Originally from The Dark Side of Arbitration

I. The “Courage Not to Arbitrate”

Parties are among the most important players in international arbitration and it is consequently also necessary to highlight the dark sides their behavior may present.

Starting with the initiative to commence arbitration, I am sure many arbitrators share the view that some arbitration proceedings should never have been started. They are nevertheless set in motion for reasons that are emotional, irrational or divorced from any objective assessment of the merits of the actual claim.

This can be seen in cases where the claims are manifestly unfounded. Sometimes the decision to arbitrate is taken for political reasons only, e.g., by government or other public entity officials who may feel obliged to initiate arbitration out of fear of being accused of not having adequately pursued the government’s interests. Faced with this fear, the objective assessment of the merits of the claim becomes of secondary importance. On the other hand, in such cases counsel are given strict instructions by the claimant and there is little they can do to change the government’s stance.

In a recent case, a State entity began a commercial arbitration against a private company for alleged breach of a privatization agreement. The claimant claimed a total of US$ 1.2 billion for 24 alleged contractual violations. After a long 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. What is interesting to note is that the arbitrator appointed by the claimant, a well-known arbitrator renowned for his impartiality and independence, insisted that the award contain some wording criticizing the claimant’s decision  to start arbitration in the first place. The language included in the final award at the arbitrator’s suggestion needs, in my opinion, to be quoted for the strong message it conveys: