Customized Procedure in Theory and Reality

Contract theory has long posited that parties can maximize contract value by manipulating the procedural rules that will apply if there is a dispute. Beyond choosing a litigation or arbitration forum, parties can allocate costs and fees, alter pleading standards, adjust evidentiary and discovery rules, and customize nearly every aspect of the adjudication process. In time, this theoretical insight became a matter of faith. The assumption that contracts routinely alter procedural rules spawned debate over the normative implications of allowing parties to dictate procedure. Only recently have a few studies suggested that this debate may lack a firm empirical foundation. This Article presents a comprehensive picture of dispute resolution practices in commercial contracts, one that corrects for many of the limitations of the existing research and focuses on both binding and non-binding mechanisms. Parties do exercise autonomy in structuring the rules of adjudication, but they do so within a limited domain. Contracts almost always specify the governing law and routinely designate a litigation or arbitration forum, and a substantial minority allocate responsibility for attorney fees. In arbitration, parties go further, frequently allocating costs, imposing expertise requirements, and shaping decision-making dynamics (as by requiring multiple arbitrators). In neither forum, however, do parties expressly modify governing rules of pre-trial, trial, or arbitration procedure. The findings imply that it is premature to debate the normative implications of allowing parties to dictate judicial procedures, for contracts rarely employ the kinds of clauses that have provoked concern. Yet, the findings also call for a more complete account of procedural contracting—one that explains why parties do not more fully exercise their procedural autonomy

Promise and Peril: Doctrinally Permissible Options for Calibrating Procedures Through Contract,

For a long time, arbitration was the only game in town for parties who wanted more flexibility in the adjudication of their disputes. They faced a dichotomous choice between accepting the public court system and its attendant procedural rules or opting out entirely and resolving their disputes in arbitration. Private process, however, has migrated in surprising ways into the public courts: despite public rules of procedure, judicial decisions increasingly are based on rules of procedure drafted by the parties . . . . This sort of private procedural ordering gives parties the ability to unbundle the off-the-rack procedures applied in public courts and bargain about individual rules. Customized procedure, in short, offers parties much of the flexibility that once seemed the prerogative of arbitration while maintaining the advantages of public adjudication, including, most significantly, rights to appeal and public subsidization. While arbitration has arguably be-come more like litigation, litigation may be becoming more like arbitration. The promise of more flexible public adjudication presents parties with significant benefits. Yet, given the potential gains from finely tuned procedure, it is puzzling that current empirical evidence suggests that few parties explore the full range of customization theoretically available to them. Indeed, while the evidence we have is far from perfect, it seems to indicate that parties are doing precious little fine-tuning, at least ex ante. This Article evaluates this doctrinal explanation for the puzzle created by the gap between the potential gains of customized procedure and the apparent reality that parties do little of it, at least before a dispute arises. It concludes that a close look at the doctrine does not bear this story out. To the contrary, while express authorization for many forms of customized procedure does not exist, the current trend of doctrine could not be clearer: courts seem ready to enforce parties\u27 autonomous procedural choices. Accordingly, there are minimal risks that a court will refuse to enforce or abide by a procedural customization so long as it does not suffer from some fundamental contract formation flaw, like unconscionability or fraud

Customized Procedure in Theory and Reality

Contract theory has long posited that parties can maximize contract value by manipulating the procedural rules that will apply if there is a dispute. Beyond choosing a litigation or arbitration forum, parties can allocate costs and fees, alter pleading standards, adjust evidentiary and discovery rules, and customize nearly every aspect of the adjudication process. In time, this theoretical insight became a matter of faith. The assumption that contracts routinely alter procedural rules spawned debate over the normative implications of allowing parties to dictate procedure. Only recently have a few studies suggested that this debate may lack a firm empirical foundation. This Article presents a comprehensive picture of dispute resolution practices in commercial contracts, one that corrects for many of the limitations of the existing research and focuses on both binding and non-binding mechanisms. Parties do exercise autonomy in structuring the rules of adjudication, but they do so within a limited domain. Contracts almost always specify the governing law and routinely designate a litigation or arbitration forum, and a substantial minority allocate responsibility for attorney fees. In arbitration, parties go further, frequently allocating costs, imposing expertise requirements, and shaping decision-making dynamics (as by requiring multiple arbitrators). In neither forum, however, do parties expressly modify governing rules of pre-trial, trial, or arbitration procedure. The findings imply that it is premature to debate the normative implications of allowing parties to dictate judicial procedures, for contracts rarely employ the kinds of clauses that have provoked concern. Yet, the findings also call for a more complete account of procedural contracting—one that explains why parties do not more fully exercise their procedural autonomy

Reconceptualizing the party-appointed arbitrator and the meaning of impartiality

Despite the popularity of the age-old practice, several prominent arbitrators and industry leaders have proposed eliminating party-appointed arbitrators. These critics contend that party-appointment injects bias into a tribunal that is supposed to be impartial. Various empirical studies seem to confirm the uncomfortable contradiction between the rhetoric of impartiality and the purportedly biased conduct of party-appointed arbitrators. Most of these empirical claims, however, are deeply flawed both in their substance and methodology. More fundamentally, these claims ignore Legal Realism’s insight that decision-maker “bias” (or reliance on extra-legal factors) is an inevitable consequence of law’s inherent indeterminacy. If some forms of bias are inevitable, it does not make sense to ask whether bias exists. Instead, more nuanced questions must be asked: Which forms of bias are legitimate? Who decides which forms of bias are legitimate? And how do we police the boundary between legitimate and illegitimate forms of bias? This Article answers these questions with respect to party-appointed arbitrators. Rejecting both critiques and defenses, this Article makes an affirmative case for party-appointed arbitrators. This Article reconceptualizes party-appointed arbitrators as an essential structural check against various forms of cognitive bias that necessarily exist among all arbitrators on all arbitral tribunals. Arbitrators’ cognitive biases cannot be eliminated, even by eliminating party-appointed arbitrators. They can, however, be bounded and counter-balanced by reconceiving party-appointed arbitrators as a type of Devil’s Advocate that guards against the cognitive biases that distort tribunal decision making. In this reconceptualized role, party-appointed arbitrators serve three important functions: 1) They provide a check against individual- and group-based cognitive biases 2) They also ensure representativeness on the tribunal; and 3) they provide a structural counterweight to the opposing party-appointed arbitrator. This reconceptualized role, in turn, delimits a range of specific impartiality obligations that are both more conceptually coherent and more consistent with actual practice and expectations

Whither Bespoke Procedure?

Increasingly we hear that civil procedure lurks in the shadow of private law. Scholars suggest that the civil rules are mere defaults, applying if the parties fail to contract around them. When judges confront terms modifying court procedures — a trend said to be explosive — they seem all-too-willing to surrender to the inevitable logic of private and efficient private ordering. * How concerned should we be? This Article casts a wide net to find examples of private contracts governing procedure, and finds a decided absence of evidence. I search a large database of agreements entered into by public firms, and a hand-coded set of credit card contracts. In both databases, clauses that craft private procedural rules are rare. This is a surprising finding given recent claims about the prevalence of these clauses, and the economic logic which makes them so compelling. * A developing literature about contract innovation helps to explain this puzzle. Parties are not rationally ignorant of the possibility of privatized procedure; nor are they simply afraid that such terms are unenforceable. Rather, evolution in the market for private procedure, like innovation in contracting generally, is subject to a familiar cycle of product innovation. Further developments in this field will not be linear, uniform and progressive; they will be punctuated, particularized and contingent

The Balancing (and Unbalancing?) of Interests in International Investment Law and Arbitration

This chapter examines the dynamic balancing, rebalancing, and (perhaps) unbalancing of interests which takes place in international investment law (IIL) and arbitration. It first analyses the contention that investment treaty negotiations establish an equilibrium between the states parties, reflecting both their interests and negotiating strengths. It then turns to the system of international investment dispute settlement through arbitration, and explores the ways in which the arbitral process might be said to rebalance or unbalance the equilibrium established between the states parties to the investment treaty. Some of the practical implications of this analysis are then explored by looking at the impact of different approaches to investment treaty interpretation on this question of interest balancing