Legal Translations for Arbitration
Legal translation of arbitration agreements plays an important role in international arbitration. Whereas courts tend to have the power to enforce procedural rules via such orders as fines and judgments, arbitrators do not. This is because the arbitrator’s procedural power comes from a private contract, not public law and, not surprisingly, arbitration contracts rarely address the arbitrator’s power to remedy misbehavior. Thus, when it comes to the area of sanctions, arbitrators find themselves standing on thin legal ice.
Most of the problems are due to the fact that there are very few grounds for vacating an arbitration award. One exception is the Federal Arbitration Act, which states: ‘the court may make an order vacating the award…where the arbitrators exceeded their powers’. Thus, when an arbitrator awards sanctions for party misbehavior, and the arbitration agreement does not address this right, then the arbitrator risks a vacatur.
This legal ‘no man’s land’ is starting to evolve. The newly released AAA Commercial Arbitration Rules, which went into effect on October 1st of this year, give the arbitrator more power, including adverse inferences, exclusion of evidence, cost/fee shifting and other forms of sanctions. But the rules stop short of granting full-fledged sanctioning powers, meaning that there is still room for judicial interpretation and thus risk to the arbitrator. For example, courts have interpreted previous AAA rules to allow sanctions for bad faith, but not for the other mentioned areas (fee shifting, etc.).
Case law also provides some support to arbitrators. In ReliaStar Life Insurance Co. v. EMC Nat’l Life Co., 564 F.3d 81, 85-87 (2d Cir. 2009), the Second Circuit upheld a $3.5 million award of costs and attorneys fees to a prevailing party whose opponent “lack[ed] good faith”. In its decision, the court stated that without having a remedy for addressing such conduct, “the underlying purposes of arbitration, i.e., efficient and swift resolution of disputes without protracted litigation, could not be achieved.”
On the international stage, an ICSID tribunal found that arbitrators have an inherent authority to protect the arbitral process and that this includes the ability to sanction misbehaving parties. (See Hrvatska Elektroprivreda dd v Republic of Slovenia, (ICSID Case No ARB/05/24) (2008).
Although these rulings seem to be moving in the right direction, they seem to ignore the legal issue of contractual intent and thus remain vulnerable to judicial attack. Another theory as to why arbitrators should have sanctioning powers comes from the common law jurisdictions which have held that every contract that states that all disputes must be submitted to arbitration can be interpreted to include an implied understanding that the arbitrator may enforce procedural rules and orders – including the power to impose sanctions for willful noncompliance. In fact, one court went so far as to reason that ‘the absence of power to remedy abuse would impede [the arbitrator’s] ability to adjudicate claims effectively in the manner contemplated by the arbitration process’.
Another legal theory for the power to impose sanctions is that each contract, including those to arbitrate, include an implied promise not to prevent performance by the other party (sometimes referred to as an implied obligation of good faith and fair dealing). One court has described this by stating that ‘A duty to cooperate is implied in every contract in which cooperation is necessary for the performance . . . . [A] party to a contract may not hinder, prevent, or interfere with another party’s ability to perform its duties under the contract.’
Put specifically into the arbitration context, the covenant of good faith imputes to each involved party a commitment to abide by the rules and orders contemplated by the arbitration contract. Otherwise the purpose of opting for arbitration over litigation would be defeated.
Another question that remains unanswered is how any of these theories apply to a foreign language arbitration contract. When the arbitration agreement is drafted in a foreign language, the issue of implied intent can become more complex and will often require a legal interpreter familiar with the subject matter who can have an opinion on the intent of the parties. Clearly this issue will be raised as more and more international contractual disputes move towards arbitration.