A - Peter J. Nickles (Counsel for buyer)

Partner, Covington & Burling, Washington, D.C. .

"Of the rules we investigated, the rules and procedures of the Court provided the combination of flexibility and structure that we believed most likely to accommodate fast-track arbitration."

I am pleased to discuss the recent International Chamber of Commerce Court of Arbitration "fast-track » proceeding in which I acted as counsel for the party seeking relief. In this complex price redetermination for a commodity product, the Award was issued only 78 days after the Request for Arbitration.

It is especially important to consider novel dispute-resolution techniques that are cost­efficient, expeditious, and fair. Arbitration itself, of course, was conceived as a simpler and faster alternative to litigation. Ironically, however, an international arbitration can all too easily turn into something very much like litigation, especially in terms of the protracted nature of the proceedings. This negates the very reasons that favor arbitration over litigation - simplicity and speed.

Based on my recent experience with the Court, I believe that fast-track arbitration is a viable alternative to conventional arbitration even in the most factually complex case. This article discusses how the fast-track arbitration was accomplished.

Background

Two long-term commodity supply contracts were involved in the arbitration. Each had been the subject of numerous written amendments by the parties during the previous decade. As amended, these parallel contracts provided for an annual redetermination of the purchasing party's price and volume obligations. The contracts provided that the redetermination should provide the seller with "a fair price and a reasonable level of sales" while enabling the buyer to resell such volumes in its own markets.

As discussed in more detail in Benjamin Davis' article, the contracts set forth time requirements for the redetermination process, including the arbitration of any disputes. In summary, the redetermination process was to begin at least sixty days before November 1, the start of the new contract year and if necessary, either party could elect arbitration that was to be completed by December 30. As you can see, because the arbitration was to set terms of the current contract year, it was imperative that the arbitration be completed on an expedited basis. Our client initiated the redetermination process in August 1991 and, when it became clear that the parties could not reach agreement on their own, we filed a timely Request for Arbitration with the Court on October 21, 1991.

Why the fast-track arbitration succeeded

Fast-track arbitration of this nature would have been impossible without the commitment of the Court and extraordinary efforts by the individual members of the Tribunal, particularly its Chairman. Several additional factors were also important.

a) The Agreement of the Parties. The contracts in our case specified that the arbitration should be conducted according to the Court's rules of arbitration unless the parties agreed otherwise. As a preliminary matter, we therefore investigated a number of rules of arbitration. Of the rules we investigated, the rules and procedures of the Court provided the combination of flexibility and structure that we believed most likely to accommodate fast-track arbitration.

b) The Formulation of Our Client's Position. Our client played a major role in an expedited resolution of the dispute by bringing the lawyers into the redetermination process long before the need for arbitration became apparent. This early involvement gave us a head start in understanding the issues and collecting evidentiary material. More important, it allowed us to distil and focus the arbitration issues from the very beginning. Thus, we had formulated the basic outline of our redetermination case by the early fall of 1991. As a result, we were able to set forth most of our case - and include almost all of the supporting documentation - when we filed the Request for Arbitration on October 21, 1991.

c) The Selection of Our Client's Nominee to the Tribunal. Our advance preparation for the Fast-track arbitration included the identification of a number of individuals who preliminarily qualified as potential arbitrators. We shortened this list by screening for two criteria: (i) expertise with the industry in question, and (ii) a congenial, collegial temperament. These virtues would be especially important, we felt, because fast-track arbitration would leave less time than usual for the arbitrators to learn about the case and to establish a rapport with one another.

The people on the short list were then contacted to ascertain whether they had any potential conflicts and whether they were interested in serving as an arbitrator. We emphasized to these individuals that, because of the expedited nature of the arbitration, they would need to be available virtually full-time throughout the proceeding. This preliminary investigation allowed us to identify our candidate for appointment to the tribunal long before we actually needed to do so.

This work paid unexpected dividends when the opposing party objected to the arbitrator we had nominated and formally opposed his confirmation before the Court. The Court upheld the challenge to our nominee and gave us only twenty-four hours to nominate a replacement. Because of our previous work, we were readily able to do so.

d) Preliminary Contacts with the Court's Staff. Before filing the Request for Arbitration, we initiated conversations about a fast-track proceeding with the Court's permanent staff in Paris. These conversations were extremely helpful. They allowed us to clarify our understanding of the Court's rules and the general procedures followed by the Court, and they allowed the Court's staff to develop an understanding of what was required by our proposed fast-track procedure. The assistance provided by the Court's staff was invaluable. In particular, the staff attorney assigned to our case demonstrated extraordinary skill and diligence in processing the arbitration.

e) Avoidance of Discovery. Although the Tribunal provided that it would entertain requests for discovery and permit discovery if appropriate, neither party to the arbitration made such a request. It was an important feature of the fast­track proceeding that discovery was not automatically available and could not be conducted unless a party demonstrated a need to do so. We had no reason to seek discovery because we concentrated on building our own case rather than probing for each and every weakness and inconsistency in the arguments made by the opposing party. All we needed to make our case was the evidence already in the possession of our client and information that was readily available in the public record. This information could be communicated effectively and efficiently through well-honed affidavits and exhibits, without the need for cumbersome depositions and protracted live testimony.

(f) Procedures at the Hearing. The Tribunal directed that, except for good cause shown, the parties could not rely on any documentary evidence or testimony at the January 2 hearing unless it had been included in the party's submission on December 30, 1991. As a result, instead of saying as little as possible about the merits until the hearing, the parties submitted their entire case in the pre-hearing papers.

This procedure alone undoubtedly streamlined the proceeding. It gave the parties a strong incentive to keep their positions as cle.ar and simple as possible, despite the obvious fa complexities involved in arbitrating the price and volume issues in question. Each side was given three hours at the hearing to use as it saw fit for argument, presentation of evidence, and cross-examination of opposing witnesses. The result was a hybrid between a trial-type hearing and an appeal. Although all individuals who had submitted affidavits were required to be present to answer questions, neither party chose to engage in extensive cross-examination. Much of our client's case consisted of a presentation by a knowledgeable senior executive. In addition, we made extensive use of demonstrative exhibits in order to help the tribunal understand the complex pricing issues involved in the arbitration. A significant portion of the hearing was devoted to arguments by counsel and questioning by the members of the tribunal.

Concluding thoughts:

Fast-track arbitration is now a proven alternative to conventional arbitration, having demonstrated its capability to resolve even a large, factually complex, international dispute. The process in our case satisfied the parties' need for a resolution that was not only fast, but legitimate and fair.

The standard criticism of litigation - that it costs too much, involves too many lawyers, takes too much time, and is needlessly unpleasant for the participants - is increasingly applicable to international arbitration as well. Fast-track arbitration is one possible remedy for these problems.

B - Moses Silverman (Counsel for Seller)

Partner, Paul, Weiss, Rifkind, Wharton & Garrison, New York

"When the parties drafted the contracts at issue with these expedited arbitration clauses, few would have thought that an international arbitration could be completed in two months."

Our firm represented the Canadian seller in what has been called the first "fast­ track" ICC arbitration. At issue were long-term contracts by which our client sells a commodity product to an intermediate party, which, in turn, resells our client's product to U.S. purchasers. Parallel long-term contracts govern the relationship between our client, the intermediate party and the U.S. purchasers.

The contracts in question provide for annual redetermination of a portion of the selling price and, absent agreement, an expedited arbitration of that price. The contracts contemplate the completion of the arbitration in 60 days but limit the issues which can be arbitrated on (what later came to be called) the "fast-track" to the redetermination of the relevant pricing provisions (as well as certain minimum purchase percentage requirements which were not at issue in the arbitration).

The parties had been able to redetermine the relevant price by agreement in prior years. They were unsuccessful in 1991, in our view, because for the first time the U.S. purchaser in question sought to use the redetermination process to do fa more than redetermine the relevant price. Relying on the "fast-track" arbitration provisions of the contracts, the U.S. purchaser brought an arbitration seeking to rewrite the contract or to declare the contract frustrated. Thus, although our client had only agreed to an expedited arbitration of a portion of the contract price, it was served with a request for arbitration which sought to rewrite or throw out its long-term contract; and the request demanded that the arbitration be completed in 60 days.

Our client had a clear desire to arbitrate the relevant pricing issues within the 60-day period. But it had no desire to arbitrate issues as fundamental as the continued validity of its long-term contract on this schedule. Since this appears to have been the first "fast-arbitration of its kind, there was no established procedure under ICC rules for an expedited resolution of the question of which issues were subject to expedited arbitration. With our answer to the request for arbitration, we filed a request to dismiss so much of the request for arbitration as sought to arbitrate issues in addition to the relevant price redetermination. Unfortunately, the tribunal decided to withhold decision on our request until after it heard all of the evidence.

In ICC and other international arbitrations, the question of what is to be arbitrated would ordinarily be considered when drafting the terms of reference. See, e.g., Rule 13(l)(d) of the ICC's Rules of Arbitration. Here a critical issue from our point of view was the question of what was subject to expedited arbitration. But there was simply no time to resolve that issue in connection with the terms of reference and still complete the arbitration on schedule. The Chairman proposed an open-ended terms of reference which simply left open the question of what was to be arbitrated. We were able to insert a reservation of our rights and statement of our positions concerning what was properly before the tribunal, but this was not an entirely happy solution. On the other hand, if we did not agree to it, we might have prevented any part of the arbitration from going forward on schedule. This was also not an entirely happy solution since our client believed that the rede­ termination of the relevant price could and should go forward. On balance, we agreed to the open-ended terms of reference subject to our reservation of rights and statement of positions. Accordingly, we were required to respond on an expedited basis - under protest - to all issues raised by the U.S. purchaser, including fundamental matters such as the continued validity of the long-term contracts. Ultimately, the tribunal limited its award to the relevant price redetermination provisions which we believed were subject to expedited arbitration.

The expedited schedule for this complex matter was gruelling but not unique in our experience: it was very much like litigating a preliminary injunction motion in a corporate takeover battle. In a ten-day period - which included two weekends and Christmas day - our team simultaneously worked with fact and expert witnesses in five North American cities to produce eight affidavits and documentary evidence. At the same time, we prepared a detailed memorandum setting forth our client's position and the evidence and law which supported it. The six-hour hearing was very much like an oral argument on a preliminary injunction motion. Counsel for both sides realized that they could use their time most effectively by presenting their cases through counsel and responding to the many questions posed by the arbitrators. With only three hours for our case, we decided not to present live testimony but to rely instead on the affidavits we had submitted and to make our affiants available for questions by the tribunal. We also had to forego cross-examination of the other side's witnesses.

When the parties drafted the contracts at issue with these expedited arbitration clauses, few would have thought that an international arbitration could be completed in two months. We are delighted to have been able to participate in what may be the first significant international arbitration to be completed on such a schedule.

The virtue of expedited arbitration is that it can enable parties to have a rapid resolution of their controversy without getting bogged down in procedural wranglings, discovery and lengthy hearings. Yet this is exactly what makes expedited arbitration potentially dangerous. Most issues which contribute to the length of arbitration and other litigation are founded on concerns for the due process rights of one or more parties. In an arbitration of price redetermination issues that our client had agreed to arbitrate within 60 days, we were willing to sacrifice ordinary time periods, rights to discovery and a full hearing. But we were not willing to sacrifice due process rights in the resolution of more fundamental issues, such as the continued validity of the long-term contract, which our client had not agreed to arbitrate on a "fast-track".

Our case was a successful expedited arbitration for two reasons. First, the ICC, the arbitrators and the parties were able to work together to make it happen on schedule. Special mention should be made of the extraordinary efforts of the Secretariat of the International Court of Arbitration of the ICC. We were amazed at the Secretariat's ability to respond immediately to numerous matters, frequently sending us faxed communications after midnight Paris time. Second, and perhaps of greater importance, the arbitrators were able to limit the issues decided on the "fast-track" to those the parties had agreed to arbitrate in this fashion.

C - David K. Watkiss (Counsel for Intermediary)

Senior Shareholder in the law firm of Watkiss Dunning & Watkiss, Salt Lake City, Utah

"Fast-track international arbitration is feasible and cost effective with today's instantaneous communication"

My recent experience in fast-track international arbitration convinced me that accelerated arbitration of readily definable disputes between responsible parties with continuing business relationships has a bright future. This singular fast-track arbitration was between an American commodity buyer and a Canadian commodity seller, the principal parties in two interdependent and virtually identical contracts that provided for the annual redetermination or a fast-track arbitration of the commodity charge and minimum volume obligation. These contracts were two of a number of similar contracts between this Canadian seller and different American buyers that were executed to facilitate a major international project in which my client was the lead American partner. As lead partner, my client became the contractual intermediary at the Canadian-United States border between the Canadian seller and the American buyers executing upstream purchase contracts for the buyers with the seller and corresponding downstream sales contracts with each buyer. My client's contractual obligations under the upstream contract to purchase and pay for the Canadian commodity were exactly the same as the American buyer's contractual obligations to purchase and pay under the downstream contract. Thus, my client merely passed through the Canadian seller's charges to the American buyer and the American buyer's payments to the Canadian seller.

The upstream contract contained a general arbitration provision which was adopted mutatis mutandis in the downstream contract and authorized the downstream American buyer to participate in any arbitration between the Canadian seller and my client. The downstream contract provided that any arbitration between the Canadian seller and my client would be binding on the American buyer, but no similar provision bound the Canadian seller in any arbitration between the American buyer and my client. The downstream agreement also provided that the American buyer's right to initiate arbitrations could only be exercised if my client could exercise its corresponding rights under the upstream contract in the same proceeding. These provisions and practical necessity required that the Canadian seller and the American buyer, as the real parties in interest, actively participate in and be bound by any arbitration.

The annual redetermination of the commodity price and minimum volume obligation were the only potential disputes contractually designated for accelerated or fast-track arbitration. The parties agreed to conclude such disputes within sixty days of the annual redetermination date of November 1, in accordance with rules agreed upon by the parties or the rules of conciliation and arbitration of the ICC International Court of Arbitration ("ICC") by three arbitrators appointed under the rules. The parties believed fast-track treatment was necessary and feasible for price and volume redeterminations because they were to be effective from November 1 and appeared to present relatively straightforward issues that would not involve serious factual disputes or require extensive discovery.

The parties had agreed up on annual redeterminations of the commodity price and minimum volumes until 1991 when four arbitrations were initiated with the ICC as the result of a redetermination proposal by the American buyer which sought redetermination of these issues in a way that would also relieve the American buyer of north of the border transportation charges. The first, filed by the Canadian seller against my client, sought a declaration that my client and the American buyer had no right to relief from these Canadian transportation charges. The second, filed by the American buyer against my client with notice to the Canadian seller, requested removal of the Canadian transportation charges as well as the redetermination of the commodity charge and minimum volume obligation. The third, also filed by the American buyer against my client with notice to the Canadian seller, requested that the Canadian seller's arbitration be held in abeyance pending resolution of the American buyer's arbitration or referred to the American buyer's arbitration Tribunal. The fourth, prepared and filed by the American buyer in my client's name against the Canadian seller after it had declined to participate in the American buyer's arbitration, sought to consolidate my client's arbitration with the American buyer's arbitration in order to impose on the Canadian sell the relief requested by the American buyer against my client.

My client tried unsuccessfully to straighten out this procedural disarray and establish one arbitration binding on both principal parties. While this was necessary to avoid potentially inconsistent arbitration results, the significant changes in market conditions and government policies that had precluded the parties from agreeing, as in prior years, also precluded their agreement on the issues subject to fa arbitration, how they should be resolved and even as to my client's responsibilities. The resolution of the contractual disputes reflected in and the procedural problems resulting from these four ICC arbitrations was further complicated by opposition to the American buyer's designated arbitrator. This was the state of the arbitration proceedings when the ICC announced the composition of a Tribunal including the ICC's designated chairman, and the designated replacement arbitrator.

There were only ten days left of the sixty days contractually required to complete an arbitration when the Tribunal was announced which was obviously insufficient, so it was agreed to extend the time an additional nine days. The Tribunal quickly negotiated terms of reference agreeable to the parties which accepted the Tribunal members, consolidated the two arbitrations addressing the fast-track issues of commodity price and minimum volume and directed a tight schedule that required the submission by the Canadian seller and American buyer of all of their evidence and legal arguments two days prior to a one-day hearing scheduled seven days before the extended decision date.

The parties voluminous submissions, including a number of lengthy witness affidavits numerous exhibits, as well as legal argument, supplemented the already large volume of documentary material which they had previously filed with their respective requests for arbitration and answers thereto. The three hours allotted at the hearing to each side for their presentation were principally utilized by counsel arguing their client's diff interpretation of the facts and conflicting positions on the issues. The parties witnesses were required to be in attendance for cross-examination, but most of the questions asked of them came from members of the panel. It was apparent from the Tribunal's questioning of counsel and witnesses that the members were experienced, conscientious professionals who had assimilated the key issues and significant information contained in the extensive filings. Further, evidencing the Tribunal's competence was the extensive Award which it issued two days after the hearing addressing all aspects of the dispute in a scholarly, knowledgeable manner. The Tribunal's performance was impressive, as was the chairman's masterful efforts in negotiating the Terms of Reference and obtaining the responsible cooperation of the contesting parties required for fast-track arbitration.

The ICC quickly adopted the Award and soon thereafter the remaining claims of the American buyer which had been determined to be not subject to fast-track arbitration were withdrawn. The effective and expeditious coordination of the ICC and the Tribunal in fashioning an achievable fast-track resolution by resolving the parties' procedural disputes and by avoiding conflicts between the parties' contractual provisions and the ICC rules made it apparent that fast-track international arbitration is feasible and cost effective with today's instantaneous communication and under appropriate circumstances. Because my client participated only as the contractual intermediary required to see that both parties' rights and interests were protected and the contracts upheld and properly enforced, these comments are not intended to and do not reflect any opinion on the merits of the Award.

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