What happens when the arbitration agreement, the lex arbitri, and the law out of which the cause of action arises are silent about the law applicable to issues that are considered to be neither substantive nor procedural? The short answer is that these issues would fall under the category of so-called “twilight issues” in international arbitration. According to Professor George Bermann, twilight issues refer to non-merits issues that commonly arise in arbitral proceedings for which tribunals and counsel find little or no guidance in either the arbitration agreement, the applicable institutional rules, or the lex arbitri.
When addressing twilight issues, it is important to know in advance what standard or norm the tribunal will likely apply. Arbitral tribunals may resort to the application of a national law (including the law of the contract, the law applied by the courts of the place of arbitration, the law of the place of probable enforcement, and the law of the jurisdiction whose law the tribunal believes it most appropriate), an international standard or no particular norm at all but mere arbitrator good judgment.
Twilight issues include, among others, issues such as the arbitrability of the dispute, the applicability of an arbitration agreement to non-signatories, the excusability of a failure to comply with conditions precedent to arbitration, availability of interim relief, waiver of right to arbitrate, issuance of anti-suit injunctions, statutes of limitation, res judicata, rates of interest, evidentiary privilege, cost allocation, arbitrator authority to sanction counsel and the practice of ius novit curia.
This post specifically addresses the issues of availability of interim relief (I), res judicata (II), the binding effect of arbitration agreements on non-signatories (III) and costs allocation (IV).
I. Availability of Interim Relief
As a general matter, the arbitral tribunal’s power to grant interim measures must be established in the lex contractus or, in its absence, under the lex arbitri. In practice, the availability of interim relief under a relevant law is not as straightforward as one would think. This is why the availability of interim relief falls under the category of twilight issues in international arbitration. The main issue regarding interim relief arises when the lex arbitri (procedural law) is different from the lex contractus (substantive law). This conflict regarding the application of the lex arbitri or the lex contractus to interim relief is the core of an unsettled debate in international arbitration doctrine. A second issue may also arise when interim measures, which are available under the lex arbitri or the lex contractus, are not recognized at the place of enforcement. In this case, the enforcement of interim measures might be rejected if such interim measures are unknown at the place of enforcement due to public policy or due to non-recognition by the law of the enforcing state. In practice, it is thus important to determine the appropriate forum to grant such measures.
II. Res Judicata
Res judicata is a well-known principle generally admitted and applied by arbitral tribunals and domestic courts. The application of res judicata before domestic courts is quite straightforward as it is considered a procedural rule. Res judicata is also not an issue before investment tribunals as they tend to apply international law to the issue of res judicata. However, in commercial international arbitration, res judicata falls under the unclear category of twilight issues because of the uncertainty around the applicable law to res judicata. The determination of the applicable law to res judicata turns on whether res judicata is considered a procedural or a substantive rule in commercial international arbitration. Commercial international arbitration case law does not provide a straight answer to this question, as some arbitral tribunals have applied the lex arbitri[1]to res judicata while others have applied the law governing the merits[2]. Therefore, some arbitral tribunals and arbitral doctrine are in favor of the creation of transnational principles as a solution to take res judicata out of the twilight zone.
III. Binding Effect of Arbitration Agreements on Non-Signatories
The status of non-signatories is generally unclear regarding the arbitration agreement. There is an uncertainty about the law applicable to determining the binding effect of arbitration agreements on non-signatories. The first approach to consider, when addressing this issue, is whether an international standard, i.e., transnational principles such as lex mercatoria could apply to determining the scope of an arbitration agreement. In this regard, Professor William Park recommended the application of transnational norms to non-signatories.[3] As for national law, some national courts favor the application of domestic law to non-signatories despite the benefits of applying international law.[4] This position is also favored by Professor Gary Born, who considered that it would be appropriate to apply the law governing the original arbitration agreement to non-signatories. Third parties may impact the substantive rights of the original parties to the arbitration agreement and, thus, the rights arising under the original agreement should not be altered by a law that does not govern the agreement. It would thus only make sense to apply the law that was agreed by the parties.
IV. Costs Allocation
Costs differ from other twilight issues as they are intimately related to the dispute resolution process as distinct from the contract or the relationship out of which the dispute arose. It is thus difficult to consider applying the law governing the parties’ rights and obligations under a contract, i.e., the lex contractus, to costs allocation. As for the law applied by the courts of the place of arbitration, parties have generally little expectation that the allocation of costs in an arbitration seated in a given jurisdiction would follow the rules governing allocation of costs in that jurisdiction’s courts. Cost allocation differs from other twilight issues, such as res judicata or non-signatories, which may supply grounds for denying recognition or enforcement of a foreign award under the New York Convention. The application of an international standard or institutional rules to the issue of cost allocation thus appears to be a more plausible solution.
V. Conclusion
Twilight issues in international arbitration commonly arise and remain unsettled. The application of the law governing the contract, the lex arbitri or an international standard depends on the issue at stake. Some issues require determining the applicable law from a predictability viewpoint, while some do not. Issues such as costs allocation are not a matter of which the parties or counsel are in great need of advance knowledge so as to frame their argumentation accordingly. On the other hand, issues such as interim relief, res judicata or non-signatories require more predictability and, thus, require anticipating the standard or the norm that the tribunal will likely apply.
[1] See, e.g., ICC Case No. 7438, Award (1994), discussed in D. Hascher, L’Autorité de la Chose Jugée des Sentences Arbitrales, pp. 22-23.
[2] See, e.g., ICC Case No. 6293 (1990), award discussed in D. Hascher, L’Autorité de la Chose Jugée des Sentences Arbitrales, p. 20.
[3] William W. Park, Non-Signatories and International Contracts: An Arbitrator’s Dilemma, Oxford (2009).
[4] See, e.g., Peterson Farms Inc. v. C&M Farming Ltd., England and Wales High Court, 4 February 2004, paras. 45 and 47, where the English Commercial High Court ruled that: “The identification of the parties to an agreement is a question of substantive not procedural law (…) There [is] no basis for the tribunal to apply any other law [than that selected by the parties].”
