Written by: Matthew Liptrot
On October 31st, the Columbia Center on Sustainable Investment and the Columbia International Arbitration Association hosted Jan Dalhuisen for a discussion entitled “Are International Arbitrators Judges or Juries.” The lecture was a part of the EU Judges Visit Columbia Law School program. Mr. Dalhuisen sought to define the nature of the arbitrator’s role, identify the ramifications for dealing with public policy concerns in an arbitration, and to put those issues in context of the changing landscape of foreign investment arbitration.
The first component of Mr. Dalhuisen’s talk sought to define the arbitrators and to place them in relation to the two decision making paradigms of jurors and judges. He noted first that the nature and source of their powers showed arbitrators to be more like jurors than judges. The arbitrator’s power is defined by the agreement of the parties set forth in the arbitration agreement. While the ability of the parties to bind themselves to the consequences of an arbitration is a function of the forum state’s lex arbitri, the powers of any particular tribunal are defined by the party’s agreement. As a consequence of their limited scope of powers, arbitrators are not empowered to explicate a legal order or to make law binding in any sense outside of the particular contract which gives rise to their powers. In this respect they are more like juries than judges.
Mr. Dalhuisen also argued that the mode of exercise of the arbitrators’ powers shows them to be fundamentally juries. In an arbitration, the parties plead the law as if it were a fact for a jury to find. Counsel must prove what the law says and how it is properly applied to the situation. Then the arbitrators will find for one party according to the strength of their pleadings. He illustrated this proposition by the following example. If claimant argues that the law says X and respondent counters that the law says Y, arbitrators cannot find that the law is Z, though a judge could.
Arbitrators’ status as more of a jury than a judge has ramification for their ability to hear and decide on matters of public policy. First, Mr. Dalhuisen argued that the grant of power in an arbitration agreement cannot extend so far as to make determinations of public policy. Matters of public policy generally concern a community not represented at an arbitration. For instance, in an arbitration raising antitrust issues, consumers cannot be taken to have agreed to submit their interest in not paying monopoly prices to an arbitration convened out of a contract to which neither they nor their representatives were a party. Second, arbitrators, as jurors, cannot be expected to raise public policy issues sua sponte. If the parties do not present the matter in their pleadings, the juror-arbitrators cannot raise it themselves and are ill-suited to do so. For these reasons, Mr. Dalhuisen considered arbitrators unable to adequately address matters of public policy.
The area of international arbitration where arbitrators’ inability to deal with public policy is most damaging is foreign investment treaty arbitration. This field calls on arbitrators to act more like judges than in commercial arbitration. Functionally, arbitral decisions in the context of a foreign investment agreement do create law applicable in later cases regarding that agreement. Moreover, public policy considerations are much more frequently raised in these cases. According to Mr. Dalhuisen, the primary reasons foreign investment matters are increasingly being resolved in courts rather than in arbitration are arbitrators’ jury-like nature and judges’ ability to deal more effectively with public policy matters.
Reduced use of arbitrators in foreign investment matters harms the arbitration regime but, in closing, Mr. Dalhuisen pointed to an additional, counterintuitive, consequence of making courts decide these cases. Observers frequently criticize arbitrators for being “heartless” and overly solicitous to the bondholders and investors in cases that pit the interests of investors against those of citizens. However, in his experience arbitrators are generally more favorable towards the nation than their claim merits under the law. Arbitrators approach cases with an equitable mindset, looking for a fair result. According to Mr. Dalhuisen, in foreign investment cases where respondent states generally have poor claims on the merits, they do better than their arguments would otherwise merit. Thus, observers who celebrate increased recourse to national courts in these matters as a means for more state friendly results are likely to be disappointed.