It has been stated that an advantage of arbitration in international disputes is that it offers hope of reducing both bias and the prospect of parallel lawsuits in different countries. Arbitration is also commonly expected to provide confidentiality and expertise.

There is no question that arbitration has the potential to provide advantages over litigation. On the other hand, arbitration in international settings is far from being immune to differences in the cultural and legal backgrounds of the parties (and arbitrators) involved in a particular case. Arbitration itself does not overcome such differences, but provides the means to do so.

If a party to an international dispute decides to bring the dispute before a court of law, it subjects the case and itself to a strict and comprehensive set of procedural rules, and the outcome of the case will be considerably influenced by the party’s familiarity and compliance with such rules. Procedural rules are part of the core of the general policies of any jurisdiction’s legal system, expressing the sovereign’s understanding of law and order. Therefore, procedural rules are a perfect breeding ground for bias and alienation in international cases, where parties come from different cultural and legal backgrounds and thus do not share the same basic policies.

Choosing arbitration over litigation does not itself solve, or even avoid, such inherent risk of bias. Ultimately, an arbitration proceeding will follow procedural rules, which can be influenced by one legal system’s policies.

For example, in any domestic arbitration case involving two U.S. parties (and, even more importantly, two U.S. lawyers), both sides will most likely, without much discussion, agree to extensive discovery, taking of depositions, preparation of witnesses and experts and the American Rule for payment of counsel’s fees. The same case involving German parties and German counsel on both sides would likely be scheduled for an early hearing where the panel investigates documents and questions witnesses and experts and where the loser pays the winner’s costs and fees.

But what if the case above involves a U.S. party on one side and a German party on the other? The German party would call the discovery requests in the first scenario an illegal “fishing expedition” violating its rights of confidentiality, the preparation of witnesses an undue influence on the witnesses’ and experts’ neutrality, and the rule on costs unfair. Likewise, a U.S. party in the second scenario would call the trial an investigation interfering with counsel’s role in presenting the case and the like. In both situations, one party would feel “foreign,” just as if brought before a court of law in the respective foreign jurisdiction.

In contrast to the situation before a court of law, where the “foreign” party’s chances depend upon becoming familiar with the procedural rules of the forum (and obtaining local counsel), international arbitration offers (and requires) the parties and the panel to equalize both parties’ “foreign” status. Thus, the procedural flexibility of arbitration may avoid, or at least limit, the risk of bias inherent in international litigation by giving the parties and the panel a chance to address cultural and legal differences. However, arbitration does not provide the solution; it is ultimately the parties’ and the panel’s responsibility to do so.

Much progress has been made in the harmonization of procedural patterns in the international arbitration arena. Most notably among them are the Rules of Evidence of the London-based International Bar Association, adopted in 1999.¹ On a more modest and immediate level, however, it has been noted that attorneys from different legal backgrounds stand to benefit from the continued study of each others’ traditions and that efforts to successfully “bridge the gap” can lead to a more successful working of international commercial arbitration.

The focus of this article centers on the cultural considerations in the international arbitration process with regard to the interplay of common law versus civil law regimes. Rather than giving a complete report on all relevant areas, this article illustrates the difficulties by way of selected examples. Some of the most visible areas where cultural differences play a role include: (1) the evidence gathering process, (2) examination and preparation of witnesses, (3) the “inquisitorial” tribunal, (4) written pleadings versus oral submissions, (5) expert evidence, (6) proof of foreign law, (7) costs, and (8) arbitration clauses in consumer and employee transactions.²

1. Evidence Gathering

In the international arbitration context, over time the civil law system’s reluctance to adopt American-style “discovery” has abated somewhat, and limited document discovery has become routine in international arbitration. According to International Law Professor Andreas F. Lowenfeld, “The extravagant aspects of American-style discovery…are out: requests for ‘all documents, correspondence or memoranda. . .’ without specification are now rarely seen and never in my experience granted. Discovery from persons not affiliated with the parties is very rare, and the idea that every witness must be deposed, i.e., interrogated by opposing counsel before he or she appears at a hearing–a standard practice in American civil litigation–has not been adopted in international arbitration. Instead, what one sees with increasing frequency are witness statements distributed in advance, which give the arbitrators and opposing counsel an idea of what the witness knows and how he or she came to know it, and leaves more time at the hearing for questioning of the witness by opposing counsel or the arbitrators.”³

2. Examination and Preparation of Witnesses

Another area of conflict between the civil and common law traditions is in the area of cross-examination. Civil lawyers invariably experience great discomfort if English or American approaches or techniques are adopted as part of the arbitral procedure.⁴ For example, the common law tradition places fundamental significance on oral testimony as a vehicle for proving the character, veracity and reliability of witnesses whereas civil law lawyers tend to rely on statements or documents that can be submitted to the tribunal. There has been significant controversy in the international arbitration community about whether interrogation should be conducted by the arbitrators–on the model of European judges–or by counsel.⁵ By and large, harmonization efforts have resulted in a fairly workable compromise, whereby common law lawyers may, through limited cross-examination, highlight for the tribunal the three or four significant problems they see in a witness’s statement. And continental lawyers have for the most part learned how to do at least a moderately effective limited cross-examination. Arbitrators continue to be able to ask their own questions for purposes of clarification and have realized that they do not lose control over the proceedings by tolerating limited cross-examination.⁶

In international arbitration it is now generally accepted and even expected that lawyers will prepare witnesses by discussing the relevant facts of the case prior to the hearing. U.S. lawyers would be considered lacking in diligence if they failed to prepare their witnesses for the questions to be asked. Under a U.S. legal view, preparation of witnesses is considered to assure the accuracy of their testimony by keeping the witness from being surprised or misled.⁷ In sharp contrast, continental European legal systems restrict or even forbid lawyers to discuss future testimony with the witness.⁸

3. The “Inquisitorial” Tribunal v. the Adversarial System

Traditional continental European tribunals take the initiative in ascertaining the facts and the law. The tribunal has the responsibility of investigating the facts which have been alleged and for examining the witnesses. Litigation and arbitration in common law countries, however, remain adversarial; parties arrive at the truth by each side presenting evidence and testing that evidence through cross-examination of relevant witnesses. The tribunal or court performs much more of a referee role, ruling on motions, admitting evidence, handling objections and instructing the jury, if present, but generally relies on the lawyers to cite the applicable law and to present their version of the facts.

Great strides in common ground were made in England with the passage of the Arbitration Act of 1996, specifically Section 34(2)(h), which, in the absence of agreement, permits the tribunal to decide whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law.⁹ A harmonizing approach permits the tribunal to allow cross-examination and any redirect examination before tribunal members put their questions to a witness. Tribunal members, in the civil fashion, may still investigate matters that neither side may have viewed as central to the arbitration. But parties are allowed to present their case without undue intervention from the tribunal.¹⁰ And even if a tribunal member’s questions rise to the level of witness rehabilitation, recross-examination can serve as a valuable balancing mechanism for the common law lawyer.¹¹

4. Written Pleadings v. Oral Submissions

Much progress has been made in the area of comprehensive, written submissions in international arbitration. While common law lawyers are more comfortable with extensive oral argument, they have generally adapted fairly well to producing detailed written factual documentation upon which they intend to rely to prove their case. This includes detailed witness statements, experts’ reports and written submissions on particular issues. A potential area of conflict remains, however, when a party refuses to produce relevant underlying documents. Without discovery or compelled production, the arbitrators must seek to ensure all relevant documents are available so that the arbitration process is meaningful. However, if the party is not forthcoming, and the tribunal merely notes an adverse inference, the outcome of the arbitration process is inevitably affected.

5. Expert Evidence

The “battle of the experts” is an unknown concept in civil law systems. Lawyers in continental Europe are much more familiar with the practice of court-appointed or tribunal-appointed experts. In this area, the English system parallels more closely the civil law practice than the American approach. The new civil procedure rules in England encourage the use of single and neutral joint experts.¹² In the U.S., experts are usually party-appointed, with the net result being that judges and juries often must choose between diametrically opposed expert viewpoints. While American judges are permitted to call their own expert, in practice this is rare outside of products liability actions or where the subject matter requires the testimony of someone with a high degree of technical or scientific training or expertise. In international arbitration, the tendency has been to follow the European approach.¹³ Parties may comment on the expert’s report, but the tribunal retains ultimate control over the report process.

6. Proof of Substantive Law

Since from time to time the applicable substantive law in an arbitration will be foreign not only to the interested parties’ lawyers, but also to the arbitrator himself, there are two major approaches to proof of foreign law: (a) research by the judge or submissions by counsel concerning the law, and (b) expert reports or testimony by experts concerning the facts of the dispute. More particularly, the general rule in countries such as Germany, Austria, the Netherlands, Portugal, Sweden, Denmark, Norway and Italy is that foreign law is law–the task of ascertaining it lies with the court. The court has discretion as to the means of ascertaining foreign law and although the court may ask the parties for assistance in ascertaining the law, most commonly, the court will research the issue itself.¹⁴

Experts’ reports and oral evidence are the usual methods in England and Spain, whereas in France, the general method of proof is by written opinion by foreign lawyers.¹⁵ The U.S. approach follows the Federal Rules of Civil Procedure, specifically Fed.R.Civ.P. 44.1, which reads as follows:

“A party who intends to raise an issue concerning the law of a foreign country shall give notice by pleadings or other reasonable written notice. The court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court’s determination shall be treated as a ruling on a question of law.”

Since there is such diversity in approaches to this particular aspect of international arbitration, in the interest of flexibility and efficiency perhaps a good compromise approach would be along the lines of the American method of proof of substantive law. This would allow “considerable discretion to the tribunal in reaching its assessment” without committing “great violence against any particular national approach.”¹⁶

Costs

Differing approaches unhappily coexist in the area of costs as well. In England, the legal costs of the prevailing party are borne by the losing party, over and above any sum to be paid pursuant to the judgment on the merits.¹⁷ Where costs are disputed, the court makes a detailed assessment following the judgment. The concept of “loser pays” is also generally recognized in continental Europe, where the trial judge normally estimates what he or she believes the costs of the prevailing party should have amounted to.¹⁸ This “loser pays all” approach is generally foreign to U.S.-trained lawyers where attorneys’ fees and costs are often requested, but not always granted.

The harmonized practice that is emerging in international arbitration follows for the most part the civil law jurisdictions, where recovery of costs is permitted under the applicable law or rules, and the losing party bears the costs of the prevailing party. There is, however, no separate award nor a “taxation” procedure or detailed assessment as in England. Instead, the tribunal assesses the legal costs and includes them in the final award.

8. Arbitration Clauses in Consumer and Employee Transactions

Jurisdiction of arbitral tribunals is based on the parties’ consent to submit their disputes to arbitration. As is generally the case with respect to contractual freedom, consumers and employees have been given some special consideration with regard to arbitration clauses, which can be seen as protective or restrictive, again depending on the general legal and cultural backgrounds. American arbitration law does not contain specific protective provisions for consumer and employment contracts. Although there are discussions and suggestions to introduce such protection, recent Supreme Court decisions have expanded rather than reduced the scope of the Federal Arbitration Act with respect to such transactions.¹⁹ In contrast, European legal systems regularly subject consumer transactions to a separate legal framework, including the case of arbitration. In Germany, for example, a consumer arbitration agreement, signed by both parties, must either be contained in a separate document or be certified by a notary.²⁰ A certain degree of harmonization among the European countries arises from European Union legislation imposing limitations on the validity of consumer arbitration clauses.²¹

Need for Mutual Understanding and Common Ground

As an alternative to national arbitration where the playing field may not always be level, international arbitration presents an opportunity for dispute resolution free from national pressures or bias. Despite the general march towards unification, however, practitioners often remain strongly influenced by and devoted to the procedures of their own legal systems. There remains a serious need for mutual understanding and common ground. Practitioners would do well to consider carefully the following suggestion: know thyself, know thy opponent, and know thy arbitrator. Being cognizant of your opponent and arbitrator’s legal framework and cultural tradition might help you understand the expectations they bring to the arbitration process. This extra edge might serve as an additional arrow in your quiver as you seek to represent your client through the arbitration process or act as an international arbitrator with parties of different cultural and legal backgrounds.

Endnotes