Processualization of Arbitration

Chapter 5
Processualization of Arbitration

Arbitration Colonized?

As discussed in the preceding chapter, arbitration has an established tradition of being presented as an expertise-based, efficient and informal method of dispute resolution. The representation of arbitration as a particularly flexible technique has, however, recently been repeatedly called into question. As some authors observe, the phenomenon described as colonization of arbitration by litigation,¹ or its judicialization,² is a symptom of its increasingly mass and standardized character.

The vast expansion of global trade in the last decades and the resulting growth in the number of international commercial controversies have augmented the development and competition in the sphere of arbitral services. According to much-discussed estimations, as indicated supra, over 90 per cent of international commercial contracts concluded worldwide contain arbitration clauses.³ As already mentioned, the status of arbitration as the regular and dominant method of resolution of international commercial disputes has been currently widely acknowledged.

In the opinion of Dezalay and Garth, the growing formalization and institutionalization of arbitration should be perceived as an adaptation strategy, enhancing legitimization of this form of dispute resolution in the circumstances where it is applied on a mass scale:

[t]he legitimacy of international commercial arbitration is no longer built on the fact that arbitration is informal and close to the needs of business; rather legitimacy now comes more from a recognition that arbitration is formal and close to the kind of resolution that would be produced through litigation.⁴

The commentators further identify the procedure, which ICA is supposed to be following, as US-style, adversarial litigation. This thesis seems to be at present somewhat controversial. Its applicability is limited – as discussed in detail in this volume, the evolution of arbitral practice regarding intercultural disputes reflects a conciliatory turn and the efforts towards finding a common procedural ground have become a common modus operandi. For similar reasons the sometimes-offered argument of ‘Americanization’ of the arbitral process seems – as discussed in detail later – not to be completely accurate.

However, in the opinion of some commentators this evolution of arbitration towards extended formality of procedure should not be assessed as advantageous, as it stands in contradiction with rudimentary principles and the very nature of this method of dispute resolution. This sceptical view has been enhanced by the use of such expressions as ‘arbitigation’5 or ‘colonization of arbitration by litigation’.⁶ Still, the recognition of the existence of this phenomenon does not necessarily require taking a stance in a dispute as to its negative or positive character and as to whether the parties to international commercial relations have lost or rather benefited from it. As Christopher Drahozal observes, the parties discontented with the formality of international commercial arbitration can always opt for a less rigid form of dispute resolution,⁷ choosing from a plethora of available ADR techniques.

Moreover, the effect of the accompanying decrease of time-efficiency in proceduralized arbitration can be seen not only as a consequence of the demands of handling large, complex disputes. It can be interpreted as a cultural emanation of the already-established independent standing of ICA, consistent with the functioning of time as a symbolic currency in knowledge work, including legal professional roles (it is the processes and solutions in which a significant amount of dedicated time and attention is socially valued, and not merely those outcomes that have been achieved fast).⁸

Dezalay and Garth perceive the tendency towards judicialization and standardization of arbitral proceedings as a consequence of the striving for legitimacy, but also as a direct result of the high competitiveness of modern arbitration practice. Almost three decades ago Jacques Werner remarked that:

[b]eing today recognized for what it is, namely a service industry, international arbitration has become a field of intense competition: competition between the arbitration sites, between the arbitral institutions, between counsel, between arbitrators, and even between the periodicals on international arbitration.9

Dezalay and Garth supplement this list with another area of competition present in arbitration – a rivalry of national approaches, which they denominate, after Charny and Trachtman, as ‘regulatory competition’.¹⁰

The antagonistic concept of a permanent contention between legal traditions in international commercial arbitration advocated by the same authors in Dealing in Virtue has, however, been disputed since the mid-1990s when it was introduced. As examined above, the regulatory framework of international commercial arbitration has indeed been historically frequently shaped in the conditions of cultural differences or even collisions. Such confrontations have also been present in the practice of arbitration, in the sphere of decisions left to the discretion of arbitrators. Still, a remarkable evolution of arbitration can be observed, oriented at reconciling and achieving consensus in regard to the expectations of the parties representing different cultural and legal backgrounds. Elena V. Helmer remarks that so far

international commercial arbitration has not become ‘Americanized’; nor has it become ‘Civilized.’ Arbitration is opting for the middle ground and tends to encompass the best of both legal traditions … There are, and always will be, disputes in which parties lean towards one or the other legal tradition. It can be attributed to the parties’ and their attorneys’ backgrounds, the bargaining power of one of the parties, the composition of the arbitral tribunal, or some other factors. Strong American influence, as well as strong Continental influence, on arbitration will continue. Thanks to both of them, as well as other influences, arbitration is moving ahead because positive development normally does not occur without struggle.¹¹

In Helmer’s opinion, domination of American procedural approach, suggested by some commentators, would be in fact disastrous for the practice of arbitration in the long run – as the parties coming from other legal traditions would lose interest in choosing this form of dispute resolution:

[t]he transnational character of arbitration is one of its principal advantages in comparison to litigation before national courts. If arbitration turns into U.S.-style ‘off-shore litigation,’ the incentive to arbitrate international disputes will diminish or even go away.12

The supposed connection between judicialization and Americanization of ICA, implied by Dezalay and Garth¹³ as well as other authors,¹⁴ seems therefore somewhat controversial, arguably partially due to new regional and global trends of development in arbitration, as discussed in Chapter 4. The competition of national approaches in arbitration is undeniable and probably unavoidable. However, the thesis, that US-style procedural standards for litigation might become a worldwide pattern for domestic legislation on arbitration as well as for the rules of arbitral institutions and for the arbitral practice, seems highly disputable.

The regulatory framework of international commercial arbitration is, as Drahozal puts it, an outcome of interjurisdictional competition for arbitration business.¹⁵ In the opinions of several commentators, its processualization has been generated primarily by the will to avoid the resolution of controversies by the domestic courts of the State of the other party. Charles N. Brower perceives this factor as decisive for the choice of ICA, overshadowing in practice its other benefits:

[i]nternational arbitration is thus in large measure a substitute for national court litigation. It has the additional advantage of enabling the parties also to determine the rules of law applicable to their relations and thus to avoid even further any national straitjacket.¹⁶

Whereas the intention to avoid ‘hometown justice’¹⁷ is a powerful incentive for the parties to opt for arbitration of their controversies instead of litigation, the demands for predictability of awards and expeditiousness of procedure are other key factors in the selection of method and place for dispute resolution,18 enhancing the trend towards standardization and formalization of arbitral practice.

There are several spheres in which the tendency towards processualization¹⁹