Strasbourg as the guarantor of last resort of due process in voluntary arbitration
Josep Maria Julià
In its recent judgment in the Beg S.P.A. v. Italy case, the European Court of Human Rights in Strasbourg (the “Court”) for the first time found that the conduct of a voluntary arbitration had resulted in the infringement of the right to a fair trial enshrined in article 6.1 of the European Convention on Human Rights (“ECHR”). Beyond an apparently typical case of conflict, this judgment is the culmination of jurisprudence that anticipated that the intrinsic waiver to jurisdiction when parties submit to voluntary arbitration does not amount to a blank waiver of all aspects of the right to a fair trial guaranteed by the ECHR.
Background of the case
A dispute between Beg and Enelpower over the execution of a cooperation agreement led to arbitration in the Arbitration Chamber of the Rome Chamber of Commerce (the “Chamber”). Enelpower appointed the former vice-chairman and director of Enel, Enelpower’s parent company, as arbitrator, who was still advising Enel when he was appointed. The arbitrator accepted his appointment without disclosing these circumstances. After the arbitral tribunal deliberated, Beg challenged the arbitrator appointed by Enelpower on the same day in which he and the chairman signed and deposited a majority award. Beg claimed that it had just learned of the arbitrator’s impairing circumstances.
The Chamber dismissed the challenge because a binding final award had already been handed down. Further attempts to challenge the arbitrator in the lower civil courts were also dismissed as a late challenge because a final award had already been agreed on the deliberation or signature date. The Rome Court of Appeal dismissed the request of annulment of the award, as did the Italian Court of Cassation because Beg had failed to prove the alignment of interests between the arbitrator and one of the parties to the proceedings, but the latter considered that Beg had in fact filed the challenge in time before the end of arbitration proceedings.
The Court found that article 6.1 of the ECHR had been violated because the arbitrator was apparently partial.
Role of State intervention
The Beg case was not a case of mandatory or forced arbitration, in which case the full protection of article 6.1 of the ECHR would extend to the proceedings according to the well-established jurisprudence of the Court. Unlike previous cases related to voluntary arbitration, the judgment did not relate either to rights granted to a party at the award’s annulment or enforcement stages, but to a party’s rights during an arbitration procedure. However, there was no leap to apply the ECHR between private parties. According to the Court, it was still a State, Italy, that committed the infringement and was thus liable because its courts —not the Chamber— had failed to exercise the powers granted by the Italian Code of Civil Procedure to annul an award that did not respect one of the rights guaranteed by Italian law in a voluntary arbitration, i.e. the right to have an impartial adjudicator.
A limited waiver
In 1962, in X v. Germany, the European Commission of Human Rights (the “Commission”) confirmed that freely submitting disputes to arbitration was a valid waiver of the right of access to justice, but even then, the waiver was qualified as partial or limited. In Suovaniemi, although the Commission already allowed a waiver of the specific right to an impartial judge in the circumstances of the case, it made clear that agreeing to arbitration did not tantamount to a waiver of all rights under article 6.1 of the ECHR.
The Court went a step further in Mutu and Pechstein, in which Mr Mutu’s voluntary submission to arbitration was not interpreted as a blank waiver of all procedural guarantees, which meant that the infringement of the right to an impartial tribunal was examined even if the claim was finally dismissed.
The recent Beg case is the culmination of this line of decisions. The Court analysed the existence of a specific free, lawful and unequivocal waiver of the right to an impartial adjudicator. As in the Mutu case, the Court found that there had been no such waiver because the applicable arbitration rules and Italian law entitled Beg to have an impartial tribunal and Beg had timely filed the necessary challenges to assert its rights. For the first time, the Court confirmed the suitability of such challenge.
One of the main implications of the Beg judgment is that human-rights claims for violations of procedural guarantees may be defended not only in cases of forced arbitration or arbitration-related litigation, but also voluntary arbitration cases where the courts have subsequently failed to redress such violations. Apart from adjudicator’s independence and impartiality, article 6.1 of the ECHR can clearly protect other procedural guarantees in arbitration, such as, the right to be able to present your case or the equality of parties. Although the recognition of such rights in arbitration depends on national regulation, articles 18 and 34.2.a of the UNCITRAL Model Law on International Commercial Arbitration and article V.1 of the New York Convention attest to the widespread international recognition of such rights. In any event, the Court had already confirmed that waiving the protection of article 6.1 of the ECHR by submitting disputes to arbitration is not a waiver of other human rights. In the Platini case, even if Mr Platini had waived his rights to a fair trial, such waiver did not prevent the Court from examining the potential violations of the interdiction of punishment without law and the right to respect for private and family life under articles 7 and 8 of the ECHR.
To retain the right to claim the violation of procedural guarantees in voluntary arbitration before the Court, it is paramount that the victim diligently and timely objects to a violation of human rights. Article 35.1 of the ECHR requires that the victim exhausts all domestic remedies. For most arbitration rules and national laws, as article 4 of UNCITRAL Model Law shows, continuing with the arbitration without timely objecting to a violation of a right is deemed a waiver of the right to object. Unlike the Beg case in which the Italian Cassation Court considered that the challenge of the arbitrator had been filed in a timely manner before the end of the arbitration proceedings, in the Suovaniemi case the Commission dismissed the claim because the claimant, knowing the circumstances of the case and being assisted by legal counsel, had previously withdrawn an initial challenge. In the Platini case, even if the violation of article 6.1 of the ECHR had been pleaded before the Court of Arbitration for Sport, the Court also dismissed such allegations because the pleading was not reiterated in the annulment proceedings before the Swiss Federal Supreme Court.
A waiver filtered through State regulation
The due process requirements of the ECHR do not apply automatically and directly in voluntary arbitration as they do in forced arbitration or arbitration-related litigation. The ECHR protects such procedural requirements in as much as national legislation recognises them, giving States room for legislative discretion to model them to pursue legitimate aims by reasonably proportional means. For instance, to dismiss an arbitrator’s challenge for apparent bias in the Nordström case, the Commission validated the Netherlands’ option for the actual-bias test instead of the apparent-bias test in the annulment of awards.
The Beg case also required previously examining the regulation of arbitrator challenges under Italian law to assess the specific scope of the requirement of independence and impartiality. The significance of national regulation was made apparent when the Court expressly indicated that the Italian legislative reform of 2006, which reinforced such requirements, would have removed the uncertainties of the case, thus acknowledging that national regulation sets the boundaries of due process protection within voluntary arbitration. It remains to be seen whether a State can go as far as to eliminate all such procedural guarantees but, in my opinion, the Court’s considerations in the Tabbane case regarding the residual protection of minimum standard guarantees under the New York Convention advocate that falling below such standard might not be reasonable or proportionate.
This filter of procedural guarantees established by distinct national regulations results in varied protection of voluntary arbitration under the ECHR depending on the seat of arbitration. This can be material in several spheres: applicable tests for independence and impartiality, requirements for reasoned awards, requirements for physical hearings, validity of awards or arbitration agreements once the term to issue the award expires.
Prospects for Strasbourg
The Beg case paves the way for a wave of attempts to escalate arbitrator challenges and other due process claims to the Court. Abuse of such avenue is definitely a risk for efficient conduct of arbitration. Nevertheless, the inexorable application of the requirement of exhaustion of remedies and the strict filter provided by arbitral tribunals, arbitral institutions, national jurisdictions and the Court itself should discourage any unreasonable attempts.
In any case, the role of Strasbourg in arbitration is certainly bound to rise not only as a result of the jurisprudence crystallised in Beg, but also due to the recent endeavours within the European Union against investment arbitration. The recent judgment of the European Court of Justice in the Komstroy case — which declares the inapplicability to disputes between Member States of the investment arbitration afforded by the Energy Charter Treaty— and the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union signed in 2020 —which applies retrospectively to arbitration proceedings which were pending or even terminated before its entry into force— are likely to end up in claims before the Court for infringement of the right of property and the right to a fair trial guaranteed by the ECHR. In these cases, parties may find in the Court a more neutral forum, cautious in the application of European Union law over the international obligations that were voluntary assumed by Member States and the European Union itself.
Judgment of the Court of 20th May 2021 (ECLI:CE:ECHR:2021:0520JUD000531211).
Judgment of the Court in cases such as Lithgow (1986), Regent Company (2008), Suda (2010), Chadzitaskos and Franta (2012), Mutu and Pechstein (2018) and Ali Riza (2020).
Judgment of the Court in cases such as Stran Greek Refineries (1994), Regent Company (2008) or Tabbane (2016).
Decision of the Commission of 5th March 1962 (ECLI:CE:ECHR:1962:0305DEC000119761).
Decision of the Commission of 23rd February 1999 (ECLI:CE:ECHR:1999:0223DEC003173796).
Judgment of the Court of 2nd October 2018 (ECLI:CE:ECHR:2018:1002JUD004057510).
Decision of the Court of 11th February 2020 (ECLI:CE:ECHR:2020:0211DEC000052618).
Decision of the Commission of 27th November 1996 (ECLI:CE:ECHR:1996:1127DEC002810195).
Judgment of the Court of Justice of the European Union of 2nd September 2021 (ECLI: ECLI:ECLI:EU:C:2021:655).
Judgments of the Court on the infringement of article I of Protocol I of the ECHR by State interference with arbitration awards in cases such as Stran Greek Refineries (1994), Regent Company (2008) and Kin-Stib y Majkić (2010).