Archive for January, 2015

A Paradox of Arbitration

“A paradox, a paradox, a most ingenious paradox!”

(The Pirates of Penzance or the Slave of Duty – Gilbert & Sullivan, Doyly Carte 1911)

Arbitration is not legal but it is legitimate.

In a note, reported by Conventus Law Singapore – The Approach To Scrutiny Of Arbitral Awards , of 7 January, 2015 by Prakash Pillai, a Partner of Clyde & Co, he opens by saying “International arbitration must, out of necessity, rely on the courts to uphold and enforce arbitral awards and to support the arbitral process.”  The article goes on to quote the words of Professor Jan Paulsson, perhaps one of the greatest of les haûts arbitres:  “the great paradox of arbitration is that it seeks the cooperation of the very public authorities from which it wants to free itself.[1]

With sincere respect (I am an Engineer and thus must choose my words carefully), no and no again.

International arbitration only relies on the courts in the sense that all agreement must resort to the courts when one or other parity fails to comply with his or her bargain.  There is no paradox.  Arbitration itself is a private process, no more and no less than the transient effect of an agreement between two persons.  It has no existence of its own.  If it has an identifiable intent or desire, it is simply a manifestation of the will of the Parties.  If arbitration can be said to seek cooperation from anyone it looks no further than the Parties, its creators, expecting them, as I have said, to comply with their bargain and honour the Award.

I know of course that there are arbitral institutions who seek a relationship with the courts.  Some, indeed, use the name “Court[2]” to aggrandise themselves as if they had a Sovereign’s authority.  Some may have the backing of the relevant state.  Nevertheless, the only authority they have, except perhaps in China[3] is the authority conferred by the parties themselves.

Of itself, the Award is no more than a statement by the private arbitrator(s) of what the parties ought to do and, by their arbitration agreement (often, of course, a clause in a wider contract, although it survives the contract itself) have agreed to do.  Although, logically, it differs not at all from any other contractual bargain, various legislatures have elected to simplify the application of the Award within the Context of the Court, provided certain more or less obvious procedural requirements have been met by the arbitrator(s).  In English law, for example, the arbitrator(s) have statutory duties to:

(a)act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b)adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.[4]

I argue that there is nothing in the relationship between the Courts and the simple process of private decision making that is any more paradoxical than the relationship between the Courts and any other form of binding agreement, such as a construction contract.  Certainly there is nothing about arbitration that seeks to free itself from the appropriate law.  That would be illegal and while arbitration is not legal, it is certainly neither illegal nor antipathetic to the legal systems that it assists and within which it operates.

That arbitration seeks to competes in some way with the legitimate power of the Sovereign within whose jurisdiction it is conducted or, indeed, in any place where a Party may wish the New York Convention 1958 to be upheld is a canard I sought to expose – seemingly without success – in my article: “Arbitration and the Sovereign Power[5] in The Journal of International Arbitration, Vol. 17 No. 2, April 2000, published by Kluwer Law International.

[1]      1 Jan Paulsson, Arbitration in Three Dimensions, LSE Legal Studies Working Paper No. 2/2010 (January 13, 2010), available at http://ssrn.com/abstract=1536093 accessed Wednesday, 07 January 2015.

[2]      The word “Court” need not mean more than  an enclosed area, a yard, see the OED online entry at   http://www.oed.com/view/Entry/43198?rskey=0iMwaP&result=1#eid.  Accessed  Wednesday, 07 January 2015.   The meaning, “A court of judicature, of law, or of administration” is number IV in the etymological list.

[3]      Under Chinese law, arbitration is not enforced unless it is conducted through an authorised body.  I don’t know if private arbitration is permitted.

[4]      S.33(1), Arbitration Act 1996.  Note the use of the words “fairly” and “fair” in the same sentence.

[5]      http://www.hartwell.pwp.blueyonder.co.uk/Arbitration_Power.htm accessed Wednesday, 07 January 2015

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