Summary of Principles for Res Judicata in international commercial arbitration

The controversy of res judicata in international commercial arbitration

Res judicata is a concept that is fundamental to all legal systems: a matter decided by a competent judicial or other tribunal with jurisdiction over the cause or action and the parties, is final and the matter cannot be re-litigated again between the parties bound by the decision.

This is a simple maxim but over the passage of time it has changed and has a variety of rules and applications over the different jurisdictions, so while there is a degree of commonality between the national legal orders there is also great disparity.

International commercial arbitration as a separate legal order autonomous from national legal orders has not settled on its own normative and coherent doctrine of res judicata that is consistent with arbitration foundations or suitable to its needs.

Arbitral tribunals will often transfer or import national law conceptions to determine issues of res judicata. It is a commonly held view that the transfer by arbitral tribunals of fragmented res judicata principles from national legal orders, in whole, thorough a conflict of laws approach or in hybrid, leads to incoherence and is unsuitable to the needs and expectations of parties to international commercial arbitration.

There has been an ongoing debate concerning the ongoing scope, content and application of res judicata and it is this that this article addresses.

Although there is a growing consensus on the need for transnational principles of res judicata, separate from national concepts of that doctrine, there is not yet a common view on its normative basis, its form or its content. There is more work to be done to research, debate and define a coherent and consistently-applied doctrine of res judicata that is suitable to international commercial arbitration.

A working definition of Res Judicata

The definition of res judicata that this article adopts is as follows: res judicata is the doctrine that an earlier and final adjudication by a court or arbitral tribunal is conclusive of the matters determined by it and those matters cannot be resubmitted to a court or arbitral tribunal by the parties bound by the judgment or award, except on appeal. In this definition, res judicata has both positive (conclusive) and negative (preclusive) effects.

Circumstances where arbitral tribunals confront res judicata issues

By way of further introduction, a high-level summary of the circumstances in which the issue of res judicata can arise is as follows: (i) in matters between arbitral tribunals and state courts; (ii) between different arbitral tribunals; and (iii) between a partial and a final award in the same arbitration.[1]

Introduction of proposals for core principles of transnational res judicata

This article proposes that the autonomous core principles of a transnational doctrine of res judicata should be based on to the foundational concepts of international arbitration: party autonomy, flexibility and due process. Where other commentators assert that the foundations or policies shaping the doctrine should be efficiency and finality,[2] it is submitted that those matters should be outcomes of the application of the doctrine rather than the material from which the doctrine is built.

National law conceptions of res judicata\

The origins of the doctrine of res judicata existed in antiquity and across cultures.[3] An early description of the doctrine, which aligns very closely to a modern definition, can be found in the oration of the Athenian statesman Demosthenes in the 4th century BC, in his private prosecution against Meidias[4]:

“If any parties are in dispute concerning private contracts, and wish to choose any arbitrator, it should be lawful for them to choose whomsoever they wish. But when they have chosen by mutual agreement, they shall abide by his decisions and should not transfer the same charges from him to another court, but the judgments of the arbitrator should be final.”

The features of the doctrine set out in this ancient text are the same as those set out above in the working definition put forward in this article: there is the positive effect (“they shall abide by his decisions”) and the negative (“they … should not transfer the same charges from him to another court”).[5]

The doctrine as stated here follows as a consequence of the agreement reached between the parties: the agreement to arbitrate; or “party autonomy”. Res judicata also has a public policy element to it; it is not solely a private matter. The historic concept of res judicata was developed to achieve two ends:  private justice and public policy. This can be seen in two Roman maxims.[6]

In respect of private justice, nemo debet bis vexari pro una et eadem causa (“no one should be proceeded against for the same claim”). The idea here is that the private individual, once he has received justice, ought not to have to obtain it or face it again. As a matter of public policy, interestreipublicae ut sit finis litium (“it is in the public interest that there should be an end to litigation”). The force and legitimacy of courts and tribunals depend on the public policy elements of res judicata.

It is from this common historical background that each of the civil law and the common law traditions developed rules of res judicata. The differences, however, can be seen in some of the more controversial aspects of res judicata.

In many civil law countries, claim preclusion is almost synonymous with res judicata. That is, the latter has very little breadth beyond the former. This can be seen from the threshold to determine the application of res judicata: the so-called “triple identity test”.[7] In summary, it requires that, in order for a claim to be precluded by an earlier decision of a court or tribunal, there must be a coincidence between the first and second action of the same claim, the same legal grounds and the same parties: “the thing claimed”.[8]

The concept of “issue preclusion” or “issue estoppel”, as applied in common law was neatly summarised by the ILA as follows: “when an issue of fact or law is litigated and determined by a valid and final judgment, and the determination is “essential to the judgment”, the determination is conclusive and binding in a subsequent action, whether on the same or a different claim”.[9] The principle of issue estoppel at English law has been most recently summarised by the highest authorities as, even in circumstances “where the cause of action is not the same in the later action as it was in the earlier one, [but] some issue which is necessarily common to both was decided on the earlier occasion”, that decision is binding on the parties in subsequent proceedings.[10]

“Could have been claims” and issues

A matter which any doctrine of res judicata must address is this: what is the effect of an earlier judgment on a claim or matter that a party could have brought to those earlier proceedings? In England, this question is determined by the rule in Henderson v Henderson,[11] “which precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones”.[12]

By way of brief summary, again this issue is one that is of vital importance to the users—and the prospective users—of international commercial arbitration. Foresight of the rules of res judicata in relation to “could have been claims” and issues will have the potential to influence a party’s claim, counterclaim or defence strategy.

Tribunals’ treatment of this is inconsistent

Third Party effects

The issue of the extent to which judgments and awards can have a binding and preclusive effect on third parties is one that, again, is addressed differently across jurisdictions. It appears to be a common feature across jurisdictions that successors to the parties in proceedings will be bound by the res judicata effects of the decision. The more interesting variance lies beyond this point. In France the issue refers back to the “triple-identity test”. It will also bind those who intervened in the proceedings and took part. It goes one step further to include the binding of a party if it was “represented in proceedings” which is where a party has “common interests” with a party to the proceedings.[13] In the US this is taken even further by the concepts of “virtual representations”. This applies where a party did not participate but was represented “virtually” by one that did, and a third party had control over the party’s participation in the proceedings.[14]

Arbitral tribunals’ application of res judicata principles

The application of res judicata by international commercial tribunals is inconsistent and, as a doctrine within the legal order, it lacks autonomy and a coherent set of principles. That is not to suggest that the tribunals disregard matters of principle or that they do not seek the “right” outcome. It is that, in seeking to get to that outcome, the path taken is very often unpredictable and, for users and counsel, uncertain.

Application of domestic law principles

The examples of tribunals applying national law principles are many. There is an inconsistency in the choice of national law that is applied.

No Rules cited

There are also several instances where no rules are cited at all, producing inconsistency in outcomes.

References to national norms

In ICC case no.13808/2008,[15] a second arbitral tribunal was constituted pursuant to the same arbitration agreement as an earlier tribunal, both seated in Paris. In the first arbitration, the tribunal awarded damages for breach of contract. In the second arbitration, the debtor party asserted that the contract was a nullity and claimed restitution of the damages paid in consequence of the earlier award. In determining the extent of res judicata, the tribunal held French law to be applicable because the earlier award had been “integrated” into the French legal order and both arbitrations were seated in France. The claim for restitution was precluded because to have awarded the return of the monies would have had the effect of overturning the earlier award. The tribunal asserted that the ILA Recommendations were of no assistance or guidance because they were “mere recommendations” and the parties had not agreed to their application. The tribunal also held that the outcome (preclusion of the restitution claim) was “perfectly compatible” with the rules elaborated in the international context.[16] The Tribunal did not identify any source or content for the “international” rules to which it referred.

ICC case no.3267/1987[17] is an often-referred-to award. It is held up as something of a high-water mark in the application of an autonomous and “substantive”[18] or “transnational” approach to the principles of res judicata specific to international commercial arbitration and autonomous from the doctrine as applied in national legal orders. The matter concerned a partial award that had been rendered in 1979 wherein it was determined, amongst other things, that the claimant’s termination of a construction contract was legitimate and that the claimant was entitled to recover certain liquidated damages. There were several developments thereafter and the parties returned for a final award, which was rendered in 1984.

The section of the award that is most often quoted concerned the tribunal’s consideration of the effect of the first partial award on the matters to be determined in the final award:

“This arbitral tribunal is further of the opinion that the binding effect of its first award is not limited to the contents of the order thereof adjudicating or dismissing certain claims, but that it extends to the legal reasons that were necessary for such order, i.e., to the ratio decidendi of such award. Irrespective from the academic views that may be entertained on the extent of the principle of res judicata on the reasons of a decision, it would be unfair to both parties to depart in a final award from the views held in the previous award, to the extent they were necessary for the disposition of certain issues.”

The ILA referred to the first section of this passage of the award in its Interim Report and remarked on the willingness of the tribunal to depart from the principles of Swiss law at the seat of the arbitration in order to find that the res judicata effect of a first award went beyond the dispositif.[19] Born has referred to the same award as an example of where Tribunals have eschewed domestic preclusion rules and “adopted pragmatic approaches that further the objectives of the parties’ arbitration agreement, effectively formulating sui generis international preclusion principles”.[20]

Solutions to the controversy of res judicata in international commercial arbitration

This article demonstrates the need for an alternative approach to the doctrine of res judicata in the context of international arbitration. Variously, the doctrine of res judicata and its application has been described as complex and unresolved,[21] uneven,[22] inconsistent and confused,[23] uncertain and unpredictable.[24] A solution must be found.

The continuation of this can be found in Sam Boyling’s article on Res Judicata published in the International Arbitration Law Review, entitled: “Principles for res judicata in international commercial arbitration.”

 

[1] In its Interim Report, the ILA identified a fourth general category, which is between, on the one hand, supranationaltribunals and courts and, on the other, arbitral tribunals. It is not considered in this article.
[2] ILA Recommendations; Schaffstein (fn.4 above), [5.114].
[3] Born (fn.4 above), pp.37333734.
[4] Quoted in Born (fn.4 above), p.26.
[5] This preclusive aspect could be interpreted as a statement of the doctrine of lis pendens, if viewed in the present tense. Equally, however, if viewed in the past tense, that is once the arbitrator has given his decision, it is a statement of negative effect of res judicata.
[6] Born (fn.4 above), p.3734.
[7] ILA Interim Report, p.52; e.g. French Civil Code, §1351.
[8] French Civil Code, §1351.
[9] ILA Interim Report, 47; also ALI, Restatement of the Law (Second) of Judgments, §27.
[10] Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 at [17] per Lord Sumption.
[11] Henderson v Henderson (1843) 3 Hare 100 and 115.
[12] Virgin [2013] UKSC 46 at [17] per Lord Sumption.
[13] Schaffstein (fn.4 above), [1.1141.115].
[14] ILA Interim Report, p.48.
[15] Summarised in Radicati di Brozolo (fn.4 above), pp.128129 and pp.139140.
[16] Note: these words are from the summary of Radicati di Brozolo (fn.4 above), p.139. The author there does notpurport to quote directly from the terms of the award.
[17] Yearbook Commercial Arbitration 1987, vol. XII, pp.8897.
[18] Pika (fn.4 above), [486].
[19] ILA Interim Report, p.62.
[20] Born (fn.4 above), p.3776.
[21] ILA Interim Report, p.35.
[22] Lacson (fn.4 above), 389.
[23] Yaffe (fn.3 above), 798.
[24] Schaffstein (fn.4 above), [0.05].

Jurisdictions

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