Managing Counsel

This chapter addresses the main challenges typically faced by states working alongside external counsel in investor–state arbitration and provides readers with recommendations on how to set goals and measure progress in the implementation of hybrid models of legal defence. The authors provide practical guidance in respect to the selection of external counsel, the definition of goals in hybrid systems of legal defence and the assessment of progress in these scenarios. The overall theme of the chapter is that a mixed model of legal defence is more likely to result in short- and long-term benefits when it is genuinely and patiently approached by both external and in-house counsel as a source of benefit for both parties. This means that in-house counsel and external counsel should develop and embrace a dynamic relationship that aims for the reciprocal exchange of knowledge, skills, perspectives and experiences. The authors encourage in-house team leaders to set realistic yet ambitious short-term capacity-building goals that allow them to steadily progress in the assumption of direct responsibilities in the arbitral procedure. When properly defined, these goals should serve as objective indicators of the success of the hybrid legal defence system.

Selection of external counsel

The selection of counsel is and should be primarily determined by considerations of professional competence and the absence of conflicts of interest. However, the offer of first-class legal services providers in the global market is rich and wide. This means that in-house teams, especially those adopting a hybrid system of legal defence, should be concerned with other types of criteria and considerations when choosing counsel.^[2]

Selection of counsel: competence and ability as leading factors

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. Because, in most cases, international litigation is a mere eventuality, it is not the general rule for enterprises or state entities to have a permanent body of qualified practitioners with expertise in the law and practice of international tribunals. Accordingly, the selection of external counsel is, generally, recommended to ensure that the highest legal interests are defended by the most fitting counsel in the area.

Importantly, even when in-house teams have developed a sufficient degree of expertise in the conduct of the arbitral process, engaging external counsel is still necessary to (1) obtain an objective assessment of the dispute;^[3] (2) critically assess and comment on the general legal theory or specific pleadings prepared by the in-house team, including in the context of mock exercises; and (3) deal with extremely complex disputes requiring the logistic muscle of an efficient law firm.

Competence and ability can and should be objectively determined. There is no real reason to distinguish in this respect between the interests of states and private enterprises. In both cases, there is an interest in providing the relevant stakeholders with the assurance that the selection of external counsel was the result of a serious and objective analysis. Yet, the authors posit that the legal defence of a state comes with unique challenges that should be factored in when choosing external counsel.

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

• Successful experience as counsel in complex international disputes, including in the specific sector. Where the case involves particularly idiosyncratic measures, relevant experience dealing with similar types of conduct should generally suffice. Importantly, these cases provide in-house teams with a unique opportunity to take on substantive roles in the arbitration from the early stages, including by giving external counsel their first introduction to the disputed domestic rule of conduct. This is a unique opportunity to start creating a bond of trust and respect between external and in-house counsel.
• Fluency in the languages that are relevant to the arbitration. This is important as a matter of both substance and costs. A party should generally not renounce its preferred or even national language solely to favour the selection of a particular external counsel. However, certain circumstances may call for a different approach. Here we include instances where a calculated benefit derives from agreeing to arbitrate the dispute in a language different to that most closely related to the dispute or in only one of the languages of the treaty.
• Successful experience in representing states of similar characteristics where state defence is required.^[4] Defending a state comes with unique challenges, which include the absence of sophisticated document repositories and the effect of radical changes of government, most notably in terms of the sudden movement of key public officials. These challenges may be exacerbated in certain contexts for various reasons, including difficulties in gathering evidence from geographically isolated areas, directly interacting with public officials located in areas with poor internet connections or visiting certain regions where security is a serious matter. Previous knowledge of the specific challenges of defending a state with similar socio-economic conditions means external counsel will be better prepared when, inter alia, strategising on the collection of evidence or preparing for document production or the hearing.
• Previous practice with in-house teams implementing hybrid models of defence. If progressive independence in the arbitral procedure interests the in-house team, previous experience by counsel in hybrid dynamics will certainly favour the long-term relationship and benefit both parties.
• Compatibility with the in-house team’s beliefs (for example, that the system requires reform in certain areas to achieve gender balance or to place limitations on double-hatting). If the in-house team is a sophisticated one with a particular agenda extending beyond the instant case, it would be beneficial for external counsel’s values and beliefs to be compatible with those of the team.

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

Finally, one commentator has recommended that a ‘[s]tate 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’.^[5] This statement warrants two remarks. First, this is applicable to both state and private litigators. Second, ‘as soon as possible’ depends on each case. Almost every set of rules of procedures allow in-house teams sufficient time to properly analyse the case. Experienced in-house teams will often be able to identify potentially fatal defects in the notice of arbitration that benefit the long-term strategy if 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 both objectives are complementary.

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.

In-house teams 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 based on public information, their knowledge of the dispute and their interactions with key players in the system.

Together with the general guidelines on party representation,^[6] in-house teams may take additional steps to make sure conflicts of interest are prevented. Public calls for bids are instrumental to the objective of securing external counsel is free from conflicts of interest because they allow for certain concerns to be accommodated in the form of specific representations and disclosure requirements. In the case of states or state-owned companies, a public call for bids is advisable even when not formally required by the applicable laws. Faced with increasing demands for transparency, a public call for bids enables the comparison of several candidates, thereby protecting in-house teams from any claims of bias in choosing external counsel. Importantly, even if an in-house team has a predetermined notion of conflict of interest, which in some cases may exceed the standard requirements found in models and guidelines, there should be room for slight variations that take the needs of external counsel into consideration. Although certain points may be non-negotiable, in general the addition of a conflict of interest clause in the contract should be open to negotiation.

Problems can arise from non-disclosure by counsel, or simply by unexpected circumstances triggering a potential conflict of interest of party representatives in relation to members of the tribunal or the other party.^[7]

One of the few known examples of challenges against a member of the respondent’s counsel team is Hrvatska Elektroprivreda dd v. Slovenia.^[8] 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.^[9]

Importantly, in the absence of universally accepted rules,^[10] uncertainty about a tribunal’s power to rule on challenges to counsel^[11] and the paucity of arbitral practice in this regard,^[12] parties to the arbitration 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 in-house teams 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 is important for states in treaty-based arbitrations for one very specific reason. 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.^[13] 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.^[14]

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 global fee.

Benefiting from different resources, litigation styles and perspectives

For states or enterprises facing more than one arbitration, which is often the case, 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 practices, 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.^[15]

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 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. Typically, in-house teams concerned with increasing knowledge in the law and practice of arbitration incorporate 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 and based on experience, 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, in-house teams should include a law firm’s willingness to implement a genuine knowledge-sharing policy as a factor when deciding whether or not to engage a specific external counsel in future arbitration proceedings.

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

Coordination between in-house counsel and external counsel should be premised on the need to maximise the comparative advantages of all team members. 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 the specifics of the facts, domestic law and public policy matters. In treaty-based arbitrations, in-house teams in charge of representing the state should be experts in the treaty practice of the state and the positions taken in ongoing or previous cases, and they should endeavour to anticipate the obstacles the specific national legal system may create throughout the arbitral proceeding. In turn, external counsel should be able to maximise these benefits, including by meaningfully incorporating the in-house team in the definition of the strategy and by setting in motion an effective working methodology.

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, 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 of 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 agree on which team members have 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.

Defining goals and measuring the success of a hybrid model of legal defence

The success of a hybrid model of legal defence is not determined by the total abandonment of external counsel. Rather, the ultimate goal of a hybrid model of legal defence should be defined in terms of the steady and safe achievement of independence in the arbitral process. This final objective can be attained if reasonable, yet ambitious and measurable, milestones are carefully defined. Importantly, in-house team leaders should set these goals based on their objective analysis or their internal capabilities, and the prospective growth of the team, in terms of both human and financial resources.

The ultimate goal: to steadily and safely achieve independence in the arbitral process

The arbitral process is a sophisticated one. In consequence, proficient, successful and pleasant participation in arbitral proceedings requires years of practice, training and refinement. For in-house teams implementing a hybrid model of defence, the goal should be to maximise the benefits derived from constant interaction with skilled litigators, to patiently but consistently take on independent duties in the arbitral process.

The authors are privy to the Colombian process, which is perceived globally as an example of successful implementation of a hybrid system of legal defence.

In Colombia, the permanent specialised agency, the National Agency for Legal Defence of the State, faced its first treaty-based arbitrations in 2016 with the assistance of world-class external counsel. Since day one, the hybrid model was implemented with the clear goal of maximising the chances for internal capacity building. With a total of 21 listed arbitrations up to the time of writing, the Colombian legal defence team is now fully responsible for several stages of the arbitral process, thereby reducing costs by delaying and sometimes completely removing the need for external counsel. Importantly, in 2022 Colombia secured its first favourable award without any assistance by external counsel; the internal team was able to perform both the written and oral proceedings with ease and rigor by applying the lessons learnt from years of interaction with the best legal services providers in the market. Currently, it is decided on a case-by-case basis which cases require no law firm involvement, which cases require partial law firm involvement (with the in-house teams acting as co-counsel) and which cases, notwithstanding the experience and expertise built, require a more traditional assignment of legal responsibilities to external counsel, based on the nature and magnitude of the dispute.

Setting achievable yet ambitious and measurable milestones

The current status of Colombia’s hybrid model is explained by the definition of clear milestones that have historically served as indicators of success. These milestones were carefully considered and defined to be reasonable in relation to the current and prospective capabilities of the internal legal team, but they were also sufficiently ambitious to ensure motivation and to secure the necessary funding in the short, medium and long term. The milestones were measurable and included acquired expertise on the gathering of evidence to support factual allegations, as well as in the constitution of arbitral tribunals and the substantiation of preliminary objections; they excluded those that were not realistically attainable given objective limitations in terms of human and financial resources. New and more challenging milestones have been progressively defined as the project has developed, providing high-level decision makers with the confidence to approve the necessary funding to enable the team to progress to the next stage of the process.

Conclusions

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

• Although the selection of counsel should be primarily determined by considerations of professional competence and the absence of conflicts of interest, a rich and competitive global market allows in-house teams, especially those adopting a hybrid system of legal defence, to consider other criteria and concerns when choosing counsel.
• In the absence of clear rules to challenge external counsel, parties to the arbitration should see themselves as the only real guardians of their interests.
• A key factor in managing external counsel efficiently is avoiding, as much as possible, billing structures requiring approval of specific costs and billable hours.
• A mixed model of legal defence is more likely to result in short- and long-term benefits when it is genuinely and patiently approached by both external and in-house counsel as a source of benefit for both parties. Maximising the benefits of the mixed model of defence is dependent on the measure to which external counsel is willing to share information and involve in-house teams in their practices and processes.
• The success of a hybrid model of legal defence is not determined by the total abandonment of external counsel but by the capability to steadily and safely achieve independence in the arbitral process.

Notes