Like many other subjects, the liability of arbitral institutions2 has been approached - or, rather, is being approached, as case law is so restricted that the field is probably still in a state of flux - from quite different perspectives by common lawyers and civil lawyers.

Common law

The approach in common law countries has been largely driven by the tacit 'assimilation' (to use Pierre Lalive's word)3 of institutions to arbitrators, whose claim to immunity is generally founded on the quasi-judicial nature of their role, analogous to that of a judge.

In Austern v. Chicago Board of Options Exchange,4 the Chicago Board of Options Exchange (CBOE) had appointed five arbitrators, all of whom were securities industry professionals, whereas the arbitration rules allowed for only two such professionals. Further, the CBOE had not given effective notice of the hearing to the claimants. In order to try and avoid the quasi-judicial immunity which clothes the arbitration process in the United States, the claimants argued that the actions which the CBOE had taken were merely administrative. However, their action failed, with the court finding that:

Contrary to appellants' contention, the acts complained of here - defective notice and improper selection of the arbitration panel - were not only performed directly in connection with the CBOE's management of contractually agreed upon arbitration, but, we believe, were sufficiently associated with the adjudicative phase of the arbitration to justify immunity.

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The functions of the institution are therefore directly assimilated to those of the arbitrators, and considered as quasi-judicial in nature, thus justifying the grant of immunity. The underlying - and strong - policy rationale is of course the avoidance of collateral attacks on the arbitral process through suits against the institution.

France

By contrast, the French courts - which, because of the presence of the ICC International Court of Arbitration in Paris, have had numerous occasions to consider the issue - have taken a diametrically opposed position on the characterisation of the functions of arbitral institutions. For instance, the Court of Cassation in the Cubic case5 held as follows:

the Rules of Arbitration of the International Chamber of Commerce distinguish between the function of organising the arbitral proceedings, in particular through the International Court of Arbitration, and the judicial function, which is within the sole remit of the arbitrators, with the International Court of Arbitration having no judicial power.

Yves Derains, commenting on the SNF case, which is considered later in this article, explains the impact of this approach on the liability of arbitral institutions as follows:6

while the judicial nature of an arbitrator's task justifies the arbitrator's immunity, the same cannot be said of the function of arbitral institutions as this is of an administrative nature. The immunity enjoyed by arbitrators because of their judicial role stems from the same principle of immunity that covers state judges under French law ... as noted by T. Clay, 'given that arbitrators have a similar role to state judges, it is legitimate that they too should be protected from suits that parties might want to bring against them. The basis of that immunity is therefore indeed the judicial nature of the task performed ...'

By contrast,

an arbitral institution must be treated like any other contracting party.

It is important to understand that this characterisation of the institution's role as administrative in nature stems from the same strong policy concern that drives the US approach to immunity, i.e. a desire to prevent collateral attacks on the arbitral process. In particular, as explained by Philippe Fouchard, the characterisation of an institution's role as administrative in nature relieves the institution of a number of constraints that are intrinsic to any judicial task - such as the parties' right to be heard (le principe du contradictoire) or the duty to [Page289:] render reasoned decisions - thus allowing it to carry out its logistical functions without fear of attack on the administrative decisions taken in compliance with its rules.7

Accordingly, the asserted administrative nature of the ICC Court's role has been used to dismiss challenges against the following functions performed by the ICC Court:

• Decisions to extend time under the ICC Arbitration Rules;8

• Prima facie decisions on the validity of arbitration clauses under Article 6(2) of the 1998 ICC Arbitration Rules, now Articles 6(3) and 6(4) of the 2012 Rules;9

• Acceptance of a challenge against an arbitrator;10

• Scrutiny of arbitral awards under Article 27 of the 1998 ICC Arbitration Rules, now Article 33 of the 2012 Rules.11

As will be clear, while the French conception acknowledges the potential for an institution to be held liable like any other contracting party, the characterisation of the relevant function as administrative in nature, accompanied by a deference to the institution's right to use its discretion when discharging that function provided it abides by its rules, have meant that actions against institutions before the French courts are unlikely to succeed, thus discouraging collateral attacks on the arbitral process.

The one case this author is aware of where an arbitral institution has been found liable is a decision of the Nanterre court of first instance, where the institution in question (the arbitration centre of the Fédération Française des Industries Lainières et Cotonnières) had failed to pass on to the parties an exhibit that it had taken the initiative of obtaining from a third party and which it had communicated to the arbitral tribunal, thereby violating the parties' right to be heard (le principe du contradictoire) and causing the award to be set aside by the French courts.12 The damages awarded were limited to the costs wasted in the failed arbitration, since there was still time to start a fresh action. As Philippe Stoffel-Munck notes in his commentary on the case,13 given the case law noted above, this case is probably best explained on the narrow ground that the institution had improperly interfered in the arbitral process, thus departing from its organisational role, and [Page290:] bringing upon itself the consequences of the improper exercise of a quasi-judicial function (in that case, the need to respect the strict requirements of the principe du contradictoire).

Discussion

Why this short survey?

First, because it is interesting in its own right.

Secondly, because it raises important questions about the nature of the functions carried out by arbitral institutions, and thus their potential liability. This is particularly important given the current trend for institutions to extend their geographical reach, which in turn increases the potential for their liability to be pursued before judges who have not had occasion to consider these issues before, and who are accordingly likely to go back to first principles when considering them.

What then are those first principles?

First, it is submitted that the blanket assimilation of arbitral institutions to arbitrators, as propounded by the US courts, is not warranted in principle. Institutions go out of their way - rightly - to make it clear that they are only exercising administrative functions, with the quasi-judicial task of deciding the dispute being left entirely to the arbitrators. They cannot have it both ways.

Secondly, it is submitted that the French approach, which consists in pretending that all acts of an arbitral institution are administrative in nature, is equally flawed. This was indeed the view of Professor Fouchard himself.

In his seminal 1986 article on permanent arbitral institutions before state courts,14 Professor Fouchard candidly accepted that there is a 'theoretical' (the word is his)15 difficulty in contending that some of the functions carried out by arbitral institutions are not judicial in nature. He gave the example of the removal of an arbitrator or a decision on the prima facie validity of the arbitration agreement under Article 6 of the ICC Arbitration Rules, and noted the 'ambiguities' apparent in this respect in cases such as Raffinerie de pétrole d'Homs16 and Opinter.17 But he went on to argue that the theoretical discussion could be ignored essentially for reasons of expediency,18 always with the caveat that institutions should beware of ever going beyond their purely administrative remit.

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This analysis - clear theoretical difficulties but an equally clear justification in practice - was echoed by Professor Lalive in his comment on the Court of Appeal's decision in Cubic in 1998.19 In that case the Court of Appeal described the ICC Court's power of scrutiny of awards as being 'essentially the provision of advice as to drafting' ('essentiellement fourniture d'un conseil rédactionnel').20 Professor Lalive dismissed this 'euphemism' as 'pretty and clever', but wrong.21 While accepting that the door ought to be firmly closed to collateral attacks on the arbitral process brought under the guise of attacks on institutions, he wrote as follows:

One should not complacently close one's eyes to the ambiguous or mixed nature of the functions and tasks of the International Court of Arbitration. The rigorous critical analysis made thereof by Antoine Kassis [in 198822] had its merits and is still worth consulting despite certain excessive statements that have made it unpopular with those who would defend the ICC. While the ICC system has on the whole amply proved its worth, the ambiguity remains and one should be aware of it ...

When Professor Lalive wrote these words, the ICC's system of scrutiny of awards was unique. As noted by Teresa Cheng in a recent article on the liability of arbitral institutions,23 it is now being replicated by institutions in Asia both for arbitrations under their own rules and - it seems - in a deliberate effort to poach arbitrations subject to the ICC Arbitration Rules and administer them themselves. Those institutions might do worse than heed Professor Lalive's words.

But coming back to the French approach, it would in this author's view be risky to assume that a judge from, say, a developing jurisdiction, coming fresh to these issues will necessarily be willing to take the same pragmatic approach as the French courts and ignore the theoretical flaws that underpin it. One would hope that the same policy concerns that have driven the US and the French approach - a strong need to close the door to collateral attacks on the arbitral process - will drive any court to take a similarly pragmatic view, but there can be no guarantee that this will be the case.

What then are the possible solutions?

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One solution, it is submitted, is to ensure that any decision of an arbitral institution that might be characterized as quasi-judicial in nature, rather than administrative, is not final, in the sense that the parties can have recourse to another mechanism to challenge it. Thus, Article 6 of the ICC Arbitration Rules makes it clear that the ICC Court's prima facie decision on validity is not, and is not meant to be, finally binding. Similarly, many jurisdictions - such as England24 - will hear a challenge against an arbitrator irrespective of a refusal by the ICC to remove the arbitrator. In this way, any decision by the ICC can only have limited implications and will never generate more than minimal liability, if that. This solution probably does not work for the scrutiny of awards, where it remains important for the ICC Court to remain within the remit of its administrative task, as it does.

The other solution, of course, is limitation of liability clauses. I deliberately use the term limitation, rather than exclusion, of liability in view of the heated debate stoked by the blanket immunity contained in Article 34 of the 1998 ICC Arbitration Rules. Detractors of this provision included Philippe Fouchard,25 Pierre Lalive, 26 the Paris Court of Appeal by anticipation in the Cubic case,27 and the same court pour de vrai in the SNF case,28 where it struck down Article 34 altogether on the basis that it effectively purported to give the ICC the option whether or not to comply with its essential obligations.

The criticism that this is what the ICC was seeking to do is probably unfair, and the Court of Appeal's solution to the perceived problem probably too drastic, as cogently explained by Yves Derains and Catherine Schroeder in their commentary on the decision.29

But this matters little now, as the ICC has simply amended its rules (Article 40 of the 2012 Arbitration Rules) to make it clear that there is no question of blanket immunity but that the aim is to ensure that the ICC is protected to the fullest extent permitted by applicable law. The LCIA has followed suit,30 and this seems the neatest solution in circumstances where the threshold at which a court will not apply an exclusion of liability clause will vary from jurisdiction to jurisdiction.

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Finally, a number of jurisdictions - mostly common law jurisdictions such as England, but also jurisdictions whose legislation is based on the UNCITRAL Model Law on International Commercial Arbitration such as Mauritius - have specific rules in their lex arbitri dealing with the liability of arbitral institutions.31 Hans van Houtte and Bridie McAsey have reminded us in their recent paper on the liability of arbitrators and arbitral institutions that the decision to omit this question from the UNCITRAL Model Law was a deliberate one.32 Might it now be time for UNCITRAL to reconsider this issue and to work on a model limitation of liability provision for arbitrators and institutions?



1
Barrister, Essex Court Chambers, London; Vice-Chairman of UNCITRAL; Vice-President of the ICC International Court of Arbitration (2009-2015); SMoollan@essexcourt.net.


2
This contribution originated as remarks made at the 30th ICC/AAA/ICSID Joint Colloquium on International Arbitration held in Paris on 6 December 2013.


3
P. Lalive, Annotation of Paris Court of Appeal, 15 Sept. 1998, Société Cubic Defense System Inc. v. Chambre de commerce internationale, Revue de l'arbitrage 1999.113, § 22.


4
898 F.2d 882 (2d Cir. 1990).


5
Cass civ. 1re, 20 Feb. 2001, Société Cubic Defense System Inc. v. Chambre de commerce internationale (Annot. T. Clay) Revue de l'arbitrage 2001.511 at 512. All translations from the French in this contribution are the author's.


6
Y. Derains & C. Schroeder, 'Institutions d'arbitrage et responsabilité', The Paris Journal of International Arbitration 2010-1, 219 at 230, 231.


7
P. Fouchard, 'Les institutions permanentes d'arbitrage devant le juge étatique (à propos d'une jurisprudence récente)', Annotation of Trib. gr. inst. Paris, 1re ch. 1re sect., 8 Oct. 1986, Cekobanka, Revue de l'arbitrage 1987.225, § 20 et seq.


8
See the Cubic case, supra note 5.


9
Cekobanka (supra, note 7), Revue de l'arbitrage 1987.367.


10
Trib. gr. inst. Paris, 1re ch. 1re sect., 28 Mar. 1984, Raffinerie de pétrole d'Homs, Revue de l'arbitrage 1985.141.


11
Trib. gr. inst. Paris, 22 May 2002, Lear, Revue de l'arbitrage 2002.785; Paris Court of Appeal, 1re ch. C, 22 Jan. 2009, SNF, Revue de l'arbitrage 2009.233.


12
Trib. gr. inst. Nanterre, 1 July 2010, SFFM v. FFILC, RG 07/13724.


13
P. Stoffel-Munck, 'Responsabilité d'un centre d'arbitrage pour nullité de la sentence', The Paris Journal of International Arbitration 2011-2, 401.


14
P. Fouchard, supra note 7.


15
Ibid, § 21.


16
Supra, note 10.


17
Paris Court of Appeal, 1re ch. suppl., 15 Jan. 1985, Société Opinter France v. société Dacomex, Revue de l'arbitrage 1986.87 (Annot. E. Mezger).


18
P. Fouchard, supra note 7, §§ 20, 26.


19
P. Lalive, supra note 3.


20
Ibid, § 7.


21
Ibid, § 8.


22
The reference is to A. Kassis, Réflexions sur le règlement d'arbitrage de la CCI (LGDJ, 1988).


23
T.Y.W. Cheng & J. Li, 'Liability of Arbitration Institutions: What does the Future Hold? in B. Hanotiau & A. Mourre, eds., Players' Interaction in International Arbitration, Dossier IX, ICC Institute of World Business Law (2012) 121.


24
See e.g. AT&T Corp v. Saudi Cable (English Comm. Ct) [2000] 2 Lloyds' Report 127.


25
P. Fouchard, supra note 7.


26
P. Lalive, supra note 3.


27
See supra, note 5.


28
See supra, note 6.


29
Y. Derains & C. Schroeder, supra note 6.


30
See Article 31 of the 2014 LCIA Arbitration Rules.


31
See e.g. section 74 of the English Arbitration Act 1996; section 19(2) of the Mauritius International Arbitration Act 2008 (as amended).


32
H. van Houtte & B. McAsey, 'The Liability of Arbitrators and Arbitral Institutions' in P. Habegger, D. Hochstrasser, G. Nater-Bass, U. Weber-Stecher, eds., Arbitral Institutions under Scrutiny, ASA Special Series No. 40 (Juris, 2013) 133 at 145.