International arbitration: quasi-judicial or autonomous?

The debate around the legal nature of international arbitration has evolved and twisted in multiple ways over the years. Those supporting that arbitration, as an adjudicatory process, is quasi-judicial, find that it necessarily relegates in a national legal order. As a result, an arbitration's functions and award have a legitimate and binding force because the sovereign state has allowed so. However, international arbitration is becoming the default and preferred alternative to litigation. International instruments such as the New York Convention 1958 and the UNCITRAL Model Law were leaps towards emancipating international arbitration from national law. There is a growing perception of international arbitration trumping national boundaries and being able to self-regulate. Today, many view international arbitration as a transnational process, arguing in favour of the existence of an autonomous arbitral legal order, completely separable from any national legal order.

Leaning towards the autonomous legal nature of international arbitration

International arbitration is the product of the need of international commercial actors for a flexible, less costly, fast solution to disputes. It is worth restating that arbitration is entirely different from litigation, significantly because of its consensual nature and party autonomy existing in the first but not the second. The international commercial community gives international arbitration life, and party autonomy is the most central aspect of it. The difference of who arbitration serves, when compared to litigation, is in itself a legitimate reason to discount nationality as a determining factor in a transnational community.

Other convincing reasons of international arbitration's separate legal nature are found in New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. When the 163 signatory states (as of March 2020) signed the Convention, their collective normative activity legitimised the creation of a separate legal order. Those supporting that the Convention is evidence of states permitting international arbitration to be relegated into their national system, fail to consider the negotiations leading up to its final text and the crucial role played by the International Chamber of Commerce. It was the ICC’s mission that the Convention’s text reflects the international business community’s need to lift national barriers and reduce transaction costs. Creating a transnational dispute resolution mechanism was an important objective, mainly because the New York Convention's predecessor, the Geneva Convention on Arbitral Awards, had failed to do so. The ICC was successful in pushing forward their suggested provisions, promoting a detached legal nature of international arbitration from any state.

The socioeconomic trends also seem to foster international arbitration as an autonomous dispute resolution system. As globalisation intensifies, very few transactions remain purely domestic or even confined between a pair of states. This is evidenced by the level of complexity of Private International Law instruments, which fail to provide straight-forward formulae for determining the place of business of companies with global operations or purely online companies. Requiring commercial actors to live by time-consuming, inflexible procedures when seeking dispute resolution does not promote the development of trade.

The recent technological advances also play a role in establishing the autonomy of international arbitration. Online dispute resolution and virtual arbitrations, featuring cyber-tribunals and digital arbitrators, are revolutionary and cannot be attached to any state. Although these mechanisms have been growing slowly, their invaluable practicability shined through the Covid-19 pandemic and is likely to continue. Defining the legal nature of international arbitration as disconnected from any state will inevitably de-complex the entire online arbitration movement.

Distinguishing the arbitral seat from the court forum

The arbitration seat is the legal system that hosts the arbitration. Examining the drafting history of the New York Convention, it is evident that the delegations rejected the state-centred approach the Geneva Convention took regarding the arbitral seat. The New York Convention adopted a significantly more delocalised approach, minimising the impact of the law and courts of the seat on the arbitral process. The New York Convention achieved this, firstly by switching the burden of proof from the party seeking enforcement to the party resisting it. In effect, parties seeking enforcement of their arbitral award in a state other than the seat no longer need to obtain a court judgement validating their award (also known as 'double exequatur'), a procedure that had been continuously criticised as unnecessary.

Another change signifying the internationality of arbitration was that there is no longer an obligation on the parties to adopt the procedural law of the seat of arbitration, allowing parties to agree upon other procedural law. As Gaillard explained, although the seat of arbitration can have an impact on the outcome of the arbitration, the link between international trade disputes and the seat of arbitration is too weak to credit it and its law with too much value. Although attaching the arbitration to a specific state increases certainty, it ignores crucial objectives of arbitration: the flexibility and adaptability of the process to the particular circumstances of the dispute. Instead, detaching the arbitration from states serves the purpose of international arbitration in multiple ways. Mainly, by eliminating peculiar national principles, while the process remains as tailored as possible to the specific needs of the dispute.

Had a localised view of the arbitral seat be the one intended, this would have inevitably resulted in the emergence of a monopoly or oligopoly of international tribunals, comprising of a handful states, with arbitration-friendly national law. This is far from the current distribution of seats. The ICC ADR 2017 statistics reported that, while some seats were more popular than others, there was a healthy spread over 104 locations, demonstrating the diverse set of criteria parties consider when choosing their place of arbitration.

Detaching the arbitral seat from national law is not an escaping attempt from it. The arbitral seat is chosen more frequently because of its geographical appropriateness, at least, in cases where the seat coincides with the place where the hearings take place. The attitude of the national law towards arbitration is almost irrelevant, proving that the commercial actors’ logic behind choosing a seat is not a parallel one to the choice of forum in litigation. Although the delocalised approach finds a weak link between the arbitration and its seat, the courts of the seat are not silenced. As Gaillard has explained, the delocalised view does not pit international arbitration against national courts. Instead, it expects national courts to support international arbitration by not interfering unnecessarily and protecting the integrity of the process. Distinguishing the arbitrator from the state judge

Arbitrators are persons chosen by the parties in a dispute, to decide upon the merits of their issues impartially and produce a final and binding award based on their specific and legal knowledge. The nature and extent of the arbitrator’s powers vary significantly depending on which theory is adopted. The localised theory views that the arbitrator’s authority to adjudicate is given to them by the national legal system in which the arbitration is relegated. Thus, the arbitrator is paralleled to a state judge. However, a delocalised approach means that the arbitrator derives their powers from the international commercial community, in whose interests he or she performs their adjudicatory function.

It would be pointless to argue that the arbitrator's function does not resemble that of a judge's. Both roles involve the notions of fairness and impartiality in deciding a dispute. However, the type of authority of the arbitrator is very far from a judge's state judicial power. Arbitrators receive their adjudicatory power from the states collectively, accepting international arbitration as a method of dispute resolution. Evidence of such normativity is, for example, the ultra-popular New York Convention. Otherwise put, arbitrators acquire their adjudicative power in effect, when parties in a dispute exercise their economic rights to select arbitrators. State judges acquire their judicial status in principle when given judicial powers by the state they serve. Therefore, arbitrators might perform duties that resemble those of a judge but not of a state judge.

Another significant difference is to whom the arbitrator and the state judge are accountable. As outlined above, the arbitrator is ultimately accountable to the parties in their capacity as international commercial actors and, therefore, the broader global trade community. The state judge is undisputedly accountable to the state from which they derive their power. This difference is evidenced not only in the selection process but also, remuneration. Although remuneration does not change the nature of the function, it plays into the broader different contexts of the two roles. An arbitrator is selected from a pool of arbitrators based on their reputation or other factors, which evidences their prior professional conduct in the market.

A parameter of discussion is also the judge’s outright immunity from any charges emanating from their function as a state judge. In contrast, immunity comes in different shapes in the case of the arbitrator. Importantly, the arbitrator is bound by a contract with the parties and therefore owes the contractual duties to them. It is well-established in most states that parties cannot claim liability from the arbitrator for the contents of the award. This is important because it protects the adjudicatory function arbitrators have, preserving the impartiality. The French courts have consistently refused applications by parties about the ‘grounding of the award.’ Although the German BGB does not afford the same immunity of the state judge to the arbitrator, the rule also applies to arbitrators. Belgium, Switzerland, and Italy all prescribe grounds raising arbitrator liability; however, the threshold is notably high. Under section 29(1) of the English Arbitration Act, arbitrators enjoy full immunity, equal to that of a state judge. The same protection exists in Australia, Hong Kong, Malaysia, and Singapore, which prescribe the rule in their respective Arbitration Acts.

Despite this transnational agreement on arbitrator immunity, few systems still prescribe imprisonment of arbitrators as a logical consequence of the breach of duties. Such a law was that of the UAE, which was notorious for pursuing arbitrators over criminal charges. However, the relevant law was recently amended to exclude imprisonment as punishment. A noteworthy incident happened in Qatar when three arbitrators were sentenced in absence for bias, in three years of imprisonment. Although such particular cases still exist today, they are isolated incidents and should not be treated as the norm.

In conclusion

Ever since the enactment of the New York Convention, states have shown their support to arbitration as an autonomous dispute resolution mechanism by regulating after the Model Law and optimising their regimes to facilitate arbitration. The rise of globalised trade, online arbitration and virtual proceedings also show that detaching arbitration from any nationality is the best fit. There is a multitude of differences between international arbitration and traditional court proceedings. The above analysis shows only two ways that international arbitration differs from litigation and establishes its own systems.

Bibliography

Legal Instruments

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

Convention on the Execution of Foreign Arbitral Awards (Geneva, 1927)

Books

Julian David Matthew Lew, Loukas A. Mistelis, Stefan Michael Kroll, Comparative International Commercial Arbitration (1st edn, Kluwer Law International 2003)

Gary B. Born, International Commercial Arbitration (2nd edn, Kluwer Law International 2014)

Emmanuel Gaillard, Legal Theory of International Arbitration (1st edn, BRILL 2010)

Jean-Francois Poudret, Sebasten Besson, Stephen V. Berti and Annette Ponti, Comparative Law of International Arbitration (2nd edn, Sweet and Maxwell 2007)

Alec Stone Sweet, Florian Grisel, The Evolution of International Arbitration: Judicialization, Governance, Legitimacy (1st edn, OUP 2017)

Articles

Susan Franck, 'The Role of International Arbitrators' (2006) 12 ILSA J Int'l & Comp L 499

Paul Jansson, 'Delocalisation of International Commercial Arbitration: When and why it Matters' (1983) Vol.32(1) International and Comparative Law Quarterly

Other materials

Matthew Barry, 'The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts' (Legal Studies Research Paper No 15/19, University of Sydney 2915)

Emmanuel Gaillard, 'Transcending National Legal Orders for International Arbitration,' in International Arbitration: The Coming of A New Age?, (ICCA Congress Series 371 2013) < https://www.arbitration-icca.org/articles.html?author=Emmanuel_Gaillard&sort=author#140 > Accessed 10 June 2020

Emmanuel Gaillard, 'International Arbitration as a Transnational System of Justice,' in Arbitration – The Next Fifty Years, (ICCA Congress Series No 16, 2012) < https://www.arbitration-icca.org/articles.html?author=Emmanuel_Gaillard&sort=author#141 > Accessed 10 June 2020