Managing Counsel

This chapter addresses the main challenges typically faced by states working alongside external counsel in investor–state arbitration. In particular, it provides insights and recommendations concerning: (1) the selection of in-house and external counsel; (2) the coordination between local teams and external counsel; and (3) the coordination between government departments and external counsel. The overall theme of the chapter is that a mixed model of legal defence can result in short- and long-term benefits, only when it is genuinely and patiently approached by both external and in-house counsel as a source of capacity building for the in-house team. This means that in-house counsel should behave in the mixed model as co-counsel of the external counsel in a reciprocal relationship that aims to exchange the valuable knowledge, skills, perspectives, experiences and information available to in-house and external counsel.

Selection of counsel by states

Here we posit that the selection of counsel should be premised first and foremost on considerations of merit and absence of conflicts of interest. However, we also argue that other – less obvious - criteria should be applied, particularly when seeking to maximise the benefits of a mixed model of legal defence.^[2]

Selection of counsel: a question of merit and absence of conflict of interest

It is not the general rule for states to have a permanent body of qualified practitioners with expertise in the law and practice of international tribunals. The selection of external counsel is recommended so as to ensure that the highest interests of the states are defended by the most fitting counsel in the area until the necessary internal capacity is built. Engaging external counsel also makes sense in obtaining an objective assessment of the dispute.^[3] The selection of the in-house team is also relevant. A skilled and competent internal legal team is essential for the successful management of an arbitration.

The first set of considerations in choosing counsel is – and should be – the proven ability of and experience in successfully handling complex disputes and the absence of conflicts of interest.

Competence and ability

The relevant criteria usually considered when choosing external counsel include the following:

• successful experience as counsel in complex international investment disputes, preferably defending states in the region;
• experience in the particular subject matter or sector of the dispute;
• proven knowledge of the domestic law regime within members of the team, preferably by having members of the nationality of the respondent state;
• experience of partners and associates who will be working on the case;
• fluency in the relevant languages by the members of the team that will be working on the case;
• in certain cases, the necessary institutional capacity to accommodate the needs of complex large-scale disputes;
• propensity of members of the counsel team to also act as arbitrators;
• fees;
• proposal for capacity building of the in-house team; and
• strength and quality of the initial jurisdictional and merits analysis (normally included in the offer of legal services).

A holistic assessment is recommended, but the balance can tilt towards favouring one or other factor depending on the characteristics of the dispute.

One commentator has recommended that a ‘State that has not already retained counsel for its international disputes must do so as soon as possible after receiving indication that a claim is being or has been filed’.^[4] We clarify that ‘as soon as possible’ depends on each case. Almost every set of rules of procedure allow states time to properly analyse the case. Experienced in-house teams will often have the ability to identify potentially fatal defects in the application that need to be invoked within certain time frames. This means that limited resources in the early stages of the arbitration proceedings should not be destined solely to selecting counsel, but also to analysing the merits of the dispute, and indeed both objectives are complementary.

Once the case is sufficiently understood, decision makers normally turn to the legal industry to establish who are the top arbitration practitioners in a certain matter or sector. The first filter comes as a result of the inability of certain lawyers to demonstrate previous experience and therefore expertise in the particular subject matter. While specialising in the defence of states is not necessarily decisive as to which counsel to choose, practice shows that benefits usually derive from counsel’s previous knowledge about the complexities and challenges associated with defending a state.^[5]

Some may say that selecting counsel is nowadays an easy endeavour given the variety of resources allowing practitioners to rapidly find the relevant information and carry out automated and reliable conflict checking. We strongly oppose this view. State officials should always undertake counsel selection as a serious and complex task, and one that can benefit from, but should never be limited to, the inclusion and comparison of names in specialised data bases and platforms. In-house teams should approach counsel selection on a case-by-case basis, considering all relevant factors, including information of an intimate character only available in state archives or to public officials. This should apply identically to relatively small and complex large-scale disputes.

The tasks referred to above can be better performed by competent in-house teams. Accordingly, states should be prudent and wise in the selection of legal professionals dealing with this task.^[6]

Identification of conflicts of interest

Once competence and ability are properly established, the list of eligible external counsel can and should be further narrowed down based on potential or actual conflicts of interest.

State officials should first look carefully at previous cases defended by counsel in the search for instances of conflict. This is a delicate endeavour but can certainly be performed by the in-house team on the basis of public information and their knowledge of the dispute.

Moreover, together with following general guidelines on party representation,^[7] states may go as far as is necessary to prevent conflicts of interest. For these purposes, some states indicate in their requests for proposals that the law firm is not eligible if it has acted against the state or any governmental department for a number of years, or require an express commitment that the law firm will not do so for a number of years in the future, or at least in cases in the same field or against state entities concerned with the dispute, during the term of the contract. In any event, problems can arise from non-disclosure by counsel, or simply by supervening and unexpected circumstances triggering a potential conflict of interest of party representatives in relation to members of the tribunal, or the other party.^[8]

One of the few known examples of challenges against a member of the respondent’s counsel team is Hrvatska Elektroprivreda dd v. Slovenia.^[9] This case illustrates the inconveniences deriving from poor reasoning in counsel selection and serves as a reminder that caution should be exercised not only at the early stages, but throughout the arbitral proceedings.^[10]

Importantly, absent universally accepted rules,^[11] uncertainty about a tribunal’s power to rule on challenges to counsel,^[12] and the paucity of arbitral practice in this regard,^[13] states should see themselves as the only real guardians of their interests. Moreover, given the multiplicity and variety of first-class counsel in the global market, there is simply no need or excuse for states to engage those who may put them in difficult positions once any instance of conflict is identified.

As a final remark, choosing the right counsel and one free from conflicts of any kind is also important for certain systemic reasons. State officials should bear in mind that every claim in investor–state arbitration proceedings will inevitably become part of the state’s practice in public international law.^[14] This means pleadings should genuinely represent states’ views on questions of treaty interpretation, the status of customary international law and the scope and extent of certain primary rules.^[15]

Other important factors allowing the benefits of a mixed model of legal defence to be maximised

Contractual arrangements

A key factor in managing external counsel efficiently is avoiding, as much as possible, billing structures requiring approval of specific costs and billable hours. This approach is not just time-consuming but also creates a high risk of uncertainty as to the public funds required for the defence of a particular dispute. The interests involved are better served through fixed-fee proposals, payable upon satisfactory receipt of certain products related to key documents in the arbitration. This is also a source of efficiencies as it allows in-house teams to focus on substantial activities. Therefore, the recommended approach is to request a fixed fee.

Benefiting from different resources, litigation styles and perspectives

For states facing more than one investor–state arbitration, which is often the case,^[16] the selection of counsel may also be influenced by the interest of accessing and learning from various arbitration styles and perspectives. This means not remaining exclusive to a single legal services provider, but rather interacting with as many as possible.

In the experience of the authors, the most important benefit deriving from this approach to counsel selection is that in-house teams enjoy real time access to (and are allowed to draw comparisons between what world-class counsel consider) the best possible tactics and techniques in each stage of the arbitration proceedings. For example, the home team can benefit greatly from contrasting – including in terms of results – an aggressive approach to document production with one that is more conservative and concerned with avoiding any perception of lack of cooperation by the tribunal. Especially relevant is the experience and knowledge that can be gained from comparing the performance of high-level litigators in oral proceedings.^[17]

For the members of in-house teams following this plan, the mindset should be oriented not only towards increasing knowledge over the procedural and substantive applicable law, but also – and arguably more importantly – towards discerning the type of methodologies applied at each stage of the arbitration proceedings. Experience shows this is a long-term effort that may require a drastic transformation of, and increase in, in-house teams’ hard and soft skills. Needless to say, an exhaustive review of the case file, a strong counter-memorial or a successful cross-examination, are, to a great extent, the results of high-level managerial competencies to which in-house counsel may not always pay sufficient attention.

Finally, it must also be stressed that maximising the benefits of the mixed model of defence is necessarily dependent on the measure to which external counsel is willing to share information and involve in-house teams in their practices and processes. States have attempted to secure a minimum level of instruction by incorporating capacity-building clauses in the relevant contracts. The obligations of external counsel in this regard can vary from conferences and talks on contemporary legal debates, to fellowships that allow in-house lawyers to acquire a first-hand insight of law firms’ dynamics. To put it bluntly, this is not enough. There is simply no match for continuous learning throughout the arbitral process. As shown below, while global law firms are always free to decide on their methods, state officials should include a law firm’s willingness to implement a genuine knowledge-sharing policy as a factor when deciding whether or not to instruct a specific external counsel in future arbitration proceedings.

Repeat appointments

Retaining the same counsel makes sense both from a cost and strategic perspective when multiple arbitrations arise out of a similar set of state measures. That said, we are of the view that retaining the same counsel should not be considered the automatic choice. The reason is that retaining the same counsel, while positive and advisable in certain contexts, always comes at the expense of benefiting from learning from different litigation approaches. Accordingly, the decision to preserve counsel should be supported by strong public policy reasons. Because capacity building should be at the core of the long-term programme of any in-house counsel team representing the state, preserving external counsel is the right option when the immediate experience shows that knowledge has been genuinely, freely and effectively transmitted throughout the different stages of the arbitration proceedings.

Good practice in the coordination between in-house counsel and external counsel

In our view, coordination between in-house counsel and external counsel should be premised on the need to maximise the comparative advantages of all team members. Indeed, while law firms are engaged based on their resources, knowledge and experience in complex arbitration scenarios, a properly constituted in-house team should be at the forefront in terms of knowledge of domestic law, international treaties entered into by the relevant state, and positions taken in ongoing or previous cases, and the local language, as well as the language of the arbitration procedure, among others. In-house counsel should also be involved in the development of the legal strategy. Conversely, the external counsel should be sympathetic to the domestic dynamics within the state’s in-house team. Thus, having an in-house team with the proper level of knowledge of the relevant substantive and procedural international and domestic law applicable to the case is just as important as having external counsel who are experts in arbitration and the relevant subject matter. What this means in practice is that, with limited time and resources, each party should devote its attention to that which it can perform more efficiently and with more added value.

In light of the above, the following paragraphs discuss what the authors consider good practice in the field.

Clear identification of roles

The lead counsel, which in a hybrid model is normally a partner of the law firm engaged for the case, has the final decision on the strategy. In turn, the strategy should be built with the input of the local team. Particularly during the early stages, this input is crucial as it is often the in-house team that engages in negotiations with the counterpart during the cooling-off period or even before that, having a good understanding of the underlying facts.

That said, it is the duty of local teams to draw red lines to external counsel to, inter alia, avoid contradictory positions among ongoing or past cases; avoid unnecessary statements that although useful for the narrative of the case, may create internal problems regarding a specific policy; and state preferences regarding the presentation of certain complex internal issues.

Moreover, all members of the team should be able to take the initiative regarding the type of evidence that should be collected. At the beginning, local teams should rapidly furnish external counsel with the evidence at their disposal and inform them of the names of the competent government officials who may have relevant information. During the second stage, external counsel should narrow down the search and ask for specific pieces of outstanding necessary evidence to advance and support the legal strategy.

Clear identification of roles is especially relevant when it comes to memorial writing. Although this is a task primarily led by external counsel, memorials should not be written before the outline, content and overall strategy is discussed with the in-house team. Importantly, external counsel should share the first draft as early as possible to enable the local team to make suggestions, corrections, additions or deletions in terms of both form and content.

Practice shows that in-house teams can contribute greatly to preparation for hearings. While this is also a process primarily controlled by external counsel, in-house counsel can provide a fresh look and unique perspectives. External counsel should therefore be ready to accommodate concerns and suggestions raised by the local team and quickly implement changes as necessary.

Communication

Communication between the local team and external counsel should be as fluid as possible, through secure channels. It is also important to promptly identify the relevant points of contact and the government officials who will be included in the distribution list for the arbitration. The recommendation is to only include officials with a substantive bearing in the arbitration process. Finally, the legal team should agree on those with the power to communicate with the secretary, members of the tribunal and counsel of the other party. When this task is assigned to certain members of external counsel, no communication should be sent without prior consultation with the in-house team. The legal team should also decide whether the in-house team should be copied on all communications with external counsel. Where the in-house team acts as co-counsel, this should be the case.

Compliance with deadlines

A third good practice is to set and comply with internal deadlines well in advance of those established in the procedural rules. This helps facilitate the efficient use of limited resources. It also positively impacts the quality of the final product by providing sufficient room for corrections to be made and to react in the case of last-minute contingencies.

Coordination between government departments and external counsel

Coordination between government departments and external counsel should rest on one fundamental aspiration: to obtain the best possible evidence through the establishment of efficient and reliable communication channels controlled by the local team. Naturally this comes with important challenges for both in-house and external counsel.

Balancing the principle of state unity under international law with respect for internal divisions and autonomy

One of the main challenges faced by the local team is reconciling the principle of state unity for the purposes of state responsibility with the organic independence and autonomy of the entities at the core of the dispute.

For most states, division of power and checks and balances principles are essential attributes of the rule of law, which means that those in charge of the legal representation of the state before international tribunals have no power or authority over those whose conduct has triggered the dispute. Despite that lack of authority, the harmonic collaboration among branches of the state and its agencies should be sufficient to expect cooperation in the process of securing the best evidence for the case. However, complex internal divisions usually create important evidentiary hurdles for both the substantiation of state arguments and for responses to the demands of investors in the document production stage. For external counsel, the challenge is to understand that defending a state requires these complexities to be overcome.

Securing the best possible evidence: the advantages of having a stable local point

Collecting evidence is a burdensome task that requires the collaboration of multiple state actors often unfamiliar with the dynamics of international disputes. It also requires constant communication with domestic actors to inform them about the demands of the arbitration, as well as the possibilities enshrined in treaties and procedural rules for the protection of confidential information. The best possible way to ensure the effective collection of evidence, while also building internal capacity in the process, is to have the local team act as the sole point of contact between the state and international firms.

This is certainly advantageous as the local team is in a better position to perform this task due to its cultural background, knowledge of internal dynamics and proximity and internal status within the government. Most importantly, the in-house team is better positioned to achieve efficient intergovernmental articulation and overcome challenges, as well as to foment internally a culture of appropriately documenting public decisions. As seen in the following paragraphs, this is positive beyond the specific international dispute.

Overcoming challenges

Here, we provide some final recommendations on the best way to overcome the recurrent hurdles and difficulties in securing the best possible evidence.

First, the internal defence team should aim to establish itself as a reliable point of contact among different state entities. This should be the result of not only favourable awards but also, most importantly, of the perception that the in-house team is a permanent body that clearly and convincingly answers formal and substantial questions, and properly addresses the concerns of all those with interest in the arbitration. This sense of reliability is especially relevant when it comes to the production of sensitive information or documentation. As mentioned above, in these cases the in-house team is constantly required to inform local decision makers about the safeguards enshrined in treaties and procedural rules for the protection of confidential information. This means in-house teams should be very careful when dealing with the current demands of transparency. Notwithstanding this important trend in investment arbitration, the local team should vindicate the confidence entrusted in them by properly informing external counsel about the required redactions.

Second, securing the best possible evidence usually comes with challenges associated with poor document management procedures or simply the regular mobility of public officials. In practice, complying with the demands of external counsel or those of the investors in the document production stage requires resolution, creativity and resourcefulness from the local team. The best way to meet these demands is by making sure the in-house team is properly equipped with personnel that is equally resolute, creative and resourceful.

Finally, in-house teams should aim to use the experience gained in the litigation process to impact the long-term policies and practices of the state, including for the prevention of disputes and the improvement of the state’s position in future arbitrations. One of the best ways to meet both of these objectives is to make clear calls to improve the techniques and systems of data collection. Public officials need to accept that access to information should not depend on individuals and accordingly that institutional documentation should be properly recorded. This should not be limited to the archive of documents related to potential contemporary disputes, but also to documents going back various decades.

Conclusions

In light of the aforementioned, we reach the following conclusions.

• Managing counsel is at the core of the mixed model of a state’s legal defence in international investment disputes. Therefore, successful counsel management practices should be implemented at the earliest stages of counsel selection.
• Counsel selection also concerns working methods. Clear guidelines should be established and discussed from the beginning of the working relationship.
• An effective strategy requires coordinating the working methods of both in-house and external counsel. This results in guaranteeing the best possible defence while allowing for an efficient transmission of knowledge and good practice.
• A mixed model of legal defence allows for a reasonable departure from the need to outsource certain arbitral stages; however, this requires a skilled, competent and stable internal legal team.
• The experience gained by the local team through coordinated work and cooperation with external counsel allows it to gradually develop and strengthen skills to undertake crucial stages of the proceedings. In the short term, this includes the handling of disputes in their early stages or cooling-off period; the constitution of the tribunal; or even exercising direct representation of the state in jurisdictional phases.
• Maximising the benefits of the mixed model of defence is necessarily dependent on the measures that external counsel is willing to take to establish a genuine team with local counsel.
• The establishment of cooperative managing counsel practices between in-house and external counsel also guarantees coherence in the state’s practice at international and domestic levels. This also enhances the credibility of the state in arbitral proceedings.
• A strong and reliable capacity-building model of legal defence creates confidence among domestic decision makers at all levels, as well as among taxpayers. This translates into additional gains in terms of efficiency and cost savings.

Notes