Geoffrey M. Beresford Hartwell
Seventh Geneva Global
2-3 December 1998
Settling Disputes on a Shrinking
Afternoon Session, Wednesday, 2 December 1998
Has the time of an international arbitral appellate body arrived? What has been the experience of the existing appellate bodies? Could an appellate body be linked with a court for international arbitral awards having exclusive annulment jurisdiction?
The writer wishes to submit the following representation for consideration in the discussion and hopes to be present to speak to it:It is possible to say, almost in the same breath, first that the idea of an international arbitral appellate body is entirely sound and in accordance with principle and then that the idea of an international court for arbitral awards is dangerous and entirely contrary to principle.
There is a need to define terms. The underlying principle which supports the existence of voluntary commercial arbitration is that of the promise. Subject to the laws of those States which may have their own reasons for wishing to intervene to a greater or lesser degree, there is no limit to the scope that a promise between parties may embrace when defining the relationship between them.In my submission, it follows that the parties to an arbitration agreement are perfectly entitled to include, within that agreement, any provisions for appeal or review they may please.
That is the basis upon which a number of trading communities, such as the London Commodities Associations, provide a two tier arbitration service, with an internal facility for appeal from the award of a first-instance arbitral tribunal. It is a part of the system to which members of those Associations subscribe; it is written into the Arbitration Rules of those Associations and, as a result, is a part of the arbitration regime which they have chosen to use.
These are Associations which operate internationally. There can be no philosophical or, I suggest, jurisprudential objection to an appellate structure of that kind; it is the creation of a promise, just as any arbitral process is the creation of a promise. There is no question of ouster of the jurisdiction of a court, any more than there is ouster of the jurisdiction of the court when two men meet to dispose of their dispute over a glass of wine. The appellate structure is a part of the private process between them.Internal appellate processes of this kind are inherently more flexible than are the processes of the State or, for that matter of courts whose basis is more or less international.
For example, one trade may wish to provide for an appeal panel to hear the entire matter de novo; another may choose to confine itself to narrowly defined questions, perhaps points of law; yet another could be limited to dealing with objections to appointments or aspects of conduct.There are special benefits from having an internal appellate process within some esoteric trades and professions.
Banking is a profession which uses arbitration to a surprisingly limited extent. A colleague told me recently that bankers were unwilling to risk the uncertainty of a decision from three law professors who understood little of banking practice. I found that hard to comprehend, because an arbitral tribunal is of the parties' own choice.
For one thing, there are many law professors who know a good deal about banking. For another, although non-lawyers are not as common as once they were in international arbitration, it is perfectly possible to establish an arbitral tribunal of bankers or economists, perhaps with a corporate lawyer or some other relevant person as a member, perhaps with an experienced lawyer as an adviser or expert.
In such an important sector, there might well be a good case for a specialist appellate tribunal, perhaps drawn from a standing panel, embracing the major areas of relevant expertise. Such an appellate tribunal would be better placed than a national or even international court to grapple with the practical complexities of the field. Its authority, however, would come from the agreement of parties to accept it, whether by including provision for it in arbitration rules to which they subscribe or by making its jurisdiction a term of membership of some sector grouping.
Now I would like to contrast the concept of an appellate body within an arbitral framework with that of an international court for arbitral awards. It is a feature of arbitral systems that, because they depend upon a promise, their moral authority is derived from below, from the participants in the process. That leads them to be distinguished from the Courts of States and the International Courts created by States, whose authority is dictated from above and which therefore have a political element in their justification. It is a very fundamental distinction.
The principle of an overarching Court has been on the table, so to speak, for a number of years. Judge Howard Holtzmann and Judge Stephen Schwebel set out proposals for the creation of such a court in 1993, at the Centenary Conference of the LCIA in London. They described it as a task for the 21st Century, but rather more tellingly, Judge Holtzmann headed his paper with a line from The Man from la Mancha - "To dream the impossible dream." I hope he was right and I will try to explain why.Like many others, I have the greatest affection and admiration for those two great jurists but, as an outsider, a "lesser breed without the law"1, I find myself at odds with their plan.
The concept of an International Court to control arbitration is a relic of the view of arbitration as some kind of extension of the state power into private hands, to be given grudgingly, with the state always holding something back. A more modern view of arbitration is that which is summarised in the expression "Party Autonomy" and is derived from the principle of the promise, not a legal concept but a concept of human communication.
Of course, non-lawyers know very little of law, but one thing they know, which lawyers do not, is that law is not the whole of life. We start from the premise that disputing parties have a right to determine their differences themselves, alone or with help. Arbitration is that help. It is not a creation of law, but a private process whose utility is recognised by systems of law, albeit on terms which those legal systems may choose to impose, and which must be respected.
The idea of appeal to the Court is already uncomfortable in some respects. An Arbitral Award is a decision made for and, in a sense, by the parties. (In saying that the decision is made, in a sense, by the parties themselves, I mean that it is made by a process entirely of their own creation.) It is not a decision of a Court of Law, it is their own decision.
Of course it is open to the Courts of a State to decide whether or not to enforce that decision, just as it is open to the Courts of a State to decide what other aspects of rights and obligations between parties will be recognised.
Of course, when the arbitral tribunal is not constituted purely ad hoc by the parties, but is in whole or in part the product of an institutional system, the distinction between a court and an arbitral tribunal appears to become blurred. That blurring is exacerbated by the widespread practice of arbitral institutions describing themselves as "Courts". No doubt that title plays a part in creating additional confidence, but the effect is misleading.
At the present time, the international arbitral scene is dominated by the New York Convention of 1958. The Convention is remarkable in that it does not depend for its meaning upon any national legal system. Nor does it require any international body to enable it to operate. That is because it is arguably a combination of simple statements of the natural law relating to arbitration agreements and acceptance by the subscribing sates that they will comply with the principles thus set out.
The problems that have to be confronted in any arbitral context are first those that maybe summarised in the expressions "Rogue Tribunal" or "Denial of Natural Justice". The Convention deals with them at two levels. It provides for action to be taken at the place of arbitration and it provides for objections to be recognised at the place of enforcement.
In this context it is difficult to see what another, international tier would do. Would it be empowered, for example, to reinstate a tribunal declared invalid at its own locus? To what extent is it necessary to add a tier, allowing that major arbitral institutions have mechanisms for dealing with challenges to arbitrators and that means exist, for example in the UNCITRAL Arbitration Rules, for access to those institutions even where they are not directly seized of a reference?
But that is not the main argument for an international court. It would seem that the principal purpose of the court would be to oversee the award itself, to resolve the problems that finality brings, for example where the tribunal may have made a mistake, a substantive mistake, something that few jurisdictions would consider even now. Perhaps more importantly, it would be yet another tool in the cunctatory lawyer's armoury, to deny a claimant his rights and to extend him to the point of financial and moral exhaustion.
And who, I ask rhetorically, is to supervise the International Court of Arbitration Appeals? Will there be an International Court of Arbitration Appeals followed by a Supreme International Court of Arbitration Appeals?
If the International Court's function is to be to override the substantive decision of an arbitral tribunal, then that would involve taking that decision out of the hands of those close to the issues, who may well be experts in the subject-matter of the dispute, and placing it in more remote hands, closer perhaps to the angels, but further from the realities of commercial life. I am not clear that natural justice would favour such a course. Nor do I see why the result would be any better, merely for being consistent with other results, even if consistency were achieved. (And few students of legal systems would go so far as to say that state Courts achieve consistency even within state systems. Were it otherwise, law reporting would serve no purpose!)
Moreover, what will be the position of this International Court in relation to State Courts? Consider a case such as that of Hilmarton2 There an arbitral tribunal sat in Switzerland and made a decision. A decision, I would argue, made on behalf of the parties by the tribunal they chose and created, their own tribunal. Then there were two quite separate and distinct events. There was an application to the Court in Switzerland, which set aside the Award. There was an application to the Court in France, who decided that it should be enforced. At first sight, there might appear to be conflict in that sequence of events, but there is not. The Swiss Court was entitled to make a decision in the light of its own Law.
The French Court was entitled to take the Swiss decision into account, if it chose to do so, but the New York Convention is very clear, it is for the Court at the place of execution to be satisfied that the Arbitral Award itself should not be enforced. I take it that the French Court's decision also properly was based on its own Law.
That is an important pointer to the nature of an arbitral award. It is not a part of the judicial process, although it is produced in a judicial manner. Assuming that it has been legitimately obtained, it is the property of the Parties, a document created by their agreement, with an inherent validity for the Parties. Whether or not the Courts at the place of arbitration, which may or may not be the juridical seat of the arbitration, approve of it may be a different matter. Whether or not the Courts at the place of enforcement approve of it may be a different matter.
Now, what would be the powers of the proposed International Court in a case such as this? Would it be empowered to override the French court so as to refuse exequatur on some international public policy grounds? Would it be empowered to override the Swiss Court, to make the same Award enforceable in Switzerland? That seems, to a non-lawyer, to be demanding too much sacrifice of sovereignty. It is one thing to have a Convention which agrees to recognise the private agreements of commercial parties; to have an over-arching International Commercial Court controlling all national systems of law is quite another. Moreover, what is the moral validity in condemning arbitrants to the control of a tribunal, the International Court, to which they have not subscribed, in preference to their own arbitral tribunal, to which they have subscribed?
In speaking of the Award in an earlier paragraph, I used the phrase "Assuming that it has been legitimately obtained . .". Another use for the International Court would be to provide a central facility for challenge of arbitrators and their conduct of proceedings. I have two reactions to that proposition. The first is that encouragement of challenge is not what is needed in the modern day. To rely upon an International Court, divorced from the administration and history of a reference, for such a purpose opens the opportunity for spurious challenges, during and after the reference, totally to frustrate the purpose of the agreement to arbitrate.
The second is that there exist at present adequate and competent facilities to deal with improper conduct of arbitration. The major administering institutions provide rules for considering and determining challenges to arbitrators; on the whole they work well. For ad-hoc references, the UNCITRAL Rules provide for the Secretary-General of the PCA to nominate a body (or conceivably an individual, perhaps a judge) to deal with such matters. That facility also seems to work well.
Moreover, where such facilities are not available, most countries provide for the law of the place of arbitration, the local State arbitration law, to give some kind of Court control and assistance.
There are conflicts; there are war stories. Nevertheless, the operation of international commercial arbitration generally is satisfactory. If there is a problem which needs attention, it is the excessive technicality which has developed over the last forty or fifty years and has accelerated in the last twenty. Another tier is not likely to improve that, nor, in this author's view, is tying arbitration more closely to legal systems, whether national or international. The salvation of arbitration and therefore of commercial relations generally lies in its procedural freedom and, to a limited extent, in its freedom to deal with the merits of a case in context.
I return to my original distinction. In my opinion, there is every reason to consider the practicality of specialist arbitral boards of appeal, in specific areas where boards with appropriate and relevant mixtures of skills can be created and where parties are able to choose rules or institutions which provide for such boards. Such boards already exist in some fields and work well. I do not support the idea of a generalist over-arching Court whose effect would be to apply more closely the very principles of law, and particularly procedural law, which arbitrating parties have agreed to leave behind.
The time may well have come to separate further the essentially natural law process of arbitration from the complexities of national legal systems, but that is another matter. What is clear now is that less intervention is appropriate, not more.
London, November 1998
Mail comments on this paper, please
1 The Jungle Book, Rudyard Kipling. Back to text
2 Société Hilmarton v. Société OTV, 1994 Rev. de l'Arbitrage 327 (Cour de Cassation 1994). Back to text
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