Res judicata in international arbitration

Res judicata is a universally recognised legal principle, present in all domestic legal systems and considered a general principle of international law. It ensures that a final judgment or arbitral award is binding and precludes the relitigation of matters previously decided. Res judicata has both preclusive (i.e. negative) effects – barring relitigation – and conclusive (i.e. positive) effects, allowing a party to invoke the finality of a decision in subsequent proceedings. The principle serves to protect parties from repeated litigation, promote legal certainty and efficiency in dispute resolution.

Despite its universal recognition, the operation and scope of res judicata vary significantly across legal systems, particularly between common law and civil law traditions. These differences manifest in terminology, the breadth of preclusion, and the procedural or substantive characterisation of the doctrine.

The report provides a detailed comparative analysis of res judicata as applied in selected common law and civil law jurisdictions, focusing on both domestic judgments and the res judicata effects of arbitration awards.

• Australia recognises three forms of estoppel:
  • cause of action estoppel;
  • issue estoppel; and
  • Anshun estoppel (preclusion of issues that could have been raised previously).
• In common law Canada, the doctrine of res judicata is based on case-law and contains two aspects: cause of action estoppel and issue estoppel. In circumstances where the requirements for res judicata are not met, it is also possible to preclude relitigation by the application of the doctrine of abuse of process.
   
• In England and Wales, res judicata is used as an umbrella term containing distinct legal principles with distinct origins, such as:
  • cause of action estoppel;
  • the “doctrine of merger” – once a judgment has been given in favour of a claimant, the cause of action is extinguished following which the claimant’s sole right is upon the judgment;
  • issue estoppel – a decision on a particular issue, which is a necessary element that must be decided in the initial proceedings, will be binding for that issue in subsequent proceedings (against the same parties or their privies);
  • the rule in Henderson v Henderson –an estoppel extending to matters which might have been, but were not raised in the initial proceedings, unless there are special circumstances that justify otherwise; and
  • it may be an abuse of process to duplicate proceedings.
• Under US common law, there are two distinct doctrines of preclusion: issue preclusion and claim preclusion, which are collectively referred to as res judicata.

• Argentina, Belgium, Brazil, France, Germany, Italy, Japan, Poland, Romania, Spain, Sweden, and Switzerland all recognise res judicata, typically applying a “triple identity” test: same parties, same object or claim, same cause of action.
• The scope of res judicata in civil law systems has traditionally been narrower, often limited to the dispositive part of the judgment. There is a trend, however, toward broadening the doctrine, with some jurisdictions now extending preclusion to necessary reasoning and issues that could have been raised.
• Some civil law jurisdictions (i.e. France, Belgium, Italy, Spain) have evolved to require parties to present all relevant grounds and facts in the initial proceedings, aligning more closely with the broader approach of common law systems.

The report notes an emerging trend toward convergence between common law and civil law standards, particularly regarding:

• preclusion of claims raised in previous proceedings;
• preclusion of issues actually litigated; and
• preclusion of matters that could and should have been raised (i.e. abuse of process).

Significant divergences remain, however, regarding the scope of res judicata (e.g. whether it covers only the dispositive part or also the reasoning) and the treatment of issue preclusion.

International arbitral tribunals have not developed a coherent or uniform approach to res judicata. The main approaches are:

• Application of the law of the seat (Lex Arbitri): Most tribunals apply the res judicata standard of the seat of arbitration, treating it as a procedural matter. This is often done without detailed reasoning or consideration of party expectations.
• Application of the substantive law: Some tribunals apply the res judicata standard of the substantive law governing the contract, especially if the parties have argued on that basis.
• Hybrid or autonomous approaches: A growing number of tribunals consider both domestic law and general principles, such as the International Law Association’s, (ILA) Report and Recommendations on Res Judicata (2006), or adopt an autonomous standard tailored to the needs of international arbitration, especially where neither the law of the seat nor the substantive law is clearly appropriate.

The report identifies several key challenges with the current practice:

• Uncertainty in choice of law: There is no clear or consistent methodology for determining which law governs res judicata in arbitration. Tribunals apply different approaches, often without clear reasoning.
• Divergent domestic standards: The scope and requirements of res judicata differ significantly between jurisdictions, leading to unpredictability in the preclusive effects of awards.
• Inappropriateness of domestic standards: Domestic res judicata rules are designed for court judgments and may not be suitable for the specific features of international arbitration, which values efficiency, finality, and party autonomy.
• Inefficiency: The lack of a clear standard leads to increased costs and delays, as parties must argue over which res judicata standard applies and tribunals must spend time resolving these issues.

The report argues that the differences between civil law and common law jurisdictions, while important, are not an insurmountable obstacle to establishing an autonomous, arbitration-specific res judicata standard. It is both desirable and possible for the IBA Arbitration Committee to develop a soft law instrument (i.e. guidelines) on an autonomous res judicata standard for international commercial arbitration. Such guidelines should provide a clear, uniform standard for the res judicata effects of commercial arbitration awards in subsequent commercial arbitrations. The guidelines should focus on objective res judicata (identity of claims and cause of action) and not address subjective res judicata (identity of parties) or investment arbitration at this stage. The guidelines should be non-binding and allow parties and tribunals to opt for domestic standards where necessary to ensure enforceability.

The current reliance on domestic res judicata standards in international arbitration is unsatisfactory due to inconsistency, unpredictability, and inefficiency. There is a growing consensus within the arbitration community for the development of an autonomous, arbitration-specific standard. The IBA Arbitration Committee is well-placed to lead this initiative by developing guidelines that reflect the needs of international arbitration, promote finality and efficiency, and can gain broad acceptance among stakeholders. As international commercial disputes grow in complexity and number, the adoption of a harmonised approach to res judicata is essential to ensure the continued effectiveness of international arbitration.