- On January 6, 2022
Have you lost your arbitration case? If you have, you are probably wondering what the next step is. Can you sue the arbitrator(s)? Well, yes, go ahead… but be prepared to maybe lose again.
On a more serious note, this article examines the issue of whether a party that is unsatisfied with the arbitral award may sue the arbitrator or the arbitration institution for compensation when the arbitrator has made an error of law.
According to the Bulgarian Supreme Court of Cassation[i] the arbitrators could be held liable for damages only if their conduct constitutes a crime (the same way as the state judges[ii]). The Supreme Court reasoned that arbitration is a legally recognized surrogate of the state justice and should therefore be able to provide the same protection that the parties would receive through the judgement of the state court. The court also found that the legal remedy against the erroneous arbitral award is to request the setting aside of the award or to invoke its nullity (if the dispute was non-arbitrable).
Thus, the Bulgarian Supreme Court of Cassation concluded that the arbitrator could not be held liable for damages under tort if the arbitrator has violated the substantive or procedural law in the arbitration procedure, unless the arbitrator’s conduct constitutes a crime.
A similar approach is also followed in other countries:
- US courts have explicitly granted judicial immunity to arbitrators[iii].
- Under German law, the arbitrators could be held liable only if the violations of duties constitute a criminal offense[iv].
- Canadian courts have adopted the position that in case bad faith or fraud is not present, an arbitrator enjoys immunity from civil liability similar to that of a judge[v].
II. Liability of the arbitral institution under the Bulgarian Liability of the State and Municipalities for Damages Act
Recently, the Bulgarian Supreme Court of Cassation[vi] issued a judgement on the issue regarding whether the arbitration institution could be held liable for damages under the Bulgarian Liability of the State and Municipalities for Damages Act. The plaintiff had filed a claim against a Bulgarian arbitration institution claiming compensation for damages caused by alleged breach of EU law. The Supreme Court of Cassation held that the arbitration courts are not state institutions and thus, a claim for compensation for damages under the Bulgarian Liability of the State and Municipalities for Damages Act is inadmissible. The court reasoned that the Bulgarian Liability of the State and Municipalities for Damages Act has been adopted in order to establish the procedure for compensation of the damages caused by the state to private entities by acts, actions or omissions of public authorities. However, according to the Supreme Court, since the arbitral institution is not a public body – it cannot be held liable under this Act.
According to Bulgarian Supreme Court of Cassation, the arbitrator could be held liable for damages only if the arbitrator’s conduct constitutes a crime. Furthermore, the arbitration courts are not state institutions and thus, a claim for compensation for damages under the Bulgarian Liability of the State and Municipalities for Damages Act is inadmissible.
IV. Food for Thought
According to the abovementioned judgement of the Bulgarian Supreme Court of Cassation, the arbitration courts could not be held liable under the Bulgarian Liability of the State and Municipalities for Damages Act. However, what about the state? Can (or should) the state be held liable for damages due to errors of an arbitration award? Did you know that in a recent judgment, the highest administrative court in Colombia has ruled that the State may be liable for arbitrators’ decisions on the ground of gross or fundamental errors affecting the award[vii]? We would be interested to hear about your opinion on the topic in the comments. Or maybe share information about the caselaw in your jurisdiction?
Author: Alexander Georgiev
[i] Judgment # 12 of 02.04.2018 on case # 1553/2017 of the Supreme Court of Cassation.
[ii] According to Article 132 of the Constitution of the Republic of Bulgaria, in exercising their judicial power, the judges could not be held criminally or civilly liable, unless they have intentionally committed a criminal offence from general nature.
[iii] See Supreme Court of Iowa 1880, Jones v. Brown.
[iv] See BGH 6 October 1954, II ZR 149/53.
[v] Aidan Cameron, Understanding the Liability of Arbitrators, February 02, 2017; URL: https://www.mccarthy.ca/en/insights/blogs/international-arbitration-blog/understanding-liability-arbitrators#_ftnref2
[vi] Ruling # 60311/12.10.2021 on case # 3062/2021 of the Supreme Court of Cassation.
[vii] The judgment of the Colombian court is available on the following link: https://bit.ly/3HHlISu. Short but clear and comprehensive comment on the judgement could be read here: https://www.linkedin.com/posts/andres-gustavo-mazuera-zuluaga-35a64a112_consejo-de-estado-activity-6872516339232313344-4bW3