Dispute Resolution: Three tools to improve international arbitration

Iain Sheridan of Big Ben Chambers shares his top three tools for facilitating the smooth-running of international arbitration

Recurrent challenges facing international arbitration are the cost and delay of arbitral processes compared to alternative ways to solve disputes. There are, however, three innovative tools that deserve widespread use: mind map diagrams; simplified evidence charts; and, cause and effect diagrams. These tools should lower costs, and increase both the efficiency and qualitative aspects of preparing, delivering and concluding international arbitrations. It is argued that these three techniques would benefit both arbitrators and represent counsel across the entire process of international arbitration. In the medium to long term, all three tools may become as established in their application by the international arbitration community as writing notes, typing summaries and sending emails.

Mind map diagrams summarise a case in a non-linear way, replicating how the human brain often analyses knowledge and problems. This tool potentially benefits both arbitrators and representing counsel throughout all key procedural events. Complex, voluminous facts can be summarised with links to other types of documents, such as party requests and responses, and expert spreadsheets.

Simplified evidence charts can set out with succinct clarity either side's arguments alongside supporting evidence and accepted generalisations. Well-drafted simplified evidence charts benefit representing counsel in preparing for and delivering their oral arguments. They also aid arbitrator decision making.

Cause and effect diagrams help to structure the retrospective dissection of a case at its conclusion for the benefit of arbitrators or representing counsel or both. This is an established quality control technique used to improve complex manufactured products, and is easily adapted to enhance the provision of future international arbitrations.

These three innovative tools are of equal merit – there is so no hierarchy of value. They are summarised in the logical chronological context of an arbitration proceeding from the request for arbitration through to final award. Each can be simply constructed with paper, pencil, ruler and eraser, but all are exploited fully with computer software.

The role of innovation in changing dispute resolution

Innovation lies at the centre of modern capitalism. Even when a product or service reaches a high level of refinement, it is often replaced, unexpectedly, with new offerings that cost less, are quicker and are often of higher quality.

Arguably, the most longstanding contributor to highlighting the critical role innovation plays in capitalist economies is the Austrian-born economist Joseph Schumpeter. His concept of creative destruction captures the evolutionary nature of free-markets where established ways of doing things are replaced by new ones. In essence, new entrants to existing markets tend to succeed when introducing significant improvements.

Leading practitioners equally see international arbitration as work-in-progress. At a recent Vienna International Arbitral Centre (VIAC) conference, Peter Rees QC pointed out that "speed, price and quality cannot all be delivered now", because we are too early in the evolution of international arbitration. That seems realistic, but it provokes the search for practical, universal ways to lower costs, improve quality and increase speed.

In the context of making the arbitral process not only fairer and more efficient, any innovative tool that potentially lowers costs in an era of increased financial scrutiny is a positive bonus. Such innovative tools do not, in the immediate future, assist arbitrators and representing counsel who are preparing for an arbitral hearing – no live case can reasonably form part of an experiment. However, in the same spirit as creative destruction is applied to commercial markets, thoughtful medium-term implementation of these three techniques, may significantly improve international arbitrations, whether ad hoc or under the auspices of institutions.

What do mind map diagrams bring to international arbitration?

Mind maps are a way of organising information and aiding decision-making. Their structure follows more closely the non-linear, pattern-forming, networked functioning of the brain. Humans digest knowledge and then apply it to decisions in a non-linear way. Mind map diagrams are also non-linear and replicate the way we think. The precise, original source of mind map diagrams is unclear, but it's believed to have been used by Leonardo da Vinci and his peers in the 15th century. However, since the 1970s, Tony Buzan has relentlessly promoted their value and globally spread their acceptance.

Some arbitrators and representing counsel may judge that mind map diagrams are incongruent with international arbitration. However it's worth pointing out that their professional use is already widely established in a diverse collection of private and public organisations. IBM, Intel, Microsoft, NASA and Oxford University are all established users of mind map software. Further, the medical profession in both Europe and the US has already applied mind maps with a high degree of professionalism. Throughout the process of complex, voluminous arbitrations with thousands of pages of evidence documents, mind maps would be a potentially significant contribution to case management. First, while traditional notes supported by transcript print-outs are reliable ways of recording hearing arguments and evidence, mind maps facilitate understanding through the direct linking of pieces of knowledge digested over many weeks of planning and preparation. If even a fraction of the costs and delays of international arbitration are partly or significantly about parties recording and recalling often voluminous conflicting information, mind maps are pre-eminent tools at making the process of absorbing and analysing information more memorable.

Second, mind map diagrams allow the complex layers of a case to be presented on often just one fully visible master mind map. To the sceptic this may seem unlikely, given the complexity and volume of many construction, energy or financial cases. But modern software-based mind maps allow the dragging and dropping of attachments, such as detailed word processing documents, spreadsheets and PDFs. During arbitral hearings notes can be added to the relevant mind map branches. In sum, the modern mind map is both innovatively and visually an efficient tool, where the clicking on documents will bring them back and forth from a front page position as required.

Further, from the view point of arbitrators, mind maps have the added benefit of allowing a presiding arbitrator to share their draft summary of the case in a quickly digestible way.

Naturally, the first time note-taking is abandoned for a mind map structure, there is, to use a nautical metaphor, an uneasy sense of leaving sight of a familiar shore. Mind maps start with a key centre word or words. In this arbitral context the key centre words are the names of the applicant and respondent. From these central words, lines branch out with themes in a clockwise direction listing the type of case, a chronology of events, real evidence, testimony and so forth.

The nature of simplified evidence charts

The second type of innovative tool is that of simplified evidence charts. Evidence charts were originally developed by John Henry Wigmore. The foregoing simplified chart is my attempt at a practical application or version of it. Evidence charts aim to capture the main arguments relied upon by a party in a dispute, along with the evidence or generalisations that support the arguments put forward. For arbitrators there is the option of recording the applicant's case or the respondent's case or both.

Chart 1, and its accompanying arguments and evidence key list, sets out extracts from for the simplified evidential chart drafted by a fictional applicant's counsel supporting a breach of a loan agreement application under the auspices of an international arbitration body. In this scenario, the applicant is an Austria-incorporated subsidiary of an oil and gas equipment group whose parent company is incorporated in Iran (the applicant). The respondent is a banking and financial services group incorporated in Germany (the respondent).

Chart 1: Evidence chart for a breach of contract case

Arguments and evidence key list

1. Decision: respondent is liable to pay damages.

2. Decision: there was a breach of contract by respondent.

3. Decision: there was a valid contract under English law between the two parties.

4. Negative point: applicant's chief executive stated its pumps were 100% reliable.

5. Testimony: respondent's chief credit officer remarked that "in previous loan agreements we have tolerated up to 20% unreliability in ground-breaking products".

6. Positive point: respondent has historically tolerated 20% random product testing failure.

7. Argument: eight out of 10 randomly tested novel pumps performed well.

8. Document: email from respondent to applicant's chief executive.

9. Positive point: respondent on the 60th day of the test period communicated that on the strength of available test results it was able and willing to lend €50 million.

10. Argument: subject to satisfactory random test phase performance, respondent was obligated to lend €50 million after 90 days.

11. Negative point: respondent claims it could not to proceed because of extreme market conditions.

12. Generalisation: extreme market conditions can amount to force majeure.

13. Expert: concluded '80% of the tested pumps were reliable, which is consistent with the applicant's statistics'.

14. Document: signed contract between the parties states 'after 90 days satisfactory random testing of the borrower's products, the loan proceeds of €50 million will be made available'.

15. Document: email from applicant's chief executive to respondent: 'our pumps are 100% reliable'.

The applicant has been granted a patent in Austria for an energy-saving pump jack. Its chief executive believes this novel pump jack can replace the ubiquitous, traditional nodding donkey style pump jack. The research and development was carried out predominantly in Austria by the applicant. So, given the bulk of the costs were in euros, there was commercial sense in taking out a euro-denominated loan to pay for this R&D. Consequently the applicant entered into a loan contract with the respondent.

The contract between the parties stated that after 90 days, provided the random testing results of 10 novel pumps matched the historical 80% reliability statistics supplied by the applicant, the respondent would make available €50 million ($56 million).

After 90 days, the respondent had received all the random test results. The final results confirmed eight out of 10 novel pumps performed well. In fact earlier, just 60 days into the test period, the respondent had emailed the applicant to communicate that from the test results already available, it was able and willing to lend €50 million.

Yet, to the surprise of applicant, when three months elapsed the respondent sent an email to the applicant's chief executive indicating it did not intend to lend the €50 million, citing force majeure over the previous 30 days based on exceptional market conditions. The force majeure clause in the signed contract included exceptional economic conditions as a circumstance beyond the control of contracting parties. In addition, the respondent argued that even before the end of the three month test period the novel test pumps failed to perform consistently.

The applicant's chief executive stated in his witness statement that the random novel pump test data matched that of historic performance statistics – both recorded 80% reliability. However, he had also stated in an email sent to the respondent many months before the contract was signed that the novel pumps were 100% reliable. The arbitral tribunal appointed an expert engineer from Oslo University. She confirmed that there was no difference between the applicant's historic performance results compared with the random test results.

The Chart 1 record of decisions, seen at points 1 and 2, reflects the desired outcome of the representing counsel for the applicant. For the sake of brevity as an illustration of how evidence charts work, their case is split into only two arguments. There is the left hand argument, centred on point 7, that the tested novel pump jacks did perform well enough to negate the respondent's argument that unreliability justified rescission of the contract. Second, there is the right hand argument, centred on point 10, that conditional upon satisfactory performance under random test conditions, the respondent was obligated to transfer a loan of €50 million after 90 days.

Chart 1 is truly a simplified evidence chart, because it applies only five shapes and symbols – diamond, oblong, circle, positive symbol and minus symbol. Given the projected increase in international trade and investment activity across Asia, it represents a viable future international code which is understood quickly and can be altered by both Asian and western arbitration colleagues cooperating in the process of resolving international disputes.

For instance, the oblong shapes with text inside them denote only types of evidence, or reliance on a generalisation, so Asian arbitrators and practitioners, if they so choose, can add their own preferred language characters, whether simplified Chinese (Peoples' Republic of China), traditional Chinese (Hong Kong, Macau and Taiwan), or a mixture of national alphabet and traditional Chinese characters (Japanese). Chinese characters take up generally far less space compared with English letters without the need to make any abbreviations – more information can be summarised on one page increasing clarity and speed of understanding. For instance, Testimony becomes ??; Expert Evidence becomes ????; Generalisation becomes ???; and Document becomes ??.

The first attempt at any new technique can be a frustrating trial and error process. However, this initial effort and time investment is outweighed by two significant benefits. First, simplified evidence charts allow you to set out the key arguments alongside supporting and negating arguments of a party's case. Second, all arguments are mapped with the supporting or negating types of evidence or generalisations.

The use of cause and effect diagrams

The third type of innovative tool is that of cause and effect diagrams. Often when leading engineering companies make a product to a very high quality standard, they invest time in sitting down to analyse what can be done better. Putting the spotlight on every variable, from start to finish, these quality control teams ask themselves: where did things fall below perfection?

In a systematic way, all relevant participants sit down to discuss and record the weaknesses in the methods used to produce the goods, the people involved, the technology employed, the materials used and the costs incurred. By conducting this focused retrospective dissection and recording in detail what was planned versus what actually occurred, the team leader and all members have a very valuable record on how to deploy fewer, more or different resources in the future. Given international arbitration competes as an alternative to some well managed national courts, it would be sensible to also apply cause and effect diagrams as a tool to facilitate continuous improvement.

As shown in Diagram 1, the arbitral tribunal and representing counsel have the opportunity to apply this same post mortem technique at the conclusion of their respective roles. The post mortem can logically commence with a focus on the 'appointments' of arbitrators, depending on the details of the arbitration agreement. Thinking, discussing and recording conclusions would reap dividends in future cases.

A second example is that of 'law and interventions'. In the context of improving arbitrator performance a relevant question to answer would be whether the sole arbitrator or tribunal made adequate interventions.

Diagram 1: Cause and effect diagram adapted for international arbitration

When discussing 'evidence used' at either the arbitrators' or at a representing party's post mortem, this could logically include applying the IBA Rules on the Taking of Evidence to evaluate how evidence was communicated to all other relevant actors. For instance, both arbitrators and representing counsel would benefit from assessing if throughout the arbitral process all requested documents met the standards of relevance and materiality.

To illustrate in detail how a cause and effect diagram works, under the Diagram 1 topic 'Methods and tactics', representing counsel would sit down, regardless of the success of the result or their own belief in their performance, and collectively discuss and record answers to many questions including:

How was time used precisely compared with its planned use?
Were the documents produced excessive, insufficient or sufficient?
Were cross-examinations excessive, insufficient or sufficient?

Three tools for success

Change is rarely welcomed by most experienced professionals. Insightful thinkers from Thomas Kuhn to Daniel Kahneman have commented on this reality. Further, there are always, at least in the short term, some negative experiences, such as investing time in not only learning new ways, but also discarding entrenched modes of operating. Whether adopting the discipline of mind mapping diagrams, simplified evidence charts or cause and effect diagrams, there will inevitably be a learning curve with any software programs.

The key threats for arbitrators, arbitral institutions and representing counsel practising international arbitration, whether their motives are private or public in nature, are cost, quality and speed. In essence, all three of these innovative tools are likely to generate more critical analysis of the preparation, management and execution of an international arbitration, from the selection of arbitrators to the rendering of a final award.

Competence, integrity, judgment, professional experience, logic and specific sector knowledge, among other things, all play a part in determining the quality of each arbitrator and representing counsel. These three innovative tools have great potential to sustain and improve the quality of arbitral outcomes. In so doing, they contribute to keeping the end users from both the private and public sectors satisfied with their continued choice of international arbitration. Joseph Schumpeter would approve.

  First published by our sister publication IFLR magazine. Take your free trial today.

Iain Sheridan
Big Ben Chambers
London

About the author

Iain Sheridan practises as an English law barrister, and is also licensed to practice as an EU lawyer by the Vienna Bar. He is the founder of Big Ben Chambers, London, and is an associate tenant in the Chambers of Craig Sephton QC, Deans Court, Manchester. His practice is focused on international arbitration, international taxation and intellectual property. Client instructions are predominantly from the banking and financial services and technology sectors.

Sheridan is a former general counsel of a global investment bank. He has 10 years' in-house experience in London covering both buy-side and sell-side risks, and acting as legal counsel on three trading floors. Over this 10-year period, he has acted for, against or alongside ABN AMRO, Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank, Fidelity Investments, Fox-Pitt, Goldman Sachs, HSBC, JC Flowers & Co, JP Morgan Chase, Santander Group and Société Générale.