Precedent in Arbitration: Reality or my Wishful Thinking?

I. Introduction and Incentive

When reading an arbitral award, it is very common that one encounters a quote from another award rendered in similar circumstances. Tribunals either side with the argument posed by the other tribunal, oppose it or simply cite it as an illustration. This reminds me of a classic doctrine of precedent although it is excluded either expressly or impliedly by most of the rules administering international arbitration. Naturally, an arbitral award is far from being binding per se, however excluding precedents so vigorously as arbitral rules do makes me look like Kevin Spacey in the world-famous TV series House of Cards.

In my recent blog post I have marginally addressed the definition of the so-called territoriality requirement in several debt related investment arbitrations. I have mentioned that the Deutsche tribunal [Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award of 23 October 2012 (“Deutsche”)] fully endorsed the view taken by the Abaclat tribunal [Abaclat and others v. Argentina, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility of 4 August 2011 (“Abaclat”)] regarding the territoriality requirement and its effect on financial instruments as investments under relevant BIT’s. What I did not mention is that the finding made by the Abaclat tribunal is not a novelty because it was already expressed by the Fedax tribunal [Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on Jurisdiction of 11 July 1997, par. 40 (“Fedax”)] before any crisis hit Argentina and the Abaclat tribunal gave respective credit (Abaclat, par. 374, footnote no. 147).

One does not need to fully understand how was the territoriality requirement defined by any of the tribunals. In an abstract fashion, here is what I am trying to highlight- the Fedax tribunal came up with a “certain idea”, which was fully adopted by several completely independent tribunals in Abaclat, Ambiente Ufficio [Ambiente Ufficio S.p.A. and others v. Argentina, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility of 8 February 2013 (“Ambiente Ufficio”)] and Deutsche (one could also mention other cases but I want to focus on investments in financial instruments for now). And not only did the tribunals adopt the idea, they also expressly stated that they are doing so. For example the Deutsche tribunal decided on the issue by “applying the [Abaclat] test” (Deutsche, par. 290). Not to mention that the Ambiente Ufficio tribunal was “sympathetic” to the reasoning endorsed by the Abaclat tribunal and then relied on it on several occasions (Ambiente Ufficio, paras. 502, 505 or 508). Now, is this a precedent-like adherence to previous decisions without being bound to? In my opinion, yes and it set a fire of interest in me. How does this compare to commercial arbitration?

II. Brief Comparison of Precedent in Arbitration (Investment and Commercial)

A lot has been written about precedents, de facto precedents or the doctrine of stare decisis in international arbitration (see for example: Gabrielle Kaufmann- Kohler, Arbitral Precedent: Dream, Necessity or Excuse? – The 2006 Freshfields Lecture, Arbitration International, 2007, cited as “Kaufmann- Kohler”; M. C. Weidemaier, Toward a Theory of Precedent in Arbitration, William & Mary Law Review, 2010; Christoph Schreuer and Matthew Weiniger, “Conversation Across Cases: Is there a Doctrine of Precedent in Investment Arbitration?” in C. MacLachlan, L. Shore, M. Weiniger and L. Mistelis (eds.), International Investment Arbitration: Substantive Principles Investment Treaty Law, Oxford University Press 2008; A. Reinisch, The Role of Precedent in ICSID Arbitration, Austrian Arbitration Yearbook, 2008, “Reinisch” or J. P. Commission, Precedents in Investment Treaty Arbitration: a Citation Analysis of a Developing Jurisprudence, Arbitration International, 2007). What seems clear to me is that there is a significant distinction between investment and commercial arbitration when it comes to relying on previous decisions. Take for example that out of the 190 reviewed ICC awards, only 15 % cited previous decisions as support and most of those were in relation to procedure (Kaufmann- Kohler, p. 362). CISG related cases did not do much better when only about 6 % out of the available 100 awards referred to previous findings (Kaufmann- Kohler, p. 362).

In investment arbitration, the ICSID Convention is clear on the one hand in stating that the rendered award is only binding upon the parties to the particular dispute (art. 53 of the ICSID Convention similarly to all arbitration rules commonly used by commercial parties), which implicitly excludes the doctrine of stare decisis. But consider on the other hand statements like the one made by the Ambiente Ufficio tribunal:

“Quite evidently, it is highly common for arbitral tribunals in general and ICSID tribunals in particular to take inspiration from the decisions of other tribunals having faced similar questions or situations.” (Ambiente Ufficio, par. 11)

Similarly in Saipem (Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction, 21 March 2007, “Saipem):

“The Tribunal considers that it is not bound by previous decisions. At the same time, it is of the opinion that it must pay due consideration to earlier decisions of international tribunals. It believes that, subject to compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases. It also believes that, subject to the specifics of a given treaty and of the circumstances of the actual case, it has a duty to seek to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law.” (Saipem, par. 67)

This development has led prof. Reinisch to conclude that in ICSID arbitration there isa “kind of de facto case-law system whereby tribunals routinely rely upon previous decisions and discuss them as quasi-authoritative manifestations of the law” (Reinisch, p. 13). I completely endorse this view because it seems to me that stating the opposite, i.e. that there is no reliance on previous cases would be unsubstantiated. One could of course argue that for example in the SGS cases (Société Générale de Surveillance v. Philippines, ICSID, Case No. Arb/02/06 and Société Générale de Surveillance SA v. Pakistan, ICSID, Arb/01/13), completely different outcomes were made regarding the Umbrella clause. But even there, the latter tribunal found it important to distinguish the two cases based on different wordings of the relevant investment treaties.

III. Conclusions

What works in investment arbitration seemingly does not in commercial arbitration as shown in the above quoted statistics. One of the reasons may be that more international law educated arbitrators tend to decide investment arbitrations. The ICJ is famous for rarely overruling itself and the consistent decision-making on a certain topic is thus analogous. Another reason could be that commercial arbitration awards frequently stay confidential and there is hence lack of the body of case law to rely on (see Reinisch, p. 1). Plus, it can also be difficult do rely on a previous award in commercial arbitration, which were made in respect of a specially drafted contract.

Whatever the reason is, a de facto precedential system used in investment arbitration could benefit the realm of commercial arbitration as well. It could increase the predictability of the system and accordingly strengthen the trust of fair resolution of disputes.

Additionally, it is not like the arbitrators themselves would oppose such an idea in my view. The ones coming from common law countries are well familiar with stare decisis. Whereas the ones with a civil law background know the ideas of jurisprudence constante or rule of law, which both include the adherence to previous decisions of courts although without a strictly binding character. I am writing this blog post arguing for precedents although my education lies in the civil law part. I can moreover tell that a system of binding precedent or even de facto precedent as presented above would not work where the courts (judges in particular) are not developed to a certain level. This however is not an issue with arbitration where in most cases only the top experts in a certain field get nominated. Such decision-makers must be able to correctly rely on consistent previous decisions of other tribunals and vice versa, distinguish a case when necessary.

I have already exceeded my limit on word count per blog post but it is my blog anyway… Hence just two concluding remarks. Firstly, I think it would be beneficial if art. 59 of the ICSID Convention reflected the reality and was not so strict in precluding binding precedent. It could adopt the statement of the Saipem tribunal, which would give tribunals the opportunity to rely on previous case law without first denouncing stare decisis in investment arbitration. Secondly, I also believe that de facto precedents as they are used in investment arbitration could be very helpful for commercial arbitrators too. As I have stated above, this could by itself strengthen the predictability of commercial arbitration and thus force businesses to trust arbitration much more.

 written by Peter Plachy

Comment on this blog