Arbitrators in Paris

A controversial aspect of the problem of multiple or parallel arbitral proceedings brought up during the 24th Annual Meeting of the ICC Institute in Paris, France on 15 November 2004 was the application of principles of civil law by way of solution. Commercial arbitration generally involves common law principles of good faith and equity. Hence, the decisions of arbitrators (whether sole or tribunal) are more according to general standards of substantive fairness and reasonableness rather than technical rules of evidence or procedure. Proponents of commercial arbitration lament the perceived tendency of some arbitrators to focus on, or adhere to, civil law concepts of res judicata, litis pendencia, estoppel, and the like. It is observed that in resolving jurisdictional issues, arbitrators increasingly resort to these civil law concepts obliterating in the process the arbitral nature of its own proceedings. In other words, arbitrators are behaving more like courts caught up in protracted or delayed proceedings. As often said, a first class jurist is not necessarily a good professional arbitrator. Nevertheless, that increasing complexity of arbitration proceedings is attributable to the adoption of civil law concepts is unsettled at the very least, even highly debatable.

In dealing, however, with multiple arbitral proceedings, it is unavoidable to consider litis pendencia, res judicata, injunction, forum non-conveniens and similar concepts. In this regard, therefore, arbitrators have no choice but to consider these concepts when faced with a dispute that is not only before them but also the subject of another arbitration proceeding. Other related matters in this determination are whether the outcome of the other arbitration proceeding would have any bearing or should have persuasive effect, or whether consolidation would be proper and feasible.

The problem of multiple arbitral proceedings has come about because of the emergence of other fora and modes of arbitration such as investment arbitration under the International Center for Settlement of Investment Dispute (ICSID). The risk of conflicting outcomes is the most important consideration in trying to resolve the problem of multiple arbitral proceedings. Such problem can only be resolved effectively if the subsequent arbitrator will recognize the binding nature of the determination of such issue by the present arbitrator or the persuasive effect of such determination.

So, is an arbitrator bound to apply litis pendencia such that he should reject or stay a request for arbitration because either or both parties have already instituted another arbitration proceeding? Arbitrators base their authority upon the arbitration agreement and the arbitration law of the palace of arbitration. While arbitrators are not supposed to consider a non-party’s arguments or other laws and rules, still arbitrators are duty bound to conduct arbitration proceedings in an appropriate manner, uphold due process and act judiciously.

According to one expert, a consensual solution is best. If that is not feasible, is declining jurisdiction the only option of the arbitrator? Such decline of jurisdiction would be based on litis pendencia. The concept of litis pendencia in arbitration is multi-faceted unlike in a court of civil law jurisdiction. One aspect is related to the recognition of a foreign award or judgment. Where a foreign arbitration proceeding has commended, a local arbitrator must acknowledge its litis pendencia effect. However, if the judgment of the foreign arbitration will not be recognized anyway in the local jurisdiction, then the local arbitrator need not yield to the foreign arbitration proceeding. It seems, therefore, that an arbitrator would have to resort to international public policy and use it to recognize the limitation of its own jurisdiction. If great injustice will occur to the respondent, for example, the arbitrator may very well decline or stay the local arbitration proceeding in favor of the foreign one.

Is consolidation an alternative to an outright denial of jurisdiction on the ground of the pendency of another arbitration proceeding? The principle of autonomy in arbitration limits the power of the arbitrator to allow one of the parties to join third party to the proceedings unless such joinder is agreed upon by all parties including such third party. Still, it seems that joinder or consolidation is the only solution toward coordinating parallel or multiple arbitral proceedings where these involve the same legal issues and revolve around the same set of facts. In this regard, however, it also seems that the only way to achieve this ideal scenario is for the arbitrator to actively promote and coordinate consolidation for agreement of the parties concerned. To stress, it cannot order a non-consenting party to agree to a consolidation. Further, the next key problem is crafting the consolidation agreement. One party might agree to a partial consolidation only or make a reservation as to its binding effect. Thus, the problem of multiplicity giving rise to conflicting outcomes remains.

Short of declining jurisdiction, and in view of the near impossibility of forging a consensual consolidation, arbitrators my stay the proceedings and await the outcome of a related proceeding dealing with the same issue involving the same parties, which outcome will have a persuasive effect in its own proceedings. Such a stay may be resorted to only if continuation of the proceedings by the arbitrator would create a risk of conflicting decisions on the same issues. Further, the persuasiveness of the outcome would still be dependent on the staying arbitrator. And more significantly, a stay will delay the proceedings, which is contradictory to the very concept of arbitration and the duty of the arbitrator. Thus, the implications of a stay in terms of the submission of documents, presence of non-parties, differences in governing law and procedural rules, border on due process boundaries. In the end, it seems that an effective and immediate solution to parallel arbitral proceedings is nowhere in sight. While some arbitration institutions like the ICC and ICSID may have reached an informal protocol on how to deal with jurisdictional issues, it has been suggested that multiple arbitral proceedings, whether involving the same parties, or even non-parties, or dissimilar claims, necessitates domestic legislation by way of solution. The Philippines recently passed Republic Act No. 9285 or "An Act to Institutionalize the Use of An Alternative Dispute Resolution system in the Philippines and to Establish Office of Alternative Dispute Resolution and for Other Purposes." Pertinently, it provides that the court shall have due regard to the policy of the law in favor of arbitration. Thus, where the action is commenced by or against multiple parties and non-parties, the court shall refer to arbitration those parties who are bound by the arbitration agreement although the civil action may continue as to those who are not bound by such arbitration agreement. This provision refers to non-party involvement and the possibility of an arbitration proceeding running simultaneously with a court proceeding. It does not purport to resolve the dilemma of two or more arbitration proceedings, whether domestic or international, dealing with the same dispute. The law, however, does provide for the grant of interim measure of protection such that it may be possible for an arbitrator (or a court) to issue a preliminary injunction directed against a party to refrain from instituting, or proceeding with, another arbitration.

An arbitration expert opined that litis pendencia should be supplemented to some extent by the rule of forum non conveniens that is a common law concept. A decision to refuse to exercise jurisdiction when there is already another arbitration proceeding is clearly more appropriate when there had been a weighing of factors such as the adequacy of the alternative forum, the residence of the parties, the location of the evidence, the law applicable, the effect of limitation period or the enforceability of any resulting judgment. Thus, whether it is strictly litis pendencia or one supplemented by forum non conveniens or only the latter, the question perhaps is whether the institution or continuation of multiple arbitral proceedings satisfies a bona fide requirement. What cold be asked by an arbitrator in deciding whether or not to yield jurisdiction to another arbitrator is whether the seizure of jurisdiction by the other arbitrator is not just a pretext for a party to evade its obligations or frustrate the other party’s legitimate jurisdictional rights. It goes without saying though that answering that question is hardly a walk in the part.

Applying the principle of hierarchy of courts to the arbitrators’ dilemma may offer a solution. It has been proposed that arbitration proceedings and awards be subjected to greater centralization. This means that there must be an international and/or interstate body with a sort of overall supervision over arbitrators and arbitration tribunals not necessarily as an appeals body but as a managing authority to decide which of parallel arbitration proceedings shall proceed or be stayed. But then again this proposal could be viewed as anathema to the sacred autonomy of arbitration.

(Atty. Teresita J. Herbosa is the Co-Managing Partner of Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW). She can be contacted at tel. no. 830-8000 and e-mail address: tjherbosa@accralaw.com.)