THE MATURING OF ARBITRATION: CONTINUITY AND CHANGE*
Season of mists and mellow fruitfulness,
close bosom-friend of the maturing sun,
conspiring with him to load and bless,
with fruit the vines that round the thatch-eves run.
John Keats, Ode to Autumn (1819)1
Tucked between summer and winter, autumn gives us days that grow shorter, flowers that fade, and leaves that fall from the trees. Often invoked as a symbol for decline and decay, the season possesses its share of melancholy tones.
Autumn carries positive connotations as well. A sense of robust maturity infuses a season of mellow fruitfulness when apples turn red, orchards fill with fruit, grain ripens, and pumpkins present themselves for picking. In many places, the season triggers a new academic year for students and teachers.
This dual metaphor carries into the field of arbitration, that chameleon-like process by which litigants renounce otherwise competent courts in favor of private and binding dispute resolution. According to some observers, arbitration has fallen into an autumn of decline and decay, shedding leaves of efficiency and coherence to reveal barren branches of rules without reason. Recent literature laments that a golden age of cheap and cheerful arbitration has yielded to backlash against a system marked by too many rules, excessive costs and undue delay.2 One group of critics has published a manifesto condemning arbitration for its negative effect on human development and environmental sustainability.3
On closer scrutiny, however, international arbitration reveals itself as having arrived at its autumn with fruitful maturity, not decay or decline. The harvest of a more refined arbitral process derives from productive exchanges among arbitrators, judges, scholars, legislators, counsel and professional associations, all of whom find their place among arbitration’s stakeholders.4
The very volume of debate about arbitration during the past decade testifies to robust growth rather than to decline. Geneva’s great criminal lawyer, the late Dominique Poncet, used to say, “On sert bien la justice en la critiquant.”5 In contrast, decay and death normally announce themselves by silence rather than debate.6
Testing this thesis, of course, calls for consideration of the context in which litigants choose arbitration. Not surprisingly, motives vary according to the type of dispute. For international transactions, arbitration justifies itself as a path to more level procedural playing fields,7 which in turn boost predictability in finding facts and applying law.8 In construction and insurance, the goal might be expertise. In the United States, arbitration often serves to remove consumer and employment disputes from the perceived vagaries of civil juries.9 With this caveat, let us turn to the maturing of arbitration through norms chosen to guide proceedings.
For better or for worse, legal discourse sometimes distinguishes between “hard law” and “soft law” norms. In the realm of arbitration, the former looks at the process from the outside: the perspective of judges and legislators charged with providing a framework of statutes, treaties and cases setting the contours for judicial recognition of arbitration agreements and awards. By contrast “soft law” addresses arbitration as seen from the inside: the procedural and professional standards used in finding facts or ascertaining applicable law. The Federal Arbitration Act would exemplify the former, while the International Bar Association Rules on Taking Evidence might illustrate the latter.
During the past half century, the arbitration community shifted much of its attention from the statutes and treaties, which permit modern arbitration to exist, toward the soft law guidelines that aim to balance fairness and efficiency.10 The hard law phase began in earnest in 1958 with the adoption of the New York Arbitration Convention,11 which aimed to create mechanisms to promote arbitration’s international currency by making awards transportable from one country to another. That treaty was followed in short order by the ICSID Convention,12 serving to remove non-commercial impediments to the free cross-border flow of private investment, and the Panama Convention,13 intended to facilitate arbitration implicating Latin America.
Thereafter, national arbitration statutes were streamlined to enhance the finality of awards through less intrusive judicial review. Significant reforms have been adopted notably in England, France, Belgium, Switzerland, Germany, and the sixty or so countries that enacted some variant of the UNCITRAL Model Law.14
In comparison, during the past dozen years the arbitration community turned its gaze toward guidelines for the conduct of proceedings. The Chartered Institute of Arbitrators has issued protocols on subjects ranging from interviewing arbitrators to calculating interest. The International Bar Association adopted standards on evidence and conflicts of interest. And the International Chamber of Commerce (ICC) published its Techniques for Controlling Time and Cost in Arbitration.15
In the United States, which has sometimes lagged behind the rest of the world in sensitivity to arbitration’s complexities, the American Bar Association in 2004 overhauled its Code of Ethics for arbitrators. Two years later the College of Commercial Arbitrators issued a guide to “Best Practices,”16 followed in 2008 by American Arbitration Association protocols on “information exchange” aimed at making document production more efficient.17
Whatever might be the merits or drawbacks of the particular protocols, they demonstrate a deep concern for doing things right. Increasingly these guidelines enjoy the status of para-regulatory texts pressed into service for filling gaps in national law.18
Articulating the contours of arbitral duty remains anything but an easy task, with or without the help of soft-law guidelines. The enormity of the mission brings to mind a comment by the French General Charles de Gaulle, when a protester tried to interrupt by shouting, “Away with all idiots!”19 Without missing a beat, the general repeated the taunt and then, gaze fixed directly on the heckler, responded, “Un vaste programme, en effet,” which would translate as “A formidable task, indeed.” Likewise, attempts to circumscribe arbitral obligations have tossed the best of minds upon the storm waves of inquiry, as they seek to express through sequential grammar a reality that remains stubbornly simultaneous.
As a starting point for discussion, one might suggest three principal obligations of an arbitrator: accuracy, fairness and efficiency. These “Three Musketeers” of arbitral duty, however, often interact in anything but the “One-for-all” spirit of the original heroes in the Alexandre Dumas novel.20
The first duty of an arbitrator lies in rendering an accurate award, in the sense of fidelity to the text and the context of the relevant bargain, whether memorialized in a private contract or the terms of a public investment treaty. The arbitrator should aim to get as near as reasonably possible to understanding what actually happened between the litigants, and how the pertinent legal norms apply to the controverted events. The fact that arbitral awards are not generally reviewable for simple mistakes of law or fact in no way diminishes this obligation. Arbitration would provide poor justice if arbitrators aspired to nothing higher than to meet the minimum grounds for annulment.
The second duty relates to procedural fairness, a capacious notion that incorporates several elements, notably (i) the responsibility to hear before deciding;21 (ii) the obligation to respect the contours of arbitral jurisdiction;22 and (iii) the observation of the general duty of impartiality and independence.23
The third obligation lies in an aspiration toward efficiency, to promote the optimum administration of justice. To the extent possible, the good arbitrator will seek to measure accuracy and fairness so as to arrive at a counterpoise which reduces the prospect of undue cost and delay.24
A violation of the duties of accuracy and efficiency normally would not in itself trigger intervention by a reviewing authority, whether it be a national court or an ad hoc ICSID committee.25 The possibility that an arbitrator might make a mistake, or be less than efficient, remains a risk assumed by both sides. By contrast, violation of arbitration’s basic procedural fairness does and should give rise to sanctions.26
The penalty for breach of an arbitrator’s duty of fairness carries a certain irony, in that sanctions do not fall directly on the arbitrator who breached his or her duty. Although they may suffer a loss of reputation, offending arbitrators can benefit from immunity even for violations of basic procedural integrity.27 The price of misconduct thus falls most directly on the prevailing party, in the form of award annulment for breach of procedural integrity.
Enthusiasts of The Three Musketeers will remember a fourth member of the group, young d’Artagnan, who hoped to become one of the King’s guards along with his friends Athos, Porthos and Aramis. Likewise, an additional duty figures prominently in the catalogue of arbitral obligations.
To reduce the prospect that the arbitrator’s decision will remain nothing more than a piece of paper, arbitrators are expected to exercise vigilance in promoting an enforceable award. To the extent possible, and consistent with their other duties, arbitrators should avoid giving cause for annulment or non-recognition of the award by reviewing authorities.28
In practice, an inherent rivalry often permeates the intersection of the arbitrators’ various obligations. Too much efficiency may mean too little time to hear evidence. Overly intricate procedural safeguards can paralyze proceedings. In some cases, attempts to please a reviewing court can reduce the arbitrator’s fidelity to the parties’ expectations.
To illustrate the complex interaction among arbitral duties, it would be hard to find a better cautionary tale than the one supplied by a French court in Caribbean Niquel v. Overseas Mining.29 Emphasizing procedural fairness over efficiency, the Paris Cour d’appel affirmed the parties’ right to comment on new legal theories even at the addition of cost and delay.
After a Cuban mining joint venture had gone sour, arbitrators sitting in Paris awarded the claimant U.S. $45 million on a theory of “lost chance” (perte de chance de poursuivre le projet). The parties, however, seem to have focused on a theory of lost profits (gain manqué), which the arbitrators might have found less than satisfying with respect to a mine not yet operative.30
The court vacated the award for violation of provisions in the Code de procédure civile related to the right to be heard (principe du contradictoire) and public policy (ordre public).31 Although not questioning the assumption that arbitrators know the law, often expressed as jura novit curia,32 the Court found it unacceptable that an award should rest on a theory of damages which the Court assumed, rightly or wrongly, had not been addressed by counsel.33
The decision provides a stark example of the difficulty in balancing various arbitral duties. Each alternative approach seems to spring its own trap.34 In particular, measures aimed at reducing cost can diminish the litigants’ opportunity to present their cases.
Imagine that the arbitrators in the midst of their deliberations had re-opened the proceedings to set a briefing schedule on the new legal theory of lost chance. Loud moaning would have been heard about added expense and delay.
In raising the new theory with the parties, to provide counsel an opportunity to comment, the tribunal might also have exposed itself to criticism about lack of even-handed impartiality. The respondent would likely have said, with some justification: “Hey! You arbitrators are acting as counselors for claimant, sending a not-so-subtle signal that its chances of success will be greater with an amended pleading that includes a new method of damages calculation.”
Finally, it would have been equally problematic for the arbitrators to decide the case without any consideration of the “lost chance” measure of damages. Granting recovery simply for lost profits would not necessarily have yielded a correct amount. Denying recovery entirely would have penalized an otherwise meritorious claim simply because of nuances in related recovery theories not apparent to counsel, particularly in an international case with counsel from different legal cultures.35
Tensions thus exist not only among the various arbitral duties, but within the notion of procedural fairness itself, which encompasses a variety of distinct yet related obligations which in practice often compete against each other. Allowing an opportunity to address a new legal theory promotes the parties’ right to be heard. Yet suggesting the new theory in the first place potentially opens the door to a charge of bias. In the words of an old American adage, arbitrators will be damned if they do and damned if they don’t.36
The decision of the U.S. Supreme Court in Stolt-Nielsen v. AnimalFeeds37 presents another testing ground for the elusive balance among an arbitrator’s various duties. The case arose from actions for price fixing against several shipowners by customers who had chartered vessels commonly known as “parcel tankers” to transport liquids such as food oils and chemicals. The customers alleged that the owners had engaged in anti-competitive practices.38 All of the charter parties included similar arbitration clauses.
The customers requested a single consolidated proceeding to address their combined claims, often known as “class action arbitration”, borrowing a term from American court procedures.39 The customers may have felt that consolidation would permit them to muster more significant legal firepower and to reduce legal costs to the level of making the litigation worthwhile.40
After a district court had ordered consolidation of related court actions, the parties agreed to constitute an arbitral tribunal, pursuant to the American Arbitration Association’s Supplementary Rules on Class Arbitration (AAA Supplementary Rules),41 to address whether the various arbitrations could and should be consolidated.42