I was back in Kuala Lumpur for Asia ADR Week 2024 and an Oxford-style debate on the topic of ‘The Extent and Limitations of Arbitrators’ Discretionary Powers’.
I love conferences in Kuala Lumpur and am happy to speak at them, but what is it with me and debates? Anyway, this one was moderated by Adrian See. My opponent, Teh Wai Fung, argued that ‘arbitrators should take an active role in procedural matters and develop mechanisms to safeguard the arbitral process’. I argued that ‘arbitration is mainly a party-driven task and that arbitrators may rely on the cooperation of the parties to improve the overall effectiveness of arbitration’. Here’s my statement and my rebuttal.
The Statement
I will argue why I believe that arbitration is mainly a party-driven task and that arbitrators may rely on the cooperation of the parties to improve the overall effectiveness of arbitration. I cannot do so in fundamental disagreement with my learned friend, because I think he is very much right in his view. He’s not largely wrong, only partly. So my argument is a simple yes, but.
Yes, …
Yes, arbitrators should take an active role in procedural matters and develop mechanisms to safeguard the arbitral process. Simply because those involved in arbitration have allowed it to degenerate in recent years and decades. Parties have been complaining about this for as long as lawyers and arbitrators have been promising improvements. But not much has changed. We often talk about international best practices. This is not one of them. It is an international bad practice.
What am I talking about?
Many international commercial arbitrations are too formal and complicated, making a flexible and streamlined process lengthy and expensive. In short, arbitration is often inefficient.
This problem is less pronounced in specialised areas like maritime arbitration, where people better understand and utilise procedural flexibility. But in general commercial arbitration, flexibility has become a significant disadvantage. Unfortunately, this problem often stems from how the parties, their lawyers and even the arbitrators handle the process.
The Theory
In arbitration, the parties have almost complete control over the process, thanks to the principle of private autonomy. This means they can tailor the process to their specific needs, as long as the arbitrators follow due process. If the arbitrators do not follow due process, a court can later set aside their award. But ideally, this almost total control of the process by the parties should mean a flexible and tailored process. Not too much, not too little. Just the right amount.
The Practice
In practice, arbitration often gets bogged down in excessive formalities and motions, not for sense, but to complicate matters for the other side. These are ‘guerrilla tactics’. In such a situation, if an arbitrator fears a court will set aside his award for not following due process, he often reacts with excessive caution, granting extensions of time and allowing further written submissions when he shouldn’t. This is ‘due process paranoia’, and when guerrilla tactics and due process paranoia meet, your inefficient arbitration is perfect.
Against this background, stakeholders are rightly calling for arbitrators to engage in procedural matters and develop safeguards for the arbitral process. After all, if arbitration fails to be a good alternative dispute resolution, why should parties choose it over other methods?
So yes, arbitrators should do that.
… But
For all our love of efficiency, our love of private autonomy should be greater. An arbitrator is not a judge! In addition to deciding disputes, a judge maintains and develops the law – especially in precedent-based jurisdictions – and preserves the unity of the law and public order. A judge must therefore protect not only the interests of the parties, but also those of the general public.
The Core Concept of Arbitration
An arbitrator need not do all this; indeed, an arbitrator must not do all this. Instead, an arbitrator must decide the dispute before him – and only that dispute – and why? Because the parties have brought it before him in their private capacity. A court exists because the constitution says so, but an arbitral tribunal exists because of an arbitration agreement.
We therefore accept as a core concept of arbitration that an arbitrator decides the dispute completely detached from general considerations, because his existence as an arbitrator is based on the will of private parties.
We must accept this concept in its entirety. Not only can the parties privately and autonomously agree to arbitrate, they can also agree to arbitrate inefficiently, and if they do, the arbitrator must accept this (although perhaps he should ensure that he is paid properly and on time). The arbitrator must not put his own view of efficiency above that of the parties. If the parties agree that there is no need to safeguard the arbitral process, the arbitrator must not safeguard it.
Private Autonomy and Inefficient Arbitration
Certainly, the parties will not normally agree to an inefficient procedure (whatever that may be). If one party sabotages the agreed procedure, it will be in breach of the arbitration agreement. So how do you avoid this or any other unwanted inefficiency? Well, first and foremost, you don’t do it by throwing something at the parties that doesn’t come from them. Arbitration, as a private process, requires that you do it by involving the parties. In short: safeguarding the process is what the parties say it is.
This means that if an arbitration is inefficient according to the arbitration agreement, arbitrators should primarily work with the parties to make improvements. Only under this premise and within this framework should arbitrators be procedurally active and develop safeguards for the arbitral process. It seems to me that this is not always respected.
Is it bad for the parties to get involved before the arbitrator actively safeguards the process? No. Properly applied, this approach allows sophisticated parties to use arbitration without facing a nanny mechanism that protects interests determined by the arbitrator against their will. At the same time, it protects inexperienced parties if their arbitration agreement requires such protection.
This is an approach that respects arbitration’s basic tenet: private autonomy. It can create new international best practice where (and only where) needed, without risking the introduction of another bad practice.
The Rebuttal
My learned friend said that by agreeing to arbitration, the parties have delegated the power to manage the process to the arbitrator. He literally said, ‘Parties may not know what’s good for them.’
Really? Who are we to decide what’s good for the parties?
Don’t get me wrong, I’m all for arbitrators taking a very active role in procedural matters and safeguarding the process – in fact, as an arbitrator myself, I live by that principle. But only when the parties themselves cannot agree on the procedure (which, as we know, is often the case). And never, ever when the parties do agree on the procedure. Party autonomy doesn’t end with the constitution of the arbitral tribunal. This correct position is supported by the UNCITRAL Model Law and the New York Convention, which provide that an arbitral award may be set aside or its recognition refused if it is proved that the arbitral procedure was not in accordance with the agreement of the parties (Articles 34(2)(a)(iv), 36(1)(a)(iv) of the UNCITRAL Model Law; Article V(1)(d) of the New York Convention).
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See also my LinkedIn post and those of Asia International Arbitration Centre and Wai Fung on this event.
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