MARKET COMMENTARY 15
BASEBALL/PENDULUM AND HI-LO ARBITRATIONS
CONCLUSION Adopting a straightforward one-size-fits-all approach to gas price reopener arbitrations does not serve the parties’ best interests. The most radical solutions are to adopt expert determination or Med-Arb in place of traditional arbitration procedures, but both options pose practical problems. Baseball/Pendulum and Hi-Lo Arbitrations offer a method of constraining the tribunal’s discretion and to preserve the parameters established by the renegotiation process. But perhaps the most simple way of serving the parties’ needs would be for practitioners and arbitrators alike to recognise the special nature of a gas price reopener and to be flexible enough to adopt procedures which reflect that. For example, restricting the volume of expert evidence; hot-tubbing rather than full-blown counsel cross-examination of experts; and papers-only hearings, or time-limited oral merits hearings, can all assist a speedy and less costly disposal of the case. Similarly, the parties can help themselves by appointing arbitrators with appropriate industry expertise and good availability. The solutions are, perhaps, closer than they seem.
Med-Arb is not the only type of “exotic” arbitration process which lends itself to gas price reopeners. One perceived problem with gas price review arbitrations is that the tribunal might end up rendering an award which is actually much worse for one party than the position on offer when the preceding renegotiation process ended. Baseball/Pendulum and Hi-Lo Arbitrations address this problem: In baseball arbitration, each party submits a proposed award to the arbitrator. After the merits hearing, the arbitrator chooses one award without modification. • “Day baseball arbitration” - the arbitrator is aware of the parties’ proposed awards and chooses the one he considers to be the most appropriate. • “Night baseball arbitration” , the parties’ proposed awards are kept confidential from the arbitrator; after he renders his award the party-proposed award which is mathematically closest to the arbitrator’s award becomes binding. Either way, baseball arbitration gives the parties certainty of the parameters of their arbitration by limiting the arbitrator’s discretion, and preserves a degree of continuity of the renegotiation process by giving each party an opportunity to offer a “reasonable” proposal to the arbitrator, with the hope that it will be accepted. These types of arbitration are fairly common in the USA, particularly salary arbitration in Major League Baseball (hence the name). Hi-Lo/High-Low arbitration is where the parties privately agree to a range in which the arbitral award must fall, without informing the arbitrator – for example, these could be the parties’ final positions on price at the end of the renegotiation process. The arbitrator’s award is adjusted to the range agreed between the parties. If it is lower than the minimum price in the range, it is automatically adjusted up to that minimum; conversely if the award sets the new price higher than the upper limit, it is adjusted downwards. If the price awarded is within the agreed range, then it will be binding upon the parties. In this way, the parties can ensure that the final award does not depart from the parties’ last positions in the renegotiation process.
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