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ARBITRAL PROCESS AND THE
POSSIBLE ABSURDITY OF THIRD
PARTY PARTICIPATION. CAN A
BALANCE BE STRUCK BETWEEN ITS
NECESSITY AND THE FORM OF THE
ARBITRAL PROCEDURE IN LIGHT OF
EXISTING CIRCUMSTANCES?
Onyeka Nwaigbo*
ABSTRACT: The concept and application of the process of arbitration has developed over
time. Presently, arbitration, although it remains a fluid and flexible system by nature, retains
some strict principles and rules that form the core foundation for which people resort to this
system of dispute resolution. One of such is party autonomy and the ability to determine the
process for which the process would take. There is also the basic acceptance that jurisdiction
of an arbitral tribunal stems from the consent of the parties (and this jurisdiction is strict,
and applies only to the parties to the arbitration agreement who have given consent). In
recent times however, there seems to be an advocation for more transparency in the process
of arbitration, and the possibility of third party participation in the process of arbitration for
the sake of proper determination of the dispute and public policy in some situations. However
one must consider the possible absurdity of these propositions. Multiparty systems of
arbitration has not been perfected, and accepting the participation of a third party (or an
Amicus Curiae as they are called) will be contrary to the privity of the arbitration agreement
(consent), which is the foundation upon which the arbitral process stands. This paper seeks
to consider these views, and offer a critique of the various propositions that have been made
as to the acceptance and participation of Amicus Curiae in the process of arbitration.
*
The author holds a Bachelor’s degree in Law. He is a member of the Nigerian Bar. His main research and
policy interests are in Regulatory Compliance and Contracting in the Energy Industry. At the time of writing,
he was a postgraduate candidate in International Dispute Resolution and Management in the Extractive Industry
at the Centre for Energy, Petroleum, Mineral Law and Policy (CEPMLP), University of Dundee, Scotland.
Email: onyeka.nwaigbo@yahoo.com
Table of Contents
Abbreviation List .......................................................................................................................2
1. Introduction ........................................................................................................................1
1.1 Concept of Arbitration ................................................................................................1
1.2 Third Party Interest and Participation: The role of Amicus Curiae in Adjudication .......2
2. Theoretical premise for the justification of the participation of third party .......................5
3. The Amendments Made so Far...........................................................................................7
4. Conclusion........................................................................................................................10
References................................................................................................................................11
Abbreviation List
BIT Bilateral Investment Treaty
ECHR European Court of Human Rights
ICSID International Centre for the Settlement of Investment Dispute
NGO Non-governmental organizations
UNCITRAL United Nations Commission on International Trade Law
WTO World Trade Organisation
1
1. Introduction
In accepting the intervention of third parties (or Amicus Curiae which means “friend of
court”) in the process of arbitration as suggested by various commentators, one must consider
the concept of these Amici (Plural) and how it has been applied through time. It is indeed a
matter of great interest and it will continue generate legal debates in the future. The idea of
Amicus Curiae is applied in various forms of adjudication. In the methods available for the
settlement of dispute, there is a clear distinction between the Litigation process and that of
Arbitration, which need not be stated here, but suffice it to say that International Arbitration
has become the most favoured method of dispute resolution between states, individuals and
corporations with respect to issues relating to international trade, investment and commerce.
This is evidenced by the increasing number of arbitration centres, and the increasing number
of submitted cases reported by these centres.1
This reason is not so difficult to comprehend,
as Arbitration provides for complexities and flexibility that Litigation cannot.
1.1 Concept of Arbitration
Arbitration is a dispute resolution mechanism that requires the consent of the parties to the
arbitration. The principle of “Party Autonomy” allows parties to contractually determine the
particular process and sets of persons they wish to be parties of the arbitral proceedings.
Therefore, before there can be an arbitration there must be an agreement to arbitrate. This
contractual consent is usually in form of a written clause in a commercial agreement or a
treaty, referring disputes to an arbitral tribunal. Also, there can be consent to an arbitration
when there is an existing dispute and the parties subsequently enter a form of “submission
agreement” which spells out the terms and upon which the dispute is to be submitted for
arbitration. This clause or agreement can set out the rules which the tribunal shall utilise in
the determination of the dispute.
When a dispute does arise, the arbitration agreement is activated, and a tribunal is setup either
on an ad hoc basis or an institution which will administer the dispute under its rules, all this is
based upon the agreement of the parties. It is therefore a creation of the law of contract, and
therefore the rules of contract will apply, such as contractual privity. This means that only
parties to the contract can rely on the terms of the contract. This process of adjudication is
different from litigation, which does not require the consent of both parties. Litigation is
1
Blackaby, Nigel, Partasides, Constantine, Redfern, Alan,Hunter, Martin 2009, Redfern and Hunter on
international arbitration, Oxford University Press, Oxford Page 1
2
guided by the rules set out by the state; parties can be compelled to litigate, even without their
prior consent. Also, Litigation is neither confidential nor private. This lack of confidentiality
marks a great advantage arbitration had over the process of litigation (or it was, because
recently there are many who challenge the concept of confidentiality and claim the secretive
nature does not bode well for public policy purposes). Arbitration is also a very flexible
system and, unlike litigation, parties to an arbitral process can determine what they want the
process to be, and shape the applicable rules to suit their commercial needs. This is rare for
most dispute resolution mechanisms.
There are various forms of arbitration. For the purpose of this paper I will like to use the
distinction between “International Commercial Arbitration”- which basically has to do with
disputes affecting two private parties- and International Investment Arbitration or “Investor –
State Arbitration”- which involves a state party as one of the parties to the arbitration.
Investor – State Arbitration frequently concerns the public services sector which may include
oil and gas, water, or waste management and also involves some form of government
regulation aimed at the public welfare.2
This distinction in the various forms in which the
decisions of tribunal may affect third parties was recognised in the case of Methanex
Corporation v. United States of America. The U.S. government acknowledged that
investment disputes are "to be distinguished from a typical commercial arbitration on the
basis that a State [is] the Respondent, the issues [have] to be decided in accordance with a
treaty and the principles of public international law and a decision on the dispute could have a
significant effect extending beyond the two Disputing Parties."3
1.2 Third Party Interest and Participation: The role of Amicus Curiae in Adjudication
Amicus Curiae (plural Amici Curiae, "friend of the court") is someone who is not a party to a
case who offers information that bears on the case but that has not been solicited by any of
the parties to assist a court. An external third party who has strong interest in (or has views he
wishes to express on) the subject matter of an action. He may appeal to the court or tribunal
for consent to file a brief, on behalf of a party or to state its own views. These amicus curiae
briefs are ordinarily submitted in appeals regarding matters of extensive public interest; e.g.,
2
Eugenia Levine, Amicus Curiae in International Investment Arbitration: The Implications of an Increase in
Third-Party Participation, 29 Berkeley J. Int'l Law. 200 (2011). Available at:
http://scholarship.law.berkeley.edu/bjil/vol29/iss1/6
3
Methanex Corp. v. United States, Decision of the Tribunal on Petitions from Third Persons to Intervene as
Amici Curiae, Jan. 15, 2001, Page 17
3
civil rights cases. In the U.S. courts of appeals, an amicus submission may be filed only if
complemented by written consent of all parties, or by permission of court granted on motion
or at the request of the court, except that consent or leave shall not be required when the brief
is presented by the United States or an officer or agency thereof.4
An examination of the participation of Amicus to date will reveal an increase in the interest
of third parties in participation as well as an increased tolerance by institutions towards the
phenomenon. It is also clear from the cases available that participation right is also restricted
and limited.5
It is still a discretionary right held by tribunals and has not yet been formalized.
It is an accepted obvious fact that third party interests do exist and they are worth protecting.
However the question here is how these third party rights may be protected in a closed system
such as arbitration.
The role of the amicus offers certain advantages compared to the other forms of participation
in proceedings either as a party, experts, witnesses or any other form. It is generally less
costly and time-consuming than mounting a full case, allowing the Amicus to share the
litigating burden with the parties; Amici are not bound by the decision and not prevented
from re-litigating issues in the case should the holding be unfavourable. Unlike experts or
witnesses, Amicus generally may raise any issue the court or tribunal could raise on its own
motion and are not limited by questions presented to them or to matters pleaded by the
parties. Finally, it is usually easier for them to participate because the interest required for
amicus status is less than that required to be a party by intervention.
An intervener must have a direct personal interest in the subject matter, an interest that will
entail a direct gain or loss by the direct legal operation of the judgement. In contrast courts
and tribunals usually permit an Amicus to participate on the basis of a general interest, plus
the desire to prevent a collusive suit, to protect unrepresented persons or the public interest,
or to point out an error or make clearer a certain fact.6
From a domestic perspective, Amicus
intervention and participation has involved a range of participants including Individuals,
Organisations and even Foreign Governments. From the international perspective, the
acceptance of third party participation varies depending on the forum.
4
RULE 37. BRIEF FOR AN AMICUS CURIAE, Supreme Court Rules of the United States of America
5
Supra note 2 at Page 214
6
Am. J. Int'l L. 611 (1994) Participation of Nongovernmental Organizations in International Judicial
Proceedings, The; Shelton, Dinah
4
For instance, the International Court of Justice has a rather restrictive practice in relation to
third party participation. In the land and maritime boundary dispute between Cameroon and
Nigeria, the court observed that the rights and interests of third states (Equatorial Guinea and
Sao Tome and Principe) might become involved. The court subsequently made an order dated
21st
October, 1999 unanimously authorizing the region of Equatorial Guinea to intervene in
the dispute as a non-party. The region of Sao Tome had chosen not to intervene.7
This
allowance by the court was based on the fact that certain elements of its final decision will
affect the rights of these third parties.
The European Court of Human Right (ECHR) has in its governing convention specific
provisions for the acceptance of Amicus Curiae.8
Also, the World Trade Organisation (WTO)
also permits a limited form of Amicus intervention through Amicus Briefs.9
Amicus
participation in dispute resolution measures customarily takes the form of written
submissions addressed to the decision-maker;10
however, third party involvement is not by
definition limited to written submissions. For instance, the ECHR has previously permitted
third parties to participate in the oral hearings stage of the proceedings. The court justified
such broad rights of intervention on the basis that it highlighted "the general importance of
the issue in the territories of all Contracting Parties."
This concept is somewhat foreign to the process of arbitration because, although arbitration
allows for experts and other form of participants for the purpose of evidence, an Amici will
be a third party participating in the process of dispute resolution, when he/she was not party
to the arbitration agreement. The prevailing view is that third parties have no relevance in the
arbitration process (although there seems to be a shift from this generally accepted view in
recent times). Four arguments can be put forward to support this prevailing view. The first
relates to the contractual nature of the arbitration process, which has attained a sacrosanct
rule in arbitration.
7
Am. J. Int'l L. Vol.97No2 (2003) Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v.
Nigeria; Equatorial Guinea intervening); Bekker, Pieter
8
See European Convention on Human Rights art. 36(2), Nov. 4, 1950, 213 U.N.T.S. 222, stating: "The
President of the Court may, in the interest of the proper administration of justice, invite any High Contracting
Party which is not a party to the proceedings or any person concerned who is not the applicant to submit written
comments or take part in hearings."
9
See, e.g., WTO, Understanding on Rules and Procedures Governing the Settlement of Disputes, art. 17(9),
available at http://www.wto.org/english/tratope/dispu e/dsu-e.htm;
10
Lance Bartholomeusz, The Amicus Curiae Before International Courts and Tribunals, 5 NON-STATE
ACTORS & INT'L L. 209, 211 (2005).
5
Privity of contracts is a foundational principle of the law of contracts and cannot be varied.
The contract to arbitrate cannot, therefore, be applied by parties who are not parties to the
contract. The second argument is that third parties get what they negotiated for, or rather
what they failed to negotiate for, and by including Amicus in an arbitral process will be
granting them a benefit they did not agree to, to the detriment of the parties in the dispute.
The third argument is based on the confidential nature of arbitration, which is an attractive
feature of the process.11
The fourth basis for the challenge of third party participation is the
jurisdiction question. Tribunals have power over only those who have submitted to its
proceedings, it cannot exercise this authority or control the actions of outsiders, and that is
exactly who an Amicus is, an outsider.
2. Theoretical premise for the justification of the participation of third party
Arbitration, as stated above is a contractual matter, and is directed by the principle of
“Procedural Party Autonomy”. This flexibility has allowed parties frame the arbitral system
to suit their commercial needs which is a particular advantage over litigation. However this
strict compliance to the rule of privity has its own disadvantages as advocated by scholars
who would prefer more third party participation, claiming that it will lead to unfavourable
results if Amici are left out of the arbitration process. The question I would ask any such
scholar is this: unfavourable results for whom exactly? Because the interest of both parties
are worth considering.
If third parties are allowed to interfere in matters they did not bargain for what will become
of the purpose and protection offered by an arbitration agreement? In pure commercial
transactions, parties are allowed to provide for terms that cover dispute resolution. Third
parties are by this “privity” entirely excluded from the process, no matter how interested they
may be in the matter before the arbitrators. At this point we considered some legitimate
interest of third parties, which have been taken into account for the acceptance of Amicus
Curiae in arbitration.
11
The Relevance of Interest of Third Parties in Arbitration: taking a closer look at the elephant in the room. By
Stavros Brekoulakis. 113 Penn St. L. Rev. 1165. Page 1171. Available at
http://pennstatelawreview.org/articles/113%20Penn%20St.%20L.%20Rev.%201165.pdf
6
It has been argued by some that arbitration should operate as an open dispute resolution
system.12
My view is more restrictive. If it was party’s intention to have an open dispute
resolution mechanism, they may not have chosen arbitration, which is widely known as a
private system of dispute resolution. However, for Investor-State arbitration, there is a wider
public interest that needs to be considered, and on that basis it may be more justified to allow
Amicus Curiae.
With respect to arbitration in general (both Commercial and Investor-State Arbitration), due
to the effects of globalization and the expansion of economic activities, interests of parties are
always intertwined and transactions require the participation of multiple parties. For example,
a typical construction project may involve the employer and the main contractor but also an
engineer or an architect, several subcontractors, suppliers, project managers and financiers.13
Thus, a dispute between two parties will not do justice to the wider interested parties
connected to the dispute. Allowing parties in such an entangled situation seek recourse from
different tribunals and courts will amount to “jurisdictional fragmentation of a multiparty
project.”14
It is therefore expected that the outcome of arbitration will adversely have an
impact on some parties who did not participate in the arbitration. This possibility is provided
against under most civil procedure codes in litigation.
In Investor- State Arbitration, this issue has faced even more criticism due to its impact on
public interest. This even led to the amendment of the International Centre for the Settlement
of Investment Dispute (ICSID) Rules of Arbitration proceedings (the ICSID Arbitration
Rules) which took effect on April 10, 2006. An example of such public view on the impact of
arbitral awards on third parties is stated bellow:
“But the arbitration process itself is often one-sided, favouring well-heeled
corporations over poor countries, and must be made fairer than it is today. Unlike
trials, arbitrations take place in secret. There is no room in the process to hear
people who might be hurt, in this case Ecuador's rainforest dwellers. There is no
appeal. And the rules of the game are such that when companies seek to recover
12
Ibid at page 1167
13
Example: A subcontractor of a project may not participate in arbitration between its employer and the owner
of the project, even if the basis of the arbitration is on the defective nature of the work done by the
subcontractor. Also, a guarantor may not participate in arbitration between the creditor and debtor.
14
Ibid note 8 at page 1168
7
damages, arbitration panels tend to focus narrowly on the issue of whether a
company's profits were affected by a government action….”15
Although this view may not reflect the entire spectrum of the Investor-State Arbitration, it is
not difficult to see where the writer gets this perspective from, and why his conclusions about
Investor-State Arbitration seem negative. As stated above, Investor-State Arbitration
frequently concerns the public services sector, such as water, oil and gas, or waste
management and also involves some form of government regulation aimed at the public
welfare. This has called for more public involvement in the process of arbitration when a
state party is involved to add transparency and reduce the democratic deficit in the arbitral
process. These concerns have not been made about Commercial Arbitration, because the
public interest issue does not apply, and parties get what they contracted for.
I do believe arbitration should be more developed and equipped to deal with the interests of
third parties. However, it will be absurd if the entire system was thrown open to all outsiders
with any form of legal or financial interest. This position is limited to Investor-State
Arbitration, because of the possible public interest involved. Regulation in this aspect should
be strict, and the intention of the parties of the arbitration should be considered before that of
outsiders. The tribunal has jurisdiction over the parties before it and nobody else. Changing
the foundation of the system will not enhance its efficiency or widen its material scope. It
will only make it less of arbitration and more of something else.
3. The Amendments Made so Far.
The initial reaction was to refuse third-party participation in the process of arbitration on
account of the nature of the arbitration process. In Aguas del Tunari SA v. The Republic of
Bolivia16
, known as the Bechtel case, arbitration pursuant to the Netherlands-UK Bilateral
Investment Treaty (BIT). The ICSID tribunal in interpreting the provisions of the ICSID
convention and the BIT came to the conclusion that the participation of a third party was a
decision to be made by the parties to the dispute. Since the parties did not consent, the
tribunal lacked the power to allow any form of third-party intervention. This decision was
criticised for depriving the public of reasonable expectation. It is surprising that the tribunal
didn’t consider the reasoning behind the need for an Amicus, as was done in Methanex,
15
New York Times: http://www.nytimes.com/2004/09/27/opinion/27mon3.html?_r=0
16
Aguas dal Tunari SA v. The Republic of Bolivia, ICSID Case No. ARB/03/02 (Oct. 21,
2005).
8
which accepted this need for change as far back as 2001.17
Even when the attendance of
parties could not be permitted by the tribunal, it would have still been of benefit to the
tribunal if they accepted written submissions from the third party Amicus.
The turning point in ICSID arbitration for the acceptance of third party participation was the
case of Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v.
Argentine Republic, ICSID Case No. ARB/03/19 (formerly Aguas Argentinas, S.A., Suez,
Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine
Republic). The first decision on this upon the acceptance of amicus in this case was made on
May 19th
, 200518
, which was almost a year before the amendment of the ICSID arbitration
rules. However the reasoning of the panel reflected the current position and the need for
change. The five non-governmental organizations (NGOs) seeking to be Amici filed
requesting the following reliefs: (a) access to the hearings of the tribunal; (b) a chance to
present legal arguments as amicus curiae; and (c) unrestricted access to all the documents in
the case. These petitions were made during the jurisdiction phase of the proceedings.
The first request was not granted because the Claimant did not grant his consent to allow a
third party attend the hearing. The consent of both parties was required before a third party
could be allowed to attend hearings by virtue of Rule 32(2) of the ICSID Arbitration Rules
(which is a similar statement with the current ICSID rules). The tribunal however found that
it had the power to accept amicus submissions under the last sentence of Article 44 of the
ICSID Convention which allowed the tribunal decide upon questions that were not expressly
provided for by the Convention of the Arbitration Rules. It went further to state the grounds
upon which a submission will be accepted in an ICSID Arbitration: (a) the appropriateness of
the subject matter of the case; (b) suitability of any non-party to act as amicus curiae in that
case; and (c) the procedure by which the amicus curiae submission is made and considered.
What is interesting to note is the timing of this decision and the fact that the Arbitration Rules
had not provided an amendment for this allowance. However tribunals at this point had seen
it as expedient to recognize the interest of the public and any civil right group that
represented the public’s interest in any case involving the Investors and State. Of course after
17
Supra note 3
18
Order in Response to a Petition for Transparency and Participation as Amicus Curiae: available at -
http://italaw.com/sites/default/files/case-documents/ita0815.pdf
9
this came the amendments to the International Centre for Settlement of Investment Disputes
(“ICSID”) Rules of Procedure for Arbitration Proceedings which took effect on April 10,
2006 new Rule 37(2) deals with written amicus curiae and new Rule 32(2) deals with the
attendance of non-parties at hearings. (Which was applied in Biwater Gauff (Tanzania) Ltd. v.
United Republic of Tanzania, ICSID Case No. ARB/05/22). Most recently, on 11 July 2013,
the United Nations Commission on International Trade Law (UNCITRAL) adopted the
UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (the
"Transparency Rules").19
The Transparency Rules signify an essential modification from the standing of arbitrations
conducted outside the public spotlight. Undeniably, confidentiality is often an appreciated
feature of Commercial Arbitration. But in Investor-State disputes, the proceeding involves a
State and often matters of public interest, and also involves taxpayer funds. Recognizing the
essential role of the public as an interested party in Investor-State disputes, UNCITRAL
commenced the drafting of the new Transparency Rules to deliver a form of transparency and
accessibility to the interested parties/public of these disputes, which is unprecedented. The
Rules are stated to also be innovative in its approach to harmonizing the public interest in an
arbitration involving a State, and the interest of the disagreeing parties in a fair and efficient
resolution of their dispute. These new rules will come into effect on 1 April 2014. They will
only apply to treaty-based investor-State arbitration.
19
United Nations information service. Available at:
http://www.unis.unvienna.org/unis/pressrels/2013/unisl186.html
10
4. Conclusion
As it has become obvious, third party interest cannot be ignored in Investor-State Arbitration.
As such, it has become necessary to balance the attractive features of the arbitration process
against the changes that need to be made. These changes, which have been suggested, will be
only to the extent that they do not rob either party of fair hearing and the interference of an
amicus must not interfere with the duties of the tribunal. These changes will not be suggested
for commercial Arbitration because business/commercial parties should be allowed to
determine by their autonomy what they want their procedure to be.
Forcing commercial parties to accept third parties will, in my opinion, lead to a breakdown in
the confidential process of arbitration. In commercial arbitration, therefore, parties should
simply exercise diligence, and not be negligent during the contracting stage. They may
determine at this stage how to get remediated if any breach occurs. Whichever way the
process is to be amended, parties should be left with the flexibility that attracted them to the
process of arbitration.
Should any of these changes be made to Commercial Arbitration? It will be wrong to
hurriedly apply any changes to the rule in commercial arbitration. This is because the effect
of amicus in investor-state arbitration is slightly different and carries more weight compared
to commercial arbitration. It cannot be said that there exists no third party interest, however
the third party interests in this case are mostly contractual, and therefore parties can by these
same contracts determine what they may want their future dispute resolution tribunals to be.
Imposing third parties via rules will rid commercial arbitration of some of its most attractive
features to commerce, which are flexibility and confidentiality. Although an Amicus Curiae
cannot change the direction of the proceedings, he will be an added burden to the parties, as
they may have to respond in some way to the briefs of the amicus. This burden will be unfair
to commercial parties who have no foreknowledge of any added interest apart from those of
the parties to the arbitration clause.
11
References
PRIMARY SOURCES
Treaties
European Convention on Human Rights art. 36(2), Nov. 4, 1950, 213 U.N.T.S. 222
International Decisions
Aguas dal Tunari SA v. The Republic of Bolivia, ICSID Case No. ARB/03/02 (Oct. 21,
2005).
Methanex Corp. v. United States, Decision of the Tribunal on Petitions from Third Persons to
Intervene as Amici Curiae, Jan. 15, 2001, Page 17
World Trade Organization, Understanding on Rules and Procedures Governing the
Settlement of Disputes, art. 17(9), available at http://www.wto.org/english/tratope/dispu
e/dsu-e.htm;
National Legislation
RULE 37. BRIEF FOR AN AMICUS CURIAE, Supreme Court Rules of the United States of
America
SECONDARY SOURCES
Books
Bartholomeusz, L. (2005). The Amicus Curiae Before International Courts and Tribunals.
Non-State Actors and international Law.
Blackaby, N. P. (2009). Redfern and Hunter on International Arbitration. Oxford University
Press.
Brekoulakis, S. (2009). The Relevance of Interest of Third Parties in Arbitration: taking a
closer look at the elephant in the room. penn State Law Review.
Levine, E. (2011). Amicus Curiae in International Investment Arbitration: The Implications
of an Increase in Third-Party Participation. Berkeley Journal of International Law.
Journals
Bekker, P. H. Land and Maritime Boundary Between Cameroon and Nigeria (Cameroon v.
Nigeria; Equatorial Guinea intervening). Am. J. Int'l L. Vol.97No2 (2003) at 387.
Shelton, D. Participation of Nongovernmental Organizations in International Judicial
Proceedings. Am. J. Int'l L. 611 (1994)
12
OTHER
Internet sources
New York Times: http://www.nytimes.com/2004/09/27/opinion/27mon3.html?_r=0
Order in Response to a Petition for Transparency and Participation as Amicus Curiae:
available at - http://italaw.com/sites/default/files/case-documents/ita0815.pdf
United Nations information service. Available at:
http://www.unis.unvienna.org/unis/pressrels/2013/unisl186.html

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Writing Sample 3 - Onyekachukwu Nwaigbo

  • 1. ARBITRAL PROCESS AND THE POSSIBLE ABSURDITY OF THIRD PARTY PARTICIPATION. CAN A BALANCE BE STRUCK BETWEEN ITS NECESSITY AND THE FORM OF THE ARBITRAL PROCEDURE IN LIGHT OF EXISTING CIRCUMSTANCES? Onyeka Nwaigbo* ABSTRACT: The concept and application of the process of arbitration has developed over time. Presently, arbitration, although it remains a fluid and flexible system by nature, retains some strict principles and rules that form the core foundation for which people resort to this system of dispute resolution. One of such is party autonomy and the ability to determine the process for which the process would take. There is also the basic acceptance that jurisdiction of an arbitral tribunal stems from the consent of the parties (and this jurisdiction is strict, and applies only to the parties to the arbitration agreement who have given consent). In recent times however, there seems to be an advocation for more transparency in the process of arbitration, and the possibility of third party participation in the process of arbitration for the sake of proper determination of the dispute and public policy in some situations. However one must consider the possible absurdity of these propositions. Multiparty systems of arbitration has not been perfected, and accepting the participation of a third party (or an Amicus Curiae as they are called) will be contrary to the privity of the arbitration agreement (consent), which is the foundation upon which the arbitral process stands. This paper seeks to consider these views, and offer a critique of the various propositions that have been made as to the acceptance and participation of Amicus Curiae in the process of arbitration. * The author holds a Bachelor’s degree in Law. He is a member of the Nigerian Bar. His main research and policy interests are in Regulatory Compliance and Contracting in the Energy Industry. At the time of writing, he was a postgraduate candidate in International Dispute Resolution and Management in the Extractive Industry at the Centre for Energy, Petroleum, Mineral Law and Policy (CEPMLP), University of Dundee, Scotland. Email: onyeka.nwaigbo@yahoo.com
  • 2. Table of Contents Abbreviation List .......................................................................................................................2 1. Introduction ........................................................................................................................1 1.1 Concept of Arbitration ................................................................................................1 1.2 Third Party Interest and Participation: The role of Amicus Curiae in Adjudication .......2 2. Theoretical premise for the justification of the participation of third party .......................5 3. The Amendments Made so Far...........................................................................................7 4. Conclusion........................................................................................................................10 References................................................................................................................................11
  • 3. Abbreviation List BIT Bilateral Investment Treaty ECHR European Court of Human Rights ICSID International Centre for the Settlement of Investment Dispute NGO Non-governmental organizations UNCITRAL United Nations Commission on International Trade Law WTO World Trade Organisation
  • 4. 1 1. Introduction In accepting the intervention of third parties (or Amicus Curiae which means “friend of court”) in the process of arbitration as suggested by various commentators, one must consider the concept of these Amici (Plural) and how it has been applied through time. It is indeed a matter of great interest and it will continue generate legal debates in the future. The idea of Amicus Curiae is applied in various forms of adjudication. In the methods available for the settlement of dispute, there is a clear distinction between the Litigation process and that of Arbitration, which need not be stated here, but suffice it to say that International Arbitration has become the most favoured method of dispute resolution between states, individuals and corporations with respect to issues relating to international trade, investment and commerce. This is evidenced by the increasing number of arbitration centres, and the increasing number of submitted cases reported by these centres.1 This reason is not so difficult to comprehend, as Arbitration provides for complexities and flexibility that Litigation cannot. 1.1 Concept of Arbitration Arbitration is a dispute resolution mechanism that requires the consent of the parties to the arbitration. The principle of “Party Autonomy” allows parties to contractually determine the particular process and sets of persons they wish to be parties of the arbitral proceedings. Therefore, before there can be an arbitration there must be an agreement to arbitrate. This contractual consent is usually in form of a written clause in a commercial agreement or a treaty, referring disputes to an arbitral tribunal. Also, there can be consent to an arbitration when there is an existing dispute and the parties subsequently enter a form of “submission agreement” which spells out the terms and upon which the dispute is to be submitted for arbitration. This clause or agreement can set out the rules which the tribunal shall utilise in the determination of the dispute. When a dispute does arise, the arbitration agreement is activated, and a tribunal is setup either on an ad hoc basis or an institution which will administer the dispute under its rules, all this is based upon the agreement of the parties. It is therefore a creation of the law of contract, and therefore the rules of contract will apply, such as contractual privity. This means that only parties to the contract can rely on the terms of the contract. This process of adjudication is different from litigation, which does not require the consent of both parties. Litigation is 1 Blackaby, Nigel, Partasides, Constantine, Redfern, Alan,Hunter, Martin 2009, Redfern and Hunter on international arbitration, Oxford University Press, Oxford Page 1
  • 5. 2 guided by the rules set out by the state; parties can be compelled to litigate, even without their prior consent. Also, Litigation is neither confidential nor private. This lack of confidentiality marks a great advantage arbitration had over the process of litigation (or it was, because recently there are many who challenge the concept of confidentiality and claim the secretive nature does not bode well for public policy purposes). Arbitration is also a very flexible system and, unlike litigation, parties to an arbitral process can determine what they want the process to be, and shape the applicable rules to suit their commercial needs. This is rare for most dispute resolution mechanisms. There are various forms of arbitration. For the purpose of this paper I will like to use the distinction between “International Commercial Arbitration”- which basically has to do with disputes affecting two private parties- and International Investment Arbitration or “Investor – State Arbitration”- which involves a state party as one of the parties to the arbitration. Investor – State Arbitration frequently concerns the public services sector which may include oil and gas, water, or waste management and also involves some form of government regulation aimed at the public welfare.2 This distinction in the various forms in which the decisions of tribunal may affect third parties was recognised in the case of Methanex Corporation v. United States of America. The U.S. government acknowledged that investment disputes are "to be distinguished from a typical commercial arbitration on the basis that a State [is] the Respondent, the issues [have] to be decided in accordance with a treaty and the principles of public international law and a decision on the dispute could have a significant effect extending beyond the two Disputing Parties."3 1.2 Third Party Interest and Participation: The role of Amicus Curiae in Adjudication Amicus Curiae (plural Amici Curiae, "friend of the court") is someone who is not a party to a case who offers information that bears on the case but that has not been solicited by any of the parties to assist a court. An external third party who has strong interest in (or has views he wishes to express on) the subject matter of an action. He may appeal to the court or tribunal for consent to file a brief, on behalf of a party or to state its own views. These amicus curiae briefs are ordinarily submitted in appeals regarding matters of extensive public interest; e.g., 2 Eugenia Levine, Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third-Party Participation, 29 Berkeley J. Int'l Law. 200 (2011). Available at: http://scholarship.law.berkeley.edu/bjil/vol29/iss1/6 3 Methanex Corp. v. United States, Decision of the Tribunal on Petitions from Third Persons to Intervene as Amici Curiae, Jan. 15, 2001, Page 17
  • 6. 3 civil rights cases. In the U.S. courts of appeals, an amicus submission may be filed only if complemented by written consent of all parties, or by permission of court granted on motion or at the request of the court, except that consent or leave shall not be required when the brief is presented by the United States or an officer or agency thereof.4 An examination of the participation of Amicus to date will reveal an increase in the interest of third parties in participation as well as an increased tolerance by institutions towards the phenomenon. It is also clear from the cases available that participation right is also restricted and limited.5 It is still a discretionary right held by tribunals and has not yet been formalized. It is an accepted obvious fact that third party interests do exist and they are worth protecting. However the question here is how these third party rights may be protected in a closed system such as arbitration. The role of the amicus offers certain advantages compared to the other forms of participation in proceedings either as a party, experts, witnesses or any other form. It is generally less costly and time-consuming than mounting a full case, allowing the Amicus to share the litigating burden with the parties; Amici are not bound by the decision and not prevented from re-litigating issues in the case should the holding be unfavourable. Unlike experts or witnesses, Amicus generally may raise any issue the court or tribunal could raise on its own motion and are not limited by questions presented to them or to matters pleaded by the parties. Finally, it is usually easier for them to participate because the interest required for amicus status is less than that required to be a party by intervention. An intervener must have a direct personal interest in the subject matter, an interest that will entail a direct gain or loss by the direct legal operation of the judgement. In contrast courts and tribunals usually permit an Amicus to participate on the basis of a general interest, plus the desire to prevent a collusive suit, to protect unrepresented persons or the public interest, or to point out an error or make clearer a certain fact.6 From a domestic perspective, Amicus intervention and participation has involved a range of participants including Individuals, Organisations and even Foreign Governments. From the international perspective, the acceptance of third party participation varies depending on the forum. 4 RULE 37. BRIEF FOR AN AMICUS CURIAE, Supreme Court Rules of the United States of America 5 Supra note 2 at Page 214 6 Am. J. Int'l L. 611 (1994) Participation of Nongovernmental Organizations in International Judicial Proceedings, The; Shelton, Dinah
  • 7. 4 For instance, the International Court of Justice has a rather restrictive practice in relation to third party participation. In the land and maritime boundary dispute between Cameroon and Nigeria, the court observed that the rights and interests of third states (Equatorial Guinea and Sao Tome and Principe) might become involved. The court subsequently made an order dated 21st October, 1999 unanimously authorizing the region of Equatorial Guinea to intervene in the dispute as a non-party. The region of Sao Tome had chosen not to intervene.7 This allowance by the court was based on the fact that certain elements of its final decision will affect the rights of these third parties. The European Court of Human Right (ECHR) has in its governing convention specific provisions for the acceptance of Amicus Curiae.8 Also, the World Trade Organisation (WTO) also permits a limited form of Amicus intervention through Amicus Briefs.9 Amicus participation in dispute resolution measures customarily takes the form of written submissions addressed to the decision-maker;10 however, third party involvement is not by definition limited to written submissions. For instance, the ECHR has previously permitted third parties to participate in the oral hearings stage of the proceedings. The court justified such broad rights of intervention on the basis that it highlighted "the general importance of the issue in the territories of all Contracting Parties." This concept is somewhat foreign to the process of arbitration because, although arbitration allows for experts and other form of participants for the purpose of evidence, an Amici will be a third party participating in the process of dispute resolution, when he/she was not party to the arbitration agreement. The prevailing view is that third parties have no relevance in the arbitration process (although there seems to be a shift from this generally accepted view in recent times). Four arguments can be put forward to support this prevailing view. The first relates to the contractual nature of the arbitration process, which has attained a sacrosanct rule in arbitration. 7 Am. J. Int'l L. Vol.97No2 (2003) Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria; Equatorial Guinea intervening); Bekker, Pieter 8 See European Convention on Human Rights art. 36(2), Nov. 4, 1950, 213 U.N.T.S. 222, stating: "The President of the Court may, in the interest of the proper administration of justice, invite any High Contracting Party which is not a party to the proceedings or any person concerned who is not the applicant to submit written comments or take part in hearings." 9 See, e.g., WTO, Understanding on Rules and Procedures Governing the Settlement of Disputes, art. 17(9), available at http://www.wto.org/english/tratope/dispu e/dsu-e.htm; 10 Lance Bartholomeusz, The Amicus Curiae Before International Courts and Tribunals, 5 NON-STATE ACTORS & INT'L L. 209, 211 (2005).
  • 8. 5 Privity of contracts is a foundational principle of the law of contracts and cannot be varied. The contract to arbitrate cannot, therefore, be applied by parties who are not parties to the contract. The second argument is that third parties get what they negotiated for, or rather what they failed to negotiate for, and by including Amicus in an arbitral process will be granting them a benefit they did not agree to, to the detriment of the parties in the dispute. The third argument is based on the confidential nature of arbitration, which is an attractive feature of the process.11 The fourth basis for the challenge of third party participation is the jurisdiction question. Tribunals have power over only those who have submitted to its proceedings, it cannot exercise this authority or control the actions of outsiders, and that is exactly who an Amicus is, an outsider. 2. Theoretical premise for the justification of the participation of third party Arbitration, as stated above is a contractual matter, and is directed by the principle of “Procedural Party Autonomy”. This flexibility has allowed parties frame the arbitral system to suit their commercial needs which is a particular advantage over litigation. However this strict compliance to the rule of privity has its own disadvantages as advocated by scholars who would prefer more third party participation, claiming that it will lead to unfavourable results if Amici are left out of the arbitration process. The question I would ask any such scholar is this: unfavourable results for whom exactly? Because the interest of both parties are worth considering. If third parties are allowed to interfere in matters they did not bargain for what will become of the purpose and protection offered by an arbitration agreement? In pure commercial transactions, parties are allowed to provide for terms that cover dispute resolution. Third parties are by this “privity” entirely excluded from the process, no matter how interested they may be in the matter before the arbitrators. At this point we considered some legitimate interest of third parties, which have been taken into account for the acceptance of Amicus Curiae in arbitration. 11 The Relevance of Interest of Third Parties in Arbitration: taking a closer look at the elephant in the room. By Stavros Brekoulakis. 113 Penn St. L. Rev. 1165. Page 1171. Available at http://pennstatelawreview.org/articles/113%20Penn%20St.%20L.%20Rev.%201165.pdf
  • 9. 6 It has been argued by some that arbitration should operate as an open dispute resolution system.12 My view is more restrictive. If it was party’s intention to have an open dispute resolution mechanism, they may not have chosen arbitration, which is widely known as a private system of dispute resolution. However, for Investor-State arbitration, there is a wider public interest that needs to be considered, and on that basis it may be more justified to allow Amicus Curiae. With respect to arbitration in general (both Commercial and Investor-State Arbitration), due to the effects of globalization and the expansion of economic activities, interests of parties are always intertwined and transactions require the participation of multiple parties. For example, a typical construction project may involve the employer and the main contractor but also an engineer or an architect, several subcontractors, suppliers, project managers and financiers.13 Thus, a dispute between two parties will not do justice to the wider interested parties connected to the dispute. Allowing parties in such an entangled situation seek recourse from different tribunals and courts will amount to “jurisdictional fragmentation of a multiparty project.”14 It is therefore expected that the outcome of arbitration will adversely have an impact on some parties who did not participate in the arbitration. This possibility is provided against under most civil procedure codes in litigation. In Investor- State Arbitration, this issue has faced even more criticism due to its impact on public interest. This even led to the amendment of the International Centre for the Settlement of Investment Dispute (ICSID) Rules of Arbitration proceedings (the ICSID Arbitration Rules) which took effect on April 10, 2006. An example of such public view on the impact of arbitral awards on third parties is stated bellow: “But the arbitration process itself is often one-sided, favouring well-heeled corporations over poor countries, and must be made fairer than it is today. Unlike trials, arbitrations take place in secret. There is no room in the process to hear people who might be hurt, in this case Ecuador's rainforest dwellers. There is no appeal. And the rules of the game are such that when companies seek to recover 12 Ibid at page 1167 13 Example: A subcontractor of a project may not participate in arbitration between its employer and the owner of the project, even if the basis of the arbitration is on the defective nature of the work done by the subcontractor. Also, a guarantor may not participate in arbitration between the creditor and debtor. 14 Ibid note 8 at page 1168
  • 10. 7 damages, arbitration panels tend to focus narrowly on the issue of whether a company's profits were affected by a government action….”15 Although this view may not reflect the entire spectrum of the Investor-State Arbitration, it is not difficult to see where the writer gets this perspective from, and why his conclusions about Investor-State Arbitration seem negative. As stated above, Investor-State Arbitration frequently concerns the public services sector, such as water, oil and gas, or waste management and also involves some form of government regulation aimed at the public welfare. This has called for more public involvement in the process of arbitration when a state party is involved to add transparency and reduce the democratic deficit in the arbitral process. These concerns have not been made about Commercial Arbitration, because the public interest issue does not apply, and parties get what they contracted for. I do believe arbitration should be more developed and equipped to deal with the interests of third parties. However, it will be absurd if the entire system was thrown open to all outsiders with any form of legal or financial interest. This position is limited to Investor-State Arbitration, because of the possible public interest involved. Regulation in this aspect should be strict, and the intention of the parties of the arbitration should be considered before that of outsiders. The tribunal has jurisdiction over the parties before it and nobody else. Changing the foundation of the system will not enhance its efficiency or widen its material scope. It will only make it less of arbitration and more of something else. 3. The Amendments Made so Far. The initial reaction was to refuse third-party participation in the process of arbitration on account of the nature of the arbitration process. In Aguas del Tunari SA v. The Republic of Bolivia16 , known as the Bechtel case, arbitration pursuant to the Netherlands-UK Bilateral Investment Treaty (BIT). The ICSID tribunal in interpreting the provisions of the ICSID convention and the BIT came to the conclusion that the participation of a third party was a decision to be made by the parties to the dispute. Since the parties did not consent, the tribunal lacked the power to allow any form of third-party intervention. This decision was criticised for depriving the public of reasonable expectation. It is surprising that the tribunal didn’t consider the reasoning behind the need for an Amicus, as was done in Methanex, 15 New York Times: http://www.nytimes.com/2004/09/27/opinion/27mon3.html?_r=0 16 Aguas dal Tunari SA v. The Republic of Bolivia, ICSID Case No. ARB/03/02 (Oct. 21, 2005).
  • 11. 8 which accepted this need for change as far back as 2001.17 Even when the attendance of parties could not be permitted by the tribunal, it would have still been of benefit to the tribunal if they accepted written submissions from the third party Amicus. The turning point in ICSID arbitration for the acceptance of third party participation was the case of Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19 (formerly Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine Republic). The first decision on this upon the acceptance of amicus in this case was made on May 19th , 200518 , which was almost a year before the amendment of the ICSID arbitration rules. However the reasoning of the panel reflected the current position and the need for change. The five non-governmental organizations (NGOs) seeking to be Amici filed requesting the following reliefs: (a) access to the hearings of the tribunal; (b) a chance to present legal arguments as amicus curiae; and (c) unrestricted access to all the documents in the case. These petitions were made during the jurisdiction phase of the proceedings. The first request was not granted because the Claimant did not grant his consent to allow a third party attend the hearing. The consent of both parties was required before a third party could be allowed to attend hearings by virtue of Rule 32(2) of the ICSID Arbitration Rules (which is a similar statement with the current ICSID rules). The tribunal however found that it had the power to accept amicus submissions under the last sentence of Article 44 of the ICSID Convention which allowed the tribunal decide upon questions that were not expressly provided for by the Convention of the Arbitration Rules. It went further to state the grounds upon which a submission will be accepted in an ICSID Arbitration: (a) the appropriateness of the subject matter of the case; (b) suitability of any non-party to act as amicus curiae in that case; and (c) the procedure by which the amicus curiae submission is made and considered. What is interesting to note is the timing of this decision and the fact that the Arbitration Rules had not provided an amendment for this allowance. However tribunals at this point had seen it as expedient to recognize the interest of the public and any civil right group that represented the public’s interest in any case involving the Investors and State. Of course after 17 Supra note 3 18 Order in Response to a Petition for Transparency and Participation as Amicus Curiae: available at - http://italaw.com/sites/default/files/case-documents/ita0815.pdf
  • 12. 9 this came the amendments to the International Centre for Settlement of Investment Disputes (“ICSID”) Rules of Procedure for Arbitration Proceedings which took effect on April 10, 2006 new Rule 37(2) deals with written amicus curiae and new Rule 32(2) deals with the attendance of non-parties at hearings. (Which was applied in Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22). Most recently, on 11 July 2013, the United Nations Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (the "Transparency Rules").19 The Transparency Rules signify an essential modification from the standing of arbitrations conducted outside the public spotlight. Undeniably, confidentiality is often an appreciated feature of Commercial Arbitration. But in Investor-State disputes, the proceeding involves a State and often matters of public interest, and also involves taxpayer funds. Recognizing the essential role of the public as an interested party in Investor-State disputes, UNCITRAL commenced the drafting of the new Transparency Rules to deliver a form of transparency and accessibility to the interested parties/public of these disputes, which is unprecedented. The Rules are stated to also be innovative in its approach to harmonizing the public interest in an arbitration involving a State, and the interest of the disagreeing parties in a fair and efficient resolution of their dispute. These new rules will come into effect on 1 April 2014. They will only apply to treaty-based investor-State arbitration. 19 United Nations information service. Available at: http://www.unis.unvienna.org/unis/pressrels/2013/unisl186.html
  • 13. 10 4. Conclusion As it has become obvious, third party interest cannot be ignored in Investor-State Arbitration. As such, it has become necessary to balance the attractive features of the arbitration process against the changes that need to be made. These changes, which have been suggested, will be only to the extent that they do not rob either party of fair hearing and the interference of an amicus must not interfere with the duties of the tribunal. These changes will not be suggested for commercial Arbitration because business/commercial parties should be allowed to determine by their autonomy what they want their procedure to be. Forcing commercial parties to accept third parties will, in my opinion, lead to a breakdown in the confidential process of arbitration. In commercial arbitration, therefore, parties should simply exercise diligence, and not be negligent during the contracting stage. They may determine at this stage how to get remediated if any breach occurs. Whichever way the process is to be amended, parties should be left with the flexibility that attracted them to the process of arbitration. Should any of these changes be made to Commercial Arbitration? It will be wrong to hurriedly apply any changes to the rule in commercial arbitration. This is because the effect of amicus in investor-state arbitration is slightly different and carries more weight compared to commercial arbitration. It cannot be said that there exists no third party interest, however the third party interests in this case are mostly contractual, and therefore parties can by these same contracts determine what they may want their future dispute resolution tribunals to be. Imposing third parties via rules will rid commercial arbitration of some of its most attractive features to commerce, which are flexibility and confidentiality. Although an Amicus Curiae cannot change the direction of the proceedings, he will be an added burden to the parties, as they may have to respond in some way to the briefs of the amicus. This burden will be unfair to commercial parties who have no foreknowledge of any added interest apart from those of the parties to the arbitration clause.
  • 14. 11 References PRIMARY SOURCES Treaties European Convention on Human Rights art. 36(2), Nov. 4, 1950, 213 U.N.T.S. 222 International Decisions Aguas dal Tunari SA v. The Republic of Bolivia, ICSID Case No. ARB/03/02 (Oct. 21, 2005). Methanex Corp. v. United States, Decision of the Tribunal on Petitions from Third Persons to Intervene as Amici Curiae, Jan. 15, 2001, Page 17 World Trade Organization, Understanding on Rules and Procedures Governing the Settlement of Disputes, art. 17(9), available at http://www.wto.org/english/tratope/dispu e/dsu-e.htm; National Legislation RULE 37. BRIEF FOR AN AMICUS CURIAE, Supreme Court Rules of the United States of America SECONDARY SOURCES Books Bartholomeusz, L. (2005). The Amicus Curiae Before International Courts and Tribunals. Non-State Actors and international Law. Blackaby, N. P. (2009). Redfern and Hunter on International Arbitration. Oxford University Press. Brekoulakis, S. (2009). The Relevance of Interest of Third Parties in Arbitration: taking a closer look at the elephant in the room. penn State Law Review. Levine, E. (2011). Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third-Party Participation. Berkeley Journal of International Law. Journals Bekker, P. H. Land and Maritime Boundary Between Cameroon and Nigeria (Cameroon v. Nigeria; Equatorial Guinea intervening). Am. J. Int'l L. Vol.97No2 (2003) at 387. Shelton, D. Participation of Nongovernmental Organizations in International Judicial Proceedings. Am. J. Int'l L. 611 (1994)
  • 15. 12 OTHER Internet sources New York Times: http://www.nytimes.com/2004/09/27/opinion/27mon3.html?_r=0 Order in Response to a Petition for Transparency and Participation as Amicus Curiae: available at - http://italaw.com/sites/default/files/case-documents/ita0815.pdf United Nations information service. Available at: http://www.unis.unvienna.org/unis/pressrels/2013/unisl186.html