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Rawlsian Fairness and Appellate Oversight in International Commercial Arbitration

Introduction

Efficient arbitration has always implicated a tension between the goals of finality and fairness.01William W Park, Arbitration of International Business Disputes: Studies in Law and Practice 148 (2006). Desierto assesses the fairness critiques which have recently besieged international arbitration and considers the perceived tradeoff between fairness and the traditional finality of the international arbitration process that has been highlighted by critics.02Diane A. Desierto, Rawlsian Fairness and International Arbitration, 36 U. Pa. J. Int’l L. 939 (2015). This comment responds directly to Desierto’s piece. Those critics argue that appellate systems should be more readily available in the context of international arbitration to promote both its efficiency and reliability.03Erin E. Gleason, International Arbitral Appeals: What Are We So Afraid Of? 7 Pepp. Disp. Resol. L.J. 269, 287 (2007).

While the function of appeals in national court systems is two-fold, to correct errors and to make law through the creation of precedent, in the two fields of international arbitration (international commercial arbitration and international investment arbitration) that dual rationale does not exist:

The case for appellate review in each of the two international arbitration fields, on the other hand, targets only one function: error correction in commercial arbitration, and lawmaking in investment arbitration.04Irene M. Ten Cate, International Arbitration and the Ends of Appellate Review, 44 N.Y.U. J. Int’l L. & Pol. 1109, 1111 (2012).

Desierto invokes Rawls’ theory of justice as fairness criteria to test and rebut this criticism.05Desierto, supra note 2, at 960 (explaining that Rawls “prescribes two principles of justice: ‘First: each person is to have an equal right to the most extensive scheme of equal basic liberties compatible with a similar scheme of liberties for others. Second: social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyone’s advantage, and (b) attached to positions and offices open to all.’ The liberties to be equally enjoyed by the bargaining parties under the First Principle include political liberties, freedom of speech and assembly, liberty of conscience and freedom of thought, as well as the “right to hold personal property and freedom from arbitrary arrest and seizure as defined by the concept of the rule of law.” The Second Principle (otherwise known as the Difference Principle) recognizes that the distribution of wealth and income need not be equal but that it must be to everyone’s advantage: “[o]ne applies the second principle by holding positions open, and then, subject to this constraint, arranges social and economic inequalities so that everyone benefits.” Accordingly, injustice would mean “simply inequalities that are not to the benefit of all.” Not only should there be reasonable terms for reaching mutually acceptable agreements for social cooperation, but that bargaining parties must enjoy equal liberties in the process of bargaining. Should there be any inequality arising from the ultimate agreement reached, this inequality must be allocated away from the party most disadvantaged in the bargaining process.” (footnotes omitted)). The analysis of the finality-fairness tradeoff focuses on investor-state arbitration, on the basis that the criticism is more resonant in that field.06Desierto, supra note 2, at 982. Indeed, that may be the case, as there has been a good deal of debate as to whether an appeals mechanism should be established in investor-state arbitration.07Simon Greenberg, Christopher Kee & J Romesh Weeramantry, International Commercial Arbitration: An Asia-Pacific Perspective 413 (2011).

As Desierto acknowledges, “jurisprudential coherence and consistency” rather than predictable uniformity is the driving force behind the argument for appellate review in international investment arbitration. The perceived procedural inadequacies created by the finality of arbitration are not, however, limited to investor-state arbitrations. The criticism is levelled at the practice of arbitration more generally. The normative argument for appeals processes in international commercial arbitration is that those involved in high value disputes should have some form of recourse when awards appear to contain mistakes.08Interestingly, the Supreme Court of the United States concluded that the principle of finality was one of the reasons that arbitration was ‘poorly suited” to high-stakes cases: AT&T Mobility LLC v. Concepcion 563 U.S. 333 (2011). In this way, the international commercial community’s pursuit of certainty in private dispute resolution competes with the desirability of uniform application of the law.09Park, supra note 1, at 178.

This comment assesses the prospect of appeals in international commercial arbitration in light of Desierto’s Rawlsian analysis and considers the normative question of whether appellate mechanisms are necessary.

Current Oversight of International Commercial Arbitral Awards

Contrary to the implication of the criticism of the finality of arbitration, there is oversight of international commercial arbitral awards. Generally speaking, there are three potential exceptions to their finality.10Greenberg, Kee & Weeramantry, supra note 7, at 412. An unsuccessful party may:

  • If permitted, appeal on a question of law;
  • Apply to the courts at the seat of arbitration to set aside the award; or
  • Object to any court enforcement action which is commenced.

Whether the first potential exception is a possibility depends on whether the law of the seat or procedural rules establish any internal appeal procedure. Predictably, given the frequency with which definitive determination of the dispute is cited as an advantage of the process, this is rare, with most institutional rules providing that an arbitral award is final and binding.11Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration 569 (6th ed. 2015). This institutional inclination is reinforced by the pro-enforcement bias exhibited by many national laws.12S. I. Strong, Beyond International Commercial Arbitration? The Promise of International Commercial Mediation, 45 WASH. U. J.L. & POL’Y 11, 28 (2014). The English Arbitration Act, however, is notable as a domestic law which permits appeals in international arbitrations in limited circumstances. That Act, provides for the possibility of appeal on a question of law:

Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.13Arbitration Act 1996, § 69 (Eng.). But see Hossein Abedian, Judicial Review of Arbitral Awards in International Arbitration: A Case for an Efficient System of Judicial Review, 28 J. Int’l Arb. 589, 596–7 (2011) (“It should be noted, however, that an appeal on a question of law is considerably limited in scope by the fact that: (i) it is possible only on questions of the law of England and Wales, and questions of the law of Northern Ireland; (ii) it is not usually available as a matter of course, but a leave to appeal must be applied for within the time limit provided for in section 70(3); (iii) the leave is granted only subject to certain conditions; and (iv) any available arbitral process of appeal or review and any available recourse under section 57 (correction or additional award) ought to have been exhausted.” (Footnotes omitted)).

Similarly, there are examples of institutional rules which provide for varying degrees of appellate oversight of arbitral awards. The United Kingdom’s Grain and Feed Trade Association (“GAFTA”) has rules providing that a party may appeal within 30 days of a GAFTA award.142010 Grain and Feed Trade Association (“GAFTA”) Arbitration Rules art. 12. Amongst other things, its Board of Appeal has power to vary or amend the original award.15Id. Other European institutions also have internal appeal mechanisms.16See, e.g., Rules of the Spanish Court of Arbitration (2011); Arbitration Rules of the European Court of Arbitration (2015); International Chamber of Commerce Rules of Arbitration (2012).

As to the second exception, there are different models for the review of awards at the arbitral seat depending on the relevant domestic legislation. Commonly, the grounds for challenge by an unsuccessful party are limited to procedural unfairness,17Abedian, supra note 13, at 594. that is instances where the tribunal has exceeded its authority or conducted itself improperly.18See, e.g., Abedian, supra note 13, at 594 (“Art. 34(2) of the [UNCITRAL] Model Law provides exhaustively for the following as grounds for setting aside: ‘An arbitral award may be set aside by the court specified in article 6 only if: (a) the party making the application furnishes proof that: (i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted may be set aside; or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or (b) the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the award is in conflict with the public policy of this State.’). It must be remembered, however, that the application and interpretation of the relevant domestic law is more relevant here than its text or intent. A statute which allows only for challenges to procedural impropriety can still be applied in a way which enables a willing judge to examine the dispute’s substantive merits.19Park, supra note 1, at 149.

Objecting to the enforcement of an arbitral award is a further potential exception to the general rule that the results of international commercial arbitrations are final, but the grounds of review are generally limited similarly to the grounds on which a court may set aside an award.20Gary B. Born, International Commercial Arbitration § 25.04 (2nd ed. 2014).

The Appeal of Appeals

Human fallibility guarantees that decisions, whether judicial or arbitral are liable to containing mistakes.21Id., § 24.01. Consequently, arbitral awards are, like judgments, sometimes based on the misapplication of the law or the misconstruing of objective evidence.22Gleason, supra note 3, at 293. In those circumstances, it is argued that allowing appeals against arbitral awards to appellate tribunals enhances efficiency by improving decision-making.23Id. In the case of arbitral appeals to specially formed arbitral appeal tribunals, finality and enforceability will be enhanced as parties will not be forced to transfer their claims to the judicial system:

Such a process will obviate the need for applying to unpredictable State courts for assistance and will enhance the legitimacy of international commercial arbitration by reinforcing its commitment to the principals of party autonomy and finality24Id.

As has been pointed out, reducing the resort of parties to national courts, better reflects the wishes of parties who explicitly contracted to achieve that and will also reduce the economic impact on the parties:

Judicial enforcement of arbitration agreements and awards against recalcitrant parties unavoidably insinuates into the arbitral process elements of a national legal system, thus providing the bargained-for non-national arbitration at the expense of interjecting the peculiarities of the enforcement forum.25William W. Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 Tul. L. Rev. 647, 678 (1989).

In addition, some consider that the prospect of substantive appellate review of awards will produce the secondary benefit of attracting new parties to the process who currently deem arbitration too risky.26Ten Cate, supra note 4, at 1111. It is argued that:

The increased incorporation of appellate mechanisms within international commercial arbitration rules will assist in creating ‘a new area of growth’ in ‘the use of ADR by large corporations otherwise unwilling to ‘bet the farm’ on a single tribunal’s decision. Such systemic transformation, properly assembled, will enhance the capacity of international commercial arbitration.27Gleason, supra note 3, at 287.

Unnecessary Apparatus?

Contrary to the contention that human fallibility inevitably influences international commercial arbitrations, opponents of arbitral appeals argue that such considerations are far less relevant in international arbitration.

The manner in which litigation is conducted in national courts is one of the reasons why error correction is a function of the appellate process. Depending on the judicial system in question, first instance decisions may be made by less experienced or over-burdened judges or questions of fact may be determined by jurors. In such circumstances, the quality of decision-making processes can be better at the appellate level. Those circumstances are not replicated in international commercial arbitration, however. Rather, parties to an international commercial arbitration can appoint experienced arbitrators with the expertise which the parties deem most relevant to the dispute. Experienced arbitrators are also unlikely to be overawed by complex cases or administratively overrun.

Those rebutting the critics also point to the fact that any envisioned appeals process typically takes the form of review of awards by a tribunal appointed specifically for this purpose.28Ten Cate, supra note 4, at 1111. Apart from difficulty of designing a workable appeal mechanism (demonstrated by the length and complexity of the legislation and civil procedure rules which describe national courts systems’ appellate mechanisms) potential drawbacks to this approach include the increased length and cost of proceedings. As time is often a key concern when a commercial dispute arises, the promptness with which the finality of the arbitral award is reached has traditionally been one of the most attractive features of the arbitration procedure. Also there is the possibility that “in some highly specialist fields, it might be difficult to find enough arbitrators to constitute two sets of arbitral tribunals.”29Alejandro I. Garciaon, Is The Principle Of Finality “Losing Its Appeal”?, Kluwer Arbitration Blog, (May 18, 2011), http://kluwerarbitrationblog.com/2011/05/18/is-the-principle-of-finality-losing-its-appeal/ [https://perma.cc/YCW4-8YGW].

Fairness

Apart from the normative considerations above, however, there is a more fundamental common response to those arguing that parties who wish to safeguard against human frailties should be allowed to do so and that appellate systems should be readily available to international commercial arbitration parties who desire them.

In line with the parties’ autonomy, it is always open for the parties to agree their own arbitral appeal mechanism. They could do so by choosing the rules of an institution which provides for appellate oversight or by designing their own mechanism.

This response fits with Desierto’s view of the lack of appeal mechanisms measures in investor-state arbitrations. She concludes that:

Applying the Rawlsian First Principle (Liberty Principle), all States signing on to the ICSID Convention possess equal liberties to indicate the terms of their accession (as well as any reservations) to the ICSID system. Applying the Rawlsian Second Principle (Difference Principle), because States accepted the applicability of ICSID procedures as such a self-contained system (including its limited grounds for annulment of arbitral awards under Article 52 of the ICSID Convention), then any inequality that could supposedly arise from this system is not, by any stretch, “imposed” upon any State that deems itself disadvantaged by the system. Rather, States themselves voluntarily assume any such ensuing inequality across the board.30Desierto, supra note 2, at 983–4.

Similarly, the parties’ autonomy to determine the level of appellate oversight which they are subject to, by selecting an arbitral seat or institution with the level of oversight they desire, means that the parties possess equal liberties in terms of Rawls’ liberty principle. Additionally, as with the ICSID example given by Desierto, parties voluntarily assume any inequality ensuing from appellate mechanisms across the board.

Conclusion

The normative question of whether arbitration should be subject to appellate oversight is finely balanced. Many commentators, reflect the balancing of these views in their ultimate view of the answer, arguing that parties should be able to contract into or out of review depending on the context, particularly as the special needs of international business call for greater freedom of contract.31Park, supra note 1, at 156. It has been argued that:

Although no system will perfectly reconcile these rival goals of finality and fairness, a middle ground provides judicial review for the grosser forms of procedural injustice. To this end, legislators and courts must engage in a process of legal fine tuning that seeks a reasonable counterpoise between arbitral autonomy and judicial control mechanisms.32Park, supra note 1, at 148-9.

Although, as the quote above indicates, systems may struggle to perfectly reconcile the rival goals of finality and fairness, the forgoing analysis posits that the overall international commercial arbitration system does strike the appropriate balance. That balance, struck by allowing the possibility of appeal depending on the selection by the parties of arbitral seat and institution, accords with Desierto’s analysis of fairness through a Rawlsian lens. In this way, the examination of finality and appellate options in international commercial arbitration strengthens Desierto’s argument.

References   [ + ]

01. William W Park, Arbitration of International Business Disputes: Studies in Law and Practice 148 (2006).
02. Diane A. Desierto, Rawlsian Fairness and International Arbitration, 36 U. Pa. J. Int’l L. 939 (2015). This comment responds directly to Desierto’s piece.
03. Erin E. Gleason, International Arbitral Appeals: What Are We So Afraid Of? 7 Pepp. Disp. Resol. L.J. 269, 287 (2007).
04. Irene M. Ten Cate, International Arbitration and the Ends of Appellate Review, 44 N.Y.U. J. Int’l L. & Pol. 1109, 1111 (2012).
05. Desierto, supra note 2, at 960 (explaining that Rawls “prescribes two principles of justice: ‘First: each person is to have an equal right to the most extensive scheme of equal basic liberties compatible with a similar scheme of liberties for others. Second: social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyone’s advantage, and (b) attached to positions and offices open to all.’ The liberties to be equally enjoyed by the bargaining parties under the First Principle include political liberties, freedom of speech and assembly, liberty of conscience and freedom of thought, as well as the “right to hold personal property and freedom from arbitrary arrest and seizure as defined by the concept of the rule of law.” The Second Principle (otherwise known as the Difference Principle) recognizes that the distribution of wealth and income need not be equal but that it must be to everyone’s advantage: “[o]ne applies the second principle by holding positions open, and then, subject to this constraint, arranges social and economic inequalities so that everyone benefits.” Accordingly, injustice would mean “simply inequalities that are not to the benefit of all.” Not only should there be reasonable terms for reaching mutually acceptable agreements for social cooperation, but that bargaining parties must enjoy equal liberties in the process of bargaining. Should there be any inequality arising from the ultimate agreement reached, this inequality must be allocated away from the party most disadvantaged in the bargaining process.” (footnotes omitted)).
06. Desierto, supra note 2, at 982.
07. Simon Greenberg, Christopher Kee & J Romesh Weeramantry, International Commercial Arbitration: An Asia-Pacific Perspective 413 (2011).
08. Interestingly, the Supreme Court of the United States concluded that the principle of finality was one of the reasons that arbitration was ‘poorly suited” to high-stakes cases: AT&T Mobility LLC v. Concepcion 563 U.S. 333 (2011).
09. Park, supra note 1, at 178.
10. Greenberg, Kee & Weeramantry, supra note 7, at 412.
11. Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration 569 (6th ed. 2015).
12. S. I. Strong, Beyond International Commercial Arbitration? The Promise of International Commercial Mediation, 45 WASH. U. J.L. & POL’Y 11, 28 (2014).
13. Arbitration Act 1996, § 69 (Eng.). But see Hossein Abedian, Judicial Review of Arbitral Awards in International Arbitration: A Case for an Efficient System of Judicial Review, 28 J. Int’l Arb. 589, 596–7 (2011) (“It should be noted, however, that an appeal on a question of law is considerably limited in scope by the fact that: (i) it is possible only on questions of the law of England and Wales, and questions of the law of Northern Ireland; (ii) it is not usually available as a matter of course, but a leave to appeal must be applied for within the time limit provided for in section 70(3); (iii) the leave is granted only subject to certain conditions; and (iv) any available arbitral process of appeal or review and any available recourse under section 57 (correction or additional award) ought to have been exhausted.” (Footnotes omitted)).
14. 2010 Grain and Feed Trade Association (“GAFTA”) Arbitration Rules art. 12.
15. Id.
16. See, e.g., Rules of the Spanish Court of Arbitration (2011); Arbitration Rules of the European Court of Arbitration (2015); International Chamber of Commerce Rules of Arbitration (2012).
17. Abedian, supra note 13, at 594.
18. See, e.g., Abedian, supra note 13, at 594 (“Art. 34(2) of the [UNCITRAL] Model Law provides exhaustively for the following as grounds for setting aside: ‘An arbitral award may be set aside by the court specified in article 6 only if: (a) the party making the application furnishes proof that: (i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted may be set aside; or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or (b) the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the award is in conflict with the public policy of this State.’).
19. Park, supra note 1, at 149.
20. Gary B. Born, International Commercial Arbitration § 25.04 (2nd ed. 2014).
21. Id., § 24.01.
22. Gleason, supra note 3, at 293.
23. Id.
24. Id.
25. William W. Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 Tul. L. Rev. 647, 678 (1989).
26. Ten Cate, supra note 4, at 1111.
27. Gleason, supra note 3, at 287.
28. Ten Cate, supra note 4, at 1111.
29. Alejandro I. Garciaon, Is The Principle Of Finality “Losing Its Appeal”?, Kluwer Arbitration Blog, (May 18, 2011), http://kluwerarbitrationblog.com/2011/05/18/is-the-principle-of-finality-losing-its-appeal/ [https://perma.cc/YCW4-8YGW].
30. Desierto, supra note 2, at 983–4.
31. Park, supra note 1, at 156.
32. Park, supra note 1, at 148-9.

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