Authors: Atul Pal*
Topics:
|
Introduction
The term “precedent” was derived from the doctrine of “stare decisis” with a literal meaning of “standing by what is decided.” A precedent, in law, is a previous court decision or ruling that serves as a model for future cases with similar facts or legal issues. Precedents are used both in the common and the civil law systems but are not considered persuasive or binding in the latter. In the national legal systems, national courts have the luxury of following or departing from them. The degree of deference or adherence also varies and depends on the specific facts of the case. This variance is observed not only between different legal systems but also within the same system. In civil law countries, the system of precedent is weaker than in common law countries. In international law, Article 59 of the ICJ Statute provides that decisions of the court have no binding force apart from the matters dealt in that particular case. The WTO also has no formal doctrine of precedent; however, it can be seen in practice. The question to ponder here is: what is the extent of precedent in the field of international arbitration? Is it a farce in toto or does a rule-based established order exist which defines the nature of actions and decisions while deciding and deliberating an arbitral hearing and award? The answer might not be a straightforward one.
Defining and Substantiating Arbitral Precedents
Arbitral precedent can be a tough term to define. Arbitral decisions may form precedent because arbitrators, too, apply the law of a country and clearly cite other arbitrators’ decisions. W. Mark C. Weidemaier keeps the definition in the gray, stating that there are categories of cases where arbitrators are left with no choice but to follow past awards, whereas in other cases, past awards play a more material constraining role which is less substantial in nature. It is now well-established that in certain arbitration systems, arbitrators promote adjudicatory consistency as an important system goal, claim to rely on past awards, and frequently cite other arbitrators. The mechanisms of dispute resolution are far-reaching and extensive, and when conducted by separate legal bodies, a jar-tight meaning is a difficult one to assign. In layman’s language, while discussing arbitral precedent, Gabrielle Kaufmann-Kohler comes up with three different categories of dispute resolution. She groups them into: (1) international commercial arbitration; (2) sports arbitration; and (3) international investment arbitration. While discussing further, we would dwell on these mechanisms and investigate the cases where arbitral precedent has been applied and their extent.
Limitations of Arbitral Precedents as an Instrument of Dispute Resolution
In a study carried out by Christopher Seppala in 2008 concerning standard international construction contracts published by the International Federation of Consulting Engineers (FIDIC contracts), it was determined that out of about 100 available and identified decisions, only six referred to previous decisions. In an analysis conducted by Gabrielle Kaufmann-Kohler, it was surveyed that just about 15% of the decisions published by the International Chamber of Commerce (ICC) cited previous arbitral decisions. Clearly, there is no precedential value or self-standing rule creation in international commercial law apart from the procedural aspects. The application of precedents in any manner whatsoever is in the form of principles. These principles are mainly based on lex mercatoria, or “merchant law,” generally defined as a body of rules of international commerce which have been developed by the customs in the field of commerce and affirmed by national courts. This is mainly a principle which has evolved over time as a form of custom and cannot be attributed to the creation of an arbitral award. The ICC, in its decision in the famous Dow Chemical award, held that, “The decisions of these tribunals [ICC arbitral tribunals] progressively create case law which should be taken into account, because it draws conclusions from economic reality and conforms to the needs of international commerce, to which rules specific to international arbitration, themselves successively elaborated, should respond.” This decision makes it clear that, in reference to the broader concept of lex mercatoria, the classification is mainly of a well-established principle, rather than of an arbitral award.
Arbitrators have a habit of transnationalizing the rules they apply to remove disputes from the ambit of possibly inadequate national law – the various methods of transnationalization or the newer lex mercatoria, can also not be described as a legal system but as a method. As stated by Emmanuel Gaillard, it is done to avoid the application of rules that are inconsistent with the needs of international commerce. The basic idea of considering the specificity of each case and the transnationalization of applicable law for the relevant remedy contradicts the idea of precedents.
The Bright Side: Use of Arbitral Precedents
The role of precedent in some dispute resolution mechanisms cannot be undermined. Arbitral precedent plays a very important part in matters relating to sports arbitration. A survey of cases and decisions by the Court of Arbitration for Sports (CAS), extensively dealt with Matthieu Reeb’s books, Digest of CAS Awards I and Digest of CAS Awards II, state that nearly every award contains one or more references to earlier arbitral awards. This can be attributed to the strict liability principle in doping offenses, reinforced in Bouras v. IJF (Court of Arbitration for Sports (CAS), 1999), an arbitral practice which was codified by the World Anti-Doping Agency (WADA). The basic presumption was that athletes bear full responsibility for the presence of banned substances if tested positive. A second arbitral rule creation refers to “non-significant fault or negligence,” which states a change in sentence if there was no significant fault or negligence owing to the consumption of the banned substance. There is no definition of these terms in the code, and the constant reference to the previous rulings in the CAS depicts the presence of the doctrine of stare decisis in the field of sports arbitration.
In awards relating to the Uniform Domain Name Dispute Resolution Policy (UDRP), decision-makers systematically cite prior cases to support their decisions and to provide pertinent examples from earlier decisions. This practice is not surprising considering the recurring nature of their issues and the limited number of cases before the domain name panels. The main issue for the panel is always to create consistent rules either by the manner of variance from the existing rules or, mostly, by following binding precedent.
Arbitral Precedents and its Position Between the Extremes
Tribunals do seem to agree that there is no doctrine of precedent in investment treaty arbitration; however, this cannot be specifically held. There have been various instances where investment treaty awards have relied on arbitral precedents. For example, while interpreting the “umbrella clause”, no clear rule has emerged. Cases such as Salini v. Jordan, Joy Mining v. Egypt, and El Paso v. Argentina have held that ordinary contracts cannot be turned into treaty claims. In contrast, opposing views have been held in Eureko v. Poland, Noble Venture v. Romania and Siemens v. Argentina, which transformed municipal law obligations into obligations directly recognizable in international law. There is a varying degree of flexibility in arbitrators as well, which is also a reason for inconsistencies. When it comes to the MFN (Most Favored Nations) clause, arbitral practice seems to be evolving around a consistent rule. An MFN clause is governed by the ejusdem generis principle, in that it may only apply to issues belonging to the same subject matter or the same category of subjects to which the clause relates. In reviewing decisions, a fair degree of similarity has been seen in the decisions of the cases regarding the legitimacy of the aim of the measure and proportionality.
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, Waste Management, Inc. v. United Mexican States and Methanex v. United States were all decided in view of arbitral precedent by referring to cases with similar facts and using methods of standard uniform approaches. The Técnicas Medioambientales Tecmed, S.A. case is especially worth mentioning. In balancing investor’s rights with environmental and health concerns, the tribunal used the proportionality principle which was a precedent for modern investment treaty arbitration. In the awards rendered in the latest years, such as Thunderbird v. Mexico, Saluka v. Czech Republic, LG&E v. Argentina, PSEG v. Turkey, and Siemens v. Argentina, the need for stability of the legal and business framework in the host state has been affirmed repeatedly and the tribunals have consistently abandoned the requirement of bad faith on the part of the host state. The standards set by decisions of tribunals are broad and they leave room for interpretation.
Arbitral Precedents and Arbitrators
There is a varying degree of dependence which is shown by arbitrators in their reliance on arbitral precedent. American legal philosopher, Lon Fuller, argued that consistency and predictability are indispensable elements of law. He explained that law has a moral obligation to strive for consistency and thus to follow precedents. This statement tends to make us believe that despite a list of decisions and materials showing that arbitral precedents are useless, there is always a need for predictability to enable the rule of law. Norberto Bobbio, one of Italy’s leading scholars of the 20th century, has stated that the development of law follows certain stages and from that view, international law is still at its earlier stage. Publication of awards also plays an important role in setting rules and setting patterns for practice. The difference between sports arbitration, where awards are published, and commercial arbitration, which is hardly published, is a classic example. While the former follows a high level of arbitral precedent, the latter is mainly sporadic. Hence, the nature of reference depends on the material basis of the field of arbitration, as well. In this case, the need for rule creation is obviously more in sports and investment arbitration than commercial arbitration.
Conclusion
The doctrine of precedent in arbitration is an evolving concept. Arbitration is spread in numerous areas and precedents apply to various mechanisms of dispute resolution which are obviously specific to the dispute at hand. Investment treaty arbitration has no system of pre-decided rules whereas sports arbitration dwells on previous case law. The answer to the question would be somewhere in between. A rigid system inhibits improvisation which can restrict developments in the relevant field, whereas deviating too much from the already-held rules might result in injustice to the parties. One can conclude that arbitral precedents are neither completely useless nor completely applicable. They are in the phase of evolution and a concrete set-up could only be drawn after a certain amount of time has passed and the field of international arbitration has matured as a rule–creation body in itself, much like the national legal systems around the world.
*Atul Pal is a practicing lawyer in the Indian Courts. He specialized with a LLM in Public International Law from the London School of Economics and Political Science (2023-2024). He holds post-graduate degrees in history and journalism and writes on comprehensive issues related to law, policy-making, history and diplomacy.