Authority and Contemporary International Arbitration

• Author: Tony Cole
• Position: Assistant Professor, School of Law, University of Warwick
• Pages: 802-855

Assistant Professor, School of Law, University of Warwick. The author would like to give particular thanks to the late Thomas Wälde, who never hesitated to seriously consider any argument, no matter how radical or what its source. Many of the arguments made in this Article are directly indebted to discussions with him and with other members of the OGEMID discussion forum he founded. Thanks are also due to Joe Matthews, Julian Mortenson, William Park, Jan Paulsson, and Alan Rau for taking the time to review an earlier draft of the Article. Naturally, the views expressed in the Article are solely those of the author, as are any remaining mistakes.

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I Introduction

While arbitration has existed in one form or another for centuries, and has at times even had a central role in both domestic and international dispute resolution,¹ its recent rise to prominence and acceptability on the contemporary international scene has been both abrupt and overwhelming.² From a situation less than a century ago in which arbitration was rare and pre-dispute arbitration agreements were often legally invalid,³ one of the most oft-repeated statements in contemporary arbitral scholarship is the observation that arbitration has now become the "dispute resolution mechanism of choice" for the resolution of cross-border disputes.⁴ Indeed, empirical studies indicate a strong preference for Page 803 international arbitration over domestic litigation,⁵ and States of all levels of wealth and power have felt the need to rewrite their laws to make them more "arbitration friendly."⁶ Similarly, courses in international arbitration are now routinely offered in law schools worldwide, academic scholarship on arbitration appears in even the most prestigious journals, and law firms of all sizes attempt to claim specialized expertise at representing clients in international arbitration.

Yet, this growth has not come without controversy. Procedures that were developed to resolve disputes between private commercial actors have been a source of concern when applied in disputes in which one party is a State,⁷ or when significant consequences will result for an individual or group not represented in the arbitration.⁸ In addition, the view is increasingly expressed that the apparent suitability of arbitration for the resolution of international disputes can at times be misleading, as difficulties can easily arise when norms developed for the resolution of Western disputes are applied in a different cultural context.⁹ Perhaps most Page 804 notably, however, given the traditional consensual basis of arbitration, arbitral awards are increasingly being challenged in court by the losing party,¹⁰ even in the face of consistent efforts on the part of States to make them almost unchallengeable.¹¹

In short, while arbitration has unquestionably been a success in the international dispute resolution "marketplace," effectively resolving problems still faced by international litigation,¹² it is becoming increasingly doubtful that it still functions well as a means of genuine dispute resolution, rather than merely being desired as a means of avoiding the constraints of domestic litigation. As a result, the enormous potential of arbitration as a dispute resolution mechanism is being increasingly wasted.

This Article will attempt to demonstrate that this situation has arisen because a dispute resolution mechanism initially designed to be invoked post-dispute, between parties who both wished to arbitrate, is now being applied in a far broader range of situations, Page 805 usually involving a pre-dispute arbitration agreement, and often involving one party that does not wish to arbitrate at all. This change means that the characteristics that previously resulted in parties to an arbitration accepting and voluntarily abiding by the award delivered by the arbitrator rarely exist now. Moreover, the procedural innovations that have been adopted to adapt arbitration to the new contexts in which it now occurs have not been effectively designed to provide parties with any reason to accept the award delivered. Consequently, contemporary international arbitration simply no longer functions properly as a means of genuinely resolving disputes and is instead increasingly coming to represent merely a legal game, invoked by parties due to the enforceability of its awards rather than because the system produces desirable results.

Part II of the Article will discuss the nature of judicial authority as a means of examining what characteristics of a judicial decision will lead to it being accepted by the parties as inherently binding, rather than merely obeyed by them because effective review is unavailable. It will identify four different types of authority that a judicial decision can possess. It will then defend this analysis against the argument that only legally unsophisticated parties truly view legal decisions as authoritative and that therefore such an analysis is irrelevant to international arbitration, which is unlikely to involve legally unsophisticated parties.

Part III of the Article will then apply this analysis to traditional arbitration,¹³ establishing the particular types of authority that historically led parties to accept arbitral awards as binding. It will argue that the authority of a traditional arbitral award was inherently personal, relying upon the possession by the arbitrators of certain personal characteristics.

Part IV will then address the differences that exist between contemporary international arbitration and traditional arbitration, focusing specifically upon the means by which, and context in which, arbitrators are selected by the parties and the role arbitrators are expected to perform once they are appointed. It will illustrate that these differences mean that the forms of authority that were Page 806 possessed by awards delivered in traditional arbitration are rarely possessed by awards delivered in contemporary international arbitration. Moreover, nothing in contemporary international arbitration delivers additional authority to arbitral awards. As a result, while an arbitral award may indeed be authoritative for the parties to the arbitration in certain specific instances, this authority derives solely from facts unique to that arbitration. As a form of dispute resolution, on the other hand, contemporary international arbitration is simply structurally incapable of delivering authoritative awards.

Part V will then examine the possibility that the increasing procedural uniformity of contemporary international arbitration can provide a means of delivering authority to arbitral awards. Just as the formal court structure underlying a court judgment delivers authority to that judgment, it might be argued that as international arbitration formalizes procedurally an authoritative "institution"¹⁴will develop capable of delivering authority to arbitral awards. It will, however, be argued that to the extent arbitration is indeed becoming procedurally formalized, the rationale underlying the selection of rules to be standardized precludes the formation of any authoritative institution.

Part VI will then examine the one remaining means by which authority can be conveyed to arbitral awards, namely through the procedures used in the arbitral proceedings. While the standardization of procedures throughout international arbitration will not result in the delivery of authoritative awards, it will be argued that parties will view awards as authoritative when the awards are delivered through procedures specifically designed for the identity of the parties and the nature of the dispute.

Part VII will then conclude by proposing specific means by which the problem of the loss of authority in contemporary international arbitration can be addressed. It will argue that rather than merely encouraging arbitrators to use the power they already possess to design procedures to match the specific dispute at hand, Page 807 an additional role should be added to contemporary international arbitration in the form of a "procedural special master." While such an individual should only be appointed with the consent of the parties, and would perform his role in consultation with the parties, his decisions would be binding unless opposed by both parties and would not be mere recommendations for the parties to accept or reject. In addition, it will be argued that the role of arbitrators in international arbitration must be reconceptualized, with party-appointed arbitrators required to abandon their traditional detachment from their nominating party, and instead, while remaining independent and objective decision-makers, serve as the explicators of their nominating party's positions to the remainder of the tribunal.

II The Authority Of Judicial Decisions

A Types of Authority that Can Be Delivered to Judicial Decisions

Before arguing that arbitrator authority is central to contemporary international arbitration, it is...