Arbitrations and the violations of Rule of Law – A Breach of Public Policy?

Amidst the procedural complexities and plethora of rules and regulations governing arbitration proceedings, an aspect which is often overlooked is the relevance of the Rule of Law in arbitrations. The Rule of Law is considered to be the foundation or the bedrock of any legal system in the world, non-adherence to which may render a nation tyrannical or dictatorial. The Rule of Law does not only have relevance in the public law spheres but also in arbitrations which are employed to resolve voluminous number of disputes. However, the importance of the Rule of Law is often lost in the arbitral proceedings. Rarely do the arbitrators refer to the Rule of Law or ensure that it is not violated during the arbitrations. This Article seeks to analyse the facets of the Rule of Law in context of international commercial arbitrations which must be adhered to by the arbitrators during proceedings. Considering that the Rule of Law is ingrained as a part of the basic structure or the cornerstone of a legal system in most nations, any failure to adhere to the Rule of Law shall be considered a breach of public policy as such a violation hits at the very foundation of a legal system.

The Rule of Law

Prior to the discussion on the applicability of the Rule of Law to arbitrations, it is essential for the reader to understand the meaning of the phrase ‘Rule of Law’ coined by Prof. A. V. Dicey. From King John’s Magna Carta in 1215 A.D. to the Universal Declaration of Human Rights in 1948, Rule of Law has been embedded in our respective legal systems. It is the foundation of a civilized society, comprising of the most important set of legal principles and rights which are essential for a legal system to exist and have been adopted in almost every legal system across the world. Dicey explains the Rule of Law as “no man is punishable or can lawfully be made to suffer in body or goods except for a distinct breach of law established in the ordinary legal manner before the ordinary courts of the land”. However, the ambit of Rule of Law is not limited to this definition laid down by Prof. Dicey. According to Tom Bingham, an eminent jurist and former Lord Chief Justice of England and Wales, the concept of Rule of Law has substantially expanded in the modern day and age. It includes a wide scope of rights, rules and principles such as the principles of natural justice, right to fair trial, proper exercise of discretion, accessibility of law, equality and international obligations. These elements of the Rule of Law must be adhered to in an arbitration and any failure to do so must be considered a breach of public policy of the land considering that any violation of the Rule of Law goes to the very root of a legal system. These are however not taken into consideration due to the absence of any explicit mandate by legislatures across the world.

The multi-faceted Rule of Law in arbitrations

First, one of the very basic elements of the Rule of Law is the principles of natural justice. The author admits that the principles of natural justice are indeed ingrained in the legal systems of each nation and on most occasions, these are adhered to by the arbitrators. In fact, many legislations or rules of arbitral institutions explicitly provide for these principles. These include, but not limited to, the rule of audi alterem partem (no man shall be condemned unheard) or right to fair hearing, elimination of bias, impartiality, independence, neutrality and nemo judex in causa sua (no man should be a judge in his own cause). These principles ensure fair proceedings and equality of parties before the arbitrators. In fact, in many jurisdictions, non-conformity to principles of natural justice has been held to be a ground for setting aside the arbitral award.

Second, the Rule of Law includes the proper exercise of discretion. This facet in an arbitral context encompasses the discretionary powers assigned to the arbitrators such as interim measures, admission of claim, procedure for proceedings, admission of evidence etc. If such a discretion is exercised purely on whims and fancies, opposed to the settled law and practices, there exists a violation of the Rule of Law. An example of such a situation is the Chevron case of sham arbitration in Egypt wherein the arbitrators and employees of arbitral institution were criminally charged for fraudulent arbitration. The arbitrators, therefore, shall exercise the discretion in accordance with the settled law, without any mala fides or malice.

Third, accessibility of law is a crucial component of the Rule of Law. As Marcel Berlins suggested, “ignorance of law is no excuse, unless there is no way of finding out what the law is”. Every party to an arbitration must be able to access the relevant law, rules or regulations to which it is being subjected. In other words, no party can be condemned without having accessibility to the law which allows such condemnation. The Rules of arbitral institutions must be available to all the concerned parties in an intelligible, clear and predictable manner. It is not only limited to such rules and regulations but also to the interim and other orders passed by the arbitral tribunal. Further, the tribunal shall be transparent with respect to the procedure adopted for the proceedings and ensure that each party is privy to such procedure.

Fourth, the Rule of Law requires compliance with the international obligations. To cite an example, most States endeavor to ensure that their national laws are in conformity with the UNCITRAL Model Law and have thus drafted their respective arbitration laws heavily relying on the Model Law. Further, the enforcement of foreign awards requires compliance with the international instruments such as the New York Convention or the Geneva Convention, which the states shall ensure. Therefore, another requisite for the Rule of Law is to comply with the international obligations. This is not only applicable to the states, but the arbitrators must also endeavour to ensure that their awards are not violative of international law and other established practices in the arena of international arbitration. Any violation of international obligations may result in a violation of the Rule of Law.

Conclusion

Any violation or discrepancy in the aforementioned facets of Rule of Law strike at the very foundation of a legal system. These facets have however, not been recognized by the arbitral tribunals or the courts in general. If there is any violation of the right to fair hearing, accessibility to the law, improper exercise of discretion or violation of international law, the courts shall step in to correct the same. These violations shall be considered a contravention of the public policy of a nation. The public policy exception to the enforcement of an award shall essentially include any violation of the Rule of Law. There are countless number of authorities in most jurisdictions citing the relevance of the Rule of Law in a national legal system. In fact, it has been held by the Hon’ble Supreme Court of India that the Rule of Law is a part of the basic structure of the Constitution, meaning that it’s requirement cannot be dispensed with, not even with an amendment of the Constitution. However, for the adherence of Rule of Law to materialize in arbitrations, it is essential that the states or arbitral institutions legislate an explicit provision for the Rule of Law, its effective administration and adherence.

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