Arbitration According to Law vs According to Justice
The arbitrator (or arbitration panel) may issue a judgment according to law that is based solely on applicable laws, or according to justice, that is relying on the arbitrator’s impartial judgment.
Since arbitration is a form of extrajudicial dispute resolution, it is up to the parties involved to choose one or more arbitrators so that they can decide on the dispute that has arisen between them, and it is always up to them to determine the type of criterion that should guide the decisions of those called upon to judge: that of an arbitration that is implemented according to law or that of an arbitration that is implemented according to justice.
The more precisely the arbitration clause or compromise will be stipulated, the more bargaining autonomy will be given to the parties.
In fact, one cannot help but appreciate the possibilities offered by International Commercial Arbitration, a truly unique means of resolving disputes between persons belonging to different jurisdictions, nor can one fail to mention the differentiation into regular and irregular arbitration, but the facets and possible choices do not end with this distinction.
Arbitrators called upon to rule according to justice may rule according to law, if they believe that justice and law coincide, but arbitrators called upon to rule according to law cannot avail themselves of a judgment of equity, because they would transcend what was asked of them.
Arbitration Decided in Accordance with The Law
Arbitration decided in accordance with the law bases its measures on compliance with the applicable law and has the same validity as a court judgment, with considerably reduced timeframes, and moreover offers the possibility of choosing the arbitrator based on his or her expertise.
In this case, the arbitrator is called upon to provide an award/judgement after careful evaluation of the laws most relevant to the case under discussion, the same goes for the procedural rules relevant to the dispute, all as if the dispute were being placed for decision in a court of law.
To ensure a judgement that is respectful of the applicable legal system, the chosen arbitrator(s) should be a legal professional with a thorough knowledge of the laws applicable to the dispute and legal rules in general.
Arbitration decided according to judgment of legality is often used in commercial settings, where parties wish to resolve their disputes quickly and confidentially, but at the same time want to ensure that the final decision is fair and in line with applicable laws.
Although the guidelines to be followed are predetermined, this kind of arbitration is a form of dispute resolution that is nonetheless flexible and personalized, because the rules and procedures to be followed can be decided in advance by the parties, before they find application by the arbitrator.
Hence the importance of drafting specific and detailed arbitration clauses, to be established even before the dispute arises, in the existing contracts with the business partner.
Again, it is up to the parties involved to decide that the arbitrator’s decisions follow the law and are not subject to personal interpretation, as might happen by opting for a judgment in equity.
Drawbacks of Arbitration Decided in Accordance with The Law
While having to follow guidelines related to law, the arbitrator could make a different decision than a judge would in court, and not having the powers could not impose criminal sanctions or take coercive measures.
This could lead the party against whom the decision backfires to disregard it.
Arbitration Decided According to Justice
Arbitration decided according to justice is based on the fairness of the arbitrator who must apply it.
Article 822 of the Code of Civil Procedure, Book Four, provides for the possibility for parties to opt for “arbitration in justice,” that is, to have their dispute settled in justice and not according to traditional legal rules.
In this arbitration, the arbitrators are tasked with deciding according to their own judgment and conscience, without necessarily having to follow the prevailing law.
Fairness judgment represents the possibility for the arbitrators, upon the choice of the parties to the dispute, to exempt themselves from judging “according to the rules of law,” but availing themselves of judgment that draws from principles of ethics.
This does not mean that the arbitrator can behave “by feeling,” because a criterion must still be chosen as the basis for the conclusion of the judgment, and the arbitrator himself will have to set out the reasoning that led him to make a particular decision.
The arbitrator may take into consideration the applicable rules of law, no one forbids him to do so, but he also has the opportunity to range with his considerations, listening to the parties’ arguments, viewing evidence, …
Fairness judgment has the advantage of being able to take into account the myriad facets of a contingent case, and of not having limits imposed by existing laws because there may be situations for which specific rules have not yet been provided. Ideally it could fill the inevitable gaps in our legal system.
Decisions made within this type of arbitration are not subject to appeal for failure to comply with rules of law, even where the arbitrator has then applied principles of law or specific laws.
The Criteria of Arbitration Decided According to Justice
Wanting to identify the different criteria for interpreting the judgment of justice, because of its vagueness, one could distinguish the subjective ones, which arise from the moral and social conscience of the arbitrator, that is, his “personal sense of justice,” and the objective ones, which are determined by the specific situation that occurred in the case to be judged.
A reductionist criterion would lead the arbitrator to judge by adhering to positive law and adapting it to the case for which he or she was called upon.
Boccadutri Law Firm’s International Commercial Arbitration Department advises that an arbitrator should be called upon based on the circumstances in which the dispute arises, and already being clear about the real intentions of the other parties involved.
The choice then regarding the type of arbitration decision, whether according to law or according to justice, depends on several circumstances that we could evaluate together.