A Success Story? What Have Been the Impacts on Efficiency and Costs?

THE AUTHOR:
Maria Eduarda Caramez Vieira, LL.M. candidate at Georgetown University Law Center

The fourth day of the 2023 Washington Arbitration Week (WAW) kicked off with the panel “Bifurcation (or Trifurcation?) in Investment Arbitration – A Success Story? What Have Been the Impacts on Efficiency and Costs?”.

The panel was moderated by Ian A. Laird (Crowell & Moring and Co-Chair of WAW), with panelists Jennifer Haworth McCandless (Baker Botts), Jeffery Commission (Burford Capital), Rafael Boza (Pillsbury Winthrop Shaw Pittman), Lindsey D. Schmidt (Gibson Dunn), and Kenneth B. Reisenfeld (Baker & Hostetler).

Ian A. Laird set the tone of the panel by noting that bifurcation (and trifurcation) is closely related to efficiency, one of the most touted features of international arbitration. However, he also cautioned practitioners about the “flip side” of bifurcation: if an arbitral tribunal is unable to dispose of claims at the early stages of bifurcated proceedings, bifurcation may end up driving up costs and extending the proceedings.

According to data compiled by the Jeffery Commission, 68% of the decisions on requests for bifurcation rendered by the International Centre for Settlement of Investment Disputes (“ICSID”) and UNCITRAL tribunals from 2017 to 2020 are not publicly available. Of the available decisions, 78% applied the test laid out in Glamis Gold v. USA, and 57% rejected applications for bifurcation.

After Mr. Laird introduced the topic, Jennifer Haworth McCandless focused on Rule 41 of the ICSID Arbitration Rules 2022 (“ICSID Rules”), which allows tribunals to dismiss claims in an expedited procedure akin to bifurcation if the moving party can prove that they are manifestly without legal merit. But the strategy is not without risk: if an objection made under Rule 41 is not granted, the procedure can be significantly extended, costs can increase, and arbitrators may end up prejudging the merits of the case when only presented with arguments and evidence on an expedited basis.

Rafael Boza proceeded with an analysis of Rule 42 of the ICSID Rules, which establishes a procedure for interested parties to file a request for bifurcation. Mr. Boza clarified that Rule 42 only concerns the bifurcation of the merits phase; a measure granted by certain ICSID arbitral tribunals even before the introduction of the 2022 Arbitration Rules. Nevertheless, in his view, the new Rule 42 will encourage tribunals to order bifurcation more often because it confers express powers on arbitrators to do so, and it empowers tribunals to order bifurcation sua sponte.

Lindsey D. Schmit gave a concise lesson on the Glamis Gold test that is commonly applied by tribunals when addressing requests for bifurcation to analyze preliminary objections. The test considers the following factors:

Is the objection prima facie serious and substantial?
If successful, would the objection do away with some part, an essential part, or the entire procedure?
Can the objection be granted without prejudgment on the merits?

Ms. Schmidt analyzed 15 arbitral proceedings in which she represented claimants, and bifurcation was requested by respondents. In most proceedings, the claimant consented to the request for bifurcation because the respondent adequately singled out a narrow question that should be addressed by the tribunal separately. On the other hand, claimants were more successful in defeating requests for bifurcation when they could demonstrate that the request for bifurcation was filed too late or that the issues were so intertwined that the tribunal would be required to analyze the same evidence twice.

Ken Reisenfeld provided an interesting counterpoint by mentioning that Lucy Greenwood makes a persuasive argument against bifurcation. According to her, bifurcation will not promote efficiency unless the tribunal is convinced that the relevant objection has some merit and may allow the proceedings to be disposed of altogether. That is, if the proceedings are bifurcated and the objection is denied, the fact is that the proceedings were elongated for no good reason. Moreover, Mr. Reisenfeld argued that bifurcation requires parties to formulate objections with great granularity early in the proceedings, which may cause the tribunal to prejudge the merits even before memorials are filed.

Jeffery Commission followed up, mentioning that the chapter on bifurcation was the hardest to write in his book because few decisions are publicly available. He highlighted that, as many challenges to arbitral awards relate to calculating damages, reserving a phase to address quantum issues can be effective. Finally, bearing in mind the risk that bifurcation may extend the analysis of an objection that turns out to be without merit, Mr. Burford urged tribunals to be more aggressive in sanctioning parties who seek wasteful bifurcations by rendering cost awards.

Conclusion

Overall, the panelists offered a cautious view on bifurcation in investment arbitration since the procedural mechanism can work as a double-edged sword: if, on the one hand, it can make proceedings more efficient by allowing tribunals to dismiss meritless claims upfront, on the other, it can also unduly extend arbitral proceedings.

ABOUT THE AUTHOR:

Maria Eduarda Caramez Vieira is an LL.M. candidate and an International Arbitration Scholar at Georgetown University Law Center. She is an attorney admitted to the Brazilian Bar Association. Prior to coming to Georgetown, she was an associate at the litigation and arbitration practice of leading Brazilian law firm Mattos Filho. She graduated from the Pontifical Catholic University of Rio de Janeiro with a full scholarship in 2020 and participated in the Willem C. Vis International Commercial Arbitration Moot as an assistant coach and as a student, when she received honorable mentions to the Martin Domke, Eric E. Bergsten and Pieter Sanders Awards.