Chevron and the Rise of Arbitral Power: A Response

[Michael D. Goldhaber serves as Senior International Correspondent and “The Global Lawyer” columnist for The American Lawyer and the ALM media group. His writes widely on human rights and corporate accountability, international arbitration, and global multiforum disputes. His e-book on Chevron will be published next year by Amazon. His first post can be found here.]

I’m grateful for the very gracious and insightful comments shared by the eminent arbitrator Christoph Schreuer, the scourge of eminent arbitrators Muthucumaraswamy Sornarjah, and the wunderkind of arbitration scholarship, Anthea Roberts. Having solicited a wide range of commentary on my Article, I now must defend myself from friendly jabs on both flanks.

Dr. Schreuer and Professor Roberts both argue thoughtfully that the relationship between tribunals and courts should be understood in a broader context. Along the way, Dr. Schreuer questions my realist view that arbitrators effectively review judges. In the course of a bracing systemic critique, Professor Sornarajah calls my desire for proportionality analysis and a plenary appeal within arbitration naive.

I stand by my position that arbitrators are increasingly at odds with judges, and that they functioned like reviewing judges in several of the final awards surveyed (although I perhaps could have been more attentive to terminology). Dr. Schreuer helpfully distinguishes between vacating a decision (in an annulment) and replacing it (in an appeal), and argues that arbitrators do neither. But consider the results. When the treaty tribunal in Saipem v Bangladesh reinstated a contract arbitration award that had been nullified by a national court, it effectively vacated the court decision, and replaced it with a decision confirming the commercial arbitration. In White v. India, the tribunal stripped the national courts of jurisdiction because they were too slow, and effectively stepped in to confirm a commercial arbitration award. In Chevron v. Ecuador I, the tribunal stripped the courts of jurisdiction for being too slow, and expressly decided the court cases de novo under Ecuadorian law. Surely these results were functionally equivalent to appellate review. Likewise, when ATA v. Jordan finally terminated an ongoing court proceeding, it emphatically resolved the case in ATA’s favor. I’m not sure how such a remedy should be categorized, but I cannot agree with Dr. Schreuer that it’s “much weaker” than appellate review.

I readily agree with Schreuer and Roberts on their main point: that judges and arbitrators interact in multifarious ways. My Article’s opening passage acknowledged as much, and explained that I would dwell on arbitral review because it is the most neglected facet of their relationship

Professor Roberts astutely observes that the relationship between tribunals and courts is triangular — in the sense that arbitrators tend to review judges from poor nations, but to be reviewed by judges from rich nations. What she leaves unsaid is that judges in rich nations have historically deferred to arbitrators (whether out of ideology, correct interpretation of the law, or sensitivity to cross-border competition among the arbitration elites). I would therefore predict that the U.S. Supreme Court will overturn the D.C. Circuit’s encroachment on arbitrators’ turf in BG v. Argentina. If not, arbitration will simply flow away from UNCITRAL tribunals sited in the U.S., toward tribunals that are governed by either ICSID or the laws of arbitration-friendly European states. But either way, if they wish to sustain their power, arbitrators should take the hint: At least some courts in rich nations are deferring less because they perceive arbitrators as overweening. A lack of internal review may lead to external review.

Although Professor Sornarajah and I share many perceptions — for instance the need for transparency –, he views me as any self-respecting revolutionary views a reformer. He cannot understand why I would wish to fix an edifice with rotten foundations, rather than to blow it up.

Professor Sornarajah suggests that  incorporating human rights into arbitration through proportionality analysis would be baseless and magical. But human rights concerns are well-grounded in the text of investment treaties, and proportionality balancing is a technique whose universality attests to its utility in structuring legal reason. I was gratified to hear Dr. Schreuer express an openness toward human rights considerations.

I don’t regard an appeal as an unproblematic cure-all, but as one politically-imaginable reform that could address several problems at once. I find it encouraging (and incredible) that it’s supported by counsel on both side of the Chevron dispute. I find it encouraging that Professor Sornarajah critiques it for the same reason as do investor-side counsel — that it might empower the other camp’s bums. The best response is to design the new institution with care, and with participation from all parties.

For someone who is so mistrustful of international adjudicators, Sornarajah is singularly trustful of national adjudicators. And for someone who is so mistrustful of national adjudicators, Jan Paulsson (as cited by Dr. Schreuer) is singularly trustful of arbitrators. In the end, I believe that state-investor arbitration is worth saving because international institutions are likelier than national institutions to inspire the trust of both investors and states, and so to promote the flow of global investment. In order to maintain that trust, international institutions require good design.

Chevron’s foes have reviled the Chevron v. Donziger court as venomously as they have reviled the Chevron v. Ecuador tribunal. Yet the U.S. district court faces no crisis of legitimacy, because its processes are open, its judges are independent, and — as shown by the vacatur discussed in my first post –, it is supervised by open and independent appeal judges. The Second Circuit might have erred then, and it might err on final appeal. But the correctness of the result in any one case is beside the point. The greatest value of an appeal is to foster trust.

Michael D. Goldhaber serves as Senior International Correspondent and “The Global Lawyer”  columnist for The American Lawyer and the ALM media group. His writes widely on human rights and corporate accountability, international arbitration, and global multiforum disputes. His e-book on Chevron will be published next year by Amazon.

Please click here for The Rise of Arbitral Power Over Domestic Courts by Michael D. Goldhaber.

Please click here for the complete proceedings of the “Lessons from Chevron” conference. Please click here and scroll down for links to The American Lawyer’s exhaustive coverage of Chevron. For this week’s trial dispatches, please click here and here.