“Wisdom begins in wonder.” – Socrates.
After more than 200 years of the modern development of international arbitration, scholars and jurists have begun to contemplate the efficiency, or not of international arbitration in handling complex multi-party claims.1 The scenario is simply illustrated – suppose ABC, a multinational corporation that designs, manufactures and sells airplanes worldwide, is faced with potential claims about defects to a model of its jets engines from its customers, is class arbitration beneficial or harmful to ABC’s interests? On the other hand, thousands of parents in different nations are desirous of pursuing a claim against XYZ, a multinational medical device, pharmaceutical and consumer packaged goods manufacturing company, for harm caused by XYZ’s baby powder. Is class arbitration a viable tool to resolve this dispute?
This paper is about weighing the pros and cons of international class arbitration. It addresses many concerns about the enforceability of class arbitration clauses and awards. On the one hand, this paper discusses the challenges to the initiation and enforcement of international class arbitral proceedings and awards. On the other hand the paper describes the usefulness of international class arbitration in managing transnational complex multi-party claims. Section II of this paper begins with conceptualizing international class arbitrations by differentiating class arbitrations from other forms of representative proceedings. Section III describes the evolution of international class arbitration in the United States, Europe and other places in the world. Section IV addresses the challenges to international class arbitration. Notwithstanding these challenges, this paper concludes that parties should as a matter of private agreement, be able to opt into international class.2
The benefits of efficiency in international class arbitration extend not only to parties who are actively involved in the proceedings – but also to others, including both the unnamed claimants, and arguably, the society as a whole.
A. Class Actions and Class Arbitrations
Class actions are a procedural mechanism that allow plaintiffs to file a claim for themselves and others with same interests.3 And any decision rendered in the action would bind all class members.4 Class actions are a form of representative proceeding and have special procedures for their initiation. They serve a public policy and are invested with the public interest,5 to motivate named plaintiffs to bring cases that for economic reasons might not be brought otherwise.6 Aptly put, class actions are a “powerful and persuasive instrument of social change.”7
Class arbitrations are a form of class action that are instituted before arbitrators and not a judge or jury. They are claims filed by multiple plaintiffs against a defendant (or multiple defendants) before an arbitral tribunal for themselves, and on behalf of others in a similar position.8 Class arbitration involves “an arbitrator or arbitral tribunal selected and paid by the parties, rather than an elected or appointed judge, who presides over the class action” and determines “whether to certify a class, the form and manner of notice to class members, resolves all issues of law and fact, and enters an award that may bind many hundreds or thousands of class members.”9 Typically, a class arbitration can result when a group of individuals (1) suffer the same or similar injury, and (2) has the same or similar arbitration agreement with the defendant(s).10
International class arbitrations can be defined in either of two ways:11 (1) as class arbitrations giving rise to arbitral awards that are made in the territory of a State other than the State where the recognition and enforcement of such awards are sought or (2) as class arbitrations giving rise to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.12 An international class award is therefore an award resulting from an international class arbitration.
Differentiating Class Arbitrations from International Mass Claims Processes
Class arbitrations are distinct from International Mass Claims Processes (IMCPs). Unlike class arbitrations, IMCPs are ad hoc tribunals, quasi-judicial commissions or administrative programs established to resolve claims “when a large number of parties have suffered damages arising from the same diplomatic, historic, or other event.”13 IMCPs are created to address compensation for injuries, death and other property damage resulting from armed conflicts, breaches of international humanitarian law or environmental disasters.14 Keys examples of IMCPs include the Iran-US Claims Tribunal, the United Nations Compensation Commission (UNCC), and the Eritrea-Ethiopia Claims Commission (EECC).
But the putative class in class arbitrations are traditionally not as numerous as the claimants in IMCPs. In class action arbitrations, parties have a binding contract that defines their rights and remedies. Non-parties to the contract do not have a right to participate in the class arbitration proceedings without the consent of all the parties. Within these contractual rights, parties agree to submit to class action arbitration and to be bound by the decision of a panel of selected arbitrators. IMCPs are constituted by international treaty or as of necessity, following an epidemic or disaster, but the parties do not get to choose their governing law, the tribunal, the mode and nature of reliefs.
A. United States
In the United States, the development of class arbitrations can be traced to the 1980s when U.S. courts began to compel arbitrations on a class basis as a response to corporations limiting class action litigation with arbitration clauses.15 The courts compelled arbitrations on a class basis, allowing a party to bring a claim on behalf of a number of claimants (usually consumers) similarly situated, against the same defendant and based on identical arbitration agreements.16 Class arbitration became popular in 2003 with the U.S. Supreme Court decision in Green Tree Financial Corp. v. Bazzle.17 There, the Court explained that class arbitration could be available even if the arbitration agreement was silent about class arbitration.18 Following this decision, two well-known arbitral institutions created special-class arbitration rules: (i) the Supplementary Rules for Class Arbitrations of the American Arbitration Association (“AAA”); and (ii) the Judicial Arbitration and Mediation Services (“JAMS”) Class Actions Procedures.19
In recent years, this “American-born” class arbitration idea has involved foreign plaintiffs and defendants,20 and now leads debates about its global implications.21 One notable case is Harvard v. Surgutneftgeaz,22 where purchasers of securities brought a putative class arbitration against a foreign entity for breach of inter alia, federal securities law. Though the case was later dismissed, if the case had proceeded, it would have involved Swiss, German and countless other international investors in a class arbitration against a Russian defendant.23
B. Situation in Countries other than the United States
Europe and the rest of the world are agog with mixed feelings about class arbitration. Some commentaries have described it as unworkable and unenforceable. Yet, there is evidence of openness towards this kind of procedure for dispute resolution.24 For example in Canada, Canadian authorities have contemplated class arbitration at both the legislative and judicial levels although the official position remains unclear because of different approaches adopted across provinces.25 Also, in Germany, 26 the German Arbitration Institute (DIS) promulgated a specialized set of arbitral procedures to govern disputes of this nature after the German Federal Court of Justice declared that a shareholder disputes was arbitrable as a class.27
In Valencia v. Bancolombia,28 a tribunal based in Bogota, Colombia, was invited to hear a class suit initiated by shareholders following the merger of two financial entities. The action was initially filed in court but the Supreme Court of Justice held that the courts did not have jurisdiction over the matter, given the existence of an arbitration agreement in the bylaws of one of the financial entities.29 The plaintiffs argued that class actions in Colombia are subject to the exclusive jurisdiction of the courts, but the Court rejected the argument on grounds that the agreement did not limit the types of claims that could be submitted to arbitration and thus did not exclude class arbitrations as a matter of law.30
This section addresses the arguments for and against international class arbitration. This section focuses on policy considerations regarding class arbitration and considers whether international class arbitration is a viable mechanism to handle international commercial disputes involving multiple parties.
International Class Arbitration – A Recipe For Disaster?
As an idea birth in the wisdom of experience, free enterprise and desirability for efficiency, international class arbitration must address certain issues to become a predictable and fair mechanism to resolve international business disputes.31 Scholars, and jurists alike have criticized international class arbitration as unworkable, unenforceable, and a violation of due process.32
1. Due Process – Opt-In or Opt-Out Position
Due process is an essential element in international arbitration. It is a “flexible concept” subject to interpretation based on applicable national law.33 But what is true is that due process requires fundamental fairness – that is, an individual must be given the notice and opportunity to be heard prior to deprivation of life, liberty, or property interest.34 Much of the sentiments about international class arbitration has been about the opt-in or opt-out mechanism used to determine the putative class. The Opt-In position requires a putative class member to accept the notice to join an arbitration of certain dispute as a class. Class members give up their rights to individual arbitration when they join a preclusive class. 35 With Opt-In, issues such as consent, due process and other concerns about arbitrability are moot because a member of the putative class took active steps to be joined in an action against a defendant. This is of advantage to defendants because it would result in “drastically reduced” numbers of class members.36
The Opt-Out position is different because there is a general presumption that all plaintiffs are members of the putative class. Any plaintiff that does not intend to participate in the proceedings shall actively seek to be removed from the proceedings. Proponents of the Opt-Out class tend to devalue individualized litigation autonomy.37 Instead, they prioritize the efficiencies, equalizing features, and claim-enabling nature of class actions.38 But the Opt-Out position raises some due process concerns about notice of the arbitration, or whether members of the class should be expected to agree on the appointment of the arbitrators and applicable procedure, or to be bound by the decision of the tribunal.39
Questions about due process can be handled at the clause construction determination phase of the arbitration.40 There, the tribunal can order “the best notice that is practicable under the circumstances,” which may include “individual notice to all identifiable members” and/or “the publication or broadcasting of notices in newspapers, on television or via other forms of media.”41 Suffice to say that notice should not be a big issue because the parties should know the persons with whom they have contractual relationships. Arbitration is a product of contract and all parties to complex business contracts, through due diligence, know to whom and where their obligations lie.
2. Validity of Class Arbitration Agreement
Generally, the law of the seat of arbitration dictates whether there is a formal arbitration agreement. The key to this determination is that “only parties that have actually agreed to arbitrate their disputes can be compelled to arbitration proceedings.”42 In the United States, there is an ongoing controversy about whether an arbitration clause that is silent on class arbitration can be instituted. At least for Opt-In members, the parties can draft the clauses with the understanding that arbitration clauses support class arbitration. However, unlike Opt-In members, Opt-Out systems pose a different risk on the interpretation of silent or ambiguous arbitration agreement. With opt-out, members of the class may have no actual notice of the arbitration and are thus be unable to raise their objections to the arbitration clause, but will nevertheless be bound by any award rendered in the arbitration.43
This concern is not without a solution. First, consent does not have to be express. It can be inferred or implied from the actions of the parties. One view is that there is no need for separate consent to class arbitration where the parties have agreed in writing to arbitrate disputes.44 Second, consent can be demonstrated through the parties’ choice of procedural rules and laws, some of which may include methods of dealing with multi-party situations – such as the AAA Supplementary Rules, and JAMS Class Arbitration Rules. Anyway, the determination of whether an international business agreement contains a valid arbitration clause that permits class arbitration should be left to the decision of the arbitral panel.45
2. Privacy and Confidentiality
For centuries, privacy and confidentiality have been posed as some of the advantages of arbitration.46 In the context of international class arbitration, confidentiality would be undermined due to the need to provide information to the public.47 Relevant information “ought to be disclosed to potential parties, especially if the procedure considers an opt-out mechanism because the consequences of failing to opt-out of a collective proceeding are more burdensome than the consequences of failing to opt-in.”48 In Stolt-Nielsen SA v. AnimalFeeds International Corp.,49 the U.S. Supreme Court explained that “the presumption of privacy and confidentiality that applies in many bilateral arbitrations shall not apply in class arbitrations, thus potentially frustrating the parties’ assumptions when they agreed to arbitrate.”50
But as Professor Daniel J. King rightly pointed out in a seminar lecture,51 privacy and confidentiality are not the hallmark of arbitration and they are not deemed as absolute protections. Practically, even in individual arbitrations, local laws have reporting guidelines that may mandate the publication of certain arbitration awards. In addition, court decisions have suggested that “the principles of privacy and confidentiality
in arbitration
can be overcome in situations where there is some public interest at stake.”52 Class actions are a matter of public interest and a limited-or-no privacy should not deter the evolution of international class arbitrations.
B. International Class Arbitration – ADesirability for A Workable Strategy
Like every new legal theory, time, seasoned-thoughts, experience and reflection will contribute to the desirability of international class arbitration over time. No one has rejected the idea, but they have, and rightly so, drawn up potential challenges that could affect international class arbitration. Overcoming these challenges through debates will help to create a set of rules that can be adopted by the different arbitration institutions for international class arbitration.53 The AAA started the process in 2003, and now international class arbitration has been topical. With more parties willing to explore international class arbitration by making explicit arbitration agreements and submitting to the jurisdiction of the arbitral tribunal to resolve the issues, time will mold this concept into a more perfect scheme for international business dispute resolution.
International class arbitration is an efficient method to make a final determination of multi-party claims against a defendant. All parties can consolidate their claims into one arbitral proceeding and have their rights determined under the contract and agreed substantive law. There is a reduction in the duplication of pre-hearing procedures, leading to relative savings of cost, effort and time.54 In addition, a single tribunal can familiarize themselves with the law and facts of a case which (a) facilitates the likelihood of reaching the “right” result; (b) decreases the likelihood of additional dispute resolution proceedings; and (c) creates the possibility of a single global settlement which may be more realistic and which may avoid bankrupting the defendant.55 There will be a consistency of results for all the injured and for the defendants. Multinational corporations using standard form contracts to centralize dispute resolution techniques – one seat of arbitration, substantive law and/or arbitration institution rules.56
Arbitration as a dispute resolution mechanism is known for its innovation and informality, mostly as a result of the freedom to contract.57 Furthermore, international arbitration is known for its amalgamation of civil law and common law procedures. Thus, the evolution of international class arbitration should not be rejected because of the ideology of traditional, bilateral arbitration. Procedures that might not be adopted for court use or in bilateral arbitration can form the basis of binding class arbitration. Courts enforcing international class awards should also “recognize that, as a general policy matter, the advantages of class arbitrations outweigh the disadvantages, particularly when claimants would be unlikely to arbitrate to recover very small sums.”58
Today, class arbitration stands in a controversial position and it undoubtedly creates new systemic tensions. Consider the hypotheticals in the introduction above, ABC Corporation and XYZ Corporation will have mixed feelings about class arbitrations. On the one hand, both corporations will want a one-time resolution of liability and perhaps, damages so that they can move on with their businesses. On the other hand, but-for class arbitrations, the putative class may not have been able to garner enough public interest to arbitrate the case.
All writers across the divide admit that class arbitration is unique and has a potentially important role to play in international spheres. Large-scale multi-party international disputes are some of the biggest issues facing the world today.59 With hundreds of known class arbitrations having been filed,60 class arbitration is capable of addressing large-scale international business disputes, either because the procedures are streamlined and already familiar to the parties due to similarities with litigation or because class arbitration appears to serve many of the same ends as judicial class actions. Now, opt-out procedures present too many problems for international class arbitrations that cannot be addressed within the limits of the paper. However, opt-in systems guarantee that all participants are made aware of and have fully consented to class arbitration. 61 Also, arbitral institutions should play a key role by providing arbitration rules specifically dealing with international class arbitrations, because the complexity of these procedures advises that they should be crafted and supervised by highly competent experts.62 This would offer an opportunity to discuss relevant issues by experts and stakeholders
1 S.I. Strong, Resolving Mass Legal Disputes Through Class Arbitration: The United States and Canada Compared, 37 N.C.J. Int’l. & Com. Reg. 921 (2011).
2 See, S.I. Strong, Enforcing Class Arbitration In The International Sphere: Due Process and Public Policy Concerns, 30 U. Pa. J. Int’l L. 1, 8 (“None of the anticipated objections appear to justify a blanket prohibition on international class arbitrations.”)
3 BERNARD HANOTIAU, COMPLEX ARBITRATIONS: MULTIPARTY, MULTICONTRACT, MULTI-ISSUE AND CLASS ACTIONS 260 (2006).
4 Francisco Blavi & Gonzalo Vial, Class Actions in International Commercial Arbitration, 39 Fordham Int’l L.J. 791.
5 William H. Baker, Class Action Arbitration, Cardozo J. of Conflict Resol. 335, 344 (2009).
6 Deposit Guar. Nat’l Bank v. Ropez, 445 U.S. 326, 338 (1980).
7 ROBERT H. KLONOFF & EDWARD M. BILICH, CLASS ACTIONS AND OTHER MULTI-PARTY LITIGATION, 1 (2000).
8 Blavi & Vial, supra note 4, at 794.
9 W. Mark C. Weidemaier, Arbitration and the Individual Critique, 49 Ariz. L. Rev. 69, 70 (2007).
10 S.I Strong, supra note 2.
11 See S.I. Strong, The Sounds of Silence Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration In Cases Of Contractual Silence Or Ambiguity?, 30 Mich. J. Int’l L. 1017 (2009).
12 Id. at 1021 (n. 6).
13 S. Giroud & S. Moss, Mass Claims Processes Under Public International Law, available at https://www.lalive.law/wp-content/uploads/2017/07/Collective_Redress_Press_Giroud_Moss.pdf. (last visited May 13, 2019).
14 Id.
15 Blavi & Vial, supra note 4, at 799 (Blavi); See, Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982), rev’d on other grounds sub nom. Southland v. Keating, 465 U.S. 1 (1984).
16 Gary Born & Claudio Salas, The United States Supreme Court and Class Arbitration: A Tragedy of Errors, 2012 J. of Disp. Resol. 1, 21 (2012).
17 539 U.S. 444 (2003).
18 Born & Salas, supra note 16. But see Stolt-Nielsen SA v. AnimalFeeds International Corp., 559 U.S. 662 (2010) (holding that where an arbitration agreement is undoubtedly silent about class arbitration, an arbitrator cannot conclude that the parties agreed to arbitrate on a class-wide basis).
19 Rachel Kent & Marik String, Availability of Class Arbitration Under US Law, in 18 ICCA CONGRESS SERIES, 853, 856 (2015).
20 See Baker, supra note 4, at 355. (“As of August 2008, the AAA had administered 246 class action arbitrations.”)
21 See generally, Jan-Krzysztof Dunn-Wasowicz, Collective Redress in International Arbitration: An American Idea, A European Concept?, 22 Am. Rev. Int’l Arb. 285 (2011).
22 Harvard College v. JSC Surgutneftegaz, American Arbitration Association, AAA No. 11 168 T 01654 04, June 29, 2004
23 Id.
24 See Jan-Krzysztof Dunn-Wasowicz, supra note 21.
25 See Man. Law Reform Comm’n Report, 115, Mandatory Arbitration Clauses and Consumer Class Proceedings, 3-4, 22-23 (Apr. 2008); and Genevieve Saumier, Consumer Arbitration in the Evolving Canadian Landscape, 113 Penn St. L. Rev. 1203, 1215-22 (2009).
26 See Saumier, supra note 25 at 28.
27 See S v. M, Case No. II ZR 255/08 (German Federal Court of Justice) Apr. 6, 2009, Kriendler Digest for ITA Board of Reporters, available at www.kluwerarbitration.com.
28 Zuleta Digest for Institute for Transnational Arbitration (ITA) (Arb. Trib. Bogota Chamber Comm. 2003), available at http://www.kluwerarbitration.com.
29 Id.
30 Id.
31 Roman Khodykin, Class Arbitration: Is There an Appetite for It in Europe?, LEXOLOGY (May 14, 2015), https://www.lexology.com/library/detail.aspx?g=45971385-112d-47dd-b6b4-40863e0128ca (last visited, May 14, 2019).
32 Hans Smit, Class Actions In International Arbitration, 19 Am. Rev. Int’l Arb. 201, 205-07 (2008).
33 S.I Strong, Supra note 3, at 53-54.
34 Charles T. Kotuby Jr., General Principles of Law, International Due Process, And The Modern Role of Private International Law, 23 Duke J. Comp. & Int’l L. 411 (2013).
35 Scott Dodson, An Opt-In Option for Class Actions, 115 Mich. L. Rev. 171, 186 (2016).
36 See John Broonsteen, Class Action Settlements: An Opt-In Proposal, U.Ill. L. Rev. 903, 906, 909 (2005) (“People simply do not reply to notice letters.”)
37 Scott, supra note 35.
38 Id.
39 Blavi & Vial, supra note 4, at 810.
40 The typical stages in a class action arbitration are (i) demand for arbitration and filing fees; (ii) arbitrator selection; (iii) clause construction determination; (iv) class certification; (v) class notice; and (vi) final award and settlement. See JAMS and AAA Rules; See also, Joseph Jaramillo, Recent Developments in Class Action Arbitration, https://gbdhlegal.com/wp-content/uploads/article/Class-Arbitrations.pdf
41 Gabrielle Nater-Bass, Class Action Arbitration: A New Challenge?, 27 ASA BULLETIN 671 (2009).
42 Id. at 681.
43 Id.
44 See S.I Strong, supra note 11 at 1061 (“Implied consent can be found through several means. First, it can be gleaned from the parties arbitration agreement, either through the scope of the language used in the arbitration agreement – which might be broad and/or contemplate other types of multi-party proceedings – or through extrinsic evidence of the parties’ intentions and expectations.” Citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 626 (1985).)
45 Abigail Rubenstein, Arbitration Contracts Can Ban Class Actions: High Court, LAW 360 (Apr. 27, 2011), available at, https://www.law360.com/articles/241700/arbitration-contracts-can-ban-class-actions-high-court (last visited May 14, 2019).
46 See, 2013 International Arbitration Survey: Corporate Choices In International Arbitration Industry Perspectives, PRICEWATERHOUSE COOPERS (2013), available at https://www.pwc.com/gx/en/arbitration-dispute-resolution/assets/pwc-international-arbitration-study.pdf.
47 Nater-Bass, supra note 41.
48 Blavi & Vial, supra note 4, at 811.
49 559 U.S. 662 (2010).
50 Id. at 686.
51 Dan King is a retired Partner in King & Spalding’s Business Litigation and International Arbitration Practice Groups. Mr. King served as the leader of the firm’s Business Litigation Practice Group from 2003 to 2008. Mr. King has significant litigation and trial experience in a wide range of commercial litigation and international arbitration matters and has broad experience representing clients in connection with disputes in Europe, North and South America, the Middle East and Asia. Mr. King is an adjunct professor of International Arbitration at the University of Georgia School of Law.
52 S.I Strong (From Class to Collective) p. 514 (citing Loukas A. Mistelis, Confidentiality and Third-Party Participation: UPS v. Canada and Methanex Corporation v. the United States, 21 Arb. Int’l 211, 211-12(2005).
53 See, 1 THE DARK-HUNTERS, Sherilyn Kenyon (“The strongest steel is forged by the fires of hell. It is pounded and struck repeatedly before it’s plunged back into the molten fire. The fire gives it power and flexibility, and the blows give it STRENGTH. Those two things make the metal pliable and able to withstand every battle it’s called upon to fight.”)
54 See, S.I. Strong, supra note 2, at 83.
55 Id.
56 Blavi & Vial, supra note 4.
57 Weidemaier, supra note 9, at 70.
58 See, S.I. Strong, supra note 2, at 99.
59 See European Commission, Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC (2011) 173 (Feb. 4, 2011), available at http://ec.europa.eu/justice/news/consulting_public/ou54/sec_2011_173_en.pdf. (last visited May 13, 2019).
60 S.I. Strong, supra note 1, at 942.
61 Blavi & Vial, supra note 4
62 Id. at 826.