e-Discovery in Arbitration? What's Up?

Supreme Court Sets Limits Upon Challenges To Arbitration Awards

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e-Discovery in Arbitration? What's Up?
by Peter S. Vogel. Email Peter here.

Electronically Stored Information (ESI) accounts for more than 95% of all information in commerce. The impact of this technological development on discovery in litigation has been significant and is starting to appear in arbitrations.  Everyone is familiar with front page news regarding electronic discovery (e-Discovery) including the now famous cases of Zubulake v. UBS, Perlman vs. Morgan Stanley, and Qualcomm v. Broadcom. In these cases of great notoriety, destruction and hiding ESI resulted in disastrous consequences for those parties, individuals and lawyers who violated court orders and the rules of civil procedure.  On Dec. 1, 2006 the U.S. Supreme Court adopted changes to the Federal Rules of Civil Procedure (Rule 26) to deal with e-Discovery and, as a result, many states have also adopted rules or practices substantially similar to the Federal Rules.

Notwithstanding the litigation side of e-Discovery, unless the terms of an arbitration agreement require compliance with specific rules of civil procedure, whether state or federal, no specific rules of e-Discovery apply unless the parties otherwise agree.  So, it goes without saying production of ESI in arbitration is left to the discretion of the arbitrators.

US & International Arbitrations Differ with Regards to Discovery and therefore e-Discovery

The extent to which discovery is permitted in international arbitrations compared with that allowed in the Untied States is well known. These differences are exacerbated when it comes to e-Discovery of ESI in international arbitrations since most countries do not follow the broad discovery rules of the U.S..  Generally, in civil and common law countries, parties produce those document they believe apply to their case without an obligation to produce all relevant documents.  From the literature, seminars and antidotal comments, it appears that most non-U.S. parties in international arbitrations do not want the unlimited and broad type of discovery generally found in the U.S. courts.  The arbitration rules of the major international arbitral organizations - (International Chamber of Commerce (ICC), International Center for Dispute Resolution (ICDR), and London Court of International Arbitration (LCIA) - do not address discovery with any specifics, let alone consider ESI.

Another factor for the lack of any provisions for ESI in international arbitrations is the different treatment of costs. In the U.S. generally each party bears its own costs of arbitration, but this is not the case outside the U.S. where the arbitration tribunal generally will make a determination about the allocation of costs.  So expensive discovery, particularly with ESI costs so high, can certainly be a contributing factor as to why parties to international arbitrations have shied away from discovery of ESI.

In 1999, before the full development of e-Discovery in the U.S., the International Bar Association (IBA) adopted Rules on Taking Evidence in International Commercial Arbitration, which specifically includes electronic records. This definition defines a Document as a writing of any kind, whether recorded on paper, electronic means, audio or visual records or any other mechanical or electronic means of storing or recording information.”  The IBA Rules include pre-hearing document discovery, however, much narrower than under the U.S. federal rules. Under the IBA rules the request for discovery must be very specific, stating the relevance and materiality of the documents to the outcome of the case.

What is Really Happening?

Of course a major problem in trying to assess discovery of ESI in U.S. and international arbitrations is that generally the arbitration process is confidential and discovery not made public, so all that’s available are anecdotal stories.  Nevertheless, since virtually all information is now electronic it seems likely that it is inevitable that more and more arbitrations, whether international or in the U.S., will  include ESI.  The technical imprint on the arbitration process will clearly put a new burden on the tribunals to become educated in the details about ESI so they can intelligently rule on discovery and in hearings.

Should the parties addresss this issue in their agreement?

Supreme Court Sets Limits Upon Challenges To Arbitration Awards
by William G. Whitehill. Email Bill here.

The statutory grounds for challenging arbitration awards under the Federal Arbitration Act, (the U.S. domestic enactment of the New York and Panama conventions) and analogues state statutes are narrow and generally limited to matters affecting the case’s procedural fairness.  With rare exception, courts have held that these statutes do not permit judicial review of awards for factual or legal errors, although certain federal circuit courts of appeal permit an appeal based upon arbitrator’s manifest disregard of the applicable law.  Previously, however, the majority of federal appellate courts addressing the issue held that, because arbitration was a creature of contract, parties could provide for expanded judicial review of their arbitration awards in their arbitration agreements.  Consequently, numerous arbitration agreements contain clauses providing for factual and legal sufficiency review of the resulting awards. Indeed, many practitioners and clients insisted on such provisions, at least as to legal sufficiency, to protect against a perceived tendency of arbitrators to split the baby or against an incompetent arbitrator.

In Hall Street Associates, L.L.C. v. Mattel, Inc., decided March 28, 2008, the United States Supreme Court held that parties may not contractually provide for judicial review of arbitration awards using standards other than those contained in the Federal Arbitration Act, applicable state arbitration statutes or the common law.  The Supreme Court also held that these expanded judicial review clauses are separable from an arbitration agreement’s remaining terms.  Thus, parties that made arbitration agreements because they believed that the awards would be subject to judicial review based on familiar and comforting factual and legal sufficiency grounds are now required to still arbitrate their disputes covered by their arbitration agreement’s scope—but without the prospect of judicial factual or legal sufficiency review.

Hall Street Associates reflects the Supreme Court’s long-time policy of supporting the finality of arbitration awards by confining challenges to awards on limited procedural grounds.