“DUE PROCESS AB(USE): QUO VADIS?”
“To speak of “due process of arbitration” is to risk a seeming confusion of terms. For “due process” is a symbol borrowed from the lexicon of law, and therefore suspect in this shirtsleeves, seat-of-the-pants, look!-no-hands business of arbitration.”
– Prof. W. WILLARD WIRTZ
INTRODUCTION: DUE PROCESS AS A FUNDAMENTAL PRINCIPLE OF PROCEDURE
Due process is the legal requirement that the state must respect all legal rights that are owed to a person. Due process balances the power of law of the land and protects the individual person from it. When a government harms a person without following the exact course of the law, this constitutes a due process violation, which offends the rule of law.
Due process has also been frequently interpreted as limiting laws and legal proceedings (see substantive due process) so that judges, instead of legislators, may define and guarantee fundamental fairness, justice, and liberty. That interpretation has proven controversial. Analogous to the concepts of natural justice, and procedural justice used in various other jurisdictions, the interpretation of due process is sometimes expressed as a command that the government must not be unfair to the people or abuse them physically.
My inspiration for composing this Essay was the keynote speech delivered by Professor Lucy Reed at the 31st Queen Mary University – Freshfields Arbitration Lecture in London, on the topic of “Ab(use) of Due Process: Sword vs Shield”.
Professor Reed described a growing trend in international arbitration for the unreasonable invocation of procedural complaints “under the banner of due process” as a means by the parties to pressurize arbitral tribunals. Her thesis was that arbitral tribunals should not allow parties to conflate routine procedural complaints with genuine “due process” violations which have the potential to undermine the legitimacy of the arbitral process.
Due process, in Professor Reed’s words, “is meant to be a shield against procedural unfairness” and for a party to “gleefully use due process as a sword is to cheapen due process”.
In this way, the so-called “Due process paranoia”, that is, the form of dilatory tactics adopted by the parties, constitutes a threat to the very founding principles of Arbitration itself. Due process paranoia is defined by the survey as a “a perceived reluctance by [arbitral] tribunals to act decisively in certain situations for fear of the award being challenged on the basis of a party not having had the chance to present its case fully”.
At the heart of the notion of due process paranoia there seems to be the combination of three components. First, one or more case management decisions by an arbitral tribunal that appear overly attentive to due process considerations. The second component is a belief on the part of the tribunal that such a cautious stance is rendered necessary by the risk that the tribunal’s award may otherwise be set aside and/or refused enforcement (the “Enforcement Risk”). Finally, the third element (without which there would be no paranoia but, instead, only sensible risk-averseness) is the erroneous character of the tribunal’s belief that this level of caution is warranted –erroneous belief which is caused by an inflated perception of the Enforcement Risk.
Arbitration is a private method of dispute resolution in which the parties select the individual or individuals who will finally decide the matters in issue following a process agreed upon by the parties, with no or a minimum of court intervention. “Faced with a party’s procedural request, international arbitrators sometimes need to decide a delicate question: is this a legitimate exercise of the party’s procedural rights, or an unreasonable move, leading to an unnecessary delay of the proceedings? When answering this question, the fear that the eventual award might be challenged due to a violation of the parties’ due process rights lingers as the proverbial Sword of Damocles. Often, such ‘due process paranoia’ will lead the arbitrator to grant unreasonable procedural requests, thus prolonging the proceedings unnecessarily.
This neither benefits the parties nor the attractiveness of international arbitration as a dispute resolution mechanism. The present contribution attempts to ameliorate this situation. It reviews the state courts’ approach to dealing with arbitrators’ exercise of their procedural management discretion to reveal that ‘due process paranoia’ is unfounded. Rather, the review brings to light what may be termed the ‘Procedural Judgment Rule’, a safe harbor for arbitrators’ exercise of their procedural discretion.”
On the one hand, in the arbitrators’ attempt to find the golden means between procedural economy and efficiency, the parties’ right to be heard can be undermined.
On the other hand, some parties rely on this innate loophole (that apparently exists not only in arbitration) in order to dilute the proceedings. In other words, they seek some leeway to undermine the procedural equality, which in its turn bears a severe on substantive equality through
And that is where the crux of the problem of due process paranoia lies. It is in respect of those decisions which are ‘needlessly’ cautious; those decisions which, from the point of view of procedural efficiency, are ‘sub-optimal’.
HOW MUCH “PROCESS” IS DUE?
In order to draw the line between the permissible and “impermissible” (abusive) forms of due process, the starting point for a substantially equal representation is the provision of a reasonable opportunity to the parties to present their case. This is required by Article V 1b of the New York Convention which states that recognition and enforcement of an arbitral award may be refused if a party “was otherwise unable to present his case”.
There are several competing rights in the realm of due process, namely, each party’s right to a full opportunity to present its case (right to be heard), equality of the parties, equality of arms, each party’s right to confront the opposing party’s witnesses and evidence, to defend itself, and so forth. For the sake of this analysis, I will confine myself to striking a fair balance amongst the principles of the very first right, as the one that is the quintessential assuring the substantial access of the parties to arbitration proceedings. The purpose of fundamental rules of procedure is to ensure the quality of the evidence and the Tribunal’s decision-making process.
Without the right to be heard, the parties’ pre-agreed subjection of their matter to arbitration, by way of deviating the conventional domestic court litigation proceedings, would be rendered void.
Materializing these issues and adjusting them to reality through the lens of the right to be heard, we shall initiate our analysis by reference to UNCITRAL Model Law, Article 18:
“The parties shall be treated with equality and each party shall be given full opportunity of presenting his case.”
A contradiction of rights becomes in this way apparent: equality to be heard versus expedited proceedings, as a duty substantiated as a general rule of procedure, both in domestic as well as international (institutional) rules of procedure.
Respect for time limits
Schreuer eloquently observes that “The principle that both sides must be heard on all issues affecting their legal position is one of the most basic concepts of fairness in adversarial proceedings. It is expressed in the Latin maxim of audiatur et altera pars. It is reflected throughout the ICSID Arbitration Rules ….”.
This very quotation encapsulates the core meaning of procedural fairness. The latter sets a very clear mandate; each party shall have a fair opportunity to present its case before the tribunal and to rebut its opponent’s case at a meaningful time and in a meaningful manner.
In this legal “rivalry” between the right to be heard and speed-efficiency, The Tribunal in BIVAC v. Paraguay, denied Respondent’s request for postponement of the hearing on jurisdiction, towards striking a fair balance. Similarly, in Fraport v. Philippines, Respondent requested 6-month extension of time for filing a Rejoinder and corresponding postponement of hearing for extraordinary circumstances, which impeded its ability to fully present its case; the extension was granted.
Under these circumstances, the Tribunal was concerned lest, if the hearing dates remained as present, both Parties may be prevented from fully presenting their case. It also reiterated the serious risk embedded in an incomplete evidentiary record, which, would ultimately severely hinder the smooth hearing proceedings.
The right to be heard is substantiated through the necessary complement of exchange of documents. This reality is reflected in the letter of ICSID Arbitration Rule 26(3):
“Any step taken after expiration of the applicable time limit shall be disregarded unless the Tribunal, in special circumstances and after giving the other party an opportunity of stating its views, decides otherwise.”
In Pezold et. Al. Zimbabwe, the Tribunal found that the low capability of an efficient storage and monitoring by an administrative agency of the submission of the required documentation reflects the socioeconomic realities of developing countries, rather than an inclination to bad faith. In this very case, Respondent had raised certain jurisdictional challenges and new defenses after the time limits provided for doing so. The Tribunal found that the latter event in itself does not suffice to justify a finding of ‘special circumstances’ within the meaning of Rule 26(3), placing the emphasis on the Parties’ equal right to due process and a fair proceeding. Therefore, abiding by the time limits fixed is deemed imperative in party equality.
Substantive vs. numerical equality
In Abaclat et al. v. Argentina, Respondent requested a 11-month extension towards filing its Rejoinder (and postponing the hearing) arguing that its counterparty had the same time to prepare its Reply.
The Tribunal rejected the request, as it found that it should not rely on the period between the filing of Respondent’s Counter-Memorial and Claimants’ Reply Memorial to grant Respondent an exactly same amount of days for the filing of its Rejoinder Memorial.
In the same case, Abaclat v. Argentina, Respondent proposed disqualification of Majority of Tribunal, alleging that “the procedural decisions on the briefing calendar demonstrate an ‘absolute lack of equality in the treatment accorded to the parties and is thus detrimental to the representation on behalf of the Argentine Republic and results in substantial unfairness. The Challenge was rejected as “The mere existence of an adverse ruling is insufficient to prove a manifest lack of impartiality or independence, as required by Arts. 14 and 57 of the ICSID Convention.”
On the contrary, in Glamis Gold v. United States of America the Tribunal extended the document production period between two rounds of written submissions “[d]ue to the extensive nature of this document production process and the desire to have evidence available to the Parties prior to their memorial submissions”.
The Right to Confront Evidence
A corollary to the right to be heard amidst the balance of speed versus efficiency is the right to confront evidence. The right to be heard in this regard is complemented by the “principle of contradiction”, that is, in arbitral proceedings includes the right of each party to make submissions on evidence presented by its opponent.
The right to present one’s case is contemplated as an integral element of the requirement to afford a fair hearing embedded in the principal human rights instruments. A tribunal does not necessarily have to permit the parties to comment on new evidence that it considers irrelevant to its decision. In this way, the right to confront evidence becomes a parameter that needs to be assessed each time based on the case ad hoc, a counter-right of the right to be heard.
In Burimi v. Albania,
Claimant did not submit any witness statements with its memorials but sought to call witnesses for direct examination at the hearing. The Tribunal placed emphasis on the hindrance of Respondent in preparing cross-examination. Tribunals should disclose what they consider to be the essential issues, especially where the parties have not briefed them.
The allocation of time is crucial to the equal appearance of the parties in a dispute.
Depending on the issues, a party may prefer to devote more or less hearing time to witness the real problem. There is a problematic trend to use written witness statements as substitutes for direct oral examination, and to focus hearings on cross-examination. Human perception of credibility of “live” testimony is different than of written testimony. Arbitrators’ perception of a case is distorted by the absence of all witnesses who address an important issue.
Scholars, including Gaillard and Savage, have argued that the oral pleadings should allow the parties to recapitulate and present in an organized manner the pertinent issues where a legal dispute arises. The principle of equal treatment of the parties requires that both must have the opportunity to present their case orally, but not, as some parties claim, that they should have exactly the same amount of time to do so.
Contrary to original purpose of written witness statements
IBA Rules on the Taking of Evidence in International Arbitration, Preamble (3): “[E]ach Party shall … be entitled to know, reasonably in advance of any Evidentiary Hearing … the evidence on which the other Parties rely.”
Potential distortion of what the Tribunal hears
especially where re-direct examination is limited to topics raised on cross-examination. The Tribunal should hear both sides of the argument so as to test the arguments’ credibility and impact of the evidence.
In Glamis Gold v. United States of America, the Parties adopted diverged views as to the allocation of different approaches on how much hearing time to devote to oral arguments vis-a-vis witness examination.
Limits to a Tribunal’s Ability to Safeguard Due Process
Mass claims require a sui generis treatment in view of their particularity. In Abaclat et al. v. Argentine Republic, adaptations to Manner of Examination of Evidence took place.
It was found that “[A]daptations to hear the present case collectively would concern not that much the object of the examination, but rather (i) the way the Tribunal will conduct such examination, and/or (ii) the way Claimants are represented.” Furthermore, the emphasized that it would need to implement mechanisms allowing a simplified verification of evidentiary material … or random selection of samples ….”.
The Tribunal ascertained its need to examine certain issues collectively and limit certain procedural rights while maintaining balance but considering where and under what conditions to change the method of examination to collective treatment. It also considered whether the rights of defense would be affected comparing a single to 60,000 separate proceedings. In the case of the latter scenario, it would be a much bigger challenge to Argentina‘s effective defense rights than a mere limitation of its right to individual treatment of homogeneous claims in the present proceedings.
Group Treatment of Homogeneous Claims
In Abaclat v. Argentina the Tribunal has advocated in favor of a
“group examination of claims is acceptable where claims raised by a multitude of claimants are to be considered identical or at least sufficiently homogeneous.” Claimants have homogeneous rights of compensation for a homogeneous damage caused to them by potential homogeneous breaches by Argentina of homogeneous obligations provided for in the BIT.
Similarly, in Ambiente Ufficio v. Argentina, the Tribunal concurred with the opinion that there is no requisite contractual link amongst Claimants so as for joint claims to succeed.
AN INSIGHT INTO RELEVANT DOMESTIC AWARDS
England and Wales
The English Arbitration Act (1996) lays, in Sections 33 and 68, the protective framework as to the right to a fair and impartial hearing. It is the Tribunal’s duty to “fairly and impartially as between the parties giving each party a reasonable opportunity of putting its case and dealing with that of his opponent”.
English Tribunals have demonstrated a willingness to facilitate the procedure. Tribunals have refused to adjourn a hearing; to proceed with a telephone hearing in the absence of party which was made aware of the hearing; to grant a stay; to make an order that employees of a party appear as witnesses at the hearing.
Nevertheless, this stance is not consistent since there have been Tribunals which have “trumped” the significance of the right to be heard by refusing to allow oral representations in place of written counter-submissions; refusing to hold an oral hearing.
by allowing late reference by the claimant to a particular statute as the basis of its claim, but then refusing further submissions on the same statute by the respondent.
Under S. 33 it is necessary prerequisite for that breach to cause a substantial injustice to the applicant. This will be the case, for example, where the outcome would have been different had the irregularity not occurred. S. 33 sets a complementary mandate for the tribunal, that is, to “adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense … ”.
Switzerland
This high threshold in England and Wales is seconded by Swiss Tribunals.
In a recent decision of the Swiss First Civil Law Court, an arbitral award was annulled on the basis that the arbitrator had violated the appellant’s right to be heard.
Under Art. 34(2)(a)(iv) UNCITRAL Model Law if an award can be set aside when it is incompatible with Art. 18, providing that “the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”.
In this way, the decision by the Federal Tribunal confirms the procedural nature of the right to be heard. The court limited its investigation to whether the appellant’s arguments had been duly considered by the arbitrator and was clear that there was no need to review the arbitrator’s reasoning or decisions.
The Federal Tribunal observed that the right to be heard under PILA imposes upon the arbitrators a minimum duty to examine and address the pertinent issues.
The duty will be violated when “inadvertently or by misunderstanding, the arbitral tribunal does not take into account some statements of facts, arguments, evidence and offers of evidence submitted by one of the parties and important to the decision to be issued”.
The right to be heard is a formal right – it is not for the court to assess the decisions taken by the arbitral tribunal, or to decide whether the tribunal should have upheld or rejected an argument if it had dealt with it. The court must not replace the arbitral tribunal’s substantive reasoning with its own – if it determines that the applicant’s right to be heard has been violated it must simply annul the award.
However, the extent of the right to be heard is not unlimited. In a 2009 Award pursuant to sport arbitration, the Swiss Federal Tribunal reiterated its often-expressed view that arbitrators are not bound by the manner in which the claimant formulates his claim, legally or factually, as long as the award falls within the scope of the claimant’s submissions and, in particular, it does not exceed the amount sought. In this way, it clarified that the right to be heard does not encompass the right to an accurate decision.
United Arab Emirates
In its turn, the Dubai Court of Appeal last year rejected a DIAC award due to arbitrator’s breach of due process. Respondent challenged the award as it had not been granted a reasonable opportunity to present its case. The arbitrator dismissed Respondent’s request, and rendered his award stating that “Respondent’s request for time was submitted without an official power of attorney”. The court considered that the arbitrator should have, at the least, given Respondent the opportunity to appear before him and present his authority, taking into account the date on which Respondent has been officially notified of the proceedings, and the date of issuing the award.
The Court of First Instance dismissed Respondent’s arguments, and ordered the enforcement of the arbitral award. On Respondent’s appeal, the Dubai Court of Appeal ruled that the arbitral award was null and void because the arbitrator had failed to observe the adversarial principle (“principe du contradictoire”) that gives the parties the right to present their case fairly.
Conclusion
All inall, an abuse of process ought to be distinguished from a sheer violation of an established rule. For instance, while it is not uncommon for a party to an arbitration to file large numbers of documents immediately before the start of an evidentiary hearing in order to hinder its opponent’s preparations and one might loosely refer to this conduct as abusive, such conduct should be properly characterized as a violation of due process and can be remedied under existing procedural rules, for example by a decision that such documents are inadmissible.
Due Process is essential for the system of international arbitration. Institutions and arbitrators must appreciate importance to the parties and counsel. The fundamental rule of the right to a fair hearing leaves no room for deviations. It is the Tribunal’s duty to assure that both parties can present their case as they see fit towards achieving equal chance of their arguments to be heard and thus be in position to reach the requisite threshold of credibility. Tribunals, in their turn, must disclose to parties issues they are considering and permit parties to address them.