Third Generation Arbitration by The European Court of Arbitration

  1. ARBITRATION UNDER SEVERE CRITICISM

International arbitration is subject to criticism by users on several grounds:

  • Firstly, not infrequently the parties are not given a reasonable opportunity to present their case;
  • Secondly; because it does not always produce fair decisions (even if they are sometimes technically correct);
  • Thirdly, because there is no appeal on the merits against the award;
  • Fourthly, because of its (here, too, not rare) excessive duration and costs;
  • Fifthly, the arbitrator frequently maintains a cold and distant approach;
  • Finally, because it does not limit over-lawyering.
  1. NEED TO RECOGNIZE WEAKNESSES

Such criticism is sometimes justified in the opinion of the author and, if one accepts it, this is not to be against arbitration, but on the contrary is a necessary preamble to efforts to improve it.

III. SUBSTANTIAL AVAILABLE IMPROVEMENTS

It is suggested that substantial improvements are available.

  1. No Party-Appointed Arbitrators

First, the practice of party-appointed arbitrators should be abandoned. This tribute to the rule of symmetry (each party appoints an arbitrator) may and does affect the process, because it inserts voices in the deliberation room, each of which frequently supports the views of its appointor.

One would not accept in court proceedings that each party appoint one of the three judges who form a panel. The same must apply to arbitration.

  1. A Sole Arbitrator

Second, since the majority of disputes are of middle size, three arbitrators involve too high a cost. A sole arbitrator, like a sole judge in the first instance of court proceedings, is generally sufficient and would likely reduce the costs of the proceeding by about 60%.

  1. An Arbitrator whose Priority is to Serve

Arbitrators do not always give priority to their duty to serve the parties. It is submitted that any other priority (such as a wish to be aggrandized in some way) is not in line with the legitimate expectations of the parties that the arbitrator possesses a good balance and does his/her best to understand them.

One way in which a real spirit of service is expressed is to create a constructive and informal dialogue with the parties rather than being distant and cold.

  1. A Quick Decision

The arbitrator should not forget that one of the parties (the one that prevails in the end) is entitled to a quick decision.

A quick decision does not mean a decision made in a rush, but a decision should not be considered over several years, nor should the drafting of an award take a couple of years.

The arbitrator must not think that he can do what he likes, but rather that he has a duty to proceed with expedition.

  1. Stipulation on Procedure, Time and Costs

A major reason for over-lawyering may be the concern of counsel that his client does not blame him for failing to raise all possible – and impossible – arguments. If one wishes to avoid this, a stipulation as to procedure, time and costs may have to be entered into at the same time as the arbitration agreement.

Such stipulation may include prohibiting arguments that have no serious grounds, prohibiting repetitive motions as well as any delaying tactics, and providing for sanctions against a party that breaches such stipulation, even if (in the end) it is successful on other grounds.

The absence of a need for these tactics has been described in previous writings as the absence of a need to wear “full armor.”

  1. A Review of the Merits of the Award

It is suggested that it is just not acceptable that the arbitrator’s decision be free from review regarding:

  • errors in the choice of the applicable law;
  • errors in the construction of the law;
  • errors in the assessment of the facts;
  • errors in the assessment of the evidence.

No one would accept such lack of review in court proceedings and there is no reason why this should be imposed in arbitration, which – in order to exist – must not only be different from but even better than court proceedings.

  1. The Tendency to Seek Some Redress on the Merits from State Courts

The American reply to this was first an attempt to allow vacatur of an award for manifest disregard of the law, following the dictum in Wilko v. Swan. It was followed by an attempt at contractual expansion of judicial review, which has now been buried by the Supreme Court in Hall Street v. Mattel, a result which has been supported by an extremely authoritative voice.

These brave replies share a tendency to seek some redress from state courts rather than through the arbitrator.

This issue has been the object of a strong debate between a great construction lawyer, Ian Duncan Wallace from London, and a great conflicts professor, Pierre Mayer from Paris.

The construction lawyer has argued that state courts retain the power to review awards, while the law professor’s powerful reply to this proposition is that if the merits of the dispute are to be decided in the end by a State court, then arbitration becomes simply a prelude to court proceedings and will be less useful.

  1. The Correction by the Arbitrator of his Own Award

Professor Smit has worked out an interesting solution, consisting of the possibility that the arbitration rules provide that, after the arbitrator has made the award, the parties ask him to review and to correct it and that he be authorized to do so.

This would be a new solution, which is based on the premise that the arbitrator is capable of admitting and correcting his/her possible errors.

  1. DE NOVO REVIEW BY AN APPELLATE ARBITRAL TRIBUNAL

Another intra-arbitral review consisting of a review by an appellate arbitral tribunal has been advocated by this writer many years ago as a result of his courses on international arbitration at the University of Padua. This could be instituted in the many countries which do not prevent a review of the award by an appellate arbitral tribunal.

Such proceedings are necessarily required to be well organized, under adequate arbitration rules, including the appointment of a panel of three arbitrators (all selected by the arbitral institution) and a decision within a precise length of time, such as six months.

This solution has been opposed on various grounds, such as its duration and the costs. As to duration, if the first instance of arbitration must be decided within one year, the two degrees will last one and a half years, or a maximum two years, which time wise is not a bad result compared to present international commercial arbitration. As to costs, a sole arbitrator in the first instance and three in the appellate proceedings do not increase substantially the cost of an original panel of three.

The review by the appellate arbitral tribunal may, and in my opinion should be,  a full de novo review of the merits; evidence may then be heard afresh, if deemed necessary.

  1. THE EUROPEAN COURT OF ARBITRATION

The above solution is not just a theory. It has been instituted – upon the proposal of this writer – by the arbitration rules of the European Court of Arbitration, which is a division of the European Arbitral Centre, which

administers arbitration.

The European Arbitral Centre was founded as a legal entity in 1959 in Strasbourg, France by several bar associations and other professional bodies, such as the Chamber of Commerce of Strasbourg, its stock exchange and other official bodies under the patronage of the Council of Europe, of which its carries the colors.

  1. LEAVE TO APPEAL: THE IMPOSSIBLE DREAM

The rules of the European Court of Arbitration provide, in addition to a full de novo review, that the loser in the first instance arbitration obtain leave to appeal from this arbitral institution and, in order to obtain it, must deposit the amount awarded by the first arbitrator with the Registrar of the arbitral institution or provide a guarantee on demand to be issued by a prime bank selected by the Registrar. The result is that, if the appellate arbitral tribunal confirms the first award, the very day of this second award the money goes into the pockets of the winner.

This realizes what has been the impossible dream of arbitration, to be selfexecuting,

instead of becoming the first step in the long path to try to obtain its enforceability and then its enforcement.

The loser is not deprived of the right to challenge the appellate award before state courts, but its having paid the amount required by the appellate arbitral tribunal should considerably reduce those challenges that have mainly tactical purposes.

Challenges to the first award should be excluded when the award has been appealed to the appellate arbitral tribunal. In the absence of such a provision, the possible challenge proceedings may be stayed by the state court.

VII. A THIRD GENERATION ARBITRATION

One might compare arbitration to some electronic products, which have seen a first generation, a second generation, a third generation and so on.

First generation arbitration involves a time when old, wise and highly respected figures were appointed as arbitrators. Their decisions were rarely questioned.

We live in the second generation of arbitration, where a large number of arbitrators are appointed, some of whom do not have that standing and whose appointment and decision are frequently challenged.

It is suggested that the arbitration which has been outlined above might be seen as a third generation of arbitration.

The great Italian writer on politics Machiavelli, said that he who makes a new proposal will have against him nearly everybody, each having his own reasons but they will be united by the common wish to oppose it. Although this writer is aware of this tendency, he hopes that these reflections will contribute to the continuous improvement of arbitration, which those who have arbitration at heart, certainly advocate.

  1. Chartered Arbitrator, President of the European Court of Arbitration, Advocate admitted in Italy and Paris (Associate member of a set of barristers chambers in London).
  2. Mauro Rubino-Sammartano & Mark Kantor, Is Full Armor Absolutely Necessary to the Arbitration Process?, 17AM. REV. INTL ARB. 615 (2006).
  3. Wilko v. Swan, 346 U.S. 427, 437 (1953). See also Hans Smit, Manifest Disregard of the Law in the New York Court of Appeals, 15 AM. REV. INTL ARB. 315 (2004). (The doctrine of manifest disregard of the law has been put in question by Hall Street v. Mattel, infra note 3.)
  4. Hall Street Associates v. Mattel Inc., 128 S.Ct. 1396 (2008).
  5. Hans Smit, Contractual Modification of the Scope of Judicial Review of Arbitral Awards, 8 AM. REV. INTL ARB. 147 (1997).
  6. I.N. Duncan Wallace, Control by the Courts: A Plea for More, Not Less, 6. ARB. INTL 253, 266 (1990).
  7. Pierre Mayer, Seeking the Middle Ground of Court Control: A Reply to I.N. Duncan Wallace, 7 ARB. INTL 311 (1991).
  8. Hans Smit, Contractual Modification of the Arbitral Process, 113 PENN ST. L. REV. 995 (2009).
  9. MAURO RUBINO-SAMMARTANO, L’ARBITRATO INTERNAZIONALE (1989); MAURO RUBINO-SAMMARTANO, INTERNATIONAL ARBITRATION: LAW AND PRACTICE (2d ed. 2001) and in various articles.
  10. Such as France, Germany, England and Wales, Spain, Germany, and the U.S.
  11. MACHIAVELLI, IL PRINCIPE (THE PRINCE), written in Florence in the XV century.

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