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Post-award remedies before the arbitral tribunal: a neglected means of streamlining arbitration

One of the reasons why parties choose arbitration is its time-efficiency. This is mainly due to the fact that the arbitral award decides the dispute in a final and binding manner and is subject to no appeal. The award can rather be attacked only by an application for setting aside which is mainly limited to procedural irregularities. Although time-efficiency belongs to the traditional advantages of arbitration, the users of arbitration have over the last years significantly increased the pressure to control time (and cost) in arbitration. While the main focus has rested on the arbitral proceedings, the post-award stage also merits a closer look. In this context, a recent holding of the German Federal Supreme Court has drawn the attention to an innovative stipulation.

Each setting aside application entails a double risk for effective and timely dispute resolution: if successful, setting aside of the arbitral award leaves the parties with nothing but costs and efforts after at times long and expensive arbitral proceedings. And even if (as often) the setting aside application finally remains unsuccessful, its pendency alone extends the period of uncertainty and increases the costs of dispute resolution.

Under the most radical approach, the parties are given the freedom to abandon the entire setting aside remedy already in their arbitration agreement. This route has been chosen by Switzerland, Belgium, Sweden (each notably only for non-nationals of their states), and France in order to promote these countries as locations for effective dispute resolution. While abandoning setting aside proceedings indeed accelerates the final resolution of the dispute, such acceleration comes at a high price, namely that arbitral awards that violate public policy or are otherwise evidently flawed remain in existence. It is true that such arbitral awards cannot be enforced against their debtors unless they are declared enforceable – which has little prospect of success given that the grounds for denial of recognition and enforceability mirror the grounds for setting aside. This, however, is of no avail if the arbitral award lacks enforceable content. It is also not in the parties’ best interest to eliminate from the outset any risk that procedural violations will be sanctioned.

Instead of excluding remedies against the violation of procedural rules, implementation of additional remedies is the more efficient way to accelerate the final dispute resolution

Instead of excluding remedies against the violation of procedural rules, implementation of additional remedies is the more efficient way to accelerate the final dispute resolution. As that may sound odd at first, it merits further explanation: the arbitration agreement may add a remedy according to which each party can file objections against the arbitral award which would qualify as grounds for setting aside with the arbitral tribunal within a short deadline. The arbitral tribunal therewith gets a second chance to revisit irregularities in the arbitral proceedings (in particular if it had not been aware of them in the pre-award stage) and to remedy them. The arbitral tribunal has a strong incentive to cure procedural defects in order to avoid that its award will be set aside subsequently. Even if the arbitral tribunal decides to adhere to its previous decision, it can substantiate why it does so and thus effectively reduce the number of subsequent setting aside proceedings.

This additional remedy becomes a means of accelerating the proceedings if the parties are precluded in subsequent setting aside proceedings with objections that they could have brought (but didn’t bring) under the additional remedy. Despite its exclusionary effect, such an additional remedy doesn’t limit the parties’ legal protection. If the arbitral tribunal doesn’t remedy the alleged procedural shortcoming, the party can still file a setting aside application with the competent state court.

Such an additional remedy is suitable for all grounds for setting aside that the arbitral tribunal may cure, in particular for violations of due process. Due process violations indeed represent the single most important ground raised in setting aside applications – and they could be better dealt with initially by the arbitral tribunal: the tribunal is already familiar with the dispute and with its own proceedings while the state court needs to gather the facts first. That is why the arbitral tribunal can make a faster decision than the state court. A decision by the arbitral tribunal will also avoid additional court fees.

A similar effect can be achieved if the state court suspends the setting aside proceedings and gives the arbitral tribunal the opportunity to eliminate the grounds for setting aside (art 34 para 4 of the UNCITRAL Model Law on International Commercial Arbitration) or remits the case to the arbitral tribunal after it has set aside the award (s 1059 para 4 of the German Code of Civil Procedure). This route does, however, cause additional delay and court fees as compared to an additional remedy that is to be filed directly with the arbitral tribunal. Such a direct remedy therefore remains the first choice.

Accordingly, an additional remedy to the arbitral tribunal may contribute to preventing both founded and unfounded setting aside applications. It does, however, need to be implemented either by law, by party agreement or in institutional rules. The German Federal Supreme Court (order of 16 April 2015, file no. I ZB 3/14) has recently recognized such a stipulation in an arbitration agreement. There are no reasons evident why other courts should decide differently.

Feature image credit: Nearly Ten by Lewis Dowling. CC BY-SA 2.0 via Flickr.

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