Volume 43 | Number 3 Summer 2008
The Convergence of Renewed Nationalization, Rising Commodities, and “Americanization” in International Arbitration and the Need for More Rigorous Legal and Procedural Defenses
3. Estoppel by Representation
Estoppel arose from common law equity and encompasses a number of different principles used in many different circumstances. The doctrine is well-established in international law.157 However, it has been formulated and applied in so many ways that, in the eyes of some, it has become almost meaningless and is merely a catchall to justify an argument couched in, or a decision premised on, perceived fairness. As one author concludes,
[t]he imprecision that is the hallmark of estoppel theory in international practice, through troubling, is easy to explain. In the absence of clearly developed procedural rules, a codified and uniform body of doctrine, or anything resembling evidentiary standards, international lawyers and judges are forced to improvise. When they do, estoppel is a convenient term to offer since it can serve as an emblem for any of a number of notions fundamental to any system of law: common sense, justice, consistency, fair play, or good faith.158
In his comprehensive treatment on estoppel, Brown delineates the various applications of the term “estoppel”—estoppel by representation, estoppel by record, estoppel by deed, and estoppel by silence.159 In the context of defending environmental and mismanagement claims related to PSAs and concessions, we will focus on estoppel by representation.
Estoppel by representation derives from general principles of good faith and fair dealing which are set forth in virtually every set of model laws governing international relations and contracts.160 While some model rules include additional provisions regarding inconsistent behavior, typically such provisions focus on whether an agreement has been reached or modified.161 For the doctrine to become an effective tool,162 it must be more narrowly crafted than as a mere outshoot of “good faith and fair dealing” to prevent a party, including a state,163 from asserting a claim or right in contradiction to its prior conduct and statements.
In the context of claims against a contractor relating to a concession or PSA, the state, through an agency, ministry, or state-owned company, will be heavily involved in the oversight and implementation of operational decisions. These decisions typically include what exploitation strategies will be undertaken, what practices will apply to those operations, and which wells or areas will be prioritized over others. Thus, the state will suggest various courses of action which may or may not comport with the contractor’s judgment. If they agree, these decisions become the joint work of all parties. If they are not in full agreement initially, compromises usually result, reflecting the natural give-and-take of all contracting partners.
To allow a state to later complain of those operational judgments after having accepted any benefits from such decision-making would strike even the most casual observer as unjust and unreasonable. To require the contractor to later defend such judgments years after the fact—judgments that will be assaulted with the hindsight knowledge of commodity price movements, advances in technology, and actual results from those business decisions—results in another injustice. Such claims could be (and should be) resolved through preliminary rulings on defenses such as estoppel by representation, saving the tribunal and the parties time and money. The inclusion of a narrowly-defined estoppel by representation doctrine in model laws governing international contractual relations would facilitate such rulings:
A party is precluded from asserting a fact, right, or claim against another party if:
(1) the party acted or made a clear and unambiguous statement regarding that fact, right, or claim that contradicts its arbitration position;
(2) the act or statement was voluntary, unconditional, and authorized; and
(3) the act or statement was relied upon in good faith either to the detriment of the other party or to the advantage of the party making the statement or performing the act.
4. Acquiescence
Tribunals have sometimes collapsed the doctrine of estoppel by representation together with the doctrine of acquiescence.164 However, they remain distinct doctrines with different legal underpinnings and merit separate recognition. Specifically, unlike estoppel by representation which requires affirmative conduct or an affirmative statement, acquiescence derives from the notion of consent and applies when a party remains silent with full knowledge of another party’s conduct, thereby tacitly encouraging the party to continue its allegedly harmful conduct.
A robust use of acquiescence would incentivize the host state (who is subject to waiving claims by acquiescence165) to become a more vocal participant in the PSAs and concessions, and, if necessary, for the host state to assert rights and bring claims in an immediate fashion or risk such claims and rights being lost. If the doctrine of acquiescence is diluted, the host state has an incentive to silently permit performance by the contractor, accept the benefits from such performance, and later claim breaches related to the performance with full hindsight knowledge after the contractor can no longer alter its course of conduct. In the words of the Iran-United States Claims Tribunal when faced with the silence of a host nation juxtaposed against its subsequent claim for damages from alleged mismanagement:
As for whether Philips was prejudiced by NIOC’s failure to object, that seems manifest. Presumably, each of the Parties to the JSA relied on their partners to object in a timely manner to any proposed activity which affected the productivity or profitability of IMINOCO [the operating company established by the parties to the JSA]. A failure to object evidenced acquiescence to the continued policies of the joint venture. Without some expression of objection at the time, other parties had no opportunity to consider their validity and, if appropriate, to propose alternative policies. Indeed, because NIOC was the only party which held a blocking share of votes on the Board of Directors, it was especially incumbent upon NIOC to make timely objections to any activities carried out. The prejudice flowing from that failure to object is now evident. The Claimant is in no position to attempt to cure or remedy any of the defects in the production policies or activities that are now objected to. Indeed, the Tribunal notes that the Claimant’s ability to execute such a cure would have been substantially limited since it had only a minority interest in the joint venture. Nevertheless, the fact that no opposition was made at the time evidenced NIOC’s acquiescence, and indeed complicity, in the practices to which it now objects. Consequently, the Tribunal holds, as a matter of law, that NIOC is now precluded from bringing this counterclaim.166
Consistent with these recognized principles, we propose that the following definition of acquiescence be adopted and applied in rules governing international commerce and law:
A party is precluded from asserting a fact, right, or claim against another party if:
(1) the party knew of another party’s acts and their potential for resulting harm; and
(2) the party stood by in silence, accepting or permitting such acts to occur without protesting such acts.
B. Procedural Safeguards
1. Arbitral Rules Regarding Preliminary Decisions
As arbitration practice becomes more complex and aggressive, mechanisms for early resolution of some claims should be considered to keep arbitration as a cost effective and efficient means to resolve disputes. Consistent with the flexibility and lack of established rules in arbitral practice, arbitral rules presently neither exclude a summary disposition of claims because of a legal defense (such as prescription, laches, estoppel, or acquiescence) nor do they expressly recognize or encourage such a practice. For example, the IBA Rules on the Taking of Evidence in International Commercial Arbitration provide, “[e]ach Arbitral Tribunal is encouraged to identify to the Parties, as soon as it considers it to be appropriate, the issues that it may regard as relevant to the outcome of the case, including issues where a preliminary determination may be appropriate.”167 The ICC’s Rules of Arbitration and the UNCITRAL Notes on Organizing Arbitration are similar.168
The lack of such a mechanism in arbitration rules (or its infrequent use) represents one disadvantage from traditional litigation:
International arbitrations generally do not contemplate the scope of motion practice that exists in American litigation. One disadvantage of international arbitration is that issues that may be dispositive of a case and appropriate for a motion to dismiss or summary judgment in court litigation may often be considered by arbitrators only after a full evidentiary hearing on all of the issues. In such cases, international arbitration may in fact take longer than domestic US litigation that could potentially be concluded on a summary basis.169
Motion practice of course is not unheard of in international arbitration. Indeed, motion practice has actually become a more frequently utilized arrow in the quiver of parties to arbitration, particularly in ICSID proceedings.170
Such motions, however, have tended to be limited to jurisdictional issues, not legal defenses that, if sustained, can streamline the proceedings by avoiding evidentiary submissions and hearings on the merits of stale, estopped, or acquiesced claims. However, in the jurisdictional context, prescription arises, particularly in treaty disputes where a party argues that the tribunal is without jurisdiction because of a prescriptive bar, thus establishing that legal defenses are appropriate for early determination by the tribunals.171 The established practice of preliminary decisions on jurisdiction, challenges to the tribunal’s composition, and requests that a party post security should be considered for formal extension to legal defenses.
While the use of motion practice in international arbitration should not become the norm, it does have an appropriate place in resolving some claims expeditiously and in a cost-effective manner. Arbitral rules and terms of reference172 to date have generally not accounted for these benefits—benefits that will increase as parties assert claims relating to practices and activities arising from long-standing contracts and relationships. Indeed, formally recognizing legal defenses as a basis for preliminary rulings, which can be decided based on written memorials by the parties, harmonizes the common law tradition of summary resolution of issues with the civil law tradition of resolution of issues based on the written submissions of the parties. International arbitration institutions preparing procedural rules and parties drafting arbitration clauses should consider including express language for such preliminary determinations, thereby reducing costs, resolving issues faster, and more narrowly focusing disputes.
2. Disclosures by Party-Appointed Experts
Some disparity exists between the treatment and perception of expert witnesses in the common law system and the civil law system. Under common law regimes, parties interview, hire, and present their own experts who are “specialized form[s] of witnesses.”173 In contrast, continental European courts and tribunals generally hire and appoint experts who are considered neutral guides and resources for the court or tribunal.174 Harmonizing these two traditions, international arbitration practice sometimes involves both party-appointed and tribunal-appointed experts and authorizes the tribunal to require experts to meet and confer in an attempt to find common ground and clarify points in contention.175 However, the effectiveness of this harmonization remains speculative at best, particularly taking into account the “cottage industry” of expert witnesses, the unwillingness of experts on opposing sides of a dispute to reach any meaningful consensus in many cases,176 the additional costs to the parties in the appointment of a tribunal-appointed expert, and the lack of established procedures for the discovery of experts’ work and methodology.
Given the self-selected information provided by the experts and parties in current arbitration practice, opposing parties and tribunals face great obstacles in eliciting meaningful testimony from experts and in evaluating the competing claims from experts qualified in the same field. Because of the increasing use of party-appointed experts, their lack of neutrality (whether real or perceived) and the specialization and complexity of the issues, new disclosure procedures specific to expert witnesses may be helpful additions to arbitral procedures, enshrined either in the institution’s rules or in the terms of reference established early in the proceedings.
While current rules requiring that an expert submit a report setting forth his conclusions and analysis and his curriculum vitae provide a starting point,177 additional mandatory disclosures would promote greater neutrality, transparency, and objectivity as well as allow the parties and arbitrators to better prepare for the experts’ meetings and cross-examinations. Those additional mandatory disclosures, which would be established early in the arbitration process, should include:
- the expert’s entire file including draft reports, correspondence, data, documents, and notes used in the evaluation of the issues within his or her expertise;
- a list of proceedings and cases in which the expert has provided testimony in the previous five years; and
- if the expert’s work includes any sampling or testing, then the expert and party must take duplicative samples and timely provide them to the opposing party and submit the results of all samples and tests.
These disclosure requirements would ensure even-handedness between parties in evaluating and presenting the technical issues in the proceeding, without imposing any substantial burden on the parties. Indeed, they would foster greater harmonization of the common law and civil law legal regimes because the transparency in the experts’ work would prevent self-selection by the parties and their experts, requiring a more neutral and complete disclosure similar to the civil law expert model.
V. Conclusion
Globalization’s boom in the 1990s, including the exponential growth of transnational investment and the entry of numerous investment treaties that contain arbitration provisions, set the stage for arbitration to resolve more disputes than ever before. Additionally, the rise in commodity prices and the renewed wave of nationalization of the early 21st century has led to higher arbitral stakes than ever before. The trends of Americanization and nationalization, if left unchecked, may result in more complex, more expensive, and more aggressive arbitration tactics, particularly with regard to claims of poor environmental stewardship and poor resource management. To ensure that arbitration continues to offer a fair and cost effective means to resolve disputes, arbitral institutions and practitioners should consider developing mechanisms to efficiently resolve claims that would be barred by well-established legal principles. Otherwise, parties and arbitrators will be required to expend precious resources on legally deficient claims instead of focusing on the heart of the dispute. Accordingly, arbitral institutions and tribunals should formalize legal defenses such as prescription, laches, estoppel, and acquiescence, clearly recognize the resolution of those defenses in a preliminary summary fashion, and require more expansive disclosures by expert witnesses.
If you would like to submit a response to this article, please read our submission guidelines and submit your response here.
Footnotes
For complete footnote citations, download the PDF.