The ‘Twilight issues’ series: which law governs res judicata issues in arbitration proceedings?

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In furtherance to “[t]he ‘Twilight issues’ series: Possible way outs for the arbitral tribunal in addressing the issues of Privilege and Availability of interim relief”, in this blog I am dealing with the issue of res judicata and possible way it should be dealt with by the arbitration tribunal absent any guidance from other applicable laws and arbitration agreement. I want to acknowledge the work of Ms. Silja Schaffstein which greatly inspired me.

Res judicata in Domestic Laws

The doctrine of res judicata does not apply uniformly in domestic laws. The table below shows the res judicata effect of awards in Civil and Common law countries. As per Stavros Brekoulakis,[1] “[i]n common law countries, the res judicata doctrine prevents the re-litigation not only of claims, but also of issues, facual and legal, adjudicated in the prior judgment. From this it appears that common law countries consider that a judgment represents a judicial record of what actually happened with regard to the dispute. Res judicata in this sense carries a fact-finding value. It is considered as a means of evidence, as an authoritative determination of the whole “story” of the dispute. In contrast, in civil law countries, the res judicata doctrine is normally confined to the claims rather than the issues determined in a judgment. The prevailing view is to separate res judicata from any fact-finding power. A judicial determination is regarded as fallible by nature and, in that sense, can only determine the legal consequences of what seems to have happened rather than determine what actually happened, that is, the facts. Parties are thus free to re-litigate facts determined in a judgment simply because res judicata does not bear any evidentiary significance”. The table below highlights the position of res judicata in major civil and common law juridictions

S.no.

Civil Law (where it is explicitly defined in law)

Common Law (where it is not explicitly defined under the law but still accepted)

1. France England
2. Belgium The United States
3. The Netherlands India
4. Austria Australia
5. Spain New Zealand

Res judicata and International Law

Res judicata was brought by Article 38 (1)(c) of the ICJ Statute, i.e. as a guideline acknowledged by all countries. The ALI/UNIDROIT Principles of Transnational Civil Procedure accommodate the utilization of res judicata as grew mostly in civil law nations.

The subject of which law ought to be applied by tribunal with regard to res judicata in arbitration turns on whether res judicata ought to be viewed as an issue of procedural or substantive law.

Whether res judicata is substantive or procedural law?

In common law countries, res judicata can be said to be a rule of evidence and admissibility concerning the prior award, and whether it must be viewed as conclusive and binding.

In civil law countries, res judicata is typically arranged in procedural codes. There exists a justifiable reason why res judicata ought to be viewed as an issue of procedural law as opposed to substantive law. As the place of arbitration decides the procedural standards which oversee an arbitration, the lex arbitri, in this way, appears to be the proper law to be applied by the tribunal when it considers the use of res judicata in an arbitration. Likewise, there is a stream of people who believe that res judicata belongs to substantive law. Considering everything, the tribunal ought to apply the lex causae (governing law) in dealing with scenario of res judicata. Some of the cases are discussed below where the tribunal has adopted a specific law in support of res judicata

Lex Arbitri

In ICC Case No. 7438 of 1994 the arbitral tribunal sitting in Zurich applied the procedural law of the canton of Zurich. The sole arbitrator based its choice-of-law on three considerations. First, the arbitration clause provided for arbitration in Zurich. Second, the agreement concerning the place of arbitration was confirmed in the terms of reference. Third, the seat of the first arbitral tribunal was also in Zurich and the first award was rendered in this city. According to Hascher, the arbitrator’s reasoning leads to believe that he intended to apply the law of the place of arbitration and the law of the place where the first award was rendered cumulatively.

Law governing the merits

In ICC Case No. 6293, 1990, the arbitral tribunal referred to Article 28 (6) of the ICC Arbitration Rules but its reasoning is based almost exclusively on New York State law which was the law governing the merits and the only law relied upon by the parties. In ICC Case No. 10027, 2000, the parties agreed that res judicata should be governed by the law governing the merits, which was New York law. The arbitral tribunal therefore had to apply the law governing the merits, although it considered res judicata to be a matter of procedure rather than substance. In the present case, New York law governed both the merits and the procedure. Hence, the question whether res judicata is a matter of procedure or substance was of no practical importance.

International arbitration law

In ICC Case No. 3383 of 1979, when deciding whether the prior award had finally determined that there was a valid agreement providing for ad hoc arbitration, the ICC tribunal did not specify the law governing res judicata, nor did it base its reasoning on any particular legal basis. Instead, the tribunal based its reasoning entirely on the premise that prior awards must be considered final and binding in subsequent arbitral proceedings, unless successfully challenged before the competent domestic courts. The tribunal held that arbitral tribunals are bound by prior awards so long as their validity was not challenged before the supervisory courts.

General res judicata principles

In ICC Case No. 6363, 1991 , the arbitral tribunal was silent as to the question of the law governing res judicata. It appears that the tribunal applied general res judicata principles, in particular the triple identity test.

As per Mr. Gary Born submits Article III of the New York Convention should provide for a broad res judicata doctrine, akin to the doctrine known in common law jurisdictions. The res judicata effect of the award should cover all claims arising out of a dispute, whether or not they were asserted during the arbitration proceeding. All claims that were within the scope of the arbitration agreement and that were related to the claims asserted in the arbitration should be covered by the res judicata effect of the award[2]

Recommendation

The tribunals for the most part ought to apply transnational res judicata rules absent an express choice of law by the parties in this regard. The conflict of law approach and the comparative law approach are not proper to agreeably address res judicata issues before international commercial arbitration tribunals. Such tribunals should fall back to the transnational law approach to decide res judicata principles. This implies that tribunals must search for by and large accepted principles in this regard. Such broad principles ought to be created in light of international arbitration law and practice.

The next blog in this series is available at

The ‘Twilight issues’ series: Determination of applicable law on the status of non-signatories in international commercial arbitration

[1] The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited, The American Review of International Arbitration, Vol. 16, No. 1 (2005), pp. 177 et seq

[2]Gary B. Born International Commercial Arbitration, Kluwer Law International, The Netherlands 2009., pp. 2892

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