Eric Z. Chang, Founder and Principal of LA-based Chang Law, speaks about key topics in international arbitration and the future of dispute resolution.
What is your current role in dispute resolution?
As counsel, I am a provider of dispute resolution. Although I act primarily in a counsel role, as with many practitioners in the international arbitration community, I also accept appointments as arbitrator.
My particular focus is on commercial international arbitration, and investor-state arbitration. I specialised in international arbitration because it is the pre-eminent dispute resolution mechanism in international transactions and international investment. International arbitration borrows from both civil law and common law concepts and practices, and clients from different legal systems also have different concepts of how dispute resolutions should be resolved.
I decided early on to focus my career from an international angle, and I hold law degrees from the United States and France, and have qualified in both legal systems (California, New York, Paris). My background thus lends itself to an international practice and, specifically, the hybrid nature of international arbitration.
Which processes do you use most frequently?
I am primarily counsel in international arbitration disputes, whether commercial or investor-state disputes. However, I also deal with mediation, most often in the context of multi-tiered arbitration clauses. Very often, such dispute resolution clauses call for amicable settlement attempts at the management level, and/or mediation, and only followed by arbitration if the prior steps do not resolve the dispute. Mediation can be ad hoc, or through institutional rules administered by such organisations as the International Chamber of Commerce (ICC).
How is the market currently addressing parties’ needs?
Broadly speaking, the international arbitration ‘market’ appears to meet parties’ needs. Certainly, the alternatives for international users (foreign court litigation without the possibility of easy worldwide recognition and enforcement) are not as attractive.
Most international users are fairly sophisticated and understand the available tools at their disposal – mediation, arbitration, other amicable settlement processes (within the construction industry, widely accepted model contracts such as FIDIC include highly sophisticated processes such as dispute adjudication boards combined with ICC arbitration).
Calls for improvements in international arbitration (and mediation) have been widely debated. Increasing time, costs, complexity, ‘Americanisation’ of dispute processes (including complex discovery) are all legitimate concerns. There is an obvious consensus among users that arbitration should be streamlined.
I personally do not believe that a wider variety of methods will help improve dispute resolution – again, there is a wealth of options out there, and most users are sophisticated enough to understand and be able to choose from them.
Because international arbitration (and mediation) is a user-led process, the improvements to help streamline disputes should be clearly outlined by advisors at the contract drafting stage. By the time a dispute arises, parties will differ widely on how a dispute should be run – for example, a claimant may wish for more discovery, not less, and may also want a quicker procedural calendar, while the respondent may wish for a longer procedural calendar. Thus, clearly setting out the parties expectations prior to the existence of a dispute is key.
In turn, this means that advisors at the contracting stage should discuss these expectations and advise on how to draft them clearly into a dispute resolution clauses. Unfortunately, it is still the case that dispute resolution clauses are an afterthought drafted by most transactional lawyers. Inclusion of dispute resolution counsel at the drafting stage, and fostering a culture of elevating dispute resolution clauses to the same level of importance as other essential contract clauses (e.g. payment terms) would go a long way to promote efficient dispute resolution down the road.
How do you think the dispute resolution processes are likely to change in the future?
In terms of international arbitration, it seems that improvement is a matter of evolution rather than revolution. Leading arbitration institutions engage in a healthy competition for market share of worldwide disputes by constantly adjusting the rules to adapt to the needs of the end users. For example, in recent years, certain institutions have introduced emergency arbitrator rules that allow for quick injunction-like adjudication of disputes even prior to the constitution of the full tribunal (which usually takes some time).
One ‘mechanism’ which is not directly a dispute mechanism per se but which can fairly be called a revolution in the dispute resolution arena is the growth of third party funding. I would expect the proliferation of third party funders (TPF) to continue to grow. In particular, certain corporate users of dispute resolution (be it litigation or arbitration, but perhaps even mediation) are beginning to recognise that access to non-recourse funding may free up available corporate cash flow for other uses – in other words, it is not only claimants with lack of access to capital that rely on TPF.
Imagine a technology company faced with a multi-million dollar arbitration claim that will require 2-4 million USD in legal fees and costs over the next two to four years. Even though the technology company may very well have a sufficient ‘war chest’ to cover the legal fees and costs upfront, there may be a distinct opportunity cost advantage in accepting outside funding, and putting the freed up cash flow towards R&D, for example.
TPF is often billed as an effective tool to improve access to justice. That may be so, but whether this statement is accurate or not, it is clear that TPF is here to stay and is likely to grow in the near to medium term, if not beyond.
How could an improved cross-cultural dialogue promote different forms of dispute resolution and improve access to justice?
Dispute resolution, at its core, is the resolution of conflicts between human beings. The methods to deal with conflict are clearly heavily influenced by culture. In Asia, for example, litigation and arbitration are often seen as processes of last resort and disfavoured, while in Western culture, litigation and arbitration are seen as ‘business as usual’. Very often, well-connected facilitators are used in ‘behind the scenes’ negotiations to arrive at a resolution of a given dispute.
In somewhat similar fashion, in other parts of the world, a formal dispute process (arbitration or litigation) will hide very active political manoeuvring behind the scenes. Finally, as described above, parties from civil and common law legal systems very often have differing expectations about the dispute resolution procedure.
Clearly, the cultural dimension is of capital importance in dispute resolution. Cross-cultural dialogue is clearly important. A key point to stress, however, is that this dialogue should happen both between the parties themselves, but also between counsel, whose legal background may be very different – after all, counsel very often drive the dispute resolution process.
Finally, I would again add that transactional lawyers at the contract stage could benefit from an ongoing dialogue as to the importance of anticipating the dispute resolution process, including factoring in cultural norms and differences.
Interview by Natasha Mellersh.
Eric Z. Chang is the firm founder and Principal of arbitration boutique firm Chang Law in Los Angeles, California. He is a former French Avocat à la cour and a current member of the New York and California Bars. He has practiced in Paris, New York and California on cross-border matters involving parties and disputes in Africa, Europe, the United States, Latin America, Asia and the Middle East.