Server: Netscape-FastTrack/2.01 Date: Wed, 31 Dec 1997 20:39:41 GMT Accept-ranges: bytes Last-modified: Mon, 12 May 1997 19:51:48 GMT Content-length: 34953 Content-type: text/html
April 1992
Vol. 3, No. 1
Back
to the Annual Table of Contents
Contents
John D. Kimball to speak in Piraeus in May.
John D. Kimball will be among the invited speakers at the First International Conference of maritime Law sponsored by the Piraeus Bar Association. The Conference will be held in Piraeus on May 28-30, 1992. The title of the Conference is "The Protection of Maritime Creditors." Mr. Kimball will be presenting a paper entitled "The Protection of P & I Clubs in Maritime Bankruptcies."
Howard M. McCormack to speak in Seville in June.
Howard M. McCormack will be a speaker at the International Conference on "Maritime Liability in the '90's" in Seville, Spain, on June 14-20, 1992. The Conference has been organized by the Spanish-Portuguese-American Institute of Maritime Law in celebration of the Fifth Centennial of the discovery of the Americas. Mr. McCormack will be one of the main speakers at the Conference and will be delivering a paper entitled "Systems of Limitation of Liability. International Maritime Conventions and Comparative Law."
Back To Contents | Down to Site Navigation
Maritime Law & Commerce Journal Issue Dedicated to Mr. Healy
The July - October 1991 issue of the Journal of Maritime Law and Commerce is dedicated to Nicholas Healy, who was Editor of the Journal for ten years and who continues to serve on the Editorial Board. The volume which includes the first chapter of a forthcoming textbook on the Law of Maritime Collisions by Mr. Healy and Prof. Joseph Sweeney of Fordham University Law School, contains tributes from the Publisher of the Journal and others prominent in the field of maritime law. Copies of the pre-publication chapter, Basic Principles of Collision Law, will be sent to anyone who requests them.
Back To Contents | Down to Site Navigation
Evidentiary and Discovery Issues in Arbitration
John D. Kimball
INTRODUCTION
This article will discuss rules of evidence as they apply in arbitration and discovery of testimony, documents and physical things in aid of arbitration. In a future issue, we will discuss the occasionally mystifying concepts of attorney-client privilege and attorneys' work product.
PART I
EVIDENCE
A. ARBITRATORS ARE NOT BOUND BY RULES OF EVIDENCE.
In federal litigation, there are extensive evidence rules covering testimony, documents and other physical things. The rules are largely designed to facilitate the fact-finding function of the court by providing guidelines for excluding unreliable information. "To the end that the truth may be ascertained and proceedings justly determined"[n. 1], the federal courts have rules which regulate such matters as:
1) judicial notice of facts; 2) presumptions; 3) relevancy; 4) privileges; 5) witnesses, including: - how fact or expert witnesses are to be questioned; - what types of questions may be asked; - what types of questions may not be asked; 6) hearsay; 7) authentication and identification of documents.
State courts have similar sets of evidence rules which must be adhered to. In contrast to arbitrations, a great deal of proffered evidence is excluded in litigation in federal and state courts.
In arbitration there are no rules of evidence as such. Indeed, the law is well established that, unless the parties have agreed otherwise, arbitrators are not bound by the rules of evidence applicable in court cases. Rule 20 of the Rules of the New York Society of Maritime Arbitrators ("SMA") expressly provides that rules of evidence obtaining in judicial proceedings shall not be applied. Courts have often held that evidence which might be excluded by them under rules of evidence may be allowed in arbitration. It routinely happens in arbitrations that evidence which would be deemed incompetent at trial will be admitted and given such weight as the panel considers appropriate. Conversely, arbitrators have excluded evidence which a court might consider relevant and admissible.
This is not to say that there are no parameters for the use of evidence in arbitration. Two sections of the Federal Arbitration Act [n. 2] provide guidance. Section 7 provides that arbitrators may summon witnesses to testify and produce documents which may be deemed "material as evidence in the case." The key words here are "material as evidence." What is meant by "material"? Before answering that question, we should first look at Section 10 of the Act.
Section 10 places limitations on arbitrators by providing that awards may be vacated in certain circumstances. If we look first at §10(c), we will see that it partly mirrors the language used in §7. Thus, under §10(c), an award may be vacated if the arbitrators are guilty of misconduct in refusing to hear evidence which is "pertinent and material to the controversy."
This section is the main reason it is not usual to make objections to the introduction of evidence in arbitrations. No one wants to succeed in having evidence excluded, only to have the exclusion provide the basis for a motion to vacate a favorable award.
Even so, §10(c) does clearly indicate that arbitrators are obliged to accept only evidence which is "pertinent and material." Thus, we return to the question raised by §7 of the Act: what did Congress mean by the word "material"?
It is interesting that the Federal Rules of Evidence do not use this same terminology. Instead, the guiding concept used is that of "relevancy." The Rules of Evidence expressly define "relevant evidence" as
evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence. [n. 3]
To state the test more simply, does the item of evidence tend to prove the matter sought to be proved? If so, it is relevant and may be admitted in a litigation; if not, it must be excluded.
Do "relevancy" and "materiality" mean the same thing? The practical answer is "yes," and in the courtroom these terms are frequently used interchangeably. Technically, there is a distinction: materiality "looks to the relation between the propositions for which the evidence is offered and the issues in the case." [n. 4] Thus, if evidence is offered to prove a proposition which is not in issue, the evidence is not material. To decide whether a matter is in issue, we look to the pleadings, or, in arbitration, the claim statements.
"Relevancy" by definition encompasses "materiality" in its meaning, but goes further to require that the evidence have a tendency to establish the fact it is offered to prove. [n. 5] Arguably, §7 means that arbitrators may allow evidence which, while material to the issues, does not meet a relevancy standard.
Thus, while there is a technical distinction between materiality and relevancy, I submit that it is rather less critical to everyday practice in arbitration than, say, whether a doctor suggests that a patient take Advil rather than aspirin.
SMA Rule 22, when applicable, solves the problem neatly by simply sweeping up both terms at once. The rule provides that "The arbitrators shall be the judge of the relevancy and materiality of the evidence offered."
An example may help explain what is meant by this terminology. Let us assume there is an issue of fact as to whether a brick wall existed at a certain time and place. The existence of the brick wall is material because A has sued his neighbor B for damages caused by B's destruction of the wall, which B claims blocked his view. In order to support A's contention that the wall existed, A offers in evidence a single brick he was able to salvage.
B's lawyer objects and states as his reason, "A brick is not a wall." As to that proposition, there can be no dispute. The brick is nonetheless material. Whether there was a wall is in issue, and to a trier of facts the existence of a single brick in the record, when combined with other evidence, could lead him to find it more probable than not that the alleged wall existed. Thus, an arbitrator could exercise his discretion to allow the brick in evidence if he believes it tends to make it more probable than not that the wall really existed.
Sometimes, the relevancy of a piece of evidence is not immediately clear on its own, but can be made so by additional evidence. A court or arbitration panel may accept evidence subject to connection or later proof in the exercise of its discretion.
B. ARBITRATORS HAVE DISCRETION WITH RESPECT TO EVIDENCE.
Arbitrators are accorded great discretion as to what is "pertinent and material." The fact that excluded evidence might be considered relevant and admissible in a court of law is an insufficient ground to establish that the arbitrators' exclusion of it gave rise to a level of unfairness, mandating that an award be set aside. Furthermore, case law has confirmed that where evidence is repetitive, of little probative force, and/or will be unnecessarily time consuming, arbitrators are not obliged to receive it.
In Petroleum Transport, Ltd. v. Yacimientos Petroliferos Fiscales, [n. 6] a vessel owner challenged an arbitration award on the ground that the arbitrators failed to consider evidence proffered by the owner after the final hearing, but prior to the issuance of the award.
The court, finding the evidence untimely and of little relevance, refused to vacate the award. The court stated:
[A]rbitrators are charged with the duty of determining what evidence is relevant and what is irrelevant and, absent a clear showing of abuse of discretion, the Court will not vacate an award based on improper evidence or the lack of proper evidence.
In Harvey Aluminum v. United Steelworkers of America, [n. 7] however, the court found that the arbitrator's exclusion of evidence was in violation of §10(c) of the Federal Arbitration Act. The arbitrator had refused to admit the evidence, not because it was cumulative or immaterial, but because he found that it was improperly offered as rebuttal evidence, whereas it should have been offered as part of the case in chief. According to the court:
..... [I]t would not be fair to preclude material evidence based on some technical rule of evidence without some warning that the rules of evidence or
some portion thereof would be followed in the arbitration hearing.
C. ARBITRATORS MUST CONDUCT A FAIR HEARING.
Although arbitrators are not bound by the rules of evidence, they are required to provide the parties with a fair hearing. Fundamental fairness dictates that a party be afforded an adequate opportunity to present his evidence and arguments.
Section 10(a) and another part of §10(c) of the Federal Arbitration Act deserve comment, since they may also involve evidence issues which provide the basis for vacating an award.
Section 10(a) deals with awards procured by corruption, fraud or other undue means. It has been argued that the use of irrelevant, but highly prejudicial evidence, constitutes "undue means." An example is Drayer v. Krasner, [n. 8] a wrongful termination of employment case. The employee was fired because of his alleged involvement in a securities fraud. Although he was later acquitted of the alleged fraud, other participants were convicted. Information concerning these convictions was later offered in the arbitration. While the arbitrators declined to allow this information in evidence, they nonetheless read it - which they had to do in deciding whether or not to exclude it. It was argued that this was "undue means" because it prejudiced the arbitrators against the employee. That contention was rejected.
D. EVIDENCE MUST NEVER BE RECEIVED OR CONSIDERED EX PARTE.
In numerous cases, the consideration by the panel of information received on an ex parte basis from counsel for one of the parties has been found by the courts to provide grounds for vacating an award. See, e.g., Totem Marine Tug & Barge Inc. v. North American Towing. [n. 9]
For instance, in Goldfinger v. Lisker, [n. 10] the court held that a private communication between one party and the arbitrator denied the other party of an opportunity to respond.
Similarly, in Lebow v. Bogner-Seitel Realty, Inc., [n. 11] the court, finding that the arbitrators had allowed in evidence a list not subject to cross-examination by one party, vacated the award.
SMA Rule 22 addresses this issue appropriately by requiring that "All evidence shall be taken in the presence of the Arbitrators and of all the parties", except in the case of an unreasonable absence of a party, a default, a waiver by a party, or where submissions are made by mail.
E. ARBITRATORS MAY USE THEIR OWN KNOWLEDGE.
Obviously, an arbitrator's own expertise or commercial knowledge is not subject to cross-examination by the parties. It may not even be disclosed and of course it will not be in evidence. May the arbitrator use this knowledge in deciding the case? The law appears clear that the arbitrators may and should rely on their own expertise, particularly on issues such as value, damages and trade customs. Indeed, one of the advantages of arbitration is that the arbitrator often brings to the proceeding more specialized knowledge than a judge or juror could be expected to have.
As the Second Circuit remarked in American Almond Products Co. v. Consolidated Pecan Sales Co.: [n. 12]
If [the arbitrators] were of that trade, they were justified in resorting to their personal acquaintance with its prices. In trade disputes one of the chief advantages of arbitration is that arbitrators can be chosen who are familiar with the practices and customs of the calling, and with just such matters as what are current prices, what is merchantable quality, what are the terms of sale, and the like.
To summarize:
(1) There are no rules of evidence which must be followed in arbitration; (2) Arbitrators have wide discretion in deciding whether evidence is relevant or material; (3) The parties must be treated fairly as to the use of evidence; (4) Ex parte contact is a clear "no-no;" (5) Arbitrators may make use of their own knowledge and expertise; (6) By contract, the parties may devise whatever evidence rules they want.
PART II
DISCOVERY
A. THE PURPOSES OF DISCOVERY IN LITIGATION.
In litigation, we have extensive rules concerning pre-trial discovery. These cover depositions of witnesses and production of documents or other physical things. Generally, the purpose of pre-trial discovery is to afford the fullest possible knowledge of all facts and issues before a case is tried. It ensures that each party will be able to prepare his case and have a fair opportunity to address all contentions that may be raised in the course of the proceeding. In short, the party that prevails should succeed on the merits and not by surprise or by withholding information. In litigation, court rules allow discovery of information or documents which might never be admissible at a trial.
"Relevancy" as defined in the rules of evidence is not the standard by which pre-trial discovery is governed. Instead, discovery is allowed of information which is reasonably calculated to lead to the introduction of admissible evidence.
B. DISCOVERY PROCEDURES IN ARBITRATION.
The traditional purpose of commercial arbitration, of course, is to provide an alternative to litigation which avoids the delay, expense and procedures associated with that process. Arbitration is not intended to be litigation under another name. As a result, courts have been very reluctant to permit discovery in arbitration which might create a hybrid forum, "part judicial and part arbitrational." The separation of the two systems has, for the most part, led courts to conclude that by agreeing to arbitrate the parties waive their right to judicial procedures.
What, then, happens when parties who have agreed to arbitrate their disputes find that they need access to information they think their opponent might have - perhaps information in the opponent's files on similar but not directly related matters that might help their case? What if a third party has information which the owner or charterer thinks might help its case?
Obviously, the easiest approach is to simply ask for the information. It has been my experience in a substantial number of arbitrations that parties will ordinarily agree to exchange documents or information either before or during hearings, rather than risk an adverse inference which might be drawn if they do not agree to an exchange.
But suppose a situation arises where a voluntary exchange cannot be agreed. What then?
There are only two sources a party can go to for assistance: the arbitrators or the court. Courts have a common law right to compel discovery in aid of arbitration and, in some states, a statutory power. The existence of authority permitting the courts to grant discovery in aid of arbitration does not mean, however, that courts are bound to grant applications for such relief. In fact, courts have traditionally recognized that this authority is to be used sparingly.
Courts normally will decline to authorize pre-hearing discovery in aid of arbitration absent a showing of strict necessity created by extraordinary circumstances. (E.g., Katz v. Burkin. [n. 13]) What constitutes extraordinary circumstances? The most common example is the case where a witness is otherwise unavailable to testify before the arbitrators. Another example is a justified fear that documents will be destroyed.
In Koch Fuel v. South Star, [n. 14] depositions were ordered in aid of a claim subject to London arbitration where cargo conversion was alleged by a charterer and it was believed the shipboard witnesses would disappear and be unavailable for the arbitration hearings. The court found the circumstances exceptional enough to order the witnesses' depositions to be taken.
Bergen Shipping Co., Ltd. v. Japan Marine Services, Ltd., [n. 15] was much the same. In an arbitration by a shipowner against a service contractor for failing to provide a crew the court viewed an application for discovery as coming within the requisite extraordinary circumstances test. The court reasoned:
This was clearly a case of extraordinary circumstances. The allegations to the effect that the crew was about to leave the United States and be reassigned to vessels in international commerce were sufficient to meet the test of necessity.
Likewise, in Vespe Contracting Co. v. Anvan Corp., [n. 16] a subcontractor sought pre-hearing discovery in an arbitration with the general contractor on the issues of remaining work and necessary repairs. The court, finding necessity, permitted discovery because:
As progress continues at the construction site, evidence of Vespe's performance of the concrete work is "disappearing" behind the hotel's interior and exterior wall coverings. For all practical purposes, Vespe's work product will be inaccessible for future inspections. In light of the peculiar circumstances here, we think it proper to allow discovery to proceed at this time. The results of this discovery should be of great assistance during the arbitration proceeding.
In Bigge Crane and Rigging Co. v. Docutel Corp., [n. 17] the court focused on additional factors, father than solely upon the future availability of evidence. According to the court:
[T]he court believes that it should exercise discretion to permit discovery in this case because (1) discovery is particularly necessary in a case where the claim is for payment for work done and virtually completed, and the nature of any defense is unknown; (2) the amounts involved are so substantial that any expense in taking depositions is relatively small; [and] (3) the action has proceeded to such a point that the taking of depositions can probably be accomplished without delaying the arbitration....
Commentators predicted that Bigge Crane would herald a new, more lenient attitude on the part of courts toward pre-hearing discovery. Yet the few courts that have cited Bigge Crane have either expressly required or have found extraordinary circumstances other than those relied upon in Bigge Crane.
Otherwise, the majority of courts, in the absence of extraordinary circumstances, have decided against permitting pre-hearing discovery, adhering to the concern that it would defeat the speed and economy of arbitration.
C. DISCOVERY DURING THE HEARINGS.
Pre-hearing discovery in arbitration should not be confused with provisions found in federal and certain state laws that provide arbitrators with the power to summon witnesses to hearings and, where appropriate, compel them to bring with them documents and other tangible evidence. Hearing testimony, by its nature, does not afford the same benefits as those provided by pre-hearing discovery, i.e., narrowing the facts and issues before trial. In arbitrations governed by the Federal Arbitration Act, arbitrators are vested with the power to subpoena witnesses and require them to bring material evidence to the hearings. They may do so on their own initiative or on the application of either party.
The Arbitration Act also provides for enforcement of such subpoenas by court process. A witness who fails to respond may be held in contempt of court. Complementing this power is the arbitrator's authority to draw negative inferences from a party's failure to produce evidence at the hearing.
CONCLUSIONS
While arbitrators undoubtedly have the power under the Arbitration Act to summon witnesses before them, they have no such authority under the Act, or under state law, to compel pre-hearing discovery of the type we see so commonly in litigation. Does that mean that in the absence of voluntary cooperation among the parties, pre-hearing discovery cannot be "compelled"? Let me emphasize the word compelled, for my view is that no such authority is vested in arbitrators, nor should it be.
Arbitrators clearly have broad authority to run the arbitration proceedings as they consider appropriate. In a complex case, arbitrators might prefer to streamline the proceedings by pre-hearing depositions conducted outside their presence. The arbitrators could urge the parties to proceed in this manner. Arbitrators should, and often do request voluntary compliance with pre-hearing document production requests. But assuming that a party is totally unwilling to cooperate in this way, my personal view is that it would not be proper for arbitrators to default the party. That may be done if a party fails to comply with a §7 summons, but not if he fails to comply with a request for pre-hearing disclosure.
SMA Rule 22 addresses this problem
in part by providing that Arbitrators have the power to order depositions
outside their presence if witnesses cannot conveniently testify before
them. This rule goes beyond §7 of the Act and should be invoked only
if the parties have agreed to follow the SMA Rules.
**********
This article is derived from a talk which Mr. Kimball gave at an Educational Seminar sponsored by the Society of Maritime Arbitrators at the World Trade Institute in New York on April 10, 1991.
Ronald Betancourt, an associate of the firm, assisted in the legal research.
1 Federal Rules
of Evidence (Fed. R. Evid.) 102.
2 9 U.S.C. §§1-208.
3 Fed. R. Evid. 401.
4 McCormick, Evidence 434.
5 Id., at 435.
6 419 F.Supp. 1233 (S.D.N.Y. 1976).
7 263 F.Supp. 488 (C.D.Cal. 1967).
8 572 F.2d 348 (2d Cir. 1978).
9 1980 AMC 1961 (5th Cir. 1979).
10 68 N.Y.2d 225, 508 N.Y.S.2d 159 (1970).
11 55 A.D.2d 695, 389 N.Y.S.2d 251 (3d Dep't 1976).
12 144 F.2d 448 (2d Cir. 1944).
13 160 N.Y.S.2d 159, 160-161 (1st Dep't 1957).
14 1988 AMC 1226 (E.D.N.Y. 1957).
15 386 F.Supp. 430, 1975 AMC 490 (S.D.N.Y. 1974).
16 399 F.Supp. 516 (E.D.Pa. 1975).
17 371 F.Supp. 240 (E.D.N.Y. 1973).
Back To Contents | Down to Site Navigation
MAINBRACE is intended to provide general information. The articles contained in MAINBRACE do not constitute legal advice. An analysis of the facts relating to a particular issue must be accomplished before legal advice can be given.
NOTE: "Mainbrace," our Firm's cable address, in nautical terminology means the brace or rope sustaining the main yard on a ship. The Staff of "Mainbrace" consists of Nicholas J. Healy, Gordon W. Paulsen, John C. Koster, Matthew A. Marion, Betty M. Waterman and Renee Kintzer.
New York Office: 29 Broadway New York, NY 10006-3293 Telephone: (212) 943-3980 Telecopier: (212) 425-0131 |
Hong Kong Office: Luk Hoi Tong Bldg., Suite 1301 31 Queen's Road Central Hong Kong Telephone: (852) 2 537-8628 Telecopier: (852) 2 521-9072 |
Connecticut Office: Stamford HarborPark 333 Ludlow Street Stamford, CT Telephone: (203) 961-7250 Telecopier: (203) 357-7909 |
New Jersey Office: 374 Millburn Avenue P.O. Box 599 06902-6987 Millburn, NJ 07041-0599 Telephone:(201) 384-2556 Telecopier:(201) 384-1081 |
Internet:Reception@Healy.com
MAINBRACE
HEALY & BAILLIE
29 BROADWAY
NEW YORK, NEW YORK 10006-3293
Home
Page Oil Pollution Charters |
MB
Newsletter WWW Links In the News |
Attorneys Firm Description Offices |
Making
Law Bibliography Search |
Email
Us Webmaster Disclaimer |