Latest News
Behavioral Economics in Arbitration: A Case Study of Sea Search-Armada v. Colombia
Behavioral Economics in Arbitration: A Case Study of Sea Search-Armada v. Colombia
Introduction:
The arbitration case of Sea Search-Armada, LLC v. The Republic of Colombia (PCA Case 2023-37) presents a fascinating interplay between historical treasure claims and modern legal challenges. The complexity of the case, involving the San José Galeon, a Spanish Navy warship sunk in 1708, and the intervention of Spain, adds layers of intrigue. This article explores how behavioural economics can inform arbitral decision-making, particularly when parties fail to produce critical information.
Background of the Case:
Sea Search-Armada (SSA) claims a 50% share of the treasure aboard the San José Galeon, valued at roughly USD 10 billion. SSA's claim rests on a 1982 Confidential Report purportedly identifying the ship's location. Colombia disputes this, citing a 1982 Columbus Report suggesting the ship lies outside SSA's reported coordinates. Amidst these claims, the Kingdom of Spain has also asserted its rights over the ship.
The Tribunal's Challenge:
Arbitrator Jagusch highlighted a critical issue: Colombia's refusal to disclose the San José Galeon's location. This non-disclosure raises questions about whether adverse inferences should be drawn. Behavioral economics, particularly the theories developed by Kahneman and Tversky, provides a framework for understanding the implications of such omissions.
Evaluating the Parties' Conduct:
Representativeness Heuristic Bias
Jagusch's remarks point to the representativeness heuristic bias, where an arbitrator associates the non-disclosure of information with familiar outcomes. If arbitrators often see non-disclosure as indicative of harmful information, they might unfairly bias their decisions against Colombia. The IBA Rules on the Taking of Evidence in International Arbitration suggest that failure to produce documents can lead to adverse inferences, reinforcing this bias.
Illusions of Validity
Kahneman and Tversky’s concept of 'illusions of validity' warns against overestimating the accuracy of predictions based on incomplete information. Arbitrators might erroneously assume that withheld information is detrimental to the party withholding it, ignoring legitimate reasons such as national security concerns. Ensuring the protection of the San José Galeon, a treasure of immense historical value, is a compelling reason for non-disclosure.
Loss Aversion and Status Quo Bias
Loss aversion theory posits that losses loom larger than corresponding gains, leading to a status quo bias where decision-makers prefer to maintain the current situation to avoid potential losses. In this arbitration, the Tribunal might be inclined to keep SSA's claims alive rather than dismissing them prematurely, given SSA's previous unsuccessful attempts in other forums.
The Role of Inferences in Arbitration
The use of inferences in arbitration, while documented, requires caution. The International Court of Justice (ICJ) in the Corfu Channel Case stated that inferences must leave no room for reasonable doubt. Arbitrators must balance the need for decisive evidence with the biases inherent in human judgment.
Practical Implications for Arbitrators
Arbitrators should consider the following when dealing with non-disclosure:
- Contextual Analysis: Evaluate the reasons for non-disclosure in context, considering both legal and behavioural factors.
- Bias Awareness: Be aware of cognitive biases that may influence decision-making, such as the representativeness heuristic and loss aversion.
- Procedural Fairness: Ensure that inferences drawn are based on a robust procedural framework, as outlined in the IBA and Prague Rules.
Conclusion:
The Sea Search-Armada v. Colombia case underscores the importance of integrating behavioural economics into arbitration. By understanding the biases and heuristics that influence decision-making, arbitrators can make more informed, fair, and balanced decisions. The ongoing developments, in this case, will provide further insights into how behavioural economics can shape the future of arbitration.
- Arbitrators might erroneously assume that withheld information is detrimental to the party withholding it, ignoring legitimate reasons such as national security concerns.
- The International Court of Justice (ICJ) in the Corfu Channel Case stated that inferences must leave no room for reasonable doubt.
- Amidst these claims, the Kingdom of Spain has also asserted its rights over the ship.
