Equality of Arms and Fairness in International Arbitration

Even those without a background in law tend to be familiar with the concept of a fair trial (No doubt, thanks in part to the various true crime Netflix documentaries out there!).

However, dealing with a dispute out of court, through arbitration, also comes with a similar right of fairness, often referred to as equality of arms.

Whilst annulments are rare, getting to the end of what can sometimes be a lengthy resolution process, only to find the award set aside due to a lack of fairness, would be, to put it mildly, frustrating and costly for all involved.

Hence, this article looks at key areas to ensure fairness in arbitral proceedings, with some examples of where this may be particularly important.

1. Arbitrability: the suitability of arbitration to resolve the dispute

Making sure it is possible to arbitrate any given dispute is, perhaps unsurprisingly, the first step towards a fair arbitration.

Arbitration is based upon private autonomy, intended for disputes among private or independent parties. As such, most areas of civil law can be arbitrated. There are some notable exceptions where arbitration might not be permitted, such as where:

• The relief sought requires an order that only a court can make.
• The relief sought engages third-party interests in a relevant sense.
• The claim represents an attempt to delegate to the arbitrators a matter of public interest which cannot be determined within the limitations of a private contractual process.

Criminal law cases cannot be arbitrated, as the whole system is based on the removal of private autonomy in the public interest; this is really the main point of having national courts.

For disputes involving state entities, and/or those of political significance, arbitration becomes an even more important mechanism for fair resolution. Arbitration can, in these cases, serve as a safeguard against extra-judicial influences. This is particularly the case in international disputes involving jurisdictions where there is a (perceived or actual) lack of impartiality in the local courts.

2. Independence and impartiality

In addition to the general benefit of an arbitration’s independence of local courts, there are guidelines in place to ensure that arbitral proceedings are conducted with impartiality and independence.

The impartiality of the arbitrator (and/or tribunal) is a key factor to ensuring that the award will be handed down fairly, and so, reduce the risk of setting-aside or annulment further down the line.

The IBA Guidelines on Conflicts of Interest in International Arbitration define how the impartiality of an arbitrator, particularly in international disputes, can most effectively be assured, with guidance as to what might constitute a conflict of interest, and when to disclose, should one arise.

3. Financing

The increase of large, international law firms who operate in multiple jurisdictions is a testament to arbitration as an increasingly important method of international dispute resolution. However, this can give rise to a conflict of interest in certain disputes.

If a party has previously received legal advice or services from a particular firm, this can often mean that the firm or a solicitor within that firm is prevented from advising on or acting as an arbitrator in a certain dispute.

Perceived financial or other interests, such as the above, or representing the same party across multiple disputes can be a point of contention when it comes to fairness. This was evidenced by the much-publicised decision in Halliburton v Chubb regarding arbitrator disclosure.

3a. Third-party funding

Whilst third-party funding no longer tends to fall foul of public policy in most jurisdictions, there are ever-growing rules around it. Whilst third-party funding continues to ensure greater equality between parties of different economic backgrounds, it can, nevertheless, present potential grounds for unfairness.

In essence, the arbitrator, and any counsel involved in the proceedings, should not profit from a certain outcome, or the parties would run the risk of annulment or setting aside of the award.

4. The Right to be Heard

Cited as one of the main reasons for an award to be set aside, the Right to be Heard is an important part of the arbitral proceedings to get right.

The Right to be Heard is usually established during the evidentiary hearing; in document production and witness testimony.

In international commercial disputes, which can be highly nuanced and complex, equal hearing time between parties could lead to unfairness where one party’s case requires more extensive documentation or testimony (and therefore, more time to present) than the other.

As such, the Right to be Heard means parties should be given treatment in proportion to their needs. Some relatively new considerations could also arise, to the effect that remote (or virtual) evidentiary hearings might not be appropriate in some cases, and so the Award, in those circumstances, could be subject to a subsequent challenge.

Summary

Ensuring equality of arms in international arbitration is key to protecting the enforceability of an award.

A fact-based approach combined with a keen understanding of the regulations and guidelines governing the arbitration procedure, from the initial agreement to the enforceability of the final award, is essential.

In many of the shows we see online, large teams of lawyers represent their clients and battle it out in a drama-filled courtroom. In reality, and even more so with arbitration, a highly specialised approach, often involving only a small number of skilled professionals, is material to achieving a fair outcome that works in the interests of the parties.

Get in touch with Carlsons Solicitors for legal advice regarding international arbitration and dispute resolution.