations under applicable regional or bilateral investment treaties.

Many domestic lawyers are unfamiliar with this area of law, as it is rarely forms part of most law school curricula. It is also fair to say, that familiarity with these international legal instruments are usually not the day to day of most litigators. Selecting a neutral with 30 years of litigation experience is no guarantee that they know the first thing about treaty arbitration.

Is the proposed arbitrator or mediator demonstrably independent and neutral?

International neutrals must be truly independent and unbiased. This can be challenging, at times, as many such professionals hail from major law firms and are more likely to find themselves in potential conflicts of interest due to their firm’s very broad client network.

Is the proposed neutral familiar with the differences in ethical standards when working internationally?
Indeed, ethical standards can be a minefield for international neutrals because standards are for the most part domestically focused, with very inconsistent levels of enforcement around the world. What might be considered good practice in one jurisdiction, might very well be an ethical violation in another. Unfamiliarity with such differences can lead to genuine headaches.

By Peter Nahmias