The Case for Optional Appellate Arbitration Rules

An Exception to the notion of “finality of an award”

An extended control over Arbitration proceedings and outcome by parties

Arbitration is a part of Alternative Dispute Resolution (popularly known as ADR), which presupposes a parties’ chosen procedure and tribunal (arbitrators) who will preside over the parties’ dispute and finally, deliver a decision (award) which will be binding on the parties. Generally arbitration is a one stage process that ends by the time the arbitrator(s) delivers the award. The essence of arbitration traditionally is on the finality and binding nature of the award. In practice, the decision is final and binding on the parties unless there is an allegation of misconduct or fraud on the part of the arbitrator(s) in procuring the award, in which case, the Court may interfere by being invoked by an aggrieved party, and set aside the award, upon proof of such misconduct or fraud.

Generally, the intervention of the Courts is very minimal and it comes at the stage beyond the proceedings in the essence of the enforcement of the award or the review of the award strictly on the grounds above mentioned. This precept is also envisioned in our Tanzanian Arbitration Act, Cap 15 R.E. 2002 (See section 16 thereto).

Development of the Law on Appellate Arbitration

The main advantages of Arbitration are usually its tendency to save time and confidentiality of the proceedings. Since most parties who prefer arbitration are commercial in nature, question of time and privacy readily overshadows the costs that are primarily higher than in normal judicial procedures. Essentially therefore, the other advantage or aim of arbitration is to oust (banish) the jurisdiction of ordinary courts with regards to matters referenced to arbitration.

Even so, Arbitration has over the years proven ghastly bitter to parties when it comes to its finality nature. The lack of avenue to question Arbitrator’s decisions (in devoid of misconduct or fraud on the part of arbitrators) has very much rendered arbitration risky and precarious. The impossibility to question the merits of a decision is inevitably a bitter pill to swallow for an unsatisfied arbitration litigant.

On the wake of such a void in the commercial world, and owing to its consensual reference nature, in instances, parties have mutated the arbitration process to optionally include an appellate procedure. The basis of arbitration process is usually the “agreed procedure, agreed law and agreed arbitrators” among others. With the presidency of the word “agreed” in those key aspects of the arbitration process, parties have further invented a mandate to “…Agree whether the award of the arbitrator(s) they have chosen should be final or subject to optional appeal by an aggrieved party between them”.

In Ad Hoc tribunals, which are characteristically tailored by parties themselves, this practice is neither much heralded nor much authored for. But the essence remains the same that increasingly, optional appellate arbitration becomes more and more popular.

Institutional Models Rules taking on board appellate rules of arbitration

Parties to arbitration usually have a choice regarding the rules of arbitration and composition of the tribunal to preside over the matter. First choice is by embarking on Ad Hoc rules and tribunal which presupposes parties’ own tailored rules and own chosen arbitrators. Parties may still control their mandate of Ad Hoc tribunals and invoke rules such as the UNCITRAL Model Rules of Arbitration by the UN. Unfortunately regarding the issue of appellate arbitration the UNCITRAL Model Rules are still behind.

The second choice involves parties subjecting themselves to institutional rules and specialized tribunals formed under such rules. In international commercial arbitration the latter is the most common case. Institutions such as the International Chamber of Commerce (ICC) through its International Court of Arbitration (ICA), London Court of International Arbitration (LCIA), American Arbitration Association (AAA) through its International Centre for Dispute Resolution (ICDR) and many others have been at the forefront in resolving international commercial arbitration disputes. Their rules being paramount in the proceedings falling there-under.

Not many of these institutional rules have embraced the concept of appellate arbitration. Leaders in the subject, the ICC have always been cautious to amend their rules being wary of the adverse effects the same may pose to the underlying principles of arbitration aforementioned, especially the finality of the award aspect. It should be noted that The ICC innovation of the Pre-Arbitral Referee Procedures for settlement of preliminary matters preceding the arbitration process remains a landmark development in the law and practice in Arbitration.

However, pioneering institutes such as the AAA/ICDR have widely embraced the practice and did so, by releasing their acclaimed Optional Appellate Arbitration Rules for domestic and international arbitration in November 1^st, 2013. This means that, parties who refer their arbitration disputes to AAA implicitly mandate and empower the application of the appellate procedure after the award of the Arbitrators. That is, unless they specifically specify under their agreement to not invoke that part of the rules.

Likewise, other institutions such as the International Institute for Conflict Prevention and Resolution (CPR) published its Arbitration Appeal Procedure rules since year 1999. The sample clause thereto states;

• The parties to any binding arbitration conducted in the United States, pursuant to CPR Rules for Non-Administered Arbitration (“CPR Arbitration Rules”) or otherwise, may agree in writing that a party may file an appeal (the “Appeal”) under the CPR Arbitration Appeal Procedure (the “Appeal Procedure”) from an arbitration award (the “Original Award”). 
• The appeal shall be to a CPR Arbitration Appeal Tribunal (the “Tribunal”) chosen from the panel constituted by CPR to hear Appeals (the “Panel”), consisting of former federal judges. 
• No appeal may be filed hereunder, unless;

1. the arbitrator(s) (was) (were) required to reach a decision in compliance with the applicable law and rendered a written decision setting forth the factual and legal bases of the award; and
2. There is a record (the “Record”) that includes all hearings and all evidence (including exhibits, deposition transcripts, affidavits admitted into evidence) in the arbitration proceeding from which the appeal is taken.

Breakthrough Attorneys opines that the case for appellate arbitration is much more convincing and appealing compared to the case against it. Appellate arbitration is simply being conscious with the notion that to err is human and human actions and decisions are prone to mistakes which are unnecessarily premeditated by misconduct or fraud. It is pertinent that parties get an avenue to redress these errors when they are due.

Furthermore, we see it as an extension of the parties mandate to control their matter beyond the one-step procedure which cements finality even on moments of controversy. This new process offers a new dimension to arbitration and development of accountability in refining of arbitrators’ decisions who have customarily become supreme and paramount once appointed. As much as it is not a culpability process, the appellate process will make arbitrators wary of reversal of their unsound decisions which may in turn affect their credibility for future appointments. Essentially therefore, Arbitrators may be forced to maintain high standards in their decisions and conducts for the sake of their own career profile.

Breakthrough Attorneys finds that the case for appellate arbitration readily outweighs the one against it, the latter mainly featuring the question of costs. But the key issue is, if the parties themselves agree to the appellate arbitration, then the question of costs is not grave, since parties have foreseeably readied themselves to cater for them, in case appeal procedure is preferred by either of them.

Important Notice:
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.