The Vice of Res Judicata Delegitimizes the Effectiveness of the Arbitral Process: A Critical Analysis

Aditya Sethi and VS Pravallika*

Abstract

The international arbitration regime has witnessed a significant rise in the number of disputes, with their nature being more complex, involving multiple parties, contracts and issues. The multiplicity of proceedings before national courts and arbitral tribunals over identical claims and between related parties have become increasingly recurrent and so have questions of res judicata. A number of provisions exist in domestic arbitration legislation, institutional arbitral rules, international conventions and guidelines regulating res judicata. However, in the absence of an established regime governing the doctrine of res judicata, the interpretation of alternate provisions gives rise to challenges arising out of establishment of separate benchmarks of conventional rules by different jurisdictions, in the context of court judgments and arbitral awards which may differ in changing circumstances. A standardized benchmark for res judicata with universal appeal is an inescapable and urgent necessity in such a backdrop. An analysis of landmark cases in the recent time provides valuable insight for a plausible policy framework on the application of res judicata in international commercial arbitration.

Introduction   

The doctrine of res judicata is the legal basis for the effect of a court judgment to be conclusive and bar the re-litigation of a decided matter. It thus intends to provide for finality of decisions and prevent lengthy and wasteful repetitions of proceedings leading to legal uncertainties and also irreconcilable decisions. The doctrine augments the effectiveness and efficiency of the judicial process thereby improving judicial administration. However, things take a different turn when this doctrine is translated into the domain of arbitration.

In the absence of an established regime, the interpretation of alternate provisions gives rise to challenges arising out of establishment of separate benchmarks of conventional rules by different jurisdictions, in the context of court judgments and arbitral awards, which may differ in changing circumstances. The international arbitration regime has been a witness to a significant rise in the number of disputes, with their nature being more complex, involving multiple parties, contracts and issues.

The Institut de Droit International in its 2003 resolution deliberated upon the doctrine of forum non conviniens and regarded that parallel litigation among same or related parties in similar issues should be discouraged as it may cause misutilization of resources, injustice, delay, increased expenses and inconsistent decisions. Some of the difficulties faced in contemplating the consequences of res judicata include the effects on a prior national court judgment and on a prior arbitral award, arising out of considerations of different jurisdictions which may differ in changing circumstances.

In this significant backdrop, this article seeks to analyze the challenges on emerging issues and recommend a plausible policy framework on the application of res judicata in international commercial arbitration.

Abuse of Process Doctrine

The rule established in Henderson[1]precludes parties from raising claims in subsequent proceedings which could and should have been raised in prior proceedings, but not were pursued. The House of Lords in Johnson v Gore Wood & Co.[2]considered res judicata as a category of the ‘abuse of process’ doctrine and not an extension of the principles of estoppel.[3] Gary Born augments the rule in Henderson to avoid the contradiction of the parties’ objective of a speedy and final resolution in a single forum and avoid multiplication of duplicate proceedings.[4] This rule has been reiterated to illustrate different situations where claims in subsequent proceedings have been allowed or denied by courts and arbitral tribunals.[5]

In Sun Life Assurance Co. of Canada[6], it was observed that the rule in Henderson applies to previous arbitrations only if all parties to subsequent litigation were also parties to prior proceedings. In Parakou Shipping Pte Ltd.[7], it was held that to be qualified as ‘privy’ of one party, the ‘required commonality is a direct interest in the subject matter of litigation and not simply a financial interest in the result of the action.’

The Courtin Dallal[8]held that if any of the grounds refusing recognition under the New York Convention are established then they may be regarded as special circumstances thereby rendering the Henderson rule inapplicable in such a scenario.

Over the years, parties have developed an array of tactics to take undue advantage of the abuse of process doctrine. The claimant often seeks to initiate multiple proceedings in different forums to which may be prejudicial to the rights of a respondent who may have to defend multiple claims in different arbitrations leading to excessive delays and costs.[9] To curtail the consequences of such actions, it is necessary to apply the doctrine of ‘abuse of rights.’ This doctrine is based on the notions that a party having a valid right may exercise it in an abnormal manner with the intent of causing injury to another.[10] The English courts have espoused their inherent jurisdiction by implicating parties in exercising their rights in an abusive manner.[11]

The doctrine being recognized under public international law as general principles of law must be applied by arbitral tribunals to suitably confront tactics engaged in by parties to subvert the arbitration process.[12]

Review of Res Judicata In International Commercial Arbitration Practice

The examination of various decisions would help in discerning the manner in which arbitral tribunals have dealt with res judicata issues and have proposed different solutions in cases having similar facts and circumstances.

Choice of Governing Law

Traditionally, most tribunals have favored the approach of preclusion rules in domestic litigation and application of these rules to awards by state courts.[13] The law of the place of arbitration has often been regarded as the law of the country where the decision was first rendered.[14] It has often been observed that tribunals have applied the law governing the merits to res judicata, however, in such cases it has been difficult to determine the category to which the law was applied.[15]

In recent years, several arbitral tribunals have tried to avoid the strict application of domestic res judicata rules, taking into account the strict application of the autonomous nature of international arbitration.[16] Tribunals have been formulating ‘sui generis international preclusion principles’,[17]respecting the aspirations of the parties to settle their disputes in a single centralized proceeding.[18]

Flexible and Pragmatic Application of Res Judicata Requirements    

The ICC in Order No. 5 of 2002[19] observed the need for a strict application of domestic res judicata rules and an attempt to find a practical solution to afford protection to the various interests at stake. The tribunal rejected the defence of res judicata on the pretext that the prior judgment of the court in New York could not be recognized in Switzerland.

On the contrary, in ICC Case No. 3383[20], the tribunal refused to rule on the validity of a prior award which had not been challenged before the supervisory courts. The recognition of the first award would have brought the consistency of the first arbitration proceedings in contention and raised questions on the jurisdiction of the second tribunal.

Extent of Res Judicata Effect in Prior Decisions   

The Tribunal in ICC Case Nos. of 2745[21] and 2762 of 1977[22] observed that since the finding of the first tribunal determined that there was no force majeure essential for its decision on damages, it was res judicata and the same could not be argued before the second tribunal.

 In ICC Case No.7438 of 1994[23], the tribunal held that ‘since the issue had not been decided in the first award, it was not barred by res judicata.’ In Antoine Biloune and Marine Drive Complex Ltd.[24], the tribunal while applying the principles of customary international law held that it would reconsider its prior award if it can be categorically shown through cogent evidence that the observations in the previous award were based on fabricated testimonies.

The review of these decisions and principles reflect the inconsistency among international commercial tribunals in the application of an established practice to deal with res judicata requirements.

The Way Ahead

There is no particular rule on the effect of prior awards and judgments on jurisdiction and the effect of prior decisions on interim relief remains uncertain.[25] It is in this background that there exists a need for a cogent and plausible policy framework for res judicata issues and its effects in international commercial arbitration.

  1. Identical Case.   A case disposed on merits must not be substantially considered for res judicata purposes in further proceedings as it may incur additional time, effort and money.[26]
  2. Issue of Jurisdiction.    Arbitral tribunals must ensure that they are not bound by prior jurisdictional determination of state courts, whether placed in the country of the arbitral seat or elsewhere.[27]
  3. Provisional Measures. These measures though not intended to have res judicata effects, must apply mutatis mutandis to prevent a party from filing the same application for provisional measures before the tribunal once it has been rejected by the court which has complied with necessary and fundamental procedural guarantees.[28]                                
  4. Issue Preclusion.       Policy considerations of procedural efficiency, finality and fairness must take precedence before reconsidering a specific issue decided in a prior award.[29]

Conclusion

The law of arbitration has close linkages with several legal systems and is in essence a truly transnational mechanism of resolving disputes. However, there are several limitations in the interplay of the existing transnational rules with the circumstances of the arbitration. As discussed in this essay, these limitations arise on account of, the national law of the parties, the law of the place of arbitration, the law governing the arbitration agreement, the law governing the contract, the law governing the arbitration procedure and the laws of the place of enforcement of the award. It is for this reason that a codified transnational approach be developed to ensure a uniform set of res judicata principles reflecting the autonomous nature of international arbitration which would be imperative in improving legal coherence and significance. It is certain that in near future universal codified transnational rules for res judicata in relation to arbitration will re-define the interpretation, practice and ultimately achieve greater acceptability.


*currently fifth year students at School of Law, Christ University, Bangalore. The authors can be contacted at adityasethi1997@gmail.com; LinkedIn IDs: Aditya Sethi, VS Pravallika.

[1] Henderson v. Henderson, (1843) 3 Hare 99 at 115.

[2] Johnson v Gore Wood & Co., [2000] 2 AC 1.

[3] Virgin Atlantic Airways Limited (Respondent) v Zodiac Seats UK Limited [2013] UKSC 46.

[4] Gary Born, International Commercial Arbitration, Vol. III, (2nd ed. 2014), pp. 3745-46.

[5] David A R Williams, QC & Mark Tushingham, ‘The Application of Henderson v. Henderson Rule in International Arbitration’, (2014) 26 SAcLJ.

[6] Sun Life Assurance Co. of Canada v. Lincoln National Life Insurance Co., [2005 1 Lloyd’s Rep. 606.

[7] Parakou Shipping Pte Ltd. v. Jinhui Shipping and Transportation Ltd., [2011] 2 HKLRD 1.

[8] Dallal v. Bank Mellat, [1986] QB 441 at 455.

[9] Emmanuel Gaillard, ‘Abuse of Process in International Arbitration’, ICSID Review, pp. 1–21 (2017).

[10] Michael Byers, ‘Abuse of Rights: An Old Principle, A New Age’, 47 McGill LJ 389 (2002).

[11] Hunter v Chief Constable of the West Midlands, [1982] AC 529, at p. 536.

[12] Fisheries Case (United Kingdom v Norway), [1951] ICJ 3.

[13] Emmanuel Gaillard, Supra Note 9.

[14] Born, pp. 3775-6, Supra Note 4.

[15] ICC Case No. 6293, 1990.

[16] ICC Case No. 13808, 2008.

[17] Born, p. 3776, Supra Note 4.

[18] Id at p. 3777.

[19] ICC, A v. Z, Order No. 5, 2 April 2002, ASA Bulletin, Vol. 21, No.4, p.815 (2003).

[20] ICC Case No. 3383, 1979.

[21] ICC Case No. 2745, 1977.

[22] ICC Case No. 2762, 1977.

[23] ICC Case No.7438, 1994.

[24] Antoine Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Government of Ghana, Awards of 27 October 1989 and 30 June 1990, Yearbook Commercial Arbitration, Vol. XIX, pp. 11 et seq.

[25] Silija Schafestein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, (1st ed., Loukas Mistellis, 2016).

[26] Born, Supra Note 4 at 3779.

[27] Id at p.3784.

[28] Bernhard Berger and Franz Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz (3rd ed. 2014), para 1279.

[29] V.V. Veeder QC, ‘Issue Estoppel, Reasons for Awards and Transnational Arbitration”, in Complex Arbitrations: Perspectives on their Procedural Implications’, (Special Supplement – ICC International Court of Arbitration Bulletin, 2003), pp. 73-9.


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