International arbitration, of the various international dispute resolution mechanisms, currently attracts the most criticism regarding its capacity to achieve fairness, particularly procedural fairness.01Diane A. Desierto,
Diane Desierto’s article uses John Rawls’s famous “Justice as Fairness” theory of the social contract (hereinafter “theory”)03
This comment posits that the use of Rawlsian theory can be extended further than criteria by which to assess fairness in international commercial arbitration.08This comment focuses on International Commercial Arbitration, but does not discuss International Investment Arbitration. Rawlsian theory can be used as a guideline for arbitral tribunals to ensure procedural fairness. It makes sense for arbitral tribunals to approach areas of procedural uncertainty using Rawls’s theory as their frame of reference, because, just as judges have turned to it for guidance in domestic courts,09See, e.g., Barnes v. Tools & Mach Builders, Inc., 715 S.W.2d 518, 524 (1986) (Donnelly, J., dissenting); Davis v. Fulton County, Ark., 884 F. Supp. 1245, 1254 n.7 (E.D. Ark. 1995). good faith use of Rawls’s theory may yield both efficient and impartial decisions specific to the procedural question at hand and therefore ensure greater fairness.
Rawlsian Theory and Desierto’s Article – Rawls’s Theory of “Justice as Fairness”
“Justice as Fairness” was Rawls’s attempt to formulate a theoretical program for preserving justice and individual liberty. In Rawls’s words:
In justice as fairness the original position of equality corresponds to the state of nature in the traditional theory of the social contract. This original position is . . . understood as a purely hypothetical situation characterized so as to lead to a certain conception of justice. Among the essential features of this situation is that no one knows his place in society, his class position or social status, nor does anyone know his fortune in the distribution of natural assets and abilities, his intelligence, strength, and the like. I shall even assume that the parties do not know their conceptions of the good or their special psychological propensities. The principles of justice are chosen behind a veil of ignorance. This ensures that no one is advantaged or disadvantaged in the choice of principles by the outcome of natural chance or the contingency of social circumstances. Since all are similarly situated and no one is able to design principles to favor his particular condition, the principles of justice are the result of a fair agreement or bargain. For given the circumstances of the original position, the symmetry of everyone’s relations to each other, this initial situation is fair between individuals as moral persons, that is, as rational beings with their own ends and capable, I shall assume, of a sense of justice. The original position is, one might say, the appropriate initial status quo, and thus the fundamental agreements reached in it are fair. This explains the propriety of the name “justice as fairness”: it conveys the idea that the principles of justice are agreed to in an initial situation that is fair.10
Rawls, supra note 3, at 11.
Rawls extended his theory to create two principles. In the first, or “liberty,” principle, Rawls provides that “each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others.”11
Desierto notes “as with the original Rawlsian paradigms, international arbitration is also a set of social arrangements otherwise viewed as a body of norms sufficiently organized, complete, and effective to qualify as a system.”13Desierto, supra note 1, at 956. Desierto posits that fairness can be achieved by applying the original, liberty and difference principles. First, applying the original position, both private commercial parties negotiate an arbitral agreement or arbitral clause in their contracts, under a situation of some asymmetric information as to each other’s relative resources, capabilities, and pre-bargaining endowments.14Desierto, supra note 1, at 963. Second, applying the liberty principle, both parties can be deemed to possess equal basic liberties in the bargaining process, as seen from the governing principles of party autonomy and freedom to consent in arbitration.15Desierto, supra note 1, at 964; see Michael Pryles, Limits to Party Autonomy in Arbitral Procedure,
[O]n the one hand, parties can authorize arbitrators in advance to rule on the dispute as amiable compositeur (permitting the arbitrator to rule ex aequo et bono or in equity), enabling the parties to authorize the tribunal in advance to prioritize considerations of equity rather than strict legal formalism. On the other hand, arbitral tribunals themselves could derive authority from the general rule of arbitration that “the parties shall be treated with equality,” to allocate any social or economic inequalities potentially arising from the agreement to submit the dispute to arbitration.16Desierto, supra note 1, at 964.
Procedural Due Process
Procedural due process requires that every party involved in an arbitration be given notice of the proceedings, be treated equally, and be given an opportunity to be heard and to answer the other party’s case before a decision is made by the arbitral tribunal.17Fabricio Fortese and Lotta Hemmi, Procedural Fairness and Efficiency in International Arbitration 3 Groningen J. Int’l L. 110, 110 (2015).
Claims of lack of procedural fairness aimed at arbitration tend to focus on the trade-off between party demands for efficiency, flexibility, and confidentiality in contrast with proceedings in national courts, where rules require full presentation and disclosure of evidence and transparency in the conduct of the proceedings. Critics seeking an increase in procedural due process in international arbitration are, in reality, advocating for procedural due process more closely resembling traditional court proceedings.18Desierto, supra note 1, at 948. However, the criticized trade-off and the ability to shape the procedure is one of the hallmarks of arbitration. Flexibility in the arbitral process, as a result of having few fixed rules, is one of the reasons why parties choose international arbitration over other forms of dispute resolution.19
As Desierto points out, unlike international adjudication, which has a predetermined institutional design and pre-existing governing rules,20See
As such, most established arbitration rules provide few precise canons for the conduct of proceedings in matters such as evidentiary standards, presentation of testimony, and briefing schedules.25William W. Park, Two Faces of Progress: Fairness and Flexibility in Arbitral Procedure, 23
Procedural Fairness and Efficiency
With the aim of promoting an optimum administration of justice outsourced from traditional courts, arbitrators also have a duty towards efficiency. The duties to observe procedural guarantees of due process and efficient administration of the arbitral proceedings can face tensions.29Fortese & Hemmi, supra note 17, at 123. Efficiency involves making the process shorter and cheaper. Procedural fairness, however, can implicate the additional time and cost sometimes needed to provide a meaningful right to be heard.30William Park, The Procedural Soft Law of International Arbitration: Non-Governmental Instruments, in Loukas Mistelis & Julian Lew,
Because arbitration awards are final and binding and generally cannot be appealed on their merits, due process has crucial weight in the safeguarding system of judicial review of arbitral awards.31Fortese & Hemmi, supra note 17, at 122. In managing arbitral procedures, the arbitrator must therefore try to find the right balance between due process and efficiency. They must keep the process moving, while allowing claims to be presented and defended fully enough so that the parties feel they have been fairly treated. The mere objective of efficient proceedings cannot outweigh due process and procedural fairness must be brought to the fore for the arbitral award to be recognized and enforceable.
Divergent Cultural Baselines of Procedural Fairness
Issues of procedural fairness can also arise as a result of divergent cultural baselines, where desires for procedural clarity and procedural flexibility can clash. Flexibility is often seen as the best way to address cultural diversity, however, when arbitration takes place among lawyers and parties who share little common legal culture, the absence of pre-established procedural standards can create difficulties, and the tribunal’s procedural decisions may diverge from one of the parties’ understandings of procedural fairness.32Park, supra note 30, at 150.
The problem lies in the lack of common cross-cultural standards. Without shared expectations regarding the agreed way of doing things, parties lack common understandings of what they believe fairness to mean. Practices that constitute an expression of procedural fairness in one legal system may not be used in another due to being unethical or even prohibited.33Fortese & Hemmi, supra note 17, at 124. Differences between common law and civil law systems are most noticeable in the area of procedures that lead to fact-finding.34
Desierto’s Application of Rawlsian Theory
Desierto posits that Rawlsian theory can substantiate procedural fairness in international commercial arbitration through its approach to evaluating inequalities and as such charges of unfairness are unfounded.37Desierto, supra note 1, at 973. Desierto suggests that claims “of unfairness for lack of transparency do not appear well supported in international commercial arbitration, where parties possess virtually the same basic liberties (e.g. party autonomy) in negotiating or bargaining the arbitral agreement, and the arbitral tribunal is empowered to fill procedural gaps to ensure parties the opportunity to present their case.”38Desierto, supra note 1, at 968. Applying Rawlsian criteria to the issue of potentially expanding fact-finding and discovery procedures coextensive as those in court litigation proceedings, Desierto states:
In the “original position” for private parties bargaining the arbitral agreement in international commercial arbitration, it is quite obvious that “consent implies choice” these parties already pre-contracted and pre-committed themselves to a chosen set of procedures to govern their dispute in any ensuing arbitration, changing the scope of fact-finding and discovery procedures midstream would certainly contravene the expectations of the parties.39
Gary Born, International Arbitration: Law and Practice177 (2012).
Further, Desierto posits that applying the Rawlsian liberty principle, if more extensive fact-finding and discovery rules are to be put in place, in order to meet the requirements of fairness, allparties consenting to the arbitration should possess equal liberties in regard to the approval and implementation of such rules.40Desierto, supra note 1, at 971. As the fundamental significance of all parties’ voluntary submission or consent to the arbitration is crucial to validity and legitimacy of international arbitration, it remains crucial that the consent of the actual parties to the arbitration be obtained before changes to procedural rules are to be put in place.41Desierto, supra note 1, at 971.
Even assuming that an arbitral tribunal imposes more extensive fact-finding and discovery procedures over the explicit objection of any party to the arbitration, Desierto submits that, applying the Rawlsian difference principle, the party that appears most disadvantaged by the recommended procedural changes (or for whom legal costs would correspondingly increase to meet the altered fact-finding and discovery rules) should, at a minimum, not be made to bear the costs of increased document production demands, requests for interrogatories, and additional hearings, among others.42Desierto, supra note 1, at 973.
This approach however, fails to deal with how arbitrators should approach procedural decisions in order to achieve fairness as between the parties when no agreement has or can be reached and there are no tribunal rules.
Using Rawls’s Theory to Enhance International Commercial Arbitration’s Integrity
Arguably, Rawls’s approach can go further than substantiating the fairness of international arbitration; it can become an approach that arbitrators look to as a guiding principle for procedural decision-making, especially where there is a clash of culture as discussed above. Using Rawls’s theory, certain flexibility can be retained at the level of the individual arbitration whilst ensuring procedural fairness.
Using Rawls’s theory as a framework, the arbitrator or tribunal would consider any procedural issue on which the parties have not previously agreed, or on which accepted international convention or guidance is not clear by answering the question what procedure is required in the context of Rawls’s original position? Such a procedural question would be resolved by the arbitrators’ finding of what impartial parties in the same position prior to the arbitration and without knowledge of their own interests in the proceedings, would be likely to decide. In other words, the procedure should be what a good faith arbitrator believes that the parties would have decided to follow if they were constrained to make choices that are mutually agreeable, and therefore fair, to all concerned. Although this approach relies more heavily on the individual judgment of the arbitrator, the necessarily general nature of the existing procedural rules in international arbitration requires a good deal of decision-making by the arbitrator anyway.
Ultimately, the tension between procedural due process and unrestrained arbitral flexibility returns to the matter of an arbitrator’s duty to apply what he or she considers to be the parties’ shared ex ante expectations. This Rawlsian-inspired approach also makes sense in the context of international commercial arbitration, which at its core has a contractual basis, with parties holding competing interests “contracting” to resolve their differences by arbitration.43Robert Houston, ‘Justice as Fairness’ as a Guiding Principle in International Arbitration,
The usefulness of recognizing a Rawlsian approach is to make a sense of fairness preeminent in the application of existing procedural rules and the resolution of new procedural questions in the course of arbitration. Using Rawls’s theory of justice in procedural decision-making could therefore help enhance arbitration’s integrity by having a clear standard for the process such that parties can feel comfortable that they are being treated fairly and equally. As discussed above, international commercial arbitration has a lack of fixed standards related to how arbitrators conduct proceedings that allows for efficiency and flexibility. In many cases, there are no compulsory rules with respect to how an arbitral tribunal should gather evidence and hear argument in its effort to determine the facts, interpret the contract, and apply the law governing the parties’ dispute.44Park, supra note 30, at 143.
By way of example, most of the leading arbitration rules do not provide guidance on privilege.45For example, the LCIA Rules, the ICC Rules, the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, and the World Intellectual Property Organization Arbitration Rules. Regarding the question of evidentiary privilege, the International Bar Association Rules on the Taking of Evidence in International Arbitration (“IBA Rules”), state that “[t]he Arbitral Tribunal shall, at the request of a Party or on its own motion, exclude from evidence or production any Document, statement, oral testimony or inspection [that serves as a] . . . legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable.”46IBA Rules on the Taking of Evidence in International Arbitration, art. 9.2 (emphasis added). In providing further guidance, the IBA Rules state the tribunal may take into account the need to protect the confidential communications made in connection with receiving legal advice, the expectations of the parties, and the need to maintain fairness and equality between the parties.47Id. art. 9.3. Therefore while the IBA Rules recognize that conflicting privilege issues can arise in international arbitration, they leave significant discretion to the arbitrator in determining how to apply the privilege.
Consequently, unless they can reach an agreement, parties are left in the hands of the tribunal. Here, it is arguable that a Rawlsian approach should be applied. For example, if no procedural guidance is provided regarding what documents need to be discovered, including whether communications from in-house lawyers are privileged, noting that they are in United States48See, e.g., NCK Organization Ltd v Bregman, 542 F.2d 128, 133 (2d Cir. 1976). but are not in many European countries,49For example, in Switzerland, the notion of “Rechtsanwalt”depends on activity of an “independent” character, and the status of employee is disqualifying. See, e.g., Peter Burckhardt, Legal Professional Secrecy and Privilege in Switzerland,
In such a case, an arbitrator, using a Rawlsian framework could look to what he/she believes that the parties would have decided to follow if they were constrained to make choices that are mutually agreeable, and therefore fair, to all concerned. Here the arbitral tribunal could look to the common denominator of the parties’ respective privilege regimes. In other words, applying to all parties without distinction a fictive privilege resulting from the combination of protections from which each party would benefit under the law of their own jurisdiction and therefore apply the privilege standard put forward by the parties that is the most protective of the attorney-client privilege. This would enable a level of predictability and equality and would have the benefit of achieving party-parity, and forward the goals of fairness in arbitral proceedings. The shortcoming of this approach would be a possible adverse effect on arbitral accuracy by denying the admission of some probative evidence. In weighing fairness versus accuracy in it should be noted that parties to arbitration have stated that “fair and just” proceedings are the trait they value most.51See Richard Naimark & Stephanie Keer, International Private Commercial Arbitration: Expectations and Perceptions of Attorneys and Business People: A Forced-Rank Analysis, 30
The potential benefit of Rawls’s approach to questions of procedure is that it can enhance the type of fairness commercial clients expect in dispute resolution, helping to strike the right equilibrium between fairness and efficiency by leaving flexibility at the fore and guidance that seeks to retain fairness and not to disadvantage any party. Having a process which allows flexibility but articulates how arbitral tribunals will make procedural decisions can reduce the risk that one side might perceive arbitrators to apply specific and measures chosen after knowing which side needs its assistance.
Rawls’s theory of fairness has potential to foster a sense of equal treatment, by promoting a perception that procedure is based on justice and fairness and according to principle of the “rule of law”. Rawls’s theory can provide guidance for arbitration when needed without imposing undue procedural rigidity on all aspects of the arbitral process. With Rawls’s theory the search for procedural balance can be flexible and context-based without being open-ended and unfair.52Park, supra note 30, at 149.
Rawls’s purpose was to create a conception of justice as fairness that can apply in a constitutional democracy, where members of society view morality from a relativistic perspective, or at least are unwilling to impose their own moral beliefs on others. This purpose makes Rawls’s propositions well suited for international commercial arbitration because it discourages exploitation of others, and allocates the burdens and benefits equally between the parties (for example one party can pay, the other have the procedural burden).
Rawls’s posited that a theory of justice should be used “as a guiding framework designed to focus our moral sensibilities and to put before our intuitive capacities more limited and manageable questions for judgment.”53
References [ + ]
|01.||↵||Diane A. Desierto, |
|04.||↵||Desierto, supra note 1, at 954.|
|05.||↵||Desierto, supra note 1, at 955.|
|07.||↵||Desierto, supra note 1, at 993.|
|08.||↵||This comment focuses on International Commercial Arbitration, but does not discuss International Investment Arbitration.|
|09.||↵||See, e.g., Barnes v. Tools & Mach Builders, Inc., 715 S.W.2d 518, 524 (1986) (Donnelly, J., dissenting); Davis v. Fulton County, Ark., 884 F. Supp. 1245, 1254 n.7 (E.D. Ark. 1995).|
|13.||↵||Desierto, supra note 1, at 956.|
|14.||↵||Desierto, supra note 1, at 963.|
|15.||↵||Desierto, supra note 1, at 964; see Michael Pryles, Limits to Party Autonomy in Arbitral Procedure, |
|16.||↵||Desierto, supra note 1, at 964.|
|17.||↵||Fabricio Fortese and Lotta Hemmi, Procedural Fairness and Efficiency in International Arbitration 3 Groningen J. Int’l L. 110, 110 (2015).|
|18.||↵||Desierto, supra note 1, at 948.|
|22.||↵||United Nations Commission on International Trade Law, Model Law on International Commercial Arbitration (2010) (“UNCITRAL Model Law”).|
|23.||↵||UNCITRAL Model Lawart. 19. (“Determination of rules of procedure (1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. (2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.”)|
|24.||↵||UNCITRAL Model Law art. 18 (“The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”)|
|25.||↵||William W. Park, Two Faces of Progress: Fairness and Flexibility in Arbitral Procedure, 23 |
|26.||↵||American Arbitration Association International Rules art. 20.1; UNCITRAL Arbitration Rules, art. 17.1.|
|27.||↵||International Criminal Court Rules of Arbitration art. 25 (“ICC Rules”).|
|28.||↵||London Court of International Arbitration Rules art.14.5 (“LCIA Rules”).|
|29.||↵||Fortese & Hemmi, supra note 17, at 123.|
|30.||↵||William Park, The Procedural Soft Law of International Arbitration: Non-Governmental Instruments, in Loukas Mistelis & Julian Lew, |
|31.||↵||Fortese & Hemmi, supra note 17, at 122.|
|32.||↵||Park, supra note 30, at 150.|
|33.||↵||Fortese & Hemmi, supra note 17, at 124.|
|35.||↵||Park, supra note 30, at 150.|
|36.||↵||Park, supra note 30, at 145.|
|37.||↵||Desierto, supra note 1, at 973.|
|38.||↵||Desierto, supra note 1, at 968.|
|40.||↵||Desierto, supra note 1, at 971.|
|41.||↵||Desierto, supra note 1, at 971.|
|42.||↵||Desierto, supra note 1, at 973.|
|43.||↵||Robert Houston, ‘Justice as Fairness’ as a Guiding Principle in International Arbitration, |
|44.||↵||Park, supra note 30, at 143.|
|45.||↵||For example, the LCIA Rules, the ICC Rules, the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, and the World Intellectual Property Organization Arbitration Rules.|
|46.||↵||IBA Rules on the Taking of Evidence in International Arbitration, art. 9.2 (emphasis added).|
|47.||↵||Id. art. 9.3.|
|48.||↵||See, e.g., NCK Organization Ltd v Bregman, 542 F.2d 128, 133 (2d Cir. 1976).|
|49.||↵||For example, in Switzerland, the notion of “Rechtsanwalt”depends on activity of an “independent” character, and the status of employee is disqualifying. See, e.g., Peter Burckhardt, Legal Professional Secrecy and Privilege in Switzerland, |
|50.||↵||Klaus Berger, Evidentiary Privileges: Best Practice Standards versus/and Arbitral Discretion, 22 |
|51.||↵||See Richard Naimark & Stephanie Keer, International Private Commercial Arbitration: Expectations and Perceptions of Attorneys and Business People: A Forced-Rank Analysis, 30 |
|52.||↵||Park, supra note 30, at 149.|