Arbitration is proven to be more efficient and cost effective than conventional judicial litigation. Because it is consensual and a matter of contract between parties, arbitration is flexible and easily adaptable to a case’s particular needs. Arbitration offers a range of tools — such as agreements to shorten schedules, limit discovery, enforce deadlines, and streamline evidentiary hearings — that can make it a preferred choice for resolving business and construction disputes. These advantages help account for the “strong federal policy in favor of arbitration.”¹

While the parties (and, more specifically, their counsel) acknowledge the flexibility of the arbitration process and commit to improving its efficiency and cost effectiveness, there nonetheless exists a deep-seated reluctance to vary from the conventional pretrial discovery practice of judicial proceedings and, specifically, prehearing deposition. But there are unmistakable advantages to significantly reducing or even eliminating the use of prehearing depositions in arbitration.

Arbitration administrators responded to industry demands to improve efficiency and reduce costs by implementing changes to arbitration rules. For example, the expedited procedures of the commercial arbitration rules and the fast-track option for the construction industry arbitration rules and administrative procedures of the American Arbitration Association (AAA) provide that “[t]here shall be no discovery, except as ordered by the arbitrator in exceptional cases.”²

This article suggests that when parties agree to use witness statements as a replacement for direct oral testimony at evidentiary hearings, counsel can confidently eliminate the need for prehearing depositions of many witnesses. Cost reduction is an obvious direct benefit and, as we’ll explain, the effectiveness of the prehearing discovery process and the evidentiary hearing will improve.

WHAT ARE WITNESS STATEMENTS?

Presenting evidence through witness statements is a common practice in international arbitration³ and an emerging trend in domestic arbitration.⁴ For those unaccustomed to the practice, let’s describe the features, benefits, and challenges of using witness statements as a vehicle for introducing direct testimony as evidence in the arbitration hearing.

Witness statements are used to present direct testimony of witnesses under the control of a party. This applies to witnesses presented by the claimant as well as those offered by the respondent to support a defense. Since these statements are only available for witnesses under a party’s control, some witnesses may still be presented by direct examination at the hearing.

The biggest difference between live direct testimony and witness statements is the timing. Unlike conventional proceedings where counsel’s effort in preparing witnesses to testify typically occurs near the latter stages of arbitration, witness statements are usually introduced at an earlier stage of the case, making the testimony available much earlier in the process — an advantage to both sides since issues are identified earlier, eliminating the need for wide-ranging and often wasteful discovery. Under most conditions, the time it takes to draft witness statements is less than that needed to prepare for live direct testimony.

Since witness statements are available electronically, documents or exhibits referenced within them can be incorporated into the file via hyperlinks. This efficient feature keeps testimony organized and offers the tribunal easier access to the statements.

At hearing, counsel introduces the witness with several introductory or background questions, asks them to affirm under oath the accuracy of the statement, and moves to introduce the written statement as evidence. Unless otherwise agreed upon, all witnesses providing statements must appear at the hearing in person or by video conference and be available for cross examination. At the conclusion of cross examination, typical redirect follows.

Witness statements reduce the length of hearings compared to the hours or days of hearings required to introduce direct testimony of live witnesses under the conventional format. Parties reap the benefit of cost savings due to fewer hearing days which, in complex cases, can amount to thousands of dollars. In addition, in situations in which transcripts are not requested, the witness’ written statements (incorporating the documents by hyperlink) and the hearing notes from cross examination are valuable resources to the tribunal when preparing the award.

USING WITNESS STATEMENTS

An understanding of the dynamics involved in adopting the use of witness statements for a particular case is also required. The preliminary hearing is where the parties and the arbitrator can customize the process to address the needs of their case. Under the AAA commercial⁵ or construction industry arbitration rules and mediation procedures,⁶ the rules pertaining to the preliminary hearing — specifically the preliminary hearing P-1 and the P-2 checklist — guide the effort.⁷ The P-2 checklist contains options or topics that the parties and tribunal should address at the preliminary hearing. Of particular note to this discussion is section xii (a) of the checklist, which provides that:

(xii) whether, according to a schedule set by the arbitrator, the parties will:

(a) Identify all witnesses, the subject matter of their anticipated testimonies, exchange written witness statements, and determine whether written witness statements will replace direct testimony at the hearing.⁸

This leads to a discussion with the arbitrator on the desirability of witness statements in the context of the particular case. Witness statements are particularly well-suited to situations in which:

• the claimant has control over evidence likely to be presented at the hearing and desires to present the case in chief quickly in order to achieve a prompt ruling,
• neither counsel anticipates a need for third-party information to present its case,
• either the claimant or respondent has multiple witnesses and witnesses’ statements, or
• counsel considers its case suitable for summary disposition after witness statements are submitted.

Once the parties have agreed that witness statements are preferable to live direct testimony, at least with respect to witnesses under their control, the next step is developing a schedule for submission. As part of a schedule established at the preliminary hearing, statements of witnesses under the claimant’s direct control are provided to the respondent well before the hearing date and, as will be explained later, prior to any discovery cutoff.

The timing for exchange of witness statements is important. Some attorneys attempt to keep their testimony vague for as long as possible, perhaps to gain an advantage when testimony is finally presented at hearing. This is the type of risk attorneys attempt to avoid when requesting broad oral deposition prehearing discovery. Early in the statement exchange process, trial strategy is adjusted in ways that promote efficiency and economy and eliminate any advantage of dilatory practices.

From the respondent’s perspective, the focus of the claims set forth in the claimant’s witness statements should be clear and unambiguous. There should be little anxiety about the vagueness of notice or alternative pleadings or the uncertainty of how a witness will testify at the hearing. With the claimant’s testimony in hand, the respondent is not dealing with a moving target; there’s no need to delve into peripheral topics to avoid surprise testimony. The witness statement is direct testimony, and the respondent has adequate time to evaluate its strategy for cross-examination and prepare rebuttal witnesses.

Witness statements are exchanged in sequential order. The claimant’s witness statements are provided first, and the respondent prepares its statements having the benefit of prior review of what the claimant has submitted. The expected content of the respondent’s witness statements will be in line with the clearly delineated issues and defenses. When the respondent witness statements are provided, the claimant has the same opportunity to develop its cross-examination strategy and prepare rebuttal witnesses as appropriate. The luxury of extended time to prepare for cross-examination is a significant benefit to using witness statements.

In more complicated cases where a counterclaim is asserted, separate schedules are set for the orderly exchange of witness statements relating to the counterclaim. When warranted, the arbitrator can establish further procedures for contingencies such as updating or supplementing witness statements, including live testimony at the hearing.

UNLOCKING GREATER EFFICIENCIES: ACTIVE ARBITRATOR MANAGEMENT

Like any procedure, substituting witness statements for live direct testimony at hearing requires active management by the arbitrator to be effective. However, experience with witness statements in international arbitration shows that they can be very effective tools if the arbitrator is clear from the outset about the purpose of the statement; outlines what is permissible in a witness statement; and emphasizes that each witness is subject to cross-examination based on the contents of their statements.

Concerns about using written witness statements in lieu of live direct testimony highlighted by international arbitration practitioners include:

• Overly lawyered statements that result in witnesses losing independent recollection of facts,⁹ statements becoming legal arguments rather than evidentiary submissions,¹⁰ and the cost of preparing statements outweighing the savings in hearing time.¹¹
• Statements that add little to what is already proven by contemporaneous documents.¹²
• Statements that include comments on documents provided to the witness by the assisting lawyer of which the witness had no knowledge prior to preparing the statement.¹³

Of course, these same concerns may arise in domestic arbitration. And yet, using written witness statements in international practice provides lessons to address those concerns:

• Arbitrators should give specific directions in their procedural orders on what may and may not be included in the statement. It should be based on personal knowledge; contain only facts relevant to the issues in dispute; avoid speculation or comment on another witness’s purported knowledge and not be argumentative; not repeat facts contained in documents in the record which speak for themselves; refer only to documents the witness received or was aware of before the dispute arose; and disclose any documents used to refresh the witness’s recollection.¹⁴
• The format for the statement can be an affidavit or a narrative following the question-and-answer structure standard for in-person direct examination. The witness is expected to state facts within their personal knowledge and establish the necessary foundation for reference to documents or other information in their testimony. When finalizing the statement, the attorney is therefore confident that the witness’s complete, well-organized, coherent testimony is available to enter as the record. Statements are affirmed by the witness under oath and submitted as direct evidence.
• Arbitrators should make clear that witness statements failing to comply with the arbitrator’s directions will be given little, if any, weight, and non-compliance may be considered in rendering awards.¹⁵
• Arbitrators may adopt a memorial approach in which the parties submit all evidence upon which they rely (witness statements, documents, expert reports, etc.) in response to a defined issues list. This method is typical in civil law jurisdictions and differs from the pleading approach of common law jurisdictions where the parties begin with general allegations of claims and defenses followed by document exchange and the merits hearing.¹⁶ The advantage to the memorial approach is that it requires the parties to identify issues in the dispute early and affords less opportunity to “hide the ball” by submitting vague and unfocused witness statements.
• When appropriate, arbitrators may permit limited live direct testimony in addition to submitting written statements.¹⁷

While no process is foolproof or incapable of abuse, the potential challenges of using witness statements in lieu of live direct testimony can be overcome with thoughtful management by the arbitrator.

CONCLUSION

Planning for arbitration using witness statements requires a commitment to getting witness testimony on the record as soon as possible so the other side can respond with the same commitment to candor and efficiency. Reducing the cost of prehearing discovery without sacrificing quality is one objective of the timely exchange of witness statements as it eliminates the need and expense of prehearing oral depositions.

Though controlling discovery costs may be a motivating factor in using witness statements, there are other tangible benefits including providing early focus to the claims and issues; eliminating peripheral discovery; reducing the time from filing the arbitration demand to the hearing on the merits; reducing the time and length of the hearing; and creating a solid record of the testimony for the tribunal.

The best practices of international arbitration should be incorporated into the domestic arbitration toolkit to improve its quality, efficiency, and cost effectiveness. Replacing direct testimony of witnesses with witness statements exchanged in a timely manner is a time-tested approach that deserves consideration.