Defining Access to Justice in International Arbitration
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Victoria Shannon Sahani, Associate Professor of Law (tenured), Arizona State University Sandra Day O’Connor College of Law
4 April 2018
Much has been said and written about access to justice. While there are many ways to define the phrase “access to justice”, this brief intervention addresses access to justice in relation to paying the costs of arbitration. Thus, for this purpose, “access to justice” simply means having the financial resources or the ability to acquire the financial resources needed to bring your claim or muster your defence in international arbitration. In applying this definition, it is evident that there is an endless number of ways in which a party could have or acquire financial resources for pursuing a claim in arbitration or defending against it. For example, many parties self-finance their claims or defences. Parties may also acquire liability insurance or political risk insurance, which may include paying the costs of arbitration. Subsidiaries may be able to tap into the resources of their parent corporations. States may use their internal legal teams or tap into their treasuries to pay external law firms. A client may hire an attorney or law firm on a contingent or conditional fee basis, if permissible in the relevant jurisdiction. And then there is third-party funding.
Given the plethora of financing options, any assessment of access to justice must make several assumptions and draw an arbitrary dividing line in the sand for assessing whether a party has or does not have access to justice. It is important to note that this is not a line between the “haves” and the “have nots”. Instead, this is a line between those who certainly have access to justice and those whose access to justice is predicated on the outcome of the decision-making process of a financier not present at the time the dispute arises. For example, the line could be defined as whether the party’s dispute financing is based on a preexisting financial relationship with the financier prior to the incident that led to the claim in the arbitration.
The definition of this line is crucial, because when assessing access to justice, we must look at whether a party could financially pursue arbitration even if it chooses not to do so or is unable to do so for non-financial reasons. For example, if a subsidiary could bring a viable claim with the help of its parent corporation, but chooses not to do so for business reasons, the subsidiary has access to justice, as defined herein. In addition, if the subsidiary could bring the claim with the help of its parent corporation, but the parent corporation believes that the claim is not meritorious enough to bring (i.e., a non-financial reason), then the subsidiary has access to justice, as defined herein. Furthermore, if a party is the respondent with sufficient financial resources to self-finance and nevertheless refuses to participate in the arbitration (thinking that the claim is bogus, for example), then the subsidiary has access to justice, as defined herein
On the other hand, if a party is the respondent and does not have sufficient financial resources to self-finance while wanting to participate in the arbitration, then whether such a respondent has access to justice depends on the type of financier that could finance the party’s defence. If the respondent can obtain financing through a preexisting financial relationship, such as a government treasury, a parent corporation or a preexisting insurance agreement, then the respondent has access to justice. If the respondent’s financial relationship with the financier must arise after the incident that led to the claim in the arbitration—such as a contingent or conditional fee arrangement with a law firm, after-the-event insurance, or traditional third-party funding—then the respondent may have no access to justice if it is unable to create such a relationship with a financier. This highlights a crucial point about access to justice, however it may be defined. Any analysis of access to justice must examine the situation of parties that have no choice in the matter: respondents. Respondents in all types of arbitration—including investment treaty arbitration—have no choice about whether the arbitration will bind them regardless of whether they are financially able to participate in the arbitration or not. Thus, respondents must have access to justice in order for the system to be considered “just” at all.
Furthermore, there is also a cost component to access to justice, namely, whether the financier’s willingness to pay the costs of arbitration is predicated on some relationship between the cost of arbitration and the magnitude of the claim or the nature of the defence. Some types of financiers—such as self-financiers, parent corporations, and liability insurance—will pay the costs of arbitration regardless of the amount of the claim or the nature of the defence. Other types of financiers—such as third-party funders or after-the-event insurers—might only agree to pay the costs of arbitration if the costs are some order of magnitude less than the amount of the claim, or if the party provides the financier with some other alternative form of remuneration. Attorneys on contingent or conditional fees are likely somewhere in the middle. While the amount of the attorney’s fees may not be tied directly to the costs of the arbitration, the attorney may turn down a case that might be too expensive relative to the amount the attorney could expect to be paid if the party wins the case, especially since most jurisdictions have a legislative or ethical cap on the amount of attorney contingent or conditional fees. In light of this, the cost of arbitration is a crucial component to consider when determining whether a party has adequate access to justice.
To further complicate the matter of costs, there are certain types of claims that may require more extensive resources—such as class or mass arbitration—or that may require the services of an emergency arbitrator—such as an injunction. The costs of such types of proceedings may be highly variable and not at all connected to the economic value of the result. Furthermore, some types of claims have no damage award attached to them, such as injunctive or declarative relief, in which case the costs will always mathematically outweigh the dollars recoverable from the claim, even if the claim is otherwise worthy and winnable. Moreover, if all other parameters are equal, a case that settles early is usually cheaper than a case that goes all the way to an award, which is in turn cheaper than a case that leads to enforcement or set aside proceedings in a national court. Finally, there are several other variables to consider when defining access to justice, such as the type of arbitration (commercial, investment, or state-to-state); the type of party (a corporation, a state, an individual, or a class/mass of parties); the type of relief requested (damages or non-financial relief, such as an injunction, specific performance, or declarative relief); and the estimated likelihood of winning on the merits, with the caveat that there is always an element of unpredictability in international arbitration.
Assuming one is able to parse the following parameters and successfully define access to justice, the crux of the matter is how to achieve real access to justice in international arbitration. The first question the international arbitration community must answer is whether parties who currently have little or no access to justice (however defined) should be provided access to justice some other way. If the international arbitration community answers that question in the affirmative, then the second question is how to implement such measures. This includes sub-questions regarding how to pay for any potential access to justice measures; the criteria by which a party should be deemed eligible to benefit from access to justice measures; and whether any laws, arbitral rules, or investment treaties need to be modified accordingly.
Join the author and her co-panelists— Susan Franck, Mohamed Abdel Wahab, John Beechey, and Kate Brown de Vejar— for a lively discussion of the issues surrounding access to justice in international arbitration at the 2018 ICCA Congress in Sydney, Australia. The panel is entitled ‘Arbitration Challenged II: The Realities of Arbitration Economics: Who Gets to Play, and What are the Implications?’ taking place on Monday 16 April 2018 at 16:00-17:30 local Sydney time. For more information and to register, please visit icca2018sydney.com