Summary LLM International Dispute Resolution - Investment Treaty Arbitration II - Module 7 ( Relief, Costs & Third Party Funding)
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Course
LLM
Institution
Queen Mary, University Of London (QMUL)
• Substantive relief
o Choice of law
o Governing laws
National laws
Institutional rules
o Limits to arbitrators’ remedial powers
o Types of substantive relief
Monetary relief
Declaratory relief
Injunctive relief
• Specific performance
• Restitution
• Rectif...
The outcome of the arbitration is embodied in the dispositive part of the award, in which
arbitrators set out their decisions on the relief/remedies that each party requested. But not all
types of relief are available. For example, arbitrators cannot impose criminal sanctions
(imprisonment, fines), give regulatory approvals for mergers or share offerings, declare
bankruptcy, or grant IP rights. Instead, these powers lie with States and designated
authorities, and arbitrators cannot purport to usurp them.
Choice of law issues
Choice of law issues often arise when determining whether and on what conditions arbitrators
can order specific remedies. The issue is whether the sought remedy is ‘procedural’ or
‘substantive’. If procedural, the law of the seat normally applies. If substantive, the law of the
contract normally applies. This is relevant in annulment and enforcement proceedings. Since
arbitral awards cannot be challenged on their merits, if the arbitrators’ remedial powers are
considered substantive, such exercise of those powers will be an exercise of them on the
merits in which it will limit the possibility for challenges to decisions made. On the other
hand, characterising relief as procedural or substantive gives rise to uncertainty as civil law
states consider them procedural whereas common law states consider them substantive. Born
believes that ‘issues concerning the arbitral tribunal’s authority and jurisdiction are governed
by the law of the arbitral seat.’ Also, where foreign procedural law is chosen, the procedural
law of the arbitration will apply, whereas ‘issues concerning the substantive standards for
granting relief and the quantum and character of relief are governed by the substantive law
applicable to the parties’ underlying claims’. This is consistent with treating other issues like
arbitrators’ authority (interim relief, Kompetenz-Kompetenz) and treatment of choice-of-law
analysis concerning awards of legal costs and interest1.
Which laws govern substantive relief?
The arbitration agreement grants the arbitrators’ remedial powers. They rarely list remedies
that arbitrators may grant. Instead, their powers are ‘implicit’ in the parties’ consent to have
their dispute finally ‘resolved’, ‘determined’ or ‘settled’ by arbitration.
Some national laws grant arbitrators the same remedial authority that national courts
have in civil proceedings. For example, Singapore follow this basis whereby the tribunal may
award ‘simply or compound interest on the whole or any part of any sum in accordance with
section 20(1)’2. Whereas other laws expressly allow the parties to decide, but also, they set
out the arbitrators’ default remedial powers subject to the parties’ agreement to the contrary.
For example, in the UK, the parties are free to agree on the powers exercisable by the tribunal
as regards remedies3. Other laws specifically set out certain arbitrators’ remedial powers. In
Sweden, ‘In addition to interpreting agreements, the filling of gaps in contracts can also be
referred to arbitrators’4. But other laws do not address their powers, in which the parties will
need to agree upon them and these powers will be implied from the parties’ agreement to
arbitrate. Thus, the arbitrators are not limited to the substantive remedies that local judges
have, yet views on this differ.
1
Gary B. Born, International Commercial Arbitration (Third Edition), at p. 3338-89
2
Singapore International Arbitration Act 2012, Section 12(5).
3
English Arbitration Act 1996, Section 48.
4
Swedish Arbitration Act 1999, Section 1.
, Institutional rules do not list the arbitrators’ remedial powers. However, they
mention certain powers ‘explicitly’ to dispel doubts as to their availability. For example, all
leading institutional rules expressly address the power to issue interim and conservatory
measures. Sometimes they expressly attribute certain powers to arbitrators, even if they may
be implicit from the arbitration agreement. LCIA Rules allow tribunals to ‘order compliance
with any legal obligation, payment of compensation for breach of any legal obligation and
specific performance of any agreement (including any arbitration agreement or any contract
relating to land)’5. SIAC Rules allow tribunals to ‘order the correction or rectification of any
contract, subject to the law governing such contract’, unless parties agree otherwise, in
addition to other powers specified in the Rules (except prohibited by mandatory rules of law
applicable)6. More rarely, institutional rules can ‘exclude’ the power to order specific
remedies. AAA-ICDR Rules allow parties to ‘expressly waive and forego any right to
punitive, exemplary, or similar damages unless any applicable law(s) requires that
compensatory damages be increased in a specific manner’ unless the parties agree otherwise.
This provision shall not apply to an award of arbitration costs to a party to compensate for
misconduct in the arbitration. According to commentators, such prohibition on punitive
damages is intended to reassure international users that such damages will not normally be
granted in ICDR arbitrations.
Limitations to arbitrators’ remedial powers
As the arbitrators’ remedial powers stem principally from the parties’ arbitration agreement,
the arbitrators are principally not limited to substantive remedies that local judges have under
the law of the seat, or to the limited remedies expressly provided in the institutional rules. Yet
there are certain limitations to their implied remedial powers.
Arbitrators must respect the arbitration agreement. They can only grant relief
against the parties as they do not have powers nor jurisdiction over non-signatories. They can
only grant relief for claims made within the scope of the arbitration agreement, otherwise
they would expose their award to annulment/refusal to enforce under Article V(1)(c) of New
York Convention. The Convention states that the award ‘deals with a difference not
contemplated by or not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can be separated from those not so submitted,
that part of the award which contains decisions on matters submitted to arbitration may be
recognized and enforced’.
Arbitrators may not, in principle, grant relief that has not been requested by either
party (ultra petita). But some suggest this is possible as long as the arbitrators respect due
process and not render ‘surprise decisions’. This is very similar to due process requirements
that arbitrators must arbitrators must follow when determining contents of substantive law
governing merits.
Arbitrators should consider relevant mandatory rules that limit the type of relief they
can grant and the grounds for doing so. Certain relief is available only in certain states and
contrary to other states’ public policy (punitive damages, interest).
What type of relief will the tribunal grant?
5
LCIA Rules, Article 22.1(ix)
6
SIAC Rules, Rule 27(a)
, The conditions for granting a particular remedy will normally be contained in the following.
The contract may include such conditions. E.g. ‘Party B is liable for all direct and indirect
losses – including loss of profits – for breaches of this agreement’. The law of the contract
may include such conditions. It serves to interpret the contract and offer remedies, which are
not necessarily expressed in the contract/override its terms. E.g. ‘Party A can obtain an order
against Party B to perform its primary obligation; Party A is entitled to damages despite the
attempt to exclude liability under the contract; Party A can adapt the terms of the contract in
light of changed circumstances’.
Types of substantive remedies in award
Damages/Monetary relief is the most common and ‘natural’7 remedy sought in arbitration,
particularly in common law states. The claimant seeks to be compensated for monetary loss
suffered due to the respondent’s failure to perform its obligations properly or at all. This may
include direct losses, loss of chance, loss of profit, moral damages. It generally also includes
interest on principal sums awarded. Tribunals have discretion to make awards in any currency
deemed appropriate under many national laws. Thus it is important to consider their legal
background, which might impact their decisions, consciously or not8. Lesotho Highlands case
illustrates this and its potential consequences whereby the value of Lesotho loti diminished
against international currency values by the time the award was made, in which a consortium
of foreign companies claimed its payment in four European currencies contractually
designated. Also, damages analysis are initially driven by the merits of the case, which might
impact significantly the case. It is also important to use experts to determine the applicable
rules of law which arbitrators will refer9. The parties’ agreement govern the amount of
damages and nature of proof required10. National law rules and principles like public policy
rules are also of mandatory application. English law requires existence of a ‘wrong’11. But
French law and German law favour specific performance unless not possible12, and also
require a notice to the Respondent. CISG13 requires proof of breach and loss, UNIDROIT
Principles14 entitles full compensation due to non-performance. Parties should establish their
right to damages before justifying its type and amount. Thus they must determine which party
bears the burden of proof and the applicable standard. Usually the party making an assertion
holds the burden of proof15. Whereas the standard of proof varies between states, but in
common law states, the party making the claim for damages must meet the standard for civil
7
Ortscheidt, La reparation du dommage dans l'arbitrage commercial international (Dalloz 2001) with further
references.
8
Clare Connellan et al, Chapter on ‘Compensatory Damages Principles in Civil and Common Law Jurisdictions
– Requirements, Underlying Principles and Limits’, The Guide to Damages in International Arbitration, page
11.
9
Clare Connellan et al, Chapter on ‘Compensatory Damages Principles in Civil and Common Law Jurisdictions
– Requirements, Underlying Principles and Limits’, The Guide to Damages in International Arbitration, page
11.
10
C T Salomon, P D Sharp, ‘Chap 10: Damages in International Arbitration’, in J Fellas and J H Carter (eds),
International Commercial Arbitration in New York (2nd ed., OUP New York 2016) para. 10.1; N Blackaby, C
Partasides and others, Redfern and Hunter on International Arbitration (6th ed. OUP, 2015) para. 9.40.
11
H McGregor, McGregor on Damages (20th ed. Sweet & Maxwell, London 2017), Section 1-001.
12
French Civil Code, Article 1221; German Civil Code, Section 275.
13
CISG, Article 74.
14
UNIDROIT Principles, Article 7.4.2.
15
N Blackaby, C Partasides and others, Redfern and Hunter on International Arbitration (6th ed. OUP, Oxford,
2015), para. 6.84; G Born, International Commercial Arbitration (2nd ed. Wolters Kluwer, 2014), 2313-2314.
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