Between Theory and Practice: A Conversation about Future Trends in International Arbitration

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The following interview is based on an interview that Professor Horacio A. Grigera Naón gave for the ICC Arbitration Bulletin in Peru (Boletín de Arbitraje, No. 6, of July 2020). Professor Grigera Naón combines practice with teaching in a unique way. He is an Argentine national with worldwide experience in international arbitration. He served as Secretary General of the International Court of Arbitration at the International Chamber of Commerce in Paris (France). He founded the Center on International Commercial Arbitration at American University Washington College of Law in 2004 as a hub for critical thinking about international commercial and investment arbitration in Washington, D.C. Since then, he has devoted time both to teaching as well as the practice of arbitration as independent international arbitrator. So far, he has been involved in well over one hundred arbitrations between parties from around the world. His legal thought, as reflected in his writings as well as in published arbitral awards, has contributed to the shaping of international arbitration the way we know it today.

1. How do you see the present and the future of arbitration in Latin America?

If we take stock of what has happened in arbitration in Latin America—and my perspective extends from the late sixties and seventies until now—the balance is clearly positive. 

Back then, arbitration was not taught in Latin American universities; arbitration was governed by provisions of the Civil Procedure Codes, which were not adapted to the demands of this dispute resolution mechanism; there was great ignorance about how arbitration worked; and also, of course, there were important ideological reservations. 

With the passage of time, many of these issues related to arbitration were overcome, with ups and downs, as happens in all parts of the world. All Latin American countries updated their legislation on commercial arbitration, drawing directly or indirectly from the Model Law of the United Nations Commission on International Trade Law (UNCITRAL), which is a very useful instrument. The jurisprudence of the courts of justice has made important leaps in favor of arbitration in countries such as Argentina, Brazil, and Mexico.  In addition, the 1958 New York Convention on the recognition and enforcement of arbitral awards has been ratified by a growing number of countries. From this point of view, the balance is clearly positive.

There is another fundamental element to take into account: When I started in international arbitration, there were not many lawyers trained in the practice and teaching of arbitration. Today, it is remarkable how the quality, knowledge and practical approaches to the arbitration process has improved, and not only from a theoretical point of view. I would say, considering the cases that I hear, that the quality, the efficiency, the knowledge and, I must also say, the moral qualities of many of the Latin American lawyers and arbitrators who are currently active are up to the best international standards. I think this has been a very positive development.

The problem I see, as always happens in the application of law, is when purely legal issues that concern justice and the fairness of the decision of the specific case, are contaminated by ideological factors that have their origin in politics. This is particularly the case in investment arbitration, and unfortunately this also negatively and unnecessarily impacts commercial arbitration.  This is an issue that must be looked at carefully. In Latin America, however, I have not seen adverse impacts on international commercial arbitration.

2. In recent years, international arbitration institutions have reviewed and updated their Rules, introducing “new” features to improve the quality or increase the efficiency of the institution’s services. Among these features are "Accelerated Arbitration" and "Emergency Arbitration."  Have you had any experience with these features and, in any case, what is your opinion about them?

The emergency arbitrator is not so new. The idea has been around for a long time. My experience is limited. I had a single case in the framework of the ICC Rules.  I think that the emergency arbitrator can play a very positive role. In contrast, I am not as convinced about expedited arbitration modalities for relatively small claims. It is an issue that is being addressed by various institutions, including UNCITRAL. In my opinion, these are secondary questions.

International commercial arbitration, from its origins until now—and I am not talking about investment arbitration, which deserves specific consideration —, has the fundamental objective of meeting the needs of international commerce and facilitating the international circulation of private economic resources or, between private companies and government agencies or state-owned companies, but within a commercial framework of private law.

From that point of view, for an arbitral institution the arbitration of small amounts can be an interesting element to attract certain types of arbitrations. It may perhaps be that arbitral institutions offer these services out of a sense of competition between them. However, in my opinion, this is a secondary issue.

3. What do you think about the publication of international awards? Are we facing a trend that leaves aside the confidentiality of arbitration and leans towards the publicity of arbitrations?

In my opinion, it is important to distinguish between commercial arbitration and investment arbitration. In investment arbitration there are other interests and values ??at stake because of the presence of a State and because of the provisions of treaties governed by public international law. Within this international legal framework, arbitral awards play a vital role in the development and formation of international law.

In commercial arbitration, if the goal of the publication is the creation of an international jurisprudence on certain matters, I do not think that publication is ideal. The purpose of commercial arbitration is to give justice to the individual case and not create some rigid form of stare decisis.  

I do not see then what would be the need for such publicity. My concern—and this is a more general concern in relation to what I see in international commercial arbitration—is that there is a tendency to “reinvent the wheel.” For different reasons, people want to legislate in many aspects of international commercial arbitration, although it is not possible to perceive the usefulness of doing so. 

Arbitration, just like state adjudication through courts of justice, is not free from faults. The function of arbitration has always been to provide a truly internationalized dispute resolution mechanism with a very high degree of neutrality. If you want to change arbitration for another system, let it be done, but let's not transform arbitration into a hybrid because—in my modest opinion—the institution and the beneficial effects that it offers users today will be damaged.

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4. Recently, some commentators have suggested that the Prague Rules are a civil law response to the IBA Rules of Evidence, which represent a common law approach. In your experience as an arbitrator, have you noticed that contrast or conflict between parameters of “civil law” and “common law” in international arbitration?

My experience is that the practical parameters of international commercial arbitration that are applied are known to all who participate in this forum. I saw Latin American lawyers, trained in civil law, move flexibly within the framework of the Rules of the IBA. 

The issue is that international commercial arbitration is “one shot to try to get it right” because in reality it is a single instance. There are only very limited grounds for annulment pursuant to most arbitration laws in the world, such as corruption of the arbitrators, violation of due process, or because the arbitrators do not fulfill their mission. 

So there needs to be a greater chance of being able to provide evidence than there can be under any state court rules. Someone may argue that the rules applied in arbitration appear to be Anglo-Saxon, but they only seem so. In reality, these are rules developed within and for international arbitration that respond to an objective need to provide better justice to the parties in the particular circumstances of international commercial proceedings.

The IBA rules are not the rules of the Federal Rules of Civil Procedure in the United States. Each party submits the documents it considers necessary for its case. That is not discovery. Then, under Article 3, there is the possibility of obtaining documentation that is under the control of the other party, according to certain parameters that are established in that provision. So I don't see that contrast between common law and civil law without going into an analysis about what the Prague Rules and the IBA Rules say.

5. What is your opinion on the application of  “iura novit curia” or “iura novit arbiter” to international arbitration?

In my opinion, the meaning of "iura novit curia" must be well understood. It is one thing if someone invokes an applicable law and has not proven it sufficiently, and another thing is if the arbitral tribunal decides to apply a legal norm or a law that nobody invoked. If that distinction is possible, it may lend itself to different answers. In my opinion, the answer is only one: it should not proceed. I know of writings from very respectable colleagues who hold the opposite position. In my experience, the parties to international arbitrations have very experienced and high-caliber counsel on both sides and it is their obligation to raise the law and establish it properly. It is not a function of the arbitral tribunal to investigate which may be the correct applicable law or rule of law that must necessarily apply. 

It may be necessary for the arbitrator to establish the applicable law in an extreme situation, which would happen when the seat of the arbitration has a mandatory rule of public order that the parties have ignored. In this case, the arbitral tribunal may find it necessary to apply or take it into account to avoid annulment of the award. I have never had a case like this, but the solution may be to draw the attention of the parties to this rule before applying it. The arbitrators should listen to the parties as far as possible to adapt their solution to that norm. The reason for this is, for example, because Article 41 of the ICC Rules provides that both the ICC Court when scrutinizing the award, as well as the arbitral tribunal, shall make every effort to ensure that the award is enforceable. 

But the Appendix to the Rules, which deals with the functions of the ICC Court regarding the role of examining the award, provides that the ICC Court should take into account, whenever possible, the mandatory rules of the seat of arbitration. This seems to indicate that the arbitral tribunal must also take into account the public order of the seat of arbitration. For doing so, the arbitral tribunal will have to turn to the parties, as I have suggested. However, I insist that it is an extreme and very special situation and I do not believe that it is necessary to go further.

6. In the same vein, shall an arbitral tribunal request evidence on its own initiative only in exceptional circumstances?

I never did and I do not know in what situation one could. I would be very reluctant to do so for the same reasons I just gave to the previous question, because it would mean changing the record of the proceedings, introducing an element that neither side apparently foresaw. In addition, both in regard to “iura novit curia” and in this situation, there is a risk that one party is benefiting and not the other by the arbitrators unilaterally introducing new elements. That may contaminate the integrity of the arbitral process, and while I have the greatest respect for my colleagues who arbitrate, there are also people with less experience who can be tempted to use these resources with adverse consequences for the decision of the case. This may damage the reputation of international commercial arbitration. 

7. Regarding the applicable law in international commercial arbitration, in your experience would you say that there is a tendency to apply customs or Lex Mercatoria or do the arbitral tribunals apply a national law?

As arbitrator, except for investment cases, I have never needed to apply “customs” or not a national legal system, except in one very special case. That case involved a commercial arbitration with a State. The claimant was a private company in a transaction in which the arbitral tribunal concluded that the contract was governed by general principles of law. In this situation obviously it had to define the notion of "general principles of law." Among the elements alleged and pleaded by the parties to give substance to these principles were the UNIDROIT Principles. But these are not exactly the same as Lex Mercatoria, i.e. commercial practices. They cannot be assimilated to "general principles of law" that actually have a source in Article 38 of the Statute of the International Court of Justice. It was a very special situation. Apart from this, I am skeptical of its application unless the parties agree to it. Otherwise, if the arbitral tribunal opts for these guidelines, it seems to me that it runs the risk of approaching the figure of “amiable compositeur,” without the express authorization of the parties.   

On the other hand, I believe that those who negotiate contracts should include clauses that refer to the application of a national law. Any national law is founded on contractual issues and on very reasonable and predictable principles. As a lawyer I have written many arbitration clauses and I have never failed to include a reference to the applicable national law.

8. Does that mean that the UNIDROIT Principles would have a marginal development in the future?

I think they constitute a very useful effort that has been undertaken. The problem is interpreting whether they can be applied without an explicit reference by the parties. In the case that I was commenting, there were elements, mainly due to the delegation of the parties to the arbitral tribunal, to give substance to the application of the general principles of law, with which there were sufficient elements to understand that the parties themselves did not object to that. It was a very special case. So, except such extremely exceptional situations, it is difficult to resort to the so-called Lex Mercatoria as part of the law applicable to the merits, even assuming that Lex Mercatoria is not limited to commercial practices and usages. 

Generally, we will find two situations: the first is that there is an applicable national law and that the reference to the UNIDROIT Principles is for the interpretation of that law. I would not do that unless it were possible to interpret that it was the will of the parties to use these Principles for the purpose of interpretation. The second is to apply the UNIDROIT Principles as proper law when neither party has established the law applicable to the contract. I cannot see how an arbitral tribunal could do that without affecting the limits of the arbitrators’ mission.

9. Given the arbitral tribunal’s discretion to define the law applicable to the merits of the dispute, would you prefer to opt for a method closer to the application of conflict rules?

Yes. Conflict norms today have very flexible notions. This is the North American trend that speaks of “false conflicts,” which requires a direct examination of the substantive norms of the countries that have contact with the dispute, and see if there is a convergence or not. For example, the ICC Arbitration Rules provide that in the absence of a choice of law or in the absence of rules on choice of law, the arbitral tribunal can select the applicable rules of law or law. The arbitrators have a broad discretion, but they have to exercise this discretion with caution, as the parties should not be taken by surprise with a merits decision that was hardly foreseeable in light of the developments in the case.

If we are talking about comparing national rules of law or rules of law incorporated into the contract signed by the parties, it is a totally different situation as long as we do not go further.  And that is where the arbitral tribunals should stop because they have the obligation to produce an enforceable award and if the award is subject to annulment because someone says—with good reason—that the arbitrators went beyond their mission, then they are not doing what they should be doing.

10. In recent times there has been a discussion about the possibility that there is a kind of international investment court that standardizes criteria, that establishes a kind of “stare decisis,” as a substitute to the ad hoc arbitration tribunals for each case. What is your opinion about this initiative?

My opinion is that any initiative may be taken but that this should not be called arbitration because that is not arbitration. The Comprehensive Economic and Trade Agreement (CETA) is the trade and investment agreement between Canada and the European Union.  As I recall, a permanent court is going to be created with 15 members, all elected by the States, with a proven experience in public international law. This means that the private investor has no participation in the constitution of the arbitral tribunal. If that is the case, this is not arbitration. If it is good or bad, that is for the moment an ideological or political question that can be answered once the decisions of these courts are known and their quality and contributions to the development of international investment law are assessed. However, we cannot call this arbitration because it is not, in the usual meaning of the term.

About this topic of the permanent investment court I am going to tell you an anecdote, which is publicly known. Some time ago, Professor James Crawford was invited to the Washington College of Law to give a lecture at the Center on International Commercial Arbitration that I direct. During the presentation, he said that in his experience, when the arbitrators do not come exclusively from the world of public international law, the arbitral tribunal enriches the analysis of the case, which makes the product more suitable to the economic realities. 

Investment arbitration is about “investments.” There are aspects of national law that must be taken into account, there are elements of the economic analysis of the case, expertise and evaluations of different types that are not governed by public international law, or at least are not the core of the substance of this legal field. The experience of a practicing lawyer in these matters, together with the experience of the expert in public international law, helps to achieve a better product.

That is my view. I do not make a judgment as to whether these courts are good or bad. That is a subject on which I cannot comment because I do not know on what premises this court was created. I further believe that its merits or demerits can be seen only once it has come into action. However, we cannot call something arbitration when it is not.