4.01  Parties resort to arbitration to resolve their disputes efficiently and to obtain a final and enforceable award.¹ Any system of justice, including the arbitration system, is not meant for abuse.² Thus, it would be paradoxical to support a mischief that the arbitration system seeks to obviate. This could cast doubts as to the system’s efficiency and induce distrust in the system that was formed to accommodate parties’ interests and uphold their common intentions.

4.02  In this regard, it is argued that the principle of abuse of rights is necessary in international arbitration as it ensures the good administration of arbitral justice.

4.03  As shall be scrutinized below, abuse of rights operates in a manner that: achieves fairness during the arbitration proceedings; incentivizes efficiency; enables arbitrators to reach an equitable and reasonable outcome; and preserves the integrity of the arbitration system.

4.04  It is submitted that the application of abuse of rights equally serves fundamental interests pertaining to the substantive part of the dispute (such as fairness, reasonableness, (p. 156) and equitable outcomes).³ Thus, in ICC Case No 3276 of 1979, the issue of applying abuse of rights and its connection with the power of arbitrators to decide as amiable compositeur, or ex aequo et bono, was discussed.⁴ In this case, the Tribunal established a connection between equity, fairness, and the exercise of rights. It was provided that considerations of fairness and equity necessitate the prohibition of abuse of rights. More importantly, the Tribunal provided that where the conditions sine qua non for the application of abuse of rights are not established (if the exercise of right was not malicious, exercised for a legitimate purpose, and was reasonable), equitable considerations may still preclude the exercise of a right if the consequences of such exercise were not fair.⁵

4.05  However, given that international arbitration is inherently procedural,⁶ this section shall mainly examine those arbitration related interests/principles that warrant the application of a general principle of abuse of rights in international arbitration.

4.06  Thus, the aim of this chapter is to demonstrate how the principle of abuse of rights is important for the good administration of justice given its advancement of paramount interests. However, it is acknowledged that the notion of good administration of justice eludes a priori meaning and that its essence is rather undeterminable.

4.07  Accordingly, prior to embarking on how the principle operates to advance the aforementioned interests, it is necessary to first shed light on the notion of good administration of arbitral justice by delineating its relevant constituent elements. Once this is achieved, it becomes possible to examine the interrelation of abuse of rights to, and its effect on, the administration of justice.

4.08  As a dispute resolution process, international arbitration operates in accordance with a number of guiding principles. Arbitrators arguably have a fundamental duty to ensure the good administration of arbitral justice.⁷

(p. 157) 4.09  Ascertaining the meaning of good administration of arbitral justice is not an easy task. Whilst the term may be used by scholars and arbitrators/judges, there appears to be no clear definition of the notion in arbitration doctrine.⁸

4.10  The notion is often used to refer to the fairness of the proceedings, considerations of due process/equality, efficiency, and integrity of the arbitral process.⁹ These principles are also described as the magna carta of international arbitration.¹⁰ The potency of these principles, particularly fairness and due process, stems from the fact that they are deemed the core of procedural guarantees conferred upon the parties, and thus parties cannot waive such procedural guarantees.¹¹

4.11  Filip De Ly held that the notion of good administration of arbitral justice includes the requirements of due process, fairness, and efficiency.¹² Similarly, Philippe Leboulanger noted that good administration of justice is a fundamental principle which aims to secure justice and fairness between the parties, and ‘serve procedural efficiency and to save time and costs’.¹³

4.12  Thus, the notion’s importance stems from the vital interests it intends to secure. It is a mandatory principle, part of international public policy, and should not be sacrificed in the face of other potent principles such as party autonomy:

From a procedural viewpoint, the sacrosanct principle of autonomie de la volonté should thus be soothed by mandatory principles such as the proper administration of justice, [. . .] which are part of international public policy as conceived by most national legal systems and by the law of international arbitration.¹⁴

4.13  An outline of the relevant pillars that fall under the umbrella of good administration of arbitral justice shall be provided. These comprise: (A) fairness; (B) due process; and (C) efficiency. This discussion is of potency, as one shall go on to examine how the principle of abuse of rights operates within these pillars and how it advances or affects them.

4.14  Parties principally refer their disputes to international arbitration owing to the presumed advantages and benefits that the arbitration system aspires to offer. Obtaining a fair resolution of the dispute is one of the principal purposes of international arbitration.¹⁵

4.15  One empirical study¹⁶ found that the majority of arbitration users (81 per cent) rated a ‘fair and just result’ above all other considerations, including obtaining favourable monetary award.¹⁷ It equally comprises a sacrosanct principle, the satisfaction of which is an integral prerequisite for the good administration of arbitral justice.¹⁸

4.16  The fairness factor has a substantive as well as a procedural element. Substantive fairness implies receiving the ‘right’ decision and procedural fairness entails receiving it in the ‘right’ manner.¹⁹ In this regard, some rightly advocate that regardless of how accurate and fair the substantive outcome is, procedural fairness is of paramount importance: even a good and correct result does not compensate for a bad and unfair procedure’.²⁰

4.17  The good administration of arbitral justice requires the highest standard of fairness.²¹ Arbitration laws and institutional rules emphasize the duty of arbitrators to provide a fair means for the resolution of the dispute,²² and that it comprises a fundamental principle of international arbitration.²³ That said, section 1(1)(a) of the English Arbitration Act stipulates that ‘the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense’.²⁴ The French arbitration law equally recognizes the potency of fairness, and provides that it must be honoured by the arbitral tribunal and the parties.²⁵

(p. 159) 4.18  Whilst the above laws and institutional rules have emphasized the importance of fairness in the conduct of arbitral proceedings, there is no clear guidance on what is considered a violation of fairness or how it relates to other principles such as due process or party autonomy.²⁶

4.19  Thus, ascertaining how to achieve the desired fairness, or determining the constituent elements of fairness, remains largely ambiguous.²⁷ The Oxford English Dictionary defines the term ‘fair’ as ‘acceptable and appropriate in a particular situation’, and defines fairness as ‘the quality of treating people equally or in a way that is reasonable’.²⁸ Moreover, the term fair is defined in Black’s Law Dictionary as ‘impartial’, ‘just’, ‘equitable’ and ‘disinterested’.²⁹

4.20  It is appropriate to endorse the definition used by Filip De Ly, where he described procedural fairness in the context of arbitration as:

[R]eferring to standards of reasonable procedural conduct which go beyond addressing frustrating tactics and also address procedural aspects to be solved on the basis of what reasonable actors are to expect from one another and are to comply with.³⁰ (Emphasis added)

4.21  In this regard, it is asserted that the requirement of procedural fairness encompasses an obligation to: prohibit procedural misconduct (which includes frustrating tactics); preclude any other abuse of right; preserve the integrity of the arbitral process; honour the parties’ reasonable expectations; and enhance the efficiency of the proceedings.³¹ It is of particular interest to mention that the depiction of fairness, so as to preclude abusive conduct, equally conforms to the requirement of fairness under Shari’a law and is consistent with the arbitral process prescribed thereunder.³²

4.22  The interrelation between the notion of fairness and the principle of abuse of rights is further fortified by the UNIDROIT Principles, whereby Article 1.7 requires parties to act in good faith and fair dealing, and demonstrates that the prohibition against abuse of rights constitutes a manifestation of good faith and fair dealing.³³ By and large, this conforms to the views advocated by other learned scholars who confirm that abusive (p. 160) conduct and delaying tactics are unfair and thus defy the good administration of arbitral justice.³⁴

4.23  On a related note, it is suggested that arbitrators’ duty to resolve the dispute in a fair manner entails that arbitrators should also preserve the integrity of the arbitral system.³⁵ Part of the requirement of fairness is that arbitral tribunals not only safeguard and preserve the integrity of the arbitral process ‘but also that the arbitrator give the appearance of doing so’.³⁶ In ascertaining what the duty of upholding fairness and preserving the integrity of arbitration process entail, it is held that it requires that: ‘all reasonable efforts must be taken by the arbitrator to prevent delaying tactics, harassment of the parties or other participants, or any other disruption of the arbitration process’.³⁷

4.24  Similarly, the notion of fairness in arbitration is interrelated to the desire to reach a just and an equitable procedural outcome,³⁸ even if such outcome does not conform to strict legal rules.³⁹ This interrelation is not deduced from a purely lexical stance,⁴⁰ but is also perceptible from a practical point of view. Thus, in extending the arbitration clause to a non-signatory, arbitral decisions to that effect are often based on the notion of good administration of justice, as encompassing the requirements of fairness and equity.⁴¹

4.25  Given that an escalation of costs or time arguably limits one’s access to justice, it is generally acknowledged that fairness in the conduct of arbitral proceedings also requires procedural efficiency.⁴² Also, without fairness the arbitral proceedings are hardly efficient.⁴³ The interrelation between fairness in the conduct of the arbitral proceedings and ensuring an efficient resolution of the dispute is evident under established arbitration laws and rules.⁴⁴ Accordingly, the requirement of fairness necessitates resolving the dispute without unwarranted delay or costs.⁴⁵

4.26  Another important aspect of international arbitration and an integral part of good administration of justice is that the arbitral proceedings must comply with the requirements of due process.⁴⁶

4.27  Where parties refer a dispute to international arbitration, they waive their sacrosanct constitutional right to have their dispute resolved before a national court.⁴⁷ As this arguably limits one’s access to justice, certain paramount procedural standards need to be met by arbitrators.⁴⁸

4.28  It is widely recognized that arbitrators are under an obligation to make every effort to render an enforceable award.⁴⁹ For an award to be enforceable, it must comply with the requirements of due process.⁵⁰

4.29  Most arbitration laws and institutional rules include provisions that pertain to the requirements of due process.⁵¹ The notion can comprise different obligations under different national laws. Some laws endorse a broad understanding of due process so as to equate it to the notion of fairness and natural justice.⁵² In this regard, one endorses the requirements of due process as those enshrined under international legal instruments. To that effect, Article 18 of the UNCITRAL Model law stipulates that parties shall be treated with equality and given an opportunity of presenting their case.⁵³ Article 17.1 of the UNCITRAL Arbitration Rules provides that ‘the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case’.⁵⁴ Finally, Article V(1)(b) of the New York Convention similarly emphasizes that due process encompasses the requirement that parties be given an opportunity to present their case.

4.30  In delineating the rationale of due process, Bernardo Cremades noted that it comprises two fundamental procedural aspects: ‘access to justice and reasonableness of the (p. 162) proceedings’.⁵⁵ Accordingly, due process in international arbitration mandates that arbitral proceedings are fairly conducted; that parties are treated equally; and that they are given a reasonable opportunity to be heard and present their case before an unbiased tribunal.⁵⁶

4.31  Although parties often raise or invoke the due process defence to resist recognition or enforcement of an award, courts rarely find a violation of due process and generally adopt a restrictive approach.⁵⁷

4.32  However, abuse of due process is a growing phenomenon. This denotes the current practice of parties, and their legal counsel, who threaten to invoke the defence of due process whenever their procedural requests are not complied with.⁵⁸ This enigma is further fortified by the fact that arbitrators regularly fail to limit such abusive conduct and tolerate requests whenever cloaked under due process, that is, due process paranoia.⁵⁹ Thus, whilst the requirements of due process are sacrosanct elements of the administration of justice, recent trends demonstrating its regular abuse do not imply good administration of justice. This is particularly the case given that requirements of due process often conflict with the obligation of procedural efficiency (another element of good administration of justice) as discussed later.

4.33  Arbitral tribunals as well as academics are yet to find a tool or principle to be utilized to balance due process and efficiency. As shall be discussed below, it is posited that the principle of abuse of rights not only advances the aforementioned interests that comprise good administration of justice, but may also operate as the balancing mechanism between due process and efficiency.

4.34  In the world of business, prevailing in a given dispute primarily entails advancing the commercial goals of the business, and this often means winning in a timely manner.⁶⁰ (p. 163) Cost and time efficiency are very important features of international arbitration.⁶¹ This is often promoted by advocates and supporters of international arbitration.⁶²

4.35  In addition, these features are indispensable elements for the good administration of arbitral justice.⁶³ As stated by one tribunal, procedural economy is required by the good administration of justice.⁶⁴ Additionally, as rightly noted by Gabrielle Kaufmann-Kohler:

We live in a time when many complain that justice, be it judicial or arbitral, is too slow, too expensive, and too cumbersome. Furthering the efficiency of dispute settlement can obviously contribute to improving the administration of justice.⁶⁵ (Emphasis added)

4.36  Chester Brown equally emphasized the importance of efficiency to ensure the good administration of justice:

One of these is the function of ensuring the proper administration of international justice. This is distinct from the function of settling disputes, in that it emphasizes the need for effectiveness and efficiency in judicial decision-making, and it is well established in the jurisprudence of international courts, as well as in the literature.⁶⁶ (Emphasis added)

4.37  Given its importance for the administration of justice, most arbitration laws and institutional rules provide for and attempt to achieve procedural efficiency.⁶⁷ Unwarranted delays not only disrupt the arbitral proceedings, but can have manifest financial (p. 164) implications to the prejudiced party.⁶⁸ In some cases, unreasonable delay may lead to financial losses that cannot necessarily be remedied by awarding interest or allocating costs.⁶⁹

4.38  Waste of resources in arbitral proceedings is mostly disadvantageous to the parties (or at least one of them) and to the arbitral tribunal, but is not necessarily inconvenient to legal counsel.⁷⁰

4.39  It is acknowledged that the benefits of arbitration may be thwarted, and administration of justice may be brought into disrepute, unless all those involved in the arbitration process actively cooperate to effectively resolve the disputes in question.⁷¹ Although some arbitration laws and rules endeavour to limit such inefficiency,⁷² it is generally acknowledged that such rules are inadequate.⁷³

4.40  The arbitration process is failing to accommodate the level of efficiency required by its users.⁷⁴ In recent surveys and empirical studies, users have complained primarily because of costs, delays, and procedural misconduct during the arbitration process.⁷⁵ This is also the case in relation to investment arbitration proceedings which, according to a recent study, last for an average of 3.6 years.⁷⁶ One must add that these concerns are not new. While arbitration users have been expressing their concern for some time,⁷⁷ the (p. 165) arbitration community have failed to introduce innovative tools to adequately remedy such problems.⁷⁸

4.41  The continuation of this trend, which may further increase due to the complexity of business transactions and the lack of defined rules/principles to limit it, may disincentive users from referring disputes to international arbitration, place distrust in the arbitral system,⁷⁹ and question the legitimacy of the arbitration system as a whole.⁸⁰

4.42  Procedural efficiency, and precluding procedural misconduct and abuse, is directly linked to parties’ expectations.⁸¹ Parties are presumed to have agreed to arbitrate in good faith and to avoid tactical manoeuvres that may impede procedural efficiency.⁸²

4.43  It is submitted that the application of abuse of rights is vital to ensure the good administration of arbitral justice.⁸³ As rightly noted by Peter Barnett, the principle advocates that the exercise of rights should be precluded when necessary ‘in the face of unfairness to another party, or to avoid the risk that the administration of justice might be brought into disrepute’.⁸⁴

4.44  Arbitrators’ right/obligation to prevent any abuse of rights emanates from their inherent duty to ensure the good administration of arbitral justice.⁸⁵ In this regard, Chester Brown rightly noted: ‘[a]nother aspect of the administration of international justice is the prevention of any “abuse of process” in international adjudication’.⁸⁶

(p. 166) 4.45  This was confirmed by the House of Lords, now the Supreme Court, in England in the context of subsequent proceedings, where Lord Diplock provided that:

[T]his is a case about abuse of the process of the High Court. It concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.⁸⁷ (Emphasis added)

4.46  Similarly, Canadian and Australian courts regularly provide that the principle of abuse of rights operates to prevent unfairness and to ensure the overall administration of justice.⁸⁸

4.47  This function of abuse of rights is also upheld by scholars. Thus, it is often acknowledged that the application of abuse of rights by arbitral tribunals emanates from their duty to ensure the good and fair administration of justice and to preserve the integrity of the arbitral system.⁸⁹ Gaillard rightly noted that abuse of rights can ‘cause significant prejudice to the party against whom it is aimed and can undermine the fair and orderly resolution of disputes by international arbitration’.⁹⁰

4.48  The International Law Association (‘ILA’) adopted a report which equally emphasized the role of abuse of rights to ensure the good administration of justice. It noted that the principle should apply:

[I]f it is necessary for a court to prevent a misuse of its procedure in the face of unfairness to another party, or to avoid the risk that the administration of justice might be brought into disrepute.⁹¹ (Emphasis added)

4.49  Accordingly, it is submitted that the principle of abuse of rights greatly ensures the good administration of arbitral justice as it operates to enhance the efficiency of the proceedings, safeguards the fairness of the proceedings and the equality between the parties, preserves the integrity of the process, and upholds parties’ reasonable expectations.⁹²

4.50  It seems in order to examine how the principle assists arbitral tribunals in furthering and advancing those paramount elements of the good administration of justice in the context of international arbitration.

(p. 167) 4.51  However, prior to embarking on this analysis, one shall first shed light on the rising phenomenon of abuse of rights in arbitration. This succinct overview is potent given the recent criticism directed at such growing trends of abuse in arbitration and due to the effect of such abuse on the administration of justice.

4.52  Moreover, as the different intrinsic elements of the good administration of arbitral justice often compete (fairness, due process, and efficiency), and tribunals frequently sacrifice one element to preserve another, it is important to articulate how the principle may be effective to deal with such tensions.

4.53  While international arbitration offers the prominent scheme for resolution of transnational commercial and investment disputes, the arbitration community must constantly strive to examine areas of concern. Failing to tackle what may affect the good administration of justice may push users away from international arbitration.⁹³

4.54  Abuse of arbitration related rights is a primary concern shared by arbitration users as it generally frustrates the raison d'être of international arbitration: a mechanism that ought to be fair and efficient.⁹⁴ As such, abuse of the arbitral process that takes place during the different stages of arbitral proceedings must not be tolerated if the arbitral system is ought to prosper.

4.55  To that effect, Jan Paulsson rightly observes that:

[A]s a matter of social policy, the monopoly of international arbitration is not necessarily, as I just said, a cause for celebration. It is a phenomenon to be evaluated continuously and critically. Moreover, as a matter of professional pride and self-preservation on the part of those who work in the field of international arbitration, the monopoly status should be a cause for constant concern. If we do not deliver decent justice, if we do not close the door to abuse, we should understand that sharp reactions are likely – sharp reactions which may harm a very valuable tool.⁹⁵ (Emphasis added)

(p. 168) 4.56  Others have gone further and provided that abuse of rights in arbitration not only negatively impacts fairness and justice, but may bring the whole arbitral process to naught:

The procedural rules of an arbitration will fundamentally influence a perception of both fairness and justice; and a procedure which offends the principles of a fair hearing will not create any confidence that a just result will ensue. If the system does not afford recourse against procedural abuse such as a breach of natural justice or the perpetration of a fraud it will, in my view, self-destruct.⁹⁶ (Emphasis added)

4.57  Remarking on the rising perplexity of abuse, Gaillard noted:

Over the past decades, parties to arbitrations and their lawyers have developed an unprecedented array of procedural tactics designed to undermine and prejudice their opponents and to increase the chances that their claims prevail. The past five years in particular have witnessed the emergence of litigation strategies of the very worst kind, which threaten to undermine the reputation of international arbitration as an effective and reliable means of resolving international disputes.⁹⁷ (Emphasis added)

4.58  On a related note, the omnipresence of abusive conduct that arises during arbitral proceedings becomes evident if one examines the growing enigma of procedural inefficiency in arbitration and that such inefficiency may stem from abuse of rights.⁹⁸ In any procedural issue that may arise which could hinder the efficiency of the proceedings, a distinction must be drawn between delays and increased costs that emanate as a result of the intricacy of the factual and/or legal aspects of the case,⁹⁹ and cases where this is a consequence of procedural misconduct and possible abuse of the arbitration process (unwarranted costs and delays).¹⁰⁰

4.59  Many arbitration proceedings involve an escalation of costs and unwarranted delays as a result of tactics and procedural misconduct.¹⁰¹ Whilst parties may submit extensive (p. 169) submissions and material for legitimate purposes, such as to substantiate their claims, in other instances parties make excessive submissions and request time extensions ‘in a strategic effort to delay the proceedings, and may produce additional information that is nothing more than a “smoke bomb” and is unnecessary for a decision of the case’.¹⁰²

4.60  This kind of behaviour is often referred to as a guerrilla tactic, which denotes the abuse of the law or a procedural rule by invoking it for a purpose other than that for which it was prescribed for.¹⁰³

4.61  Often, parties who have no strong legal argument to prevail in a given case deviate from the conventional way of presenting their claims and any supporting evidence, and resort to such guerrilla tactics to ‘gradually, deceitfully and viciously wear down the other party, opposing counsel or the arbitral tribunal’.¹⁰⁴

4.62  It is this kind of delay and escalation of costs, as a result of abusive conduct, that is unwarranted and, if left unremedied, may undermine the arbitration mechanism and defeats its ‘conventional mode of operation’.¹⁰⁵

4.63  The significance of this rising enigma is further fortified by the fact that such abuse is frequently resorted to.¹⁰⁶ Although such abuse can be employed by the claimant, it is often the respondent to a claim who is ‘prepared to employ whatever tactics may be available to him to reduce or avoid his prospective liability’.¹⁰⁷

4.64  It is said that almost 70 per cent of arbitration practitioners have witnessed such abusive conduct, which undoubtedly leads to waste of resources.¹⁰⁸ It has been rightly provided that international arbitration is becoming plagued by procedural abuse and that parties and their counsels have developed ‘strategies of the very worst kind’.¹⁰⁹

(p. 170) 4.65  Accordingly, it is advocated that arbitration users’ ‘discontent aims principally at the abuse of otherwise legitimate procedures’.¹¹⁰ Without a defined principle tailored to deal with procedural misconduct, abusive tactics may increase and be perceived as standard in arbitral practice.¹¹¹

4.66  Abusive conduct not only affects the procedural efficiency of arbitral proceedings, but may also adversely impact the fairness of the procedure and the quality of the ensuing justice.¹¹²

4.67  In this regard, the lack of a procedural principle that can limit the abuse of the arbitral process¹¹³ not only fails to incentivize efficiency but also violates the parties’ expectations in resolving their disputes effectively and fairly.¹¹⁴ Finding a principle to preclude and sanction the abuse of arbitration-related rights ‘would be serving not only the well-assessed interests and expectations of the parties, but also the integrity of arbitration itself’.¹¹⁵

4.68  It is in this context that one considers that the principle of abuse of rights may operate to limit abusive conduct that impedes the integrity and fairness of the arbitration process. The principle of abuse of rights can foster the notion of fairness of the proceedings, eliminate the waste of resources precisely in relation to unwarranted escalation of costs and inordinate delay, and limit procedural misconduct that intends to frustrate the process.

4.69  To that effect, Gaillard acknowledged the dire need for the arbitration community to develop tools/principles that are specifically designed to tackle the abuse of the arbitral process. In considering different tools, he provided that: ‘an abuse of rights principle is the most promising tool to tackle the growing instances of procedural misconduct in arbitration’.¹¹⁶

4.70  Advocating the application of abuse of rights in arbitration to stabilize the arbitral system is further strengthened by observing that much of the tactics and conduct that renders arbitral proceedings inefficient or unfair largely resembles and correlates to the principle of abuse of rights. These tactics generally comprise procedural rights that appear a fortiori legal and legitimate: ‘manoeuvres that may on the surface appear legal’,¹¹⁷ however the party exercises them maliciously, unreasonably, or defeats their purpose.¹¹⁸

4.71  By its very nature, a strict obedience to the requirements of due process and procedural fairness can be at the expense of procedural efficiency.¹¹⁹ To that end, it appears that much of the lack of efficiency perceived in arbitral proceedings is partly rooted in the due process paranoia.¹²⁰ This clash has been described as the ‘the never ending battle between efficiency and due process’.¹²¹ Thus, a question that arises in this context is: what are the limits of due process in arbitration?

4.72  Parties who opt to abuse the procedural rules in order to derail the arbitral proceedings typically rely on due process provisions as an abusive tactic. For example, they will exploit rules providing that they must be treated fairly and afforded an opportunity to present their case to not comply with procedural orders, request extensions, and make unmeritorious applications.¹²²

4.73  This paradoxical issue may be intensified given that obstinate delays may not only comprise a breach of the arbitrators’ duty to speed the process,¹²³ but may also comprise a claim of denial of justice.¹²⁴

4.74  Section 33.1 of the English Arbitration Act deals with both issues. Part (a) provides that a tribunal shall act fairly and give each party a reasonable opportunity to present his case; and subsequently, part (b) provides that the tribunal shall adopt procedures that avoid unnecessary delay or expense, so as to provide a fair means of dispute resolution.¹²⁵

4.75  Thus, arbitral tribunals faced with this issue seem to be caught between Scylla and Charybdis, that is, on the horns of a dilemma. While it seems flagrant that obstinate delays and similar abusive tactics retract from the system’s efficiency and its fairness, and may constitute a potential denial of justice, an attempt to control such tactics may be a breach of due process. One may go further and argue that a situation may involve (p. 172) two conflicting due process assertions: unreasonable delay and consequently escalation of costs may equally affect one’s access to arbitration, especially financially weaker parties, and thus violate fairness and due process.¹²⁶ To that effect, William Park rightly provides that: ‘Arbitral case management implicates the delicate counterpoise between efficiency and fairness. One of the arbitrator’s most difficult tasks is to strike the right equilibrium’.¹²⁷

4.76  In discussing the tension between due process and efficiency in international arbitration, it has been stated that in ‘managing cases, due process needs to be balanced against the arbitrator’s duty to ensure the efficient and timely completion of their mandate to resolve the dispute’.¹²⁸ Although this accentuates the problem, it does not enunciate which procedural tool may strike that balance. It is often provided that one way of solving this conflict is for arbitral tribunals to use the arbitral discretion bestowed upon them by arbitration laws and rules.¹²⁹ Some advocate that ‘one reaction to arbitration’s protean nature has been an emphasis on broad grants of procedural discretion to the arbitrators’.¹³⁰ Again, while it is true that such discretionary power is indispensable, and may constitute the legal basis upon which arbitrators can apply a given rule/principle, it does not provide arbitrators with a principle or rule to use to balance such conflict.

4.77  Without a legal principle that can form the foundation of the tribunal’s decision on such issues, arbitrators may still fear their award being set aside. Arbitration users have actually raised this emerging concern. In a recent survey, it has been provided that arbitral tribunals are reluctant to act decisively to maintain the effectiveness of the proceedings, for fear of the award being challenged on grounds of due process.¹³¹

4.78  Thus, there appears to be a dire need to accommodate those ostensibly bewildering antinomies.¹³² This urge stems from the fact that choosing one principle over the other will necessarily be contrary to the parties’ expectations and contravenes the needs of commerce.¹³³ A flexible tool/principle is thus required to strike the right equilibrium and assist tribunals in balancing the competing interests of procedural efficiency and the requirements of due process, in a way that can satisfy both.¹³⁴

4.79  It is in this context that one ventures that this due process paranoia can be remedied by applying the principle of abuse of rights in arbitration. Abuse of rights, with its (p. 173) balancing factor as a criterion of abuse, may strike the balance needed between procedural efficiency, fairness, and due process. It may become the very principle to solve the required balancing process; to limit and trim the horns of due process when inefficiency emanates from abusive conduct.

4.80  The conflict between efficiency and due process is reflected in the case of Caribbean Niquel v Overseas Mining.¹³⁵ It involved a dispute regarding a joint venture to operate a mine. When a dispute arose, one of the parties initiated arbitration proceedings and requested damages on the basis of ‘lost profits’. The arbitral Tribunal awarded damages based on the theory of ‘lost chance’. The award was then set aside as it violated the parties’ right to be heard as it did not give the parties an opportunity to discuss the legal basis for the calculation of damages. The conflict here appears to be that if the Tribunal had granted the parties time to discuss the legal basis of the calculation of damages, this would have necessarily delayed the proceedings, increased the costs, and thus affected the efficiency of the proceedings.

4.81  In this regard, where abuse of rights is embraced by arbitral tribunals, it shall serve as the decisive factor and aid tribunals in reaching a subtle equilibrium: the right to be heard and present one’s case is to be safeguarded as long as it is not abused. In addition, inefficiency should be limited where it emanates from procedural misconduct and tactics, but tolerated when it is vital for the resolution of the dispute. If this is achieved, it is possible to have a relatively efficient management of the arbitral proceedings without risking violating requirements of due process and/or fairness.¹³⁶ This would serve the overall requirement of the good administration of arbitral justice.

4.82  While one shall examine the role of abuse of rights in the good administration of justice as a stand-alone general principle to tackle forms of abuse, it is submitted that the principle may also crystallize its potent manifestations in various specific rules to tackle abuse and to balance the competing interests of the administration of justice as well.

4.83  An example of this is reflected in the enigma of ‘sleeping dog’ arbitrations.¹³⁷ ‘Sleeping dog’ arbitrations denote proceedings that have been initiated then halted due to a lack of activity from either the claimant, respondent, or the arbitrator(s).¹³⁸ The English Arbitration Act gives the arbitrators the right to terminate the proceedings where there (p. 174) has been an inordinate and inexcusable delay that may indicate that there can be no fair resolution of the dispute.¹³⁹ It is acknowledged that the power of arbitrators to take such measure is a statutory power as it emanates from an explicit provision. However, the principle of abuse of rights arguably forms the legal basis for such a provision and can be further utilized to overcome similar enigmas of procedural abuse in arbitration. To that effect, it is widely acknowledged, at least in the civil legal systems, that this type of procedural misconduct denotes, and falls under the ambit of, the principle of abuse of rights in the specific form of venire contra factum proprium.¹⁴⁰

4.84  As shall be discussed below, in resorting to abuse of rights, tribunals are equipped with a tool that can assist them in discerning the conduct of the parties, and their legal counsels, and take into consideration the motives and purpose of any request that may affect the fairness of the proceedings or hinder the efficient conduct of proceedings. Upon a prudent balance of the competing interests, and based on the factual matrix of the case, arbitrators may determine whether such a procedural request is reasonable (conforming to the requirements of procedural due process) or abusive (mere dilatory tactic).

4.85  This section endeavours to highlight how the application of abuse of rights in international arbitration serves the administration of justice.

4.86  In doing so, the application of the principle to limit abuse that may take place in relation to three different legal issues that are common in international arbitration is examined: corporate/State manoeuvres to access/block arbitral proceedings, parallel arbitral proceedings; and the extension of the arbitration clause to a non-signatory.

4.87  While the application of abuse of rights advances the administration of arbitral justice in relation to different legal questions as well, for obvious spatial-temporal considerations, one shall examine its effect in relation to these three legal subjects given that they properly illustrate the importance of the principle for the good administration of justice.

4.88  An analysis of the aforementioned legal issues shall be achieved by examining the law and practice of commercial and investment arbitration. Emphasis may be given to investment arbitration materials in relation to some issues (corporate and State manoeuvres and parallel arbitral proceedings) and to commercial arbitration materials (p. 175) in others (non-signatories). In doing this, one is mandated and restricted by the existence and availability of relevant published materials. However, it is submitted that the principle’s operation ensures the administration of arbitral justice in international commercial and investment arbitration.

4.89  As previously mentioned, the inherent duty to preserve the integrity of the arbitral process emanates from the tribunal’s responsibility to ensure the good administration of arbitral justice.¹⁴¹ Arbitral tribunals often apply abuse of rights in order to preserve the arbitral integrity and thus ensure the good administration of justice.¹⁴²

4.90  One area where the requirements of fairness and the duty to preserve the integrity of the arbitral system have urged arbitrators to apply the principle of abuse of rights pertains to the act of structuring investments and corporate nationality planning for a purpose other than that for which such rights were conferred.¹⁴³

4.91  The rationale in sanctioning any abuse in such cases emanates from the desire to give ‘effect to the object and purpose of the ICSID Convention and [. . .] preserving its integrity’.¹⁴⁴ It is widely acknowledged that the purpose of the ICSID Convention is not to afford protection to nationals against their own State; a contrario, the ICSID system is specifically tailored to resolve disputes between foreign investors and States, in order to foster the flow of international capital into the Contracting States.¹⁴⁵

4.92  Thus, a regular form of abuse may comprise the act of abusing the structure of a company by altering one of its features enabling it to qualify as an investor or an investment covered by the relevant BIT, not for a commercial activity/purpose but primarily to gain access to arbitration.

4.93  If abusive conduct in this regard is not restricted, this may defy the good administration of arbitral justice as it may violate the parties’ reasonable expectations, undermine the integrity of the arbitral system, and demonstrate that there is no limit to ICSID (p. 176) jurisdiction: any domestic dispute may become international if the domestic company merely incorporates a foreign entity that subsequently acquires the shares of the domestic entity.¹⁴⁶ As stated by one tribunal:

The Tribunal has come to the conclusion that the Claimant’s initiation and pursuit of this arbitration is an abuse of the system of international investment arbitration. If it were accepted that the Tribunal has jurisdiction to decide ST-AD’s claim, then any pre-existing national dispute could be brought to an international arbitration tribunal by an ‘after the fact’ transfer of the national economic interests to a foreign company in an attempt to seek protections under a BIT. Such transfer from the domestic arena to the international scene would ipso facto constitute a ‘protected investment’ – and the jurisdiction of an international arbitral tribunal under a BIT would be virtually unlimited. It is the duty of the Tribunal not to protect such an abusive manipulation of the system of international investment protection. It indeed the Tribunal’s view that to accept jurisdiction in this case would go against the basic objectives underlying bilateral investment treaties. The Tribunal has to ensure that the BIT mechanism does not protect investments that it was not designed to protect, that is, domestic investments disguised as international investments or domestic disputes repackaged as international disputes for the sole purpose of gaining access to international arbitration.¹⁴⁷

4.94  The act of corporate restructure or nationality planning raises different competing interests that may affect the administration of justice. As shall be discussed below, the case law fortifies that abuse of rights may effectively apply in this regard to: ensure procedural fairness; fulfil requirements of due process; safeguard the parties’ reasonable expectations; and preserve the integrity of the arbitral process.¹⁴⁸

4.95  Numerous examples exist to show how arbitral tribunals have applied abuse of rights in such circumstances. There exists some sort of consensus in terms of the essential elements required to find an abuse. The case law demonstrates that while corporate planning is a legitimate right and seeking the substantive and procedural protection afforded by a specific BIT is not abusive per se,¹⁴⁹ it may become abusive if such conduct is unfair, (p. 177) defies the object and purpose of the BIT, and impedes the integrity of arbitration. In assessing the abusive nature of the conduct in question, the timing and motive/purpose of the exercise of the right (corporate restructuring) is pivotal.¹⁵⁰ Arbitral tribunals will consider the aforementioned elements as well as other indicative elements that may aid them in discerning the intention of the parties.¹⁵¹ In other words, abuse of rights is established where a corporate restructuring is ‘motivated wholly or partly by a desire to gain access to treaty protection in order to bring a claim in respect of a specific dispute that, at the time of the restructuring, exists or is foreseeable’.¹⁵²

4.96  In the seminal case of Phoenix v Czech Republic, the dispute involved two Czech companies owned by a Czech national who was embroiled in domestic disputes with the Czech Government. Accordingly, the owner of the companies transferred their ownership to Phoenix, an Israeli company owned by members of his family. Two months after the restructuring, the Claimant initiated arbitration proceedings. The Respondent submitted that Phoenix was nothing short of an ex post facto creation of a sham Israeli company, that this conduct represented an egregious case of treaty shopping, and thus constituted an abuse of rights.¹⁵³

4.97  The Tribunal found that the investment by Phoenix was not made in good faith and constituted an abuse of rights. The Tribunal stipulated that the principle of abuse of rights, which is part of the broader notion of good faith, mandates that parties ‘deal honestly and fairly with each other, to represent their motives and purposes truthfully, and to refrain from taking unfair advantage’ (emphasis added).¹⁵⁴

4.98  Upon acknowledging that the principle may operate to remedy unfairness, the Tribunal engaged in a delicate balancing process of the facts and interests at stake to determine if there was an abuse of right. The Tribunal considered: the timing of the investment; the timing of the claim and the substance of the transaction. These considerations warranted the finding that the main purpose of the investment was an ‘attempt to render their purely domestic disputes to the protections of the BIT rather than to conduct business’.¹⁵⁵ The Tribunal concluded that the investment was merely an artificial transaction, the creation of a legal fiction to gain access to ICSID, and that it was made in bad (p. 178) faith and constituted an abuse of rights. The Tribunal ordered the Claimant to bear all ICSID costs.¹⁵⁶

4.99  This case is of significance not only for its application of abuse of rights but for its enunciation that the principle’s application advances the notion of good administration of arbitral justice. Parties have a reasonable expectation that the ICSID system is specifically tailored to resolve disputes between foreign investors and States.¹⁵⁷ Thus, it would be unfair, and a violation of the reasonable expectations of the parties, for the arbitral system to afford its protection to such abusive conduct. The principle was effectively applied to safeguard those reasonable expectations and to preserve the integrity of the system.¹⁵⁸

4.100  The above was reinstated and confirmed in the recent case of Philip Morris v Australia.¹⁵⁹ The Respondent claimed that the principle of abuse of rights forbade the Claimant from exercising its right to arbitrate.¹⁶⁰ The arbitral Tribunal held that Claimant’s restructure of its investment amounted to an abuse of right as it was exercised for the purpose of gaining access to arbitration and after the dispute was foreseeable. In clarifying the meaning of foreseeability in the context of abuse of rights, the Tribunal held that foreseeability is established where there is a reasonable prospect that ‘a measure which may give rise to a treaty claim will materialise’.¹⁶¹ Moreover, in relation to the motive and purpose of the restructuring of the investment, the Tribunal acknowledged that abuse was not established if restructuring was motivated for reasons other than bringing a claim. However, it was held that such restructuring was not motivated primarily for tax or other business reasons, but mainly to initiate a treaty claim using an entity from Hong Kong.¹⁶²

4.101  In this regard, the depiction of the principle of abuse of rights as a principle necessary to secure the fairness of the proceedings was unequivocal. Abuse of rights was asserted as a principle that ensures that the exercise of rights is reasonable and fair: ‘it should at the same time be fair and equitable as between the parties and not one which is calculated to procure for one of them an unfair advantage in the light of the obligation assumed’ (emphasis added).¹⁶³ That being said, the Tribunal held that the initiation of arbitration constituted an abuse of rights which rendered the claims raised inadmissible.¹⁶⁴

(p. 179) 4.102  On a related note, abuse of rights may operate not only as a requirement of fairness, but may be mandated by considerations of due process.¹⁶⁵ The duty that parties must be treated equally is sacrosanct in international arbitration.¹⁶⁶ As rightly pointed out by one scholar, it ‘is perhaps the most fundamental rule of due process’.¹⁶⁷ This is included in most arbitration laws and institutional rules.¹⁶⁸

4.103  In this regard, it is submitted that the equality between the parties may also be thwarted where one party foresees the dispute and subsequently makes an investment in the host State without the latter knowing that such an investment was made solely to gain access to arbitration. This may defy the fairness of the proceedings, infringe upon the equality between the parties, and frustrate their reasonable expectations. As asserted in Philip Morris:

[W]here there is a corporate restructur[ing] in the knowledge of an actual or specific future dispute, and a preconceived BIT claim is then brought, there is no longer an equality of position between the investor and the host State, and the investor benefits from an unfair advantage [since] the investor invests knowing that it is about to/ready to bring a claim [whilst] [t]he host State admits the investment, in ignorance of the investor’s intent.¹⁶⁹ (Emphasis added)

4.104  This was similarly upheld in the case of ConocoPhillips. While the Tribunal found no abuse of rights given that the restructuring took place prior to the foreseeability of the dispute,¹⁷⁰ the potency of abuse of rights to ensure the equality between the parties was acknowledged. The Tribunal explicitly noted that:

There is jurisdiction only if the parties to the dispute have each consented and throughout the process each is treated on an equal footing, as indeed the principles of due process and natural justice require. That equality of position in the present context is, in this Tribunal’s view, a further factor supporting the growing body of decisions placing some limits on the investor’s choice of corporate form, even if it complies with the relevant technical definition in the treaty text.¹⁷¹ (Emphasis added)

4.105  Accordingly, it seems that the application of abuse of rights may be necessary not only to restore the fairness of the proceedings and to preserve the integrity of the process, (p. 180) but also as a requirement of due process.¹⁷² This is just as conspicuous in cases where States exercise their rights, particularly their inherent right to investigate criminal wrongdoing, in a manner that may impede the equality of arms, the fairness and integrity of the proceedings, and undermine the arbitral process.¹⁷³

4.106  From a pure theoretical stance, while States retain an inherent right to investigate and prosecute criminal wrongdoing,¹⁷⁴ concerns raised by investors may appear logical where States use this right for economic or political purposes,¹⁷⁵ or as an abusive tool to pressure,¹⁷⁶ intimidate, or induce investors and to baulk an ongoing arbitration.¹⁷⁷ Such abusive conduct by States may: aggravate the dispute;¹⁷⁸ defy the purpose of the BIT in question;¹⁷⁹ damage the purpose of investment arbitration; breach the requirements of due process; and become a threat to the development of international rule of law.¹⁸⁰ To that effect, it has been rightly stated that ‘tribunals must be on guard to discern which requests are legitimate and which requests constitute attempts by investors to use investment arbitration to escape answering legitimate criminal allegations’.¹⁸¹

4.107  Again, it seems here that barring any abuse of right emanates from considerations of due process and the desire to preserve the integrity and fairness of the arbitration process.¹⁸²

4.108  Some of the aforementioned considerations were clear in the case of Libananco Holdings v The Republic of Turkey, where issues of procedural fairness as well as requirements of due process were raised and considered by the arbitral Tribunal. The Claimant alleged that the commencement of criminal investigations against it breached the equality of arms between the parties and also breached Turkey’s obligation to arbitrate fairly and in good faith. During the criminal investigations, it was alleged that there was surveillance (p. 181) and interception of legally privileged communications between the Claimant, its counsel, and witnesses.¹⁸³

4.109  The arbitral Tribunal recognized the inherent right of States to conduct criminal investigations. However, such right is not absolute, it must not be abused, and must be exercised with regard to the rights of the other party.¹⁸⁴ It was also mentioned that this brings into question sacrosanct principles such as procedural fairness, the equality of the parties, and their right to seek advice and freely advance their cases.¹⁸⁵ Additionally, while not questioning the assurances given by Turkey’s counsel that such information was not revealed to them nor used in this arbitration, the Tribunal noted that ‘it is not enough that justice should be done, it must also manifestly be seen to be done’.¹⁸⁶ The Tribunal then ordered the State not to interfere with the preparation of the case in the future.

4.110  In another case, Quilborax v Bolivia, the Claimants requested provisional measures ordering the Respondent to discontinue criminal proceedings relating to the arbitration as it aggravated the status quo of the arbitration and jeopardized the procedural integrity of the arbitral proceedings.¹⁸⁷ During the arbitration, the Bolivian Government reviewed Claimants’ corporate documentation registered in the Bolivian registry, noted some irregularities, and initiated criminal proceedings alleging the forgery of the documents. As part of the criminal investigation, Bolivia also sequestrated corporate records and interrogated persons related to the Claimants, including their former legal counsel. Thus, it was the Claimants’ view that the State abused its right to investigate criminal behaviour, as it used it solely to influence the current arbitration; as an abusive tactic to avoid the arbitration on the merits, and force the Claimants to give up their claims.¹⁸⁸

4.111  The Tribunal first acknowledged that Bolivia had a right to prosecute conduct that may constitute a crime. However, the Tribunal emphasized that such a right is not absolute, cannot be abused, and must be balanced against the Claimants’ rights to pursue the arbitration, and to have their claims fairly considered.¹⁸⁹ Accordingly, abuse was established primarily to restore and maintain the procedural integrity of the arbitration. By balancing Bolivia’s interest to pursue the investigation against the Claimants’ fundamental interests in resolving their dispute before the Tribunal, and their right to have access to evidence and the integrity of the evidence (the criminal proceedings had a material effect on potential witnesses), the Tribunal chose the latter rights and issued provisional measures.

(p. 182) 4.112  One submits that any other conclusion would arguably constitute a breach to the requirements of due process, as the Claimants would be deprived of effectively presenting their case and substantiating their claims.¹⁹⁰

4.113  The prevailing globalization trends have affected the practice of international arbitration. Accordingly, we have witnessed the development of complex arbitrations, which have now become a feature of international arbitration. The growing intricacy of transnational disputes and arbitral proceedings has brought about a matter that has truly become a global paradox, that is, parallel and overlapping proceedings.¹⁹¹

4.114  Parallel proceedings generally denote the case where parties initiate the same or related proceedings before different courts/tribunals.¹⁹² While there is no one definition to describe parallel proceedings, as this may differ from one jurisdiction or treaty to another, one finds it apt to consider the definition adopted by the ILA: proceedings pending before a court/tribunal in which the parties and one or more of the issues are the same or substantially the same as the ones before the tribunal.¹⁹³

4.115  The role of abuse of rights to ensure the administration of justice is also evident in the realm of parallel arbitration proceedings.

4.116  In order to demonstrate how the principle of abuse of rights ensures the good administration of justice in the context of parallel proceedings, it seems necessary to first determine the legal and strategic considerations for pursuing parallel and overlapping proceedings. This succinct determination is vital in the context of abuse of rights and the good administration of justice. It was suggested that the principle of abuse of rights not only ensures the administration of justice, but that it balances the competing interests of the good administration of arbitral justice (fairness, due process, and efficiency). In order to examine the adequacy of this submission, highlighting the competing interests in the context of parallel proceedings warrants a succinct elaboration as it shall appear that while some considerations are reasonable and worth legal protection, other considerations seem rather unfair and abusive specifically when considered in light of the colossal risks involved. Thereafter, the operation of abuse of rights to enhance the administration of justice and its role as a mechanism that balances the competing interests shall be discussed by reviewing and analysing three important cases that dealt with the matter.

4.117  As previously mentioned, a right denotes an interest that is recognized and protected by the law to fulfil a certain purpose.¹⁹⁴ It is well acknowledged that each party in international arbitration pursues his/her interests. It is equally recognized that in any given dispute, there exists parties’ diverse competing interests and it is the decision maker’s role to resolve such conflict.¹⁹⁵ The paradoxical problem of parallel arbitral proceedings is no exception. It involves a multiplicity of interests that primarily rest on those pursued by the party initiating the parallel proceedings and those of the party(ies) opposing such conduct given the risks and procedural hazards associated thereto.

4.118  Those competing interests often fall within the ambit of the administration of justice, that is, they involve interests that are part of due process considerations, preserving the integrity of the process, protecting parties’ reasonable expectations, and interests that affect the efficiency and fairness of the proceedings.

4.119  Understandably, parties in arbitration proceedings have conflicting interests. A claimant is usually seeking a fast resolution of the dispute and the respondent may attempt to delay or disrupt the proceedings.¹⁹⁶ That said, parallel court or arbitral proceedings may be initiated primarily as a dilatory tactic.¹⁹⁷ In a case decided by the Swiss Federal Tribunal, a reference was made to a case where a scientist concluded a know-how licence agreement with a Swiss pharmaceuticals company (Company X). The agreement contained an ICC arbitration clause. Subsequently, the scientist transferred his rights and obligations to another company (Company Y). A dispute arose between Company X and Company Y in relation to the payment of royalties. The arbitral Tribunal rendered a partial award recognizing the right of Company Y to receive the royalties and deferred the quantum issue to a subsequent phase. Company X decided to declare that the agreement was void and initiated another parallel arbitration proceedings requesting a declaration that the said agreement was void. The Swiss Federal Tribunal acknowledged the tactical intention for the parallel proceedings, in that it was an invitation to review the merits of the rendered award, and provided that: ‘Speaking of claim is questionable when dealing with a mere declaratory relief, the only aim thereof being, other than deferring the outcome of the pending case regarding payment, a case in which the Claimant has lost on the principle of liability.’¹⁹⁸

(p. 184) 4.120  On the other hand, parallel proceedings may be triggered by reasons of securing the opposing party’s assets located in different places,¹⁹⁹ or as a tool to multiply one’s chances of recovery.²⁰⁰

4.121  Parallel arbitral proceedings necessarily increases costs and may accordingly defy the good administration of justice in this regard.²⁰¹ Thus, parties may abuse the arbitral system by initiating proceedings as a tool to exert economic pressure on another party.²⁰²

4.122  On a related note, one of the principal reasons/motives associated with parallel proceedings is forum shopping. It is axiomatic that whenever forum shopping is possible, there may exist an interest in choosing the appropriate regime, arbitral situs, and applicable procedural and substantive rules of law.²⁰³ This is particularly the case where the arbitration agreement does not specify the seat of arbitration, and in multi-contract and multi-party disputes.²⁰⁴

4.123  While the above-mentioned discussion reflects the competing interests generally shared and advocated by legal scholars, other interests remain relevant. In this regard, one anticipates other scenarios that do not necessarily imply bad faith or abuse. It is widely acknowledged under many arbitration rules that where the respondent fails to appoint an arbitrator within a specific time frame, the arbitral institution, or another authority, may appoint the arbitrator for the respondent.²⁰⁵ Also in multi-party or multi-contract disputes, claimant(s) and respondent(s) may have conflicting interests and thus require appointing different arbitrators.²⁰⁶ Given that party-appointed arbitrators is perceived by many as a sacrosanct right,²⁰⁷ the claimant/respondent, in the above examples, may initiate parallel arbitral proceedings, not for tactical reasons but for the purpose of safeguarding their right to appoint an arbitrator.²⁰⁸

(p. 185) 4.124  Another example is the case where an arbitration clause does not specify the seat of arbitration and the tribunal decides to make the hearings or the seat abroad.²⁰⁹ In this regard, one of the parties may initiate parallel proceedings in his/her home jurisdiction solely for economic reasons, that is, he/she cannot bear the costs associated with an arbitration held abroad.²¹⁰

4.125  On the other hand, there are risks, procedural enigmas, and competing interests that may ensue in cases of parallel proceedings. As discussed below, this include, inter alia, maintaining the efficiency of proceedings, cost-effectiveness, upholding parties’ common intention, and the need to avoid conflicting decisions. Disregarding such vital interests may pose a serious threat to the stability and integrity of the arbitral system and thus defy the good administration of justice.²¹¹

4.126  Allowing abusive parallel proceedings may lead to an escalation of costs and waste of resources.²¹² Parties have a right (interest) and an expectation to have an efficient resolution of the dispute.²¹³ In the case of SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, the Tribunal stipulated that:

It would be wasteful resources for two proceedings relating to the same or substantially the same matter to unfold separately while the jurisdiction of one tribunal awaits determination. No doubt the parties have been put to considerable expense already.²¹⁴

4.127  Moreover, the risk of inconsistent decisions is high when considering the continuation of parallel proceedings. The materialization of such a risk is a fissure in the arbitration system and a crisis that has practical legal implications.²¹⁵ In this regard, Philippe Leboulanger rightly provided that ‘it is inadmissible to have contradicting decisions (p. 186) regarding interrelated disputes, as this may result in actual denial of justice. The splitting of complex disputes leaves the door open to inconsistent decisions and to injustice.’²¹⁶

4.128  The need for procedural harmonization should not only be mandated to prevent conflicting decisions, but also because it is directly linked to parties’ expectations.²¹⁷ Parties trust international arbitration as an authoritative mechanism to obtain a final and binding determination of their disputes in accordance with their expectations.²¹⁸ Parties’ legitimate expectations would be thwarted where their arbitral award conflicts with another award, or where the issues resolved in the first arbitration are re-opened in subsequent proceedings.²¹⁹ Thus, in Premium Nafta Products and Others v Fili Shipping Company Limited, Lord Hoffmann emphasized the need to uphold the commercial purpose of the arbitration clause. The said purpose is, in most cases, to refer all disputes to one tribunal and to avoid the duplication of effort, expense, and possibility of inconsistent decisions associated with parallel proceedings.²²⁰

4.129  The initiation of parallel arbitral proceedings may also violate the fairness of the proceedings and defy requirements of due process. This is particularly the case in relation to complex disputes that are brought before different tribunals. In such cases, one of the parties may be deprived of his right to fully present his case before the tribunal. An example of this was eloquently described by Leboulanger:

In some cases, if no link is established between the parallel disputes, the fundamental conditions of a fair trial may not be met, namely when the dispute between the parties involves the exceptio non adimpleti contractus principle, for instance when one of the parties refrains from performing its obligations under an agreement, by retaining sums owed, in order to defend its contractual rights, that is, only because the other party did not perform its obligations under another agreement belonging to the same group of contracts [. . .] if the arbitral treatment of the two agreements is split, the defendant might not be able even to raise the argument based on the exceptio and consequently may be deprived of its right to present its case in an equal position to the claimant’s. The ICC Court should pay particular attention to a situation like this and should not ignore its consequences, which would be contrary to the proper administration of justice. The concept of ‘a fair hearing’ cannot be overlooked.²²¹

4.130  Parallel arbitral proceedings may also lead to inequality between the parties and thus pose a threat to due process. This is particularly the case where a party (an investor) initiates multiple arbitral proceedings through a locally incorporated company and (p. 187) through direct and indirect shareholders against a State. If different arbitral tribunals are constituted in the multiple proceedings, this means that while the investor has to convince one tribunal in order to prevail in the case, the State may have to refute the claims and prevail before all the other tribunals.²²²

4.131  The above analysis reveals that such competing interests may be effectively balanced by resorting to abuse of rights. While the arbitration agreement may grant the parties the right to initiate arbitration proceedings, such right should be exercised reasonably. As shall be discussed below, the element of reasonableness, comprising the crux of the principle of abuse of rights, may assist arbitral tribunals in considering questions arising in the context of parallel proceedings to ensure the good administration of justice.

4.132  As rightly provided by Bernard Hanotiau:

Arbitral institutions and arbitrators have a correlative obligation to make sure that the duty of good faith is respected by the parties. Consequently, they should, by all means within the limits of their rules or prerogatives, make it impossible for a party to jeopardize another party’s case by abusing its rights and unduly opposing the conduct of a single arbitration or the joinder of parallel proceedings. It should, however, never be overlooked that the parties’ agreement is paramount: striking a balance between this agreement, the duty of the parties to act in good faith, and their right to a fair trial [. . .] is one of the most difficult challenges that arbitrators and arbitration institutions face and it is their duty to solve it in the best possible way by all available means.²²³ (Emphasis added)

4.133  The above was eloquently described by Yuval Shany in the context of parallel and subsequent proceedings, so he is quoted in extenso:

If one perceives adjudication before a specific forum and not before other competent courts or tribunals to be excessively burdensome, without there being a legitimate interest justifying litigation before the selected forum, insistence by the applicant upon his or her unilateral choice of forum might be regarded as wholly unreasonable, and therefore an abuse of right. Such a balance of interests might clearly be in place when the same case is pending or has already been decided by another tribunal. In these circumstances, compelling the respondent party to litigate the same matter before another court or tribunal would certainly cause significant hardship. At the same time, the applicant does not seem to have a legitimate interest in multiple adjudication since he or she has already had (or will have) their ‘day in court’. In other words, the abuse of rights doctrine can serve as an additional justification for the adoption of lis alibi pendens and res judicata (and also electa una via) rules, and perhaps even support a liberal construction of their scope of application, so to encompass closely related multiple (p. 188) proceedings, which are extremely onerous for one party and of relatively little utility to the other party. It might also operate to restrict unjustified claim-splitting tactics.²²⁴

4.134  Whilst deploying the principle of abuse of rights to limit abusive parallel proceedings is not new, arbitral awards that dealt with this issue are scarce. However, the scarcity in the principle’s use in this regard does not negate its importance and effectiveness in ensuring the good administration of justice.²²⁵ Additionally, while the examples discussed below pertain to investment arbitration, there is no reason why the principle may not apply to similar cases in commercial arbitration.²²⁶

4.135  Three cases shall be examined to shed light on the operation of the principle and its effect on the administration of arbitral justice. As shall be discussed below, in the first case the arbitral tribunal refused to apply the principle of abuse of rights and as a result the administration of justice was seriously brought into disrepute. A contrario, in the second and third cases, requirements of good administration of justice mandated the arbitral tribunals to consider/apply the principle.

4.136  In these cases, the arbitration system enabled the investor to initiate two arbitration proceedings against the same State, in relation to the same dispute, merely for relying on different BITs. The cases pertained to the interference with television broadcasting rights granted by the Government of the Czech Republic to a foreign investor. Mr Ronald Lauder, a US national, invested in the television broadcaster through the company Central European Television which was controlled by the Dutch company, CME, of which Mr Lauder was the majority shareholder. Following allegations of expropriation, violation of the obligation of fair and equitable treatment and others, arbitration proceedings were initiated.²²⁷

4.137  Mr Lauder, relying on his US nationality, initiated arbitration proceedings against the Czech Republic in London based on the United States-Czech Republic BIT. Subsequently, CME initiated arbitration proceedings against the Czech Republic in Stockholm based on the Netherlands-Czech Republic BIT. Both proceedings related to the same dispute and raised the same legal questions, in relation to the liability of the Czech Republic.²²⁸

(p. 189) 4.138  The first constituted arbitral Tribunal sitting in London found that the investor failed to substantiate his claims and thus dismissed the claims.²²⁹ A contrario, the second constituted Tribunal sitting in Stockholm produced an utterly conflicting award, whereby it held that the Czech Republic was liable.²³⁰

4.139  The Lauder/CME saga elucidates that the potential pernicious effects of parallel proceedings to the administration of justice are not merely important theoretical observations, but have serious legal ramifications. The fact that the two arbitral Tribunals reached contradictory decisions regarding the same set of facts is rightly described as the ultimate fiasco in international arbitration.²³¹ Reaching conflicting decisions regarding the same legal question thwarts the administration of justice as it defies the rule of law, due process, legal certainty, the efficient administration of justice,²³² and may arguably result in an actual denial of justice.²³³

4.140  It is argued that abuse of rights may operate in this context to temper and limit the right to initiate parallel proceedings by the requirements of good administration of arbitral justice. That said, the application of the principle of abuse of rights was raised albeit rejected by the arbitral Tribunals.²³⁴

4.141  While the Respondent asserted that its application ensured the administration of justice as it eludes the risk of conflicting awards,²³⁵ the Tribunals acknowledged the possibility of conflicting awards but did not apply the principle on the grounds that the causes of action and the claimants were not identical in both proceedings.²³⁶

4.142  This case is an epitome of how the application of abuse of rights ensures the good administration of justice, and how failing to apply it (or misapplying it) may bring the administration of justice into disrepute.

4.143  It is important to note that the decisions rendered by the Tribunals should not be considered a rejection of applying abuse of rights in the context of parallel proceedings. A contrario, the awards recognized the principle, but held that the conditions sine qua non for its application were not satisfied. Moreover, the Tribunal also recognized the competing principles/interests of the good administration of justice. Thus, while the Tribunal recognized the escalation of costs, efficiency, and the unfair possibility (p. 190) of conflicting decisions associated with the continuation of parallel proceedings,²³⁷ it decided that such interests could have been equally protected had the Respondent allowed the consolidation of the proceedings.

4.144  In finding no abuse of rights, both arbitral Tribunals emphasized the fact that the Respondent had refused, on several occasions, to consolidate the proceedings and refused to appoint the same arbitrators in the parallel proceedings.²³⁸ This confirms that remedies based on abuse of rights may depend on the reasonable conduct of the aggrieved party.²³⁹ It is acknowledged that consolidating the parallel proceedings or choosing the same arbitrators in both proceedings may be effective in ensuring the good administration of justice.²⁴⁰

4.145  The Tribunals erred in applying the principle of abuse of rights in that they adopted, for its application, the same conditions of the principles of lis pendens and res judicata (the triple identity test). The Tribunal noted that there was no abuse of right as the Claimants and the causes of action were not identical in both cases.²⁴¹ While this may be of relevance in the context of lis pendens and res judicata,²⁴² it should not be a condicio sine qua non for abuse of rights.²⁴³ On the contrary, the principle of abuse of rights is of greater relevance in relation to proceedings that involve similar, but not identical, parties and causes of action.²⁴⁴ Additionally, equating abuse of rights to the defences of lis pendens and res judicata, which are often dismissed unless the ‘triple identity’ test is satisfied, may encourage the abuse of the arbitral system.²⁴⁵ Thus, abuse of rights (p. 191) should be established, not based on any rigid rules, but by considering all interests involved.²⁴⁶

4.146  Accordingly, a material impediment to standards of fairness, requirements of due process, and the broader notion of administration of justice materialized in these cases as a result of not applying, or misapplying, the principle of abuse of rights. As rightly recognized by scholars and arbitrators, avoidance of conflicting decisions is a requirement of fairness, due process, and efficiency, and the materialization of such risk is a serious defiance to the administration of justice.²⁴⁷

4.147  The recent award in the case of Ampal-American Israel Corp et al v Arab Republic of Egypt²⁴⁸ also demonstrates the importance of the principle as a requirement of the good administration of arbitral justice.

4.148  The case involved the termination of a gas supply purchase agreement made after many interruptions in the gas supply as a result of terrorist activity following the revolution that took place in Egypt in 2011.

4.149  This dispute gave rise to four parallel commercial and investment arbitrations. Ampal Corporation (a company incorporated under the laws of New York), Mr David Fisher (a national of Germany), and other investors who directly or indirectly own the East Mediterranean Gas company ('EMG'), brought ICSID proceedings against the Arab Republic of Egypt.

4.150  Other than the ICSID case being discussed, the dispute gave rise to another three arbitration proceedings: an ICC arbitration in Geneva brought by EMG against the Egyptian General Petroleum Corporation (‘EGPC’) and the Egyptian Natural Gas Holding Company (‘EGAS’);²⁴⁹ EGPC and EGAS initiated arbitration proceedings against EMG in Cairo under the auspices of the Cairo Regional Centre of International Commercial Arbitration (‘CRCICA’);²⁵⁰ and another parallel investment treaty arbitration under the UNCITRAL Rules brought by a Polish-Israeli national, Yosef Maiman, and three other companies including Ampal’s subsidiary, Merhav Ampal Group Ltd.²⁵¹

(p. 192) 4.151  Gaillard, who represented the Egyptian State in the arbitrations, noted that the initiation of multiple separate arbitrations was ‘archetype of abusive procedural conduct’.²⁵² To that effect, in the ICSID case, Egypt asserted that the Claimants’ claims were inadmissible as they constituted an abuse of right. Egypt further alleged that: parallel proceedings were brought to seek to multiply the chances of recovery; part of the Claimants’ claim related to the same 12.5 per cent indirect interest in EMG for which Ampal’s subsidiary, Merhav-Ampal, claimed in the parallel proceedings; and that Egypt did not consent to be subject to multiple proceedings.²⁵³ On the other hand, the Claimants asserted that there was no abuse of right given that, inter alia, Egypt refused the consolidation of the parallel proceedings.²⁵⁴

4.152  The arbitral Tribunal first recognized the principle of abuse of rights and noted that the existence of four parallel arbitration proceedings, involving the same facts, witnesses and claims, may be abusive.²⁵⁵ The Tribunal then noted that different investors may pursue multiple claims in different fora, even if such claims arise from the same factual matrix. This is not, per se, abusive. The Tribunal then stipulated that parallel arbitration ‘may not be a desirable situation but it cannot be characterised as abusive especially when the Respondent has declined the Claimants’ offers to consolidate the proceedings’.²⁵⁶

4.153  However, in order to mitigate the risk of contradictory awards and to ensure the good administration of justice, the Tribunal found that there was an abuse of right in relation to a portion of the Claimants’ claims. In this regard, the Tribunal found that the Claimant Ampal, which was controlled by Mr Yosef Maiman, advanced its claims in relation to the same 12.5 per cent indirect interest in EMG for which Ampal’s subsidiaries claim in the parallel arbitration proceedings. To that effect, it noted:

[W]hile the same party in interest might reasonably seek to protect its claim in two fora where the jurisdiction of each tribunal is unclear, once jurisdiction is otherwise confirmed, it would crystallize in an abuse of process for in substance the same claim is to be pursued on the merits before two tribunals.²⁵⁷ (Emphasis added)

4.154  Given that both Tribunals had decided that they had jurisdiction regarding this portion of the claim, there was no risk of denial of justice and accordingly, the Tribunal ordered Ampal to cure the abuse by pursuing this claim only before one Tribunal and withdraw it from the other parallel proceedings to avoid double recovery or conflicting awards.²⁵⁸

(p. 193) 4.155  This decision confirmed the role of abuse of rights in balancing the competing interests of the good administration of justice. The Tribunal recognized one’s right to initiate parallel proceedings and one’s right to be heard before the competent tribunal based on the relevant BIT (all requirements of due process).²⁵⁹ However, these interests were balanced against the Respondent’s interests to preclude the escalation of costs, safeguard efficiency, and avoid the risk of inconsistent decisions which greatly affect the fairness of the proceedings and ensuing justice.²⁶⁰

4.156  As previously mentioned, the notion of fairness (as part of the good administration of justice) refers to standards of reasonable procedural conduct.²⁶¹ That said, whilst one considers the Tribunal to have embraced an overly narrow application of the principle,²⁶² it appears that abuse was only partially established and did not apply to preclude the initiation of parallel proceedings in relation to the other claims given the unreasonable conduct of the respondent. The Tribunal considered that the Respondent acted unreasonably in that it: refused the consolidation of the proceedings of the two commercial and two investment proceedings; challenged the appointment of the same arbitrator in the parallel proceedings; and initiated parallel proceedings in Cairo. Thus, it seems that the Tribunal did not ascertain the seriousness of the risks associated with parallel proceedings given the unreasonable conduct of the Respondent.²⁶³ One finds it apt to assert that the conduct of Egypt in refusing to appoint the same arbitrator may be characterized as an abuse of right and conduct which arguably defies the good administration of arbitral justice. As rightly noted by Leboulanger:

But, as all rights are susceptible of abuse, a party may abuse its right to designate an arbitrator. The attitude of a party who refuses to designate the same arbitrator in the parallel arbitral panels might be considered as a violation of its obligation to perform, in good faith, its undertakings assumed under the arbitration clause.²⁶⁴

4.157  On a related note, whilst the decision in CME/Lauder recognized the importance of the conduct of the aggrieved party in assessing the abuse of rights claim, it did not specify that it constituted a condition for the principle’s application. This is confirmed by the fact that while Egypt declined the consolidation attempts, the Tribunal still found that a portion of the claim constituted an abuse of rights. One may deduce from this decision that if the claims in the parallel proceedings are, wholly or partly, identical, requirements of good administration of justice mandates finding an abuse of right regardless (p. 194) of the opposing party’s conduct. On the other hand, if the issues raised are just similar, the conduct of the aggrieved party becomes instrumental.

4.158  In the recent ICSID case of Orascom TMT Investments v Algeria,²⁶⁵ the application of abuse of rights and its proactive role/function in the good administration of arbitral justice was more explicit and illustrative.

4.159  A dispute arose from Orascom’s alleged investment to build a mobile telecom network for Algeria. The Claimant alleged that Algeria took measures against it, mainly through tax reassessments, due to a political vendetta against the Claimant’s Egyptian controlling shareholder as a result of a policy shift against foreign investment.

4.160  The Respondent alleged, inter alia, that the claims asserted by the Claimant were inadmissible as they were tantamount to an abuse of rights. Mr Sawiris, the Claimant’s ultimate shareholder, introduced different arbitrations against the Respondent at different levels of the chain of companies under different BITs. The Respondent submitted that this conduct, aimed at maximizing the chances of success, was unfair and an abuse to the protection offered by Algeria to foreign investors. As stated by the Respondent, the principle of abuse of rights should operate to limit the right of multiple shareholders belonging to the same group to initiate proceedings.²⁶⁶ The Claimant argued that the principle should not extend to limit parallel arbitral proceedings.²⁶⁷

4.161  The arbitral Tribunal found that the Claimant’s claims were inadmissible and that the initiation of the proceedings constituted an abuse of rights. Whilst acknowledging that the principle had been mainly applied in cases of restructuring an investment to gain access to arbitration, the Tribunal noted that, as a general principle of law, abuse of rights may equally apply in other areas of arbitration law including in the context of parallel proceedings.²⁶⁸

4.162  In delineating the application of the principle in the context of parallel proceedings, the Tribunal noted that an investor who controls several entities may commit an abuse of right where he/she relies on different BITs and seeks to impugn the host state for the same measures and claims for the same damage at different levels of the chain. While recognizing that structuring an investment through layers of corporate entities is a right and can be exercised to pursue legitimate purposes, the Tribunal balanced this against other potent interests of the administration of arbitral justice, namely, fairness, waste of resources, and the possibility of multiple recoveries and conflicting decisions.²⁶⁹

4.163  It is of particular interest to note that the Tribunal explicitly considered the decisions rendered in the CME and Lauder cases mentioned above and acknowledged that the (p. 195) failure to apply abuse of rights in those cases led to the issuance of conflicting awards. Moreover, it is to be mentioned that, unlike the cases mentioned above, there were no offers to consolidate the proceedings in this case, and thus one may deduce that applying abuse of rights was more flagrant as the Respondent did not commit any abuse from his side.²⁷⁰

4.164  Based on the above, it appears that the application of abuse of rights to ensure the good administration of arbitral justice is unequivocal. The cases referred to above clearly demonstrate how the operation of the principle may effectively ensure the fairness and efficiency of the proceedings while safeguarding the requirements of due process.

4.165  Arbitration is generally consent driven and autonomy oriented. Entering into an arbitration agreement is the crucial condicio sine qua non for a party to have a right and/or be compelled to participate in the arbitration process.²⁷¹ Accordingly, an arbitration agreement generally only binds its parties in accordance with the sacrosanct principle of ‘privity’.²⁷²

4.166  Arbitration agreements must comply with certain substantive and formal requirements to be valid. The degree of stringency of such requirements vary from one jurisdiction to another.²⁷³ Such pre-requisites of permitting arbitration emanates from the fact that arbitration was originally seen as an exception to the general sacred right to submit disputes to the competent national court.²⁷⁴ It is often overlooked that such conditions may seem unfair given that an arbitrator has become, arguably, the ‘natural judge’ in the international business world and that arbitration has become the ordinary dispute resolution mechanism for cross-border disputes.²⁷⁵

4.167  Notwithstanding the above-mentioned, requirements of good administration of justice, commanded legislators, courts, and arbitral tribunals, in some circumstances, to broaden the definition of a ‘party’ and the scope of a ‘contract’ and extend the effect of the arbitration agreement to encompass related contracts and non-signatories to the arbitral proceedings based on divergent doctrines and/or principles.²⁷⁶

(p. 196) 4.168  Thus, it is well-established that legal mechanisms and principles that aid arbitral tribunals to include non-signatories in international arbitration enhance the efficiency and increase the fairness of the arbitral process:

As courts traditionally may be restrictive toward inclusion of third parties, Multicontract arbitration leads to efficiency, inclusion of all relevant parties and facts, subsequent improvement in consideration of due process and, ultimately, more fairness in arbitral proceedings.²⁷⁷

4.169  The doctrines and principles belying extension are either consent driven or founded on equitable considerations.²⁷⁸ While inferring consent in the former doctrines is, in many cases, largely specious, consent may be lacking in the latter cases. Accordingly, it seems that the concept of consent, in general, is not able alone to elucidate and vindicate the notion of extension and that there is a dire need for a legal principle to better assist decision makers to join non-signatories to ensure the good administration of arbitral justice.²⁷⁹

4.170  It is submitted that the application of abuse of rights to issues of non-signatories is an effective principle utilized by arbitrators to balance the competing interests of fairness, efficiency, and due process, and serves the administration of justice.

4.171  The operation of abuse of rights in the context of extension of arbitration clauses raises an important question regarding the role of the principle. In most mentioned applications of abuse of rights, the principle applied to ameliorate the rigidity and harshness of an already existing legal/contractual right. However, as previously mentioned, the principle of abuse of rights may be used to create a new contractual right/obligation to avoid an unfair or an inequitable outcome.²⁸⁰ In such circumstances, the principle appears in its most extensive reach and acts more as a sword than a shield. It is suggested that the operation of the principle in the context of extension of an arbitration clause comprises an epitome of this as it operates to establish jurisdiction against a non-signatory.

4.172  As shall be discussed below, resorting to the principle of abuse of rights is not peculiar to the arbitral practice. The principle has been expressly applied in some instances as the legal basis for the extension of the arbitration clause, and in other cases while not explicitly referred to, the raison d’être of abuse of rights remains conspicuous where it has been utilized primarily to preserve the reasonable expectations of the parties and to advance the fairness and efficiency of the proceedings. Whilst most cases referring (p. 197) to the principle pertain to the theory of piercing the corporate veil or alter ego, other examples shall outline the applicability of abuse of rights to other cases of extension.

4.173  However, prior to embarking on an analysis of how abuse of rights operates to ensure the good administration of arbitral justice in relation to issues of extension, it seems proper to first succinctly examine the relevant competing interests that arise where one requests the extension of the arbitration clause to a non-signatory. By and large, these interests are similar to those mentioned in relation to parallel arbitral proceedings.

4.174  In the context of extension of an arbitration clause to non-signatories, diverse competing interests of the parties exist. It involves a multiplicity of interests that primarily rest on those pursued by the party requesting the extension and those of the party(ies) opposing such extension. These interests often fall within the ambit of the administration of justice, that is, they involve interests that are part of due process,²⁸¹ protecting parties’ reasonable expectations, and interests of procedural efficiency and fairness of the proceedings.²⁸²

4.175  Thus, it is well acknowledged that third-party mechanisms are designed to enhance the procedural harmonization and efficiency of arbitral proceedings. The bifurcation of arbitral proceedings lead to a waste of legal and financial resources.²⁸³ Moreover, such bifurcation may lead to irreconcilable or conflicting decisions regarding the same, or intertwined, matters between interrelated parties which is undesirable and may affect the fairness of the process.²⁸⁴

4.176  However, given that consent often remains an important requirement for extension of an arbitration clause, considerations of justice, equity, and efficiency often compete with consent.²⁸⁵ Arbitrators often rely on good administration of justice, including the notions of equity, fairness, and that of procedural efficiency in assessing whether to extend an arbitration clause.²⁸⁶

4.177  On the other hand, issues regarding the extension of an arbitration clause and multi-party/multi-contract arbitration may raise questions regarding the equality between the parties, particularly in relation to the appointment of the arbitral tribunal. This (p. 198) fundamental interest was illustrated in the well-known Dutco case.²⁸⁷ The dispute involved three parties and the agreement included an ICC arbitration clause providing for the appointment of three arbitrators. While Dutco nominated its arbitrator, the other two Respondents were unable to agree on one arbitrator given that their interests were not aligned. However, to avoid the appointment of the arbitrator by the ICC they jointly nominated an arbitrator while reserving their right to challenge that appointment. The Respondents then challenged the award before the French courts. The French Court of Cassation invalidated the award and provided that it violated the principle of equality between the parties. It should be noted that while many have raised some concerns in relation to the Dutco decision, lots of arbitral institutions have subsequently amended their rules in order to comply with the principles laid down by the French Court of Cassation.²⁸⁸

4.178  Additionally, the question of extension of an arbitration clause may raise other issues of due process. This is particularly evident where one acknowledges the fact that a decision to extend an arbitration clause to a non-signatory results in the latter losing his/her proverbial day in court (deprives the non-signatory of judicial access).²⁸⁹ Thus, a decision to extend an arbitration clause or to join a non-signatory despite the lack of the latter’s clear and unambiguous consent to arbitrate may raise questions regarding requirements of due process and fair trial.²⁹⁰

4.179  On a related note, the problem of extension primarily affects the reasonable expectations of parties, the preservation of which is an intrinsic element of the administration of justice.²⁹¹ The parties’ reasonable expectations may be thwarted where a request of extension is granted or denied depending on the factual matrix of each case. Parties have a legitimate and reasonable expectation to have an efficient resolution of the dispute.²⁹² Moreover, there is an equally reasonable expectation that arbitral proceedings should be harmonized and not result in any conflicting decisions.²⁹³ It is acknowledged that parties trust international arbitration as a dispute resolution mechanism that can effectively put an end to a given dispute. This expectation may be frustrated where a non-signatory is allowed to bring before another forum a question that has been determined by the arbitrators.²⁹⁴

4.180  Another particularly important interest that appears conspicuous in the context of extension of an arbitration clause, and similarly linked to parties’ reasonable expectations, is the need to bar one’s inconsistent conduct to the detriment of another. Such (p. 199) preclusion arguably maintains the fairness of proceedings and ensures the good administration of arbitral justice.²⁹⁵ As rightly stated by the United States Court of Appeal: ‘the legal principle [underlying the theory of equitable estoppel] rests on a simple proposition: it is unfair for a party to rely on a contract when it works to its advantage, and repudiate it when it works to its disadvantage’.²⁹⁶

4.181  Moreover, it is submitted that safeguarding the parties’ reasonable expectations constitutes the main rationale behind many of the arbitration decisions regarding extension of arbitration, despite the fact that arbitrators justify those decisions on other grounds, such as the group of companies.

4.182  Thus, barring a party from denying or alleging certain facts or course of action owing to that party’s previous conduct, which comprises the established maxim, venire contra factum proprium, is a fundamental requirement of fairness, is recognized as a general principle of law, and is applied by arbitral tribunals and national courts.²⁹⁷ While this may be often based on the broader principle of good faith,²⁹⁸ the principle of abuse of rights equally provides that ‘no exercise of rights will be given legal recognition if it is contrary to former conduct’.²⁹⁹ No system or court should tolerate such conduct in light of the sacred tenet: he who attempts to negate what has been maintained shall be precluded and estopped.

4.183  As shall be seen below, the principle of abuse of rights is an effective tool utilized by arbitrators to advance, and strike the balance required between, the mentioned interests and to serve the overall administration of justice. It operates in certain cases to prevent material fraud or injustice, and applies in other exceptional cases to safeguard (p. 200) the procedural efficiency of the proceedings and to preserve the parties’ reasonable expectations.

4.184  This section examines the application of abuse of rights to decide questions of extension. One shall first highlight that the principle is well-recognized as the legal basis for extension based on the theory of piercing/lifting the corporate veil. Subsequently, it shall be noted that the principle equally applies in other cases of extension to safeguard the parties’ reasonable expectations, to ensure the fairness of the proceedings, and to enhance the procedural efficiency of the proceedings.

4.185  It is widely recognized that in exceptional cases an arbitral tribunal may rely on the principle of abuse of rights to disregard the separate legal personality of an entity and extend the arbitration clause pursuant to the theory of piercing/lifting the corporate veil or the theory of alter ego.³⁰⁰

4.186  Extension of an arbitration clause on the basis of piercing the corporate veil is directly linked to the notion of good administration of justice. The raison d’être of piercing the corporate veil is the notions of equity and fairness.³⁰¹ In demystifying the theory of veil-piercing, it is said that it is ‘an equitable remedy aimed to address the abuse of rights and to ensure the exercise of good faith in relation to a body corporate.’³⁰² Decisions to pierce the corporate veil emanate from the dire need to administer justice by attempting to achieve fairness and reach a reasonable and equitable outcome.³⁰³

4.187  In this regard, it is well-established that the principle of abuse of rights constitutes the juridical basis for the extension of the arbitration clause on the basis of piercing/lifting the corporate veil.³⁰⁴ This is the prevailing approach in international law and is not peculiar to national laws.

4.188  On the international-law level, abuse of rights is recognized as the basis for piercing the corporate veil and is applied by the International Court of Justice (‘ICJ’). As previously mentioned, in the case of Barcelona Traction,³⁰⁵ the ICJ provided that requirements (p. 201) of fairness and equity mandate that the corporate veil may be pierced where the legal personality has been used for a purpose other than that for which it was originally intended to serve.³⁰⁶ Additionally, the ICJ stipulated that piercing or lifting the corporate veil is warranted, inter alia, to prevent the misuse of the privileges of the legal personality, in cases of fraud and malfeasance, and to protect those dealing with the corporate entity.³⁰⁷

4.189  Similarly, Dolzer submitted an expert opinion in the Yukos case before the United States District Court of Columbia and noted that abuse of rights is a general principle of law. Moreover, he recognized that the corporate veil may be lifted under international law in the event of an abuse of right.³⁰⁸

4.190  On the municipal law level, the principle of abuse of rights is of great importance in this regard. In Switzerland, the principle is ‘omnipresent and permeates the Swiss legal tradition’.³⁰⁹ Thus, while Switzerland rejects the notion of group of companies piercing the corporate veil (Theorie des Durchgriffs) allows courts and arbitral tribunals to lift and disregard the sacrosanct corporate veil in cases of abuse of rights.³¹⁰

4.191  In ICC Case No 3879 of 1984, the arbitral tribunal, applying Swiss law, stated that ‘equity, in common with principles of international law, allows the corporate veil to be lifted, in order to protect third parties against an abuse which would be to their detriment’.³¹¹

4.192  In Alpha SA v Beta,³¹² the issues of group of companies and piercing the corporate veil were discussed. In this case, the arbitral Tribunal pinpointed that the group of companies doctrine was not recognized under Swiss law.³¹³ However, the Tribunal decided to pierce the corporate veil in order to bind the non-signatory parent. In reaching its decision, it noted that:

[P]iercing the corporate veil was only warranted where (i) a shareholder had total control over an entity, evinced by insufficient capitalization, confusion in the administration and management, and confusion of assets, and (ii) the totality of circumstances constituted an abuse of rights.³¹⁴

4.193  Swiss decisions pertaining to lifting the corporate veil ‘are all based on the concept of abuse of rights’.³¹⁵ As stated by Poudret:

(p. 202)

Swiss law ignores the notion of a group of companies [. . .] and is resolutely committed to the legal independence of the company in relation to its sole shareholder or of the subsidiary in relation to the parent company. It will only be disregarded in exceptional circumstances, where the fact of resorting to such a subsidiary to escape one's obligations would amount to fraud or to a patent abuse of right.³¹⁶ (Emphasis added)

4.194  The above is consistent with the prevailing principles under other national laws. In ICC Case No 5721,³¹⁷ the Claimant concluded two sub-contracts with X Egypt, which claimed to be a subsidiary of X USA. The sub-contracts were signed on behalf of X Egypt by Z, the president and a shareholder of X USA. Where a dispute arose, the Claimant brought arbitration proceedings against X Egypt, X USA, and Z. X USA and Z challenged the Tribunal’s jurisdiction. The Tribunal found that it had jurisdiction over X USA, given that X Egypt was not a separate legal entity, but was merely a branch office. In assessing whether the arbitration clause should be extended to Z, the arbitral Tribunal looked into Egyptian law, as the substantive law, and Swiss law, as the lex arbitri, and held that piercing the corporate veil was warranted in cases of abuse of right.³¹⁸

4.195  Similarly, piercing the corporate veil is possible in Germany in cases of fundamental abuse and misconduct.³¹⁹ Accordingly, the Germen Federal Supreme Court provided that the doctrinal foundation of piercing the corporate veil was ‘the parent company’s abuse of the corporate form’.³²⁰ Equally, French law relies on the principle of abuse of rights to pierce the corporate veil.³²¹

4.196  The relevance of the principle of abuse of rights in ensuring the good administration of arbitral justice is not limited to cases of lifting/piercing the corporate veil, but is equally extended to other cases of extension. This is primarily the case where the principle operates to safeguard the parties’ reasonable expectations.

(p. 203) 4.197  In such cases, arbitral tribunals sometimes explicitly refer to abuse of rights in extending the arbitration clause to a non-signatory. In other cases, while tribunals do not expressly refer to the principle, the reasoning of the tribunals and the rationale of their decisions evince an implicit application of the principle rather than any other principle/doctrine.

4.198  In a recent case decided by the Swiss Federal Tribunal,³²² a dispute arose out of three contracts concluded between Party A and Party B, members of a group of companies. Party B initiated arbitration proceedings against Party A. Party A brought counterclaims against Party B and against a non-signatory member of the group, Party C. The arbitral Tribunal decided that it did not have jurisdiction over the non-signatory party. Upon a challenge of the award before the Swiss Federal Tribunal, it partially set aside the award and decided that the arbitral Tribunal should have accepted jurisdiction over the non-signatory Party C.

4.199  The Swiss Federal Tribunal provided that where there is confusion between the activity of the signatory company and the non-signatory company member of the group, it may be justified to ignore the legal independence of the different entities, not necessarily based on the doctrine of piercing the corporate veil, but to preserve the legitimate expectations of third parties who relied on the appearance of the non-signatory and believed that the non-signatory was a party to the contract and the arbitration agreement enshrined therein.³²³

4.200  In partially setting aside the arbitral award, the Swiss Federal Tribunal invoked Article 2 of the Swiss Civil Code which enshrines the principle of good faith and the prohibition against abuse of rights. It provided that, given the conduct of the signatory member and the non-signatory member of the group, Party A could have relied in good faith that the non-signatory was a genuine party. Additionally, the relevant members of the group, and specifically the non-signatory member should have extinguished any doubt and made it crystal clear that the non-signatory did not wish to become a party to the agreement. A contrario, the non-signatory intervened in the performance of the contract and thus contributed to the confusion of Party A. The Court decided that the arbitral Tribunal should have extended the arbitration agreement to the non-signatory.³²⁴

4.201  This is a clear manifestation of the abuse of rights principle.³²⁵ The Court decided that extension of the arbitration clause was warranted to protect the legitimate and reasonable expectations of the party, which had been created as a result of the non-signatory’s conduct, and that the law should not protect the abusive inconsistent conduct of the non-signatory to the detriment of the counter party.

(p. 204) 4.202  This case is of particular relevance as it is one of the few cases where the Swiss Federal Tribunal decided to partially set aside an arbitral award. The case represents an abuse of rights analysis in cases not related to piercing of the corporate veil. Scholars note that the aforementioned case reflects a novel application of abuse of rights in relation to non-signatories. Precisely, it is submitted that in considering the question of extension of the arbitration clause, abuse of rights may be established to safeguard the reasonable expectations of the party, particularly if the non-signatory creates an appearance of being bound and/or ‘based on the creation of confusion between a parent and its daughter companies’.³²⁶

4.203  On a different note, one posits that the essence of abuse of rights has been implicitly applied in other cases of extension. This is particularly the case in relation to cases falling within the ambit of the group of companies doctrine. A review of the conditions sine qua non of the group of companies doctrine, and how arbitrators apply it reveal that the main element justifying extension is not ‘implied consent’, but rather the generation of an expectation of the party requesting the extension and assessing the reasonableness of such an expectation. This greatly resembles the role and function of abuse of rights as evidenced from the Swiss case discussed above. In this regard, compelling a non-signatory to arbitrate based on its contested or lacking consent is want of legal reasoning, and a fallacy that should not be maintained as it does not advance the good administration of justice.³²⁷ This is succinctly illustrated in the following paragraphs.

4.204  Arbitral tribunals have long used the ‘group of companies’ doctrine as an indirect criterion for vindicating consent and establishing jurisdiction.³²⁸ However, the leading case of Dow Chemical v Isover-Saint-Gobain³²⁹ carefully addressed the doctrine’s scope and the necessary conditions for its application.³³⁰ The Dow Chemical award (p. 205) demonstrates that the theoretical foundation of the doctrine is based on the lex mercatoria and usages of international trade.³³¹ In addition, it appears that the operation of the doctrine is warranted in cases where: (a) the signatory and the non-signatory constitute one economic reality (une realité économique unique); are parts of the same group;³³² (b) the factual matrix of the case manifests an active role by the non-signatory third party in the negotiation, conclusion, performance, and/or termination of the contract;³³³ and where (c) the common intention of the parties warrant the extension of the arbitration clause.³³⁴

4.205  The presumed parties’ common intention, and the non-signatory’s consent, in the context of the group of companies, is established where two essential elements are present: if: (a) the party dealing with the group genuinely believed that the non-signatory was a party to the agreement (the subjective element); and (b) that its belief was justified and reasonable. The latter pertains to the non-signatory’s appearance as a genuine party (the objective element), evidenced through the corporate structure of the group, its relationship to the non-signatory, and the latter’s active involvement in the negotiation, execution, and/or termination of the contract.³³⁵

4.206  Thus, it seems peculiar to infer, from the above, the non-signatory’s consent, or the parties’ common intention. Particularly, it is blatant that all conditions relate, directly or indirectly, to the intention of the party requesting the extension and his/her expectations. Elements that seem, prima facie, pertaining to the group and the non-signatory entity, are actually used to determine, objectively, whether the party dealing with the group reasonably believed that the non-signatory member of the group was a party to the contract including the arbitration clause.

4.207  This proposition is further confirmed by the fact that tribunals often extend the arbitration clause to the non-signatory, based on ‘the common intention of the parties’, where (p. 206) the conduct of the non-signatory has confused the counter party as to who is the genuine party to the agreement.³³⁶

4.208  Such confusion may be a result of the non-signatory’s sheer negligence and their lack of awareness about the repercussions thereof. Confusion may even be deliberately induced in mala fide.³³⁷ In both cases, justifying the extension of the arbitration clause based on the intention of the non-signatory or its consent seems specious.

4.209  Accordingly, it is submitted that the above indices constitute a sound basis for establishing an expectation of the party requesting the extension of the arbitration clause, and assessing its reasonableness.³³⁸ The latter being objectively examined based on the structure of the group, its relation to the non-signatory member, and the latter’s conduct throughout the contractual matrix of the case.³³⁹

4.210  In this regard, one asserts that the argument advocating that examining the related parties’ conduct manifests their common intention is ‘ignoratio elenchi’: it does not evince the parties’ presumed common intention, but may determine if there is an abuse of rights.

4.211  The examination of the factual matrix of the case and the relevant parties’ conduct, including that of the non-signatory, shall be undertaken to frustrate one’s attempt to contradict its previous conduct to the detriment of another and to ‘correct mistaken subjective assumptions or understandings at the time of contracting’.³⁴⁰ Gary Born (p. 207) acknowledged the relevance of abuse of rights and provided that in such circumstances the doctrine of group of companies can be applied in a manner similar to ‘abuse of right, relying on principles of good faith, equity and objective intent to supplement or correct subjective intentions of the parties to an arbitration agreement’.³⁴¹

4.212  In conclusion, it appears that the principle of abuse of rights is vital in the context of extension of an arbitration clause to ensure the good administration of arbitral justice. The principle is explicitly endorsed in cases of piercing/lifting the corporate veil and in other cases to safeguard the parties’ reasonable expectations and to maintain the fairness of the proceedings. Finally, while arbitral tribunals often extend an arbitration clause to a non-signatory on grounds of the group of companies doctrine by relying on the parties’ common intention, arbitrators’ decisions appear to reveal that the main enquiry is the existence of an expectation to one of the parties, and assessing the reasonableness of such an expectation, which greatly resembles the function of the principle of abuse of rights.

4.213  It would be a fallacy to claim that the principle of abuse of rights is alien or foreign to the law and practice of international arbitration. As evident from the above discussion, the principle is omnipresent. While the principle is not novel, its application in international arbitration is slowly gaining momentum given arbitrators’ desire to search for genuine justice and to ensure the good administration of arbitral justice. As provided by one arbitral tribunal:

The principle [abuse of right] is old; one need only recall Cicero’s summum jus, summa injuria. To say that the blind application of a rule may lead to iniquitous results is to recognise that the search for justice would fail if the law could do no more than validate relative positions of strength, or consolidate the status quo indefinitely. Thus, the exercise of a particular right may be inhibited if it would abase the law.³⁴²

4.214  Arbitral tribunals have effectively relied on abuse of rights to tackle different forms of abuse to ensure the good administration of justice. It provides arbitrators with a flexible tool to tackle various forms of procedural misconduct. A discussion of its application to different legal problems demonstrates its indispensability to international arbitration due to the interests that it advances.

4.215  It is acknowledged that there are classic tools and existing legal rules at the disposal of arbitrators that can be utilized to administer arbitral justice. For example, treaties may include provisions regarding denial of benefits for entities that have no (p. 208) material economic activity.³⁴³ Article 41(5) of ICSID and Article 39 of the new Rules of Stockholm Chamber of Commerce, which are manifestations of the abuse of rights principle,³⁴⁴ may limit claims that lack legal merit and abusive claims/requests.³⁴⁵ Provisions in arbitration statutes/rules may prevent inordinate delay and tactics in arbitration.³⁴⁶ Arbitral tribunals may answer a party’s abusive conduct by allocating the costs.³⁴⁷ The doctrines of lis pendens and res judicata could apply to limit abusive parallel or subsequent proceedings.³⁴⁸ In such cases, a stand-alone general principle of abuse of rights may appear superfluous. However, although these sanctions may comprise palliative tools, practice proves that they only tackle certain forms of abuse and remain largely inadequate to compensate/remedy the aggrieved party.

4.216  Whilst arbitrators often award and allocate costs against parties who engage in abusive conduct,³⁴⁹ it is generally recognized that this practice fails to deter parties and their legal counsel from abusing their rights and engaging in procedural misconduct.³⁵⁰

4.217  It is true that the doctrine of lis pendens may be applied to preclude the risks associated with parallel arbitral proceedings.³⁵¹ For this doctrine to apply, the parties must be the same, the relief sought must be identical, and the facts and legal grounds must be the same.³⁵² The application of lis pendens in international arbitration is controversial.³⁵³ Moreover, given the rigid requirements of the ‘triple identity’ test, it is submitted that it fails to remedy the enigmas associated with parallel proceedings, particularly in cases where the parties, causes of action and relief sought are not identical.³⁵⁴ The inadequacy of lis pendens to tackle abuse of rights is reflected exempli gratia in the CME (p. 209) and Lauder cases discussed above.³⁵⁵ One ventures that endorsing a general principle of abuse of rights comprises a more comprehensive and effective principle to deal with abusive conduct, including issues of parallel proceedings.³⁵⁶

4.218  Similarly, whilst the doctrine of res judicata operates to prevent the specific form of abuse associated with subsequent proceedings, the triple identity test mentioned above must be met.³⁵⁷ It is thus acknowledged that the prevalent³⁵⁸ strict application of the triple identity test fails to remedy manifest abuse of rights in this regard.³⁵⁹ The application of the principle of abuse of rights is more effective as it may remedy any abuse pertaining to subsequent proceedings and its application does not rely on satisfying any rigid or formal requirements.³⁶⁰

4.219  Given that a true abuse of rights does not breach any hard legal rule, ‘it cannot be tackled by the application of classic legal tools’.³⁶¹ As the principle’s operation presumes that the act is consistent with black letter law, it is an adequate remedy to tackle all forms of abuse that are not necessarily in breach of hard laws/rules. The importance of endorsing a general principle of abuse of rights to ensure the good administration of justice is not only appealing owing to its comprehensiveness and its ability to remedy forms of abuse that other rules fail to remedy. Its potency also stems from the fact that it is a general principle that can equally remedy any form of abuse that is not currently regulated by a specific rule:³⁶²

The principle also plays a role in the promotion of legal change. In an international society that itself continues to experience rapid and far-reaching change, longstanding general principles of law such as abuse of rights help to extend legal controls to previously unregulated areas, and to fill new gaps as they appear. As international lawyers rush forward to meet the challenges of the twenty-first century, they would be wise not to leave abuse of rights, one of their most basic tools, behind.³⁶³

(p. 210) 4.220  Thus, a principle of abuse of rights is of paramount importance to ensure the good administration of arbitral justice. While it may crystallize its most potent manifestations in various principles and rules to tackle specific forms of abuse, endorsing it as a general principle remains indispensable to remedy all forms of abuse.