Archive for March, 2016

Arbitration – a law unto itself?

Arbitration – a Law unto itself?  Fortunately, there is no copyright in titles, as I would like to take as a text the title of the 30th Annual Lecture organised by The School of International Arbitration and Freshfields Bruckhaus Deringer and given by the Right Hon the Lord Mance, a distinguished Justice of The Supreme Court, on 4 November 2015.

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Figure 1 GBH

Most respectfully, and as an Engineer, not a lawyer, I mean the phrase sincerely, I found myself in agreement with the proposition of the very first paragraph which I set out here for reference:

Lord Mance

Figure 2 Lord Mance

“This article argues that theses advocating an independent or transnational system of arbitration lack coherence. Arbitration is not, and should not become, a law unto itself. Arbitration already faces problems in maintaining coherence in its jurisprudence and confidence in its efficacy as a dispute-resolution mechanism, particularly given that no general means exist to ensure that awards are consistent. These problems could only be exacerbated by a declaration of unilateral independence.” [The emphasis is mine – GBH.]

My own, layman’s, analysis does not advocate that arbitration should be a law unto itself or indeed a law at all.  A private agreement enables one or more private persons, privately chosen without the engagement of the trappings of any legal system, to obtain for themselves and on behalf of the disputants the fair resolution of the dispute before them.  That resolution, in the form of the Award is, I argue, no more and no less than an autonomous document, recording a private decision, without any legal coercive force.

It is usual for legal systems worldwide to have respect for the maxim pacta sunt servanda.  That expression is more than a ukase; it is a statement of fact, a logical identity.  Pacts are to be served.  If words are not to be served they are words in the air but no agreement.  When persons agree, they share intentions.  Indeed, by a firm agreement they agree – they undertake – to be bound.  It’s a bargain.  Having achieved agreement, each person has a logical right to act as if the other(s) will comply with their common bargain.  One man’s right is another man’s obligation.  We may write the identity as pacta ≡ servanda. 

National laws recognise a law of contract, but the legal system does not, as a rule, become involved with the execution of contracts.  We don’t speak of the weaving and delivery of cloth, or the building of homes, or the bottling of fine wines as legal activities.  Of course they are not illegal, they are legitimate but they don’t require the intervention of the legal system.

In the ordinary way, business doesn’t require the intervention of the legal system, unless someone fails to comply with his bargains.  So it is with arbitration.  The legal system need not, and does not, intervene unless someone, be it a disputant or an arbitrator, fails to do as he or she agreed.

I say, “. . . fails to do as he or she agreed.”  One can say that the words work at two levels: first, the agreement to provide the wine, the house, or the cloth, and secondly the agreement within the agreement, the agreement to arbitrate.  Important though the first may be, at the very root and heart of the relationship between the disputants – they’re often called the Parties – we deal here with the arbitration agreement.  Whoever invokes the Arbitration Agreement is by custom the Claimant; the Party who responds and may make a Counterclaim is called the Respondent.

By the way, the idea behind arbitration is that, because it results from an agreement between two private persons (who may be individuals – real people – or legal persons such as companies or even Governments – but therein lies another tale) the classic form of Doe vs. Haddock is inappropriate.  We speak of an arbitration between Richard Roe and John Doe.  The distinction is subtle but of crucial importance.  It’s the distinction between trial by combat and seeking the help of a friend[1].  Lawyers, in particular, tend to lose sight of this distinction.  When taking off one’s wig, one should also unbuckle one’s sword.

Be that as it may, I argue that Arbitration Law is concerned with two matters and two matters only.  Those matters, for me are (1) process and (2) awards.

(1) Process.

By process, I have in mind to include all those things that must be done if disputants are to obtain the fruits of their arbitration agreement.  Parties to an arbitration are entitled to be treated courteously and any arbitrator should: (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 should: (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.

The previous paragraph is lifted, almost verbatim, from the English Arbitration Act 1996 but, law or no law, I argue that it stands to reason.  There is much flesh to add to the bones, perhaps too much – the English Act has four parts, four schedules, and one hundred and ten sections; Gary Born – a distinguished legal writer – wrote the Second Edition of International Commercial Arbitration, an authoritative 3600 page treatise, in three volumes,“Lector si monumentum requiris circumspice.[2]; others have produced comparable tomes.  A lot for a simple agreement.

The point remains: arbitration procedure progresses privately between arbitrators and disputants who may, but need not, be represented by Counsel, unless and until one or both Parties decides to invoke the intervention of the Court.

Many arbitrations take place and are completed without attracting the attention of any court.  Some of those – especially in specialised markets and sometimes in construction – are conducted by arbitrators who have no legal training.  Indeed, one cocoa market known to me has a rule that only current traders in that market may be arbitrators at first instance.

(2) Awards

The decision of the arbitrator or arbitrators – the end of the process: end in both senses, the object and the termination – is the Award.  In days gone by and in some territorial jurisdictions, it was a bare decision – who should pay, how much, and to whom.  In contrast with the bare decision is the Speaking or Reasoned Award[3].  There is a great deal to be said about the Award but this essay is not the place or time.

The definitive word on Awards owes everything to logic and little, if anything, to law.  It was by Lord Donaldson in 1981:

“No particular form of award is required.  All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. This is all that is meant by a “reasoned award.[4]””

When I say that Lord Donaldson’s dictum owed everything to logic, I argue that he describes exactly what participants logically can expect from the nature of the arrangements they made.  What concerns me for the purpose of the present essay is what the product is and what the owners can do with it.

I use the word “owners” advisedly.  An award isn’t a public document, although the word “publish” sometimes is used to speak of what the English Act calls “notification of award”.  The arbitrator or arbitrators are the authors but they have undertaken the task at the behest of the Parties and they have been paid, often handsomely.  There may be a question about copyright but, no doubt, others have discussed that.  The only persons who have an interest in the award are the Parties who commissioned it and particularly the Party who succeeded (I find the words “won” and “lost” inappropriate in arbitration and other ADR).

I began by saying that the award had no coercive force.  It can be used to settle with the other Party.  That is all, of itself, an award can do.  A snark’s life may be threatened with a railway-share; an arbitral award does not have even that power.

An award may be taken anywhere.  In theory, any Court in any country may be asked to adopt what it says, whether as a matter of contract or by the operation of that country’s arbitration law, or by the operation of the New York Convention 1958.  In practice there are two courses open if a Party fails to accept and act on an award: one to seek enforcement in the Court of the juridical seat of the arbitration; the other enforcement in a Court of a state that adheres to the Convention.

To jurists it may seem odd that the Court of the seat may purport to annul an Award but only within its own shores.  Another country may see things differently; while Courts respect one another, they do not have to agree[5].  Indeed, although Article V of the New York Convention 1958 creates a presumption that the foreign Court will respect a decision of the Court of the seat of an Award, the word “may” implies that there is no compulsion to do so.

Arguably, it is not the Award that has coercive force any more than any other private arrangement has coercive force.  It is the State and its Courts that have authority to coerce a Party who has not complied with his bargain.

The arbitration legislation of most, if not all national jurisdictions, provides for the more or less direct enforcement of awards made according to certain minimum standards, set out in the two paragraphs under Process and Awards above.  If an award has been made to those standards, there is no need for a Court to rehear the facts and the arguments; the award is enforced by the Court as if it is its own.

It is only in a Court that the Award acquires legal effect.  Unless an application is made to a Court, whether for enforcement or rejection, it remains no more than a record of the decision of a group of private persons, capable of affecting only the Parties who convened the group and appointed them Arbitrators.

Law binds everyone within its jurisdiction with coercive power.  Legal commentators say it has the Jus – the power to declare the law for everyone – and the Imperium – the power of coercion.  Arbitrators have no such powers.  They can decide for their Parties – but no-one else; they have no power of coercion.  Because their decision is not made with the authority of a Judge it has no validity outside the bond of the arbitration agreement.  It cannot therefore become a legal precedent.

Of course great jurists, sometimes themselves great and distinguished Judges, may be appointed arbitrators but they do not take their caps, wigs, or robes into the room.  When acting as arbitrators they set their offices aside.  Arbitrators are merely persons.  They may be great scholars, they may be persons selected at random.  In most jurisdictions the only qualifications are selection by the Parties – or by their agreed method – and compliance with any agreed Rules and the appropriate law of arbitration.  What Court would find itself bound by the word of the present writer, a layman by any criterion?

In conclusion, I submit that there can be no single system of arbitration, transnational or otherwise.  There is autonomy, but a necessarily capricious autonomy of individual arbitrations, each complete unto itself and impinging upon the legal system only in default.

I dare to go further than Lord Mance: Arbitration is not, and cannot be, a law unto itself.  Arbitration’s efficacy as a dispute-resolution mechanism depends upon the individual autonomy of each case – determined upon its own facts and circumstances.  In that sense, Arbitration Law – the cases heard in Courts – may have a jurisprudence but Arbitration per se does not.  The proposition that Awards should be consistent necessarily must be qualified by the facts of each instance; for outcomes to be constrained by external factors not known to the particular disputants would, I argue, be contrary to Natural Justice.

In that opening paragraph, Lord Mance wrote:

“Arbitration already faces problems in maintaining coherence in its jurisprudence and confidence in its efficacy as a dispute-resolution mechanism, particularly given that no general means exist to ensure that awards are consistent.”

I argue that it is the very fact, that arbitration is not constrained to a jurisprudence, and that no general means exist to ensure that awards are consistent, that leads to its inherent flexibility.  It is that flexibility which should give confidence in its efficacy as a dispute-resolution mechanism but not as a source of law.

Arbitration has no need of a declaration of unilateral independence.  Indeed, as there is no entity whose independence could be declared, the concept is a logical impossibility.  Each individual arbitration, however, is independent and autonomous unless and until one party fails to comply with his bargains and the other seeks recourse to the coercive authority of a State.

Arbitration, as a private process, has many advantages, but it cannot usurp the role of the Court.  It cannot proceed ex parte without notice[6].  Its interim measures are ineffective against third parties.  Both are examples of areas in which arbitral institutions have sought to flex muscles that do not exist.  Arbitration appears at first sight to be an alternative to the court but, where coercion is necessary, there is no alternative.

Geoffrey Beresford Hartwell

[1]              Up to a point, Lord Copper.  An arbitrator may be a friend to both parties, but in serious cases arbitrators tend to be selected for their neutrality, among other virtues.

[2]              Inscription in St Paul’s cathedral, London: “Subtus conditur huius ecclesiæ et vrbis conditor christophorus wren, qui vixit annos ultra nonaginta, non sibi sed bono publico. Lector si monumentum requiris circumspice Obijt XXV Feb: An°: MDCCXXIII Æt: XCI.             ”

which translates from Latin as:      Here in its foundations lies the architect of this church and city, Christopher Wren, who lived beyond ninety years, not for his own profit but for the public good. Reader, if you seek his monument – look around you. Died 25 Feb. 1723, age 91.

[3]              See my article, The Reasoned Award in International Arbitration http://tinyurl.com/p33wbj9

[4]              See the full judgment at http://tinyurl.com/lrxxmu6.

[5]              See for example a) Omnium de Traitement et de Valorisation S.A. V. Hilmarton Ltd. [1999] 2 Lloyd’s Rep. 222 Queen’s Bench Division(Commercial Court) before Mr. Justice Timothy Walker; b) France / 23 March 1994 / Cour de cassation / Société Hilmarton Ltd v Société Omnium de traitement et de valorisation (OTV) / 92-15.137

[6]              There are agencies among the many ‘institutions’ that have proliferated – especially since the Second World War – in international and domestic arbitration that have sought to find ways to act surreptitiously without the knowledge of one of the parties to an agreement.  That debate is for another day!

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