Introduction
Res judicata, is a principle of law that seeks to bring finality to a dispute by ensuring that matters, once settled/adjudicated by an order, judgement, award, or decree, are not relitigated. While being a cornerstone of traditional litigation, res judicata has also seeped into international commercial arbitration (“ICA”). However, the framework governing its applicability in ICA exists in an uncertain state. This article seeks to critically examine the instant issue by determining: Firstly, the adequacy of international law in providing a consistent and coherent framework; Secondly, the effectiveness of domestic legal systems in governing the application of res judicata in ICA; and thirdly, the extent to which divergence between domestic and international approaches cause procedural inconsistencies, leading to adoption of varied practices across arbitral forums. After determining these three key issues, the author will establish their core argument that existing legal frameworks are unsuitable for effective governance of res judicata in ICA, necessitating the adoption of uniform and effective guidelines.
International Law Governing Res Judicata in International Commercial Arbitration: Codified yet Ineffectual
Res judicata is identified as a universal principle of procedural regulation under international law. International instruments and jurisprudence (from Article 34 UNCITRAL Rules and Article 60 of ICJ Statute to ICSID practice) recognise that awards should be final. However, these instruments rarely prescribe when an award bars subsequent proceedings. The result is that tribunals either import domestic preclusion rules or decide on an ad hoc basis, producing inconsistent outcomes rather than a coherent, enforceable standard.
Interestingly, as a general practice, while investor-state or investment tribunals primarily utilise international laws, they are seldom followed by international commercial arbitral forums in governing the applicability of res judicata. Even though the doctrine of res judicata is well established in international law, inconsistency and non-uniformity negatively affect its position in ICA. The primary reason behind this is rooted in the existing disparities in domestic laws, as international laws governing res judicata were initially derived from the former. The existing disjunction between different domestic laws has been discussed in Part II.
As a consequence, significant inconsistencies persist regarding the scope and application of res judicata in ICA. On several occasions, the arbitral tribunals applied res judicata per contra the principles envisaged in the domestic laws. For instance, the triple-identity test prescribes application of res judicata where the parties, cause of action and claims are the same in both proceedings. However, in several instances, international arbitral tribunals have irregularly applied the triple identity test. In Dieter Baumann v. International Olympic Committee, the tribunal applied the triple identity test as a generally accepted principle and not as per the provisions of the applicable laws. While in ICC Case No. 4126, 1995, the arbitral tribunal applied res judicata, despite knowing that the parties were not identical to those in the prior award, compromising upon the triple-identity test.
Such instances exemplify the ineffectiveness of international laws in governing the application of res judicata in ICA. Consequently, international arbitral tribunals are pushed towards adopting divergent domestic laws in ICA, thereby driving the entire practice into an uncertain territory.
Res Judicata in Domestic Laws: Disentangling the Disjunction
As stated earlier, international laws primarily rely on domestic laws to adopt principles governing res judicata. This necessitates unveiling domestic laws to trace the roots of the existing issue.
In the civil law system, the applicability of res judicata is mainly confined to the procedural part of the judgement and excludes substantial questions of law from its ambit. Article 1355 of the French Civil Code applies the principle of res judicata based on the triple-identity test. Hence, the civil-law systems typically limit preclusion to the operative outcome of earlier decisions without extending it to the reasoning behind that ruling. The common-law systems, by contrast, often extend preclusion to specific issues decided and, in some cases, even to the underlying reasoning. In the arbitration context, this divergence means that the same prior award might be considered binding and conclusive in one jurisdiction, yet regarded as non-preclusive and open to re-litigation in another. This fundamental mismatch creates fertile ground for inconsistent outcomes, especially in cross-border disputes where parties might strategically choose a seat of arbitration based on how it treats preclusion.
Further, as domestic laws differ significantly across jurisdictions, conflict-of-law rules are utilized to determine a suitable law, and the same requires characterisation of res judicata as a substantive or procedural question of law. However, controversy over the very nature of res judicata, as a procedural or substantive facet of law, renders the conflict-of-law approach unsuitable.Besides, the direct application of domestic law also compromises the transnational identity of ICA, whose procedures stand in stark contrast to the conventional litigating mechanism that the domestic laws primarily sought to govern.
Applicability Of Res Judicata by International Commercial Arbitral Forums: A Foggy Situation
Alongside the ineffectiveness of international law and existing disparities in domestic laws, the inconsistency in determining suitable domestic law makes the situation even more foggy. The current practice of applying res judicata leans on three different anchors, including, firstly, where the international arbitral forums consider the lex arbitri, the law chosen by the parties to govern the arbitral procedure, of the rendering forum. Secondly, the reliance is placed on lex arbitri of the subsequent arbitral forum, and thirdly, the law governing the contract, i.e. lex contractus, is taken into consideration.
For instance, in ICC Case No. 2745, 1977, the international arbitral forums considered the lex arbitri, i.e., the law chosen by parties to govern the arbitral procedure of the rendering forum, to determine the applicability of res judicata. While in ICC Case No. 7438 of 1949, the international arbitral forums resorted to the lex arbitri of the subsequent arbitral forum. Further in Fiona Trust & Holding Corp. v. Privalov, 2007, the Court reflected on the plausibility of recognising the law governing the contract in resolving disputes through arbitration.
Thus, the prevailing discord in the practice of applying res judicata by international arbitral forums brings non-uniformity and uncertainty in the industry. Such inconsistencies set a non-uniform precedent and diminish parties’ trust and confidence in the arbitration procedure. It compromises the finality of dispute settlement and allows the parties to keep relitigating the issues, leaving the disputes unresolved indefinitely.
Besides, the direct application of domestic laws does not consider the specific requirements of ICA, compromising the flexible and resilient nature of arbitration. Further, such an approach also runs contrary to the expectations of parties who resort to arbitration to get rid of the traditional litigating procedures.Finally, the inconsistent decisions culminate in a state of legal uncertainty and significantly reduce the predictability of a case.
Attempts Towards Reformation: Forging Pathways to the Future
Now, it becomes amply clear that the lack of a uniform and standard regulatory mechanism leads to procedural uncertainty regarding the applicability of res judicata in ICA. Hence, the author argues that it is crucial to lay down uniform guidelines that specifically govern the applicability of res judicata in ICA.
At this juncture, it is pertinent to refer to the reports released by the International Law Association’s Recommendations on International Commercial Arbitration between 2002 and 2006. While acknowledging the need for codifying specific international rules and the flexible and party-centric nature of arbitration, the Committee recommended the adoption of a more extensive notion of res judicata. The Committee also advocated for the adoption of a mixed model, under which the aspects of a res judicata will be governed partly by international and domestic laws. The ultimate objective of the report was to enact a set of international laws that cater to the concerns of parties and the specific requirements of ICA.
Further, a recent report by the International Bar Association (“IBA”) noted that because of the uncertain application of res judicata, the parties never know to what extent their dispute has been finally settled, causing unpredictability. It further noted that the instant choice-of-law approach, where the parties and arbitral tribunal select a suitable provision for governance of res judicata, leads to considerable waste of time, making arbitral tribunals less efficient in resolving disputes. Thus, IBA has recommended its Arbitration Committee to adopt an autonomous approach to res judicata in ICA, which will solidify the arbitral tribunal’s procedural powers and party autonomy.
Author’s Observations and Recommendations
In addition to the reports discussed above, the author provides further recommendations to facilitate codifying uniform and effective international principles governing res judicata in ICA.
Firstly, any such change must be brought about by adopting a multi-stakeholder approach. For this purpose, the International Law Association or IBA must consult on multiple fronts, including governments, companies, academicians, legal practitioners, arbitrators, and most importantly, international arbitral institutions. For instance, the arbitral institutions such as Singapore International Arbitration Centre (“SIAC”), Hong Kong International Arbitration Centre (“HKIAC”), London Court of International Arbitration (“LCIA”), International Chamber of Commerce (“ICC”), etc., must take the lead by laying down draft guidelines on the applicability of res judicata in international commercial arbitration. For instance, Article 26 of LCIA’s Amended Rules recently provided that- “every award (including reasons for such award) shall be final and binding on the parties”. This would provide traction to the global discourse, causing the ball to roll towards the adoption of uniform transnational guidelines.
Secondly, such multi-stakeholder consultations must not avoid domestic laws entirely, rather maintain a balanced approach. For instance, the international regulation may take inspiration from the common law approach, wherein the effects of res judicata extend to the operative and substantive part of the judgment. This would ensure finality of disputes and prevent the possibility of parties relitigating the issues due to the narrower scope of application of res judicata. However, the overly extensive approach wherein even the error of law or development of new facts or variation in law is insufficient to lift the bar must be done away with. This is necessary to balance the broader approach of common law and the narrower approach envisaged under civil law. Additionally, the author recommends that such international regulation adopt an extensive notion of res judicata by including both claim and issue preclusion, which would bring procedural efficiency and finality to dispute settlement.
Thirdly, striking a common chord between the scholarly divergence on the applicability of res judicata becomes highly relevant. Currently, scholarly divergence is on the very nature of res judicata as a procedural or substantive question of law. This not only brings disparities in the adoption of the principle, but also brings uncertainties in the practice. Thus, it is crucial to settle the disagreements on the nature of the principle and instead focus on the very objective of res judicata, which is to avoid the re-litigation of identical issues.
Fourthly, owing to prolonged international consultations, it is safe to conclude that the enactment of uniform international regulations remains a long-drawn process. Hence, in the meantime, international arbitral institutions such as SIAC, HKIAC, LCIA, ICC, etc., can adopt a mixed approach. Such an approach must not merely rely on a particular domestic law but adopt independent guidelines governing res judicata. However, this does not mean completely discarding domestic laws; instead, adopting them in addition to the independent guidelines, thereby promoting a dynamic rather than rigid approach. For instance, in Abu Dhabi Investment Authority v. Citigroup, 2015, the arbitral tribunal followed a mixed approach by adopting international laws to determine the test and scope of res judicata and domestic law to determine lex arbitri. International arbitral institutions must also ensure that these independent guidelines are consistent with the specific requirements of ICA and the maintenance of party autonomy.
Conclusion
In light of the persisting state of uncertainty, the international arbitral forums have determined the applicability of res judicata in an ad hoc manner. This has led to a widespread disparity in the practice, taking this aspect of law on board a rudderless ship. This research aimed to spotlight the existing issues in the applicability of res judicata in international commercial arbitration. It becomes pertinent to lay down a uniform and strengthened international regulation specifically governing the principle of res judicata in ICA. In this regard, the International Law Association Committee’s Report and the IBA’s Report on the enactment of autonomous regulation can act as a pole star in the present situation.
Vishnu Sharma is a third-year B.A. LL. B (Hons.) student at Symbiosis Law School, Pune.
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