Risk Of Inconsistent Arbitral Awards.
Risk of Inconsistent Arbitral Awards
1. Introduction
The risk of inconsistent arbitral awards arises when different arbitral tribunals render conflicting decisions on similar or related disputes involving:
- The same contract
- Related contracts in a transaction
- The same parties (or closely connected parties)
- Identical legal or factual issues
This risk is particularly acute in international commercial arbitration and investment arbitration, where proceedings are decentralized and lack a formal doctrine of binding precedent.
2. Causes of Inconsistency
A. Absence of Stare Decisis
Arbitral tribunals are not bound by precedent, unlike courts, leading to divergent interpretations.
B. Multiple Proceedings
Parallel arbitrations under:
- Different contracts
- Different arbitration agreements
- Different institutional rules
C. Fragmented Contracts
Complex transactions (e.g., construction, M&A, joint ventures) often involve multiple agreements, each with separate arbitration clauses.
D. Party Autonomy
Parties may choose:
- Different seats
- Different laws
- Different arbitrators
E. Confidentiality
Limited publication of awards reduces consistency and predictability.
3. Legal and Practical Consequences
- Contradictory obligations imposed on parties
- Increased enforcement challenges
- Undermining of finality and certainty
- Reputational and financial risks
- Potential for double recovery or double liability
4. Doctrinal Issues
A. Res Judicata
- May not apply if:
- Parties differ
- Causes of action differ
B. Issue Estoppel
- Limited applicability in arbitration
- Depends on identity of issues and parties
C. Lis Pendens
- No universal rule preventing parallel proceedings
D. Kompetenz-Kompetenz
- Each tribunal decides its own jurisdiction independently
5. Key Case Laws (At Least 6)
1. CME Czech Republic B.V. v. Czech Republic (2003)
- Parallel arbitrations under different treaties led to conflicting awards
- One tribunal found liability; another did not
- Classic example of inconsistency in investment arbitration
2. Lauder v. Czech Republic (2001)
- Related to CME case
- Tribunal reached opposite conclusions on similar facts
- Highlighted systemic fragmentation
3. SGS Société Générale de Surveillance S.A. v. Pakistan (2003)
- Tribunal declined jurisdiction over contract claims
- Emphasized treaty-contract distinction
4. SGS Société Générale de Surveillance S.A. v. Philippines (2004)
- Tribunal took a different approach from SGS v. Pakistan
- Accepted broader jurisdiction
- Demonstrated inconsistency in treaty interpretation
5. Vivendi Universal S.A. v. Argentina (Annulment, 2002)
- Annulment committee emphasized distinction between contract claims and treaty claims
- Attempt to clarify inconsistencies
6. Occidental Exploration and Production Co. v. Ecuador (2004)
- Tribunal adopted expansive interpretation of treaty protections
- Diverged from other tribunals on similar provisions
7. BG Group plc v. Argentina (2014)
- U.S. Supreme Court addressed procedural preconditions
- Highlighted differences in tribunal vs court interpretations
6. Mechanisms to Mitigate Inconsistency
A. Consolidation of Proceedings
- Combining multiple arbitrations into one
- Available under some institutional rules (e.g., ICC, SIAC)
B. Joinder of Parties
- Inclusion of related parties in a single arbitration
C. Appointment of Common Arbitrators
- Ensures consistency in interpretation
D. Drafting Harmonized Arbitration Clauses
- Uniform clauses across contracts
E. Institutional Rules
- Provide frameworks for consolidation and coordination
F. Transparency Initiatives
- Publication of awards (e.g., investment arbitration databases)
7. Drafting Strategies
- Include multi-contract arbitration clauses
- Provide for consolidation and joinder explicitly
- Choose consistent governing law and seat
- Specify appointing authority
- Consider tiered dispute resolution mechanisms
8. Comparative Perspective
Commercial Arbitration
- Greater flexibility
- Less transparency
- Higher risk of inconsistency
Investment Arbitration
- More published awards
- Still lacks binding precedent
- Greater scrutiny of inconsistency
9. Emerging Trends
- Increasing reliance on precedential consistency (de facto)
- Development of appellate mechanisms (proposed in ISDS reforms)
- Greater institutional emphasis on coordination tools
10. Conclusion
The risk of inconsistent arbitral awards is an inherent structural challenge in arbitration due to:
- Decentralization
- Party autonomy
- Lack of binding precedent
While complete elimination is unlikely, careful drafting, procedural coordination, and evolving institutional practices can significantly reduce this risk. Courts and tribunals increasingly recognize the importance of coherence and predictability, but arbitration continues to balance this against its core principle of flexibility.
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