Originally from The Dark Side of Arbitration, Second Edition

Preview

I.   The “Courage Not to Arbitrate”
Parties are among the most significant players in international arbitration; thus, it is essential to emphasize the darker aspects of their behavior.
Starting with the initiative to commence arbitration, many arbitrators likely agree that some arbitration proceedings should never have been initiated. Nonetheless, they are set in motion for emotional, irrational reasons or ideas that are detached from any objective assessment of the actual claim’s merits.
This is evident in cases where the claims are clearly unfounded. Sometimes, the decision to arbitrate is made for purely political reasons, for example, by government or other public entity officials who may feel compelled to initiate arbitration out of fear of being accused of not adequately pursuing the government’s interests. Confronted with this fear, the objective assessment of the merits of the claim becomes secondary. On the other hand, in such cases, counsel receives strict instructions from the claimant, limiting their ability to alter the government’s stance.
In a recent case, a state entity initiated commercial arbitration against a private company for allegedly breaching a privatization agreement. The claimant sought a total of US$ 1.2 billion for 24 alleged contractual breaches. After a lengthy hearing, it took only half an hour for the arbitral tribunal to agree that none of the claims had the slightest foundation. In rendering the award, the arbitral tribunal dismissed the claims in their entirety on various grounds (jurisdiction, admissibility, or merits) and ordered the claimant to pay US$ 1.2 million in costs. It is interesting to note that the arbitrator appointed by the claimant, a well-known figure recognized for his impartiality and independence, insisted that the award contained some wording criticizing the claimant’s decision to initiate arbitration in the first place.