Should disclosure reform in the English courts push change in international arbitration?

There have been major reforms recently to the process of disclosure in the English courts, making it more efficient and proportionate. In contrast, document production in international arbitration has remained largely unchanged, with some users concerned about spiralling costs and lengthy delays.

In this article we consider the procedures for disclosure in English litigation and English-seated arbitration, and what could be done to help streamline the process in international arbitrations.

Disclosure can be a notoriously time consuming and expensive part of dispute resolution. Even with the help of technology, the modern landscape of “big data” has resulted in expansions to the scope of document handling in all types of proceedings, often made more complex by data protection and cybersecurity considerations. However, the introduction of the disclosure pilot in the Business and Property Courts of England and Wales four years ago, which was aimed at achieving a more focused and efficient approach to disclosure, brought with it a challenge to international arbitrations, particularly those seated in England.  The issue was whether, if the pilot resulted in a more tailored, streamlined and effective approach to disclosure in the courts (when document production in arbitration was arguably headed in the opposite direction), this would encourage users to move towards litigation as a preferred dispute resolution method. The approach to the exchange of documentary evidence will, of course, generally be only one of various factors which might affect party choice between litigation and arbitration.

For sophisticated users of dispute resolution services, innovations in document production, with their accompanying time and cost savings, will give those services adopting such innovations a significant advantage.  Now that the pilot (clarified and improved) has been permanently adopted into English court procedure (as CPR PD 57AD), the lack of reform in arbitration may diminish its status relative to litigation as a dispute resolution process.

In a competitive global marketplace, where the effects of Brexit on London as an arbitration seat are still to emerge fully, there may be an opportunity for London-seated arbitration to develop a competitive edge. We consider below a number of options that could help arbitration to be the most attractive choice for effective and efficient dispute resolution.

 

New approach in English litigation

The pilot scheme was intended as a radical shake-up of the approach to disclosure in the English courts, aimed at making disclosure proportionate and tailored to the circumstances of each individual case. Under the scheme (in broad terms), there is no “standard disclosure” and parties instead:

• give “basic disclosure” of key documents with their first statement of case;
• agree a list of issues for disclosure; and
• give “extended disclosure” of documents in relation to the agreed issues for disclosure by reference to a menu of disclosure models ranging from Model A (the most limited) to Model E (the broadest).

Interestingly, one of the models for disclosure, Model C, provides for the disclosing party to undertake a search for particular documents or a narrow class of documents that relate to a specific disclosure issue. This resembles the process often undertaken in some arbitrations, when parties exchange requests for documents that they say are relevant and material to an issue in the case by a “Redfern schedule”. The other party will then either agree or object to each request and the tribunal will rule on disputed requests. In a recent lecture, the Chancellor of the High Court, Sir Julian Flaux, noted that using Model C as intended requires making very focused and limited requests, which he contrasted with the use of “elaborate” Redfern schedules in international arbitration.  

While the scheme has not been without its issues (and there have been high-profile calls for greater party and counsel collaboration and pragmatism), there is no doubt that it has had a positive impact on the process of disclosure in English litigation, with the Chancellor noting that there has been “a significant change in culture and behaviour in relation to disclosure… and a far more focused and efficient approach to the disclosure process generally”. The need for parties to consider at an early stage the key issues and the most proportionate way of conducting disclosure has meant some front-loading of cost. However, anecdotally this appears to have been effective in achieving a more tailored approach, reducing the number of subsequent applications for specific disclosure, and the overall cost in some cases.

The October 2022 updates to the Civil Procedure Rules also gave the English court an additional tool to order targeted disclosure against third parties abroad, by specifically allowing applications for disclosure to obtain information regarding: (i) the identity of a defendant or a potential defendant; and/or (ii) what has become of the property of a claimant or applicant, to be served outside England (with the permission of the court). Recent reforms should therefore have the dual effect of making the English courts more attractive in terms of procedure, but also reminding parties of the additional tools on offer in the courts to compel disclosure in certain circumstances, including against third parties.

 

A challenge for international arbitration

Advocates of arbitration over litigation often cite the potential for procedural flexibility, including in the document production process, as a major differentiator. The absence of prescriptive rules means that the process of exchanging documents can be tailored to the particular parties and issues in dispute, which should in theory result in greater efficiency and reduced costs. Before the scheme was adopted, this contrasted favourably with the wide-ranging disclosure obligations in English court litigation, which often required broad and onerous searches for documents.

Document production orders in arbitration differ depending on the composition, legal culture and approach of the tribunal. The International Bar Association Rules on the Taking of Evidence in International Arbitration are frequently adopted (or used as a non-binding reference point), and these allow for documents to be requested that are “relevant to the case and material to its outcome” (Article 3(3)(b)). While the IBA Rules have been highly successful in establishing an accepted soft law framework for evidence in international arbitration which balances civil and common law approaches, their wording can be susceptible to a broad interpretation.

Frequently, in complex high-value arbitrations, parties seek numerous wide-ranging searches for documents to be conducted by the opposing party, leading to extensive back and forth submissions (often also used as an opportunity to make further arguments on the merits) and the need for the tribunal to rule on numerous requests. Tribunals that may not yet have engaged deeply with the issues in the case, or who have in mind the risk of challenges to an award (“due process paranoia”), may take a cautious approach to deciding on requests, resulting in orders requiring extensive searches. This can cause document production to become a stage of the proceedings that, rather than being tailored and efficient, becomes unwieldy and protracted, at a disproportionate cost to the benefit of the documents being produced.

The lack of rules or guidance on document production equivalent to the procedures now operating in the English courts may therefore be to the detriment of arbitration as a dispute resolution method, rather than giving the advantage of flexibility.

 

Potential for change

The four years since the introduction of the pilot have not seen significant institutional reforms to the process of document production. The Prague Rules on the Efficient Conduct of Proceedings in International Arbitration were launched at the end of 2018. These provide that generally, document production, including e-discovery, should be avoided altogether (Article 4.2). However, for common law arbitration users this is likely to be too much of a departure from usual process, and the Prague Rules (which reflect civil law practice) are unlikely to be much used in London-seated arbitrations. At this point, the IBA Rules are well embedded in the practice of international arbitration, particularly in arbitrations with a common law approach.

Earlier this year, the ICC released a report on “Leveraging Technology for Fair, Effective and Efficient International Arbitration Proceedings”. While largely relating to the use of technology for communications and hearings, the report contains a section covering document production, and in particular, the use of machine learning artificial intelligence.¹ The report recognises that the potential benefits of predictive coding (which allows the automation of document reviews where documents can be classified by a computer based on example human inputs) include time and cost savings, enhanced accuracy and transparency. This is provided that the use of predictive coding and the relevant parameters are disclosed to the other parties and the tribunal.

As the report also notes, there are currently no rules or guidance on whether a party intending to use predictive coding in the context of a search for responsive documents must disclose that fact to other parties or the tribunal, or whether its use needs to be agreed by other parties or approved by the tribunal. The report concludes that parties and tribunals “may want to address the use of predictive coding during the case management conference”.

These are helpful comments from the ICC Commission; predictive coding can be of benefit (as it is in the courts) to reduce time and cost in large review exercises in arbitrations. However, it would be even more helpful if there were specific guidance covering its use in order that parties know where they (and their opposition) stand. For example, this sort of guidance could be added to the currently very broad-brush case management techniques which are set out in Appendix IV of the ICC Arbitration Rules. However, that alone will not make a material impact; predictive coding does not address the fundamental issues of the scope of searches and assessing document relevance, and reform therefore needs to have a broader focus.

There are a number of measures that could be adopted, and which could be included in institutional guidance or “soft law” to give weight to parties’ case management submissions or empower tribunals, but parties and tribunals should also look to manage their arbitrations pro-actively. Examples include:

• considering at the outset whether document production is necessary and desirable for the particular dispute;
• if document production is to be included as a procedural step, requiring the agreement of a list of issues for document production at an early stage of the proceedings;
• early consideration of whether search-based disclosure is appropriate, and if so, the parameters of such searches;
• limiting searches to documents that are known to exist and to be relevant/material (not permitting “fishing expeditions”);
• considering at the first procedural hearing whether technology assisted review methods (such as predictive coding) could be appropriately used and if so, establishing the parameters for its use;
• assuming the IBA Rules are to be used, defining their application in advance, such as by giving examples of the types of narrow and specific requests that would be accepted and confirming how the wording “relevant to the case and material to its outcome” should be interpreted;
• considering whether documents or categories of documents are “necessary” for the resolution of the case, in addition the current test under the IBA Rules of relevance and materiality to the outcome;
• restricting the number of document requests that could be made by each party;
• considering issues of privilege in advance, including the format and content of any privilege log that may be required; and
• using costs shifting to discourage parties from making burdensome and oppressive document production requests.

Common to most of these suggestions, and to the approach now taken by the English courts, is engagement by the parties and tribunal on document production issues at an early stage of the proceedings. Given that, generally speaking, document production in arbitration is already issue-based, achieving greater focus and promoting efficiency should not be too great a stretch. However, critical differences with the court’s approach may be the imperative on parties to engage in a real attempt to reach consensus on document production issues and the transparency that comes with that. It may be that institutional intervention or guidance is necessary to achieve the psychological shift that would be required to get to this point in international arbitration. Given their prominence, another potential driver of change could be to make further amendments to the IBA Rules to encourage more tailored approaches in appropriate cases.

In the absence of such intervention, tribunals can make a real difference by taking a firm stance on document production issues, including by scrutinising and tightly limiting requests for production. While not expressly empowered to do so by the current arbitration rules, there is nothing to prevent tribunals from taking active case management steps relating to document production. In English-seated arbitration, these steps in fact fall within the tribunal’s broad duty to run proceedings in way suitable to the circumstances of the case, avoiding unnecessary delay and expense. And, in arbitral proceedings which would have typically tracked the approach of English litigation to exchanges of documentary evidence, the cultural change introduced by the pilot will likely influence party and counsel expectations over time. The threat of challenges to awards (which should not be a risk when proceedings are run fairly and impartially), should not deter tribunals from keeping close control of the process and ensuring time and cost remain proportionate, particularly in circumstances where a large production exercise may be prohibitive for one of the parties. This will keep arbitration attractive for all parties.

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¹ ICC Commission Report “Leveraging Technology for Fair, Effective and Efficient International Arbitration Proceedings (February 2022), section 5.2.