An Arbitral Tribunal’s Dilemma: The Plea of Financially Impecunious Parties

Abstract

An arbitral tribunal faces a unique dilemma when a party to an arbitration agreement asserts that it is financially impecunious. While the principle of pacta sunt servanda justifies binding parties to arbitrate regardless of their financial situation, this is challenged by practical access to justice concerns resulting from impecuniosity. A party’s impecuniosity may result in serious consequences such as the inability to vindicate its rights or effectively present its defence in the arbitration. It is questionable whether an arbitration agreement can still be fairly performed in those situations. While there have been conflicting national jurisprudence regarding the impact of impecuniosity on the validity of an arbitration agreement, there is a lacuna in arbitral jurisprudence on this point. This article seeks to fill that lacuna by suggesting a principled approach that arbitral tribunals and institutions should follow in the face of such pleas. While impecuniosity should not render an arbitration agreement automatically ‘incapable of being performed’, an exception should be recognized when the impecuniosity results in a breach of the rules of natural justice. However, the party asserting impecuniosity must prove its impecuniosity on a high threshold and show that it has alternative recourse to national courts. Financial impecuniosity, Invalidity of arbitration agreements, Incapable of being performed, Effective defence, Unable to present its case, Access to Justice, Natural Justice, Pacta Sunt Servanda, Inseparability of counterclaim, Separate Advances on Costs