Dalhuisen on Transnational and Comparative Commercial, Financial and Trade Law Volume 2

International Arbitration. The Transnationalisation of Dispute Resolution

Jan H Dalhuisen

• Publisher: Hart Publishing
• Year: 2022
• ISBN:
  9781509949243
• Edition: 8
• Topic: Droit
• Subtopic: Droit du commerce international

"… remains a must read for practitioners and academics interested in more than the substantive law of trans-border commercial activity." ( King's Law Journal ) Volume 2 of this new edition covers the transnationalisation of dispute resolution, especially arbitration, and contains a critical analysis of the main challenges to its success, continuing credibility, and effectiveness. The volume distinguishes between commercial, financial, and foreign investment arbitration and concentrates on the status, role, and reasoning of international arbitrators, their limited powers especially in matters of public policy and in property matters, the threat of judicialisation, and the need to connect with mediation and a settlement ethos. The complete set in this magisterial work is made up of 6 volumes. Used independently, each volume allows the reader to delve into a particular topic. Alternatively, all volumes can be read together for a comprehensive overview of transnational comparative commercial, financial and trade law.

Part I

International Commercial Arbitration

1.1.Introduction

1.1.1.The Problems and Challenges of Dispute Resolution. Finality, Speed, Cost, Efficiency and Confidentiality. Structural Issues

A credible dispute resolution facility is an important aspect of business operations. Although dispute avoidance is in the greatest interest of all parties, disputes do arise and it is then of prime importance that they can be handled efficiently and promptly in order to limit the damage. The existence of such a dispute resolution facility will at the same time serve as a deterrent for a recalcitrant party and thereby promote compliance and support for the rule of law.

Domestically, state courts were created to provide the necessary facility. They do so in a formalised manner embedded in strict procedures where professional judges may determine very different disputes from family matters to business problems, from private disputes to disputes with governments and their agencies, from contract and property matters to negligent, fraudulent and criminal cases. They attend also to regulatory, tax and insolvency issues. Sometimes they operate even as judges in constitutional courts. They are not necessarily experts in any of these fields. The law of procedure is meant to keep them on track, provide objective standards to regularise the adjudication process and to avoid undue criticism. Appeal courts operating in similar ways are there as further safeguard and protection. The consequence is often a great deal of attention to procedural detail meant to lead to proper results but also to a propensity for lengthy proceedings in which the substance of the dispute may even be forgotten. In such a system, decision taking itself may become a problem in terms of energy, expertise and courage.

Operating in this manner is supposed to support the credibility of the legal system but who is to say whether this proceduralised and formal approach leads to better results—at least there is some order—or whether the opinion of the courts of first instance is always less accurate than the one of the appellate courts? The higher judges have more power and probably more experience but not necessarily the better insights and are farther removed from the facts. The undesirable side-effects are not only that obtaining a type of ultimate justice in this manner may take considerably longer, but also that lower judges tend to live in fear of being corrected on appeal, which further increases formalism and procedural rigidity, thus the length and cost or even the credibility of the proceedings.

Probably more importantly, on appeal the true concern may not be better justice at the level of the litigating parties. There may be other considerations: superior judges being asked not primarily to administer the law better in the particular instance, but to clarify it for the future or to resolve contradictions in the lower courts. Appellate judges do not then merely decide the case at bar but rather are meant to contribute to the resolution of others from the past, in the present, or in the future, thus serving some higher notion of truth and ulterior justice or indeed promote and further develop the legal system as such. Whilst the lower courts may be forced into a liberal interpretation of the rules to decide a case, the higher courts soon become here lawmakers and system suppliers or re-establishers of order, even though it may remain contested to what extent they should be; it is an issue of legal activism and may also raise further cognitive issues in terms of the reliability of decision taking of this sort. Especially in countries that prize systematic unity as civil law codification countries commonly do in private law, they may thus start concentrating on the perfection of the system in this manner rather than on a more satisfactory solution and individual justice.

In appeals, judges then work mainly on the norm or rule side: see Volume 1, section 1.2.11. It may be useful as a public service but has a high cost for the actual litigants, not only in terms of efficiency and expense, but also in terms of time lost and therefore finality and emotional energy, all in the name of greater truth or higher justice, now at some abstract level for all, but it must remain a matter of opinion whether this is helpful. At the individual level, it should be realised that justice that cannot be done within a reasonable time frame—say a few years at the most—is no justice at all and to keep the conflict alive has considerable social, economic and emotional costs. This is no less so amongst professionals in the corporate sphere even if they may divert the expense to shareholders—the typical agency problem. Litis finiri oportet is the old saying and it is fundamental: litigation must come to an end but it is often forgotten in appeal facilities and poses in many countries a severe challenge to the rule of law and the credibility of this type of dispute resolution. It could also be argued that this process is over-lawyered, the court system made subject to the financial interest of the legal community, hence laborious, full of complications, and costly.

We shall see that one of the prime aims of arbitration is to do away (a) with procedural formalism and (b) the facility of appeal. Speed and cost or efficiency are here prime concerns although, as we shall see also, international arbitration also meets conflicting interests of the legal profession which is a business and can hardly be understood without this acknowledgement. In order to keep a grip, it tends to reemphasise judicialisation and formalism, which—it will be argued in section 1.1.14 below—may become a serious impediment in terms of arbitration’s credibility and effectiveness. There is always a reason for inefficiency and it continues because some benefit or have a vested interest in it. Professional parties, who are usually the litigants in arbitration, do not need or want these complications and in particular do not see in procedural formalism and appeals a guarantee for better dispute resolution, greater truth, or better justice. For them, efficiency and cost are a more urgent consideration, reason also why they are increasingly unhappy with international arbitration’s progressive judicialisation by the legal profession.

It is at the same time an important pointer that the whole traditional process of litigation and appeal in the ordinary state courts and the philosophy behind it are defective, at least in modern commerce and finance, perhaps even in foreign investment. In many countries, there is a serious credibility gap. To this may be added the fact that the domestic legal systems these courts primarily serve are often seriously out of date, do not easily accommodate in business newer commercial and financial structures, have problems with internationalisation, tend to be consumer law infested in civil law, and favour domestic public policies even in international cases. To this may be added that local insiders do not like to be held accountable, especially not in their business dealings which are often closely connected with the political establishment and that lawyers benefit from the confusion.

In a better world, in civil litigation, professional parties if in agreement should at least be able to control court proceedings to a much larger extent and exclude appeals but that is often considered against public policy—indeed supported by ideas of greater truth and better justice as higher objective goals for all in the higher courts—so that attempts at greater party control of the process are not effective or are unsupported. One of the side-effects is that even bad judges continue their profession and the interests of the parties they serve become irrelevant in this regard. In this view, courts do not merely provide a service but stand for the state and the enforcement of its order within a limited set of formal safeguards and without true accountability.

As for the narrower issue of appeals, some countries like England are traditionally more circumspect and commonly require in the ordinary court system for at least some leave (and largely exclude appeal on points of fact). When the whole system was reviewed at the time of the Judicature Act in 1871, the (second) appeal to the House of Lords was abandoned and was only retained after a change in government. It is a pointer in the same direction: unlimited appeal is destructive of the proper functioning of the law. In fact, in a good system, all smaller (consumer) claims should go to an ombudsman-type facility for these issues to be decided finally, essentially on the basis of what is reasonable and makes sense. Collection should go to special enforcement agencies.¹ In cases where there is a more fundamental argument and difference in the lower courts, appeals on points of law should only be allowed in the public interest to be started and paid for by public authorities, probably without any effect on the outcome of the particular dispute except in prima facie cases involving obvious deficiencies, which amongst professional judges should be rare. Beyond that, all mistakes are in the eye of the beholder: law is not a natural science where mathematical efficiency can do much. Even the reach of logic and rationality may be limited and language may present further confines. There is no mechanical approach to law application and it is not mere syllogistic technique whatever lawyers (and some academics especially in civil law countries) try to pretend. It was much the subject of Volume 1. We correctly talk about legal opinions all the time and they are no more than that. Speed, cost and efficiency may be much more important to make people get on with their lives or business. Litis finiri!

It may also be remembered that at least international courts usually sit only in one instance; see the International Court of Justice (ICJ), the Court of Justice (ECJ) in principle also; so appeals were never indispensable. In family and criminal matters, the situation may still require a different approach, although especially in the former a case can equally be made for the earliest possible termination of disputes—it is better as litigation often makes things worse and more intractable at the personal level. In these emotional cases, the loser will never be convinced, rather will consider him- or herself ever more the victim of systematic injustice. At least in the major business cases, ordinary courts should sit in one instance with three judges, substantially in charge of all procedural issues subject to direction by the parties if they are professionals and in agreement, who could still consent to an appeal facility but it would not be implied.

Solving the dispute between the parties should be the objective rather than developing the law, which in its progression can hardly be clarified and rarely fits new situations; arguably it was never the true task of judges. Only thus, it would appear, have ordinary courts a chance to continue to operate usefully in dispute resolution, at least domestically in ordinary contractual and property or negligence issues between professional parties. If that cannot be achieved in ordinary litigation, in arbitrations it will be. That is its principal aim. Again, professionals are sceptical of the quality of greater truth and higher justice through the ordinary courts and do not believe the search for it to be efficient or effective. They do not want to bear the cost either and that should be an important pointer. If it is not good for them, why should it be for others? It takes too much time which makes it even more costly especially if there are going to be appeals. These appeals themselves show that predictability remains elusive and that there is a substantial speculative element, which they were precisely meant to minimise but cannot avoid. It is a considerable gamble. There are no pre-set answers in more unusual cases which are the ones most likely to lead to litigation.

In this connection, it may be further considered that adjudication should be distinguished from problem solving, the first one being strictly based on law or legal principle, the latter one being more pragmatic although still based on law but only as pleaded by the parties without any law formation aspiration. That would then be the more proper role of arbitration, at least until such time that a greater settlement ethos may take over altogether and arbitration and conciliation/mediation become more integrated as a third way, see Section 1.1.14 below.

On the other hand, in the more traditional view, resort to arbitration may be considered undesirable altogether because it deprives the ordinary courts of an important impetus to develop the law for all, which law then risks to become ever more consumer law (assuming that in that area it is not overtaken by ombudsman schemes or arbitration also)—this may be more real than often realised.² Judges, it is argued, would not then speak any longer for the legal system and society as a whole, which in this view might undermine even further the credibility of the law they administer. Their precedents would become suspect and increasingly irrelevant for professional dealings especially burdensome in countries where they are considered binding.

So much may be admitted, but it should be considered a problem that runs deeper and concerns the very nature of the ordinary courts itself, which may indeed be in need of serious reform. The greater danger is that in professional dealings that still reach the ordinary courts, increasingly consumer standards are applied, eroding all the more the credibility of this law in commerce and finance, and making these courts ever more suspect. It was always a danger inherent in the civil law which is nineteenth-century anthropomorphic and basically consumer law, see the discussion in Volume 1, section 1.4.2. Proper distinctions are not then made.

Procedural informality and the absence of appeal means in practice that the parties define their dispute, that all is pleaded as fact even the applicable law, that arbitrators are not judges upholding any legal system of their own and weighing the arguments autonomously against it in search of that deeper truth and greater justice. To repeat, they are there principally to resolve a dispute and not to set the system right. Arbitrators operate, as we shall see, then more like juries deciding the case on the basis of the plausibility of the arguments and evidence presented by the parties, also in matters of the applicable law, no more, no less, and cannot follow an own course. It is as such a true alternative to dispute resolution in the ordinary courts which, as noted, has objectives which may go well beyond the resolution of the case at hand whilst rightly or wrongly (appeal) judges are there then mainly to clarify their own laws (foreign law being pleaded as fact also in ordinary courts).

Judicialisation of arbitration, making it ever more like ordinary court proceedings, is often promoted as some answer but again is not a proper response, much promoted by a self-serving legal profession, often supported by unperceptive academia; rather it is a serious threat to arbitration’s authority and credibility;³ indeed one could argue instead that ordinary court proceedings should become more like arbitration in professional disputes, appeals to be abolished unless wanted by the parties. Perhaps just as important is to understand that publication of arbitral awards would not help. It is part of this judicialisation process but as these awards only reflect the submissions of the parties who in their analysis, especially of the applicable law, may both be wrong or at least self-serving, the findings in these awards cannot have any precedent value, nor can consistency be an aim in the reasoning. It cannot possibly contribute to a system of law even if one still believes that such system formation and clarification is important and possible, but it cannot truly be privatised. It follows that a finding about English law in the French court or indeed in an arbitration could never be precedent in England.

Arbitrators are not there to clarify anything beyond what parties have submitted to them in the presentation of their dispute. That is the essence, it is submitted, of the limited dispute resolution facility arbitration offers, which distinguishes it in this way fundamentally from the ordinary courts, who are guided by other ideals and perspectives.⁴ As will be repeated throughout, arbitrators are not judges or law makers of any sort and do not have the ...