3.01  Upon acknowledging the importance of abuse of rights in national and international law, it becomes imperative to discern the nature and function of abuse of rights in international arbitration. Thus, in this chapter, one shall discern the legal basis of abuse of rights in international arbitration. In other words, if arbitrators choose to rely on abuse of rights to enforce or refuse the recognition of a given right, do they apply it as a general principle of law or only as part of the applicable national or international law?

3.02  Secondly, if the transnational nature of abuse of rights is acknowledged, it becomes imperative to elucidate how the principle operates in the context of international arbitration; is its application restricted to cases where it is part of the applicable substantive law; or is it regarded as a principle of transnational public policy?

3.03  Many transnational norms and standards that became omnipresent in international legal doctrine and practice are derived from municipal norms and private-law principles.¹ A question raised in this regard is whether the principle of abuse of rights elevates to a transnational principle.

(p. 118) 3.04  In order to ascertain the transnational nature of the abuse of rights principle, and whether it comprises a general principle of law, this chapter shall adopt the methodology used in previous chapters, and that is often relied upon in ascertaining general principles of law. In this regard, the criterion mostly used to identify general principles of law, acknowledged and accepted in jurisprudence, is examining the acknowledgment of the principle in different families of legal systems.

3.05  Moreover, one shall also shed light on the perception of the principle of abuse of rights as acknowledged by prominent scholars; as reflected in international legal instruments such as uniform laws; and as applied by arbitral tribunals.² This methodology is particularly used in the arena of international arbitration: ‘in the arbitration context, the best indication of the acceptance of a proposition as a general principle is its frequent invocation by arbitral tribunals and its recognition by scholars’.³

3.06  Analysis of the above shall be attained by examining arbitration doctrine and practice in commercial and investment arbitration. However, emphasis may be given to investment arbitration cases solely for the existence of material to that effect. It is submitted that any conclusion reached in relation to the nature of the principle should extend to, and apply in, international commercial arbitration.

3.07  Prior to discussing the nature of abuse of rights and how it operates as a general principle, it is necessary to elaborate on the meaning of a principle in the context of general principles of law.

3.08  In deciding cases, decision makers may resort to, and rely on, different standards. Some of these function as rules, while others operate as principles. In his seminal work entitled Taking Rights Seriously, Ronald Dworkin noted that a principle is:

[A] standard that is to be observed, not because it will advance or secure an economic, political, or social situation deemed desirable, but because it is a requirement of justice or fairness or some other dimension of morality.⁴ (Emphasis added)

3.09  To illustrate the meaning of principles, Dworkin referred to the following example: In the case of Rigs v Palmer,⁵ an heir named in a will murdered his grandfather for the purpose of receiving the inheritance. The Court first acknowledged that if the provisions of the law regulating the making and effect of wills are interpreted in a strict manner, (p. 119) the murderer should receive the property. However, the Court refused to recognize the right to inherit established by the statute and relied on some fundamental legal principles. The Court provided that:

[A]ll laws as well as all contracts may be controlled in their operation and effect by general, fundamental maxims of the common law. No one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime.⁶

3.10  This case is of particular importance as it not only demonstrates the meaning of principles, but may also be used to clarify the nature and function of abuse of rights as a legal principle. The case fortified that a right conferred by a legal instrument such as a statute or a contract (right to inherit) is not absolute and does not apply irrespective of the circumstances. It may be controlled or modified in light of other broader principles. By considering the conduct of the heir, the Court rightly found that giving effect to the right in question would be inequitable.

3.11  A prudent reading of the above entails that a principle often involves a broad standard required by moral norms or other considerations of fairness and justice, and that it may operate to control or modify a given rule.⁷ This greatly resembles the nature and function of abuse of rights: a broad principle that has a remedial function⁸ formed on moral grounds,⁹ as well as on considerations of justice and fairness.¹⁰ It is a principle that operates as a corrective mechanism to soften and ameliorate the rigidity of strict legal rules.¹¹ It is particularly interesting to note that the principles referred to in the mentioned case partially demonstrate manifestations of the abuse of rights principle. Thus, the principle that ‘no one shall be permitted to profit or take advantage of his own wrong’ is often perceived as an application of abuse of rights.¹²

3.12  In drawing a line of demarcation between legal rules and principles, it is rightly noted that unlike rules, a principle does not mandate reaching a particular decision but is to be merely considered in light of other competing principles.¹³ In case (p. 120) of conflicting principles or interests, it is resolved by choosing the outcome ‘supported by the principles that have the greatest aggregate weight’.¹⁴ As expressed by Dworkin:

[I]t [a principle] states a reason that argues in one direction, but does not necessitate a particular decision [. . .] There may be other principles or policies arguing in the other direction [. . .] If so, our principle may not prevail, but that does not mean that it is not a principle of our legal system, because in the next case, when these contravening considerations are absent or less weighty, the principle may be decisive. All that is meant, when we say that a particular principle is a principle of our law, is that the principle is one which officials must take into account, if it is relevant, as a consideration inclining in one direction or another.¹⁵ (Emphasis added)

3.13  This depiction of principles equally confirms and fortifies the nature and function of abuse of rights. As previously mentioned, in determining if there is an abuse of right, courts/arbitrators are to utilize the balancing factor to carefully weigh the competing interests. While some of the mentioned interests and/or principles may direct decision makers in one direction, other competing interests and principles may prevail in other cases, given the different circumstances.

3.14  Having succinctly defined principles, it is important to discuss the meaning of general principles of law. As a term of art, general principles of law may have different meanings and functions.

3.15  General principles of law may be used, specifically in a transnational context, to denote those principles that are rooted in, and accepted by, different legal systems. In this regard, general principles of law function as a conflict of laws method: the non-selection method of conflict of laws or the conflict avoidance method,¹⁶ and reflect principles that are generally acknowledged by different States. Unlike the lex mercatoria, which are generated by the community of merchants, general principles of law pertain to principles that originate from, and exist in, national legal systems, and are identified by a comparative law analysis.¹⁷

3.16  General principles of law may be also viewed as a source of law. This is specifically the case in civil legal systems. Given that case law only enjoys persuasive authority, general principles of law may be used to create legal rules in order to fill a lacuna that exists in statutes and customs.¹⁸ Others advocate that general principles of law constitute guiding principles rather than a source of law as they provide a basis for the establishment of specific legal rules.¹⁹ It appears that general principles of law function in a (p. 121) manner that develop legal systems by constantly filling gaps that appear in the decision-making process.²⁰

3.17  Finally, these principles have an equally important role in international law. Article 38 of the Statute of the ICJ refers to general principles of law as a source for adjudication before the Court. These principles usually denote principles and standards that are derived from the municipal laws of States.²¹ James Crawford referred to them as ‘principles of municipal jurisprudence, in particular of private law, in so far as they are applicable to relations of States’.²²

3.18  Owing to the sacrosanct principle of party autonomy in international arbitration, arbitral tribunals generally honour the choice of law chosen by the parties.²³ If parties fail to designate the law to govern the dispute, arbitrators have to ascertain the applicable rules and/or principles.²⁴ Rather than designating a national substantive law, parties often choose, or the arbitral tribunal may decide,²⁵ to apply transnational substantive standards or principles to govern their relationship.²⁶ These a-national principles offer parties the opportunity to subject their contractual relationship to standards that are independent of the particularities of any national legal system and take into consideration the particular needs of international commerce.²⁷

3.19  The possible application of general principles of law, or other a-national rules of law, is fortified by the reference to ‘rules of law’ that can be found in many modern arbitration (p. 122) statutes and rules.²⁸ Moreover, it is of particular interest to mention that the ILA adopted a resolution in 1992 noting that awards based on transnational rules and principles, such as general principles of law, are enforceable.²⁹

3.20  The recognition and application of general principles of law is neither peculiar to, nor inconsistent with, international arbitral case law.³⁰ Given that these principles represent an epitome of existing transnational contract law,³¹ there are reported cases where arbitrators have applied these principles even without an express reference to them by the parties.³² The view that arbitrators may resort to general principles of law where parties fail to designate an applicable law is not subject to consensus in arbitration doctrine.³³

3.21  Ascertaining a new general principle of law necessitates examining the existence of the principle in question in different legal systems of the world. That said, is it necessary that the principle be recognized in all legal systems?

3.22  Such an overly restrictive approach is neither necessary nor practical, as it hinders the arbitrator’s ability to resort to a principle found in private law.³⁴ The method adopted should therefore be ascertaining the prevailing trend within national laws, rather than establish unanimous recognition.³⁵ To that effect Gutteridge noted:

It would seem that the more generous of these criteria is to be preferred because to insist on precise similarity of rule in all systems of law would be to demand the (p. 123) impossible and so to destroy – or at least, seriously diminish – the value of any resort to private-law sources and analogies.³⁶

3.23  Thus, prior to finding a general principle of law, and before transposing such a private-law principle to international arbitration, an arbitrator must examine the principle’s recognition in different legal systems. This should be no different from the position adopted and applied in international law.³⁷ Article 38 of the Statute of the ICJ provides that it shall apply ‘the general principles of law recognized by civilized nations’.³⁸ In commenting on this Article, it is widely accepted that the term ‘general’ denotes the principle’s recognition in most, and not all, legal systems, and that for a principle to be elevated to a general principle, its application should not defy the ‘fundamental concepts of any of those systems’.³⁹

3.24  It is often held that a given principle is considered a general principle of law. However, it is usually overlooked that the term ‘general principle of law’ normally denotes substantive principles and not procedural principles.⁴⁰

3.25  Given that this book addresses abuse of substantive and procedural rights, it is important to examine whether the abuse of rights principle is considered to be a general principle of substantive law (A) within the context of international arbitration, as well as a general principle of arbitral procedure (B).

3.26  One shall then examine whether the principle of abuse of rights enjoys any mandatory nature, that is, if it may apply as a principle of transnational public policy that overrides the applicable law, or if it can only apply as a general principle where arbitrators are entitled to resort to such principles (C).

3.27  It is submitted that the principle of abuse of rights has elevated and developed as a general principle of law. As shall be discussed below, this submission is confirmed by the principle’s recognition in most national legal systems and in international law; its acceptance as a general principle of law by scholars; and by virtue of its application as a general principle by arbitral tribunals in the domain of national and international law.

(p. 124) 3.28  Moreover, it was previously mentioned that the equitable nature of the principle as well as the element/criterion of reasonableness is widely acknowledged in the application of abuse of rights in national legal systems. As shall be discussed below, it appears that the equitable character of the principle remains conspicuous in the transnational context where the it is applied as a general principle of law. Furthermore, the criterion of reasonableness emerged as an equally key factor in the transnational application of the principle to limit the abuse of substantive contractual/treaty rights.

3.29  An overview of different legal systems was undertaken to examine the recognition and application of abuse of rights. Such review testified that many legal systems endorse a general principle of abuse of rights.⁴¹

3.30  It is submitted that the ‘general principle of abuse of rights has been applied by the courts in every department of the law’,⁴² and that ‘the prohibition of abuse of rights is a general principle of law. In view of its general recognition by almost all systems of law’.⁴³ Thus, the generality of the principle, as required in general principles of law, is satisfied.⁴⁴

3.31  Moreover, in discussing the principle’s application across diverse legal systems, it was suggested that the criterion of reasonableness (balancing factor) was elevated to a transnational element of the principle. This criterion of the principle has gained the widest support in civil law jurisdictions,⁴⁵ is also endorsed by the CJEU as part of EU law and in international law,⁴⁶ and is not (p. 125) peculiar to the depiction/perception of the exercise of rights under common law.⁴⁷

3.32  Based on the above, arbitrators have resorted to the principle of abuse of rights to resolve diverse substantive issues. In doing so, arbitrators have explicitly or implicitly applied it as a general principle of law. Some examples are discussed to illustrate the above.

3.33  In ICC Case No 3267,⁴⁸ the question of whether the termination of an agreement may constitute an abuse of right was raised. The case related to the construction of a building project. The Claimant terminated the contract because of the Respondent’s default in the payment terms. The question before the Tribunal was whether the termination of the contract was legitimate. The Claimant sought a declaration that the contract was legitimately terminated and that the issued advanced guarantee and the performance guarantees became extinguished. The Respondent, however, raised a counterclaim and requested a declaration that such termination, and all consequences thereof, was not legitimate: as the termination ‘was without a legitimate cause’.⁴⁹

3.34  There was no explicit choice of the applicable law in the agreements. After considering the terms of the agreement, the Tribunal decided that it would not apply the laws of a specific legal system, but would decide the case with reference to general principles of law. In assessing the abusive nature of the termination, the Tribunal considered the factual matrix of the case, balanced the competing financial and contractual interests at stake, and examined the legitimacy of the termination. The Tribunal decided that the termination did not amount to an abuse of right. In relying on the principle of abuse of rights, the Tribunal explicitly noted that the principle may be applied as part of national law (where the principle is recognized and regulated); as a general principle of law; and in cases where arbitrators are acting as amiable compositeur. In the Tribunal’s words:

In addition to the power to decide on the dispute before him on the basis of generally accepted legal principles, without being fettered by the technicalities of a particular legal system, the arbitrator sitting as ‘amiable compositeur’ is entitled to disregard legal or contractual rights of a party when the insistence on such right amounts to an abuse thereof. This authority is of a particular importance in legal systems that have (p. 126) not developed an extensive theory of ‘abuse of right’, such as Swiss law under Art. 2 of its Civil Code.⁵⁰

3.35  This case is of particular interest, as it not only proves that abuse of rights was regarded and applied as a general principle of law, but it also revealed that the element/criterion of reasonableness was inherent to the general principle of abuse of rights. The arbitral Tribunal engaged in a balancing exercise to assess if the exercise in question was abusive or reasonable, even though this was not mandated by a specific national law, but as part of the general principles of law.⁵¹

3.36  The arbitral awards in the cases of Himpurna California Energy Ltd v PT (Persero) PLN⁵² and Patuha Power v PT (Persero) PLN,⁵³ confirm that the principle of abuse of rights comprises a general principle of law. Although these cases are discussed in subsequent sections, it suffices here to mention that the arbitrators not only acknowledged abuse of rights as a general principle of law, but went further and applied it as a principle of transnational public policy, applicable regardless of the governing lex causae or lex arbitri.

3.37  The reasonableness, or abusive nature, of terminating agreements was discussed again in ICC Case No 13184 of 2011.⁵⁴ In this case, a Mexican company established two entities (the Respondents). The Respondents subsequently concluded contracts with the Claimant (US distributor A) and similar contracts with another distributor (US Distributor B). When concluding the fourth contract with the distributors, the Respondents introduced certain differences in the contract with the Claimant, as they lacked complete faith in the Claimant. These new changes included a right to terminate the contract without a cause and to have a midterm review meeting. Subsequently, the Claimant realized that these differences were introduced only to his contract and not for the US Distributor B. The Respondents then unilaterally terminated their agreements with the Claimant. The Claimant initiated arbitration proceedings alleging, inter alia, that the Respondents abused their right in terminating the agreement and in concealing the differences in the contracts with both the Claimant and the US distributor B. The law applicable to the merits was the CISG and supplemented by Mexican law.

3.38  In dismissing the claim, the arbitral Tribunal recognized that the Respondents acted in bad faith as they misrepresented and concealed the differences in the contracts. However, it was held that such misrepresentation was not relevant to the formation of the contract as it took place after its execution. The Tribunal found that the (p. 127) Respondents’ exercise of their right to terminate the contract did not amount to an abuse of right, given that it was not maliciously exercised, and was exercised for a legitimate and reasonable purpose, because the termination was motivated by commercial considerations.⁵⁵ The Tribunal engaged in a balancing process as it weighed the allegation of abuse against the express terms of the contract, and that the Respondents were exercising a contractual right. They also considered the fact that after being made aware of the differences in the agreements, the Claimant did not initiate proceedings, but instead attempted to pursue the preservation of the contractual relationship.⁵⁶

3.39  The application of abuse of rights in this case clearly demonstrates the equitable nature of the principle. This is due to the fact that the Tribunal explicitly took into consideration the adage: he who comes to equity must come with clean hands, as they considered the conduct of the aggrieved party in evaluating the abusive nature of the termination. However, this case does not necessarily support the proposition that abuse of rights is a general principle of law. The arbitral Tribunal referred to Mexican law and applied the principle as regulated and embodied under Mexican law.⁵⁷ This arguably defies the generality and transnational status of the principle particularly given the Tribunal’s approach to resort to national law in order to apply abuse of rights. It may be argued, however, that this does not necessarily negate the transnational status of abuse of rights given that: (a) the contract directed the arbitrators to refer to Mexican law if an issue is not covered under the CISG; (b) pursuant to Article 7.2 of the CISG, arbitrators must resort to a specific kind of general principles, that is, ‘general principles on which it [the CISG] is based’ in matters not expressly covered under the CISG,⁵⁸ and, failing to ascertain those principles, arbitrators are to resort to national law;⁵⁹ and (c) it is the general practice within the domain of CISG to automatically resort to national law where the issue is not explicitly regulated under the CISG.⁶⁰

3.40  When arbitrators attempt to identify general principles of law, they often rely on the UNIDROIT Principles, or other transnational principles,⁶¹ as a reflection of those principles.⁶² Given that the UNIDROIT Principles may be considered as a restatement of general principles of law,⁶³ any reference to abuse of rights may prove helpful (p. 128) in this regard. The UNIDROIT Principles clearly recognize that abuse of rights is a general principle of law, as an application of the broader principle of good faith and fair dealing.⁶⁴ The Principles, after providing the overarching principle of good faith and fair dealing, go on to demonstrate certain manifestations and narrower general principles that fall within the purview of good faith and fair dealing, including abuse of rights.⁶⁵ It is of particular interest to note that the provision regarding abuse of rights was originally going to be a separate provision under the Principles, but it was decided to locate it under the good faith principle, as one of its important applications.⁶⁶

3.41  The transnational nature of abuse of rights may also be deduced from its recognition in other international legal instruments. Article 300 of the United Nations Convention on the Law of the Sea recognizes a general principle of abuse of rights: ‘States Parties shall fulfil in good faith the obligations assumed under this Convention and shall exercise the rights, jurisdiction and freedoms recognized in this Convention in a manner which would not constitute an abuse of right’.⁶⁷

3.42  Moreover, Article 17 of the European Convention for the Protection of Human Rights and Fundamental Freedoms of 1953, as amended in 1998, also includes a general provision on abuse of rights.⁶⁸

3.43  Applying the general principle of abuse of rights as part of the UNIDROIT Principles is also reflected in arbitral decisions. Moreover, the element of reasonableness and endorsing the balancing factor is equally palpable in the application of abuse of rights from the standpoint of the UNIDROIT Principles. Thus, in ICC Case No 8547 of 1999,⁶⁹ a dispute arose out of a sale contract. Article 15 of the contract provided that any claim in relation to the quantity and quality of the products must be communicated within fifteen days upon arrival and was to be considered only against presentation of supporting documents issued by a neutral surveyor within thirty days of arrival. The law applicable to the contract was the Hague Convention of 1964 and supplemented by the UNIDROIT Principles. The buyer (the Respondent) received bad quality goods and informed the Claimant. However, the Claimant did not take any steps to remedy this.

3.44  While acknowledging that the Respondent failed to abide by the requirements of Article 15 in case of non-conformity, the arbitral Tribunal provided that the strict adherence to this Article by the Claimant constituted an abuse of right. In the words of the Tribunal:

(p. 129)

The arbitral tribunal is convinced of the non-conformity of the goods [. . .] The strict adherence to the requirement of provision No. 15 now by claimant amounts to an abuse of rights [. . .] If claimant could rely on this provision, defendant would have lost any rights in regard to the non-conformity. It is relevant that according to defendant, claimant did have the opportunity to examine the goods.⁷⁰

3.45  The corrective function of abuse of rights, and the element of fairness advanced by its application, appears conspicuous in this case. The principle was used to cure unfairness as a result of the rigidity of a contractual right, the strict adherence to which would have been greatly damaging to one of the parties. The Tribunal weighed the competing interests: those of legal certainty and the principle of pacta sunt servanda, against fairness and the fact that the goods were not in conformity with the quality agreed upon. The Tribunal emphasized the element of fairness and decided that setting aside the requirements of Article 15 is the only way the Respondent can have a claim regarding the non-conformity.⁷¹

3.46  The universal status of the abuse of rights principle is also recognized in international law jurisprudence and practice. It is recognized and applied as a general principle of law.⁷² It was mentioned by Bin Cheng as a general principle of law applied by international courts and tribunals.⁷³ James Crawford similarly referred to the principle of abuse of rights as an epitome of the general principles of law.⁷⁴ Moreover, in emphasizing the universality of the principle, Sir Hersch Lauterpacht examined the existence of abuse of rights in major legal systems and advocated that, notwithstanding the divergent terminology employed by different systems, ‘there is inherent in every system of law the general principle of prohibition of abuse of rights’.⁷⁵

3.47  The above is confirmed by the practice of international courts and tribunals. In the seminal Barcelona Traction case, the ICJ referred to abuse of rights as: ‘enshrined in a general principle of law which emerges from the legal systems of all nations’.⁷⁶

3.48  As a general principle of law, abuse of rights is applied in the context of myriad legal matters, ranging from limiting the host State’s sovereign authority to the preclusion of the abusive interpretation of treaty rights.⁷⁷ The application of abuse of rights is (p. 130) particularly evident in investment disputes. One scholar advocated that most international investment law disputes before arbitral tribunals could be resolved by the ‘repudiation of abuses of right’.⁷⁸ Thus, the Tribunal in the case of Phoenix v The Czech Republic recognized that abuse of rights constituted a general principle of law,⁷⁹ and stipulated that ‘nobody shall abuse the rights granted by treaties, and more generally, every rule of law includes an implied clause that it should not be abused’.⁸⁰

3.49  As previously mentioned, abuse of rights has also been applied as a general principle of law by the WTO panels and WTO Appellate Body to prevent the abusive interpretation and application of treaty rights.⁸¹ In the case of United States Import Prohibition of Certain Shrimp and Shrimp Products, the Tribunal applied the principle and provided that any abuse of GATT Article XX (on General Exceptions)⁸² was tantamount to an abuse of right and thus a violation of the treaty. The Tribunal explicitly stipulated that:

The chapeau of Article XX is, in fact, but one expression of the principle of good faith. This principle, at once a general principle of law and a general principle of international law, controls the exercise of rights by states. One application of this general principle, the application widely known as the doctrine of abus de droit, prohibits the abusive exercise of a state’s rights and enjoins that whenever the assertion of a right ‘impinges on the field covered by [a] treaty obligation, it must be exercised bona fide, that is to say, reasonably. [. . .]. (Emphasis added)⁸³

3.50  This decision not only confirms the nature of abuse of rights, but it also strengthens the above proposition regarding the universal/transnational status of the element of reasonableness in the context of abuse of rights. The Tribunal noted that finding an abuse requires marking the line of equilibrium between the competing rights and interests of the Member States in order to assess the abusive nature of the measure applied.⁸⁴ This was also confirmed in other cases decided by the Appellate Body of the WTO.⁸⁵

3.51  Finally, it is worth mentioning that abuse of rights is also recognized by eminent scholars and by the CJEU as a general principle of EU law. It is often held that the principle was transposed to EU law by virtue of its recognition by the Member States and its application by the CJEU:

(p. 131)

[T]he principle amounts to a general principle of Union law. First, a common concept of abuse of rights exist in the legal traditions of the Member States. Second, the European Court of Justice (ECJ) has gradually built a Union concept of abuse of rights.⁸⁶

3.52  Notwithstanding the above, some question the transnational nature of abuse of rights. Whilst acknowledging that many scholars and courts/tribunals advocate the generality and universality of the principle, Gutteridge noted that this is questionable given that the principle remains in a formative stage, is rejected by England and Italy, and that it may be used by debtors to evade their obligations.⁸⁷

3.53  One does not concur with the reasons mentioned by Gutteridge, and therefore, with his conclusion questioning the transnationality of the principle. The principle of abuse of rights has unequivocally developed since these particular concerns were raised.⁸⁸ Moreover, not only is the principle currently recognized and accepted in Italy,⁸⁹ but as it was previously mentioned, English law endorses equivalent principles and standards that function in a similar manner and achieve the same purpose as the aims of abuse of rights.⁹⁰ Finally, while one acknowledges that the principle’s utilization may allow one to evade from its obligation, it was previously highlighted that the principle must be applied with utmost prudence and that decision makers must resort to, and utilize it in exceptional cases where abuse is flagrant.

3.54  A specific procedural principle may also become a general procedural principle if it is recognized and accepted in many legal systems and constantly upheld in international arbitral practice.⁹¹

3.55  In this section, abuse of rights as a general procedural principle in international arbitration shall be discussed.

3.56  One shall, first, succinctly highlight the possible application of general, or transnational, principles of procedure in international arbitration (1); and subsequently discuss the status of abuse of rights (2).

3.57  The recognition and application of transnational procedural principles is neither peculiar to, nor inconsistent with, international arbitration law and practice.⁹² The Institute of International Law adopted a resolution in 1989, which provided that:

[T]he parties have full autonomy to determine the procedural [. . .] rules and principles that are to apply in the arbitration [. . .] these rules and principles may be derived from different national legal systems as well as from non-national sources such as principles of international law, general principles of law [. . . ].⁹³ (Emphasis added)

3.58  Thus, it is widely acknowledged that there are transnational procedural rules and principles in international arbitration.⁹⁴

3.59  Arbitral procedures are generally subject to the sacrosanct principle of party autonomy.⁹⁵ Thus, they are governed by the procedural framework adopted by the parties.⁹⁶ This framework comprises the rules of law of the arbitration statute designated by the parties or the rules of law determined by the arbitrators, the pre-established arbitration rules (those of an institution or ad-hoc), and any applicable international convention.⁹⁷

3.60  However, owing to the non-comprehensive nature of the aforementioned procedural framework, lacunas exist that need to be supplemented.⁹⁸ In this context, it is submitted that an autonomous set of transnational or general principles have emerged, and continue to emerge, in international arbitration in order to ensure the administration of arbitral justice.⁹⁹

(p. 133) 3.61  The extent of the role played by such generally accepted procedural principles is not subject to consensus in arbitration practice and jurisprudence. This variation emanates from the different conceptions and representations of international arbitration, that is, the extent of its autonomy from national legal systems.¹⁰⁰

3.62  In arbitration doctrine, international arbitration is mainly represented either as: a component of the national legal order of the place of arbitration (monolocal or territorial vision);¹⁰¹ anchored in a plurality of national legal systems (Westphalian or pluralistic vision); or as an autonomous legal order (transnational vision).¹⁰² The aforementioned representations differ in that: the monolocal view advocates that the source of legitimacy is the law of seat of arbitration, the Westphalian view considers that international arbitration’s legitimacy stems from the acknowledgment of such legitimacy by a number of legal systems; and according to some scholars, the transnational view advocates that the source of legitimacy is the collective acknowledgment by the community of nations as reflected in international instruments and practices.¹⁰³

3.63  Based on the above, while some limit the application of such principles to situations where the parties agree to endorse them, and some advocate their application where there is a gap in the otherwise applicable arbitration rules and the law of the seat,¹⁰⁴ others advocate the necessity to grant greater weight to transnational principles as their application is a reflection of the consensus of nations, which is consistent with their transnational conception of international arbitration.¹⁰⁵ The latter school of thought asserts that whenever the issue is not regulated under the arbitration rules, transnational norms and principles should apply.¹⁰⁶

3.64  Unlike domestic arbitration which is often conducted on the basis of rules and principles similar to judicial procedures, international arbitration is arguably a stand-alone mechanism that operates in a separate sphere from the particularities of parochial national laws and courts.¹⁰⁷ It is peripatetic, given that it often permeates two or more different jurisdictions, it involves an international dispute between parties, and is decided (p. 134) by arbitrators from different parts of the globe. Parties opt for international arbitration to avoid the application of national legal procedures that may not be fit for international disputes.¹⁰⁸

3.65  Moreover, the place of arbitration usually designated by the parties should not be perceived as an unequivocal reflection of the parties’ will to subject their arbitration to the rules of procedure of the country of the seat.¹⁰⁹ As advocated by Professor Julian Lew, arbitration is a sui juris mechanism, invariably governed by a-national or transnational norms and internationally accepted procedural principles, and that national laws have no interest to govern international arbitral procedures.¹¹⁰ It may be argued that there is a transnational arbitral order whereby general principles of law serve as its lex arbitri.¹¹¹

3.66  Advocating the transnational conception of international arbitration, or the existence of an autonomous arbitral legal order, is also of paramount importance to the study of abuse of rights as a transnational principle in international arbitration. This is particularly given that this view accepts that the convergence of national legal principles, as well as emergence of principles constantly applied by international arbitrators, allows the identification of transnational principles¹¹² such as abuse of rights.

3.67  In this regard, it is submitted that international arbitration should not be restricted by the application of parochial national rules of procedure, but should rather be conducted in accordance with principles that are universally or generally accepted as suitable for the administration of international arbitration. This is particularly the case where the governing arbitration rules are silent or not explicit regarding the matter in question.

3.68  However, it is suggested that the application of transnational principles is of paramount importance and remains inevitable notwithstanding which conception of international arbitration is endorsed.¹¹³ This is precisely the case given the incomprehensiveness of the various established arbitration rules, as well as modern arbitration statutes, and (p. 135) the few mandatory rules found in such statutes.¹¹⁴ Thus, it is submitted that arbitrators must continuously strive to ascertain and apply generally accepted procedural principles.¹¹⁵ This is noted by one author who emphasizes the role of the lex arbitri:

[I]t is only recently that arbitrators have started to fill gaps in arbitration rules by relying upon general rules of procedure adopted in the practice of international tribunals or generally accepted in the laws of states. This is, doubtless, the right approach – again, within the bounds of the lex arbitri.¹¹⁶

3.69  The legal basis for applying transnational procedural principles, and its source of legitimacy, is evidenced by the fact that most modern arbitration statutes and arbitration rules grant the arbitrators, in the absence of parties’ choice, the power to conduct the arbitral procedures in light of the principles and rules of law they deem appropriate.¹¹⁷

3.70  The above submission is also confirmed by the practice of arbitrators. For example, in an arbitration initiated under the Arbitration Rules of the Geneva Chamber of Commerce and Industry that took place in Switzerland. The dispute was between an Italian company and a German company. The issue raised before the arbitral Tribunal was whether the Tribunal could order security for costs. The issue was not covered under the Geneva Rules or the Swiss Private International Law Act. The Claimant maintained that the Tribunal lacked the authority to issue such security given that the prevailing view in Switzerland was that courts and arbitrators should not order security for costs. The arbitral Tribunal first provided that Article 182(2) of the Swiss Private International Law Act granted it the autonomy to determine the arbitral procedures. The Tribunal provided that international arbitration was not restricted to the particularities of Swiss law, and it then established its authority to order security for costs by considering the prevailing general principles applied by other tribunals in international arbitration.¹¹⁸

3.71  Another particularly interesting example of the above is reflected in the well-known case of Dallah v Pakistan. In this case, Dallah, a Saudi trading group, won an ICC arbitration seated in Paris against Pakistan. Given that the contract was concluded between Dallah and a Pakistani trust created by Pakistan, which was later dissolved, the issue raised before the Tribunal was if the contract and the arbitration clause extended to the Government of Pakistan. Dallah requested the application of Saudi law and Pakistan requested Pakistani law to decide on this procedural issue. The arbitral Tribunal held (p. 136) that the question should be decided in light of general or transnational procedural principles:

Judicial as well as Arbitral case law now clearly recognise that, as a result of the principle of autonomy, the rules of law, applicable to an arbitration agreement, may differ from those governing the main contract, and that, in the absence of specific indication by the parties, such rules need not be linked to a particular national law [. . .] but may consist of those transnational general principles which the Arbitrators would consider to meet the fundamental requirements of justice in international trade.¹¹⁹ (Emphasis added)

3.72  Finally, in the leading case of Dow Chemical v Isover-Saint-Gobain,¹²⁰ the issue before the Tribunal was whether the arbitration clause may extend to a non-signatory entity part of the group of companies. Arbitration proceedings were initiated in Paris on the basis of an ICC arbitration clause. The Defendant raised a jurisdictional challenge providing that the Tribunal had no jurisdiction in relation to the non-signatory subsidiary and the non-signatory parent company. The arbitral Tribunal issued an interim award rejecting the Defendant’s jurisdictional challenge and upholding its jurisdiction based on the ‘group of companies doctrine’. In doing so, the Tribunal noted that the ICC Rules grant it the power to decide such procedural questions without referring to any specific national law.¹²¹

3.73  It appears that the theoretical foundation of the group of companies doctrine, as stated by the arbitral Tribunal and nurtured by the French Court, was based on transnational principles, the lex mercatoria, and usages of international trade. It was explicitly held that, owing to the autonomous nature of the arbitration clause, and in application to the overarching principle of separability, the arbitral Tribunal should not be restricted to a given national law when deciding such procedural matters. A contrario, it was held that ICC Rules allowed the application of transnational principles of international commerce or the lex mercatoria to such issues including, inter alia, the possible extension of the arbitration clause.¹²² The Tribunal is free to opt for such principles as long as no principle or any rule of international public policy is infringed.¹²³

3.74  In the absence of a contrary choice made by the parties, the autonomy granted to arbitrators by virtue of all modern arbitration laws and rules may, therefore, allow arbitrators to refer to and apply transnational principles of arbitral procedure.¹²⁴

3.75  In the first chapter, the analysis of abuse of rights under various legal systems revealed that there is a general recognition of abuse of procedural rights.¹²⁵ It was demonstrated that the different legal systems either rely on the principle of abuse of right, or on abuse of process (under common law),¹²⁶ which is a manifestation of abuse of rights,¹²⁷ to limit the abuse of procedural rights.¹²⁸ The principle of abuse of rights is also sometimes raised before the ICJ to preclude the abuse of procedural rights under international law.¹²⁹

3.76  The transnational nature of abuse of rights, in the context of procedural rights, does not only stem from its recognition in the different legal systems, but may also be deduced from its recognition in international legal instruments; its recognition by prominent scholars; and by its constant application, as such, by international courts and tribunals in order to limit procedural abuse.

3.77  The UNIDROIT Principles of Transnational Civil Procedure comprise a statement of internationally accepted procedural principles dealing with international disputes. The Principles, which may extend to the sphere of international arbitration unless incompatible thereto,¹³⁰ also endorsed the prohibition of abuse of procedural rights as a principle of a transnational nature.¹³¹

3.78  Similar provisions can be found in other international conventions. For example, Article 294.1 of the United Nations Convention on the Law of the Sea provides that:

A court or tribunal provided for in article 287 to which an application is made in respect of a dispute referred to in article 297 shall determine at the request of a party, or may determine proprio motu, whether the claim constitutes an abuse of legal process (p. 138) or whether prima facie it is well founded. If the court or tribunal determines that the claim constitutes an abuse of legal process or is prima facie unfounded, it shall take no further action in the case.¹³²

3.79  Article 35.3 of the European Convention for the Protection of Human Rights and Fundamental Freedoms of 1953, as amended in 1998, provides that:

The Court shall declare inadmissible any individual application submitted under Article 34 if it considers that: (a) the application is incompatible with the provisions of the Convention or the Protocols thereto, manifestly ill-founded, or an abuse of the right of individual application.

3.80  It is generally acknowledged by distinguished scholars that abuse of procedural rights constitutes a general procedural principle, owing to the fact that it exists in most, if not all, legal systems as well as under international law.¹³³ As noted by one scholar: ‘[abuse of procedural rights] is common to all the major legal systems, and may be properly applied by a tribunal in any legal system, including the international legal system, in the exercise of the tribunal's competence to regulate its own proceedings’.¹³⁴

3.81  The renowned Hersch Lauterpacht examined the existence of abuse of rights in major legal systems and advocated that, notwithstanding the different terminology employed, ‘there is inherent in every system of law the general principle of prohibition of abuse of rights’.¹³⁵ He rightly noted that the principle of abuse of rights exists in the administration of justice of most systems of law, and indeed that ‘there is no legal right, however well established, which could not, in some circumstances, be refused recognition on the ground that it has been abused’.¹³⁶

3.82  In a recently published book on general principles of law, Luke Sobota and Charles Kotuby emphasized that the ‘negative corollary of the good faith exercise of a legal entitlement is the universal prohibition on abuse of rights’. They further pinpointed that abuse of rights was recognized and referred to as a general principle of law ever since the term ‘general principles’ was inserted in the PCIJ Statute. They noted that:

Since then, numerous judges, arbitrators, and scholars have considered abuse of rights to be part of international law, whether as a general principle of law or as part of customary international law.¹³⁷

(p. 139) 3.83  In the context of international arbitration, Yuval Shany noted in relation to procedural rights that by virtue of the ‘extensive practice of international bodies and the near consensus in the writing of jurists on the matter, the theory [abuse of rights] can probably be viewed as [. . .] a general principle of law’.¹³⁸

3.84  Professor Jan Paulsson similarly acknowledged that it constitutes a general procedural principle and emphasized its transnational nature: ‘[I]t may be confidently said that the principle of abuse of rights (abus de droit, Rechtsmissbrauch) is universal.’¹³⁹

3.85  Professor Rudolf Dolzer also confirmed that the principle of abuse of rights is a general principle of law and should apply in international arbitration to prevent the abuse of the arbitral system: ‘The doctrine of abuse itself is firmly grounded in international arbitration law.’¹⁴⁰

3.86  Other scholars acknowledge that whilst the arbitral framework does not provide for the principle of abuse of rights, the principle is common in national legal proceedings in civil and common legal systems, and thus, it constitutes a general procedural principle common to all legal systems.¹⁴¹

3.87  Similarly, Andreas Zimmermann also confirmed that abuse of procedural rights is a general principle of law under international law as well as under municipal laws:

[Abuse of process is] a special application of the prohibition of abuse of rights, which is a general principle of international law as well as in municipal law. It consists of the use of procedural instruments or rights by one or more parties for purposes which are alien to those for which the procedural rights were established.¹⁴²

3.88  While the principle is constantly applied by arbitrators and international courts as discussed below, some have questioned the normative basis of its application.¹⁴³ Scepticism regarding the application of abuse of rights in international arbitration emanates from the fact that the framework of arbitration, comprising national arbitration laws, institutional rules, and any applicable convention, does not recognize or provide for the abuse of rights principle.¹⁴⁴

(p. 140) 3.89  To that end, while the principle has been regularly referred to and applied in international arbitration, tribunals apply the principle without referring to any legal provision/rule in the applicable rules of law as the legal basis for their decisions.¹⁴⁵

3.90  Questioning the principle’s normative basis was manifested in the case of Rompetrol v Romania. The Respondent alleged that the proceedings were abusive as they were initiated by the Claimant for the purpose of blocking criminal investigations against the Claimant’s shareholders.¹⁴⁶

3.91  While this issue became moot as the Claimant provided that it did not challenge the criminal investigations but merely the manner in which the investigations were conducted, and thus the Respondent no longer maintained its objection,¹⁴⁷ the case remains interesting as the Tribunal questioned the legal basis of abuse of rights in international arbitration. The Tribunal noted:

Marshalled as it is as an objection at this preliminary stage, this is evidently a proposition of a very far-reaching character; it would entail an ICSID tribunal, after having determined conclusively (or at least prima facie) that the parties to an investment dispute had conferred on it by agreement jurisdiction to hear their dispute, deciding nevertheless not to entertain the application to hear the dispute. Given that an ICSID tribunal, under the Washington Convention as interpreted, is bound to exercise a jurisdiction conferred on it, so far-reaching a proposition needs to be backed by some positive authority in the Convention itself, in its negotiating history, or in the case-law under it.¹⁴⁸ (Emphasis added)

3.92  By reviewing the approach employed by arbitral tribunals, it appears that arbitrators resort to abuse of rights and apply it as a general principle of law,¹⁴⁹ and that their power/basis to resort to such principle emanates from their inherent power to regulate, and (p. 141) preserve the integrity of, the arbitral procedures, as well as to ensure the good administration of arbitral justice.¹⁵⁰ As articulated by one tribunal:

Nor does the Tribunal doubt for a moment that, like any other international tribunal, it must be regarded as endowed with the inherent powers required to preserve the integrity of its own process [. . .]The Tribunal would express the principle as being that parties have an obligation to arbitrate fairly and in good faith and that an arbitral tribunal has the inherent jurisdiction to ensure that this obligation is complied with; this principle applies in all arbitration, including investment arbitration, and to all parties.¹⁵¹ (Emphasis added)

3.93  As opposed to the case of applicable substantive law, where arbitrators may often decide on the basis of the law governing the contract, as regards procedure, arbitrators decide under a-national procedural rules. These are mainly the rules of the arbitration institution or ICSID Convention. None of the provisions in the ICSID Convention, arbitration statutes, or rules provide for the abuse of rights principle, yet arbitrators rely on it in order to ensure the good administration of justice. It is in this context that arbitrators function in a manner to preserve the integrity of the arbitral process and that a general principle of abuse of rights has emerged owing to the dire need to safeguard the arbitral process, enhance the fairness and efficiency of the proceedings, and ensure the overall administration of arbitral justice.

3.94  In many instances, arbitrators explicitly refer to abuse of rights as a general principle of law and apply it to a myriad of procedural arbitration-related rights.¹⁵² However, it is argued that even where arbitrators do not refer to it as a general principle of law, the way they utilize the principle in the context of the current legal framework of arbitration provides material evidence that the principle constitutes a general principle of arbitral procedure.

3.95  In the case of Mobil Corporation, Mobil Cerro et al, v Bolivarian Republic of Venezuela, the Respondent claimed that the Exxon Mobil’s corporate restructuring through the creation of a Dutch holding company ‘constituted an abuse of right’,¹⁵³ and thus requested the Tribunal to decline jurisdiction under the BIT. The arbitral Tribunal first acknowledged the principle of abuse of rights as a general principle of law and explicitly (p. 142) provided that all systems of law, whether domestic or international, adopt the principle of abuse of rights, or similar concepts, to preclude the misuse of the law.¹⁵⁴

3.96  In applying abuse of rights, the Tribunal recognized that the corporate planning and treaty shopping, even if aimed to gain access to arbitration, could be either legitimate or an abuse of right depending on the factual matrix of the case. Given that the dispute was foreseeable to the Respondent, as complaints were sent prior to the restructuring, and the Respondent replied to such complaints, the Tribunal drew a distinction between pre-existing disputes at the time of the corporate structuring and future disputes. It was held by the Tribunal that Claimants’ restructuring of their investments to protect such investments and gain access to ICSID was ‘a perfectly legitimate goal as far as it concerned future disputes’. A contrario, in relation to the pre-existing disputes, it was held that restructuring of investments to gain access to ICSID constituted an abuse of right.¹⁵⁵

3.97  The above depiction of the abuse of rights principle was subsequently confirmed in the case of Pacific Rim Cayman LLC v The Republic of El Salvador and in the case of ConocoPhillips, where the arbitrators provided that the principle of abuse of rights was universal owing to its recognition in all domestic legal systems and under international law, in order to preclude procedural misconduct and the misuse of law.¹⁵⁶

3.98  In the ICSID case of Cementownia v Turkey, the Claimant initiated arbitration against Turkey alleging that the latter had taken measures against two companies which the Claimant asserted to have acquired a percentage of their shares. The Claimant alleged that the Respondent had breached its duties under the applicable Energy Charter Agreement. However, in their last submissions, both parties requested the arbitral Tribunal to dismiss the case. The Claimant requested the dismissal based on its lack of standing to sue. While it alleged that it acquired a shareholding interest in the two companies, it asserted that it could not prove such acquisition, and thus requested the dismissal of the claim but without prejudice. On the other hand, the Respondent requested an award that dealt with the issue of the Claimant’s standing to sue, as well as dismissing the claim with prejudice and an award of damages and costs in its favour.¹⁵⁷

3.99  In its request for damages and costs, the Respondent argued that the arbitral proceedings were initiated solely to inflict harm on Turkey.¹⁵⁸ After acknowledging that the Claimant had brought the arbitration proceedings in bad faith, the Tribunal provided that this conduct violated the general principle of abuse of rights.¹⁵⁹ The Tribunal also (p. 143) held that the Claimant abused its rights throughout the proceedings by engaging in dilatory tactics and procedural misconduct, including several requests of time extension, change of its legal counsel, and finding a new legal representation, constantly changing its prayers for relief, and increasing the costs of the arbitration.¹⁶⁰ Finally, while explicitly acknowledging that ‘compensation for moral damages may indeed aim at indicating a condemnation for abuse of process’,¹⁶¹ the Tribunal decided to sanction the Claimant and to make him bear all costs related the proceedings.

3.100  Another case that confirms that the principle of abuse of rights functions as a transnational principle in international arbitration that is applied to ensure the good administration of justice is the case of Saipem v Bangladesh.

3.101  In this case, a contract was concluded between Saipem, an Italian company, and Petrobangla, a State-owned company of Bangladesh. The contract was for building a gas pipeline in Bangladesh. It was governed by Bangladeshi law and contained an ICC arbitration clause.¹⁶² After building the gas pipeline, Petrobangla refused to pay the retention money agreed upon in the contract. Saipem initiated ICC arbitration in Bangladesh. During the arbitration proceedings, Petrobangla made a number of procedural requests regarding the conduct of the proceedings, which were rejected by the arbitral Tribunal. Consequently, Petrobangla decided to resort to the courts in Bangladesh, notwithstanding the arbitration clause and the pending arbitration proceedings, and requested the revocation of the authority of the ICC Tribunal and also requested an injunction restraining Saipem from the ICC proceedings. The court of Dhaka in Bangladesh confirmed Petrobangla’s allegation of arbitrators’ misconduct, decided to revoke the ICC Tribunal’s authority, and issued the injunction. The ICC Tribunal continued and rendered an award on the merits which found Petrobangla liable.¹⁶³

3.102  In a request to set aside the award before the Court in Bangladesh, the Court held that: ‘there is no Award in the eye of the law, which can be set aside [. . .] A non-existent award can neither be set aside nor can it be enforced’.¹⁶⁴

3.103  Based on the above, Saipem relied on the BIT between Italy and Bangladesh and initiated ICSID arbitration proceedings. In resorting to the Bangladeshi Court and hindering the ICC arbitration proceedings, Saipem claimed that its right to arbitrate and its rights determined by the ICC award comprise investments that were expropriated.¹⁶⁵ The ICSID Tribunal held that Saipem’s investment reflected in the ICC award was expropriated, and that Bangladesh had abused its rights.

(p. 144) 3.104  The ICSID Tribunal examined the factual matrix of the case and the procedural orders rendered by the ICC Tribunal and found that such a decision lacked any sound legal or factual grounds.¹⁶⁶ After acknowledging that national courts may have the right to revoke arbitral tribunals’ authority in cases of misconduct, and that courts are bestowed with a discretionary power in this regard,¹⁶⁷ the Tribunal found that such a discretionary power had been exercised for a purpose other than that for which it was conferred. In establishing abuse of rights, the Tribunal did not rely on any positive legal rule found under the arbitration rules or the ICSID Convention, but rather relied on the transnational status of abuse of rights and that it functions to ensure the good administration of justice.¹⁶⁸ The Tribunal stated that:

[T]he Tribunal is of the opinion that the Bangladeshi courts exercised their supervisory jurisdiction for an end which was different from that for which it was instituted and thus violated the internationally accepted principle of prohibition of abuse of rights.¹⁶⁹ (Emphasis added)

3.105  In the case of Renco Group v Peru, the Tribunal considered the application of the principle of abuse of rights to determine whether Peru’s conduct with respect to the late raising of its waiver objection constituted an abuse of rights. In discussing the principle, the Tribunal noted that:

The abuse of rights doctrine is an aspect of the principle of good faith and is a well-established general principle of international law. The doctrine has been cited and applied on numerous occasions by international courts and tribunals.¹⁷⁰

3.106  In addition, in the cases of Himpurna California Energy Ltd v PT (Persero) PLN¹⁷¹ and Patuha Power v PT (Persero) PLN,¹⁷² the Tribunal applied the principle of abuse of rights on the issue of request and quantification of damages. The Tribunal confirmed that abuse of rights was a universal principle of law, that it constituted a general principle of law, and provided that it must apply, notwithstanding the applicable rules of law.¹⁷³

3.107  Finally, in the case of Caratube International Oil LLP and Mr Hourani v Republic of Kazakhstan, the Respondent argued that owing to its status as a general principle of (p. 145) law, the principle should apply to preclude the abusive initiation of multiple proceedings. The Respondent argued that the Claimants had abused the international arbitration system by engaging in an improper claim-splitting and by bringing repetitive claims that could have been brought in one proceeding.¹⁷⁴ Claimants argued that the Respondent failed to prove that the principle of abuse applied to preclude multiple proceedings and that there was no basis for its application.¹⁷⁵

3.108  Although the Tribunal did not find the circumstances of the case to constitute an abuse of right,¹⁷⁶ it explicitly endorsed the possible application of the principle in the context of multiple proceedings and referred to the legal bases for its application. The Tribunal held that:

[T]he Parties do not seem to dispute the general premise that the abuse of process doctrine may be applied by international tribunals in order to preserve the integrity of the tribunal and avoid the abuse by one party of the arbitral procedure. [. . .] the Tribunal agrees that the general principle of the prohibition of abuse of process applies in the context of multiple proceedings before international tribunals. [. . .] the Respondent has invoked as legal bases for the application of the abuse of process doctrine, inter alia, Article 41 of the ICSID Convention (according to which the Tribunal is the judge of its own jurisdiction) and Article 44 of the ICSID Convention (which grants broad procedural powers to the Tribunal to conduct the arbitration proceedings). Moreover, the Respondent has invoked several general principles on international law, such as the principles of good faith and the prohibition of abuse of right. In the opinion of the Tribunal, the application of the abuse of process doctrine may be based on the Tribunal’s power to determine the conduct of the arbitration proceedings and the principles regarding the Parties’ general obligation to participate in the proceedings in good faith and not abuse the rights granted to them, for example the right to rely on an arbitration agreement to commence an arbitration.¹⁷⁷ (Emphasis added)

3.109  The above confirms the status of abuse of rights as a general principle of law.¹⁷⁸ It is submitted that the rising phenomenon of abuse in international arbitration urged arbitrators to find a curative tool that tackles the different forms of abuse that take place during arbitral proceedings. This growing conundrum undermines the status of the international arbitral system as a fair and effective means to settle international disputes.¹⁷⁹ As a result, a general principle of abuse of rights has emerged in international arbitration to tackle different forms of procedural abuse. This submission is corroborated by the principle’s wide recognition as a general procedural principle by distinguished (p. 146) scholars, and owing to its constant application to limit the abuse of different arbitration related rights.¹⁸⁰

3.110  Nothing in the legal framework of international arbitration precludes arbitrators from resorting to and applying abuse of rights. As previously mentioned, most, if not all, modern arbitration statutes, institutional rules, as well as the ICSID Convention, grant arbitrators wide powers to regulate the proceedings, to safeguard the integrity of the arbitral system, and to ensure the good administration of arbitral justice. In order to achieve this, most laws and rules grant arbitrators the right to resort to generally accepted legal principles to decide procedural issues. Whilst it is true that the current commercial/investment arbitral framework does not provide a positive legal rule relating to abuse of rights, the above discussion demonstrates that arbitrators have frequently resorted to the principle of abuse of rights to limit procedural abuse and misconduct in international arbitration. In doing so, arbitrators perceive and apply abuse of rights as a general principle of law.¹⁸¹ In resorting to abuse of rights, tribunals often base its application on the tribunal’s inherent power to safeguard the integrity and fairness of the proceedings, and to ensure the good and fair administration of justice.¹⁸²

3.111  The above confirms the proposition that abuse of rights is applied as a general substantive and procedural principle of law. A rational corollary of this entails that arbitrators are to apply the principle of abuse of rights either as part of the applicable national law (subject to the principle’s scope of application and national characteristics under the national law) or as a transnational principle where arbitrators are entitled to resort to general principles of law, that is, where parties refer to transnational standards, or in the absence of a choice.¹⁸³

3.112  The only exception to this is if the principle in question constitutes an overriding principle or a principle of transnational public policy. This is due to the fact that despite the application of any principles or rules of law (national or a-national), certain principles of transnational public policy remain applicable.¹⁸⁴

(p. 147) 3.113  This is consistent with uniform principles found in international legal instruments such as Article 1.103 of the Principles of European Contract law¹⁸⁵ and Article 1.3 of the UNIDROIT Principles.¹⁸⁶

3.114  In this regard, where parties designate a choice of law or rules of law, and where the principle of abuse of rights is not part of the designated rules of law, are arbitrators still entitled to resort to the principle of abuse of rights as a matter of transnational public policy?

3.115  In this context, it is worth mentioning that transnational, or truly international public policy, denotes those ‘fundamental rules of natural law; principles of universal justice; jus cogens in public international law; and the general principles of morality accepted by what are referred to as “civilised nations” ’.¹⁸⁷

3.116  In its Interim and Final Reports on Public Policy as a Bar to Enforcement of International Arbitral Awards, the ILA acknowledged that abuse of rights is a ‘fundamental principle of law’,¹⁸⁸ and recommended that it be considered a principle of international public policy. The Report first pinpointed that international public policy denotes those fundamental substantive and procedural principles, which pertain to justice and morality, that ought to be protected by the State even if the State is not concerned with or directly connected to the dispute.¹⁸⁹ The Report then mentioned the prohibition of abuse of rights as an epitome of those fundamental principles of international public policy.¹⁹⁰

3.117  One need not emphasize the value of ILA reports, the level of sophistication of their content, and the international stature of ILA committee members. Indeed, such reports depict best practices and prevailing approaches to the issues scrutinised thereunder.

3.118  The above depiction of abuse of rights as a principle of transnational public policy is not peculiar or alien to the views of scholars and established practices of distinguished (p. 148) arbitrators.¹⁹¹ As one scholar noted in the context of the public policy exception under the New York Convention:

The courts generally have construed this public policy exception narrowly, drawing a clear distinction between domestic and international public policy [. . .]. The provision’s requirements will only be satisfied where the most basic of notions of morality and justice are infringed. Examples of the interests protected by international public policy are the efforts to combat drug smuggling, child pornography, bribery, corruption [. . .] the prohibition of the abuse of rights, and the protection of the incapacitated.¹⁹²

3.119  While arbitral awards dealing with the mentioned enquiry are indeed scarce, some cases may be mentioned to elucidate the issue.

3.120  It is well-acknowledged that a form of State manoeuvre that may constitute an abuse of right is the principle of ex re sed non ex nomine (evasion of the law); where a State manipulates and abuses its regime or domestic procedures to evade its obligations.¹⁹³ Thus, where a State, or a State-owned entity, agrees to refer a given dispute to international arbitration, the principle of abuse of rights may operate, as a principle of transnational public policy, to preclude the State from relying on its national law to evade arbitration.¹⁹⁴

3.121  In the case of Benteler v Belgium, the principle was applied to prevent such abusive conduct, and was described as a fundamental rule ‘the observance of which is obligatory in international arbitration’.¹⁹⁵ Similarly, in the case of Millicom and Sentel v Republic of Senegal, the Tribunal provided that it was an established principle in international arbitration that a State was precluded from relying on its domestic law to avoid arbitration or its capacity to arbitrate. The Tribunal further confirmed that this comprises a principle of transnational public policy.¹⁹⁶ A similar decision was rendered in ICC Case No 1939 of 1971, where the Tribunal also held that the international community could not sanction the abusive conduct of States or State-owned entities that attempted to evade their obligations by relying on their laws, and that such conduct was contrary to (p. 149) transnational public policy.¹⁹⁷ The depiction of abuse of rights, or venire contra factum proprium, as an application thereof, was again used as a principle of transnational public policy in ICC Case No 10947 of 2002.¹⁹⁸

3.122  The arbitral awards in the seminal cases of Himpurna California Energy Ltd v PT (Persero) PLN¹⁹⁹ and Patuha Power v PT (Persero) PLN,²⁰⁰ fortify and confirm that the principle of abuse of rights is not only a general principle of substantive and procedural law, but that it may also apply as an overriding principle, notwithstanding the applicable rules of law.

3.123  In these cases, Himpurna and Patuha, two subsidiaries of an American company, entered into energy sale contracts with PLN (the Indonesian State Electricity Corporation). Pursuant to the contracts, Himpurna and Patuha were obliged to supply electricity to PLN and invest in wells and other infrastructure. Following the Indonesian financial crisis in 1997, presidential decrees were issued to the effect that PLN could not perform its contractual obligations. Accordingly, the investments of Himpurna and Patuha were suspended. Himpurna initiated arbitration proceedings and sought damages of 2.3 billion US Dollars. Patuha also relied on its contract and initiated arbitration proceedings and sought 1.4 billion US dollars in damages. Given that both cases are almost identical, except for the amount of damages requested, reference herein below, is made to the Himpurna award.²⁰¹

3.124  Applying Indonesian law, the arbitral Tribunal found that PLN was in breach of its contractual obligations, performed the contractual obligations in bad faith, and held that Himpurna was entitled to damages, including lost profits. However, in relation to awarding lost profits, the Tribunal limited the amount to less than 10 per cent of the amounts claimed.

3.125  In reaching its decision regarding the damages, the Tribunal relied on the principle of abuse of rights. The Tribunal explicitly acknowledged that the principle is universal, constitutes a general principle of law, and ensures the legitimacy of the international arbitral process.²⁰² Given that Indonesian law does not include an express reference to abuse of rights, the Tribunal provided that ‘it will apply the principle as an element of overriding substantive law proper to the international arbitral process’, Thus, the Tribunal held that:

(p. 150)

In such circumstances, it strikes the Arbitral Tribunal as unacceptable to assess lost profits as though the claimant had an unfettered right to create ever-increasing losses for the State of Indonesia (and its people) by generating energy without any regard to whether or not PLN had any use for it. Even if such a right may be said to derive from explicit contractual terms [. . .] To extract the full benefit of the hard terms of the ESC with respect to investments not yet made, in a situation where that benefit will clearly exacerbate the already great losses of the co-contractant, strikes the Arbitral Tribunal as likely to constitute an abuse of right [. . .] this is a case where the doctrine of abuse of right must be applied in favour of PLN to prevent the claimant’s undoubtedly legitimate rights from being extended beyond tolerable norms.²⁰³ (Emphasis added)

3.126  This case is of particular interest and importance as it highlights the possible application of the principle of abuse of rights in international arbitration, in relation to the phase of awarding and quantifying damages, not only as a general principle of law, but as an overriding principle of law.²⁰⁴

3.127  This may suggest that abuse of rights operates as an overriding principle of law, and is to be given effect irrespective of the governing law and the will of the parties.²⁰⁵

3.128  Moreover, a review of the award shows that in endorsing abuse of rights as an overriding substantive and/or procedural principle of law, the underlying criterion arguably adopted by the Tribunal was that of reasonableness and balancing of the competing interests.²⁰⁶ This further confirms the endorsement of this criterion in the transnational context of abuse of rights. Precisely, the Tribunal’s award is premised on the view that an abuse of right may be established, notwithstanding the absence of fault on the side of the right holder,²⁰⁷ given the unreasonable amount of damages to the counter party: ‘beyond tolerable norms’.²⁰⁸ This is an application of the balancing factor as stated in the previous chapters: where courts/tribunals find an abuse given the gravity of damages caused to an individual from the exercise of a right, notwithstanding the absence of fault. Moreover, the Tribunal’s engagement in the balancing of the competing interests is evident as it found an abuse of right despite the fact that such finding arguably (p. 151) conflicted with the principles of pacta sunt servanda²⁰⁹ and legal security,²¹⁰ which are acknowledged interests in contractual arrangements.

3.129  Qualifying abuse of rights as a fundamental overriding principle of law is not subject to unanimity in international arbitration, specifically given its defiance to the overarching principle of pacta sunt servanda.²¹¹ The dissenting opinion of arbitrator De Fina further testifies to the mandatory nature of abuse of rights as perceived by the majority, and that it constituted a transnational principle of law. He stipulated:

I am particularly troubled by the novel proposition adopted by my colleagues that the claimant’s reliance upon its contractual rights to establish quantum amounts to an abuse of rights thus leading to and permitting a substantial reduction of what might otherwise be awarded. My concern is that such a questionable proposition and the manner of its application in this Award prejudices notions of legal security and basic principles of private law [. . .] the imposition of a concept described as ‘abuse of rights’ in the absence of findings of malicious intent or lack of good faith on the part of the claimant to further reduce the entitlement to damages is in my opinion an inappropriate and unwarranted penalising of the claimant.²¹² (Emphasis added)

3.130  Subjecting the application of the principle of abuse of rights to a finding of bad faith or malicious intent testifies to the different perception of the principle between the majority and the dissenting arbitrator, that is, a national principle versus a transnational principle. Given that Indonesian law includes a provision regarding good faith, but does not expressly provide for abuse of rights,²¹³ the dissenting arbitrator opined that abuse of rights can only apply where there is proof of bad faith. On the other hand, the majority perceived and applied the principle as a mandatory transnational principle of law,²¹⁴ as (a) they did not restrict themselves to the particularities of Indonesian law; (b) they endorsed the criterion of reasonableness which is not part of Indonesian law; (c) the principle was applied to prevent awarding unreasonable damages, notwithstanding the absence of fault, which is an application not found under the applicable (p. 152) law; and (d) they went beyond the contract and the positive law; they explicitly endorsed and applied the principle as a general and overriding principle of law.

3.131  On a related note, abuse of rights may in some cases function as a principle of transnational public policy (substantive and procedural) even if not explicitly expressed as one.²¹⁵

3.132  In this regard, it is noteworthy to mention ICC Case No 1803 of 1972²¹⁶ where a dispute arose out of a contract concluded between a corporation wholly owned by the Pakistan Government (EBIDC) and a French company (SGTM) regarding the construction of a pipeline for the transport of gas in East Pakistan (which became the Republic of Bangladesh in 1971). The contract was subject to Pakistani law and provided for arbitration in Geneva under the rules of ICC. Upon the failure to settle a claim of 12 million French Francs, arbitration proceedings started in Geneva. The then President of Bangladesh issued a decree establishing a corporation (BIDC) and transferred the shares, board of directors, and employees of EBIDC to BIDC. Additionally, the decree provided that the debts incurred were deemed to have been incurred by BIDC. Finally, the decree provided that any arbitration against EBIDC before the issuance of the order was deemed abated and no award shall be binding or enforceable. Subsequently an order was issued to dissolve EBIDC, and another order dissolving BIDC was issued.

3.133  The arbitral Tribunal agreed to SGTM’s request to join the Bangladeshi Government and to the substitution of BIDC for EPIDC to the arbitration. The Tribunal rendered an award to the effect that BIDC and the Government of Bangladesh were jointly and severally liable. In this regard, it is of particular interest to mention that the Tribunal held that:

Be that as it may, the tenor and intended effect of the Disputed Debts Order is wholly repugnant to Swiss conceptions of natural justice, fair dealing and the standards of morality binding upon sovereign Governments. The notion that a debt should become void and indeed non-existent ab initio for no better reason than that the debtor has chosen to put it in dispute is an extreme example of what natural justice abhors - the person or the public authority setting itself up as judge of its own cause. The lex fori certainly does not require me to recognize and apply the Disputed Debts Order. It is a flagrant abuse of right and a measure which is quite irreconcilable with Swiss ‘ordre public’; it should not be recognized or applied by any Swiss judge or in any arbitration which is proceeding in Switzerland and is governed by Swiss procedural law.²¹⁷ (Emphasis added)

3.134  While the arbitrator’s decision was based on Swiss law, being the lex arbitri, the decision is instructive on the nature of abuse of rights and its possible status as a principle (p. 153) of transnational public policy. The conduct of the debtor, constituting abuse of rights, was characterized as contrary to natural justice, fairness, and standards of morality. These potent interests and norms generally reflect a transnational conception of public policy.²¹⁸ Thus, while the arbitrator applied abuse of rights to safeguard the most fundamental Swiss norms of fairness and justice, the reasoning employed seems to reflect transnational public policy.²¹⁹

3.135  This is consistent with the views of scholars who view this decision as revealing the interrelation between the principle of abuse of rights and transnational public policy. In commenting on this case, one academic noted that while transnational public policy was not explicitly relied on, it was, nevertheless, applied in essence.²²⁰

3.136  Based on the above, abuse of rights is considered a fundamental transnational principle of law. Moreover, some go further and apply it as a principle of transnational public policy. This recognition entails that whenever the conditions sine qua non of the principle’s application are satisfied, arbitrators are to apply it, notwithstanding the choice of law.²²¹ In this regard, given the procedural framework of international arbitration, where existing laws and rules grant arbitrators the power to resort to, or abide by,²²² generally accepted procedural principles, and due to the constant application of the principle to prevent abuse of procedural rights, it is submitted that abuse of rights should operate as a principle of transnational public policy to prevent the abuse of arbitration related rights. Thus, it should apply in the context of procedural rights, notwithstanding the applicable rules and the lex arbitri.

3.137  In the context of substantive rights, while one agrees with depicting the principle as fundamental given the potent interests it aims to secure, one cannot, hitherto, stipulate that it comprises an established principle of transnational public policy owing to the immaturity of such proposition. This is particularly the case given that any deviation from the applicable substantive law, lex causae, is generally frowned upon as it violates the sacrosanct principle of party autonomy, unless the principle is clearly of international public policy.²²³ Thus, it is ripe for consideration as a principle of transnational public policy from the perspective of de lege lata—but the principle’s potency (p. 154) demonstrates its suitability and appropriateness to be elevated to such status, that is, de lege ferenda.

3.138  On a different note, from a practical perspective, whether the principle elevates to, and operates as, a principle of transnational public policy in relation to substantive rights is not necessarily material to the outcome of cases, particularly given the omnipresence of the principle in national legal systems and its recognition as a general principle of law. Arbitrators shall apply the principle whenever it is part of the applicable substantive law or as part of the general principles of law where he/she is entitled to apply those principles. However, unlike the principle’s application as a general principle of law, applying abuse of rights as a national principle necessitates adhering to its specific scope of application under the relevant applicable law, as outlined in the previous chapters.

3.139  The growing panoply of various forms of abuse that take place during the arbitration proceedings required the international community, and particularly arbitrators, to develop non-classic tools to remedy such procedural misconduct. A scrutiny of the principle’s application in international arbitration not only demonstrates the omnipresence of the principle in most legal systems as well as under international law, but provides compelling evidence that a general principle of abuse of rights has emerged in international arbitration.

3.140  A review of different legal systems testify that the principle is recognized as a general substantive and procedural principle of law. This is further confirmed by the views of renowned scholars and by the constant application of abuse of rights as a general principle of law.

3.141  While the principle reflects fundamental interests that decision makers should safeguard and enforce, its depiction as part of transnational public policy is controversial.

3.142  It is one’s submission that it should apply as a principle of transnational public policy in relation to procedural rights, given the current arbitral framework that grants arbitrators wide discretionary powers. Thus, it should apply regardless of the lex arbitri. However, although the principle is fundamental with regard to substantive rights, it should apply only where the arbitrators are allowed to resort to general principles of law, or as part of the national applicable law.