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European Court of Arbitration’s Appellate Arbitral Proceedings

Background

The European Court of Arbitration (or CEA) is a body of the European Centre of Arbitration and Mediation, formed in 1959 in Strasbourg under the patronage of the Council of Europe, the Strasbourg Stock Exchange and the Chamber of Commerce of Strasbourg and many other public bodies, including various professional associations. Its registered office is in Strasbourg.

In 1997, the Arbitration Rules of the European Court (the Rules) were amended, upon the initiative of this author, to provide for intra-arbitration appellate proceedings. The Rules fit into the rest of the structure of CEA arbitration, which provides for a sole arbitrator in the first instance, a duration of nine months (extendable in special cases by twice each time for a maximum of six months) and rules of evidence much in line with those for English arbitration.

The relevant provisions of the Rules currently in force, the 2015 Rules, are contained in article 28 and are available here: https://cour-europe-arbitrage.org/archivos/documentos/192.pdf.

The position of various jurisdictions on intra-arbitration appeals

The intra-arbitration appeal – a full de novo rehearing – is provided for by the Rules except in arbitrations in which mandatory procedural rules do not allow for it. This is the case for Italian proceedings where the general opinion is that challenges against an award may only be made before the court of appeal. This author disagrees with this view on the ground that Italy’s Parliament has solely provided for remedies against final arbitral awards, without considering whether this consists of just one award or whether there are appellate proceedings. Consequently it could be argued that Italian law does not forbid rehearings.

Intra-arbitration appellate proceedings are not prohibited, based on information received, in various jurisdictions such as England and Wales, France, Spain, the US, Germany and Switzerland.

Challenging a first-instance CEA award

If a challenge of the first award has been made, the Rules provide at article 28(1) that an application to stay the challenge may be filed.

If those appellate proceedings are instituted under the Rules, the victorious party at first instance undertakes under article 28.2 not to enforce the first-instance award (except for what is necessary to avoid falling foul of the limitation period) and agrees that the award made at the rehearing will replace the first award.

Conditions for leave to appeal

The Rules provide under article 26.3 that the appeal is admissible (except in exceptional cases by a reasoned order of the CEA) only if it is accompanied by a deposit, paid into the CEA’s competent registrar, of the principal amount, interest and of the costs awarded to it by the first award or, in the event of it not being possible to establish such specific amount, of the amount which will be determined by the CEA ‘for the purpose of ensuring appropriate enforcement of the contemplated appellate award’.

Such deposit may be replaced by an unconditional bond by a ‘primary bank’, with operating offices in the seat of the CEA’s competent registrar, the contents of which must be previously approved by the court.

Deadline for the appeal

The appeal is to be filed in conformity also with the procedural requirements of the country of origin of the defendant within 40 days of service of the first-instance award (article 28.2).

Ambit of the appeal: a full de novo review

The appeal allows ‘a full review of the dispute by way of rehearing, including dealing in particular with admissibility, the facts and the merits’.

Number and appointment of the arbitrators

The appeal is heard by three arbitrators, who are all appointed by the CEA.

Appellate arbitration rules

In addition to the specific rules for appeals, the appellate proceedings are governed, under article 28(6), by the rules that governed the first-instance arbitration.

Term for the appellate award

The appellate award is to be filed, under article 28(7), within six months of receipt by the arbitrators of the case file and nine months if evidence is to heard.

In special circumstances (to be stated in a fully reasoned and justified application) this time limit may be extended once or twice up to a total of six months.

Prompt dealing with the deposit under the award

At the same time the appellate award is filed, the arbitral tribunal (or in its absence the competent registrar of the court) will, under article 28(9):

give instructions to the Competent International Registrar, and where appropriate to the guaranteeing bank, to return the funds deposited or to cancel the guarantee to it, or to cause the funds or guarantees to be returned, or to pay them immediately in part or in full to the party entitled to them under the appellate award, and shall deliver the appellate award to the guaranteeing bank.

The bank will then act in accordance with such instructions.

Subsequent dispatch of the award to the parties

According to article 28.11 ‘The appellate award will then be sent by the Competent International Registrar to the parties’.

The arguments raised against intra-arbitration appeals

Among the arguments used against intra-arbitration appellate proceedings, one may mention:

  • the wish of many parties to have a ‘one shot’ proceeding;
  • its longer duration;
  • higher costs; and
  • lack of certainty that the appellate tribunal will be better than the first one.

Some comments in response to such arguments

One shot

All parties seek a quickly resolved decision made in their favour. While the award is fine for the victorious party, who will obviously oppose its review on the merits, the loser invariably wants it to be reviewed.

In the great majority of jurisdictions, a review of the first-instance judgment is a right of the loser in state court proceedings. The parties generally go to arbitration because they look for a mechanism that is not only different from state courts proceedings, but better.

Not making an appellate facility available in arbitration does not look like an improvement on court proceedings, since arbitrators are equally as fallible as judges.

Duration

Since under the CEA’s Arbitration Rules the first proceedings must (and in general do) last nine months (which only in very special circumstances may be extended for six months once or twice), if one adds to that the six months available for intra-arbitral appeal, its total is one year and three months, which is shorter than the duration of many other arbitral proceedings, which are frequently over two years, and on occasion, even reaching 10 years.

As to investment arbitration, the duration of the various steps in Klockner Industrie Anlagen GmbH et al v United Republic of Cameroon et al (Ad Hoc Committee Division, 3 May 1985, 2, ICSID Rep 95, 122 [1994]) was nine years, and in Amco Asia Corp v Republic of Indonesia (ICSID Tribunal, 9 December 1983, 24, International Legal Materials 365 [1985]) it was over 10 years.

Costs

Under the Rules the costs involve a sole arbitrator in the first instance and three in the second hearing.

This, compared to the three arbitrators generally appointed under other rules, makes it only a four to three difference.

Adding to this the reasonable rates provided for the arbitrators’ fees and the administrative dues under the CEA’s schedule, the costs of the two CEA arbitration proceedings are not necessarily higher than the costs of average commercial arbitration proceedings for disputes of the same value.

Quality of the appellate tribunal

The question whether in appellate proceedings arbitrators have a higher standard than in first instance is answered by there being three arbitrators in the appellate proceedings (all appointed by the CEA) as opposed to a sole arbitrator in the first instance. A review by three arbitrators should normally ensure the quality of the decision.

Rehearings under other arbitration rules

UNCITRAL Arbitration Rules

The UNCITRAL Arbitration Rules provide only (article 39(1), 2010 edition) for an additional award ‘as to claims presented in the arbitral proceedings but not decided by the arbitral tribunal’.

Commodity arbitration

A full de novo review of the first award is generally provided by the rules of commodity institutions.

AAA and CPR

In the US, the CPR (the International Institute for Conflict Prevention and Resolution) recently revised its Arbitration Appeal Procedure for CPR arbitrations.

Similarly the American Arbitration Association has provided for Optional Appellate Arbitration Rules (1 November 2013).

The Arbitration Chamber of Paris

The Rules of the Arbitration Chamber of Paris provide that three arbitrators, all appointed by it, hear appellate arbitral proceedings.

Sports arbitration

The Court of Arbitration for Sport has introduced an internal appellate facility, which provides for a full review of the merits by its Appellate Division.

Investment arbitration

The Washington Convention provides for a second instance before an ad hoc committee. However this has the limited scope to decide whether the first award must be set aside on a few specific grounds, errors of law and errors of fact being excluded from it.

In such event, the case must be started again before a new arbitral tribunal, the decision of which may be set aside, which gives rise again to new arbitral proceedings.

Such four steps have been registered as to Klockner and as to Amco Asia and have lasted respectively nine and over ten years.

WTO

The World Trade Organization has, under article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes, an appellate body that was established in 1995 consisting of seven persons and that hears appeals from reports submitted by a WTO panel. It may uphold, set aside or modify such report. Its own report, if adopted by the dispute settlement body, becomes binding for the parties unless they notify the intention to appeal it.

PCA

The Rules of the Permanent Court of Arbitration provide, under article 6, that ‘awards are final and binding and there is no right of appeal’.

The European Union’s recent position

The traditional hostility in many arbitration circles to intra-arbitral appellate proceedings is likely to face a challenge because of the very neat position recently taken by the European Commission.

With the support of several of its member states, the Commission has objected to the present structure of investment arbitration in various respects, among which is the lack of a review of the merits of the first instance proceedings, and has firmly requested that there be an appellate stage.

It is suggested that the very determined position of the European Union as to investment arbitration shows that the lack of a full de novo review is no longer accepted in the European Union.

Commercial arbitration may then be expected to follow this new trend and accept a full review, which has been advocated by the author since 1989 (Rubino-Sammartano, L’arbitrato internazionale (International Arbitration), CEDAM 1989).

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