The Place of Arbitration in Online Proceedings as a Simulacrum
Chapter 12
The Place of Arbitration in Online Proceedings as a Simulacrum
Introductory Remarks
Historical origins of arbitration are primeval and it is considered to be a most ancient form of dispute resolution based on adjudication (Varady et al. 2006). Still, for several ages its practical significance remained very limited in comparison with the dominating form of domestic litigation. In the last century, in the sphere of international trade disputes, this process has been reversed, however. The contemporary renaissance of popularity of international commercial arbitration has led this method to become a principal way of deciding controversies in this field (López Rodríguez 2003). As discussed in detail in this chapter, arbitration turned out to be a sufficiently flexible procedural form to meet the requirements and needs of the quickly growing global trade exchange. Efficiency, competence, neutrality and predictability are the factors frequently noticed in this context. As a result, arbitration evolved into the most successful alternative to commercial dispute resolution by the national courts. Kauffmann-Kohler (2006, 1) remarks that: “The last decades of the twentieth century have seen a phenomenal boom in arbitration, with all the hazards and vagaries that come with sudden success.”
This process has been accompanied by a growing institutionalization, described as a transition from an informal “merchants’ justice” towards professionalism, legalism and proceduralization (see Bühring-Uhle et al. 2006, 32). It is also sometimes criticized for a tendency towards excessive formalization, making it increasingly close to litigation.
As von Mehren and Jiménez de Aréchaga (1989, 194) observe:
arbitration—unlike national-court adjudication—is a dispute resolution process whose venue is contingent and transitory so that the place of arbitration neither represents nor establishes a permanent geographical or governmental relationship with a given national legal system. … The days when national legal systems intervened, as England did through the case-stated system, with ongoing arbitrations are largely past.
Thus, from the very beginning of present-day arbitration, it has been observed that determinacy of the geographically understood place of arbitration does not result in limitation of the proceedings to the regulatory framework of the domestic legal system connected with this place. The link between actual venue and lex loci arbitri has thus been made deliberately weak, so as to encourage parties coming from different legal traditions to seek a non-discriminatory, possibly most neutral forum. This link seems to be even further weakened in online proceedings. Its existence, character and legal as well as philosophical effects are the object of analysis in this chapter. It discusses the issues of practical importance and popularity of arbitration; the development of arbitral online proceedings; the role of loci arbitri , and the proposed interpretation of ontological and semiotic relevance of venue in virtual arbitration.
Significance of Arbitration
In the sphere of international trade relations, the evolution and rapid expansion of arbitration in recent decades turned out to be spectacular. According to López Rodríguez (2003), at the beginning of the twenty-first century, as much as around 95 percent of international commercial contracts contained an arbitration clause. López Rodríguez also notices, after Brœkhus, that: “in the field of [international] commercial contracts the only disputes, falling under national courts concern less professional milieus, which conclude their deals under homemade or obsolete contract forms” (López Rodríguez 2003, 67).
As a consequence, arbitration, conventionally discussed as an alternative method of dispute resolution to the default adjudication by domestic courts, in the field of international commercial disputes has itself become the default technique (see Petsche 2005, 1). As early as 1987, Lalive observed that: “International arbitration is now known to be ‘the’ ordinary and normal method of settling disputes of international trade (Lalive 1987, 293).
The reasons for this global success can be attributed mainly to the essentially pragmatic and functional design of arbitration. Confidentiality, professionalism and time efficiency have traditionally been promoted as major advantages in the use of arbitration in international trade disputes. The global tendency towards increasing autonomy of arbitration, its independence from national legislation and institutions, as well as recognition of arbitral awards worldwide have added to the current renaissance of this method. The irreducibly international character of contracts, from which the disputes result, calls for a non-domestic procedural (and, in many cases, also substantive) regime, to be found in arbitration. The a-national character of this method of dispute resolution greatly enhances the neutrality of the forum—much needed in cross-border trade debates.
Another important factor, particularly relevant in the context of place of arbitration and its procedural role, is legal certainty and the predictability of results of the proceedings. In the area of international commercial contracts, in arbitration this certainty is evaluated as high when compared with international litigation before domestic courts (Carter 2003, 24). The reasons for this lie in a three-level mechanism of applying the law in resolution of a private international dispute. Firstly, rules of procedure (in litigation—the civil procedure of lex fori) govern the course of case examination and resolution. Secondly, conflict of laws regulations (private international law rules, again belonging to domestic legal orders of particular states) shall be construed in order to determine the rules to be applied to the substance of the dispute. Thirdly, lex causae (proper law), the substantive regulations which have been identified on the second level, are applied so that the decision on the merits of the controversy can be reached (see von Mehren and Gottschalk 2007).
A litigating party, especially before a foreign court, might find the results of interpretation and application of the law on each of those levels very difficult to predict. On the procedural level, familiarity with such factors as the status of participants, admissible evidence, oral/documentary orientation of the procedure or the course of a lawsuit might in practice lead to a lack of equal footing and balance between the positions of the parties. As there are remarkable differences between national private international law criteria used for determining proper substantive law for the same type of legal relationship, the outcomes of application of those rules might also be difficult to predict for the foreign parties and their counsels. Finally, proper law found by the court may contain provisions that have unexpected effects on the position of a party—potentially large ones (regarding, for example, the presence or absence of particular types of remedies).
In arbitration, the parties are able to reduce the risk of such unanticipated results of application of the law on all three levels. Commencement of arbitral proceedings and authority of the arbitrators is directly derivative from the will of the parties. However, common intent of the parties is, as a standard, decisive for the choice and/or drafting of the applicable rules of procedure, as well as for the determination of substantive law governing the contract. In case of the lack of such choices by the parties, when the dispute is to be resolved by an arbitral institution, its standard rules of procedure will be applied, which are accessible in advance to both parties. Whereas a judge is bound to apply conflict of laws rules belonging to the geographically and legislatively determined lex fori , an arbitrator is obligated to follow the domestic private international law regulations of lex loci arbitri to a far lesser degree. It is worth bearing in mind that in legislations based on UNCITRAL Model Law on International Commercial Arbitration (currently in force in nearly 70 states and territories1 ), arbitrators are granted wide discretionary power in selecting the conflict of laws rules to apply in order to determine proper substantive law.2 Moreover, through an increasingly popular instrument of direct choice (voie directe) , an arbitrator might be empowered to omit the application of conflict of laws standards and select substantive rules which he or she deems to be proper, without any intermediary means.3 The risks of abuse of this far-reaching competence are arguably reduced by a mandatory requirement to provide a rationale for an award (which shall also state sufficient grounds for the performed choice of substantive law—see López Rodríguez 2003, 77).
Another key factor, connected with the legal geography of arbitration and enhancing its state of weak embedment in local realities, is the awareness of the fact that the main consequences of an arbitral award will take place principally in the country where it will be enforced, not in the one where the arbitration took place. Therefore, the physical location of arbitration is secondary, and recognition of the effects of an award surpassing the limits of one particular domestic legal regime naturally supports adopting a more universal approach to shaping and interpreting the standards on all three levels of application of the law in a private international case: procedure, conflict of laws principles and substantive rules (including transnational, and not only domestic, regulations).
As a consequence, arbitration seems to be an attractive option for the parties seeking standard and uniform treatment that transgresses national particularities. It is also considered to be a method that minimizes the risk of court (forum) shopping, or competing efforts by the parties to commence the proceedings before the domestic court in expectation of a favorable decision (Bell 2003, 275ff.)—a practice which substantially increases the level of legal uncertainty in resolving a controversy.
As von Mehren and Jiménez de Aréchaga (1989) remark, as a result of a natural evolution of arbitration and the tendency to escape from under the restrictions of lex loci arbitri , most popular locations for major arbitral centers are in those states where the autonomy of this form of dispute resolution is firmly granted and where the possibility of court intervention in pending proceedings has been reduced to a minimum. A practical consequence of this autonomy is the undeniable substantial role of arbitration in formulating autonomous rules for international trade, both procedural and substantive (see, for example, De Ly 2000).
New Means of Communication: Online Proceedings
The evolution and popularization of international commercial arbitration (ICA) has recently been accompanied by the development of new technological means enabling efficient and instant communication at a distance. The possibility of using cyberspace in arbitral proceedings seemed a natural field of expansion for this method of dispute resolution, already regarded as to a large extent de-territorialized in comparison with domestic litigation. The use of electronic instruments of communication to conclude arbitration agreements, as well as to run the proceedings, started to be considered as a method for ICA in the 1990s (see Arsic 1997, 209), and their popularity has grown significantly since then.
Online virtual (Carrington 2000) or electronic (Cachard 2003) arbitration has been deemed a form particularly suited to those disputes that themselves have resulted from the use of Internet (such as e-commerce transactions and domain name controversies—see Morek 2007). The concept of “online resolution” being most appropriate for “online disputes” (Girsberger and Schramm 2002, 605) has been a powerful incentive for the development of relevant mechanisms of arbitration. However, these mechanisms and means turned out also to be functional and effective in the settlement of “traditional” or “offline” controversies, and their use in all types of disputes has increased rapidly. Accordingly, the term “online arbitration” might be defined sensu stricto as resolution through arbitration of (commercial) disputes that have arisen online by the means of electronic communication, or sensu largo as a resolution of any (commercial) dispute through arbitration by means of electronic communication (Morek 2007, 5ff.). In this chapter we will adopt the second, broader meaning of online arbitration. We will further assume, after Arsic (1997, 209), that “online arbitration” refers to arbitration in which all activities are conducted over the Internet. However, it is recognized that in general, the application of various instruments and forms of electronic communication—to varying extents and at different stages of the proceedings—definitely poses new challenges to the actors in arbitral proceedings. In all such cases, the method used shall still be defined as (a specific form of) arbitration, and its legal aspects accordingly considered under the legal framework of ICA (see Manevy 2002).