Forum Shopping in the International Commercial Arbitration Context [1 ed.] 9783866539914

Citation preview

| Forum Shopping in

the International Commercial Arbitration Context

© sellier european law publishers www.selllier.de

© sellier european law publishers www.selllier.de

| Forum Shopping in

the International Commercial Arbitration Context

edited by

Franco Ferrari

s|e| l |p

sellier european law publishers

NYU  Center for Transnational Litigation and Commercial Law

© sellier european law publishers www.selllier.de

ISBN (print)  978-3-86653-263-2 ISBN (eBook)  978-3-86653-991-4

The Deutsche Nationalbibliothek lists this publication in the Deutsche Na­ tio­nalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de.

© 2013 by sellier european law publishers GmbH, Munich All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior per­mis­ sion of the publisher. Production: Karina Hack, Munich. Typesetting: fidus Publikations-Service GmbH, Nördlingen. Printing and binding: Friedrich Pustet KG, Regensburg. Printed on acid-free, non-ageing paper. Printed in Germany.

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Preface For many, “forum shopping” is a term with disparaging or pejorative connotations, indicating something that commentators and courts consider to be “evil” and, therefore, must be avoided. And it is to reach that result that various policies against forum shopping exist on a domestic, a regional and an international level. As for the reasons adduced to justify the aforementioned anti-forum shopping stance, which commentators seem to question more and more, they include the assertion that forum shopping goes against the principle of consistency of outcomes, or as one commentator puts it, “decisional harmony”, apparently a fundamental tenet of virtually any legal system, that forum shopping overburdens certain courts and creates unnecessary expenses as litigants pursue the most favorable, rather than the simplest or closest, forum, that forum shopping contrasts with the idea of a “level playing field“ in that it may distort the playing field, and that forum shopping may create a negative popular perception about the equity of the legal system. Whether one agrees or not with the aforementioned anti-forum shopping stance, one must agree on forum shopping being a reality that influences virtually all decisions on where to bring a lawsuit. This book addresses to what extent forum shopping is relevant in the international commercial arbitration context. It contains the papers presented at the conference organized by NYU's Center for Transnational Litigation and Commercial Law entitled Forum Shopping in the International Commercial Arbitration Context held at NYU School of Law from February 28th to March 2nd, 2013. First and foremost, the Center for Transnational Litigation and Commercial Law wishes to thank all the contributors for accepting the invitation to come to NYU School of Law to give a talk and submit the papers published in this book. Many thanks are also due, however, to dott. Emilio Bettoni, LL.M. (NYU), for his invaluable help in editing this book. New York, June 2013

Franco Ferrari Director Center for Transnational Litigation and Commercial Law

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List of Contributors George A. Bermann Jean Monnet Professor of European Union Law, Director of the Center for International Commercial and Investment Arbitration, and co-Director of the European Legal Studies Center at Columbia Law School.

Christopher Boog Partner in the international arbitration group at Schellenberg Wittmer. His practice focuses on acting as counsel and arbitrator in international commercial disputes.

Jack Coe, Jr. Faculty Director of Pepperdine’s LL.M in International Commercial Arbitration

Filip De Ly Professor of Private International Law and Comparative Law at Erasmus School of Law in Rotterdam, The Netherlands. He is inter alia a Board member of the Netherlands Arbitration Institute and a member of the Council of the ICC Institute of World Business Law.

Domenico Di Pietro Lecturer, International Arbitration, University “Roma Tre”. Acts both as counsel and as arbitrator in international arbitration with Freshfields Bruckhaus Deringer.

John Fellas Partner in the New York office of Hughes Hubbard & Reed LLP, practicing in the fields of international litigation and arbitration.

Franco Ferrari Professor of Law, NYU School of Law; Director, Center for Transnational Litigation and Commercial Law; Chaired Professor of International Law, Verona University School of Law.

Brian King Partner in the international arbitration group at Freshfields Bruckhaus Deringer. Mr. King’s practice centers on acting as counsel or arbitrator in investment treaty and international commercial disputes.

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List of Contributors

Alexander Layton English barrister (Queen’s Counsel), arbitrator and author. His wide practice covers commercial and other disputes, many involving private international law issues or arbitration.

Loukas Mistelis Clive Schmitthoff Professor of Transnational Commercial Law and Arbitration; Director of the School of International Arbitration, Queen Mary University of London.

Rahim Moloo Associate in the international arbitration group at Freshfields Bruckhaus Deringer in New York.

Peter B. Rutledge Associate Dean for Faculty Development and the Herman E. Talmadge Chair of Law at the University of Georgia.

Maxi Scherer Senior Lecturer in International Arbitration at Queen Mary, University of London and Global Professor at New York University School of Law, Paris. She is also Special Counsel at Wilmer Cutler Pickering Hale and Dorr LLP.

Linda J. Silberman Martin Lipton Professor of Law, New York University, and Co-Director of the Center on Transnational Litigation and Commercial Law. She is a leading figure in private international law and transnational litigation, covering both commercial and family law areas.

Aaron Simowitz Acting Assistant Professor at New York University School of Law, where he teaches the Lawyering course and co-teaches the International Litigation seminar with Professor Linda Silberman.

Robert H. Smit Co-Chair of Simpson Thacher & Bartlett LLP’s International Arbitration Practice, and Adjunct Professor of International Arbitration at Columbia Law School.

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Table of Contents Preface v Forum Shopping in the International Commercial Arbitration Context: Setting the Stage Franco Ferrari A U. S. Perspective on Forum Shopping, Ethical Obligations, and International Commercial Arbitration Aaron D. Simowitz Forum Shopping and the Determination of the Place of Arbitration Filip De Ly Forum Shopping at the „Gateway“ to International Commercial Arbitration George A. Bermann

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23 53

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Anti-arbitration Injunctions and Anti-suit Injunctions: An Anglo-European Perspective Alexander Layton

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Enforcing Orders Against Third Parties (and Parties) for the Taking of Evidence in International Arbitration John Fellas

151

Interim Measures – Relevance of the Courts at the Place of Arbitration and Other Places Christopher Boog

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Courts and the Constitution of the Arbitral Tribunal: A Comparative Analysis of Standards of Arbitrator Independence and Impartiality Robert H. Smit Forum Shopping in International Arbitration – Forum Non Conveniens and Lack of Personal Jurisdiction Peter B. Rutledge

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Table of Contents

Setting Aside of Arbitral Awards and Forum Shopping in International Arbitration: Delocalization, Party Autonomy and National Courts in Post-Award Review Loukas Mistelis Forum Shopping and Enforcement of Foreign Arbitral Awards: Notes on Public Policy Domenico Di Pietro Forum-Shopping and Post-Award Judgments Linda Silberman / ​Maxi Scherer Making Remission and Other “Curative” Mechanisms Part of the Forum Shopping Conversation – A View from the U. S. with Comparative Notes Jack J. Coe Jr. Enforcement after the Arbitration: From National Courts to Public International Law Fora D. Brian King / ​Rahim Moloo

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Forum Shopping in the International Commercial Arbitration Context: Setting the Stage* Franco Ferrari I. Introduction For many, “forum shopping” is, if not a dirty word,1 at least a term with disparaging or pejorative connotations,2 indicating something that commentators and courts consider to be “evil”3 and, therefore, must be avoided.4 And it is to reach that result that various policies against forum shopping exist.5 In the United States, for instance, the doctrine laid down in Erie6 is, among others, a manifestation of such a policy on an intra-State level:7 it tries to avoid forum shopping8 between state and federal jurisdictions by imposing upon federal courts the application of state law on issues of substantive law when sitting in diversity.9 Similarly, Guaranty Trust Co. v. York10 and Klaxon Co. v. Stentor Electric Manufacturing   *

This paper is based on a paper to be published in Festschrift für Ulrich Magnus.

 1 See Atlantic Star v. Bona Spes, [1974] A.C. 436, 471 (opinion of Lord Simon) (hereinafter:

The Atlantic Star), stating that “[f]orum shopping is a dirty word”.

 2 See F. Juenger, Forum Shopping, Domestic and International, Tulane Law Review 553,

55 (1989); Atlantic Star v. Bona Spes, [1974] A. C. 436, 471.

 3 See C. E. Stewart, The Government Suspension Provision of the Clayton Act’s Statute of

Limitations: For Whom Does It Toll?, 60 St. John’s Law Review 70, 70 (1985); in case law see Ruiz v. Conoco, Inc., September 29, 1993, 868 S. W.2d 752, 760 (Tex., 1993) (referring to the “perceived evils of forum shopping); Wheeler v. Shoemaker, March 3, 1978, 78 F.R.D. 218, 227 (D.R.I., 1978) (referring to the “evils of forum shopping”).  4 See R. U. Whitten, Improving the “Better Law’ System: Some Impudent Suggestions For Reordering and Reformulating Leflar’s Choice-Influencing Considerations, 52 Arkansas Law Review, 177, 226 (1999).  5 See, e. g., Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1202 (7th Cir. 1996) (referring to “a strong and long-established policy against forum-shopping”).  6 Erie R. Co. v. Tompkins, April 25, 1938, 304 U.S. 64 (1938).  7 See In re Coudert Bros. LLP., 673 F.3d 180, 188-190 (C.A. 2 N.Y.).  8 The Supreme Court itself makes it very clear that one of the aims of Erie was the avoidance of forum-shopping; see Semtek Intern. Inc. v. Lockheed Martin Corp., 531 U.S. 497, 498 (2001); Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 27 n.6 (1988); id. at 33 (Scalia, J., dissenting); see e. g., Walker v. Armco Steel Corp., 446 U.S. 740, 744-45 (1980).  9 See Erie R. Co. v. Tompkins, April 25, 1938, 304 U.S. 64, 78(1938) (“Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state”). 10 Guaranty Trust Co. v. York , 326 U.S. 99 (1945).

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Forum Shopping in the International Commercial Arbitration Context: Setting the Stage

Co.,11 cases following the wake of Erie, also are evidence of an anti-forum shopping attitude of federal courts in the intra-State context, i. e., where the choice is between state and federal court.12 On an inter-State level, the policy against forum shopping is behind, for instance, the Uniform Conflict of Laws – Limitations Act (promulgated in 1982). This Act13 was introduced to prevent the inter-State forum shopping possibilities14 originating from the statute of limitations traditionally being characterized as “procedural” for conflict of laws purposes – which resulted in the application of the limitation period prescribed by the forum state’s law.15 Unlike the “borrowing statutes” the Act intended to replace, i. e., those statutes which try to prevent forum shopping by providing that a cause of action, irrespective of whether it has a statutory basis or a judge-made one, is barred in the forum if it is barred in the state where the claim accrued, the Act tried to prevent forum shopping by characterizing the statute of limitations as substantive for conflict of laws purposes, thus pairing the state law applicable to questions of liability and recovery with that state’s statute of limitations, regardless of whether it would be longer or shorter than that of the lex fori. The anti-forum shopping stance is, however, not only characteristic of given national legal systems; it can also be discerned on a wider basis. This is true, for instance, as regards the European level, where, to give just one example,16 one of the overall justifications for efforts towards the unification of private international law in that region was the avoidance of forum shopping. This can be derived not only from Recitals 6 of both the Regulation (EC) No. 593 / 2008 11

Klaxon Co. v. Stentor Electric Manufacturing Co , 313 U.S. 487 (1941). E. T. Lear, Federalism, Forum Shopping, and the Foreign Injury Paradox, 51 William and May Law Review 87, 90-91 (2009). This Act was preceded by another attempt at unifying issues relating to the statute of limitations to avoid forum shopping, namely the Uniform Statue of Limitations on Foreign Claims Act (promulgated in 1957). P. Caroll, Uniform Laws in Arkansas, 52 Arkansas Law Review 313, 325 (1999). See also K. C. Kettering, Codifying a Choice of Law Rule For Fraudulent Transfer: A Memorandum to the Uniform Law Commission, 19 American Bankruptcy Institute Law Review 319, 345 n. 106 (2011); K. C. Kettering, Harmonizing Choice of Law in Article 9 with Emerging International Norms, 46 Gonzaga Law Review 248 (2010-2011). For references to the anti-forum shopping stance on the European level in other areas, see, e. g., Purrucker v. Vallés, (Case C-256 / 09), para. 91 (expressly referring to the antiforum shopping objective of Council Regulation (EC) No 2201 / 2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility, repealing Regulation (EC) No 1347 / 2000; N.S. (Case C‑411 / 10), para. 79 (expressly referring to the antiforum shopping objective of Council Regulation (EC) No 343 / 2003 of 18 February 2003 establishing the criteria and mechanisms for determining the Member State responsible for examining an asylum application lodged in one of the Member States by a thirdcountry national).

12 See 13

14

15

16

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I. Introduction

of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)17 and the Regulation (EC) No 864 / 2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II),18 both of which refer to the “proper functioning of the internal market creat[ing] a need, in order to improve the predictability of the outcome of litigation, certainty as to the law applicable and the free movement of judgments, for the conflict-of-law rules in the Member States to designate the same national law irrespective of the country of the court in which an action is brought”,19 but also, and even more explicitly, from the Giuliano / ​Lagarde Report accompanying the 1980 Convention on the law applicable to contractual obligations.20 In that Report, it is expressly stated that it is “[t]o prevent […] “forum shopping” that it was decided “for the rules of conflict to be unified in fields of particular economic importance so that the same law is applied irrespective of the State in which the decision is given.”21 On an international level, too, an anti-forum shopping stance can be discerned. By way of example, it may suffice to recall that one of the declared major goals behind the drafting of the 1980 United Nations Convention on Contracts for the International Sale of Goods is, according to the UNCITRAL Secretariat,22 “to reduce the search for a forum with the most favourable law”.23 17

18

19

20

21 22

23

Regulation (EC) No. 593 / 2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), Official Journal L 177, 4 July 2008, p. 6. Regulation (EC) No 864 / 2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), Official Journal L 199, 31 July 2007, p. 40. See also G.-P. Calliess, Introduction, in G.-P. Calliess ed., Rome Regulations. Commentary on the European Rules of the Conflict of Laws, 2011, 1, 5-6 (examining the Regulations’ “[l]imiting effects on forum shopping”). Report on the Convention on the law applicable to contractual obligations by Mario Giuliano, Professor, University of Milan, and Paul Lagarde, Professor, University of Paris I, Official Journal C 282, 31 October 1980, p. 11. Id. at 5. Commentary on the Draft Convention on Contracts for the International Sale of Goods prepared by the Secretariat (“Secretariat Commentary”) / ​U N DOC . A / ​CONF. 97 / 5; for commentators stating that one on the Convention’s goal is to prevent forum shopping, see F. Burkart, Interpretatives Zusammenwirken von CISG und UNIDROIT Principles, 2000, 8; I. I. Dore, Choice of Law under the International Sales Convention: A U.S. Perspective, 77 American Journal of International Law 521, 532 (1983); J. Erauw, Wanneer is het Weens Koopverdrag van toepassing?, in H. van Houtte et al. eds., Het Weens Koopverdrag, 1997, 21, 23; D. Matthews, International Sales Law: Goodbye Soon to All Forum Shoppers?, 1 ICC Business World 12, 12 (1983). It has been pointed out repeatedly that the United Nations Convention on Contracts for the International Sale of Goods is not able to prevent forum shopping; see F.Ferrari,

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The international legislator seems to be driven by a negative attitude towards forum shopping in other areas as well. The Hague Convention on the Civil Aspects of Child Abduction,24 for instance, was specifically designed, according to both scholars25 and courts, “to restore the status quo prior to any wrongful removal or retention, and to deter parents from engaging in international forum shopping in custody cases”26 “by denying jurisdiction to hear the custody dispute in the abducted-to forum.”27 As for the reasons adduced in justification of the aforementioned antiforum shopping stance, they include the assertion that forum shopping goes against the principle of consistency of outcomes,28 or, as one commentator puts

24 25

26

27

28

International Sales Law and the Inevitability of Forum shopping: A Comment on Tribunale di Rimini, 26 November 2002, 23 Journal of Law and Commerce 169 (2004). Hague Convention on the Civil Aspects of International Child Abduction, 1343 U.N.T.S. 89 (entered into force on December 1st, 1983). See, e. g., C. L. Blakesley, Comparative Ruminations from the Bayou on Child Custody Jurisdiction; The UCCJA, the PKPA, and the Hague Convention on Child Abduction, 58 Lousiana Law Review 449, 466-468 (1998); D. L. Brewer, The Last Rights: Controversial Ne Exeat clause Grants Custodial Power under Abbott v. Abbott, 62 Mercer Law Rev. 663, 680 (2011); T. Jones, A Ne Exeat Right is a “Right of Custody” for the Purposes of the Hague Convention: Abbott v. Abbott, 49 Duquesne Law Review 523, 541 (2011); M. Sattler, The Problem of Parental Relocation: Closing the Loophole in the Law of International Child Abduction, 67 Washington and Lee Law Review 1709, 1716 and 1734 (2010); S. I. Winter, Home is Where the Heart is: Determining “Habitual Residence” under the Hague Convention on the Civil Aspects of International Child Abduction, 33 Washington University Journal of Law and Policy 351 (2010); G. Zohar, Habitual Residence: An Alternative to the Common Law Concept of Domicile?, 9 Whittier Journal of Child and Family Advocacy 169, 187 (2009). Karkkainen v. Kovalchuk, 445 F.3d 280, 287 (3d Cir. 2006); see more recently Walker v. Kitt, 24 October 2012, 2012 WL 5237262, at *3 (N.D.Ill. 2012); Font Paulus ex rel. P.F.V. v. Vittini Cordero, 29 June 2012, 2012 WL 2524772, at *1 (M.D.Pa. 2012); Saldivar v. Rodela, 22 June 2012, 2012 WL 2914833, at *3 (W. D.Tex. 2001); Khan v. Fatima, 4 May 2012, 680 F.3d 781, 788 (2012); Maurizio R. v. L.C., 5 December 2011, 201 Cal.App.4th 616, 633 (2011); Kufner v. Kufner, 519 F.3d 33, 38 (1st Cir., 2008); Mendez-Lynch v. Pizzutello, 13 February 2008, 2008 WL 416934, *2 (N.D. Ga. Feb. 13, 2008); Kijowska v. Haines, 20 July 2006, 463 F.3d 583, 586 (7th Cir.2006). B. E. Lubin, International Parental Child Abduction: Conceptualizing New Remedies Through Application of the Hague Convention, 4 Washington University Global Studies Law Review 415, 422 (2005). See, e. g., G. S. Koppel, Toward a New Federalism in State Civil Justice: Developing a Uniform Code of State Civil Procedure Through a Collaborative Rule-Making Process, 58 Vanderbilt Law Review 1167, 1191 (2005) (stating that forum shopping promotes the “risk that similarly situated litigants may be treated differently and, as a result, unfairly”).

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I. Introduction

it, “decisional harmony”,29 apparently a fundamental tenet of virtually any legal system,30 that forum shopping overburdens certain courts31 and creates unnecessary expenses as litigants pursue the most favorable, rather than the simplest or closest, forum,32 that forum shopping contrasts with the idea of a “level playing field“33 in that it may distort the playing field,34 and that forum shopping may create a negative popular perception about the equity of the legal system.35 It is worth pointing out that in the last decades the negative attitude vis-à-vis forum shopping has been questioned by scholars, as have the justifications for that attitude.36 Even legislators are not absolute in their condemnation of forum shopping. On a European level, it is worth pointing out that, even though some 29

Calliess, supra note 19, at 6. H. L. A. Hart, The Concept of Law, 1961, 155. 31 In this respect, see, e. g., Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947), stating that “administrative difficulties follow for the courts when litigation is piled up in congested centers instead of being handled at its origin”; see also Gantes v. Kason Corp., 679 A.2d 106, 113 (N. J. 1996) (stating that “the policy against forum shopping is intended to ensure that New Jersey courts are not burdened with cases that have only ‘slender ties’ to New Jersey”). 32 See 135 Cong. Rec. E2243 (daily ed., 21 June 1989), where the following statement by Rep. Luken is reproduced: “The losers [from forum shopping] are the American public who end up paying excessive legal fees that are silently encapsulated in the price of products”. In scholarly writing see M. H. Gottesman, Draining the Dismal Swamp: The Case for Federal Choice of Law Statutes, 80 Georgetown Law Journal 1, 13 (1991), referring to the “significant costs” created by forum shopping. 33 See G. D. Brown, The Ideologies of Forum Shopping – Why Doesn’t a Conservative Court Protect Defendants, 71 North Carolina Law Review 649, 668 (1993); Note, Forum Shopping Reconsidered, 103 Harvard Law Review 1677, 1685 (1990); N. Vlavianos, The Regulation of Wind Power in Alberta: The Case of Municipalities, 22 Journal of Environmental Law and Practice 125, 127 (2011). 34 See D. Crump, The Case for Restricting Diversity Jurisdiction: The Undeveloped Arguments, From the Race to the Bottom to the Substitution Effect, 62 Maine Law Review, 1, 9 (2010) (referring to the fact that “litigants engage in forum shopping that is not designed to find the “best” forum, but rather to win, even by distorting the playing field”). 35 See Hanna v. Plumer, April 26, 1965, 380 U.S. 460, 468 (1965); in scholarly writing see K. J. Norwood, Shopping for a Venue: The Need for More Limits on Choice, 50 University of Miami Law Review 267, 305 f. (1996), referring to erosion of public confidence in the court system as one of the consequences of forum shopping. 36 See, apart from the author cited infra in note 62, e. g., J. H. Ely, The Irrepressible Myth of Erie, 87 Harvard Law Review 693 (1974); M. Petsche, What’s Wrong with Forum Shopping? An Attempt to Identify and Assess the Real Issues of a Controversial Practice, 45 International Lawyer 1005 (2011). 30 See

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Forum Shopping in the International Commercial Arbitration Context: Setting the Stage

anti-forum shopping attitude is discernible,37 both the Brussels Convention and the Brussels I Regulation actually provide for forum shopping possibilities, despite their general anti-forum shopping attitude,38 as both instruments provide for a general head of jurisdiction on the basis of the principle “actor sequitur forum rei”39 as well as competing special heads of jurisdictions, thus clearly granting the plaintiff the choice where to legitimately start proceedings.40 Not only, “[t]he choice afforded by this co-existence is given to the claimant and is not to be pre-empted by the court which is not allowed to restrict this choice by employing a doctrine of forum non conveniens.”41 Forum shopping possibilities are also provided for by international conventions. In this respect, it may suffice to refer to the so-called 1999 Montreal Convention,42 which, depending on what kind of damage was suffered, allows 37

See, e. g., apart from the references accompanying notes 16 et seq., Recital 4 to the Council Regulation (EC) No 1346 / 2000 of 29 May 2000 on insolvency proceedings, stating that “‘[i]t is necessary for the proper functioning of the internal market to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position (forum shopping)”; for case law pointing to the anti-forum shopping stance evidenced by the foregoing Recital, see Seagon v. Deko Marty, (Case C-339 / 07), (2009) ECR I-767, para. 23; Commission v. AMI Semiconductor Belgium, (Case C-294 / 02), para. 55. 38 See Roche Nederland and others, (Case C-539 / 03), (2006) ECR I-6569, 6582 para. 38; 39 See, e. g., Besix v. Kretschmar, (Case C-256 / 0 0), (2002) ECR I-1718, 1733 para. 52; Group Josi Reinsurance Company SA v. Universal General Insurance Company ( UGIC), (Case C-412 / 98) (2000) ECR I-5925, I-5952 para. 35. 40 Most recently, see A. Vezyrtzi, Jurisdiction and International Sales under the Brussels I Regulation: Does Forum Shopping Come to an End?, 15 Columbia Journal of European Law Online 83, 87 (2009), available at http: // ​www.cjel.net / ​wp-content / ​uploads / 2009 / 06 / ​vezyrtzi1.pdf, stating that “mere existence of “special jurisdiction” in section 2, Chapter II, of the Regulation and the increase in potential jurisdictions for a plaintiff to choose from in deciding where to bring a case inevitably continue to produce incentives for forum shopping”. 41 P. Mankowski, Art. 5, in P. Mankowski / ​U. Magnus eds., Brussels I Regulation 2nd ed., 2012, 88, 112-113; in case law, see Mahme Trust Reg v. Lloyd’s TSB Bank plc , 2 Lloyd’s Rep. 637, 641 (Ch.D., 2004). 42 Convention for the Unification of Certain Rules for International Carriage by Air – Montreal, 28 May 1999. 43 See, most recently, G. N. Tompkins, Jr., Liability Rules Applicable to International Air Transportation as Developed by the Courts in the United States. From Warsaw 1929 to Montreal 1999, 2010, 243; in case law, see, most recently, Cour de Cassation, 7 Decem­ber 2011, available at: http: // ​w ww.courdecassation.fr / ​jurisprudence_2 / ​pre miere_chambre_civile_568 / 1201_7_21658.html. 44 See P. D. Dempsey / ​M. Milde, International Air Carrier Liability: The Montreal Convention of 1999, 2005, 217-221.

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I. Introduction

plaintiff to bring suit in any of five alternative – but exclusive43 – fora,44 thus clearly granting plaintiff an ample choice.45 The choice granted to the plaintiff is actually so extensive – and the forum shopping possibility so ample – that U.S. courts have – wrongly46 – tried to limit that choice and, thus, the forum shopping possibility by applying what is a domestic anti-plaintiff forum shopping device, namely the forum non conveniens doctrine.47 Like the 1999 Montreal Convention, the CMR, the 1956 Convention on Contracts for the Carriage of Goods by Road, also provides an exhaustive48 list of exclusive49 fora where the plaintiff can, at the plaintiff ’s choice,50 start court 45

See Article 33 of the 1999 Montreal Convention: “1. An action for damages must be brought, at the option of the plaintiff, in the territory of one of the States Parties, either before the court of the domicile of the carrier or of its principal place of business, or where it has a place of business through which the contract has been made or before the court at the place of destination. 2. In respect of damage resulting from the death or injury of a passenger, an action may be brought before one of the courts mentioned in paragraph 1 of this Article, or in the territory of a State Party in which at the time of the accident the passenger has his or her principal and permanent residence and to or from which the carrier operates services for the carriage of passengers by air, either on its own aircraft or on another carrier’s aircraft pursuant to a commercial agreement, and in which that carrier conducts its business of carriage of passengers by air from premises leased or owned by the carrier itself or by another carrier with which it has a commercial agreement.” 46 For this critical assessment, see, most recently, Cour de Cassation, 7 December 2011, available at: http: // ​w ww.courdecassation.fr / ​jurisprudence_2 / ​premiere_chambre_ civile_568 / 1201_7_21658.html. 47 See In re West Caribbean Airways, 16 May 2012, 2012 WL 1884684 (S. D.Fla., 2012); In re Air Crash Over Mid-Atlantic on June 1, 2009, 4 October 2010, 760 F.Supp.2d 832 (N.D.Cal., 2010); Delta Air Lines, Inc. v. Chimet, S. p. A., 30 August 2010, 619 F.3d 288 (C.A.3 (Pa.), 2010.); Khan v. Delta Airlines, Inc., 12 August 2010, 2010 WL 3210717 (E.D.N.Y., 2010); Pierre-Louis v. Newvac Corp., 8 October 2009, 584 F.3d 1052 (C.A.11 (Fla.), 2009); Seales v. Panamanian Aviation Co. Ltd., 18 February 2009, 2009 WL 395821 (E.D.N.Y.,2009); In re West Caribbean Airways, S. A., 27 September 2007, 619 F.Supp.2d 1299 (S. D.Fla.,2007); For scholars approvingly commenting on the use of the forum non conveniens doctrine under the 1999 Montreal Convention, see, e. g., A. I. Mendelsohn, The United States and the European Union in International Aviation, 55 Federal Lawyer 36, 41-42 (2008); A. I. Mendelsohn / ​C . J. Ruiz, The United States v. France: Article 33 of the Montreal Convention and the Doctrine of Forum Non Conveniens, 77 Journal of Air Law and Commerce 467 (2012); Tompkins, supra note 43, at 250-252. 48 See I. Koller, Transportrecht, 6th ed., 2007, 1430. 49 See K. Otte, Art. 31 CMR , in F. Ferrari et al. eds., Internationales Vertragsrecht, 2nd ed., 2012, 1201, 1206. 50 Koller, supra note 48, at 1430.

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proceedings,51 thus clearly promoting forum shopping by the plaintiff.52 Unlike under the 1999 Montreal Convention, however, under the CMR, it appears that the court of a contracting State to the CMR “has no power to decline, on forum conveniens grounds, to exercise its jurisdiction once established, because a power to stay on forum conveniens grounds is inconsistent with the right conferred on the claimant to choose in which of the competent jurisdictions his action will be tried.”53 As one can gather from the foregoing remarks, there is not one uniform position on forum shopping. But whatever position one takes vis-à-vis forum shopping, there seems to be no doubt as to the fact that “forum shopping is a reality”,54 a fact,55 something “every litigant who files a lawsuit engages in”,56 so much so that forum shopping has been labelled a “national legal pastime”,57 which is not that surprising. In effect, as pointed out by what was formerly known as the House of Lords, “if you offer a plaintiff a choice of jurisdictions, he will naturally choose the one in which he thinks his case can be most favourably

51

See Art. 31(1) of the CMR : “In legal proceedings arising out of carriage under this Convention, the plaintiff may bring an action in any court or tribunal of a contracting country designated by agreement between the parties and, in addition, in the courts or tribunals of a country within whose territory: (a) The defendant is ordinarily resident, or has his principal place of business, or the branch or agency through which the contract of carriage was made, or (b) The place where the goods were taken over by the carrier or the place designated for delivery is situated.” 52 For this conclusion, see also F. Ferrari, Forum Shopping et Droit matériel uniforme, Journal du droit international 383, 386 (2002); S. Grignon-Dumoulin, Forum shopping – Article 31 de la CMR , Uniform Law Review 609, 616 (2006). 53 Hatzl v XL Insurance Co Ltd., 19 March 2009, [2009] EWCA Civ 223 at [26]; in scholarly writing see M. Clarke, International Carriage of Goods by Road: CMR , 4th ed., 2003, 139 (rejecting the idea of recourse to the forum non conveniens doctrine under the CMR). 54 K. F. Tsang, Forum Shopping in European Insurance Litigation: A Comparison Between Jurisdictional Rules in the European Union and the United States, 32 Loyola of Los Angeles International and Comparative Law Review 239, 267 (2010); see also Brown, supra note 33, at 650; M. H. Gottesman, Draining the Dismal Swamp: The Case for Federal Choice of Law Statues, 80 Georgetown Law Journal 1, 2 (1991). 55 See N. S. Ellis, The Class Action Fairness Act of 2005: The Story Behind the Statute, 25 Journal of Legislation 76, 109 (2009) (“forum shopping is always characterized as bad and manipulative in our story. The story ignores that fact that forum shopping is a fundamental fact”). 56 Texas Instruments, Inc. v. Micron Semiconductors, Inc., 815 F. Supp. 994, 996 (E.D. Tex. 1993). 57 S. Wright, The Federal Courts and the Nature and quality of State Law, 13 Wayne Law Review 317, 333 (1967).

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presented: this should be a matter neither for surprise nor for indignation.”58 Indeed, “every lawyer thinks about the best forum before filing a case or before answering a complaint.”59 Actually, “lawyers ethically are compelled to seek the most favorable forum to further clients’ interests.”60 This means, however, that “forum shopping is not [necessarily] an evil to be avoided, but is rather an inherent part of our […] court network.”61 Still, given the negative attitude against forum shopping, it cannot surprise that some commentators felt not only the need to write papers “in defense of forum shopping”,62 but also the need for “exorcising the evil of forum shopping”.63

II. An Attempt at Defining “Forum Shopping” The fact that forum shopping is, as mentioned earlier, a “reality”, does not mean that defining what constitutes “forum shopping” is easy. The difficulties arise, among others, from the fact that “[forum shopping] encompasses a broad range of actions”,64 that it “lie[s] on a continuum of activities”,65 thus making “the permutations of forum shopping […] almost limitless.”66 To complicate matters, the legal system within which forum shopping occurs also has a bearing on the definition of forum shopping, thus making a onesize-fits-all definition even more difficult, as the following examples will show. According to an Italian decision of 26 November 2002,67 a decision which drew a lot of attention, since it not only provides the first ever definition of 58

Atlantic Star v. Bona Spes, [1974] A. C. 436, 471; in legal writing see, most recently, Tsang, supra note 54, at 239 (“[a]s long as the jurisdictional rules of different countries are different, litigants (in most cases, plaintiffs) will likely try to take advantage of more favorable forums when bringing a lawsuit”). 59 A. B. Morrison, Removing Class Actions to Federal Court: A Better Way to Handle the Problem of Overlapping Class Actions, 57 Stanford Law Review 1521, 1524 (2005). 60 D. L. Bassett, The Forum Game, 84 North Carolina Law Review 333, 395 (2006). 61 U.S. v. Cinemark USA , Inc., 66 F.Supp.2d 881, 889 (N.D. Ohio, 1999); see also In re Coudert Bros. LLP, February 28, 2012, 673 F.3d 180, 189 (C.A., 2nd Cir., 2012) (stating that “interstate forum shopping has come to be perceived less as a necessary evil of federalism and more as a right to be enjoyed by plaintiffs and protected for their benefit”). 62 M. G. Algero, In Defense of Forum Shopping: A Realistic Look at Selecting Venue, 78 Nebraska Law Review 79 (1999). 63 K. M. Clermont / ​T. Eisenberg, Exorcising the Evil of Forum Shopping, 80 Cornell Law Review 1507 (1995). 64 Brown, supra note 33, at 653. 65 Note, supra note 33, at 1677. 66 Id. at 1679. 67 See Tribunale di Rimimi, 26 November 2002, available at: http: // ​cisgw3.law.pace.edu / ​ cases / 021126i3.html; for comments, see, apart from the paper cited in note 23, F. Fer-

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forum shopping in Italian case law, but also a list of reasons – which will be referred to later in more detail – that may induce one party to opt for the courts of one country rather than another, forum shopping compares to the “activity which aims at reaching the most favorable jurisdiction for the interests of the plaintiff ”. From this definition one can easily gather that the understanding in Italy, but this holds true in many other Civil Law countries as well, is that it is the plaintiff, and the plaintiff only, who can forum shop. There is no space for forum shopping by the defendant. Once a case is pending, the defendant can object to the jurisdiction of the court seized, arguing that there is no head of jurisdiction that allows the court to hear the case, or raise an lis alibi pendens exception, but this does not amount to forum shopping by the defendant. The foregoing definition is, however, noteworthy for other reasons as well. By simply referring to the aim of “reaching the most favorable jurisdiction for the interests of the plaintiff ”, the Rimini court defined forum shopping rather broadly. Unlike one U.S. district court’s definition, pursuant to which forum shopping amounts to a “[s]election of a court with an eye towards gaining an advantage based on the forum’s favorable substantive law or the avoidance of unfavorable law in an alternative forum”,68 the definition given by the Rimini court does not require for an activity to qualify as forum shopping that the shopping be done to take advantage of a given set of favorable rules, such as the substantive rules. As long as the court seized is seized to get to the most favorable jurisdiction for the interests of the plaintiff, there is forum shopping, irrespective of what actually renders a jurisdiction “the most favorable jurisdiction for the interests of the plaintiff ”. Furthermore, and this is to be appreciated, the definition is value neutral. When defining forum shopping, the court did not take any position on whether forum shopping is right or wrong, desirable or undesirable. For the Rimini court, forum shopping is simply a “reality”, a “fact”, to use expressions employed earlier.69 rari, Vendita internazionale tra forum shopping e diritto internazionale privato: brevi note in occasione di una sentenza esemplare relativa alla Convenzione delle Nazioni Unite del 1980, Giurisprudenza Italiana 896 (2003); L. Graffi, Spunti in tema di vendita internazionale e forum shopping, Diritto del commercio internazionale 807 (2003); G. Mecarelli, A propos du caractère inévitable du Forum Shopping dans la vente internationale, International Business Law Journal 935 (2003). 68 Zokaites v. Land-Cellular Corp., 424 F. Supp. 2d 824, 839 (W. D. Pa. 2006) (quoting Oak Associates, Ltd. v. Palmer, 2006 WL 293385 (E. D. Pa. 2006); see also Teknor Apex Co. v. Hartford Acc. & Indem. Co., 14 December 2012, 2012 WL 6840498, at *6 (D. R. I., 2012); Util. Workers Union of Am., AFL– CIO v. Dominion Transmission, Inc., 27 September 2006, 2006 WL 2794568, at *3 (W. D. Pa. 2006). 69 See supra the text accompanying notes 56 and 57 respectively.

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Value neutrality does generally not characterize definitions by U.S. courts – or scholars, for that matter,70 as can be gathered, for instance, from the definition of forum shopping as “a pursuit not simply of justice but of justice blended with some harassment.”71 This may not appear too surprising in light of the anti-forum shopping stance generally discernible in the U.S., leading courts to continuously state, for instance, that forum shopping must be discouraged,72 prevented73 or, to use an even stronger word employed by some courts, “eradicated”.74 One has to wonder, however, whether forum shopping really needs to be defined in such value laden terms. In other words, one has to wonder whether forum shopping amounts to forum shopping solely if it pursues some kind of “unfair” goal, as often suggested.75 On a European level, this question has been answered in the negative, despite the aforementioned European anti-forum 70

See, e. g., R. Maloy, Forum Shopping? What’s Wrong With That?, 24 Quarterly Law Review 25, 28 (2005) (defining forum shopping as “the taking of an unfair advantage of a party in litigation”). 71 Lazare Kaplan Intern., Inc. v. KBC Bank N. V., 2012 WL 3854618 (S.D.N.Y., 2012), at *6; Figueiredo Ferraz E Engenharia de Projeto Ltda. v. Republic of Peru, 14 December 2011, 665 F.3d 384, 405 (2nd Cir., 2011); Heck-Dance v. Inversiones Isleta Marina, 25 August 2010, 2010 WL 3810013 (D. Puerto Rico, 2010), at *4; In re Air Cargo Shipping Services Antitrust Litigation, 26 September 2008, 2008 WL 5958061 (E.D.N.Y., 2008), at *27; E.ON AG v. Acciona, S. A., 9 January 2007, F.Supp.2d 559, 587 (S.D.N.Y., 2007); Dichiara v. Ample Faith Investments Ltd., 29 November 2006, 2006 WL 3431197 (S.D.N.Y., 2006), at *6; Kirch v. Liberty Media Corp., 8 November 2006, 2006 WL 3247363 (S.D.N.Y., 2006), at *3; Overseas Media, Inc. v. Skvortsov, 27 July 2006, 441 F.Supp.2d 610, 616 n. 4 (S.D.N.Y., 2006); Norex Petroleum Ltd. v. Access Industries, Inc., 21 July 2005, 416 F.3d 146, 155 (2nd Cir., 2005). 72 See In re Wi-Sky Inflight, Inc. October 30, 2012, F.Supp.2d, 2012 WL 5353550 (N.D. Ga., 2012), at *7 (“forum shopping is to be discouraged”); see also Walker v. Kitt, October 24, 2012, F.Supp.2d, 2012 WL 5237262, at *3 (N. D.Ill., 2012); Nuveen Mun. Trust ex rel. Nuveen High Yield Mun. Bond Fund v. WithumSmith, August 16, 2012, 692 F.3d 283, at *302 (3rd Cir., 2012); Altamiranda Vale v. Avila, 538 F.3d 581, 583 (7th Cir., 2008). 73 See In re Rhodes Companies, LLC , 7 November 2012, 2012 WL 5456084, at *2 (D. Nev., 2012); Dynegy Danskammer, L. L. C. v. Peabody Coaltrade Intern. Ltd., 7 November 2012, 2012 WL 5464619, at *7 (S.D.N.Y., 2012); In re LLS America, LLC , October 11, 2012, Slip Copy, 2012 WL 4847000 (E. D. Wash., 2012); Sec. Farms v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir.1999). 74 Jerry Beeman and Pharmacy Services, Inc. v. Anthem Prescription Management, July 19, 2011, 652 F.3d 1085, 1107 (9th Cir., 2011). 75 See also Petsche, supra note 36, at 1008, suggesting that the term forum shopping necessarily indicates “certain practices of forum selection [that] are indeed “bad” (for example, because they are “unfair”[).]”

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shopping stance.76 In GIE Groupe Concorde and Others, Advocate General Colomer stated that forum shopping amounts to “[c]hoosing a forum according to the advantages which may arise from the substantive (and even procedural) law applied there”,77 thus providing a value neutral definition (albeit one, which requires for the activity to be directed towards the taking of advantages arising either from substantive or procedural laws). Similar value neutral definitions can also be found in U.S. case law. Forum shopping has been defined, for instance, as “[t]he practice of choosing the most favorable jurisdiction or court in which a claim might be heard”.78 According to a different definition, “forum-shopping occurs when a party attempts to obtain a perceived advantage over its adversary by choosing the most favorable venue.”79 Similarly, forum shopping has also been defined as the “attempt to have [one’s] action tried in a particular court or jurisdiction where [one] feels [one] will receive the most favorable judgment or verdict”.80 These definitions clearly show that for an activity to amount to forum shopping it does not necessarily have to be reproachable. This becomes even more evident if one considers how many courts go out of their way to qualify a given practice as “blatant forum shopping”,81 “bad faith forum shopping”,82 “inap-

76 See 77 78

79

80

81

82

supra the text accompanying notes 16 et seq. AG Colomer in GIE Groupe Concorde and Others Case C-440 / 97 (1999) ECR I-6309, 6314 para. 19. Gorom v. Old Dominion Freight Line Inc., 13 January 2013, WL 195377, at *5 (C. D. Cal., 2013); Bushansky v. Armacost, 9 August 2012, WL 3276937, at *5 (N. D. Cal., 2012); R. R. Street & Co. Inc. v. Transport Ins. Co., 656 F.3d 966, 981 (9th Cir., 2011). See, e. g., Walker v. Packer, 827 S. W.2d 833, 849 n. 3 (Tex.1992). In re Boheme, 256 S. W.3d 878, 883 (Tex. App.–Houston, 2008); Oglesby v. County of Kern, 2005 WL 3031466, at *7 (E. D. Cal., 2005); American Employers’ Ins. Co. v. Elf Atochem North America, Inc., 280 N. J.Super. 601, 613 (N. J. Super. A. D., 1995). Warsaw Orthopedic, Inc. v. NuVasive, Inc., 2012 WL 5472143, at *4 (N. D. Ind., 2012); McGinnis v. Eli Lilly and Co., 181 F.Supp.2d 684, 691 (S. D. Tex., 2002); John Akridge Company v. Travelers Companies, 944 F.Supp. 33, 34 (D. D. C.1996); In re Si Yeon Park, Ltd., 198 B. R. 956, 963 (Bkrtcy. C. D. Cal., 1996); Mass v. McClenahan, 1993 WL 267418, at *2 (S.D.N.Y., 1993); Green v. Nevers, 1993 WL 1620511, at *14 (E. D.Mich., 1993); Hall American Center Associates Ltd. Partnership v. Dick, 726 F.Supp. 1083, 1086 (E. D. Mich., 1989); International Paper Co. v. Gonzalez, 1988 WL 428586, at *4 (S. D. Miss., 1988); Woods v. Ohio High School Athletic Association, 1981 WL 6063 at * 2 (Ohio App., 1981); Phoenix Canada Oil Co. Ltd. v. Texaco, Inc., 25 Fed. R.Serv.2d 485, 487 (D. C. Del., 1978). Bolton v. U.S. Nursing Corp., 2012 WL 5269738, at *5 (N. D. Cal., 2012); Mastercard Int’l Inc. v. Fédération Internationale de Football Association, 2007 WL 631312, at *8 (S.D.N.Y. 2007).

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propriate forum shopping”,83 etc..84 The implication of this qualification is that there are forms of forum shopping that are not to be stigmatized. Therefore, this author believes that a value neutral definition of forum shopping should be adopted. If forum shopping really was an activity that in and by itself was reproachable, there would be no need to label it in a value laden way, for instance, as “improper”,85 “impermissible”,86 or “unacceptable”,87 or in any other negatively nuanced way. It is worth pointing out that all of the foregoing U.S. definitions, whether value laden or not, have one trait in common that distinguishes them from the aforementioned Italian definition, and which show how important the context is in which forum shopping occurs: Unlike the Italian definition, they do not state that forum shopping is the prerogative of the plaintiff, because in the U.S. it is not. The defendant also can forum shop,88 although that type of forum shop83

Pragmatus AV, LLC v. YahooA Inc., 2012 WL 4889438 at *7 (D. Del., 2012); In re Witt, 2012 WL 4049590, at *2 (Bkrtcy. N. D. Ind., 2012). 84 Allstate Texas Lloyds v. Sawyer, 2007 WL 2471057, at *4 (N. D. Tex., 2007) (“wrongful forum shopping”) 85 Fitzgerald v. Gann Law Books, Inc., 2013 WL 275886, at *2 (N. J. Super. A. D., 2013); Eureka Resources, LLC v. Range Resources-Appalachia, LLC ., 2012 WL 5949201, at *6 (Del. Super., 2012); Mid-Continent Cas. Co. v. Classic Star Group, LP., 2012 WL 4195262, at *4 (N. D. Tex., 2012); In re Optimal U.S. Litigation, 2012 WL 3264372, at *5 (S.D.N.Y., 2012); Pacific Coast Federation of Fishermen’s Associations v. U.S. Dept. of Interior, 2012 WL 3236163 at *6 (N. D. Cal., 2012); Progressive Emu, Inc. v. Nutrition & Fitness, Inc., 2012 WL 2479612, at *3 (N. D. Ala., 2012); Thatcher v. Hanover Ins. Group, Inc., 2012 WL 1933079, at *1 (W. D. Ark., 2012). 86 Foxfield Villa Associates, LLC v. Regnier, 2013 WL 183749, at *4 (D. Kan., 2013); Williams v. Williams, 61 Va.App. 170, 190 (Va. App., 2012); THI of New Mexico at Hobbs Center, LLC v. Spradlin, 2012 WL 4466639, at *8 (D. N. M., 2012); North American Ins. Agency, Inc. v. Bates, 2012 WL 3100758 at *2-3 (W. D. Okla., 2012). 87 Jefferson Insurance Company of New York v. Maine Offshore Boats, Inc., 2001 WL 484040, at *4 (D. Me., 2001); Lenco, Inc. v. New Age Industrial Corp., Inc., 2001 WL 492386 at *3 (D. Kan., 2001); In re Phelps Technologies, Inc., 238 B. R. 819, 826 (Bkrtcy. W.D.Mo., 1999). 88 See P. J. Borchers, Punitive Damages, Forum Shopping, and the Conflict of Laws, 70 Louisiana Law Review 529, 530 (2010); A. Kanner, Consumer Class Actions after CAFA, 56 Drake Law Review 303, 312 (2008); J. Lind, “Procedural Swift”: Complex Litigation Reform, State Tort Law, and Democratic Values, 37 Akron Law Review 717, 717 (2004); D. E. Steinberg, Simplifying the Choice of Forum: A Response to Professor Clermont and Professor Eisenberg, 75 Washington University Law Quarterly 1479, 1489 et seq. (1997). For references in case law to “defendant forum shopping”, or, as one court put it, “reverse forum shopping” (Piper Aircraft Co. v. Reyno, 454 U.S. 235, 264 n.19 (U.S. Pa., 1981), see, apart from the cases cited in following notes, Heck-Dance v. Inversiones Isleta

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ping seems to encounter even less favor than plaintiff forum shopping, at least in the context of transfer among federal courts under 28 U.S. C. § 1404(a).89 In effect, in the U.S., “[a]lthough the defendant does not decide where suit is first filed, he often has the ability […] to control where suit is to remain after filing. This type of control occurs most typically in the context of federal removal, and courts have recognized that a defendant’s removal decision can involve forumshopping motivations.”90 The context of federal removal does not constitute the only one in which a defendant can forum shop in the U.S. This can easily be gathered from the following statement to be found in Iragorri: “[c]ourts should be mindful that, just as plaintiffs sometimes choose a forum for forumshopping reasons, defendants also may move for dismissal under the doctrine of forum non conveniens not because of genuine concern with convenience but because of similar forum-shopping reasons.”91 But this is just one more example of how the legal system in which the forum shopping occurs is effecting the very same definition of what amounts to forum shopping. Another such example is the distinction, existing only in legal systems similar to the U.S. one, where a distinction is made between state and federal courts, between “horizontal” and “vertical” forum shopping. In the U.S., the former “occurs when plaintiffs choose to pursue claims in a particular Marina, 2010 WL 3810013, at *4 (D. Puerto Rico, 2010); Trustar Funding v. Mruczynski, 2010 WL 1539759, at *10 (N.D. Ohio, 2010); Ripley v. Eon Labs Inc., 622 F.Supp.2d 137, 141 (D. N. J., 2007); City of Columbus v. Hotels.com, L. P., 2007 WL 2029036, at *7 (S.D. Ohio, 2007); Board of Trustees of Cement Masons & Plasterers Health and Welfare Trust v. GBC , 2007 WL 1306545, at *3 (W.D. Wash., 2007); Goldman v. RadioShack Corp., 2003 WL 21250571 at *5 (E. D. Pa., 2003); U.S. v. Cinemark USA, Inc., 66 F.Supp.2d 881, 889 (N. D. Ohio, 1999); NRG Barriers, Inc. v. Jelin, 1996 WL 377014, at *6 (Del. Ch., 1996); International Broth. of Locomotive Engineers v. Consolidated Rail Corp., 1994 WL 808075, at *4 (E.D. Mich., 1994); Commercial Discount Corp. v. King, 552 F.Supp. 841, 850 (D. C. Ill., 1982). 89 See U.S. v. Cinemark USA , Inc., 66 F.Supp.2d 881, 889 (N.D. Ohio, 1999) (“[U]nlike defendant forum shopping, plaintiff forum shopping is not an evil to be avoided, but is rather an inherent part of our federal court network”); Trustar Funding v. Mruczynski, 2010 WL 1539759, at *10 (N.D. Ohio, 2010) (stating the same); Sun Pharmaceutical Industries, Ltd. v. Eli Lilly and Co., 2008 WL 1902111, at *4 (E. D. Mich.,20080; see also Ferens v. John Deere Co., 494 U.S. 516, 527, 110 S. Ct. 1274, 1282 (1990); Iragorri v. United Technologies Corporation, 4 December 2001, 274 F.3d 65, 75 (2nd Cir., 2001). 90 In re Boheme, 13 June 2008, 256 S. W.3d 878. 91 Iragorri v. United Technologies Corporation, 4 December 2001, 274 F.3d 65, 75 (2nd Cir., 2001); more recently, see Heck-Dance v. Inversiones Isleta Marina, 2010 WL 3810013, at *4 (D. Puerto Rico, 2010); Can v. Goodrich Pump & Engine Control Systems, Inc., 711 F.Supp.2d 241, 261 (D. Conn., 2010); DiRienzo v. Philip Services Corp., 294 F.3d 21, 29 (2nd Cir., 2002).

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state that is known for plaintiff-friendly laws”92 or when they choose between various federal courts.93 Vertical forum shopping, on the other hand, “refers to the choice to file suit in either federal or state court in a particular jurisdiction.”94 In this author’s opinion, any definition of forum shopping has not only to be value neutral, as suggested earlier, but also comprehensive of all of the foregoing types of forum shopping. Not only, in this author’s opinion, the definition of forum shopping cannot be limited to the choice between legitimate fora, as suggested in legal writing. There is forum shopping also when proceedings are initiated in a forum that even prima facie is not competent to hear a case.95 In some legal systems, this may well be the paradigm of forum shopping. In the European context, it may suffice to recall the so-called “torpedo actions”, a means by which a potential defendant (normally in patent infringement cases) takes the initiative and starts negative declaratory judgment proceedings to take advantage of a given European lis alibi pendens rule96 that obliges the courts of other jurisdictions, even of the jurisdiction agreed upon by the parties,97 to stay any proceedings involving the same parties and the same cause of action98 until the court first seized, normally a court that is notoriously slow,99 has reached 92

E. Guidi, Shady Grove: Class Actions in the Context of Erie, 77 Brooklyn Law Review 783, 814 note 211. 93 See Lear, supra note 12, at 89; N. Ochi, Are Consumer LCass Actions and Mass Actions Dead? Complex Litigation Strategies After CAFA and MMTJA, 41 Loyola of Los Angeles Law Review 965, 1031 et seq. (2008). 94 Y. Leychkis, Of fire and Ants and Claim Construction: An Empirical Study of the Meteoric Rise of the Eastern District of Texas as a Preeminent Forum for Patent Litigation, 9 Yale Journal of Law and Technology 193, 196 (2007); see also Guidi, supra note 93, at 814 note 211 (vertical forum shopping “occurs when plaintiffs choose to pursue claims in federal court over state court because of friendlier federal laws”). 95 But see R. R. Street & Co. Inc. v. Transport Ins. Co., 656 F.3d 966, 981 (9th Cir., 2011), defining forum shopping as “[t]he practice of choosing the most favorable jurisdiction or court in which a claim might be heard.” This definition seems to exclude that choosing to initate proceedings in a court that does not appear to have jurisdiction may amount to forum shopping. See also Bushansky v. Armacost, 2012 WL 3276937, at *5 (N.D. Cal., 2012). 96 See Art. 27 of the Brussels I Regulation. 97 See S. Leible, Art. 27, in T. Rauscher ed., Europäisches Zivilprozess- und Kollisions­ recht. Eu ZPR / ​EUIPR . Brüssel I-Vo. LugÜbk 2007, 2011, 637, 653-654. 98 It is in Tatry that the European Court of Justice first ruled that an action seeking that the defendant be held liable for causing loss and ordered to pay damages has the same cause of action and the same object as earlier proceedings brought by that defendant seeking a declaration that he is not liable for that loss; see “Tatry” v. the owners of the ship “Maciej Rataj”, Case C-406 / 92, (1994) ECR I-05439, para. 47. 99 See S. Luginbuehl, European Patent Law: Towards a Uniform Interpretation, 2011, 55; for a more detailed explanation of the type of actions referred to in the text, see, e. g.,

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a decision on the jurisdiction (thus allowing plaintiff, for example, to defer injunctions and paying damages, and to push the defendant to settlement). Furthermore, this author believes that there is forum shopping even where the choice of one forum, including an arbitral forum, over another is based on an agreement between the parties. In other words, for forum shopping to occur it is irrelevant whether the choice in favor of a given forum is a unilateral one, which will often be the case, or one based on an agreement between the parties. The fact that the choice is based on an agreement of the parties or is an unilateral one may, however, impact on the appropriateness, acceptability or permissibility of the forum shopping, as well as on the reasons for forum shopping. In light of the all of the above, for the purpose of this paper, forum shopping shall be broadly defined as “the choice in favour of a given forum, based on the conviction that the chosen forum is the most favourable one for the purpose of reaching a given result”.

III. Forum Shopping Reasons This value neutral definition makes clear that the results aimed at and, thus, the reasons for a choice of one forum over another, including the choice in favour of an arbitral forum over a state court, do not have a bearing on the definition of forum shopping itself. They may impact, however, the specific choice’s acceptability or permissibility. As for the reasons that may push parties to choose one forum over another, the aforementioned decision by the Tribunale di Rimini lists some of them. After rightly disagreeing with the view that forum shopping can be avoided by drafting uniform substantive law rules,100 the Rimini court states that “parties […] may want to use the domestic procedural system which is more suitable to them”,101 including the more favorable rules of evidence.102 The Rimini court M. Franzosi, Worldwide Patent Litigation and the Italian Torpedo, 19 European Intellectual Property Review 382 (1997); T. Simons, Cross-border “Torpedo” Actions. The lis pendens rule in European cross-national litigation, European Legal Forum 287 (2003). 100 For a discussion of the relationship between uniform substantive law and forum shopping, see F. Ferrari, Forum shopping despite international uniform contract law conventions, ICLQ 689 (2002); F. Ferrari, “Forum shopping” trotz internationaler Einheitssachrechtskonventionen, Recht der internationalen Wirtschaft 169 (2002). 101 Tribunale di Rimini, 26 November 2002, available at: http: // ​ cisgw3.law.pace.edu / ​ cases / 021126i3.html; for a reference to this forum shopping reason, see also L. Collins, Contractual Obligations – The EEC Preliminary Draft Convention on Private International Law, ICLQ 35, 36 (1976). 102 For this forum shopping reason, see, e. g., D. Jasper, Forum shopping in England und Deutschland 23 et seq. (1990); M. Checa Martinez, Fundamentos y limites del forum shopping: modelos europeo y anglo-americano, Rivista di diritto internazionale privato

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also refers to “the varying conditions of efficiency and rapidity of the judicial process” as being a reason for forum shopping,103 as well as the language of the proceedings,104 “the reputation for impartiality” – or pro-plaintiff bias105 – of the court, and “the enforceability of the judgment”.106 Finally – and given the context in which the decision was rendered – unsurprisingly, the Rimini court also states that “the fact that [uniform substantive law] conventions may be interpreted differently in each country with the possibility of inconsistent results being reached on substantive issues”,107 may push the parties to favor one jurisdiction over another. When identifying the foregoing reasons for forum shopping, the Rimini court does so, and the text of the decision makes this unmistakably clear, with an eye towards state court proceedings. This is unsurprising, given the Rimini court’s narrow definition of forum shopping – which limits forum shopping to forum shopping by plaintiffs,108 thus excluding from the realm of forum shopping all forum selection and, thus, the agreement to arbitrate. This does not mean, however, that the forum shopping reasons identified by the Rimini court – which, as just mentioned, solely refers to the choice between different state courts – do not have to be considered in a broader setting, such as the one proposed here, that also allows forum selection, including the choice to have a dispute solved by arbitrators, to amount to forum shopping. Actually, all of the reasons identified by the Rimini court as reasons to favor the courts of one country over those of another country are at the same time factors that may push parties to arbitrate rather than litigate in state courts. In this respect it may suffice to point to the perceived advantages of arbitration,109 which allow parties to prevent opposing party from taking advantage of the e processuale 521, 521 (1999); K. Siehr, “Forum Shopping” im internationalen Rechtsverkehr, Zeitschrift für Rechtsvergleichung 124, 128 (1984). 103 In legal writing, see Juenger, supra note 2, at 573; see also the famous phrase by Lord Denning in The Atlantic Star, (1972) 3 All ER 705, 709: “England […] is a good place to shop in, both for quality of goods and the speed of service”. (emphasis added) 104 See also Ferrari, Forum shopping despite international uniform contract law conventions, supra note 100, at 690. 105 Juenger, supra note 2, at 573. 106 Tribunale di Rimini, 26 November 2002, available at: http: // ​cisgw3.law.pace.edu / ​c ases /  021126i3.html. 107 Id. 108 See supra the text accompanying note 67. 109 It is worth mentioning that “the vaunted advantages of arbitration are not guaranteed. Although arbitration can often be superior, as an empirical matter it is not clear that binding arbitration is necessarily faster, cheaper, and otherwise better than litigation”, Rembert v. Ryan’s Family Steak Houses, Inc., 235 Mich.App. 118, (Mich. App., 1999), citing J. R. Sternlight, Panacea or corporate tool?: Debunking the Supreme Court’s preference for binding arbitration, 74 Washington University Law Quarterly 637, 678 (1996).

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differences existing between the various jurisdictions, such as those identified by the Rimini court and relating, for instance, to the differences in the rules of evidence, the conditions of efficiency and rapidity of the judicial process, the language of the proceedings, the reputation for impartiality of the courts, and the enforceability of judgments. In effect, it is common knowledge – and has also been acknowledged in case law – that arbitration is perceived to allow for the speedy and efficient resolution of disputes.110 Actually, “the parties to an arbitral agreement knowingly take the risks of error of fact or law committed by the arbitrators and […] this is a worthy “trade-off ” in order to obtain speedy decisions.”111 According to one court, “[t]he chief advantage of arbitration is[, however,] the ability to resolve disputes without aspects often associated with the legal system”,112 that comes with “the range of flexibility given parties to adopt their own procedures”.113 It is this flexibility – or informality114 – that allows the parties to avoid, for instance, to have to submit to a given domestic procedural regime, including certain rules of evidence. 110

For this perceived advantage of arbitration, see Lewis v. Fletcher Jones Motor Cars, Inc., 205 Cal.App.4th 436, 452 (Cal. App. 4 Dist., 2012); Com. Dept. of Correction v. Massachusetts Correction Officers Federated Union, 2012 WL 1994605, at *5 (Mass. Super., 2012); Sutherland v. Ernst & Young LLP, 856 F.Supp.2d 638, 642 (S.D.N.Y., 2012); Barron v. Evangelical Lutheran Good Samaritan Soc., 265 P.3d 720, 732 (N. M. Ct. App.2011); Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280 (1995); Soprano v. American Hardware Mutual Insurance Co., 491 A.2d 1008, 1011 (R. I. 1985); Alascom, Inc. v. ITT North Elec. Co., 727 F.2d 1419, 1422 (9th Cir. 1984); United Food & Commercial Workers Union, Locals 197, 373, 428, 588, 775, 839, 870, 736 F.2d 1371, 1373 (C.A. Cal., 1984); Fairchild & Co., Inc. v. Richmond, F. & P. Railroad, 516 F.Supp. 1305, 1313 (D.D.C.1981). 111 Gravillis v. Coldwell Banker Residential Brokerage Co., 106 Cal.Rptr.3d 70, 78 (Cal. App., 2nd Dist. 2010); California School Employees Ass’n v. Bonita Unified School Dist., 77 Cal. Rptr.3d 486, 502 (Cal. App. 2 Dist., 2008); Engalla v. Permanente Medical Group, Inc., 938 P.2d 903, 920 (Cal., 1997); Moncharsh v. Heily & Blase, 3 Cal.4th 1, 12 (Cal., 1992). 112 Delaware Coalition for Open Government v. Strine, 2012 WL 3744718, at *7 (D. Del., 2012), citing L. Bernstein, Understanding the Limits of Court Connected ADR : A Critique of Federal Court–Annexed Arbitration Programs, 141 University of Pennsylvania Law Review 2169, 2240-44 (1993); S. Mentschioff, Commercial Arbitration, 61 Columbia Law Review 846, 849 (1961). 113 Wierzbowski v. East Bay Medical Imaging Ass’n., 2002 WL 243564, at *8 (Cal. App. 1st Dist., 2002); see also Stolt-Nielsen, S. A. v. AnimalFeeds International Corp., 176 L.Ed.2d 605, 623 (2010). 114 See State v. P. G. Miron Constr. Co., Inc., 181 Wis. 2d 1045, 1055, 512 N. W.2d 499 (1994); Gilmer v. Interstate / ​Johnson Lane Corp., 500 U.S. 20, 31, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Fairchild & Co. v. Richmond, F. & P.R. Co., 516 F.Supp. 1305, 1313 (D.D.C.1981).

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Another “[o]ne of the principal advantages is the ability to select impartial arbiters”,115 thus permitting parties to overcome any bias domestic courts may succumb to. But the parties’ ability to select the arbiters, which in itself is perceived as being one of the most important advantages of arbitration over state court litigation,116 does not only lead to a more impartial tribunal hearing a given case, but generally also leads to arbitral “tribunals consist[ing] of more competent and specialized members in the field in which the dispute arises”,117 since the parties will appoint “arbiters with special knowledge of particular fields and areas of the law”.118 Furthermore, by opting for arbitration, parties can make sure that the result of their proceedings will be more easily enforceable,119 as arbitral awards circulate much more freely than state court judgments, since “[a]rbitration enforcement treaties are more prolific throughout the international community than are agreements based solely on traditional litigation”,120 the most famous such treaty being the New York Convention.121 115

MCI Constructors, Inc. v. Hazen and Sawyer, P.C., 2009 WL 632928, at *5 Fn.  8 (M.D.N.C., 2009). 116 See, e. g., Sholar Business Associates, Inc. v. Davis, 138 N. C. App. 298, 302 (N. C. App., 2000); Aviall, Inc. v. Ryder System, Inc., 913 F.Supp. 826, 835 (S.D.N.Y., 1996); Crutchley v. Crutchley, 306 N. C. 518, 523, 293 S. E.2d 793, 796 (1982); Riess v. Murchison, 384 F.2d 727, 735 (9th Cir., 1967). 117 C. G. Warren, A Recent Summary of International Commercial Arbitration. The United States versus Mexico and Canada?, 10 Currents: International Trade Law Journal 75, 76 (2001), see also 118 MCI Constructors, Inc. v. Hazen and Sawyer, P.C., 2009 WL 632928, at *5 Fn. 8 (M.D.N.C., 2009); see also In re Ionosphere Clubs, Inc., 1990 WL 5203, at *10 (S.D.N.Y.,1990) (stating that one of the advantages of arbitration is the “the familiarity of the arbitrator with the customs and usages of the industry”); LCI, Inc. v. Chipman, 572 N. W.2d 158, 161 (Iowa, 1997) (stating the same); Oinoussian S. S. Corp. of Panama v. Sabre Shipping Corp., 224 F.Supp. 807, 809 (D.C.N.Y., 1963) (stating the same); American Almond Products Co. v. Consolidated Pecan Sales Co., 144 F.2d 448, 450 (2nd Cir., 1944) (stating the same). 119 See H. Alvarez, Jurisdiction Shopping / ​Selecting the Location, Forum, and Rules for Dispute Resolution, 53 Rocky Mountain Mineral Law Institute 24-1, 24-1 (2007) (“arbitration […] enhances the likelihood of enforcement of the award”); L. Mistelis, International Arbitration – Corporate Attitudes and Practices – 12 Perceptions Tested: Myths, Data and Analysis Research Report, 15 American Review of International Arbitration 525, 548 (2004) (“there is hardly any doubt that an arbitration award is more easily enforceable than any foreign judgment”) 120 J. R. Shaffer, Rescuing the International Arbitral Model: Identifying the Problem in Natural Resources Trade and Development, 114 West Virginia Law Review 309, 320 (2011). 121 G. S. Lipe, The Hague Convention on Choice of Court Agreements: Creating Room for Choice in International Cases, 33 Houston Journal of International Law 1, 5 (2010) (“[a]n

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Forum Shopping in the International Commercial Arbitration Context: Setting the Stage

Of course, there are factors other than those listed in the Rimini court’s rather lengthy obiter dictum that may induce parties to shop for a given forum rather than another one, as there are factors other than the aforementioned ones that may play a role when choosing to arbitrate rather than to litigate, costs being one of them. Given the differences in how costs are being calculated in the various jurisdictions, it cannot surprise that forum shoppers take costs into account when deciding where to bring suit. Of course, costs are also an issue when having to decide whether to defer a dispute to arbitration; not only, the costs issue seems to tip the balance in favor of arbitration, generally considered to be less expensive than litigation in state courts even by state courts.122 There are, however, factors that parties will take into account when opting to arbitrate that are characteristic only of arbitration. Confidentiality123 – or privacy124 – is one of the principal ones, albeit not the only one. Arbitration has another distinct advantage over state court litigation, as also pointed out by the U.S. Congress: at the outset, “it normally minimizes hostility and is less disruptive of ongoing and future business dealings among the parties”.125 In other words, at the outset, arbitration leads to a “minimization of the intense polarization of the parties that often occurs [in litigation]”.126 Of course, “once the arbitration has been initiated, and the related costs start ac-

arbitral award rendered in any one of the 144 jurisdictions that are parties to the New York Convention is easily enforceable”). 122 In case law see, e. g., Jones v. General Motors Corp., 640 F.Supp.2d 1124, 1138 (D. Ariz., 2009); Citifinancial Mortg. Co., Inc. v. Smith, 2007 WL 2409520, at *4 (M. D. Ala., 2007); Yuen v. Superior Court, 121 Cal.App.4th 1133, 1141 (Cal. App. 4th, 2004); Sholar Business Associates, Inc. v. Davis, 138 N. C.App. 298, 302, (N. C.App., 2000); State v. P. G. Miron Constr. Co., Inc., 181 Wis. 2d 1045, 1055, 512 N. W.2d 499 (1994); Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir.1993); Henry v. Alcove Investment, Inc., 233 Cal.App.3d 94, 99-100 (Cal. App. 2nd Dist., 1991). 123 See Stolt-Nielsen, S. A. v. AnimalFeeds International Corp., 176 L.Ed.2d 605, 625 (2010); Global Reinsurance Corp.-U.S. Branch v. Argonaut Ins. Co., 2008 WL 1805459, at *1 (S.D.N.Y., 2008); Guyden v. Aetna, Inc., 544 F.3d 376, 385 (2008). 124 See Yuen v. Superior Court, 121 Cal.App.4th 1133, 1141 (Cal. App. 4th, 2004). 125 H. R.Rep. No. 97-542, at 13 (1982) (“[t]he advantages of arbitration are many: it is usually cheaper and faster than litigation; it can have simpler procedural and evidentiary rules; it normally minimizes hostility and is less disruptive of ongoing and future business dealings among the parties; [and] it is often more flexible in regard to scheduling”), quoted in Jones v. General Motors Corp., 640 F.Supp.2d 1124, 1138 (D. Ariz., 2009); Citifinancial Mortg. Co., Inc. v. Smith, 2007 WL 2409520, at *4 (M. D. Ala., 2007); AlliedBruce Terminix, 513 U.S. at 280, 115 S.Ct. 834 (1995). 126 Faherty v. Faherty, 97 N. J. 99, 107-108 (1984).

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cruing, this has the effect of antagonising the parties and the arbitration tends to take a life of its own.”127 Under the broad definition of forum shopping proffered here, the choice by the parties to arbitrate rather than to litigate – for any combination of the aforementioned reasons – amounts to forum shopping, albeit a consensual one. This does not mean, however, that once the parties have decided to defer their dispute to arbitration there is no place for other types of forum shopping. The parties’ choice in favor of arbitration merely amounts to the necessary prere­ quisite of arbitration; it does not constitute a guarantee against forum shopping by either party after the choice is made. Forum shopping is a distinct possibility even after the initial – and consensual – choice to arbitrate, thus not only allowing the traditional reasons for forum shopping to come into play again, but also specific arbitration related ones, including to attempt to override an arbitration agreement or delay arbitral proceedings by initiating proceedings in state courts, as occurred, for instance, in the West Tankers case. In West Tankers – Allianz SpA v West Tankers Inc.128 – the ECJ held that where a party brings court proceedings in an EU member state in breach of an arbitration agreement, and that court determines that it has jurisdiction under the regulation, as occurred in the case at hand on the basis of Article 5(3) of the Brussels I Regulation, it will also be for that court to decide whether there is a valid arbitration agreement. As regards this ex post forum shopping, it can be divided into three categories, on the basis of when this forum shopping occurs: prior to the initiation of arbitral proceedings, during the arbitration itself and at a post-award stage. And it is the forum shopping that may occur at those stages that this conference will address.

127

U. Draetta, Leveraging the arbitral process to encourage settlement: some practical and legal issues, International Business Law Journal 487, 489 (2007). 128 Allianz SpA v West Tankers Inc., Case C-185 / 07 [2009] (10 February 2009.

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A U.S. Perspective on Forum Shopping, Ethical Obligations, and International Commercial Arbitration Aaron D. Simowitz* I. Introduction ‘Forum Shopping’ is the “longest four-letter word”1 in U.S. jurisprudence. And yet, U.S. common, constitutional and statutory law enshrine numerous opportunities for forum shopping. “A litigant may choose among fifty state judicial systems and the different local courts within each state, federal courts of limited or general jurisdiction, state and federal administrative agencies, and extrajudicial alternative dispute resolution systems.”2 U.S. law also provides numerous mechanisms for defendant forum shopping – transfer among federal courts, removal from state courts, and forum non conveniens, to name a very few.3 The choice of forum may also have a profound effect on the progress and ultimate outcome of a proceeding. Choice of forum may affect substantive law, procedure, convenience, efficiency, expertise of the adjudicators, and enforceability of judgments – again, to name a very few examples.4 Presented with defendants’ attempt to shop for their home forum – to quash service on an agent appointed for service in New York pursuant to a contract for lease of farm equipment – Justice Black noted: “The right to have a case tried locally and be spared the likely injustice of having to litigate in a distant or

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The author is grateful for the comments of Linda Silberman, Franco Ferrari, and the participants in the NYU Lawyering Colloquium and in the Center for Transnational Litigation and Commercial Law’s conference on Forum Shopping in International Commercial Arbitration. I owe great thanks to Teresa Teng for her exceptional research assistance. L. E. Teitz, Where to Sue: Finding the Most Effective Forum in the World, in B. Legum ed., International Litigation Strategies and Practice, 2005, 49. Note, Forum Shopping Reconsidered, 103 Harvard Law Review 1677, 1679 (1990). Id. One of the most prominent modes of defensive forum shopping, a motion for transfer under 28 U.S.C. § 1404(a), appears to have a profound impact on a plaintiff’s chance of obtaining a judgment. See K. M. Clermont / ​T. Eisenberg, Simplifying the Choice of Forum: A Reply, 75 Washington University Law Quarterly 1551, 1553-1554 (1997) (“[T]ransfer reduces a 50 % chance of the plaintiff’s winning a judgment to 40 %.”).

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burdensome forum is as ancient as the Magna Charta.”5 Professor Linda Mullenix, harshly criticizing waivers of the right to forum shop, stated that “[t]he right to choose a forum is perhaps the most fundamental and essential litigation right, since it carries with it choice-of-law determinants.”6 Other scholars have recognized that the “the option to forum shop is a personal right” similar the right to be free from process where personal jurisdiction is wanting.7 And yet, when a U.S. district court was faced with the question of whether a duty existed to lawyers to seek out the most advantageous forum, it held that “[t]o imply that Defendants had a duty to improperly forum shop is absolutely ludicrous.”8 Plaintiff ’s malpractice claim had other deficiencies, but the court’s language in nonetheless striking: “For Defendants to have attempted to file Plaintiffs’ claims in another state simply for more favorable limitations periods would have been a clear case of egregious forum-shopping.”9 The obligations imposed on counsel through ethics rules and the fiduciary relationship between counsel and client contradict this crabbed view of an attorney’s obligation. Indeed, numerous courts, including the U.S. Supreme Court,10 have recognized that there is nothing “inherently evil”11 about forum shopping that would place it outside counsel’s typical obligations of zeal, diligence, and competence.12 15 16

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Nat’l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 325 (1964) (Black, J., dissenting). L. S. Mullenix, Another Choice of Forum, Another Choice of Law: Consensual Adjudicatory Procedure in Federal Court, 57 Fordham Law Review 291, 303 (1988). M. E. Solimine, Forum-Selection Clauses and the Privatization of Procedure, 25 Cornell International Law Journal 51, 68 (1992). Schutze v. Springmeyer, 16 F. Supp. 2d 767, 773 (S. D. Tex. 1998). Id. Keeton v. Hustler Magazine, Inc., 465 U.S.  770, 779 (1984) (“Petitioner’s successful search for a State with a lengthy statute of limitations is no different from the litigation strategy of countless plaintiffs who seek a forum with favorable substantive or procedural rules or sympathetic local populations.”); see Sussman v. Bank of Israel, 56 F.3d 450 (2d Cir. 1995) (holding that it was not sanctionable to file colorable claims in a proper but inconvenient forum for the purpose of exerting settlement pressure on a related case). Goad v. Celotex Corp., 831 F.2d 508, 512 n. 12 (4th Cir. 1987) (“There is nothing inherently evil about forum-shopping. The statutes giving effect to the diversity jurisdiction under the Constitution, 28 U.S.C. § 1332 (jurisdiction) and § 1391 (venue) are certainly implicit, if not explicit, approval of alternate forums for plaintiffs … Thus, complaints about forum shopping expressly made possible by statute are properly addressed to Congress, not the courts.”). Baddie v. Berkeley Farms, Inc., 64 F.3d 487, 490 (9th Cir. 1995) (“A plaintiff is entitled to file both state and federal causes of action in state court. The defendant is entitled to remove. The plaintiff is entitled to settle certain claims or dismiss them with leave of the court. The district court has discretion to grant or deny remand. Those are the pieces

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Recognition of this adversarial system of forum shopping – memorably described by Deborah Lynn Bassett as “The Forum Game” – should lead us ineluctably to attorneys’ ethical obligations. Indeed, commentators writing about widely varying areas of law having observed that a lawyer’s duty of zealous representation may include an obligation to select the most advantageous forum13 – but have not gone further into examining the contours of this duty that comprise plaintiffs’ allegedly manipulative pleading practices. We are not convinced that such practices were anything to be discouraged.”); Sussman, 56 F.3d at 457 (“To begin with, we are skeptical that the commencement of a suit in an inconvenient forum may be the basis of Rule 11 sanctions where venue was not improper.”) (cited in note 10); Newton v. Thomason, 22 F.3d 1455, 1463-1464 (9th Cir.1994) (reversing order imposing sanctions “for an ‘unnecessary and frivolous’ choice of venue,” where district court found venue tenuous but not improper); see also Iragorri v. United Technologies Corp., 274 F.3d 65, 75 (2d Cir. 2001) (“Courts should be mindful that, just as plaintiffs sometimes choose a forum for forum-shopping reasons, defendants also may move for dismissal under the doctrine of forum non conveniens not because of genuine concern with convenience but because of similar forum-shopping reasons.”); In re Boehme, 256 S. W.3d 878, 883 (Tex. App. 2008) (“[A]n attorney who is properly representing his client in a zealous fashion, if faced with a legitimate decision as to two forums in which his client’s case might be heard, should – to some extent – prefer the forum that presents his client with the best chance of success.”). 13 See D. L. Bassett, The Forum Game, 84 North Carolina Law Review 333, 344 (2006) (“[T]he failure to forum shop would, in most instances, constitute malpractice.”); G. Vairo, Foreword, 37 Loyola Los Angeles Law Review 1393, 1399-1400 (2004) (“But, so long as there is a reasonable argument for pursuing the claims in a particular forum, an attorney has a duty to consider whether to litigate there. Perhaps the downsides of defeat are too great to risk the necessary resources, but certainly there should be no ethical bar to doing so.”); F. Ferrari, International Sales Law and the Inevitability of Forum Shopping: A Comment on Tribunale Di Rimini, 26 November 2002, 23 Journal of Law & Commerce 169, 192 (2004) (“[I]f one considers that a lawyer’s ‘duty to clients […] should never be subordinate merely because the full discharge of his obligation may be misunderstood or may tend to subject him or the legal profession to criticism,’ it does not appear that forum shopping necessarily violates ethical rules.”); R. J. Weintraub, Introduction to Symposium on International Forum Shopping, 37 Texas International Law Journal 463, 463 (2002) (“It is part of a lawyer’s job to bring suit in the forum that is best for the client’s interests.”); D. E. Steinberg, Simplifying the Choice of Forum: A Response to Professor Clermont and Professor Eisenberg, 75 Washington University Law Quarterly 1479, 1482 n. 6 (1997) (“If the plaintiff’s choice of forum will effect his chances of victory, why wouldn’t a plaintiff’s counsel always consider forum shopping? At best, a decision to forego forum shopping would reduce the plaintiff’s chance of winning. At worst, a refusal to forum shop would violate the attorney’s ethical duty of zealous representation.”); F. K. Juenger, Forum Shopping, Domestic and International, 63 Tulane Law Review 553, 572 (1989) (“When a relationship becomes litigious, failure

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or in examining the duties of competence and diligence and the constraint of meritorious actions. In other words, if finding a forum is a game, what are the rules? What’s playing fair? The ethical canons laid out in the Model Rules of Professional Conduct are a useful starting point. The duty of zeal underlies the entire discussion – whatever is not forbidden is required. If an attorney can secure an advantage for her client by seeking a particular forum, she must do so, unless a competing ethical obligation states otherwise. We can better understand what this means in practice by turning to the ethical obligations of competence and diligence. The duty of competence requires knowledge and skill typical of members of the bar. The obligations imposed by the duty of competence are well understood in the multi-state practice. This consensus view can be used to inform that obligation of U.S. lawyers in multi-national practice. The duty of diligence brings us back to the U.S. District Court that confidently blessed the attorney’s refusal to investigate other forums. An examination of the duty of diligence in other contexts – for example, the duty to conduct legal research – makes plain that this reluctance in anomalous in the extreme. The Model Rules supply a check on the pursuit of forums in the requirement that counsel engage in meritorious litigation. But examination of this canon only further reinforces the oddity of courts’ discomfort with forum shopping. The duty to engage in meritorious litigation bars only “frivolous” suits for which no “good faith” argument can be made. This is a far cry from courts’ frequent appeals to a “natural forum” or “naturally applicable law.” U.S. lawyers engaged in international arbitration practice should take note. The New York Convention provides a uniform body of law governing arbitration procedures and enforcement in all signatory countries. The duties of competence and diligence, fairly read, impose an obligation to research and discern the relevant law in these countries and to evaluate them as potential forums. The widely accepted – indeed, almost ubiquitous – use of arbitration clauses in transnational practice also leads to the conclusion that failure to include such a clause could constitute malpractice. to select an advantageous forum may amount to malpractice, for attorneys owe a duty to vindicate their clients’ rights wherever they can expect the best results. That proposition ought to be obvious, and so it would be but for the nasty phrase ‘forum shopping,’ which suggests that those who represent their clients’ interests effectively commit a breach of professional etiquette.”); J. H. Groce, Selecting a Forum – Defendant’s Position, 3 American Jurisprudence Trials 611 (1964) (“Defense counsel should always consider the availability of alternative courts before filing answer to a suit. Too often, defense counsel fails to use his choice in selecting the forum and automatically accedes to the forum chosen by his opponent. But it is a lawyer’s duty, under our adversary system, to use every legitimate means at his command to further his client’s cause, and it is vital that he should try to get the action into the forum in which his client has the best chance of winning.”).

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II.  Part I – U.S. Law and Opportunities To Forum Shop

Part I of this article takes an inventory of a few (although certainly not all) of the common law, constitutional, and statutory factors that mandate both forum access – the opening up of multiple forums – and forum selection – the ability of litigants to select among multiple forums. Part II of this article turns to the ethical obligations of U.S. counsel and seeks to apply them to common controversies in forum shopping and international commercial arbitration.

II.  Part I – U.S. Law and Opportunities To Forum Shop II.A  Forum Access II.A.1  Minimum Contacts and Long-arm Statutes In International Shoe v. Washington,14 the United States Supreme Court, among other things, linked forum shopping with constitutional due process. International Shoe’s use of a minimum contacts test with the forum state to establish personal jurisdiction over a defendant increased the potential for forum shopping by “enabl[ing] plaintiffs to sue even those who are not physically present in the state, as long as the defendant has ‘minimum contacts’ with the forum, while leaving intact the principle that jurisdiction can be acquired by in-state service or attachment.”15 International Shoe “further encouraged states to expand their jurisdictional reach”16 through long-arm statutes. Long-arm statutes “predicate jurisdiction over nonresidents upon the defendant’s general activity in the state, or the commission of a certain act outside the jurisdiction causing consequences within it.”17 Broad long-arm statutes can create a number of states in which a defendant can be sued, and the plaintiff has a right to sue in these states as long as there is no evidence of harassment or great inconvenience to the defendant. A Virginia district court has admitted that, “strictly speaking, venue and long-arm statutes authorize some degree of legitimate forum shopping.”18 Plaintiffs were given far more options when suing large corporations: “Because [large enterprises] do business nationwide, such companies have contacts with numerous states, which broadens plaintiffs’ options considerably.”19 Thus, International Shoe, “together with the nationwide business activities of many

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326 U.S. 310 (1945). Juenger, supra note 13, at 557. J. H. Friedenthal et al., Civil Procedure: Cases and Materials, 2008, 82. Id. DeSantis v. Hafner Creations, Inc., 949 F. Supp. 419, 424 n. 14 (E. D. Va. 1996). Juenger, supra note 13, at 557.

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large enterprises, ha[s] increased plaintiffs’ forum options and made forum shopping common practice.”20 Indeed, the very “amorphousness of the minimum contacts / ​fairness test invites a clever litigator to argue about the assertion of jurisdiction.”21 One study of the eventual outcome of Supreme Court’s jurisdiction cases since International Shoe found that in “not a single case did a defendant who won on jurisdiction ultimately lose on the merits.”22 The combination of uncertainty and high stakes ensures that parties “are inclined to litigate the question of personal jurisdiction in every case where the issue is not crystal clear.”23 II.A.2 Federalism The structure of the U.S. federal system provides opportunities for forum-shopping both between the federal and state systems and among the state systems. Generally, the Supreme Court has only criticized forum shopping between state and federal courts and “has repeatedly acknowledged the validity of state-tostate forum shopping.”24 The Tenth Amendment reserves all residual power to the states to create their own laws.25 This power leads to a plaintiff ’s ability to shop between state forums because “[i]n enacting laws, states often are conscious of the differences among states’ laws,”26 and these differences are often a “deliberate, intentional result”27 used to attract litigants. Judge Skelly Wright noted that, “[t]he lack of uniformity in state substantive law, compounded by proliferation of state long-arm statutes, has made forum-shopping, among both federal and state courts, a national legal pastime.”28 The U.S. Supreme Court’s so-called “anti-forum shopping” decision in Erie Railroad Co. v. Tompkins reinforced the validity of state-to-state forum shopping. The Court’s main concern was with the doctrine of Swift v. Tyson – that a federal court applying state statutory law could do so without regard to state 20 21

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G. F. Rothschild, Forum Shopping, 24 Litigation 40, 40 (1998). C. D. Cameron / ​K. R. Johnson, Death of A Salesman? Forum Shopping and Outcome Determination Under International Shoe, 28 University of California Davis Law Review 769, 828 (1995). Id. at 822. R. C. Casad, Personal Jurisdiction in Federal Question Cases, 70 Texas Law Review 1589, 1593 (1992). Bassett, supra note 13, at 356. E. M. Maltz, Choice of Forum and Choice of Law in the Federal Courts: A Reconsideration of Erie Principles, 79 Kentucky Law Journal 231, 239 (1991). Bassett, supra note 13, at 339. Id. J. S. Wright, The Federal Courts and the Nature and Quality of State Law, 13 Wayne Law Review 317, 333 (1967).

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case law. The Erie court noted that the application of Swift led to the invasion of “rights which in our opinion are reserved by the Constitution to the several States.”29 Although Swift attempted to promote uniformity on a national level, the doctrine detracted from uniformity in the application of state law.30 Erie’s push towards federalism and away from national uniformity promotes variations in state law, and thus choices for litigants. Erie addressed only concerns regarding shopping in federal court for different substantive law, and left substantive laws choices between state courts “untouched.”31 Thus, “the attractions of the laws of one state over another are the inevitable consequence of our governmental structure and are within the province of the states.”32 II.A.3 “Tag” Jurisdiction Most legal systems views “tag” or transient jurisdiction as a form of “exorbitant” jurisdiction.33 Nevertheless, the U.S. still applies and shows no sign of abandoning tag jurisdiction. In brief, tag jurisdiction is the doctrine that a court has personal jurisdiction over a nonresident defendant voluntarily present in the state, even on activities wholly unrelated to the pending action, if that defendant is personally served while within the state.34 In Burnham v. Superior Court, Justice Antonin Scalia, writing for a plurality of the Court, held that tag jurisdiction did not violate “‘traditional notions of fair play and substantial justice.”’35 The Court did not comment on whether tag jurisdiction could be applied in the same manner to domestic and foreign defendants. Nevertheless, lower federal courts and state courts have forged ahead applying tag jurisdiction with the same criteria in transnational cases.36 29 See

Erie Railroad Co. v. Tompkins, 304 U.S. 64, 80 (1938). id. at 75. 31 Bassett, supra note 13, at 362. 32 Id. at 370. 33 K. M. Clermont / ​J. R. B. Palmer I., Exorbitant Jurisdiction, 58 Maine Law Review 474, 474 (2006) (“Exorbitant territorial jurisdiction in civil cases comprises those classes of jurisdiction, although exercised validly under a country’s rules, that nonetheless are unfair to the defendant because of a lack of significant connection between the sovereign and either the parties or the dispute.”). 34 S. Grossi, Rethinking the Harmonization of Jurisdictional Rules, 86 Tulane Law Review 623, 678-682 (2012). 35 Int’l Shoe, 326 U.S. at 316 (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). See generally P. J. Borchers, The Death of the Constitutional Law of Personal Jurisdiction: From Pennoyer to Burnham and Back Again, 24 University of California Davis Law Review 19, 79-85 (1990). 36 See P. Hay, Transient Jurisdiction, Especially over International Defendants: Critical Comments on Burnham v. Superior Court of California, University of Illinois Law 30 See

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Before the minimum contacts era, “tag” jurisdiction was a common strategy for forum shopping – in other words, a common way in which, under U.S. law, a jurisdiction was turned into a forum competent to hear all disputes relating to the defendant present in the jurisdiction.37 Like the “master of the complaint” doctrine, tag jurisdiction permits the plaintiff to shape the litigation in dramatic ways before any judicial involvement. In essence, the plaintiff waits for the defendant to enter an advantageous jurisdiction before serving her.38 Review 593, 603 (1990) (“The supporters of the Brennan opinion, as well as Justices White and Stevens, should reexamine transient jurisdiction, at least in the limited factual context of casually present international defendants with no or unrelated forum contacts.”). Similar to the notion of plaintiff as “master of the complaint,” the doctrine of tag jurisdiction is wholly judge-made. Although also a creature of U.S. common law, the Supreme Court has disagreed sharply about its origins. In Burnham v. Superior Court of Calfornia, Justice Scalia described tag jurisdiction as “[a]mong the most firmly rooted principles of personal jurisdiction in [the] American tradition,” Burnham, 110 S.Ct. at 2110, and that “[t]his American jurisdictional practice is, moreover, not merely old, it is continuing.” Id. at 2113. Justice Brennan, writing for himself, Justice Marshall, Justice Blackmun and Justice O’Connor, “concurred in the result reached by Scalia, but not much else.” Borchers, supra note 35, at 83. Brennan conceded that in-state service “generally” allows a state to exert jurisdiction, but not that transient jurisdiction was constitutional because of its “pedigree.” Burnham, 110 S.Ct. at 2120 (Brennan, J., concurring). Brennan called tag jurisdiction a “stranger” at common law and argued that it was, in 1868, “weakly implanted” in American law. Id. Brennan concluded that “American courts have announced the [tag jurisdiction] rule for perhaps a century (first in dicta, more recently in holdings),” but that the “transient rule did not receive wide currency until well after” the Supreme Court’s seminal 1878 decision in Pennoyer. Id. at 2122-2124. Professor Harold Korn eventually sided with Brennan, pointing to James Weinstein’s “heroic” historical study of the conflict. H. L. Korn, The Development of Judicial Jurisdiction in the United States: Part I, 65 Brooklyn Law Review 935, 951 (1999). Weinstein exhaustively reviewed practically every significant pre-Pennoyer decision and concluded that tag jurisdiction was “not drawn from English law” at all but rather “essentially a homegrown rule” devised by American courts (citing but often misconstruing English cases) as an antidote to “extravagant assertions of jurisdiction” during “the period marked by the end of the Articles of Confederation and the first few years of the United States Constitution.” J. Weinstein, The Early American Origins of Territoriality in Judicial Jurisdiction, 37 Saint Louis University Law Journal 1 (1992). 37 Juenger, supra note 13, at 554-55. 38 Indeed, the tactical advantages of using tag jurisdiction on foreign non-resident defendants are greater than against domestic defendants. Foreign non-residents gain no protection from federal venue statutes, see 28 U.S.C. § 1391(d) (alien may be sued “in any district”), and U.S. court are far more likely to apply the law of a sister state than of another country. See J. G. Sprankling / ​G. R. Lanyi, Pleading and Proof of Foreign Law in U.S. Courts, 19 Stanford Journal of International Law 3, 9-11 (1983); see generally P. R.

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Friedrich Juenger observed that, after the minimum contacts revolution of International Shoe: “Today’s forum shoppers, however, need no longer stalk perambulatory defendants. Instead of having to rely on roaming process servers, they can seize upon the links that connect an adversary with various states to drag the defendant into a forum of the plaintiffs’ choice.”39 This is not quite true. Some courts (in the face of strong academic criticism)40 have permitted tag jurisdiction as a means of obtaining jurisdiction over corporate defendants.41 It also an important means of obtaining jurisdiction over foreign defendants that might not be amendable to service in their home jurisdictions or otherwise subject to jurisdiction in the U.S.42

Dubinsky, Is Transnational Litigation A Distinct Field? The Persistence of Exceptionalism in American Procedural Law, 44 Stanford Journal of International Law 301, 357 (2008). 39 Juenger, supra note 13, at 553. 40 See, e. g., C. R. Andrews, The Personal Jurisdiction Problem Overlooked in the National Debate About “Class Action Fairness”, 58 Southern Methodist University Law Review 1313, 1361 (2005) (“[S]ome courts have used Burnham to justify tag jurisdiction over corporations. This likely is an erroneous view.”). 41 See, e. g., Allied-Signal Inc. v. Purex Indus., Inc., 576 A.2d 942 (N. J. Super. Ct. App. Div. 1990) (holding that service on the corporate defendant’s registered agent conferred general jurisdiction). But see Siemer v. Learjet Acquisition Corp., 966 F.2d 179, 182-183 (5th Cir. 1992) (rejecting argument that service on an in-state agent “automatically subjects the corporation to jurisdiction”); MBM Fisheries, Inc. v. Bollinger Mach. Shop Shipyard, Inc., 804 P.2d 627, 631 (Wash. Ct. App. 1991) (holding that in-state service on corporate officer “cannot alone confer general jurisdiction”). 42 See P. R. Dubinsky, supra note 38, at 357. Dubinsky collects a selection of such cases, including First American Corp. Inc. v. Price Waterhouse, 154 F.3d 16 (2d Cir. 1998) (upholding service of subpoena on non-party U. K. partnership based on in-hand service on one of the partners while physically present in New York); Kadic v. Karadzic, 70 F.3d 232, 247 (2d Cir. 1995) (service on Bosnian Serb leader in New York); Bourassa v. Desrochers, 938 F.2d 1056, 1057-1058 (9th Cir. 1991) (service of process on Canadian citizen in Florida); Dole Food Co., Inc. v. Gutierrez, No. CV039416, 2004 WL 3737123 (C. D.Cal. July 13, 2004) (service of process on Nicaraguan defendant while physically present in California); In re Gonzalez, 993 S. W. 2d 147 (Tex. App. 1999) (service of process on Mexican citizen during airplane layover in Texas); Flores v. Melo-Palacios, 921 S. W.2d 399 (Tex.App. Corpus Christi 1996) (upholding exercise of personal jurisdiction over Mexican citizen on two alternative grounds--residence in Texas and service of process while physically present in Texas); Sarieddine v. Moussa, 820 S. W.2d 837 (Tex. App. Dallas 1991) (service of process in Texas on Lebanese citizen resident in Bahrain; jurisdiction not contested); Schinkel v. Maxi-Holding, Inc., 30 Mass. App. 41, 45 (App. Ct. 1991) (resident of Finland served with process in Massachusetts while on vacation).

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II.B Forum Selection II.B.1 Plaintiff as the Master of the Complaint “[T]he party who brings the suit is master to decide what law he will rely upon.”43 This principle, which finds expression in many ways throughout U.S. procedure, is commonly referred to as the “master of the complaint”44 rule or the “plaintiff ’s choice principle.”45 This view of litigation accepts that the claim, or the chose in action, is the property of the plaintiff. The plaintiff has broad discretion to select the applicable law, the claims, the parties, and the place of suit. And, “inherent in the principle that the plaintiff can choose the place of suit is that the plaintiff may shop for a favorable forum.”46 This notion has its origins deep in the common law. It is perhaps inseparable from the common law system of party initiated pleading.47 As such, it represents a “fundamentally a private-law view of civil litigation.”48 The plaintiff makes myriad decisions regarding the nature and content of the suit, including the initial place of litigation, prior to any judicial involvement. Indeed, this notion is so ingrained in U.S. civil procedure that it is rarely discussed, let alone challenged. Some scholars have observed that U.S. courts have failed to articulate any independent “satisfactory justification for the basic idea of deferring to the plaintiff ’s initial choice of forum,”49 but that it is nevertheless defensible as more efficient that than conceivable alternatives.50 Courts most commonly comment on the intersection of this concept and forum shopping in the context of the “well-pleaded complaint rule.”51 Generally, 43

Franchise Tax Bd. of State of Cal. v. Constr. Laborers Vacation Trust for S. California, 463 U.S. 1, 22 (1983) (quoting The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25 (1913) (Holmes, J.)). 44 R. A. Ragazzo, Reconsidering the Artful Pleading Doctrine, 44 Hastings Law Journal 273, 276 (1993). 45 A. L. Ryan, Principles of Forum Selection, 103 West Virginia Law Review 167, 202 (2000) (“Forum shopping is made possible by the fact that the law provides a range of permissible venues, instead of establishing rules that would lead to a single proper place of suit.”). 46 Id. 47 See Fleming James, Jr. et al., Civil Procedure, 4th ed., 1992, § 1.2, at 4-5. 48 Ryan, supra note 45, at 203. 49 See P. G. McAllen, Deference to the Plaintiff in Forum Non Conveniens, 13 Southern Illinois University Law Journal 191, 211-220 (1989). 50 Id. McAllen argues that the plaintiff’s choice of forum is cost-benefit justified as compared to a “central court of forums” that assigns each newly filed lawsuit to its proper forum. Id. at 242-51. See also R. A. Ragazzo, Transfer and Choice of Federal Law: The Appellate Model, 93 Michigan University Law Review 703, 709-710 (1995). 51 See G. B. Pursley, Rationalizing Complete Preemption After Beneficial National Bank v. Anderson: A New Rule, A New Justification, 54 Drake Law Review 371, 379 (2006).

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a federal court can only exercise jurisdiction over a case where there is diversity or where a federal claim appears “on the face of the plaintiff ’s properly pleaded complaint.”52 Under the well-pleaded complaint rule, the plaintiff – “the master of the complaint” – can avoid federal jurisdiction by electing to plead only state law claims.53 The exceptions to this rule are narrow indeed. A defendant cannot invoke federal jurisdiction on the basis of a federal defense that the plaintiff does not mention.54 The defendant cannot even access federal court on the basis of the plaintiff ’s anticipation of a federal defense, even if “the defendant concedes the plaintiff ’s state claims and the only real controversy relates to the federal defenses.”55 Federal counterclaims are similarly insufficient.56 The defendant’s only real tool to defeat the well-pleaded complaint is the narrow “artful pleading doctrine.” “If a court concludes that a plaintiff has ‘artfully pleaded’ claims” by “omitting to plead necessary federal questions,” the court “may uphold removal [to federal court] even though no federal question appears on the face of the plaintiff ’s complaint.”57 The U.S. Supreme Court has typically only applied the artful pleading doctrine where federal law completely preempts and therefore eliminates any state law claims.58 The notion that the plaintiff is master of the complaint, and its close cousin, the well-pleaded complaint rule, do not appear in any statute or provision of the constitution. It is pure judge made common law. But it is so deeply woven into the fabric of U.S. procedure that it represents a strong commitment to allowing

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Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 809 note 6 (1986) (“Jurisdiction may not be sustained on a theory that the plaintiff has not advanced.”). 54 R. H. Fallon, Jr. et al., Hart and Wechsler’s The Federal Courts and the Federal System, 4th ed., 1996, 453 (“[T]he right to remove depends on the contents of the plaintiff’s wellpleaded complaint; with a few exceptions, removal is not allowed based on a federal defense or a federal reply to a defense.”). 55 Ragazzo, supra note 44, at 275 (citing Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 9-12 (1983); Louisville & Nashville R. R. v. Mottley, 211 U.S. 149, 151152 (1908)); see also Pursley, supra note 51, at 472. 56 See Takeda v. N. Nat’l Life Ins. Co., 765 F.2d 815, 821-22 (9th Cir. 1985). Congress can expressly provide for federal jurisdiction where it would not otherwise exist. See The Foreign Sovereign Immunities Act, 28 U.S.C. § 1330(a) (stating that federal courts “shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state”); see also Verlinden B. V. v. Cent. Bank of Nig., 461 U.S. 480, 497 (1983) (holding this jurisdictional grant to be constitutional). 57 Rivet v. Regions Bank, 522 U.S. 470,475 (1998); see also Ryan, supra note 45, at 181-182. 58 See, e. g., Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987) (Employee Retirement Income Security Act of 1974 § 502(a), 29 U.S.C. § 1132(a)); Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557 (1968) (Labor-Management Relations Act § 301, 29 U.S.C. § 185). 53 See

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plaintiffs to choose among multiple competent forums, as well as the system’s reluctance to disturb that choice.59 II.B.2 Forum Non Conveniens Defendants can similarly forum shop using the common-law doctrine of forum non conveniens. Forum non conveniens “is an American defendant’s primary defense against a forum-shopping plaintiff.”60 A U.S. court may dismiss or stay a proceeding if the court finds that “the place where the plaintiff has sued is, in the light of access to evidence and the burden on the court, not an appropriate site for the litigation, and [] an appropriate forum is available elsewhere.”61 Ironically, “the U.S. Supreme Court adopted the doctrine of forum non conveniens to curb forum shopping, but the doctrine has provided defendants with a powerful means of reverse forum shopping.”62 In the spirit of countering plaintiff forum shopping, “[t]he doctrine of forum non conveniens may provide the defendant with an opportunity to select a forum in the federal system that is more desirable to him than is the choice made by the plaintiff.”63 For defense counsel, “[t] ransfers under the doctrine of forum non conveniens should, of course, be considered to the extent that they will contribute to a better defense.”64 U.S. courts will consider both private and public interests in deciding a motion to dismiss under forum non conveniens.65 Important considerations that defendants can use to support a motion for dismissal under forum non conveniens include ease of access to proof, ease of access to willing and unwilling witnesses, and “all other practical problems that make trial of a case easy, expeditious, and inexpensive.”66 The Supreme Court has recognized that trial in a court that is familiar with the state law to be applied is another important 59

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Scholars have argued against the well-pleaded complaint rule – but, to this point, without success. See, e. g., M. H. Redish, Reassessing the Allocation of Judicial Business Between State and Federal Courts: Federal Jurisdiction and “The Martian Chronicles,” 78 Virginia Law Review 1769, 1794-1797 (1992) (arguing to the curtailment of the wellpleaded complaint rule). Weintraub, supra note 13, at 464. Id. E. Petrossian, In Pursuit of the Perfect Forum: Transnational Forum Shopping in the United States and England, 40 Loyola Los Angeles Law Review 1257, 1291 (2007) (citing Benton v. Cameco Corp., 375 F.3d 1271 (10th Cir. 2004)). Groce, supra note 13, at § 24. Id. at § 21. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 235 (1981); see also Petrossian, supra note 62, at 1302. Maltz, supra note 25, at 243.

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consideration for forum non conveniens.67 However, due to the creation of the federal transfer statute, “in federal courts, the forum non conveniens doctrine generally has been significant only when the alternative forum is one to which the case could not have been transferred – most often the courts of a foreign country.”68 When a foreign plaintiff is involved, the bar for proving an adequate alternative foreign forum is quite low for the defendant. The plaintiff must show that “conditions in the alternative forum demonstrate that the plaintiffs are ‘highly unlikely to obtain basic justice therein’ or ‘conditions are so severe as to call the adequacy of the forum into doubt.’”69 The plaintiff may also have to show that “the remedy provided by the alternative forum is so clearly inadequate or unsatisfactory that it is no remedy at all.”70 II.B.3 Declaratory Judgment Statutes “[A]s a means of forum shopping, a defendant can file a declaratory judgment suit in a favorable forum while concurrently litigating the plaintiff ‘s suit in the plaintiff ‘s chosen forum.”71 The relevant federal statute allowing for a declaratory judgment is 28 U.S.C. § 2201: In a case of actual controversy within its jurisdiction … any court of the United States … may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.72 The Declaratory Judgment Act allows the defendant to either anticipate or counter a suit filed by the plaintiff and allows “the party who ordinarily does

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Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09 (1947) (“There is a local interest in having localized controversies decided at home. There is an appropriateness, too, in having the trial of a diversity case in a forum that is at home with the state law that must govern the case, rather than having a court in some other forum untangle problems in conflict of laws, and in law foreign to itself.”). Maltz, supra note 25, at 247. F. E. Jernigan, Forum Non Conveniens: Whose Convenience and Justice?, 86 Texas Law Review 1079, 1083 (2008) (quoting Cabiri v. Assasie-Gyimah, 921 F. Supp. 1189, 1199 (S.D.N.Y. 1996)). Piper Aircraft Co., 454 U.S. at 254. Petrossian, supra note 62, at 1260 note 13. 28 U.S.C. § 2201(a).

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not have the power to select the forum in which to litigate”73 to “appropriate” the plaintiff ’s power to forum shop.74 Although the Fifth Circuit has proscribed using the Act solely for reasons of forum shopping,75 if the defendant has a motive other than just to shop for a more favorable forum, such as avoiding a multiplicity of suits in various forums, then the defendant’s use of a declaratory judgment is acceptable.76 Ten years later, the Fifth Circuit acknowledged that “[m]erely filing a declaratory judgment action in a federal court with jurisdiction to hear it, in anticipation of state court litigation, is not in itself improper anticipatory litigation or otherwise abusive ‘forum shopping.’ ”77 II.B.4 The Federal Arbitration Act The right to forum shop using arbitration clauses as a form of forum selection clause is given deference in the United States, especially for international commercial contracts: “The courts have been particularly receptive to arbitration clauses in the international context. The policy of favoring arbitration and enforcing an agreement to engage in such is incorporated within the New York Convention.”78 Overall, “the bottom line for forum selection is that U.S. courts will generally uphold forum selection clauses in the international commercial context.”79 The same is true for clauses in a non-negotiated consumer contract though they may face more scrutiny.80 Although U.S. courts in the past had been hostile to the idea of arbitration clauses, there was a turnabout in the enactment of the Federal Arbitration Act. The Act provides that any arbitration clause in a commercial contract “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”81 The Supreme Court has noted a

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M. G. Algero, In Defense of Forum Shopping: A Realistic Look at Selecting a Venue, 78 Nebraska Law Review 79, 104 (1999). 74 Id. at 102. 75 Travelers Ins. Co. v. Louisiana Farm Bureau Fed’n, Inc., 996 F.2d 774, 777 note 7 (5th Cir. 1993) (“Using a declaratory judgment action to race to res judicata or to change forums is thoroughly inconsistent with the purposes of the Declaratory Judgment Act and should not be countenanced.”). 76 Algero, supra note 73, at 105. 77 Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 391 (5th Cir. 2003). 78 See Teitz, supra note 1, at 53. 79 Id. 80 Id. 81 9 U.S.C. § 2.

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“national policy favoring arbitration,”82 and as a matter of federal law, “doubts about the scope of arbitrable issues must be resolved in favor of arbitration.”83 Moreover, state law restrictions on arbitration clauses are preempted by the FAA.84

III. Part II – U.S. Law, Duties, and Forum Shopping III.A Zeal vs. Meritorious Claims III.A.1 Zeal Both the Model Code of Professional Conduct and the Model Rules of Professional Conduct impose on counsel a duty is to “represent a client zealously within the bounds of the law.”85 The Model Code states that an advocate’s “duty to clients … should never be subordinate merely because the full discharge of his obligation may be misunderstood or may tend to subject him or the legal profession to criticism.”86 Justice Jackson stated as much in his concurrence in Miles v. Illinois Central Railroad. 87 Justice Jackson framed the issue in Miles as whether the plaintiff “may go shopping for a judge or a jury believed to be more favorable than he would find in his home forum.” He answered a resounding yes. Where Congress had provided for multiple competent forums, “[t]here is nothing which requires a plaintiff to whom such a choice is given to exercise it is an self-denying or large-hearted manner,” and “nothing to restrain use of that privilege as all choices of tribunal are commonly used by all plaintiffs to get away from judges who are considered to be unsympathetic and to get before those who are considered more favorable.”88 Justice Marshall, writing for the Court, made a similar observation in the seminal case Piper Aircraft v. Reyno regarding plaintiffs’ attempts to alter the 82 83

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Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 2855 (2010); CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 667 (2012). Id. E. W. Dunham / ​W. A. Darrin, Jr. / ​B. A. Levin, Franchisor Attempts to Control the Dispute Resolution Forum: Why the Federal Arbitration Act Trumps the New Jersey Supreme Court’s Decision in Kubis, 29 Rutgers Law Journal 237, 252 (1998). Model Code of Professional Responsibility EC 9-2, Canon 7. EC 9-2; see also Model Rules of Professional Conduct Rule 1.10 comment (1987) (“[T] he term ‘appearance of impropriety’ is question-begging.”). Miles v. Illinois Cent. R. Co., 315 U.S. 698, 706 (1942) (J. Jackson, concurring). Id. (adding “to get away from juries thought to be smallminded in the matter of verdicts and to get to those thought to be generous; to escape courts whose procedures are burdensome to the plaintiff and to seek out courts whose procedures make the going easy”).

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applicable substantive law by forum shopping: “Jurisdiction and venue requirements are often easily satisfied. As a result, many plaintiffs are able to choose from among several forums. Ordinarily, these plaintiffs will select that forum whose choice-of-law rules are most advantageous.”89 III.A.2 Meritorious Claims and Contentions U.S. ethical rules also impose certain limitations on forum shopping. Rule 3.1 of the Model Rules of Professional Conduct states: “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.”90 The Model Code prohibits actions taken to “delay … harass or maliciously injure another.”91 The official comments to the Model Rules note “delay should not be indulged merely … for the purpose of frustrating an opposing party’s attempt to obtain rightful redress … ”92 Comment (1) to Model Rule 3.1 states: “The advocate has a duty to use legal procedure for the fullest benefit of the client’s cause, but also a duty not to abuse legal procedure. The law, both procedural and substantive, establishes the limits within which an advocate may proceed.” Comment (2) explains that an action is frivolous “if the lawyer is unable either to make a good faith argument on the merits of the action taken or to support the action taken by a good faith argument for an extension, modification or reversal of existing law.”93 Similarly, Rule 11 of the Federal Rules of Civil Procedure imposes on the attorney of record an obligation to certify that any filed document “is not interposed for any improper purpose, such as to harass or to cause unnecessary delay.” And yet, in contexts where U.S. courts have deeply explored the meaning of this limitation, they have set a low bar. In other words, counsel may not file 89 90

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Piper Aircraft, 454 U.S. at 250; see also Woodke v. Dahm, 70 F.3d 983, 985 (8th Cir. 1995) (stating that “venue may be proper in any number of districts”). ABA Model Rules of Professional Conduct Rule 3.1. Model Code of Professional Responsibility DR 7-102(A)(1) (1981); cf. Model Rules of Professional Conduct Rule 3.2 (1987) (“A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client.”). Model Rules of Professional Conduct Rule 3.2 comment (1987); see also Note, Forum Shopping Reconsidered, 103 Harvard Law Review 1677, 1696 (1990). Algero, supra note 73, at 106 (“[Comment 1 to Rule 3.1] describes well the pressures on the attorney and illustrates why attorneys should not be and cannot be expected to refrain from forum shopping within the procedural rules when doing so is in their client’s best interest. This comment indicates that actions taken within the procedural and substantive rules for the benefit of a client are ethical so long as they do not constitute an abuse of legal procedure.”).

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a “frivolous” action. Anything short of that is fair game – specifically, filing an action simply to exert settlement pressure is acceptable (and perhaps required under counsel’s obligation to be zealous). In the Second Circuit’s seminal case on the issue, the plaintiffs filed suit in New York concerning an alleged fraud and pending litigation in Israel, after which they threatened that the a suit would air the defendants’ “outrageous conduct” and proposed a settlement. The district court imposed sanctions on plaintiffs, stating: “[T]he filing of a complaint in a highly doubtful venue, for the express purpose of putting pressure on a foreign government to drop or compromise that government’s action against the plaintiffs in the foreign nation’s courts, furnishes a stark example of improper and oppressive litigation.”94 The Second Circuit reversed, holding that the district had abused its discretion as it “erred as a matter of law [] in concluding that it is improper for an attorney to file a nonfrivolous complaint in a new and proper forum partly as a means of enhancing his client’s chances of obtaining the settlement of another pending action.”95 Indeed, counsel does not violate his duty simply because “one of his multiple purposes in seeking [] relief may have been improper.”96 Other federal courts have laid out similar standard for counsel’s duty to engage in meritorious litigation. The Ninth Circuit, sitting en banc, noted that imposition of sanctions is inappropriate for filing of a non-frivolous complaint “even when the motives for asserting those claims are not entirely pure.”97 The Tenth Circuit noted that, if the complaint is not frivolous, “then any suggestion of harassment would necessarily fail.”98 That said, counsel could still violate this duty by filing a colorable suit, but with subjective bad faith (for example, “for the purpose of imposing expense on the defendant rather than for the purpose of winning”).99 Similarly, ABA Informal Opinion 1011 concluded that an attorney may not file suit in a venue he knows to be improper, “if it is done to 94 95

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Sussman, 56 F.3d at 455. Id. The Second Circuit has been clear that sanctions can be imposed even if counsel did not act out of “subjective bad faith” (for example, out of “frustration or desperation”), but that sanctionable conduct is that which is “destined to fail” where “a competent attorney, after reasonable inquiry, would have had to reach the same conclusion.” Eastway Const. Corp. v. City of New York, 762 F.2d 243, 253 (2d Cir.1985). Sussman, 56 F.3d at 459. For an example of case where counsel could demonstrate no plausible proper motive, see Eli Lilly & Co. v. Gottstein, 617 F.3d 186, 193 (2d Cir. 2010) (“Gottstein’s reliance on Sussman necessarily flounders on the fact that he is incapable of demonstrating that any of his purposes in subpoenaing and disseminating Eli Lilly’s confidential documents was proper.”). For a summary of the different provisions under which the federal courts can punish frivolous litigation, see Oliveri v. Thompson, 803 F.2d 1265, 1271 (2d Cir. 1986). Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir.1990) (en banc). Burkhart v. Kinsley Bank, 852 F.2d 512, 515 (10th Cir.1988). Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073, 1083 (7th Cir.1987).

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harass the defendant or to take advantage of the absence of the opposite party in such country.”100 III.A.3 Inclusion of An Arbitration Clause “Today, it is an uncontested fact that arbitration is the dominant method of settling international trade disputes.”101 Including an arbitration clause in an international contract has been called an “almost universal” practice102 and to not include such a clause would be “surprising”103 and “can be serious, and even calamitous for one of the parties.”104 Because each party has an incentive to push towards litigation when relations go south in international commercial transactions, “jurisdictional certainty … must … be taken into account when structuring an international transaction and planning for the resolution of potential disputes.”105 Thus, “the planning of jurisdiction in international transactions presents an unavoidable problem which the responsible practitioner must address and solve in the course of structuring international transactions.”106 U.S. law clearly favors the enforcement of arbitration agreements. In Green Tree Financial Corp. v. Randolph, the Supreme Court held that the party resisting arbitration has the burden of proving that the claim is not arbitrable or that the costs are excessively high.107 In the context of business-to-consumer contracts, attorneys may be compelled to draft arbitration agreements on behalf of 100

ABA Comm. on Prof’l Ethics, Informal Op. 1011 (1967) (discussing a lawyer intentionally filing suit in an improper venue). 101 Tibor Várady, et al., International Commercial Arbitration: A Transnational Perspective, 4th ed., 2009, 45; see also S. T. Ostrowski / ​Y. Shany, Chromalloy: United States Law & International Arbitration at the Crossroads, 73 New York University Law Review 1649, 1649 (1998). 102 Ostrowski / ​Shany, supra note 101, at 1650 note 2 (quoting G. B. Born, International Commercial Arbitration in the United States, 1994, 6 note 23). 103 Id. (citing M. Kerr, Preface to the Second Edition of W. Laurence Craig et al., International Chamber of Commerce Arbitration, 2nd ed., 1990, xi, xiii). 104 W. Michael Reisman et al., International Commercial Arbitration: Cases, Materials and Notes on the Resolution of International Business Disputes, 1997, 7. 105 Id. at 3. 106 Id. at 72; see also id. at 185 (quoting J. G. Wetter, Arbitration in the New Europe, 7 International Arbitration Reporter 13, 16-18 (1990) (“It is universally agreed that the selection of a proper venue is the most important choice that the draftsman must make at the time of writing the arbitration agreement.”)). 107 See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 92 (2000) (“[W]here, as here, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.”); see also M. H. Malin, Ethical Concerns in Drafting

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commercial clients that “maximize the [client’s] advantage,”108 knowing that a consumer will face an uphill battle to resist arbitration.109 The intuition to create an arbitration clause that most favors the client, “derives from the principle of partisanship which provides that attorneys owe their loyalty to their clients and are obligated to advocate their clients’ interests zealously.”110 This duty is similar in the context of employment contracts since, “management lawyers, when drafting employment arbitration agreements for their clients, are creating the first and final forum in which their clients’ employees will adjudicate their statutory claims.”111 Attorneys should consider an arbitration clause in nearly all arm’s-length transactions.112 This is especially true when the client is a commercial institution.113 Repeat players have a heightened risk of litigation and have an interest in avoiding large awards.114 By using mandatory arbitration clauses, an attorney can impose costs on the claimant, thereby moving the settlement zone downwards for the commercial institution.115 Here, the insertion of a mandatory arbitration clause is “related”116 to forum shopping in that one party can try to gain an advantage while imposing costs on the adversary, but what is distinct is the opportunity to design rather than merely choose the forum.117 The existence of the opportunity for risk management may imply that a corporation – and by extension a corporation’s legal counsel – that does not take advantage of a mandatory arbitration clause is not acting responsibly towards its shareholders Employment Arbitration Agreements After Circuit City and Green Tree, 41 Brandeis Law Journal 779, 791 (2003). 108 Malin, supra note 107, at 800. 109 See also S. H. Blackmand / ​R . M. McNeill, Alternative Dispute Resolution in Commercial Intellectual Property Disputes, 47 American University Law Review 1709, 1732 (1998) (“The courts’ favorable opinion of ADR methods should further compel attorneys and their clients to use ADR methods and to include ADR provisions in their contractual agreements.”); A. J. Schmitz, Ethical Considerations in Drafting and Enforcing Arbitration Clauses, 49 South Texas Law Review 841, 842 (2008) (noting that clients expect zealous advocates to include “un-negotiated form arbitration provisions” to aid the client in avoiding liability). 110 Schmitz, supra note 109, at 819; see id. at 868 (“Advocacy obligations therefore prompt attorneys to suggest and draft consumer arbitration clauses as means not only for generating time and economic efficiencies, but also for curbing consumer claims.”). 111 Id. at 812. 112 M.. H. Tanick, Thou Shalt Not Ignore Arbitration, 13 Litigation 34, 34 (1987). 113 See L. B. Bingham, Control Over Dispute-System Design & Mandatory Commercial Arbitration, 67 Law & Contemporary Problems 221, 232 (2004). 114 Id. 115 Id. at 234. 116 Id. at 238. 117 Id.

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and profit.118 Because of the risk to large corporations, “[f]or counsel to these companies, the task is to ensure that the client’s business judgment to arbitrate disputes is enforced.”119 III.A.4 Compelling or Staying Arbitration If a corporation is sued in state court despite the fact that the dispute is covered by a mandatory arbitration clause, then the attorney may have a duty to get to federal court immediately to try to compel arbitration.120 Moreover, in cases with parallel judicial and arbitration proceedings, it may be the duty of one party’s attorney to proceed with the arbitration quickly and attempt to use collateral estoppel to halt the litigation.121 It may be the duty of the other side to attempt to stay the arbitration while litigation continues.122 U.S. courts have used fearsome language concerning those who seek stays of arbitration: “Arbitration is neither quick nor cheap when one party litigates to the gills. (…) Litigants must think twice before filing papers that put their adversaries to expense; they must think three times before filing [for a stay] in arbitration cases.”123 And yet, in cases imposing sanctions, counsel failed to meet the basic pleading requirements for seeking a stay, for example, a showing of irreparable harm. In Judge Easterbrook’s words from the case quoted above: “[T]here is no evidence that PaineWebber thought even once before seeking a stay.”124 In dissent, Judge Ripple identified the standard drawn the limitation of meritorious claims: “I do not believe that the appellant’s position was so frivolous.”125

118 See

id. at 249. M. R. Kravitz / ​E . W. Dunham, Compelling Arbitration, 23 Litigation 34, 40 (1996). 120 See id. at 36. 121 Tanick, supra note 112, at 35. 122 Id. 123 PaineWebber Inc. v. Farnam, 843 F.2d 1050, 1053 (7th Cir. 1988); see also Graphic Communications Union v. Chicago Tribune Co., 779 F.2d 13 (7th Cir. 1985) (“[E]mployers who seek stays merely on the ground that the arbitration may turn out to be a wasted expense of time and money are whistling in the dark, and [] we will not hesitate to mete out sanctions in future cases to persons who make applications for stays of arbitration.”); Classic Components Supply, Inc. v. Mitsubishi Electronics America, Inc., 841 F.2d 163 (7th Cir. 1988) (imposing sanctions). 124 Farnam, 843 F.2d at 1053. 125 Farnam, 843 F.2d at 1053 (7th Cir. 1988) (Ripple, J., dissenting). 119

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III.B Diligence & Competence Rule 1.3 of The Model Rules of Professional Conduct sets out the attorney’s duty of diligence: “A lawyer shall act with reasonable diligence and promptness in representing a client.”126 Model Rule 1.1, concerning attorney competence, states that “[a] lawyer shall provide competent representation to a client,” and adds that “[c]ompetent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”127 In the context of forum shopping, these rule sets out a duty for counsel to exercise reasonable efforts to search which competent forums are most tactically advantageous for the client. When courts have paused to consider whether a diligent and competent lawyer must forum shop, the answer has typically been an emphatic yes. For example, from the United States District Court for the Southern District of New York: “Forum shopping is no more an evil than any other tactical determination a party makes in its behalf. Any competent lawyer chooses a forum with his or her client’s interests in mind.”128 U.S. courts have not analyzed in any depth the relationship between competence and forum shopping. And yet, the requirement that attorneys discharge their duty to diligently and competently forum shop prior to the inception of an action explains some puzzling inconsistencies in U.S. decisions. The United States Court of Appeals for the Second Circuit recognized and commented on this duty to diligently forum shop in the case Spar v. Information Resources.129 In Spar, the plaintiff brought a claim for tortious inference with contract in New York over five years after its employee had allegedly breached his non-compete agreement for going to work for a competitor – and over two years after the New York statute of limitations had run. The defendant moved to dismiss. In response, the plaintiff moved to change venue to a jurisdiction with longer statute of limitations. The Second Circuit upheld the denial of the motion, noting the defect was the result of “plaintiff ’s failure to shop diligently 126

ABA Model Rules of Professional Conduct Rule 1.3. ABA Model Rules of Professional Conduct Rule 1.1. 128 Cheeseman v. Carey, 485 F. Supp. 203, 215 (S.D.N.Y. 1980). Judge Sofaer gave the following apt summation of approaches to forum shopping and transfer of venue in the course of denying defendant’s motion to transfer based on forum non conveniens: “Section 1404(a) poses little difficulty for courts resolved either to grant or deny motions for transfer. If a court is inclined to grant a transfer, it has available the established doctrine that the section was intended to prevent forum shopping. If a court is inclined to deny a transfer, it usually suffices to invoke the equally well established doctrines that a plaintiff’s choice of forum is entitled to respect, and that a moving defendant has the burden of proving a case for transfer.” Id. at 214-215 (S.D.N.Y. 1980). 129 956 F.2d 392, 394 (2d Cir. 2010). 127

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before the action’s inception.”130 The court added that “allowing a transfer in this case would reward plaintiffs for their lack of diligence in choosing a proper forum.”131 The Spar court noted the U.S. Supreme Court’s words in Ferens v. John Deere that “a plaintiff already has the option of shopping for a forum with the most favorable law,”132 before it makes a decision to initiate an action in a particular district, but nevertheless observed that “[o]nce a plaintiff has commenced its action, however, its opportunity to search for a more conducive forum ordinarily is concluded.”133 Had the plaintiff ’s counsel forum shopped competently, this would not have been “bargain hunt[ing].”134 Or in the words of the Ninth Circuit, “eleventh-hour efforts.”135 In Vivendi v. T-Mobile: “[A] French corporation [alleges] that a German corporation and a Polish billionaire colluded fraudulently in Europe to wrest control of a Polish wireless telephone company from the French corporation. The French corporation sought a remedy for these alleged wrongs in – of all places – the United States District Court for the Western District of Washington.”136 In fact, the French corporation had commenced actions in over 20 jurisdictions (including two Vienna seat arbitrations) in a fairly reasonable strategy to recover assets allegedly stripped from the aforementioned Polish telecom company. But what really bothered the court was that, after Vivendi’s French entity filed suit, and after the defendant moved to dismiss based on forum non conveniens, Vivendi arranged for its American subsidiary, Vivendi Holding, to acquire an economic interest in the Polish company and moved to join it as a plaintiff in the U.S. action. The court’s response: “Vivendi [  ] engaged in forum shopping … Most significantly, however, Vivendi Holding did not acquire [the economic interest] and was not added as a plaintiff until after T-Mobile filed its first motion to dismiss for forum non conveniens, seven months after Vivendi S. A. originally had filed suit. Vivendi even concedes that Vivendi Holding acquired the [interest] for the purpose of, among others, strengthening its U.S. connections to the case.”137 The court was not impressed.138 And so Vivendi appears to be of a piece with Spar in that the courts were not particularly troubled by forum shopping as such, but by counsel’s failure to forum shop competently and diligently before the inception of the action. Scholars have observed in other contexts that U.S. courts condemn forum shopping 130 131

132 133

134 135

136 137

138

Id. Id. 494 U.S. 516, 527 (1990). Spar, Inc. v. Info. Res., Inc., 956 F.2d 392, 395 (2d Cir. 1992). Id. Vivendi SA v. T-Mobile USA Inc., 586 F.3d 689, 695 (9th Cir. 2009). 586 F.3d 689, 690 (9th Cir. 2009). Id. at 694. Id.

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not when it demonstrates tactical gamesmanship or perceived unfairness, but when it violates the “judicial-management principle” – in other words, when it wastes the courts’ time and resources.139 The federal appellate courts’ attention to competence and diligence in forum shopping prior to initiating an action supports this notion. It therefore appears that U.S. courts attend to whether counsel has competently and diligently forum shopped, even if they do not hold that an attorney commits malpractice by failing to do so. The questions remains: If U.S. courts applied the requirements of competence and diligence to forum shopping as they do in other contexts, would they impose such a duty? The duties of competence and diligence have been extensively explored in the context of the duty to perform legal research. For example, in Glassalum Engineering Corp. v. 392 208 Ontario Ltd., the court noted that the failure to state obvious controlling precedent would cause counsel to be guilty of gross incompetence.140 Legal research expectations have increased as technology has improved.141 “[T]oday’s lawyer is faced with higher expectations and a broad array of sources to choose from.” The Seventh Circuit chastised an attorney, describing his method of using legal arguments as, “fire the buckshot and hope something hits.”142 Instead counsel should perform research that will limit the number of arguments to those with support.143 Similarly, counsel should perform the requisite research to decide which fora are actually viable options. The standard of competence in legal research is often described as “normally competent”144 with reference to professional norms.145 Thus, whether there is a duty to forum shop may be based on whether forum shopping is a professional norm. Venue does affect outcome,146 so choosing a forum “warrants substantial consideration” by a plaintiff ’s attorney.147 Professor Georgene Vairo states that plaintiffs’ and defendants’ lawyers commit malpractice if they do not consider which forum is best for the client’s matter: “Forum selection analysis is thus not 139

Ryan, supra note 45, at 169. Glassalum Eng’g Corp. v. 392208 Ontario Ltd., 487 So.2d 87, 88 note 2 (Fla. Dist. Ct. App. 1986). 141 E. Margolis, Surfin’ Safari – Why Competent Lawyers Should Research on the Web, 10 Yale Journal Law & Technology 82, 111 (2007). 142 Matter of Maurice, 73 F.3d 124, 128 (7th Cir. 1995). 143 Id. 144 Lieb v. Topstone Indus., 788 F.2d 151, 157 (3d Cir. 1986); see also Smith v. Lewis, 530 P.2d 589, 593 (Cal. 1975). 145 See Strickland v. Washington, 466 U.S. 668, 688 (1984); Hon. R. J. Miner, Professional Responsibility in Appellate Practice: A View from the Bench, 19 Pace Law Review 323, 337 (1999). 146 K. M. Clermont / ​T. Eisenberg, Exorcising the Evil of Forum-Shopping, 80 Cornell Law Review 1507, 1507-1508 (1995). 147 See Petrossian, supra note 62, at 1259-1260. 140

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only an ethical practice, but it would be unethical not to engage in it because the client’s cause may be better served in a different forum.”148 Every attorney knows that forum shopping is practiced,149 and this custom will continue to thrive even if standards between fora become uniform.150 Plaintiffs will continue to seek a forum in which they have a geographical or procedural advantage or in which the defendant has a similar disadvantage.151 One federal district court noted that the number of possible venues creates a right for the plaintiff to choose where to sue and “every litigant who files a lawsuit engages in forum shopping when he chooses a place to file suit.”152 Thus, forum shopping can be considered a professional norm and has even been called by Judge Skelly Wright our “national legal pastime.”153 A client would be disadvantaged if the attorney fails to forum shop.154 Forum shopping is the standard for a reasonably competent and diligent attorney. Further examination of current professional norms can further illuminate the contours of a duty to forum shop. III.B.1 Knowledge of Foreign Law A common theme in domestic forum shopping is the need for knowledge of other states’ laws. “[N]ot only are lawyers considered competent to know and apply the laws of many other states in practice, but the failure by a lawyer to possess and exercise that competence in advising a client on multistate transactions is actionable, for both legal malpractice and professional discipline purposes.”155 As commercial clients require legal services that span multiple nations, one would expect the same principle to extent to transnational practice. However, as Charles Wolfram wrote in 1985: “[T]he threat of professional discipline is more theoretical than real . . . at least theoretically, a lawyer could be disciplined for muffing a case controlled by foreign law. No such case has been found.”156 148

Vairo, supra note 13, at 1394. W. F. Baxter, Choice of Law and the Federal System, 16 Stanford Law Review 1, 9 (1963). 150 Petrossian, supra note 62, at 1261 note 16 (citing A. Bell, Forum Shopping and Venue in Transnational Litigation, 2003, 90). 151 See Petrossian, supra note 62, at 1261. 152 Texas Instruments Inc. v. Micron Semiconductor, Inc., 815 F. Supp. 994, 996 (E. D. Tex. 1993). 153 Ryan, supra note 45, at 199. 154 See A: W. Alschuler, How to Win the Trial of the Century: The Ethics of Lord Brougham and the O. J. Simpson Defense Team, 29 McGeorge Law Review 291, 299 (1998). 155 See C. W. Wolfram, Sneaking Around in the Legal Profession: Interjurisdictional Unauthorized Practice by Transactional Lawyers, 36 South Texas Law Review 665, 672-673 (1995). 156 See id. at 673 note 20. 149

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In the U.S., the older rule that a lawyer admitted in one state is not responsible for the laws of another157 has been abandoned: “[T]he modern view is that an attorney must possess and exercise the skill and knowledge necessary for the task. This includes knowledge of those laws of any jurisdiction material to the transaction.”158 New York courts have long adopted the position that counsel retained for a multistate matter is responsible for knowing the laws of the foreign state.159 In the words of the New York Appellate Division: Counsel cannot “shield themselves behind the plea: ‘I am a New York lawyer. I am not presumed to know the law of any other state.’”160 Similarly, a litigator retained for a matter that could be filed in another state (for example, a tort suit where the injury occurred in a foreign state) has a duty to know the basic law (e. g. the statute of limitations) of the foreign state.161 “Today, an attorney must assure that the client’s representation complies with the laws of other jurisdictions that are necessary to achieve the client’s objectives.”162 Commentators have noted that, because technological advances have lead attorneys to “regularly address domestic and foreign legal issues,” counsel will be expected “to have the ability to assist clients in selecting the best legal path by comparing the effects of selection of laws between diverse legal systems, as well as the domestic applications within those systems.”163 The New York Convention applies “to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought” and “shall also apply 157

Fenaille v. Coudert, 44 N. J. L. 286, 291 (1882). R. E. Mallen / ​J. M. Smith, Legal Malpractice, 2012, § 19:5. 159 See Degen v. Steinbrink, 195 N. Y. S. 810, 814 (App. Div. 1922) (“When a lawyer undertakes to prepare papers to be filed in a state foreign to his place of practice, it is his duty, if he has not knowledge of the statutes, to inform himself, for, like any artisan, by undertaking the work, he represents that he is capable of performing it in a skillful manner.”); see also In re Roel, 165 N. Y. S. 2d 31, 37 (1957) (holding that a lawyer practicing exclusively foreign law in New York must nevertheless be admitted in New York). 160 Degen, 195 N. Y. S. at 814. 161 Rekeweg v. Federal Mut. Ins. Co., 27 F. R. D. 431, 435 (N. D. Ind. 1961); see also Spaziano v. Price, 763 So.2d 1047, 1048 (Fla. Dist. Ct. App. 1999) (“[T]he firm undertook representation of Spaziano in this matter and are required to bring to that representation the requisite knowledge and skill to determine the appropriate statute of limitations in an incident such as this one.”). 162 Mallen / ​Smith, supra note 158, at § 19:5. 163 M. P. Waxman, The Comparative Legal Process Throughout the Law School Curriculum: A Modest Proposal for Culture and Competence in a Pluralistic Society, 74 Marquette Law Review 391, 392 (1991) (stating that attorneys have “an overall lack of familiarity with foreign legal systems,” such that they “often fail to inform their clients or even the courts of significant issues, thereby providing ineffective or incompetent legal counsel.”). 158

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to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”164 The convention is “an affirmative international treaty obligation of the United States, and as such, the supreme law of the land.”165 However, attorneys seeking for enforce arbitral awards in signatory countries face an obstacle in the “diversification in the interpretation of the New York Convention.”166 In particular, “the Contracting States have been left free to establish different procedures for the recognition and enforcement of foreign awards and domestic awards.”167 “There is no question that the New York Convention failed to put in place a complete and harmonious system of control of arbitral awards.”168 Lawyers forum shop when they insert an arbitration clause in an international business agreement: “An international business operator is not exactly a bystander but an experienced professional assisted by a team of lawyers. When it designates a seat of arbitration or refrains from so doing, it does so, or should do so, deliberately, i. e. with full knowledge of the consequences of this choice on the question of jurisdiction over annulment of awards and the extent of control over awards during annulment proceedings.”169 Counsel with experience in international commercial arbitration who fail to designate a favorable (or at the minimum a non-biased forum) are negligent, and may have to face the consequences of arbitrating in a highly-biased forum.170 Without proper analysis of the choice of forum prior to including an arbitration clause, a client’s entire case could be ruined and, cost the client millions of dollars.171 A lawyer must select 164

171

United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, art. 1, June 10, 1958, 21 U.S.T. 2517, 330 U. N. T. S. 3 (hereinafter: New York Convention). Ostrowski / ​Shany, supra note 101, at 1658; see also Marchetto v. DeKalb Genetics Corp., 711 F. Supp. 936, 939 (N.D. Ill. 1989) (“[A]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States” (quoting 9 U.S.C. § 203)). F. C. Moss, Risk of Conflict Between the New York Convention and Newer ArbitrationFriendly Legislation, 3 Transnational Dispute Management 1, 2 (2006). L. V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale Law Journal 1049, 1065 (1961). H. G. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award, 2002, 124; see also A. J. van den Berg, The New York Convention of 1958: Towards a Uniform Judicial Interpretation, 1981, 88 (“Whilst international conventions are established to regulate a certain subject matter in a uniform manner, they are interpreted and applied differently by the courts in the States Party to them … it appears that the New York Convention does not constitute an exception to this phenomenon.”). Gharavi, supra note 168, at 129. Id. at 130. Id.

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a venue which is suitable for the client, and failure to devote sufficient attention to this task “is inexcusable and will no doubt increasingly be widely recognised as an act of professional negligence.”172 As to enforcement of the arbitral award, Article VII of the New York Convention has faced criticism for effectively granting parties the ability to choose domestic law when it is more favorable to their cause.173 This idea is also known as the “most favorable right” provision.174 Norway and Sweden have passed national laws that are more favorable to arbitration than the convention.175 The French courts have upheld the most favorable right provision by allowing enforcing parties to rely on French laws that do not recognize as a defense the setting aside of an arbitration award by a court at the arbitration situs.176 French, German and Dutch law allow application of more favorable domestic law in lieu of the convention.177 Because of these differences of liberality in enforcement, a party faced with a losing adversary who refuses to comply with the arbitration award should “do that which is normally frowned upon in international civil procedure: forum shop.”178 Thus, when an arbitration award is handed down, 172

Id.

173 See

id. at 1658. N. Tepes, Arbitration Agreement: The More Favorable Right Provision of Art. VII of the New York Convention and its Application to the Form of the Arbitration Agreement, 12 Croatian Arbitration Year Book 125, 125-126 (2005) (“In other words, application of the New York Convention cannot result in the situation where a party would be deprived of any rights it has according to more liberal provisions of the law of the country where enforcement procedures are taking place. This provision, also known as the more favorable right provision, basically ensures that the recognition and enforcement will take place in situations where it cannot be realized in accordance with the provisions of the New York Convention.”); see also van den Berg, supra note 168, at 383 (noting that “a consequence of the mfr-provision is that the New York Convention does not supersede the domestic law on the enforcement of foreign awards of the country where the enforcement is sought.”). 175 Id. 176 See Ostrowski / ​Shany, supra note 101, at 1659-1660. 177 G. R. Delaume, Enforcement Against A Foreign State of an Arbitral Award Annulled in the Foreign State, 1997 International Business Law Journal 253, 254 (1997); see also Bomar Oil N. V. v. Entreprise Tunisienne d’Activités Pétrolières, Court d’appel [Versailles], Jan. 23, 1991, Revue de l’Arbitrage 293 (1991) (Fr.) translated in 17 International Council for Commercial Arbitration Yearbook 490 (1992) (noting that “A French court, when faced with an application to set aside an arbitral award, may have to put aside the provisions of the New York Convention if French domestic law is more favourable than the New York Convention.”). 178 H. Kronke / ​P. Nacimiento / ​D. Otto, Recognition & Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention, 2010, 13; see also Delaume, supra note 177, at 254 (“[D]omestic rules … may lead to different solutions. 174 See

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counsel for the winning party must determine which jurisdictions recognize the New York Convention, determine where the loser’s assets are located, and determine “whose courts deal – faithful to the letter and the spirit of the Convention – expeditiously with recognition and enforcement.”179 III.B.2 Shopping for Substantive Law The opportunity to shop for choice of law while shopping for a forum is greatly increased by the Restatement (Second) of Conflicts, which requires application of the law of the state with the most significant relationship to the conflict between the parties.180 The significant relationship rule is followed by several states, including New York and Pennsylvania, and requires a balancing test which often results in the forum state applying its own law.181 Thus, the plaintiff is in a good position to shop for the choice of law while shopping for the forum.182 The duty of competency may not require an attorney to draft a choice of law clause in every contract for a client.183 However, as noted by one U.S. district court: “[This case is a] striking example of the potency of choice of law rules in a multistate contract context. It is a reminder that parties act at their peril when they fail to make explicit their choice of law and instead leave that decision to the conflicts rules of some future, perhaps unforeseen, forum.”184 There are also particular circumstances in which an attorney would have a duty to include a choice of law provision, including when the contract is a standard form contract for consumers on a nationwide basis, when the value of the transaction is extremely large, since “lawyers in sophisticated business deals almost always include choice of law provisions,” and when specialty lawyers know that one state is best for the client.185 In deciding whether to include a choice of law clause, an attorney should research state laws that have some connection to the transaction and “selectively [choose] state’s law on issues as is appropriate. This approach is the ‘choose the

185

Although not intended to promote competition among potential recognition fora, different domestic rules may provide the award creditors with interesting opportunities to engage in forum shopping.”). Id. at 14. V. E. Schwartz / ​P. W. Lee / ​K. Kelly, Guide to Multistate Litigation, 2010, § 10:14. Id. Id. D. Hricik, Infinite Combinations: Whether the Duty of Competency Requires Lawyers to Include Choice of Law Clauses in Contracts they Draft for their Clients, 12 Willamette Journal of International Law & Dispute Resolution 241, 242 (2004). Chesapeake Supply & Equip. Co. v. J.I Case Co., 700 F. Supp. 1415, 1416 (E. D. Va. 1988). Hricik, supra note 183, at 259.

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180 181

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best law’ approach.”186 If a choice of law clause is not added, then competent attorneys “must analyze the laws of each state and argue for application of the law most favorable to their client”187 when “litigation arises out of a transaction with solid connections to more than one state.”188 Forum selection and choice of law are of major importance, and “[a]ttorneys are often inadequately aware of the significance and the mechanics of these tools and thus discover too late what they should have done to best position their clients and to avoid disastrous consequences in the event of disputes. This is the case regardless of whether the contract or transaction is wholly between domestic U.S. parties or between U.S. and foreign parties.”189 When dealing with a foreign party, attorneys must be aware of laws, regulations and customs of the foreign party as well as “conventions and agreements governing the international community that may impact the contract.”190 This would include the New York Convention if the contract includes an arbitration clause between foreign parties: “An attorney drafting an international contract may have more responsibility in considering all factors in choosing a forum. (…) [S]he must skillfully weigh both the laws of the pertinent jurisdictions and their effects on the transaction, as well as considering the language of the forum selection provision.191

IV. Conclusion The broad view of the definition of forum shopping (as articulated by Professor Ferrari) leads naturally to a few conclusions about the U.S. system. First, the U.S. system is replete with mechanisms of forum access and forum selection that are fundamental, inextricable, and perhaps ineradicable. Second, U.S. courts have departed from the typical interpretation of the ethical obligations on U.S. counsel when considering these obligations in the context of forum shopping. For example, courts seem willing to impose some limitation above and beyond the requirement of “non-frivolousness” that is normally the touchstone of the relevant ethical constraints. 186 187

188 189

190 191

Id. at 260. Id. at 251. Id. V. P. Nanda / ​R. B. Lake eds., The Law of Transnational Business Transactions, 2011, § 3:2. Id. Id. (“While the practitioner whose work relates solely to performance and dispute resolution within the United States has certain challenges in verifying the ramifications of her advice of one forum state to choose over another, the attorney working on a transaction with parties in other countries has a special responsibility to ensure that all possible variables are considered and understood.”).

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The logical error is that U.S. courts have been too quick to equate systemically undesirable forum shopping (such as, perhaps, aggressive stays of arbitration) with unethical forum shopping. There is no basis to, a fortiori, connect systemically troubling forum shopping with “egregious” forum shopping. Indeed, to do so distorts counsel’s ethical duty of zealous representation. It follows that, although courts may use a host of mechanisms to deter undesirable forum shopping, courts have erred in using the Rule 11 sanction.

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Forum Shopping and the Determination of the Place of Arbitration Filip De Ly I. Introduction This contribution will look to the place of arbitration as an element of forum shopping. The analysis will be preceded by a description of some key concepts and some general observations regarding forum shopping and arbitration. As other contributions to this book deal with various elements of the arbitral process including the arbitration agreement, arbitral proceedings and means of recourse against the arbitral award or its recognition and enforcement, this contribution only deals with the questions as to the extent to which the place of arbitration is relevant from a forum shopping perspective and as to the relevance of the determination of the place of arbitration.

II. Forum Shopping and Arbitration II.A Forum Shopping No firm definitions of forum shopping exist.1 The traditional approach is a legal-academic construct: forum shopping is an attempt by a party in a litigation context to use jurisdictional rules to bring its case in a jurisdiction deemed to be more favorable to that party’s interests as to the substantive outcome of the case. An extrapolation from that view also includes procedural advantages at the chosen forum including evidentiary rules (e. g., discovery), composition of the chosen court (e. g., jury trial) or allocation of costs (e. g., the American rule where each party by and large bears its own legal costs or the “costs follow the event rule” under which the losing party bears all legal costs). An attorney and client perspective is, however, much broader: forum shopping is the result of a complex process identifying first possible venues for litigation followed by a comparison of all factors weighing upon the choice between these competing fora. Any such factors not only include substantive outcomes of the case and procedural elements of litigation but also other legal factors such as the expertise of judges at the forum considered to deal with certain types of disputes, the expediency of trials, the language of the proceedings (and 1

See the contribution by F. Ferrari, Forum Shopping in the International Arbitration Context: Setting the Stage, supra 9-16.

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resulting costs in terms of translations and interpretations) or post-trial issues regarding recognition and enforcement of judgments. It is submitted that this broader perspective is a much more accurate reflection of practice and that, thus, a multi-faceted approach is preferable in analyzing forum shopping issues. The analysis, however, does not stop here. Traditional approaches to forum shopping are mostly premised on a rational decision making process where the exercise of forum shopping and its outcome (i. e., the decision to bring the case in a forum so chosen) is based on an informed and conscious process. It is submitted that this basic assumption of traditional forum shopping thinking is often fictitious for two reasons. First, the rational process of comparing advantages and disadvantages of bringing suit in different fora is difficult, time consuming and costly. Various elements must be brought into the equation and requires information that may not be immediately and easily available. Pros and cons cannot easily be weighed: how to assess for instance a jurisdiction with a very qualified judiciary but where litigation costs are substantially higher than in other jurisdiction? Second, forum shopping is often also a nonrational process where psychological elements are of paramount importance. Notwithstanding many benefits of litigating abroad in a foreign forum, a party may still prefer to litigate at home because of unproven perceptions of bias of foreign courts in favor of local parties, lack of familiarity of proceedings abroad, longer communication lines with foreign counsel, a foreign language in which the proceedings are to be conducted or other inconveniences related to foreign proceedings. Rationality, thus, often cannot bridge cross-cultural divides. In addition to the objective forum shopping process, the issue needs to be addressed as to whom may engage in forum shopping. Traditionally, forum shopping is a plaintiff ’s privilege. Plaintiffs can play with different jurisdictional rules and choose from available forums. To a more limited extent, a defendant can also attempt to have the jurisdictional rules work to its benefit. This phenomenon is sometimes referred to as reverse forum shopping. It not only works once the plaintiff has made its choice and seized a court in a given forum2 but also in anticipation of plaintiff ’s action where a prospective defendant may preempt jurisdiction at plaintiff ’s court of choice by filing earlier its money claims, requests for declaratory relief or for negative declaratory relief at the court of its liking. Finally, it is relevant for the purposes of this contribution to mention the causes of forum shopping possibilities. These stem from diversity of jurisdictional rules and the lack of coordination and harmonization of such rules. In view of the collapse of worldwide efforts to bring more harmonization (except for choice of court agreements)3 initiated by the Hague Conference on Private 2 3

See again the contribution by Ferrari, supra note 1, 13. Convention on Choice of Court Agreements, June 30, 2005, available at www.hcch.net acceded to by Mexico and signed by the European Union and the USA (not entered into force).

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International Law, forum shopping will be here to stay. Even within regional efforts for more harmonization such as the Brussels Regulation scheme,4 forum shopping prospects continue to exist not so much for reasons of lack of unanimity but for the substantive reason that it is not desirable to retain only one ground for jurisdiction. Substantive reasons argue for multiple alternative grounds for jurisdiction which at the same time create possibilities for forum shopping.

II.B International Commercial Arbitration

5

A second building block of this report is constituted by arbitration as a private dispute settlement process. By its very origin, arbitration – unless based on statute making it compulsory – is consensual and, thus, requires consent. Absent consent, no arbitration is to take place unless lack of consent is waived by the respondent in arbitration proceedings. If there is consent, any dispute falling within the scope of the arbitration agreement needs to go to arbitration unless a respondent in court proceedings waives the benefit of arbitration. Similarly, courts are under an obligation to refer parties to arbitration if there is an arbitration agreement. If all is so simple, how can there be forum shopping when being faced with an agreement to arbitrate? There are numerous situations where forum shopping prospects loom. Six of those will be mentioned below. The first situation, of course, relates to consent. The parties may have different views as to whether the other side consented to arbitration. This may arise where standard business terms of one party are used and the other side 4

5

For its most recent enactment, see Regulation (EU) No 1215 / 2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and enforcement of judgments in civil and commercial matters (recast), Official Journal L 351, 20 December 2012, p. 1-32 (entering into force on January 10, 2015). Other types of arbitrations such as public international law arbitration or investment arbitration fall outside the scope of this contribution and will, thus, not be discussed. If governed by international conventions, any such arbitrations are not anchored in municipal law and do not have their seat in any particular country (see for instance Electrabel S. A. v. Republic of Hungary, ICSID Case No. ARB / 07 / 19, Decision on Jurisdiction, November 30, 2012, ¶¶ 4.112, 4.153 and 4.199, available at www.icsid.worldbank.org). Hybrid situations also exist as for instance regarding arbitrations before the Iran-US Claims Tribunal in relation to non-inter-state claims where the question as to the application of Dutch law as the law of the place of arbitration is unsettled (see D. D. Caron / ​L . M. Caplan / ​M. Pellonpää,, The UNCITRAL Arbitration Rules, Oxford, Oxford University Press, 2nd ed., 2013, 41-46 also discussing enforcement proceedings under the New York Convention in the United States in the Gould (Ministry of Defense of the Islamic Republic of Iran v. Gould, Inc., 887 F.2d 1357 (9th Cir. 1989) and Avco (Iran Aircraft Industries v. Avco Corp., 980 F.2d 141 (2d Cir. 1992) cases).

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challenges their application as contract terms. There may be multi-party or multi-contract disputes where it is unclear whether the other side has become a party to an arbitration agreement incorporated into a contract to which it is not privy or which is related to another contract. A myriad of different fact specific situations may be present which create difficult issues as to consent. These arise frequently in practice; the abundant case law on Article II of the 1958 New York Arbitration Convention6 testifies to that effect. Any such disputes as to consent may not only give rise to jurisdictional challenges by the respondent in the arbitration proceedings but may also create parallel proceedings in domestic courts instituted by the respondent in the arbitration. These may relate to claims against the claimant in the arbitration where the domestic court proceedings function as a substitute to filing counterclaims in the arbitration. They may, however, also imply declaratory and negative declaratory relief. A second and related scenario is where the respondent in the arbitration alleges that the arbitration agreement is null and void or voidable on formal or substantive grounds and brings domestic courts proceedings to that effect rather than or in addition to a jurisdictional challenge in arbitration. Third, the respondent in the arbitration may argue that the dispute does not fall within the scope of the arbitration agreement (e. g., a claim in tort). In US parlance, the dispute is not arbitrable. In this scenario also, prospects for forum shopping arise if the respondent starts parallel court proceedings. Fourth, the respondent may argue that the subject-matter of the dispute is not capable of arbitration. Most jurisdictions would call this objective arbitrability issues; depending on the applicable law, this extends to insolvency law, corporate law, anti-trust law, intellectual property law or real estate law.7 Similarly, a party to the arbitration (such as a State or other public entity) may be under statutory or constitutional prohibitions or restrictions to go for arbitration (so-called subjective arbitrability problems). A respondent may then consider going to domestic courts to stay, stop or frustrate the arbitration proceedings. A fifth situation relates to the exclusive nature of arbitration agreements. In most jurisdictions, a choice for arbitration is considered and deemed to be exclusive preempting merits proceedings regarding the disputes that are subject to arbitration before domestic courts. However, some common law jurisdictions know non-exclusive arbitration agreements which may raise interpretation problems and lead to forum shopping and parallel proceedings. Related to non-exclusive arbitration agreements, are unilateral optional arbitration agreements, often found in financial agreements where a financial institution retains the right to choose between arbitration and court proceed6 7

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, June 10, 1958, 330 U. N. T. S. 3 (hereinafter New York Convention). It is to be noted that in the United States there is a distinct and different notion of arbitrability which focuses on the scope of the arbitration agreement and not on subjectmatter arbitrability.

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ings. These agreements are often inspired by the wish and need of a financial institution to be capable to enforce its often liquid claims against a debtor in court rather than in arbitration. These agreements may also give rise to forum shopping and parallel proceedings. Finally, any such parallel proceedings in the scenarios described above may not only occur between arbitral tribunals and domestic courts but also between arbitral tribunals only. A party may start arbitration proceedings against one or more other parties to find itself in the position that other parties institute arbitration before different arbitral tribunals based on a conflicting arbitration agreement (as for instance in a battle of forms situation) or on a narrower reading of the scope of the arbitration agreement (e. g., in the case of multi-party or multi-contract arbitrations). In all these situations above, the arbitration agreement which was aimed at providing a one shop dispute settlement mechanism does not seem to meet that expectation and forum shopping may well still arise. It may also be noted that most of these situations are typical examples of reverse forum shopping. The prospects for forum shopping above not only relate to merits proceedings but may also involve interim relief as often there is parallel jurisdiction for courts and arbitral tribunals regarding interim relief as soon as the arbitral tribunal is constituted. Furthermore, a typical feature of arbitration as a private dispute settlement method is that in three respects there is an interface with domestic courts.8 First, domestic courts – primarily those at the place of arbitration – may assist arbitral 8



Some examples existed where national courts had no power to intervene with local arbitrations (the phenomenon of delocalized arbitrations). One such example was Malaysia where the local arbitration law through a 1980 amendment to the 1952 Arbitration Act did not apply to arbitrations administered under the Kuala Lumpur Regional Centre for Arbitration which was incorporated there under the auspices of the Asian-African Legal Consultative Committee. However, this form of delocalized arbitration was abolished with the introduction of the 2005 Arbitration Act (see W. Davidson & S. Rajoo, The new Malaysian arbitration regime 2005, Arbitration 2006, 257-264). Recently, legislators have refrained from promoting delocalized arbitration in efforts to promote offshore arbitration centers (such as in the Dubai International Financial Centre or in Mauritius under the Mauritian International Arbitration Act 2008) and these schemes provide for setting aside control at the seat as well as rules attempting to provide compliance with the New York Convention to ensure enforceability of awards rendered under such schemes. Similar schemes exist in Belgium, Sweden and Switzerland but any such schemes are much more limited in scope as to delocalization: they provide for an opt-out of setting aside proceedings at the seat while in other respects anchoring the arbitration in the local arbitration acts (see F. De Ly, Comparative Observations on Arbitral Awards and Setting Aside, in L. Heuman / ​S. Jarvin eds., The Swedish Arbitration Act of 1999, Five years on: a Critical Review of Strengths and Weaknesses, 2006, 505-516). They attempt

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tribunals in the performance of their task. Second, in principle only the courts at the place of arbitration may review the validity of arbitral awards rendered at such place on the basis of an exhaustive and limited catalogue of grounds.9 Any such review is often labeled as setting aside or challenge jurisdiction, also called primary review.10 Thirdly, at the occasion of recognition and enforcement of arbitral awards, courts at the place of recognition and enforcement may exercise a secondary review again on the basis of an exhaustive and limited catalogue of grounds to refuse recognition or enforcement, often on the basis of Article V of the New York Convention. The two latter aspects of the interface between arto attract international arbitrations to these countries because of this liberalized regime but do not depart from the basic forum shopping scenarios discussed above. A further interesting development is where the jurisdiction to set aside and enforce an arbitral award is not vested in domestic courts but transferred to a regional organization. This is the case in the 17 OHADA countries in West and Central Africa which, on the basis of the 1993 Treaty on the Harmonization of Business Law in Africa, have adopted a 1999 Uniform Act on Arbitration as well as Arbitration Rules of the OHADA Common Court of Justice and Arbitration (see www.ohada.com). The latter provide for a system of interstate institutional arbitration which, if chosen by parties to an arbitration agreement, entrusts setting aside and enforcement proceedings to the OHADA Common Court of Justice and Arbitration and no longer to the domestic courts of the OHADA countries. In this respect, the arbitration is regionalized (see P. Meyer, OHADA Droit de l’arbitrage, 2002, 240-242 and 262-264). This regionalization provides parties with a choice between arbitration under domestic law in an OHADA country under the OHADA Uniform Arbitration Act or institutional arbitration under the Arbitration Rules of the OHADA Court. Again, the basic forum shopping scenarios discussed above remain unaffected.  9 Sometimes parties attempt to challenge awards at a place other than the place of arbitration. In Bhatia International v. Bulk Trading S. A. & Anr. (2002) 4 SCC 105 and Venture Global Engineering v. Satyam Computer Services Ltd. & Anr. 2008 (1) Scale 214, the Indian Supreme Court accepted setting aside jurisdiction over arbitral awards rendered abroad if Indian law was chosen as the law applicable to the merits. That case law has now been overruled by the recent decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. of September 6, 2012 (available at www.judis.nic. in). Another example is the Pertamina v. Karaha Bodas case where the Central District Court of Jakarta annulled an arbitral award rendered in Geneva which was not recognized by courts in Hong Kong ([2003] HKCFI 390 (March 27, 2003)) and the United States (335 F.3d 357 (5th Cir. 2003) as the annulment decision was not rendered by a court at the place of arbitration, the Swiss Federal Supreme Court being the only court having primary jurisdiction for setting aside the award (see G. Petrochillos, Procedural law in international arbitration, 2004, 76-77 and M. Moses, The principles and practice of international commercial arbitration, 2nd ed., 2012, 100). 10 Some civil law countries have an additional means of recourse in case of fraud called requête civile.

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bitral tribunals and domestic courts are relevant in relation to forum shopping as they may have an impact on the issues of reverse forum shopping addressed above. A setting aside of an arbitral award for lack of a (valid) arbitration agreement or lack of subject-matter arbitrability may solve the issue of parallel proceedings between arbitrators and domestic courts and such against the world (erga omnes effects of setting aside). A refusal to recognize or enforce on these grounds would have similar effects but only in the country of recognition and enforcement (territorial effects only). On the contrary, a refusal to set aside or a grant of recognition or enforcement may exacerbate potential conflicts between arbitral awards and judgments based on reverse forum shopping. As to the intervention and assistance by domestic courts in and to the arbitral process, another form of reverse forum shopping exists – but fortunately rarely used – in requesting the courts at the place of arbitration to stay or stop the arbitration proceedings based on arguments related to the jurisdiction of the arbitral tribunal.11 Any such attempts are to be disregarded as the arbitral tribunal by and large has jurisdiction to decide upon jurisdictional challenges and the courts at the place of arbitration must wait to exercise their review as to these jurisdictional issues until setting aside proceedings have been brought. All the above implies that forum shopping in international commercial arbitration, absent non-exclusive or optional arbitration agreements, is inherently different from international civil litigation. The arbitration agreement confers exclusive jurisdiction to an arbitral tribunal and, thus, cuts off forum shopping efforts in favor of domestic courts wherever. In this respect, arbitration agreements and forum selection agreements have a lot in common, although arbitration agreements are much more effective because of liberal arbitration laws in many countries and Article II of the New York Convention. The forum shopping issues that arise in international commercial arbitration by and large are, thus, of a different nature than those arising in international civil litigation. They arise as a result of reverse forum shopping exercised by respondents in arbitration agreements challenging the existence, validity or scope of the arbitration agreement or the subject-matter or personal arbitrability of the dispute. They do not arise as a result of divergent jurisdictional rules or the lack of coordination or harmonization of such rules. Forum shopping in international commercial arbitration, thus, to a large extent and subject to the situations described above, is an expression of party autonomy. Subject to mandatory law, it relates to the choices the parties have in making choices in their arbitration agreement as to the numerous issues arising from the arbitral process: the choice of the place of arbitration, of the language of the proceedings, of the arbitral institution (if any) administering the arbitration, of the number of arbitrators, of elements of the arbitral proceedings etc. Subject to the qualifications above, forum shopping in international 11

This is to be distinguished from the protection by the courts of the place of arbitration against parallel court proceedings abroad through an anti-suit injunction.

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commercial arbitration does not imply a choice between competing forums (as there is only one single forum) but raises the question where to base the arbitration and to develop appropriate rules within the framework of the law of the place of arbitration. In that respect, forum shopping is primarily the work of all parties to choose a convenient place of arbitration and to develop the procedural rules that will apply to the arbitral process. As arbitration law is still to a large extent national law,12 divergence matters and the parties may locate their arbitration in an arbitration friendly country and adopt procedural rules within the ambits of the law of the chosen place. In this respect, there is of course a market for arbitration services and regulatory competition between states to attract international arbitrations13 enabling parties to arbitrage between different jurisdictions and seek their optimal solution. However, this international judicial competition has not led to a race to the bottom as states have succeeded to maintain an acceptable floor guaranteeing minimal requirements for arbitration as a final adjudicatory process such as conditions regarding consent, respect for party autonomy, due process and fair administration of justice and compliance with public policy. There is, furthermore, one additional factor to be mentioned. Whereas regulatory competition mostly contemplates the interaction between regulated industries and their regulators, private law relationships and their regulation by statutory and case law implies that primarily private interests are taken into account including the question whether and to what extent room is to be had for party autonomy. In relation to arbitration, there is however not only the parties but also the arbitral tribunal and the arbitration institute administering the case (if any). Judicial competition, thus, also involves the issue as to the powers of arbitral tribunals and arbitration institutions, the relationship between these powers and party autonomy and competition between arbitration institutions.14 This book will further describe various aspects of this competitive environment; this contribution will focus only on the choice of the place of arbitration. 12

This observation does not underestimate the importance of harmonization through article II of the New York Convention, the adoption of the UNCITRAL Model Law on International Commercial Arbitration in many jurisdictions and de facto harmonization of national law at the time of law reform on the basis of comparative analyses. However, any such harmonization remains partial and does not exclude divergence of national arbitration laws on major or minor issues. 13 There is abundant literature on this topic, for recent publications see E. A. O’Hara / ​L . E. Ribstein, The Law Market, 2009; regarding dispute resolution see H. Eidenmüller ed., Regulatory Competition in Contract Law and Dispute Resolution, 2013. 14 Another issue that is not dealt with in this contribution deals with enforcement shopping. During arbitration proceedings or at their end, an award may be rendered that is capable of recognition or enforcement. At this stage also, forum shopping may take place.

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III. Forum Shopping and the Determination of the Place of Arbitration 15

III.A The Place of Arbitration

The place of arbitration, often also called the seat of the arbitration, localizes the arbitration within a certain country. The place of arbitration may be defined by factual or legal criteria. A factual definition would look to all elements of the arbitration and determine the place of arbitration on that basis. The disadvantage of such a definition is that it creates uncertainty if a judicial determination by a court in the course of assistance, intervention, setting aside, recognition or enforcement were to conclude that the court has no jurisdiction because the place of arbitration is abroad. This may even be more troubling if any such finding goes against the expectations of parties, arbitrators and arbitration institutions that the place of arbitration was situated in the country of the court being seized of an arbitration related matter. Any arbitration planning must, thus, assess whether any such risk for uncertainty may be present and, if so, the arbitral process must be organized and managed in such a way that it is firmly grounded in the contemplated country. Any such risk may also be a reason to avoid an arbitration in such country and to choose a place of arbitration in a liberal country where such risks do not materialize. This risk is also the reason why modern arbitration laws define the place of arbitration as a legal concept. The place of arbitration is then the place chosen by the parties, the arbitrators or the arbitration institute (as the case may be) and any such choice is deemed final and non-reviewable even if the arbitration proceedings were to be connected also to another country if the hearing were to take place in a state other than the state of the place of arbitration, other procedural acts were to take place elsewhere or the tribunal were to deliberate at a place other than the place of arbitration. Some statutes even expressly authorize arbitral tribunals to hold hearings or to act abroad and Article 18 (1) UNCITRAL Arbitration Rules 2010 provides that an award is deemed to be made at the place of arbitration.16 In this approach, the place of arbitration is not to be determined by looking to all relevant elements in order to find the closest connection between the arbitration and a certain country. The place of arbitration is predetermined to create legal certainty and any such predetermination does not purport to look for or to review on the basis of closest connections. The legal concept of the place of arbitration, thus, pursues a policy of liberalizing and facilitating international arbitration law and detaches it from traditional conflict of laws methodology. It shields forum shopping for convenient arbitration places from the uncertainties of the conflict of laws and any jurisdiction 15 See 16

M. Storme / ​F. De Ly eds., The place of arbitration, 1992. UNCITRAL Arbitration Rules as adopted by resolution 65 / 22 of the UN General Assembly on December 6, 2010 (UN Document A / ​R ES / 65 / 22).

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endorsing the legal concept of the place of arbitration in this respect is arbitration friendly.17 The different conceptions as to the place of arbitration, fortunately, do not frequently raise problems in arbitration practice as most procedural acts take place at the place of arbitration and arbitrators will obtain party consent before acting abroad. Three exceptions come to mind where the concept of the place of arbitration led to problems and litigation between the parties. The first is the decision of the House of Lords of 1991 in Hiscox v. Outhwaite.18 An award was rendered in a reinsurance dispute; all proceedings took place in London but the sole arbitrator, an English QC who lived and worked primarily in France, indicated at the end of the award that is was signed in France and added his French address. The House of Lords, as the final instance regarding setting aside proceedings, held that the award was, thus, made in France and that it was a Convention award for purposes of the New York Convention and that on that basis there was no jurisdiction in England regarding the challenge to the award.19 The problems arising as a result of the Hiscox case have been solved in Section 3 of the 1996 Arbitration Act which clearly chooses for the legal concept of the place of arbitration in defining it at the juridical seat of the arbitration which is not determined ex post but designated by the parties to the arbitration agreement. The second exception is the Titan decision of the Stockholm Court of Appeal rendered in 200520 where the Court held that the ICC proceedings in that case did not have such a connection to Sweden that the place of arbitration could be deemed to be Stockholm as the dispute was not connected to Sweden, 17

The discussion in the text may be compared to the debate as to the law applicable to corporations dividing countries between incorporation countries and real seat countries. Whereas connection to the place of incorporation is a liberal system providing for predetermination of the applicable law and facilitating free movement of corporations, the real seat theory may entail an ex post determination of the applicable law looking to all relevant factors creating uncertainty. The latter is more in line with traditional European conflict of laws looking for the closest connection between the corporation and states whereas the former introduces autonomy for the parties not directly to choose the law that applies to the corporation but indirectly by means of the choice of the place of incorporation. 18 See A. J. van den Berg, New York Arbitration Convention 1958: Where is an arbitral award “made”?, Case comment House of Lords, 24 July 1991, Hiscox v. Outhwaite, in The place of arbitration, supra note 15, 114-122. 19 [1991] 3 W. L. R. 297 (HL). 20 Titan Corporation v. Alcatel CIT SA, Svea Court of Appeal, case T 1038-05, February 28, 2005, International Arbitration Court Decisions, 3rd ed., 2011 (translation). For a comment, see S. Jarvin / ​C . S. Dorgan, Are foreign parties still welcome in Stockholm? – The Svea Court’s decision in Titan Corporation v. Alcatel CIT S. A. raises doubts, 20-7 Mealey’s International Arbitration Report 42-48 (2005).

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the hearing had been held in London and Paris and the sole arbitrator was from the United Kingdom. The Court refused to entertain the challenge against the award although the parties had chosen Stockholm as the place of arbitration and the award had also stated so. An appeal to the Swedish Supreme Court was filed but the case was settled pending this appeal. Titan was subsequently expressly overruled in a later decision of the Swedish Supreme Court.21 The Court held that there is sufficient connection with and interest for Sweden to apply its arbitration act and review arbitral awards if the parties have chosen a place of arbitration in Sweden even though the dispute is otherwise not connected to Sweden, the arbitrators are not Swedes and hearings take place abroad. The third case involving problems regarding the definition of the place of arbitration led to a 2008 decision of LJ Akenhead in the English Technology and Construction Court.22 The case dealt with a claim in arbitration for liquidated damages for delay regarding a contract to engineer, procure and construct (EPC Contract) thirty-six wind turbine generators at a wind farm in Scotland. The EPC Contract provided for application of English law; there also was a specific choice of law for English law with regard to the arbitration agreement. Subject to the arbitration agreement, there also was a forum selection clause for the courts of England and Wales. The arbitration clause also contained a provision to the effect that a reference to arbitration was to be deemed a reference to arbitration within the meaning of the English Arbitration Act 1996. Finally, there was an incorporation of the Construction Industry Model Arbitration Rules 1998 (“CIMAR”) as the proceedings were to be conducted in accordance with CIMAR. CIMAR are also clearly premised on the application of the English Arbitration Act and provide that they apply if the seat of the arbitration is in England and Wales or Northern Ireland. On the other hand, the EPC Contract had a clear provision stating that the seat of the arbitration should be Glasgow, Scotland. The Court was, thus, confronted with two possible and conflicting interpretations: (1) the place of arbitration was Glasgow, Scotland and the arbitration proceedings were to be conducted under CIMAR without those rules that specifically aim at arbitrations in England; or (2) the place of arbitration was not Glasgow, Scotland but was to be situated in England and subject to the English Arbitration Act and the parties’ reference to Glasgow as the seat of the arbitration was to be interpreted narrowly as indicating the place of the hearing but not the place of the arbitration. The background of these issues relate to the fact that at the time there was limited judicial review over arbitral awards in Scotland while under Section 69 of the English Arbitration Act a Court, 21

Russian Federation v. RosInvestCo UK Ltd., Swedish Supreme Court, November 12, 2010, NJA 2010, 508 (available at the Swedish Arbitration Portal of the Stockholm Chamber of Commerce). 22 Braes of Doune Wind Farm (Scotland) Ltd. v. Alfred McAlpine Business Services Ltd., [2008] 2 All ER (Comm) (TCC).

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subject to certain conditions, can grant leave to appeal an arbitrator’s award on the basis of errors of law. The Court preferred the second interpretation above but refused the application for leave to appeal as the condition of Section 69 were not met as it considered that the decision of the arbitrator was not obviously wrong. In accepting jurisdiction over an arbitration with a contractual provision for a seat in Scotland, the Court relied on the following arguments: (1) the forum selection clause for the courts of England and Wales must be given some meaning and the obvious meaning is that this includes the application of Section 69; (2) the parties have subjected the arbitration agreement to English law; (3) the arbitration agreement contains a provision that a reference to arbitration is to be considered as a reference to arbitration within the meaning of the Arbitration Act 1996; (4) CIMAR confirm that the parties contemplated arbitration in England; (5) the reference to the Glasgow seat is to be construed as a reference to the place of the hearings; and (6) the parties cannot be deemed to have chosen some kind of delocalized arbitration in Scotland as Scotland has no review as to awards and, hence, may be considered to have chosen England as the place of arbitration. The upgrading of arguments pointing to England as the place of arbitration and the downgrading of the choice of Glasgow as the seat of the arbitration may be questioned. The real question is the relationship between a clause choosing for arbitration in Scotland and a clause seemingly conferring setting aside powers to the courts of England. If these clauses conflict (i. e., if under English law, the parties cannot confer jurisdiction to English courts regarding setting aside of awards rendered outside England and Wales), it is submitted that party autonomy is to be respected which implies that the clause conferring jurisdiction to the English courts is to be disregarded. The Court chose the other alternative: to avoid the conflict, the contractual clause for arbitration in Glasgow was interpreted narrowly as meaning only a clause indicating the place of the hearing. That interpretation seems to be conjectural and a judicial invention to avoid the conflict.23 The three cases above indicate that sometimes litigation ensues in relation to the concept of the place of arbitration and its application. Too often pathological arbitration clauses contribute to these litigations and proper information about the contemplated place of arbitration and drafting of the agreement to arbitrate are likely to minimize and manage risks.

23

The decision in Braes does also seem to constitute weak precedent in England. Two later decisions of the Commercial Court have distinguished the case and given it a narrow interpretation (Shashoua v. Sharma, [2009] 2 Lloyd’s Rep 376; U&M Mining Zambia Ltd. v. Konkola Copper Mines Plc, [2013] EWHC 260 (Comm), available at www.bailii. org).

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Having discussed the definition of the place of arbitration, attention now is to be paid to the relevance of the place of arbitration.24 The three elements of the interface between arbitration and the courts at the place of arbitration have been mentioned above and reference is made thereto. The place of arbitration is also relevant in relation to the recognition and enforcement of arbitral awards. As a general rule, domestic law at the place of arbitration will govern the local recognition and enforcement of local arbitral awards whereas in most cases international conventions and particularly the New York Convention will apply as to the recognition and enforcement abroad of awards rendered at the place of arbitration. The interface between setting aside proceedings regarding arbitral awards at the place of arbitration and recognition or enforcement abroad of such awards under the New York Convention is regulated by Article V, § 1 (e) under which – absent application of the more favorable treatment clause of Article VII (1) – setting aside at the place of arbitration may entail a refusal to recognize or enforce. At least evenly important is the relevance of the law at the place of arbitration for the parties, their counsel, the arbitrators and the arbitration institution administering the case. As to procedural aspects, the law at the place of arbitration will provide whether and to what extent the parties have autonomy to agree on procedural aspects, whether and to what extent the arbitrators have powers absent party agreement and which procedural rules are of a mandatory nature and cannot be derogated from. As modern arbitration laws are by and large liberal in authorizing parties or arbitrators to agree upon or determine procedural rules and many arbitration rules reflect similar policies, arbitration procedure is flexible and to be determined during the process. In any event, court procedural rules and codes of civil procedure as they apply in court proceedings are not automatically applicable in arbitration proceedings although they may indirectly affect arbitration to the extent that counsel come into arbitrations with their litigation tools and experience. In general, the law of the place of arbitration does not apply to merits issues. Any such substantive questions are not to be characterized as procedural and do not come within the purview of the law of the place of arbitration. Neither do the normal conflict of laws rules which apply in court proceedings at the place of arbitration determine any such substantive matters. These are in many jurisdictions dealt with by the conflict of law rules that the arbitral tribunal deems appropriate (indirect approach) or by the rules of law that the tribunal considers applicable under which no conflict rule is required (direct approach). In both cases the arbitration law at the place of arbitration provides the answer to the conflicts issue, not as a procedural rule but as a separate conflict rule for international arbitrations. The place of arbitration is, thus, also relevant for the 24 See F. De Ly, The place of arbitration in the conflict of laws of international commercial

arbitration: an exercise in arbitration planning, 12 Northwestern Journal of International Law and Business, 48-85 (1991).

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resolution of conflict of laws questions in international commercial arbitration. In addition, some arbitration laws (such as the Swiss) have special conflict rules for the agreement to arbitrate or for the possibility of States and other public law entities to conclude arbitration agreements. Again, this shows the relevance of the place of arbitration and the objective of states to create an arbitration friendly environment for international arbitration.

III.B Determination of the Place of Arbitration In view of the relevance and importance of the place of arbitration, it is advisable to determine it at some stage. National laws and arbitration rules have provisions to that effect. Before national law and arbitration rules come into sight, it will be primarily the task of the parties and their advisors to identify the issue of the place of arbitration and to provide for it into the arbitration agreement be it an agreement to submit future disputes to arbitration or an agreement to submit an existing dispute to arbitration. Parties often provide for the choice of the place of arbitration in their arbitration agreements. Model clauses of the arbitration institutions also contain the indication of the place of arbitration as an optional provision to be added to the model arbitration clause. Any such clauses are to be respected and can be enforced. However, they may raise interpretation problems if only the country (and not the city) of arbitration has been identified or if in other respects the choice is unclear or ambiguous. The ICC is for instance regularly confronted with arbitration clauses providing for application of the ICC Arbitration Rules in which Paris is also mentioned as the headquarters of the ICC. The question then arises whether any such reference is a reference to the ICC being based in Paris or as a choice for Paris as the place of arbitration. If the parties do not subsequently agree to arbitrate in Paris (or elsewhere) or in case of default of one of the parties, any such clauses are interpreted as referring to Paris as the place of arbitration and the ICC Court then determines or confirms that Paris is the place of arbitration. Alternatively and probably more correctly, the argument can be made that the parties did not agree on arbitration in Paris but that the ICC Court under the ICC Arbitration Rules has the power to determine the place of arbitration which is then – to avoid controversies and delay in the process – fixed at Paris. Absent choice by the parties, national law and arbitration rules have primarily two systems for determining the place of arbitration. A first system is to leave any such choice to the arbitral tribunal as for instance under the UNCITRAL Arbitration Rules.25 But also other arbitration rules endorse the policy line that arbitral tribunals rather than the institute administering the proceedings should 25

Article 18 (1) UNCITRAL Arbitration Rules 2010.

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fix the place of arbitration. A second system as followed by the ICC Arbitration Rules is that the place of arbitration – absent choice by the parties – is determined by a decision of the institute administering the arbitration proceedings.26 The choice for arbitration rules is, thus, relevant as to whom will determine the place for arbitration. The place of arbitration can be changed – primarily – by the parties prior to or in the early stages of arbitration proceedings. However, any such change is to be discouraged once the arbitration is in motion as a change of place of arbitration also entails a modification of the legal framework underlying the arbitration. The consequences of any such change are not easy to oversee or foresee and for that reason a change of the seat is to be avoided.27 As has been stated above, forum shopping in general is not only inspired by substantive or procedural reasons but also by tactical considerations and irrational factors. All these also apply as to the choice of the place of arbitration by the parties, the arbitral tribunal or the administering institution (as the case may be) but the mix of factors is evidently different in case arbitrators or institutions determine the place of arbitration. At any rate, the whole process of fixing the place of arbitration is based on a complex set of factors that are not easily traceable and are sometimes coincidental.

IV. Conclusion There is an inherent difference between forum shopping in international commercial arbitration compared to forum shopping in international litigation as the former exists by virtue of an arbitration agreement which purports to vest exclusive jurisdiction with an arbitral tribunal. Forum shopping in arbitration, thus, results from specific factors typical to the arbitral process which relate 26 27

Article 18 (1) ICC Arbitration Rules 2012. For an example of the complications arising out of a change of seat, see Supreme Court of India, Videocon Industries Limited v. Union of India and another, May 11, 2011 (Case No. 4269, available at www.judis.nic.in). In that case related to three arbitrations arising out of a petroleum production sharing agreement (“PSA”), arbitration proceedings were brought in Kuala Lumpur pursuant to the arbitration clauses of the contract. As a result of the outbreak of epidemic SARS in the spring of 2003, the hearings in the arbitrations were rescheduled to Amsterdam and later to London. By virtue of the parties’ consent, the arbitral tribunal in the third arbitration issued a procedural order and shifted the seat to London. The Supreme Court refused to endorse any such change as it considered that any change could only result from an amendment to the PSA. As only one of the four consortium partners was a party to the third arbitration, the Supreme Court concluded that the PSA was not amended as the three other consortium partners had not consented to the change of the seat of the arbitration and, consequently, the change had to be interpreted as a change of venue and not as a change of the arbitral seat.

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primarily to the arbitration agreement or the fact that certain disputes by operation of the applicable law cannot be submitted to arbitration. These factors may create parallel proceedings before arbitral tribunals and domestic courts and are mostly manifestations of reverse forum shopping. In other respects, shopping in arbitration relates to a different phenomenon related to competition between countries and arbitration centers to attract international arbitrations. As the concept of the place of arbitration has evolved into a legal concept based on the ex ante choice of such place, shopping mostly takes place during the negotiation of the arbitration agreement where the parties on the basis of many criteria determine the place of arbitration which reflects a liberal policy expressing the freedom of the parties to localize their arbitration in the state of their liking, even if unconnected to them or their dispute.

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Forum Shopping at the „Gateway“ to International Commercial Arbitration George A. Bermann* I. Introduction Forum shopping, in the broad sense, surfaces in various settings within the arbitral process. One of its most basic manifestations occurs at what has come to be called the “gateway” to arbitration, meaning the moment at which courts are asked to decide, prior to arbitration, whether an agreement to arbitrate should be enforced. This constitutes forum shopping precisely because how a challenge to the enforceability of an arbitration agreement is resolved determines where adjudication of the merits of the parties’ dispute will take place. Even after a dispute goes to arbitration, courts retain certain opportunities to intervene, but the stakes of the gateway question are more considerable. Depending on the outcome of the gateway question, no arbitration may occur at all. Much depends on the readiness of courts to entertain this species of forum shopping. Participants in international commercial arbitration have long recognized the need to maintain arbitration as an effective and therefore attractive alternative to litigation,1 but they also recognize the need to ensure that its use is predicated on the consent of the parties and that the resulting awards command

* 1

The author gratefully acknowledges the valuable research assistance of Jan-Krzysztof Dunin-Wasowicz, Laura Fadlallah, and Erik Lindemann. See generally G. R. Delaume, Reflections on the Effectiveness of International Arbitral Awards, 12 Journal of International Arbitration 5 (1995) (relating the notion of final and binding effect of an award to the overarching effectiveness of international arbitration); P.-A. Gélinas, Arbitration Clauses: Achieving Effectiveness, in A. J. van den Berg ed., Improving The Efficiency Of Arbitration And Awards: 40 Years Of Application of The New York Convention, 1999, 47 (discussing, inter alia, how adequate drafting of the arbitration clause can increase the efficacy of international arbitration); T. J. Stipanowich, Arbitration: The New Litigation, 2010 University of Illinois Law Review 5 (highlighting the implications of arbitration becoming in the United States a “wide-ranging surrogate for civil litigation”); Q. Tannock, Judging the Effectiveness of Arbitration Through the Assessment of Compliance with and Enforcement of International Arbitration Awards, 21 Arbitration International 1 (2005) (arguing that more empirical data concerning the rate of enforcement of awards would be helpful to better assess the effectiveness of international arbitration).

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respect.2 A priori, at least, all participants – parties, counsel, arbitrators, arbitral institutions – have an interest in ensuring that arbitration delivers the various advantages associated with it, notably speed, economy, informality, technical expertise, and avoidance of national fora, while producing awards that withstand judicial challenge and otherwise enjoy legitimacy.3 National courts play a potentially important policing role in this regard. Most jurisdictions have committed their courts to do all that is reasonably necessary to support the arbitral process. Among the ways courts do so is by ensuring that arbitral proceedings are initiated and pursued in a timely and effective manner. But those same courts are commonly asked by a party resisting arbitration to intervene at the very outset to declare that a prospective arbitration lacks an adequate basis in party consent. No legal system that permits the arbitration of at least some disputes (and most do) is immune to the possibility that its courts will become engaged in an inquiry of that sort at the very threshold of arbitration. Each must decide how, at this early forum shopping stage, to promote arbitration as an effective alternative to litigation, while at the same time ensuring that any order issued by a court compelling arbitration is supported by a valid and enforceable agreement to arbitrate. The challenge consists of identifying those issues that courts – in the interest of striking the proper balance between these two objectives – properly address at what is increasingly known, in common U.S. parlance, as the “gateway” of arbitration. This “gateway” problem is the focus of the present Article. For purposes of this Article, I consider an arbitral regime to be effective to the extent that it operates to promote the procedural advantages I posited earlier – speed, economy, informality, technical expertise, and avoidance of national fora. While legitimacy might be defined in many different ways, I consider an arbitral regime to be legitimate (or to enjoy legitimacy) to the extent that the parties who were compelled to arbitrate rather than litigate, and will be bound by the resulting arbitral award, consented to step outside the ordinary court system in favor of an arbitral tribunal as their dispute resolution forum.4 2

3 4

See, e. g., T. E. Carbonneau, At the Crossroads of Legitimacy and Arbitral Autonomy, 16 American Review of International Arbitration 213, 215-216 (2005) (“The right of judicial supervision must be exercised to maintain arbitration’s effectiveness and to safeguard its legitimacy by correcting fundamental abuses.”); J. D. M. Lew, Does National Court Involvement Undermine the International Arbitration Process?, 24 American University Law Review 489, 492-493 (2009) (“Without prejudice to autonomy, international arbitration does regularly interact with national jurisdictions for its existence to be legitimate and for support, help, and effectiveness.”). Although this Article makes special reference to international commercial arbitration, the descriptive and normative claims pertain equally to domestic arbitration. W. W. Park, The Arbitrator’s Jurisdiction to Determine Jurisdiction, in A. J. van den Berg ed., International Arbitration 2006: Back to Basics?, 2007, 55, 90; see infra Parts III and V.

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Legal systems differ in their responses to the challenge of reconciling efficacy and legitimacy at this early forum shopping moment, and even in the extent to which they acknowledge that the challenge exists and try to articulate a framework of analysis for addressing it. This Article proceeds on the premise that legal systems have a serious enough interest in properly reconciling the values of efficacy and legitimacy at the outset of arbitration to warrant their developing an adequate framework of analysis, as well as articulating that framework in a clear, coherent, and workable fashion. In the United States, Congress has largely ignored the challenge of reconciling efficacy and legitimacy at the outset of arbitration, as have the states even when establishing statutory regimes to govern arbitration conducted in their territory.5 The matter has accordingly fallen to the courts. In this Article, I reexamine the jurisprudence that American courts have developed, increasingly under the leadership of the U.S. Supreme Court, to address the fundamental tension between arbitration’s efficacy and legitimacy interests that exists in the forum shopping that takes place at the very threshold of arbitration. The exercise has come to consist largely of demarcating “gateway” issues (i. e., issues that a court entertains at the threshold to ensure that the entire process has a foundation in party consent) from “non-gateway” issues (i. e., issues that arbitral tribunals, not courts, must be allowed to address initially, if arbitration is to be an effective mode of dispute resolution). This Article proceeds as follows. Part II briefly sketches the settings in which courts may be asked to conduct the early policing with which this Article is concerned. Part III identifies the terminological confusion that has hampered clear thinking on the subject, and proposes a coherent vocabulary for overcom5



The Federal Arbitration Act has little to say on the gateway problem. 9 U.S. C. § 1 et seq (2006). Sections 3 and 4 provide, respectively, for stays of court actions on claims subject to arbitration and for orders compelling arbitration. Id. §§ 3-4. Neither section addresses the issues that may specifically be raised, and not raised, on those occasions. Within Chapter Two, implementing the New York Convention, section 206 likewise authorizes court orders compelling arbitration, but without indicating the inquiries that are permissible and impermissible on that occasion. Id. § 206. Only slightly more helpful is the New York Convention itself, which, in Article II(3), requires a court to refer parties to arbitration pursuant to an arbitration agreement, “unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. II(3), June 10, 1958, 21 U.S. T. 2519, 330 U. N. T. S. 3 [hereinafter New York Convention]. At the state level, section 6 of the Uniform Arbitration Act provides generally that “[t]he court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.” On the other hand, it provides that: “[a]n arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.” UNIF. ARBITRATION ACT § 6(a)-(b) (amended 2000).

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ing it. Part IV then explores critically the conceptual devices that courts and commentators have traditionally employed in sorting through the issues. In so doing, it demonstrates that the two notions most widely relied upon for this purpose – Kompetenz-Kompetenz and separability – are unequal to the task, and explains why. A critical understanding of U.S. law in this regard is aided by comparing it to models – the French and German – that claim to have devised simple and workable formulae for reconciling efficacy and legitimacy interests at the outset of the arbitral process. That discussion will show how the often proclaimed universality of Kompetenz-Kompetenz and separability is in fact misleading. Against this background, Part V traces how recent U.S. case law has progressively pursued a more nuanced balance between efficacy and legitimacy than the traditional conceptual tools tended to yield. The courts have achieved this result, not by erecting a single comprehensive framework of analysis for purposes of forum shopping at the gateway, but rather through a series of pragmatic adjustments to the received wisdom associated with Kompetenz-Kompetenz and separability. I conclude that they have developed a suitably complex body of case law that ordinarily reaches sound results. But I am equally certain that, in doing so, they have failed adequately to rationalize the case law. 6 The disparate strands of analysis – each of which is basically sound – have combined to produce a needlessly confusing case law to the detriment of clarity, coherence, and workability.7 I suggest that the case law can and should be recast, and that the central feature of that recasting must be a serious and frank confrontation 6

7

See, e. g., T. J. Monestier, “Nothing Comes of Nothing”… Or Does It??? A Critical ReExamination of the Doctrine of Separability in American Arbitration, 12 American Review of International Arbitration 223, 223-231 (2001); W. W. Park, Determining Arbitral Jurisdiction: Allocation of Tasks Between Courts and Arbitrators, 8 American Review of International Arbitration 133, 140-145 (1997); A. S. Rau, The Arbitrability Question Itself, 10 American Review of International Arbitration 287 (1999) [hereinafter Rau, Arbitrability Question]; A. S. Rau, Everything You Really Need To Know About ‘Separability’ in Seventeen Simple Propositions, 14 American Review of International Arbitration 1, 84-92 (2003) [hereinafter Rau, Everything You Really Need to Know]; A. Samuel, Separability and the US Supreme Court Decision in Buckeye v. Cardegna, 22 Arbitration International 477 (2006); R. H. Smit, Separability and Competence-Competence in International Arbitration: Ex Nihilo Nihil Fit? Or Can Something Indeed Come from Nothing?, 13 American Review of International Arbitration 19 (2002); C. Svernlov, What Isn’t, Ain’t: The Current Status of the Doctrine of Separability, 8 Journal of International Arbitration 37 (1991); S. J. Ware, Arbitration Law’s Separability Doctrine After Buckeye Check Cashing, Inc. v. Cardegna, 8 Nevada Law Journal 107 (2007). S. H. Reisberg, The Rules Governing Who Decides Jurisdictional Issues: First Options v. Kaplan Revisited, 20 American Review of International Arbitration 159, 159 (2009) (“[T]he rules [in U.S. law] that govern the ‘who is to decide’ question once were well defined. Today, however, there exists significant confusion as to how a court is to decide

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II.  The Settings

of the underlying tradeoff between arbitration’s efficacy and legitimacy interests. This Article is thus both descriptive and normative in outlook.

II. The Settings The tension between efficacy and legitimacy surfaces at virtually every point in the arbitral life cycle. Thus, during the arbitration itself, a tribunal will feel bound to conduct the proceedings with dispatch, but also with attentiveness to the ground rules to which the parties previously assented. Perhaps the most dramatic moments associated with this tension arise when a disappointed party seeks annulment of an award in a court of the arbitral situs or resists the award’s recognition or enforcement elsewhere. Since parties commonly challenge awards that are unfavorable to them, managing the tension between the efficacy of the arbitral process and legitimacy of the arbitral outcome is a concern of paramount importance for every actor involved in international arbitration. But it is at the outset of arbitration, when forum shopping between court and tribunal occurs, that the tradeoff between efficacy and legitimacy interests in arbitration assumes its purest form. The question occupying center stage at this moment is whether a party unwilling to arbitrate is obligated, on the basis of a prior undertaking, to do so.8 If a court compels a party to arbitrate despite its not having consented to arbitration,9 the legitimacy of both the arbitration and any resulting award is compromised.10 This follows from the fundamental prinwhich forum, the court or the arbitrator, has the jurisdiction to decide this threshold issue.”); see infra Part V. 8 Illustrative of this point is the language employed by Judge Easterbrook in Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 591 (7th Cir. 2001): [A] person who has not consented (or authorized an agent to do so on his behalf) can’t be packed off to a private forum. Courts have jurisdiction to determine their jurisdiction not only out of necessity (how else would jurisdictional disputes be resolved?) but also because their authority depends on statutes rather than the parties’ permission. Arbitrators lack a comparable authority to determine their own authority because there is a non- circular alternative (the judiciary) and because the parties do control the existence and limits of an arbitrator’s power. No contract, no power. 9 Section 4 of the Federal Arbitration Act provides that courts may compel parties to arbitrate only “upon being satisfied that the making of the agreement for arbitration … is not in issue.” 9 U.S. C. § 4 (2006). See generally K. R. Davis, A Model for Arbitration Law: Autonomy, Cooperation and Curtailment of State Power, 26 Fordham Urban Law Journal 167, 195 (1999) (criticizing the severability doctrine by arguing that compelling arbitration too early deprives the resisting party of her freedom of contract). 10 See, e. g., Three Valleys Mun. Water Dist. v. E. F. Hutton & Co., 925 F.2d 1136, 1140-1141 (9th Cir. 1991) (“[B]ecause an ‘arbitrator’s jurisdiction is rooted in the agreement of the parties,’ a party who contests the making of a contract containing an arbitration

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ciple that commercial arbitration is consent-based, and that a party cannot be bound by an agreement to arbitrate or by the resulting award unless it consented to be so bound.11 On the other hand, arbitration becomes a less effective means of dispute resolution to the extent that, prior to arbitration, parties may have recourse to courts to advance reasons why arbitration should not go forward, with the attendant costs and delays. The objectives associated with arbitration thereby stand to be thwarted. It is no wonder that the forum-shopping I describe here tends to surface early in the arbitral life-cycle. Parties contending that they never agreed to arbitrate a dispute have every reason to press that assertion at the outset. The reason is not simply to avoid the very real risk that they will be held to have waived their objections if they do not raise those objections immediately.12 Rather, if a party is truly averse to arbitrating, it will ordinarily prefer that a court, rather than an arbitrator, make the jurisdictional determination. It will likely assume, based on logic, experience, or mere intuition, that an arbitral tribunal will be more disposed than a court to affirm arbitral jurisdiction. In a very real sense, a party forum shops to determine who will resolve the principal forum shopping question. To help visualize this early forum shopping point in time, I posit two basic scenarios, to which I shall return on occasion throughout this Article. In a first and very common scenario, a party brings to court a claim that is arguably provision cannot be compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate. Only a court can make that decision.” (quoting George Day Constr. Co. v. United Bhd. of Carpenters, Local 354, 722 F.2d 1471, 1474 (9th Cir. 1984) (citations omitted))). 11 AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648-649 (1986) (“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ This axiom recognizes the fact that arbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration.” (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960))); see also First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration.”); Volt Info. Scis., Inc. v. Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989) (“[A]rbitration under the [Federal Arbitration] Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.”); United Steelworkers, 363 U.S. at 582 (“[A]rbitration is a matter of contract.”). 12 See, e. g., Cabintree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388 (7th Cir. 1995) (finding that a franchisor presumptively waived its right to arbitrate a dispute by proceeding before an arbitral tribunal for the resolution of his contractual claims and by failing to demand arbitration in the franchisee’s state court action, but instead seeking removal of action to federal court).

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II.  The Settings

subject to arbitration. It may be unaware of any ostensible obligation to arbitrate or, though aware of the obligation, may seek to avoid it. The complaint will then likely be met with a motion to dismiss on the basis of an arbitration agreement between the parties. The issue having been joined, a court will then be asked to decide whether the plaintiff had a legally enforceable obligation to arbitrate that particular dispute.13 In this scenario, the party impugning the agreement to arbitrate is by definition the first mover. In a second scenario, the party seeking arbitration of a dispute is the first mover, initiating proceedings in an arbitral forum. If the respondent prefers a judicial to an arbitral forum for any reason, it may either present its objections to arbitral jurisdiction to the tribunal itself or repair to a court for a determination that the dispute, for one reason or another, is not subject to arbitration.14 Before the court, that party may seek relief in one of a variety of forms. It may seek declaratory relief15 or a stay of arbitration.16 Not uncommonly, it will bring to the court a related claim of its own, seeking a ruling on the merits. By either of these two routes, the “gateway” species of forum shopping on which this Article focuses will have landed in court. A court must then delineate those preliminary issues, if any, that it may (and arguably must) decide at the outset from those properly left to the arbitral tribunal in the first instance.17 Where a legal system draws that line goes a long way toward determining that system’s balance between arbitral efficacy and arbitral legitimacy. The greater a system’s interest in ensuring the legitimacy of the arbitral process and the resulting awards, the greater the number and scope of the jurisdictional inquiries its courts will be permitted and possibly required to make, and perhaps also the greater the depth of those inquiries. The greater a system’s interest in arbitration, once initiated, moving forward without delay or distraction, the fewer and more limited the inquiries its courts will be allowed to make, and the shallower those inquiries will be.

13 See supra note 8 and accompanying text. The revised Uniform Arbitration Act (amend-

ed 2000) specifically contemplates this scenario. Section 6(d) provides that “[i]f a party to a judicial proceeding challenges the existence of, or claims that a controversy is not subject to, an agreement to arbitrate, the arbitration proceeding may continue pending final resolution of the issue by the court, unless the court otherwise orders.” 14 See, e. g., Three Valleys Mun. Water Dist., 925 F.2d at 1136. 15 See, e. g., McLaughlin Gormley King Co. v. Terminix Int’l Co., 105 F.3d 1192 (8th Cir. 1997). 16 Concededly, although the rules may differ, all jurisdictions offer such an opportunity. For the example of France, see infra Section IV. A. 17 See J. C. Femández Rozas, La collaboration entre juges et arbitres, présupposé d’une culture arbitrale, in Le role des juridictions etatiques devant l’arbitrage commercial international, 2001, 23.

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III. Semantic Difficulties Defining the scope of judicial authority to decide issues of arbitral jurisdiction at the threshold of arbitration is difficult enough without courting terminological confusion. Unfortunately, two of the terms most commonly employed nowadays in this context – namely, “gateway issues” and “arbitrability” – suffer from seriously inconsistent usage. The resulting ambiguity has added unnecessary layers of confusion to any effort to achieve clarity and coherence.

III. A. The Notion of “Gateway Issues” The term “gateway issues,” which has gained prominence in recent U.S. Supreme Court rulings,18 is susceptible of two meanings. It may be read broadly to signify any feature of a dispute, the parties to it, or the contract from which it arises that, when raised by a party resisting arbitration, can potentially keep an arbitration from going forward.19 This entire bundle of issues has traditionally been referred to simply as “jurisdictional” or “threshold” in character. However, on other occasions, the term “gateway issues” is used in a much narrower sense, designating only those threshold issues that courts agree to resolve, if raised on a timely basis, rather than leave for an arbitral tribunal to decide.20 Like at least some members of the Supreme Court,21 I prefer to give the term “gateway issues” the narrower meaning, encompassing only those threshold 18

See, e. g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-84 (2002) (“gateway matters”). 19 Justice Breyer’s opinion for the court in Howsam uses the term “gateway issue” in the broadest possible sense: to mean essentially any threshold issue on which a court’s sending a case to arbitration might depend: Linguistically speaking, one might call any potentially dispositive gateway question a “question of arbitrability,” for its answer will determine whether the underlying controversy will proceed to arbitration on the merits … The Court has found the phrase [“arbitrable”] applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate. 537 U.S. at 83-84 (emphasis added). 20 See, e. g., Rent-a-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772 (2010). 21 In Rent-a-Ctr., Justice Scalia wrote for the majority: The delegation provision [in this case] is an agreement to arbitrate threshold issues concerning the arbitration agreement. We have recognized that parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy. An agreement

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issues that a court, if asked to do so, will decide at the outset, but excluding those that courts reserve for initial determination, along with the merits, to the arbitral tribunal itself. Graphically, it is easy to picture a “portal” through which a party seeking arbitration must pass before arbitration may commence, in the event that its opponent raises certain objections to arbitral jurisdiction at the outset. Given the saliency of the “who decides?” question in the world of arbitration,22 we stand to benefit considerably from a vocabulary that captures it and, more particularly, differentiates between those threshold issues that may be raised in court at the outset of arbitration and those that may not. Reserving the term “gateway issues” for the former set of questions promotes clear analysis. I continue to refer to the larger universe of issues – comprising gateway and non-gateway issues alike – simply as jurisdictional or threshold, as they have traditionally been. In fact, the term “jurisdictional” suits some threshold issues (e. g., does a valid arbitration agreement exist, and does it cover the dispute at hand?) better than others (e. g., has a party waived its right to arbitrate a given dispute?). Thus I prefer to speak of “threshold issues” in referring globally to all issues that determine whether an arbitration agreement exists and will be enforced. This is not to suggest that the categories “gateway” and “non-gateway” issues are mutually exclusive. The fact that a particular threshold issue is a gateway issue (hence for a court to decide if raised at the outset) does not in the least mean that it is off-limits to the arbitral tribunal, should the issue first be raised before it. No mistake should be made about the fact that arbitral tribunals have authority to decide all threshold questions raised before them (subject to their being bound by the prior determination of a gateway issue by a competent court). What distinguishes gateway from non-gateway issues is that the former may be decided by a court if brought before it at the outset. Thus, gateway issues may be addressed either by a court or an arbitral tribunal, whichever is to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce. 130 S. Ct. at 2777-2778. 22 Suggestive of this salience are struggles to define relevant terms. Compare, e. g., W. W. Park, supra note 4, at 56 (“Often expressed as Kompetenz-Kompetenz … the precept has been applied to questions such as who must arbitrate, what disputes must be arbitrated, and which powers arbitrators may exercise.”), with J. J. Barcelo III, International Commercial Arbitration  – Who Decides the Arbitrators’ Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vanderbilt Journal of Transnational Law 1115, 1116 (2003) (“Separability and competence-competence are two of the best known concepts in international commercial arbitration. They are different, but often linked, because they share a common goal: to prevent early judicial intervention from obstructing the arbitration process. Both concepts address the question, ‘Who decides arbitrability-courts or arbitrators?’ but in different ways.”).

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asked first; non-gateway issues are uniquely for the arbitrators to decide in the first instance. While delineating gateway and non-gateway issues is essential, so too is fixing the time period in which gateway issues may be brought to court. It is neither necessary nor desirable to permit recourse to a court on gateway issues at any time a party resisting arbitration wishes. It would clearly be detrimental to arbitral efficacy to allow recourse to a court on a threshold issue – even a gateway issue – after the arbitral process is well underway. While courts of course have general authority to determine when a particular claim, for one reason or another, is no longer timely, it would be preferable to establish in advance a time period within which gateway issues in arbitration may be referred to a court. United States law does not do that. The Federal Arbitration Act (“FAA”) does not even specifically provide for recourse to a court prior to arbitration, much less subject any such recourse to a particular limitations period. I suggest that a party resisting arbitration should be permitted to bring a gateway issue to court only prior to the start of the arbitration. Any benefits of allowing judicial recourse after that point in time are outweighed by the costs in terms of delay, disruption, and eventual derailment of the arbitral process. An arbitration may be said to begin, for these purposes, at the moment when the arbitral tribunal is fully constituted. In the first scenario described earlier, the resisting party will already have instituted an action in court before the prospect of arbitration has arisen. In my second scenario, the party resisting arbitration will have received a notice of arbitration to which it has jurisdictional objections. While presumably not yet before a court, it would be entitled under my proposal to invoke a court’s jurisdiction anytime between receipt of the notice of arbitration and the tribunal’s constitution. Such a party deserves ample, but not unlimited, time in which to secure a judicial ruling on the arbitration agreement’s validity and enforceability. Indeed, there is nothing inappropriate in requiring that threshold questions be raised at the threshold. Moreover, if a party fails to seek judicial recourse within that window of time, it does not waive any of its threshold objections to arbitration, whether of the gateway or non-gateway variety. They all may still be raised before, and decided by, the arbitral tribunal in the first instance. It is not sufficient, however, merely to posit a brief threshold period, defined as the interval between initiation of the arbitration and constitution of the arbitral tribunal. Particularly in the second scenario, in which a party resisting arbitration repairs to court only after its opponent has initiated the arbitral process, threshold judicial intervention can significantly delay the arbitration. Although the window for threshold resort to a court may be short, the judicial process – even if focused on only one or two particular issues – may be long. All depends on the number, difficulty, and fact-intensiveness of the gateway issues raised, the pace and complexity of judicial procedures for resolving them, and the availability of appellate review. Excessive delay is cause for serious concern, particularly if the court ultimately rejects the gateway challenge. In George A. Bermann

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such a scenario, legitimacy may have been purchased at too great a price in efficacy. The problem is not insoluble. One solution would be for a legislature or the courts themselves to devise a streamlined procedural model for threshold judicial intervention. Summary proceedings could be made the norm, with discovery and other sources of judicial delay curtailed. Other indicia of “fasttrack” adjudication could be added in the form, for example, of short procedural deadlines, concentrated evidence-taking, and the absence of a right of appeal. Arbitral procedure itself features numerous other procedural shortcuts that may be borrowed in the interest of speed and efficiency. More importantly, one should question any assumption that judicial intervention, once triggered, must necessarily cause the arbitration to be suspended until such time as the court finally resolves the gateway challenge. No such assumption need be made. It is perfectly conceivable for the judicial intervention and the arbitral process to go forward simultaneously.23 Admittedly, some arbitral resources will have been wasted if, after the arbitration gets underway, a judicial ruling comes down in favor of the party resisting arbitration, and the arbitration then comes to an end. But that may be a small price to pay for discouraging frivolous or abusive recourse to courts at the threshold of arbitration. The very fact that arbitral proceedings are following their course uninterrupted may incentivize parties, and even courts, to accelerate the judicial process and not risk a substantial waste of resources. All in all, ways exist to confine both the period of time during which gateway issues may be brought to court and the duration of judicial proceedings themselves. Moreover, an arbitration may be allowed to proceed even while its contractual basis is judicially contested.

23

The Revised Uniform Arbitration Act expressly provides that arbitral proceedings may go forward despite the pendency of a judicial challenge to the enforceability of the arbitration agreement: “If a party to a judicial proceeding challenges the existence of, or claims that a controversy is not subject to, an agreement to arbitrate, the arbitration proceeding may continue pending final resolution of the issue by the court, unless the court otherwise orders.” UNIF. ARBITRATION ACT § 6(d) (amended 2000). The United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, as revised in 2006, contains a similar provision in Article 8(2): “Where an action [in a matter which is the subject of an arbitration agreement] has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.” U. N. Comm’n on Int’l Trade Law, Rep. on its 39th Sess., June 19-July 7, 2006, U. N. Doc. A / 61 / 17 (July 14, 2006) [hereinafter UNCITRAL Model Law]. For the German law to the same effect, see infra notes 88-90 and accompanying text.

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III. B. The Notion of Arbitrability Even more serious confusion surrounds the term “arbitrability.” This term has also increasingly come to be used very broadly, as if to denote every condition or requirement that must be met in order for an arbitration to go forward. Used in this way, arbitrability encompasses a wide and diverse range of issues.24 Does an agreement to arbitrate exist?25 Is that agreement valid and enforceable?26 Are both parties signatories to the agreement or otherwise bound by it?27 Does the agreement cover the particular dispute at hand?28 In fact, those questions represent only some of the issues that may fit under a broad umbrella of arbitrability. As developed more fully below,29 a party resisting arbitration may argue that the contract of which the arbitration clause forms a part (i. e., the “main contract”) itself never came into existence,30 or is itself invalid and unenforceable.31 That party may argue that its opponent waived 24

Courts commonly signal as fundamental to the “arbitrability” of a dispute that a valid and enforceable agreement to arbitrate exists and that the particular dispute falls within the scope of that agreement. See, e. g., Equitable Res., Inc. v. United Steel Workers Int’l Union, Local 8-512, 621 F.3d 538, 550 (6th Cir. 2010); Teamsters Local Union No. 89 v. Kroger Co., 617 F.3d 899, 904 (6th Cir. 2010); Puleo v. Chase Bank USA, N. A., 605 F.3d 172, 178 (3d Cir. 2010); Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008). 25 See, e. g., Sandvik AB v. Advent Int’l Corp., 220 F.3d 99 (3d Cir. 2000). 26 See, e. g., AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (1986); Cox, 533 F.3d 1114. 27 See, e. g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547 (1964). 28 See, e. g., Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381 (5th Cir. 2008); Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532-533 (3d Cir. 2005); Faber v. Menard, Inc., 367 F.3d 1048, 1052 (8th Cir. 2004); Cap Gemini Ernst & Young, U.S., L. L. C. v. Nackel, 346 F.3d 360, 365 (2d Cir. 2003); Drexel Burnham Lambert, Inc v. Mancino, No. 913213, 1991 U.S. App. LEXIS 30181, at *5 (6th Cir. Dec. 19, 1991); see also W. W. Park, Determining an Arbitrator’s Jurisdiction, 8 Nevada Law Journal 135, 145 (2007) (“[In the United States], [c]ourt decisions speak of the ‘arbitrability question’ in the same way that the rest of the world refers to a jurisdictional issue.”); Reisberg, supra note 7 (noting that use of the term arbitrability is “a source of substantial confusion”). 29 See infra Parts III-V. 30 See, e. g., China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 277 (3d Cir. 2003); Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 590 (7th Cir. 2001). 31 See, e. g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 425 (1967); Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1410 (9th Cir. 1990); Nat’l Rail Passenger Corp. v. Consolidated Rail Corp., 892 F.2d 1066, 1070 (D. C. Cir. 1990).

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its right to arbitrate.32 It may even argue that some other barrier to arbitration stands in arbitration’s way, whether time limits on the underlying claim,33 failure to satisfy a condition precedent to arbitration,34 or the principle of res judicata.35 One can readily appreciate how the term arbitrability came to be understood so capaciously. It is certainly not illogical to employ the term as shorthand for any and all threshold issues, since a dispute may fairly be said to be “arbitrable” only if all threshold issues that are raised and upon whose resolution enforcement of the obligation to arbitrate depends are resolved in favor of the arbitration going forward. Only then is the dispute truly “able to be arbitrated.” However, the term arbitrability may be used in a much narrower sense, confined to one specific question: did the legislature, in establishing or recognizing a particular cause of action, authorize its adjudication by an arbitral tribunal, or did the legislature reserve its adjudication to courts of law?36 (By analogy, it may be asked whether a common law claim is one that the courts intended to be determined by courts alone and not by arbitral tribunals.) Used in this way, arbitrability denotes merely one among many objections to arbitral jurisdiction, namely that the underlying claim may not, as a matter of law, be submitted to arbitration. 32

See, e. g., Doctors’ Assocs., Inc. v. Distajo, 66 F.3d 438, 443 (2d Cir 1995). See, e. g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002). 34 See, e. g., Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1027-1028 (11th Cir. 1982); Eady v. Bill Heard Chevrolet Co., 274 F. Supp. 2d 1284, 1286 (M. D. Ala. 2003) (finding, in a case where the sale of the vehicle was subject to final credit approval, that the failure of the condition precedent rendered the contract invalid, and that therefore there was no consideration for the arbitration agreement). 35 See, e. g., G. R. Shell, Res Judicata and Collateral Estoppel Effects of Commercial Arbitration, 35 UCLA Law Review 623 (1988). 36 This is notably how the term is most often employed in international commercial arbitration. See, e. g., N. Blackaby et al., in student ed., Redfern and Hunter on International Arbitration, 2009, 122 (“Arbitrability … involves determining which types of dispute may be resolved by arbitration and which belong exclusively to the domain of the courts.”); 1 G. B. Born, International Commercial Arbitration, 2009, 767 (“[Arbitrability] refers to subjects or disputes which are deemed by a particular national law to be incapable of resolution by arbitration, even if the parties have otherwise validly agreed to arbitrate such matters.”); L. A. Mistelis, Arbitrability-International and Comparative Perspectives: Is Arbitrability a National or International Law Issue?, in L. A. Mistelis / ​ S. L. Brekoulakis eds., Arbitrability: International & Comparative Perspectives, 2009, 1, 3-4 (“Arbitrability … involves the simple question of what types of issues can and cannot be submitted to arbitration and whether specific classes of disputes are exempt from arbitration proceedings. While party autonomy espouses the right of parties to submit any dispute to arbitration, national laws often impose restrictions or limitations on what matters can be referred to and resolved by arbitration.”). 33

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Giving arbitrability this narrow definition yields important advantages. First, it serves to highlight those situations in which the legislature, rather than the parties – either directly or through operation of the law of contract – placed a claim outside arbitration’s bounds. In fact, legislatures can and, on occasion, do declare categories of disputes to be legally incapable of being arbitrated,37 and courts on rare occasion may do so even if the legislature did not.38 In the United States today, this prospect is more alive than ever.39 The term “non-arbitrability” captures this important notion, providing shorthand for the more cumbersome locution, “not legally capable of arbitration.” In any event, other terms – such as jurisdictional and threshold – remain available to denote the complete range of issues upon which enforceability of an arbitration agreement depends. Second, the definition of arbitrability suggested here conforms with international usage. Virtually everywhere else in the world, the term is given its narrow meaning – a meaning that is specifically expressed in the “non-arbitrability”

37

J. D. M. Lew / ​L . A. Mistelis / ​S. Kroll, Comparative International Commercial Arbitration, 2003, 199 (“Every national law determines which types of disputes are the exclusive domain of national courts and which can be referred to arbitration. This differs from state to state reflecting the political, social and economic prerogatives of the state, as well as its general attitude towards arbitration.”); see, e. g., Bundesgesetz über das Internationale Privatrecht [IPRG] [Federal Law on Private International Law] SR 291, art. 177, ¶ 1 (Switz.), translated in Born, supra note 36, at 777 (providing that “any dispute involving an economic interest [vermögensrechtlicher Anspruch] can be the subject-matter of an arbitration.”). German law uses a similar approach, since § 1030(1) of the German Zivilprozessordnung (ZPO) provides that “any claim involving an economic interest [vermögensrechtlicher Anspruch] can be the subject of an arbitration agreement. An arbitration agreement not involving an economic interest shall have legal effect to the extent that the parties are entitled to include a settlement on the issue.” Zivilprozessordnung [ZPO] [Code of Civil Procedure], Jan. 30, 1877, as amended, § 1030, ¶ 1 (Ger.), translated in Born, supra note 36, at 778; see also Born, supra note 36, at 811. 38 See, e. g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (refusing, however, to infer the non-arbitrability of antitrust claims). 39 Arbitration Fairness Act of 2011, H. R. 1873, 112th Cong. § 987 (2011). The proposed legislation would basically forbid and render unenforceable a pre-dispute arbitration agreement requiring arbitration of an employment, consumer, or franchise dispute, or a dispute arising under any statute intended to protect civil rights. For a discussion of previous versions of the proposal, see, I. M. Brin, The Arbitration Fairness Act of 2009, 25 Ohio State Journal on Dispute Resolution 821 (2010); R. Lanctot, Reality Check: Is the United States’ Arbitration Fairness Act of 2009 Likely To Cause Problems with International Arbitration Beyond Theory?, 13 Vindobona Journal 307 (2009); D. Moora, Arbitration Fairness Act of 2009 Introduced,15 No. 3 Dispute Resolution Magazine 30 (2009).

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ground found both in the 1958 New York Convention40 and in the UNCITRAL Model Law.41 Third, and most importantly, an overly broad definition of arbitrability produces analytic mischief. Courts may have good reason not to treat all objections to arbitral jurisdiction in the same procedural fashion. Given the large number and wide range of threshold issues in arbitration, generalized propositions about them – and especially about the respective roles of courts and arbitrators in determining them – may be, at the very least, misleading and, at worst, bad policy. The terms “gateway” and “non-gateway” issues are frequently invoked in the Parts that follow, precisely because they provide a terminology that is sufficiently general to encompass the full range of reasons parties advance for forum shopping through avoidance of an apparent agreement to arbitrate. By contrast, the term “arbitrability” will seldom be used, precisely because I prefer to confine it to the specific argument that a claim may not, as a matter of law, be submitted to arbitration.

IV. Traditional Tools Generations of law students have been taught that the doctrines of Kompetenz-Kompetenz and separability – doctrines to which virtually all arbitration systems today purport to adhere – hold the keys to unlocking the mysteries associated with arbitral jurisdiction.42 I argue that, while these doctrines have a role to play, they fall far short of providing fully adequate answers to the early fo40

New York Convention, supra note 5, arts. III(1), V(2)(a). These sections are implemented in the United States by 9 U.S. C. §§ 201-08 (2006). 41 UNCITRAL Model Law, supra note 23, arts. 34(2)(b)(i), 36(b)(1). 42 One text explains the doctrines in this fashion: A well known question … is the question whether the arbitrators are entitled to judge upon their own competence, in the German language known as the question of Kompetenz-Kompetenz. A general tendency may be noticed to recognise the arbitrator’s authority to rule on its own jurisdiction, i. e., to decide whether there exists a valid agreement to arbitrate … Closely connected … is the question of the separability of the arbitration clause … Under the separability doctrine, which regards the arbitration agreement as distinct from the main contract in which it is incorporated, the arbitrators can decide upon the validity of the main contract including questions concerning the revocation or cancellation of the main contract. Not included is the question whether a contract with arbitration clause has been concluded at all. Here the arbitrator cannot decide the issue definitely. P. Sanders, Trends in the Field of International Commercial Arbitration, 1975, 277. The UNCITRAL Model Law, as revised in 2006, provides in article 16(1) the now-classic articulation of the Kompetenz-Kompetenz principle: “The arbitral tribunal may rule on

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rum shopping phenomenon I have identified. They certainly cannot explain the results at which U.S. courts have lately been arriving.43 Normatively, my claim in this Part is that neither Kompetenz-Kompetenz nor separability delivers on its promise to adequately illuminate the gateway / ​non-gateway issue distinction. Put differently, neither doctrine, whether taken alone or in combination with the other, is capable of offering strong assurances that gateway and non-gateway issues will be delineated in a way that strikes an appropriate balance between arbitration’s efficacy and legitimacy interests.

IV.  A. Kompetenz-Kompetenz The doctrine of Kompetenz-Kompetenz, as generally understood, recognizes the authority of arbitral tribunals to determine their own jurisdiction.44 The breadth of this formulation has unfortunately generated much misunderstanding.45 All would appear to agree that Kompetenz-Kompetenz permits an arbitral tribunal to determine its own jurisdiction if it is challenged,46 and this of course is no minor achievement. But for this understanding, a tribunal arguably would be required to suspend proceedings whenever a party before it challenges its jurisdiction – whatever the basis of the challenge might be – and refer the jurisdictional issue to a court for determination. Allowing a party to unilaterally halt an arbitration merely by advancing a colorable reason in law why it should not go forward would dramatically impair the efficacy of arbitration. Forum shopping will have exacted an unduly high price. Shall we, however, infer from the fact that an arbitral tribunal may determine its own jurisdiction when a party challenges it that a court may not address that question if a party raises it in court prior to the start of arbitration? Consider the two scenarios described in Part II.47 In the first scenario, a party has initiated a claim in court, eliciting a motion to dismiss on the basis of an arbitration agreement between the parties. The immediate question for the court is its own jurisdiction, even if the answer will in turn depend on the court’s assessment of the jurisdiction of an eventual arbitral tribunal. There is, a priori, its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.” UNCITRAL Model Law, supra note 23, art. 16(1). 43 See infra Part V. 44 From the German “Kompetenz-Kompetenz” which literally means “the jurisdiction of jurisdiction.” French speakers use the term “compétence-compétence” to denote the same thing. D. T. Hascher, Arbitration and National Courts: Conflict and Cooperation, 21 American Review of International Arbitration 189, 191 (2010). 45 There is no consensus in U.S. law over the exact contours of Kompetenz-Kompetenz. See Smit, supra note 6, at 25-26. 46 See supra note 42. 47 See supra notes 13-16 and accompanying text.

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no reason why the court should not be entitled to assess its own jurisdiction. In another era, in which courts were thought to be hostile to arbitration,48 that may have been a dangerous recipe. But that era is behind us.49 Matters become more complicated in the second scenario. Here, a party has initiated arbitration and its opponent then goes to court – perhaps for a declaration that the dispute is not subject to arbitration, or for a stay of arbitration, or even for a ruling on a related claim of its own. That forum shopping move has the effect, and often enough the purpose, of frustrating or at least delaying the arbitration. Arguably, the arbitral tribunal in this scenario is no less entitled to determine its own jurisdiction than the court in the first scenario. However, if we posit that the arbitral tribunal has not yet been fully constituted – and may not be for some time – permitting early judicial intervention on at least certain fundamental issues may be desirable. Moreover, it is not evident why as basic a question as jurisdiction to determine jurisdiction should depend on who, as between the parties, was the first mover; it is for just this reason that U.S. courts are not as a general matter highly enamored of the doctrine of lis pendens.50 A more pertinent consideration is whether an arbitral tribunal is already fully in place and capable of exercising its Kompetenz-Kompetenz. Under neither of the scenarios I have posited is that the case. I conclude that the doctrine of Kompetenz-Kompetenz need not preclude a court from entertaining a challenge to arbitral jurisdiction prior to constitution of the arbitral tribunal. I do not claim that a court may or should determine at this early stage every threshold issue that a party resisting arbitration might present to the arbitral tribunal itself – far from it. Some issues may particularly warrant threshold judicial determination and others not. Delineating between them in this regard is the very vocation of the distinction between gateway and

48

Arbitration agreements were difficult to enforce at common law. For examples illustrating pre-FAA skepticism, see Haskell v. McClintic-MarshallCo., 289 F. 405, 409 (9th Cir. 1923) (declining to give effect to an arbitration agreement because “[i]t was a settled rule of the common law that a general rule to submit to arbitration did not oust the courts of jurisdiction, and that rule has been consistently adhered by to the federal courts”); and Jane Palmer v. French Republic, 270 F. 609, 613 (S. D. N. Y. 1920) (refusing to enforce an arbitration agreement on the grounds that the “arbitration clause cannot be availed of by or against France to oust our courts of jurisdiction”). 49 The Federal Arbitration Act enacted a strong policy favoring arbitration. See, e. g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995); Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989); Southland Corp. v. Keating, 465 U.S. 1 (1984); Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974). 50 M. Trevino de Coale, Stay, Dismiss, Enjoin, or Abstain?: A Survey of Foreign Parallel Litigation in the Federal Courts of the United States, 17 Boston University International Law Journal 79, 113-114 (1999).

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non-gateway issues – a vocation to which the notion of separability, discussed in a later section,51 has traditionally been central. IV.A.1. Kompetenz-Kompetenz in French Law The view of Kompetenz-Kompetenz I espouse here is far from universally shared. French law, notably, understands Kompetenz-Kompetenz very differently and has exerted considerable international influence on the matter, as it has on so many other matters in international commercial arbitration.52 Like the American, the French approach has been heavily judge-made, but in January 2011, the French legislature codified the case law on this issue in the form of amendments to the Code of Civil Procedure.53 The new legislation innovates in certain respects beyond the scope of this Article. But the fact that it innovates so 51 See

infra Section IV. B. A. T. von Mehren, International Commercial Arbitration: The Contribution of the French Jurisprudence, 46 Louisiana Law Review 1045, 1046 (1986) (“The use of privately created arbitral tribunals, though resting in the last analysis on practical considerations, requires theoretical explanation and justification. On both scores, French jurists and institutions have made enormous contributions.”). Even courts in the common law world have taken positions on Kompetenz-Kompetenz that are broadly similar to the French. In India, for example, the Supreme Court ruled that Section 45 of the Indian Arbitration and Conciliation Act required a court to do nothing more than conduct a prima facie review of an arbitration agreement’s validity before compelling arbitration. Shin-Etsu Chemical Co. Ltd. v. Optifibre Ltd., (2005) Supp (3) S. C. R. 699 (India), available at http: // ​indiankanoon.org / ​doc / 1192599. This, according to the court, would further the goal of expediting proceedings at the initial stages of arbitration, while still affording the resisting party the opportunity to challenge the validity of the arbitration agreement either in the arbitration proceedings themselves or in a post-award action. See R. D. Bishop / ​W. M. Coriell / ​M. Medina Campos, The “Null and Void” Provision of the New York Convention, in E. Gaillard / ​D. di Petro eds., Enforcement Of Arbitration Agreements And International Arbitral Awards: The New York Convention in Practice, 2008, 284. The Court did not enunciate a standard for conduct of this prima facie review, but judges clearly are not meant to make a full and final determination of whether the agreement is “null and void, inoperative or incapable of being performed.” Id. at 276. The Hong Kong courts follow a broadly similar approach. See Pacific Int’l Lines (Pie) Ltd. v. Tsinlien Metals & Minerals Co., [1993] 2 H. K. L. R. 249 (H. C.) (arbitration agreement to be enforced at the threshold of arbitration as long as there is “a plainly arguable case” that a valid arbitration agreement exists). 53 Décret no 2011-48 du 13 jan. 2011 portant réforme de l’arbitrage [Decree 2011-48 of Jan. 13, 2011 on arbitration reform], Journal Officiel de la Republique Francaise [J. O.] [Official Gazette of France], Jan. 14, 2011, p. 777, available at http: // ​w ww.iaiparis.com / ​ 52

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little in regard to Kompetenz-Kompetenz is itself revealing. The French regard their distinctive approach to Kompetenz-Kompetenz as vital to their jurisdiction’s appeal as an international arbitration venue. Like U.S. law, French law accords arbitral tribunals the authority to decide the scope and validity of an arbitration agreement if either is called into question before the tribunal itself.54 But unlike U.S. law, French law treats the tribunal’s authority to determine these issues as exclusive until after the arbitration is concluded and an award is rendered.55 According to French commentators, Kompetenz-Kompetenz thus has not only a positive dimension (authorizing arbitrators to determine their own competence at the outset), but also a negative one (barring courts from determining the competence of arbitrators at the outset).56 In its negative aspect, Kompetenz-Kompetenz requires courts to refrain from entertaining gateway challenges to an arbitration agreement, even if no arbitral tribunal has yet been formed. As Gaillard and Banifatemi put the matter, “the courts should refrain from engaging into [sic] the examination of the arbitrators’ jurisdiction before the arbitrators themselves have had an opportunity to do so.”57 pdf / ​Decret_n_2011-48_du_13janvier_201 1_ portant_reforme_de_l_arbitrage.pdf [hereinafter Décret portant réforme de l’arbitrage]. 54 See A. Dimolitsa, Autonomie et “Kompetenz-Kompetenz,” 2 Revue de l’arbitrage 305, 321-325 (1998); E. Gaillard & Y. Banifatemi, Negative Effect of Competence-Competence: The Rule of Priority in Favour of the Arbitrators, in Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice, supra note 52, at 257, 260. 55 The French Cour de cassation has repeatedly and emphatically affirmed that proposition. See, e. g., Société Spa Tagliavini, Cour de cassation [Cass.] [supreme court for judicial matters] Com., Nov. 25, 2008, Bulletin civil IV, No. 197; Société Ocea c. M. Bouet, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., July 9 2008, 2008 Revue de l’arbitrage 680, 681; Société Nat’l Broadcasting Co. (NBC) c. M. Bernadaux, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., July 11, 2006, Bulletin civil I, No. 364; Société Prodim c. époux Mohimont, Cour de cassation [Cass.] [supreme court for judicial matters] 1c civ., July 4, 2006, Bulletin civil I No. 338; Société Quarto Children’s Books Ltd. c. Société Editions du Scuil, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Oct. 16, 2001, Bulletin civil I, No. 254; Société American Bureau of Shipping c. Copropri6taire Maritime Jules Verne, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., June 26, 2001, Bulletin civil I, No. 183; Société Métu System France c. Société Sulzer Infra, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Dec. 1, 1999, Bulletin civil I, No. 325; E. Gaillard, Note-Cour de cassation (1re Ch. civile), 2001 Revue de l’arbitrage 529. 56 See Gaillard & Banifatemi, supra note 54, at 260. 57 Id. The textbook example is the case in which the parties had included in their contract both a choice of forum clause designating a national court and an arbitration clause. Société la Chartreuse c. Cavagna, Cour de cassation (Cass.] [supreme court for judicial

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Negative Kompetenz-Kompetenz in French law is admittedly subject to an important exception. French law considers it intolerable to require a party to arbitrate a dispute when there is no plausible basis whatsoever for finding that it had bound itself to do so. Thus, if a French court determines that an arbitration clause manifestly does not exist58 or is manifestly null, 59 it may so hold at the outset and, on that basis, decline to refer the parties to arbitration. Even prior to its reform in January 2011,60 the French Code of Civil Procedure embodied both the rule of negative Kompetenz-Kompetenz and its exception.61 Thus, “where the case has not yet been brought before an arbitration tribunal, the court must also decline jurisdiction,” except in the circumstance in which it finds that “the arbitration agreement is manifestly null.”62 By analogy to manifest nullity, the courts have interpreted the Code provision as allowing them also to find that an arbitration agreement manifestly does not exist,63 manifestly does not bind the matters] 2e civ., Dec. 18, 2003, Bulletin civil II, No. 393. The court ruled that the arbitral tribunal, and the arbitral tribunal alone, could determine the jurisdictional question; the chosen court could not: In ruling as it did, without finding the arbitration clause to be manifestly null or manifestly inapplicable-these being the only circumstances that prevent an arbitral tribunal from determining the existence, validity and scope of the agreement to arbitrate-the court of appeal exceeded its powers and violated [the law] and the principle [of compétence-compétence]. Id.(author trans.). 58 See, e. g., Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Mar. 16, 2004, Bulletin civil I, No. 82. 59 See, e. g., Cour de cassation [Cass.] [supreme court for judicial matters] Com., Nov. 25, 2008, Bulletin civil IV, No. 197; Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., July 9, 2008, 4 Revue de l’arbitrage 680, 681 (2008); Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., June 26, 2001, no. 99-17.120, Bulletin civil 2001 I, No. 183; Société Coprodag c. dame Bohin, Cour de cassation [Cass.] [Supreme court for judicial matters] 2e civ., May 10, 1995, no. 93-12.676, Bulletin civil 1995 II, No. 135. 60 See infra notes 72-74 and accompanying text. 61 According to Article 1458 of the Code, “where a dispute, referred to an arbitration tribunal pursuant to an arbitration agreement, is brought before a court of law of the State, the latter must decline jurisdiction.” Code de procedure civile [C. Pr.Civ.] art. 1458 (Fr.), translated in Code of Civil Procedure, Legifrance (Sept. 30, 2005), http: // 195.83.177.9 / ​ upl / ​pdf / ​code_39.pdf. 62 Article 1458 went on to provide that “in both cases, the court may not raise sua sponte its lack of jurisdiction.” Id. 63 See, e. g., Navire Pella, Cour de cassation [Cass.] [supreme court for judicial matters] com., Feb. 21, 2006, Bulletin civil IV, No. 41; Navimpex c. Wiking Trader, Cour de cassation [Cass.] [supreme court for judicial matters] le civ., Dec. 6, 1988, Bull. civ. II, No. 343.

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party sought to be bound,64 manifestly does not cover the dispute at hand,65 or is otherwise manifestly unenforceable.66 In other words, the only circumstance in which a French court is permitted to question arbitral jurisdiction is one in which no arbitral tribunal has yet been constituted and the agreement to arbitrate is, for one reason or another, manifestly ineffective or unenforceable.67 The manifest nullity standard is meant to be – and is – very difficult to meet. As the term itself would suggest, a court must find, on the face of the proffered arbitration agreement itself, that it cannot serve as the basis for a valid arbitration.68 “The requirement that the clause be ‘manifestly null and void’ means that this must be so clear that the court is not required to embark on any exercise of interpretation of the clause or its scope of application.”69 French courts thus accept as sufficient what amounts to merely a prima facie showing on virtually all threshold issues.70 It would be an understatement to say that parties seeking

64

Supermarket Champion France c. Company RECAP, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., July 4, 2006, Bulletin civil I, No. 337. 65 See Gaillard & Banifatemi, supra note 54, at 261-268. 66 Navire Tag Heuer, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., June 7, 2006, Bulletin civil 1, No. 287 (referring to “inapplicabilité manifeste”). 67 Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., July 11, 2006, Bulletin civil 1, No. 368; Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Mar. 30, 2004, Bulletin civil I, No. 96; République islamique d’Iran c. Société Framatome, Cour de cassation [Cass.] [Supreme court for judicial matters], 1e civ., Jan. 28, 1989, Bulletin civil 1989 I, No. 128; Gosset, Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., May 7, 1963, Bulletin civil 1963 1 no. 246. 68 See, e. g., Levantinha de Hydraulica y Motores, Cour de cassation [Cass.] [supreme court for judicial matters] 1e civ., Jan. 23, 2007, 3 Revue de l’arbitrage 279 (2007). 69 J.-L. Delvolve / ​G. H. Pointon / ​J. Rouche, French Arbitration Law and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd ed., 2009, 78; see also O. Cachard, Le contrôle de la nullité ou de l’inapplicabilité manifeste de la clause compromissoire, 4 Revue de l’arbitrage 893 (2006). 70 The combination of the principles of validity and Kompetenz-Kompetenz prohibits the French judge from carrying out a substantive and thorough review of the arbitration agreement. The only limit to the judge’s examination of the arbitration clause, before being asked to review its existence or validity in the context of an action brought against the award, is whether that clause is manifestly null or inapplicable. See C. Kessedjian, Is Arbitration a Service to Business or to the Legal Profession?, in A. W. Rovine ed., Contemporary Issues in International Arbitration and Mediation: The Fordham Papers 2009, 2010, 311, 313 (suggesting that the expression, “null and void, inoperative or incapable of being performed,” within the meaning of New York Convention, art. II(3), “has been so narrowly interpreted [by the French courts] that it has lost almost all potential for application”).

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relief in a French court from an apparent obligation to arbitrate face a seriously uphill battle.71 The 2011 reform consolidates French case law with respect to the handling of threshold issues.72 The new Article 1465 forcefully reiterates the French version of Kompetenz-Kompetenz: “The arbitral tribunal has exclusive jurisdiction to rule on objections to its jurisdiction.”73 Further, according to Article 1448, “when a dispute subject to an arbitration agreement is brought before a court, such court shall decline jurisdiction, except if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or manifestly not applicable.”74 Thus, once the tribunal has been constituted, it exclusively resolves challenges to its own jurisdiction, whatever the basis of the objection. Before that time, a court is empowered only to determine whether an arbitration agreement is manifestly null or manifestly inapplicable. In recognizing the “manifest nullity” exception, French law clearly acknowledges the legitimacy at stake in the enforcement of arbitration agreements. French law nevertheless strikes a very different balance between efficacy and legitimacy interests than U.S. law does. Its expansive understanding of Kompetenz-Kompetenz reduces to a bare minimum the inquiry that courts may make into the enforceability of arbitration agreements prior to enforcing them. This choice is a knowing one, crafted chiefly to thwart attempts by parties to delay or derail an arbitration. Efficacy concerns plainly prevail over legitimacy concerns at this stage of the proceedings. While sharing the vocabulary of KompetenzKompetenz with American law, French law defines the concept differently and reaches strikingly different jurisdiction allocation outcomes.75 Curiously, once an arbitration has ended in an award, French courts are permitted to make all the inquiries into arbitral jurisdiction that they were barred from making initially. If a party seeks to have the award annulled in a French court following an arbitration, it may raise each and every possible challenge to the existence and enforceability of the arbitration agreement. Moreover, it can expect the court to address those challenges without any deference to jurisdictional findings the arbitral tribunal may have previously made. Although French law postpones full judicial inquiry into arbitral jurisdiction until after an award has been issued, it obviously is not indifferent to the principle of

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Id. Décret portant réforme de l’arbitrage, supra note 53, at *9. 73 Id. art. 1465, translated in Decree 2011-48 of 13 January 2011 reforming the law governing arbitration (Int’l Arbitration Inst. trans., 2011), http: // ​www.iaiparis.com / ​pdflFRENCH_LAW_ON_ARBITRATION.pdf [hereinafter Décret, translation]. 74 Décret portant réforme de l’arbitrage, supra note 53, art. 1448, translated in Décret, translation, supra note 73. 75 See infra Part IV. 72

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consent or to the legitimacy concerns that underlie it.76 It prefers postponing meaningful review. However, postponing meaningful review of the arbitration agreement until after an award has been rendered imposes efficiency costs of its own. If a defect in the arbitration agreement is less than manifest (as it far more often than not will be), the arbitration will go forward, consuming time and resources – an expenditure that will have been wasted if a French court at the arbitral situs ultimately decides that the arbitration agreement did not exist or was not enforceable at the instance of the party invoking it, and thus annuls the award. French law appears to be indifferent to that efficacy cost.77 This arrangement is rational only if one assumes that annulment of an arbitral award in France, on the basis of one defect or another in the agreement to arbitrate, is truly a rarity. IV.A.2. Kompetenz-Kompetenz in German Law German law more closely resembles American law in that it allows broad judicial intervention on certain issues at the threshold of arbitration, and expressly so provides in its Civil Procedure Code („ZPO“). ZPO Section 1032(1) provides one avenue, entitling the defendant in a court action on a claim that it contends is subject exclusively to arbitration to seek a ruling that the court lacks jurisdiction to hear the matter on the merits. To prevail on the jurisdictional issue, plaintiff must demonstrate that the arbitration agreement is „null and void, inoperative or incapable of being performed.“78 The court cannot content 76 See Gaillard & Banifatemi, supra note 54, at 260. The French approach has the incidental

advantage of centralizing scrutiny of the arbitration agreement in a single forum since, in principle at least, only the courts of the arbitral situs have competence to set aside an award. 77 See K. P. Berger, The Modern Trend Towards Exclusion of Recourse Against Transnational Arbitral Awards: A European Perspective, 12 Fordham International Law Journal 605, 619-620 (1989). 78 Zivilprozessordnung [ZPO] [Code of Civil Procedure], Jan. 30, 1877, Reichsgesetzblatt [RGBl.] 83, as amended, § 1032, ¶ 1, translated in P. Huber, § 1032 – Arbitration Agreement and Substantive Claim Before Court, in K.-H. Böckstiegal / ​S. M. Kroll / ​P. Nacimiento eds., Arbitration in Germany: The Model Law in Practice, 2007, 139 (“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if the respondent raises an objection prior to the beginning of the oral hearing on the substance of the dispute, reject the action as inadmissible unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.”). The language of Section 1032(1) tracks Article 8(1) of the UNCITRAL Model Law, whose language “null and void, inoperative or incapable of being performed” derives from Article II(3) of the New York Convention. See New York Convention supra note 5, art. II(3).

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itself with a mere prima facie review of the arbitration agreement, i. e., with a determination that an agreement may at least plausibly be considered valid, operative and capable of being performed. Rather, the court makes a full and formal determination on the matter.79 Second, section 1032(2) entitles a party against whom arbitration has been instituted to seek a ruling directly from an intermediate appellate court on “the admissibility or inadmissibility of arbitration,”80 though it may do so only until such time as the arbitral tribunal has been constituted.81 Thereafter, the authority of the tribunal to make admissibility determinations becomes exclusive, though its determination is judicially challengeable on an interlocutory basis. 82 Under section 1032(2), the court apparently confines its inquiry to whether an effective and enforceable arbitration agreement exists, and whether the dispute falls within its ambit. While German law clearly posits “positive KompetenzKompetenz,” it equally clearly does not share French law’s attachment to “negative Kompetenz-Kompetenz.”83 The system just described was introduced legislatively in 1998 as part of the modernization of German arbitration law. ZPO Section 1032(2) represents 79

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Huber, supra note 78, at 139, 140. ZPO § 1032, ¶ 2, translated in Huber, supra note 78, at 139 (“Prior to the constitution

of the arbitral tribunal, an application may be made to the court to determine whether arbitration is admissible or inadmissible.”). The corresponding phrase in German is “die Zulässigkeit oder Unzulässigkeit eines schiedsrichterlichen Verfahrens.” The competent court for this procedure (known as „der Kontrollantrag” or “application for jurisdictional review”) is the state Oberlandesgericht (OLG) (higher regional court). 81 Constitution of the tribunal means the time when all the arbitrators have accepted their appointment and presumably all initial challenges to arbitrators have been resolved. For a general discussion, see 3 Münchener Kommentar zur Zivilprozessordnung ZPO § 1032, in T. Rauscher / ​P. Wax / ​J. Wenzel eds., 3rd ed., 2008, paras. 22-25 [hereinafter Münchener Kommentar]; Huber, supra note 78, at 150. An application under Section 1032(2) may be made before arbitration has been instituted if the applicant demonstrates that it has a legitimate interest in having an early declaratory judgment that arbitration is “inadmissible,” as when it claims that the party seeking arbitration waived the right to arbitrate. Id. 82 ZPO section 1040(1) states that “the arbitral tribunal may rule on its own jurisdiction and in this connection on the existence or validity of the arbitration agreement.” However, its positive Kompetenz-Kompetenz can be short-lived. ZPO section 1040(3) authorizes, subject to a one-month statute of limitations, an immediate judicial challenge to a partial award by an arbitral tribunal finding jurisdiction over the case. ZPO § 1040(3), translated in Huber, supra note 78, at 248. 83 S. M. Kröll, Die schiedsrechtliche Rechtsprechung des Jahres 2010, 2011 SchiedsVZ 131, 133. ZPO section 1032(2)‘s rejection of „negative Kompetenz-Kompetenz“ is only strengthened by section 1040(3)‘s allowing immediate judicial review of a tribunal’s partial award finding in favor of arbitral jurisdiction. See supra note 82.

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a conscious deviation from the UNCITRAL Model Law, which otherwise forms the basis of the German legislation. Prior to 1998, the ZPO made no specific reference to judicial intervention on matters of arbitral jurisdiction until after the tribunal had issued its final award.84 The reform’s legislative purpose was clear, namely, to address the risk that parties might spend considerable time and resources in an arbitral forum, only to discover in an action for post-award relief that that forum lacked jurisdiction from the start.85 The German legislature plainly recognized that, while the arbitral process as such would run in a smoother and more streamlined fashion if the courts were essentially silenced on matters of arbitral jurisdiction during that process, that policy could prove highly inefficient in the long run, and so actually compromise arbitration’s efficacy interest.86 So seriously is this “correction” taken that German law does not permit parties to agree in advance to assign final decision on the validity or enforceability of the arbitration agreement to the arbitrators.87 On the other hand, the German legislature was sensitive to the cost of this new forum shopping opportunity in terms of delay in the event the arbitration commences only after the court upholds the arbitration agreement. It especially feared that jurisdictional challenges would be brought solely for purposes of delay, or otherwise frivolously. For this reason, the ZPO specifically provides that an arbitration, once initiated, must be allowed to proceed on its course, notwithstanding the respondent’s having resorted to a court under section 1032(2).88 However serious the challenge, arbitral proceedings go forward concurrently with the judicial procedure. Indeed, even during the judicial proceedings, the party seeking arbitration is free to initiate it,89 thus simultaneously contesting judicial jurisdiction and triggering the arbitral process.90 84 85

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K.-H. Böckstiegel et al., Part I-Germany as a Place for International and Domestic Arbitrations-General Overview, in Arbitration in Germany, supra note 78, at 139. Id. Münchener Kommentar, supra note 81. The driving idea is that doubts as to the existence of a valid and enforceable arbitration agreement should be dispelled at the earliest possible stage. U. G. Schroeter, Der Antrag auf Feststellung der Zulässigkeit eines schiedsrichterlichen Verfahrens gemäß 3 § 1032 Abs. 2 ZPO, 2004 SchiedsVZ 288, 288. P. Huber, Das Verhältnis von Schiedsgericht und staatlichen Gerichten bei der Entscheidung über die Zuständigkeit, 2003 SchiedsVZ 73, 75. „Where an action or application referred to in subsection 1 or 2 has been brought, arbitral proceedings may nevertheless be commenced or continued, and an arbitral award may be made, while the issue is pending before the court.“ ZPO § 1032(3), translated in Huber, supra note 78, at 139. Id. So committed was the German legislature to avoiding arbitral delay on account of jurisdictional challenges in court that, even when a party seeks immediate judicial review of a tribunal’s partial award upholding its jurisdiction, see supra note 81, the tribunal

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Germany has thus consciously produced a regime that enables courts to intervene on certain challenges, whether they take the form of a jurisdictional defense to a proceeding on a claim in court prior to any arbitration having been initiated or a stand-alone action brought in the period between initiation of arbitration and constitution of the tribunal. To this extent, the German mechanism reflects a commitment to party consent and to the legitimacy that such consent fosters. At the same time, under neither scenario are arbitral proceedings delayed, much less derailed, unless of course the court finally concludes that there exists no valid and enforceable agreement to arbitrate that is applicable to the dispute; in that circumstance, derailment is appropriate and will have been achieved on a reasonably timely basis.91 Kompetenz-Kompetenz under German law is evidently a highly calibrated instrument, and consciously so.

IV.  B. Separability The traditional starting point for delineating gateway and non-gateway issues in American law is not Kompetenz-Kompetenz, but the doctrine of separability. That doctrine basically posits that an arbitration agreement constitutes an agreement separate and apart from the main contract.92 But, like KompetenzKompetenz, separability has been asked to do too much work in assigning authority to determine arbitral jurisdiction between courts and arbitral tribunals. It has not proven equal to that task. The difficulties associated with separability stem in part from the ambiguity surrounding it. Unlike elsewhere, separability in American law essentially serves two distinct purposes. One purpose – and indeed the one most widely ascribed to it in the international arbitral community – is to enable an arbitral tribunal to declare a contract invalid or unenforceable on the merits, without thereby necessarily destroying the basis of its authority to make that very ruling.93 As an agreement separate and apart from the main contract, an arbitration may proceed with the arbitration, and even conceivably issue a final award, while the court challenge is still pending. ZPO § 1040(3). 91 For a discussion on what constitutes an “admissibility” challenge for the purposes of ZPO § 1032, or how gateway and non-gateway issues are delineated in German law, see infra notes 112-116 and accompanying text. 92 According to article 16(1) of the UNCITRAL Model Law, for the purpose of the tribunal’s ruling on the existence or validity of the arbitration agreement, “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.” UNCITRAL Model Law, supra note 23, art. 16(1). More specifically, “[a] decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” Id. 93 See Lew et al., supra note 37, at 334 (“While competence-competence empowers the arbitration tribunal to decide on its own jurisdiction, separability affects the outcome

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clause remains valid even though the contract of which it forms a part is not, thus permitting the former to survive the demise of the latter. Having survived, the arbitration clause remains a valid basis for the award. So understood, separability serves a highly salutary purpose. Party expectations concerning arbitration would clearly be disserved if arbitral tribunals were deemed, by virtue of deciding that a contract is invalid, to deprive themselves of the legal authority to make that very decision. 94 But salutary though this purpose may be, it has little if anything to do with delineating between gateway and non-gateway issues. However, separability’s second, and less universally acknowledged, function in U.S. law pertains directly to the demarcation between gateway and nongateway issues. Under this species of separability, whether a court may initially determine a matter of arbitral jurisdiction depends on whether the jurisdictional challenge is based on a defect peculiar to the arbitration agreement, on the one hand, or applicable to the main contract as a whole, on the other. The Supreme Court, in the seminal Prima Paint case, traced that distinction to the language of the FAA, and its Section 4 in particular.95 But other considerations of this decision … Without the doctrine of separability, a tribunal making use of its competence-competence would potentially be obliged to deny jurisdiction on the merits since the existence of the arbitration clause might be affected by the invalidity of the underlying contract.”). 94 See, e. g., UNCITRAL Arbitration Rules, G. A. Res. 65 / 11, U. N. Doc. A / ​RES / 65 / 22, art. 21, (Dec. 6, 2010), available at http: // ​w ww.uncitral.org / ​pdf / ​english / ​texts / ​a rbitration / ​a rb-rules-revised / ​a rb-rules-revised-2010-e.pdf; Am. Arbitration Ass’n, International Dispute Resolution Procedures, art. 15(2) (2009), available at http: // ​w ww.adr. org / ​sp.asp?id=33994; Int’l Chamber Of Commerce, Rules Of Arbitration, art.  6(4) (1998), available at http: // ​w ww.iccwbo.org / ​uploadedFiles / ​Court / ​A rbitration / ​other / ​ rules_arb_english.pdf. The operation of the severability doctrine in relation to the notion of contractual consent is not unproblematic. Some have argued that this “fiction” is in reality a serious conceptual flaw. See, e. g., Ware, supra note 6, at 131. But see Rau, Everything You Really Need to Know, supra note 6. 95 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967) (“Under § 4 [of the FAA], with respect to a matter within the jurisdiction of the federal courts save for the existence of an arbitration clause, the federal court is instructed to order arbitration to proceed once it is satisfied that ‘the making of the agreement for arbitration or the failure to comply [with the arbitration agreement] is not in issue.’ Accordingly, if the claim is fraud in the inducement of the arbitration clause itself-an issue which goes to the ‘making’ of the agreement to arbitrate-the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.”) (quoting 9 U.S. C. § 4 (2006) (“A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court [with jurisdiction] … for an order directing that such arbitration proceed in a manner pro-

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were surely also at play. The question whether a contract on which a claim in arbitration is predicated exists and is valid and enforceable clearly forms part of the merits of a case, and as such falls in principle within the arbitrators’ province to resolve. The arbitration clause as such is situated differently. Not only does the arbitration clause not pertain to the merits of a contract dispute, but a challenge to that clause goes directly to the heart of the tribunal’s authority to decide anything – including the validity and enforceability of the main contract. Separability thus permits courts to entertain challenges specifically applicable to the arbitration agreement, and not to the contract as a whole. The distinction drawn by separability for these purposes is of course logically dubious. If the main contract is indeed invalid or unenforceable, so too must be all of its parts, including the arbitration clause. The clause should fall with the contract containing it. However, employing separability in this context makes some sense. Defects in the specific clause of a contract from which the arbitrators derive their authority to resolve disputes between the parties are understandably seen as impugning the parties’ consent to arbitration more directly than defects in those clauses of the contract that set out the parties’ substantive rights and obligations. Accordingly, separability’s distinction between the main contract and the arbitration clause, while far from logically compelling, exerts a strong intuitive appeal. Although separability in U.S. law performs the twin functions I have described, only the first of them – namely, allowing an arbitration agreement







vided for in such agreement … [U]pon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.) (citations omitted)). In its later Buckeye decision, the Court predicated the separability rule on section 2, rather than section 4, of the FAA. It interpreted section 2 as establishing “as a matter of substantive federal arbitration law [that] an arbitration provision is severable from the remainder of the contract.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006); see also id. at 447 (discussing section 2’s “substantive command that arbitration agreements be treated like all other contracts”). According to section 2: A written provision in … a contract … to settle by arbitration a controversy thereafter arising out of such contract … or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S. C. § 2 (2006); see also Rent-a-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772, 2778 (2010) (noting that “§ 2 states that a ‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid, irrevocable, and enforceable’ without mention of the validity of the contract in which it is contained. Thus, a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate”) (quoting Buckeye, 546 U.S. at 445).

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and the authority it vests in an arbitral tribunal to survive the demise of the underlying contract – has won worldwide acceptance. Employing the notion to distinguish gateway from non-gateway issues is a distinctively, though not uniquely, American practice. Separability as a jurisdiction-allocating device remains contested in the academic literature,96 but is well-entrenched in the case law. Though given many opportunities to do so, the U.S. Supreme Court has not wavered in its attachment to it as the touchstone for determining whether courts should initially entertain challenges to the enforceability of an arbitration agreement or refrain from doing so, referring the parties on those issues to arbitration instead.97 However, separability, in this second function, has not stood the test of time very well. As Part V will make abundantly clear, it simply ignores a whole range of threshold issues. Moreover, it does not always deal adequately with those threshold issues that it does address, at least when viewed in terms of achieving the optimal tradeoff between efficacy and legitimacy.98 IV.B.1. Separability in French Law French law is once again illuminating. At one time, the Cour de cassation, or Supreme Court, had posited a distinction between those threshold issues relating to the existence or validity of an arbitration agreement, on the one hand, and those relating to the scope of arbitral authority under that agreement, on the other.99 More specifically, the court allowed arbitrators to decide what disputes were or were not covered by an arbitration agreement, but not whether 96

For critical views of separability, see, for example, R. C. Reuben, First Options, Consent to Arbitration, and the Demise of Separability: Restoring Access to Justice for Contracts with Arbitration Provisions, 56 Southern Methodist University Law review 819, 845 (2003) (“[S]eparability perverts contract law because it assumes away the fundamental principle of contractual consent …”); S. J. Ware, Employment Arbitration and Voluntary Consent, 25 Hofstra Law Review 83, 137 (1996) (“[O]verruling Prima Paint [is a price that] must be paid to make the law well-suited to ensure that arbitration is based on significant consent.”); see also Ware, supra note 6, at 126. The Revised Uniform Arbitration Act does not fully articulate the principle of separability, but strongly implies it. Section 6(b) states: “The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.” 97 Rent-a-Ctr., 130 S. Ct. at 2778. 98 See infra Part V. 99 E. Loquin, Juris-Classeur Procedure Civile, Fasc. 1034, ¶ 50 (2009) (“The case law of the Cour de cassation prohibited arbitrators from … ruling on the validity of the arbitration agreement … [However,] the case law permitted arbitrators to determine their competence, ‘so to speak, within the interior of the arbitration agreement,’ even while barring them from ‘ruling on its existence or validity.”’ (quoting H. Motulsky, JurisClasseur périodique 1942, I1,4899)).

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an arbitration agreement ever existed and was valid, if either of those issues was contested.100 The court considered that if a tribunal were to conduct arbitral proceedings and render an award on the basis of an agreement that did not exist, or that existed but was not valid, the consent on which contract-based arbitration in principle rests would be lacking, and the legitimacy of the proceedings and award undermined.101 By contrast, determining the scope of disputes encompassed by an arbitration agreement was viewed essentially as an exercise in contract interpretation, a paradigmatic arbitral function. Though advanced by the highest court, this approach did not, however, win favor with the Paris Court of Appeal, which considered it essential to arbitration’s efficacy that, at its threshold, tribunals have exclusive authority to determine not only the scope of their authority to arbitrate, but also the existence and validity of the arbitration agreement upon which that authority rested.102 100

Id. ¶ 51 (quoting Cass. com., Feb. 22, 1949, Juris-Classeur périodique, édition générale. 1949, II, 4899, note H. Motulsky): In the Caulliez decision, [the commercial chamber of the Cour de cassation ruled] that ‘every tribunal, even a specialized one, being the judge of its own competence, arbitrators have the power and duty to determine whether, under the terms of the arbitration agreement entered into by the parties, they have competence to adjudicate the dispute submitted to them.’ In fact, the change in case law was less than certain since what was contested in the case was less the validity of arbitral jurisdiction [“saisine”] than the extent of that jurisdiction. 101 Id. ¶ 51: [T]he Courtieu decision of October 6, 1953 [Cour de cassation [Cass.] [Supreme court for judicial matters] com., Oct. 6, 1953, Juris-Classeur périodique, édition générale 1954, 11, 8293; H. Motulsky, Menace sur l’arbitrage: La prétendue incompétence des arbitres en cas de contestation sur l’existence ou la validité d’une clause compromissoire, Juris-Classeur périodique 1954 1 1194] held that “since an action to nullify the incorporation of a company comes within the competence of the commercial court (tribunal de commerce), the arbitration clause contained within the articles of incorporation cannot be given effect, since the action called into question the validity of those articles of incorporation.” The Cour de cassation reiterated its case law in its Vigneron decision [Cour de cassation [Cass.] [Supreme court for judicial matters] com., Jun. 11, 1960, Juris-Classeur périodique, édition générale 1960, II, 11764, note Garaud; C. Carabiber, Opening Address to the International Congress on Arbitration, 1961 Revue de l’arbitrage 44]. The result of this case law … is that as long as the validity of the arbitration agreement is challenged the ordinary courts recover their exclusive jurisdiction. Only after a definitive ruling by the court rejecting the claim of nullification of the company’s incorporation that the jurisdiction of an arbitral tribunal may be invoked [Motulsky, supra, at 1194]. 102 See, e. g., Cour d’appel [CA] [regional court of appeal] Paris, 1e ch., Feb. 21, 1974, 1975 Revue de l’arbitrage 312, 316-17, note E. Mezger; Cour d’appel [CA] [regional court of appeal] Paris, 1e ch., Mar. 21, 1963, 1963 Revue de l’arbitrage 125; Cour d’appel [CA]

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That view eventually prevailed in the French courts.103 It also won favor with French legal scholars who, playing their customary role in conceptualizing the law, subsumed this emergent view under a more general principle of the “autonomy of the arbitration agreement.”104 Article 1447 of the Civil Procedure Code now expressly affirms the principle of separability in this core sense.105 French and American law thus converge in advancing the autonomy of an arbitration agreement by insulating it from defects in the main contract. Where French and American approaches part ways is over the additional role assigned to separability in American law, namely delineating at the relevant forum shopping moment between gateway and non-gateway issues. French courts deal with challenges to arbitral jurisdiction in the same way, regardless of whether they are directed at the main contract or at its arbitration clause in particular. Allowing courts to determine initially the existence or validity of the agreement to arbitrate is viewed in France as no less harmful to the autonomy of the arbitration agreement than allowing courts to determine initially the [regional court of appeal] Paris, 1e ch., June 14, 1962, 1962 Revue de l’arbitrage 107; Cour d’appel [CA] [regional court of appeal] Paris, 1e ch. May 12 ,1959, 1959 Revue de l’arbitrage 49; Cour d’appel [CA] [regional court of appeal] Paris, 1e ch., May 22, 1958, 1958 Revue de l’arbitrage 57. 103 The Cour de cassation rallied to that view in its influential Gosset decision of 1963, Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., Gosset (“In international arbitration, the arbitration agreement, whether entered separately or included in the legal instrument to which it relates, is always, save in exceptional circumstances … in complete legal autonomy, which excludes the possibility that it might be affected by the invalidity of the [main] act.”). See, e. g., Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., May 28, 2002, Bulletin civil I, No. 146 (reaffirming Gosset); Cour de cassation [Cass.] [Supreme court for judicial matters] 2e civ., Apr. 4, 2002, Bull. civ. It, No. 68 (extending Gosset to domestic arbitration); see also Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., Oct. 25, 2005, Bulletin civil I, No. 378; J.-B. Racine, Note-Cour de cassation (Ire Ch. civ), 25 octobre 2005, 1 Revue de l’arbitrage 106 (2006). Similarly, an allegation that the main contract never entered into force would not impair the effectiveness of the arbitration clause. See, e. g., Cour de cassation [Cass.] [Supreme court for judicial matters] 1e civ., Dec. 6, 1988, Bulletin civil I, No. 343; see also 1989 Revue de l’arbitrage 641, 642, note B. Goldman. 104 See, e. g., Ph. Francescakis, Le principe jurisprudentiel de l’autonomie de I ‘accord compromissoire, 1974 Revue de l’arbitrage 67; F.-E. Klein, Du caractère autonome de la clause compromissoire, notamment en matière d’arbitrage international,1961 Revue de l’arbitrage 48. 105 Klein, supra note 104. Art. 1447 further provides that termination of the main contract does not imply termination of the agreement to arbitrate. Decrét, translation, supra note 73 (“An arbitration agreement is independent of the contract to which it relates. It shall not be affected if such contract is void.”).

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existence or validity of the main contract.106 France thus reaches the opposite conclusion from the United States on this point. It embraces the doctrine of separability in the way it is most widely understood internationally, but rejects it as a basis for allocating authority over issues of arbitral jurisdiction. As a result, all objections to the obligation to arbitrate are reserved in France for the arbitral tribunal itself, subject only to the “manifest nullity” and “manifest inapplicability” exceptions107 – and even then, only if no tribunal has yet been constituted. Thus, French courts reject the assertion that a dispute falls outside the scope of an arbitration agreement, as long as it is at least arguable that the dispute falls within it.108 But the strong presumption in favor of arbitration comes into play whatever the reason advanced for resisting arbitration. It applies not only to the “whether” question (whether the parties agreed to arbitrate) and the “what” question (whether the parties agreed to arbitrate this type of dispute),109 but also the “who” question (whether a non-signatory is subject to the agreement to arbitrate), and indeed to any other objection to the obligation to arbitrate. In the French view, to require anything more than a prima facie showing on any threshold issue would impermissibly compromise the autonomy of the arbitration agreement.110 French law thus offers a coherent model for reconciling efficacy and legitimacy interests in arbitration, albeit one that distinctly privileges efficacy over legitimacy values at the initial forum shopping stage. The model proclaims an autonomy of the arbitration agreement built on the twin pillars of KompetenzKompetenz and severability, as distinctively understood in French law.111

106

Note that French law does not use the term severability (“séparabilité”); instead, it speaks of autonomy (“autonomie”). Some have proposed to use the former term, however. See P. Mayer, L’autonomie de l’arbitre international dans l’appréciation de sa propre compétence (1989); P. Mayer, Les limites de la séparabilité de la clause compromissoire, 2 Revue de l’arbitrage 359 (1998) [hereinafter Mayer, Les limites]. 107 Mayer, Les limites, supra note 106; see also I. Fadlallah, Priorité à l’arbitrage: entre quelles parties?, 157 Gazette du Palais 26 (2002); E. Gaillard, The Negative Effect of Competence-Competence, in E: Scott ed., 17 Mealey’s International Arbitration Report, 2002, 27. 108 Fadlallah, supra note 107. 109 See Cour de cassation [Cass.] [supreme court of judicial matters] 1e civ., July 9, 2008, 2008 Revue de l’arbitrage 680, 681. 110 O. Cachard, Le contrôle de la nullité ou de l’inapplicabilité manifeste de la clause compromissoire, 4 Revue de l’arbitrage 893 (2006). 111 See supra note 106 and accompanying text.

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IV.B.2. Separability in German Law As discussed earlier,112 German law carves out an important role for national courts in threshold determinations of arbitral jurisdiction. Under its Kompetenz-Kompetenz model, courts may examine the existence of a valid and enforceable agreement to arbitrate applicable to the case at hand, not only on the occasion of a jurisdictional objection to a court proceeding, but also in the immediate aftermath of a request for arbitration, though prior to constitution of a tribunal.113 The matters that a German court may examine on these occasions go by the global name of Zulassigkeit, or “issues of admissibility.” Unfortunately, the term “admissibility” in German law suffers from much the same generality and over-inclusiveness as afflicts the term “arbitrability” when used loosely in U.S. case law and doctrine.114 Distinguishing specifically between gateway and non-gateway issues in German law is accordingly no simple matter. German scholars appear to agree that an “admissibility” challenge must be directed at the existence of an effective and enforceable agreement to arbitrate that covers the dispute at hand.115 In principle, all issues related to the arbitration agreement’s existence, validity, and scope are matters on which courts may rule under either Section 1032(1) or (2); all other threshold issues concerning the arbitration are reserved for the arbitrators. To that extent, German law embraces separability in its second as well as its first sense. But questions remain. How precisely is the universe of challenges to the arbitration agreement to be defined? What specific kinds of challenges does it encompass? Most pertinent, for present purposes, must a challenge, in order to raise an admissibility issue, be directed uniquely at the arbitration agreement and not otherwise implicate the contract in which it is found? Neither the case law nor the doctrine offers very sharp answers. One might say of German law that if an issue relates to the arbitration agreement, it is by definition a gateway issue. There are no further distinctions to be drawn. Thus, unlike French law, German law does not confine the notion of separability to its core function, namely preventing an arbitral tribunal’s invalidation 112 See

supra notes 78-91 and accompanying text. As noted, German law provides a third avenue for early judicial intervention on the jurisdictional issue, by permitting an immediate challenge to a partial award by which a tribunal upholds its jurisdiction. See supra note 82 and accompanying text. 114 See supra notes 24-35 and accompanying text. 115 Münchener Kommentar, supra note 81, § 1032, ¶ 25; W. Volt, Musielak ZPO, 8th ed., 2011, ZPO § 1032(10); J. P. Lachmann, Handbuch für die Schiedsgerichtspraxis (3d ed.), 2008, 665. For case support, see, for example, Bayerisches Oberstes Landesgericht [BayObLG] [Bavarian Higher Regional Court] Sept. 9, 1999, Entscheidungen des Bayerischen Obersten Landesgerichts in Zivilsachen [BayObLG] 255, 269 (1999); Oberlandesgericht München [OLG München] [Higher Regional Court Munich] Feb. 12, 2008, 34 SchH 006 / 07, ¶ 17. 113

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of the main contract from thereby invalidating its authority to make that very determination.116 To be sure, it avoids using the same term for both functions (thus helping to avoid confusion). But just as U.S. law does through the notion of separability, German law organizes the allocation of authority over threshold issues around a distinction between the arbitration agreement and the main contract, albeit a distinction that is not drawn very finely and may entail some loss in predictability of results.117 Though the structure of German law is clear and crisp, the case law results are somewhat difficult to rationalize.118 We may put the matter this way. German law has constructed an institutionally and procedurally well-defined “gateway,” but settled for a highly generalized notion of what distinguishes a “gateway” from a “non-gateway” issue.

V. Shifting Boundaries in American Law Having opted to give courts a meaningful role in threshold determinations of arbitral jurisdiction, U.S. law has no choice but to attempt to demarcate gateway from non-gateway issues. As we have seen, courts and commentators in the United States have proceeded for many years as if Kompetenz-Kompetenz and separability – as both notions are understood in American law – do and should explain the demarcation.119 I argue that in fact these doctrines, whether taken alone or in tandem, fail to offer an adequate descriptive or normative framework of analysis. Nor have they provided sufficient guidance to courts as the latter progressively confront new and different species of threshold issues. Courts are instead responding to new scenarios by constantly fashioning and refashioning their approach, sometimes drawing no apparent inspiration from 116

See supra note 93 and accompanying text. See, e. g., Oberlandesgericht München [OLG München] [Higher Regional Court Munich] Feb. 12, 2008, 34 SchH 006 / 07, ¶¶ 18, 24 (holding that a claim that the main contract is void due to defects of form and deceit does not pertain specifically to the arbitration clause, and is therefore generally for the arbitral tribunal to decide, unless fraud in the making of the main contract also directly influenced the making of the arbitration agreement, but also noting that a claim that the main contract is contrary to good morals (Sittenwidrigkeit) or to statutory prohibitions (Gesetzesverstosses) may be subject to threshold judicial determination). 118 See, e. g., Oberlandesgericht Jena [OLG Jena] [Higher Regional Court Jena] June 5, 2003, NJW-RR 1506 (1506-07), 2003 (holding that the question of who is bound by an arbitration agreement is theoretically an issue of scope for a court, but nevertheless referred to arbitration); Hanseatisches Oberlandesgericht Hamburg [Higher Regional Court Hamburg] Sep. 7, 2009, No. 279 IPR spr 723 (724-725), 2009 (holding that a court decides whether a party implicitly waived the right to arbitrate, but that arbitrators decide whether relitigation of an issue in arbitration was precluded by a prior determination). 119 See Smit, supra note 6, at 19. 117

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either Kompetenz-Kompetenz or separability. For purposes of the task at hand, these doctrines are both descriptively and normatively deficient. The U.S. Supreme Court initially put separability to work in delineating gateway and non-gateway issues, and it has taken the lead in recent years in devising new strategies for allocating jurisdiction over threshold issues in arbitration.120 Although this case by case development of the law necessarily looks improvisational, the resulting pattern is best understood as the product of a search for a progressively more refined balance between efficacy and legitimacy interests. Though the Court’s jurisprudence achieves a finer balance than the blunt instruments of Kompetenz-Kompetenz and separability themselves possibly could, it nevertheless suffers from a lack of clarity and cogency. The best way to understand and evaluate the emerging framework of analysis of initial forum shopping in American law is to make the same assumption that seems to be guiding the case law itself, namely, that not all threshold issues in arbitration are alike. The Sections that follow thus adopt a challenge-bychallenge analysis – precisely the exercise that French courts appear determined to eschew in the interest of sharpness and simplicity. Each Section below assesses the extent to which the logic of separability can or should explain the jurisdictional allocations we observe.

V.A. Arbitrability We may dispose quickly of any notion that separability as such accounts for the fact that a claim’s arbitrability, in the narrow sense in which I have defined that term,121 is properly a matter for judicial decision prior to arbitration. Arbitrability, in the narrow sense, pertains more closely to the arbitration clause than to the main contract. To that extent, it falls under the separability doctrine for a court to decide, if asked to do so before arbitration has begun. But the real reason why courts are prepared to address arbitrability initially lies elsewhere. The question of whether a dispute is capable of being arbitrated, as a matter of law, is ordinarily a purely legal one – in the United States, essentially one of actual or probable congressional intent – as to which an arbitral tribunal can claim no particular authority or expertise. It also, by definition, entails basic considerations of public policy.

120

See, e. g., AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011); Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847 (2010); Rent-a-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772 (2010); Stolt-Nielsen S. A. v. Animalfeeds Int’l Corp., 130 S. Ct. 1758 (2010); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). 121 See supra notes 24-41 and accompanying text.

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V.B. Challenges to Existence of the Main Contract Separability in U.S. law, it will be recalled, has as one of its functions to determine whether a court may at the threshold entertain a challenge to the obligation to arbitrate. A challenge relating specifically to the arbitration clause may be heard and decided by a court at the outset, whereas a challenge relating to the contract as a whole is initially for an arbitral tribunal to decide. The decisive criterion is whether the challenge to arbitration is specifically directed at the arbitration agreement, rather than at the contract of which it forms a part. In neither case have courts traditionally drawn any distinction according to whether the challenge targeted the existence of the agreement to arbitrate or its validity.122 Claims going to existence and validity – whether of the arbitration agreement as such or the contract as a whole – were treated alike for jurisdictional purposes. Courts continue to draw no particular distinction between a claim that the parties never entered into an agreement to arbitrate, on the one hand, and a claim that while they may have agreed to arbitrate, their agreement is invalid and unenforceable. This is unsurprising. Since arbitral authority resides specifically in the arbitration clause, it matters little whether the clause does not exist on the one hand, or is invalid and unenforceable on the other. Both sets of defects, if established, directly implicate consent to arbitrate. Both call into question an arbitral tribunal’s authority to make any binding legal determination on any issue, including the question of the agreement’s very existence or validity. V.B.1. Existence Versus Validity of the Main Contract Equating existence and validity issues as they relate to the main contract is, however, another story. It does not seem at all unreasonable to require a party who concedes the existence of a contract, but only contests its validity, to have recourse to an arbitral tribunal for a ruling on the validity question. While the paradigmatic contract case raises questions of breach and remedy, a contract case may also entail a challenge to the validity of the contract. Thus invalidity constitutes not only a defense to a claim of contractual liability, but also the basis of a suit for rescission.123 A claim that a contract is invalid and unenforceable is 122 See 123

supra Section IV. B. See, e. g., Poppe v. Jabaay, 804 N. E.2d 789, 796 (Ind. App. 2004) (insisting that, for rescission of contracts, there must be “original invalidity, fraud, failure of consideration, or material breach or default”); Radford v. Snyder Nat. Farm Loan Ass’n, 121 S. W.2d 478, 480 (Tex. Civ. App. 1938) (“Want or failure of consideration is ground for cancellation or rescission of a contract, since, as to a person who receives nothing whatever of value in exchange for property, the transaction operates as constructive or legal fraud.” (citations omitted)); In re Frey’s Estate, 72 A. 317, 318 (Pa. 1909) (“Inadequacy of price, improvidence, surprise, and mere hardship, none of these, nor all combined, furnish

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therefore a claim that arises out of or relates to the contract, even if the contract itself is invalid, and it therefore falls within the scope of the agreement to arbitrate. Moreover, parties who concede both that they entered into a contract and that the contract contains a clause submitting all disputes under that contract exclusively to an arbitral tribunal should fully expect a tribunal, and not a court, to rule on the validity of the contract if it is called into question. Quite different is the situation in which a party resisting arbitration contends that no contract was ever formed, much less a contract containing an arbitration clause. It is difficult to see why a party who genuinely asserts that an entire contract is non-existent should be required to prove that point to an arbitral tribunal whose very existence and whose very authority stem entirely from the putative contract. Under that view, a party who asserts that the entire contract relied upon is a forgery would nevertheless be required to refer the forgery issue to an arbitral tribunal that derives its authority, if any, from the allegedly forged contract.124 The view that questions of the existence and validity of the main contract are qualitatively different in this respect has garnered considerable support in the academic literature.125 The Supreme Court itself has shown interest in the distinction. In Buckeye Check Cashing, Inc. v. Cardegna,126 the Court confronted the claim that a loan contract was null and void, because usurious, and that the contract’s arbitration clause was therefore unenforceable. The case called for straightforward application of the separability doctrine, inasmuch as the challenge clearly went to the contract as a whole and not to its arbitration clause in particular.127 Consistent with Prima Paint, the Court placed the question of the main contract’s validity squarely in the hands of the arbitrators.128 It did so despite the resisting party’s contention that, under the applicable state law, the contract was not merely voidable, but null and void, and that the difference between voidness and voidability should matter for these purposes. The Court in Buckeye was understandably not attracted by the prospect of making severability’s operation depend on doctrinal niceties such as the distinctions under state contract law between void and voidable obligations.129 It applied the separability doctrine without further distinction. However, while the Court could have comfortably stopped there, it went further. It observed, albeit only in a footnote, that it might have ruled differently

124 125

126 127

128 129

an adequate reason for a judicial rescission of a contract. For such action something more is demanded-such as fraud, mistake, or illegality.”). E. g., Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 855 (11th Cir. 1992). See, e. g., Park, supra note 4, at 130; Rau, The Arbitrability Question, supra note 6; Smit, supra note 6, at 19. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). Id. at 446. Id. Id.

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if the party resisting arbitration had called into question, not the validity of the main contract, but its very existence.130 (In that footnote, the Court gave forgery as a first example of a contract that does not exist.) The footnote is pure dictum, and in any event leaves the question unanswered. Still, the Court’s gratuitous distinction between the existence and validity of the main contract, when the case before it did not in the least require it to do so, suggests that the distinction is meant to be taken seriously. The Supreme Court subsequently reiterated the same dictum, although again only by way of a footnote.131 Importantly, in its subsequent ruling in the case of Granite Rock Co. v. International Brotherhood of Teamsters,132 the Court treated the existence of the main contract – and more particularly the date when it came into existence – as a gateway issue, as if that were already settled law.133 The Court has not yet explained why the distinction between the existence and the validity of the main contract should make a difference for the allocation of jurisdiction between courts and arbitral tribunals, but the legitimacy stakes easily justify that result. When a party denies entering into the very contract whose arbitration clause is invoked, it effectively denies ever having consented to arbitration. Requiring that party to prove that fact before a tribunal to whose authority it claims never to have consented raises serious legitimacy concerns. 130

Id. at 444 n.1: The issue of the contract’s validity is different from the issue whether any agreement between the alleged obligor and oblige was ever concluded. Our opinion today addresses only the former, and does not speak to the issue decided in the cases cited by respondents (and by the Florida Supreme Court), which hold that it is for courts to decide whether the alleged obligor ever signed the contract, whether the signor lacked authority to commit the alleged principal, and whether the signor lacked the mental capacity to assent. (citations omitted). 131 Rent-a-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772, 2778 (2010) (“The issue of the agreement’s ‘validity’ is different from the issue whether any agreement between the parties ‘was ever concluded,’ and, as in [the Buckeye Check Cashing case], we address only the former.”). 132 130 S. Ct. 2847 (2010). 133 In Granite Rock, the question was whether the parties had entered into a labor agreement, which contained an arbitration clause, at the time arbitration was requested. Justice Thomas determined that the time at which a contract is made raises as much of an existence question as whether a contract was ever formed at all, and accordingly declared it to be a question for judicial rather than arbitral determination. The decision is fundamentally ambiguous, however. Justice Thomas describes the issue in some places in the opinion as entailing the existence of the contract as a whole, and in other places as entailing the existence of the arbitration agreement as such-almost as if that distinction no longer mattered, provided the existence of the one or the other is in issue. To that extent, Granite Rock lends additional force to the Buckeye footnote, which Justice Thomas cites, among other authorities.

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Lower courts have reason to follow the Supreme Court’s increasingly clear indication that they may, and perhaps must, distinguish in this regard between claims that a contract never came into being and claims that, while a contract came into being, it is invalid and unenforceable. V.B.2. New Distinction, New Problems A distinction between the existence and the validity of the main contract is not without its difficulties, however. Existence challenges can take a wide range of forms, of which forgery is only one – albeit an extreme – example. Many other examples come to mind. A party resisting arbitration might maintain that, as a non-signatory of the contract, it never subjected itself to any obligations under the contract, including any obligation to submit to an arbitral tribunal the question of its contractual status as a non-signatory.134 It is more than illogical to require a non-signatory to a contract, who denies being subject to the contract and who gives at least an appearance of independence from the signatories, to submit that question to a body that owes its very existence to that contract. As in the forgery example, if a party denies entering into or being otherwise bound by the very contract whose arbitration clause is invoked, it effectively denies ever having consented to arbitration. The contract may exist, but not for the party sought to be bound. The Supreme Court’s Buckeye footnote anticipates precisely this situation.135 Obviously, not all challenges to the main contract call its existence into question. The defense of changed circumstances provides an obvious example.136 In some situations, changed circumstances may cause the main contract to be denied enforcement, but even if they do, they do not render the contract 134

See, e. g., Sphere Drake Ins., Ltd. v. All Am. Ins. Co., 256 F.3d 587 (7th Cir. 2001) (holding that a claim of lack of agency is for the court to determine because it concerns the existence of an arbitration agreement); Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 108 (3d Cir. 2000) (“[T]here does not appear to be any independent source of the validity of the arbitration clause once the underlying contract is taken off the table. If [the agent’s] signature is not binding, there is no arbitration clause.”); Three Valleys Mun. Water Dist. v. E. F. Hutton & Co., 925 F.2d 1136 (9th Cir. 1991) (finding that the question whether the signatory had authority to bind the plaintiffs was a question for the courts to decide). 135 See supra note 130 and accompanying text. 136 See, e. g., Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 528-529 (1st Cir. 1985) (holding that an attempted rescission of an entire contract fell within the scope of the arbitration clause, and that since the arbitration clause was separable from the contract, it was not rescinded by one party’s attempt to rescind the entire contract based on mutual mistake and frustration of purpose).

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non-existent. Somewhat more problematic are claims of fraud,137 duress138 or mistake139 in the making of the main contract. By their nature, such contract defenses, if established, call into question the objecting party’s consent to arbitration. If consent is definitional of a contract, then arguably no contract will have been formed if any of these three defenses is established. However, there are good reasons to resist this analysis. To begin with, the very case in which the Supreme Court first invoked separability for jurisdictional purposes – namely, the Prima Paint case140 – grew precisely out of a claim of fraudulent inducement of contract. While one might conceivably distinguish for these purposes between fraud in the inducement and fraud in the making of a contract (treating the former as rendering the contract invalid and unenforceable, but the latter as rendering it fully non-existent),141 courts should not allow the jurisdictional result to turn on so arcane a doctrinal distinction. Similarly, some commentators have suggested that proof of duress vitiates consent and compels the conclusion that no contract ever came into existence,142 while others have insisted on distinguishing between two types of duress, one that is closely related to forgery (hence for a court to decide at the threshold), the other more closely related to fraudulent inducement (hence for the arbitrators to decide at the threshold).143 I find that these distinctions border on the artificial. Moreover, whatever intrinsic merit they have is outweighed by the added complexity they inject into the exercise of demarcating gateway from non-gateway issues.144 137

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967) (“If the claim is fraud in the inducement of the arbitration clause itself-an issue which goes to the ‘making’ of the agreement to arbitrate-the federal court may proceed to adjudicate it.”). 138 See, e. g., Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir. Unit B Feb. 1981) (“[C]laims regarding duress and unconscionability are ones that, in the event of arbitration, would be decided by an arbitrator, not the district court, since they go to the formation of the entire contract rather than to the issue of misrepresentation in the signing of the arbitration agreement.”); Serv. Corp. Int’l v. Lopez, 162 S. W.3d 801, 810 (Tex. App. 2005) (“This duress issue relates to the contract as a whole and not solely the arbitration provision. It is therefore an issue to be decided in arbitration.”). 139 Tyco Labs., Inc. v. DASI Indus., Inc., 1993 U.S. Dist. LEXIS 12654 (N. D. Ill. Sept. 9, 1993). 140 388 U.S. at 410-411 (Black, J. dissenting). 141 See, e. g., Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998 (1lth Cir. 1986). 142 See A. S. Rau, Arbitral Jurisdiction and the Dimensions of “Consent,” 24 Arbitration International 199, 205 (2008) [hereinafter Rau, Arbitral Jurisdiction]; see also A: S. Rau, “Separability” in the United States Supreme Court, 1 Stockholm International Arbitration Review 1, 25 (2006) (arguing that fraudulent inducement may also vitiate consent). 143 See Ware, supra note 6, at 124. 144 On the difficulty of determining whether a contract does not exist or exists but is simply unenforceable, see generally C. R. Drahozal, Buckeye Check Cashing and the Separability Doctrine, 1 Yearbook on Arbitration and Mediation 55 (2009).

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Finally, claims of fraud, duress, or mistake raise core substantive contract law issues that, at the very least, verge on the merits of a contract dispute. To that extent, arbitral tribunals, not courts, should be deciding them. Much the same may even more clearly be said of an unconscionability defense.145 Calling enforcement of a contract unconscionable is not the same thing as asserting that it was never formed.146 An illegality defense is similarly situated. That de145 See

Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 433 (5th Cir. 2004) (holding that substantive unconscionability of the arbitration clause is generally an issue for the court); Bob Schultz Motors, Inc. v. Kawasaki Motors, Inc., U.S. A., 334 F.3d 721, 726-727 (8th Cir. 2003) (finding that substantive unconscionability of contract terms other than the arbitration clause is an issue for the arbitrator and finding that alleged unconscionability of attorneys’ fees provisions are a question for the arbitrator). See generally A:-A: P. Bruh, The Unconscionability Game: Strategic Judging and the Evolution of Federal Arbitration Law, 83 New York University Law Review 1420, 1420 (2008) (“[T]he state law doctrine of unconscionability has in the last several years become a surprisingly attractive and successful tool for striking down arbitration agreements.”). 146 Restatement (Second) of Contracts § 208 (1981). The question of whether or not a contract or its arbitration clause is unconscionable is, in principle, a matter of state contract law. Section 2 of the Federal Arbitration Act states, with specific reference to agreements to arbitrate, that they “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S. C. § 2 (2006). The U.S. Supreme Court, however, has curtailed the states’ freedom to treat certain contract provisions relating to arbitration as unconscionable. In AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), a majority of the Court ruled that the California courts cannot, consistent with the Federal Arbitration Act, declare contractual waivers of class arbitration to be unconscionable and therefore unenforceable as a matter of law. For California to condition the enforceability of arbitration agreements in consumer contracts on the availability of class-wide arbitration would impermissibly interfere with party autonomy in determining whether to submit claims to arbitration and in fashioning the terms of the arbitration itself The California Supreme Court had previously ruled that a provision in such an arbitration agreement excluding class-wide arbitration was unconscionable and therefore unenforceable. Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005). The majority in AT&T Mobility acknowledged, as it had to, that the FAA by its terms subjects the enforcement of arbitration agreements to generally applicable contract law principles under state law, among them the doctrine of unconscionability. Still, it found that a state’s disallowing parties to arbitration agreements from agreeing on a class action waiver was inconsistent with the FAA’s fundamental principle requiring courts to enforce arbitration agreements in the terms agreed upon by the parties--even if the state predicated the prohibition on the unconscionability doctrine under state contract law. The majority expressed the view that a state’s imposing class-wide procedures on arbitration “interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” AT&T Mobility, 131 S. Ct. at 1748. The majority

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fense may render a contract unenforceable, but it does not render the contract non-existent. It may be argued that lack of capacity deserves similar treatment.147 Under standard U.S. contract doctrine, lack of capacity does not prevent a contract from coming into existence; it merely renders the contract unenforceable.148 (In fact, it is only unenforceable against the party lacking capacity. That party is ordinarily entitled to enforcement.149 This suggests rather powerfully that the contract does exist, lack of capacity of one of the parties notwithstanding.) Unlike the law of France150 and of countries whose civil code is patterned on French law, the common law does not generally make capacity a definitional element of contract. And yet, the Supreme Court’s Buckeye footnote identified incapacity of a party as a third situation, alongside forgery and non-party status, in which a contract fails to be formed.151 If and when the Court further develops the Buckeye footnote, it should rethink this example. It may well conclude that there is no warrant for treating incapacity in this respect any differently than fraud, duress, mistake, or unconscionability. thought class-wide arbitration would render dispute resolution slower, more costly, more procedurally complex and more formal. It also found arbitration “poorly suited to the higher stakes of class litigation.” Id. at 1752. The majority did not of course purport to exclude the enforcement of provisions for class-wide arbitration; nor could it have, consistent with the very principle of party autonomy in arbitration on which it relied. 147 The federal courts seem to split on the issue. Compare Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 472 (5th Cir. 2002) (holding that Prima Paint separability applies and an arbitrator is to decide the issue of mental capacity when a mental incapacity defense is directed not to the specific arbitration provision but rather to the entire contract), with Spahr v. Secco, 330 F.3d 1266, 1272-1273 (10th Cir. 2003) (finding that separability does not apply in the context of mental incapacity, for an incapacity challenge goes both to the entire agreement and the arbitration clause, thus placing the issue ofwhether there is an agreement to arbitrate before the court). 148 Restatement (Second) of Contracts §§ 12, 15 (1981). 149 See, e. g., Sarfaty v. PFY Mgmt. Co., 2008 WL 642641, at *2 (Conn. Super. Ct. Feb. 15, 2008) (“[T]he concept of capacity is a sword that may be wielded to attack the contract only by the incapable party. With respect to the obligations imposed by the contracts in dispute, capacity can be neither a sword nor a shield from responsibility in the hands of the other party.”). 150 See Code Civil [C. civ.] art. 1108 (Fr.) (discussing the four requisites essential for the validity of an agreement: the consent of the party who binds himself, his capacity to contract, a definite object which forms the subject-matter of the undertaking, and a lawful cause in the obligation). 151 See supra note 130 and accompanying text. For the view that lack of capacity vitiates consent, which is a crucial ingredient of a contract, see Rau, Arbitral Jurisdiction, supra note 142, at 205. Under that view, incapacity implicates a contract’s very existence. See also Ware, supra note 6, at 124.

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More basically, on none of these issues should a court’s sending the matter to the arbitrators for decision offend our sense of justice. The party resisting arbitration effectively concedes the existence of the contract containing the arbitration clause. Having acknowledged that the contract came into existence, and that the contract contains an otherwise valid arbitration clause, it should not object to allowing the arbitral tribunal, which derives its authority from that contract, to decide whether the contract is in fact for any reason unenforceable. The situation becomes more difficult if the party resisting arbitration asserts that it never accepted the offer and that a contract was never formed.152 Offer and acceptance define a contract in the United States, since in principle, acceptance of an offer demonstrates the meeting of the minds on which a contract is formed.153 Offer and acceptance are as definitional of a contract in U.S. law as capacity is in French law. Under that view, issues of offer and acceptance implicate a contract’s existence rather than its validity. In fact, offer-and-acceptance questions are legion. Was an offer so plainly made in jest that it is not capable of acceptance? Was an offer the subject of a timely acceptance? Was an offer validly revoked prior to acceptance? Did a purported acceptance so alter the terms of an offer as to render it at best a counter-offer?154 And so on. Doubts as to whether there was a meeting of the minds between the parties go to the 152

Opals on Ice Lingerie, Designs by Bernadette, Inc. v. Body Lines Inc., 320 F.3d 362, 372 (2d Cir. 2003) (finding that where documents drafted and signed by one party called for arbitration in New York but documents signed by the other party called for arbitration in California, “[t]his difference is significant and indicates that there was no meeting of the minds as to an agreement to arbitrate.”); Aceros Prefabricados, S. A. v. TradeArbed, Inc., 282 F.3d 92, 102 (2d Cir. 2002) (holding that Defendant “submitted unrebutted evidence that arbitration is standard practice within the steel industry, thereby precluding [plaintiff] from establishing surprise or hardship”; and therefore “the arbitration provisions proposed in [the defendant’s] confirmation orders became part of the contract.”); Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126 (7th Cir. 1997) (holding that a claim of lack of consideration of contract must be heard by the court); Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51 (3d Cir. 1980) (holding that a claim that final consent to contract was never given must be decided by court). 153 Restatement (Second) of Contracts §§ 24, 30 (1981). 154 See, e. g., Beneficial Nat’l Bank, U.S. A. v. Payton, 214 F. Supp. 2d 679 (S. D. Miss. 2001) (addressing whether a credit-card holder is bound to arbitrate when the card issuer has sent him a notice to the effect that a provision for mandatory arbitration was to become a part of his agreement unless he rejected the change, and the cardholder did nothing); Linea Naviera de Cabotaje, C. A. v. Mar Caribe de Navegacion, C. A., 169 F. Supp. 2d 1341, 1344 (M. D. Fla. 2001) (holding that when parties signed separate agreements, each providing for arbitration in New York although “on somewhat different terms” the “variance between the two arbitration provisions is ‘an ancillary logistical concern’ which is not integral to the underlying agreement, and does not preclude arbitration” (citing Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000))).

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heart of consent. Fortunately, bare contract formation issues do not arise with great frequency in international arbitration cases.155 Even less likely to arise in a commercial context is the question of consideration, which, like offer and acceptance, is traditionally considered definitional of contract under the common law and thus likewise essential to a contract’s formation.156 Still, basic questions of the offer-and-acceptance variety may arise at the threshold and, when they do, present a special challenge. The findings on which a decision on such issues turns may be highly fact-intensive.157 They also may largely anticipate findings that an arbitral tribunal, once empanelled, will be required to make in order to adjudicate the merits of the dispute.158 In principle, neither of those circumstances should deter a court from addressing a threshold claim that no contract between the parties ever came into being.159 Were courts to defer to arbitration the question of whether a contract containing an arbitration clause was ever formed, when a party resisting arbitration maintains otherwise, they would fail adequately to protect the legitimacy interest best served by an early judicial resolution of that question.

155 156 157

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This is because of the sophistication characterizing the transactions that commonly contemplate international arbitration as a means for dispute resolution. Restatement (Second) of Contracts § 17 (1981). See, e. g., Eng’rs & Architects Ass’n v. Cmty Dev. Dep’t, 35 Cal. Rptr. 2d 800, 805 (Cal. Ct. App. 1994) (“In ruling on a petition to compel arbitration, the trial court may consider evidence on factual issues relating to the threshold issue of arbitrability, i. e., whether, under the facts before the court, the contract excludes the dispute from its arbitration clause or includes the issue within that clause.”). See, e. g., Sharon Steel Corp. v. Jewell Coal & Coke Co., 735 F.2d 775, 779 (3d Cir. 1984) (observing, in a different context, that “[t]he heart of the problem in this case is the fact that the question of arbitrability is intertwined with the merits of the commercial impracticability claim.”). The Supreme Court has squarely ruled that the question of when the main contract is formed is as critical to the contract’s existence as the question of whether it was formed. Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 2860 (2010). In rare and exceptional circumstances, a court may be tempted to allow an arbitration to go forward despite objections to the existence of the main contract, but even then, it should do so, if at all, only on the understanding that the arbitral tribunal will entertain the objection at the immediate outset of the proceedings. See, e. g., Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 530 N. E.2d 439, 447-448 (Ill. 1988) (finding that when the arbitration clause contains broad language and there is uncertainty as to whether the subject matter of the dispute falls within the parties’ agreement, the question of substantive arbitrability should initially be determined by the arbitrator).

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V. C. The Elusive “Scope of Arbitration” Question Of all the threshold issues that arise with any frequency, the one that most defies easy categorization as a gateway or non-gateway matter is whether an agreement to arbitrate covers the particular dispute at hand. Agreements to arbitrate are drafted and may be interpreted differently. They may or may not be understood as limited to disputes that sound in contract. A broadly drawn clause may be construed to cover claims, such as ones sounding in tort, restitution, product liability, or the like. It may well also be found to encompass special statutory claims, such as antitrust,160 securities,161 or claims under the Racketeer Influenced and Corrupt Organizations Act (RICO).162 Even if the parties take the trouble to carve certain categories of claims out of their arbitration agreement, they may do so imprecisely, giving rise to disputes over coverage of the clause. Threshold disputes over the applicability of an arbitration clause present courts with a dilemma. From a separability viewpoint, such matters are proper for a court to decide in the first instance, since they relate specifically and uniquely to the arbitration clause rather than to the contract as a whole. No less important, they significantly implicate party consent, and to that extent the legitimacy of the proceedings and the eventual award. Parties do not agree to arbitrate every imaginable dispute that may arise between them. They agree to arbitrate only a certain universe of claims that they themselves have defined. Under settled case law, courts enforce arbitration agreements for and against parties who subscribed to them, or are otherwise bound by them under law,163 but only in regard to disputes of a kind that the parties agreed to arbitrate.164 Questions concerning the scope of an agreement to arbitrate are accordingly often ranged alongside the question of whether an arbitration agreement was formed, whether it is valid and enforceable, and whether a given person is or may be deemed to be a party to it. Like them, these are gateway matters, for judicial determination at the threshold. All indications thus point to the conclusion that determining whether the parties agreed to arbitrate a particular dispute is a task for a court to perform, if asked to do so before an arbitral tribunal has been constituted. But there are countervailing considerations. Determining the scope of an agreement to arbitrate essentially entails contract interpretation, a function or-

160

E. g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). E. g., Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729 (3d Cir. 1989); Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754 (9th Cir. 1988); Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974). 162 E. g., Shearson / ​Am. Express Inc. v. McMahon, 482 U.S. 220 (1987). 163 See, e. g., First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995). 164 See, e. g., AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (1986). 161

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dinarily entrusted to arbitral tribunals.165 (Coverage of the arbitration clause will ordinarily not be the only matter of contract interpretation over which the parties disagree.) Moreover, a court called upon to decide whether a dispute between the parties falls within the scope of their agreement to arbitrate may have no choice but to make factual inquiries into the parties’ intentions, which may in turn entail witness testimony and even justify pretrial discovery.166 To this extent, they resemble the offer-and-acceptance questions discussed earlier.167 While legitimacy considerations point in the direction of treating such matters as gateway issues, efficacy considerations point in the opposite direction, and both sets of concerns are substantial. Courts understandably relish neither referring parties to arbitration when their willingness to arbitrate the particular dispute at hand is truly subject to doubt, nor engaging in threshold factual determinations of intent that may significantly delay the arbitration and draw the court down avenues of inquiry more properly traveled by arbitrators. In many ways, U.S. judicial practice reflects this dilemma. First, even while admitting that whether a given dispute falls within the scope of an arbitration clause represents a gateway issue, courts sometimes invoke a generalized “presumption in favor of arbitration,” so as to effect an expansive reading of the clause.168 Sometimes they purport to relax the inquiry, referring the parties to 165

See, e. g., Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991) (sending a dispute arising out of a “Memorandum of Intent” to arbitration); Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1410 (9th Cir. 1989) (finding that the issue of whether a draft contract contained an agreement to arbitrate must be submitted to arbitration in the absence of “a challenge to the arbitration provision which is separate and distinct from any challenge to the underlying contract”). 166 Park, supra note 4, at 57 (“In the business world, determining the scope of arbitration clauses may implicate time-consuming investigations into complex questions of fact and law related to matters such as agency relationships and the corporate veil.”). American courts may order full examination of the validity of an arbitration clause to determine whether, as a matter of fact and law, the parties have indeed agreed to arbitrate. See, e. g., Bridas S. A. P. I. C. v. Gov’t of Turkm., 447 F.3d 411 (5th Cir. 2006) (discussing whether the government manipulation of an oil company made it the state’s alter ego); InterGen N. V. v. Grina, 344 F.3d 134 (1st Cir. 2003) (addressing litigation between two parent entities, neither of which had signed an arbitration clause); Sandvik AB v. Advent Int’l Corp., 220 F.3d 99 (3d Cir. 2000). 167 See supra notes 152-159 and accompanying text. 168 AT&T Techs., 475 U.S. at 650 (holding that the “presumption of arbitrability” is particularly applicable when the arbitration clause is broadly drafted and may be rebutted only if “it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute”) (quoting United Steelworkers of Am. v. Warrior & Gulf N. Co., 363 U.S. 574, 582-583 (1960)); see also Republic of Nicaragua, 937 F.2d at 478 (“the most minimal indication of the parties’ intent to arbitrate must be given full effect, especially in international disputes”).

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arbitration as long as the clause may plausibly be thought to cover the dispute, thus effectively leaving initial determination of the scope issue to the arbitrators. When courts confine themselves to a mere screening function at the threshold, they require only a prima facie showing that the dispute falls within the scope of the arbitration clause. To this extent, they do something not unlike what French courts do as a general matter through their “manifest nullity” approach to the full range of threshold issues.169 Either way, U.S. courts tend to make a discernibly more casual inquiry into the scope question than they make in regard to the existence or validity of the arbitration agreement, or the identity of persons bound by it. Judicial ambivalence in the face of a scope question may take still a different form. Courts have broadly accepted the notion that the parties to an arbitration agreement may delegate to an arbitral tribunal itself primary authority to determine the scope of the agreement and, more particularly, whether a given dispute falls within it,170 though they generally require that the parties clearly and unmistakably evince that intention.171 Courts and scholars disagree over whether the parties may delegate other gateway issues to the tribunal, or whether the scope of authority question is unique in this regard.172 Drawing on somewhat loose language in the Supreme Court’s First Options opinion,173 some courts permit parties to shift authority to the arbitrators even to determine the existence and validity of the arbitration agreement,174 though other courts and

Courts could conceivably invoke the Kompetenz-Kompetenz doctrine in support of the presumption in favor of arbitration. However, U.S. courts rarely invoke the doctrine, mostly because they do not espouse the view, prevalent in French law, that the doctrine has a “negative” as well as a “positive” dimension. 169 See supra Part IV. 170 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 938 (1995). 171 AT&T Techs., 475 U.S. at 649 (“Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate [a particular dispute] is to be decided by the court, not the arbitrator”); see also Qualcomm, Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) (holding that a lower court should not determine whether a dispute falls within the agreement to arbitrate if the parties clearly and unmistakably delegated that decision to the arbitrator). But see Apollo Computer, Inc. v. Berg, 886 F.2d 469 (1st Cir. 1989) (concluding that the parties had delegated the “scope of authority” question to the arbitrators themselves by selecting as rules of arbitration the ICC rules providing for Kompetenz-Kompetenz). 172 Reisberg, supra note 7, at 166-172. 173 514 U.S. at 939. 174 Compare Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998), and Abram Landau Real Estate v. Bevonna, 123 F.3d 69, 73 (2d Cir. 1997) (holding that parties may clearly and unmistakably give arbitrators the authority to determine the existence and validity of the arbitration agreement), with China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 287-288 (3d Cir. 2003), and Sphere Drake Ins. Ltd. v. All

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certain scholars disagree as a matter of principle.175 But at least with respect to the issue of scope, a consensus seems to have developed that the parties may, by express language, restrict the courts to making prima facie determinations at the threshold of arbitration.176 The Supreme Court has not yet squarely addressed the matter. When the Court does, it would do well to endorse this consensus. By doing so, it would acknowledge that the distinction between gateway and non-gateway issues can be problematic when it comes to determining whether a particular dispute falls within the scope of an arbitration agreement. While nuancing the gateway / ​non-gateway distinction in this regard complicates the analysis somewhat, doing so serves to improve the balance between efficacy and legitimacy interests that Supreme Court case law appears to have been pursuing.177 Am. Ins. Co., 256 F.3d 587, 591 (7th Cir. 2001) (finding that where parties contest the very existence of the agreement they are entitled to a judicial determination of that matter). In Rent-a-Center, the Supreme Court did not reach the question whether the parties may delegate to the tribunal the authority, exclusive of the courts at the threshold of arbitration, to determine the existence and validity of an agreement to arbitrate. It found that the party resisting arbitration had not challenged the delegation provision specifically, but rather the general arbitration provision to which it was linked. Rent-aCtr., W., Inc. v. Jackson, 130 S. Ct. 2772, 2779 (2010). 175 Reisberg, supra note 7,at 167-70. 176 See, e. g., Mercury Telco Grp., Inc. v. Empresa De Telecommunicaciones De Bogota, 670 F. Supp. 2d 1350 (S. D. Fla. 2009); Morsey Constructors, LLC v. Bums & Roe Enter., Inc., 2008 WL 3833588, at *4 (W. D. Ky. Aug. 13, 2008) (“[D]istrict courts in this circuit and other circuit courts of appeal have held that when parties agree to settle claims related to a contract according to the rules of the AAA, ‘they provide a “clear and unmistakable” delegation of scope-determining authority to an arbitrator’ because the AAA rules ‘provide[ ] that the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the … scope … of the arbitration agreement.”’ (quoting Bowden v. Delta T Corp., 2006 U.S. Dist. LEXIS 85724, at *20 (E. D. Ky. Nov. 27, 2006) (citations omitted))); see also James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006) (suggesting that a dispute over the scope of an arbitration provision could be resolved by the arbitrators if the parties clearly and unmistakably so intended). 177 Like reasoning might lead courts to adopt a similar stance in regard to the question of whether an arbitration clause is merely a “prorogation” rather than a “derogation” agreement (i. e., offers an arbitration alternative rather than an arbitration obligation). This question also raises matters of contract interpretation and party intent. But courts should not entertain such a question. If a party before the court maintains that the arbitration agreement was meant to be non-exclusive only (i. e., without derogation from the exercise of jurisdiction by otherwise competent courts), the court should always resolve the matter itself, rather than refer the parties to arbitration on the ground that the clause is “arguably” exclusive. See, e. g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). Courts may justifiably treat the scope and exclusivity questions differently. If the

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In sum, the separability doctrine as such does rather little to help courts navigate their way around the question of the scope of the agreement to arbitrate. It also comes up short in predicting judicial behavior regarding that issue. The reason why the question of scope defies analysis under separability is straightforward. It requires a tradeoff between efficacy and legitimacy that is much too subtle for a simple dichotomy between challenges generally applicable to the main contract and challenges specific to its arbitration clause.178

V. D. “Procedural Questions that Grow out of the Dispute and Bear on its Final Disposition” In the previous sections, I sought to demonstrate that the notion of separability is an incomplete and often poor guide to distinguishing between gateway and non-gateway issues in the initial forum shopping context. Worse yet, it risks producing jurisdiction allocation results that poorly reflect what should be the driving consideration in these cases, namely, the relative weight of efficacy and legitimacy interests at stake in the particular type of challenge at hand. The inadequacy of separability for both descriptive and normative purposes is even more far-reaching. Most discussions of threshold issues in arbitration tend to focus on those issues that, by their nature, separability can most plausibly address, while largely ignoring others.179 The best candidates for separability analysis are challenges to the existence and validity of both the main contract and its arbitration clause,180 as well as determinations as to persons who may invoke and be bound by the arbitration agreement. But practice shows that threshold issues in arbitration run a far wider gamut than that, and that applying to all of them a blunt notion of separability – and its core dichotomy between challenges to the contract and challenges to the arbitration clause – would produce highly questionable results. To demonstrate the point, I consider here a diverse set of threshold challenges: lapse of the time period for bringing a claim in arbitration, waiver of the right to invoke arbitration, failure to satisfy preconditions to arbitration, res judicata, and an assertion that class action arbitration is barred. parties never meant arbitration to be anything more than an option, the jurisdiction of the otherwise competent court is indeed untouched, and a court would behave improperly if it declined jurisdiction on the basis of the arbitration clause. 178 Scope of the arbitration agreement is not the only issue with regard to which the efficacy / ​legitimacy tradeoff may be unclear. For example, the parties may dispute at the threshold whether an arbitration agreement has retroactive application. This question implicates issues of both consent and contract interpretation. See Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006). 179 See supra Section V. B. 180 Id.

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V.D.1. Limitation Period A party resisting arbitration may assert that the time period in which the arbitration agreement allows a claim to be pursued has passed.181 Strict application of separability would counsel a court to entertain that challenge as a threshold matter, since it is directed to the obligation to arbitrate in particular. Although a timing objection calls into question neither the existence nor the validity of an arbitration agreement, it does pertain specifically to the obligation to arbitrate rather than to any other contractual matter. Moreover, compelling arbitration of a dispute that can no longer in any event be arbitrated, due to the passage of time, would seem pointless. Yet, that is neither the result at which courts have arrived, 182 nor the result at which courts should arrive if they are to be guided by the need to balance efficacy and legitimacy interests. 181

I refer here to the time limit, if any, on invoking a contract’s arbitration provision. In most cases, the statute of limitations attaches to the underlying cause of action itself. See, e. g., PaineWebber v. Landay, 903 F. Supp. 193 (D. Mass. 1995) (holding that the six-year time limit for bringing a claim under the National Association of Securities Dealers (NASD) Code of Arbitration Procedure is a question for the arbitrator to decide); Smith Barney v. Luckie, 647 N. E.2d 1308 (N. Y. 1995) (holding that statute of limitations questions must be resolved by courts). See generally Park, supra note 6 (“In many cases statutes of limitation implicate the merits of the dispute rather than arbitral jurisdiction”). But the limitations period may also be built into the arbitration agreement, and thus applicable to all claims sought to be arbitrated, irrespective of the underlying cause of action. 182 See United Steelworkers of Am. v. St. Gobain Ceramics & Plastics, Inc., 505 F.3d 417 (6th Cir. 2007) (holding that time limit is a matter presumptively for the arbitrator); Smith v. Dean Witter Reynolds, Inc., 102 F. App’x 940 (6th Cir. 2004) (finding that the interpretation of the six-year eligibility rule is a matter for the arbitral tribunal); Assoc. Brick Mason Contractors of Greater N. Y., Inc. v. Harrington, 820 F.2d 31, 36 (2d Cir. 1987) (noting that the issue of whether a demand for arbitration is timely is for the arbitrators to decide); Tile Setters & Tile Finishers Union, Local 7 v. Speedwell Design / ​BFK Enter., LLC, 2009 U.S. Dist. LEXIS 27270, at *22-23 (E.D.N.Y. Mar. 31, 2009) (same). In the case of Bechtel do Brasil Construg6es Ltda. v. UEG Araucária Ltda., 638 F.3d 150 (2d Cir. 2011), the court reversed a lower court ruling permanently staying arbitration on the ground that the claims were time-barred. The contract provided for application of New York law, under which a party may assert a statute of limitations in court, prior to arbitration, as a bar to arbitration. N. Y. C. P. L. R. § 7502(b) (McKinney 2005). The court’s decision was made more difficult by the fact that, while the contract called for arbitration of all disputes, it had designated New York law as applicable not only to the substantive claims but also to the “procedure and administration” of an arbitration. 638 F.3d at 152. The appellate court nevertheless found that the contract as a whole evidenced the parties’ intention to submit all issues to arbitration which, combined with the presumption that arbitration clauses should be interpreted liberally, meant that the timeliness of the claim was solely a matter for arbitral determination.

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In the case of Howsam v. Dean Witter Reynolds, Inc.,183 a majority of the Supreme Court held that arbitrators should be allowed to decide this timing issue for themselves in the first instance, since it represents a matter that “parties would likely expect that an arbitrator would decide.”184 According to the Court, “”procedural’ questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.”185 Though unable to summon anything more than intuition to support its conclusion, the Court in Howsam asserted that a question such as passage of the time limit for arbitration is one that, had they thought about the matter, the parties to a contract containing an arbitration clause would most likely have expected an arbitral tribunal to decide.186 V.D.2. Waiver The Court had no occasion in Howsam or in any later decision to catalogue “[the] “procedural’ questions which grow out of the dispute and bear on its final disposition”187 for these purposes, but lower courts have identified other examples and handled them accordingly. For example, a party resisting arbitration may argue that its opponent, whether by words or by conduct, waived its right to invoke an agreement to arbitrate. Like a time limit on arbitration, waiver of this sort targets the obligation to arbitrate rather than the contract’s substantive obligations and, in separability terms, should be treated as a gateway issue. But a look at the cases shows a rather different picture. In fact, courts commonly leave the question of waiver of the right to arbitrate for the arbitrators to decide, even if raised at the very outset, often citing Howsam.188 The decisions are not, however, uniform in that regard. A good number of courts have drawn a distinction between contract-based waiver and conduct-based waiver, holding 183

184 185

186 187 188

537 U.S. 79 (2002). Id. at 84. Id. (quotation marks and citations omitted). Id. at 85; see also Int’l Union of Operating Eng’rs v. Flair Builders, Inc., 406 U.S. 487, 491 (1972) (holding that a defense of laches must be decided by the arbitral tribunal). 537 U.S. at 79 (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)). See, e. g., Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 393-94 (2d Cir. 2011); Pro Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 871-872 (8th Cir. 2004); Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1109-1110 (11th Cir. 2004); Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 430 (5th Cir. 2004); Feldman v. Empire Today, LLC, 2011 U.S. Dist. LEXIS 44574, at *4-6 (N. D. Ill. Apr. 26, 2011); Josko v. New World Sys. Corp., 2006 U.S. Dist. LEXIS 64681, at *25-28 (D. N. J. Aug. 29, 2006); cf. Mulvaney Mech., Inc. v. Sheet Metal Workers Int’l Ass’n, Local 38, 351 F.3d 43, 45-46 (2d Cir. 2003) (holding that the question of whether conduct constituted contract termination was an issue for the district court, and not an arbitration panel).

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that the former is for the arbitral tribunal to decide, while the latter may be determined at the threshold by a court.189 These courts advance two reasons for treating conduct-based waiver as a gateway matter. First, invoking the Howsam criterion of reasonable party expectations, they suggest that contracting parties would not likely expect an arbitral tribunal to resolve the issue, since it has little if any bearing on the merits of the underlying claim and since courts are generally better equipped than arbitrators to determine whether a party has abused the litigation or pre-litigation process.190 Second, it is said that referring claims of conduct-based waiver to the arbitrators would be inefficient, because if such waiver were found, the case would in any event be referred back to court.191 The distinction between contract-based and conduct-based waiver is unconvincing. There is no sound basis for supposing that parties have any ex189 See JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 393-394 (6th Cir. 2008) (holding

that a party’s deliberate effort to derail arbitration sought by its opponent would constitute waiver of the right to arbitrate, though a deliberate effort was not established in this case). The court observed that, most often, conduct-based waiver is established by a party’s failure to invoke arbitration in a timely fashion after being sued or its interference with a plaintiff’s pre-litigation efforts to arbitrate. Id. at 394; see also Citibank, N. A. v. Stok & Assocs., P. A., 387 F. App’x 921 (11th Cir. 2010) (per curiam) (finding that a party’s litigation activity was not so extensive and the burden caused to the other party was not so great as to warrant a finding of waiver), cert. granted, 131 S. Ct. 1556 (2011), cert dismissed, 131 S. Ct. 2955 (2011); Cox v. Ocean View Hotel Corp., 533 F.3d 1114 (9th Cir. 2008) (finding that an employer statement that an employee’s claim is not ripe for arbitration does not amount to a waiver); Khan v. Parsons Global Servs. Ltd., 521 F.3d 421, 428 (D. C. Cir. 2008) (finding that filing a motion for summary judgment waives the right to invoke arbitration); Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217-218 (3d Cir. 2007) (holding that a party seeking arbitration waived that right by actively litigating its opponent’s claims); Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 3, 12-13 (1st Cir. 2005) (rejecting the argument that the failure to invoke arbitration during the pendency of administrative proceedings before the Equal Employment Opportunity Commission constituted waiver); Windward Agency, Inc. v. Cologne Life Reins. Co., 123 F. App’x 481, 484 (3d Cir. 2005) (finding that appellant’s failure to comply with the district court’s order to initiate arbitration proceedings for many years constituted a timeliness issue for the district court to decide); Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 F. App’x 462, 464 (5th Cir. 2004) (per curiam) (holding that delaying the motion to compel does not amount to waiver); Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 573 (6th Cir. 2003) (finding that declining arbitration by letter constitutes waiver). 190 JPD, Inc., 539 F.3d at 394. 191 Id. According to the court, “[waiver based in prior inconsistent conduct] is different in kind from the arbitrator’s normal resolution of a gateway issue: normally, the resolution of such an issue would bar not only arbitration but any sort of litigation on the issues by either side.” Id. (quoting Marie, 402 F.3d at 13-14).

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pectations as to who would decide waiver issues generally, much less that one species of waiver claim would be decided by judges and the other by arbitrators. The courts’ second argument, namely that an arbitral finding of conduct-based waiver would send the case back to court anyway, is equally applicable to a finding of contract-based waiver. By that criterion, both species of waiver deserve gateway issue treatment, a result that would be inconsistent with Howsam. Some courts have either rejected the distinction192 or applied it disapprovingly.193 More general considerations of efficacy and legitimacy suggest that all claims of waiver should be determined initially by the arbitrators. Little damage is done to the principle of consent, and therefore to arbitral legitimacy, by allowing an arbitral tribunal to address the waiver question first. But postponing arbitration until a court decides that question would exact an efficacy price, especially since an arbitral tribunal can and probably will determine the matter as an early, if not the first, order of business. V.D.3. Conditions Precedent Frequently, an arbitration agreement requires the parties to comply with certain procedures or preconditions before they may initiate arbitration. They may have to submit to mediation or conciliation, for example, or exhaust other named remedies. Whether a party invoking arbitration has satisfied such a requirement undoubtedly counts as a threshold issue and, like time limitations and waiver, is arbitration-clause-specific. Arguably, a court should determine whether a requirement of mediation or other precondition to arbitration has been met, if asked to do so, rather than refer the parties to arbitration for a ruling on that issue. While judicial practice is mixed, courts commonly refer the matter for decision by arbitrators in the first instance.194 192

See, e. g., Nat’l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 2003); Bellevue Drug Co. v. Advance PCS, 333 F. Supp. 2d 318, 324 (E. D. Pa. 2004). 193 One lower court, while applying the distinction between contract-based and conductbased waiver, criticized it as seemingly inconsistent with the Supreme Court’s Howsam ruling. Clyde Bergemann, Inc. v. Sullivan, Higgins & Brion, PPE L. L. C., 2008 U.S. Dist. LEXIS 70670 (D. Or. Sept. 18, 2008). 194 The leading case is John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557-559 (1964). See also Lumbermens Mut. Cas. Co. v. Broadspire Mgmt. Servs., 623 F.3d 476, 477 (7th Cir. 2010) (finding that whether necessary preconditions to arbitration have been satisfied is a question for the arbitrator); 3M Co. v. Amtex Sec., Inc., 542 F.3d 1193, 1200 (8th Cir. 2008) (holding that condition precedent is a matter of procedural arbitrability, which is decided by the arbitrator); JPD, Inc., 539 F.3d at 392 (same); Int’l Ass’n of Bridge Ironworkers, Shopman’s Local 493 v. EFCO Corp., 359 F.3d 954, 956 (8th Cir. 2004) (stating that the timeliness of procedural steps as a precondition to arbitration is an issue for the arbitrator); Stroh Container Co. v. Delphi Indus., Inc., 783 F.2d 743, 748

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(8th Cir. 1986) (finding that failure to comply with pre-arbitration steps in a grievance procedure is an issue of procedural arbitrability for the arbitrator). But see Welborn Clinic v. Medquist, Inc., 301 F.3d 634, 638 (7th Cir. 2002) (compelling arbitration since, under Indiana law, time limits and other requirements are not conditions precedent). The Revised Uniform Arbitration Act, UNIF. ARBITRATION ACT § 6(c) (2000), entrusts to the arbitral tribunal authority to determine “whether a condition precedent to arbitrability has been fulfilled.” Some courts, however, have decided for themselves whether a condition precedent was met and declined to compel arbitration where it was not met. See Kan. Gas & Elec. Co. v. Westinghouse Elec. Corp., 861 F.2d 420, 422 (4th Cir. 1988) (noting that the district court’s denial of a motion compelling arbitration upon finding condition precedent had not been met, after the parties had agreed to let the court decide the issue); N-Tron Corp. v. Rockwell Automation, Inc., No. 09-0733, 2010 U.S. Dist. LEXIS 14130, at *35 (S. D. Ala. Feb. 18, 2010) (staying an action to compel where the plaintiff failed to satisfy the condition precedent); Bombardier Corp. v. Nat’l R. R. Passenger Corp., 298 F. Supp. 2d 1, 4-5 (D. D. C. 2002) (holding that a contract’s dispute resolution procedure was not a condition precedent because it was not clearly defined as such), aff’d, 333 F.3d 250, 257 (D. C. Cir. 2003). If parties do not seriously dispute that mediation was pursued, or other precedent conditions are satisfied, courts have declined to compel arbitration. See, e. g., HIM Portland, L. L. C. v. Devito Builders, Inc., 317 F.3d 41, 44 (1st Cir. 2003) (finding that mediation was required as a condition precedent and was not fulfilled); Kemiron Atlantic, Inc. v. Aguakem Int’l Inc., 290 F.3d 1287, 1291 (1lth Cir. 2002) (stating that mediation was required as a precondition and neither party requested it). Courts do appear willing to determine whether mediation was performed when required as a precondition to litigation rather than arbitration. E. g., DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 336 (7th Cir. 1987); Tattoo Art, Inc. v. TAT Int’l, L. L. C., 711 F. Supp. 2d 645, 651 (E. D. Va. 2010); Centaur Corp. v. On Semiconductor Components Indus., L. L. C., 2010 U.S. Dist. LEXIS 8495 (S. D. Cal. 2010); 3-J Hospitality, LLC v. Big Time Design, Inc., 2009 U.S. Dist. LEXIS 100601, at *3-4 (S. D. Fla. 2009); Ziarno v. Gardner Carton & Douglas, L. L. P., 2004 U.S. Dist. LEXIS 7030, at *3 (E. D. Pa. 2004); Mortimer v. First Mount Vernon Indus. Ass’n, 2003 U.S. Dist. LEXIS 24698, at *3 (D. Md. 2003). Where a court is asked to decline to exercise its own jurisdiction due to failure to meet a prior obligation to mediate, it has no choice but to resolve the question. There is no prospective arbitration panel to determine whether the condition precedent was met. Courts have sent cases to arbitration, even when the parties agree that payment of arbitration fees was a condition precedent to arbitration and the parties agree that the condition has not been met. See Dealer Computer Servs. v. Old Colony Motors, Inc., 588 F.3d 884 (5th Cir. 2009) (compelling arbitration when one party refused to pay fees, since the issue was a procedural one to be resolved by the arbitrators); Lifescan, Inc. v. Premier Diabetic Serys., 363 F.3d 1010, 1012 (9th Cir. 2004) (holding that a dispute over payment of fees, a precondition to arbitration, is not for the district court to decide).

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V.D.4. Res Judicata On occasion, a party resisting arbitration maintains that the dispute sought to be arbitrated has already been adjudicated, resulting in a judgment or award entitled to claim-preclusive effect, so that the case should not be heard again, either in arbitration or litigation. This objection, too, is arbitration-specific. Moreover, it makes little sense to enforce an agreement to arbitrate if the outcome of the dispute has already been determined as a matter of law. The fact remains, however, that application of the res judicata principle is not always straightforward, if only because parties commonly disagree over whether the conditions (such as identity of parties and identity of claims) required by law to be met in order for an adjudication to enjoy preclusive effect are satisfied. In practice, courts almost invariably reserve the claim preclusion question for the arbitrators.195 While courts seldom express their preference in terms of efficacy and legitimacy interests, they do strike a sound balance between them. Permitting arbitrators to confront the intricacies of claim preclusion makes arbitration more effective overall, without undermining the legitimacy of the award ultimately rendered. V.D.5. Class Arbitration The availability of class arbitration is only the latest and most lively threshold issue to attract the attention of the arbitration community. The question whether a dispute is susceptible of class arbitration goes primarily to the arbitration clause rather than the main contract and so, under separability shorthand, is appropriately viewed as a gateway issue. Yet, once again, the case law does not look in that direction. In Green Tree v. Bazzle, the Supreme Court characterized the question whether the parties contemplated class arbitration of their dispute as one that the parties would have expected the arbitral tribunal to decide.196 Although the Court’s later decision in Stolt-Nielsen, S. A. v. Animalfeeds International Corp.197 laid down a standard that makes it decidedly more difficult

195

See, e. g., Shell Oil Co. v. C02 Comm., Inc., 589 F.3d 1105, 1109-1110 (10th Cir. 2009); Emilio v. Sprint Spectrum, L. P., 315 F. App’x 322, 324 (2d Cir. 2009); Triangle Constr. & Maint. Corp. v. Our V. I. Labor Union, 425 F.3d 938, 947 (1lth Cir. 2005); Klay v. United Healthgroup, 376 F.3d 1092, 1109-1110 (11th Cir. 2004); Shanks v. Swift Transp. Co., 2008 U.S. Dist. LEXIS 55063 (S. D. Tex. June 19, 2008); Enter. Assoc. Metal Trades Branch Local Union 638 v. Empire Mech., Inc., 1992 U.S. Dist. LEXIS 4749 (S. D. N. Y. Apr. 9, 1992). But see FleetBoston Fin. Corp. v. Alt, 2011 U.S. App. LEXIS 5853 (1st Cir. Mar. 23, 2011). 196 539 U.S. 444, 452-53 (2003). 197 130 S. Ct. 1758 (2010).

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for arbitrators to conclude that the parties contemplated class arbitration,198 that determination nevertheless remains one for the arbitral tribunal to make in the first instance.199 Certain common threads unite all of these scenarios. First, many, if not all, of these inquiries can be highly fact-intensive. Waiver of the right to arbitrate is a particularly good example. Second, some of them, such as whether there is an identity of parties for purposes of claim preclusion, may turn out to be sufficiently tied to the merits of the dispute to warrant their resolution being joined, as threshold issues in arbitration often are, to the merits of the case. Other threshold issues, such as satisfaction of conditions precedent to arbitration, may commonly be neither fact-intensive nor especially tied to the merits, but nevertheless be conveniently referred to the arbitrators as yet another procedural question that grows out of the dispute and bears on its final disposition.200 As for whether the parties contemplated class arbitration, that is a matter of contract interpretation, traditionally the province of arbitrators.

198

Id. at 1775 (“[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”). In the case of AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), a majority of the Supreme Court barred California from treating class arbitration waivers as unenforceable, essentially finding such a prohibition to be inconsistent with the Federal Arbitration Act. 199 See, e. g., Guida v. Home Savings of Am., Inc., 2011 U.S. Dist. LEXIS 69159, at *9-10 (E.D.N.Y. June 28, 2011). Although the question whether an arbitration agreement contemplates class arbitration remains primarily for the arbitral tribunal, the question of whether a class action waiver is enforceable as a matter of law is to be decided by the courts. Italian Colors Rest. v. Am. Express Travel Related Servs. Co., 634 F.3d 187 (2d Cir. 2011); see also Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 188 (3d Cir. 2010) (holding that an unconscionability challenge to a class action waiver is for the court to decide). The fact that an arbitration clause is interpreted as not authorizing class arbitration does not necessarily mean that the case will go forward in arbitration on an individual basis. In Chen-Oster v. Goldman, Sachs & Co., 785 F. Supp. 2d 394, 403 (S. D. N. Y. 2011), the court, while acknowledging that under Stolt-Nielsen, class arbitration could not be compelled, nevertheless declined to compel arbitration on an individual basis. It concluded that the plaintiff’s statutory rights under Title VII, on gender discrimination in employment, would not be capable of vindication through arbitration on an individual basis, and that in that circumstance, the court was permitted to declare an otherwise operative arbitration unenforceable, citing In re Am. Express Merchs. Litig., 634 F.3d 187, 194 (2d Cir. 2011). 200 PTA-FLA, Inc. v. ZTE USA, Inc., 3:1 1-CV-1605- CMC , 2011 WL 4549280 (D.S.C. Oct. 3, 2011) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 (2002)).

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As new issues of this “procedural” sort arise at the threshold of arbitration, courts will likely refer them to the arbitrators.201 Although the strength of the argument in favor of deferring these questions to an arbitral tribunal may vary from issue to issue and from case to case, there is an analytic and practical advantage in treating this entire series of objections to arbitration in a consistent and predictable manner.202 If courts can properly characterize issues as “procedural questions which grow out of the dispute and bear on its final disposition,” and conclude that the parties would expect an arbitral tribunal rather than a court to decide them, it should place them in the non-gateway category. Satisfaction of party expectations is a perfectly respectable consideration to consult on issues of private legal ordering. As I have sought to show, the results reached in such cases are sound for a fundamental reason. The main purpose to be achieved in delineating gateway and non-gateway issues at the initial forum shopping stage should be to strike the most appropriate balance between efficacy and legitimacy interests. The goal of making arbitration more effective militates in favor of committing this entire series of “procedural” issues to the arbitral tribunal, at least in the first in201 See

Emp’rs Ins. Co. v. Century Indem. Co., 443 F.3d 573 (7th Cir. 2006) (finding that the permissibility of consolidation is a procedural question for the arbitrators); Pro Tech Indus. v. URS Corp., 377 F.3d 868, 872 (8th Cir. 2004) (explaining that questions of whether waiver occurred and whether demand was sufficient and timely under the agreement involve issues of procedural arbitrability, matters presumptively for the arbitrator, not for the judge); Mulvaney Mech., Inc. v. Sheet Metal Workers Int’l Ass’n, Local 38, 351 F.3d 43, 46 (2d Cir. 2003) (noting that the equitable defense to arbitration based on repudiation is a matter “such as waiver, estoppel, or delay,” and therefore reserved to the arbitrator); Shaw’s Supermkts, Inc. v. United Food & Commercial Workers Union, Local 791, 321 F.3d 251 (1st Cir. 2003) (stating that the permissibility of consolidation is a procedural question for the arbitrators); Munich Reins. Am., Inc. v. Nat’I Cas. Co., 2011 U.S. Dist. LEXIS 44759 (S. D. N. Y. 2011) (finding that the question whether arbitration agreement provision that the insurers “act as one party” permits one of the insurers to initiate arbitration in the absence of other insurer is a procedural issue for the arbitrators to decide). But see Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) (reversing the district court ruling that an arbitration agreement did not apply retroactively, finding that the agreement did have retroactive effect, without referring that issue to the arbitrators); United Food & Commercial Workers, Local 21 v. MultiCare Health Sys., 2011 WL 834149, at *3 (W. D. Wash. Mar. 3, 2011) (finding that the Supreme Court’s Stolt-Nielsen decision is to be read as requiring courts, not arbitrators, to rule on the consolidation of claims in arbitration). 202 For this reason, courts should take care not to draw excessively refined or fact-based distinctions within any given category of cases. For examples of the distinction drawn by some courts between contract-based waiver and conduct-based waiver, see supra note 189.

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stance.203 A tribunal is as well situated to make these determinations as a court, and in some circumstances better situated, due to the fact-intensiveness of the issues and their linkage to the merits of the dispute. The question then arises whether legitimacy considerations point in the opposite direction. I submit that they do not. By comparison to claims that an arbitration agreement was never entered into, or for one reason or another is invalid and unenforceable, or fails to encompass the dispute at hand, the claims in the present category barely even touch on the principle of party consent to arbitration, and so entail relatively low legitimacy stakes. Though the class action question certainly has legitimacy implications, those concerns do not relate to the question of who decides. Parties resisting class arbitration normally contend that class arbitration was not contemplated and is not appropriate, but do not contest the authority of the arbitral tribunal to make that determination. Viewed in the light of legitimacy interests, the Supreme Court’s seemingly cavalier assumption that parties to an arbitration agreement most likely intended to submit threshold issues of this sort to an arbitral tribunal, and not a court, begins to sound more convincing. In sum, not all the reasons why parties resist arbitration pertain to the existence or validity of either the arbitration agreement or the main contract. To the extent they do not, the utility of separability in delineating gateway and non-gateway issues is limited both from a descriptive and normative perspective. The “procedural” issues canvassed in this section decisively demonstrate that fact.

V. E. Party Autonomy in the Delineation of Gateway Issues To this point I have largely assumed an arbitration agreement that reflects no attempt by the parties to determine for themselves where the line between gateway and non-gateway issues in arbitration should be drawn. But parties may well make that attempt. It is difficult, as a general matter, to see why parties 203

This is not to say that the category of “’procedural’ questions that grow out of the dispute and bear on its final disposition” has sharply defined contours. In a decision rendered during the same term in which it decided Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 591, 592 (2002) and Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-453 (2003), the Supreme Court in Pacificare Health Sys., Inc. v. Book, 538 U.S. 401 (2003), ruled that the lower court should have left it to the arbitral tribunal to decide whether a provision barring an award by the arbitrators of punitive damages should be understood as excluding treble damages, as provided for by the RICO statute. Racketeer Influenced and Corrupt Organizations Act, 18 U.S. C. § 1961 et seq. The Court’s decision to leave the matter to the arbitral tribunal makes sense only if the question of punitive damages was arguably procedural. The question of whether a contract clearly barring arbitrators from awarding treble damages in a RICO case offends public policy is surely appropriate for judicial determination at the outset.

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should not be free to agree on moving a threshold issue from the non-gateway to the gateway column, provided they express that intention clearly enough. Unlike attempts to heighten the level of judicial scrutiny of awards in vacatur actions, which the Supreme Court has disallowed at least in cases governed by the FAA,204 parties are at liberty to withhold issues from arbitration in the first place.205 However, the question of whether parties are equally free to move a threshold issue from the gateway to the non-gateway column is more complicated. At one extreme lies arbitrability, as I have defined it. Determining whether a given dispute is legally capable of being arbitrated is necessarily a question for the courts and cannot properly be delegated to the arbitrators.206 At the other extreme lies the question of whether a given dispute falls within the scope of an agreement to arbitrate. As noted earlier,207 courts generally allow the parties to confer on an arbitral tribunal primary authority to determine the reach of an arbitration agreement, provided they express that intention clearly enough. Each of these positions in its own way reflects a perfectly appropriate accommodation between efficacy and legitimacy interests. Harder cases, however, can be imagined. The claim that an arbitration agreement is unconscionable represents a case in point, and one that the Supreme Court had a recent opportunity to address in Rent-A-Center, West, Inc. v. Jackson.208 The lower court in that case held that the parties could not validly delegate to an arbitral tribunal the authority to determine whether an arbitration agreement itself is unconscionable.209 The Supreme Court ultimately disposed of the case on the ground that Jackson, the party resisting arbitration, had failed specifically to challenge the delegation of authority to determine unconscionability to the arbitrators. The Court found that Jackson had instead challenged the arbitration agreement as a whole and, applying the separability doctrine by analogy, concluded that that question was one for an arbitral tribunal to decide.210 The Court did not indicate what the result would have been if Jackson had been found to challenge the delegation clause in particular. But if the Court were deeply troubled by the delegation, it would have given some 204

Hall Street Assoc., L. L. C. v. Mattel, Inc., 552 U.S. 576 (2007). See generally Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (explaining that the first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute). 206 See supra notes 24-36 and accompanying text. 207 See supra notes 176-177 and accompanying text. 208 130 S. Ct. 2772, 2778 (2010). 209 Jackson v. Rent-a-Ctr. W., Inc., 581 F.3d 912, 917 (9th Cir. 2008) (“[W]here … a party challenges an arbitration agreement as unconscionable, and thus asserts that he could not meaningfully assent to the agreement, the threshold question of unconscionability is for the court.”). 210 130 S. Ct. at 2779. 205

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indication of that, which it did not. However the Court eventually resolves the matter, the outcome will inevitably reflect its assessment of how deeply the kind of unconscionability claim advanced in Rent-A-Center implicates fundamental legitimacy concerns.

VI. Conclusion Forum shopping arises early in the life-cycle of an arbitration. Parties resisting arbitration have numerous reasons for doing so. Presumably they prefer to have their dispute heard on the merits in a court rather than an arbitral tribunal. But the forum shopping goes further back, since those same parties will likely want a court rather than an arbitral tribunal to make the jurisdictional allocation. Judicial treatment of threshold issues in arbitration in the United States has been evolving steadily, with traditional American understandings about Kompetenz-Kompetenz and separability serving only as a point of departure. The analysis has moved well beyond them. The Kompetenz-Kompetenz story is the simpler of the two. U.S. courts have consistently viewed the doctrine as having a positive dimension only, in the sense of permitting arbitral tribunals to determine all aspects of their own competence, thereby promoting the efficacy of arbitration. They have not followed the French in giving Kompetenz-Kompetenz a negative dimension, in the sense of barring courts from treating any threshold questions as gateway issues, except in the exceedingly rare instance of manifest nullity or manifest inapplicability. By contrast, under prevailing U.S. law, at least some threshold issues are properly subject to judicial determination at the very outset. However, the doctrine of Kompetenz-Kompetenz does not even attempt to determine which issues those are. Its utility for these purposes is correspondingly limited. The task of delineating gateway and non-gateway issues in U.S. arbitration law has largely been assigned to the doctrine of separability, functioning outside its usual role of enabling the authority conferred on an arbitral tribunal by an agreement to arbitrate to survive an award to the effect that the main contract is invalid or otherwise unenforceable. Closer examination, however, shows that separability does not fully accomplish this secondary function. Illustrations abound. The Supreme Court now plainly envisages the possibility of treating the existence of the main contract, as distinct from its validity, as a gateway issue, separability notwithstanding. The Court also has carved away a whole category of threshold issues of a broadly procedural character that pertain specifically to the arbitration clause, but that the Court evidently believes arbitral tribunals ordinarily should address in the first instance. Even the basic question whether an arbitration clause encompasses a given dispute has in many ways received intermediate treatment that the separability doctrine simply does not contemplate. Separability would not have predicted these outcomes. The courts treat arbitrability, in the narrow sense in which I define that George A. Bermann

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term, as a gateway matter, but not because the inquiry has an arbitration-specific character; they do so because it entails the core judicial function of statutory interpretation and because the issue has a sufficient public policy dimension to warrant early judicial determination. The central claim of this Article, however, is a normative one, namely that the allocation between courts and arbitrators of competence to determine threshold issues in arbitration should be driven by the goal of achieving an optimal balance between efficacy and legitimacy, the latter measured largely in terms of party consent. The equilibrium that U.S. law pursues stands in sharp contrast with French law, which posits that arbitration’s attractiveness depends on its real and reputed efficacy, and that efficacy in turn dictates an even more conspicuously pro-arbitration bias than the one that prevails in U.S. law. It therefore posits a version of Kompetenz-Kompetenz that reduces the policing role of courts at the threshold of arbitration to a bare minimum across the board, drawing essentially no distinctions among grounds for resisting arbitration, whether along separability lines or otherwise. American law more closely resembles German law, which goes so far as to establish a specific procedural mechanism for early judicial intervention on threshold issues. However, German law stops short of cleanly demarcating gateway from non-gateway issues. Commentators have suggested that what best explains the difference between the U.S. and French approaches is the former’s lesser commitment to the “autonomy” of international arbitration.211 That is not in my view an adequate explanation, for U.S. law is by no means insensitive to arbitral autonomy. In the United States, the arbitral process, once initiated is allowed to proceed without undue judicial interference.212 Tribunals are free to conduct proceedings in an expeditious manner, unbound by formalities that typically accompany proceedings in court.213 And the review that courts conduct, whether at the annulment or at the recognition and enforcement stage, is exceedingly narrow, with merits review off –limits.214 Even the position espoused in this article – namely that 211 See

Gaillard & Banifatemi, supra note 54, at 269: [T]he more international arbitration is viewed as a fully autonomous process that is not anchored in any particular national legal system and that operates in accordance with specific rules, the more firmly the negative effect of competence-competence is recognized and applied. Conversely, the more hesitations remain as to the autonomous character of international arbitration, the more interventionist the courts become. The authors describe the position that jurisdictions take on the matter of court intervention in relation to arbitral jurisdiction as “archetypal” of the degree to which they recognize the autonomy of international arbitration. Id. at 273. 212 See, e. g., Aerojet-General Corp. v. Am. Arbitration Ass’n, 478 F.2d 248, 251 (9th Cir. 1973). 213 See, e. g., Forsythe Int’l, S. A. v. Gibbs Oil Co., 915 F.2d 1017, 1022 (5th Cir. 1990). 214 See, e. g., I / ​S Stavborg Nat’l Metal Converters, Inc. v. Nat’l Metal Converters, 500 F.2d 424, 432 (2d Cir. 1974).

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courts be allowed to treat certain threshold issues as gateway issues, and address them if asked to do so at the outset of arbitration – confines that prospect to the relatively short period prior to constitution of the tribunal and would not in any event suspend the arbitral proceedings. In all these respects, arbitration enjoys what may fairly be called “autonomy.” But allowing arbitral proceedings to get underway in the first place, despite a party’s raising serious consent-based objections in court at the threshold, represents arbitral autonomy of a very different and more questionable stripe, and one that poses substantial legitimacy risks. To the extent that the Supreme Court has brought about these changes in the initial forum shopping landscape, it has done so not in one single operation, but rather through a progressive refinement of the case law that is paradigmatic of the common law method. The progression has admittedly been non-linear and has produced considerable doctrinal complexity. Given the high stakes, some degree of complexity is warranted. But so too are clarity and coherence. The best way to achieve those goals is to transcend the vocabulary of Kompetenz-Kompetenz and separability. Though the twists and turns of the case law have seldom if ever been articulated precisely in terms of balancing efficacy and legitimacy interests, I believe they all reflect the same common impulse to reconcile these two imperatives, and are best understood when viewed through that lens. This is as it should be, for if the future of international arbitration turns on anything, it turns on our success in that core pursuit.

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Anti-arbitration Injunctions and Anti-suit Injunctions: An Anglo-European Perspective Alexander Layton I. Introduction The resolution of disputes can frequently itself be the subject of dispute. Where there are competing fora, there may well be argument about where, by whom, and under what systems of substantive and procedural law the dispute is to be resolved. Party A may wish to claim against party B in one forum while party B may not wish to be sued or arbitrated against in that forum. Party B may wish to dispute the jurisdiction of A’s chosen forum, or may wish to set up alternative proceedings against A in a different forum, or both. And the motives of either or both of the parties may be to pursue genuine complaints or may be for defensive, pre-emptive or tactical reasons. This is the context in which anti-arbitration and anti-suit injunctions arise. The competing fora are likely to be in different countries, but this need not necessarily always be the case, although most legal systems will have other methods of resolving disputes about forum within their own territories. Such injunctions may be made against a person who is personally subject to the court’s (or tribunal’s) jurisdiction and may take a variety of forms, tailored to suit the circumstances of the case. For example, they may be used to restrain the person to whom they are directed from instituting or pursuing legal proceedings in another forum, from instituting or pursuing arbitral proceedings, from executing a judgment or award, or even from seeking an anti-suit injunction. As will be seen, the subject of anti-suit injunctions has grown rapidly in recent years, not least in the context of international arbitration and even in that context has given rise to a considerable literature.1 This paper, which is written from the perspective of an English lawyer and will focus principally on English law, can do no more than pick out a small part of these developments. It will 1

By way of example only, D. Joseph, Jurisdiction and Arbitration Agreements and their Enforcement, 2nd ed., 2010, paras. 12.84 et seq.; T. Raphael, The Anti-Suit Injunction, 2009 and supplement 2010, chapter 11; G. B. Born, International Commercial Arbitration, 2009, especially 1036-1045 and 2009-2011; N. Blackaby / ​C . Partasides / ​A. Redfern / ​ M. Hunter, Redfern and Hunter on International Arbitration, 5th ed., 2009, paras. 5.133 et seq., 7.52 et seq.; J.-F. Poudret / ​S. Besson, Comparative Law of International Arbitration, 2nd ed., 2007, especially paras. 1018-1032; E. Gaillard ed., Anti-Suit Injunctions in International Arbitration, 2005; J. D. M. Lew / ​L . Mistelis / ​S. Kröll, Comparative International Commercial Arbitration, 2003, paras. 15-24 et seq.

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outline a little of the history of such injunctions in English law (Part II), before turning to their modern development and seeking to draw out some of the principles on which such orders are made (Part III). Many of these principles have been developed in relation to injunctions restraining court proceedings, but apply equally to arbitration. The paper will therefore then look at some specific aspects relating to arbitration (Part IV) before mentioning recent developments in European law (Part V).

II. History of anti-suit injunctions in England Anti-suit injunctions have their origin not in the growth of international trade in the eighteenth and nineteenth centuries, but rather in the jurisdiction exercised by the Court of Chancery to grant a ‘common injunction’, which it used to restrain persons from pursuing an action or obtaining a judgment in a common law court which contravened the principles of equity, or where the ‘ends of justice’ so required. But their development was marked by some confusion of thought and inconsistency of application.2 By the 1820’s they had become used to restrain proceedings in other parts of the British Empire3 and by the end of the century, purely foreign proceedings.4 But at the same time the courts became more aware of the sensitivity of restraining the pursuit of foreign proceedings and so circumscribed the requirements to be satisfied before they could be granted. The courts held, for example, that it would be a rare case in which a foreigner would be restrained from pursuing a case before his own courts; and the requirement was developed that they should only be granted to prevent ‘vexation and oppression’ or an abuse of the process of the English courts. (These were tests which were imported from the law relating to the stay of proceedings, before the development of a doctrine of forum non conveniens by the English courts). The result was that they became uncommon.

2 See 3

4

Raphael, supra note 1, at paras 2.02-2.03. For example, Scotland: Bushby v. Munday, (1821) 5 Madd. 297, 56 ER 908; Ireland: Harrison v. Gurney, (1821) 2 Jac. & W. 563, 37 ER 743; Jamaica: Beckford v. Kemble, (1822) 1 Sim. & St. 7, 57 ER 3; Demerara: Bunbury v. Bunbury, (1839) 1 Beav. 318, 48 ER 963. For example, Netherlands: Hope v. Carnegie, (1866) L. R. 1 Ch. App. 320; Portugal: Re South Easter Portugal Railway Co., (1869) 17 WR 982.

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III. Their use in modern times III.A Introduction By the 1970’s, it was becoming apparent that the grant of stay of English proceedings only to prevent vexation or oppression, or an abuse of process, was too strict and in a series of cases in the late 1970’s and early 1980’s that requirement was relaxed and was eventually replaced in 1987 by the Scottish doctrine of forum non conveniens.5 This lowering of the threshold for the grant of a stay of proceedings marked a growing awareness of and deference to foreign judicial processes. But the irony is that while relaxing the criteria for a stay of proceedings in favour of a foreign court has the effect of increasing deference to foreign courts, if the same test is then applied to the grant of an anti-suit injunction, making it easier to restrain the pursuit of foreign proceedings, its effect is to decrease the deference to foreign courts. A decision of the House of Lords in 1981 perpetuated this error, saying that the same conditions applied to both.6 In the period that followed, the Laker Airways case7 came before the courts. It was well-known in the United States as it sought to restrain a large anti-trust claim which a small airline, Laker Airways, had brought in the US District Court for the District of Colombia, alleging that it had been the victim of predatory pricing by its larger rivals. Anti-suit relief was granted in England, but then reversed by the House of Lords. In so doing the House of Lords referred to ‘unconscionability’ as the criterion for the grant of an anti-suit injunction, but the term was variously understood, thus compounding the confusion. Lord Diplock used it to refer to a substantive equity which needed to be protected or asserted by injunction (such as estoppel or laches), while Lord Scarman used it to refer to more wide and flexible equities. The confusion was however much resolved in a series of cases in the House of Lords and Privy Council in the twenty years from 1987, in which a new series of criteria were worked out, principally as a result of the thinking of one of the late twentieth century’s great English judges, Lord Goff of Chieveley. The most important of these cases were the Aerospatiale decision of 1987,8 the Airbus decision of 1998,9 and Donohue v. Armco of 2001.10 More recent summaries of the 5

Spiliada Maritime Corp. v. Cansulex Ltd., [1987] A. C. 460 (HL). Castanho v. Brown & Root, [1981] A. C. 557 (HL). 7 British Airways Board v. Laker Airways Ltd., [1985] A. C. 58 (HL). 8 Société Nationale Industrielle Aerospatiale v. Lee Kui Jak, [1987] A. C. 71 (PC): technically a decision on the law of Brunei, but quickly accepted as English law. 9 Airbus Industries v. Patel, [1999] 1 A. C. 119 (HL). 10 Donohue v. Armco, [2001] UKHL 64, [2002] 1 Lloyd’s Rep. 425 (HL), affirming The Angelic Grace (Aggeliki Charis Campania Maritima SA v. Pagnan SA), [1995] 1 Lloyd’s Rep. 87 (CA). 6

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principles underlying the grant of such injunctions can also be found in the two cases in the House of Lords in which questions were referred to the European Court of Justice concerning the compatibility of anti-suit injunctions with the Brussels I Regulation:11 Turner v. Grovit12 and West Tankers13 (both described in more detail in section V below). Broadly, the effect of this more modern case law is to distinguish those injunctions which support a contractual right (usually a right not to sue or be sued in a forum which has been seised, by a choice of forum agreement or an arbitration agreement) and those where there is no such right.

III.B General principles The following eight principles, which overlap to some extent, emerge from the cases:14 (1) Applicable law.  As a matter of English conflict of laws analysis, it appears to have been assumed, without much analysis, that the question whether an injunction is to be granted or refused by an English court will be governed by English law as the lex fori, whatever the substantive law of the dispute between the parties, on the basis that equitable remedies are awarded in accordance with the court’s own procedural law in respect of rights or duties which are themselves governed by whatever law is identified by the choice of law rules.15 There are, however, now two reasons to doubt this assumption. The first is a move away from the straight application of the lex fori to choice of law questions in respect of equitable rights and wrongs, a topic which raises difficult questions of characterisation and which is beyond the scope of this paper.16 Secondly, the Rome II Regulation, an instrument of European law and derived from systems which do not know a distinction between law and equity, now provides the choice of law rules for non-contractual obligations and will give rise to whole new questions of characterisation. In particular, it provides 11 See

infra Part V. UKHL 65, [2002] 1 W. L. R. 107 (HL). West Tankers Inc v. Ras Riunione Adriatica di Sicurta SpA, [2007] UKHL 4, [2007] 1 Lloyd’s Rep. 391 (HL). In England, the case is sometimes called The Front Comor. I am particularly indebted to Tom Raphael for this analysis: Raphael, supra note 1, at para. 4.01. L. Collins ed., Dicey, Morris & Collins on The Conflict of Laws, 15th ed., 2012, para. 34-084. E. g., in OJSC Oil Co. Yugraneft v. Abramovich, [2008] EWHC 2613 (Comm), a claim for unjust enrichment based on knowing assistance was characterised as a tort and subject to English law, while a claim for unjust enrichment based on knowing receipt was held to be subject to Russian law as the law having the closest and most real connection with the obligation to make restoration.

12 [2001] 13

14 15 16

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that the applicable law of the obligation applies to “the existence, the nature and the assessment of damage or the remedy claimed.”17 Thus, if a contract governed by (say) Brazilian law which contained a clause subjecting disputes to English arbitration was made the subject of court proceedings in New York, the English courts would hitherto have granted an anti-suit injunction against the New York plaintiff restraining him from pursuing the proceedings. It remains to be seen whether it can still do so since the advent of the Rome II Regulation, because the remedy of such an injunction is not known to Brazilian law.18 (2) Discretion.  An anti-suit injunction is a discretionary remedy and will only be granted if it is right to do so in all the circumstances. Although, as noted above, the power to grant injunctions derives from the old Court of Chancery, its statutory basis in English law is now Section 37(1) of the Senior Courts Act 1981, which confers power on the High Court to grant an injunction, “in all cases in which it appears to the court to be just and convenient to do so.”19 Although those are wide words, parameters have been set on the scope of the discretion by the development of case law. Some of these are of general application, such as the principle that an injunction will not be granted where damages are an adequate remedy, while other apply particularly to anti-suit injunctions. In contract cases in particular, discussed below, the court will usually require strong reasons not to grant an injunction if the criteria for the grant of such an injunction are otherwise satisfied. Points which would be taken into account on an application for a stay of court proceedings on grounds of forum non conveniens, such as the location or language of documents, the availability of witnesses, the convenience of the parties and so forth, are not normally reasons for not granting an injunction. But in some cases if the injunction defendant would lose a legitimate advantage which the injunction plaintiff is unwilling or unable to remedy by undertakings, then that may be a strong reason for not granting the injunction: the elapse of a limitation period in the chosen forum, or the loss of security which has been obtained in the foreign forum, may both be examples. Equally, delay on the part of the injunction claimant may be a reason for refusing him the relief he seeks, although in an arbitration case this is less likely to be a factor, as the foreign proceeding may not have got far without his participation – which may itself be a waiver of the arbitration agreement. 17

Regulation (EC) No 864 / 2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) (2007) Official Journal L 199, 31 July 2007, p. 40, Article 15. 18 The equivalent provision in Article 12 of the Rome I Regulation on the law applicable to contractual obligations (Regulation (EC) No. 593 / 2008) does not contain equivalent wording, and an interesting issue may arise concerning the characterisation of the conduct justifying the anti-suit injunction. 19 The power to grant an anti-suit injunction in aid of arbitration derives from this section and also in some cases from the Arbitration Act 1996, Section 44: see infra Part IV.

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Anti-arbitration Injunctions and Anti-suit Injunctions: An Anglo-European Perspective (3) ‘Ends of justice’.  An anti-suit will be granted when ‘the ends of justice’ require it,20 although other formulations amounting to a generalised appeal to notions of justice are also used: Lord Goff referred to “the basic principle of justice”.21 The term “unconscionable” was used in British Airways Board v. Laker Airways,22 and was given renewed currency by Turner v. Grovit,23 but probably adds nothing to the appeal to the notion of the ‘ends of justice’.24 This notion, while it derived from the test applied by the old Court of Chancery, does not carry into the modern law the notions of justice which prevailed in the nineteenth century. So, for example, while the Court of Chancery might have granted an injunction to prevent proceedings from being pursued in which an equitable defence would be available in England but not in the foreign court, an injunction would not (or not necessarily) be granted on that basis now. In practice, the ends of justice often equate with the other more specific principles on which the court now acts. Both the injustice to the defendant in being restrained and the injustice to the plaintiff in the injunction being refused will be considered. It is not in itself illegitimate for a defendant to pursue foreign proceedings more advantageous to him than English proceedings would be. (4) Normally available categories.  An anti-suit injunction will generally only be granted (i) to protect a substantive legal or equitable right;25 or (ii) to restrain proceedings that are or will be ‘vexatious or oppressive’.26 There is scope for arcane analysis about the scope of the second of these categories, and it may be that it is an example of the first category; but the distinction is nevertheless useful. (i) Substantive legal or equitable rights: what sort of rights could be protected? Most obviously, a right not to be sued in the foreign court. In the vast majority of cases such a right will arise either from a contractual exclusive choice of forum agreement or from a contractual choice of arbitration. As will appear below, an injunction will normally be granted in these cases as a matter of course, subject to European difficulties, without a need for the plaintiff to show that the foreign proceedings are vexatious or oppressive. Other possible examples are where the right to sue in a particular forum arises by application of mandatory rules which are recognised by the law of the forum: employees’ rights against their employers might form an example of a situation like that. Another case might be where the injunction claimant has an equitable right to enforce another’s contractual choice of forum. 20 21

22 23

24 25

26

Aerospatiale, supra note 8, at 892A-B. Id., at 893E. per Lord Diplock, supra note 7, at 81. per Lord Hobhouse, supra note 12, at para. 24. Raphael, supra note 1, at paras. 4.15-4.16, British Airways Board, supra note 7, at 81C. Aerospatiale, supra note 8, at 896F

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(ii) Vexation or oppression. A smaller category of case is where an injunction is granted not to protect an existing legal or equitable right, but where it is nevertheless in the interests of justice necessary to prevent ‘vexation or oppression’. Specifically such a case can arise where the conduct of proceedings in the foreign forum is vexatious or oppressive. The best example of such a case is where the foreign proceedings have been started in bad faith to harass the defendant (injunction claimant), as occurred in Turner v. Grovit. It is not necessary for the foreign proceedings to be both vexatious and oppressive (5) Other categories.  But an injunction may be granted where foreign proceedings are or will be an interference with the jurisdiction of the English court, or if it is necessary to protect the jurisdiction of the English court.27 This was the case in the Laker litigation, where Judge Wilkey in the Court of Appeals for the 2nd Circuit identified the need to protect the jurisdiction of the enjoining court as an exception to the general principle that parallel litigations should be left to run their course.28 Such a case may arise where there is an attempt to re-litigate abroad a matter which has been definitively decided by the courts of the forum (or possibly which is subject to recognition in those courts), or where foreign proceedings may circumvent an insolvency by executing against assets abroad.29 An anti-anti-suit injunction is an example of the protection of the jurisdiction of the forum. Such cases are uncommon, at least in England, as they present the greatest danger for a clash of competences, but English courts have experience not only of granting such orders, in an attempt to prevent an interference with the conduct of proceedings before them,30 but also of being effectively31 precluded from granting the relief which they might otherwise grant.32 (6) Comity.  The courts have regard to the principle of comity, normally by the appropriate exercise of their discretion (the second principle noted here). It is said that caution is required before an anti-suit injunction will be granted in view of its potential effect on the conduct of proceedings by the courts of other 27 See Masri v. Consolidated Contractors International (UK) Ltd. and others (No 3), [2008]

EWCA Civ 625, [2009] Q. B. 503 (CA), paras. 86-88. Laker Airways Ltd. v. Sabena Belgian World Airlines 731 F 2d 909, 926-927 (1984). 29 Carron Iron Co. v. Maclaren, (1855) 5 HLC 416. In modern conditions international co-operation in insolvency matters makes such situations perhaps less likely. 30 General Star International Indemnity Ltd. v. Stirling Cooke Brown Reinsurance Brokers Ltd., [2003] Lloyds Rep IR 719; Sabah Shipyard (Pakistan) Ltd. v. Islamic Republic of Pakistan, [2003] 2 Lloyd’s 571 (CA). The latter case is particularly interesting, as it involved a non-exclusive jurisdiction clause. The court held that such a clause created a right capable of protection by injunctive relief, on the basis that suit would normally be brought in the chosen forum. 31 See infra section (7). 32 See, for example, Travellers Casualty & Surety Co. of Canada v. Sun Life Assurance Co. of Canada (UK) Ltd., [2006] EWHC (Comm) 2885, paras. 29-38. 28

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nations.33 However, as we shall see, that is less true where a breach of contract is involved. (7) Personal remedy.  The jurisdiction is, and always has been, personal – as is axiomatic, equity operates in personam. An injunction binds the conscience of the defendant (although his conscience may be bolstered by the knowledge that a breach of the injunction can be punished as a contempt of court). By the same token, like any other injunction, it will only be granted if it will be an effective remedy.34 Specifically, there must be a basis on which the defendant is personally amenable to the jurisdiction of the English court, whether by his presence within the territory, or his submission to the jurisdiction, or in a case where the court has jurisdiction over him pursuant to an international convention or European regulation,35 or in a case where the court assumes jurisdiction over him under its own rules of international jurisdiction.36 The consequence of treating such an injunction as purely personal is that English courts are not over-inhibited by the dictates of comity in granting antisuit injunctions which will have the effect of preventing foreign proceedings (after all, that is their aim). But it is increasingly recognised that the effect of the injunction is indirectly to interfere with the exercise by a foreign court of its own jurisdiction. 37 (8) Sufficient connection.  The English court must have a sufficient connection with or interest in the matter to justify the indirect interference with the foreign jurisdiction which the grant of the injunction involves. It is the court which must have the connection, not the claimant38 (despite obiter suggestions to the contrary39). Except in contract cases, an injunction will therefore normally be refused unless England is the natural forum for resolution of the dispute.40

III.C Contract cases – exclusive choice of forum I arbitration agreements The key principles, that the grant of an injunction involves the exercise of the court’s discretion and that it will only be granted if the ends of justice so require, apply even in cases where an injunction is sought to restrain the pursuit 33

34 35

36 37

38 39

40

Airbus Industrie, supra note 9, at 134E. Aerospatiale, supra note 8, at 892E. But see infra Part V. Now in Civil Procedure Rules 6.36 and Practice Direction 6B, para. 3.1. Turner v. Grovit, supra note 12, at paras. 23, 26. Airbus Industrie, supra note 9, at 138G-140E. Turner v. Grovit, supra note 12, at para. 27. The concept of natural forum in English law comes from the law on stays on grounds of forum non conveniens: Spiliada, supra note 5.

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of proceedings in breach of an exclusive jurisdiction clause or an arbitration clause. In practice as well as in theory, the discretion will ordinarily be exercised in favour of the grant of an injunction in such a case, unless there are strong reasons not to do so. The principles were summarised by the Court of Appeal in the serenelynamed Angelic Grace,41 which have since been endorsed by the House of Lords.42 – Where a party has agreed by binding contract to bring proceedings before the English courts or an English arbitral tribunal, and then commences or is likely to commence proceedings in relation to the same matter before another forum, the court will ordinarily exercise its discretion to grant an anti-suit injunction, unless there are strong reasons not to do so.43 – In an appropriate case the court may require an undertaking from the claimant to prevent injustice to the injunction defendant. – There is no requirement for caution, provided that there is a determination that the choice of forum clause has been or will be broken, or there is a high probability that that is so. – The principles apply equally to arbitration and exclusive choice of court clauses.

IV. Arbitration-specific points IV.A Court injunctions to restrain foreign proceedings which would breach an arbitration clause It is well established that the principles which apply to exclusive choice of court agreements apply equally to arbitration agreements. The Angelic Grace was itself an arbitration case. But their application will need to take account of the fact that arbitration is involved. 1. There are two jurisdictional issues involved, one narrower and the other wider. First and more narrowly, the court has power to grant an interim, but not a permanent, injunction under Section 44 of the Arbitration Act 1996. However, this power is circumscribed: as well as not extending to permanent injunctions, the case must be one of urgency and the arbitrators themselves

41

Aggeliki Charis Compania Maritima SA v. Pagnan SpA (The Angelic Grace), [2005] 1 Lloyd’s Rep. 87. 42 West Tankers, supra note 13, at para. 10; see also Donohue v. Armco Inc., supra note 10, at paras. 24, 45. 43 In Donohue v. Armco Inc., supra note 10, the House of Lords allowed an appeal against the grant of an injunction in complex multi-party litigation part of which would have been tried in New York in any event.

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must not be empowered to act.44 The court also has its general power under Section 37(1) of the Senior Courts Act 1981 mentioned earlier, but there is an unresolved doubt whether it should exercise that power in a case which would be within Section 44 of the Arbitration Act if it were not for the restrictions which that Section contains.45 Secondly and more widely, as in any other case, the defendant to the injunction proceedings must personally be subject to the adjudicatory jurisdiction of the court. In the case of arbitration, there are special rules which enable adjudicatory jurisdiction to be invoked against a party by service of proceedings out of England in respect of an “arbitration claim”, which will cover cases in which the injunction claimant himself has commenced or wishes to commence an arbitration.46 In other cases, other jurisdictional bases will need to be found, such as the rule enabling proceedings to be brought in England in respect of a contract which is governed by English law.47 2. It may be asked why, if proceedings have been brought in breach of an arbitration agreement (assuming an international arbitration which falls within Article II(3) of the New York Convention), one would need an anti-suit injunction at all. After all, that Article says: The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. The answer may be twofold. First, not all courts are as adept as others in applying that provision promptly (or perhaps at all); and secondly, there may be a dispute about whether the matter is one in respect of which the parties have made an arbitration agreement, or if they did, whether it is null and void, inoperative or incapable of being performed. In any event, Article II(3) does not prevent an anti-suit injunction, because, at least in the view of English and some US courts, the courts of the state seised of proceedings are not given exclusive jurisdiction to determine the validity of the clause, it is not inconsistent with that provision for the courts of a state other than that in which the subject proceedings have been brought to make an order 44

On a comparative note, a requirement of urgency is a necessary condition for the grant of interim restraining orders in many civil law systems. 45 See Starlight Shipping Co. v. Tai Ping Insurance Co. Ltd., [2007] EWHC (Comm) 1893, [2008] 1 Lloyd’s Rep. 230; AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC , [2011] EWCA Civ 647; [2012] 1 W. L. R. 920. 46 Civil Procedure Rules 62.5(1)(c). 47 Practice Direction 6B 6B, supra note 36, at para. 3.1(6)(c).

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having the same result, and there is nothing in that provision which inhibits the grant of injunctive relief.48 3. In order to justify an anti-suit injunction, the injunction claimant must establish that the foreign proceedings do involve a breach of the arbitration agreement. First, the court before which the injunction is sought will apply its own choice of law rules to determine the law applicable to the arbitration agreement.49 Although in most cases in England the law applicable to the arbitration agreement will be English law this will not necessarily be so. For one thing, parties may select an English seat for their arbitration (and hence normally English law) while selecting another substantive law to govern their contract. The powers of the English courts to grant relief are not confined to cases where the substantive dispute, or even the arbitration agreement, is governed by English law, and Section 44 of the Arbitration Act applies even if the seat of the arbitration is outside England or no seat has been designated or determined.50 It may be a factor relevant to the exercise of the court’s discretion if, applying its own conflict rules, the foreign court applies a different law and comes to a different conclusion, but this is unlikely to be a factor to which any great significance will be attached. Secondly, there may be arguments about whether the parties to the foreign proceedings are parties to, or at least bound by, the arbitration agreement. This too may involve a conflict of laws analysis. A good example is the Through Transport case which reached the English Court of Appeal,51 in which neither of the parties to the proceedings were parties to the original arbitration agreement. A container of garments had been shipped by a consignor from India to Kotka in Finland and then on to Moscow by road. The consignor claimed 48

Angelic Grace, supra note 41, at 94; West Tankers, supra note 13, at para. 8, affirming the view of Colman J at first instance [2005] 2 Lloyd’s Rep. 257, paras. 56-58. See also Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Nehgara, 335 F.3d 357 (5th Cir. 2003). For arguments that, to the contrary, Article II(3) confers exclusive jurisdiction on the subject court, see the works cited by Raphael, supra note 1, at para. 7.10, note 26. 49 In Europe, these will be the choice of law rules of national law, as arbitration agreements (like choice of forum agreements) are excluded from the scope of the Rome I Regulation by Article 1(2)(e) (Regulation (EC) No. 593 / 2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), Official Journal L 177, 4 July 2008, p. 6.). 50 Arbitration Act 1996, Section 2(3), although the fact that the seat is not in England or no seat has been designated or determined may be a reason to refuse an order under Section 44 as being ‘inappropriate’. 51 Through Transport Mutual Insurance Association (Eurasia) Ltd. v. New India Assurance Co. Ltd., [2004] EWCA Civ 1598, [2005] 1 Lloyd’s Rep. 67.

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on its insurers, New India, which settled the claim and thus, either by assignment or by subrogation, took over the consignor’s rights against the carriers. Both the sea and the subsequent road carriers were members of the claimant P&I club, Through Transport, the rules of which provided for disputes between it and its members to be subject to arbitration in London. New India then brought proceedings in Finland against the insurers of the carrier. They were able to do so because Finnish legislation permitted a direct action against insurers where the insured party was insolvent, as had happened in the case of the carriers in this case. Through Transport sought and obtained an anti-suit injunction in England, but it was discharged on appeal. The Court of Appeal upheld the judgment of the judge to the effect that the court had jurisdiction on the basis that the arbitration agreement was governed by English law; but concluded that while declaratory relief could be claimed (and was granted) to the effect that New India was bound to pursue its claim in arbitration in England, an injunction should not issue because, N not being a party to the arbitration agreement, it was arguably not in breach of contract in litigating in Finland and in any event its doing so was not unconscionable. It was critical to the court’s reasoning that the claim under the Finnish Act was characterised as a claim under the club rules (effectively, the policy) rather than a claim under the Act external to the policy.52 Thirdly, an injunction may sometimes be justified even through the injunction claimant has no intention of starting arbitration proceedings himself, so long as the foreign court proceedings are a breach of an arbitration agreement. An example of a case of this kind is the AES case.53 The case concerned a concession agreement between two companies who were the owner and operator of a hydroelectric plant in Kazakhstan (and who were, respectively, successors to the Kazakhstan government and a Dutch company). The contract was governed by the law of Kazakhstan, but the arbitration agreement was governed by English law. The owners of the plant brought proceedings in Kazakhstan seeking information about the value of the concession assets, which were opposed by the operator on grounds that the claim should have been brought in arbitration in London. The operator then sought and obtained a declaration to that effect from the English courts and an anti-suit injunction to restrain the pursuit of the Kazakh proceedings. This was opposed on the basis that an anti-suit injunc52

See also Through Transport (No.  2), [2005] EWHC (Comm) 455, [2005] 2 Lloyd’s Rep. 378, in which the power of the English court to appoint an arbitrator was disputed. The judgment contains an analysis of the position of assignees in regard to arbitration clauses. 53 See supra note 45.

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tion could or should only be granted to protect an actual or prospective arbitration, and argument which was dismissed by the Court of Appeal. It was sufficient that the injunction protected a right not to be sued otherwise than by an arbitration.54 4. A further question which may be asked is whether, by invoking the jurisdiction of the court to grant an injunction, the injunction claimant is itself in breach of the arbitration agreement. In English law at least, the analysis is that the court should not ‘intervene’ in the arbitration;55 but that the grant of an anti-suit injunction is not an intervention.56 It has been held that the defendant is precluded from taking this point if he has not applied for a stay of the injunction proceedings57 under what is now Section 9 of the Arbitration Act 1996.58 But if he did apply for such a stay, that might have fatal consequences for his competing court proceedings, as by applying for stay he would, ironically, have to be asserting the validity of the arbitration clause! A more satisfactory analysis is to say that an injunction, which is designed to protect the arbitration clause, cannot be a breach of the very clause which it protects. 5. It may be of interest that English courts take the view that by submitting disputes to English arbitration, they have also accepted the supervisory jurisdiction of the English courts and done so on an exclusive basis, so that an appeal to a foreign court’s supervisory jurisdiction amounts to a breach of the arbitration clause which can be restrained by anti-suit injunction.59

IV.B Injunctions by arbitrators to restrain foreign proceedings Can an anti-suit injunction be sought from arbitrators? As regards a final injunction, they do have this power under English law because the Arbitration Act confers on them the same power as the court to order a party to do or refrain from doing anything,60 and arbitrators more widely have also granted anti-suit injunctions.61 One caveat, however, should be noted: the arbitrator’s jurisdiction is limited to the matters within the scope of the arbitration clause, and it will be a matter of interpretation whether that is wide enough to cover any breach of the arbitration clause itself. 54

Id. at paras. 106-107. Arbitration Act 1996, Section 1(c). 56 Starlight Shipping, supra note 45, at para. 43. 57 Compagnie Européene de Céreals SA v. Tradax Export SA, [1986] 2 Lloyd’s Rep. 201, 205. 58 Section 9 gives effect to Art. II(3) of the New York Convention. 59 C v. D, [2008] 1 Lloyd’s Rep. 239 (CA); Shashoua v. Sharma, [2009] 2 Lloyd’s Rep. 376. 60 Section 48(5). 61 See Born, supra note 1, at 2010-2011. 55

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So far as interim injunctions are concerned, however, the position is a little more complex. Section 39(1) of the 1996 Act provides that, “The parties are free to agree that the tribunal shall have power to order on a provisional basis any relief which it would have power to grant in a final award.” The implication is that, absent such agreement, it has no such power.62 Institutional rules frequently include such power.63 In countries where the UNCITRAL Model Law has been enacted, arbitrators have power to grant interim anti-suit awards.64 Of course, an arbitrator’s anti-suit award will only have contractual force and hence will not have the same teeth as a court injunction, which can be enforced by processes of contempt. Also, an interim award is probably not enforceable under the New York Convention.

IV.C Anti-arbitration injunctions In principle, an injunction can lie to restrain an English arbitration, although the growing acceptance of the competence-competence principle militates against this. Examples of where such an injunction may be granted are where a subsequent arbitration is a collateral attack on a court decision that an earlier arbitration was invalid because there was no valid arbitration agreement,65 or where the arbitration is an attempt to re-litigate matters which have already been arbitrated, so as to amount to a collateral attack on a valid award.66 However in England, as noted above, Section 1 of the Arbitration Act 1996 provides that the court is not to ‘intervene’ in the arbitration, and this very largely precludes the grant of an injunction in respect of arbitrations which fall within its scope; although there is a provision (s. 72 of the 1996 Act) under which the court can intervene if the tribunal has no jurisdiction; this is discouraged, especially in relation to interim injunctions. Theoretically an injunction may be granted to restrain an arbitration which has its seat outside England, but considerations of comity will usually, but not always, prevent an injunction being granted. In exceptional cases they can be and are granted.67 62 63

64 65

66

67

Starlight Shipping, supra note 45, at paras. 20, 26 E. g., ICC Rules, Art 23; LCIA Rules, Art 25; ICDR Rules, Art 21. UNCITRAL Model Law, Art 17, further strengthened by its 2006 amendments. Republic of Kazakhstan v. Istil Group Inc., [2007] EWHC (Comm) 2729. Nominhold Securities Inc. v. Mobile Telesystems Finance SA, [2012] EWHC (Comm) 130, [2012] 1 Lloyd’s Rep 442 – in the event, undertakings were given which made an injunction unnecessary. E. g., Albon (t / ​a NA Carriage Co.) v. Naza Motor Trading Sdn Bhd, [2007] EWCA Civ 1124, [2008] 1 Lloyd’s Rep. 1 (Malaysian arbitration agreement allegedly forged); Claxton Engineering Services Ltd. v. TXM Olaj-Es Gazkutato Kft, [2011] EWHC (Comm) 345,

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V. The European dimension There are a number of pieces of European legislation which affect the powers of courts in England (and elsewhere in Europe) to grant anti-suit injunctions. The Rome I and Rome II Regulations, which provide uniform conflict of law rules for contractual and non-contractual obligations respectively, have already been mentioned briefly. But much the most important Regulation for present purposes is the “Brussels I” Regulation. 68

V.A Brussels I Regulation As is well known, the Brussels I Regulation provides a system of uniform jurisdictional rules applicable (with the Lugano Convention) in 32 jurisdictions in 30 European states in the EU and EFTA, leading to largely automatic recognition and enforcement of judgments as between the member states. It is the successor to the Brussels Convention of 1968 entered into by the original six EEC states and adhered to by successive waves of states as they joined the European Community. When the Brussels Convention was first introduced, it was the first substantial example of a ‘double’ convention, that is, one which regulates jurisdiction as well as recognition and enforcement of judgments. It is this characteristic which led the European Court of Justice (which has jurisdiction to give binding interpretative rulings) to affirm the so-called ‘doctrine of mutual trust’ in its famous Gasser decision.69 (It is relevant both to that decision and to others mentioned below that the Brussels Convention has a strict lis pendens priority rule whereby, if proceedings involving the same parties and the same cause of action are started in different member states, any court other than the court first seised must stay its proceedings.) The doctrine of mutual trust was then relied on when the case of Turner v. Grovit came to the European Court,70 and which led to anti-suit injunctions being prohibited as between member states, at least in cases which fell within the scope of the Brussels Convention. [2011] 1 Lloyd’s Rep. 510 (Hungarian arbitration: English court had already held that there was an exclusive English jurisdiction clause and no arbitration clause). 68 Council Regulation (EC) No 44 / 2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, Official Journal L 012, 16 January 2001, p. 1. 69 Erich Gasser GmbH v. MISAT Srl, (Case C-116 / 02), (2003) ECR I-14693. The case affirmed the priority of proceedings first seised ove proceedings in a forum putatively chosen by an exclusive jurisdiction clause. 70 Turner v. Grovit, (Case C-159 / 02), (2004) ECR I-3565. See the English decision referring that case to the European court, supra note 12.

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Mr Turner had started employment proceedings in England, claiming that his dismissal by his English employer from his post in Spain was unfair. The defendant then started proceedings in Spain, for a declaration of non-liability and claiming a large sum of damages against Mr Turner. The English court held that the Spanish proceedings had been brought in bad faith to ‘vex and oppress’ Mr Turner and granted an anti-suit injunction restraining the defendant from pursuing them. The question whether it could do so consistently with the Brussels Convention was referred to the European Court, which held that it was contrary to the doctrine of mutual trust and hence to the Brussels Convention for the courts of one Member State to injoin the conduct of proceedings in another Member State. It was unimpressed by the reason that the injunction did not interfere with the jurisdiction of the foreign court, but operated solely in personam on the conscience of the defendant.

V.B Exclusion of arbitration from scope of the Brussels I Regulation While the Brussels I Regulation, like the Brussels Convention before it, applies to most civil and commercial matters, some topics are excluded. The excluded topics include “arbitration”,71 and the scope of that exclusion has been the subject of much agonising. The first case in which it came up to the European Court was the Marc Rich case.72 Marc Rich, a Swiss oil trader, bought a cargo of crude oil from Impianti. By the last of a series of telex communications, which made up the contract, Marc Rich proposed an English law / ​London arbitration clause. Impianti then proceeded to load the oil onto Rich’s nominated vessel. It was quickly apparent that the oil was contaminated (allegedly) and Rich complained, saying its losses were around 7 million dollars. Ten days later, Impianti started court proceedings in Genoa against Rich for a declaration of non­liability, which were served on Rich. On the same day, Rich started an arbitration in London, in which Impianti refused to participate. Rich then started proceedings in London for the court to appoint an arbitrator. Impianti disputed the court’s jurisdiction to entertain the proceedings, on the basis of its earlier proceedings in Italy. The English court was therefore concerned to know whether it had to stay its proceedings in favour of the Italian court. That depended on whether the London proceedings fell within the scope of the Brussels Convention, or within the arbitration exception. The case was referred to the European Court the Court of Appeal in London. 71 72

Article 1(2)(d). Marc Rich & Co. AG v. Soc. Italiano lmpianti SpA, (Case C-190 / 89), (1991) ECR 1-3894

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The European Court held that the proceedings to appoint an arbitrator were part of the process of setting the arbitration in motion and hence fell within the scope of the arbitration exception. Impianti had also argued that the question of whether the arbitration clause was actually concluded between the parties was merely a preliminary matter and that on that basis the arbitration issue did not remove the claim from the Convention. But the Court responded that reference must be had solely to the subject-matter of the dispute, and that as the English dispute concerned the appointment of an arbitrator, it fell outside the Convention. The next case in the European to concern arbitration was Van Uden,73 a case which is principally concerned with the circumstances in which provisional measures could be made under the Brussels Convention but which also raised the role of an incidental or preliminary issue concerning arbitration. The claim was for interim relief in aid of an arbitration, and one of the questions was whether this claim was itself outside the Convention. The Court drew a distinction between the main dispute and the ancillary proceedings, saying that the subject matter of the ancillary proceedings (a claim for an interim payment) was not itself arbitration and hence the application for interim relief fell within the scope of the Convention. That then, was the state of the European Court’s case law on the Brussels I Regulation (to which the case law on the Brussels Convention applies) when the West Tankers case74 came before it. In brief, the case involved a jetty in Sicily owned by Erg Petroli SpA which was damaged in a collision with a tanker (the ‘Front Comor’) owned by West Tankers Inc. There was a contract between Erg Petroli and West Tankers which included a London arbitration clause. Erg was paid by its insurers for the damage, up to the policy limits and then made a claim against West Tankers in London for the excess. Meanwhile, the insurers, in exercise of their subrogation rights, brought proceedings against West Tankers in Italy. West Tankers disputed the jurisdiction of the Italian court and also sought and obtained from the English courts an anti-suit injunction to restrain the insurer from pursuing the Italian proceedings, arguing that these were covered by the arbitration clause. The question of whether that was permissible under the Brussels I Regulation was referred by the House of Lords to the European Court.75 In deciding that that was not permissible, the European Court affirmed three principles. First, it decided that even if the London proceedings were outside 73

Van Uden v. KG Deco-Line, (Case C-391-95), (1998) ECR I-7091. Allianz SpA and Generali Assicurazioni v. West Tankers Inc., (Case C-185 / 07), (2009) ECR I-663. 75 See supra note 13. 74

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the scope of the Regulation, it could nevertheless have a collateral effect on those proceedings if they would have the consequence of undermining the effectiveness of the regime, “namely preventing the attainment of the objectives of unification of the rules of conflict of jurisdiction in civil and commercial matters and the free movement of decisions in those matters” (para. 2). This is an example of the ‘principle of effectiveness’ (effet utile) in European law. Secondly, therefore, it went on to consider whether the Italian proceedings themselves were within or outside the subject-matter scope of the Regulation. The critical question for these purposes was whether the fact that the dispute was subject to an arbitration agreement (which was assumed for the purposes of the argument) took what was otherwise a straightforward civil or commercial dispute outside the Regulation’s scope. It concluded that it did not: the dispute that fell within the Regulation was not removed from it by reason of a preliminary or incidental issue relating to the validity of an arbitration agreement. It was for the Italian court to rule on its own jurisdiction, even if that involved ruling on the validity or applicability of the London n arbitration clause, without interference by the London anti-suit injunction. Thirdly, it rejected the availability of anti-suit injunctions on two grounds. On one hand, it held, the effect of the anti-suit injunction would be to prevent the Italian court from determining its own jurisdiction – which as a matter of principle under the Brussels I regime it was empowered to do, to the exclusion of all other courts. And, on the other hand, citing Turner v. Grovit, It held that anti-suit injunctions were contrary to the doctrine of mutual trust which Member States accorded to one another’s legal systems. The decision was immediately controversial in the arbitration community, for several reasons which it is beyond the scope of this paper to explore in detail. But in essence, it had the effect of setting up court-based litigation as a superior form of dispute resolution as compared with arbitration. It also had the effect of removing from the courts of the seat of the arbitration, which have supervisory jurisdiction over the arbitration, the ability to rule on the validity of the arbitration agreement.

V.C Recast of the Brussels I Regulation It so happens that the decision was handed down at a time when a revised version of the Brussels I Regulation was going through the (long drawn-out) European legislative process. The European Commission presented a proposal which sought to address the difficulties posed by the West Tankers decision, by providing an exception to the general exclusion of ‘arbitration’ in Article 1(2) (d) of the Regulation and adding a rule which would require a court whose jurisdiction was contested on the basis of an arbitration agreement to stay its proceedings once the arbitral tribunal, or the courts of the member state of the seat of the arbitration, had been seised of proceedings to determine the existAlexander Layton

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ence, validity or effects of the arbitration agreement, even if that was merely an incidental question in those proceedings. That proposal, however, was not adopted. It was dropped in the teeth of strong opposition from the government of France.76 What has been included in the recast Brussels I Regulation77 is a lengthy recital (12) emphasising that the Regulation should not apply not arbitration, that rulings of one Member State on the validity or applicability of an arbitration agreement should not be subject to recognition and enforcement in other member states, or to ancillary proceedings relating to arbitration, but that judgments on the substance of a matter given following a ruling that an arbitration agreement is not valid or applicable, should be recognised and enforced in the normal way.78 76

French opposition may be explained by either or both of two reasons: the absence of the concept of a ‘seat’ of an arbitration in French law (see F. De Ly’s paper in this book), and the notion of negative competence-competence in French law: G. Bermann, The “Gateway” Problem in International Commercial Arbitration, 37 Yale Journal of International Law 1, 15-19 (2012). 77 Regulation (EU) 1215 / 2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), Official Journal L 351, 20 December 2012, p. 1. 78 “(12) This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law. A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. On the other hand, where a court of a Member State, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not preclude that court’s judgment on the substance of the matter from being recognised or, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958 (‘the 1958 New York Convention’), which takes precedence over this Regulation. This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award.”

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The Brussels I Recast will not come into effect until January 2015. It remains to be seen whether once that happens this recital will encourage national courts to the re-open of the West Tankers decision and refer it to the European Court and if so, whether the European Court will moderate its view. It is, perhaps, doubtful.

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Enforcing Orders Against Third Parties (and Parties) for the Taking of Evidence in International Arbitration John Fellas1 I. Introduction When it comes to international civil litigation, the choice of forum – which country’s courts resolve the suit – will have a significant impact on the case, and can be decisive. This is because the national courts in which a case is heard will be determinative of the procedures by which the case is resolved. Thus, in international litigation, the choice of forum can impact matters such as the breadth of discovery available to the parties, whether attorneys’ fees may be awarded to the prevailing party, whether a case may be brought as a class action, or whether the case will be decided by a civil law judge or a United States jury. It is for this reason that parties engage in forum shopping in international litigation, often racing to the courthouse with the aim of being the first to commence a suit in their favored forum. When considering how the choice of forum may determine the conduct of a lawsuit, it is important not only to consider the procedures that apply in the forum in which the litigation might be commenced, but also to consider the law of the place where evidence or assets are located. Thus, the U.S. might be the most favorable forum for a U.S. plaintiff who has suffered an injury at the hands of a foreign corporate defendant, for example, because it permits broad discovery and jury trials, but if that defendant has no assets in the U.S., the plaintiff will need to consider in advance whether any U.S. judgment would be enforceable in the forum where the defendant does have assets. If such judgment is not likely to be enforceable, a U.S. forum would not, in practice, be a prudent choice for the litigation, however favorable it might be in theory. The same consideration applies to the location of evidence. For example, one country’s courts might offer evidence-gathering assistance to parties to foreign proceedings and this might give one party an advantage over the other in those foreign proceedings. An example of this is 28 U.S.C § 1782, which enables a party to a proceeding outside of the U.S. to seek quite broad discovery of material located in the U.S. Because this statute permits the taking of evidence against a party to a litigation based in the U.S., it might be advantageous for a 1

The author would like to thank Madeleine Selwyn, Associate, Hughes Hubbard & Reed LLP, New York City for her invaluable contributions to this article.

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non-U.S. party in a dispute with a U.S. party to chose a court outside of the U.S. since a non-U.S. party can use section 1782 against a U.S. party, but the reverse would not be the case. In contrast to litigation, the choice of the seat of an international arbitration has a far less significant impact on the conduct of a case than the choice of court in international litigation. This is for several reasons. First, while the choice of seat may give rise to some differences in the procedures applying to the conduct of an arbitration, such differences will never be as stark as those between the procedures applicable to lawsuits in different countries. Thus in international litigation, the procedures by which a case will be resolved will be determined for the most part by the national law of the country in which the case has been brought. And, as noted above, the procedures governing civil litigation can differ markedly from country to country, and may be outcome determinative. In international arbitration, by contrast, the choice of seat will be only one factor among others – and probably not the most significant factor – affecting the procedures used to decide a case. When it comes to arbitration, far more significant than the choice of seat are the procedures agreed to by the parties for the conduct of the arbitration, including the arbitration rules they have selected, and the identity of the arbitrators. This is not to say that the place of arbitration has no bearing at all on the conduct of the arbitration. The place of arbitration will affect the lex arbitri – the procedures of national law governing the arbitration – as well as the standards by which any arbitral award might be set aside, since that is a matter of the national law at the seat of the arbitration unless the parties chose otherwise. The arbitration law of the seat has only a relatively modest impact on the procedures applying to an arbitration compared to the impact the civil procedure of a particular country has on the conduct of a lawsuit. But, just as in the litigation context, a party needs to take into account not only the procedures at the seat of the arbitration, but also the law of the place where evidence or assets are located. The location of assets is less of an issue in the arbitration context than in the litigation context. This is because, when it comes to litigation, there is no treaty that has the reach of the New York Convention. However, it is still necessary for a party to have some understanding of how the courts in the country or countries where assets are located may apply the New York Convention. And, as will be discussed in more detail below, when it comes to the taking of evidence, section 1782 may play a role in the arbitration context as well as the litigation context. Second, the lex arbitri of popular seats of arbitration (New York, London, Paris, Stockholm, Zurich, Geneva, Singapore, Hong Kong) do not vary as much from each other as do the procedures governing civil litigation in those cities. This is in part because there are unifying tendencies in the world of international arbitration, such as the New York Convention and the UNCITRAL Model Arbitration Law, which many countries have adopted either in whole or with some variations. These unifying tendencies are driven by an attempt to provide John Fellas

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an arbitration regime that can accommodate parties from different legal traditions. Thus, in contrast to the national civil procedure law of different countries which set forth detailed rules governing the conduct of a lawsuit reflecting local legal culture and traditions, the national arbitration law of the popular seats generally do not dictate specific procedures applicable to all aspects of the case. It is understood that those procedures are to be selected by the parties and the arbitrators. Therefore, while the lex arbitri of a particular seat may well vary from that of another, when it comes to a comparison of the popular seats, the differences are not likely to be major. Of course, there are exceptions. For example, class arbitration remains a possibility in the United States,2 but it is unlikely to be a serious possibility in most other countries. In addition, the seat of the arbitration might affect the relief available from courts in aid of arbitration. For example, a New York court has the authority to issue an anti-suit injunction to enjoin litigation brought in any other country in breach of an arbitration clause calling for arbitration in New York; an English court, by contrast, would not have that authority with respect to such litigation brought in another E. U. country.3 Third, another difference between arbitration and litigation when it comes to the choice of forum concerns the timing of that choice. In the arbitration context, the seat of the arbitration is routinely chosen in advance of any dispute as a result of its designation in an arbitration clause in the underlying contract. This means that the considerations as to what might be the appropriate seat for an arbitration will be decided on a bilateral basis before any dispute has ever arisen. Since the choice is made before the dispute arises, it might not always be possible for any party to know with any certainty whether the choice of a particular seat might prove to be the most favorable once a dispute arises, since at the time the choice is made, neither party knows the precise nature of the dispute. As a result the choice may be driven by considerations other than which forum is more favorable to one or other party from the standpoint of the resolution of the merits of the case. While the seat is chosen in advance of any dispute in the vast majority of cases in the arbitration context, in most cases in the litigation context the court is not chosen in advance. To be sure, in litigation the choice of court can be established in advance through agreement, but litigation need not arise out of a contractual relationship at all, and even where it does, there may not always be a choice of forum clause in the underlying contract. As a result, the choice of forum in the international litigation context is typically made after the dispute arises, and is made unilaterally, i. e., by one or other side to the dispute, and, 2 See

Oxford Health Plans LLC v. Sutter – U.S. – (2013).

3 Compare Paramedics Electromedicina Comercial Ltda. v. GE Med. Sys. Info. Techs., Inc.,

No. 02 Civ. 9369 (CFE), 2003 WL 23641529 (S. D. N. Y. June 4, 2003), aff’d in relevant part, 369 F.3d 645 (2d Cir. 2004) to Case C-185 / 07, Allianz S. p.A v West Tankers Inc., February 10, 2009 (ECJ).

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thus, can often result in a race to the courthouse. And at that point, the parties will have clear – and likely divergent – views of which of the fora likely to have jurisdiction is the more favorable from their respective points of view. As noted above, while the lex arbitri does not vary much from one country to another, it does vary to some extent. And one area where it does vary is the degree to which non-parties to an arbitration can be required to provide evidence in the form of testimony or documents. It is one of the hallmarks of arbitration that arbitrators derive their authority from the contract, and, as a result, their authority extends only to the parties to that contract. But, as in the litigation context, the question arises as to the extent to which it is possible to compel third parties to provide evidence in the international arbitration context. The rest of this article examines the law in the United States, focusing first on the law concerning the gathering of evidence in the U.S. for arbitrations in the United States, and then on the U.S. law applicable to gathering evidence in the U.S. for arbitrations outside the United States.

II. Arbitrations in the United States Any discussion of the enforcement of orders over third parties must begin with section 7 of the Federal Arbitration Act (“FAA”), which provides for the enforcement of arbitral subpoenas. The FAA applies to any arbitration in the United States involving interstate or international commerce.4 Section 7 provides: The arbitrators … or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case … Said summons shall issue in the name of the arbitrator or arbitrators, or a majority of them, and shall be signed by the arbitrators, or a majority of them, and shall be directed to the said person and shall be served in the same manner as subpoenas to appear and testify before the court; if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.5 Section 7 applies to “any person” and, thus, there is no question that section  7 contemplates the enforcement of an arbitral subpoena against third parties. Section 7 provides that a petition for the enforcement of an arbitral 4 See 5

9 U.S.C. § 2. These are state law rules that may apply to the gathering of evidence which are beyond the scope of this article. Id. § 7.

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subpoena must be made to “the United States district court for the district in which such arbitrators, or a majority of them, are sitting.” One of the hallmarks of section 7, and what may give rise to forum shopping, is that different courts in the United States have interpreted section 7 differently and thus the reach and force of an arbitral subpoena will thus depend on the “district in which [the] arbitrators, or a majority of them, are sitting.” The courts have diverged on two issues: (1) whether section 7 of the FAA permits arbitrators to issue subpoenas for pre-hearing document production and testimony from third parties; and (2) whether section 7 of the FAA contains territorial restrictions on the power of an arbitrator to summon a third-party to produce documents and provide pre-hearing testimony, or on a federal district court’s power to enforce such an order. Each of these issues is considered in turn.

II.A Pre-Hearing Third-Party Document Production And Testimony II. A.1 The Circuits Are Divided on the Issue of Whether Section 7 Authorizes Arbitrators to Issue Subpoenas to Third Parties for Pre-Hearing Document Production and Testimony Section 7 states that the arbitrators may summon a person to “attend before them.” The circuits are divided on whether section 7 authorizes an arbitrator to compel pre-hearing document production or testimony from a third-party, i. e., prior to the hearing “before them.” The Second and Third Circuits have held that the FAA does not authorize arbitrators to order the pre-hearing production of documents or testimony from third parties, based on the fact that it explicitly contemplates the witness appearing “before them.”6 The Fourth Circuit has similarly held that section 7 does not authorize the issuance of a pre-hearing arbitral subpoena to third parties, but has articulated an exception upon showing of a “special need.”7 By contrast, the Sixth and Eighth Circuits have held that the arbitrator’s power to order the production of a third party’s documents for review by a party prior to the hearing is implicit in an arbitration panel’s power to subpoena relevant documents for production at a hearing.8 The rest of this section discusses the pertinent cases. 6 See Hay Grp., Inc. v. E. B. S. Acquisition Corp., 360 F.3d 404, 408-411 (2d Cir. 2004); Life

Receivables Trust v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 216-217 (2nd Cir. 2008). 7 COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 275-276 (4th Cir. 1999). 8 See Am. Fed’n of Television & Radio Artists, AFL-CIO v. WJBK-TV (New World Commc’n of Detriot, Inc.), 164 F.3d 1004, 1009-1010 (6th Cir. 1999); In re. Sec. Life Ins. Co. of Am., 228 F.3d 865, 871 (8th Cir. 2000).

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In Hay Group, the Third Circuit considered whether a third-party could be compelled to produce documents in advance of an arbitration hearing. 9 In an opinion by then-circuit judge Samuel A. Alito, the Third Circuit, relying on the plain language of the statute and the historical background of section 7, held “a non-party witness may be compelled to bring documents to an arbitration proceeding but may not simply be subpoenaed to produce documents,”10 on the ground that the language of section 7 “unambiguously restricts an arbitrator’s subpoena power to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time.”11 The court further noted that “[t]his interpretation is supported by the interpretation of similar language in a previous version of Federal Rule of Civil Procedure 45,” which before 1991 did not allow pre-hearing subpoena of documents from non-parties.12 In Life Receivables Trust v. Syndicate 102 at Lloyd’s of London, the Second Circuit joined the Third Circuit, holding that “section 7 does not enable arbitrators to issue pre-hearing document subpoenas to entities not parties to the arbitration proceeding.”13 The Second Circuit similarly reasoned that the  9 In Hay, a consulting firm brought the arbitration against a former employee and served

arbitral subpoenas for documents on third parties and sought to have the documents produced prior to the arbitration hearing. The third-party objected, claiming, inter alia, that the FAA did not authorize the arbitration panel to issue subpoenas to nonparties for prehearing documents. See Hay Grp., 360 F.3d at 405-406. 10 See id. at 406; see also id. at 407: The only power conferred on arbitrators with respect to the production of documents by a non-party is the power to summon a non-party “to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document or paper which may be deemed material as evidence in the case.” 9 U.S.C. § 7 (emphasis added). The power to require a non-party “to bring” items “with him” clearly applies only to situations in which the nonparty accompanies the items to the arbitration proceeding, not to situations in which the items are simply sent or brought by a courier. 11 Id. 12 See id. Having found the language of the statute straightforward, the court considered whether the result was absurd and determined that heeding the clear language of section 7 does not lead to absurd or unreasonable results for at least two reasons. First, it was the very same standard under which federal courts had operated for over fifty years. Second, the court stated that a literal reading of section 7 arguably furthers arbitration’s goals of “resolving disputes in a timely and cost efficient manner” because it would “in the long run, discourage the issuance of large-scale subpoenas upon non-parties” by forcing parties to “consider whether the documents are important enough to justify the time, money, and effort that the subpoenaing parties will be required to expend if an actual appearance before an arbitrator is needed.” Id. at 409. 13 Life Receivables Trust v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 212 (2nd Cir. 2008).

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language of 9 U.S.C. § 7 was “straightforward and unambiguous” and that when a statute’s language is clear, a court should “enforce that language ‘according to its terms.’”14 The Court stated: The FAA was enacted in a time when pre-hearing discovery in civil litigation was generally not permitted. The fact that the Federal Rules of Civil Procedure were since enacted and subsequently broadened demonstrates that if Congress wants to expand arbitral subpoena authority, it is fully capable of doing so. There may be valid reasons to empower arbitrators to subpoena documents from third parties, but we must interpret a statute as it is, not as it might be, since “courts must presume that a legislature says in a statute what it means and means in a statute what it says …” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). A statute’s clear language does not morph into something more just because courts think it makes sense for it to do so.15 While both the Hay and Life Receivables courts addressed subpoenas for document production, the Hay court stated that section 7 did not authorize orders for a pre-hearing deposition.16 The Second Circuit appears to agree with this position.17 Like the Second and Third Circuits, the Fourth Circuit has held that section 7 does not empower an arbitrator to issue pre-hearing discovery subpoenas to third parties. In COMSAT Corp. v. National Science Foundation, the Fourth Circuit stated that arbitral subpoena powers are “limited to those created by the 14

Id. at 216 (citations omitted). Id. Life Receivables specifically abrogated a line of Southern District of New York cases which had held that an arbitrator may not compel attendance of a nonparty at a prehearing deposition, but left standing the obligation to produce documents prior to the hearing. See Atmel Corp. v. LM Ericsson Telefon, AB, 371 F. Supp. 2d 402, 404 (S. D. N. Y. 2005) (“[U]nlike the power to compel document production before the hearing, which can be seen as merely an efficiency-increasing regulation of the timing of production, an implied power incident to the power to compel the production of documents for use at the hearing, the power to compel deposition testimony cannot be so implied.”); Integrity Ins. Co. v. Am. Centennial Ins. Co., 885 F. Supp. 69, 73 (S. D. N. Y. 1995) (“Documents are only produced once, whether it is at the arbitration or prior to … the hearing so that the parties can familiarize themselves with the content of the documents. Depositions, however, are quite different. The nonparty may be required to appear twice – once for deposition and again at the hearing.”). 16 See Hay Grp., 360 F.3d at 410 (“Nowhere does the FAA grant an arbitrator the authority to order non-parties to appear at depositions, or the authority to demand that nonparties provide the litigating parties with documents during pre-hearing discovery.”) (quoting COMSAT Corp., 190 F.3d at 275). 17 See Life Receivables, 549 F.3d at 216. 15

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express provisions of the FAA” which do not include “the authority to demand that nonparties provide the litigating parties with documents during prehearing discovery.”18 However, the Court reasoned that because arbitral efficiency would be “degraded if the parties are unable to review and digest relevant evidence prior to the arbitration hearing,”19 the Court carved out an exception in dicta under which a party could petition the district court to compel pre-arbitration discovery “upon a showing of special need or hardship.”20 The Court did not attempt to define “special need” except to observe that “at a minimum, a party must demonstrate that the information it seeks is otherwise unavailable.”21 The Second and Third Circuits have rejected the “special need” exception,22 but the New York First Department, Appellate Division has adopted the Fourth’s Circuit’s holding. In a 2005 decision, the First Department, citing to COMSAT, took the position that “depositions of nonparties may be directed in FAA arbitration where there is a showing of ‘special need or hardship’ such as where the information sought is otherwise unavailable.”23 Consequently, New York state and federal jurisprudence now contain conflicting decisions regarding whether section 7 allows pre-hearing document production and testimony from third parties. The Sixth and Eighth Circuits, with the aim of furthering “the interest in efficiency”, have taken a different view from the Second and Third Circuits and held that the power to compel pre-hearing discovery from a third-party is implicit in the power of an arbitrator to compel production of documents

18

COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 275 (4th Cir. 1999). The Fourth Circuit explained the rationale for constraining an arbitrator’s subpoena power: “Parties to a private arbitration agreement forego certain procedural rights attendant to formal litigation in return for a more efficient and cost-effective resolution of their disputes … A hallmark of arbitration – and a necessary precursor to its efficient operation – is a limited discovery process.” Id. at 276. 19 Id. 20 Id. 21 Id. The Fourth Circuit noted that COMSAT did not attempt to make such a showing before the district court and the Court inferred from the record that no such showing would be possible because many of the documents were obtained from the other party or with a FOIA request and COMSAT had already obtained hundreds of responsive documents via the FOIA process. Id. 22 See Hay Grp., Inc. v. E. B. S. Acquisition Corp., 360 F.3d 404, 410 (2d Cir. 2004) (“While we agree with COMSAT’s holding, we cannot agree with this dicta because there is simply no textual basis for allowing any ‘special need’ exception. Again, while such a power might be desirable, we have no authority to confer it.”); see also Life Receivables, 549 F.3d at 216-217. 23 ImClone Sys. v. Waksal, 22 A. D.3d 387, 388 (1st Dep’t 2005).

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from a third-party for a hearing.24 Both circuits, however, declined to reach the question of whether an arbitrator may subpoena a third-party for a pre-hearing deposition.25 In American Federation of Television & Radio Artists, AFL-CIO, the Sixth Circuit addressed the issue of enforcement of a document subpoena issued by labor arbitrator under the Labor Management Relations Act (“LMRA”), U.S.C. § 301. Noting that federal courts may look to the FAA for guidance in labor arbitration cases, the court observed that 9 U.S.C. A. § 7 authorized an arbitrator to compel the production of documents for inspection by a party prior to the hearing. The Sixth Circuit concluded that a labor arbitrator is similarly “authorized to issue a subpoena duces tecum to compel a third-party to produce records he deems material to the case either before or at an arbitration hearing.”26 The following year, the Eighth Circuit held that it would promote efficiency to permit a party to review and digest relevant documentary evidence prior to the arbitration hearing. In Security Life Insurance, the plaintiff insurer sought enforcement of an arbitral subpoena against a reinsurer that was technically not a party to the proceeding (but was a party to the underlying reinsurance contract). The Court held that “implicit in an arbitration panel’s power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the hearing.”27 The Third Circuit expressly rejected this “implied power” approach in Hay, stating that the Eighth’s Circuit policy argument in favor of arbitral efficiency “cannot supersede the statutory text.”28 District courts weighing in on the dispute 24

In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-871 (8th Cir. 2000); Am. Fed’n of Television & Radio Artists, AFL-CIO v. WJBK-TV (New World Commc’n Detriot, Inc.), 164 F. 3d 1004, 1009 (6th Cir 1999). 25 See Am. Federation, 164 F.3d at 1009, n.7; Sec. Life, 228 F.3d 865 at 870 (“Transamerica’s challenge to the district court’s order compelling attendance of its employee at a prehearing deposition has been mooted by its compliance with the California court’s subpoena.”). 26 Am. Federation, 164 F.3d at 1009. 27 Sec. Life, 228 F.3d at 870-71. 28 See Hay Grp., Inc. v. E. B. S. Acquisition Corp., 360 F.3d 404, 410 (2d Cir. 2004); see also id. at 408-409: We disagree with this power-by-implication analysis. By conferring the power to compel a non-party witness to bring items to an arbitration proceeding while saying nothing about the power simply to compel the production of items without summoning the custodian to testify, the FAA implicitly withholds the latter power. If the FAA had been meant to confer the latter, broader power, we believe that the drafters would have said so, and they would have then had no need to spell out the more limited power to compel a non-party witness to bring items with him to an arbitration proceeding. As mentioned above, until its amendment in 1991, Rule 45 of the Federal Rules of Civil Procedure was framed in terms quite similar to Section 7 of the FAA, but courts did not infer that, just

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have gone in both directions. The Eastern District of Louisiana and Northern District of Georgia have held that section 7 allows document discovery from non-parties.29 On the other hand, several district courts have recently adopted the reasoning set out in Hay and Life Receivables, accepting that the arbitrator’s subpoena power does not extend to third-party prehearing discovery.30 II.A.2 The Second and Third Circuits have held that the FAA authorizes Arbitrators to Compel the Production of Documents and Witnesses at a “Pre-Merits” Hearing Second and Third Circuit decisions suggest a way to obtain production of documents by a third-party in advance of an arbitral hearing: by holding a pre-merits hearing. because they could compel a non-party witness to bring items with him, they could also require a non-party simply to produce items without being subpoenaed to testify. 29 See Festus & Helen Stacy Found., Inc. v. Merrill Lynch, Pierce Fenner & Smith Inc., 432 F. Supp. 2d 1375, 1379 (N. D. Ga. 2006) (holding that the FAA impliedly permits an arbitration panel to order document discovery prior to a hearing); In re Meridian Bulk Carriers, Ltd., No. 03-2011, 2003 U.S. Dist. LEXIS 24203, at *1-2 (E. D. La. July 17, 2003) (allowing subpoenas of third parties to the extent they sought document production but holding that depositions of non-parties were not permitted). 30 See, e. g., Empire Fin. Grp., Inc. v. Penson Fin. Services, Inc., CIV. A. 3:09-CV-2155D, 2010 WL 742579, at *3 (N. D. Tex Mar. 3 2010) (“The court adopts the reasoning of the Third and Second Circuits and holds that § 7 of the FAA does not authorize arbitrators to compel production of documents from a non-party, unless they are doing so in connection with the non-party’s attendance at an arbitration hearing.”); Ware v. C. D. Peacock, No. 10 C 2587, 2010 WL 1856021, at *3 (N. D. Ill. May 7, 2010) (“The Court finds that the Second and Third Circuit’s position is the better reasoned view of the statute and holds that the plain language of Section 7 of the FAA does not authorize arbitrators to issue subpoenas for depositions of non-parties outside the physical presence of the arbitrator.”)(granting non-party’s motion to quash an arbitrator’s subpoena for her pre-hearing deposition); Kennedy v. Am. Express Travel Related Services Co., 646 F. Supp. 2d 1342, 1344 (S. D. Fla. 2009) (finding that an arbitrator is not statutorily authorized under the FAA to issue summonses for pre-hearing document discovery from non-parties). It is worth noting that there are a number of state statutes, for example, those based on the Revised Uniform Arbitration Act, “which allow arbitrators to require pre-hearing discovery from non-parties without the restrictions that have been imposed under Section 7.” See Report of Int’l Commercial Disputes Comm. of the Ass’n of the Bar of the City of New York, Obtaining Evidence From Non-Parties in International Arbitration in the United States, 20 American Review of International Arbitration. 421, 442 (2009) [hereinafter NYCBA Report]. It is beyond the scope of this paper to address these statutes. For a more detailed discussion see NYCBA Report, supra.

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In Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567 (2nd Cir. 2005), the arbitration panel issued subpoenas to a non-party shipping tanker company’s record custodians and to that tanker company’s former general counsel. The subpoenas directed the recipients to appear and testify, and to provide documents, at a hearing convened before the arbitration panel. The Second Circuit affirmed the district court’s order compelling compliance with the subpoenas, rejecting the tanker company’s argument that 9 U.S.C. § 7 did not empower arbitrators to summon non-parties for the purpose of compelling testimony and document production in advance of a hearing on the merits and that the subpoenas in question were a “a thinly disguised attempt[s] to obtain the pre-hearing discovery” in contravention of section 7 of the FAA.31 The Second Circuit held that the subpoenas in question “did not compel pre-hearing depositions or document discovery from non-parties” but instead compelled non-parties to “appear and provide testimony and documents to the arbitration panel itself at a hearing held in connection with the arbitrator’s consideration of the dispute.”32 The Court held that: Any rule there may be against compelling non-parties to participate in discovery cannot apply to situations … in which the non party is “summon[ed] in writing … to attend before [the arbitrators] or any of them as a witness and … to bring with him … [documents] which may be deemed material as evidence in the case.”33 The court further stated that the reference in 9 U.S.C. A. § 7 to hearings “‘before [the arbitrators] or any of them’ suggest[ed] that the provision authorized the use of subpoenas at preliminary proceedings even in front of a single arbitrator, before the full panel ‘hear[d] the more central issues.’”34 31

Stolt-Nielsen, 430 F.3d at 571 (citation omitted). Id. at 569. Accordingly, the Court stated that it was unnecessary for it to resolve the then open question of whether section 7 authorizes arbitrators to issue subpoenas to non-parties to compel pre-hearing discovery. Id. 33 Id. at 577-578. 34 Id. at 579 (internal citations omitted); see also id. at 578-579: Contrary to Stolt’s assertions, the mere fact that the session before the arbitration panel on December 21 was preliminary to later hearings that the panel intended to hold does not transform the December 21 hearing into a discovery device. As Judge Rakoff rightly recognized, “Nothing in the language of the FAA limits the point in time in the arbitration process when [the subpoena] power can be invoked or says that the arbitrators may only invoke this power under section 7 at the time of the trial-like final hearing.” Odfjell ASA, 348 F.Supp.2d at 287. To the contrary, the language of Section 7 is broad, limited only by the requirement that the witness be summoned to appear “before [the arbitrators] or any of them” and that any evidence requested be material to the case. See 9 U.S.C. § 7. 32

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In Hay Group Judge Chertoff – in a concurring opinion – noted that while section 7 does not authorize enforcement of an arbitration subpoena directed to a non-party in the absence of a hearing, it does permit subpoenas in which “the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time”.35 Judge Chertoff stated: Under section 7 of the Federal Arbitration Act, arbitrators have the power to compel a third-party witness to appear with documents before a single arbitrator, who can then adjourn the proceedings. This gives the arbitration panel the effective ability to require delivery of documents from a thirdparty in advance, notwithstanding the limitations of section 7 of the FAA. In many instances, of course, the inconvenience of making such a personal appearance may well prompt the witness to deliver the documents and waive presence … To be sure, this procedure requires the arbitrators to decide that they are prepared to suffer some inconvenience of their own in order to mandate what is, in reality, an advance production of documents. But that is not necessarily a bad thing, since it will induce the arbitrators and parties to weigh whether advance production is really needed.36 In Life Receivables the Second Circuit agreed with the views of Judge Chertoff of the Third Circuit.37 The Second Circuit also acknowledged a possible benefit of section 7’s “presence requirement,” noting that it “forces the party seeking the non-party discovery – and the arbitrators authorizing it – to consider whether production is truly necessary.”38 However, many have criticized the need to hold a hearing or to adopt the mechanism outlined by Judge Chertoff in order to obtain pre-hearing docu

Furthermore, in determining that the subpoenas at issue were within the authority provided arbitrators under section 7, the Second Circuit considered the fact that (1) the witnesses were not ordered to appear for depositions, but to appear at a hearing before the arbitrators, (2) unlike a deposition, “the panel ruled at the hearing on evidentiary issues such as admissibility and privilege” and (3) the testimony provided at the hearing “became part of the arbitration record to be used by the arbitrators in their determination of the dispute before them.” Indeed the court noted the utility of such a hearing: that “arbitrators may need to hear testimony or receive evidence on preliminary issues … in advance of an ultimate hearing on the substantive merits of the underlying claims in the arbitration.” Stolt-Nielsen, 430 F.3d at 579. 35 See Hay Grp., Inc. v. E. B. S. Acquisition Corp., 360 F.3d 404, 407 (2d Cir. 2004) (Chertoff, J., concurring). 36 Id. at 413-414 (emphasis added). 37 See Life Receivables Trust v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 218 (2d Cir. 2008). 38 Id.

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ment production from third parties.39 Unsurprisingly, several commentators have called for amendments to section 7. The International Commercial Disputes Committee of the Association of the Bar of the City of New York recently expressed the view that “as part of a broader amendment to the FAA, section 7 should eventually be amended to eliminate any requirement of a hearing for production of documents from non-parties.”40 In the meantime, commentators have suggested ways to ease the burden and costs of all parties concerned in holding such a ‘pre-merits’ hearing. One such method would be to make use of video conferencing technology to “virtually appear” before the arbitration panel for the document production hearing.41 Another option is to temporarily relocate the hearing location to the locale of the resistant third-party, for document production purposes.42

39

See, e. g., NYCBA Report, supra note 30, at 451 (citing, D. D. Siegel, Under Federal Arbitration Act, While Arbitrator Can Subpoena Nonparty as Witness, It Can’t Separately Compel Discovery; What’s N. Y. Rule?, Siegel’s Practice Review 2 (2008); L. Pearson, The Case for Non-Party Discovery Under the Federal Arbitration Act, 59 Journal of Dispute Resolution 46, 52 (2004)). 40 See NYCBA Report, supra note 30, at 451. The Committee stated: Although it may be necessary and appropriate for arbitrators to hold hearings to rule on disputed issues of privilege or other document production issues that might be ripe for decision prior to a merits hearing, in many cases the identity of the documents to be produced may not be in dispute. In such cases, the requirement of a hearing and an appearance by the witness to obtain production of documents is a relic of a distant era. There is no longer any comparable requirement for production of documents by a nonparty witness in cases in litigation in U.S. federal court. Since 1937, the federal rules have permitted pre-trial document production from non-parties without any requirement of a hearing. In 1991, Rule 45 was amended to eliminate any requirement of an appearance by a witness for document production, whether for discovery or at a hearing or trial. In the Committee’s view, the ability under the FAA to obtain documents from non-parties should remain limited and subject to the control of the arbitrators and the courts. However, it is difficult to conceive of any justification for maintaining the requirement of a hearing and an appearance by the witness for document production in arbitration. It potentially imposes unnecessary burdens and costs on all concerned – the parties, the arbitrators and the non-parties who are subject to the subpoena. NYCBA Report, supra note 30, at 452. 41 D. C. Beasley, Recurring Concerns in Arbitration Proceedings: Examining the Contours of Arbitral Subpoenas Issued to NonParty Witnesses, 87 University of Detroit Mercy Law Review 315, 329 (2010). 42 See id.; NYCBA Report, supra note 30, at 454.

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II.B The Territorial Reach Of Section 7 II. B.1 The Circuits Are Divided on the Issue of Whether Section 7 of the FAA Imposes Any Territorial Limits on An Arbitrator’s Power to Summon a Third-Party To Testify and Produce Documents or on a Federal District Court to Enforce Such an Order. Another issue over which courts have divided is whether there is a territorial limitation to the arbitrator’s power to issue a subpoena to a third-party. Section 7 explicitly places two potentially limiting procedural requirements on arbitral subpoenas. First, the subpoena is to be enforced in the “district court in the district in which the arbitrators are sitting.”43 Second, under section 7 arbitral subpoenas are to be “served in the same manner as subpoena to appear and testify before court,” and enforced “in the same manner provided by law for securing the attendance of witnesses.”44 In order to understand these two limitations, section 7 has to read in the light of Federal Rule of Civil Procedure 45, which governs subpoenas more generally.45 First, Rule 45 provides that a subpoena may be served within the district of the issuing court, or if outside that district, at a place within 100 miles of the place specified for the deposition, hearing, trial, production or inspection.46 Second, Rule 45 provides that a subpoena for production or inspection must issue “from the court for the district where the production or inspection is to be made”47 and a subpoena for attendance at a deposition, must issue “from the court where the deposition is to be taken.”48 Rule 45(e) provides that failure to comply with a properly issued subpoena “may be deemed a contempt of the court from which the subpoena issued.”49 43

9 U.S.C. § 7. Id.; see also G. Sharma, Proposed Amendments to Rule 45 of the Federal Rules of Civil Procedure May Expand the Territorial Scope of Arbitral Subpoenas Under Section 7 of the Federal Arbitration Act, 27-6 Mealey’s International Arbitration Report 24 (2012). Section 7 also provides that an arbitral subpoena “shall be served in the same manner as subpoenas to appear and testify before the court.” 9 U.S.C. § 7. 45 See Dynegy Midstream Servs., LP v. Trammochem, 451 F.3d 89, 94 (2d Cir 2006). 46 Fed. R. Civ. P. 45(b)(2)(A) & (B). Under Rule 45 a subpoena may also be served “within the state of the issuing court if a state statute or court rule allows service at that place of a subpoena issued by a state court of general jurisdiction sitting in the place specified for the deposition, hearing, trial, production or inspection” or at any place “that the court authorizes on motion and for good cause, if a federal statute so provides.” Fed. R. Civ. P. 45(b)(2)(C) & (D). 47 Fed. R. Civ. P. 45(a)(2)(C). 48 Fed. R. Civ. P. 45(a)(2)(B). 49 Fed. R. Civ. P. 45(e); see also Dynegy, 451 F.3d at 95. 44

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The difficulties raised by the interplay of Rule 45 and section 7 can be illustrated by considering the Dynegy case. There, arbitrators sitting in New York City issued a documents-only subpoena to a Texas-based, third-party subcontractor to produce documents in Texas. The Second Circuit noted: Ordinarily, under Rule 45, such a subpoena would be issued by the District Court for the Southern District of Texas and could be enforced by that court. However, FAA Section 7 provides that subpoenas issued under that section may be enforced by petition to “the United States district court for the district in which such arbitrators, or a majority of them, are sitting.” 9 U.S.C. § 7. Here, the arbitrators were sitting in the Southern District of New York, so FAA Section 7 required that any enforcement action be brought there.50 The court held that the New York district court lacked personal jurisdiction over the third-party to enforce the subpoena and reversed the district court’s order that the subcontractor comply with the subpoena.51 It concluded that “the Federal Rules governing subpoenas to which Section 7 refers do not contemplate nationwide service of process or enforcement; instead both service and enforcement proceedings have clear territorial limitations.”52 The appellees argued that such a finding would “create the absurd result that FAA section 7 authorizes the issuance of some subpoenas that cannot be enforced.”53 While acknowledging this enforcement gap, the Second Circuit rejected the appellee’s request to adopt a method to avoid this gap in enforceability, which it noted “may reflect an intentional choice on the part of Congress.”54 The court reasoned that Congress knows how to authorize nationwide service of process but failed to provide for it here.55 50

Dynegy, 451 F.3d at 95. The court avoided the question of whether a documents-only subpoena was permissible under the FAA. This decision came before the Second Circuit’s later decision addressing this issue in Life Receivables. 52 Dynegy, 451 F.3d at 95. 53 Id. at 96. 54 Id. It concluded that there was no basis “to come up with an alternate method to close a gap that may reflect an intentional choice on the part of Congress, which could well have desired to limit the issuance and enforcement of arbitration subpoenas in order to protect nonparties from having to participate in an arbitration to a greater extent than they would if the dispute had been filed in a court of law.” Id. The court agreed that “the FAA expresses a strong federal policy in favor of arbitration” but noted that “the purpose of the FAA was to make arbitration agreements as enforceable as other contracts, but not more so.” Id. 55 See id. (“Congress knows how to authorize nationwide service of process when it wants to provide for it. That Congress failed to do so here argues forcefully that such authori51

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In an unpublished opinion, the Third Circuit reached the same conclusion as the Second Circuit, finding that “a subpoena duces tecum issued by a federal court cannot be served upon a nonparty for the production of documents located outside the geographic boundaries specified in Rule 45.”56 Other courts have dealt with the interaction between section 7 and Rule 45 in different ways. The Eighth Circuit has held that a section 7 subpoena for the production of documents is entitled to nationwide service of process. In Security Life Insurance, the court considered an arbitral subpoena for documents issued by a tribunal in Minnesota and served in Los Angeles. The Court enforced the subpoena noting: “We do not believe an order for the production of documents requires compliance with Rule 45(b)(2)’s territorial limit. This is because the burden of producing documents need not increase appreciably with an increase in the distance those documents must travel.”57 In Festus & Helen Stacy Found., Inc. v. Merrill Lynch, Pierce Fenner, & Smith, 432 F. Supp. 2d 1375, 1378-79 (N. D. Ga. 2006), the Northern District of Georgia similarly held that “the territorial limits of personal jurisdiction do not apply to the enforcement of a subpoena for documents under the FAA.”58 In Amgen Inc. v. Kidney Center of Delaware County, Ltd., 879 F. Supp. 878 (N. D. Ill. 1995), the Northern District of Illinois also held that an arbitral subpoena directed to a third- party located outside of the court’s district and outside the 100-mile limit imposed by F. R. C.P 45 was valid and enforceable. However, the court arrived at that holding through entirely different reasoning in a decision that has sparked much debate. There, Amgen, a party to an arbitration being held in Chicago, filed a motion to compel compliance with a subpoena issued to a third-party located in the Eastern District of Pennsylvania for documents and testimony. The Pennsylvania district could held that because the arbitrator was sitting in Chicago, pursuant to section 7 of the FAA, “it was incumbent upon Amgen, pursuant to the plain language of section 7 of the Federal Arbitration Act, to bring its petition to compel compliance in the United States District Court for the Northern District zation was not its intention.” (citing Omni Capital Int’l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 106 (1987)). The court also noted that the parties could have chosen to arbitrate in Texas, where the subcontractor “would have been subject to an arbitration subpoena and a Texas district court’s enforcement of it,” but having made that choice for their own convenience, “the parties should not be permitted to stretch the law beyond the text of Section 7 and Rule 45 to inconvenience witnesses.” Id. at 95. 56 Legion Ins. Co. v. John Hancock Mut. Life Ins. Co., 33 Fed. Appx. 26, 28 (3d Cir. 2002). 57 In re. Sec. Life Ins. Co. of Am., 228 F.3d 865, 872 (8th Cir. 2000). The Court declined, however, to rule on the “thorny question” of whether or not an arbitral subpoena for third party testimony must comply with the territorial limits of Rule 45. Id. at 872. 58 432 F. Supp. 2d at 1378 (finding that it had jurisdiction to enforce the arbitral subpoena against out-of-state third party).

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of Illinois.”59 However, when Amgen moved to compel before the district court in Chicago, the third-party argued that the court could not exercise subpoena power beyond certain territorial limits.60 The Illinois court noted that because the arbitrator is located in Chicago, “any petition to enforce the subpoena must be brought to this court.”61 However it also observed that under the statute the court may compel the third-party’s attendance “in the same manner that it would secure the attendance of any witness in this court.”62 The Court further explained that the federal court in Illinois could not enforce a subpoena for a deposition in Philadelphia because Fed. R. Civ. P. 45 places territorial limits on the subpoena power of a federal court: The problem arises because of the difference in the way the Federal Rules provide for the issuance of subpoenas for depositions and for trial. Under Fed. R.Civ. P. 45(a)(2), a subpoena commanding attendance at trial shall issue from the court for the district in which the trial is to be held, while a subpoena for attendance at a deposition shall issue from the court for the district designated by the notice of deposition as the district in which the deposition is to be taken. In the instant case, the deposition is to be taken in the Eastern District of Pennsylvania. That court, however, correctly refused to issue a subpoena because under Section VII of the FAA only this court can determine the enforceability of the arbitrator’s subpoena.63 While acknowledging that it lacked the power to compel compliance with the subpoena under these circumstances, the court, rejected the third-party’s argument that the law in effect contained a gap precluding court enforcement of the arbitration subpoena.64 The court reasoned that the federal policy in favor of arbitration required that the subpoena power of an arbitrator under the FAA be enforced. 65 59

Amgen Inc. v. Kidney Ctr. of Delaware Cnty., Ltd., No. 94-mc-0202, 1994 U.S. Dist LEXIS 15451, at *3 (E. D. Pa. Oct. 19, 1994). 60 Specifically, the third party argued that because a subpoena must, under Fed. R. Civ. P. 45(a)(2) be issued from the district in which the proceeding is to take place (here, the Eastern District of Pennsylvania), a court in the Northern District of Illinois could not compel the non-party to attend a deposition in Pennsylvania. See Amgen, 879 F. Supp. at 879. 61 Id. at 881. 62 Id. at 881-882. 63 Id. at 882. 64 Id. 65 See id. (“By enacting the FAA, Congress declared a national policy favoring arbitration. Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987).… To find that the wording of the FAA precludes issuance and enforcement of an arbitrator’s subpoena of a witness outside the district in which he or she sits, particularly where, as here, such

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The court found that the Federal Rules presented a way around the enforcement gap and read the FAA and Rule 45 in a way that “plugged the gap.”66 The court noted that the parties to the arbitration proceedings had agreed to conduct them pursuant to the Federal Rules of Civil Procedure, which provided for liberal discovery. Furthermore, those rules provided for “a mechanism for nationwide discovery, and preserving the testimony of witnesses unavailable at trial because they are outside the district, by use of evidence depositions.”67 The Amgen court concluded that the party wishing to issue the subpoena could do so under the district court case number assigned in connection with the subpoena enforcement proceeding and could then serve and enforce the subpoena in the Eastern District of Pennsylvania pursuant to Federal Rule of Civil Procedure 45(a)(3)(B).68 Under that rule the petitioner’s attorney, as an officer of the court, could be directed to issue and sign the subpoena on behalf of the court for the district in which the deposition or production is to take place, i. e., the district court for the Eastern District of Pennsylvania.69 While the court in the Eastern District of Pennsylvania “because of the wording of the FAA, could not enforce an arbitrator’s subpoena” it could, the court reasoned “enforce a subpoena issued by Amgen’s attorney with the name and number of a case pending before this court.”70 The Second Circuit has expressly rejected this “compromise position.”71 II.B.2 The Call for Amendments to Section 7 Just as there has been growing support for an amendment to eliminate any requirement of a hearing for production of documents from non-parties, so too have there been calls for amendments to section 7 to enhance its territorial reach. The New York City Bar has recently suggested that section 7 “should be discovery is agreed upon by the parties to the arbitration, would likely lead to rejection of arbitration clauses altogether. That would be contrary to the intent of Congress in enacting a national policy favoring arbitration.”). 66 See Alliance Healthcare Services, Inc. v. Argonaut Private Equity, LLC, 804 F. Supp. 2d 808, 812 (N.D. Ill. 2011). 67 Amgen, 879 F. Supp. at 883. 68 Fed. R. Civ. P. 45(a)(3)(B) provides that an attorney “may issue and sign a subpoena as an officer of …a court for a district where a deposition is to be taken or production is to be made, if the attorney is authorized to practice in the court where the action is pending.” 69 Amgen, 879 F. Supp. at 882-883. 70 Id. at 883. On appeal in Amgen, the Seventh Circuit did not address the issue of enforcement of the arbitral subpoena but raised the issue of whether the district court had subject matter jurisdiction. It ultimately directed the district court to make and certify findings on subject matter jurisdiction. See Amgen, Inc. v. Kidney Ctr. of Delaware Cnty., Ltd., 95 F.3d 562, 567 (7th Cir. 1996). 71 See Dynegy Midstream Servs., LP v. Trammochem, 451 F.3d 89, 95 (2d Cir 2006).

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amended to allow arbitral subpoenas directed to non-parties to be served and enforced in the place where the non-parties are located, in same manner as subpoenas issued under Rule 45(a)(3)(B).”72 It is worth noting that the Advisory Committee on the Federal Rules of Procedure recently proposed amendments to Rule 45 that would significantly change the reach of federal subpoenas, including removing the 100-mile limitation and providing for nationwide service of process.73 Those amendments “seek to simplify Rule 45 by making the court where an action is pending the issuing court, permitting service throughout the United States … and combining all provisions on the place of compliance into a new Rule 45(c).”74 If adopted,75 those amendments to Rule 45 have the potential to impact the territorial Scope of section 7 arbitral subpoenas particularly in those courts 72

NYCBA Report, supra note 30, at 453: Rule 45 (a)(3)(B) provides that an attorney “may issue and sign a subpoena as an officer of … a court for a district where a deposition is to be taken or production is to be made, if the attorney is authorized to practice in the court where the action is pending.” The Rule effectively permits nationwide service and enforcement of discovery subpoenas for litigation in federal courts as long as they are issued in the name of a district court for the district where the deposition or document production is to take place and served either within that district, outside that district but within 100 miles of the place specified for the deposition or document production, or within the state of the issuing court. As these provisions of Rule 45 recognize, commerce, communications and business enterprises in the United States transcend state lines and the borders of judicial districts. In many cases, information necessary for the fair and efficient resolution of a dispute subject to arbitration will be in the hands of parties more than 100 miles from the place where the arbitrators are sitting. The Committee sees no reason why similar mechanisms for service and enforcement should not also be available for subpoenas for pre-hearing document production and testimony issued by arbitral tribunals. 73 See Sharma, supra note 44, at 3. 74 Committee on Rules of Practice & Procedure, Report of the Judicial Conference Committee on Rules of Practice & Procedure 20 (2012), available at http: // ​w ww.uscourts. gov / ​uscourts / ​RulesAndPolicies / ​r ules / ​Reports / ​ST09-2012.pdf. The proposed amendment to Rule 45(b)(2) would alter that provision to read: “A subpoena may be served at any place within the United States.” Fed. R. Civ. P. 45(b)(2) (Proposed Amendments 2011). Natasha Breaux observes: “The amendments completely eliminates current Rule 45(b)(2) subsections (A) through (D). Significantly, this removes subsection (B) which imposes a 100-mile limitation. Further, Rule 45(b)(2) is no longer subject to Rule 45(c) (3)(A)(ii), which currently imposes another 100-mile limitation, because that section’s 100-mile limitation has been eliminated as well.” N. Breaux, Analysis of the Proposed Amendments to Federal Rule of Civil Procedure 45 Pertaining to Nonparty Subpoenas for Documents, 50:1 Houston Law Review 191, 211-212 (2012). 75 These proposed changes were recently approved by the Judicial Conference (in the September 11, 2012 session), which agreed to transmit them to the Supreme Court for



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that have previously limited the territorial reach of such subpoenas.76 As one commentator has noted: “because the proposed changes provide for nationwide service of process, it is possible that these jurisdictions would now – like the Northern District of Georgia has previously –find that arbitral subpoenas under section 7 are entitled to nationwide service of process.”77 In the meantime, attempts to circumvent the territorial limitations of section 7 continue to emerge. Several commentators have observed that one such method is to temporarily relocate the arbitration hearing to within 100 miles of the subject of the subpoena / ​to schedule the pre-merits hearing contemplated by Stolt to a place within 100 miles of the person subject to the subpoena.78 As the New York City Bar Association has noted: “At least one court has upheld a subpoena requiring a non-party to appear and testify before a relocated tribunal.”79 However, convincing the arbitrators to convene a hearing where the witness is located and to issue a subpoena to the witness from that location consideration with a recommendation that they be adopted by the Court and transmitted to Congress in accordance with the law. See Pending Rules Amendments, United States Courts, http: // ​w ww.uscourts.gov / ​RulesAndPolicies / ​r ules / ​pending-rules.aspx (last visited April 1, 2012). The Supreme Court has until May 1, 2013 to transmit the proposal to the U.S. Congress. If the U.S. Congress does not act, the proposal will become a rule by December 1, 2013. See Sharma, supra note 44, at 4. 76 See Sharma, supra note 44, at 3. 77 Id. at 4. 78 See e. g., NYCBA Report, supra note 30, at 424; P. D. Friedlan & L. Martinez, Arbitral subpoenas under U.S. Law and Practice, 14 American Review of International Arbitration 197, 227 (2003) (“One way for an arbitral panel to overcome this territorial jurisdictional obstacle is temporarily to relocate the arbitration hearing to within 100 miles of the subject of the subpoena.”); T. Sniger, The Discovery Powers of Arbitrators and Federal Courts under the Federal Arbitration Act, 34 Tort Trial and Insurance Practice Law Journal 101, 108 (1998); R. W. DiUbaldo, Evolving Issues in Reinsurance Disputes: The Power of Arbitrators, 35 Fordham Urban Law Journal 83, 99 (2008) (“An arbitration panel could decide to ‘sit’ in a location other than where the arbitration is taking place but within 100 miles of the nonparty from whom discovery is sought for the sole purpose of complying with the territorial limits of FRCP 45 and section 7 to obtain nonparty discovery.”). 79 See NYCBA Report, supra note 30, at 455. In In re Nat’l Fin. Partners Corp., a federal district court in Pennsylvania held that a subpoena issued by an arbitrator in Philadelphia requiring testimony from a third-party and the production of documents at a pre-merits hearing to be held within 100 miles of her home in Florida was permissible. In re Nat’l Fin. Partners Corp., No. 9-mc-00027, 2009 U.S. Dist. LEXIS 34440, at *2 (E. D. Pa. Apr. 21, 2009) (“The arbitrator apparently has concluded that the third-party testimony is relevant and is important enough to warrant travel to Florida, and I see no basis to disturb that determination.”).

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may not be an easy task. Moreover, a party may well encounter resistance from the opposing party.80

II.C Forum Shopping and Section 7 One thing that is clear from section 7 is that the law governing the force and reach of an arbitral subpoena will depend on where the arbitrators (or a majority of them) “are sitting.” A subpoena issued by arbitrators sitting in Des Moines (which is in the Eighth Circuit), or Nashville (Sixth Circuit) has broader reach and force than one issued by arbitrators sitting in New York (Second Circuit) or Pennsylvania (Third Circuit). In the former case (Sixth and Eighth Circuit), an arbitral subpoena can be served nationwide and require production of documents prior to the hearing and outside of the presence of the arbitrators. In the latter case (Second and Third Circuits) arbitrators have no power to subpoena documents from non-parties unless they are produced “before them or any of them” (for example, at a pre-merits hearing) and no power to issue any subpoena outside of the district in which, or 100 miles from where they are sitting. The question arises as to the extent to which section 7 might drive forum shopping, i. e., influence the choice of an arbitral seat. Might a party push for Des Moines over New York because an arbitral subpoena issued by arbitrators in the former will have more reach than one issued by arbitrators in the latter? It seems unlikely that this would override all the other considerations bearing on the choice of seat (e. g., geographic convenience of the parties) except in a rare case. Moreover, it would, in many cases, be very hard to anticipate at the contract drafting stage, when the seat of arbitration is typically chosen, where a third-party with evidence might be located.

III. Arbitrations Outside of the United States While section 7 of the FAA applies to arbitrations seated in the United States, a United States federal statute, section 1782 of Title 28 of the United States Code, permits a party to “a proceeding in a foreign or international tribunal” to apply directly to a United States court to take evidence located in the United States for use in such proceeding.81 Section 1782 has been regularly relied upon by parties to foreign (i. e., non-U.S.) lawsuits to obtain evidence located in the United States for use in such lawsuits. 80 See

NYCBA Report, supra note 30, at 455 (“[I]n the absence of an express rule permitting the arbitrators to do so, it may be possible for a recalcitrant party to object to the holding of hearings in any place other than the agreed place of arbitration.”). 81 28 U.S.C. § 1782 (2006).

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For a long time it had appeared to be settled that section 1782 did not apply to international arbitration. Thus, in a decision several years ago, on January 26, 1999, the Court of Appeals for the Second Circuit held that section 1782 applied only to governmental tribunals, such that a private international arbitration panel, such as one administered by the International Chamber of Commerce (ICC), was not a “foreign or international tribunal” for the purposes of that statute, with the result that it was not possible to rely on section 1782 to obtain evidence for use in international arbitration proceedings.82 The Fifth Circuit followed its sister circuit on this point later in the same year.83 Some years later, in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) – in which the United States Supreme Court considered section 1782 for the first time – the Court injected some uncertainty into this area. While Intel did not involve an application for evidence for use in an international arbitration proceeding, the Court nonetheless chose to take a broad view both of section 1782 in general and of the term “tribunal,” as used in that statute, in particular. More significantly for the purposes of this article, in the course of its decision the Supreme Court quoted, with approval, an article written by Professor Hans Smit – a principal draftsman of the 1964 amendments to section 1782, which had revised the older version of the statute to add the language “foreign or international tribunal.”84 In that article, Professor Smit wrote that the term “tribunal” in section 1782 included “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies.”85 Whether Justice Ginsburg, who wrote the opinion of the Court in Intel, realized that she was casting doubt – albeit in dicta – on an apparently settled issue regarding the interpretation of section 1782 when she quoted that portion of Professor Smit’s article is not clear. But, shortly after the Supreme Court’s decision in Intel, several commentators noted that it was only a matter of time before a party to an international arbitration proceeding relied on Intel to bring a successful application pursuant to section 1782.86 82 83

84 85 86

NBC v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999) (holding that ICC arbitral panel was not a “tribunal” for purposes of section 1782). In re Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880 (5th Cir. 1999) (holding that Stockholm Chamber of Commerce arbitral panel was not a “tribunal” for the purposes of section 1782). Intel, 542 U.S. at 261-262. Id. at 258 (citing H. Smit, International Litigation Under the United States Code, 65 Columbia Law Review 1015, 1026-1027 n. 71, 73 (1965)) (emphasis added). In an article I wrote shortly after Intel, I noted that the Supreme Court’s reliance on Professor Smit’s definition of the term “tribunal” “could leave it open to § 1782 applicants in future cases to argue that, in the Supreme Court’s view, the term ‘tribunal’ includes an arbitral panel.” See J. Fellas, The U.S. Supreme Court Rules on Section 1782, 232 New York Law Journal 4 (2004); see also B. H. Garfinkel & Y. M. Miller, The Supreme Court’s Reasoning in Intel Calls Into Question Circuit Court Rulings On Applicability of 28

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And, indeed, two years later, the District Court for the Northern District of Georgia issued a decision in the case of In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1226 n. 3 (N. D. Ga. 2006), in which, based on Intel, it held that a private international arbitration panel is a “foreign or international tribunal” for the purposes of section 1782 and granted a party to an arbitration proceeding in Austria the right to take evidence from a U.S.-based non-party for use in that proceeding. Since Roz87 courts have divided on the use of section 1782 in arbitration. Before tracing the history of court decisions in section 1782 through to Roz and beyond, it is worth considering the key elements of section 1782.

III.A The Key Elements Of Section 1782 Section 1782 is a relatively short statute. Its core elements are set forth in its first two sentences: The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. The central features of section 1782 are discussed below: − Who can make a section 1782 application? Under its explicit terms, “any interested person” can make an application directly to a U.S. court to take evidence pursuant to section 1782. In the litigation context an “interested person” has been held to include a party to the foreign proceeding.88 In Intel, the Supreme Court made it clear that U.S.C. § 1782 To International Commercial Arbitration, 19-8 Mealey’s International Arbitration Report 17, 25 (2004). 87 Roz came shortly after an October 2006 decision of the district court for the district of New Jersey, In re Oxus Gold PLC, Misc:06-82, 2006 U.S. Dist. LEXIS 74118 (D. N. J. Oct. 10, 2006), allowing section 1782 to be used to obtain evidence for an investment treaty arbitration. But as discussed below, that decision was based on the somewhat dubious proposition that the arbitration was governmental rather than private, rather than on a rejection of the holding of the NBC case. 88 See S. Rep. No. 88-1580, as reprinted in 1964 U.S.C. C. A. N. 3782, 3789; In re Malev Hungarian Airlines, 964 F.2d 97, 101 (2d Cir. 1992); John Deere Ltd. v. Sperry Corp., 754 F.2d 132, 136 (3d Cir. 1985). In Roz, a party to the international arbitration was

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the term “interested person” was not limited simply to a party, noting that, while a litigant “may be the most common example of ” an “interested person,” that term also includes anyone with “a reasonable interest in obtaining [judicial] assistance.”89 Thus, it seems clear that an arbitration panel would be an “interested person” for the purpose of section 1782.90 − From whom may evidence be taken? Section 1782 permits evidence to be taken from a “person” who “resides” or is “found” in the district covered by the United States district court to which the application is made. A “person” – which includes a corporation, company and partnership, as well as an individual91 – has been held to encompass both a party and non-party to the foreign proceeding.92 An individual is “found” in the United States if he or she is physically present at the time he or she is served with a subpoena authorized by section 1782.93 The courts

assumed to be an “interested person” for the purposes of section 1782. 469 F. Supp. 2d at 1223-1224. 89 542 U.S. at 256 (alteration in original) (citations omitted). In Intel, the Court found significant that a complainant “who triggers a European Commission investigation has a significant role in the process … [I]n addition to prompting an investigation, the complainant has the right to submit information for the DG-Competition’s consideration, and may proceed to court if the Commission discontinues the investigation or dismisses the complaint.” Id. at 257. 90 The statute also provides that a section 1782 application may be made directly by the foreign or international tribunal. According to Roz, therefore, an arbitration panel itself could make a section 1782 application. 469 F. Supp. 2d at 1223-24. 91 See 1 U.S.C. § 1 (“[U]nless the context indicates otherwise … the word ‘person’ … include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.”). “Person” does not include the U.S. government. See Al Fayed v. CIA, 229 F.3d 272, 274 (D. C. Cir. 2000). 92 See In re Ishihara Chem. Co., 121 F. Supp. 2d 209, 218-220 (E. D. N. Y. 2000), rev’d on other grounds, 251 F.3d 120 (2d Cir. 2001). 93 In In re Edelman, 295 F.3d 171 (2d Cir. 2002), the Second Circuit held that a person was “found” in the Southern District of New York even though he arrived there only after the section 1782 order was issued: [I]f a person is served with a subpoena while physically present in the district of the court that issued the discovery order, then for the purposes of § 1782(a), he is ‘found’ in that district. As a matter of law, a person who lives and works in a foreign country is not necessarily beyond the reach of § 1782(a) simply because the district judge signed the discovery order at a time when that prospective deponent was not physically present in the district. Id. at 180.

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have also held that section 1782 is limited to documents located within the United States.94 − For what purpose must the evidence be sought? Section 1782 requires that the evidence sought be “for use in a proceeding in a foreign or international tribunal.” That term has been held to include not only traditional courts, but also “administrative and quasi-judicial proceedings abroad.”95 Thus, in Intel, for example, the Court found this term included the directorate-general for Competition of the Commission of the European Communities investigating a complaint. The question of whether section 1782 applies to international arbitration has turned on whether a private arbitration panel is viewed as a “tribunal” for the purposes of section 1782. In NBC, the Second Circuit held it was not; in Roz, the Atlanta federal district court held that it was. One question that arises in light of Roz is whether, if the term “tribunal” does include a private arbitration panel, an arbitration proceeding sited in the United States qualifies as “a proceeding before a foreign or international tribunal” for the purposes of section 1782. An argument could be made that it does, where, for example, the arbitration involves parties or arbitrators from different countries. − What type of evidence is available under section 1782? Section 1782 is limited on its face to an order that a person “give his testimony or a statement” or “produce a document or other thing.” Thus it permits the taking of pre-hearing depositions from persons who “reside” or are “found” in the United States, as well as the production of documents located in the United States. Section 1782 does not permit the use of other discovery devices common in U.S. litigation, such as interrogatories or requests for admissions.96 94 In In re Sarrio, S. A., 119 F.3d 143 (2d Cir. 1997), the court stated that “despite the stat-

ute’s unrestrictive language, there is reason to think that Congress intended to reach only evidence located within the United States.” Id. at 147 (emphasis added). 95 Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 249 (2004). 96 See In re Ishihara Chem. Co., 121 F. Supp. 2d at 221. One rationale the court offered for this interpretation relies on the fact that, under the Federal Rules of Civil Procedure, interrogatories and requests for admissions can be directed only to parties to a litigation. If section 1782 were to permit the obtaining of evidence through the use of interrogatories and requests to admit, these devices could be used to seek evidence from “persons” – which term includes both parties and non-parties to the litigation. The anomalous result would be that broader discovery could be obtained in foreign litigation than in domestic litigation. The court stated: “Congress could hardly have intended to subject its citizens to broader discovery demands in foreign litigation than in domestic litigation.” Id. at 224.

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− In what circumstances will courts grant section 1782 applications? Even if the facial requirements of section 1782 are satisfied – that is, (i) an “interested person” (ii) seeks the “testimony or [a] statement” or the production of “a document or other thing” (iii) from a “person” who “resides” or is “found” in the United States, (iv) for use in “a proceeding in a foreign or international tribunal”97 – a United States court is not required to grant a section 1782 application.98 Rather, it can exercise its discretion to determine whether to grant a section 1782 order and, if so, the scope of discovery to authorize.99 In Intel the Court identified certain factors that district courts should consider in deciding whether or not to grant section 1782 applications: – whether the person from whom evidence is sought is a party or a nonparty to the foreign proceeding. More specifically, the court noted that “when the person from whom is discovery sought is a participant in the foreign proceeding … the need for § 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad.”100 This is because a “foreign tribunal has jurisdiction over those appearing before it, and can itself order them to produce evidence”;101 – the nature of the foreign tribunal, the character of the proceedings under way abroad, and the receptivity of the foreign government or agency abroad to U.S. federal-court assistance; – whether the § 1782 application conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country; and – whether the request is “unduly intrusive or burdensome,” which may lead to the request being “rejected” or “trimmed.”102 It is worth noting, however, that if a court does not impose any limitation in its order as to the scope of discovery authorized, the Federal Rules of Civil Procedure – which provide for U.S. style discovery – apply. Thus, section 1782 further provides: The order may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the internation 97  98

 99 100 101

102

28 U.S.C. § 1782(a). Intel, 542 U.S. at 264 (“[A] district court is not required to grant a section 1782(a) discovery application simply because it has authority to do so.”). Id.; In re Metallgesellschaft A. G., 121 F.3d 77, 79 (2d Cir. 1997) (“The permissive language of § 1782 vests district courts with discretion to grant, limit or deny discovery.”). Intel, 542 U.S. at 264. Id. Id. at 264-265.

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al tribunal, for taking the testimony or statement or producing the document or other thing. To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or other thing produced, in accordance with the Federal Rules of Civil Procedure. A person may not be compelled to give his testimony or statement or to produce a document or other thing, in violation of any legally applicable privilege.103 − Does a section 1782 applicant need first to obtain the permission of the foreign or international tribunal? In the litigation context, courts have held that a party to a lawsuit before a foreign court can make a section 1782 application directly to a U.S. court, without first having to seek the permission of the foreign court before which the case is pending.104 If this holding were transposed to the arbitration context – and there is nothing on the face of the statute, at least, that would suggest it should not be – a party to an arbitration proceeding could, in principle, apply directly to a U.S. court to take evidence in the United States without first giving notice to, or obtaining the permission of, the arbitration panel. In Roz, there was no indication in the opinion of the court that the arbitration panel gave its blessing to the party making the section 1782 application. − Must the foreign proceeding be pending at the time of the section 1782 application? Prior to Intel, some courts had required that the foreign proceeding be “pending or imminent” before a section 1782 application could be granted.105 The Supreme Court expressly rejected this view, holding that it was sufficient for the purposes of section 1782 that the proceeding be within “reasonable contemplation.”106 − What is the procedure for a section 1782 application? A section 1782 application is relatively straightforward, and while the statute does not explicitly address whether an application is required to be made on notice or ex parte, there is authority for the proposition that it is acceptable to make it ex parte. As one court has noted, section 1782 applications “are customarily received and appropriate action taken with respect thereto ex parte.”107 103

28 U.S.C. § 1782 (emphasis added). See In re Malev Hungarian Airlines, 964 F.2d 97, 101 (2d Cir. 1992); John Deere Ltd. V. Sperry Corp., 754 F.2d 132, 136 (3d Cir. 1985). 105 See, e. g., In re Ishihara Chemical Co., 251 F.3d 120, 125 (2d Cir. 2001). 106 Intel, 542 U.S. at 259. 107 In re Supreme Court of Hong Kong, 138 F. R. D. 27, 32 note 6 (S. D. N. Y. 1991) (quoting In re Tokyo Dist., Tokyo, Japan, 539 F.2d 1216, 1219 (9th Cir. 1976)). “[S]uch ex parte ap104

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− Does section 1782 contain an implicit discoverability requirement? One critical question on which the courts were divided – before it was resolved by Intel – was whether section 1782 contained an implicit “discoverability requirement.” In order to understand the notion of a “discoverability requirement,” it is important to emphasize that the United States permits far more extensive pre-trial discovery than do other countries. The difference between U.S. pre-trial discovery practices and those of civil law countries is particularly marked. In civil law countries, the gathering of evidence is generally overseen by the court and not the parties. 108 Because U.S. pretrial discovery practices are broader than those of other jurisdictions, U.S. courts were confronted with section 1782 applications for material that would not be discoverable under the rules of the foreign jurisdiction in which it is to be used. Section 1782 does not, on its face, preclude the discovery of such material. However, the courts divided on the question of whether section 1782 implicitly requires that the material sought should be discoverable under the rules of the foreign jurisdiction. This was labeled the “discoverability requirement.” In Intel, the Supreme Court rejected the discoverability requirement.

III.B The Cases On International Arbitration And Section 1782 The question of whether section 1782 could be used in the international arbitration context reached the courts in the 1990s, and turned largely on whether an international arbitration panel was viewed to be a “foreign or international tribunal” for the purposes of section 1782. plications are typically justified by the fact that the parties will be given adequate notice of any discovery taken pursuant to the request and will then have the opportunity to move to quash the discovery or to participate in it.” Id.. Thus, a dispute over section 1782 discovery, if it occurs at all, takes place not when the application is made, but when the party from whom discovery is sought moves for a protective order or to quash a subpoena. However, one district court has called into question the process of applying ex parte for section 1782 orders. In In re Merck & Co., 197 F. R. D. 267 (M. D. N. C. 2000), the court stayed an application for a section 1782 order pending the petitioner’s notification of all interested parties in the foreign proceedings. 108 As one U.S. court has noted: In the United States … civil pretrial discovery is not only extensive, but is in the first instance conducted by the parties themselves. Such a concept is alien to the ways of most civil law countries, where the taking of all evidence is exclusively a function of the court. In those countries, discovery American-style is often considered an affront to the nation’s judicial sovereignty. Boreri v. Fiat S. p. A., 763 F.2d 17, 19 (1st Cir. 1985).

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In In re Technostroyexport, 853 F. Supp.  695 (S. D. N. Y. 1994). the court found that an arbitration panel did constitute a “tribunal” for the purposes of section 1782. The court also held, however, that because of the fundamental differences between proceedings before arbitrators and those before courts, a district court should exercise its discretion to deny a section 1782 application relating to the discovery of material for use in a foreign arbitration when it was made at an arbitrator’s request.109 Three years later, in two decisions within two months of each other, the district court for the Southern District of New York held that an arbitration panel was not a “tribunal” for the purposes of section 1782.110 In the Medway case, the court went so far as to deny a section 1782 application made pursuant to an English arbitrator’s discovery order for a third- party’s documents that were “relevant and necessary for the fair determination of the dispute” on the ground that a foreign arbitration panel was not a “foreign tribunal” for the purposes of section 1782.111 In a decision of January 26, 1999, the Second Circuit affirmed the decision of the district court in the NBC case, holding that a foreign private arbitration proceeding was not a “foreign or international tribunal” for the purposes of section 1782.112 It is worth discussing the NBC case in some detail because the Second Circuit engaged in an extended discussion of why it believed an arbitration panel was not a “tribunal” for the purposes of section 1782. III.B.1 NBC v. Bear Stearns The NBC case arose out of a dispute between NBC and a Mexican television broadcasting company, TV Azteca S. A. de C. V. In 1994, NBC and Azteca had entered into an agreement under which NBC would provide programming and other services to Azteca. The agreement contained a clause providing that any disputes between the parties would be resolved by arbitration under the ICC Rules. In April 1997, following a dispute between the parties about certain stock purchase provisions of the agreement, Azteca commenced an ICC arbitration proceeding against NBC in Mexico. NBC responded by filing counterclaims against Azteca in connection with Azteca’s plans to conduct an initial public offering of its stock. Following the filing of its counterclaims, NBC filed an ex parte section 1782 application in the Southern District of New York seeking authorization to serve 109

853 F. Supp. at 697-98.

110 See In re Medway Power Ltd., 985 F. Supp. 402 (S. D. N. Y. 1997); In re Nat’l Broadcasting

Co., No. M‑77, 1998 U.S. Dist. LEXIS 385 (S. D. N. Y. Jan. 21, 1998). 985 F. Supp. at 403. 112 NBC v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999). 111

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subpoenas for document discovery on six non-party financial institutions, including Bear Stearns, Merrill Lynch, and Salomon Brothers. Judge Deborah A. Batts granted NBC’s application, and NBC, in turn, served the subpoenas on the appropriate parties. Azteca and five of the six non-parties moved to quash the subpoenas, and NBC cross-moved to compel compliance. Judge Sweet of the Southern District granted the motion to quash and denied the motion to compel on the ground that a private international commercial arbitration panel, such as the ICC, was not a “foreign or international tribunal” for the purposes of section 1782. In an opinion by Judge Jose A. Cabranes, the Second Circuit affirmed Judge Sweet’s decision. The Second Circuit based its decision on the text and legislative history of section 1782 and on certain policy considerations. In considering the legislative history, the court concluded that, in using the word “tribunal” the legislature intended to include governmental or intergovernmental arbitration tribunals, as well as conventional courts, but that it did not intend to include private arbitration panels. The Second Circuit also offered three policy rationales for why a private arbitral tribunal should not be viewed as a “tribunal” for the purposes of section 1782. First, the Second Circuit relied on one of the often-cited advantages of arbitration – efficiency and cost-effectiveness – in support of its decision. “Opening the door to the type of discovery sought by NBC in this case likely would undermine one of the significant advantages of arbitration, and thus arguably conflict with the strong federal policy favoring arbitration as an alternative means of dispute resolution.”113 Second, the court also noted that if section 1782 were interpreted to permit discovery of material for use before foreign arbitration panels, this interpretation would create a conflict with section 7 of the FAA discussed above. Specifically, because section 1782 permits broader discovery than section 7 of the Federal Arbitration Act, the anomalous result would be that United States law permitted broader discovery for foreign arbitration panels than for domestic arbitrations. Finally, the Second Circuit pointed out that if section 1782 assistance were extended to foreign arbitration panels, there would be “an entirely new category of disputes concerning the appointment of arbitrators and the characterization of arbitral panels as domestic, foreign, or international.”114 If an international arbitration panel is held to be a “foreign or international tribunal” for the purposes of section 1782, the question arises whether it would include an arbitration proceeding venued in the United States involving a foreign party or a foreign arbitration. Certainly, the Second Circuit seemed troubled by this. It noted that Professor Smit had taken the position that an arbitration panel would fall within the scope of section 1782 in a situation where any arbitrator is not a citizen or 113 114

Id. at 191. Id.

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resident of the United States. The Court said that this would be anomalous: “if the parties in a domestic arbitration simply appointed one foreign arbitrator to an otherwise entirely domestic panel dealing with a purely domestic dispute, that appointment would make § 1782 available to the parties …”115 Two months after the Second Circuit issued its ruling in the NBC case, the Fifth Circuit followed it, appearing to settle the issue of whether section 1782 could be used in arbitration. That was the state of the law until Intel. III.B.2 Intel: The Supreme Court Considers Section 1782 Intel Corp. v. Advanced Micro Devices Inc.116 arose out of a complaint filed by Advanced Micro Devices (AMD) with the directorate-general for competition of the Commission of the European Communities that a competitor, Intel, had engaged in anticompetitive behavior. In connection with that complaint, AMD made a section 1782 application to the district court for the Northern District of California for an order requiring Intel to produce certain documents. The court denied AMD’s application, but the Court of Appeals for the Ninth Circuit reversed. The Supreme Court granted certiorari to resolve a circuit split on the question of whether section 1782 contains a discoverability requirement. In an opinion by Justice Ruth Bader Ginsburg (with Justice Stephen Breyer dissenting), the Court rejected the discoverability requirement, but, in the course of its decision, also addressed certain other issues concerning the interpretation of section 1782. One of the issues in the case was whether the directorate-general for competition of the Commission of the European Communities was a “tribunal” for the purposes of section 1782. The Court held it was because it had the authority not only to investigate complaints but also to issue dispositive rulings (including determining liability and imposing penalties), which rulings could be reviewed by the Court of First Instance and the European Court of Justice. The Court reasoned that since the latter courts were, without question, “tribunals” and since those courts could not take evidence, but were limited to reviewing the record before the commission, “AMD could ‘use’ evidence in the reviewing courts only by submitting it to the Commission in the current investigative stage.”117 In this context, the Court also noted that the term “a proceeding in a foreign or international tribunal” had replaced the narrower term “any judicial proceeding” when section 1782 was amended in 1964. Citing to the legislative history of that amendment, the Court found that Congress’ intent was for U.S. courts to provide judicial assistance to “administrative and quasi-judicial pro115

Id. at note 9. 542 U.S. 241 (2004). 117 Id. at 257. 116

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ceedings abroad.”118 While the question of whether a private arbitral panel is a “tribunal” was not before the Court, as noted, in the course of its discussion, the Court quoted from the article by Professor Smit which endorsed the view that “arbitral tribunals” were “tribunals” for the purposes of section 1782.119 III.B.3 Roz Trading Roz Trading arose out of an international arbitration sited in Austria between Roz Trading Ltd. (“Roz”) and a subsidiary of the Coca-Cola Company, the Coca-Cola Export Company (“CCEC”).120 In the arbitration, Roz claimed that CCEC was in breach of a contract that was entered into among Roz, CCEC and the government of Uzbekistan. The essence of Roz’s claim was that CCEC had assisted the government of Uzbekistan in eliminating Roz from the joint-venture. Roz further claimed that its employees had to leave Uzbekistan for fear of their lives and that they were unable to go back to retrieve corporate documents that they had left behind. Roz made an application to the district court for the Northern District of Georgia seeking documents from the Coca-Cola Company, a non-party to the arbitration, but the parent of the respondent CCEC. Coca-Cola did not dispute that Roz was an “interested person” for the purpose of section 1782 or that Coca-Cola was found in the Northern District of Georgia.121 Nor did Coca-Cola dispute that the material sought was for use in a foreign proceeding. Rather Coca-Cola opposed the application on the ground that the International Arbitral Centre of the Austrian Federal Economic Chamber – which was administering the arbitration – was not a “tribunal” for the purposes of the section 1782. The court, relying in large part on Intel, disagreed. “Although the Supreme Court in Intel did not address the precise issue of whether private arbitral panels are ‘tribunals’ within the meaning of the statute, it provided sufficient guidance for this Court to determine that arbitral panels convened by the [arbitral] Centre are ‘tribunals’ within the statute’s scope.”122 The court also noted that the Supreme Court quoted from the article from Professor Smit which defined the term “tribunal” to include an “arbitral tribunal.” The court then went on to consider the meaning of the term “tribunal,” and rejected the Second Circuit’s opinion in the NBC case that that term was ambiguous. Rather, it took the position that term clearly included arbitral tribunals – a view it claimed to be confirmed by its analysis of the legislative history 118

Id. at 258. Id. at 261-262. 120 The decision notes that other parties are also involved. 121 In re Roz Trading Ltd., 469 F. Supp. 2d 1221 (N. D. Ga. 2006). Coca-Cola has its headquarters in Atlanta, which is in the Northern District of Georgia. 122 Id. at 1224. 119

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of section 1782. The Roz court, however, did not consider the policy reasons advanced by the Second Circuit for finding section 1782 inapplicable in the arbitration context. Roz came on the heels of another decision in the area, In re Oxus Gold PLC, in which the district court for the District of New Jersey granted a section 1782 application for the taking of evidence for use in an international arbitration proceeding. In that case, the court based its decision not on the ground that a private arbitration panel is a “tribunal” for the purposes of section 1782, but, instead, on the ground that an arbitration conducted under the UNCITRAL Arbitration Rules in connection with a claim under a bilateral investment treaty between the U. K. and the Kyrgyzstan Republic was not a private arbitration, but a governmental one.123 The court distinguished the arbitration before it from “international arbitral panels created exclusively by private parties, such as private commercial arbitration administered by the International Chamber of Commerce, a private organization based in Paris, [which] are not included in the statute’s [section 1782’s] meaning.”124 As a result, the holding in Oxus was narrower than Roz. Oxus followed the Second Circuit’s decision in NBC, explicitly stating that ICC arbitrations (and presumably all other private arbitra123

In re Oxus Gold, Misc:06-82, 2006 U.S. Dist. LEXIS 74118, at *15 (D. N. Y. Oct. 10, 2006). More specifically the court noted that “[t]he international arbitration at issue is being conducted by the United Nations Commission on International Law, a body operating under the United Nations and established by its member states. The arbitration is not the result of a contract or agreement between private parties as in National Broadcasting [the NBC case]… The proceedings in issue has [sic] been authorized by the sovereign states of the United Kingdom and the Kyrgyzstan Republic for the purpose of adjudicating disputes under the Bilateral Investment Treaty.” Id. (citation omitted). The court’s reasoning seems questionable. It is unclear to what extent the court was relying alone on the fact that the UNCITRAL Arbitration Rules were applicable to the arbitration, as opposed to say the ICC Rules. But, the fact that parties to a contract designate the UNCITRAL Rules, as opposed to the ICC Rules, to apply to their dispute does not make the ensuing arbitration proceeding any less “private.” The designation of the UNCITRAL Rules in a contract, like the designation of the ICC Rules, is the result of a private agreement not an imposition of the state. To the extent the court’s analysis rested on the fact that the arbitration arose out of a bilateral investment treaty, rather than a private contract, the court’s characterization of the arbitration as “governmental” rather than “private” still seems questionable. Bilateral or multilateral investment treaty arbitration is often explained through the model of a private contract—the state’s entry into the treaty is viewed to be an offer to arbitrate, and the investor’s filing of a claim an acceptance of that offer. See J. Paulsson, Arbitration Without Privity, 10 ICSID Review – Foreign Investment Law Journal 232 (1995); A. K. Bjorklund, Contract Without Privity: Sovereign Offer and Investor Acceptance, 2 Chicago Journal of International Law 183 (2001). 124 2006 U.S. Dist. LEXIS 74118, at *14.

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tions) “are not included in the statute’s meaning.”125 Oxus simply distinguished the arbitration before it from the one at issue in the NBC case and, as a result, found NBC inapplicable. Roz, by contrast, rejected the Second Circuit’s decision in NBC and held squarely that section 1782 applies to a private international arbitration proceedings. III.B.4 Developments Since Roz

Since Roz, a few circuit courts have addressed the question of whether an international commercial arbitration falls within the purview of section 1782, with inconsistent decisions.126 – The Fifth Circuit has held that section 1782 does not extend to private arbitral tribunals and recently declined to address whether it includes a tribunal constituted pursuant to an investment treaty. – The Eleventh Circuit has held that section 1782 extends to a private arbitral tribunal. – The Third Circuit had held that section 1782 applies to an arbitral tribunal constituted pursuant to an investment treaty, but does not appear to have ruled on the question of whether it extends to a private arbitral tribunal. – The Second and the DC Circuits have each declined to each the question. These decisions are considered in turn below. In El Paso Corp. v. La Comision Ejectiva Hidroelectrica Del Rio Lempa, 341 F. App’x 31 (5th Cir. 2009), the Fifth Circuit held that a private Swiss arbitral tribunal did not constitute a “tribunal” within the meaning of section 1782, confirming its pre-Intel decision in Republic of Kazakstan v. Biedermann International and affirming the district court’s decision vacating an order to take third-party discovery for use in a private international arbitration pending in Geneva. 127 The Fifth Circuit rejected the appellant’s argument that Biedermann is no longer controlling in light of the Supreme Court’s decision in Intel, stating that it remained bound by its holding in Biedermann because it cannot overrule the decision of a prior panel “unless such overruling is unequivocally directed by controlling Supreme Court precedent.”128 The Fifth Circuit stated: 125

Id. at *15. For an excellent discussion, see G. Sharma, The Availability of Section 1782 Discovery for Use in Foreign Arbitrations: A Survey of U.S. Court Decisions, 27-9 Mealey’s International Arbitration Report 18 (2012). 127 The parties had agreed to conduct the arbitration pursuant to the UNCITRAL rules, Swiss procedural law and the substantive law of El Salvador. 128 El Paso Corp., 341 Fed. App. at 34. 126

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The question of whether a private international arbitration tribunal also qualifies as a ‘tribunal’ under § 1782 was not before the [Intel] Court. The only mention of arbitration in the Intel opinion is in a quote in a parenthetical from a law review article by Hans Smit. That quote states that ‘the term ‘tribunal’ … includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal and administrative court.’ Nothing in the context of the quote suggests that the Court was adopting Smit’s definition of ‘tribunal’ in whole.129 The court also noted that none of the concerns raised in Biedermann regarding the application of section 1782 to private international arbitrations were at issue or considered in Intel, i. e., (1) that if section 1782 were to apply to private international arbitrations “the differences in available discovery could ‘create an entirely new category of disputes concerning the appointment of arbitrators and the characterization of arbitration disputes as domestic, foreign, or international”; and (2) that “empowering parties in international arbitrations to seek ancillary discovery through federal courts could destroy arbitration’s principle advantage as ‘a speedy, economical, and effective means of dispute resolution’ if the parties ‘succumb to fighting over burdensome discovery request far from the place of arbitration.’”130 In February 2013, the Fifth Circuit had the opportunity to opine on whether an international investment arbitration constitutes an “international tribunal” for the purposes of the statute, but declined to do so.131 It resolved the case on other grounds, finding that Chevron was judicially estopped from denying that section 1782 applies to investment treaty arbitrations.132 Here, the Republic of Ecuador appealed from the district court’s denial of its application for ancillary discovery for use in the UNCITRAL arbitration. The Fifth Circuit noted that at least 20 orders concerning requests for section 1782 discovery have been issued on behalf of Chevron and “no previous discovery request has been denied” on the ground that the BIT arbitration is not an “international tribunal” for purposes of the statute. The district court, however, felt compelled by prior Fifth Circuit decisions to deny Ecuador’s discovery request. Following Republic of Kazakstan and El Paso Corp., the district court concluded that the BIT arbitration represents a bilateral investment dispute that is not pending in a “foreign or international tribunal” as the statute requires.133 The Fifth Circuit noted that Chevron “has deliberately taken inconsistent positions on the availability of 129

Id. Id. 131 See Republic of Ecuador v. Connor, 708 F.3d 651 (5th Cir. 2013). 132 Id. at 658. 133 Id. at 653. 130

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§ 1782 discovery for use in ‘international tribunals.”134 Finding that Chevron if “permitted to shield itself under Biedermann against Ecuador’s current discovery request … will have gained an unfair advantage over its adversary,” the court held that Chevron should be judicially estopped from asserting its legally contrary position here.135 Consequently, the Fifth Circuit found that it was not necessary to opine on whether the BIT arbitration is in an “international tribunal.”136 In contrast to the Fifth Circuit’s more narrow interpretation of section 1782 in El Paso Corp., the Eleventh Circuit recently held that an arbitral tribunal in Ecuador is a foreign tribunal within the meaning of 28 U.S.C.A § 1782, relying on Intel’s “broad functional construction of the term ‘tribunal.’”137 The Eleventh Circuit addressed an application from an Ecuadorian petitioner seeking discovery from an American affiliate of an Ecuadorian counterparty pursuant to section 1782. The petitioner sought the evidence in aid of both a pending arbitration before the Center for Arbitration and Conciliation of the Guayaquil Chamber of Commerce, brought by defendant for non-payment under the contract, and contemplated civil and private criminal suits. The court below concluded that the civil and criminal suits were within reasonable contemplation and therefore did not reach the question of whether the pending arbitration was a proceeding in a foreign tribunal under the statute. The court did observe, however, that “upon a review of the case law, the Court finds that the arbitral tribunal, in this action, is likely within the purview of section 1782.”138 The Eleventh Circuit noted that whether a foreign arbitration falls within the scope of section 1782 is an issue of first impression in that Circuit and “is guided in substantial measure by the Supreme Court’s seminal decision in Intel.”139 The court stated that the Intel court “emphasized the breadth of the statutory term ‘tribunal’ … and quoted with approval the broad definition of ‘tribunal’ set forth by a leading scholar on international procedure.”140 The Court continued “while the Supreme Court in Intel was not tasked with specifically deciding whether a private arbitral tribunal falls under the statute, its broad functional construction of the term ‘tribunal’ provides us with substantial guidance.”141 The Eleventh Circuit examined four attributes of the underlying private arbitration and de134

In numerous district courts, and on appeal in other circuits, Chevron asserted that the BIT arbitration is an international proceeding. Id. at 655. 135 Id. at 658. 136 Id. 137 See In re Consorocio Ecquatoriano de Telecommunicaiones S. A. v. JAS Forwarding (USA), Inc., 685 F.3d 987, 995 (11th Cir. 2012). A petition for en banc review was filed in July, 2012. 138 In re Consorcio Ecuatoriano, 685 F.3d at 992 (internal quotation marks omitted). 139 Id. at 994. 140 Id. 141 Id. at 995.

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termined that the pending arbitration met the functional criteria articulated in Intel. Specifically, the court considered (1) whether the arbitral panel acts as a first-instance adjudicative decisionmaker, (2) whether it permits the gathering and submission of evidence, (3) whether it has the authority to determine liability and impose penalties, and (4) whether its decision is subject to judicial review.142 The court held that “the arbitral tribunal before which [the dispute is] pending is a foreign tribunal for purposes of the statute.”143 The Third Circuit, in In re Chevron Corp., 633 F.3d 153 (3d Cir. 2011), held that the use of the evidence in a bilateral investment treaty arbitration “unquestionably would be ‘for use in a proceeding in a foreign or international tribunal.’”144 However, the court did not resolve the question of whether a private international commercial arbitration falls within the ambit of section 1782. In Chevron Corp. v. Berlinger, 629 F.3d 297 (2d Cir. 2011), the Second Circuit affirmed a district court ruling compelling disclosure for use in proceedings in foreign tribunals. However, it declined to resolve the question of whether the international investment arbitration fell within the meaning of section 1782, finding that a related litigation and pending criminal prosecutions “provided an adequate basis for the district court’s production order.”145 Finally, in Kaiser Grp. Int’l, Inc. v. World Bank, 420 F. Appx 2 (D. C. Cir. 2011), the D. C. Circuit was faced with a section 1782 applications against the 142

Id. I id. at 990 (“The arbitral panel acts as a first-instance decisionmaker; it permits the gathering and submission of evidence, it resolves the dispute, it issues a binding order, and its order is subject to judicial review. The discovery statute requires nothing more.”). Prior to this decision the district courts in the Eleventh District were split on the issue of whether a foreign arbitration constitutes a “foreign or international tribunal” under Section 1782. Compare In Roz Trading Ltd., 469 F. Supp. 2d 1221 (N. D. Ga. 2006) (holding that a private international arbitration panel is a “foreign or international tribunal” for the purposes of Section 1782) and In re Operandora DB Mexico, S. A. de c. v., No. 6:09-cv-383-Orl-22GJK, 2009 WL 2423138, *9 (M. D. Fla. Aug. 4, 2009) (holding that a private arbitral tribunal constituted under the International Chamber of Commerce (ICC) International Court of Arbitration did not qualify as a foreign or international tribunal under Section 1782 and concluding that, in accordance with the Second Circuit’s decision in NBC, “Congress did not clearly intend to include private arbitral proceedings within the ambit of foreign or international tribunals”). 144 633 F.3d at 161. 145 629 F.3d at 311. The District Court below held that the UNCITRAL panel, which was established by an international treaty – and not by private parties – qualified as a “foreign or international tribunal” under section 1782. In re Application of Chevron Corp.,709 F. Supp. 2d 283, 291 (SDNY 2010) (“In the wake of Intel, at least two district courts in our Circuit and one in the Third Circuit have followed the Supreme Court’s dictum and held that international arbitral bodies operating under UNCITRAL rules constitute ‘foreign tribunals’ for purposes of Section 1782. This Court agrees.”). 143

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World Bank. However, the court did not address the issue of whether foreign arbitral proceedings fell within the ambit of section 1782, finding that that the World Bank was immune from judicial process pursuant to the International Organizations Immunities Act. District courts that have addressed whether section 1782 extends to private arbitration are also divided on the issue. Many district courts have found that private arbitral tribunals fall within the scope of section 1782. For example, in In re Babcock Borsig AG, 583 F. Supp. 2d 233 (D. Mass. 2008), the district court for the District of Massachusetts addressed a request, by a German company, for assistance in obtaining discovery from a Japanese company for use in a “potential arbitration” that if filed, would proceed under the rules of the ICC.146 The court found that an arbitration proceeding administered by the International Court of Arbitration of the International Chamber of Commerce (ICC) is a “tribunal” within the meaning of section 1782(a).147 The court reasoned that “[t]here is no textual basis upon which to draw a distinction between public and private arbitral tribunals, and the Supreme Court in Intel repeatedly refused to place ‘categorical limitations’ on the availability of § 1782(a),”148 concluding that “[t] he ICC, like the European Commission, is a ‘first-instance decisionmaker’ that conducts proceedings which lead to a dispositive ruling.”149 In In re Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007), the district court for the District of Minnesota found that section 1782 authorized it to provide discovery assistance to an applicant who was a party to a private arbitration in Israel. The applicant sought discovery from a third-party for use in the arbitration.150 The court reasoned that Intel’s expansive interpretation of section 1782 “suggests that the Court would not restrict the scope of ‘tribunal’ to necessarily preclude assistance for use in private arbitrations.”151 146 147

148 149

150 151

583 F. Supp. 2d at 235. Id. at 240. Id. Id. at 238. The district court, however, exercised its discretion and denied the requested discovery “until if and when the ICC provides some affirmative indication of its receptivity to the requested materials.” Id. at 241. 534 F. Supp. 2d at 952, 957. Id. at 955. The court also cited favorably the reasoning of Roz Trading that “[h]ad Congress wanted to impose the limitation advanced by [the party opposing extension of Section 1782 to private arbitration bodies], it would have been a simple matter to add the word ‘governmental’ before the word ‘tribunal’ in the 1964 amendment.” Id. at 954 (citing In Roz Trading Ltd., 469 F. Supp. 2d 1221, 1226 note 3 (N. D. Ga. 2006)). The court also addressed concerns that extending the reach of Section 1782 to private arbitrations “would create an inconsistency between the scope of discovery available in domestic arbitrations under the Federal Arbitration Act and the scope available in foreign arbitrations through recourse to a liberally-construed Section 1781.” 534 F. Supp. 2d at 956. However, the court noted, citing to the Supreme Court’s decision in

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A minority of district courts have concluded that private arbitral tribunals remain outside the scope of section 1782. In In re Arbitration between Norfolk Southern Corp., 626 F. Supp. 2d 882 (N. D. Ill. June 15, 2009), the District Court for the Northern District of Illinois drew a distinction between “state-sponsored arbitral bodies,” which the court reasoned fell within the scope of the statute, and purely private arbitrations, which were excluded.152 The court held that section 1782 did not apply to compel a third-party to testify at a deposition in Chicago for use in a private reinsurance arbitration in London.153 The court cited approvingly NBC and Biedermann. It acknowledged that Intel emphasized Congress’ intent to expand the scope of section 1782, but found that the Supreme Court “stopped short of declaring that any foreign body exercising adjudicatory power falls within the purview of the statute.”154 Several district courts have held that section 1782 applies to private arbitrations under UNCITRAL. In OJSC Urknafta v. Captsky Petroleum Corp., No. 3:09 MC 265 (JBA), 2009 WL 2877156 (D. Conn. Aug. 27, 2009), the United States District Court for the District of Connecticut held that a commercial arbitration administered by the Arbitration Institute of the Stockholm Chamber of Commerce under the UNCITRAL Rules fell within the ambit of section 1782, because, in part, the court believed that a reasoned distinction can be made “between arbitrations such as those conducted by UNCITRAL, ‘a body operating under the United Nations and established by its member states’ and purely Intel, that Section 1782 is discretionary and the statute does not require a district court to grant a section 1782(a) discovery application “simply because it has the authority to do so.” Id. (citing Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264 (2004)). The court reasoned that the better approach is to “reject any inflexible rule that would categorically exclude all private arbitrations from the definition of ‘tribunal.’” 534 F. Supp. 2d at 956. The court continued: “[t]here is no absolute legal requirement – or even any sound reason – that domestic arbitration procedures be the same as those in the foreign or international context.” Id. at 957. 152 In re Arbitration between Norfolk Southern Corp., 626 F. Supp. 2d at 885. 153 The court reasoned that throughout the Supreme Court’s analysis in Intel, it “emphasized the relevance of the ultimate reviewability of DG Competition’s decisions by European courts to its conclusion that DG Competition itself fell within the purview of Section 1782.” Id. at 886 (citing Intel, 542 U.S. at 255) (internal quotation marks omitted). Drawing a distinction between DG Competition and a private arbitral proceeding, the court noted, “[P]rivate arbitrators are generally considered alternatives to, rather than precursors to, formal litigation. Indeed, it is common for arbitration provisions in private contracts to include a waiver of review by courts.” Id. After finding that the parties’ arbitration provision included a clause foreclosing meaningful judicial review, the court concluded that the private arbitral tribunal did not qualify as a “foreign or international tribunal” under section 1782. 154 Id. at 885.

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private arbitrations established by private contract.”155 Similarly, in In re Chevron Corp. 753 F. Supp. 2d 536, 539 (D. Md. 2010), the United States District Court for the District of Maryland granted Chevron’s discovery application, citing, with approval, the Southern District’s decision in In re Application of Chevron Corp., 709 F. Supp. 2d 283 (S. D. N. Y. 2010), that found that “international arbitral bodies operating under UNCITRAL rules constitutes ‘foreign tribunals’ for purposes of Section1782.”156 The court noted that because the arbitral bodies at issue “are created by treaty and not private parties, they do in fact constitute ‘foreign tribunals for purposes of the statute’.”157 Some courts have gone a step further, suggesting that all international tribunals were subject to section 1782.158 155

OJSC Urknafta v. Captsky Petroleum Corp., 2009 WL 2877156, at *4 (internal quotation marks omitted); see also In re Mesa Power Grp., LLC, No. 2:11-mc-280-ES, 2012 WL 6060941, *5 (D. N. J. Nov. 20, 2012) (finding that international arbitration under the arbitration rules of UNCITRAL and the North American Free Trade Agreement (“NAFTA”) constitutes a foreign or international tribunal for the purposes of Section 1782); Comision Ejecutiva Hidrolectrica, C. A. No. 08-135- GMS, 2008 WL 4809035, at *1 (D. Del. Oct. 14, 2008) (“[T]he Supreme Court’s decision in Intel (and post-Intel decisions from other district courts) indicate that Section 1782 does indeed apply to private foreign arbitrations.”) (granting Section 1782 discovery for a proceeding involving parties that had contracted to arbitrate under UNCITRAL). 156 709 F. Supp. 2d at 291. 157 753 F. Supp. 2d at 539; see also Chevron Corp. v. Camp, Nos. 1:10mc27, 1:10mc28, 2010 WL3418394, at *4 (W. D. N. C. Aug. 30, 2010) (finding that the actions before the Ecuadorian courts as well as an arbitration proceeding pending before the Permanent Court of Arbitration in the Hague are actions or proceedings before ‘tribunals’ under section 1782); In re Rep. of Ecuador, No. C-10-80225 MISC CRB (EMC), 2010 WL 3702427, at *3 (N. D. Cal. Sept. 15, 2010) (“[T]here is case law authority holding that an arbitration pending in a tribunal established by an international treaty constitutes a foreign tribunal for purposes of § 1782.”); In re Chevron Corp., Nos. 10-MC-21JH / ​LFG, 10-MC-22 JH / ​LFG, 2010 WL 8786279, at *5 (S. N. M. Sept 1, 2010) (finding that both the proceedings in Ecuador and the investment treaty arbitration proceedings at the Hague were within the scope of foreign tribunals for the purposes of section 1782.); Chevron Corp. v. Shefftz, 754 F. Supp. 2d 254, 260 (D. Mass. 2010) (finding that international arbitral bodies operating under UNCITRAL rules constitute ‘foreign tribunals’ for purposes of § 1782 and granting petition for section 1782 discovery) (“Respondent’s argument that the UNCITRAL Arbitration is not a ‘foreign tribunal’ because it is established by a private body and only governed by international rules is a view that has been eschewed by the majority of courts.”). 158 See, e. g., In re Application of Chevron Corp., No. 10-MC-208, 10-MC-209, 2010 U.S. Dist. LEXIS 134970, at *4 (E. D. Penn. Dec. 21, 2010) (granting the application and concluding that “the more recent authority supports the contention that international tribunals, such as the BIT arbitration, are included”), rev’d on other grounds by In re Chevron Corp., 650 F.3d 276 (3d Cir. 2011).

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IV.  Forum Shopping and Section 1782

IV. Forum Shopping and Section 1782 As discussed above, when it comes to section 7, the force of an arbitral subpoena depends on where the arbitrators are sitting, in the case of section 1782, the ability to obtain evidence from a person depends on where in the United States that witness is located. This leaves room for forum shopping. While this article is focused on third parties, it is worth noting that under section 1782 evidence may be taken from parties. Under section 1782 evidence may be sought from “a person” – an individual, corporation, partnership or a similarly entity – who (i) resides or is found in the United States and (ii) is either a party or a nonparty to the proceeding. In light of that, a section 1782 application could most likely be directed against an individual who is a resident of the United States or a corporation, partnership or other entity based in the United States, that is either (i) a party to an arbitration proceeding or (ii) a U.S.-based non-party that is affiliated with a foreign party to that proceeding, such as a parent, subsidiary, or joint-venture partner. Because of this, the effect of choosing a seat outside the U.S. would give the non-U.S. party a potential advantage over the U.S. party to the extent evidence is located in a place that permits section 1782 to be used for overseas arbitrations.159 This can be best explained by example. Imagine an international arbitration proceeding between a French company and a U.S. company based in Miami. The French company, as a party to the proceeding, is an “interested person” for the purposes of section 1782. As such, it could apply directly to the U.S. district court for the district in which the U.S. company is found – for example, where it is headquartered – for an order seeking the pre-hearing depositions of officers or employees of that company as well as the production of documents under the Federal Rules of Civil Procedure. The U.S. party, however, would not be able to invoke section 1782 to make a parallel application for evidence from the French company because the French company, ex hypothesi, does not reside and is not found in the United States.160 159

It provides a potential advantage to a non-U.S. party over a U.S. party in such circumstances where the person from whom evidence is sought resides in a district where section 1782 has been interpreted to apply to a private arbitral tribunal. This would include the Eleventh Circuit (which covers Alabama, Florida and Georgia) in cases involving either a private or an investment treaty arbitration, the Third Circuit (which covers Delaware, New Jersey and Pennsylvania) in cases involving investment treaty arbitrations. It also is worth noting that the question is open is other circuit courts, except for the Fifth Circuit (which covers Louisiana, New Orleans and Texas) which has recently held that section 1782 does not apply to private arbitrations. 160 An interesting question arises if, for example, an officer of a French company is served with a subpoena authorized by section 1782 while traveling in the United States. In those circumstances, such officer is “found” in the United States for the purposes of section 1782 because she is physically present there. However, as the court noted in In re Edelman, the officer could challenge such subpoena on the basis that compliance

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Rather, where the arbitration is already pending, the U.S. party would be confined to using the, almost certainly, far narrower procedures for the taking of evidence from the French party authorized by the arbitrators in the proceeding. Thus, the effect of the use of section 1782 in the international arbitration context is to create a disparity of access to evidence: the French party to the proceeding is able to obtain far broader discovery from its U.S. adversary than the latter is able to obtain from the former. Moreover, because section 1782 permits the taking of evidence not only when the foreign proceeding is pending, but also when it is in “reasonable contemplation,” it would be possible for the French party to make a section 1782 application before commencing an arbitration proceeding with the aim of developing evidence for the purposes of preparing its demand for arbitration. In the litigation context, section 1782 has been used not only for the taking of evidence, but also for the strategic purpose of putting settlement pressure on an adversary. In the arbitration context there is one situation, in particular, where the use of section 1782 might give a foreign party an important advantage over its U.S. adversary. This is when a contract contains a multi-tiered dispute resolution clause requiring consultation, negotiation, or mediation as a predicate to the commencement of arbitration proceedings. Typically, such clauses prohibit the commencement of arbitration proceedings for a period of time – say 60 days – during which time the parties’ representatives attempt to resolve the dispute, often with successive representatives of the parties, each higher up in the corporate hierarchy, getting involved. Once a notice of dispute has been given under a multi-tiered clause, a good case could be made that an arbitration proceeding is within “reasonable contemplation,” such that a party could apply to take evidence pursuant to section 1782. 161 If a French party makes a section 1782 application to take evidence from a U.S. party during the period of negotiation required by a multi-tiered clause as a condition to the commencement of an arbitration proceeding, the effect might well be to put very serious pressure on the U.S. party to settle the case. The U.S. party might prefer to settle rather than make its corporate officers available for depositions, or turn over other evidence, pursuant to a section 1782 order. The question thus arises of what a U.S. entity can do to defend itself against section 1782 applications. First, of course, the U.S. party can either select a U.S. seat since section 1782 has not been used for arbitrations in the U.S. or it could draft the arbitration clause to prohibit the use of section 1782. Second, would be unduly burdensome under Fed. R. Civ. P. 45 as well as section 1782 itself. See In re Edelman, 295 F.3d 171, 178 (2d Cir. 2002). 161 If the clause requires that the parties negotiate in “good faith,” as such clauses sometimes do, it is an interesting question whether the filing of a section 1782 application during the negotiation period is consistent with the obligation to negotiate in good faith.

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however, where it is the target of a section 1782 application, a U.S. party to the arbitration proceeding could appeal directly to the arbitration panel and ask it to enjoin the French party from proceeding with a section 1782 application on the grounds that (i) arbitrators should control discovery in international arbitration proceedings and (ii) it would be unfair to allow such a disparity of access to evidence as that which would be permitted. However, as noted, because a section 1782 application can be made before an arbitration proceeding has even commenced, there may not be an arbitration panel in place from which to seek such relief.162 Third, as noted, the Supreme Court held in Intel that a United States court is not required to grant a section 1782 application just because the facial requirements of that statute are satisfied.163 Rather, the court should take into account certain factors to determine whether to grant such an application and, if so, the scope of any order. One such factor is whether the person from whom evidence is sought is a party or a non-party to the foreign proceeding. This is because “when the person from whom is discovery is sought is a participant in the foreign proceeding … the need for § 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad.”164 Thus, a U.S. party to an international arbitration proceeding could oppose a section 1782 application by arguing that because the arbitration panel has jurisdiction over that party and because the panel, which is charged to hear the case on the merits, is better placed than the U.S. court to determine the scope of any evidence-gathering, so the court should deny the application for any section 1782 order, or limit its scope. However, it is important to note that this argument is not available where the evidence is sought from a non-party to a proceeding. And it is possible to envisage situations when even the taking of evidence from a non-party can 162

It might also be possible to seek relief from the arbitrators after the fact, asking the panel not to admit in evidence any material gathered pursuant to section 1782, or to require the applicant to provide evidence similar to that it obtained by its section 1782 application. The possibility of using section 1782 before a panel is in place might give parties an incentive to use the rules adopted by some institutions providing for the appointment of an arbitrator on an emergency basis. See ICC Rules for a Pre-arbitral Referee Procedure, Int’l Chamber of Commerce (updated January 2012), available at http: // ​w ww.iccwbo.org / ​Products-and-Services / ​A rbitration-and-ADR / ​Pre-arbitralreferee / ​Rules-for-a-Pre-arbitral-Referee-Procedure / ​; AAA Optional Rules for Emergency Measures of Protection, Am. Arb. Assoc., available at http: // ​w ww.adr.org / ​cs / ​ idcplg?IdcService= GET_FILE&dDocName=ADRSTG_004103&RevisionSelectionMet hod=LatestReleased. 163 Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264 (2004) (“[A] district court is not required to grant a § 1782(a) discovery application simply because it has authority to do so.”). 164 Id. at 244.

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give one party an advantage over its adversary – for example, when one party’s former employee, who was involved in the performance of the contract in issue is say Miami, and thus can be the target of a section 1782 application. Another factor that, according to Intel, courts should take into account is the nature of the foreign tribunal. It would be possible to argue that, because a central hallmark of international arbitration is that arbitrators control the discovery process, U.S. courts should exercise restraint in granting section 1782 application made by a party to the arbitration proceeding without the permission of arbitrators. Finally, courts are sensitive to the fact that the use of section 1782 can result in a disparity of access to evidence. While the Supreme Court stated that the potential for such disadvantage did not warrant the imposition of a blanket discoverability requirement, it did say that any concern about a disparity of access to evidence should be dealt with by “condition[ing] relief upon that person’s reciprocal exchange of information.”165 In other words, a U.S. party could argue that in order to remedy the disadvantage to it that might result from granting its French adversary’s section 1782 application, the court should require the French party to provide evidence to the U.S. party similar to that which it requested. Of course, none of these defenses is guaranteed to prevail. And if a U.S. party or a non-U.S. party affiliated with a U.S. entity wishes to avoid the potential disadvantages that might result from the use of section 1782, it would be advisable for them to include a provision in their arbitration clause barring the use of section 1782.

V. Why Section 1782 Should not be Available for International Arbitration Proceedings One of the most problematic aspects of section 1782 is that, to the extent section 1782 is interpreted to permit the taking of evidence for use in an arbitration outside the United States, U.S. courts will provide broader assistance for the purpose of evidence gathering for foreign arbitrations than they do under section 7 of the Federal Arbitration Act for arbitrations sited in the United States. This is for four reasons. First, unlike section 7 which, on its face, contemplates the enforcement of an arbitral subpoena, section 1782 permits a party to apply for evidence without the authorization of an arbitrator. Second, unlike section 7 which, at least in some circuits, has been interpreted to be limited territorially based on where the arbitrators are sitting, section 1782 permits an application to any district court where the witness is located. Third, unlike section 7, which has been interpreted by some circuit courts to prohibit pre-hearing discovery, section 1782 explicitly permits the production of documents and the taking of depositions 165

Id. at 262.

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V.  Why Section 1782 Should not be Available for International Arbitration Proceedings

prior to hearings. Finally, section 7 contemplates the enforcement of an arbitral subpoena, it presumes that evidence can be taken only when the arbitration has been commenced; section 1782, by contrast, permits the taking of evidence when an arbitration is in reasonable contemplation. But section 1782 is objectionable not only because of it has more relaxed requirements on the taking of evidence than section 7 of the FAA, but also it is objectionable because its use in the arbitration context undermines a central feature of international arbitration – namely, that arbitrators control discovery. In international arbitration, there is no binding set of rules – such as, for example, the Federal Rules of Civil Procedure that apply in litigation in the United States federal courts – that give a party to an arbitration proceeding the right to conduct discovery. None of the major rules governing international arbitration proceedings, such as those of the ICC, the AAA or the LCIA, grants the parties a right to discovery. Rather, they leave that issue to the discretion of the arbitrators.166 Thus, unless the parties agree to certain discovery procedures in their arbitration agreement or after a dispute arises, it is for the arbitrators to decide whether to permit discovery and, if so, its scope.167 And that is why section 1782 is problematic. Arbitrators control discovery, and are entitled to make their decisions about the scope of discovery by taking into account the various different factors they deem important, including, giving the parties a fair opportunity to present their case and treating them equal166

See, e. g., Establishing the Facts of the Case, 2012 I. C.C Arbitration Rules, Article 25, ¶ 5 (“At any time during the proceedings, the Arbitral Tribunal may summon any party to provide additional evidence.”); Evidence, 2009 AAA Int’l Dispute Resolution Procedures, Article 19, ¶ 2-3 (“The tribunal may order a party to deliver to the tribunal and to the other parties a summary of the documents and other evidence which that party intends to present in support of its claim, counterclaim or defense. At any time during the proceedings, the tribunal may order parties to produce other documents, exhibits or other evidence it deems necessary or appropriate.”); Additional Powers of the Arbitral Tribunal, 1998 The London Court of Int’l Arbitration Rules, Article 22.1 (“Unless the parties at any time agree otherwise in writing, the Arbitral Tribunal shall have the power, on the application of any party or of its own motion, but in either case only after giving the parties a reasonable opportunity to state their views.… (c) to conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient, including whether and to what extent the Arbitral Tribunal should itself take the initiative in identifying the issues and ascertaining the relevant facts and the law(s) or rules of law applicable to the arbitration, the merits of the parties’ dispute and the Arbitration Agreement.”). 167 See Cigna Healthcare of St. Louis, Inc. v. Kaiser, 294 F.3d 849, 855 (7th Cir. 2002) (“If a dispute is arbitrable, responsibility for the conduct of discovery lies with the arbitrators – indeed, for the sake of economy and in contrast to the practice in adjudication, parties to an arbitration do not conduct discovery; the arbitrators do.”).

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ly.168 Thus section 7 contemplates the enforcement of an arbitral subpoena, and the law of other countries likewise only permit court assistance with the consent of the arbitrators or the agreement of all parties. For example, in England, the ability to obtain evidence from non-parties to the arbitration is governed by section 43 of the Arbitration Act of 1996, which states: (1) A party to arbitral proceedings may use the same court procedures as are available in relation to legal proceedings to secure the attendance before the tribunal of a witness in order to give oral testimony or to produce documents or other material evidence. (2) This may only be done with the permission of the tribunal or the agreement of the other parties.169 168

Indeed, the notion that arbitrators, rather than courts, control discovery finds expression not only in the major arbitration rules, but also in section 7 of the FAA. A court’s authority under section 7 of the FAA, is limited to enforcing an arbitral subpoena – a subpoena, that is, in the words of the statute, “signed by the arbitrators, or a majority of them.” Section 1782, by contrast, permits a court to authorize the issuance of a subpoena upon an application by “any interested person,” even where such order was sought without the knowledge or permission of the arbitrators. While, as noted, there may be reasons of prudence why a party may give notice to, or seek the permission of, the arbitrators before making a section 1782 application, that does not change the fact that the statute itself does not require such notice or permission. Moreover, given that a section 1782 application may be made when an arbitration proceeding is in “reasonable contemplation” – for example, a dispute has arisen and the parties are seeking to negotiate a resolution – there may not even be an arbitration panel in place to notify. 169 (emphasis added). Section 43 applies only to witnesses physically present in the U. K. Although Section 43(3)(b) states that the arbitral seat to be in England, Wales or Northern Ireland, Section 2(3)(a) allows the court to exercise its power where the seat of the arbitration is outside the U. K., unless it determines that it is “inappropriate to do so.” In Commerce and Indus.. Ins. Co. of Canada v. Lloyd’s Underwriters at Lloyd’s of London, [2002] 1 WLR 1323 (Q. B.), a court refused to enforce an arbitration subpoena for evidence outside of the United States because the arbitrators had not explained the need for the evidence sought. In the same way that section 7 of the FAA must be read in light of Rule 45 of the Federal Rules of Civil Procedure, Section 43 of the English Arbitration Act must be read in the Civil Procedure Rules (“CPR”). In BNP Paribas v Deloitte and Touche LLP, [2003] All E. R. (D) 431 (Nov), the English Commercial Court denied BNP’s application to obtain third party discovery from Deloitte & Touche. The Court held that it did not have the power to order that a third party make general disclosure of documents in connection with an arbitration under CPR r.31.17 (which permits such disclosure in court). Rather, the Court held section 43 permits a court only to make an order under CPR r.34.4, which applies only to “specific documents which can be identified”. BNP’s request for “notes, memoranda and / ​or other documents” was rejected

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Similarly in Germany, while an arbitral tribunal arbitrator has no authority to issue an subpoena directed at third parties, section 1050 of the German Code of Civil Procedure (Zivilprozessordnung – ZPO) permits an arbitral tribunal or a party with the tribunal’s permission to apply to a court to take evidence. Section 1050 primarily applies to arbitration proceedings in Germany, but may apply to arbitration proceedings outside of Germany, if the support of a German court is needed to gather evidence. 170 Section 1782 threatens to undermine the arbitrators’ control of the discovery process by taking the decision concerning that process out of their hands and putting it into the hands of a U.S. court, which inevitably will have little familiarity with the case and may issue an order permitting a disparity of access to evidence, with the effect that the parties to the proceeding will not be treated equally. To this objection it might be said that section 1782 does not establish a right of discovery per se, but simply a right to apply to take evidence located in the United States. The courts can always exercise their discretion to deny the application altogether or to limit the scope of evidence-gathering based on considerations specific to the international arbitration context – namely, that arbitrators should control discovery. Indeed, it would be a weighty argument against a section 1782 application if a party were to have made that application without having sought the permission of the arbitrators or before the panel was constituted. After all, this argument might run, the arbitrators are in the best position to know whether the material sought has a bearing on the proceeding, as overbroad. This decision means that disclosure of broad categories of documents cannot be ordered against third parties in arbitration. 170 Section 1050 primarily applies to arbitration proceedings in Germany, but may apply to arbitration proceedings outside of Germany, if the support of a German court is needed to gather evidence. However, as in England, there are very limitations on when a court will order a third party to make evidence available. First, the party has to show that the requested document in the third parties possession supports certain detailed allegation of certain facts (“substantiiertes Behaupten”) which facts are denied by the other party to the case. Second, the party seeking the document must obtain a “title” against the third party, which requires it to have a valid claim against the third party to produce the document Thus, section 810 of the German Civil Code (Bürgerliches Gesetzbuch – BGB) provides that a person can require a third person to produce documents, if (1) such person has a legal interest in the examination of the document and (2) the document is made in its interest, or the document records a legal relationship (for example, a contract) to which such person is a party. The plaintiff has to start separate proceedings against the third party in order to obtain that title. A recent exception to this strict requirement was enacted in 2001, permitting a court to issue an order against a third party in other exceptional circumstances, but the scope of discovery is very limited.

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and if the arbitrators have not authorized the section 1782 application, then a court should deny it. Ironically, the very first case to consider section 1782 in the international arbitration context recognized this point. In Technostroyexport, the court denied a section 1782 application by a party to the arbitration on the ground that that party had “made no effort to obtain any ruling from the arbitrators” authorizing such discovery.171 The court explicitly stated, however, that its “ruling is without prejudice to a future application based on the ruling” of the arbitrators.172 The court offered the following rationale for its decision: “It appears to be generally accepted that the rules and procedures in arbitration are intended to be radically different from the rules and procedures in the courts. Arbitrators govern their own proceedings, generally without assistance or intervention by a court. Whether or not there is to be pre-hearing discovery is a matter governed by the applicable arbitration rules (as distinct from courts rules) and by what the arbitrators decide.”173 While this may be a reasonable approach, it is not one mandated by the terms of the statute, but is one based on the court’s exercise of its discretion. Some courts may exercise their discretion to deny a section 1782 application unless it is made by the arbitrators, as did the court in Technostroyexport; others, such as the Roz court, may not.

VI. Conclusion While the location of evidence may rarely be a decisive factor in choosing a forum, there are times when it may be important. As noted at the outset, when looking at the taking of evidence, it is necessary to take a broad view of the choice of forum looking at the extent to which courts in one country will assist in the taking of evidence in aid of the arbitration. And as discussed, the United States, with section 1782, can give a non-U.S. party a significant advantage over a U.S. party.

171

In re Technostroyexport, 853 F. Supp. 695, 697 (S.D.N.Y. 1994). Id. at 699. 173 Id. at 697-698. 172

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Interim Measures – Relevance of the Courts at the Place of Arbitration and Other Places Christopher Boog* I. Introduction “Forum shopping in the international commercial arbitration context”, as this publication is entitled, is a broad field with regard to which surprisingly little has been written in the past. This holds particularly true insofar as interim measures1 are concerned. Interim measures play an important role not only in state court proceedings, but also in international arbitration.2 This contribution seeks to provide an overview of the role of national courts at the place or seat3 of the arbitration and in other places with regard to issuing interim measures in the context of international arbitration, with a view to exposing options that parties to an arbitration agreement in need of interim relief may have in terms of forum shopping. In doing so, it deals only with forum shopping options between different national courts. Interim relief granted by arbitral tribunals, emergency arbitrators or other bodies and forum shopping options with respect to such measures is not the topic of this report. This piece moves in five main parts. Part one deals with the state courts’ power to grant interim measures where the parties have agreed to arbitration as the means for resolving disputes under or in connection with their contract. Part one also highlights that the courts at the place of arbitration do not necessarily have jurisdiction to grant interim measures in all cases, let alone are they *

1

2 3

I am much indebted to Elisabeth Leimbacher, Penelope Nünlist, Annekathrin Looser and Dmitriy Chekalov for their assistance in preparing this report. The views expressed in this paper represent the author’s views and not necessarily those of Schellenberg Wittmer. A variety of terms, such as “interim measures”, “interim measures of protection”, “conservatory measures”, “provisional measures”, “preliminary measures”, “precautionary measures” and “measures of restoration”, are used in the mass of relevant arbitration rules and legislation. The terms used in legal commentary are even more diverse. While these variations of nomenclature may bear significance in their respective immediate contexts, for the purpose of this contribution the terms “interim relief” and “interim measures” are used interchangeably and encompass all of the aforementioned terms. G. B. Born, International Arbitration: Law and Practice, 2012, 203. For the purpose of this contribution, the terms “place” and “seat” of the arbitration are used interchangeably.

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the main or only courts authorized to grant interim relief (hereinafter section II). The second part examines the types of interim measures granted by state courts in support of arbitration proceedings, identifying differences in the types and scope of measures different state courts may order (hereinafter section III). The third part of this article examines the standards applied by national courts when faced with a request for interim measures and shows that although such standards appear to be converging internationally, state courts called upon to grant interim relief in connection with international arbitral proceedings are still more likely to apply the standards of their own national law than uniform international standards (hereinafter section IV). The fourth part looks at preclusion principles such as res judicata, lis pendens and estoppel, and the extent to which such principles apply to interim measures (hereinafter section V). Finally, the fifth part analyzes questions of recognition and enforcement by state courts of provisional measures ordered by arbitral tribunals (hereinafter section VI).

II. State courts’ power to grant interim measures in the context of arbitration II.A General principle: state courts have the power to grant interim measures despite an arbitration agreement Nowadays, the overwhelming majority of national arbitration laws accept the arbitral tribunal’s power to grant interim measures for the duration of the arbitral proceedings, possibly even stretching beyond the issuing of the final award until the award can be enforced.4 Only very few jurisdictions still do not – with 4

5

This was not always the case, though. For an overview of the issue cf. C. Boog, The laws governing interim measures in international arbitration, in F. Ferrari / ​S. Kröll eds., Conflict of Laws in International Arbitration, 2011, 411-444; see further Born, supra note 2, at 203-205; G. B. Born, International Commercial Arbitration, 2009, 1945-2018; J. Lew / ​L . Mistelis / ​S. Kröll, Comparative International Commercial Arbitration, 2003, paras 23-7 to 23-33; E. Gaillard / ​J. Savage eds., Fouchard, Gaillard & Goldman on International Commercial Arbitration, 1999, paras 1314-1317 (hereinafter “Fouchard  / ​ Gaillard / ​Goldman”). E. g., whereas the Italian Code of Civil Procedure, as a matter of principle, prohibits tribunal-ordered interim measures, it allows for exceptions (cf. art. 818 of the Italian Code of Civil Procedure: „Gli arbitri non possono concedere sequestri, ne‘ altri provvedimenti cautelari, salva diversa disposizione di legge“). One such exception is provided for in art. 35(5) of Decreto Legislativo no. 5 of 17 January 2003, which expressly allows for the provisional stay of the execution of decisions by the general assembly of nonlisted companies by the arbitral tribunal where the validity of such decisions the subject of the arbitral proceedings; see C. Boog, Die Durchsetzung einstweiliger Massnahmen in internationalen Schiedsverfahren, 2011, para. 61.

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occasional exceptions5 – accept tribunal-ordered interim measures.6 Therefore, unless the parties have agreed otherwise, once the arbitral tribunal is constituted and in a position to act, it has the general power to grant interim relief.7 Most of the commonly applied sets of arbitration rules confirm this general power, such as those of UNCITRAL,8 the International Chamber of Commerce (“ICC”),9 the London Court of International Arbitration (“LCIA”),10 the American Ar 6

Among those jurisdictions are Italy (cf. Art. 818 of the Italian CCP); Thailand (cf. sec. 16 Arbitration Act 2002); Argentina (Art. 753 Civil Procedure Act) and China, where only requests for the preservation of property and the preservation of evidence can be directed to the arbitral tribunal or the arbitration commission in charge, which will then submit the application to the People’s Court at the place where the evidence or property is located; cf. J. Tao, Arbitration Law and Practice in China, 3rd ed., 2012, 126127; A. Ma / ​B. Miao / ​H. Shi, People’s Republic of China, in M. J. Moser / ​J. Choong eds., Asia Arbitration Handbook, 2011, para. 3.98.  7 See, e. g., Article 183(1) of the Swiss Private International Law Act („ PILA“); Art. 12(1) of the Singapore International Arbitration Act; sec. 593(1) of the Austrian Arbitration Act; § 1041(1) of the German Code on Civil Procedure; sec. 35(1) of the Hong Kong Arbitration Ordinance; or Art. 19 of the Malaysian Arbitration Act, to name just a few.  8 Art. 26 UNCITRAL Arbitration Rules (2010): “The arbitral tribunal may, at the request of a party, grant interim measures.”  9 Art. 28(1) ICC Rules: “Unless the parties have otherwise agreed, as soon as the file has been transmitted to it, the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate.” 10 Art. 25.1 LCIA Rules: “The Arbitral Tribunal shall have the power, unless otherwise agreed by the parties in writing, on the application of any party: (a) to order any respondent party to a claim or counterclaim to provide security for all or part of the amount in dispute, by way of deposit or bank guarantee or in any other manner and upon such terms as the Arbitral Tribunal considers appropriate. Such terms may include the provision by the claiming or counterclaiming party of a cross-indemnity, itself secured in such manner as the Arbitral Tribunal considers appropriate, for any costs or losses incurred by such respondent in providing security. The amount of any costs and losses payable under such cross-indemnity may be determined by the Arbitral Tribunal in one or more awards; (b) to order the preservation, storage, sale or other disposal of any property or thing under the control of any party and relating to the subject matter of the arbitration; and (c) to order on a provisional basis, subject to final determination in an award, any relief which the Arbitral Tribunal would have power to grant in an award, including a provisional order for the payment of money or the disposition of property as between any parties”; Art. 25.2 LCIA Rules: “The Arbitral Tribunal shall have the power, upon the application of a party, to order any claiming or counterclaiming party to provide security for the legal or other costs of any other party by way of deposit or bank guarantee or in any other manner and upon such terms as the Arbitral Tribunal considers appropriate. Such terms may include the provision by that other party of a cross-indemnity, itself secured in such manner as the Arbitral Tribunal considers appropriate, for any costs and

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bitration Association’s International Center for Dispute Resolution (“ICDR”),11 the Singapore International Arbitration Centre (“SIAC”),12 the Hong Kong International Arbitration Centre (“HKIAC”),13 the Swiss Chambers’ Arbitration Institution,14 the German Institution of Arbitration (“DIS”),15 the Vienna International Arbitration Centre (“VIAC”),16 the Arbitration Institute of the Swedish Chamber of Commerce (“SCC”),17 the Chamber of Arbitration of Milan (“CAM”),18 the Australian Centre for International Commercial Arbitration losses incurred by such claimant or counterclaimant in providing security. The amount of any costs and losses payable under such cross-indemnity may be determined by the Arbitral Tribunal in one or more awards. In the event that a claiming or counterclaiming party does not comply with any order to provide security, the Arbitral Tribunal may stay that party’s claims or counterclaims or dismiss them in an award.” 11 Art. 21(1) ICDR International Arbitration Rules: “At the request of any party, the tribunal may take whatever interim measures it deems necessary, including injunctive relief and measures for the protection or conservation of property.” 12 Art. 26.1 SIAC Rules: “The Tribunal may, at the request of a party, issue an order or an award granting an injunction or any other interim relief it deems appropriate.” 13 Art. 24.1 HKIAC Rules: “At the request of either party, the arbitral tribunal may order any interim measure it deems necessary or appropriate.” The HKIAC Rules are currently under revision. The proposed revised Rules contain the same wording in Art. 23.1. 14 Art. 26(1) Swiss Rules: “At the request of a party, the arbitral tribunal may grant any interim measures it deems necessary or appropriate. […]” 15 § 20.1 DIS Arbitration Rules: “Unless otherwise agree by the Parties, the arbitral tribunal may, at the request of a party, order any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute […].” 16 Art. 22.1 VIAC Rules: “Unless otherwise agreed by the parties, the sole arbitrator (arbitral tribunal) may, at the request of a party order any party, after hearing such party, to take such interim measure of protection as the sole arbitrator (arbitral tribunal) may consider necessary in respect of the subject matter of the dispute, as otherwise the enforcement of the claim would be frustrated or considerably impeded or there is a danger of irreparable harm […].” 17 Art. 32(1) SCC Arbitration Rules: “The Arbitral Tribunal may, at the request of a party, grant any interim measures it deems appropriate.” 18 Art. 22(2) CAM Rules: “The Arbitral Tribunal may issue all urgent and provisional measures of protection, also of anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings.” 19 Art. 28.1(b) ACICA Rules: “Unless the parties agree otherwise in writing: (b) the Arbitral Tribunal may, on the request of any party, order interim measures of protection. The Arbitral Tribunal may order such measures in the form of an award, or in any other form (such as an order) provided reasons are given, and on such terms as it deems appropriate. The Arbitral Tribunal shall endeavour to ensure that the measures are enforceable.”

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(“ACICA”),19 WIPO,20 the Dubai International Arbitration Centre (“DIAC”),21 the Dubai International Financial Centre (“DIFC”),22 the Moscow Chamber of Commerce and Industry (“MCCI”),23 and the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”),24 among many others. In addition to this power vested in the arbitral tribunal – which the tribunal can only execute once it is constituted and in a position to act25 – an increasing number of arbitral institutions have recognized the need for an arbitral body to grant interim measures before the constitution of the arbitral tribunal proper. For this reason, they have incorporated so-called “emergency arbitrator” or similar provisions into their sets of arbitration rules. While at times differing in their details, these rules commonly vest the power to grant interim measures prior to the formation of the arbitral tribunal in an emergency arbitrator if the measures requested are so urgent that they cannot await the constitution of the arbitral tribunal. Arbitral institutions having introduced emergency arbitrator or similar provisions into their arbitration rules include the AAA’s ICDR,26 the 20 Art. 46(a)

WIPO Arbitration Rules: “At the request of a party, the Tribunal may issue any provisional orders or take other interim measures it deems necessary, including injunctions and measures for the conversation of goods which form part of the subject matter in dispute, such as an order for their deposit with a third person or for the sale of perishable goods […].” 21 Art. 31.1 DIAC Arbitration Rules: “Subject to any mandatory rules of the applicable law, at the request of a party, the Tribunal may issue any provisional orders or take other interim or conservatory measures it deems necessary, including injunctions and measures for the conversation of goods which form part of the subject matter in dispute, such as an order for their deposit with a third person or for the sale of perishable goods […].” 22 Sec. 24(1) DIFC Arbitration Law: “The following provisions shall apply unless the parties have expressly agreed in writing that the Arbitral Tribunal shall not have power to order interim measures: a) The Arbitral Tribunal may, at the request of a party, order any party to take such interim measures of protection as the Arbitral Tribunal may consider necessary in relation to an arbitration […].” 23 Art. 21(1) MCCI Rules of Procedure for Arbitration: “Unless the parties agree otherwise, the panel, at the request of any party, may decide in favor of taking such security measures by any party, in relation to the dispute subject, it thinks necessary. At that, the panel may request any party to provide for implementation of such measures.” 24 Cf. Art. 26 of Part II of the KLRCA Rules. 25 Some institutional rules, in addition to requiring constitution or formation of the arbitral tribunal, expressly require that the file has been transmitted to the arbitral tribunal in order for it to have the power to grant interim relief; cf. Art. 28(1) ICC Rules. 26 Art. 37(2) ICDR Rules: “A party in need of emergency relief prior to the constitution of the tribunal shall notify the administrator and all other parties in writing of the nature of the relief sought and the reasons why such relief is required on an emergency basis. The application shall also set forth the reasons why the party is entitled to such relief.

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ICC,27 the Swiss Chambers’ Arbitration Institution,28 the International Institute for Conflict Prevention & Resolution (“CPR”),29 the SCC,30 ACICA,31 SIAC,32 and P. R. I. M. E. Finance.33 The HKIAC is currently in the process of revising its Administered Arbitration Rules. Art. 23.2 of the proposed revised Rules also provides for “Emergency Relief ” by an emergency arbitrator.34 Despite these attempts by arbitral institutions to centralize the resolution Such notice may be given by e-mail, facsimile transmission or other reliable means, but must include a statement certifying that all other parties have been notified or an explanation of the steps taken in good faith to notify other parties.” 27 Art. 29(1) ICC Rules: “A party that needs urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal (‘Emergency Measures’) may make an application for such measures pursuant to the Emergency Arbitrator Rules in Appendix V. Any such application shall be accepted only if it is received by the Secretariat prior to the transmission of the file to the arbitral tribunal pursuant to Article 16 and irrespective of whether the party making the application has already submitted its Request for Arbitration”; cf. Appendix V to the ICC Rules. 28 Art. 43(1) Swiss Rules: “Unless the parties have agreed otherwise, a party requiring urgent interim measures pursuant to Article 26 before the arbitral tribunal is constituted may submit to the Secretariat an application for emergency relief proceedings (hereinafter the ‘Application’) […].” 29 CPR Rules 14.2: “Prior to the constitution of the Tribunal, any party may request that interim measures be granted under this Rule against any other party by a special arbitrator appointed for that purpose.” 30 Art. 32(4) SCC Rules: “Provisions with respect to interim measures requested before arbitration has been commenced or a case has been referred to an Arbitral Tribunal are set out in Appendix II”; cf. Appendix II to the SCC Rules. 31 Art. 28.1(a) ACICA Rules: “Unless the parties agree otherwise in writing a party may request emergency interim measures of protection to be issued by an arbitrator (the Emergency Arbitrator) appointed prior to the constitution of the Arbitral Tribunal in accordance with the provisions set out in Schedule 2 […]”; cf. Schedule 2 to the ACICA Rules. 32 Art. 26.2 SIAC Rules: “A party in need of emergency interim relief prior to the constitution of the Tribunal may apply for such relief pursuant to the procedures set forth in Schedule 1”; cf. Schedule 2 to the SIAC Rules. 33 Art. 26a(1) P. R. I. M. E. Finance Arbitration Rules: “A party in need of (an) urgent provisional measure(s) that cannot await the constitution of the arbitral tribunal pursuant to section II may make an application for such measure(s) in accordance with the present provision and the emergency arbitration rules as set out in Annex C to these Rules (the ‘Emergency Arbitration Rules’)”; cf. Annex C to the P.R.I.M.E. Finance Arbitration Rules. 34 Art. 23.2 of the proposed revised HKIAC Rules: “A party requiring urgent interim or conservatory relief (the ‘Emergency Relief’ prior to the constitution of the arbitral tribunal may apply for such Emergency Relief pursuant to the procedures set out in Schedule 4 (the ‘Emergency Arbitrator Procedures’).”

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of all disputes between parties in one forum and to limit the intervention of national courts in the arbitral process by providing for “one-stop-shop” dispute resolution including interim relief, it is generally recognized today that there remain compelling reasons that require – at least in principle – parallel jurisdiction of national courts to grant interim relief even where the parties have subjected their disputes to arbitration.35 These reasons are based on limitations of the arbitral tribunal’s power to grant interim relief, which – as Born points out – “arise in part from the nature of the arbitral process, which is a contractual mechanism between particular parties, and which requires constitution of a tribunal for each dispute that arises” and in part from limitations imposed by national arbitration laws.36 Accordingly, one reason to allow state courts to grant interim relief in the context of international arbitration is that the arbitral tribunal may not yet be constituted and the arbitration rules applicable to the parties’ dispute do not provide for an emergency arbitrator or similar form of pre-arbitral interim relief. Waincymer rightly alludes to the fact that the need for interim measures will typically – or at least frequently – arise concurrently with the dispute between the parties and, therefore, before an arbitral tribunal is in place.37 Not accepting the power of national courts to grant interim measures in such circumstances would be tantamount to denying justice to a party in need of such relief. But even where an emergency arbitrator can be seized or after the constitution of the arbitral tribunal, relying on interim relief granted by an emergency arbitrator or the arbitral tribunal proper may not suffice to effectively protect a party’s rights or to ensure effective arbitral proceedings.38 Foremost, this is the case where interim relief must be ordered against a third party not bound by the arbitration agreement,39 e. g. where assets held by a bank shall be frozen or evidence held by a third party secured. Other situations involve interim measures which must be enforced immediately in order to be effective, must be granted ex parte40 in order for their very purpose not to be frustrated, or simply because the arbitral tribunal is not authorized to order a certain type of measure.41 35

See, e. g., A. Redfern / ​M. Hunter / ​N. Blackaby / ​C . Partasides, Redfern and Hunter on International Arbitration, 5th ed., 2009, para. 7.23. 36 Born, supra note 2, at 206. 37 J. Waincymer, Procedure and Evidence in International Arbitration, 2012, 619. 38 Cf. Lew / ​Mistelis / ​Kröll, supra note 4, at para. 23-112. 39 Born, supra note 4, at 2029 and 2049. 40 Whether or not emergency arbitrators and arbitral tribunals may grant interim measures on an ex parte basis is a matter of contention; for a discussion of this question see G. von Segesser / ​C . Boog, Interim Measures, in E. Geisinger / ​N. Voser eds., International Arbitration in Switzerland, 2nd ed., 2013, 116-118 with references. 41 For example, it is disputed whether an arbitral tribunal seated in Switzerland can order an attachment in terms of Art. 271 et seq. of the Swiss Debt Enforcement and Bankruptcy Act; cf. on this issue Boog, supra note 4, at 431 et seq.

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Therefore, it is generally understood that a request to a national court for interim relief does not constitute a waiver of the arbitration agreement.42 This general principle is confirmed for instance by the European Convention on International Commercial Arbitration of 21 April 1961. Art. VI(4) of the Convention provides that “[a] request for interim measures or measures of conservation addressed to a judicial authority shall not be deemed incompatible with the arbitration agreement or regarded as a submission of the substance of the case to the court.” Although this provision arguably does not by itself bestow jurisdiction on the national courts to grant interim relief, it explicitly permits the parties to an international arbitration agreement to seek interim measures from a national court without waiving their right to arbitrate or without violating their arbitration agreement.43 The New York Convention (“NYC”) does not contain any provision dealing with interim relief. This has led to some confusion in the past as to whether, in the scope of application of the New York Convention, national courts are authorized to grant interim relief in support of international arbitration.44 In particular, some U. S. precedent suggests that Art. II(3) NYC45 precludes courtordered interim relief in case of an arbitration agreement.46 The prevailing (and correct) view, however, is that Art. II(3) NYC in no way prevents national courts from ordering interim relief despite the existence of an arbitration agreement.47 42

J.-F. Poudret / ​S. Besson, Comparative Law of International Arbitration, 2nd ed., 2007, para. 612 with references. 43 See S. Wilske / ​T. Fox, in R. Wolff ed., New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards – Commentary, 2012, Article II para. 268-269; Born, supra note 4, at 2030 with references to case law. 44 Cf. Born, supra note 2, at 213-215. 45 Article II(3) NYC: “The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” 46 Cooper v. Ateliers de la Motobécane SA., 442 N. E.2d 1239, 1243 (N. Y. 1982), where the court declared in dicta that “[t]he purpose and policy of the [New York] Convention will be best carried out by restricting prearbitration judicial action to determining whether arbitration should be compelled.” This opinion was followed by other courts which even went beyond Cooper in refusing to permit court-ordered provisional measures even when they were in aid of international arbitration; cf. Drexel Burnham Lambert, Inc. v. Ruebsamen, 531 N. Y. S. 2d 547 (N. Y. App. Div. 1998). 47 Channel Tunnel Grp. Ltd. v. Balfour Beatty Constr. Ltd., [1993] A. C. 334 (H. L.) 354; Carolina Power & Light Co. v. Uranex, 451 F.Supp. 1044 (N. D. Cal. 1977); In re Faiveley Transp. Malmo AB, 522 F.Supp.2d 639 (S. D. N. Y. 2007); Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith Inc., 910 F.2d 1049 (2d Cir. 1990); In Joseph Chris Personnel Services v. Rossi, 249 Fed. Appx. 988 (5h Cir. 2007); Borden, Inc. v. Meiji Milk Prods.

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As a matter of fact, a closer reading of the decisions often cited for the proposition that U. S. courts regard Art. II(3) NYC as prohibiting court-ordered interim relief in support of arbitration shows that those decisions have at times been misinterpreted; all they really find is that the New York Convention prohibits interim relief intended to frustrate rather than support the arbitral process. EC Regulation No. 44 / 2001 (also referred to as the “Brussels I Regulation”) and the corresponding Lugano Convention also do not expressly provide for jurisdiction of courts to grant interim relief in the context of arbitration, however the pertinent case law of the European Court of Justice (ECJ) is explicit in admitting that “where the subject-matter of an application for provisional measures relates to a question falling within the scope ratione materiae of the Convention, that Convention is applicable and Article 24 [now Article 31] thereof may confer jurisdiction on the court hearing that application even where proceedings have already been, or may be, commenced on the substance of the case and even where those proceedings are to be conducted before arbitrators.”48 In Co., 919 F.2d 822, 826 (2d Cir. 1990); Project Orange Associates v. Gen. Elec. Int’l, 872 N. Y. S. 2d 857 (N. Y. Sup. Ct. 2009); China Nat’l Metal Prods. Import / ​Export Co. v. Apex Digital, Inc., 155 F.Supp.2d 1174, 1179 (C. D. Cal. 2001); Daye Nonferrous Metals Co. v. Trafigura Beheer BV, 1997 WL 375680 (S. D. N. Y. 1997); Alvenus Shipping Co. v. Delta Petroleum (U. S. A.), 876 F.Supp. 482, 487 (S. D. N. Y. 1994); Blom ASA v. Pictometry Int’l Corp., 757 F.Supp.2d 238 (W. D. N. Y. 2010); Born, supra note 4, at 2032-2042; Wilske  / ​ Fox, supra note 43, Article II para. 221, at para. 267; D. Schramm / ​E . Geisinger / ​P. Pinsolle, Article II, in H. Kronke / ​P. Nacimiento / ​D. Otto / ​N. C. Port eds., Recognition and Enforcement of Foreign Arbitral Awards. A Global Commentary on the New York Convention, 2010, 100; Waincymer, supra note 37, at 640; A. J. van den Berg, The New York Convention of 1958, 1981, 139-140 and 144; C. Brower, What I Tell You Three Times Is True: U. S. Courts and Pre-Award Interim Measures Under The New York Convention, 35 Virginia Journal of International Law 971, 974 and 1004 et seq. (1995); M. F. Hoellering, Interim Relief in Aid of International Commercial Arbitration, 2 Wisconsin International Law Journal 1, 13 (1984); A. S. Rau, Provisional Relief in Arbitration: How Things Stand in the U. S., 22 Journal of International Arbitration 1, 27 et seq. (2005); H. Smit, Provisional Relief in International Arbitration: The ICC and Other Proposed Rules, 1 American Review of International Arbitration 388, 390 (1990); D. E. Wagoner, Interim Relief in International Arbitration – Enforcement Is a Substantial Problem, in T. E. Carbonneau / ​J. A. Jaeggi eds., Handbook on International Arbitration and ADR , 2005, 145, 155; Fouchard / ​Gaillard / ​Goldman, supra note 4, at para. 1307; T. Cook / ​A. I. Garcia, International Intellectual Property Arbitration, 2010, 228; D. Girsberger / ​N. Voser, International Arbitration in Switzerland, 2nd ed., 2012, para. 806. 48 Van Uden Maritime BV, trading as Van Uden Africa Line v. Kommanditgesellschaft in Firma Deco-Line and Another, (Case C-391 / 95), (1998), para. 3; cf. J.-P. Beraudo, The Arbitration Exception of the Brussels and Lugano Conventions: Jurisdiction, Recognition and Enforcement of Judgments, 18 Journal of International Arbitration 13, 15 et seq. (2001); B. Berger / ​F. Kellerhals, International and Domestic Arbitration in

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other words, the Brussels I Regulation and the Lugano Convention apply in such circumstances despite the general arbitration exclusion of Art. 1(2)(d) of the respective piece of law. The national arbitration laws of most jurisdictions also accept the courts’ parallel power to grant interim measures where the parties have agreed to subject their dispute arbitration. A prime example is the UNCITRAL Model Law (“ML”) whose Art. 17 J – introduced in 2006 49 – expressly provides that national courts “shall have the same power [as the arbitral tribunal] of issuing an interim measure in relation to arbitration proceedings.” The Singapore International Arbitration Act expressly accepts in sec. 12A(2) that the Singapore High Court has the same general power to grant interim relief as the arbitral tribunal pursuant to Art. 12(1).50 Pursuant to sec. 44 of the English Arbitration Act 1996, courts in England, Wales and Northern Ireland also enjoy a general parallel power to Switzerland, 2nd ed., 2010, paras. 1172, 1188; R. Geimer / ​R. A. Schütze, Europäisches Zivilverfahrensrecht, Kommentar, 3rd ed., 2010, Art. 1 paras. 160 and 164; J. Kropholler, Europäisches Zivilprozessrecht: Kommentar zu EuGVO, Lugano-Übereinkommen und Europäischem Vollstreckungstitel, 8th ed., 2005, Art. 31 para. 4; Poudret / ​Besson, supra note 42, at para. 614. 49 Note that before its 2006 revision the ML did not contain such explicit jurisdictional provision. Instead, Art. 9 ML merely provided that “it is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.” Strictly speaking, this provision did not in and of itself provide for a state-court competence to order interim relief; cf. the UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, Art. 9 para. 2; S. Kröll, Die internationale Zuständigkeit deutscher Gerichte für einstweiligen Rechtsschutz bei ausländischem Schiedsort, Internationales Handelsrecht 142, 144 (2005), with regard to § 1033 German CCP, which is based on Art. 9 ML. Nonetheless, in countries that have incorporated Art. 9 ML into their national arbitration laws, it seems uncontested that state courts have concurrent jurisdiction to order interim measures. For Germany, e. g., cf. S. Bandel, Einstweiliger Rechtsschutz im Schiedsverfahren, 2000, 275 et seq.; H.-J. Schroth, Einstweiliger Rechtsschutz im deutschen Schiedsverfahren, 3 Zetischrift für Schiedsverfahren 102, 104 (2003); R. H. Kreindler / ​J. K. Schäfer / ​R . Wolff, Schiedsgerichtsbarkeit, Kompendium für die Praxis, 2006, para. 896; K.-H. Böckstiegel / ​S. M. Kröll / ​ P. Nacimiento, Arbitration in Germany. The Model Law in Practice, 2008, General Overview para. 102; J.-P. Lachmann, Handbuch der Schiedsgerichtsbarkeit, 3rd ed., 2008, para. 2852 et seq.; for Austria, cf. § 585 in conjunction with § 577(2) CCP; G. Zeiler, Erstmals einstweilige Massnahmen im Schiedsverfahren?, 2 Zetischrift für Schiedsverfahren 79, 80 et seq. (2006); J. Power, The Austrian Arbitration Act, 2006, § 585 para. 1; P. Vcelouch, Interim and Protective Measures under the New Austrian Arbitration Act, in C. Klausegger et al. eds., Austrian Arbitration Yearbook, 2007, 163, 167. 50 Yet the Court’s power is expressly limited in terms of types of interim measures it may order.

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grant interim measures, although such power becomes subsidiary once the arbitral tribunal has been constituted.51 The Swiss law on domestic arbitration is also explicit in providing that “[t]he state court or, unless the parties have otherwise agreed, the arbitral tribunal can upon application by a party order provisional measures including an order relating to the securing of evidence”.52 Hong Kong SAR, which expressly chose not to adopt Art. 17 J of the ML, nevertheless in sec. 45 of the Arbitration Ordinance expressly vests the courts with the general competence to grant interim measures in relation to arbitral proceedings “which have been or are to be commenced”. The Swedish Arbitration Act states that “[d]uring the pendency of a dispute before arbitrators or prior thereto, a court may, irrespective of the arbitration agreement, issue such decisions in respect of security measures as the court has jurisdiction to issue.”53 Similar provisions are contained in the arbitration laws of Australia,54 Austria,55 France,56

51

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53 54

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See, e. g., B. Harris / ​R . Planterose / ​J. Tecks, The Arbitration Act 1996: A Commentary, 4th ed., 2007, para. 38C; J. Blanch, Interim Measures in International Arbitration and the UK Courts, International Arbitration Law Review 161, 162 (2004). Art. 374(1) Swiss Code of Civil Procedure. Art. 4(3) of the Swedish Arbitration Act. Both the International Arbitration Act and the Commercial Arbitration Bill governing domestic arbitration have incorporated Article 17 J of the ML; cf. B. Gehle / ​D. Jones, Australia, in Asia Arbitration Handbook, supra note 6, at para. 23.117. § 585 read in conjunction with § 577(2) Civil Procedure Code. Art. 1449 of the Code of Civil Procedure, applying to international arbitration by reference in Art. 1506 Code of Civil Procedure. Note that although French arbitration law prior to its 2011 revision did not contain a specific provision on state courts‘ power to grant interim relief in the context of arbitration, French courts were generally admitted to grant such interim relief; a qualification applied to measures issued in so-called référé-provision proceedings; cf. with respect to the situation under the previous law the many decisions cited by M.-A. Bahmaei, L’intervention du juge étatique des measures provisoires et conservatoires en presence d’une convention d’arbitrage, 2002, para. 32 at no. 117; or by K. Wannenmacher, Einstweilige Massnahmen im Anwendungsbereich von Art. 31 EuGVVO in Frankreich und Deutschland, 2006, 47 and 223. Generally, commentators approve of this case law; cf. M. de Boisséson, Le droit français de l’arbitrage, 2nd ed., 1990, 256 et seq. para. 305; W. L. Craig / ​W. W. Park / ​J. Paulsson, International Chamber of Commerce Arbitration, 3rd ed., 2000, 475 et seq.; A. Lacabarats, Les mesures provisoires demandées au juge français en matière d’arbitrage internationale, in J.-M. Jacquet / ​E . Jolivet eds., Les mesures provisoires dans l’arbitrage commercial international, 2007, 3 et seq., although it is sometimes stated that the state courts’ jurisdiction is subsidiary; cf. Fouchard / ​Gaillard / ​Goldman, supra note 4, at para. 1328.

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Germany,57 India,58 Japan,59 the Republic of Korea,60 Turkey,61 the Russian Federation,62 Kazakhstan,63 and the DIFC,64 among many others. In other jurisdictions, although the arbitration law is not as explicit, the principle is the same. Swiss law, for example, recognizes the parallel power of its national courts to grant interim relief in the context of international arbitration, even if the 12th Chapter of the Swiss Private International Law Act (“PILA”) – which contains the Swiss law on international arbitration – is mute in this regard.65 The situation in Brazil was long contested. Two recent decisions appear to have brought clarity to the situation such that while Brazilian courts accept in principle that state courts may grant interim relief even where the parties have subjected their dispute to arbitration, the state courts’ power exists only in exceptional circumstances once the arbitral tribunal has been constituted and can act upon a request for interim relief.66 The situation in the 57

§ 1033 Civil Procedure Code. Although this provision does not – in the author’s view – in and of itself vest jurisdiction in state courts to grant interim, it is commonly cited as the basis for concurrent state court jurisdiction in Germany. 58 Sec. 9 Arbitration Act. 59 Cf.  J. Ohara / ​S. Yanase, Japan, in Asia Arbitration Handbook, supra note 6, at para. 1.74. 60 Art. 10 of the Korean Arbitration Act. 61 Art. 6(1) of the Turkish International Arbitration Law. 62 Art. 9 of the Law of the Russian Federation on International Commercial Arbitration. 63 Art. 25-4 of the Law of the Republic of Kazakhstan on International Commercial Arbitration. 64 Art. 15 DIFC Arbitration Law. 65 Berger / ​Kellerhals, supra note 48, at para. 1166 et seq.; S. V. Berti, in H. Honsell et al. eds., Basler Kommentar Internationales Privatrecht, 2nd ed., 2007, Art. 183 para. 5; S. Besson, Arbitrage internationale et mesures provisoires, 1993, para. 411 et seq.; B. Dutoit, Droit internationale privé suisse, 1995, Art. 183 para. 3; B. Ehle, Concurrent Jurisdiction: Arbitral Tribunals and Courts Granting Interim Relief, in A. Alibekova / ​R. Carrow eds., International Arbitration and Mediation, 2007, 157, 158; Girsberger / ​Voser, supra note 47, at para. 806 et seq.; G. Kaufmann-Kohler / ​A. Rigozzi, Arbitrage International, 2nd ed., 2010, para. 561; C. Oetiker, in T. Zuberbühler / ​C . Müller / ​P. Habegger eds., Swiss Rules of International Arbitration Commentary, 2005, Art. 26 para. 26 et seq.; Poudret / ​ Besson, supra note 42, at para. 611; von Segesser / ​Boog, supra note 40, at 125; M. Wirth, Interim or Preventive Measures in Support of International Arbitration in Switzerland, 18 ASA Bulletin 31, 42 et seq. (2000); dissenting T. Rüede / ​R. Hadenfeldt, Schweizerische Schiedsgerichtsbarkeit nach Konkordat und IPRG, 2nd ed., 1993, 252; M. Schneider, Funktionen des staatlichen Richters am Sitz des internationalen Schiedsgerichts gemäss 12. Kapitel des IPRG, 2009, 32. 66 Brazilian Superior Court of Justice, Itarumã Participaçoes S. A. v. Participaçoes em Complexos Bioenergétios S. A. – PCBIOS , Resp. no. 1,297,974-RJ; Brazilian Superior Court of Justice, Petroléo Braileiro S. A. Petrobras v. Tractebel Energia S. A., Ag Rg MC no. 19.266-MS.

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U. S., on the other hand, has not yet been fully settled. The Federal Arbitration Act (“FAA”) contains no provision on national court jurisdiction for interim relief. Jurisprudence seems to be inconsistent.67 Currently, U. S. courts appear to be willing to grant interim relief in the context of international arbitration, if such relief supports rather than impedes the arbitration process.68 Certain state laws are explicit on their courts’ power to support arbitration by issuing interim measures, including New York, where § 7502(c) of the Civil Practice Law and Rules – added in response to the much-criticized decision by the New York Court of Appeals in Cooper69 – provides that New York courts “may entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitration that is pending or that is to be commenced inside or outside this state, whether or not it is subject to the United Nations convention on the recognition and enforcement of foreign arbitral awards, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.”70 Although not expressly dealing with the issue, the New York Supreme Court (Appellate Division) impliedly confirmed in Sojitz Corp. v Prithvi Information Solutions71 that a New York court may grant interim relief in support of arbitration without breaching its obligations imposed by Art. II(3) of the New York Convention, as had been suggested in Cooper. The general principle of parallel authority is also recognized by most well established arbitration rules. Art. 28(2) of the ICC Rules provides that “[b]efore the file is transmitted to the arbitral tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures.” Similarly, Art. 29(7) of the ICC Rules stipulates on the relationship between the emergency arbitrator and national courts: “The Emergency Arbitrator Provisions are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judi67

See, e. g., the case law in McCreary Tire & Rubber Co. v. CEAT, S. p. A., 501 F. 2d 1032 (3d Cir. 1974); Cooper v. Ateliers de la Motobécane SA, 442 N. E.2d 1239 (N. Y. 1982); Drexel Burnham Lambert, Inc. v. Ruebsamen, 531 N. Y. S. 2d 547 (N. Y. App. Div. 1998); or the authorities cited at note 46 or by Born, supra note 4, at 2033 note 432; Brower, supra note 47, at 987 et seq.; Davies, supra note 47, at 304; or Rau, supra note 47, at 28 note 130. 68 See Toyo Tire Holdings of Americas, Inc. v. Cont’l Tire North America, Inc., No. 10-55145, 2010 WL 2496133 (9th Cir. June 17, 2010); Born, supra note 2, at 215; B. Steinbrück, Die Unterstützung ausländischer Schiedsverfahren durch staatliche Gerichte, 2009, 233. 69 Cooper v. Ateliers de la Motobécane SA, 442 N. E.2d 1239 (N. Y. 1982), where the Court of Appeals found that an attachment order by a court in support of arbitration would be inconsistent with Art. II(3) NYC . 70 In application of this provision, see Project Orange Associates v. Gen. Elec. Int’l, 872 N. Y. S. 2d 857 (N. Y. Sup. Ct. 2009). 71 Sojitz Corp. v. Prithvi Information Solutions Ltd., 921 N. Y. S. 2d 14, (N. Y. App. Div. 2011).

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cial authority at any time prior to making an application for such measures, and in appropriate circumstances even thereafter, pursuant to the Rules.” The ICDR Rules state with regard to an application for emergency measures that “[a] request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with this Article 37 or with the agreement to arbitrate or a waiver of the right to arbitrate.” The Swiss Rules of International Arbitration provide for similar language. Art. 26(5) Swiss Rules confirms: “By submitting their dispute to arbitration under these Rules, the parties do not waive any right that they may have under the applicable laws to submit a request for interim measures to a judicial authority. A request for interim measures addressed by any party to a judicial authority shall not be deemed to be incompatible with the agreement to arbitrate, or to constitute a waiver of that agreement.” Similar wording can be found in the arbitration rules of many other institutions.72

II.B Concurrent or subsidiary jurisdiction of state courts? Having established the general principle of parallel powers of the arbitral tribunal on the one hand and state courts on the other to grant interim relief in the context of arbitration, the questions arises whether such jurisdiction is truly concurrent in the sense that a party to an arbitration agreement in need of interim relief has the free choice to direct its request either to an emergency arbitrator (if applicable) and / ​or an arbitral tribunal or to a competent national court, or whether the power of the national courts is a merely subsidiary power. The answer to this question is anything but straightforward. First of all, it depends on the point in time the request for interim measures is made. If such request is made before the arbitral tribunal is constituted and in a position to grant interim measures itself, and the parties have not vested the power to order interim relief in any other (arbitral) body, it is generally accepted that the national courts’ power to grant interim relief is not limited. However, such power is of course also not concurrent at this stage, at least not with the power of the arbitral tribunal, which does not yet exist. Where the parties have agreed on the application of emergency arbitrator or comparable rules, such rules sometimes contain provisions pertaining to the relationship between the powers of the emergency arbitrator and the competent state courts. For example, Art. 21 of Schedule 4 to the proposed revised HKIAC Rules provides that “[t]he Emergency Arbitrator Procedures are not intended to prevent any party from seeking urgent interim or conservatory measures from any competent judicial authority at any time”, thus suggesting concurrent jurisdiction of the emergency arbitrator and the national courts. Similarly, Art. 29(7) 72

Cf. Art. 26(9) UNCITRAL Rules; Art. 26.2 SIAC Rules; Art. 22(6) Vienna Rules; § 20(2) DIS Rules; Art. 25.3 LCIA Rules; Art. 21(3) ICDR Rules; Art. 46(d) WIPO Rules, to list just a few.

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of the ICC Rules, providing that “[t]he Emergency Arbitrator Provisions are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judicial authority at any time prior to making an application for such measures”, makes plain that at least in principle a party may freely choose whether to direct its request to an emergency arbitrator or a competent state court or other competent body. However, Art. 29(7) of the ICC Rules also contains a qualifier in that a judicial authority’s power to grant urgent interim relief is limited to “appropriate circumstances” where an application for emergency measures has already been made to the emergency arbitrator. What constitutes “appropriate circumstances” and whether such limitation of state court jurisdiction is permissible will be for the court seized to decide.73 Once the arbitral tribunal is constituted, has received the file and is in a position to act upon a request for interim measures, views are divided as to whether court jurisdiction is concurrent or merely subsidiary. None of the international conventions reviewed provide an answer to this question. Similarly, only few arbitration laws contain provisions on this issue. The English Arbitration Act 1996 constitutes an exception in this respect, providing in sec. 44(5) that a court exercising powers in support of arbitral proceedings shall in any case “act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively”.74 An example of the latter would be a situation in which an interim measure must be directed against a third party not bound by the arbitration agreement.75 Similar to the English Arbitration Act, the Revised Uniform Arbitration Act (2000) provides that “[a]fter an arbitrator is appointed and is authorized and able to act: … (2) a party to an arbitration proceedings may move the court for a provisional remedy only if the matter is urgent and the arbitrator is not able to act timely or the arbitrator cannot provide an adequate remedy.” Where the applicable arbitration law does not contain an express provision on whether the state courts’ jurisdiction is concurrent or subsidiary, an answer may be found in the applicable arbitration rules. The ICC Rules, for example, provide in Art. 28(2) that an application for interim measures to a state court or other competent authority after the transmission of the file to the arbitral tribunal shall only be admissible “in appropriate circumstances”. A similar provision is contained in Art. 25.3 LCIA Rules, which provides that after the constitution of the arbitral tribunal, national courts are authorized to grant interim relief pursuant to Art. 25.1 LCIA Rules only “in exceptional cases”. Again, what constitutes appropriate circumstances or an exceptional case remains open and will 73

N. Voser / ​C . Boog, ICC Emergency Arbitrator Proceedings: An Overview, 22 ICC Bulletin Special Supplement, 81, 87 (2011); J. Fry / ​S. Greenberg / ​F. Mazza, The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-1106. 74 Redfern / ​Hunter / ​Blackaby / ​Partasides, supra note 35, at para. 7.28. 75 Cf. R. Merkin / ​L . Flannery, Arbitration Act 1996, 4th ed., 2008, 112.

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be for the court seized to decide, but may include situations where the arbitral tribunal is not in a position to provide suitable relief, where third parties not bound by the arbitration agreement are involved, where a measure must be granted ex parte in order not to frustrate its very purpose, or where an interim measure must be enforced by the court immediately in order to be effective.76 Absent a provision in the applicable arbitration law, the arbitration rules or any other agreement by the parties in this regard, it is controversial whether court jurisdiction to grant interim relief in support of arbitration is concurrent or subsidiary. Whereas a majority of commentators appear to vote in favor of a concurrent jurisdiction,77 there are prominent authors who advocate a subsidiary jurisdiction.78 Born more generally points out that even if a national court has the power to issue provisional measures in connection with arbitration, there are “strong reasons for exercising such authority with circumspection”.79 One such reason, according to Born, is the risk of interfering with the arbitral proceedings.80 And there are indeed good examples in practice of courts showing restraint in accepting jurisdiction to order interim relief in the context of arbitration. In DHL Information Services v Infinite Software Corporation,81 the court was faced with a request for a preliminary injunction where the parties had agreed to refer their disputes to arbitration under the rules of the AAA. Recognizing the court’s power to grant interim relief as confirmed by Rules 34(c) of the AAA Rules, Guilford J decided that “[t]he court declines to rush in where the arbitrator is free to tread. Since under the agreement of the parties, almost all their disputes are going to arbitration where interim relief is authorized, it is best not to carve out interim relief from the issues the arbitrator will decide, even though Rule 34(c) of the AAA Rules would allow this Court to do so.” In the House of Lords’ decision in Channel Tunnel Group Ltd. v Balfour Beatty Constr. Ltd.,82 arbitration was pending in Belgium. Pending the arbitration, one party sought interim 76 Cf. 77

78

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80 81

82

Fry / ​Greenberg / ​Mazza, supra note 73, at para. 3-1106. See, among many, Born, supra note 4, at 2051; R. A. Schütze, Schiedsgericht und Schiedsverfahren, 5th ed., 2012, para. 480; von Segesser / ​Boog, supra note 40, at 125; each with further references. Redfern / ​Hunter / ​Blackaby / ​Partasides, supra note 35, at para. 729: “Where the arbitral tribunal is in existence, it is appropriate to apply first to that tribunal for interim measures, unless the measures sought are ones that the tribunal itself does not have the power to grant or if international enforcement may be required”; Kaufmann-Kohler  / ​ Rigozzi, supra note 65, at para. 565 et seq.; Lew / ​Mistelis / ​Kröll, supra note 4, at para. 23-121. Born, supra note 4, at 2060. Born, supra note 4, at 2060. DHL Info. Services (Americas), Inc. v. Infinite Software Corp., 502 F.Supp.2d 1082 (C. D. Cal. 2007). Channel Tunnel Grp. Ltd. v. Balfour Beatty Constr. Ltd., [1993] A. C. 334 (H. L.).

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relief in the English courts. Upon appeal of a lower court decision, the House of Lords held that it would be inappropriate for the English courts to issue interim measures in support of the Belgian arbitration, stating that “the court should bear constantly in mind that English law, like French law, is a stranger to this Belgian arbitration, and that the respondents are not before the English court by choice. In such situation the court should be very cautious in its approach both to existence and to the exercise of supervisory and supportive measures, lest it cut across the grain of the chosen curial law”.83

II.C Exclusion of state court jurisdiction It is a matter of controversy whether the parties are free to exclude the national courts’ power to order interim relief in the framework of international arbitration. The views in scholarly writing and jurisprudence differ quite substantially. In Switzerland, for example, once the arbitral tribunal is constituted, the prevailing view with regard to international arbitration is that the courts’ power can be excluded, provided that such exclusion is explicit.84 However, there are prominent views in Swiss legal doctrine that negate the parties’ power to exclude state court jurisdiction for the time prior to the constitution of the arbitral tribunal.85 In Germany, the prevailing opinion still seems to be that a general exclusion of national court jurisdiction is inadmissible.86 The same applies with 83

Id. at 358. Berger / ​Kellerhals, supra note 48, at para. 1166; Girsberger / ​Voser, supra note 47, at para. 809; von Segesser / ​Boog, supra note 40, at 125; Oetiker, supra note 65, at Art. 26 para. 29; Ehle, supra note 65, at 160 et seq.; cf. Besson, supra note 65, at paras. 225 and 303; G. Walter / ​W. Bosch / ​J. Brönnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz, 1991, 146; Wirth, supra note 65, at 40 et seq. 85 Berger / ​Kellerhals, supra note 48, at para. 1166. 86 Cf. Lachmann, supra note 43, at para. 2853; K.-P. Berger, Die Rechtsstellung des PreArbitral Referees, 4 Zeitschrift für Schiedsverfahren 176, 181 (2006); A. Herrmann, Drawing a Contrast: Interim Measures of Protection in International Arbitral Proceedings, 8 Vindobona Journal of International Commercial Law & Arbitration 49, 64 (2005); J. Münch, in T. Rauscher / ​P. Wax / ​J. Wenzel eds., Münchener Kommentar zur Zivilprozessordnung, 3rd ed., 2007 / 2008, § 1041 para. 9 and § 1033 para. 18; P. Schlosser, in F. Stein / ​M. Jonas eds., Kommentar zur Zivilprozessordnung, 2002-2006, § 1033 para. 1; other authors are less strict, admitting the exclusion of state court jurisdiction if the effective protection of the parties’ rights is otherwise guaranteed, e. g. by means of a prearbitral referee procedure; cf. Kreindler / ​Schäfer / ​Wolff, supra note 43, at para. 899; still others deem the limitation or exclusion of state court jurisdiction to be admissible; cf. R. Geimer, in R. Zöller ed., Zivilprozessordnung, Kommentar, 27th ed., 2009, § 1033 para. 6; R. A. Schütze, Die verkannte Funktion der Schiedsvereinbarung im internationalen 84

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regard to Austrian arbitration law.87 In the U. S., insofar as national courts are admitted to have jurisdiction to grant interim relief at all, the parties are free to revoke such jurisdiction.88 The situation in France is disputed and appears to remain undecided.89 Art. 26 of the ICSID Convention provides that parties consenting to ICSID arbitration “shall be deemed to consent to such arbitration to the exclusion of any other remedy.” This provision has been interpreted both by the ICSID Center and by national courts to exclude court-ordered interim relief in support of ICSID arbitrations.90 Art. 39(6) of the ICSIC Arbitration Rules corroborates this general rule by providing that the parties to an ICSID arbitration may seek court-ordered interim relief only if “so stipulated in the agreement recording their consent.”91 Whether or not an exclusion of state court jurisdiction is permissible will be the decision of the court seized with a request for interim measures. As regards the time after the constitution of the arbitral tribunal, such exclusion should generally be deemed admissible. As Born rightly points out, at least “commercial parties should generally be left free to waive recourse to national courts for provisional measures, if this is in fact what they have chosen to do: parties are generally free to bargain, or not to bargain, for security or expedited means of enforcing their rights. A sophisticated commercial party’s deliberate decision to forego one avenue for interim measures should, even if ill-advised, be no different.”92 I agree with this view, as long as the exclusion of the national Zivilprozessrecht, 5 Praxis des Internationalen Privat- und Verfahrensrechts 442, 443 (2006); Steinbrück, supra note 68, at 455. 87 Power, supra note 49, § 585 para. 3; M. Platte, in S. Riegler et al. eds., Arbitration Law of Austria, 2007, § 593 para. 22; Vcelouch, supra note 49, at 167, 175; other authors admit the exclusion of state court jurisdiction as long as the arbitral tribunal is operative and able to grant sufficient interim relief; cf. A. Reiner, Das neue österreichische Schiedsrecht, 2006, § 585 para. 65 et seq.; F. Schwarz / ​C. Konrad, The Vienna Rules: A Commentary on International Arbitration in Austria, 2009, Art. 22 para. 22-127. 88 Born, supra note 4, at 2051-2053. 89 In favor of the option to limit state court jurisdiction Cour de Cassation, 18 November 1986, XII Yearbook Comm. Arb. 183 (1987); Bahmaei, supra note 50, at para. 291 (at least in certain cases); Fouchard / ​Gaillard / ​Goldman, supra note 4, at para. 1319, 1342; in principle contra G. Pluyette, A French Perspective, in ICC International Court of Arbitration ed., Conservatory and Provisional Measures in International Arbitration 72, 75 (1993) (except for référé-provision). 90 See P. Friedland, Provisional Measures and ICSID Arbitration, 2 Arbitration International 335 (1986); cf. the authorities cited by Born, supra note 4, at 2042. 91 Cf.  R. Bismuth, Anatomy of the Law and Practice of Interim Protective Measures in International Investment Arbitration, 26 Journal of International Arbitration 773, 785 et seq. (2009). 92 Born, supra note 4, at 2052.

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courts’ jurisdiction is explicit and specific.93 I also agree that such exclusion should not be assumed lightly.94 Before the transmission of the file to the arbitral tribunal, it is appropriate to restrict party autonomy in this regard only in exceptional cases in which such exclusion would amount to an actual waiver of a party’s right to justice (or, in other words, a denial of justice), and not merely be a limitation of the right to effective protection of its rights. Normally there will be no denial of justice where the parties have empowered another (private) body, such as an emergency arbitrator, to grant interim relief prior to the constitution of the arbitral tribunal.

II.D Jurisdiction ratione loci Against the backdrop of forum shopping, it will not suffice to accept the general principle of parallel authority or general concurrent jurisdiction of state courts to grant interim relief despite the existence of an arbitration agreement. A party seeking to shop (or even run) for the most conducive forum will have to examine whether the targeted court will indeed accept jurisdiction ratione loci to grant the requested relief. In rare cases, parties will contractually select a forum for interim relief in the context of arbitration.95 Where the parties have done so, courts are generally likely to give effect to such choice of forum clauses.96 One of the probable reasons why such choice of forum clauses for interim measures are rare in practice is that they are not advisable: given the broad range of interim measures that may be required it would appear unwise for the parties to limit jurisdiction for granting such relief in one forum.97 Absent an express choice of forum clause, the primary source of a national court’s jurisdiction to order interim relief is its own lex fori, including international conventions and regulations where applicable.98 Where international conventions or regulations pertain to the courts’ jurisdiction to grant interim relief, the courts will take such sources of law into account. However, none of the international conventions or regulations considered for the purpose of this contribution contains provisions on jurisdiction ratione loci of national courts to grant interim relief in connection with arbitral proceedings. The same applies to most national arbitration laws. Whereas such laws often include provisions 93

94 95

96 97 98

Von Segesser / ​Boog, supra note 40, at 125-126. Born, supra note 4, at 2052. Note that general choice of forum clauses will generally not be interpreted as applying to requests for interim measures; see Born, supra note 4, at 2058 with references. Born, supra note 4, at 2057. Born, supra note 4, at 2058. Besson, supra note 65, at para. 225.

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on national courts’ power to grant interim relief in principle, provisions regarding jurisdiction ratione loci are rarely included.99 In the absence of any express provisions on jurisdiction ratione loci in international arbitration conventions and the majority of national arbitration laws, it is sometimes argued that the national courts at the place of arbitration are the “natural” courts to assist the arbitral process in any way, including the granting of interim relief.100 Sometimes it is argued that by choosing a certain seat for the arbitration, the parties also (impliedly) enter into a prorogatio fori at the seat of the arbitration with respect to court-ordered interim measures in support of the arbitration. Others suggest that the courts at the seat of the arbitration should have “primary responsibility to support the arbitration by way of interim protection”.101 Born raises the question whether “jurisdiction [to grant interim measures in support of arbitration should] be limited to the courts of the arbitral seat, or should provisional measures also be available in other courts?”102 And indeed, with regard to interim relief in particular (as opposed to other assistance measures), a general notion of a “natural” court at the seat of the arbitration having jurisdiction – possibly even exclusive jurisdiction – or an assumed choice of forum agreement for the courts at the seat of the arbitration seems misconceived. As Steinbrück compellingly explains, in many circumstances it will prove rather inappropriate to grant (exclusive) jurisdiction to the courts at the seat of the arbitration because that very seat is more often than not chosen precisely for its “neutrality”, in the sense that it bears no connection whatsoever to the parties to the arbitration, the subject matter of the arbitration, or any third party which may potentially be involved with the parties’ contractual relationship, and could therefore become the subject of a request for interim relief in connection with such relationship.103 Giving such court (exclusive) jurisdiction to grant interim relief in support of arbitration proceedings therefore will often either prove wholly futile for the party in need of interim relief, or will at least considerably exacerbate such party’s right to effectively protect its rights by forcing it to 199

100 101

102 103

An exception is the international arbitration law of Kazakhstan, stating in Art. 25-4(2) that “[a]n application for security of a claim being examined by the arbitration court shall be filed with a competent court at the place of the arbitral proceedings or location of property in relation to which the measures to secure the claim may be taken.” See the references listed by Steinbrück, supra note 68, at 31 notes 114 and 115. G. Petrochilos, Procedural Law in International Arbitration, 2004, para. 3.125, stating that “[b]ecause of their plenary jurisdiction over the arbitral proceedings as a whole, they [the courts at the seat of the arbitration] should be regarded as having derived jurisdiction over the arbitrating parties too. For those reasons, their jurisdiction should be acknowledged to provide interim protection to arbitrations in the seat, whether such protection requires something to be done in the territory or outside.” Born, supra note 2, at 218. Steinbrück, supra note 68, at 30-41.

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first seize the court at the seat of the arbitration to grant the required interim measure and then, if such measure is not complied with voluntarily, to seek enforcement of the court’s order elsewhere.104 Given the great difficulties involved especially with regard to cross-border enforcement of interim measures,105 such an approach will regularly also render futile the issuing of an interim measure. In some instances, an interim measure granted by a state court will not per se be open to cross-border enforcement for lack of extraterritorial effect, i. e. the effect of the granted measure is limited to the territory in which it was ordered.106 In other words, the courts at the place of arbitration may not be able to grant effective interim relief.107 Therefore, as an interim conclusion, giving the national courts at the place of the arbitration (exclusive) jurisdiction to order interim measures in support of arbitral proceedings will most often lead to unsatisfactory results. Accordingly, it is generally accepted that the courts at the seat of the arbitration do not have exclusive jurisdiction to grant interim measures.108 Nonetheless, in some jurisdiction – such as England and Wales – the courts at the seat are deemed to have “primary” jurisdiction to grant interim relief in an arbitration setting.109 In other jurisdictions, the power of the courts at the seat of the arbitration is often assumed at most as a kind of “back-up” jurisdiction, in the event that there is no other competent court within the jurisdiction of the seat of the arbitration. In Switzerland, for example, the question of jurisdiction ratione loci to grant interim relief in support of arbitration is not entirely resolved. Making the common differentiation between international jurisdiction and territorial jurisdiction (within Switzerland), some authors submit that while international jurisdiction of Swiss courts can be derived from Art. 183(2) PILA, territorial jurisdiction is determined by an analogous application of Art. 10 PILA or Art. 13 of the Code of Civil Procedure.110 Other commentators maintain that both international and territorial jurisdiction are derived from Art. 10 PILA. Either way, there seems to be no difference in the end result. In any event, pursuant to Art. 10(b) PILA, the courts at the place of enforcement of the requested 104 Cf.

105 106 107

108 109 110

Petrochilos, supra note 101, at para. 3.125: “Confining the possibility of interim protection to the courts of the seat would be likely to deprive the parties of effective protection elsewhere, and notably in countries where assets of the respondent may be found.” For a comprehensive study on cross-border enforcement of interim measures see Boog, supra note 5, at paras 462-696; cf. Born, supra note 2, at 219. On the extraterritorial effect of interim measures, see Boog, supra note 5, at paras 106109 and paras 748-861; cf. Born, supra note 2, at 219. Born, supra note 2, at 219. U&M Mining Zambia Ltd. v. Konkola Copper Mines plc, [2013] EWHC (Comm) 260. Id. Berger / ​Kellerhals, supra note 48, at para. 1171.

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measure are competent to grant such measure. What is questionable and thus far unresolved is whether, analogous to Art. 10(a) PILA – providing that “the Swiss courts or authorities that have jurisdiction over the merits” are competent to grant interim relief – a party may also apply to the state courts at the seat of the arbitration and / ​or to the court(s) that would be competent on the merits were there no arbitration agreement. Most commentators seem to allow at least for jurisdiction at the seat of the arbitration.111 The situation in Austria and Germany is similar to that in Switzerland in that – while stating that the courts may grant interim relief in support of arbitration – the leges arbitri do not provide for jurisdiction ratione loci, so that a party in need of interim measures must turn to general provisions on jurisdiction in interim relief matters in order to determine the competent courts. In Austria, this is § 387 of the Exekutionsordnung (EO).112 Pursuant to § 387(2) EO, the court where the requested measure shall be enforced is competent to grant an interim measure. This can, for example, be the court at the place of residence or business of the party against whom the measure shall be directed or the place where the subject matter in dispute is located. It is contended whether or not the courts at the seat of the arbitration shall have jurisdiction ratione loci if none of the prerequisites listed in § 387(2) EO are met.113 In Germany, § 919 of the German Code of Civil Procedures provides that either the courts seized with the merits of the case or the courts where the assets are located, or the courts at the place of residence of the respondent party are competent to grant an Arrest.114 Other interim measures – einstweilige Verfügungen – can be ordered by the court seized with the merits or a court where the assets are located.115 Because there is (normally) no court seized with the merits in case of an arbitration agreement, some authors argue that the court that would “hypothetically” be competent without the arbitration agreement should have jurisdiction to grant interim measures. 116 If the seat of the arbitration is in Germany, some authors consider the courts at the seat of the arbitration to be the “hypothetically competent” courts. In England and Wales, the Arbitration Act 1996 provides only for the “powers of the court”, not however for “jurisdiction”. Outside the scope of the Brussels I Regulation and any other applicable international regulations or conven111 112 113 114

115 116

See, e. g., Girsberger / ​Voser, supra note 47, at para. 851; von Segesser / ​Boog, supra note 40, at 126. Steinbrück, supra note 68, at 103. Platte, supra note 87, § 858 para. 11 for instance, answers this question in the affirmative. § 919 German CCP: „Für die Anordnung des Arrestes ist sowohl das Gericht der Hauptsache als das Amtsgericht zuständig, in dessen Bezirk der mit Arrest zu belegende Gegenstand oder die in ihrer persönlichen Freiheit zu beschränkende Person sich befindet.“ § 937 and § 942 German CCP. R. Kreindler / ​J. K. Schäfer, in Arbitration in Germany: The Model Law in Practice, supra note 49, § 1033 para. 21-22.

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tions, jurisdiction – including jurisdiction ratione loci – is therefore derived from traditional common law principles.117 Based on such principles, English courts can grant interim relief in support of arbitral proceedings insofar as they have personal jurisdiction over the person against whom the measure is directed or can base their competence on an inherent jurisdiction.118 The new French arbitration law provides in Art. 1449 of the French Code of Civil Procedure (CCP)119 that “[s]ubject to the provisions governing conservatory attachments and judicial security, application [for measures pursuant to Art. 1449(1) CCP] shall be made to the President of the Tribunal de Grande Instance or of the Tribunal de Commerce who shall rule on the measures relating to the taking of evidence in accordance with the provisions of Article 145(2) and, where the matter is urgent, on the provisional or conservatory measures requested by the parties to the arbitration agreement.” What remains unclear is which courts have jurisdiction ratione loci. According to some authors,120 Article 1449 CCP refers to the juge d’appui. In domestic arbitrations, Article 1459 CCP provides that the juge d’appui is the President of a Regional Court and further adds that the arbitration agreement shall determine which court has territorial jurisdiction, failing which jurisdiction shall lie with the court at the seat of the arbitration. Where the arbitration agreement is silent (presumably on the seat of the arbitration), territorial jurisdiction shall lie with the court at the place where the party or one of the parties resisting the application resides or, if that party does not reside in France, with the court at the place where the applicant resides. In international arbitrations, Article 1505 CCP provides that, unless otherwise stipulated, the juge d’appui is the President of the Tribunal de Grande Instance of Paris when (1) the arbitration “takes place” in France; or (2) the parties have agreed that French procedural law shall govern the arbitration; or (3) the parties have expressly granted jurisdiction to French courts over disputes relating to the arbitral procedure; or (4) one of the parties is exposed to a risk of a denial of justice. Other authors121 opine that it is the ordinary judge – the juge des référés with respect to conservatory and provisional measures – who is 117

A. Briggs, Conflict of Laws, 2nd ed., 2008, 96. For details, see Steinbrück, supra note 68, at 104-117. 119 Provision which applies also to international arbitration proceedings pursuant to the reference in Art. 1506 CCP. 120 J. Béguin / ​J. Ortscheidt / ​C . Seraglini, Un second souffle pour l’arbitrage, 11 La Semaine Juridique Edition Générale, act. 322 para. 19 (2011). 121 E. Gaillard / ​P. de Lapasse, Commentaire analytique du décret du 13 janvier 2011 portant réforme du droit français de l’arbitrage, 2 Les Cahiers de l’Arbitrage 263, paras 25 and 49 (2011); E. Gaillard / ​P. de Lapasse, Le nouveau droit français de l’arbitrage interne et international, 3 Recueil Dalloz 175, para. 14 (2011); P. Chevalier, Le nouveau juge d’appui, in T. Clay ed., Le nouveau droit français de l’arbitrage, 2011, 148; C. Jarrosson / ​ J. Pellerin, Le droit français de l’arbitrage après le décret du 13 janvier 2011, 1 Revue de l’arbitrage 5, paras 15-18 (2011). 118

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envisaged by Article 1449 CCP, because the juge des référés is also represented by the “President of the Regional Court” or of the “Commercial Court”. If this were the case, the request for interim measures would have to be filed at the place where enforcement of an interim measure is (or will be) sought. After the constitution of the arbitral tribunal, Article 1468 CCP – which also applies in international arbitration pursuant to Article 1506 CCP – provides that all requests for interim measures shall be filed with the arbitral tribunal, except those concerning conservatory attachments (saisies conservatoires) and judicial security (sûretés judiciaires), the latter of which shall be filed with the juge de l’exécution (President of the Regional Court) either at the domicile of the debtor or at the place where the measure shall be performed. In conclusion, the foregoing shows that many leading arbitration jurisdictions accept state court assistance in terms of interim relief by the courts at the place of enforcement of the requested interim measure. This will commonly be the place of residence or the seat of the party against whom the measure is directed or the place where the assets in question are located. In most cases, giving such courts jurisdiction to grant interim relief in support of arbitration will indeed be most appropriate, because it allows for direct enforcement against the pertinent party or assets in case the measure is not voluntarily complied with (or, in cases of urgency, even before the measure is communicated to the party against whom it is directed). In turn, in most circumstances this will not be guaranteed if jurisdiction is awarded (only) to the courts at the seat of the arbitration, because the seat is more often than not chosen precisely because it has no connection whatsoever to the parties to the arbitration agreement, and most often also has no connection to any third parties involved in the commercial transaction in question. Therefore, notions of the courts at the seat of the arbitration being the “natural” courts for granting interim relief in connection with the arbitration, or of parties to an arbitration agreement having entered into a prorogatio fori in favor of the courts at the seat of the arbitration, are misconceived, at least to the extent such notions seek to impose exclusive jurisdiction upon such courts and to exclude other courts. It is apt, however, to grant the courts at the seat of the arbitration jurisdiction in addition to the courts at the place of enforcement or the place of residence or location of assets. This is appropriate in order to ensure the most effective protection possible of the rights of the parties to an arbitration agreement pending the duration of the arbitration.

II.E Assistance of “foreign” arbitrations A question closely related to jurisdiction ratione loci and in fact a prerequisite for ensuring the protection described in the previous section is that national courts are willing to grant interim relief not only in relation to arbitrations seated in the same territory, but also in relation to arbitrations seated abroad, sometimes referred to as “foreign” arbitrations. Christopher Boog

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Indeed, the majority of jurisdictions permit their courts to grant interim measures to assist arbitral proceedings irrespective of the seat of the arbitration. Article 17 J of the UNCITRAL Model Law expressly provides that a “court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts” (emphasis added). In Germany, this is provided in § 1025(2) CCP read in conjunction with § 1033 CCP, allowing for court-ordered interim relief in terms of §§ 919, 937 and 942 CCP irrespective of the seat of the arbitration. The same is derived in Austria from § 577 read in conjunction with § 585 CCP. In Switzerland, the principle, although not expressly stipulated in the law, is supported by commentators122 and case law.123 Other jurisdictions confirm the principle of assistance to foreign arbitral tribunals but include an express reservation in that the courts may refrain from granting interim relief where the seat of the arbitration is abroad if doing so would be “inappropriate”. In Singapore, for example, sec. 12A(1)(b) of the International Arbitration Act provides that “[t]his section [pertaining to court-ordered interim measures] shall apply in relation to an arbitration […] irrespective of whether the place of arbitration is in the territory of Singapore”. Sec. 12A(3) of the International Arbitration Act qualifies this principle by providing that “[t]he High Court or a Judge thereof may refuse to make an order under subsection (2) if, in the opinion of the High Court or Judge, the fact that the place of arbitration is outside Singapore or likely to be outside Singapore when it is designated or determined makes it inappropriate to make such order.” Similarly, in England and Wales, pursuant to Art. 2(3) of the Arbitration Act 1996 the courts may grant interim measures based on sec. 44 of the Arbitration Act 1996 “even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined”, “but the court may refuse to exercise any such power if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to do so.” A case example of this principle is the Commercial Court’s decision in Mobil Cerro Negro Limited v Petroleos de Venezuela S. A.,124 where Teare J had granted a freezing order under sec. 44 of the Arbitration Act 1996 in support of an ICC arbitration seated in New York. Walker J set aside the freezing order because, among other reasons, Mobil had not shown urgency in terms of sec. 44(3) of the Arbitration Act and there was no link with England in the form of substantial assets of Petroleos (and no exceptional feature such as fraud was given) and, therefore, the 122

Boog, supra note 5, at para. 63 with references. Kantonsgericht Zug, GVP ZG 1989 / 90, 107. 124 Mobil Cerro Negro Ltd. v. Petroleos de Venezuela S. A., [2008] EWHC (Comm) 532, [2008] 2 All E. R. (Comm.) 1034. 123

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fact that the seat of the arbitration was not in England made it inappropriate to grant an order under sec. 2(3) of the Arbitration Act 1996. The arbitration law of Hong Kong SAR is more elaborate by providing in sec. 45(5) of the Arbitration Ordinance that “[i]n relation to arbitral proceedings which have been or are to be commenced outside Hong Kong, the Court may grant an interim measure under subsection (2) only if (a) the arbitral proceedings are capable of giving rise to an arbitral award (whether interim or final) that may be enforced in Hong Kong under this Ordinance or any other Ordinance; and (b) the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the Court.” Sec. 45(6) goes on to clarify that “Subsection (5) applies even if (a) the subject matter of the arbitral proceedings would not, apart from that subsection, give rise to a cause of action over which the Court would have jurisdiction; or (b) the order sought is not ancillary or incidental to any arbitral proceedings in Hong Kong.” Indeed, it is – as a matter of principle – appropriate to allow national courts to grant interim relief in support of arbitral proceedings seated in another jurisdiction. To deny such powers would in many cases mean preventing the effective protection of the rights of a party to the arbitration.125 This being said, Born126 holds that national courts should exercise with circumspection their authority to issue interim measures in the framework of a foreign arbitration, given that they risk interfering not only with the arbitral proceedings but also with the supervisory jurisdiction of the courts at the seat of the arbitration. While I agree with the first point – which applies to national courts in general, as well as to those at the seat of the arbitration – I beg to differ with respect to the second point. In granting interim relief, depending on the relief sought, national courts will often not exercise supervisory powers or supervisory jurisdiction. In such situations, it may actually be more appropriate for courts outside the seat of the arbitration to take jurisdiction. By way of example: Where the seat of arbitration is London and interim relief is sought with regard to assets located in Paris, it would appear more appropriate for the French courts rather than the English courts to freeze such assets. That being said, the situation may be different e. g. where the interim measure in question is an anti-suit injunction which is sought to enjoin the respondent in the same arbitration from commencing court proceedings on the merits in the US or Brazil. In sum, the position taken by Petrochilos127 seems to be an accurate reflection of the roles the courts at the seat of the arbitration and elsewhere should take in granting interim relief in the context of international arbitration: “The courts of the seat should have universal and unlimited jurisdiction, whereas other courts should have a satellite role, to provide interim relief with purely local effect, notably on the basis of presence 125 Cf.

Petrochilos, supra note 101, at para. 3.126. Born, supra note 2, at 220. 127 Petrochilos, supra note 101, at para. 3.129 126

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of assets in the country. Accordingly, if the courts of the seat are in a position to order effective interim protection with extraterritorial effect, the courts of third states should be slow to exercise any concurrent jurisdiction they may have under their own law. The jurisdiction of the latter courts should – which may well be the case quite often – in other words, always be discretionary and residual.” If, however, the courts at the seat of the arbitration are not in a position to grant effective protection with extraterritorial effect, courts elsewhere should not be limited in their power to do so simply because they are not the “supervisory” courts of the arbitration.

III. Types of interim relief granted by state courts We have seen above that different national courts may have jurisdiction to grant interim measures in the context of international arbitration proceedings. This gives a party in need of such measures a choice to consider which court will be the most appropriate in order to protect its rights. One important consideration in this respect – aside from considerations of jurisdiction – is the types of measures that a national court may grant. As is well-known, there is a wide array of interim measures, many of which serve similar purposes but differ in details such as against whom or what they are directed (in rem vs. in personam measures), under which circumstances they may be granted or whether they are granted only with territorial or extraterritorial effect.128 Therefore, in order to find a court which can grant the measure most conducive to its cause, a party to an arbitration agreement in need of interim relief must consider which court can grant what type of interim measure. Even though there appears to be an increasing tendency in international cases to apply the law governing the merits of the case to interim measures in order to harmonize interim measures with the award on the merits, a national court will still normally look first and foremost to its lex fori to determine the 128

The term “interim measures” (or similar terms) is generally understood to include a vast array of different measures; for an overview and examples, see, e. g., the UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, Art. 9 paras 6-10. Cf. Art. 17(2) of the UNCITRAL Model Law, defining an “interim measure” as “any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of an award by which the dispute is finally decided, the arbitral tribunal orders a party to: (a) Maintain or restore the status quo pending determination of the dispute; (b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; (c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) Preserve evidence that may be relevant and material to the resolution of the dispute.”

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types of interim measures it may order.129 In other words, each jurisdiction will provide for its “own” measures, without a particular view to the fact that such measure is granted in the context of international arbitration proceedings. Examples include:130 An English court may be available to grant a worldwide freezing order, freezing assets of a party both in England and abroad, whereas a Swiss court may only freeze assets located in Switzerland. Based on 28 USC § 1782, a party may be able to obtain a more far-reaching measure to secure evidence to be used in arbitration proceedings than in England, Singapore or Dubai.131 In France, based on the applicable référé provision, or in the Netherlands, based on a kort geding, a party to arbitral proceedings will likely be more readily granted an interim measure providing for preliminary payment than in Switzerland, where only in exceptional circumstances do state courts grant such measures. Or, finally, whereas in Switzerland security for costs of arbitral proceedings can – at least in principle – be granted not only by the arbitral tribunal but also by a competent national court, in England and Wales or Northern Ireland this power is reserved to the arbitral tribunal.132 Another issue worth considering is whether a court will grant interim relief with extraterritorial effect, or whether the measure granted will be limited to the court’s jurisdiction. At times, this may be a question of the type of measure: as mentioned, whereas an English freezing injunction (as a worldwide freezing injunction) can take extraterritorial effect, a Swiss freezing order will by definition only take effect within Switzerland. Whether a court can (and / ​or will) grant interim relief with extraterritorial effect may also depend on the jurisdiction of the court. Some authors suggest that only the courts at the seat of the arbitration should have the authority to grant interim relief with extraterritorial effect, whereas other courts – such as a “foreign” court at a place where a party to the arbitration holds assets or has its place of residence – should be entitled to grant relief only with “local” effect.133 Similarly, in a much-discussed (and sometimes criticized) decision, the ECJ took the stance in Van Uden that in the case of an arbitration agreement, there is no state court that can grant interim relief with 129 130

131

132 133

Berger / ​Kellerhals, supra note 48, at para. 1175; Boog, supra note 4, at 453-454, each with references. Although it would also serve as a good example for the issues presently discussed, I shall not address anti-suit and anti-arbitration injunctions, mainly because these issues are dealt with in a previous chapter of this book; cf. supra the insightful contribution by A. Layton, at 131-150. On the use (and abuse) of ancillary discovery under 28 U. S. C. § 1782 and the options it provides in terms of what is referred to as “evidentiary forum shopping”, see R. Alford, Ancillary Discovery to Prove Denial of Justice, 53 Virginia Journal of International Law 128 (2012). D. St. John Sutton / ​J. Gill / ​M. Gearing, Russell on Arbitration, 23th ed., 2007, para. 7-207 with references. Petrochilos, supra note 101, at para. 3.129.

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unlimited extraterritorial effect.134 It is highly questionable whether, as a matter of principle, such a limitation of the extraterritorial effect of interim measures granted in the framework of international arbitration is appropriate. Limiting per se the parties’ rights to seek an interim measure with extraterritorial effect from a state court in the framework of arbitration, as suggested by the ECJ in Van Uden, may in certain circumstances amount to nothing short of a denial of justice. And limiting the right to grant extraterritorial interim measures to the courts at the seat of the arbitration would seem inappropriate in the majority of cases where the only link between those courts and the dispute will be the very seat of the arbitration. In other words, there will most often be no other link to the parties to the dispute or the assets in question. It seems misconceived in view of international law, which calls for a genuine link between the court granting relief and the circumstances underlying the requested relief,135 to award (and limit) the power to grant interim measures with extraterritorial effect to the courts at the seat of the arbitration when such courts will most likely have very little in terms of a genuine link. As a final point on this issue, it is often said that state courts should or may grant interim relief only insofar as such relief is “in aid”136 or “in support”137 of arbitration. While this may, generally speaking, be desirable, I doubt that this principle always applies in practice or that national courts will necessarily be guided by a duty to support or aid and will refrain from granting an interim measure which is detrimental to the arbitral process. As mentioned above, this is not the place to discuss anti-suit and anti-arbitration injunctions.138 Suffice it to say that a court issuing an anti-arbitration injunction – which does not occur too frequently but does happen139 – is not acting “in support” of arbitration.140 Likewise, it is perceivable that a national court may issue an order allowing a party to dispose of goods that are the subject matter of the arbitration, thereby 134

For an in-depth analysis (and critique) of the ECJ‘s decisions in Van Uden and Mietz (Hans-Hermann Mietz v. Intership Yachting Sneek BV, Case C-99 / 96, (1999) ECR I-2277), see Boog, supra note 5, at paras 762-861. 135 See in detail on this issue S. Kofmel Ehrenzeller, Der vorläufige Rechtsschutz im internationalen Verhältnis, 2005, 326-330. 136 See, e. g., Cook / ​Garcia, supra note 47, at 228; Hoellering, supra note 47, at 13; Project Orange Associates v. Gen. Elec. Int’l, 872 N. Y. S. 2d 857 (N. Y. Sup. Ct. 2009). 137 Petrochilos, supra note 101, at para. 3.125. 138 Cf. on that issue supra Layton, at 131-150. 139 Cf. Citigroup Global Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir. 2010); J. P. Morgan Securities, Inc. v. Louisiana Citizens Prop. Ins. Corp., 712 F.Supp.2d 70 (S. D. N. Y. 2010); UBS Sec. LLC v. Fridolin Voegeli, 684 F.Supp.2d 351 (S. D. N. Y. 2010) , each enjoining arbitration before the Financial Industries Regulatory Authority (FINRA). 140 See, e. g., ICC Case No. 10623 (2001), 21 ASA Bulletin 1 (2003), 82; cf. Waincymer, supra note 37, at 663-668.

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rather hindering than aiding the enforcement of a later arbitral award. Or there may be good reasons for a court to allow a party to an arbitration not to disclose certain information for reasons of confidentiality or other reasons, despite the fact that such evidence may be key in the arbitration.

IV. Standards for granting interim relief As with respect to the types of interim measures that may be granted by a national court, the standards that a national court will apply when ordering interim measures are normally determined by its lex fori.141 Although standards are likely to be similar in many jurisdictions, there may be differences between certain jurisdictions, which in specific circumstances may cause a party to choose to apply to the national courts of one jurisdiction over another.142 For example, a state court bound by the jurisprudence of the ECJ basing its jurisdiction to grant interim relief on Art. 31 of the Brussels I Regulation or Art. 31 of the Lugano Convention is likely to take into account the standards set by the ECJ in Van Uden – namely that “the granting of provisional or protec141

J. Grierson / ​A. van Hooft, Arbitrating under the 2012 ICC Rules, 2012, at 64; Dutoit, supra note 65, at Art. 10 para. 7; P. M. Patocchi / ​E. Geisinger, Internationales Privatrecht, 2000, at 107; M. Davies, Court-ordered Interim Measures in Aid of International Commercial Arbitration, 17 American Revue of International Arbitration 299, 326 and 327 et seq. (2006); F. Knoepfler / ​P. Schweizer / ​S. Othenin-Girard, Droit international privé suisse, 3rd ed., 2005, para. 656. An exception applies to the question of fumus boni iuris. Here, the national court seized to order interim relief in the framework of an international arbitration should apply the lex causae. This approach not only allows for parallelism of interim relief and the principle claims, but also helps to ensure parallelism of interim relief sought from a national court and interim relief sought before the arbitral tribunal. In practice, depending on the circumstances of the case, determining the lex causae may demand a considerable amount of time. In the framework of interim relief, where time is very often of the essence (particularly where ex parte measures are concerned), it will be inappropriate in some instances to undertake a lengthy determination of the lex causae. In such (exceptional) circumstances, the court may refrain from applying the lex causae and instead find recourse in the lex fori or in international standards of law; cf. Boog, supra note 4, at 453 with references. 142 Another issue an applicant may face is that it is unclear which standards are applied or different courts apply different standards within the same jurisdiction. As an illustration of this issue, reference is made to New York, where it still appears to be unclear whether the standards set out in C. P. L. R. articles 62 and 63 apply in addition to the standard provided in C. P. L. R. 7502 if an attachment or injunctive relief is sought in aid of arbitration; see, e. g., Project Orange Associates v Gen. Elec. Int’l, Bipinchandra Shah v. Commercial Bank “Ob’Eddinennyi Investitionnyi Bank”, 872 N. Y. S. 2d 857 (N. Y. Sup Ct.); No. 09 CV 6121(HB), 2010 WL743043 (S. D. N. Y. Mar. 4, 2010).

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V.  Lis pendens, res judicata, estoppel and other preclusion principles, and interim measures

tive measures on the basis of Article 24 [now Article 31] is conditional on, inter alia, the existence of a real connecting link between the subject-matter of the measures sought and the territorial jurisdiction of the Contracting State of the court before which those measures are sought143 – even though its national law may not provide for such prerequisite. Courts bound by ECJ jurisprudence may have to abide by such a precondition.144

V.  Lis pendens, res judicata, estoppel and other preclusion principles, and interim measures Another pertinent issue is whether and to what extent concepts such as lis pendens, res judicata, estoppel or other preclusion principles apply to interim relief, both with respect to the relationship between national courts and arbitral tribunals and between different national courts. As regards the relationship between national courts and arbitral tribunals, it seems to be generally accepted that the principles of lis pendens and res judicata do not strictly apply to interim relief.145 For reasons of efficiency and procedural economy, arbitral tribunals and national courts nevertheless will often not order interim relief already requested (successfully or unsuccessfully) from another court or arbitral tribunal unless a change in circumstances so justifies.146 Apart from changed circumstances, some authors hold that the court should be given priority irrespective of whether it was seized before or after the arbitral tribunal where – in a case of particular urgency – a party requests ex parte relief from the court.147 This position is accepted in principle where the arbitral tribunal cannot grant ex parte relief,148 but priority of the courts should apply generally 143

Van Uden Maritime BV, trading as Van Uden Africa Line v. Kommanditgesellschaft in Firma Deco-Line and Another, Case C-391 / 95, (1998) para. 40. 144 On this topic, see Boog, supra note 5, at paras 761-861. 145 See Born, supra note 4, at 2012; von Segesser / ​Boog, supra note 40, at 127; G. von Segesser / ​ D. Schramm, Concise International Arbitration, 2010, Art. 183 para. 2, each with references. 146 Born, supra note 39, at 2931; Ehle, supra note 65, at 164, each with references; see also the UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, Art. 17 J para. 2, referring to a decision by an Indian court which took the view that if a party elects to apply for an interim measure before the arbitral tribunal, it should not seek the same relief from a state court on the basis that multiplicity of proceedings ought to be avoided; Sri Kirshan v Anad, Delhi High Court, 18 August 2009, OMP No. 597 / 2008. 147 Cf., e. g., Berger / ​Kellerhals, supra note 48, at para. 1169; Girsberger / ​Voser, supra note 47, at para. 853; Wirth, supra note 65, at 43. 148 See Art. 17 B and 17 C ML or Art. 26(3) Swiss Rules, which allow for ex parte interim relief by the arbitral tribunal in the form of a “preliminary order”.

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to cases in which immediate enforcement of the measure is required. This will usually, but not always, be the case in an ex parte application. Born has dealt with the question of res judicata and lis pendens in relation to interim measures in considerable detail in his treatise on international commercial arbitration. He generally calls for caution in assuming that decisions by national courts are binding on arbitral tribunals, rightly pointing out that “the national court applies its own law, often taking into account the exceptional nature of court-ordered provisional measures in connection with an arbitration, rather than applying international standards”.149 He goes on to stress that an arbitral tribunal “should [not] necessarily give substantial weight to a national court’s consideration and resolution of a request for provisional measures”.150 Born suggests that “a national court’s decision on provisional measures should be regarded as supportive of the arbitral process, available in circumstances where an arbitral tribunal is unable to act, but subject to subsequent decisions of the arbitral tribunal”.151 This being said, Born also acknowledges that arbitral tribunals may take into consideration the findings of national courts previously faced with the same request.152 Moreover, he suggests adopting a “sui generis analysis of preclusion issues in the context of provisional measures: Where a party has requested provisional measures from a national court, it should generally be subject to possible preclusive effects resulting from an unfavorable judicial decision: a party should not be permitted to seek multiple bites at the same apple in both judicial and arbitral proceedings.”153 If a state court orders interim relief before the arbitral tribunal is constituted, the arbitral tribunal is not generally competent for procedural reasons to lift or abrogate the court-ordered measure upon its constitution.154 However, the tribunal may order a new measure.155 The same applies vice versa. In order to avoid potentially conflicting decisions, one of the parties will normally have to apply to the arbitral tribunal or the state court to lift the initial measure.156 149

Born, supra note 4, at 2012 and 2931; Born, supra note 2, at 217. Born, supra note 4, at 2012 and 2931. 151 Id. 152 Id. 153 Id. at 2931 et seq. 154 Wirth, supra note 65, at 43. 155 Id. 156 See Blom ASA v. Pictometry Int’l Corp., 757 F.Supp.2d 238, 247 (W.DN. Y. 2010), where the court found that “this injunction shall remain in effect until further order of this court, without prejudice to the parties seeking additional or other conservatory relief from the ICC arbitration panel. The parties have selected the ICC as their chosen forum and there is no good reason why that body should not entertain whatever application is made for conservatory relief. Upon issuance of an order by the ICC arbitration panel granting such relief, the parties may return to this Court to seek a modification of this Order, to conform to the relief granted by the ICC arbitration panel.” 150

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VI.  Recognition and enforcement

Alternatively, the arbitral tribunal and the court could – and should – confer in order to harmonize their decisions to the largest extent possible. Some courts have in the past ordered interim measures in aid of forthcoming arbitration proceedings by expressly granting such relief “only until the arbitration panel is able to address whether the [interim relief] should remain in effect. Once assembled, an arbitration panel can enter whatever temporary injunctive relief it deems necessary to maintain the status quo”.157 How and to what extent the national court’s order might automatically cease to exist upon the order of an interim measure by the subsequently constituted arbitral tribunal is a question of the applicable procedural law at the place of the national court in question. The Singapore International Arbitration Act, for example, expressly provides in sec. 12A(7) that “[a]n order made by the High Court or a Judge thereof under subsection (2) [which includes orders for certain interim measures] shall cease to have effect in whole or in part (as the case may be) if the arbitral tribunal, or any such arbitral or other institution or person having power to act in relation to the subject-matter of the order, makes an order which expressly relates to the whole or part of the order under subsection (2)”. In any event, such statement by the national court can be understood as an invitation to the arbitral tribunal to fully revisit the issue in question without being bound by the national court’s findings. As regards the relationship between different national courts, it will be for the law at the place of the court seized second to determine whether lis pendens, res judicata and similar principles apply to interim measures. Here, too, such principles will usually not apply as such. Under the Brussels I Regulation and corresponding Lugano Convention, for example, it is accepted that a request for interim measures before the courts of one state does not hinder a second request before the courts of another.158

VI. Recognition and enforcement National courts are not only important in terms of ordering interim measures in the context of international arbitration proceedings, but also in terms of enforcement. The issue is twofold. For one thing, forum shopping may play an important role regarding interim measures granted by arbitral tribunals where the party against whom the measure is directed does not comply with such measure voluntarily. Here, too, there are differences between jurisdictions and a party may well have flexibility to shop for the best forum in terms of enforce157

158

Merrill Lynch v. Salvano, 999 F.2d 211 (7th Cir. 1993). M. Liatowitsch / ​A. Meier, in A. K. Schnyder ed., Lugano-Übereinkommen (LugÜ) zum internationalen Zivilverfahrensrecht, Kommentar, 2011, Art. 27 para. 27 with references.

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ment. And for another thing, enforcement issues may play a significant part in a party deciding where to shop for a forum to grant interim relief. As regards the enforcement of tribunal-ordered interim measures, jurisdictions increasingly expressly provide for court enforcement of such measures irrespective of the seat of the arbitration. Art. 17 H(1) provides that “[a]n interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued, subject to the provisions of article 17 I” (emphasis added). The same applies in Austria, expressly provided in § 577 read in conjunction with § 593(4) CCP. In Germany, although the German arbitration law does not expressly provide for enforcement of foreign tribunal-ordered measures, the latter is accepted by the majority of commentators.159 In other jurisdictions, although the arbitration law provides for the enforcement of tribunal-ordered interim relief, it is questionable whether the pertinent provisions apply only to interim measures granted by arbitral tribunals seated in the jurisdiction in question, or also to relief granted by tribunals seated abroad. In Switzerland, for example, although the majority view is that Art. 183(2) PILA applies also to measures issued by arbitral tribunals seated outside Switzerland, there are opposing views, and the matter has not yet been decided by the Federal Supreme Court.160 In England and Wales, it is questionable whether sec. 42 of the Arbitration Act 1996 applies if the seat of the arbitration is outside England and Wales.161 Finally, there are jurisdictions where state court enforcement of foreign tribunal-ordered interim measures is very questionable per se. In Italy, Argentina, Thailand and China, where tribunal-ordered interim measures are generally prohibited, court-enforcement of such measures granted by an arbitral tribunal seated abroad appears to be out of the question. The new French arbitration act does not contain any provision on tribunal-ordered interim measures, although such a provision was contained in an earlier draft of the act. It remains to be seen whether French courts will continue to grant enforcement only to interim measures that can, in substance, be qualified as sentences arbitrales.162 Based on the foregoing, where a party having obtained an interim measure from an arbitral tribunal has the option to choose between different places of enforcement – for example because its opponent has assets in different jurisdictions – such party will have to look at the laws of the potential places of enforcement closely to determine whether and under what circumstances such laws allow for the enforcement of tribunal-ordered interim relief. 159 Cf.

Boog, supra note 5, at para. 400 with references. Boog, supra note 5, at paras 382-392 with references. 161 Cf. Steinbrück, supra note 68, at 443. 162 See Boog, supra note 5, at paras 409-413 with references. 160 Cf.

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VII. Conclusion

As regards the choice of forum for granting interim measures, whether a measure ordered by one national court can be enforced in another national court may play an important role in shopping for the most conducive forum. For example, if the required type of relief can be obtained in the courts at the seat of the arbitration but not at the seat in another jurisdiction of the party against whom the measure shall be directed, the party in need of interim relief may opt for the courts of the seat of the arbitration if the measure can then be enforced at the seat of the opposing party. If, however, cross-border enforcement of the interim measure is not possible, that party may opt to seek a similar, albeit slightly less suitable type of relief in the country where its opponent is seated in order to secure enforcement.

VII. Conclusion Parties to international arbitration proceedings have various options in terms of shopping for the most conducive forum for interim measures. Aside from seeking such relief from the arbitral tribunal (once constituted and in a position to act) or an emergency arbitrator (if available), there are likely to be different national courts that may accept jurisdiction to grant interim relief. These may include the courts at the seat of the arbitration, but also courts outside the seat, such as at the place of enforcement of the requested measure, the place of residence of the party against whom the measure shall be directed, or the place where the assets in question are located. These courts are likely to grant interim relief even if they are not located in the same jurisdiction as the seat of the arbitration. In determining the best forum in each individual case, the party in need of interim measures should consider not only questions of jurisdiction but also which types of measures are available in different fora, the potential scope of reach of such measures, what standards the court will apply in assessing whether or not to grant a certain measure, and what arguments may be raised before a certain national court. Finally, a party requesting interim relief should test whether it may be possible to seek relief in several fora at the same time or consecutively if a first attempt fails, or whether the courts may put a stop to such an attempt by taking into account concepts such as lis pendens, res judicata, estoppel or other preclusion principles. Taking all of this into account: Shop ‘til you drop!

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Courts and the Constitution of the Arbitral Tribunal: A Comparative Analysis of Standards of Arbitrator Independence and Impartiality Robert H. Smit* I. Introduction This article provides a comparative analysis of standards of arbitrator independence and impartiality under different national laws and arbitration rules. It does so by focusing on three particular issues of arbitrator independence and how each of those issues is addressed in three jurisdictions, the United States, the United Kingdom and Germany, and in three sets of international arbitration rules, the UNCITRAL Rules, the ICC Rules and the AAA / ​ICDR Rules. Part I of the article presents an overview of generally applicable standards of arbitrator independence and impartiality. The Parts that follow examine how those general standards of arbitrator independence and impartiality are applied in three specific contexts. Part II considers the application by some national courts of judicial standards of independence to arbitrators; Part III examines the standards of independence applied to party-appointed arbitrators as compared with those applied to presiding or sole arbitrators; and Part IV explores the international validity of arbitration agreements (or national laws) that provide for the unilateral appointment by the claimant of the respondent’s party-appointed arbitrator, or of the sole arbitrator, in the event of the respondent’s failure to appoint its own party-appointed arbitrator. We conclude from our comparative analysis that while the general standards of arbitrator independence and impartiality are articulated similarly in different parts of the world, the ways those standards are applied in these three specific contexts provide interesting insights as to how different jurisdictions value the dual and often competing considerations of party autonomy and procedural integrity and due process in international arbitration.

* The author thanks Jordan Botjer and Emma Lindsay, his Simpson Thacher colleagues, for their substantial and invaluable assistance in the preparation of this article.

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II. Overview of Standards of Arbitrator Independence and Impartiality The UNCITRAL Model Law reflects prevailing standards of arbitrator independence and impartiality. Article 12(2) of the Model Law provides: “An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties.”1 Article 12(2) thus imposes a substantive standard of arbitrator impartiality and independence, imposes the same standard on all members of the arbitral tribunal, but does not further articulate factors or circumstances that may trigger “justifiable doubts” about an arbitrator’s independence or impartiality. As Gary Born notes, there is as yet only limited judicial authority applying Article 12(2)’s standards.2 The general standards of independence and impartiality set forth in arbitration legislation in the United States, the United Kingdom and Germany, as well as in each of the UNCITRAL Rules, the ICC Rules, and the AAA / ​ICDR Rules, add little further flesh to the bone of arbitrator independence and impartiality.

II.  A. United States In the United States, the U. S. Federal Arbitration Act (“FAA”) is, at best, cryptic about standards of arbitrator independence. The FAA does not explicitly prescribe any standard or even include a provision for challenge to or removal of an arbitrator during the pendency of an arbitration. It provides only that an award may be vacated “where there was evident partiality or corruption in the arbitrators, or either of them.”3 Arbitrator independence and impartiality are thus considered by U. S. courts principally in the context of actions to vacate or enforce awards. The leading U. S. case is Commonwealth Coatings Corp. v. Continental Cas. Co., in which the U. S. Supreme Court vacated an arbitral award where the presiding arbitrator had failed to disclose his multi-year consulting relationship with one of the parties.4 The decision was rendered by a plurality of a divided Court with justices disagreeing about what standards should govern the conflict-of-interest inquiry and, specifically, whether arbitrators should be held to a standard of independence more or less stringent than that applied to judges. As a result, U. S. courts have struggled interpreting Commonwealth Coatings, and articulating a consistent standard of arbitrator independence and impartiality.5 1 2 3 4 5

UNCITRAL Model Law, Article 12(2). G. B. Born, International Commercial Arbitration, 2009, 1466. Federal Arbitration Act, 9 U. S. C. § 10(a)(2). Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U. S. 145, 146-147 (1968). See Born, supra note 2, at 1468.

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II.  Overview of Standards of Arbitrator Independence and Impartiality

Recently, several U. S. courts have applied a “reasonable person” standard of arbitrator impartiality, holding that “evident partiality may be found only ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’”6 Situations involving “evident partiality” include “an arbitrator’s financial interest in the outcome of the arbitration, an arbitrator’s failure to disclose prior consulting work for a party, a family relationship that made the arbitrator’s impartiality suspect, an arbitrator’s former employment by one of the parties, and an arbitrator’s employment by an entity represented by one of the parties’ law firms.”7 Proof of actual bias is not required where partiality can be inferred “from objective facts inconsistent with impartiality.”8

II.  B. United Kingdom The 1996 English Arbitration Act contains two important provisions relating to arbitrator impartiality. The Act requires arbitrators to “act fairly and impartially as between the parties.”9 It further provides that an arbitrator may be removed if “circumstances exist that give rise to justifiable doubts as to his impartiality.”10 English courts have held that arbitrators are “bound to apply the law as they understand it to the facts of individual cases as they find them. They must do so without fear or favour, affection or ill-will, that is, without partiality or prejudice.”11 English courts have used various standards to determine the existence of justifiable doubts as to impartiality,12 the currently prevailing standard being 16

17 18

19 10 11 12

Scandinavian Reins. Co. v. Saint Paul Fire and Marine Ins. Co., 668 F.3d 60, 64 (2d Cir. 2012) (citing Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A. S., 492 F.3d 132, 137 (2d Cir. 2007). See also, NGC Network Asia, LLC v. PAC Pac. Grp. Int’l, Inc., No. 12-0967, 2013 WL 490935, at *1 (2d Cir. Feb. 11, 2013) (an arbitrator can only be disqualified for evident partiality where a reasonable person would have to conclude that he was partial); Andorra Servs., Inc. v. Venfleet, Ltd., 355 Fed. Appx. 622, 626 (3d Cir. 2009) (in order to set aside an award on the grounds of the Federal Arbitration Act § 10(a)(2), the challenging party must show that a reasonable person would have to conclude the arbitrator was partial). Hernandez v. Smart & Final, Inc., No. 09-cv-2322, 2010 WL 2505683, at *7 (S. D. Cal. June 17, 2010 (internal citations omitted). Scandinavian Reins. Co., 668 F.3d at 72 (internal citations omitted). 1996 English Arbitration Act, Section 33(1). 1996 English Arbitration Act, Section 24(1)(a). Locabail (UK) Ltd. v. Bayfield Prop. Ltd. [2000] Q. B. 451, 471 (Court of Appeal). The standard has been framed variously as a “reasonable suspicion,” a “real danger” or a “real possibility” of bias. R. v. Mulvihill [1990] 1 All E. R. 436, 441 (Court of Appeal); R. v. Gough [1993] 2 All E. R. 724, 732 (House of Lords); R. v. Bow Street Metro. Stipendiary Magistrate [1999] 1 All E. R. 577 (House of Lords). See Born, supra note 2, at 1471.

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“whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”13

II.  C. Germany German arbitration law is set out in the Tenth Book of the Code of Civil Procedure (Zivilprozessordnung (“ZPO”)). In 1998, Germany adopted the UNCITRAL Model Law and now generally applies its provisions to the issue of arbitrator independence. Thus, under the ZPO, as under Article 12(2) of the UNCITRAL Model Law, “an arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence.”14 The difference between the concepts of impartiality and independence is not specified in the Code. “However, it can be assumed that independence is understood as an objective criterion for the connection of the arbitrator to the parties and impartiality as a subjective criterion for the mental attitude of the arbitrator to the case to be decided.”15 Several German cases have considered what constitutes justifiable doubts as to an arbitrator’s impartiality and independence. Those cases conclude that (as in the United States and in the United Kingdom) an arbitrator can be challenged without actual proof that he lacks impartiality where the circumstances invoked give rise to reasonable grounds for objectively suspecting his impartiality.16 Challenges of arbitrators have succeeded “where objective circumstances gave rise to justifiable doubts as to the impartiality or independence of the arbitrator.”17

13

Derry City Council v. Brickkiln Ltd, Professor Stephen Willetts [2012] NIQB 84 (Q. B.) (para. 15) (citing Porter v. Magill [2002] 2 A. C. 357 (House of Lords)). 14 ZPO § 1036(II)(1). 15 K.-H. Böckstiegel / ​S . Kröll / ​P. Nacimiento, Arbitration in Germany: The Model Law in Practice, 2007, available at http: // ​www.kluwerarbitration.com / ​document. aspx?id=ipn30912#60. 16 United Nations Commission on International Trade Law, UNCITRAL: 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, 2012, 65 (citing Kammergericht Berlin, Germany, 28 Sch 24 / 99, 22 March 2000, available at http: // ​ www.dis-arb.de / ​de / 47 / ​datenbanken / ​rspr / ​kg-berlin-az-28-sch-24-99-datum-2000-0322-id118). 17 United Nations Comm’n on Int’l Trade Law, supra note 16, at 65 (citing CLOUT case No. 665 [Oberlandesgericht Naumburg, Germany, 10 SchH 03 / 01, 19 December 2001], available at http: // ​w ww.dis-arb.de / ​de / 47 / ​datenbanken / ​rspr / ​olg-naumburg-az-10schh-03-01-datum-2001-12-19-id165).

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III.  Application to Arbitrators of Standards of Independence Applicable to Judges

II. D. International Arbitration Rules The leading sets of international arbitration rules prescribe similarly abstract standards of arbitrator independence and / ​or impartiality without providing detailed guidance as to how those standards should be applied. The UNCITRAL Rules, like the UNCITRAL Model Law, provide that circumstances giving rise to “justifiable doubts as to the arbitrator’s impartiality or independence” constitute grounds for challenging that arbitrator.18 The ICC Rules provide that “every arbitrator must be and remain impartial and independent of the parties involved in the arbitration.”19 Finally, the AAA / ​ICDR Rules similarly state that arbitrators “shall be impartial and independent.”20 The IBA Guidelines on Conflicts of Interest in International Arbitration, by contrast, provide more detailed guidance with respect to arbitrator independence and impartiality. The Guidelines identify color-coded categories of circumstances that require disclosure by or disqualification of arbitrators on conflicts grounds: a “Non-Waivable Red List”, a “Waivable Red List” and an “Orange List,” as well as situations where there is presumptively no conflict of interest, a “Green List.” The Guidelines are widely referenced by arbitrators, parties and courts alike in analyzing an arbitrator’s potential bias, but they remain “guidelines” – not binding unless specifically adopted by parties, courts or arbitral institutions. As the foregoing overview suggests, the phrasing of standards of arbitrator independence and impartiality in national arbitration statutes and international arbitration rules is mostly general and abstract. How those standards are applied with respect to the three specific issues discussed below, however, reveal much about how different countries and arbitral institutions perceive and weigh the contractual source of an arbitrator’s authority against the jurisdictional / ​adjudicatory nature of the arbitrator’s mandate, which in turn reflects often competing considerations of party autonomy and integrity of the arbitral process.

III. Application to Arbitrators of Standards of Independence Applicable to Judges Should arbitrators be held to the same standards of independence and impartiality as are national court judges? Different authorities have reached different conclusions for different reasons. 21 On the one hand, considerations of party autonomy suggest that standards of independence should be less exacting for arbitrators than for judges. The 18

UNCITRAL Rules, § 10(1). ICC Rules, § 11(1). 20 AAA / ​ICDR Rules, § 7(1). 21 See generally, Born, supra note 2, at 1482-1488. 19

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parties’ ability to choose their own arbitrators is a hallmark of arbitration, and parties should be able to choose arbitrators of specialized competence and familiarity to the parties and counsel without unduly stringent conflict-of-interest constraints if they so choose. As a practical matter, forbidding arbitrators from having past or existing professional and social contacts with the parties and their counsel, by application of the same conflicts standards as apply to judges, would risk compromising this hallmark of the arbitral process. On the other hand, to the extent arbitrators perform the same adjudicatory function as judges in resolving disputes among commercial actors, why wouldn’t application of the same standard of independence be necessary to protect the integrity of the arbitral process? Indeed, the fact that arbitration awards are not subject to appellate review on the merits, and that arbitrators are paid by the parties and thus may have financial incentives that judges do not have, suggests that more exacting standards of independence may be necessary for arbitrators than for judges to protect the integrity of the arbitral process.

III.  A. United States The seminal U. S. case, Commonwealth Coatings, featured a fascinating debate between Supreme Court Justices Black and White about the relative standards of independence applicable to judges and arbitrators. Justice Black, for the plurality, opined that arbitrators “not only must be unbiased but also must avoid even the appearance of bias.”22 In his view: “It is true that arbitrators cannot sever all their ties with the business world, since they are not expected to get all their income from their work deciding cases, but we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review.”23 In contrast, Justice White, concurring, opined: “The Court does not decide today that arbitrators are to be held to the standards of judicial decorum of Article III judges, or indeed of any judges. It is often because they are men of affairs, not apart from but of the marketplace, that they are effective in their adjudicatory functions.”24 Because of the importance of their ties to and knowledge of certain industries, “arbitrators are not automatically disqualified by a business relationship with the parties before them if both parties are informed of the relationship in advance, or if they are unaware of the facts but the relationship is trivial.”25 22

Commonwealth Coatings, 393 U. S. at 150. Id. at 148-49 (emphasis added). 24 Id. at 150. 25 Id. 23

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U. S. courts addressing the issue after Commonwealth Coatings have tended towards Justice White’s approach and reasoning.26 As one court observed: “The unique role of arbitrators, whose special expertise arises from wide experience in their fields, sometimes leads to a gain of their professional knowledge and skill at the cost of the appearance of less than complete impartiality.”27 As a result, arbitrators tend to be held to a less stringent standard of independence than are judges.28 For example, the mere appearance of bias, which might be sufficient to disqualify a judge, may not disqualify an arbitrator.29 “Unlike a judge, who can be disqualified in any proceeding in which his impartiality might reasonably be questioned, an arbitrator is disqualified only when a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side.”30 That said, U. S. courts continue, in their analysis of arbitrator independence, to refer to the factors identified by Justice Black that weigh in favor of holding arbitrators to the same or more stringent independence standards as judges – namely, that arbitrators are not subject to appellate review, governmental disclosure obligations, institutional training and oversight, governmental appointment or confirmation and promotion. 31 26

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See, e. g., Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278 (5th Cir. 2007) (embracing Justice White’s standard); Stone v. Bear, Stearns & Co., 872 F. Supp. 2d 435, 445-446 (E. D. Pa. 2012) (agreeing with Justice White that arbitrators need not be held to the same standards as judges); Born, supra note 2, at 1483. Pitta v. Hotel Ass’n of New York City, Inc., 806 F.2d 419, 423 (2d Cir. 1986). See also ALS & Assocs., Inc. v. AGM Marine Constructors, Inc., 557 F. Supp. 2d 180, 183 (D. Mass. 2008) (“When courts consider whether an arbitrator is evidently partial, they should bear in mind that parties often agree to arbitration because they prefer a tribunal knowledgeable about the subject matter of their dispute to a generalist court with its austere impartiality but limited knowledge of subject matter. Thus, it is to be expected that knowledgeable arbitrators (those familiar with construction disputes, for example) are more likely than a judge or a juror not only to be precommitted to a particular substantive position but to know or have heard of the parties.” (internal citations omitted)). See, e. g., Transportes Coal Sea de Venezuela v. SMT Ship Mgmt. & Transp., Ltd., No. 05-cv-9029, 2007 WL 62715, at *10 (S. D. N. Y. Jan. 9, 2007). Pitta, 806 F.2d at 423. Scandinavian Reins. Co., 668 F.3d at 72 (emphasis in original; internal citations omitted). See, e. g., Positive Software Solutions, 476 F.3d at 292-93 (5th Cir. 2007) (emphasizing the importance of arbitrator disclosure because “appellate relief is an avis rara when it comes to questions of bias, prejudice, or non-disclosure in arbitration” and noting that even such disclosure “is far less efficacious than the safeguards that are afforded to parties in litigation through the elaborate rules of professional conduct, disqualification, and recusal, and the body of law and procedure thereon developed in the crucible of the very formal and extensive judicial system”).

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III.  B. United Kingdom In the 1993 R. v. Gough case, the House of Lords proclaimed “it possible, and desirable, that the same test should be applicable in all cases of apparent bias, whether concerned with justices or members of other inferior tribunals, or with jurors, or with arbitrators.”32 More recently, the Court of Appeal has reaffirmed that the same standards of impartiality should apply to arbitrators as apply to judges, but also noted that “[t]he courts are responsible for the provision of public justice. If there are two standards I would expect a lower threshold to apply to courts of law than applies to a private tribunal whose ‘judges’ are selected by the parties. After all, there is an overriding public interest in the integrity of the administration of justice in the courts.”33 Interestingly, some cases suggest that a higher standard of independence may be applied to (at least not legally qualified) arbitrators, in particular, with regard to what information can be seen or reviewed by the arbitrator without creating a fear of bias. In Ellis Building Contractors, for example, “without prejudice” correspondence had been improperly placed before an “adjudicator.” The court found that “[w]hilst if ‘without prejudice’ communications surfaced in a court, the judge being legally qualified and experienced can usually put it out of his or her mind, it is a more pernicious practice in adjudication because most adjudicators are not legally qualified and there will often be a greater feeling of unease that the ‘without prejudice’ material may have really influenced the adjudicator.”34

III.  C. Germany In Germany, it appears that the same grounds for challenging a judge will also justify the removal of an arbitrator.35 While no explicit statutory provision so provides, because arbitral proceedings are accorded equal status with state court proceedings, arbitrators may be subject to the same requirements of impartiality as are judges.36 As German commentators have noted, “[e]ven though the arbitral tribunal, unlike the state courts, does not exercise state sovereignty, its work is nevertheless to be seen as substantive jurisprudence of such elementary significance 32

R. v. Gough [1993] A. C. 646, 669 (House of Lords). AT&T Corp. v. Saudi Cable Co. [2000] 2 Lloyd’s Rep. 127, 135 (Court of Appeal) (emphasis added). 34 Ellis Bldg. Contractors Ltd. v. Vincent Goldstein [2011] EWHC 269 (para. 25). 35 See Born, supra note 2, at 1485 (citing A. Baumbach, W. Lauterbach, J. Albers & P. Hartmann, Zivilprozessordnung § 1036, ¶4 (66th ed. 2008); Geimer, in R. Zöller (ed.), Zivilprozessordnung § 1036, ¶10 (26th ed. 2007). 36 See Böckstiegel / ​Kröll / ​Nacimiento, supra note 15. 33

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that this fundamental principle of impartiality must be fulfilled also in arbitral proceedings.”37 Consistent with this view, one German court has held that the “justifiable doubts as to his impartiality or independence” test set out in the UNCITRAL Model Law Article 12(2) generally corresponds to the test applicable to the disqualification of judges under German law.38

III.D International Arbitration Rules As noted above, the leading sets of international arbitration rules, including the UNCITRAL, ICC and AAA / ​ICDR rules, all prescribe similar substantive standards of arbitrator independence and impartiality. None of those rules refer to standards of independence applicable to judges, or otherwise suggest any relationship between arbitral and judicial standards of independence. In our view, this is the correct approach. As Gary Born properly observes, judicial standards of independence “are designed for, and applied in, defined and comprehensively-regulated domestic contexts, while [arbitrator standards of independence] apply in an international context which is defined principally by the parties’ agreement and expectations in particular cases.”39 Indeed, some potential conflicts scenarios may be tolerable in a national judicial setting but not in an international arbitration setting,40 whereas others may be tolerable in an arbitral setting but not in a judicial setting.41

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Böckstiegel / ​Kröll / ​Nacimiento, supra note 15, available at http: // ​w ww.kluwerarbitration. com / ​document.aspx?id=ipn30910. Non-observance of the fundamentals of impartiality results in a breach both of statutory law, namely § 1035 (3) sentence 3 ZPO, 1042 (1) sentence 1 ZPO, and the German Constitution (Grundgesetz). United Nations Commission on International Trade Law, supra note 16, at 65 (CLOUT case No.  1062 [Oberlandesgericht Köln, Germany, 9 Sch (H) 22 / 03, 2 April 2004], available at http: // ​w ww.dis-arb.de / ​de / 47 / ​datenbanken / ​rspr / ​olg-köln-az-9-sch-h-2203-datum-2004-04-02-id291). Born, supra note 2, at 1486. For example, a U. K. judge’s and counsel’s nexus with the same U. K. chambers may be tolerable in the U. K. court setting in light of U. K. cultural norms and expectations with respect to the relationship of independence between barristers in the same chambers, but may create an problematic appearance of bias in the international arbitration context. As observed by Judge White in Commonwealth Coatings, past business ties with a party or its counsel within a particular industry may not disqualify an arbitrator even if they might disqualify a judge.

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IV. Party-Appointed Arbitrator Standards of Independence Are party-appointed arbitrators held to the same standards of independence and impartiality as presiding or sole arbitrators? If so, should parties nevertheless be allowed to agree, in their arbitration agreement or once a dispute arises, that their party-appointed arbitrators be subject to a less-exacting standard of independence and impartiality than the presiding or sole arbitrator? Again, different jurisdictions have reached different conclusions with respect to those questions. And again, their answers to those questions reflect different conceptions of the relative importance of party autonomy versus integrity of the adjudicatory process in international arbitration. On the one hand, concern for procedural fairness and integrity in the arbitral process explains the prevailing approach – mandatory in most jurisdictions (including the U. K. and Germany), and policed via Article V of the New York Convention – that all arbitrators, party-appointed arbitrators included, be subject to the same standards of independence, and that parties may not derogate from this rule. Even those jurisdictions that apply the same conflicts standard to all arbitrators, however, do not necessarily apply that standard in the same way to party-appointed arbitrators in light of the nuanced role that party-appointed arbitrators are understood and acknowledged to play within a three-member arbitral tribunal. On the other hand, respect for party autonomy, and the important role party selection of arbitrators plays in realizing party autonomy, informs the historical practice of partisan party-appointed arbitrators in the United States, as well as the current U. S. practice of allowing parties to provide for partisan party-appointed arbitrators notwithstanding the general rule that all arbitrators be independent and impartial. Indeed, one might reasonably ask whether failure to honor a party stipulation to partisan party-appointed arbitrators may render any subsequent award unenforceable under Article V(1)(d) of the New York Convention, on the grounds that the “composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties.” More fundamentally, since arbitration is essentially a creature of contract, why shouldn’t parties be free to agree to partisan party-appointed arbitrators if they wish, provided this is done transparently and applies equally to all parties?

IV. A. The United States Historically in the United States, party-appointed arbitrators were accepted, expected and presumed to be partisan in favor of the parties that appointed them.42 The notion of partisan party-appointed arbitrators was deemed con42

See generally Born, supra note 2, at 1492-1493; Sphere Drake Ins. Ltd. v. All Am. Life Ins. Co., 307 F.3d 617, 620-623 (7th Cir. 2002) (distinguishing party-appointed arbitrators

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sistent with and a natural corollary to parties’ rights to appoint members of the arbitral tribunal. A party’s right to appoint an arbitrator who would advocate that party’s position within the tribunal inspired party confidence in the arbitral process by ensuring that the parties’ positions were fully understood and adjudicated in the tribunal’s deliberations and decision-making.43 And because the party-appointed arbitrator’s partisanship was transparent to and accepted by all, it did not suffer from the same ambiguities and lack of transparency for which the currently prevailing practice of “neutral” party-appointed arbitrators is sometimes criticized.44 Inspired by the international arbitration practice of “neutral” party-appointed arbitrators, U. S. practice has recently abandoned its historic presumption of party-appointed arbitrator partisanship. In 1997, the American Arbitration Association adopted its international arbitration rules, which require all arbitrators to be impartial and independent.45 In 2004, the American Arbitration Association and American Bar Association amended their Code of Ethics for Arbitrators in Commercial Disputes specifically to impose a presumption of neutrality as to all arbitrators, including party-appointed arbitrators, in domestic arbitrations.46 Notwithstanding the current presumption in favor of neutral party-appointed arbitrators, both the AAA / ​ABA Code of Ethics and the AAA Commer-

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on a tripartite panel from the designated neutral arbitrator on such a panel with respect to “evident partiality” and finding that “the main party-appointed arbitrators are supposed to be advocates”); Delta Mine Holding Co. v. AFC Coal Props., Inc., 280 F.3d 815, 821 (8th Cir. 2001) (finding no issue with “the selection of partial arbitrators – persons with substantial financial interests in and duties of loyalty to one party”); Lozano v. Maryland Cas. Co., 850 F.2d 1470, 1472 (11th Cir. 1988) (“An arbitrator appointed by a party is a partisan only one step removed from the controversy and need not be impartial”). Indeed, the same rationales are now advanced to defend the use of “neutral” partyappointed arbitrators – see C. N. Brower / ​C. Rosenberg, The Death of the Two-Headed Nightingale: Why the Paulsson-Van Den Berg Presumption that Party-Appointed Arbitrators Are Untrustworthy Is Wrongheaded, 6:3 World Arbitration of Mediation Review 619 (2012). On ambiguities in the “neutral” party-appointed arbitrator role, see R. H. Smit, Thoughts on Arbitrator Selection, 23 The American Review of International Arbitration 575, 579-583 (2012). For recent criticisms of the party-appointed arbitrator practice, see J. Paulsson, Moral Hazard in International Dispute Resolution, 25 ICSID Review: Foreign Investment Law Journal 339 (2010); A. J. van den Berg, Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration, in Looking to the Future: Essays on International Law in Honor of W. Michael Reisman (Mahnoush Arsanjani et al. eds.), 2011. See AAA / ​ICDR Rules, § 7(1). AAA / ​A BA Code of Ethics for Arbitrators in Commercial Disputes, Note on Neutrality.

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cial Rules permit parties to agree on the use of “non-neutral” party-appointed arbitrators.47 Considerations of party autonomy therefore appear to continue to trump those of process integrity, at least in respect of the U. S. domestic arbitration practice concerning party-appointed arbitrator neutrality.

IV.  B. United Kingdom In contrast to the historical practice in the United States, at English common law, an arbitrator who accepted instructions from a party was branded corrupt.48 Consistent with that approach, the 1996 English Arbitration Act makes no distinction between standards of independence applicable to party-appointed and presiding or sole arbitrators.49 Moreover, the Act makes explicit that those standards of impartiality are mandatory, and thus cannot be derogated by agreement of the parties.50 The mandatory nature of arbitrator neutrality notwithstanding, actual practice in the U. K. reflects that while the same standards of independence may formally apply to all arbitrators, they apply somewhat differently to party-appointed arbitrators. It was, after all, a well-known English international arbitrator, Martin Hunter, who famously advised to select party-appointed arbitrators “with the maximum predisposition toward [their] client, but with the minimum appearance of bias.”51 The notion of overtly partisan party-appointed arbitrators is, moreover, not completely alien in England, as evidenced by its historic “umpire” system of arbitration, in which arbitrations are conducted by two partyappointed arbitrators who serve as quasi-advocates if they are unable to resolve the dispute unanimously and must involve an “umpire.”52

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AAA / ​A BA Code of Ethics, Canons IX, X; AAA Commercial Rules, Rules 12(b) and 17. Born, supra note 2, at 1495. See also Owners of the MV Myron v. Tradax Exp. SA, [1970] 1 Q. B. 527, 533 (Q. B.) (“neither arbitrator has any special relationship with the party which appointed him and each arbitrator is under the same duty of fairness, openness and impartiality to both parties”). English Arbitration Act, Section 24(1)(a). See English Arbitration Act Sections 4(1), 24 and 33(1); see also Lord Steyn, England: The Independence and / ​or Impartiality of Arbitrators in International Commercial Arbitration, in 2007 Special Supplement: Independence of Arbitrators 96 (ICC, International Court of Arbitration 2007). M. Hunter, Ethics of the International Arbitrator, 53 Arbitration International 219, 223 (1987). On U. K. “umpire” arbitration, see R. Merkin, Arbitration Law, 2004 (and update 2007) ¶12.1; M. Mustill / ​S. Boyd, Commercial Arbitration, 2nd ed., 1989, 265; D. Sutton / ​J. Gill / ​ M. Gearing, Russell on Arbitration, 22nd ed., 2003, ¶¶4-009, 4-071.

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IV.  C. Germany In Germany, as in the United Kingdom, the same standards of independence are applied to party-appointed and presiding or sole arbitrators, although (again) they are not necessarily applied in the same way to party-appointed arbitrators. German courts recognize that parties will frequently propose party-appointed arbitrators with whom they have worked in the past or who are otherwise known to them; “nevertheless, the relationship to the party may not go beyond a certain degree, because the arbitrators are not representing the interests of the parties but are appointed as judges. Impartiality and independence extend, therefore, not only to the chairman but also to the arbitrators nominated by the parties in the case of a three arbitrator tribunal, on the basis of the principle of the rule of law.”53 Article 12 of the UNCITRAL Model Law – as incorporated into German law – not only imposes the same standard of independence and impartiality on all arbitrators, but also omits any grounds for the parties to contract out of Article 12’s independence standards. German law, therefore, also appears to forbid parties from agreeing to partisan party-appointed arbitrators,54 thereby valuing considerations of procedural integrity over those of party autonomy.

IV. D. International Arbitration Rules Like U. K. law, German law and the UNCITRAL Model Law, the leading sets of international arbitration rules prescribe a single standard of independence and impartiality for all arbitrators, and appear to preclude party agreements providing for partisan party-appointed arbitrators. The UNCITRAL Rules specify that “any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.”55 Similarly, the ICC Rules provide that “[e]very arbitrator must be and remain impartial and independent of the parties involved in the arbitration.”56 Finally, the AAA / ​ ICDR Rules state broadly that “arbitrators acting under these Rules shall be impartial and independent.”57 Commentators have observed that these provisions have been treated by arbitral institutions as mandatory, including with respect to party-appointed arbitrators.58 53

Böckstiegel / ​Kröll / ​Nacimiento, supra note 15. See German ZPO § 1036(2). 55 UNCITRAL Rules, § 10 (emphasis added). 56 ICC Rules, § 11(1) (emphasis added). 57 AAA / ​ICDR Rules, § 7(1). 58 See R. H. Smit, Mandatory ICC Arbitration Rules, Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner, 2005, 845, 855-857. 54

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V. Claimant Appointment of the Sole Arbitrator or Both Party-Appointed Arbitrators in the Event of Respondent Default Ordinarily, where a party (invariably the respondent) fails to appoint an arbitrator that it is entitled to appoint, an appointing authority (be it an arbitral institution or a national court at the place of arbitration) will appoint an arbitrator in the defaulting party’s stead, and the two “party”–appointed arbitrators will proceed to select the chair of the tribunal. But may the parties provide in their arbitration agreement that if the respondent fails to appoint its party-appointed arbitrator, then the claimant itself may appoint the respondent’s party-appointed arbitrator – thus allowing claimant to appoint both co-arbitrators, who then in turn select the chair? Even more drastically, may the parties agree that claimant’s party-appointed arbitrator shall serve as sole arbitrator if respondent fails to appoint its party-appointed arbitrator? Once again, different jurisdictions answer these questions differently in light of competing considerations of party autonomy and procedural fairness. On the one hand, considerations of party autonomy explain why common law jurisdictions have generally honored such party agreements and enforced resulting awards rendered by a tribunal constituted as agreed in the event of the respondent’s failure to appoint its arbitrator.59 Those agreements are viewed as a reasonable exercise of the parties’ authority to prevent dilatory tactics by a recalcitrant respondent. As long as both parties have the same opportunity to appoint an arbitrator, and the forfeiture provisions apply equally to both, concerns about equal treatment need not compromise party autonomy. This is particularly so in the international setting, where all arbitrators – including both co-arbitrators or the sole arbitrator appointed unilaterally by the claimant – are required to remain independent and impartial. On the other hand, some civil law courts have held that arbitration agreements giving claimants such disproportionate unilateral control over the constitution of the tribunal in the event of respondent default run afoul of respondents’ rights to equal treatment and procedural due process.60 For those courts, concerns about the integrity of the arbitral process trump party autonomy in the constitution of the tribunal. As discussed below, for German courts, that may not be the case, at least in respect of enforcement in Germany of arbitration awards rendered in the United Kingdom by a sole arbitrator selected by the claimant following respondent’s default.

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V.  A. United States U. S. courts have repeatedly given effect to agreements allowing one party to appoint both co-arbitrators upon the other party’s default.61 Notably, most of those courts have done so in the context of domestic arbitrations, where partyappointed arbitrators need not always be “neutral,” making the impact of claimant’s appointment of both co-arbitrators particularly draconian. Recognizing those potential draconian effects, however, U. S. courts have sometimes applied or extended time limits for the respondent’s appointment of its party-appointed arbitrator in such a way as to avoid forfeiture of respondent’s ability to appoint an arbitrator if at all possible.62 Party autonomy, thus, remains the rule, but its application is tempered by considerations of procedural fairness.

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See, e. g., Certain Underwriters at Lloyd’s London v. Argonaut Ins. Co., 500 F.3d 571 (7th Cir. 2007) (appointment of co-arbitrator after thirty-day contractual period expired held invalid; permitting counter-party to appoint defaulting party’s co-arbitrator); Universal Reins. Corp. v. Allstate Ins. Co., 16 F.3d 125, 129 (7th Cir. 1994) (party’s failure to appoint arbitrator within 30-day period, under arbitration agreement, entitled other party to make appointment, “the agreement is crystal clear, specifying a particular course for the appointment of a second arbitrator when one of the parties fails to make its selection within thirty days”); Ancon Ins. Co. v GE Reins. Corp., 480 F.Supp.2d 1278, 1279-1280 (D. Kan. 2007) (enforcing arbitration clause providing that “if either party refuses or neglects to appoint an arbitrator within thirty days after the receipt of the written notice from the other party requesting it to do so, the requesting party may appoint two arbitrators”); Evanston Ins. Co. v. Gerling Global Reins. Corp.-U. S. Branch, No. 90C-3919, 1990 WL 141442, at *1 (N. D. Ill. Sept. 24, 1990) (arbitration agreement provided that “should either party hereto fail to qualify its arbitrator within one month after receipt of written notice from the other party requesting it to do so, the requesting party shall name both arbitrators”); Compania Portorafti Commerciale v. Kaiser Int’l, 616 F. Supp. 236, 239 (S. D. N. Y. 1985); Old Dominion Ins. Co. v. Dependable Reins. Co. Ltd., 472 So.2d 1365, 1368 (Fla. Dist. Ct. App. 1985) (arbitration agreement provided that “in the event either party should fail to choose an arbitrator within sixty days following a written request by the other party to enter into arbitration, the requesting party may choose both arbitrators”). 62 See, e. g., Ancon Ins. Co., 480 F. Supp. at 1284 (D. Kan. 2007) (refusing to find forfeiture of the right to appoint an arbitrator because time was not of the essence and the five day delay of one party in making the appointment was not in bad faith); Compania Portorafti Commerciale, 616 F. Supp. at 238 (S. D. N. Y. 1985) (“so minor a delay, uncomplicated by indications of bad faith, does not in equity deprive a party to an arbitration clause of its contracted- for right to appoint an arbitrator of its choosing … unless the contract makes time of the essence.”).

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V.  B. United Kingdom The situation in the United Kingdom is particularly interesting with respect to the consequences for a party that fails to appoint its party-appointed arbitrator. Even without party agreement to that effect, Section 17 of the 1996 English Arbitration Act itself provides that if a party fails to appoint its party-appointed arbitrator within the agreed deadline, then “unless the parties otherwise agree,” its counter-party may elect to treat its party-appointed arbitrator as the sole arbitrator. Because Section 17 applies as a default operation of law rather than contract (and in the absence of contract otherwise), it appears to be considerations of arbitral efficiency, rather than of party autonomy, that trump concerns of procedural integrity and fairness in the case of English arbitration law. Interestingly, notwithstanding the draconian consequences of Section 17, Gary Born reports that most foreign courts have rejected challenges to awards rendered by sole arbitrators selected unilaterally by claimants in enforcement actions outside England.63

V.  C. Germany The situation is less clear in Germany. On the one hand, it is well-established in Germany (as in the United States and England) that an arbitration agreement that grants only one party the right to appoint both co-arbitrators, or the sole arbitrator, is contrary to mandatory principles of equal treatment.64 On the other hand, several German courts have rejected German public policy challenges to enforcement in Germany of U. K. awards rendered by a sole arbitrator appointed by claimant pursuant to Section 17 of the 1996 English Arbitration Act.65 63

See Born, supra note 2, at 1398-1399, 1372-1373 note 100. See Böckstiegel / ​Kröll / ​Nacimiento, supra note 15, available at http: // ​w ww.kluwerarbitration.com / ​document.aspx?id=ipn30910 (“As the composition of the arbitral tribunal is of the utmost significance for the arbitration itself, equal treatment of the parties is essential. Hence, the parties’ arbitration agreement is subject to being restricted if it gives one of the parties an advantage regarding the composition of the arbitral tribunal.”); Judgment of 26 January 1989, 1989 NJW 1477 (German Bundesgerichtshof) (invalidating clause that provided for one party to select arbitrator). 65 See Judgment of 1 February 2001, XXIX Y. B. Comm. Arb. 700 (German Bundesgerichtshof) (2004) (rejecting claim that party’s nomination of sole arbitrator, pursuant to arbitration agreement, in arbitration sited in England, violated German public policy); Judgment of 15 May 1986, XII Y. B. Comm. Arb. 489 (German Bundesgerichtshof) (1987) (sole arbitrator appointed by one party not necessarily biased); but see Judgment of 18 October 1999, XXIX Y. B. Comm. Arb. 700 (Oberlandesgericht Stuttgart) (2004) (“the fact that the arbitral award was eventually rendered by the arbitrator appointed by the claimant is at odds with the requirement of impartiality and neutrality of foreign 64

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VI. Conclusion

V. D. International Arbitration Rules The leading sets of international arbitration rules – including UNCITRAL, ICC and AAA / ​ICDR Rules – all provide that where one party fails to appoint an arbitrator that it is entitled to appoint, the arbitral institution will appoint an arbitrator in its stead.66 None of those rules specifically contemplates or allows the parties to agree to allow a party to appoint both co-arbitrators or the sole arbitrator if its counter-party fails to make its appointment. But, one might argue, neither do the rules specifically forbid such a consensual arrangement.

VI. Conclusion As our study suggests, while the abstract general standards of arbitrator independence and impartiality prescribed by national arbitration laws and international arbitration rules offer little of comparative law interest, how those standards are applied in specific contexts that call into play the dual contractual and jurisdictional nature of arbitration provide interesting insight as to how different nations balance the often competing interests of party autonomy and procedural integrity in international arbitration.

arbitrators, a requirement that also applies to international arbitrations governed by foreign substantive and procedural law”). Born, supra note 2, at 1396, 1452. 66 UNCITRAL Rules Articles 8-10; ICC Rules Article 12; AAA / ​ICDR Rules Article 6.

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Forum Shopping in International Arbitration – Forum Non Conveniens and Lack of Personal Jurisdiction Peter B. Rutledge* “One may wonder why a Swedish company is seeking to enforce an award governed by Norwegian law against a Spanish company in Ireland. The reason arises from the plaintiff’s belief that there is an intercompany debt owed to the defendant by an Irish company which may, if the application to enforce the award is successful, be garnished.” 1 As international arbitration occupies a greater share of commercial disputes, it increasingly intersects with civil procedure. These intersections take place in various domains – litigation over the enforceability of an arbitration agreement, litigation over various forms of judicial assistance during the arbitration, and litigation over the enforceability of the arbitral award. Various scholars, including myself, have commented on these phenomena.2 One important area of intersection concerns the convergence of civil procedure doctrines with the procedures governing the enforceability of an arbitral award. A paradigmatic example might be as follows: a United States based company and a Brazil based company enter into a contract providing that all disputes will be settled by arbitration in France. After an arbitral tribunal renders an award in favor of the United States company, it seeks to enforce the award in the United States (presumably because the Brazilian company has assets there and because it believes that United States courts will be more receptive to an enforcement petition than the Brazilian courts). The Brazilian company moves to dismiss the case on grounds of lack of personal jurisdiction, forum non conveniens and comity. The judge is inclined to agree on all three grounds but notes that the New York Convention, which governs the enforceability of the arbitral award, generally obligates courts to enforce arbitral awards and does not include any of those defenses as a reason to refuse enforcement. So what prevails? The garden-variety procedural defenses advanced by the Brazilian company? Or Article V of the New York Convention? * I would like to thank Dean Rebecca White for financial support. Ellen Clarke and

1 2

Ridwan Khan, students at the University of Georgia School of Law, provided helpful research assistance. Brostrom Tankers AB v. Factorias Vulcano SA, Yearbook Commercial Arbitration 591 (Dublin High Court 2004) (2005). P. Rutledge, Convergence and Divergence in International Dispute Resolution, 19 Journal of Dispute Resolution 51 (2012).

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This hypothetical case exemplifies a growing phenomenon – namely the apparent collision between American “procedural” doctrines such as personal jurisdiction and forum non conveniens and American obligations under international law to give effect to foreign arbitral awards, which are subject only to specific enumerated exceptions that do not include the aforementioned procedural defenses. These issues have received increasing attention in the scholarly literature,3 have been the subject of extensive discussion by the American Law Institute as it develops a Restatement on the Law of International Commercial Arbitration,4 and have generated much litigation.5 What has been lacking in the dialogue, to date, is an effort to wed these doctrinal dilemmas with an underlying theory about international arbitration doctrine. This chapter seeks to bring about that union. Part I introduces the problem and reviews the literature. Part II offers a variety of competing theories about international arbitration doctrine. Part III applies those theories to these nettlesome debates, focusing in particular on personal jurisdiction and forum non conveniens. Those two doctrines provide useful lenses through which to test the theory and enable richer generalizations which may be applied in other contexts.

I. Background and Literature Review This section provides the essential background on the issues in this paper. To place the issues in proper perspective, a brief review of the legal architecture governing the enforcement of foreign awards is necessary.

I.  A. Background Unlike judgments, arbitral awards are not entitled to any automatic right of execution, whether in the rendering jurisdiction or in another jurisdiction. Instead, a hallmark of arbitral awards is that, absent voluntary compliance by the award debtor, the award creditor must obtain judicial confirmation or enforcement of the award in order to satisfy it.6 Given this non-self-executing quality of 3

W. W. Park / ​A. Yanos, Treaty Obligations and National Law: Emerging Conflicts in International Arbitration, 58 Hastings Law Journal 251, 255 n. 28 (citing sources); L. Silberman, International Arbitration: Comments from a Critic, 13 American Review of International Arbitration 9 (2002). 4 See Tentative Draft No. 2, Restatement (Third) of the U.S. Law on International Commercial Arbitration §§ 4-27, 4-29 (Apr. 16. 2012). 5 See infra notes 13-17. 6 See 1958 United Nations Convention On The Recognition And Enforcement Of Foreign Arbitral Awards Art. III.

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arbitral awards, the legal architecture governing enforcement can have a critical impact on the overall efficacy and desirability of arbitration as a form of dispute resolution. On one extreme, a seamless and uncomplicated process of judicial award enforcement can encourage the use of arbitration (and probably also enhance voluntary compliance with awards); on the other extreme, a cumbersome and hypertechnical system of award enforcement can encourage obstructionist tactics by the award debtor (and undermine the overall appeal of arbitration as a mode of dispute resolution). Over time, the actual legal architecture governing award enforcement has shifted from one that had the potential to undermine arbitration to one strongly supportive of the process. As others have discussed in great detail, early in the twentieth century, the Geneva Protocol and Geneva Convention were the primary treaties governing the international enforcement of arbitral awards.7 A key requirement of these documents was the so-called double exequatur requirement, under which the award creditor was obligated to obtain confirmation of the award in the arbitral forum before he could seek enforcement elsewhere.8 The cumbersomeness and provinciality of the double exequatur requirement reduced the appeal of arbitration as a form of international dispute resolution. Against this backdrop, arbitration treaties developed during the second half of the twentieth century sought to respond to these shortcomings. By far, the seminal treaty was the 1958 United Nations Convention on the Enforcement of Arbitration Agreements and Awards (“New York Convention”).9 A critical in7



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“Each of the Contracting States recognises the validity of an agreement whether relating to existing or future differences between parties, subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration, whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject.” Geneva Protocol on Arbitration Clauses in Commercial Matters Art. 1, Sept. 24, 1923, 27 L. N. T. S. 158 (1924). “Each Contracting State undertakes to ensure the execution by its authorities and in accordance with the provisions of its national laws of arbitral awards made in its own territory under the preceding articles.” Geneva Protocol on Arbitration Clauses in Commercial Matters Art. 3, Sept. 24, 1923, 27 L. N. T. S. 158 (1924). The Geneva documents mandated that enforcement meet “…the double exequatur requirement – whereby an award could effectively only be recognized abroad under the Geneva Convention if it had been confirmed by the courts of the place of arbitration.” G. Born, International Arbitration: Cases and Materials 3031 (2011). Other treaties include European Convention of 1961 (European Convention on International Commercial Arbitration of 1961, Apr. 21, 1961, 484 U. N. T. S. 364; Moscow Convention of (1972) (Convention on the Settlement by Arbitration of Civil Law Disputes Resulting from Relations of Economic and Scientific-Technical Cooperation (“Moscow Convention”), May 26, 1972, 890 U. N. T. S. 167; Washington Convention of

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novation of the Convention was to eliminate the double exequatur requirement. Provided that the award satisfies the Convention’s jurisdictional requirements, award creditors can enforce it in any signatory state without the need to obtain confirmation in the arbitral forum.10 Instead, member states are obligated to recognize arbitral awards “as binding” and to enforce them subject only to the limited defenses set forth in Article V (such as an invalid arbitration agreement, lack of notice or an award contravening public policy).11 The New York Convention’s model held out the promise of greatly enhancing the currency of arbitration awards. Its widespread acceptance among nation-states (over 140 have ratified the treaty) made it an especially powerful tool. Nonetheless, recent decisions by federal courts in the United States have injected an unexpected uncertainty into this pro-enforcement model. Questions have arisen about whether petitions to enforce arbitral awards falling under the New York Convention may be dismissed for lack of personal jurisdiction, a statutory and constitutional prerequisite to the exercise of judicial jurisdiction in the United States. Similar questions have arisen over whether enforcement actions can be dismissed under the doctrine of forum non conveniens, on the theory that some other country supplies the more appropriate forum for the enforcement action. Unifying these two developments is a common question about the Convention’s sweep. When Article V specifies that recognition and enforcement may be refused “only” if the party resisting enforcement sets forth evidence satisfying one of the defenses, does this use of the term “only” imply the exclusion of other “country-specific” defenses that an award debtor might advance? This question is particularly poignant in light of the widespread understanding that the Convention was designed to supply a uniform standard for enforcement of awards, one largely divorced from local parochial interests.12 1965 (Convention on the Settlement of Investment Disputes Between States and Nationals of Other States – International Centre for Settlement Of Investment Disputes (“Washington Convention”), Mar. 18, 1965, 575 U. N. T. S. 159; Panama Convention of 1975 Jan. 30, 1975, 1438 U. N. T.S 245. While these treaties differ from the New York Convention in various respects, those differences are not material to the analysis undertaken in this paper. 10 “The U. N. Convention places the burden of proof on the issue of validity on the defendant. The proponent of the award is required only to supply the original or a certified copy of the award and the arbitral agreement. These establish a prima facie case, and the burden shifts to the defendant to establish the invalidity of the award on one of the grounds specified in Article V 1.” L. Quigley, Accession By The United States To The United Nations Convention On The Recognition And Enforcement Of Foreign Arbitral Awards, 70 Yale Law Journal 1049, 1066 (1961). 11 New York Convention Art. V. 12 “The drafting of this Article [Article III] was complicated by the desires of some delegates to institute a uniform system of international procedural rules of enforcement for foreign awards.” Quigley, supra note 10, at 1065.

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To complicate matters, how should one understand Article III’s direction that signatory states enforce awards “in accordance with the rules of procedure of the territory where the award is relied upon”? Does this reference to “rules of procedure” include procedural defenses, like forum non conveniens or limitations periods, to the extent they are properly deemed procedural, that might otherwise thwart enforcement of an award? Or does it refer to more ministerial matters (like the payment of filing fees) that can, with reasonable diligence, be complied with and where noncompliance does not irreparably damage the chances at award enforcement? It is difficult to discern the earliest date when these issues of personal jurisdiction and forum non conveniens as defense to award enforcement actions first arose. Some early decisions in the context of cases against foreign sovereigns touched on these defenses, but such cases are subject to a distinct regime potentially coloring the analysis (discussed in greater detail in Part III).13 The earliest purely commercial case appears to be the Oy Natuor case arising out of the Ninth Circuit.14 There, the district court relied on the forum non conveniens ground to dismiss an action to enforce a foreign award rendered in Finland, but the award creditor did a poor job of preserving any an argument that the New York Convention foreclosed this sort of defense.15 2002 appeared to mark the year where several significant federal appellate decisions dismissed enforcement actions either on grounds of lack of personal jurisdiction or forum non conveniens.16 Typical of the personal jurisdiction scenario is the Fourth Circuit’s decision in Base Metal Trading. Base Metal, a Channel Island company, began doing business with NKAZ, a Russian firm engaged in manufacturing and selling aluminum. Disputes arose between the two companies, which agreed to arbitration in front of the Moscow Chamber of Commerce and Industry’s Commercial Arbitration Court. In 1999, the Arbitration Court found for Base Metal, to the tune of $12,000,000. In 2000, Base Metal seeking to have that award enforced in the U.S., brought suit in Maryland district court. The same day, it also filed a motion in order to seize an NKAZ aluminum shipment being unloaded in Baltimore’s harbor. The District Court found for NKAZ, noting that the court lacked personal jurisdiction over the Russian company, whose connection to 13

See, e. g., Seetransport Wiking Trader Schifffahrtsgesellschaft MBH & Co. v. Navimpex Centrala Navala, 989 F.2d 572 (2d Cir. 1993); Ipitrade Int’l, S. A. v. Fed. Republic of Nigeria, 465 F.Supp 824 (D.D.C. 1978). 14 Melton v. Oy Nautor AB, No. C-96-0492-DLJ, 1996 U.S. Dist. LEXIS 22869 (N.D. Cal. Dec. 12, 1996), aff’d, 161 F.3d 13 (9th Cir. 1998). 15 Id. 16 See In re Arbitration Between Monegasque de Reassurances S.A.M., 311 F.3d 488 (2d Cir. 2002); Glencore Grain Rotterdam, B. V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114 (9th Cir. 2002); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory”, 283 F.3d 208 (4th Cir. 2002).

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Maryland rested only on the shipment being unloaded in Baltimore. Base Metal appealed, arguing that the shipment granted the court jurisdiction over NKAZ. The Fourth Circuit affirmed the lower court, following similar reasoning. The Court explained that jurisdiction was a fundamental question and that NKAZ’s fleeting contacts with Maryland hardly gave rise to the continuous and systematic contacts required to exercise general jurisdiction. The mere presence of property belonging to NKAZ being found in Baltimore’s harbor was not enough by itself to warrant personal jurisdiction, though it could be considered as a factor in an inquiry on specific jurisdiction. The Court, quoting Asahi, explained that in such a balancing test, the burden on the defendant, the interest of the forum state, and the plaintiff ’s interest in relief must also be considered. Moreover, the Court further explained that “vague references” to contacts with other states and negotiations with U.S. companies which did not result in any further connection could not, by themselves, support exercising personal jurisdiction. Base Metal also argued that Federal Rule 4(k)(2) allowed jurisdiction, which would otherwise not be supported, if the action arose from a federal question. The Court found that for such an argument to be viable, Base Metal would have to show there was no forum in the U.S. where NKAZ was subject to personal jurisdiction or that NKAZ’s contacts with the U.S. as a whole justified jurisdiction. The Court was unconvinced in both areas. Typical of the forum non conveniens scenario is the Second Circuit’s decision in Monegasque. Monegasque arose out of a dispute between a Russian company, Gazprom, and Ukrainian one, AO Ukragazprom. Ukragazprom was to transport natural gas through the Ukraine, and was entitled to withdraw some. The Ukrainian company, however, made unauthorized withdrawals, for which Gazprom sought reimbursement from its insurance company, Sogaz, which in turn sought reimbursement from a reinsurer, Monde Re, based in Australia and organized under the laws of Monaco. Mode Re brought a claim against Ukragazprom in April 1999 at the International Commercial Court of Arbitration in Moscow, and in July Naftogaz acquired Ukragazprom’s rights and obligations. In 2000 the arbitral court found for Monde Re for $ 88 million for its payment to Sogaz. In 2001, the Russian Supreme Court affirmed a lower court in declining to overturn the award. Before the courts ruled, however, Monde Re filed an action in the Southern District of New York in order to enforce the award against Naftogaz, as well as the Ukrainian government, which had not been a party to the arbitration in Moscow. Naftogaz moved for dismissal based on forum non conveniens. The district court applied the doctrine to the Ukraine, and dismissed the action against Naftogaz based on mootness. While Monde Re argued that applying forum non conveniens to an award based on the Convention contravened the Convention’s aims, and that the Ukraine had waived the doctrine by being a signatory to the Convention. The District Court noted that such a wholesale waiver would “read[ ] too much into the language and purpose of the Convention” and invalidate large swaths of federal common law and procedure. Ultimately, over Monde Re’s objections, the District Court in Peter B. Rutledge

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applying forum non conveniens in the instant case, found the Ukraine a suitable alternate forum. The Second Circuit affirmed the District Court’s findings. The Court of Appeals noted that the Convention’s pro-enforcement bias, but echoed the District Court explaining that forum non conveniens could be applied to awards under the Convention. While Monde Re argued that the Convention lists only narrow grounds for non-enforcement in Article V, the Court of Appeals, decided that procedural requirements in the forum state can be grounds to decline enforcement, with the caveat that such requirements cannot be substantially more onerous than those for domestic arbitration awards. In applying forum non conveniens in this situation, the Court analyzed the deference necessary to Monde Re’s selection of forum; as petitioner had little connection to the U.S., the Court found the only links were the jurisdiction granted by the Convention itself, and declined to give Monde Re’s choice much weight. The Court also inquired as to whether an adequate alternate forum existed, and in gauging the Ukraine’s judicial system, dismissed Monde Re’s contention that the courts were corrupt, noting that its own reluctance to find a foreign judicial system inadequate. Nor did the Court find persuasive Monde Re’s contention that a Ukrainian court would be biased because a state-run business was involved in the dispute. Since this slew of decisions in 2002 such as Base Metal Trading and Monegasque, the issue has continued to arise in a series of reported federal decisions.17 The most recent high-profile case raising these issues was the Second Circuit’s opinion in Figueiredo Ferraz E Engenharia de Projeto Ltda v. Peru.18 There, the Second Circuit, reaffirming Monegasque, dismissed an enforcement action on grounds of forum non conveniens. The opinion triggered a spirited dissent by Judge Lynch, who questioned the continued wisdom of the line of cases permitting these sorts of procedural defenses to bar enforcement actions.19

I.  B. Literature Review This introduction of procedural defenses into enforcement actions in the United States has been the subject of some academic commentary, most of it critical of these developments. This subsection reviews the extant literature, focusing on the views of several premier scholars in the field as well as an extensive report on the subject prepared by the Association of the Bar of the City of New York. 17 See Termorio S. A., E. S. p. v. Eletrificadora del Atlantico S. A., 421 F. Supp. 2d 87 (D. D. C.

2006), aff’d on other grounds, 487 F.3d 928 (D. C. Cir. 2007); Telecordia Tech. Inc. v. Telkom SA Ltd., 458 F.3d 172 (3d Cir. 2006); Cargnani v. Pewag Austria GmbH, No. CIV. S-05-0133 WBS JFM, 2007 WL 415992 (E. D. Cal. Feb. 5, 2007). 18 665 F.3d 384 (2d Cir. 2011). 19 Id. at 394-408 (Lynch, J., dissenting).

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Linda Silberman of New York University was one of the earliest outspoken critics of the line of decisions.20 Though a skeptic of international arbitration, Silberman took issue with several of the aforementioned decisions such as Base Metal Trading and Monegasque that sought to engraft civil procedure doctrines onto actions to enforce arbitral awards. In Silberman’s view, the core error in these decisions was to confuse the law governing the exercise of judicial jurisdiction with the law governing the exercise of enforcement jurisdiction. According to Silberman, “[i]nternational arbitration awards are entitled to world-wide enforcement under the New York Convention, and courts should not be permitted to circumvent that objective on the basis of considerations that are directed to concerns about the litigation of an original dispute and have little relevance to an enforcement action.”21 This pro-enforcement presumption counseled against application of both the minimum contacts test for personal jurisdiction and the forum non conveniens doctrine in enforcement actions. Shortly after Silberman’s preliminary comments on the subject, the Association of the Bar of the City of New York published an extensive report on the matter.22 Principal authors on the report included many of New York’s most distinguished practitioners and academics in the field including, among others, Silberman and George Bermann, now the Chief Reporter for the American Law Institute’s Restatement of the Law of International Commercial Arbitration (which addresses both of the topics explored here). The report suggested that in enforcements based on jurisdiction over property, courts should be required to have jurisdiction, even simply based on location of property, with limitations on final awards. The committee discussed the various stances of the judicial circuits, including whether the property must be related to the underlying claim. The Committee did agree that Due Process required courts to have personal jurisdiction. The Committee took note that several other Convention signatories had similar jurisdictional requirements. Moreover, it argued that merely being in a state signed to the Convention should not be considered waiver for jurisdiction. It also decided that the presence of property, whether or not it is connected to the underlying action, within the jurisdiction can give rise to quasi-in-rem jurisdiction, but limits judgments based solely on the geographic presence of property to only that property in the jurisdiction when the action commenced. A party seeking award enforcement should also have the opportunity for discovery to find assets an opposing party may have within the jurisdiction. 20 See

Silberman, supra note 3, at 9. For Silberman’s more recent (and consistent) reflections on the issue, see L. Silberman, The New York Convention After Fifty Years: Some Reflections on the Role of National Law, 38 Georgia Journal of Comparative & International Law 25 (2009). 21 Silberman, supra note 3, at 15-16. 22 Int’l Commercial Disputes Comm. of the Ass’n of the Bar of the City of New York, Lack of Jurisdiction and Forum Non Conveniens As Defenses to the Enforcement of Foreign Arbitral Awards, 15 American Review of International Arbitration 407 (2005).

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Conversely, the Committee found that forum non conveniens should not be a basis to decline arbitration enforcement, despite both the Second and Ninth Circuits using it precisely in that way. Forum non conveniens, unlike jurisdiction, is not required by Due Process, nor is it an exception allowed under Article V of the Convention. Therefore, the Committee rejected the Second Circuit’s use of Article III of the Convention to allow dismissal based forum non conveniens in Monegasque de Reassurances. The doctrine, according to the Committee, may not be purely procedural, may contravene the narrow exceptions allowed by Article V, and may be substantially more onerous than the procedure applied to domestic arbitral awards. Additionally, other treaties have precluded the application of forum non conveniens; the Committee posits that the Convention should be no different, and is actively antithetical to the Convention’s proenforcement goals. While the doctrine should not be used to dismiss awards, it can be used to protect non-party entities in such enforcements. Most recently, in 2006, Rusty Park and Alex Yanos published a comprehensive article on the subject.23 Park and Yanos analyze many of the same cases discussed in the New York Committee report, including Base Metal, Glencore, and Monegasque de Reassurances, though the authors come to very different conclusions. After discussing the history of the Convention and the FAA, which implements the Convention in the U.S., Park and Yanos suggest that both documents have strong award enforcement biases. They go on to explain that cases like Base Metal and Glencore, which allow dismissal based on jurisdiction, interfere with that pro-award aim. According to the authors, the Article III language, relied upon in those dismissals actually only allows procedural dismissals based on “formalities,” including fees and the structural defects in the requests themselves. Nor, they explain, does the Constitution bar such enforcements because of Due Process requirements. Indeed, rather than erecting such procedural hurdles, the authors argue that such dismissals are disallowed in the same way that U.S. states are not allowed to skirt enforcing arbitration awards through special rules. Moreover, the authors suggest that business people willing accept the possibility of enforcement in signatory countries, noting that, “[n]o unfairness exists in holding sophisticated business managers to their bargain when they engage in international business transactions.”24 Effectively, by agreeing to arbitration under the convention, businesses have knowingly waived jurisdictional complaints for signatory states, including the U.S. The authors suggest that fairness may be best achieved through a two-tiered enforcement system that breaks up confirmation and enforcement of an arbitration award. The prevailing party in arbitration could, within the three years mandated by the FAA, bring an action to enforce its award, which would trigger notice to the opposing party. The opposing party could then either appear in 23

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court to assert Article V defenses. The result of that action would be binding on both parties. Alternately, the arbitral loser could simply ignore the confirmation action, waiting until actual enforcement to appear in court. Such a system would help ensure fairness while giving a defending party options for how to respond to enforcement actions. The existing literature in this area has taken generally critical view of developments like Base Metal Trading and Monegasque. All of these sources depend largely on a close reading of doctrine and its implications for international arbitration. What has been lacking, though, is a underlying theoretical framework to justify these doctrinal moves.

II. Theory Various theories have sought to explain international arbitration law. This section examines those theories and then sketches out their implications for the doctrines discussed in the preceding Part. The theories examined here include contractual, regulatory and contractarian.25

II.  A. Contract Theory Contract theory is perhaps the most widely recognized theory for thinking about arbitration doctrine. Contract theory rests on the commonsense proposition that arbitration, with very limited exception, is a product of party agreement. In many respects, the role of the arbitration – indeed the whole purpose of the arbitration – is to give effect to that agreement. This includes heeding the parties’ choice of arbitral forum, choice of substantive law, direction regarding applicable rules and other terms. Contract theory should not be confused with the principle of party autonomy, though the two bear a close relationship. The principle of party autonomy counsels that the arbitrator and the arbitral institution should give effect to the mutual wishes of the parties. So, for example, if the parties agree not to hold a hearing, the arbitrator will respect that wish. In that respect, honoring party autonomy coincides with contract theory. On the other hand, there are instances in which party autonomy and contract theory might diverge. For example, the parties may wish to conduct an arbitration in order to facilitate a bribe, or they may wish to conduct an arbitration in a manner that conflicts with the mandatory rules of the arbitral forum. In these instances, the principle of party autonomy, viewed in isolation, might tell the arbitrator that she should honor 25

Others have employed this typology for describing the theories explaining international arbitration doctrines. See S. Walt, Decision by Division: The Contractarian Structure of Commercial Arbitration, 51 Rutgers Law Review 369 (1999).

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this wish. By contrast, contract theory may not. Just as considerations of public policy might override a private commercial agreement, similar considerations might cause an arbitrator to disregard the choices embedded in the parties’ arbitration agreement (or incorporated by reference to some set of external rules). To this point, the consideration of contract theory has focused on the law in the arbitration or, put another way, the law governing the conduct of the arbitrator and the arbitral institution. But the same principle can also influence the law governing judicial oversight of the arbitration. Consider, for example, the principle of separability in the United States. While that principle is widely accepted as a result of the Supreme Court’s decision in Prima Paint, observers often overlook the fact that the principle is merely a default rule that the parties can override.26 The doctrine of Kompetenz-Kompetenz functions along the same lines. While the Supreme Court’s decision in First Options announces a presumptive allocation of authority (courts decide challenges to the arbitration agreement while arbitrators decide challenges to the contract), that rule also can be overridden by “clear and unmistakable evidence” that the parties intended for the arbitrator to resolve such challenges.27 Yet here too contractual theory does not mean blind obedience to private party choice. As just one example, the Supreme Court has made clear that the parties may not, by contract, modify the grounds for vacatur of the award under Section 10 of the Federal Arbitration Act.28 Nor is this a distinctly American phenomenon. Other international arbitration laws likewise reflect the contractual theory. For example, Belgium’s international arbitration law allows non-Belgian parties to opt out of judicial review of an international arbitration award rendered in Belgium. Likewise, the UNCITRAL Model Law is replete with provisions that are derogable by party agreement. Here too, of course, private party choice is not without limit. For example, the UNCITRAL Model Law does not permit the parties to derogate from the requirement of equal treatment. While contract theory provides a powerful tool for explaining many of the developments in international arbitration law, it is not without its limits. For one thing, contract theory does not provide much help guiding courts and arbitrators about what to do when parties’ agreements are silent – and, as we all know, they often are silent, perhaps understandably so, about a wide variety of matters. As to this point, one might resort to the argument that the parties have largely delegated such matters to the tribunal’s discretion. Sometimes, this answer may well suffice. In other cases, though, it may not, particularly where the parties disagree over whether they have intended a particular course. Such arguments 26

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). 28 Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 583 (2008). Such a contractual modification may be enforceable as a matter of state law. See, e. g., Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334 (Cal. 2008). 27

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are especially likely in light of the possibility that arbitration law recognizes the possibility of an “implied” choice as to matters such as the law governing the arbitration agreement or the arbitral procedure. In these instances, especially where litigious parties disagree over the proper understanding of their “implied” choices, contract theory is especially unhelpful. A second drawback of contract theory is that it does not offer an especially rich normative account of the limits of the enforceability of party choice. For example, why precisely is the separability principle a default rule in the United States whereas the vacatur grounds under Section 10 are mandatory? Or why are the vacatur grounds under Belgium’s international arbitration law default rules whereas the counterparts under Section 10 of the FAA mandatory? At most, one can say that these choices reflect a particular set of public policy values that may vary across legal cultures. That suffices only if we are prepared to say that legal theory has no role in enabling normative assessments of legal systems. And the host of scholarly criticism of developments in international arbitration law demonstrate that this body of law is subject to normative critique. It may simply be that much of this body of critique has not been sufficiently theorized, and contract theory may in that regard be a poor candidate.

II.  B. Regulatory Theory Regulatory theory supplies an alternative model for explaining and critiquing international arbitration law. Regulatory theory starts from the premise that arbitration awards occupy a special place in the dispute resolution market. Unlike many other private choices, choices about arbitrations are more likely to be respected. Unlike many other private forms of dispute resolution, arbitration awards are more likely to be entitled to judicial enforcement. Because those awards ultimately may be backed by the full coercive power of the state (through writs of execution), the state has an especially strong interest in regulating the circumstances under which private actors (namely arbitrators and parties) may avail themselves of that power. Regulatory theory explains several doctrines in international arbitration. Mandatory rules are the most obvious example. These are instances wherein the arbitrator follows the procedural law of the arbitral forum even if it conflicts with the private choices expressed in the parties’ agreement. In this regard, regulatory theory and contract theory have an important overlap, insofar as they both contemplate a space where private choice does not control. Regulatory theory also can help to explain the relationship between a country’s courts and the arbitration. For example, the non-arbitrability doctrine is best explained by regulatory theory. Each state may decide that, for reasons of public interest, certain sorts of disputes should not be amenable to arbitration. Likewise, each state may decide that awards resolving certain sorts of claims should not be enforceable. By these doctrines, international arbitration law crePeter B. Rutledge

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ates space for states to determine that they do not wish for their coercive power to be invoked (or capable of invocation) in certain contexts. Likewise, regulatory theory helps to explain why states decline to enforce awards contrary to public policy or periodically gloss their obligations to enforce awards by reference to their own domestic law (even though that choice-of-law rule may not be found in the applicable treaty).29 Of course, it bears emphasis that the regulatory model not only explains doctrines cabining arbitration law. It also can explain what might be termed pro-arbitration doctrines. For example, courts in the United States construe arbitration clauses to have a necessarily broad scope. Likewise, arbitrators often are assumed to have jurisdiction to determine their own jurisdiction, even as to parties that are not signatories to the arbitration agreement. These rules aggrandize the power of arbitrators and yet often cannot be traced to an affirmative contractual choice by the parties. Despite its explanatory power, regulatory theory suffers from flaws. Most centrally, regulatory theory (much like contract theory) does not offer much guidance about normative content. Put another way, regulatory theory may explain why courts don’t treat certain decisions as non-arbitrable, but, standing alone, it does little to explain whether they should do so. Regulatory theory also does not normally account for the institutional sources of a particular policy. For example, the non-arbitrability doctrine both rose – and fell – as a result of judicial doctrine. Regulatory theory might explain these evolutions in terms of shifting societal norms, but it does little to explain why courts (as opposed to legislatures) should be the source of these policies.

II.C Contractarian Theory Contractarian theory finds its roots in moral philosophy. The starting point may be A Theory of Justice by John Rawls.30 In short, Rawls articulated that rules of distributive justice should be organized around what members of society would want if they were behind a “veil of ignorance.” That is to say, what would they want if they did not know, at the time they must decide, what the actual distribution of goods would be in society. Though rooted in moral philosophy, contractarian theory has been relied upon to explain legal doctrine as well. Indeed, a variety of legal doctrines, in areas such as contract law or corporate law, are premised on the question “what would the parties have wanted if they had anticipated this situation originally?” In this regard, contractarian theory is closely related to, though analytically distinct from contract theory. Whereas contract theory attempts to discern what the parties actually intended, contractarian theory rejects any pretense that the 29

New York Convention Art. V(2)(b). J. Rawls, A Theory of Justice, 1975.

30 See

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parties’ intent can ever be discerned. Instead, it begins from the premise that the parties did not foresee the question over which they disagree and, instead, attempts to discern what the parties would have wanted if they had anticipated it at some prior point in time. Prior scholarship has sought to apply the insights from contractarian theory to arbitration doctrine. Specifically, Steven Walt has sought to explain international arbitration doctrine in contractarian terms.31 Walt adapts contractarian theory to arbitration by hypothesizing that parties, at the time of entering into an arbitration agreement, would mutually desire to minimize costs, including errors costs, resulting from decisional bias by either the arbitrator or the court. Walt relies on this conception of contractarian theory to explain a series of doctrines involving the allocation of authority between courts and arbitrators, such as the doctrine of Kompetenz-Kompetenz, who resolves questions about the existence of the underlying contract, who decides questions pertaining to the scope of the arbitration clause and the scope of judicial review of the arbitrator’s decisions. To be sure, Walt’s thesis is measured. Contractarian theory cannot explain every facet of arbitration doctrine. For example, in Walt’s view, contractarian theory cannot explain restrictions on the arbitrability of certain subject matters. As to those sorts of issues, Walt believes that regulatory models have greater explanatory value. Despite these limitations, though, Walt submits that most arbitration doctrines have a contractarian basis. Moreover, Walt recognizes that contractarian theory rests on a vague notion of the “interests” of persons affected by a particular doctrine (that would, presumably, be taken into account when actors were operating behind the veil of ignorance).

I. Applications This section applies the above-described theories to the two problems driving this chapter. It both considers their explanatory power and critiques the sufficiency of their normative account. The section begins with forum non conveniens and then moves to personal jurisdiction.

III. A. Forum Non Conveniens As Gary Born notes, the forum non conveniens defense to award enforcement is a distinctly American phenomenon.32 Most countries do not recognize this doctrine as the basis for refusing to exercise judicial jurisdiction (putting to one side, as Linda Silberman notes, whether the doctrine is even appropriately em31

32

Walt, supra note 25, at 369. Born, supra note 8, at 2401.

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ployed when enforcement jurisdiction is sought). Nonetheless, the Figueiredo decision illustrates that the doctrine retains vitality in the United States, including in the Second Circuit, which is both an important enforcement jurisdiction and, consequently, an important font of international arbitration doctrine. To consider how best to examine the doctrine, I turn to the theories developed in the preceding section. III.A.1 Contract Theory – Waiver It is difficult to construct an argument against the forum non conveniens defense based on waiver. Given that the doctrine’s largely American pedigree, neither arbitral clauses nor arbitral rules expressly address the defense. At most, one might point to the general commitment, contained in many arbitral rules, that the parties agree to be bound by the award and, to the extent enforceable, to forego any judicial recourse. That general language, however, does not expressly waive venue defenses and, at best, might support an argument that the parties’ implied intent was to do so. Even if the “implied intent” argument were accepted, contract theory does not do an especially good job explaining how to handle enforcement actions brought against third parties. As noted in Section 1 of this paper, several of the enforcement actions raising these issues have been brought against entities that did not participate in the arbitration. These may be related companies (like parent companies) or debtors of the award debtor (whose obligation the award creditor seeks to garnish). As to these entities, the Implied intent argument offers no traction. III.A.2 Regulatory Theory – The relationship between treaties and federal common law While contract theory does an especially poor job of overcoming the forum non conveniens defense to enforcement actions, regulatory theory holds much more promise. Here, the argument begins with the premise that the United States, through its adoption of the New York Convention, has embraced a decidedly pro-arbitration policy. Moreover, the New York Convention re-enforces that policy through its articulation of narrow grounds for refusing enforcement, grounds that United States Courts, consistent with the pro-arbitration policy, have sought to construe narrowly. These treaty obligations and the policy underlying them have the effect of displacing the forum non conveniens doctrine. It is worth recalling that the forum non conveniens doctrine (at least in its modern form following the enactment of the federal transfer statute) ultimately represents an exercise of federal common law (albeit in its procedural form). As a general matter, federal common law can of course be overridden (and rouPeter B. Rutledge

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tinely is) by statute. The Supremacy Clause places treaties of the United States on parity with other “laws of the United States,” meaning that treaties likewise can displace federal common law (at least to the extent they are ratified after the announcement of a federal common law rule under the last-in-time principle). Consequently, allowing the New York Convention to displace the forum non conveniens doctrine would simply represent a straightforward application of this uncontroversial conflicts principle. In this regard, regulatory theory suggests that the drafters of the Restatement of International Commercial Arbitration were exactly right when they concluded that the defense would be unavailable in enforcement actions subject to the New York or Panama Conventions.33 Indeed, it is surprising that the Second Circuit has not grasped the tension between this line of argument and its decisions in Monde Re and Figueiredo. For it was the Second Circuit’s Wiwa decision that most forcefully expounded that idea that the forum non conveniens doctrine could be overridden on the basis of “public policy” irrespective of whether the “public policy” affirmatively required displacement of the doctrine.34 Not only does regulatory theory do a better job than contract theory of explaining why forum non conveniens should not apply to enforcement actions, it also avoids attendant difficulties with third-parties in the enforcement action. Because the application of regulatory theory does not depend on any conception of the parties’ consent, it is robust enough to justify why defendants in an enforcement action might be unable to invoke the forum non conveniens defense even if they were not parties to the arbitration. (By analogy, defendants in coercive civil actions often cannot invoke the forum non conveniens defense if some strong public policy of the United States overrides it.)35

33

As an aside, it should be acknowledged that a different result might obtain for the rare situation of an international arbitration not falling under a treaty. As to those arbitrations, title I of the Federal Arbitration Act would govern, and nothing in that title suggests a public policy designed to override the forum non conveniens doctrine. Consequently, the defense might still be invoked, even by parties, in cases of non-treaty international arbitration. See Supplemental Brief for the United States in Kiobel v. Royal Dutch Petroleum Co. (No. 10-1491) at 25. 34 Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88 (2d Cir. 2000). While the United States Government has recently criticized Wiwa’s reasoning, that criticism leaves intact the underlying principle – namely that forum non conveniens can be overridden at least when positive law requires it. 35 See G. Born / ​P. Rutledge, International Civil Litigation in United States Courts, 2011, 426-428.

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III.A.3 Contractarian Theory – Behind the Veil of Ignorance Contractarian theory does a slightly better job than contract theory at addressing the forum non conveniens defense but cannot handle issues of enforcement against third parties. Recall that contractarian theory, unlike contract theory, begins with the assumption that the parties did not expressly (or impliedly) intend to address a matter at the time of contracting. Rather, the goal of a legal rule should be to attempt to approximate what the parties would have wanted had they considered the matter at the time of contracting but ignorant about their position at the time a rule were needed. Here, contractarian theory might instruct that, at the time of contracting, the parties did not know whether they would be award creditors or debtors. Nor, consequently, would they know precisely where enforcement would be sought (given uncertainties over the location of attachable assets). Regardless of their position, though, the parties would want a clear and predictable enforcement regime that minimized the risk of errors or uncertainty. That, according to contractarian theory, would be straightforward application of the New York Convention irrespective of the jurisdiction in which it is employed (except to the extent that the Convention expressly refers to the law of the enforcement jurisdiction, as for example, in Article V(2). It follows, therefrom, that the parties, at the time of contracting, would not want a parochial national defense like forum non conveniens to impede enforcement of the award. Thus, the defense should not be available. While this argument might prevail with respect to enforcement actions against the parties themselves, it suffers, for much the same reason as contract theory, from an inability to deal with forum non conveniens arguments invoked by defendants in enforcement actions who were not parties to the arbitration agreement. As to these defendants, it is not possible to speculate about what their expectations might have been at the time of contracting because, by definition, they were not party to the relevant event. Thus, under contractarian theory, the forum non conveniens defense might be rejected if invoked by parties to the arbitration but should be entertained if invoked by non-parties.

III.B Personal Jurisdiction Unraveling the personal jurisdiction puzzle is more complicated. Unlike the forum non conveniens debate, the stakes here reach constitutional dimensions and cannot simply be overridden by treaty or legislation. In this regard, I agree with Gary Born that the “customary jurisdictional limitations on the judicial powers of Contracting States” apply to enforcement proceedings.36 Yet this does not render arbitration powerless in the face of this constitutional hurdle. The 36

Born, supra note 8, at 2400.

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theories described in the preceding section suggest three different means of clearing this hurdle. III.B.1. Contract Theory – Waiver According to one theory, parties to an arbitration agreement have waived any objection to the personal jurisdiction of the courts of the enforcement forum.37 Under this account, parties to an arbitration agreement knew (or could be charged with the knowledge) that when they entered into an arbitration agreement (at least identifiably subject to the dictates of the New York Convention) that the award would be subject to enforcement in any convention country where the award debtor has assets. Another way of getting at this argument would be to start with the premise that a contract containing an affirmative assent to jurisdiction in an enforcement forum would be unassailable (and indeed the insertion of such clauses would largely obviate the problem38); given that terms (and consent) can be implied in a contract, such implied assent here is appropriate even if it is not formally embraced in the contract. The argument from waiver draws heavily on contract theory. Here the argument would go that, by agreeing to arbitration, the parties prospectively waived any objection to jurisdiction in an enforcement forum. Even if such a waiver is not evident from the express terms of the contract, it can be implied from the parties’ agreement, perhaps in particular by reference to their agreement to a provision, often found in arbitral rules, that they will be bound by the arbitrator’s award and waive any recourse against the award to the extent permitted by national law.39 The waiver / ​contract argument draws support from the closely related context of arbitration involving foreign sovereign governments. The FSIA presently contains an exception to sovereign immunity for purposes of enforcing arbitral awards,40 and prior to that provision’s enactment, a number of courts relied on the then-existing waiver exception to permit enforcement actions against foreign sovereigns.41 Notably, the case law has been careful to distinguish between 37

Park / ​Yanos, supra note 3, at 286-87. Park / ​Yanos, supra note 3, at 285. 39 International Chamber of Commerce, Rules of Arbitration, Art. 34(6) (“Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.”). 40 28 U.S.C. § 1605(a)(6). 41 Creighton Ltd. v. Gov’t of the State of Qatar, 181 F.3d 118, 122 (D.C. Cir. 1999); Seetransport Wiking Trader Schiffahrtsgesellschaft MBH & Co., v. Navimpex Centrala Navala, 989 F.2d 572, 578-579 (2d. Cir 1993). See also Ipitrade Int’l, S. A. v. Fed. Republic of Nigeria, 465 F.Supp 824 (D.D.C. 1978) (Nigeria’s agreement to adjudicate all disputes 38

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contracts with sovereigns that were parties to the New York Convention and those that were not; only the former can reasonably expect to be subject to the implied waiver theory. This theory also draws some support from a House Report published at the time of the FSIA’s enactment – there the [Committee] described the implied waiver exception in terms suggesting that it encompassed enforcement of foreign awards against sovereigns: “with respect to implicit waivers, the courts have found such waivers in cases where a foreign state has agreed to arbitration in another country or where a foreign state has agreed that the law of a particular country should govern a contract.” Of course, the waiver analogy is not airtight. As the D. C. Circuit noted, there is a subtle difference between a sovereign forfeiting its immunity by operation of law and the sovereign waiving its immunity. The former occurs by operation of law (that is, a determination that, by virtue of engaging in some act, the sovereign has forfeited immunity) whereas the latter results from a knowing and voluntary act by the sovereign. Insofar as Congress has not seen fit to impose similar forfeiture rules on private parties, extension of the waiver theory beyond the foreign sovereign setting would be inappropriate. Moreover, even if the implied waiver analogy from sovereign immunity were apt, there would be the added question whether courts need to be more cautious about implying waivers in the purely private context than the sovereign context. On this point, good arguments can be marshaled on both sides. Considerations of comity counsel against lightly inferring waivers from foreign sovereigns, given the potential diplomatic implications of haling the sovereign before a foreign court (particularly where the sovereign has only assented to the jurisdiction of a tribunal). On the other hand, considerations of diplomatic access cut in the other direction. As with many doctrines grounded within contract theory, the argument from waiver struggles more to explain third party cases. In third-party cases, the nonsignatory award debtor has not explicitly waived its objection based on the lack of personal jurisdiction. This self-evident proposition, though, cannot end the argument. Outside the jurisdictional context, parties can waive third-party rights (particularly in a principal-agent setting) all the time. Moreover, within the jurisdictional setting, imputation doctrines such as theories of alter ego or agency are used to subject third-parties to personal jurisdiction.42 The analogy, again, is not airtight. One must consider the quality of what rights precisely are being waived. So, for example, one might be less trouble if the effect of a waiver is to cede a right to enforcement of a contract (while preserving other remedies to the affected party). Likewise, the imputation of juarising under the contract in accordance with Swiss law and by arbitration under International Chamber of Commerce Rules constitutes a waiver of sovereign immunity under the FSIA). Cf. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480 (1983), which was not an award enforcement action. 42 Born / ​Rutledge, supra note 34, at ch. 2.

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risdictional contacts preserves for the affected party the opportunity to contest liability, including the question whether corporate separateness can be disregarded for liability purpose).43 By contrast, accepting the waiver theory in the context of award enforcement has potentially more serious consequences for the affected defendant – it simultaneously cedes a jurisdictional defense and limits the substantive grounds upon which the defendant can resist execution against its assets. Thus, even if the waiver theory has some surface plausibility with respect to signatories to the arbitration agreement, it cannot comfortably explain cases in which enforcement is sought against third parties who either did not sign the arbitration agreement or did not participate in the arbitration. III.B.2 Regulatory Theory – Adapting Shoe A second solution rests on adaptation of the general minimum contacts analysis to the context of international award enforcement. This approach has found favor both in Judge Roth’s opinion for the Third Circuit in the Telecordia litigation as well as the scholarship of Rusty Park and Alex Yanos.44 The starting point for this argument is the familiar two-prong requirement for personal jurisdiction – namely purposeful availment of the forum state by the defendant and an exercise of jurisdiction that comports with traditional notions of fair play and substantial justice. The question then arises whether it becomes possible to adapt the reasonableness analysis to the context of an award enforcement action. The reasonableness analysis, articulated by a near-unanimous Court in Asahi requires a court to consider: the burden on the defendant, the interests of the forum State, [ ] the plaintiff ’s interest in obtaining relief … the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and the shared interest of the several States in furthering fundamental substantive social policies.45 Here it becomes important to emphasize that this prong of the Due Process test is not rigid. Indeed, it is worth recalling that the Court in Asahi adapted this test from the original context in which it arose (Woodson) to reflect the international nature of the case. In other contexts, such as child custody deter43

Id. Telecordia, 458 F. 3d at 178-79; Park / ​Yanos, supra note 3, at 281-282 (“any reasonableness analysis must take into account the public interest in having the United States meet its international obligations”). 45 Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987) (citations and internal quotations omitted). 44

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minations, lower courts have adapted the jurisdictional framework.46 Given this trend, a similar adaptation of the analytic framework in the context of award enforcement actions would likewise be entirely appropriate. So what would that adaptation look like in this context? One could imagine the adaptation occurring at three different levels. At one level, one could imagine a consideration of the burden on the defendant (award debtor) to be rather minimal given the debtor’s reasonable expectation, at the time of entering into the arbitration agreement, that enforcement might be sought elsewhere (this is an adaptation of the waiver argument described above but without the categorical quality of that argument). A second adaptation might claim that the due process analysis should be modified in order to ensure the United States honors its treaty obligations to its fellow signatory countries under the New York Convention and other treaties governing the enforcement of foreign arbitral awards. This argument is somewhat question begging for it presupposes that the national obligation under the New York Convention arises irrespective of whether a court in the enforcement forum has jurisdiction over the award debtor – far from an obvious proposition as I have shown. So a third and more modest adaptation of the due process analysis to this context would be to say that the constitutional standard should be lower (or the reasonableness balance tilt in favor of exercising jurisdiction) in order to promote the strong (and routinely recognized) federal policy favoring arbitration. Adapting the Shoe framework also provides a more coherent approach to addressing the types of third-party cases addressed above. Inclusion of the “burden on the defendant” within the multi-factor approach enables a court to consider the unique burdens faced by a third party (whether cost, convenience or otherwise). These of course may vary with the facts. So the burdens on a company closely related to the award debtor may be relatively less compelling than those borne by a party with a more distant relationship (but against whom enforcement is nonetheless being sought). Unlike the prior approaches, focusing either on waiver or the nature of enforcement jurisdiction, the modified Shoe framework does not present is less blunt and more adaptable tot eh facts of particular enforcement actions. If the argument grounded in waiver could be traced to contract theory, an argument grounded in the modification of Shoe could be anchored in regulatory theory. Indeed, as noted above, the second step of the Shoe framework expressly contemplates the shared social policies of the regulating states. Applied in this context, then, the regulatory theory places weight on a robust proenforcement agenda of the New York Convention and consequently weighs that interest more heavily than any burden on the defendant forced to defend an enforcement action in a faraway forum. 46

See generally, B. Atwood, Child Custody Jurisdiction and Territoriality, 52 Ohio State Law Journal 369 (1991).

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Yet an approach centering on adaptation of the Shoe framework does create complications for one particular set of award enforcement actions, namely those where the award creditor seeks to execute against the assets of a thirdparty sovereign defendant. In those cases, the Shoe framework may not apply altogether. Though the Supreme Court has never squarely addressed the question, some decisions have suggested that foreign sovereigns (and potentially their agencies or instrumentalities) are not entitled to the protections of the Due Process Clause, including those pertaining to limits on the exercise of personal jurisdiction.47 These decisions rest on the proposition that foreign states are not “persons” within the meaning of the Clause and therefore cannot avail themselves of its protection. As to those cases, the upshot of a rule anchored in Shoe would be to carve out third-party foreign sovereign award debtors from the analysis, automatically subjecting them to enforcement jurisdiction wherever their assets may be found. III.B.3 Contractarian Theory – Quasi-in-rem enforcement jurisdiction A third solution rests on the Supreme Court’s decision in Shaffer v. Heitner. Shaffer is best known for largely interring quasi-in-rem jurisdiction and, notwithstanding Justice Scalia’s efforts in Burnham, folding theories of personal jurisdiction under the familiar International Shoe test. Yet Shaffer contained an important hedge, one that has received some attention in the literature and central to the debate here. Here is the footnote; Once it has been determined by a court of competent jurisdiction that the defendant is a debtor of the plaintiff, there would seem to be no unfairness in allowing an action to realize on that debt in a State where the defendant has property, whether or not that State would have jurisdiction to determine the existence of the debt as an original matter.48 The footnote’s distinction between judicial jurisdiction and enforcement jurisdiction will be a familiar one to scholars of conflicts of law and private international law.49 In other words, the constitutional requirements necessary to render a judgment against a defendant differ from those necessary to enforce a judgment previously rendered by another court. In our federalist system, this distinction makes sense in light of the Full Faith and Credit clause – under which courts give full effect to judgments rendered by another state without revisiting the merits of the underlying case. The only prerequisite is that the judgment-rendering court have had jurisdiction over the defendant: an independent inquiry into the jurisdiction of the judgment-enforcement court is unnecessary. 47 See

Born / ​Rutledge, supra note 34, at ch. 3. Shaffer v. Heitner, 433 U.S. 186, 210 n. 36 (1977). 49 Section 487 comment c of Restatement (Third) of Foreign Relations Law. 48

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Accepting the legitimacy of the Shaffer distinction, the theory’s effectiveness in the award enforcement context confronts two challenges. The more serious challenge is the legitimacy of the “fit” between arbitral awards rendered by tribunals sitting in foreign countries and judgments rendered by courts sitting in sister states. While one is tempted to argue that the arbitral awards should be placed on the same plane as sister state judgments, that argument is too facile. Unlike sister state judgments, arbitral awards do not enjoy all the protections of the full faith and credit clause. Indeed, the entire purpose of the enforcement action is to decide whether such treatment is appropriate. The less serious challenge is whether the property present in the enforcement forum must bear some relationship to the underlying claim. On this issue, the federal courts of appeals are split.50 Yet the clear import of Shaffer, albeit in dicta, is that the “relatedness” requirement is tied to exercises of judicial jurisdiction, not enforcement jurisdiction. Courts that hold to the contrary, as Professor Silberman has noted, wrongly conflate the two. While one might be tempted to see the Shaffer theory in terms of a regulatory approach (given the state’s robust interest in favoring enforcement of arbitral awards and its relatively lower interest in protecting award debtors), I suggest that the argument here is better viewed in contractarian terms. In other words, at the time of contracting, the parties could not have foreseen the precise contours of their dispute (much less who would be the claimant and who the respondent). Rather, behind the veil of ignorance, they would have wanted an enforcement regime that minimized costs to the parties. Those costs, in this case, would come in the form of costs incurred seeking to locate the award debtor’s assets and to enforce an award. The Shaffer footnote avoids many of these costs by eliminating a barrier to enforcement and, instead, providing a predictable regime against which the prevailing party can attempt to satisfy the award.

IV. Conclusion The growing incidence of international arbitration has spawned a great number of situations where the law governing international arbitration has intersected (or conflicted) with the law governing international civil litigation. Recent debates over whether actions to enforce international awards in the United States can be dismissed on the basis of garden-variety procedural defenses such as lack 50

The circuits are also split on the question of whether property needs to be present in the forum to support personal jurisdiction. The Ninth Circuit indicates that property present in the forum would be sufficient to confer personal jurisdiction. Glencore Grain Rotterdam B. V., 284 F.3d at 1127-1128; Cargnani v. Pewag Austria G.m.b.H., No. CIV. S-05-0133 WBS JFM, 2007 WL 415992 at *12 (E. D. Cal. Feb. 5, 2007). In contrast, the Fourth Circuit has held that property alone is not sufficient to support the exercise of personal jurisdiction. Base Metal Trading, Ltd., 283 F.3d at 213-214.

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of personal jurisdiction or forum non conveniens illustrate these intersections and conflicts. A variety of theories, including contract theory, regulatory theory and contractarian theory, might be employed to analyze and critique these developments. On the whole, regulatory theory offers the richest account as to both problems. Contractarian theory is quite useful as to personal jurisdiction, less so as to forum non conveniens. Contract theory fares least well as to both defenses. Both it and, to a lesser extent, contractarian theory do not supply the analytical tools necessary to address how to address defendants in the enforcement action who were not also parties to the arbitration. These results offer valuable lessons for how to analyze other circumstances in which international arbitration doctrine intersects with international litigation doctrine.

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Setting Aside of Arbitral Awards and Forum Shopping in International Arbitration: Delocalization, Party Autonomy and National Courts in Post-Award Review Loukas Mistelis* I. Introductory Remarks The theme of this collection appears to be controversial, if not an anathema. From the perspective of the arbitration tribunal there is no forum in arbitration1, and from the perspective of the parties (and their counsel) any forum shopping capability has been exhausted by drafting an effective arbitration clause and by conferring jurisdiction rather upon the arbitration tribunal and ousting the jurisdiction of national courts. Arguably, forum shopping is a process by which the plaintiff or claimant – unilaterally and not in conjunction with the respondent2 – seeks a juridical or procedural advantage. In arbitration, jurisdiction is consensual and necessitates the agreement of the parties. An “agreed” forum shopping is technically speaking not an exercise in forum shopping, if one were to adopt the narrow definition of forum shopping, and this author most certainly subscribes to this narrow concept. There must be a difference between party autonomy and forum shopping, and where joint party autonomy exists there is no forum shopping, at least not in the common law sense. This consensual exercise of party autonomy (rather than forum shopping) is completed by choosing a (juridical or merely physical) seat for the arbitration or identifying a mechanism (e. g., by choice of arbitration rules), that allows for a * I wish to acknowledge with thanks the research support provided by Gloria Maria 1

2

Alvarez. All errors of judgment or taste are mine. See E. Gaillard/J. Savage eds., Fouchard, Gaillard and Goldman on International Commercial Arbitration, 1999, para 1181 and their related references; see, e. g., B. Goldman, La volonté des parties et le rôle de l’arbitre dans l’arbitrage international, Revue de l’Arbitrage 469, 471 (1981); E. Loquin, Les pouvoirs des arbitres internationaux à la lumière de l’évolution récente du droit de l’arbitrage international, 110 Journal du droit international 293 (1983), especially at 298 et seq. See the contribution by F. Ferrari for definitions of forum shopping in this collection with many further references. Ferrari proposes a wider definition of forum shopping to include both: agreed and unilateral practices.

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seat selection.3 The law of the seat of arbitration, the so-called lex loci arbitri, will fulfil multiple tasks: it will provide a connection of the arbitration proceedings with national courts for support and supervisory purposes; where necessary it will provide the “nationality” of the award; and the law at the place of arbitration may be used to fill gaps. Once a seat has been selected, the parties and the tribunal will have to accept it as it is and no much further can be done. Many seats may well be liberal and permissive so that the activation of their laws and/ or national courts is limited, while either seat will retain variable degrees of residual jurisdiction for the local courts and local law. The absolute, conceptual and practical, dominance of the seat of arbitration has been questioned by the supporters of one of the historically most hotly debated topics in international arbitration; the supporters of delocalization and/ or denationalization theories. The topic was first heated in the 1970s and 1980s4 and was reignited in the 2000s.5 Aspects of the debate focused on a closely related but not identical theme: denationalization.6 Denationalization assumes that no national system has a bearing on arbitral regulation at any level: merely generally accepted international or transnational rules may be of relevance, while delocalization focus the discussion on the 3

4

5

6

See L. Mistelis, Reality Test: Current State of Affairs in Theory and Practice Relating to “Lex Arbitri”, in K. P. Berger et al eds., Zivil- und Wirtschaftsrecht im Europäischen und Globalen Kontext/Private and Commercial Law in a European and Global Context - Festschrift für Norbert Horn zum 70. Geburtstag. 2006, 1005, reprinted in 17(2) American Review of International Arbitration 155 (2006) (published in 2008). See J. D. M. Lew, The Applicable Law in International Commercial Arbitration, 1978, 51-61; J. Paulsson, Delocalisation of International Commercial Arbitration: When and Why It Matters, 32 International and Comparative Law Quarterly 53 (1983); J. Paulsson, Arbitration Unbound: Award Detached from the Law of its Country of Origin, 30 International and Comparative Law Quarterly 358 (1981); W. W Park, The Lex Loci Arbitri and International Commercial Arbitration, 32 International and Comparative Law Quarterly 21 (1983); F. A. Mann, England Rejects “Delocalised” Contracts and Arbitration, 33 International and Comparative Law Quarterly 193 (1984); P. Mayer, The Trend Towards Delocalisation in the Last 100 Years, in M. Hunter/A. Marriott/V. V. Veeder eds., Internationalisation of International Arbitration, 1995, 37. See the discussion in T. Nakamura, The Place of Arbitration in International Arbitration – Its Fictitious Character and Lex Arbitri, 15(10) Mealey’s International Arbitration Report 23 (2000); T. Nakamura, The Fictitious Nature of the Place of Arbitration May Not Be Denied, 16(5) Mealey’s International Arbitration Report 22 (2001) and N. Rubins, The Arbitral Seat Is No Fiction: A Brief Reply to Tatsuya Nakamura’s Commentary, 16(1) Mealey’s International Arbitration Report 23 (2001). See for a particular aspect of denationalization (in relation to procedure): K. Lionnet, Should the procedural Law Applicable to International Arbitration be Denationalised or Unified? The answer of the UNCITRAL Model Law, 8(3) Journal of International Arbitration 1 (1995).

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proposition that the local law and local courts (i. e. law of the seat or arbitration and courts of the seat of arbitration) have no control or regulatory competence over international arbitration proceedings in their territory. In other words, arbitration is a creature of the parties, fully emancipated from law and court review or regulation.7 While the topic is, at least theoretically, very important and ideologically central to any theoretical discourse about international arbitration and its regulation, the focus may have well shifted in the last 30-40 years, since what has been taken centre-stage is the discussion about the importance of the seat.8 This was particularly compounded by a wave of legislative reforms, largely centred around the drafting of the UNCITRAL Model Law on International Commercial Arbitration and its various national or other (e. g. regional) incarnations. It is the view of this author that this is a rather unintended consequence of the Model Law where the drafters wanted to have a clear provision of the (territorial) scope of application of the Law rather than localize arbitration. In particular, Article 1 of the Model Law; clearly intended to provide for the instances in which the Law applies (and in doing so) it is a unilateral conflict of laws rules, but arguably9 the drafters never intended to denounce any concept of localization. Although, it is undisputed, that they also wished to achieve a high level of legal certainty. This paper agrees with the historical evolution of the theoretical framework and departs from the fact that localization discussion has shifted to the seat debate. One particular aspect it examines is the relevance delocalization theory had, has and/or will have as far as review of arbitral awards is concerned. If delocalization (or denationalization for this purpose too) is embraced, after the award is rendered, it cannot be reviewed by the courts of the seat (or place) of arbitration; as these courts will have no jurisdiction or mere interest in the arbitration proceedings and their outcome. Accordingly, awards would only be challenged and resisted enforcement at the enforcement stage but not at the end of the arbitration. This will be the case with so-called “anational” or “floating” 7

8 9

See J. D. M. Lew, Achieving the Dream: Autonomous Arbitration, 22(2) Arbitration International 179 (2006); E. Gaillard, Aspects philosophiques du droit de l’arbitrage international, 2008. Gaillard, supra note 7, at 3. See H. Holtzmann/J. Neuhaus, A guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative history and commentary, 1989, 1 et seq., 592 et seq. and 826 et seq. It appears that the delocalization debate did not play any major role in the UNCITRAL Model Law drafting. Quite to the contrary, the commentary clearly states that the seat of arbitration (“place” in the terminology of the Model Law) determines: whether the Model Law applies, whether courts of the place will supervise and/or assist the arbitration, whether the arbitration is international or not and also determines where the award is being made (id. at 593).

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awards.10 For some people this is a fully unacceptable proposition as arbitration would and should always be under the supervisory role of courts.11 For others, if an award has been challenged at the seat of arbitration for parochial or purely domestic reasons such challenge could and should not have international currency.12 In this respect, parties to arbitration proceedings can typically only challenge an award before the courts at the place of arbitration, assuming the courts at the place of arbitration consider the award “made” or “deemed to be have been made” in its territorial jurisdiction. National arbitration systems consider awards either domestic or foreign with few systems offering the option of international awards, i. e. domestic but unconnected to the place of arbitration and not subject to the law of the place of arbitration.13 In addressing the topic of “forum shopping” in the context of review (or setting aside) of arbitral awards at the end of the arbitration, this paper first discusses briefly the evolution of delocalization debate and the potential of forum shopping (II.) before looking to what happens after an award has been rendered and what is the impact of the law of the seat or other relevant law (III.). Finally, a few conclusions (IV.) are offered.

10

See also C. Schmitthoff, Finality of arbitral awards and judicial review, in J. D. M. Lew ed., Contemporary Problems in International Arbitration, 1987, 230-240; T. Rensmann, Anational arbitral awards – legal phenomenon or academic phantom?, 15(2) Journal of International Arbitration 37 (1998). 11 R. Goode, The Role of the Lex Loci Arbitri in International Commercial Arbitration, 17 Arbitration International 19 (2001). 12 See J. Paulsson, The Case for Disregarding LSAs (Local Standard Annulments) under the New York Convention, 7(2) American Review of International Arbitration 107-114 (1996); J. Paulsson, Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment (LSA), 9(1) ICC International Court of Arbitration Bulletin, 14, 19 (1998); L. E. Coutelier, Annulment and Court Intervention in International Commercial Arbitration (August 15, 2011) available at SSRN: http://ssrn.com/abstract=1957278 or http:// dx.doi.org/10.2139/ssrn.1957278. 13 See the distinction in the French Arbitration Law 20111: actions against domestic awards pursuant Articles 1494 et seq.; actions against awards made in France in international arbitration pursuant Articles 1518 et seq.; actions against awards made abroad pursuant Articles 1525 et seq.

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II.  The Evolution of the Delocalization Debate and the Potential for “Forum Shopping”

II. The Evolution of the Delocalization Debate and the Potential for “Forum Shopping” II.A Delocalization debate and the Role of the Seat of Arbitration The delocalization debate challenges the importance of the seat of arbitration and the relevance of the local law and the courts over arbitral proceedings within their territorial jurisdiction. The supporters of delocalization theories challenge the importance of the seat on several grounds. In particular: – The choice of seat is often a matter of convenience; – The choice of seat is often determined not by the parties but by the arbitral institution they have selected; – The choice of seat is often selected by the desire for neutrality; – The role of the arbitral tribunal is transitory and the seat has no necessary connection with the dispute.14 Supporters of delocalization theories further argue that the 1958 (United Nations) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has established an international and widely (nearly global) accepted legal (and largely15 uniform) regime for the recognition of arbitration agreements and arbitral awards so there is no need for additional national regulation. Hence, delocalized (or even autonomous) arbitration is not in any way lawless; it relies on transnational and international rules. In the text of the New York Convention there are very limited and exhaustive references to the seat of arbitration: – In Article I awards are defined as foreign (made outside the territory or deemed to have been made outside the territory) and therefore enforceable under the Convention but there is no definition of domestic ones, linking them with the seat of arbitration; – In Article V(1)(a) we have as a second alternative the law of the country where the award was made (rather than seat), absent an agreement by the parties, for the test of capacity of parties and validity of arbitration agreement; – In Article V(1)(d) we have again as a second alternative the law of the country where the award was made (rather than seat), absent an agreement by the parties, for the test of composition of arbitral authority and the arbitral procedure; – In Article V(1)(e) we have that the award may be resisted enforcement if it has not yet become binding on the parties of has been set aside by the competent authority of the country in which, or under the law of which, that 14 15

See Goode, supra note 11, at 13, for a comprehensive summary. Save for harmonisation of concept of public policy, scope of arbitrability and procedure for enforcement domestically which are left to national laws.

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award was made. This last description could arguably apply on all references “law of the country where the award was made”. The delocalization school of thought sees and seeks the emancipation of arbitration from national laws. Delocalized arbitration is detached completely from the law of the place of arbitration to the extent that there is no need for support by local courts, e. g., for enforcement purposes.16 In support of arbitration proceedings detached from national law, it is argued that “it is both pointless and misleading to create a link between the arbitrator and some national law just in case … one of the parties wishes to resort to the courts.”17 Also, in support of detached arbitral proceedings is the international business community that has successfully carried on arbitration proceedings detached from national legal systems.18 There are a number of illustrations of this trend. For example, parties may choose procedural law other than the law of the seat of arbitration. Further, a tribunal may decide not to follow any particular national law but to conduct the proceedings under generally accepted rules or principles of procedure. These could be crystallized or otherwise expressed in the UNCITRAL Arbitration Rules or the UNCITRAL Notes on Organising Arbitral Proceedings or in international rules prepared by one of the international institutions, such as the ICC or the IBA. In most cases the application of national arbitration law is unnecessary. A tribunal may conduct proceedings in accordance with the arbitration agreement on general rules or, if one of the parties is a sovereign state, the arbitration tribunal may also have the option of conducting the proceedings based on principles of public international law. In such cases, it is suggested that the tribunal could render an award unattached to any legal system, making it a so-called floating award.19 In an article this author has made the distinction between internal lex arbitri and external lex arbitri indicating that the external lex arbitri (typically the law of the place of arbitration – lexi loci arbitri) is rarely activated.20 16

See the debate between Nakamura and Rubins, supra note 5. Id.; see also Mistelis, supra note 3. 18 Most recently surveys conducted by the School of International Arbitration are showing mixed results as to the legal importance of the seat, in particular the 2006 and the 2010 survey: see http://www.arbitrationonline.org/docs/IAstudy_2006.pdf, at pages 13-14 which shows that legal considerations are important but convenience and neutrality of the seat are also critical and see also http://www.arbitrationonline.org/docs/2010_InternationalArbitrationSurveyReport.pdf at pages 17 et seq. where it is established that seat is important but the most important choice is the law applicable to the merits. 19 See J. Paulsson, Arbitration Unbound: Award Detached from the Law of its Country of Origin, 30 International and Comparative Law Quarterly 358 (1981). 20 See Mistelis, supra note 3. 17

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II.  The Evolution of the Delocalization Debate and the Potential for “Forum Shopping”

Additional support for delocalization is drawn from a series of cases,21 in which French or other courts, held that setting aside or suspension of an award by a court at the place of arbitration did not deprive the party of obtaining the award of its right to enforce it in France. However, it is also important to note, that the French decisions relied on the fact that French law does not contain the restriction of Article V(1)(e) New York Convention.22 Further, sports arbitration, in particular in the context of Olympic games, is yet another good example of delocalized arbitration (or at least an arbitration system where the seat is a constructive, rather than a real one). The International Olympic Committee Court of Arbitration for Sports (CAS/TAS)23 has a “fictional” place of arbitration in Lausanne, Switzerland, irrespective of the actual place of arbitration i. e. Athens, Sydney, London or Beijing.24 It is also, however, worth pointing out that in recent years, few CAS cases have been challenged in Switzerland and the Swiss Federal Tribunal has assumed jurisdiction over them, irrespective of the actual seat of arbitration.25 The positive aspect of this development is that award may be reviewed when they have to be reviewed and Switzerland which also considered arbitration friendly provides a developed legal system for such review. Moreover, the slowly emerging electronic online arbitration, including fully online arbitration as well as asynchronous offline arbitration with use of elec-

21

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23 24 25

See, e. g., Cour de cassation, 9 October 1984, Pabalk Ticaret Limited Sirketi v. Norsolor SA, 112 Journal du droit international 679 (1985), with comment by P. Kahn, 681 Revue de l’Arbitrage 432 (1985), with note by B. Goldman, 24 International Legal Materials 360 (1985), with note E. Gaillard, XI Yearbook Commercial Arbitration 484 (1986); Cour de cassation, 10 March 1993, Polish Ocean Line v. Jolasry, Revue de l’Arbitrage 258 (1993), with note D. Hascher, 265, XIX Yearbook Commercial Arbitration 662 (1994); Cour de cassation, 23 March 1994, Hilmarton Ltd v. Omnium de traitement et de valorisation – OTV, Revue de l’Arbitrage 327 (1994), XX Yearbook Commercial Arbitration 663 (1995); Cour d’appel de Paris, 14 January 1997, The Arab Republic of Egypt v. Chromalloy Aeroservices Inc, Revue de l’Arbitrage 395 (1997), 12(4) Mealey’s International Arbitration Report B-1 (1997), XXII Yearbook Commercial Arbitration 691 (1997). Similar cases also exist in few other jurisdictions, such as The Netherlands. The US decision Chromalloy Aeroservices Inc. v. The Arab Republic of Egypt, 939 F. Supp 907 (D. D. C. 1996) was criticised. See G. Petrochilos, 49 International and Comparative Law Quarterly 856 (2000); E. Schwartz, A Comment on Chromalloy Hilmarton, à l’américaine, 14(2) Journal of International Arbitration 125 (1997). See http://www.tas-cas.org; See also http://www.tas-cas.org/recent-decision for CAS jurisprudence. See G. Kaufmann-Kohler, Arbitration at the Olympics, Issues of Fast-Track Dispute Resolution and Sports Law, 2001. See, for example, http://www.bger.ch/fr/mm_4a_558_2011_d.pdf.

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tronic media,26 may be delocalized. In such arbitrations there are no physical hearings; the tribunals may have no physical or legal seat. Consequently, the creation of new substantive rules has been suggested since it has been considered problematic to link online arbitration with a particular legal system.27 An alternative to further regulation is the wider acceptance of party autonomy or the acceptance of delocalized and denationalized arbitration. The main argument against delocalized arbitration is that arbitration cannot operate in a legal vacuum and review of awards at the place of arbitration is a fair price to pay for predictability and certainty. At the very least, ultimately, the parties will expect the law to recognize and give effect to the tribunal’s award. There are other areas where the support of the courts may be needed, e. g., to uphold and enforce the agreement to arbitrate, to appoint or remove arbitrators, and for interim relief in support of the arbitration process. National courts are always asked to support or intervene for these purposes. This is why arbitration cannot be fully delocalised from the national law.28 In fact, delocalized arbitration is self-regulatory arbitration. However the point needs to also be made that delocalization relates usually either to the arbitration process or to the award or both. While the emancipation from the procedural law of the place of arbitration is now accepted and most systems 26

See, e. g., E. Katsch/J. Rifkin, Online Dispute Resolution, Rule, Online Dispute Resolution for Business, 2002; see also J. Hörnle, Cross-border Internet Dispute Resolution, 2009 and A. Patrikios, The Role of Transnational Online Arbitration in Regulating Cross-Border E-Business, 22 Computer Law & Security Report 66 (2008). 27 See, e. g., M. E. Schneider/C.Kuner. Dispute Resolution in International Electronic Commerce, 14(3) Journal of International Arbitration 5 (1997); J. Arsic, International Commercial Arbitration on the Internet – Has the Future Come Too Early?, 14(3) Journal of International Arbitration 209 (1997); R. Hill, The Internet, Electronic Commerce and Dispute Resolution: Comments, 14(4) Journal of International Arbitration 103 (1997); G. Kaufmann-Kohler, Le lieu de l’arbitrage à l’aune de la mondialisation – Réflexions à propos de deux formes récentes d’arbitrage, Revue de l’Arbitrage 517 (1998); C. Kessedjian/S. Cahn, Dispute Resolution On-Line, 32 International Law 977 (1998); M. S. Donahey, Dispute Resolution in Cyberspace, 15(4) Journal of International Arbitration 127 (1998); R. Hill, On-line Arbitration: Issues and Solutions, 15(2) Arbitration International 199 (1999). See also the contributions by P. A. Gélinas et al., Electronic Means for Dispute Resolution: Extending the Use of Modern Information Technologies, in B. G. Davis ed., Improving International Arbitration: The Need for Speed and Trust: Liber Amicorum Michel Gaudet, 1998, 51. See also R. E. GoodmanEverard, Arbitration in Cyberspace – an Off-line, Low-tech Guide for Compucowards, 14(3) Arbitration International 345 (1998). 28 See W. W. Park, The Lex Loci Arbitri and International Commercial Arbitration, 32 International and Comparative Law Quarterly 21 (1983); S. Boyd, The Role of National Law and the National Courts of England, in J. D. M. Lew ed., Contemporary Problems in International Arbitration, 1986, 149 et seq.

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II.  The Evolution of the Delocalization Debate and the Potential for “Forum Shopping”

have very limited mandatory provisions relating to arbitral procedure, the enforcement of delocalized awards appears to be problematic; ultimately, the enforcement is controlled by national courts. However, at least French and US courts29 have enforced delocalized awards.30 Belgium31 and Switzerland have given foreign parties the option to contract out of any judicial review in limited circumstances.32 As far as English law is concerned while most parts of the English Arbitration Act 1996 will apply to arbitral proceedings in England and Wales, many provisions will also apply if the seat is outside England and Wales.33 Hence, the seat becomes particularly relevant for the external, not the internal, lex arbitri.34 In fact Section 4 endorses and emphasizes the freedom of the parties to choose the law applicable to the procedure. The Act also makes it clear that it is the juridical seat of arbitration proceedings which link an arbitration with the local courts upon which jurisdiction is conferred for matters in support of the arbitration.35 Under English law an arbitration must have a seat and that 29

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34 35

See, e. g., Cour de cassation, 23 March 1994, Société Hilmarton Ltd v. Société Omnium de traitement et de valorisation (OTV), 121 Clunet 701 (1994); In re Chromalloy Aeroservices Inc v. The Arab Republic of Egypt, 939 F. Supp 907 (D. D. C. 1996), 35 International Legal Materials 1359 (1996); XXII Yearbook Commercial Arbitration 1001, 1004 (1997); Cour d’appel de Paris, 14 January 1997, République arabe d’Egypte v. Chromalloy Aeroservices, Revue de l’Arbitrage 395 (1997), XXII Yearbook Commercial Arbitration 691 (1997). See also, in the context of the Iran-US Claims Tribunals, the US Courts enforced anational awards under the New York Convention. See, e. g., Ministry of Defense of the Islamic Republic of Iran v. Gould, 887 F.2d 1357 (9th Cir. 1989), cert. denied, 110 S.Ct. 1319 (1990); Iran Aircraft Industries v. Avoc Corp., 980 F.2d 141 (2d Cir. 1992). See Belgium, Judicial Code Article 1717(3). See Switzerland, PIL Article 192; Swiss Tribunal Fédéral, 21 December 1992, Groupement d‘Entreprises Fougerolle et consorts, Entscheidungen des schweizerischen Bundesgerichts 118 I b, 562, 568. See Sections 1 and 2 and also the definition of “seat” in Section 3. Section 3, entitled “the seat of the arbitration” provides: In this Part “the seat of the arbitration” means the juridical seat of the arbitration designated: (a) by the parties to the arbitration agreement, or (b) by any arbitral or other institution or person vested by the parties with powers in that regard, or (c) by the arbitral tribunal if so authorised by the parties, or determined, in the absence of any such designation, having regard to the parties’ agreement and all the relevant circumstances. See distinction in Mistelis, supra note 3, at 8. See Dubai Islamic Bank PJSC v. Paymentech Merchant Services Inc, at page 71, para. 30, where the court held that it was clear from s. 2(1) of the [English Arbitration] Act that

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it is contrary to the whole idea of a juridical seat if its seat should somehow be peripatetic; and that the procedural law regime of an arbitration could not change capriciously from one point in the arbitration process to the next. Once a seat had been identified it could not move.36 The U. S. Supreme Court analysed the nature and needs of international arbitration in the case of Scherk v. Alberto Culver Co.37 With regard to the choice of the lex arbitri, the Court said that “an agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause that posits not only the situs of the suit but also the procedure to be used in resolving the dispute.”38 This language seems to suggest that the Court would allow the parties to choose the applicable procedural law. It would be a reasonable conclusion to draw that the nationality of arbitration retains an important role to the extent that the seat of arbitration is also of significance. For instance, a number of laws provide that a country’s procedural rules apply automatically to an arbitration held on its territory subject to the express will of the parties and the rules selected to govern the arbitration.39 Other jurisdictions follow this position but adopt a different set of rules for international arbitrations.40 In other words that possibility to delocalize arbitration in terms of applicable procedural law is quite well established, perhaps with France and Switzerland as the strongest proponents.41 And even in non-delocalized regimes certain delocalization would be allowed provides that fundamental (effectively transnational) mandatory rules of fairness and equality of parties are not interfered with. At the same time delocalization in terms of review of awards at the seat of arbitration after the awards have been rendered seems to be quite rare, if not also an endangered species. English law, US law, French law and Swiss law all provide for applications to set aside or annul or vacate an award at the place where it was made. Where national systems may have different standards are the grounds for review and the ability of disputing parties to modify or exclude review.42

36 37

38 39

40 41

42

the concept of the “seat” was used in order to define which arbitrations would be subject to the statutory regime in Part One of the 1996 Act; … only those arbitrations that had their “seat” in England and Wales would be subject to the exercise of the Court’s powers in Part One of the Act. Dubai Islamic Bank, id. at 73, 74, at para 49. 417 U. S. 506 (1974). Id. at 519. See, e. g., England, Arbitration Act Section 2 (but also Section 33); Germany, ZPO Sections 1025 and 1042. See, e. g., Switzerland, PIL Article 176 and Model Law. See Switzerland, PIL Article 182, France, New Arbitration Law Articles 1505, 1511. See for more details, e. g., C. Liebscher, The Healthy Award, 2003.

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II.  The Evolution of the Delocalization Debate and the Potential for “Forum Shopping”

II. B. UNCITRAL Model Law, Other Legal Systems and Forum Shopping The drafting of the UNCITRAL Model Law43 coincides with the height of debate about delocalization and/or the regulatory and supervisory role of the law of the seat. The Model Law adopted in 1985 subscribes to a moderated territorial approach which aims at regulating and restricting the role of courts, by exclusively identifying cases of court intervention. The travaux preparatoires indicate that delocalization (de-territorialisation as is some times referred to in the discussions) has been brought up with the representative of France suggesting that the approach in the draft was perhaps a bit too territorial.44 And indeed the final text takes a moderate territorial approach: the Model Law applies to arbitrations within the jurisdictions with limited mandatory provisions (fairness and equality) and regulated court interference, typically in support of arbitral proceedings and/or in relation the challenge and recognition and enforcement proceedings. It is, however, possible that the whole doctrine of denationalized awards and proceedings will eventually become redundant as a result of increased and indirect unification of arbitration procedural law achieved through the emergence of the Model Law.45 Delocalization can only function provided that quasi-autonomous international procedural rules emerge.46 This is limited delocalization and covers the aspect of delocalization where there is no need to rely on local courts and where parties voluntarily enforce the awards. While 43

See for more details: http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/​ 1985Model_arbitration.html. Note also the Case Law Digest on the Model Law of International Arbitration presented in 2012 (http://www.uncitral.org/pdf/english/clout/MAL-digest-2012-e.pdf) and also the related (and expanding) database maintained by McGill University (http://www. maldb.org). 44 See http://www.uncitral.org/pdf/english/travaux/arbitration/ml-arb/306meeting-e. pdf, at para 54 and http://www.uncitral.org/pdf/english/travaux/arbitration/ml-arb/ 307meeting-e.pdf at paras 2, 3, 7 with contributions from Finland, the Commission, Austria and others. 45 K. Lionnet, Should the Procedural Law Applicable to International Arbitration be Denationalised or Unified? The Answer of the UNCITRAL Model Law, 8(3) Journal of International Arbitration 5 (1991). 46 See S. Lazareff, International Arbitration: Towards a Common Procedural Approach, in S. N. Frommel/B. A. K. Rider eds., Conflicting Legal Cultures in Commercial Arbitration: Old Issues and New Trends, 1999, 31; A. Lowenfeld, International Arbitration as an Omelette: What Goes into the Mix, in S. N. Frommel/B. A. K. Rider eds., Conflicting Legal Cultures in Commercial Arbitration: Old Issues and New Trends, 1999. See also Id. at 19.

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proceedings can effectively be delocalized, awards normally acquire a nationality at the time of enforcement. Other modern legislative texts have adopted the same principles.47 The Model Law, in Article 19, reduced the role of the seat (at least in terms of applicable procedural rules) in accordance with international standards. The fact that modern laws often take a territorial approach in respect to their scope of application, does not automatically limit party autonomy in terms of procedural choices. As expressed above, maximum party autonomy remains intact in relation to internal lex arbitri. External lex arbitri is normally subjected to the law of the seat but the parties may agree otherwise; their agreement is enforceable to the extent that it does not clash with mandatory rules of the law of the seat. This creation of international standards is being supported by an increased institutionalization of arbitration (where most institutional rules look quite similar and the growing crystallization of best practices.48 In respect of review of awards the Model Law fully and unequivocally embraces territoriality. Application to set aside an award may only be brought at the courts of the place of arbitration (noting that the Model Law uses “place” rather than “seat”). And it is widely accepted that the current system is satisfactory, certain and efficient.49 It is clear that pursuant Articles 1(2), 6 and 34(2) of the Model Law an award may only be set aside at the place of arbitration irrespective of where the hearings took place.50 Especially where the place of arbitration was agreed upon by the parties this sound reasonable and certain. If however there is no party agreement as to the seat this will have to be determined or implied by various indicators, such as place of hearings.51 The UNCITRAL Model Law Case Digest provides a very good digest of court decisions on these matters.52 47 48 49

50 51 52

See, e. g., Netherlands CCP, (1986), Art. 1036; Portugal Law No. 31 of 1986, Art. 15; Egypt Law No. 27 of 1994, Art. 25; Italy CCP Art. 816 (1994). See the recent survey by SIA http://www.arbitrationonline.org/survey/index.html and/ or http://arbitrationpractices.whitecase.com. See W. W. Park, Why Courts Review Arbitral Awards, in Festschrift für Karl Heinz Böckstiegel, 2001, 591 et seq.; H. Smit, Annulment and Enforcement of International Arbitral Awards: A Practical Perspectiv, in L. W. Newman/R. D. Hill eds., Leading Arbitrators Guide to International Arbitration, 2008, 591 et seq. See also s different approach, no need to challenge anywhere, is taken by P. Fourchard, La portee international de l’annulation de la sentence arbitrale dans son pays d’origin, Revue de l’Arbitrage 329 (1997). See, e. g., PT Garuda Indonesia v. Birgen Air, Court of Appeal of Singapore, 6 March 2002, [2002] S. L. R. 393, available at http://www.maldb.org/hpjlaw-275.html. See, e.g, CLOUT case no 374, Oberlandesgericht Düsseldorf, Germany, 6 Sch 02/99, 23 March 2000. See http://www.uncitral.org/pdf/english/clout/MAL-digest-2012-e.pdf at Article 34.

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III.  Award Review and the Law of the Seat: A Review of Case Law

III. Award Review and the Law of the Seat: A Review of Case Law III. A. Setting Aside and the Law of the Seat – An Overview There is compelling argument that arbitral awards have to be reviewed by national courts. Judicial review of arbitral awards is seen as a “form of risk management”.53 What is being debated is (a) why such review has to occur at the place of arbitration while, for example, an award may be challenged at time of enforcement by an enforcing court, and (b) what is the extent of review. Most national legal systems will affect review of awards of blatant breaches of procedural fairness or major procedural irregularities as well as lack of jurisdiction but there will typically be no review of the merits or the law. Looking at these questions one does not need to doubt much the important of seat of arbitration and the attention that needs to be paid in relation to its selection. In respect of the first question the arguments given in support of exclusive review of awards at the place of arbitration are largely technical: the place of arbitration is certain (at least in the vast majority of cases) and hence forum shopping and speculation may be avoided; a certain place of challenge promotes efficiency. The argument is also being made that the seat of arbitration can best assess all these procedural matters irrespective of whether or not the parties or the proceedings have an association with the seat. It is further suggested that the challenging at the place of arbitration and with a rather tight deadline after the award has been rendered ultimately promotes finality while at the same time leaving ample windows for fairness controls. The arguments against the exclusive challenge at the place of arbitration are all linked with the delocalisation debate: the seat may have been used for its neutrality and often neither party nor the subject matter would be connected with the place. The parties may even reside quite far away from the seat of arbitration and may have not even be at this location since the last hearing. If this is the case, and it often is, then it becomes onerous, costly and inefficient for one party to have to go back to the place of arbitration well after the hearing has been completed simply to challenge the award! Similarly local standards of jurisdiction, admissibility of claims or procedural fairness may be coloured by domestic litigation practice and legal culture and not necessarily applicable to foreign parties in an international arbitration. A convenient seat of arbitration may well prove an inconvenient place of challenge There is also quite a bit of discussion about the standards and grounds for setting aside. If the relevant grounds are very domestic and possibly obscure should not affect the international effectiveness of annulment of an award.54 53 54

See supra note 49. See, e. g., H. G. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award, 2002.

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This issue alone challenges the primacy of the seat of arbitration, as on occasions, an award which has been successfully been challenged where it was made may be enforced in other places.55 It is therefore important to note that some arbitration laws allow for the parties to contract around court supervision of the award. For instance, Swiss law allows the parties to waive their right to annulment proceedings.56 Current Belgian law provides for similar provisions (but a reform is expected in the near future), and under the English Arbitration Act, parties can exclude any appeal (but not challenge of awards), hence barring national courts from reviewing any legal issues arising out of the award.57

III. B. A Review of Case Law The vast majority of cases before national courts assume that only courts at the seat of arbitration have jurisdiction for setting aside proceedings. However, here and there, one can find cases of national courts prepared to discuss or even assume jurisdiction for the review of awards even if the arbitral award was not made within the jurisdiction. In a good decision the Austrian Supreme Court in 2001;58 the court discussed the issue of whether an award made in China could be challenged in Austria on the grounds of Austrian law or New York Convention; the court found that it lacked jurisdiction. Perhaps one of the most iconic decisions, at least in England, is Union of India v. McDonnell Douglas Corp.59 In this case the English courts discussed at length the importance of the seat of arbitration and the exclusive jurisdiction of the courts of the seat to set aside awards. It was also stated that national courts are reluctant to allow foreign courts to consider challenges to awards made within their jurisdiction. One can see the same discussion also in an important US decision in the Southern District of New York, International Standard Electric Corp. v. Bridas60 where the Court was clear as to setting limits as the courts before which an 55

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Id. at 20, 21 and 26. See Article 192(1) of the Swiss Private International Law Act: “If none of the parties have their domicile, their habitual residence, or a business establishment in Switzerland, they may, by an express statement in the arbitration agreement or by a subsequent written agreement, waive fully the action for annulment or they may limit it to one or several of the grounds listed in Art. 190(2).” See Section 69 of the English Arbitration Act. Austrian Oberster Gerichtshof, 22 October 2001, 1 Ob 236/01, ZfRV 197 (2002) with note Hoyer. See [1993] 2 Lloyd’s Rep 48. International Standard Elec. Corp. v. Bridas Sociedad Anónima Petrolera Industrial y Commercial , 745 F.Supp 172, 177-1788 (S. D. N. Y. 1990).

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award may be challenged stipulating largely the supremacy (and exclusivity) of the seat. In an interesting contrast in 1998 the Supreme Court of Pakistan assumed jurisdiction to challenge an award made in Hitachi et al. v. Mitsui and Rupali61 for alleged misconduct of the arbitrators, despite the fact that the award was made in England and the arbitration was governed by the ICC Rules and the English Arbitration Act while the law governing the merits was Pakistani law. The Court considering whether the award was domestic or international went further to state, shockingly: “The answer to whether an award is domestic or foreign does not depend on the venue of arbitration, but on the law applicable to it. If the arbitration agreement is governed by the laws of Pakistan, the award shall be deemed to be domestic and shall be [reviewed by courts of Pakistan].”62 There seems to be a similar pattern in India, where it is also possible to challenge an award even if the award was not made in the jurisdiction but the law of the merits was Indian Law. In National Thermal Power Corp. v. The Singer Co.,63 there was an application to set aside in India an award made in London. The Supreme Court assumed jurisdiction for the challenge on the grounds that the contract was governed by Indian law. This case was decided under the old Indian Arbitration Act. It held: “The choice of the place of arbitration was […] merely accidental in so far as […] the choice was made by the ICC Court for reasons totally unconnected with either party to the contract. On the other hand, the contract itself is [full] of India and Indian matters. The disputes between the parties under the contract have no connection with anything English, and they have the closest connection with Indian laws, rules and regulations. Any attempt to exclude the jurisdiction of the competent courts and the laws in force in India is totally inconsistent with the agreement between the parties.”64

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Hitachi Ltd et al. (Japan) v. Mitsui & Co. (Germany) and Rupali Polyester (Pakistan), (2000) XXV Yearbook Commercial Arbitration 486 (Supreme Court of Pakistan, 10 June 1998). 62 Id.; See also Rupali Polyester. Dr. Nael G. Bunni’s Malek, XLVI P. L. D. 525, 551 (Lahore High Court 1994) for prior instance. 63 (1992) 7(6) Mealey’s International Arbitration Report C1, (1993) XVIII Yearbook Commercial Arbitration 403 (Supreme Court). 64 Id.

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There are similar decisions under the new Indian Arbitration Act, e. g., in Venture Global Eng’g v. Satyam Computer Serv. Ltd.65 Two even more recent Indian cases manifest confusion as to the relevance of the seat and when arbitral awards are deemed domestic. While Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.66 propounds that both the court located at the chosen seat and the court that has subject matter jurisdiction under the Arbitration and Conciliation Act 1996 (a rather “third way” quite controversial view), in a recent decision of the Bombay High Court in Videocon Industries Ltd. v. JMC Projects (India) Ltd67 has revived the controversy again to the forefront by refusing to exercise jurisdiction (to support the arbitration in an application for provisional measures) in a case with seat in Bombay. Interestingly enough in India parties cannot be agreement confer jurisdiction upon a court that would not otherwise have jurisdiction under the Code of Civil Procedure of 1908.68 And this is also applicable to arbitration matters. Pursuant to the Arbitration and Conciliation Act the courts of the seat (more precisely, in an arbitration covered by Part I of the Act), have exclusive jurisdiction for setting aside of the award (and the text is identical to that of the UNCITRAL Model Law). The relevant court as per the Act Section 2(1)(e) is: “court means the principal civil court of original jurisdiction in a district, an includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court or any Court of Small Causes.” In other words there is scope for interpretation of which courts are relevant and there is scope for confusion. Balco is supposed to have settled any controversy as to this interpretation by looking into the question as to whether Part I of the Act is based on seat or based on subject matter. The Court wanted to strengthen the importance of the seat and of party autonomy and noted that even in a case of a neutral seat the courts of the seat will have supervisory jurisdiction over the arbitration. But it is seems that the High Court of Bombay in JMC is making a step backwards. Moderate commentators would take the view that the Indian Act has a lacuna (as to definition of court) that has to be addressed.

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Venture Global Engineering v. Satyam Computer Serv. Ltd. [2008] INSC 40 (Indian Supreme Court). See also A. Jain, Yet Another Misad-Venture by Indian Courts in the Satyam Judgment?, 26(2) Arbitration International, 251-280 (2010). 66 Civil Appeal bo 7019 of 205, dated 6 September 2012 (hereinafter: Balco). 67 Arb. Pet. No 781 of 2012, dates 9 January (2013). 68 Modi Entertainment Network v. WSG Cricket Ptr Ltd, (2003) 4 SCC 341, at 351.

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We also have similar decisions in Indonesia in the notorious Karaha Bodas.69 The award was made outside Indonesia but it was considered Indonesian for setting aside purposes because the contract of the underlying dispute was governed by Indonesian law. Indonesian courts reviewed and set the award aside. But note also that the award was successfully enforced elsewhere.70 In the second case, Aargus Global Logistics v. NNR Global Logistics,71 the background included an ICC clause with no seat specified. Despite (or rather because of) disagreement between the parties ICC fixed Kuala Lumpur. The Indian courts assumed jurisdiction to hear a petition from the successful party in the arbitration to have the award enforced. The unsuccessful party filed an application under Section 34 to have the award set aside. The Court admitted the setting aside application by relying on Bhatia International72 and Venture Global.73 It also stated that the application would not have been admitted if the award was foreign and this would only be relevant if the agreement was executed after 6 September 2012. Admittedly a bizarre argument, that Balco made law of inter-temporal application, i. e. modified the Act! It is my considerate view that unless these two cases can be seen as “teething problems” while the lower courts appreciate the consequences of the Supreme Court decisions, then we have a serious problem about national courts and arbitration in India and some of its neighbouring jurisdiction. Of course on the other end of the spectrum we have cases like Putrabali v. Rena:74 “An international arbitral award, which does not belong to any state legal system, is an international decision of justice and its validity must be examined according to the applicable rules of the country where its recognition and enforcement are sought.” Admittedly, when an award has multiple nationalities then the forum shopping is easier.75 This would be the case if the parties choose a particular seat but subject the arbitration to a different law and possibly the subject matter 69 70

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Judgment of 27 August 2002, Perusahaan Pertambangan Minyak Dan Gas Bumi Negara v. Karaha Bodas (Central Jakarta District Court). See L. T. Wells, Double Dipping in Arbitration Awards? An Economist Questions Damages Awarded to Karaha Bodas Company in Indonesia, 19(4) Arbitration International 471-481 (2003). 14 October 2012. Bhatia International v. Bulk Trading, (2002) 4 SCC 105. Supra note 62. Cour de cassation, 29 June 2007. H. van Houtte, International Arbitration and National Adjudication, in C. C. A. Voskuil/ J. A. Wade eds, Hague-Zagreb Essays on the Law of International Trade, 1983, 325. See also P. Šarčević, The Setting Aside and Enforcement of Arbitral Awards under the

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of the dispute to yet another law. While party autonomy is paramount in arbitration excessive creativity in the drafting of clauses may lead to unintended consequences. Finally, if one is to consider the view suggested by Paulsson, that review of awards at the place of arbitration only matters (internationally, beyond the seat) if the awards is challenged for internationally accepted grounds, i. e. grounds listed in Article V(1)(a) to V(1)(d) of the New York Convention and any setting aside of awards on purely domestic grounds should be irrelevant76 is also important to appreciate potential for forum shopping around or even after the challenge of awards.

IV. Concluding Remarks From the comparative review of national legal systems and related case law certain conclusions clearly emerge. On the one hand, the territorial approach over the regulation of arbitration proceedings adopted in the Model Law has largely eliminated any scope for forum shopping at least as far as review of awards is concerned; certain aspects of delocalisation may survive at variable levels conditioned on the wide acceptance of party autonomy, as far as procedural arrangements are concerned but they should not extend to setting aside matters. On the other hand the Model has brought about both a considerable amount of harmonisation and even impacted on national statutes which opted not to adopt it. Practically award challenge grounds and procedures would be very similar if not identical in many jurisdictions. There are, however, still certain significant dis-unifying factors: there is no harmonisation of standards of public policy or indeed scope of arbitrability allowing for very different decisions in similar circumstances. Acceptance of some level of moderate delocalisation and forum shopping, not only in terms of procedure where delocalisation is practically tolerated if not accepted, but also in relation to review of awards may well provide a very useful counterbalance to nationalising trends in public policy and arbitrability. Indeed sometimes such flexibility and forum shopping may be exercised best in the context of enforcement proceedings. Legal systems, like the French, the Swiss and the Belgian which accept variable levels of transnational arbitration and distinguish between domestic awards connected to the place of arbitration, domestic international awards not connected to the place of arbitration and foreign awards are prepared to UNCITRAL Model Law, in P. Šarčević ed., Essays on International Commercial Arbitration, 1989, 176, 180-181. 76 Supra note 12. See also Direction Generale de l’ Aviation Civile de l’Emirat de Dubai v. Internationale Bechtel, Paris Court of Appeal, 29 September 2005.

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allow parties to modify the extent or the grounds for which an award may be set aside or even fully waive the right to challenge an award at the seat of arbitration. However, all the cases we have so far of effective forum shopping, i. e. review of an award by courts at a place other than the seat of arbitration appear to be, to be frank, “horror stories”. The acceptable “forum shopping” would be really only the enforcement of the parties agreement to modify the amount of review available at the seat of arbitration or subject the review to a different court of their own choice. But this would require consent and may not be, after all, forum shopping in the light of proposed definitions. One wonders whether the way forward would be (de lege ferenda) to fully eliminate possibility of the challenge of award if the award, its subject matter and the parties to the arbitration are not in any way connected to the place of arbitration and simply retain control of award by potential enforcing courts. The proposal may be radical but still leaves an effective remedy to whoever wants, for a good reason, to resist enforcement of awards and would also eliminate inconsistent national decision as to the validity of awards which may be set aside at the place of arbitration but enforced elsewhere.

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Forum Shopping and Enforcement of Foreign Arbitral Awards: Notes on Public Policy Domenico Di Pietro* I. Introduction The importance of forum shopping at the stage of enforcing a favourable arbitral award should not be underestimated. While surveys show that most arbitral awards are wilfully complied by the losing party,1 where enforcement proceedings are required, the enforcing party should be in a position to assess its options as to how and, most importantly, where to proceed with enforcement. Forum shopping is facilitated by the 1958 New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”). As we will see below, the New York Convention has virtually created a world-wide-web for the circulation of foreign arbitral awards. Under the New York Convention, 148 States have undertaken an obligation to recognise and enforce foreign arbitral awards. Such general obligation is qualified only in the presence of certain limited grounds. It should be taken into account that some of the limited grounds qualifying the general obligation to enforce foreign arbitral awards under the New York Convention are to be assessed under the domestic law of the place where enforcement is sought. In other words, the New York Convention allows, within certain limits, Contracting States to tailor the application of the Convention to suit the characteristics of their respective legal systems. This means that, while enforcement proceedings can be brought in a multitude of States, the decision as to where actually enforce should only be taken after having considered whether the award might be a risk of not being enforced on one or more of the grounds available under the New York Convention as applied and interpreted in the relevant jurisdictions. This should not be understood as suggesting that enforcement of arbitral awards under the New York Convention is subject to erratic or parochial practices at a domestic level. Indeed, the vast majority of domestic courts tend to interpret the New York * 1

The comments contained in this paper are the author’s only and should not be attributed to any of the entities the author is associated with. Queen Mary College, School of International Arbitration, 2008 International Arbitration Study Corporate Attitudes and Practices: Recognition and Enforcement of Foreign Awards, available at: www.arbitrationonline.org / ​docs / ​I Astudy_2008.pdf.

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Convention with a genuinely international mindset limiting, where possible, the impact of domestic law provisions on foreign arbitral awards. Having said that, it is undeniable that recognition and enforcement of the award may well, at least in theory, see different outcomes in different jurisdictions. In this legislative environment, the ability of considering alternative fora for the enforcement of arbitral awards may prove extremely beneficial. This ability, however, entails a careful analysis of the mechanics of the New York Convention as well as an in-depth monitoring of the case law of the relevant jurisdictions. In this scenario, the issue of public policy is particularly sensitive. In the general trend aimed at facilitating arbitration as a means for the resolution of international business disputes, and the consequential erosion of any limiting factors, public policy is the only element in the presence of which domestic courts are inclined to go beyond the limited scope of enquiry that is normally allowed for the recognition and enforcement of foreign arbitral awards. After a brief introduction about the mechanics of the New York Convention, this paper will provide a few remarks on the two core aspects of the issue at hand. Namely, which public policy should be taken into account and which degree of scrutiny is allowed in assessing public policy issues. Such comments would hopefully provide some food for thought where assessing forum shopping options in the enforcement of foreign arbitral awards.

II. Understanding the mechanics of the New York Convention With a view to attaining the broadest possible consensus, the negotiators of the Convention devised a text that would possibly avoid clashes with the Contracting States’ core principles of law. In doing so, they performed what is often described as a “balancing act”. Indeed, the final text of the Convention, on one hand imposes a general obligation to recognise and enforce arbitral awards rendered abroad. On the other hand, it qualifies such a general obligation where recognition and enforcement would clash with the core provisions of domestic law at the place of enforcement.2 This device had the merit of attracting an unprecedented number of signatories. Inevitably, it is also responsible for that perceived degree of “controlled” inconsistency in the application of the Convention amongst the different Contracting States. It may be suggested, however, that the issue is not so much one of inconsistency but rather one of different degrees of application. The Conven2

An example of such a technique can be found at Article I (the Reservations), Article II (on arbitrability and substantial validity of the arbitration clause) and Article V. See on this subject D. Di Pietro, Applicable Laws Under the New York Convention, in F. Ferrari / ​S Kroell eds., Conflict of Laws in International Arbitration, 2011, 63.

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tion was conceived on the awareness that, in order to succeed, it had to cater for different legal systems and cultures. Contracting States are expected to respect and protect international arbitration without abdicating the core principles of their respective legal orders. The spirit of the Convention was caught by the late Dr. Robert Briner as follows: Rather than attempting the impossible, the conference sensibly sought to address the most pressing practical problems experienced by the postwar business world. In so doing, it took the path of moderation and pragmatism by producing an exhaustive list of basic requirements for the recognition and enforcement of awards. It gave effect to the will of the parties without asking States to renounce their legal systems. This approach may have been modest and cautious, but it was above all judicious, for not only did it ensure the effectiveness and acceptability of the convention but also gave it a far-reaching legacy.3

III. The Public Policy defence under the New York Convention III. A. Which public policy? Under Article V(2)(b) enforcement may be refused in the presence of evidence, which may be identified by the court of its own motion, that recognition or enforcement of the award would be contrary to public policy. Compliance with public policy is to be assessed with reference to the law of the place of enforcement. This is a safeguard provision aimed at preventing enforcement of an award the content of which would be in clear contrast with the core principles of that jurisdiction. While it would be impossible to carry out an overview of what would be contrary to the public policy of each Contracting State of the New York Convention, some reflections on the scope of public policy might be in place. For example, some Contracting States have clarified which limited set of domestic law provisions dealing with public policy apply where assessing the enforceability of foreign arbitral awards. In summary, the public policy provisions to be taken into account should be those falling within the category of international public policy i. e. the public policy provisions of domestic law dealing with cases characterised by an international element or a degree of detachment from that jurisdiction. Domestic 3

R. Briner / ​V. Hamilton, The Creation of an International Standard to Ensure the Effectiveness of Arbitration Agreements and Foreign Arbitral Awards, in E. Gaillard / ​D. Di Pietro eds., Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice, 3, 20 (2008).

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international public policy is commonly distinguished from “truly” transnational public policy, which might be described as the limited set of public policy principles common to all States (or the vast majority of them). It is frequently observed that, if we were to give a pictorial description of the relationship amongst those three categories, we could draw it in the shape of a pyramid. Domestic public policy, which is characterised by the highest number of provisions, would make the base or bottom of our imaginary pyramid. Domestic international public policy, being composed of the core provisions of public policy of domestic law, amounts to a narrower corpus of provisions. In our pyramid, therefore, it would be placed in the middle of the building. Transnational public policy, being the narrowest corpus of provisions, would be the top layer of the pyramid. In this structure each layer would contain also the provisions of the smaller layer. In other words, the lower layer also contains the provisions of the higher layer.4 Therefore, in identifying what constitutes public policy for the purpose of Article V(2)(b) of the New York Convention, reference should be made to the international public policy of the domestic law of the country where enforcement is sought. In other words, the core provisions of domestic public policy, to the exclusion of the provisions having a more domestic and less compelling character. It is interesting to note that, during the negotiation of the New York Convention, it was suggested a wording that might be illustrative of the concept of public policy that was considered by the New York Convention’s drafters. Under draft Article IV(h) it was indeed suggested that recognition and enforcement may be denied where “the recognition and enforcement of the award, or the subject matter thereof, would be clearly incompatible with public policy or with fundamental principles of the law”.5 It has been observed in this respect that “by using restrictive words like clearly and fundamental the Committee intended to limit this ground to cases in which the recognition or enforcement of a foreign arbitral tribunal would be distinctly contrary to the basic principles of the legal system of the country where the award is invoked.”6 4

5 6

See on this issue amongst others L. Mistelis, ‘Keeping the Unruly Horse in Control’ or Public Policy as a Bar to Enforcement of (Foreign) Arbitral Awards, 2 International Law Forum Du Droit International 248, 252 (2000); J. D. M. Lew / ​L . Mistelis / ​S. Kröll, Comparative International Commercial Arbitration, 2003, 723; P. Lalive, Transnational (or Truly International) Public Policy and International Arbitration, in P.Sanders ed., Comparative Arbitration Practice and Public Policy in Arbitration. ICCA Congress Series No. 3, 2005, 295. Report of the Committee E / 2704, Annex, page 2. R. Wolff, Grounds for Refusal of Recognition and Enforcement of Arbitral Awards, in R. Wolff ed., New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 2012, 402, 403.

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Commentators also confirm such understanding. In one of the leading commentaries, it has been suggested on Article V(2)(b) that: The provision certainly refers to international public policy, and not domestic public policy. Not every breach of a mandatory rule of the host country could justify refusing recognition or enforcement of a foreign award. Such refusal is only justified where the award contravenes principles which are considered in the host country as reflecting its fundamental convictions, or as having an absolute, universal value.7 Some of the most arbitration-friendly countries, such as France, make clear in their domestic legislation how public policy for the purpose of recognising and enforcing foreign arbitral awards should be interpreted. Article 1514 of the 2011 French Arbitration Reform states that: Les sentences arbitrales sont reconnues ou exécutées en France si leur existence est établie par celui qui s’en prévaut et si cette reconnaissance ou cette exécution n’est pas manifestement contraire à l’ordre public international (emphasis added).8 Furthermore, some authors have suggested that the application of domestic public policy should be performed under the limitation driving from international concepts. It has been observed in this respect that: Although Article V(2)(b)’s public policy exception focuses on national public policy, the structure and objectives of the New York Convention (and other international arbitration instruments) should be interpreted as imposing some limits on Contracting States’ applications of national public policy. The Convention’s structure and objectives argue strongly against the notion that Contracting States would be free to effectively repudiate their obligations under Articles III and V by means of reliance on parochial local public policies, without international limitation. It would, for example, make no sense to interpret Article V(2)(b) as permitting a Contracting State to require that all disputes be resolved in local courts or in accordance with local substantive laws or local procedural rules; equally, it would make no sense to interpret Article V(2)(b) as allowing a Contracting State to forbid the arbitration of tort claims or future disputes. In each case, these national law rules would essentially annul a Contracting State’s ratification of the Convention and cannot have been intended.9 7 8 9

E. Gaillard / ​J. Savage eds., Fouchard Gaillard Goldman on International Commercial Arbitration, 1999, 995. Décret n° 2011-48 du 13 Janvier 2011 portant Réforme de l’arbitrage. G. Born, International Commercial Arbitration, 2009, 2837.

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In the international context, an attempt to identify the provisions of public policy has been made by the International Law Association in its Recommendations on the Application of Public Policy as a Ground for Refusing Recognition or Enforcement of International Arbitral Awards (hereinafter referred to as the “ILA Recommendations”).10 The ILA Recommendations suggest that the finality of awards rendered in the context of international commercial arbitration should be respected save in exceptional circumstances and that such exceptional circumstances may, in particular, be found to exist if recognition or enforcement of the international arbitral award would be against international public policy. According to letter 1(d) of the ILA Recommendations: the international public policy of any State includes: (i) fundamental principles, pertaining to justice or morality, that the State wishes to protect even when it is not directly concerned (ii) rules designed to serve the essential political, social or economic interests of the State, these being known as “lois de police” or “public policy rules” and (iii) the duty of the State to respect its obligations towards other States or international organisations. Finally, it should be noted that public policy is a developing concept which, as such, is likely to give rise to different outcomes in different times. As stated by the Court of Appeal in New Zealand: Even within any given common law country the courts cannot by the doctrine of precedent stereotype public policy; what was once the rule need not be accepted as required by current conditions … “Since public policy reflects the mores and fundamental assumptions of the community, the content of the rules should vary from country to country and from era to era.” This does not mean that prior decisions based on public policy as judicially conceived at the time are lightly to be abandoned and the issue automatically approached anew. I think it means rather that the court should not automatically assume that past public policy is sacrosanct. Changes in society or attitudes prevailing internationally may show that apprehensions once seen as real and weighty are obviously no longer so.11

10 11

Available at www.ila-hq.org. CBI v. Badger Chiyoda, [1989] 2 NZLR 669, 674, as quoted in D. Otto / ​O. Elwan, in H. Kronke et al. eds., Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention, 2010, 345, 367.

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III.B  Scope of control The relationship between international arbitration and public policy is very effectively described in the introductory part of the English Arbitration Act 1996, where it is stated, that: […] the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense; the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest. This could indeed be seen as a manifesto for the development of arbitration. Freedom and efficiency, within reasons. How is such a principle applied in practice? Scrutiny of foreign arbitral awards for the purpose of applying the New York Convention should not entail a full-blown revision of the merits of the case and the proceedings. However, as we have seen above, in the presence of public policy issues it is believed that domestic courts should be allowed a more profound degree of investigation. The ILA Recommendations suggest, under letter 1(g), that: […] if the court refuses recognition or enforcement of the arbitral award, it should not limit itself to a mere reference to Article V.2 (b) of the New York Convention 1958 or to its own statute or case law. Setting out in detail the method of its reasoning and the grounds for refusing recognition or enforcement will help to promote a more coherent practice and the development of a consensus on principles and rules which may be deemed to belong to international public policy. An example of the depth of scrutiny that courts may be prepared to undertake in the presence of public policy issues can be found in a number of cases that have attracted the attention of the international arbitration community. All of them seem to converge on the fact that public policy allows a deeper degree of analysis. Even though different views exist in terms of actual degree of scrutiny. It may well be that the small differences, if existing, are the inevitable result of the different factual aspects of the different disputes. Two well-known illustrative cases are Soleimany v Soleimany and Westacre v Jugoimport, both decided by the English judiciary. In those two emblematic cases it was established that, in the presence of public policy issues, the courts should not limit themselves to the limited degree of scrutiny that is normally expected in the enforcement of foreign arbitral awards. Where public policy issues arise, the courts should be allowed to go beyond the prima facie analysis normally allowed to them.

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In Soleimany v Soleimany12, Sion Soleimany owned a successful business in Teheran exporting valuable Persian and other Oriental carpets. In l980, following the political upheaval in Iran, Sion went to England where his son Abner was a student. As requested by his father, Abner returned to Iran to help free a consignment of carpets that had been seized by the Iranian customs authorities. While in Iran, Abner realised that there were substantial profits to be made from the export and sale of Persian carpets even though that involved contravening Iranian export controls. As a result, between l980 and l983, Abner arranged the shipment of carpets from Iran to Sion in England or elsewhere outside Iran. Eventually a dispute arose between Abner and his father mainly over the proceeds of sale of the carpets that Abner alleged he had arranged to export from Iran. Abner and Sion resolved to arbitrate their disputes before the Beth Din. It appears that the system of law to be applied by the Beth Din was Jewish Law, albeit “sometimes other systems of law may also be relevant … by way of the doctrine of incorporation, …” but the decision as to which law to apply “is that of the Dayanim”. Before the Beth Din there was no dispute that the carpets were smuggled out of Iran in breach of Iranian Revenue Controls and export controls. In the award made by the Beth Din it was stated that “Abner purchased quantities of carpets and exported them illegally out of Iran”. Further statements of the illegal activities carried out in Iran were contained in the award. The award found in Abner’s favour. Abner then applied for enforcement in the United Kingdom where Sion attempted to resist the application. The dispute eventually reached the Court of Appeal which addressed, amongst other things, the issue of illegality. After finding that the arbitration agreement, because of its autonomous nature, had not been tainted by the illegality of the main contract, the Court of Appeal moved to address the issue of enforceability of the award. Coming to the issue of illegality of the transaction the Court observed that: Where public policy is involved, the interposition of an arbitration award does not isolate the successful party’s claim from the illegality which gave rise to it. The Court stated that enforcement should be declined to preserve the integrity of its process, and to see that it is not abused: The parties cannot override that concern by private agreement. They cannot by procuring an arbitration conceal that they, or rather one of them, is seeking to enforce an illegal contract. Public policy will not allow it. In the present case the parties were, it would seem, entitled to agree to an arbitration before the Beth Din. It may be that they expected that the award, whatever 12

[1998] EWCA Civ 285, available at www.bailii.org.

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it turned out to be, would be honoured without further argument. It may be that Abner can enforce it in some place outside England and Wales. But enforcement here is governed by the public policy of the lex fori. As regards the scope of analysis, the Court observed: The difficulty arises when arbitrators have entered upon the topic of illegality, and have held that there was none. Or perhaps they have made a non-speaking award, and have not been asked to give reasons. In such a case there is a tension between the public interest that the awards of arbitrators should be respected, so that there be an end to lawsuits, and the public interest that illegal contracts should not be enforced. We do not propound a definitive solution to this problem, for it does not arise in the present case. So far from finding that the underlying contract was not illegal, the Dayan in the Beth Din found that it was. Because of the interesting issues that were being touched upon, the Court felt appropriate addressing certain general questions connected to public policy: It may, however, also be in the public interest that this court should express some view on a point which has been fully argued and which is likely to arise again. In our view, an enforcement judge, if there is prima facie evidence from one side that the award is based on an illegal contract, should enquire further to some extent. Is there evidence on the other side to the contrary? Has the arbitrator expressly found that the underlying contract was not illegal? Or is it a fair inference that he did reach that conclusion? Is there anything to suggest that the arbitrator was incompetent to conduct such an enquiry? May there have been collusion or bad faith, so as to procure an award despite illegality? Arbitrations are, after all, conducted in a wide variety of situations; not just before high-powered tribunals in International trade but in many other circumstances. We do not for one moment suggest that the judge should conduct a full scale trial of those matters in the first instance. That would create the mischief which the arbitration was designed to avoid. The judge has to decide whether it is proper to give full faith and credit to the arbitrator’s award. Only if he decides at the preliminary stage that he should not take that course does he need to embark on a more elaborate enquiry into the issue of illegality. The Court also suggested that, when it comes to public policy, the analysis should not be limited to establishing compatibility with local law. The analysis may involve a broader approach: Finally, under this head, we should state explicitly what may already have been apparent: when considering illegality of the underlying contract, we Domenico Di Pietro

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do not confine ourselves to English law. An English court will not enforce a contract governed by English law, or to be performed in England, which is illegal by English domestic law. Nor will it enforce a contract governed by the law of a foreign and friendly state, or which requires performance in such a country, if performance is illegal by the law of that country. That is well established as appears from the citations earlier in this judgment. This rule applies as much to the enforcement of an arbitration award as to the direct enforcement of a contract in legal proceedings. Also extremely interesting on the issue of scope of scrutiny was the almost contemporaneous case of Westacre v Jugoimport.13 That was a dispute between Beogradska Banka, the State-owned company Yugoimport and the Directorate of Supply and Procurement of Yugoslavia against Westacre Investments Inc, a Panamanian company. Westacre, the Directorate and the Bank had entered into a contract whereby the Directorate appointed Westacre as a consultant for the sale of military equipment in Kuwait. Pursuant to the contract, Westacre was to receive a commission based on the procured sales. When a dispute about the payment of the commissions arose, Westacre commenced arbitration proceedings under the ICC Rules. The Tribunal eventually found in Westacre’s favour. Towards the end of the proceedings it was claimed by the Respondents that the contract was void on the ground that it violated “ordre public international” or “bonos mores” as Westacre had allegedly bribed persons in Kuwait. The majority of the Tribunal, however, found that the Directorate had not established that there was any bribery or that the activities of Westacre were illicit or, finally, that there was anything which rendered the contract unenforceable. The majority of the Tribunal found the following: The majority also holds that bribery renders an agreement invalid. In arbitration proceedings, however, bribery is a fact which has to be alleged and for which evidence has to be submitted, and at the same time constitutes a defence, nullifying the claims arising from a contract. The consequences of this are decisive. If a claimant asserts claims arising from a contract, and the defendant objects that the claimant’s rights arising from the contract are null due to bribery, it is up to the defendant to present the fact of bribery and the pertaining evidence within the time limits allowed to him for presenting facts. The statement of facts and the burden of proof are therefore upon the defendant. The word “bribery” is clear and unmistakable. If the defendant does not use it in his presentation of facts an Arbitral Tribunal does not have to investigate. It is exclusively the parties’ presentation of facts that decides in what direction the arbitral tribunal has to investigate. 13

[1999] 3 All ER 864, available at www.bailii.org.

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If the claimant’s claim based on the contract is to be voided by the defence of bribery, the arbitral tribunal, as any state court, must be convinced that there is indeed a case of bribery. A mere “suspicion” by any member of the arbitral tribunal, communicated neither to the parties nor to the witnesses during the phase to establish the facts of the case, is entirely insufficient to form such a conviction of the Arbitral Tribunal. The Directorate and the Bank filed an application for the setting aside of the award before the Swiss Federal Tribunal. The application, however, was dismissed. The Swiss Federal Tribunal, amongst other things, stated that: Thus, the appellants’ claim that the agreement, owing to its illegal or immoral purpose, is void does not at all events accord with the factual finding made by the arbitral tribunal. As has already been stated, the truth is that this argument consumes itself in a feckless criticism of the arbitral tribunal’s findings of fact and of the procedure applied, considering that no violation of mandatory rules of procedure occurred. In the last analysis, the arbitral tribunal did not at all contravene public policy in upholding the validity of the April 12, 1988, agreement, the substance of which was determined in the course of the proceedings. Thus, to the extent that it is founded on Article 190(2)(e) LDIP, the appeal is without grounds. Westacre attempted recognition of the award in the United Kingdom, where its counterparts filed an application aimed at preventing recognition and enforcement under Article V of the New York Convention. After an ex parte order had allowed Westacre to enforce, the question was brought before the Court of Appeal. In the proceedings before the Court of Appeal, the appellants accepted that there was no finding on Kuwaiti public policy by the arbitrators because the point had not been fully entertained by the appellants at the arbitration. Interestingly they also attempted to provide an explanation for not raising that issue during the arbitration proceedings. The issue was not raised because, under the proper law of the agreement and under the curial law of the arbitration, Swiss law, (a) a contract for the purchase of personal influence short of bribery would not be contrary to the public policy of Switzerland; and (b) because it would not be contrary to public policy in Switzerland to enforce a contract that involved the commission of acts contrary to the public policy of Kuwait or any other foreign and friendly state as opposed to being “illegal” by the law of that state. In other words raising the issue would have been meaningless. The Court of Appeal started off its analysis by pointing our that public policy issues cannot be defeated by estoppel. It observed that: even if a party had obtained a declaration from the English court as to the validity of a contract in a situation in which the defendant had not raised a public policy issue in relation, for example, to the fact that the contract was Domenico Di Pietro

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for the importation of drugs, the English court would not allow the plaintiff to rely on an issue estoppel to prevent argument on principles of public policy which are of the greatest importance. The Court of Appeal therefore supported the view that there might be circumstances in the presence of which, despite the prima facie position of an award preventing a party re-opening matters, the English court will allow a re-opening. The need for such an approach was justified as follows: The court is in this instance performing a balancing exercise between the competing public policies of finality and illegality; between the finality that should prima facie exist particularly for those that agree to have their disputes arbitrated, against the policy of ensuring that the executive power of the English court is not abused. It is for those reasons that the nature of the illegality is a factor, the strength of case that there was illegality also is a factor, and the extent to which it can be seen that the asserted illegality was addressed by the arbitral tribunal is a factor. The Court of Appeal explained that fundamental principles imposed that courts could not be seen as turning a blind eye to corruption. In that respect, and with specific reference to the facts of the case, it observed that the issue of bribery had not been clearly and fully articulated before the Arbitral Tribunal. The fact is that the arbitrators simply did not have an opportunity of considering the case as now made, and whatever their suspicions, the majority did not feel it in their place to make inquiries. I draw attention to the quotation from the reasons of the majority at the commencement of this judgment, where they say, if the defendant does not present the facts “an Arbitral Tribunal does not have to investigate”, and to the fact that they asserted to the Swiss court that the allegation that the appellants were themselves involved in the bribery was not part of the case before the arbitrators. What of course gives one cause for concern is the way the matter can be put so powerfully in relation to finality. The appellants chose not to run the point they now run before the arbitrators, and on the bribery issue they raised they lost; they took the matter to the Swiss Federal Court and lost; the point, if it is successful, prevents at least in this jurisdiction enforcement so as to require payment of that part of the price paid under the main arms contract which would otherwise have gone to Westacre. The answer is that so far as public policy is concerned it is always unattractive for one party to be able to take the point, but the English court is concerned with the integrity of its own system, and concerned that its executive power is not abused. If the agreement represented a contract to pay a bribe, Westacre should not be entitled to enforce the agreement before an English court and should not be entitled to enforce an award based on it. Domenico Di Pietro

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Soleimany and Westacre are slightly different. In the former case it was clear that the award was enforcing an unlawful enterprise, while in Westacre the award expressly stated that performance was not illegal under the laws of Kuwait (and apparently not even under Swiss law). The two cases, however, do overlap on a central issue. When it comes to public policy and, therefore, to the potential incompatibility with the core principles of a legal system, domestic courts might perform their scrutiny irrespective of whether any public policy issues had surfaced during the arbitral proceedings or whether, where they had surfaced, they had been correctly entertained by the relevant tribunal. According to the Court of Appeal, public policy demands a higher degree of scrutiny that is not allowed in the assessment of other grounds for the refusal of recognition and enforcement of foreign arbitral awards. A slightly different stance on the issue of scope of control can be found in the French case of SNF. v. Cytec.14 That was a dispute arising out of a contract for the sale of chemical components between the French company SNF and the Dutch company Cytec. When a dispute arose between the parties, Cytec commenced ICC arbitration proceedings with seat in Belgium. In the proceedings it was claimed that the contract entered into by the parties was null and void pursuant to European competition law. The Arbitral Tribunal upheld such a claim since it found that the contract was aimed at restricting SNF’s ability to enter the European market for a specific chemical component. In a separate award the tribunal awarded damages in Cytec’s favour. Cytec moved to have the awards enforced in France where SNF applied to have the enforcement refused. The case eventually reached the Paris Court of Appeal, which confirmed the enforcement order that had been issued by the Court of First Instance. The Court of Appeal explained in its decision that: Considering that although it is correct, as reminded by company SNF-SAS, that under Article 1502 of the New Code of Civil Procedure, the Court of Appeals exercises its power of review on the basis of the enumerated grounds by seeking in law and in fact, and without limitation, all factors establishing a breach, the Court, which is not sitting in judgment of the trial but of the award, exercises only an extrinsic control as regards the breach of international public policy as only the recognition or the enforcement of the award is examined in light of its conformity with international public policy at the time it is presented to the judge.15 With regard to the merits of the award, however, the Court explained that it could not substitute its own assessment to the Tribunal’s finding on damages 14

Court of Appeal of Paris, 23 March 2006, Société SNF SAS c / ​Société Cytec Industries BV, Revue de l’Arbitrage, 100 (2007). 15 The translation has been taken from the most interesting article by E. Gaillard, Extent of Court Review of Public Policy, 237 New York Law Journal, 65, April 5, 2007.

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as that was not an issue of public policy falling within the broader powers recognised to French courts. This decision is believed to follow the teaching of the Paris Court of Appeal in the well-known case of Thales v Euromissile where Thales had filed for the annulment of an arbitral award that had been issued in Euromissile’s favour. Also this case dealt with the issue of lack of compliance with EU competition law, even though, interestingly, the issue had not been raised during the arbitral proceedings. The Court of Appeal explained that the fact that the competition law issue had not been raised during the arbitral proceedings did not prevent it from analysing the award’s compatibility with public policy. The fact that the issue of EU competition law had not been raised, however, did indeed play a role since it prevented the French Court from performing a thorough assessment of the issue. The Court of Appeal, in rejecting the application for a set aside explained that, even in this case, its assessment should be one of an extrinsic nature: La violation de l’ordre public international au sens de l’article 1502-5° NCPC doit être flagrante, effective et concrète. Le juge de l’annulation peut certes, dans le cadre de ses pouvoirs de nature disciplinaire, porter une appréciation en droit et en fait sur les éléments qui sont dans la sentence déférée à son contrôle, mais pas statuer au fond sur un litige complexe qui n’a jamais encore été ni plaidé, ni jugé devant un arbitre concernant la simple éventualité de l’illicéité de certaines stipulations contractuelles. The French Court of Appeal also seemed to address the issue of balancing the need to deal with public policy, on one hand, and finality, estoppel, and more generally good faith, on the other hand, by stating: Il n’y a aucune raison de permettre au recourant de bénéficier des lacunes, volontaires ou non, dans la défense de ses intérêts devant les arbitres, soit qu’elle ait estimé à l’époque vraisemblable ou acquise la compatibilité des clauses contractuelles litigieuses avec les règles du droit communautaire de la concurrence, ou, tout au contraire, voulu échapper aux sanctions de la Commission, dans tous les cas afin de réserver ses arguments au stade du procès en annulation de la sentence qui la condamne. En définitive, le juge de l’annulation ne saurait, sous peine de remettre en cause le caractère final de la détermination des arbitres sur le fond du procès, la violation alléguée d’une loi de police n’autorisant aucune atteinte à la règle procédurale de l’interdiction d’une révision au fond, effectuer en l’absence de fraude ou, comme il a été dit, de violation manifeste, un examen de l’application des règles de la concurrence au contrat litigieux, aucune annulation n’étant

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d’ailleurs encourue simplement parce que les arbitres ainsi n’ont pas soulevé d’office les questions du droit communautaire de la concurrence.16

III. Conclusion The New York Convention provides enforcing parties with a formidable tool. Thanks to the Convention, arbitral awards can be recognised and enforced virtually everywhere in the world with limited formalities and limited scrutiny by the domestic courts at the place of enforcement. The limited grounds in the presence of which recognition and enforcement may be refused under Article V of the New York Convention include the socalled public policy defence. Public policy (including arbitrability) is the only ground in the presence of which domestic courts feel entitled to undertake what is described as a “second look” approach. In other words, with a view to avoiding any inconsistency between the award to be enforced and the core legal principles of the place of enforcement, domestic courts are prepared to carry out a deeper scrutiny of the award which may involve some kind of evaluation of the merits of the case. The actual degree of scrutiny may vary from jurisdiction to jurisdiction. This is therefore one of the elements to be assessed where shopping for the most favourable forum for enforcement. Another aspect to be taken into account has a more substantive nature. What is the public policy that domestic courts would make reference to in deciding whether recognising and enforcing a foreign award? It is increasingly accepted that only a limited part of the public policy provisions of domestic law should be taken into account. Discrepancies in this regard may, however, exist in different jurisdictions. In conclusion, the development of arbitration – which has been favoured, inter alia, by the New York Convention – is leading to the harmonisation of different domestic practices and principles. Different attitudes, however, still persist. Therefore, any decision as to where to enforce and award should be preceded by a thorough analysis about the two main issues that have been briefly highlighted in this paper.

16

Court of Appeal of Paris Thales Air Défense v. Euromissile, 18 November 2004. In Revue de l’Arbitrage, 2005, 751.

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Forum Shopping and Post-Award Judgments Linda Silberman / ​Maxi Scherer I. Introduction The forum shopping theme around which this book has been developed comes into play in multiple ways in the context of post-award judgments. Post-award judgments can take several forms, depending on whether the award is set aside,1 confirmed, recognized or enforced. Creative parties may forum shop for a setaside, confirmation, recognition or enforcement judgment and seek to rely on its effects in subsequent proceedings relating to the same award in another country. The courts in that other country will have to assess the effects they give to the foreign post-award judgment. Our paper examines how courts should respond to such forum shopping attempts. It assesses whether a decision to set aside, confirm, recognize or enforce an arbitral award might affect subsequent attempts to recognize or enforce that award elsewhere. Part II of the paper considers the most straightforward of these issues: what is the role of a court requested to recognize and enforce an award that has been set aside at the seat of arbitration? Should it enforce the award and ignore the judgment of the foreign court? Or should it respect the decision of the foreign court and refuse to enforce the award? Additionally, what criteria should be used by a court in making its decision? The paper offers a tentative hypothesis that a “judgment route” – that is, the use of foreign judgment principles – should be invoked by a national court to assess whether or not to give effect to a foreign set aside. In Part III of the paper, we go on to consider whether such judgment principles have application to other post-award judgments, such as judgments con1

As a matter of terminology, we use the term to “set aside” or to “annul” an award when referring to proceedings nullifying an award before the national courts of the seat of the arbitration. The term “set aside” is found in Article V(1)(e) of the New York Convention. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done June 10, 1958, 21 United States Treaties 2517, 33 United Nations Treaty Series, Art. V (hereinafter: New York Convention). In some jurisdictions, such as the United States, the terminology may be to “vacate” an award. See Federal Arbitration Act, 9 U.S. C. § 10. Note that Article V(1)(e) refers both to the country “in which” or “under the law of which” the award was made, in identifying the place for set-aside that will justify nonrecognition of an award. References in the paper to annulment at the “seat” or “place of arbitration” should be understood to include the rare situation where a different lex arbitri is chosen by the parties.

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firming (or refusing to set aside) an award and judgments recognizing and enforcing a foreign award. The paper concludes and explains that the judgment recognition framework does not have application outside the “set-aside” context. Unlike a judgment setting aside an award, which is expressly included as an exception to recognition and enforcement in Article V(1)(e), other postaward judgments are not referred to in the Convention as possible exceptions to recognition and enforcement.

II. Forum Shopping and the Approach to Set-Asides Although the Convention provides grounds for exceptions to recognition and enforcement of an arbitral award,2 it says nothing about the grounds for review or set-aside at the place of arbitration. Thus, each country establishes its own regime for reviewing and / ​or annulling awards rendered in that country. It is therefore not surprising to learn that informed parties and their counsel are likely to take into account the legal regime with respect to set aside when they select the situs for the arbitration. A 2006 study offered some evidence that the legal regime (including the extent to which awards are challenged at the seat) was the single most important criteria for a corporation in selecting the situs for arbitration.3 A later 2010 study also found that the formal legal infrastructure, including the approach to annulment, was the most influential factor in the choice of a seat.4 Of course, a robust set-aside regime might be of greatest concern if other New York Convention States were required to refuse recognition or enforcement of an award that had been set aside at the situs. But that is not the case. The Convention compels recognition and enforcement of arbitral awards, but provides for certain exceptions; and Article V(1)(e) is one of the grounds on which recognition and enforcement “may be refused” at the request of the party against whom it is invoked.5 Its parameters are that “the award has not yet become binding on the parties, or has been set aside, suspended by a competent authority of the country in which, or under the law of which, that award was 2

New York Convention, supra note 1.

3 See PriceWaterhouseCoopers & Queen Mary University of London, International Arbi-

tration: Corporate Attitudes and Practices 2006, 13-14 (2006), available at: http: // ​w ww. arbitrationonline.org / ​docs / ​IAstudy_2006.pdf. 4 See White & Case & Queen Mary University of London, 2010 International Arbitration Survey: Choices in International Arbitration, 18 (2010), available at: http: // ​w ww. whitecase.com / ​fi les / ​Publication / 839d2762-bf8e-4daa-b40a-1b643081b801 / ​Presentation / ​PublicationAttachment / 3c346b83-27ba-4ed1-a99e-e1811e47b997 / 2010International_Arbitration_Survey_Choices_in_International_Arbitration.pdf. 5 Art. V(1)(e) New York Convention, supra note 1.

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made.”6 However, as underscored by the permissive language, there is no obligation to refuse recognition or enforcement, and a country is nonetheless free to enforce an award that is set aside in the country where the award is rendered. Leaving aside for the moment that the “permissive language” extends to all of the Article V grounds, at least as understood in the English version of the Convention,7 there is good reason for permitting a recognizing court to evaluate the annulment. Set-aside itself permits a check on the arbitral process in the place of arbitration. And, although a number of countries prefer the approach of the Model Law to harmonize the grounds for set-aside and recognition, several others have different views as to how interventionist courts should be in supervising an arbitration in their jurisdiction,8 and the Convention does not limit that autonomy. The question is then raised as to how countries that are party to the New York Convention should respond to a set-aside at the seat of arbitration. On one view, an award that is set aside is not an award at all and thus there is no award to recognize or enforce (“Ex nihilio nil fit”).9 Arbitration is perceived as an extension of the legal regime of the country in which the arbitration takes place, and therefore the courts’ oversight of the arbitration should be conclusive. Moreover, proponents of this view consider that parties have consciously chosen to arbitrate at a particular place and should therefore understand possible exposure to a set-aside. Accordingly, in countries following such a view, courts generally refuse to recognize or enforce an award set aside at the seat of the arbitration. A series of recent decisions in Russia, in the case Ciments Français v. Sibirskiy Cement, deal with these issues.10 An award made in Turkey in favor of Ciments Français was set aside by the Turkish court on grounds that the arbitrators had failed to address certain arguments, and that the award violated the 6

Id. See, e. g., Matter of Arbitration Between Chromalloy Aeroservices, a Div. of Chromalloy Gas Turbine Corp. & Arab Republic of Egypt, 939 F. Supp. 907, 909 note 2 (D. D. C. 1996); cf. E. Gaillard, The Enforcement of Awards Set Aside in the Country of Origin, 14 ICSID Review 16, 32-33 (1999). 8 See, e. g., English Arbitration Act of 1996, § 103 (Eng.), available at: http: // ​w ww.legislation.gov.uk / ​u kpga / 1996 / 23 / ​contents. 9 See generally, A. J. van den Berg, Enforcement of Arbitral Awards Annulled in Russia, 27(2) Journal of International Arbitration 179 (2010); see also, A. S. Rau, Understanding (and Misunderstanding) “Primary Jurisdiction”, 21 American Review of International Arbitration 47 (2010). 10 Ciments Français v. Sibirskiy Cement, Supreme Arbitrazh Court Ruling No. VAS17458 / 11, Aug. 27, 2012. See also E. R. Gadelshina, Ciments Francais: Russian Putabali No More, Kluwer Arbitration Blog (Mar. 22, 2012), available at: http: // ​k luwerarbitration blog.com / ​blog / 2012 / 03 / 22 / ​ciments-francais-russian-putrabali-no-more. 7

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Turkish ordre public.11 Notwithstanding the set-aside, on application of Ciments Français, the Arbitrazh Court of Kemerovo Region recognized the award.12 A year later, the Supreme Arbitrazh Court reversed and denied recognition to the award, holding that recognition of a foreign arbitral award at odds with a national court decision is contrary to domestic public order.13 In Germany, courts view the award as inextricably linked to the judicial regime of the seat of the arbitration.14 In determining whether to enforce an award, German courts look to the award’s status in the country where it was made, without engaging in scrutiny of the annulment decision itself.15 German law even goes so far as to provide that a court may reverse its earlier decision to enforce an award if it is subsequently set aside at its situs.16 A 1999 German case is illustrative. A German Higher Regional Court refused to enforce an award set aside in Russia;17 however, when the highest Russian court subsequently 11

Ciments Français v. Sibirskiy Cement, supra note 10, at 11. Ciments Français v. Sibirskiy Cement, Arbitrazh Court of Kemerovo, XXXVI Yearbook Commercial Arbitration 325 (2011). The decision to enforce was based partially on Article IX(2) of the European Convention on International Commercial Arbitration of 1961, done Apr. 21, 1961 484 United Nations Treaty Series 364, No. 7041 (1963-1964) (hereinafter: European Convention). Article IX(2) provides that an award set aside will only be relevant if the reason for set-aside is one in the list of reasons set forth in Article IX(1) of said Convention. See M. McClure, An Unlikely Mix – the Russian Courts, a French Cement Company, and the 1961 European Convention on International Commercial Arbitration, Kluwer Arbitration Blog (Sept. 28, 2011), available at: http: // ​k luwerarbitrationblog.com / ​blog / 2011 / 09 / 28 / ​genevaconvention / ​. 13 Ciments Français v. Sibirskiy Cement, supra note 10. However, the Russian national court decision on which the Supreme Arbitrazh Court based its reasoning has subsequently been reversed and the effects of this reversal on the (non-)recognition of the Turkish award remain to be assessed. 14 See E. Smith, Vacated Arbitral Awards: Recognition and Enforcement Outside the Country of Origin, 20 Boston University International Law Journal 355 (2002); see also D. Freyer, The Enforcement of Awards Affected by Judicial Orders of Annulment at the Place of Arbitration, in E. Gaillard / ​D. Di Pietro eds., Enforcement of Arbitration Agreements and International Arbitral Awards – The New York Convention in Practice, 2008, 757, 785. 15 Freyer, supra note 14; G. J. Horvath, What Weight Should be Given to the Annulment of an Award under the Lex Arbitri? The Austrian and German Perspectives, 27 Journal of International Arbitration 249, 259-266 (2009). 16 Id; German Code of Civil Procedure (Dec. 5, 2005), Section 1061(3) (De.). An English translation of the law was done by Samson-Übersetzungen GmbH, Dr. Carmen von Schöning (2012), available at: http: // ​w ww.gesetze-im-internet.de / ​englisch_zpo / ​englisch_zpo.html. 17 Oberlandesgericht Rostock, Oct. 28, 1999 (De.), XXV Yearbook Commercial Arbitration 717, 719 (2000); Freyer, supra note 14, at 786. 12

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overturned the annulment decision and confirmed the award, the German Federal Supreme Court followed suit and reversed its decision, deeming the award enforceable.18 A recent decision of the Supreme Court of Chile offers an even more extreme view. In EDF Internacional S. A. v. Endesa Internacional S. A. and YPF S. A., the Court held that it would not recognize or enforce an award annulled in Argentina.19 The Court relied upon Article 246 of the Chilean Code of Civil Procedure, which provides that the authenticity and effectiveness of an award “shall be proven by its approval by a superior court of the seat of arbitration.”20 The language suggests that the Court is adopting a double exequatur requirement that was expressly rejected in the New York Convention,21 and that the Chilean courts will only enforce an award that has been confirmed at the seat. At minimum, however, it indicates that annulments at the place of arbitration will be respected in Chile. Should this approach become the dominant view in recognition and enforcement practice, forum shopping for selection of the arbitral seat would become absolutely critical since a decision to set-aside there would have broad extraterritorial effect. In selecting the arbitral seat, the parties would be aware that any set aside judgment at the situs would result in the award not being recognized or enforced in most jurisdictions. But such complete deference to the set-aside at the place of arbitration undermines one of the goals of international arbitration – to offer a neutral transnational dispute adjudication in contrast to a national court. To the extent that local favoritism or bias produces idiosyncratic and / ​or parochial set-asides, it is sensible to permit a country asked to recognize or enforce award some discretion as to how to treat the set-aside. The difficulty is that, in addition to the lack of uniformity among countries as to the approach to take to set-aside judgments, no guidelines exist to determine when an award that has been set aside should be enforced. And, to return to the forum shopping theme of this book, an enforcing court’s attitude toward set-asides will certainly lead to forum shopping at the enforcement stage. Other practical factors are, of course, at play when considering where to seek recognition or enforcement of an award. The choice of forum for recognition / ​enforcement will most often be dictated by where the defendant’s assets 18

Bundesgerichtshof, Feb. 22, 2001, XXIX Yearbook Commercial Arbitration 724 (2004). EDF Internacional S. A. v. Endesa Internacional S. A. and YPF S. A., Sept. 8, 2011 (Cl.), 5(3) Arbitraje: Revista de Arbitraje Comercial y de Inversiones 915 (2012). 20 “En este caso se hará constar su autenticidad y eficacia por el visto-bueno u otro signo de aprobación emanda de un tribunal superior ordinario de país donde se haya dictado el fallo.” Code of Civil Procedure, Law N º 1552, amended by Law Nº 20.217, Art. 246 (2007) (Cl.). 21 See A. J. van den Berg, The New York Convention of 1958: An Overview, The International Council for Commercial Arbitration 17 (2008), available at: http: // ​www.arbitration-icca. org / ​media / 0 / 12125884227980 / ​new_york_convention_of_1958_overview.pdf. 19

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are located,22 although in some cases one may look to recognition in a jurisdiction without assets in the hope of achieving a decision with either influential or precedential effect.23 And in many cases, the award debtor will have assets in numerous jurisdictions, leading to multiple enforcement actions with potentially different results – a situation certainly contemplated by the New York Convention. The completely opposite approach – that is, to treat a set-aside at the place of arbitration as irrelevant – has its own unattractive features. Such a view is illustrated in France, which takes a strong pro-arbitration position and negative attitude toward set-asides.24 French arbitration law, both the prior and present versions, eliminate the Convention’s Article V(1)(e) as a basis for nonrecognition / ​enforcement.25 The two leading decisions from the French Cour de Cassation, Hilmarton Ltd. v. Omnium de Traitement et de Valorisation26 and 22

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In the United States, courts have been unanimous in holding that an independent basis of adjudicatory jurisdiction – either personal jurisdiction over the award debtor or quasi-in rem jurisdiction over his property – is necessary in order to enforce an arbitral award. See, e. g., First Investment Corporation of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 2012 U.S. App. LEXIS 26207 (5th Cir., Dec. 21, 2012); Frontera Resources Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393 (2d Cir. 2009); Glencore Grain Rotterdam B. V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114 (9th Cir. 2002). In other countries, however, the consent to arbitrate in a New York Convention country is construed as concomitant consent to enforce that award in other Convention countries without the need for any other connection to the defendant or his property. See Int’l Commercial Disputes Comm. of the Ass’n of the Bar of the City of New York, Lack of Jurisdiction and Forum Non Conveniens as Defenses to the Enforcement of Foreign Arbitral Awards, 15 American Review of International Arbitration 407 (2004); see generally L. J. Silberman, Civil Procedure Meets International Arbitration: A Tribute to Hans Smit, 23 American Review of International Arbitration 439 (2012). See also M. Scherer, in R. Wolff ed., The New York Convention. A Commentary, 2012, Art. III para. 17, 22. In the absence of assets, an award creditor might be hoping to use the judgment as precedent in a jurisdiction where the award defendant does have assets, or even to independently enforce that judgment against the debtor’s assets elsewhere. For a more extensive discussion of this issue, see infra at III. B. For a rather comprehensive treatment of the history of this approach in France, see C. Koch, The Enforcement of Awards Annulled in their Place of Origin: The French and US Experience, 26 Journal of International Arbitration 267 (2009). Code de Procédure Civile [C. P. C.] arts. 1525, 1520 (Fr.). An English translation of the law was done by E. Gaillard / ​N. Leleu-Knobil / ​D. Pellarini, International Arbitration Institute (2011) available at: http: // ​w ww.iaiparis.com / ​pdf / ​FRENCH_LAW_ON_ARBI TRATION.pdf. Hilmarton Ltd. v. Omnium de Traitement et de Valorisation, Cour de Cassation [Cass. 1e civ.] Mar. 23, 1994, Revue de l’Arbitrage 327 (1994).

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PT Putrabali Adyamulia v. Rena Holding, Ltd.27 enforced awards that had been set aside at the place of arbitration. In Putrabali, the Court explained that “an international arbitral award is not anchored in any national legal order [and thus] is a decision of international justice whose validity must be ascertained with regard to the rules applicable in the country where its recognition and enforcement are sought.”28 The French view is thus that international arbitration is part of a transnational legal order and is not attached to the national legal regime at the seat.29 The most recent decision in France, albeit of a lower court, follows this approach of treating an award annulled at the seat of arbitration as fully enforceable in France, barring any other Convention ground justifying non-enforcement.30 In Maximov v. Novolipetsky Steel Mill, the Tribunal de Grande Instance de Paris enforced an award rendered in Russia and set aside by the Russian 27

PT Putrabali Adyamulia v. Rena Holding, Ltd., Cour de Cassation [Cass. 1e civ.] June 29, 2007, Revue de l’Arbitrage 507 (2007); XXXII Yearbook Commercial Arbitration 299 (2007). 28 PT Putrabali Adyamulia v. Rena Holding, Ltd., Cour de Cassation [Cass. 1e civ.] June 29, 2007, XXXII Yearbook Commercial Arbitration 299, 302 (2007). 29 See P. Fouchard, La portée internationale de l’annulation de la sentence arbitrale dans son pays d’origine, Revue de l’Arbitrage 329 (1997); E. Gaillard, Enforcement of Awards Set Aside in the Country of Origin: The French Experience, in A. J. van den Berg ed., Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, 1999, 505; E. Gaillard, Legal Theory of International Arbitration, 2010. 30 Under French Civil Procedure Law, revised in 2011, recognition and enforcement is automatically ordered so long as the award has been shown to exist and enforcement would not be manifestly contrary to public policy. Code de Procédure Civile [C. P. C.] Art. 1514 (Fr.). An English translation of the law was done by E. Gaillard / ​N. LeleuKnobil / ​D. Pellarini, International Arbitration Institute (2011) available at: http: // ​w ww. iaiparis.com / ​pdf / ​FRENCH_LAW_ON_ARBITRATION.pdf. However, parties resisting enforcement may appeal the decision on grounds mirroring those in the New York Convention Art. V, namely that the tribunal lacked jurisdiction, was improperly constituted, exceeded its jurisdiction, there was a violation of due process, or recognition / ​ enforcement of the award would violate public policy. Id. at arts. 1525, 1520. Notably absent from this list is that the award has been set aside in the place it was made. Therefore, under French law, the fact that an award has been set aside by the competent court is accorded no weight. This omission is presumably justified on the basis of the “more favorable right” provision of Art. VII of the Convention, which allows a party seeking enforcement to rely on a domestic law instead of the Convention if that domestic law is more favorable to enforcement. See A. J. van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation, 1981, 85; see also Freyer, supra note 14 at 761-762.

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courts.31 The underlying dispute concerned an agreement for the purchase and sale of shares between Mr. Maximov and Novolipetsky Steel Mill (“NLMK”). The seat of the ICAC tribunal (International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation) was Russia, and the tribunal rendered a U.S. $300 million award in favor of Maximov. The Moscow Arbitrazh Court annulled the award on the ground that under Russian law corporate disputes are not arbitrable. The decision was affirmed by the Federal Arbitrazh Court of the Moscow District, and subsequently by the Supreme Arbitrazh Court. Notwithstanding the set-aside in Russia, Maximov sought to enforce the award in the Tribunal de Grande Instance de Paris. On May 16, 2012, the court enforced the award, holding that the annulment of the award at its seat was an insufficient basis for refusal to enforce the award and that a valid arbitration award procured in accordance with the parties’ agreed contractual method should be recognized and enforced. The French view has often been criticized. Not only does it completely disregard the decision of a court at the place of arbitration, but the French approach also creates particular complications in cases where a second award is made after the annulment of the first, and the outcome of such second award differs from the first. If the French courts have enforced the first award, they will refuse to enforce the second one on res judicata grounds. But nothing prevents the award creditor of the second award from seeking recognition of that award in some other place. This situation arose in Hilmarton, where an annulled Swiss award was enforced in France.32 A subsequent second Swiss award was denied enforcement in France on res judicata grounds,33 but was enforced in England.34 Putrabali is an even more unfortunate example of the forum shopping opportunities presented by the French approach.35 An award rendered in an English arbitration between a French buyer and an Indonesian seller resulted in an award in favor of the French party. The award was annulled in part by an English court on the basis of an error of law (review of such questions not having been excluded under the English Arbitration Act). As a result, a second award was then rendered, this time in favor of the Indonesian party. The French party sought enforcement of the initial award in its favor in France, and the 31

Maximov v. Novolipetsky Steel Mill, Tribunal de Grande Instance de Paris, May 16, 2012. Hilmarton Ltd. v. Omnium de Traitement et de Valorisation, Cour de Cassation [Cass. 1e civ.] Mar. 23, 1994, Revue de l’Arbitrage 327 (1994). 33 Omnium de Traitement et de Valorisation v. Hilmarton, Cour de Cassation [Cass. 1e civ.] June 10, 1997, Revue de l’Arbitrage 376 (1997) (Fr.). 34 Omnium de Traitement et de Valorisation S. A. v. Hilmarton Ltd., [1999] 2 Lloyd’s Rep. 222 (Q. B.) (Eng.). 35 For a more comprehensive discussion of Putrabali see R. W. Hulbert, When the Theory Doesn’t Fit the Facts – A Further Comment on Putrabali, 25 Arbitration International 2 (2009); see also P. Pinsolle, The Status of Vacated Awards in France: The Cour de Cassation Decision in Putrabali, 24(2) Arbitration International 277 (2008). 32

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Indonesian party sought enforcement of the later award in its favor in France. The view of the French courts, including the Cour de Cassation, was that only the first award could be enforced and that the second award was precluded by the first.36 The forum shopping tactic here is apparent, where the first award resulted in dismissal of the claimant’s case. Exequatur was sought primarily to prevent subsequent enforcement in France of the later award. And, under the strict French approach of giving no weight to annulments, the claimant’s forum shopping strategy was successful. As we see, neither the “enforce-all” or “enforce-nothing” approach is desirable. But an intermediate approach of leaving the issue to the “discretion” of the recognizing court has the disadvantage of lacking any guidance or uniformity. How is the court to decide whether or not a particular award that is set aside should be enforced? One view, endorsed by various arbitration experts, is that awards that are set aside will be enforced only if the ground for annulment exceeded the grounds for non-recognition under the Convention; otherwise, the set-aside judgment should be respected. This approach appears to be similar to the emerging practice in Canada.37 Jan Paulsson also takes that position. He argues that a local annulment ought not to prevent international recognition or enforcement of a New York Convention award unless the grounds for the annulment were those identified by the Convention itself.38 This approach is similar to that in Article IX(1) of the European Convention, which provides that a set-aside will not be recognized unless it was based on one of the specific grounds specified in 36

PT Putrabali Adyamulia v. Rena Holding, Ltd., Cour de Cassation [Cass. 1e civ.] June 29, 2007, Revue de l’Arbitrage 507 (2007); XXXII Yearbook Commercial Arbitration 299 (2007). 37 It appears that no Canadian court has been squarely faced with enforcing an annulled award, but several have decided enforcement actions with set-aside actions pending at the situs. The courts have expressed that they must recognize an award unless one of the grounds of refusal in Article 36 of the UNCITRAL Model Law is present, and within that they have discretion to enforce the award. In deciding whether to grant a stay of proceedings pending the outcome courts have indicated that there must be a “serious issue to be tried” (from the point of view of the Canadian court) in the foreign set-aside action. If not, a stay will not be provided and the award will be enforced. Europcar Italia S. p. A. v. Alba Tours Int’l Inc., 23 O. T. C. 376, [1997] O. J. No. 133, ¶ 22 (Ont. Ct. J.) (Can.); Powerex Corp. v. Alcan Inc., 2004 B. C. S. C. 876, B. C. J., [2004] No. 1349 (Can.). Except for a small subset of cases falling within the Federal ambit, enforcement of awards is to be determined by provincial law; however, Article 34 of the Model Law has been implemented throughout the provinces and territories in Canada (except arguably Quebec). H. C. Alvarez, The Implementation of the New York Convention in Canada, 25(6) Journal of International Arbitration 669, 670 (2008). 38 See J. Paulsson, Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment (LSA), 9 ICC International Court of Arbitration Bulletin 14 (1998).

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Article IX(1)(a) to (d) of that Convention.39 But the New York Convention is not so limited and failed to adopt that solution. In particular, under the New York Convention, where the parties have agreed to arbitration in a place where substantive legal review is part of the arbitral regime, annulment on that basis would appear to be appropriate. The late Hans Smit offered the suggestion that all annulments should presumptively be disregarded in cases where the setting aside has taken place in the “home court” of one of the parties, and at the party’s request.40 As noted by others,41 that proposal is strikingly overinclusive even though it identifies the kinds of concerns one has about local bias and parochialism at the situs, particularly where a state-owned entity is involved and that state was the only realistic place of arbitration. Gary Born offers several criteria for denying effect to an annulment decision in the arbitral seat: annulments that (1) are based on local public policies or non-arbitrability rules in the annulment forum, (2) are based on judicial review of the merits of the arbitrators’ substantive decisions or on other grounds not included in Articles (V)(1)(a) to (d) of the Convention, or (3) fail to satisfy generally applicable standards for recognition of foreign judgments.42 However, it is not clear why non-arbitrability rules of the seat, particularly if that is the applicable law or has a close connection to the parties, should be excluded altogether. Also, parties who choose a seat could expect the legal regime at the seat to control, and if judicial review is part of that regime, there seems little reason for objection. Nevertheless, Gary Born’s focus on judgment recognition is particularly appropriate, and Linda Silberman, in a prior article, proposed precisely that solution to deal with the problem of annulled awards.43 Similarly, William 39

European Convention, supra note 12. For an application of Article IX(1) of the European Convention by the Austrian Supreme Court, see Kajo-Erzeugnisse Essenzen GmbH v. DO Zdravilisce Radenska, Oberster Gerichtshof, Oct. 20, 1993 and Feb. 23, 1998, (At.) XXIVa Yearbook Commercial Arbitration 919 (1999). The Austrian Supreme Court enforced an award that had been annulled by the Supreme Court of Slovenia because it violated Slovenian public policy, due to certain aspects of the contract that gave the claimant a monopoly power. Austria is a party to both the New York Convention and European Convention, but the court looked to the European Convention as the one having the most favorable approach to arbitration. For a more comprehensive discussion of this case and the reasoning behind it, see Horvath, supra note 15, at 256-259; see also Freyer, supra note 14, at 764. 40 See H. Smit, Annulment and Enforcement of International Arbitral Awards: A Practical Perspective, 18 American Review of International Arbitration 297, 304 (2007). 41 See Rau, supra note 9, at 109. 42 G. B. Born, International Commercial Arbitration, 2009, 2691. 43 L. J. Silberman, The New York Convention After Fifty Years: Some Reflections on the Role of National Law, 38 Georgia Journal of International & Comparative Law 25, 32-36 (2009).

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Park in several articles has argued for treating annulment decisions “like other foreign money judgments, according them deference unless procedurally unfair or contrary to fundamental notions of justice.”44 According to Linda Silberman, there are good reasons to look to the law on recognition and enforcement of foreign judgments for guidance in determining whether a set-aside judgment should be respected: When a court at the arbitral seat sets aside an arbitral award, a second court asked to recognize and enforce the award has no obligation under the Convention to do so. However, if the award is annulled, there is now a judgment from a national court, and a court that enforces an arbitral award set aside by that national court has accordingly refused to recognize the foreign judgment. Under this view, national laws on recognition and enforcement of foreign judgments can offer guidance as to when refusal of recognition of such a judgment is appropriate. If the judgment is one that would be entitled to recognition, the set-aside should be respected and the award should not be enforced. However, if the judgment is one that does not meet the criteria for recognition and enforcement under national law, such as fairness of process or international public policy (which would incorporate international standards for respecting arbitral awards), the set-aside judgment should not be respected and the award should be enforced. The most recent draft of the American Law Institute’s Restatement of the Law Third on International Commercial Arbitration45 has adopted such a regime for purposes of U.S. law. Section 4-16 (b) of the Draft Restatement provides:

44

W. W. Park, Duty and Discretion in International Arbitration, Arbitration of International Business Disputes: Studies in Law and Practice, 2nd ed., 2012, 355, 363; see also W. W. Park, Duty and Discretion in International Arbitration, 93 American Journal of International Law 805 (1999). Professor Park refers to a comity approach to foreign judgments, whereas Professor Silberman refers to national law on judgment recognition and enforcement. The basic concept is the same: that recognition of annulment decisions should depend on whether the set-aside judgment is consistent with fundamental notions of justice and international public policy that is part of judgment-recognition law in most jurisdictions. Professor Silberman also argues that in the U. S. the recognition and enforcement of a foreign judgment annulling a Convention award would fit the type of case where a federal standard of recognition / ​enforcement would be in play. See Silberman, supra note 43, at 33 note 36; see also Restatement (Third) of the Foreign Relations Law of the United States, § 481 comment a (1987) (stating that recognition and enforcement of foreign judgments is typically a matter of state law unless there is a basis for federal jurisdiction such as a treaty or federal statute.). Here the New York Convention and Chapter 2 of the Federal Arbitration Act call for a federal standard. 45 American Law Institute, Restatement of the Law (Third), The U.S. Law of International Commercial Arbitration, Tentative Draft No. 2 § 4-16 (Apr. 16, 2012).

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“Even if a Convention award has been set aside by a competent authority, a court of the United States may confirm, recognize, or enforce the award if the judgment setting it aside is not entitled to recognition under the principles governing the recognition of judgments in the court where such relief is sought, or in other extraordinary circumstances.”46 One can even find the outlines of a “judgments approach” in existing U.S. case law.47 In the most notable case in which a U.S. court enforced an award annulled at the seat, Chromalloy Aeroservices v. Arab Republic of Egypt,48 the district court enforced an Egyptian arbitral award even though the award had been set aside by the Egyptian courts. The district court viewed Article V as providing a permissive standard, under which the court could exercise its discretion about whether or not to enforce an award that had been set aside. Ultimately, the court rested its decision on Article VII of the Convention, holding that Sections 9 and 10 of the Federal Arbitration Act would require enforcement of the award if the Egyptian award were a U.S. award. That rationale is misconceived, however, since Sections 9 and 10 apply only to domestic U.S. awards and the court’s attempt to equate an Egyptian and a U.S. award in that way misconstrues Article VII.49 However, in its opinion, the court also posed the question of whether the Egyptian set-aside judgment could itself be recognized and granted res judicata effect. The district court answered its own question, finding that recognition of the annulment decision would violate U.S. public policy in favor of “final and binding arbitration of commercial disputes”50 and rejecting any concerns of comity in these circumstances.51 Taken to the extreme, a “judgments framework” that viewed finality in arbitration as a public policy justification to refuse to enforce any set-aside would look very much like the French approach of giving no weight to set-aside judgments. The inadequacies of that approach,52 would apply equally here, and thus a more nuanced analysis of the public policy exception to recognition of judgments is called for. Another U.S. case that lends support to a recognition of judgments approach is a case – like most of the U.S. cases in which the issue as arisen – that respected the set-aside and refused to enforce the award. In Spier v. Calzatu46

Id. at § 4-16(b). M. Scherer, Effects of Foreign Judgments Relating to International Arbitral Awards: Is the Judgement Route the Wrong Road?, Journal of International Dispute Settlement (2013, forthcoming). 48 Matter of Arbitration Between Chromalloy Aeroservices, a Div. of Chromalloy Gas Turbine Corp. & Arab Republic of Egypt, 939 F. Supp. 907 (D. D. C. 1996). 49 For a further critique of the reasoning in Chromalloy, see Rau, supra note 9, at 102-111. 50 Chromalloy, supra note 48, at 913. 51 Id. at 913-914. 52 Discussed supra pp. 318-321. 47

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rificio Tecnica, S. p. A.,53 an Italian court set aside an Italian arbitral award on the ground that the arbitrators exceeded their powers, a decision which was upheld by the Court of Cassation. The federal court in New York respected the set-aside judgment and refused to enforce the award. Although not specifically referencing the law of judgments, the court does appear to have given some attention to that point: “[The applicant’s] reference to the permissive “may” in Article V(1) of the Convention does not assist him since, as in Baker Marine, [the applicant] has shown no adequate reason for refusing to recognize the judgments of the Italian courts.”54 Several other U.S. decisions, although not explicitly adopting a judgments approach, may be read as consistent with such an approach. For instance, in Baker Marine the Second Circuit found that the petitioner “has shown no adequate reasons for refusing to recognize the [set-aside] judgments of the Nigerian court.”55 Absent reasons for failing to recognize the annulment judgments, the Court refused to enforce the arbitration award.56 However, for a judgments framework to offer an effective solution to the problem of annulled awards, a court must be able to point to criteria for assessing the judgment. The need for impartial tribunals, fairness of proceedings, and specific public policy relating to arbitration would appear to be relevant factors both in the United States and elsewhere.57 Applied properly, such criteria should have led the D. C. Circuit Court of Appeals in TermoRio S. A. E. S. P. v. Electranta S. P.58 to enforce a Colombian arbitral award, notwithstanding its annulment by the Colombian court. In TermoRio, the Colombian court set aside the arbitral award on the ground that selection of the ICC Rules in the arbitration agreement was invalid under Colombian law. The D. C. Court of Appeals might be said to have looked to the law of judgments in that it considered whether the Colombian judgment violated any “basic notions of justice” that would justify non-recognition of the Colombian judgment.59 The court viewed the public policy exception to judgments as a narrow one,60 found no violation of public policy, and therefore respected the set-aside. But the court erred in failing to in53

54 55

56 57

58 59

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Spier v. Calzaturificio Tecnica, S. p. A., 71 F. Supp. 2d 279 (S. D. N. Y. 1999). Id. at 288. Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F.3d 194, 197 (2d Cir. 1999). Id. at 198. Restatement (Third) of Foreign Relations Law, supra note 44, at § 482. TermoRio S. A. E. S. P. v. Electranta S. P., 487 F.3d 928 (D. C. Cir. 2007). Id. at 938-939. Id. at 939 (“Accepting that there is a narrow public policy gloss on Article V(1)(e) of the Convention and that a foreign judgment is unenforceable as against public policy to the extent that it is repugnant to fundamental notions of what is decent and just in

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voke the public policy exception to take account of how accepted international arbitration practice was frustrated by the Colombian set-aside. The Colombian judgment, annulling an arbitration award on the parochial ground that the use of ICC rules was invalid under Colombian law, is inconsistent with international arbitration principles; accordingly, such a judgment should have been seen as repugnant to the public policy of the United States. The decision of the Amsterdam Court of Appeal in Yukos Capital SARL v. OAO Rosneft,61 reflects how a “recognition of foreign judgments” framework operates to permit enforcement of an award that has been set aside. The Dutch court granted leave to enforce in the Netherlands four arbitral awards issued by the International Commercial Arbitration Court (ICAC) at the Chamber of Commerce and Industry of the Russian Federation in arbitral proceedings brought by Yukos Capital against Yuganskneftegaz to recover on four loan agreements. The award in favor of Yukos was set aside by the commercial court in Russia, and that decision was upheld by two Russian appeals courts. Among the grounds relied upon for setting aside the award was a failure to disclose that the managing partner of the law firm representing Yukos had organized conferences in which the arbitrators had participated. Although the district court in the Netherlands refused to enforce the award based on the Russian setaside judgment, the Amsterdam Court of Appeal reversed. The Court of Appeal looked to rules of private international law to determine whether the Russian court judgments should be recognized. It concluded that a foreign judgment rendered by a judicial body that is not impartial and independent should not be recognized. Another recent Dutch decision considered similar issues. In Maximov v. NLMK, an award, annulled in Russia, but enforced in France, was also presented to the Dutch courts for enforcement. The first instance court confirmed the “judgments” approach, granted the annulment judgment recognition and refused enforcement of the award.62 The Amsterdam Court of Appeal did not reverse, but did not explicitly invoke the judgments-framework rationale it adopted in Yukos.63 Indeed, the Court of Appeal referred to aspects of its judgment in Yukos as presenting a “troublesome picture”.64 Nevertheless, the Court of Appeal concluded that the presumption of recognition given to a judgment is trumped only if the party resisting recognition of the foreign annulment

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the United States, appellants’ claims still fail.”) (internal citations and quotation marks omitted). Yukos Capital SARL v. OAO Rosneft, Amsterdam Cout of Appeal, Apr. 28, 2009 (Neth.), XXXIV Yearbook Commercial Arbitration 703 (2009). Maximov v. NLMK, Amsterdam District Court, Nov. 17, 2011 (Neth.), XXXVII Yearbook Commercial Arbitration 274 (2012). Maximov v. NLMK, No. 200.100.508 / 1, Amsterdam Court of Appeal, Sept. 8, 2012 (Neth.). Id. at ¶ 2.11

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provides sufficiently specific evidence of partiality and dependence.65 The parties were instructed to elaborate on a number of specific questions of Russian law relating to annulment of arbitral awards and asked to comment more specifically on the proceedings in the Russian court.66 Whether this case indeed marks a change in the Yukos judgments approach is unclear but perhaps the subsequent decision will prove enlightening. In some countries, one potential complicating issue in a judgments approach to recognition and enforcement might be a reciprocity requirement, when it is part of national judgments law. Reciprocity was an issue for a Ukrai­ nian court that was asked to recognize English arbitral awards made in favor of a Russian company (as assignor of a Cypriot company) against a Malaysian company (Pacific).67 The court in the U.K. set aside the awards,68 but the Ukrai­ nian court chose to enforce the awards. The Ukrainian court held that the lack of reciprocity between Ukraine and the U.K. with respect to the recognition and enforcement of judgments meant that the English court set-aside judgment was not entitled to effect. One may be somewhat skeptical of the court’s determination that there was in fact a lack of reciprocity between the U.K. and Ukraine in light of a different Ukrainian court’s conclusion that there was reciprocity with respect to recognition and enforcement of judgments.69 Just as there is a danger of parochial set-asides, there is a danger of “parochial” refusals to respect a setaside where, as here, it is the local party who asks for recognition of the award and wants the set-aside ignored. The judgments framework described above should be limited to the treatment of set-asides at the place of arbitration (or under the law of arbitration) as expressly provided for in the New York Convention. As shown by Maxi Scherer elsewhere,70 and as explained more fully in Part III of the paper, the use of a “judgments route” raises some important practical and theoretical issues and thus should not extend to judgments confirming, recognizing, or enforcing 65

66 67

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Id. Id. at ¶ 2.13-15. Pacific Inter-Link SDN BHD v. EFKO Food Ingredients Ltd., Court of Appeal of the Odessa Region, No. 1511 / 2458 / 2012, Jul. 16, 2012 (Ua.), available at: http: // ​reyestr. court.gov.ua / ​Review / 25273828. Pacific Inter-Link SDN BHD v. EFKO Food Ingredients Ltd., [2011] EWHC 923 (Comm) (Eng.). The English court set aside the awards on the ground that no valid arbitration agreement existed, and therefore, the tribunal had lacked jurisdiction. This had been a primary issue in the arbitration itself, and largely came down to whether the terms of the contract had been adequately agreed to over the course of a particular telephone conversation. Evidently, the English court thought not, basing its reasoning on the conclusions in the earlier case of Grace Shipping v. Sharp & Co., [1987] 1 Lloyds Rep. 207 (Eng.). BTA Bank v. Ablyazov and others, District Court of Kyiv, June 1, 2012 (Ua.), available at: http: // ​reyestr.court.gov.ua / ​Review / 24526659. Scherer, supra note 47.

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arbitral awards.71 The distinction between a judgment that sets aside an award and other post-award judgments is justified by the Convention itself. The Convention provides in Article V(1)(e) for an exception to recognition and enforcement when an award is set aside, but is silent as to the effects of other post-award judgments.72 However, even the attempt to use judgments principles to evaluate a setaside has been met with a number of criticisms.73 Among the specific objections are that a judgments approach to set-aside is superfluous in some cases (e. g. when it is not a primary jurisdiction that renders the set-aside), vague in others, fails to provide international harmony, is at odds with the text of the Convention and creates the effect of blacklisting certain legal systems. Indeed, a judgments approach is unnecessary where the set-aside occurs at a place other than the primary jurisdiction because the Convention itself does not authorize an exception to recognition and enforcement in such a case. However, as for objections to using a judgments framework to assess judgments of setaside at the seat, there are several responses. Unless there is a Protocol to deal with the problem of annulled awards, there will never be any harmonization or consistency in the approach to awards that have been set aside. It is true that the judgments solution is based on the national judgments law in each Contracting State and therefore lacks uniformity. However, in looking at recognition and enforcement practices comparatively, one finds a basic similarity and generally agreed-to criteria.74 Moreover, a “judgments” solution is less vague than the 71 See

infra at pp. 330. Under existing law, the distinction between set aside and confirmation judgments may encounter difficulty. The Uniform Foreign-Country Money Judgments Recognition Act, excludes foreign arbitral awards and agreements to arbitrate from coverage of the Act, leaving that to federal law, but then states that “[a] judgment of a foreign court confirming or setting aside an arbitral award, however, would be covered by this Act.” § 2, Comment 3 (2005). Compare the American Law Institute Project, Recognition and Enforcement of Foreign Judgments: Analysis and Proposed Federal Statute (2006), that also brings judgments of foreign courts confirming or setting aside awards within its scope, but does so only for the purpose of ensuring that federal and not state law governs the question. See § 1(a)(iii). The ALI proposal makes clear that the Act itself does not resolve the question of when a judgment setting aside or confirming a foreign arbitral award should be recognized, but only that if the judgment is to be recognized it meet the criteria set out in the proposed Act. Accordingly, there is room to rely on the Convention to draw the distinction between judgments of set-aside and judgments confirming an award. 73 See A. J. van den Berg, Enforcement of Arbitral Awards Annulled in Russia: Case Comment on Court of Appeal of Amsterdam, April 28, 2009, 27 Journal of International Arbitration 179, 190-193 (2010); Scherer, supra note 47. 74 See generally L. J. Silberman, Some Judgments on Judgments: A View from America, 19 King’s Law Journal 235, 237-238 (2008).

72

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mere “discretion” that appears to be the only viable alternative and a “judgments framework” offers certain identifiable principles – and set of legal rules to apply – to determine when a set-aside should be respected and when it should not. Furthermore, the arguments that a judgments framework is at odds with the text of the Convention are not convincing.75 Professor Albert Jan van den Berg argues that the judgments approach creates “‘a mirror recognition in the reverse’: a foreign arbitral award can be recognized if a foreign court judgment is not recognized … [which] turn[s] the New York Convention upside down.”76 The fact that the judgments approach is not explicitly provided for in the Convention is of little significance. Indeed, if there were such a requirement, no method for determining when an annulled award should be enforced is viable because the Convention is silent on that point.77 In fact, a discretionary standard arguably does the least violence to the Convention’s inclusion of the word may (which various standards discussed above appear to transform into a must or must not), and of the discretionary standards, arguably the judgments approach is the most principled. Similarly, a judgments approach does not lead to the blacklisting of various legal systems more than any discretionary standard.78 To be sure, the danger of ruling on countries’ legal systems is avoided when either an “always enforce annulled awards” or “never enforce annulled awards” standard is adopted, but these approaches are problematic for other reasons.79 Moreover, the danger of courts sitting in judgment of other countries’ judiciaries appears overstated. Courts have long employed the judgment recognition framework to non-arbitration related judgments, and no discernible blacklist of legal systems has resulted. Indeed, the class of cases where a party attempts to enforce a set-aside award is relatively small and therefore unlikely to culminate in the wholesale blacklisting of legal systems. In sum, private international law rules on recognition and enforcement of judgments offer identifiable principles to assess whether or not a set-aside of an arbitral award in the courts of the seat should be respected.

III. Forum Shopping and Other Post-Award Judgments The previous part of this paper has dealt with the issue of forum shopping in relation to set-aside judgments. This part addresses the same issue in relation to other post-award judgments, i. e. judgments confirming, recognizing or enforcing arbitral awards. Like set-aside judgments, those other post-award 75

van den Berg, supra note 73, at 160-163. Id. at 161 (internal quotation marks omitted). 77 Discussed supra pp. 314-315. 78 van den Berg, supra note 73, at 162. 79 Supra pp. 314-321. 76

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judgments can lead to situations of forum shopping. For instance, one of the parties may obtain a confirmation judgment in one country, typically at the seat of the arbitration, 80 and then subsequently rely on the preclusive effect of that confirmation judgment in subsequent recognition and enforcement proceedings relating to the same award in another country. The “judgment route” first proposed by Linda Silberman and adopted in Part II of this paper consists of applying foreign judgment principles when assessing whether or not to give effect to a foreign set-aside. It leaves open the question whether, and if so how, foreign judgment principles should be applied to other post-award judgments. We will now address this question, first regarding confirmation judgments, and second regarding recognition and enforcement judgments.

III. A. Foreign Confirmation Judgments For foreign confirmation judgments,81 the use of foreign judgments principles has long been accepted under the heading of the so-called parallel entitlement approach. This doctrine allows the award creditor, having obtained a foreign confirmation judgment, to seek recognition and enforcement of that judgment, in lieu and in place of the award. In other words, the enforcing court grants effect to the foreign confirmation judgment, applying the forum’s foreign judgment principles. The parallel entitlement approach is followed in the U.S. according to wellestablished case law82 and endorsed by the draft U.S. Restatement on International Commercial Arbitration.83 According to the Restatement, “[o]nce an award has been confirmed by a foreign court at the arbitral seat, the prevailing 80

Except in the unusual case in which the parties have chosen to submit the arbitration to a law other than the law of the seat. In this situation, the award might also be presented for set aside proceedings in the country of the law chosen by the parties. See Art. V(1) (e) of the New York Convention referring to the “authority of the country in which, or under the law of which, that award was made” as the competent authority for set aside proceedings (emphasis added). 81 The term “confirmation judgment” will be used in this section as encompassing judgments refusing to set aside an award, unless mentioned otherwise. 82 Ocean Warehousing BV v. Baron Metals and Alloys Inc., 157 F. Supp. 2d 245 (S. D. N. Y. 2001); Seetransport Wiking Trader Schiffahrtgesellschaft mbH & Co. v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994); Oriental Commercial & Shipping Co. v. Rosseel NV, 769 F. Supp. 514 (S. D. N. Y. 1991); Victrix SS Co. v. Salen Dry Cargo AB, 825 F2d 709 (2d Cir. 1987); accord In re Waterside Ocean Navigation Co., Inc., 737 F.2d 150 (2d Cir. 1984); Fotochrome Inc. v. Copal Co., 517 F.2d 512 (2d Cir. 1975). Cf. Island Territory of Curacao v. Solitron Devices Inc., 489 F.2d 1313 (2d Cir. 1973). 83 American Law Institute, supra note 45, at § 4-3(d).

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party may seek to have it recognized or enforced either as an award or as a foreign judgment, or both.”84 Similar options can be found in other common law countries, including Australia,85 India,86 and Israel.87 In the U.K., courts have sometimes granted award creditors the option to enforce a foreign confirmation judgment instead of the award;88 however, it is unclear whether this rule applies to awards falling under the New York Convention.89 Variants of the parallel 84

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Id. at § 4-3, comments, p. 72, lines 10-12. The exact scope of the parallel entitlement approach, however, is often not clearly identified. Although it is clear that the parallel entitlement approach allows parties an option (i. e., to seek enforcement of the award or the foreign confirmation judgment), the precise terms of such option are less clear. Does the parallel entitlement approach provide mutually exclusive alternatives (i. e., the parties must choose to enforce either the award or the confirmation judgment) or does it provide non-exclusive paths to enforcement (i. e., the parties may choose to seek enforcement of both the award and the confirmation judgment)? If it is the latter, then may the parties pursue both options in parallel (i. e., seek enforcement of the award and the confirmation judgment at the same time) or only as subsequent actions (i. e., seek enforcement of the confirmation judgment only after an enforcement action regarding the arbitral award was unsuccessful, and vice versa)? From a U.S. perspective at least, it seems that the parallel entitlement approach allows the broadest possible option. U.S. courts have taken no issue with the fact that the party sought enforcement of the award and the confirmation judgment at the same time (Island Territory of Curacao v. Solitron Devices Inc., 489 F.2d 1313 (2d Cir. 1973)) or in subsequent actions (Seetransport Wiking Trader Schiffahrtgesellschaft mbH & Co. v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994)), allowing an action to enforce a foreign validating judgment even though the same court had found in a previous action that the enforcement of the award itself was time-barred). But see Commission Import Export S. S. v. The Republic of the Congo, Civ. No. 12-743, 2013 WL 76270 (D. D. C., Jan. 8, 2013), discussed below at p. 333. Biakh v. Hyundai Corp., Supreme Court of New South Wales, Oct. 17. 1988, XV Yearbook Commercial Arbitration 360 (1990). Harendra H. Metha v. Mukesh H. Metha, Indian Supreme Court, May 13, 1999, XXV Yearbook Commercial Arbitration 641 (2000). Pickholz v. Sohachesky CA 10854 / 07, Israel Supreme Court, Mar. 17 2010 (cited by T. Einhorn, The Recognition and Enforcement of Foreign Judgments on International Commercial Arbitral Awards, 12 Yearbook of Private International Law 3 (2010)). East India Trading Co. Inc. v. Carmel Exporters and Importers Ltd., [1952] 1 All ER 1053 (QB); International Alltex Corp. v. Lawler Creations Ltd., [1965] IR 264. J. Hill, The Significance of Foreign Judgments Relating to an Arbitral Award in the Context of an Application to Enforce the Award in England, 8 Journal of Private International Law 159, 177 (2012). Lord Collins of Mapesbury et al. eds, Dicey, Morris and Collins: The Conflicts of Laws, 15th ed., 2012, 902 para 16-165 (stating that for awards falling within the scope of the New York Convention, “[i]n almost all cases, the proper course will be direct enforcement of the New York Convention award itself.”).

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entitlement approach also exist – or existed – to some extent in some civil law jurisdictions. For instance, the parallel entitlement approach was applied in Germany until a recent Supreme Court decision, discussed below.90 Switzerland still applies the parallel entitlement approach in most circumstances.91 One might argue that the parallel entitlement approach does not involve any forum shopping strictly speaking. Indeed, just like for a set-aside, the confirmation of an award can (generally) only be sought at the seat of the arbitration. The award creditor thus has no choice and cannot “shop around” to obtain a favorable confirmation judgment. Nevertheless, the parallel entitlement approach results in situations that are equivalent to forum shopping. Under the parallel entitlement approach, the award creditor may indirectly obtain enforcement of the award qua the foreign confirmation judgment, although the direct route of enforcing the award itself is barred in the forum. For instance, in Seetransport v. Navimpex, a U.S. court refused enforcement of a foreign award (with seat in France) on the basis that it was time-barred. The same court granted enforcement of a French judgment having confirmed the award since the statute of limitations for enforcing the French judgment had not expired yet.92 A recent 2013 U.S. decision sheds some doubts as to whether this option remains.93 In this case, the award creditor had obtained a judgment from the 90

Judgment of 2 July 2009, Zeitschrift für Schiedsverfahren 285, 287 (2009), discussed infra at p. 336. For previous case law, German Supreme Court, May 10, 1984, X Yearbook Commercial Arbitration 427, 428-429 (1985); German Supreme Court, Mar. 27, 1984, X Yearbook Commercial Arbitration 426 (1985); Frankfurt am Main Court of Appeal, July 13, 2005, Neue Juristische Online-Zeitschrift 4360 (2006); Hamburg Court of Appeal, Nov. 5, 1991, Neue Juristische Wochenschrift Rechtsprechungs-Report 658. 91 Swiss Federal Tribunal, 4A_233 / 2010, July 28, 2010, ASA Bulletin 97 (2012); Swiss Federal Tribunal, 4A_137 / 2007, July 20, 2007, ASA Bulletin 798, 803 (2007). J.-F. Poudret / ​ S. Besson, Comparative Law of International Arbitration, 2nd ed., 2007, 812. Contra M. Patocchi / ​C . Jermini, in H. Honsell et al. eds., Internationales Privatrecht, 2nd ed., 2007, Art. 194 para 11. For France, see D. Hascher, Recognition and Enforcement of Arbitration Awards and the Brussels Convention, 12 Arbitration International 233, 253-254 (1996). 92 See Seetransport Wiking Trader Schiffahrtgesellschaft mbH & Co. v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994). 93 Commission Import Export S. S. v. The Republic of the Congo, Civ. No. 12-743, 2013 WL 76270 (D.D.C., Jan. 8, 2013). The decision rejected on preemption grounds an attempt to rely upon the Uniform Foreign-Country Money Judgments Recognition Act to obtain recognition of an earlier English judgment recognizing an award that itself would have been barred by the three year statute of limitations provided for in § 207 of the Federal Arbitration Act. The case should have been much easier than the court made it because the English judgment – one of recognition outside of the arbitral seat – should not have been considered a judgment entitled to recognition. See infra at III.B. The preemption

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London High Court recognizing a foreign award in the U.K., and sought enforcement of this English judgment in the U.S. at a moment in time when an action to enforce the award was already time-barred.94 The District Court of the District of Columbia dismissed the action, taking issue with the award creditor’s “maneuver” trying to profit from the longer limitations period applying to foreign judgment enforcement actions, instead of the shorter limitations period applying to foreign awards.95 One can imagine other situations in which the award creditor obtains indirectly the enforcement of the foreign confirmation judgment although the direct enforcement of the award would not have been possible in the forum. This is particularly the case if the foreign court used a more lenient standard than the one that the enforcing court would have itself applied to the control of the award. This may lead to situations in which the foreign award judgment is enforced, although the award itself would not have been permitted enforcement.96 point has more relevance where courts have adopted the parallel entitlement approach so that a party that has obtained a confirming judgment in a court at the situs of the arbitration has both an award and a judgment that can be enforced. 94 In the U.S., proceedings to seek recognition or enforcement of a New York Convention award must be filed within 3 years. See Federal Arbitration Act, 9 U.S.C. § 207 (2006). The limitations period for actions to recognize or enforce foreign judgments is a matter of state law. 95 The court held that such “maneuver” was pre-empted since it would create an obstacle to the accomplishment of the purposes of the statute of limitations contained is the Federal Arbitration Act (Act 9 U.S.C. § 207 (2006)), which aims at creating a uniform limitations period and protecting the award debtor’s interest in finality. Commission Import Export S. S., 2013 WL 76270, at *6-7. 96 The following hypothetical case may illustrate this point: assume an award was rendered in country A and the arbitral tribunal found it had jurisdiction vis-à-vis a party that has never signed nor intended to be bound by the arbitration agreement. Assume country A has a very liberal regime concerning the confirmation of awards rendered in that country, only permitting refusal of confirmation of the award on grounds of due process and public policy, thus leaving the control of the validity existence and scope of the arbitration agreement entirely to the arbitral tribunal. The award creditor obtains confirmation of the award in country A applying its liberal regime. The award creditor then obtains enforcement of the confirmation judgment in country B since the validating judgment complies with country B’s judgment standard, i. e. the validating judgment was rendered by a competent court in fair proceedings and was not obtained by fraud. As a consequence, the confirmation judgment is enforced in country B, although had the award creditor applied for the enforcement of the award in country B directly, country B would have applied the New York Convention standard under which the courts of country B would have controlled the existence of a valid arbitration agreement and would have refused the enforcement of the award.

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Such a dichotomy (refusal to enforce award but enforcement of the foreign confirmation judgment relating to the same award) is due to the fact that the parallel entitlement approach leads to the application of different control standards.97 The enforcement of foreign awards is governed in most cases by the New York Convention, and the control focuses on the arbitral tribunal (e. g., its composition and jurisdiction based on a valid arbitration agreement), the conduct of the proceedings before it (e. g., a fair arbitral process), and the resulting award (e. g., no violation of public policy).98 To the contrary, the enforcement of foreign judgments is generally governed by the lex fori’s principles (or any regional harmonizing instrument) and the control focuses on the jurisdiction of the foreign court, the proceedings conducted before it, and the judgment it rendered.99 Importantly, most developed jurisdictions generally prohibit review of the findings of the foreign court. As a consequence, a court cannot refuse enforcement of a foreign judgment on the basis that it would have reached a different result, save where the decision of the foreign court is so shocking that it amounts to a violation of the forum’s public policy. Accordingly, if the award creditor chooses enforcement of the foreign confirmation judgment (in lieu of enforcement of the award itself), the control by the enforcing court is limited to the jurisdiction of the foreign court (not the arbitral tribunal), the proceedings in the foreign country (not the arbitration proceedings) and any possible violation of public policy by the judgment (not by the award).100 In particular, the enforcing court cannot review the findings of the foreign court regarding the validity of the award, including, for instance, whether there was a valid arbitration agreement, an independent and impartial arbitral tribunal and a fair arbitral process. These issues are left to the exclusive control of the foreign court. As such, the results of the parallel entitlement approach are equivalent to forum shopping: it permits the award creditor to change the applicable control standard by using a foreign confirmation judgment, and to eventually obtain indirect enforcement of the award (qua the foreign confirmation judgment) where the direct route of enforcing the award in the forum would have been barred. The logical follow-up question is whether such results are problematic and should be prevented. One might argue that the indirect enforcement of the award qua the foreign award judgment under the parallel entitlement approach should always be allowed because it favors the enforcement of awards.101 As 197

For more detail see Scherer, supra note 47. Art. V New York Convention, supra note 1. 199 Silberman, supra note 74, at 237-238. 100 Einhorn, supra note 87, at 60. 101 G. A. Bermann, ‘Domesticating’ the New York Convention: the Impact of the Federal Arbitration Act, 2(2) Journal of International Dispute Settlement 317, 322 (2011). 198

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such, it is in line with the pro-arbitration and pro-enforcement bias under the New York Convention and in many arbitration-friendly jurisdictions.102 However, it does not seem sensible to allow the enforcement of foreign awards – directly or indirectly – if the courts at the place of enforcement have no control over the most basic requirements concerning the award’s validity. As detailed above, as a result of the change in the relevant control standard under the parallel entitlement approach, the enforcing court is not in a position to review the findings of the foreign court as to the most fundamental requirements of international arbitration, including (i) the existence of a valid arbitration agreement, (ii) an independent and impartial arbitral tribunal, or (iii) a fair arbitral process. Leaving these issues to the exclusive control of the foreign court seems highly problematic. In addition, there are a number of other possible criticisms to be made against the parallel entitlement approach.103 First, the parallel entitlement approach is problematic because it leads to a duplication of the cause of action.104 As explained above, the parallel entitlement approach allows the award creditor to seek enforcement of both the award and the foreign award judgment in parallel or subsequent actions.105 This duplication of the cause of action may be seen as a judicial harassment of the award debtor. After having successfully fought the action seeking to enforce the award, the award debtor also must defend against the subsequent action seeking to enforce the foreign award judgment. This risk of judicial harassment was identified by the German Supreme Court as one of the main reasons why, in 2009, it departed from its previous line of case law that had allowed a parallel entitlement approach. Supported by 102

See e. g., Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (“Section 2 [FAA] is a congressional declaration of a liberal federal policy favouring arbitration agreements”); IPCO (Nigeria) Ltd. v. Nigerian Nat’l Petroleum Corp., [2005] EWHC 726, 11 (Q. B.) (“[there is] a pre-disposition to favor enforcement of New York Convention Awards … even when a ground for refusing enforcement is established, the court retains a discretion to enforce the award.”); Hainan Mach. Imp. & Exp. Corp. v. Donald & McArthy Pte Ltd., Singapore High Court, XXII Yearbook Commercial Arbitration 771, 778 (1997) (“the principle of comity of nations requires that the awards of foreign arbitration tribunals be given due deference and be enforced unless exceptional circumstances exist”). 103 M. Roth, Recognition by Circumvention: Enforcing Foreign Arbitral Award as Judgment under the Parallel Entitlement Approach, Cornell Law Review 573, 588-589 (2007). 104 For more details see Scherer, supra note 47. 105 This potential was realized, for instance, in the U.S. case Seetransport v. Navimpex where a party first unsuccessfully sought enforcement of an arbitral award and then sought enforcement of a French judgment relating to the same award. Seetransport Wiking Trader Schiffahrtgesellschaft mbH & Co. v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994).

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the large majority of commentators,106 the Bundesgerichtshof explained that a parallel entitlement approach was not compatible with the legitimate interests of the award debtor, noting that “[t]he protection of the debtor commands that he / ​she is not confronted with more than one enforcement proceeding in one and the same forum.”107 Indeed, whereas the multiplication of post-award proceedings concerning the same award in different countries may seem a natural consequence of the multitude of separate legal orders existing in the world, the multiplication of proceedings concerning the same award in the same country should be avoided. There is no reason why the award creditor should be allowed to get ‘two bites at the apple’ in the same forum. Second, the parallel entitlement approach ignores the fact that confirmation judgments may have no enforceable subject matter. Enforcement requires that the judgment contains an order that can be executed, if necessary by use of the forum’s public force. This requirement is not met, in particular, for declaratory judgments or judgments simply dismissing a claim.108 In most civil law jurisdictions, confirmation judgments (or judgments refusing to set aside the award) merely contain a non-enforceable declaration as to the validity of the award and / or a dismissal of the underlying claim to set aside the award. As such they are not capable of enforcement. For instance, in Seetransport v. Navimpex, the U.S. court enforced a French judgment in which the Paris Court of Appeal found that the award was valid and refused to set it aside.109 Such a judgment has no enforceable subject matter and should thus not be open for enforcement in the U.S. or elsewhere. To the contrary, in most common law jurisdictions, the foreign court enters a judgment on the terms of the award, rather than just declaring the award confirmed or not set aside.110 Arguably, if the court orders the award debtor to perform the award, e. g. to pay the damages awarded therein, the judgment contains an enforceable content. Accordingly, some authors make a distinction between simple declarations as to the enforceability of the award and judgments

106

See e. g., H. Plaßmeier, Ende des ‘Doppelexequatur’ bei ausländischen Schiedssprüchen, Zeitschrift für Schiedsverfahren 82 (2010); R. Schütze, Der Abschied vom Doppelexequatur ausländischer Schiedssprüche, Recht der Internationalen Wirtschaft 817 (2009); cf. more critical, G. Borges, BGH: Doppelexequatur von Schiedssprüchen unzulässig, Kommentierte BGH-Rechtsprechung Lindenmaier-Möhring 30812 (2010). 107 German Supreme Court, July 2, 2009, supra note 90, at 286. 108 See Lord Collins of Mapesbury and others (eds), supra note 89, at p. 64 para 14-003. 109 Seetransport Wiking Trader Schiffahrtgesellschaft mbH & Co. v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994). 110 For instance, under English law, the court may issue an enforcement order or enter judgment in the terms of the award. See 1996 English Arbitration Act, Section 66(1)-(2) and Section 101(3) (for New York Convention awards).

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entering the terms of the award, with only the latter to be open for enforcement in a third country.111 However, it would be unsatisfactory if the options of the award creditor under the parallel entitlement approach depended on such a formalistic difference, i. e., whether or not the foreign court entered a judgment in the terms of the award or issued a declarative order. Also, there might be instances where the difference between the two categories (declarative order and judgment upon award) is not easy to establish.112 In any event, irrespective of the formalistic differences, in both cases, the ultimate goal is the same, i. e. to grant effect to the award’s findings. In the words of the Spanish Supreme Court, in both cases, “the claim’s real aim [i]s to enforce the arbitral award.”113 Accordingly, it is therefore only consistent to limit the award creditor’s options to do exactly that, i. e. to seek enforcement of the initial award, and not of the subsequent confirmation award judgment.

III. B. Foreign Recognition or Enforcement Judgments This section deals with cases in which the award creditor has obtained a foreign recognition or enforcement judgment and seeks to rely on that foreign judgment in subsequent proceedings concerning the same award in the forum, using relevant doctrines of res judicata or claim / ​issue estoppel. Contrary to the situation of confirmation judgments described in the previous section, this situation is a clear-cut case of forum shopping. With very few limitations,114 the award creditor may “shop around”, go to an arbitration-friendly jurisdiction, obtain a positive recognition and enforcement judgment, and seek to rely on the judgment’s preclusive effects in the forum. In a series of recent cases, courts in the U.K. have applied relevant English foreign judgment principles (including principles of issue estoppel) to grant effect to foreign recognition or enforcement judgments.115 In 2011, in Chantiers 111

Hascher, supra note 91, at 245-246; Lord Collins of Mapesbury and others (eds), supra note 89, at p. 902 para 16-163. 112 Hascher, supra note 91, at 247 (referring to “labelling problems”). 113 Union Naval de Levante SA v. Bisba Comercial Inc., Spanish Supreme Court, Oct. 9, 2003, XXX Yearbook Commercial Arbitration 623, 624 (2005). 114 See supra note 22. 115 The relevant principles of issue estoppel under English law are as follows: (1) the judgment of the foreign court must be (a) of a court of competent jurisdiction, (b) final and conclusive and (c) on the merits; (2) the parties to the English litigation must be the same parties (or their privies) as in the foreign litigation; and (3) the issues raised must be identical. See Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (no 2), [1967] 1 AC 853 (HL); The Sennar (no 2), [1985] 1 WLR 490, 494 (HL); Lord Collins of Mapesbury and others (eds), supra note 89, at p. 679 para 14-030 ff.

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de l’Atlantique SA v. Gaztransport & Technigaz SAS,116 the High Court dealt with an award in which the arbitral tribunal (with seat in London) had dismissed all claims. The successful respondent in the arbitration sought recognition and enforcement of the award in France and the other party resisted arguing that the award had been obtained by fraud. The French courts dismissed this latter argument and declared the award enforceable. The other party also applied for the award to be set aside in the U.K. on the basis that it was obtained by fraud. Flaux J – after having found that the award had not been obtained by fraud – held obiter that the same party had already raised these matters in resisting recognition and enforcement before the French courts and lost, and thus was barred under the relevant English law principles of issue estoppel from raising those matters again before the English court.117 A similar analysis can be found in the U.K. decision relating to the Yukos dispute discussed earlier.118 As mentioned above, an arbitral tribunal with seat in Russia had rendered four awards in favor of the claimant and those awards were subsequently set aside by the Russian courts. The claimant was nevertheless successful in enforcing the awards in the Netherlands, since the Dutch courts found that the Russian set-aside judgments were the result of partial judicial proceedings.119 Although having obtained payment of the award, the claimant then sought recognition and enforcement of the award in England and in the U.S. in order to collect post-award interest (close to U.S. $160 million). In the English proceedings, the preliminary question arose as to whether the respondent could re-litigate the (im)partial nature of the judicial proceedings that led to the Russian set-aside judgments, or whether it was barred from doing so due to the earlier findings on this issue by the Dutch courts. The High Court, as per Hamblen J, found that this was a case of issue estoppel and that the respondent was barred from re-opening the issue of the (im)partial nature of the Russian proceedings which had been decided by the Dutch courts in a final and binding judgment.120 On appeal, the Court of Appeal agreed that the relevant question was whether the Dutch judgment met the English requirements for issue estoppel. However, contrary to the first instance judge, the Court of Appeal found that those requirements were not met since the issues at stake were not the same. The Court of Appeal held that the question of whether the Russian courts should be regarded as partial and dependent was not the same issue in the Dutch and in the English context: 116

[2011] EWHC 3383 (Comm). Id. at [313]–[318]. 118 See supra at p. 326. 119 Yukos Capital SARL v. OAO Rosneft, No. 200.005.269 / 01, Amsterdam Court of Appeal, Apr. 28, 2009 (Neth.), XXXIV Yearbook Commercial Arbitration 703 (2009). 120 [2011] EWHC 1461 (Comm) [107]. On the background of the dispute, see J. van de Velden, The “Caution lex fori” approach to Foreign Judgments and Preclusion, 61 International and Comparative Law Quarterly 519, 521 ff. (2012). 117

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“The standards by which any particular country resolves the question whether courts of another country are ‘partial and dependent’ may vary considerably […]. It is our own [English] public order which defines the framework for any assessment of this difficult question; whether such decisions are truly to be regarded as dependent and partial as a matter of English law is not the same question as whether such decisions are to be regarded as dependent and partial in the view of some other court …”121 In other words, because the legal standard for public policy is a different one in each country, the issues at stake were not the same and the Court of Appeal did not grant estoppel effect to the findings in the Dutch judgment. It is nevertheless clear that the Court of Appeal would have no objections in principle to applying relevant principles of issue estoppel and granting preclusive effect to the foreign recognition and enforcement judgment if the test for issue estoppel were met. Finally, the same rationale can also be found in a short obiter remark in the U.K. Supreme Court’s decision in Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan.122 In this case, recognition and enforcement had been denied by the lower courts in the U.K. and the case was before the U.K. Supreme Court when set-aside proceedings concerning the same award were brought in France. Lord Mance noted that “an English judgment [in the recognition and enforcement proceedings] holding that the award is not valid could prove significant in relation to [the French] proceedings if French courts recogni[z]e any principle similar to the English principle of issue estoppel.”123 121

[2012] EWCA Civ 855 [151]. Cf. the points made by Linda Silberman in an earlier article in connection with Yukos’ attempt to enforce both the arbitral award (and / ​or the Dutch judgment) in New York. For several reasons, the Dutch judgment, even as the judgment later in time, should not be the focus for the New York court. Rather, the court in New York should apply its judgment-recognition principles to the Russian judgment setting aside the arbitral award. First, the Dutch judgment is analogous to an exequatur on a judgment; it has only territorial reach and thus need not be “recognized”. Second, even applying principles of U.S. judgments-recognition law, a foreign judgment – here the Dutch judgment – need not be recognized if it conflicts with another final and conclusive judgment. Thus, it is for the New York court to form an independent conclusion about whether to respect the Russian set aside based on principles of U.S. judgment recognition. See Silberman, supra note 43, at 36. 122 Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46. 123 Id. at [29] (citations omitted). Lord Collins took a more nuanced approach, saying that determinations made by the court at the seat in an annulment action may result in preclusive effect over subsequent enforcement actions, but did not suggest that preclusion runs the other way. Ultimately, of course, the French court in upholding the award gave no effect to the English judgment, including any preclusive effect to the determinations

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In sum, there can be no doubt that English courts grant preclusive effect to foreign recognition or enforcement judgments if the relevant test for issue estoppel is met (and they expect courts in other countries to do the same).124 Accordingly, an award creditor may obtain recognition or enforcement of an award outside the U.K. and subsequently rely on the preclusive effect of the foreign judgment in subsequent recognition and enforcement proceedings concerning the same award in the U.K. In the U.S., there seems to be little case law on this issue. In Belmont Partners LLC v. Mina Mar Group Inc., one party sought confirmation in the U.S. of an award rendered in the U.S. whereas the other party cross-motioned to vacate the award.125 In enforcement proceedings concerning the same award in Canada, the Superior Court of Justice in Ontario had recognized the award and ordered its enforcement. The U.S. court found that the Canadian judgment merited comity and its findings constituted res judicata for the U.S. court.126 The draft Restatement on International Commercial Arbitration adopts this approach. According to the Restatement, a U.S. court “[i]n deciding whether to grant post-award relief, [and whether to] re-examine a matter decided at an earlier stage of the proceedings […] by a foreign court,” should apply the forum’s of the English court. Gouvernement de Pakistan, Ministere des Affaires Religieuses v. Société Dallah Real Estate and Tourismes Holding Co., Cour d’appel de Paris, Feb. 17, 2011 (Fr.), XXXVI Yearbook Commercial Arbitration 590 (2011). Dallah applied for enforcement of the award in France and the Government subsequently sought to set the award aside there. In upholding the award, the French court did not grant preclusive effect to the English decision. For a discussion on this point, see G. A. Bermann, The U.K. Supreme Court Speaks to International Arbitration: Learning from the Dallah Case, 22 American Review of International Arbitration 1, 8-9, (2011). 124 Cf. not related to judgments recognizing or enforcing foreign awards but judgments recognizing or enforcing foreign judgments (so-called “judgments on judgments”): Owens Bank Ltd. v. Bracco, [1992] 2 AC 443 (HL) (indicating, obiter, that an Italian judgment enforcing a foreign judgment from St. Vincent might have issue estoppel effect in England in proceedings relating to the same St Vincent judgment); House of Spring Gardens Ltd. v. Waite, [1985] FSR 173 (CA) (granting estoppel effect to a Irish judgment refusing to set aside a prior Irish judgment and thus barring the defendant from re-litigating the same issues in a subsequent enforcement action in the U.K.). 125 Belmont Partners LLC v. Mina Mar Group Inc., 741 F. Supp. 2d 743 (W. D. Va. 2010). 126 The three prong test of res judicata applied by the district court was that the foreign judgment (i) constituted a final judgment on the merits, (ii) between the same parties, and (iii) concerning the same cause of action. Regarding the requirement of identity of cause of action, the U.S. court noted that “although no motion to vacate was brought in the prior proceedings [in Canada], the plaintiff need not proceed on the same legal theory as in the first suit.” Belmont Partners LLC v. Mina Mar Group Inc., 741 F. Supp. 2d 743, 752 (W. D. Va. 2010). It added that pleading before the U.S. court contained “substantially the same factual allegations as were reviewed by the Ontario Superior Court.” Id.

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relevant principles, including “claim and issue preclusion, and recognition of foreign judgments.”127 Accordingly, if the forum’s relevant standards on claim or issue preclusion are met, a U.S. court should give preclusive effect to a foreign judgment that considered the same claim / ​issue in a previous recognition or enforcement action.128 Since foreign judgment principles, including principles of claim and issue preclusion, are governed in the U.S. by state law and thus may vary depending on the state in which the post-award proceedings are brought, the Restatement does not contain any precise directions.129 Nevertheless, the comments to the relevant section in the U.S. Restatement contain a further important explanation: “[w]hether a prior judicial determination is given preclusive effect in a post-award action may depend on, among other things, the law that governed that determination in the prior action.”130 If that law is different, no preclusive effect should be given. As an example, the Restatement commentator lists issues of public policy and concludes that “[i]n such instances, it may be inappropriate for a [U.S.] court to treat the prior judicial determination as binding […].”131 The above described solution adopted in the U.K. and the U.S. clearly allows the award creditor to forum shop to obtain a favorable recognition or enforcement judgment in a foreign country and rely on the preclusive effects of that foreign judgment in subsequent proceedings concerning the same award in the forum. A good example of such forum shopping can be found in Chantiers de l’Atlantique, discussed earlier.132 In this case, the respondent in the arbitration (having successfully defended against all claims) went to the French courts to have the award recognized and then relied on the preclusive effect of the French judgment in subsequent set-aside proceedings in the U.K. The aim of the proceedings in France was obviously not to enforce the award (which having dismissed all claims, left nothing to enforce) but possibly to simply create an estoppel effect in subsequent proceedings in the U.K.133 127

American Law Institute, supra note 45, at § 4-8. Bermann, supra note 101, at 324. 129 American Law Institute, supra note 45, at § 4-8, reporter’s notes, p. 114, lines 20-22 (“The Restatement thus takes the position that these judgment recognition question are no different in nature from those presented in other situations involving successive court rulings. Rather than propound wholly new rules for the arbitration context, the Restatement embraces the forum’s existing rules on claim and issue preclusion, “law of the case,” and recognition of foreign country judgments, as the case may be.”). Cf. also Linda Silberman’s view, supra note 44, that in the arbitration context, the standard should be federal. 130 American Law Institute, supra note 45, at § 4-8, comments, p. 111, lines 15-17. 131 Id., at p. 112, lines 8-9. 132 See supra at p. 338. 133 Chantiers de l’Atlantique SA v. Gaztransport & Technigaz SAS, [2011] EWHC 3383 (Comm). 128

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This solution to give effect to foreign recognition and enforcement judgments and allow forum shopping is problematic for a number of reasons.134 One important criticism relates to the fact that neither the English nor the U.S. cases take into account the location of the seat of the arbitration. In particular, courts in these countries grant preclusive effect to foreign recognition and enforcement judgments in subsequent proceedings concerning the same award even when brought in the forum that was the seat of the arbitration. For instance, in Chantiers de l’Atlantique, the English judge (albeit in obiter) held that a party was estopped from re-litigating in England, the seat of the arbitration, an issue that had been decided in a foreign (French) recognition and enforcement judgment.135 Similarly, in Belmont Partners, the U.S. court granted preclusive effects to a Canadian recognition and enforcement judgment, although the seat of the arbitration was in the U.S.136 The question of whether and to what extent the seat of arbitration plays a role in international arbitration remains one of the most complex and debated questions in the field and is not the topic of this paper.137 The fact is, however, 134

Sometimes the view has been expressed that recognition or enforcement judgments have necessarily or per se only a territorial scope and are thus incapable of producing extra-territorial effects, i.e. effects outside the country in which they were rendered. See e.g., Judgment of 2 July 2009, supra note 90, at 287 (German Supreme Court) (holding that “a foreign enforcement judgment […], like any enforcement judgment, merely aims at having a territorially limited effect, i. e., for the territory of the state in which it is rendered” and adding that therefore it is “as per its subject-matter incapable of been enforced elsewhere.”); Judgment of 13 July 2005, supra note 90 (Frankfurt am Main Court of Appeal) (holding that a Romanian judgment refusing to enforce an arbitral award was incapable of being recognized in Germany since it only determined that the award had effect in that forum, i. e., in Romania). See also Poudret / ​Besson, supra note 91, 812; G. Kegel, Exequatur sur exequatur ne vaut, in Dieckmann et al. eds., Festschrift für Wolfram Müller-Freienfels, 1986, 377, 378. Cf. Silberman, supra note 43, at 36 note 48 (suggesting that a judgment relating to recognition or enforcement of an award “may have only territorial scope,” but leaving the question open). Maxi Scherer does not agree with this analysis. For a detailed analysis see Scherer, supra note 47. 135 Chantiers de l’Atlantique SA v. Gaztransport & Technigaz SAS, [2011] EWHC 3383 (Comm); Good Challenger Navegante SA v Metalexportimport SA, [2003] EWCA Civ 1668. Cf. Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46 (holding, also obiter, that the English refusal to recognize the award could produce preclusive effects in France, seat of the arbitration). 136 Belmont Partners LLC v. Mina Mar Group Inc., 741 F. Supp. 2d 743 (W. D. Va. 2010). 137 On the one hand, according to the traditional judicial or territorial view, an award’s legal force stems from the law of the seat and the courts in that country have a supervisory function over the arbitration proceedings as well as primary jurisdiction when it comes to the assessment of the validity of the award. See e. g. F. Mann, The UNCI-

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that the U.K. and the U.S. follow a rather territorial view and accept, among other things, that the courts at the seat of the arbitration exercise a certain supervisory function in controlling the validity of the award. Under this view, it seems counterintuitive, if not illogical, to grant preclusive effect in post-award proceedings at the seat to issues previously decided in a recognition or enforcement judgment by a non-seat court. Doing so gives priority to the findings of non-seat courts over the findings of the courts at the seat which are supposed to exercise a supervisory function. Put differently, the supervisory function of the courts at the seat becomes an empty shell if those courts are to give preclusive effect to a determination regarding validity of the award (e. g., establishing the existence of a valid arbitration agreement) given by any court around the world asked to recognize and enforce the same award. One might argue that one needs to balance the need to maintain the supervisory function of the courts at the seat (under a territorial view), with the need to grant comity to foreign judgments under the forum’s foreign judgment principles. This balancing exercise, however, is missing in the case law described above. Courts in the U.K. and in the U.S. grant preclusive effect to foreign recognition or enforcement judgments emanating from a non-seat country, without making any distinction as to whether this will affect the supervisory function of the courts at the seat, and without even discussing this point. The U.S. Restatement does not contain any discussion or distinction in this respect either.138 These views are difficult to reconcile with the territorially influenced view which the courts in the U.S. and the U.K. generally take in international arbitration. A second criticism of the above detailed solution adopted in the U.K. and U.S. relates to the application of the New York Convention. Assume the seat of the arbitration is in country C1. Assume the award creditor unsuccessfully tried to seek recognition or enforcement of the award in country C2 (a New York TRAL Model Law – Lex Facit Arbitrum, originally published in Liber Amicorum for Martin Domke 157 (1967), reprinted in 2(3) Arbitration International 241(1986); Sir R. Goode, The Role of the Lex Loci Arbitri in International Commercial Arbitration, 17 Arbitration International 19 (2001); B. Leurent, Reflections on the International Effectiveness of Arbitration Awards, 12 Arbitration International 269 (1996); M. Reisman, Systems of Control in International Adjudication and Arbitration, 1992, 113-120. On the other hand, according to a delocalized or contractual view, arbitration is based on party autonomy and detached from the laws of the seat and the supervising control of the courts in that country. See e. g., P. Fouchard, L’arbitrage commercial international, 1965, 401 ff.; P. Fouchard, L’Autonomie de l’arbitrage commercial international, Revue de l’Arbitrage 99 (1965); B. Goldman, Les conflits de lois dans l’arbitrage international de droit privé, vol II Recueil des Cours de Droit International 351 (1963); B. Goldman, Arbitrage international et droit commun des nations, Revue de l’Arbitrage 115 (1965); A. von Mehren, Limitations on Party Choice of the Governing Law: do They Exist for International Commercial Arbitration, 1986, 19 ; cf. Gaillard, supra note 29, at 35 ff. 138 American Law Institute, supra note 45, at § 4-8.

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Convention country). Referring to Article V(1)(a) of the New York Convention, the court in C2 held that the award was based on an invalid arbitration agreement. The award creditor subsequently starts recognition and enforcement proceedings in the forum (country C3, also a New York Convention country). In those proceedings, the award debtor argues that the foreign judgment from C2, and in particular its finding that there was no valid arbitration agreement, should be granted preclusive effect and that the award thus should be refused recognition and enforcement. In such a situation, granting preclusive effect to the foreign court’s determination of the invalidity of the arbitration agreement (provided that the foreign judgment meets the forum’s relevant requirements for judgment recognition and res judicata or claim / ​issue estoppel) means that the forum’s court is not allowed to review that determination. Accordingly, even if the forum’s court were to come to a different conclusion (i. e., the arbitration agreement is valid under Article V(1)(a)), the preclusive effect would prevent the forum from recognizing or enforcing the award. This is true, even where the foreign court’s finding is obviously erroneous under the New York Convention. This outcome is certainly far from satisfactory. In this situation, one could even argue that granting preclusive effect to the foreign court’s determination of the invalidity of the arbitration agreement would violate the forum’s obligations under the New York Convention to recognize and give effect to valid arbitration agreements.139 Indeed, one could further argue that the question of a valid arbitration agreement is so central to the respect which New York Convention countries owe to foreign awards that accepting preclusive effect of a determination by a foreign court on this issue may be seen to constitute an abdication of the forum court’s obligations under the Convention. On that basis, it has been suggested that foreign recognition or enforcement judgments should only be given preclusive effect if they granted (as opposed to refused) such effect.140 However, it seems unsatisfactory that the effects of a judgment depends on its outcome (i. e. whether granting or refusing the action). Therefore, it seems preferable that foreign recognition and enforcement judgments should not be granted preclusive effect at all.141 In any event, the general and unlimited application of principles of issue / ​claim estoppel (as practised in the U.S. and U.K.) might, in certain circumstances, lead to situations undermining the purposes and objectives of the New York Convention and the signatories countries’ obligations thereunder. 139

Art. II New York Convention, supra note 1. Hill, supra note 88, at 188. Cf. Hamburg Court of Appeal, Jan. 24, 2003, XXX Yearbook Commercial Arbitration 509 (2005) (holding that a Polish judgment denying enforcement cannot be recognized in Germany because it is a decision on procedural, rather than substantial matters). 141 For more detail, see Scherer, supra note 47. 140

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IV. Conclusion

IV. Conclusion After an award has been rendered, parties may forum shop in order to obtain a post-award judgment (setting aside, confirming, recognizing or enforcing the award) and rely on the effects of that judgment in subsequent proceedings relating to the same award. This paper examines the effects of such forum shopping attempts and concludes that a distinction needs to be drawn between set asides and other post-award judgments. On one hand, Article V(1)(e) of the New York Convention permits national courts to grant effect to foreign set-asides, but fails to provide criteria as to when they should do so. As explained in Part II of this paper, the general framework for foreign judgments can provide guidance and help national courts in assessing whether or not to grant effect to foreign set asides. On the other hand, for other post-award judgments, the New York Convention is silent as to their effects. As shown in Part III of this paper, there are good reasons not to extend the “judgment route” rationale to those other post-award judgments and not to grant them effects in subsequent proceedings concerning the same award.

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Making Remission and Other “Curative” Mechanisms Part of the Forum Shopping Conversation – A View from the U.S. with Comparative Notes. Jack J. Coe Jr. I. Introduction That international commercial arbitration has a human dimension can readily be confirmed by examining the defects that from time to time slip into arbitral awards. Generally, the professionalism practiced by international commercial arbitrators comports well with the abstract statements of standards found for instance in the AAA-ABA Rules of Ethics for Arbitrators, which inter alia call for arbitrators to conduct the proceedings “diligently.”1 It is thus not ordinarily the case that when issuing an award the arbitrators expect it to be returned to them on legitimate grounds. Nevertheless, the disputes that arise in international commerce are often highly complex. Complexity no doubt generates endless possibilities for faulty execution of an award, and while it might be imagined that the problem can be eliminated by opting for three arbitrators instead of one, many defective awards in fact carry three signatures. Indeed, three arbitrator tribunals are collegial bodies that function through a collaborative process that may involve both give and take about appropriate outcomes and rationales and also a division of labor in the award drafting process; and, even if the tribunal members agree on the outcome in general, to the extent they have different conceptions of the case, the merging of their views may produce ellipses and ambiguities. Linguistic elements also generate award defects upon occasion. Regardless of whether a tribunal comprises one or three arbitrators, moreover, it is a fact that the more popular arbitrators may be involved in several proceedings at any given time; such high levels of experience tend to hone drafting skills, but the unavoidable time pressure faced by busy arbitrators may occasionally also cause them to err. The catalogue of potential imperfections includes, on the one hand, faulty descriptions (of persons, places or things), ambiguous or internally inconsistent prose, and computational errors, and on the other, matters connected to the exercise of the tribunal’s jurisdiction (such as a failure to address a claim or a purported decision on matters not submitted to the tribunal). Whatever the cause of such defects, they often require remediation before the award can 1

AAA-ABA Code of Ethics for Arbitrators in Commercial Disputes, Canon IV (2004) (hereinafter: AAA-ABA Ethics).

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function properly. Concurrently, if left unaddressed, many such defects can lead to nullification of the award or a failure of it to be recognized or enforced. The processes by which awards (or draft awards) are perfected or otherwise brought into a serviceable form – sometimes referred to in this essay as “curative mechanisms” – vary as to their architecture, legal source, and the essential actors involved. Nor do all systems of adjudication share the same complement of these devices or coordinate them to the same extent. The aim of this essay is to examine in light of surrounding policies and interests, legal sources, and the chief participants in the process, the principal types of curative mechanisms that operate in international commercial arbitration. Organizationally, this essay moves from general to specific with its final sections representing an effort to reprise earlier material at a more granular level. The emphasis will be on remission.2 Apart from its implications for choice of arbitral seat and related matters, remission is of particular interest because it has been underexplored in the literature3 and because it represents a common law doctrine that is in the process of being transplanted elsewhere. These comparisons in turn shed light on whether remission policies and the other admittedly tertiary curative mechanisms should affect the choice of an arbitral seat.

II. A Brief Taxonomy of Defects and Associated Considerations The function of remission and other award-perfecting procedures varies depending on the nature of the defect involved. Legal systems distinguish among award imperfections for these purposes, but not in uniform way. This section sketches the broad differences among types of defects and systemic approaches to them.

2

3

The Restatement refers to “remand” rather than to “remission.” See ALI Restatement (Third) International Commercial Arbitration, Section 4-36, T. D. No. 2 (April 2012) (hereinafter: Restatement ICA). “Remand” as used in the Restatement refers to the return by a court of an award to the tribunal that issued it. Unless otherwise indicated the term implies a pre-set aside procedure designed to assist the court in performing its post-award functions, and in some systems to lessen the chances of set aside. In other common law jurisdictions, remand to arbitrators is sometimes referred to as “remission.” See J. D. M. Lew et al., Comparative International Commercial Arbitration, 2003, 682. Remission is the term most often used in this essay. An exception is the collection of papers found in: ASA, Post Award Issues, P. Tercier ed., 2011.

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II. A. Flaws in the Words Used Problems created by the words employed by the tribunal account for a significant percentage of flawed awards. Under this rubric, simple errant description is commonplace. For instance, it is not unusual for party names, or the parties’ status as claimant and respondent, to be reversed.4 Analogous errors also occur regularly, and in the simplest cases there is no doubt what has happened.5 More difficult to reverse engineer are true ambiguities; that is, language in the award that is genuinely susceptible to two or more meanings. Thus, an award might order that Party A shall assign to Party B the proceeds of “the insurance policy,” when in fact there are involved in the case two insurance policies with different cash values. What distinguishes award ambiguities of this type from obvious cases of faulty description is that ambiguities are best resolved by reverting to the tribunal to clarify whether, to continue with the hypothetical, the award refers to insurance policy A, to insurance policy B, or to both insurance policies. In the above hypothetical, the court cannot merely guess, flip a coin, or arrive at any principled tool for preferring one recovery over another. And, the matter is not de minimus because the value of Party B’s remedy varies depending on which policy is assigned to Party B. Concurrently, in such a case the arbitrators should be able quickly to remedy the problem with a few words of identification.6

II.  B. Computational Errors A mathematical irregularity requiring remission is not difficult to imagine: improper addition, double counting, an inadvertent use of the wrong discount rate, or any number of other circumstances involving true flaws in the computational process and result. Often, however, a numbers-related problem is merely a matter of undisclosed reasoning that prevents the parties or the court from determining if the arithmetic in the award is indeed correct. Whether the defect is a failure to explain or a true miscalculation, the arbitrators who rendered the award will ordinarily be in the best position to remedy the problem. 4

See generally A. Tweeddale / ​K. Tweeddale, Arbitration of Commercial Disputes, 2005, 832-834. 5 Cf. Mutual Shipping Corp. v. Bayshore Shipping Co. Ltd., The Montan, [1985] 1 All ER 520 (Goff, LJ observing, “The animal is, I suspect[,] usually recognisable when it appears on the scene” (referring to the “accidental slip” rule, which under English law entitles the arbitrators to remove a clerical of similar error)). 6 See Colonial Penn. Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 334 (3rd Cir. 1991) (“[C] ourts have uniformly stated that a remand to the arbitration panel is appropriate in cases where the award is ambiguous.”).

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II. C. Pivotal Errors Versus De Minimis Errors In balancing competing interests, perfection is of course not always required. A rational system for curing flaws in awards must distinguish between important defects and de minimis irregularities. Consider an award that reasons “the witness sponsored by Party A lacked credibility” when in fact Party A had offered two witnesses. In such a case, while the tribunal’s rationale might have lacked a detail that would add to the parties’ understanding, absent further facts (or a legal system that allows – quite unusually – de novo review of a tribunal’s factual findings) it ought not to matter for purposes of the award’s effectiveness which witness the tribunal referenced or indeed if it meant both witnesses and inadvertently dropped the “es” from “witnesses.” Without unusual additional facts, ordinarily the outcome in the set aside of enforcement proceeding would not differ depending upon which of the two witnesses the tribunal had in mind; to remit to the tribunal would be inefficient, and serve no creditable purpose. As with slips of the pen, the distinction between pivotal and de minimis defects operates in connection with computational errors. In general, if the monetary obligation is affected by the putative error, the problem is not de minimis. Particularly with respect to such potential errors, problems of detection also factor into the approach. Some awards reveal manifest miscalculations – patent errors in simple arithmetic functions. Others do not do so unmistakably, such as when, for example, the award is perfectly coherent if the tribunal employed a certain compound interest rate and compounding method to arrive at the interest owed, but clearly contains a miscalculation if the intention was to award simple interest. The tribunal, having not revealed the method used, might be consulted to confirm which of the two characterizations is correct. Yet, in a jurisdiction favoring enforcement, one can imagine the court invoking a rule of validation analogous to what courts do when preferring the law that validates a contract (lex validitatis).7 Thus, if the amount awarded comports with either of the two potential interest scenarios, the court would confirm it.8 In contrast to the above two hypotheticals is the award in which no computational theory accounts for the number reached by the tribunal and the case involved many mathematical steps and assumptions.9 Only an aggressive proenforcement assumption would allow the court to ignore a party’s request to refrain from enforcing what might well be an award based on errant calculations. In such a circumstance, the parties are entitled to know that the tribunal did not miscalculate. Remission by a party, or by the court, would be fully justified.10 7 See E. Scoles / ​P. Hay / ​P. Borchers / ​S . Symeonides, Conflict of Laws, 3rd ed., 2000, 885, 891.

8 See infra notes 40-41 and accompanying text concerning favorem validitatis sententiae. 9 Compare

Collins & Aikman Floor Coverings Corp. v. Froehlich, 736 F. Supp. 480, 487 (S. D. N. Y. 1990) (remanded for clarification of illogical damage award). 10 In a jurisdiction that allows courts to correct and modify awards as well as to remit them (such as the United States), some awards require a court to decide how involved

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II.  A Brief Taxonomy of Defects and Associated Considerations

II. D. Scope of Matters Decided II.  D.1. Overlooked Matters As broached throughout this essay, omitted issues and claims constitute a problem distinct from others.11 The award’s flaw is that it is incomplete; the tribunal did not fully discharge its mandate because it failed, for example, to address a counterclaim or a freestanding theory of recovery properly before it but not accounted for in the matters12 explicitly addressed in the award.13 It might be that the tribunal in fact decided the allegedly omitted matter, but merely forgot to include that assessment in its reasoning. Alternatively, it might be that the arbitrators genuinely overlooked the matter, failing to decide it.14 Unlike the situation in which the oversight was merely a failure to pass along an outcome and reasons, when a discrete claim or issue that was left undecided is returned to the arbitrators, the tribunal will be deciding it for a first time; that should involve deliberations among tribunal members and potentially further proceed-

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in mathematics to become. The awards in this group are to be distinguished from those which the court can easily self-correct, such as when the award displays an obviously misplaced decimal point that the court can relocate without the tribunal’s help. Rather, consider the award in which the tribunal designates its own pre-award rate of interest, yet produces an award that can only be explained if the tribunal in fact applied a rate sought by one of the parties. The situation is on the self-correct / ​remit cusp; the court would be justified in accepting the award’s stated ruling on the proper rate and recalculate the interest accordingly, or it might feel obliged remit to the tribunal. Compare UCO Terminals, Inc. v. Apex Oil Co., 583 F. Supp. 1213, 1217-1218 (S. D. N. Y. 1984), judgment affirmed without opinion, 751 F.2d 371 (2d Cir. 1984) (calculation would be errant only if arbitrators intended to grant simple pre-award interest). See generally Restatement CA, supra note 2, Reporters’ Notes to Section 4-35. See also infra notes 76-79 and accompanying text. “Matters” is a generic term meant to include both omitted claims and undecided issues. The two types of omissions are distinct and the two terms are not used interchangeably in statutes and rules; in a given context, the difference may be important. See, e. g., Escobar v. Shearson Lehman Hutton, Inc., 762 F. Supp. 461 (D. P. R. 1991) (arbitrators apparently adjudicated only one of two claims); Fisher v. General Steel Domestic Sales, LLC, Slip Copy, No. 10–cv–01509–WYD–BNB, 2011 WL 5240372 (D. Colo. Oct. 31, 2011) (tribunal had overlooked jurisdictional defense). In cases of doubt, assuming the court enjoys a power to remit as broad as that known in the U.S., the court may ask a tribunal to explain what in fact it decided in the award; that response will dictate whether further action by the arbitrators is required. See Galt v. Libby Owens-Ford Glass Co., 397 F2d 439, 442 (7th Cir. 1968) cert. denied 89 S.Ct. 258 (1968) (arbitrators may appropriately be asked whether they had decided a particular issue); Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1281 (5th Cir. 1994) (clear from arbitrators’ replies to court that tribunal decided all issues).

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ings involving the parties. It is also a circumstance in which the tribunal is uniquely positioned to remedy the problem – at least if the parties’ preference for arbitral resolution is to be given effect. One challenge for curative systems under this rubric is to distinguish situations involving genuinely omitted matters properly before the tribunal on the one hand and mere instances of an economically reasoned award that relies on its reader to understand that decision A implies decision B. Thus, in a sale-of-goods dispute, if the tribunal ruled that the particular goods tendered conformed to all implied and express warranties created under the UCC, the tribunal’s failure to also address buyer’s fraud theory (that seller intentionally misled it as to the quality of the goods) might well not be an omission. By contrast, a different award’s decision on the same facts that the goods complied with all implied warranties would not discharge the tribunal’s duty to rule on the analytically discrete question of express warranties; this latter award omits to address a theory of recovery. Another limitation generally observed in considering omitted matters is that a matter is not considered to have been omitted if a party did not actually raise it before the tribunal. II.D.2. Exceeding the Scope of the Submission (Ultra Petita) In contrast to an award that omits matters are awards that purport to resolve issues not properly before the tribunal. Excess of mandate is a ground for set aside in most jurisdictions15 and is among the grounds justifying non-enforcement of an award under Article V of the New York Convention.16 For such excesses, the type of remediation and its scope will depend in part on whether the matter that exceeded the tribunal’s mandate is severable from the matters properly decided. If so, the award may be able to be recast, or surgically handled, in a manner that simply jettisons the extraneous matter.17 For example, consider an award that decides that buyer owes seller a certain sum under contract one and a certain sum under contract two. By virtue of contract one’s arbitration clause, contract one issues are properly within the tribunal’s jurisdiction. Contract two is not subject to an arbitration clause; disputes arising out of it are not properly before the tribunal. Assuming the respective amounts are individually set out, little would be required to reform the award to cover only sums owing under contract one. Indeed, this might be said to be an obvi15

See UNCITRAL Model Law on International Commercial Arbitration, art. 34(2)(a)(iii) (1985, revised 2006) (hereinafter: Model Law). 16 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S. T. 2517, 330 U. N. T. S. 3 (hereinafter: New York Convention), art.. V(1)(c). 17 Partial remission is commonplace in systems that practice pre-set aside remission.

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III.  Legal Sources

ous defect calling for a self-evident repair (which in turn may bear on whether the tribunal needs to be consulted at all).18 In this respect, ultra petita differs from infra petita. When the problem is an excess of mandate, the tribunal is often not alone in being able to remedy the problem; a court so empowered might enforce the award as to contract one, and partially set aside the award as to matters purportedly decided with respect to contract two. By contrast, in the infra petita circumstance, in many jurisdictions the court ordinarily would not be allowed to decide the omitted claim for itself on a pre-set aside basis.19

II. E. Errors of Law Often, international arbitration statutes do not empower courts to review awards for errors of law. Remissions to the arbitrators to correct such errors in international cases (while not unheard of)20 are thus not a widespread occurrence. When it occurs, remission to correct legal errors resembles post-set aside resubmission of an entire dispute except that the court’s accompanying instructions might stipulate that the tribunal’s earlier factual findings (as opposed of findings of law) remain intact, making for a hybrid that falls short of the clean slate that follows a true set aside.21

III. Legal Sources The rules governing post-award refinement of awards are found in all of the usual sources familiar to the international arbitration community: treaties,22 statute,23

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See Restatement ICA, supra note 2, Section 4-35, Cmt. b. The court, however, might enjoy renewed jurisdiction as to the portion set aside in some jurisdictions. See infra notes 167-173 and accompanying text. See English Arbitration Act, Sections 69(7)(c)(d)(appeal on points of law may lead to remission); see also infra notes 157-159 and accompanying text. It is also true that the boundary between remission for an excess of mandate and one for legal error may well be blurred in a given instance. See J. Coe, Domestic Court Control of Investment Awards, 19(3) Journal of International Arbitration 185-186, 194-196 (2002). See Convention Establishing the International Centre for the Settlement of Investment Disputes (1965) (hereinafter: ICSID Convention), arts. 50-51 (authorizing interpretations and revisions). See UNCITRAL Model Law, supra note 15, arts. 33-34 (1985, revised 2006). Even when statutes and rules dominate the analysis, case law naturally may play an important secondary role in enunciating what the governing text or statute in fact means.

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procedural rule formulae,24 internal rules of administering institutions25 and case law doctrine. While the most common textual sources are statutes and procedural rule sets, that pattern is broken in the United States in which, at least as to remission, case law dominates (there being no Federal Arbitration Act provision on pre-vactur remission).26 The multiple sources have not been integrated. The result is overlap, particularly with respect to statutes and rules; as a consequence, differences may arise, calling for a conflicts-style analysis to ascertain the governing prescription. Thus, if the statute at the seat of arbitration allows a party 3 months to request a correction and the governing rule text adopts the more common thirty day rule, the law of the seat will be examined to discern whether it is mandatory and, assuming it is not, the thirty day rule will prevail as a function of party autonomy.

IV. Principal Participants – Roles and Interests The various procedures designed to account for human error in the preparation of awards contemplate a role for, and make assumptions about, the chief actors involved in international commercial arbitration: arbitrators, the parties, courts (at the seat and not at the seat) and institutions. In a given system, these participants may have, variously, authority to initiate a process (either exclusively or concurrently), authority to screen (a gate-keeper role), and power to affect the system by agreement (through exercises of party autonomy). They also naturally interact with each other in realizing these roles. In general, it can be said that each has an interest in the effective functioning of curative regimes. Arbitrators have a strong interest in seeing that the finality and justice they sought to bring to the parties’ dispute is achieved. They also have a corresponding duty to “uphold the integrity and fairness of the arbitration process” as posited in the AAA-ABA Ethics text.27 As understood by the drafters of that ethics text and similar guides, arbitrators ought to strive to avoid errors in the award in the first instance and when later asked to perform their gate-keeper 24

See Generally Simpson, Thatcher & Bartlett, Comparison of International Arbitration Rules, 3rd ed., 2008 (passim). 25 See The Secretariat’s Guide to ICC Arbitration, 2012, 357-358. 26 The Federal Arbitration Act, (9 U.S. C., Section 1, et seq.) (hereinafter: FAA) coexists with sate arbitration statutes often based on the Uniform Arbitration Act, as revised in 2000 (Revised Uniform Arbitration Act (hereinafter: RUAA)). The later, in its original or revised form, typically applies in state court proceedings, to the extent not preempted by the FAA. International arbitration cases tend to be handled in federal courts, although federal court jurisdiction is not exclusive with respect to such matters. For remission (remand) cases occurring in both federal and state courts, see Reporters’ Notes to Restatement ICA, supra note 2, Section 4-36. 27 AAA-ABA Ethics text, supra note 1, Canon I.

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role,28 they should honor legitimate petitions while preventing a party from using post-award corrective processes to delay or disrupt the arbitration process or to harass the counterparty.29 The parties’ respective views typically diverge after the award is rendered. 30 When agreeing to arbitrate however, they presumably shared a desire to avoid prolonged court proceedings and to receive an intelligible, enforceable, award after a fair process managed by competent and diligent arbitrators. Courts, for their parts, have an interest in promoting awards that are free of irregularities that detract from the summary nature of post-award proceedings and that make more difficult the kinds of post-award analyses required of them.31 Additionally, when courts exploit avenues that enhance an award’s 28

With respect to post-award operations, as configured by both rules and statutes, a party (or both of them) may seek corrections, interpretations and additional awards. Access is regulated by a time limit (e. g., thirty days in which to make the request) and by the gate-keeping role entrusted to the tribunal; the tribunal need not make corrections, offer interpretations, or make additional awards it deems unnecessary. More specifically, the tribunal remains empowered, in the case of the Model Law, to determine whether or not the request is “justified” before acting on it. And, in the case of correction (but apparently not interpretation) the tribunal itself enjoys concurrent power to call back the award. See Model Law, supra note 15, arts. 33 and 34. When asked by a court to reconsider an award, the tribunal is part of a dynamic that is naturally different from when a party makes the request. Though a party has the power to seek set aside, a request coming from a court at the seat issues from an authority with the power to in fact set the award aside in whole or in part. The request by the court has added weight moreover because it reflects the assessment of a neutral that there is in fact a problem with the award. 29 See AAA-ABA Arbitrator Ethics, supra note 1, at Canon I, para. F. 30 After the award is rendered, the disappointed party may see any perceived defect as a ground for set aside and any corrections to be performed by the court or the tribunal will be welcomed only if they tend to lessen the obligations articulated in the award. A party facing set aside naturally favors remission; it may, of course, be unwilling to concede a defect while set aside still seems remote, resulting in a serious impediment to the extent the process must be triggered by a request from a party. (In this context, whether a court has concurrent power, sua sponte, to launch the process becomes a significant question). Predictable postures such as these remind us that default policies designed to carry out the parties’ pre-dispute agreements ought to be based on what their legitimate expectations were before coming to know whether they would be claimant or respondent. Cf. W. W. Park, Arbitration of International Business Disputes, 2012, 56, 175, 481 (discussing J. Rawls, A Theory of Justice and Rawls’ preference for a “veil of ignorance” in relation to rule-making, 1971). 31 The statutes in many jurisdictions do not grant the court the power of pre-set aside remission. In such systems, once seized of a set aside action the potential outcomes become essentially binary: set aside (in whole or in part) or some form of validating

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effectiveness they advance the interests of the jurisdiction in which they sit, consistent with the objectives such jurisdictions pursue in modernizing arbitration statutes and in ratifying major arbitration treaties. When those remediation efforts succeed, courts also facilitate efficient operations under any enforcement convention later relied upon by a party. To the extent the curative process undertaken by a court involves the arbitrators in the reparative process, courts also practice comity, and promote numerous related polices valued among legal systems. Remission in particular allows those professionals responsible for the problem to bring the award into conformity with relevant standards, so that finality can be achieved and forfeiture and waste avoided. The decision whether to remit of course is not detached from the relationship between the court and the arbitral tribunal as perceived by the court.32 Institutions also favor curative regimes that succeed. An institution, among other things, is a service provider, with an interest in competing effectively in the market place; that objective is undermined when an award sponsored by it is, and remains, defective. Institutions may also affect the award reparation process in several ways. The systems they devise may include mechanisms by which draft awards are vetted before distribution to the parties and the rules they sponsor ordinarily authorize a party to return an award to the tribunal, conferring on the latter the power to make certain adjustments in the award. Additionally, institutional rules may accommodate court remission and resubmission and enhance efficiency by addressing such matters as the form any revised award must take and the new financial arrangements occasioned by the remission.33 Institutional rules not surprisingly have occasionally been relied upon before the courts to argue for and against remission: This was true before the 6th Circuit in Edwin Behr:34 Hoping to avoid remand, … Behr contends that the International Chamber of Commerce (ICC) Rules that govern this dispute pursuant to the parties’ arbitration agreement do not expressly permit remand [and that] the 1988 version of the ICC Rules “made no provision for reconsideration, reinterpretation, or remand” [so that] remand is therefore disallowed. However, … article 35 of the same rules demonstrates that a guiding principle behind the rules is to ensure that the award is ultimately susceptible of enforcement, providing, as it does, ruling – e. g., confirmation (which ordinarily may also be in whole or in part). To the extent set aside occurs, the dispute will return either to the tribunal (or a new tribunal) or to the court depending upon whether the jurisdiction is one in which the agreement to arbitrate revives, or the jurisdiction of the court is renewed. See infra note 167-173 and accompanying text. 32 Concerning comity and related policies, see infra notes 46-65 and accompanying text. 33 See ICC Arbitration Rules, art. 35(4) (2012). 34 M & C Corp. v. Erwin Behr GMBH & Co., 326 F3d. 784 (6th Cir. 2003).

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V.  Relevant Policies

that “[i]n all matters not expressly provided for in these rules, the court and the Arbitral Tribunal shall act in the spirit of these Rules and shall make every effort to make sure that the Award is enforceable at law.” We read this provision to permit remand in this case, given that clarification by the original arbitrator is critical in order to make the … award enforceable at law.35 Institutional involvement also introduces into the process an additional interested actor, adding complexity to what otherwise could be a simple bilateral interaction between the arbitrators and the courts or the parties, as the case may be. The questions that can arise when an arbitration is administered, for instance, include whether the court should remand to the tribunal or to the institution and whether, when remission is made directly to the tribunal, the arbitrators must reengage the institution.36

V. Relevant Policies V.  A. Generally The English Arbitration Act 1996, in two parallel provisions, provides in pertinent part: The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters to the tribunal for reconsideration.37 English arbitration law also establishes that a party’s right to seek set aside for certain kinds of defects in an award is contingent on its first having pursued correction with the tribunal,38 [38]as authorized elsewhere in the 1996 Act.39[39] The cluster of complementary and to some extent interdependent policies that lead to the English preference for correction and remission are familiar themes in private international law. The adumbration that follows recalls some of the policies, interests and goals that seem most intimately involved in formulating and operating systems for perfecting awards. 35

Erwin Behr, 326 F3d. at 783-784 (paragraphs consolidated). Prior to the 2012 ICC Rules changes, which added a provision on remission, these questions gave rise to uncertainty among ICC arbitrators. 37 English Arbitration Act 1996, Sections 68(3), 69(7), reprinted in M. Hunter / ​T. Landau, The English Arbitration Act 1996, 1998. Hunter and Landau’s annotation to the 1996 Act observes that “[i]n the interest of rescuing an award from total nullity, where possible, remission will be the normal remedy rather than setting aside.” Id., at 58. 38 Tweeddale / ​Tweeddale, supra note 4, at 783-784; English Arbitration Act 1996, supra note 37, Section 70(2). 39 The English Arbitration Act, supra note 37, Section 57, authorizes a party to seek from the tribunal a correction or an additional award. 36

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V. B. Party Expectations, Avoidance of Waste and the Validation Impulse Decades ago, writing of choice of law rules, Albert Ehernzweig expressed his approval of a principle of validation for use when addressing questions of contract and trust validity, and in considering other transactional modalities.40 As is routinely discussed in Conflicts courses, the principle obtains when a choice arises between a governing law that would invalidate the contract (with corresponding waste, forfeiture and frustration of the parties’ original expectations) and another governing law under which the transaction is valid. Applying the principle, one chooses the law that validates the transaction. In a similar vein (and more germane to the present discussion) some jurists have suggested that awards under attack should benefit from a presumption that they are valid – the “in favorem validitatis sententiae” principle.41 One appeal of validation doctrines is that they generally comport with the parties’ intentions; the parties, after all, are assumed to not have intended a meaningless exercise in formulating their transaction.42 When applied to curative mechanisms, the validation notion should produce a preference among courts and legislators for approaches that stress availability and exhaustive use of curative regimes; correspondingly, the arbitrating parties’ ex ante expectations should be taken to include that the award they receive – at least after postaward processing – will dispose of the dispute with sufficient clarity and comprehensiveness that they and any courts addressed will know what full compliance with the award entails and which issues the award has finally determined.43 40

He found the principle expressed in such early sources as the Prussian Code of 1794 and the Austrian Code of 1813. A. Ehrenzweig, Contracts in the Conflict of Laws (Part 1), 59 Columbia Law Review 973, 1171 (1959). 41 See ad hoc committee decision in Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB / 81 / 2 (Klöckner I). That aspect of Klöckner is explored in M. Reisman, System of Control in International Adjudication, 1992, 59-61. Reisman has been critical of ad committees that too readily annul ICSID awards. See M. Reisman, The Breakdown of the Control Mechanism in ICSID Arbitration, 1989 Duke Law Journal 739 (1989). 42 What arbitrating parties are entitled to expect in a post-award setting, and how those expectations rank against competing interests, of course, are questions not fully susceptible to universal propositions. It is clear that a starting point is what their legitimate expectations were before coming to know whether they would be claimant or respondent. In this connection see Park, supra note 30, at 175, 481 (discussing Rawls’ preference for a “veil of ignorance” in relation to rule-making); J. Rawls, A Theory of Justice (1971). 43 Parties, before they have a strategic interest to the contrary, likely expect that the much vaunted flexibility and informality of arbitration means that curable award defects will not lead to the waste and forfeiture of set aside. To that extent, their ability unilaterally

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V. C. Promoting Legitimate Alternatives to National Courts Any priority given to saving awards advances what might be regarded as the transnational legal system’s interest in maintaining a viable, legitimate, and otherwise attractive alternative to national courts. The existence of such alternatives may in turn promote the interests national courts have in maintaining manageable dockets, free of disputes better suited to arbitration.

V. D. Subsidiarity and Exhaustion of the Parties’ Chosen Forum Curative regimes that rely on the arbitrators who rendered the defective award to bring it into an effective form – as the principal forms do – satisfy what might be called a preference for local, first tier, solutions over those accomplished at higher realms. That is, arguably, the handling of award defects is best undertaken by the adjudicators closest to the dispute – a policy informed by considerations analogous to those that drive the EU’s subsidiarity doctrine,44 international law’s local remedies rule45 and preferences found in the civil appeals regimes of developed legal systems.

to remit awards and, in many jurisdictions, to ask a court to do likewise comports well with what can be assumed to be their expectations. 44 As understood in EU parlance, “subsidiarity” is the notion that in areas of concurrent competence the Community organs ought to act “only if and insofar as the object of the proposed action cannot be sufficiently achieved by the Member States” (to quote Treaties Establishing the European Union (TEU), art. G(5)). See generally G. Bermann, Taking Subsidiarity Seriously: Federalism in the European Community and the United States, 94 Columbia Law Review 331 (1994). 45 Customary international law’s local remedies (exhaustion) rule contemplates that a national’s claim ought not to be elevated to the inter-nation plane unless and until the respondent state has been given an opportunity to let its internal corrective mechanisms deal with the grievance. The doctrine’s principal rationale might be that it accords best with the respondent’s sovereign status. We need not argue that arbitrators are sovereigns, however, for this analogy to be thought provoking; the doctrine is valuable for its system-wide benefits as well: Justice may be had efficiently and satisfactorily at the local level while involving fewer international persons and less cost than international litigation would entail. The State of nationality is left to attend to other matters, while any dispute that ultimately emerges from the local process will be riper and perhaps factually more well documented. C. Amerasinghe, Local Remedies in International Law, 2nd ed., 2004, 56-74.

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V. E. Extending Comity to Arbitrators In the United States, comity has long played a role in the development of private international law, starting at least as early as Story’s influential work.46 In the contemporary setting, comity, or something similar, affects choice of law analysis,47 the enforcement of forum selection clauses,48 the treatment of foreign judgments,49 the availability of anti-suit injunctions,50 the reach of public laws,51 the existence of personal jurisdiction,52 and the application of forum non-conveniens.53 I suggest that a type of comity operates, or ought to operate, when courts contemplate their relations with arbitral tribunals and associated remission practices and policies. That the court–arbitrator relationship has a mutual comity element is not difficult to argue. Certainly there is ample reasoning in the U.S. Supreme Court cases tending in that direction. The Court has often reminded us that there is a sort of first instance concurrency between courts and arbitral tribunals in the sense that parties who choose arbitration do not relinquish substantive rights but merely trade “the procedures and opportunity for review of the courtroom for the simplicity, informality and expedition of arbitration”54 As well, the Court 46

J. Story, Commentaries on the Conflict of Laws, 1834. See, e. g., MAN Ferrostaal, Inc. v. M / ​V Vertigo, 447 F.Supp.2d 316 (S. D. N. Y. 2006) (“Denmark has a strong interest in regulating and overseeing the conduct of vessels within its waters”). 48 See The Bremen v. Zapata Off–Shore Co., 407 U.S. 1 (1972). 49 See Hilton v. Guyot, 159 U.S. 113, 160 (1895); Somportex Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 440 (3d Cir.1971), cert. denied, 405 U.S. 1017, 92 S.Ct. 1294, 31 L.Ed.2d 479 (1972). 50 In connection with anti-suit injunctions, not all circuits are comity oriented; but most are. The split among the US circuits has been called a divergence between a “comity approach” (followed in so called “conservative jurisdictions”) and other approaches. See Goss Intern. Corp. v. Man Roland Druckmaschinen Aktiengesellschaft, 491 F.3d 355, 359 (8th Cir. 2007) (characterizing circuits that emphasize comity as “conservative” and those do not as “liberal”); Albemarle Corp. v. AstraZeneca UK Ltd., No. 5:08-1085–MBS, 2009 WL 902348 (D. S. C. Mar. 31, 2009). 51 Morrison v. National Australia Bank Ltd.,130 S. Ct. 2869, 2877-2878 (2010); see also F. Hoffmann–La Roche Ltd. v. Empagran S. A., 542 U.S. 155, 164, 124 S.Ct. 2359, 159 L.Ed.2d 226 (2004) (the Court ordinarily “construes ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations”). 52 Asahi Metal Industry Co v. Superior Court of California, 480 U.S. 102 (1987). 53 Cf. Pollux Holding Ltd. v. Chase Manhattan Bank, 329 F.3d 64, 74 (2d Cir. 2003), cert. denied, 540 U.S. 1149 (2004) and cert. denied, 540 U.S. 1150 (2004) (affirming forum non conveniens dismissal because plaintiffs had inadequate contacts with chosen forum). 54 Mitsubishi Motors Corp v. Soler Chrysler Plymouth, Inc., 473 U.S. 605, 627, (1985). 47

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has observed that concerns about the risks of arbitration should be weighed “against a strong belief in the efficacy of arbitral procedures for the resolution of international commercial disputes”55 and it has spoken favorably of “concerns of international comity [and] respect for the capacities of foreign and transnational tribunals.”56 In concrete ways, comity is already at work with respect to the curative processes, through accommodations ranging from quite overt to subtle. The English remission and correction policy noted above, for example, advances comity and allied consideration quite openly.57 Although more ambivalence toward arbitrators can be detected in U.S. case law addressing remission, a general willingness to trust arbitrators when appropriate, and often a preference for doing so through remission, seems well established in the U.S. cases.58 55

Id., at 631. Id. at 629. For the same theme applied in the post-award context by a Canadian court, see Quintette Coal, Ltd. v. Nippon Steel Corp, et al.,1990 CarswellBC 232, 50 B. C. L. R. (2d) 207, [1991] 1 W. W. R. 219. We are advised that this is the first case under the British Columbia Act in which a party to an international commercial arbitration seeks to set the award aside. It is important … that the court express its views on the degree of deference to be accorded the decision of the arbitrators. The reasons … for restraint in the exercise of judicial review are highly persuasive. The “concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes” spoken of by Blackmun J. [in Mitsubishi] are as compelling in this jurisdiction as they are in the United States or elsewhere. It is necessary therefore, as a matter of policy, to adopt a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention when reviewing international commercial arbitral awards in British Columbia. 57 Inevitably, a combination of largely complementary policies and interests underpin the post-award practices adopted in a given legal system. I do not suggest that comity alone explains a system’s preference for remission and resubmission over other options. 58 Language used by courts in the United States may suggest that, unlike the English position, remission is not a favored procedure. Indeed, words of qualification are often used by those courts, observing, for instance, that remission should be used “sparingly” and that “[a]rbitrators are not as amenable to remand of a case for retrial in the same manner as are trial judges.” Colonial Penn, 943 F.2d 327 (citing: Washington-Baltimore Newspaper Guild, 442 F.2d at 1238-39; Fischer v. CGA Computer Assocs., 612 F. Supp. 1038, 1041 (S. D. N. Y.1985) (danger that remand can frustrate basic purposes of arbitration because it delays execution of final judgment); Ethyl Corp. v. United Steelworkers, 768 F.2d 180, 188 (7th Cir.1985) (remand for clarification is disfavored procedure), cert. denied, 475 U.S. 1010, 106 S. Ct. 1184, 89 L.Ed.2d 300 (1986). Indeed, the Restatement itself, formulated quite recently, states in the black letter that the practice applies in “exceptional circumstances.” Restatement ICA, supra note 2, Section 3-36. 56

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The influence of comity and associated concerns is arguably also reflected in the Model Law’s remission provision, although that claim is best appreciated in light of the Model Law’s drafting history. In particular, during the drafting of Article 34(4), the working group considered authorizing remitting courts to instruct the tribunal regarding, for instance, “the matters to be considered” or “the conduct of the proceedings.” 59 That potential feature of the draft, however, was jettisoned as inappropriate. The provision that ultimately appears instead contemplates that upon remission, the tribunal may take such action “as in the tribunal’s opinion will eliminate the grounds for setting aside.”60 The educated guess of Holtzmann and Neuhaus is that the earlier proposal would have tended “to make the arbitral tribunal an organ of the court rather than a party-structured dispute resolution mechanism.”61

Moreover, under the FAA vacatur is authorized when a tribunal “so imperfectly executed [its powers] that a mutual, final, and definite award upon the subject matter was not made.”—a ground that ostensibly covers many of the circumstances in which remission might otherwise be considered. See FAA, supra note 26, Section 10. On closer examination, however, the reserve expressed by courts in the U.S. generally relates to concerns about the functus officio doctrine and does not reflect a general preference for vacatur over remission. On the contrary, when the question is framed in that way, U.S. courts often espouse a preference for remission. See, e. g., Fisher v. General Steel Domestic Sales, LLC, Slip Copy, No. 10–cv–01509–WYD–BNB, 2011 WL 5240372 (D. Colo. Oct. 31, 2011) (remand preferable to vacatur when the tribunal delibera-tely left jurisdictional issue undecided); Cf. Colonial Penn, 943 F.2d at 334 (“[C]ourts have uniformly stated that a remand to the arbitration panel is appropriate in cases where the award is ambiguous”). 59 H. Holtzmann / ​J. Neuhaus, A Guide to the UNICITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary,1989, 920. 60 Model Law, supra note 15, art. 34(4). Other practices might also reflect comity and allied considerations. Courts, for instance, might consider staying set aside proceedings brought by one party when the other has lodged with the arbitrators a request for a correction or an interpretation. Some jurisdictions have facilitated this type of accommodation by statute. See the Netherlands Code of Civil Procedure, reprinted in J. Smit / ​ V. Pechota, National Arbitration Laws, 2004, Vol. II, art. 1060(7) (authorizing a court to suspend set aside procedures if a party has asked the tribunal for a rectification or a correction). 61 Holtzmann / ​Neuhaus, supra note 59, at 920. In this respect Model Law Article 34 impliedly restrains courts to a greater degree than the case-law-based approach of the United States, which tolerates a high level of detail and structure in a court’s interaction with the tribunal. U.S. courts are not limited as to form of inquiry or instruction to the tribunal, and may, for instance, request the tribunal to provide more elaborate or lucid reasoning if necessary to clarify the award or otherwise promote its proper implementation. Robert W. Baird & Co. v. SunAmerica Sec., Inc., 399 F. Supp. 2d 1314, 1320 (M. D. Fla. 2005) (remand to tribunal to determine attorneys’ fees and explain basis therefore

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V.  Relevant Policies

V. F. Policies and Gate-Keeping The arbitration alternative enjoys its greatest viability when the competing considerations surrounding quality control are properly balanced. The same policies that may urge a court to remit in one case (or which may convince a tribunal to take another look) may in another case not be engaged or may justify the court in refusing to remit. In their respective realms, courts and arbitral tribunals must account for circumstances in which post-award maneuvers are likely to imperil systemic legitimacy and the parties’ likely expectations. Thus, for its part (whatever the parties themselves might elect to do by way of requests to the arbitrator) a court does not remit an award that it can itself repair,62 that has only an inconsequential defect,63 or which contains alleged flaws in the tribunal’s handling of the merits under a regime in which courts do not review awards for errors of fact or law. Equally, a court should not remit to a tribunal shown to be biased, corrupt, without jurisdiction, or grossly incompetent,64 or in circumstances in which a party seeks to use remission to harass the counterparty or produce delay.65 Statutes of course generally assist courts and tribunals in performing their gate-keeping functions by establishing a particular framework. In addition to making curative operations discretionary and setting time limits, statutes tend to establish exclusive grounds upon which remission can be predicated; in the case of the Model Law, for example, there must be a basis to suspect that without correction, the award will be set aside.66 so that the court could determine the amount of award); See Galt v. Libby Owens-Ford Glass Co., 397 F2d 439, 442 (7th Cir.) cert. denied 89 S.Ct. 258 (1968) (arbitrators may be asked if they had decided a particular issue); Atlantic Aviation, 11 F.3d at 1281 (arbitrators asked to reply to court to clarify which issues were decided). 62 In jurisdictions in which the court can correct obvious errors, such as the United States, the choice between attempted court correction and remission involves a cleaner rule than the choice between set aside and remission: if the error in expression or computation can be corrected by the court without speculation, it ought to correct it, and not remit the award. See generally Restatement ICA, supra note 2, Section 4-35. 63 See supra notes 6-8 and accompanying text. 64 It may be possible in some jurisdictions to empanel a new tribunal to handle the remission when the problem is other than jurisdictional. To do so is consistent with the parties’ choice of arbitral adjudication. 65 During the Model Law drafting process, whether to include a provision authorizing a party to seek an interpretation was controversial; several delegations thought it might be abused if made available. P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions, 2nd ed., 2005, 264-265. 66 Judge Tysoe in adjudicating the Metalclad set aside action brought by Mexico understood this Article 34 principle. See The United Mexican States v. Metalclad Corporation, Supplemental Reasons for Judgment, [2001] BCSC 1529 (hereinafter: Metalclad Sup-

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VI. Remission as Part of a Spectrum of Curative Mechanisms Broadly viewed, remission is merely one of many types of mechanisms that, depending on the regime, exert a quality control function. In organizing the processes that share such a function, any number of arrays might be imagined. The approach of this section, however, is to place these procedures in temporal groupings corresponding to segments in the life of an award: pre-award, postaward / ​pre-court involvement, during the pendency of a post-award court action, and post-set aside.

VI.  A. Pre-Award Screening VI. A.1. Review of Draft Awards by the Parties Circulation of draft awards to the parties is not a common practice in international commercial arbitration. It is however not unheard of and might exert a quality control influence in many cases. By definition, an award is an adjudication that is final with respect to certain issues to which it is devoted.67 In its draft form, by contrast, it generates no res judicata effect nor renders the tribunal functus officio.68 Before final rendition, unlimited space exists to repair the award in any respect (theoretically even as to the merits). This greater latitude of course must be weighed against the considerable risks associated with forecasting the tribunal’s intention with respect to the merits; the risks of doing so will be apparent to any experienced arbitrator.69 plemental Reasons). Mexico had maintained that the tribunal had not fully considered the basis upon which it offered dicta accepting an alternative theory of expropriation sponsored by the claimant. Tysoe ruled: There is no point in adjourning the proceedings to allow the Tribunal to give further consideration to the Ecological Decree because … the Tribunal did not make a decision on a matter beyond the submission to arbitration when it concluded that the issuance of the Ecological Decree constituted an expropriation without payment of compensation. Metalclad Supplemental Reasons, para. 16. 67 See Restatement ICA, supra note 2, Section 1-1(a). 68 As to which, see supra note 58 and infra notes 91, 160-161 and accompanying text. 69 Inevitably, many parties will seek to reargue the merits in response to a draft award. That duplicative exercise might be avoided in large measure, however, by circulating only part of the draft–such as that summarizing procedural history, facts thought not to be in dispute, the issues, and the parties’ respective positions. Because the draft will not disclose the intended reasoning on the merits or the outcome, the parties will be less inclined to reargue the merits, to launch eleventh hour arbitrator challenges, or to seek preemptive help from a court. In favor of circulating partial drafts is that by doing so the tribunal reduce the likelihood that it will have genuinely misunderstood a party’s

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Major rule formulae do not expressly authorize tribunals to circulate draft awards to the parties; nor do they prohibit it, however. Under the UNCITRAL Rules, the authority to circulate drafts may plausibly be inferred under the default power of the tribunal to manage the proceedings as it deems best subject to the equality of treatment principle and the need to ensure each side has a reasonably full opportunity to present its case.70 In certain settings, a tribunal may be required to circulate its draft award. The practice, for example, is mandated under the U.S. Model BIT (2004).71 The requirement is limited to awards on liability. The process is triggered upon the request of either the Respondent State or the investor.72 The draft is supplied to the two disputing parties as well as to the non-disputant State, making for three potential sources of reaction to the draft concerning “any aspect of ” the proposed award. The practice is distinctive because it involves the parties in the quality control process before the defect is enshrined in a final adjudication. VI.A.2. By an Institution As is well known, the ICC requires that draft awards be scrutinized by the ICC Court in order that it might “lay down modifications as to the form of the award and, without affecting the arbitral tribunal’s liberty of decision,…draw its attention to points of substance.”73 The requirement is one of long-standing at the ICC and other institutions have adopted the practice.74 The procedure has many virtues. Clerical and computational problems, and elliptical, ambiguous or self-contradictory reasoning are likely to be caught be-

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argument or misidentified a person, place or thing. Given that many defects in awards start as an error in the initial sections of the award, this truncated circulation method might well eliminate an appreciable number of post-award proceedings. See UNCITRAL Arbitration Rules, art. 15.1 (1976). See generally J. Coe, Jr. An Examination of the Draft Award Circulation Provision of the U.S. Model BIT of 2004, in C. Rogers / ​R . Alford eds., The Future of Investment Arbitration, 2009, 107. Article 28 of the 2004 U.S. Model provides in paragraph 9: (a) In any arbitration conducted under this Section, at the request of a disputing party, a tribunal shall, before issuing a decision or award on liability, transmit its proposed decision or award to the disputing parties and to the non-disputing Party. Within 60 days after the tribunal transmits its proposed decision or award, the disputing parties may submit written comments to the tribunal concerning any aspect of its proposed decision or award. The tribunal shall consider any such comments and issue its decision or award not later than 45 days after the expiration of the 60-day comment period. Id. ICC Arbitration Rules, art. 33 (2010). See, e. g., Rules of the Singapore International Arbitration Centre, Rule 27.1 (2010).

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fore the award is issued. Unlike what occurs when a draft award is circulated to the parties, there is no pre-award juncture at which the parties are engaged. The ICC vetting process no doubt has caught many defective awards that might have been issued under other systems. It also adds a tincture of regularity and legitimacy to the award, presumably inspiring confidence in the process. Despite the virtues of the ICC scrutiny process, a number of ICC awards have nevertheless been returned to the ICC Secretariat by a party and several have been remitted by courts.75

VI. B. Post–Award, Pre-Court Involvement VI. B.1 Remission from the Parties Modern rule formulae and statutes allow a party, if acting timely, to ask the tribunal to improve upon the award, albeit in limited ways.76 Under this heading one finds requests to correct, to interpret, or to augment the award by deciding a matter that had been overlooked. The bases upon which a party may make such post award requests of a tribunal overlap with but are are not necessarily coextensive with the catalogue of matters that may lead a court to set aside or remit. As in the case of the tribunal responding to party comments on a draft, the arbitrators are not required to make any changes to the award or offer an inter75

See The Secretariat’s Guide to ICC Arbitration 357-60 (2012) (reviewing four cases of remission and one of post-set aside resubmission) (hereinafter: Secretariat’s Guide). The ICC Rules, as revised in 2010, now contain a provision regulating remission. See ICC Arbitration Rules, art. 35(4) (2010). 76 As always, the scope of what can be requested from a tribunal may depend on delicate parsing of the governing procedural rules. The UNCITRAL Rules (art. 38, 2010) and the Model Law (art. 33 (3), 2006) state that a party may ask the tribunal to make an additional award with respect to “claims presented in the arbitral proceedings but omitted from the award.” (emphasis added). It refers to claims not “issues” and the claim must be one that was actually asserted in the arbitration. Moreover, the rule presumably would allow an additional award with respect to a counterclaim (cf. LCIA Rules, art. 27(3) expressly including counterclaims). It does not explicitly contemplate that a tribunal will consider theories of defense raised but not addressed in the award (unless directed to the omitted claim). A close reading of the Model Law’s interpretation provision also reveals carefully drawn limits. A party’s request for an interpretation is not properly made unless the other party agrees to allow the request. The required permission may be found in the rules adopted by the parties however. Neither the 1976 or the 2010 version of the UNCITRAL Rules (art. 37 in each) makes permission from the counterparty a predicate to seeking an interpretation; consequently, adoption of the rules would provide the permission needed under the Model Law.

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pretation merely because requested to do so by a party; such requests are often de facto attempts to receive another hearing on the merits and are accordingly not acted upon by the tribunal in question. The ambit of tribunal power when a party remits varies with the award’s alleged defect. Remission by a party that proposes correction generally calls upon a tribunal to operate in a narrow zone created by a limited exception to the functus officio doctrine.77 The tribunal, after all, has issued its award and under most arbitration laws a tribunal is not empowered in such circumstances to revisit the merits. By contrast, when a party requests a supplemental award, a different analysis applies; the request is to adjudicate that which has not yet been adjudicated. The tribunal will be concerned with whether the claim (or, as the case may be, issue) is within its jurisdiction, whether during the arbitration it had in fact been advanced or raised by the party requesting the supplemental award, and whether it had indeed remained undecided. Depending upon the lex arbitri, a failure to address such omissions can lead to the award being set aside78 or refused recognition and enforcement (at least in part).79 In any event, the requesting party enjoys no particular advantage and may well not prevail when the claim or issue is decided. VI.B.2. Award Retrievals by the Arbitrator Many rule and statutory formulae addressing return of the award to the arbitrators by a party not surprisingly expressly authorize the same process to be initiated by the tribunal itself. The tribunal’s prerogative to re-process the award sua sponte, however, is often not as broad as a party’s power to request a further look. Thus, under certain rule and statutory texts a tribunal can initiate a correction of its own accord, but may not issue a supplemental award without a party requesting it.80

VI. C. During a Post-Award Action to Set Aside or Confirm Defects in an award come to be examined quite naturally when a party seeks set aside or enforcement of an award. In some legal systems (albeit in limited circumstances) courts may themselves adjust the award; other times, such remediation falls to the arbitral tribunal exclusively. 77

As to which, see supra note 58 and infra notes 91, 160-161 and accompanying text. See, e. g., English Arbitration Act 1996, supra note 37, Section 68(2)(d) (failure of tribunal “to deal with all issues that were put to it”). 79 See Restatement ICA, supra note 2, Reporters’ Notes to Section 4-36, cmt a. 80 See UNCITRAL Arbitration Rules, (1976, revised 2010) art. 38; UCITRAL Model Law, supra note 15, art. 33(2). 78

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VI.C.1 Correction or Modification by the Court The FAA is distinctive but not unique in giving courts the power to correct or modify awards. The power is not a device for addressing errors of law, nor by which to avoid remission where remission is called for.81 Rather, the prerogative ordinarily extends only to obvious clerical and similar errors. Even in the limited manner authorized in the FAA, no express correction power is found in the Model Law. The FAA provision, of course, may just make express what in other jurisdictions is part of a court’s inherent power to reform an award to eliminate obvious errors of a non-substantive character. The dearth of correction powers explicitly conferred on courts may also reflect the fact that by rules and statutes tribunals and the parties are allowed to pursue corrections without court involvement, perhaps giving rise to the assumption that truly important defects will already have been addressed by the time the court is seized of the matter. VI.C.2. Pre-Set Aside Remission by Courts to the Tribunal As already noted and more fully developed below,82 remission is most often governed by statute and is often associated with set aside actions. U.S. remission law, 81

Under the FAA, supra note 26, Section 11, courts in the U.S. must distinguish between matters apt for correction or modification by the court and those that should be returned to the arbitrators. Nevertheless, a wide array of problems fall within the Section. Courts use it, for instance, to prevent duplicative recoveries resulting from inadvertent double-counting. See Millmaker v. Bruso, No. 07-3837, 2008 U.S. Dist. LEXIS 79480 (S. D. Tex. Oct. 9, 2008) (certain costs and fees included twice; award reduced accordingly); Netknowledge Techs., L.L.C. v. Rapid Transmit Techs., No. 3:02-CV-2406-M, 2007 U.S. Dist. LEXIS 11550 (N.D. Tex. Feb. 20, 2007), aff’d on other grounds, 269 Fed. Appx. 443 (5th Cir. 2008) (tribunal unintentionally double counted in quantifying damages). See also Thomason v. Citigroup Global Mkts. Inc., No. 2:05-CV-00883 PGC, 2006 U.S. Dist. LEXIS 3168 (D. Utah Jan. 18, 2006) (award inadvertently included party dismissed before the arbitration hearing; award corrected by striking the superfluous name from the caption and elsewhere). By contrast, see Mutual Fire, Marine & Inland Ins. Co. v. Norad Reinsurance Co., 868 F.2d 52, 58 (3d Cir.1989) (a district court may not itself clarify an ambiguous arbitration award “but should remand it to the arbitration panel for clarification.”); Tri–State Bus. Mach., Inc. v. Lanier Worldwide, Inc., 221 F.3d 1015, 1020 (7th Cir.2000) (lower court erred in not remanding the ambiguous award to the tribunal for clarification). Erwin Behr, 326 F3d. at 782 (“In short, for a court to engage in guesswork as to the meaning and application of an ambiguous arbitration award is inconsistent not only with federal policy, but also with the parties’ own agreement to submit their dispute to arbitration.”). 82 See infra notes 136-166 and accompanying text.

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in not being tethered to any statutory authorization, is therefore distinctive. The diverse U.S. case law on remission has been restated by positing: “A court may in exceptional circumstances remand a U.S. Convention award to the arbitral tribunal with instructions to complete the award or to clarify its meaning.”83 In contrast to the open textured approach developed through case law in the U.S. are various statutory remission provisions. A number of these are based on Article 34(4) of the Model Law. It states: The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the tribunal’s opinion will eliminate the grounds for setting aside. This essay returns to this provision below in further dissecting statutory “curative” mechanisms.84 At this juncture, it suffices to note that Article 34, in addition to confirming that courts may remit awards, answers a number of subsidiary but important questions. These include: what is the purpose of remission; who has the power to initiate the process (and may it be exercised 83

Restatement ICA, supra note 2, Section 4-36. When a U.S. court remands an award, it will ordinarily neither confirm it nor vacate it. Remands may be surgically administered, however, and if the remand relates only to a separable claim that may considered by the tribunal without affecting the reminder of the award, a court may confirm or vacate the portions of the award that were not remanded. See Id., Comments a & b. The subsidiary rules developed in U.S. case law also confirm that remission is not a vehicle by which to invite reconsideration of substantive matters already decided, nor may a tribunal of its own accord reopen such matters. Play Star, S.A. de C. V. v. Haschel Exp. Corp., 02 Civ. 7364 (LLS), 2003 U.S. Dist. LEXIS 7049 (S. D. N. Y. Apr. 28, 2003) (when asked for reasons by the parties, arbitrator changed previous award of damages; court later remanded for justification). In the United States, this restriction is said to flow from the functus officio doctrine. The core of the rule is the same as that articulated in many legal systems: that once “arbitrators have executed their award and declared their decision they … have no power or authority to proceed further.” Mercury Oil Ref. Co. v. Oil Workers Int’l Union, 187 F.2d 980, 983 (10th Cir. 1951). The risk the doctrine has traditionally sought to contain was that arbitrators, being unprotected from various ex parte influences, might be persuaded to revisit matters already decided. See La Vale Plaza, Inc. v. R. S. Noonan, Inc., 378 F.2d 569, 572 (3d Cir. 1967); Colonial Penn, 943 F.2d at 332 (emphasizing need to prevent parties from attempting to persuade arbitrators “to overturn an adverse award”). A measure of anti-arbitration sentiment bolstered the doctrine. See Courier-Citizen Co. v. Boston Electrotypers Union No. 11, 702 F.2d 273, 278 (1st Cir. 1983) (observing that past restrictions on arbitrators’ post-award authority were rooted in court’s antipathy toward arbitration). Although the doctrine has been in retreat in recent decades, it remains robust in disallowing a tribunal upon remand from revisiting its final determinations. 84 See infra notes 136-173 and accompanying text.

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as a free-standing action or must it be done as part of a set aside action); what gatekeeper functions are courts expected play; what is the relationship between the grounds for set aside and the scope of the court’s remission powers; and what strictures may a court place on the tribunal’s handling the remitted award?

VI. D. After the Award Has Been Set-Aside – Resubmission Some arbitration statutes including the FAA and the RUAA authorize a court to resubmit a dispute to the tribunal after set aside has occurred.85 In broadly similar fashion, the German variant of the Model law, while having no pre-set aside remission provision, instructs a court to return the dispute to the tribunal after the award has been set aside.86 The underlying premise is that when an award is annulled, the tribunal (not a court) enjoys revived jurisdiction; that is, the arbitration agreement remains operational.87 The assumption reflected in the German provision is that the parties’ pre-dispute wish to avoid national courts is not abated by the fact of annulment and should continue to be honored. The current Dutch approach adopts the opposite premise upon annulment;88 the court enjoys revived jurisdiction. It is not clear whether this default view is predicated on what the parties are presumed to prefer or upon the notion that at bottom arbitration is an exception to the norm of court adjudication and as 85

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See FAA, supra note 26, Section 10(b); RUAA, supra note 26, Section 23(c). Section 1059(4) of the German Arbitration Act, reprinted in H. Smit / ​V. Pechota, National Arbitration Laws, Vol. I (2004), provides “The court, when asked to set aside an award, may, where appropriate, set aside the award and remit the case to the arbitral tribunal” (emphasis added). As is consistent with the German statute’s post-set aside approach, Section1059 of that enactment, supra note 86, states: “[s]etting aside the arbitral award shall, in the absence of any indication to the contrary, result in the arbitration agreement becoming operative again in respect of the subject-matter of the dispute.” The Netherlands Arbitration Act of 1986, reprinted in H. Smit / ​V. Pechota, National Arbitration Laws, 2004, Vol. II, provides in Article 1067 that “unless the parties have agreed otherwise, as soon as a decision setting aside the award has become final, the jurisdiction of the court shall revive.” That Act had no authorization for a court to remit an award. The Dutch position is at the time of this writing subject to serious reconsideration. See Global Arbitration Review, Report: The European, Middle Eastern and African Arbitration Review of 2013, 2013, Section 3, at 9. This may result in amendments to the Act that implement both some type of pre-set aside remission procedure and a new reactivation rule that allows arbitral jurisdiction to be revived post-set aside. As Sanders noted, to some extent a preference for reactivation of one adjudicatory body instead of the other boils down to a “psychological choice.” P. Sanders, The Work of UNCITRAL on Arbitration and Conciliation, 1st ed., 2007, 57. See generally Global Arbitration Review, supra note 88, Section 3.

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VII.  The Common Law / Non-Common Law Divide

such it ought to have a limited lifespan. Pieter Sanders, in his 2001 monograph on the Work of UNCITRAL, expressed a mild preference for the existing Dutch approach,89 which nevertheless is being reconsidered as part of various arbitration reforms under study in the Netherlands.90

VII. The Common Law / ​Non-Common Law Divide Pre-set aside remission to the arbitrators is predominantly associated with the common law. The reasons for the civil law’s disinclination to authorize pre-set aside court remission are not fully apparent. One possibility is that the same function is fulfilled by post-set aside resubmission in combination with the parties’ statutory or rule-based right to seek corrections, additional awards, or interpretations.91 Whatever the reason, the lack of remission outside of the common law was sufficiently well appreciated in the mid-1980’s that there was doubt among the Model Law’s drafters whether in the final product authority to remit should be conferred on courts.92 Eventually, on the basis that it would make available a useful device “for curing procedural defects” it was eventually included as Article 34(4).93 Given an adopting State’s ability to depart from the official text, the extent to which certain countries have excluded or altered Article 34(4) when adopting the Model Law gives some indication of the degree to which remission may take hold outside the common law. A non-scientific sampling reveals – not surprisingly – some adoption and some exclusion of the Model’s remission paragraph outside the common law. Remission provisions are found, for example, in the statutes of China,94 Mexico,95 Scotland,96 Sweden,97 and Switzerland,98 but not in 91

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The lack of civil law remission would not seem to be explained by a particularly rigid application of the functus officio doctrine, given that in civil jurisdictions the parties are often allowed to themselves prolong the tribunal’s post-award involvement in the dispute through requests for correction. Holtzmann / ​Neuhaus, supra note 59, at 920. Id. at 920. Arbitration Law of the Peoples Republic of China, art. 61, reprinted in H. Smit / ​V. Pechota, National Arbitration Laws, 2004, Vol. I. Decree Amending the Mexican Commercial Code, July 1993, reprinted Id., Vol. II (A. Garro / ​J. Gonzales, trans). Arbitration Act 2010, Rule72, available at: http: // ​w ww.legislation.gov.uk / ​a sp / 2010 / 1 / ​ pdfs / ​asp _ 20100001_en.pdf ; cf. F, Davidson, Arbitration, 2000, 376 (reprinting Scotland’s version of the Model Law). Swedish Arbitration Act 1999, reprinted in H. Smit / ​V. Pechota, National Arbitration Laws, (2004) Vol. II. Technically, Sweden is not a Model Law state, but its remission provision follows the Model Law text. Swiss Private International Law Act 1987, Ch. 12, reprinted Id. Switzerland is not a Model Law state.

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those of Holland,99 Hungary,100 Indonesia,101 Japan,102 Korea,103 and Venezuela.104 The common law proclivity by contrast is quite apparent. A random look at statutes in, for example, Canada,105 England,106 Hong Kong,107 India,108 Ireland,109 and other States confirms the existence of various kinds of remission provisions. Consequently, the bulk of our learning about remission in practice comes from common law decisions.

VIII. Party Autonomy VIII.  A. Generally The power accorded the parties to regulate by agreement post–award processes naturally contours their expectations and the default relationships they have with the tribunal and the courts. Before the advent of statutory authorizations, parties to arbitration agreements provided for remission in their arbitration agreements.110 In England, the practice emerged in the first half of the 19th Century and made remission both familiar and accepted.111 The statutory provisions found in the successive English Arbitration Acts of 1854, 1889, and 1950 in this way can be said to have derived from a remission practice originally engineered

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Arbitration Act of the Netherlands 1986, reprinted Id. Hungarian Arbitration Act 1994, reprinted Id. 101 Arbitration and Dispute Resolution Act of Indonesia 1999, reprinted Id. 102 Arbitration Law of Japan 2003, reprinted Id. 103 Arbitration Act of Korea 1999, reprinted Id. 104 Commercial Arbitration Law of Venezuela 1998, reprinted Id., Vol.III. While these statutes do not authorize remission, neither do they forbid it. Extra-statutory practice may exist, as seen in the United States. 105 See, e. g., International Commercial Arbitration Act of Alberta 1986, art. 45(8), reprinted in International Commercial Arbitration (E. Bergsten, ed., 2012). 106 Arbitration Act 1996, supra note 37, reprinted in H. Smit / ​V. Pechota, National Arbitration Laws, 2004, Vol. I. 107 Hong Kong Arbitration Law 2011, Section 81, available at: http: // ​w ww.legislation. gov.hk / ​blis_pdf.nsf / 4f0db701c6c25d4a4825755c00352e35 / ​C05151C760F783AD482577 D900541075 / ​$FILE / ​CAP_609_e_b5.pdf 108 Arbitration and Conciliation Act of India 1996, Section 34, reprinted in H. Smit / ​ V. Pechota, National Arbitration Laws, 2004, Vol. II. 109 International Commercial Arbitration law of 1998, reprinted Id. 110 See M. Mustill / ​S . Boyd, Commercial Arbitration, 2nd ed., 1989, 548 (referring to Section 8 of the 1854 Act). 111 Id. 100

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by the parties.112 Modernly, any party autonomy that operates generally does so under a statutory umbrella. If one adopts an unconventionally broad conception of party autonomy, that autonomy can be said to include a party’s unilateral prerogatives, the parties’ joint powers, and the default effects of failing to act. In connection with remission, for example, the Model Law drafters conditioned the court’s power to remit on remission being “requested by a party.” One thus sees a unilateral triggering power vested in either party (a power which in the absence of further statutory guidance would seem to rule out sua sponte remission).113 Concurrently, however, the court is entitled to determine if remission is “appropriate,” thus hedging a party’s unilateral power with judicial discernment. This check on remission has operated several times under the Model Law when the request for remission was in substance a request that the tribunal reconsider the merits.114 Other curative procedures provide further examples. The same Model Law allows a party to ask for an interpretation of “a specific point or part of the award” provided it is “so agreed by the parties.”115 The application for an interpretation is thus dependent on the non-triggering party agreeing to allow it.116 In contrast, a party need not have the agreement of the other party to seek a correction of a computational, typographical or clerical error.117 Under a more classical meaning of “party autonomy,” the power of the parties to agree on the arbitral seat is of singular importance. As a matter of first principles, with that choice of seat comes whatever regime that system maintains for perfecting awards and rules about the extent to which the parties can jointly alter the processes that would otherwise govern. Modern arbitration laws have come to varying degrees to reduce the number of mandatory rules and thus to expand the parties’ powers to craft the regime to their liking. Nevertheless, with respect to the post-award mechanisms under discussion here, the parties do not enjoy carte blanch.

112

113

114 115 116

117

Id. Naturally, a court may exercise some latitude in characterizing a party’s pleadings as asking for remission, as seen in the Metalclad case, supra footnote 66 and accompanying text. UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, at 165. Model Law, supra note 15, art. 33. In practice, this is not a significant impediment to unilateral requests for interpretation because many rule formulae authorize such requests without requiring the counter party to agree; when adopted by the parties, these rules would supply the needed permission under the Model Law. Model Law, supra note 15, art. 33(1)(a).

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VIII. B. The Devil in the Details At first glance, it would seem consistent with the parties’ mastery over the procedure to allow them to contract away the option to make post-award petitions to the tribunal – requests for correction, interpretation and additional awards. Under the Model Law, the availability of the three processes, however, is not equally subject to the parties’ agreement. The Analytical Commentary produced in connection with the Model Law suggests that interpretations and additional awards may be eliminated by agreement;118 corrections are treated differently, however, in that neither a party’s right to request nor the tribunal’s right to initiate a correction may be affected by a contrary party agreement.119 A different question arises regarding purported limitations on a court’s freedom to remit. May the parties by pre-dispute agreement (such as by a provision in the arbitration clause) preclude a court from remitting an award either when asked to do so by a party, or where otherwise authorized, sua sponte? Assuming a Model Law jurisdiction, given the mandatory nature of corrections, it is difficult to see why the power of courts to remit an award could be eliminated by agreement if the right of a party to seek a correction directly from the tribunal cannot be so curtailed. Even though under the Model Law remission is not expressly a process that can be exercised sua sponte (but rather must be triggered by a party request), the question is whether a party’s right to make such a request can be relinquished by contract. As with other attempts to identify the Model Law’s mandatory provisions, the analysis does not benefit from an official list of mandatory provisions (a potential Model Law feature considered but ultimately rejected).120 Without a catalogue of mandatory provisions to consult in relation to Article 34(4), one looks to the language used and in particular whether the drafters used the preface “unless otherwise agreed by the parties” (the drafters’ announced technique 118

That the right to seek interpretations can be contracted away is signaled by the language “unless otherwise agreed by the parties” and in the case of interpretations by the phrase “if so agreed by the parties” (indicating the right to agree to the contrary). See Model Law, supra note 15, art. 33. Holtzmann / ​Neuhaus, supra note 59, at 583 (reproducing extracts from the UNCITRAL Secretariat’s Analytical Commentary of March 25, 1985). 119 See P. Binder, supra note 65, at 263-264. In practice, the matter probably does not arise often. Nevertheless, in making corrections mandatory, the Model Law drafters endeavor to save the parties from themselves. It is at least imaginable that parties might (however myopically) regard an express withholding of correction powers to be an incentive to the tribunal to draft well the first time, perhaps as part of an expedited procedure called for in the arbitration agreement. 120 Holtzmann / ​Neuhaus, supra note 59, at 1152. The broad analogy to hearings, which the parties can eliminate by agreement (see Model Law, supra note 15, art. 24(1)), is imperfect because the resulting limitation is imposed on arbitrators, not on a court; there is also considerable precedent supporting “documents-only” arbitrations.

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IX.  The Seat as a Limitation on Curative Processes

for indicating non-mandatory provisions);121 that qualification does not appear, suggesting that remission may not be eliminated by agreement.

IX. The Seat as a Limitation on Curative Processes IX.  A. Generally It is routine to conceive of an international commercial arbitration as being anchored in a distinctive and, usually, a unique way to an arbitral seat.122 Under this orthodox conception, it is only the courts of the seat that are empowered to set aside awards rendered at the seat; they do so based on standards found in lex arbitri. As has been much discussed, that power is significant because, once set aside an award is considerably less likely to be enforced away from the seat. By contrast, courts not at the seat have limited powers with respect to awards sought to be given effect before them; under the New York Convention system they are confined to declining to recognize or enforce such awards and must justify that refusal by reference to the grounds set forth in Article V of the New York Convention. As a matter of first principles, such a refusal to recognize or enforce does not equate to set aside; the award remains viable and may be enforced in a neighboring state (subject perhaps to whatever preclusive effect the second court may give the refusal findings of the first court). The second generation question that arises is the extent to which other post-award functions are exclusively entrusted to the courts of the seat and, relatedly, whether a court not at the seat can initiate curative measures with respect to a given award. 123

IX. B. The Risks and Rewards of a Liberal View The main context in which remission occurs is in connection with a set aside proceeding at the seat. But what of cases like 6th Circuit’s decision in M & C Corp. v. Erwin Behr GMBH & Co? In Behr, the appellate court ruled that it was not prevented by the New York Convention or the FAA from remanding an ambiguous award to a tribunal seated outside the U.S.124 In doing so,125 it dis121

Holtzmann / ​Neuhaus, supra note 59, at 1152-1153 See Restatement ICA, supra note 2, Section 1-1 (definition of “seat” and associated Reporters’ notes). 123 The question is not purely theoretical. See M & C Corp. v. Erwin Behr GMBH & Co, 326 F3d. 784 (6th Cir. 2003). 124 Erwin Behr, 326 F3d. at 784. 125 [T]he New York Convention is utterly silent on the issue, as it is on many other issues dealing with the nuts and bolts of international arbitration procedure. At bottom, a remand of an ambiguous award under the circumstances presented here is not incon122

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tinguished between set aside (which it acknowledged was beyond its legitimate powers) and remission, about which the New York Convention was silent.126 Whether courts should be allowed to remit awards to tribunals seated abroad, such as might occurred in Behr, depends in part on how one views the court-tribunal relationship and the relative need to preserve exclusive powers in the seat.127 To take a seemingly less difficult question first: Assume that the jurisdiction in question is one such as the U.S. in which courts may correct and modify awards to remedy obvious non-substantive flaws.128 Is there a reason such a court when presented with a foreign award may not, over the opposition of one party, correct an obvious clerical, computational or similar defect before enforcing the award? For its part, the Restatement draft adopts a conservative view: In principle, a U.S. court enjoys authority to correct or modify a Convention award only if made in the United States. It does not enjoy authority to correct or modify foreign awards, unless the parties unambiguously designated U.S. arbitration law to govern the proceeding from which the award originates.129 In the abstract (without reference to the FAA or other statutory architecture) a more liberal approach than that of the Restatement might be justified. To allow enforcing courts to exercise concurrent power to correct or modify would seem not to impair a legitimate interest held by the seat nor in any concrete way do harm to the international commercial arbitration system as a whole. Nor would it seem to run counter to the parties’ ex ante expectations. A correcting court, which may only remedy obvious defects, is improving the award with the ultimate goal of discharging its obligations under the Convention, while giving effect to an award issued under the supervisory powers of the seat. sistent with any provision of the New York Convention, and we have been unable to locate any authority suggesting that it is … Here … the parties do not seek to vacate the confirmed arbitration award … rather, the district court ordered a remand so that an award that it determined to be ambiguous could be rendered enforceable. 126 Erwin Behr, 326 F3d. at 784. 127 Many related questions might be pursued, but not all of them push us closer to an answer. For instance, it is not an answer to note that the party-initiated finishing processes (correction, requests for additional awards, and interpretation) are generally not affected by the lex loci arbitri. The analogy is not close enough. In the hands of the parties, such requests are a form of self-help generally authorized both by the lex loci arbitri and, independently, by rule formulae adopted by them. And, of course, in operation such requests are not supervised by a court nor triggered by any court action. They are more central to an examination of the relationship between the tribunal and the parties. 128 FAA, supra note 26, Section 11 expressly authorizes a court to correct or modify an award in enumerated circumstances. 129 Restatement ICA, supra note 2, Section 4-35, Cmt a.

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Moreover, the interests of the seat and the arbitral tribunal are hardly at risk; presumably both have a shared interest in enforcement occurring. On the other hand, to limit correction of obvious defects of a non-substantive kind to the courts of the seat would introduce inefficiencies into the New York Convention system unnecessarily. Additionally, the enforcing jurisdiction has what might be regarded as a dominant interest in seeing that a clerically defective award not be allowed to engender confusion within its courts, at least when the repair needed is not subject to speculation.130 Is remanding to a tribunal seated abroad different from performing obvious non- substantive repairs on an award in the process of enforcing it? The interest held by the non-seat enforcing jurisdiction is the same whether it corrects or remits: to properly discharge its Convention obligations while protecting its courts, and the parties, from ambiguous or mathematically defective awards. Further, unlike purported set asides by a non-seat court, remission introduces only minimal confusion into the system; at worst, the tribunal is given conflicting invitations to improve the award’s chances of enforcement. Additionally, it should not matter to a court or to the arbitrators that there is also less of a top down vertical relationship between the non-seat remanding court and the tribunal than exists when the court remitting has the power to set aside the award. Indeed, remand by the non-seat court to the tribunal can be regarded as an act of comity – a courtesy extended to the tribunal and relevant institution to improve the award’s chances of being given full effect. Presumably, the desire of tribunals and institutions to have their awards recognized and enforced is the same whether those effects are given at the seat or away from the seat. And, importantly, the tribunal need not act on a non-seat court’s invitation if it decides not to. (The award’s existence does not rest in the balance). Finally, it is difficult to see what legitimate interest the seat has in requiring that all invitations to repair an award come from it.

IX. C.  Territorial Limitations Imposed by Statute IX. C.1. Limits on Remission Based on the rationales outlined in the immediately preceding section, and without statutory parameters to consider, U.S. courts might well feel entitled to remit an award to a tribunal seated abroad. Under the Model Law, the situ130

One argument for limiting corrections to the courts of the seat is that to allow other courts to perform that function makes possible that, under the guise of mere correction, a non-seat court might make a change of substance, with the possible secondary effect that inconsistent versions of the award might circulate within the New York Convention system.

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ation is different. The power to remit is embedded in the set aside article and is engaged (under a strict view) only when there exists a ground for set aside; and there can exist no ground for set aside when the Model Law jurisdiction in question is not the seat. This limitation is redoubled by the Model Law’s Article 1(2), which includes Article 34 among those provisions that apply only if the arbitration in question is seated within the particular Model Law jurisdiction in question. In this respect one does not expect to find in a Model Law jurisdiction a case like Behr. IX.C.2. Non-Seat Courts Pending Corrective Actions at the Seat As suggested above, the parties may differ as to whether a particular award is defective. A satisfied party, faced with the other party’s unwillingness to discharge obligations it believes are imperfectly communicated in the award, may immediately resort to the New York Convention to enforce the award. In the absence of an order by the tribunal suspending the award, or enjoining enforcement, nothing would seem to prevent the satisfied party from moving forward under the Convention, and to insisting that the Convention requires enforcement. At first glance, there is an apparent lacuna in the Convention architecture with respect to party-remitted awards (as distinct from those returned by a court). Article VI of the Convention, an exception to the duty to recognize and enforce, allows an enforcing court in its discretion to suspend enforcement proceedings pending a set aside action at the seat.131 There is no counterpart provision allowing that court to refrain from enforcing the award pending a tribunal’s consideration of a party’s request for an interpretation, correction, or an additional award. Combining the typical 30 day period in which the party may make the request and the 30 day period (minimum)132 given to the tribunal to decide to correct or to interpret (using the Model Law period as an example),133 there is ample time for an enforcement action to be launched. Given that, at least under one view, a court may enforce an award that has been set aside, it would seem to follow that it may also enforce one that has been rendered but returned by a party to the arbitrators. The potential solutions to this problem are at least three, but none is tailor made for it. First, under Article V(1)(e), recognition and enforcement may be refused if the award “has not yet become binding.” It is plausible to argue that an 131

See Restatement ICA, supra note 2, Section 4-16. See Model Law, supra note 15 art. 33(4) allowing the tribunal to extend the time, if necessary. 133 Id., art. 33(1)(3). The tribunal is given 60 days with respect to requests for additional awards. 132

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X.  Dissecting Statutes – Toward an Analytical Approach to Remission in Context

award returned to or retrieved by the tribunal has not yet become “binding.”134 The same result might be suggested by analogy to the Convention’s adjournment provision of Article VI, which allows a court to defer enforcement pending a set aside action at the seat. A second possibility might draw on the Convention language entitling the non-seat court to enforce Convention awards “in accordance with the rules of procedure [applicable] where the award is relied upon.”135 Although this line of reasoning easily can be taken too far, if the enforcing court would ordinarily enjoy a measure of discretion in managing its docket, with the result that for good cause shown an otherwise summary proceeding is briefly suspended, it would seem not to subvert the Convention’s objectives for the court to defer enforcement. A third possibility is that the enforcing court might itself purport to remand the award to the tribunal, which raises the issues broached above with respect to the remission prerogatives of non-seat courts. Whether any deferral of enforcement will occur, of course, may depend on the enforcing court’s independent assessment of whether the request for a correction, interpretation or supplementation of the award has merit.

X. Dissecting Statutes – Toward an Analytical Approach to Remission in Context X.  A. In General From the forgoing impressionistic survey of considerations and architectural features it is possible to identify a sequence of initial questions that should inform an investigation of a given regime’s curative mechanisms. Those questions in turn naturally suggest subsidiary questions as the examination moves from the macro vantage point to the more granular elements involved. That initial list, drawn from the preceding discussion, includes but is certainly not limited to, the following.

134

Van den Berg’s commentary observes, however, that “in most cases” the award becomes “binding” under Article V(1)(e) “as soon as it is rendered.” A. J. van den Berg, The New York Convention of 1958 Towards a Uniform Judicial Interpretation, 1981, 351. Whether the enforcing court must make this determination by reference to its own law or that of the seat is not clear under the Convention. The exception for non-binding awards is made part of the section referring to awards set aside at the seat, suggesting perhaps that the award’s binding character ought to be determined by the lex arbitri. 135 New York Convention, supra note 16, art. III.

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X. A. Do Courts Remit Awards and If So What Legal Source Authorizes Them to Do So? X. B.1. Case Law or Statutory Authorization? Many non-common law jurisdictions encountered do not operate pre-set aside remission regimes. In a civil law country, if pre-set aside remission is an option, it is typically because the jurisdiction in question has adopted or been influenced by the UNCITRAL Model Law.136 Most remission practices encountered in this study, whether in a common law system or not, derive in turn from a statutory authorization. In that respect, the case-law-based remission authority prevailing under the FAA demonstrates why U.S. arbitration law can be difficult for the non-U.S. lawyer to decode. The FAA, after all, has a post-vacatur resubmission provision, and no provision authorizing pre-vacatur remission; yet, pre-vacatur remission is involved in far more cases than post-vacatur resubmission. Concurrently, to add a layer of complexity, the more modern RUAA (relevant primarily in state courts) unlike the FAA has a remission provision.137

136 See 137



supra notes 91-117 and accompanying text. The authorization is embedded in RUAA, supra note 26, Section 20 (“Change of Award by Arbitrator”). It grants the court discretion when seized of an action to confirm, vacate or modify an award to submit the claim to the arbitrator to consider whether to modify or correct it so as to “clarify” it or because there is in the award “an evident mathematical miscalculation or an evident mistake in the description of a person, thing, or property” or an imperfection as to “a matter of form not affecting the merits of the decision on the claims submitted” or because “the arbitrator has not made a final and definite award upon a claim submitted by the parties to the arbitration proceeding”. The official commentary to the RUAA explains: The benefit of a provision such as Section 20 is evident in a comparison with the FAA … [which provides] no statutory authority for parties to request arbitrators to correct or modify evident errors. Furthermore the FAA has only a limited exception in FAA Section 10(a)(5) for a court to order a rehearing before the arbitrators when an award is vacated and the time within which the agreement required the award to be issued has not expired. This lack of a statutory basis both for arbitrators to clarify a matter and, in most instances, for a court to remand cases to arbitrators has caused confusing case law under the FAA regarding whether and when a court can remand or arbitrators can clarify matters. See III Macneil Treatise §§ 37.6.4.4; 42.2.4.3; Legion Ins. Co. v. VCW, Inc., 193 F.3d 972 (8th Cir. 1999). The mechanism for correction of errors in RUAA Section 20 enhances the efficiency of the arbitral process.

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X.B.2. Broad Authorization or Tightly Structured? As noted above, the jurisdictions encountered in which court remission occurs address the subject by statute, as illustrated by the Model Law. As more fully discussed below,138 the Model Law remission provision is a mix of elements, some limitative, others liberal and discretion-based. 139 Numerous other approaches can be found, however. The 1950 English Arbitration Act, which had influence throughout the commonwealth, was open-textured and brief: In all cases of reference to arbitration the High Court or a judge thereof may from time to time remit the matters referred, or any of them, to the reconsideration of the arbitrator or umpire. Ordinarily, broad authorizations of the 1950 Act type are only slightly less dependent on case law for meaning than the FAA no-provision approach.140 Many statutes, by contrast, utilize what might be called gateways. The English Arbitration Act 1996 is of this character, but numerous other examples can be found.141 For its part, the Model Law is free of explicit gateways but has what might be called implied gateways, as more fully discussed below.142

X. C. Who May Initiate the Remission Process and Is That Power Concurrent? In the context of an action to confirm or vacate an award governed by the FAA, a court may remit an award to the arbitrators whether or not a party has requested it to do so. The same is true of an English court, which when finding a “serious irregularity affecting the tribunal, the proceedings, or the award” may 138

See also supra notes 91-109 and accompanying text. Article 34(4) provides: The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside. 140 See, e. g., Mustill / ​Boyd, supra note 110, at 548 (tracing English remission law starting with Section 8 of the 1854 Act). 141 A more obscure example of a gateway approach is found in Section 16 the Indian Arbitration Act of 1940, available at: http: // ​w ww.indiankanoon.org / ​doc / 1052228 / ​​, which provided that remission was proper: Where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or (b) Where the award is so indefinite as to be incapable of execution; or (c) Where an objection to the legality of the award is apparent upon the face of it. 142 See infra notes 145-153 and accompanying text. 139

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choose among remission (in whole or in part), set aside (in whole or in part) or a declaration that the award is of no effect (in whole or in part).143 In contrast, the Model Law authorization is triggered by the request of a party, in the context of a set aside proceeding. No authorization for a court to remit of its own accord is expressed in the text. Equally, however, nothing in the text prevents a court from soliciting the required request from a party; when faced with the prospect of set aside, at least one party will often be motivated to seek remission.144

X. D. What Is the Relationship Between Set Aside Grounds and Remission? X.  D.1. In General In the absence of a specific provision, courts operating under the FAA do not expressly limit remission to circumstances in which the alternative is clearly vacatur. The prospect that vacatur might occur if the award is not properly remediated is nevertheless often present, and sometimes the point of the remission is to clarify what the tribunal intended to do so that the court can better decide whether a ground for vacatur is present.145 Other times, the tribunal failed to foresee a contingency affecting how the award should be discharged; the contingency having arisen, the court is prompted to return the award.146And, as noted earlier, still other times the problem is that the tribunal appears to have not decided a particular claim or issue.147 143

English Arbitration Act 1996, supra note 37, Section 68(3); see also Section 69(7) (court may confirm, vary, remit or set aside the award). 144 In Metalclad, the relevant party was slow to make an unambiguous request of the court, indeed at one point directing its request instead to the administering institution. See Metalclad Supplementary Reasons, supra note 66 (passim). The eventual formal petition made by the party obviated a determination by the court as to whether elliptical references to remission in written and oral submissions would constitute the needed request. 145 See Collins & Aikman Floor Coverings Corp. v. Froehlich, 736 F. Supp. 480, 487 (S. D. N. Y. 1990) (remitted for clarification of illogical damage award). 146 Weinberg v. Silber, 140 F. Supp. 2d 712 (N. D. Tex. 2001) (award remanded for tribunal to explain amounts that agent would have to pay under various circumstances). 147 See, e. g., Fisher v. General Steel Domestic Sales, LLC, Slip Copy, No. 10–cv–01509– WYD–BNB, 2011 WL 5240372 (D. Colo. Oct. 31, 2011 (remission when the tribunal left jurisdictional issue undecided); Escobar v. Shearson Lehman Hutton, Inc., 762 F. Supp. 461 (D. P. R. 1991) (remission when it appeared to court that tribunal adjudicated only one of two claims).

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X.  D.2. Gateways In contrast to the flexibly applied discretion exercised under the FAA, many statutory regimes link remission to substantive gateways. Here the Model Law is not the most obvious example of a gateway approach but it seems nevertheless to fit that description. It contemplates that remission will occur in the midst of a set aside proceedings to allow the tribunal to eliminate the grounds for setting aside. The assumption is that the court will have identified one or more of the exclusive grounds catalogued in Article 34. 148 In the case of the Model Law, the implied gateways are thus restrictive; Other gateway regimes might confer a broader authorization on courts than is observed under the Model Law or the FAA, such as by listing perceived errors of law among the enumerated grounds for remission. A gateway approach thus does not invariably imply restricted use of remission. The potential for gateways nevertheless to restrict the curative process is illustrated by the problem of omitted matters. There are indeed different approaches. In the United States, by case law under the FAA and by statute when the RUAA governs, remission is allowed to permit a tribunal to make an additional award.149 As modernly viewed, the functus officio doctrine is no bar to deciding a discrete claim that had been overlooked. It, after all, had not been decided yet. Moreover, courts operating under the FAA do not limit additional adjudication upon remission to “claims” in a strict sense; the cases sometimes speak of overlooked “issues,” for example, implying a broader zone for supplemental adjudication upon remission.150 The Model Law approach differs from that of the FAA, and the RUAA. Although it permits parties to seek an additional award directly from the arbitrators, it does not authorize a court to do so. Remission by the court is not prohibited expressly, but the conclusion can be drawn from the fact that the exclusive bases for set aside do not explicitly include that the tribunal failed to fully execute its mandate.151 By contrast, had the drafters elected to go beyond the limited grounds borrowed from Article V of the New York Convention to include an infra petita basis for set aside, as was discussed during the Model Law’s drafting, remission would be available on that basis under Article 34(4). Under U.S. practice concerning pre-vacatur remission, the problem does not 148

F. Davidson, supra note 96, at 376 (arbitration law of Scotland).

149 See Industrial Mut. Ass’n v. Amalgamated Workers, Local Union No. 383, 725 F.2d 406,

412 note 3 (6th Cir.1984) (despite functus officio rule, remand proper to clarify ambiguous award or to require arbitrator to address submitted but unresolved issue). 150 Cf. See Colonial Penn, 943 F.2d at 332 (citing La Vale, 378 F.2d at 573) (arbitrators may thus adjudicate an omitted issue or remove lacunae). For its part, the RUAA, supra note 26, Section 20(d)(2), refers to an arbitrator not making “a final and definite award upon a claim submitted by the parties to the arbitration” (emphasis added). 151 F. Davidson, supra note 96, at 376.

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arise because the option to remit is not dependent on identifying a ground upon which the award might otherwise be vacated. X.D.3. Award Ambiguity and Article 34 Under certain statutory configurations, courts can remand for tribunal correction of a serious ambiguity; the authorization is express. This is true, for example, in England.152Given that, strictly viewed, the under the Model Law remission is limited to settings in which grounds for set aside are present, observers accustomed to the English Arbitration Act or FAA practice might perceive lacunae in the Model Law’s quality control system. How should a Model Law court deal with an ambiguous or elliptical award? It certainly may be argued that the appropriate remedy resides in the parties’ control under Article 33, which allows a party to seek a correction, an interpretation or an additional award, subject to conditions set forth therein. From the standpoint of U.S. law, it seems unsatisfactory, however, that a court could not remit an ambiguous award; the parties may have failed to appreciate timely the need for some further processing so that absent a power in the court to remit, further guidance from the tribunal will not be accessible. The waste and forfeiture of set aside seems a draconian result given the ease with which such problems can be remedied by a tribunal once it is invited to reconsider the award. Given that a set aside ground must be engaged to justify remission under the Model Law, the answer to award ambiguity might be to reason that when the arbitrators have failed to supply an award of sufficient clarity and completeness to allow confident performance by the relevant party, the tribunal has pursued an “arbitral procedure not in accordance with the agreement of the parties …” The relevant agreement may plausibly be derived from commonplace rule provisions requiring a reasoned award.153 X.D.4. Systems Limited to Procedural Defects There is a difference of opinion among systems that have remission provisions based on the Model Law as to whether their use is limited to “procedural” defects. In the Metalclad case, Mexico sought under British Columbia’s version 152

Under Section 68(2)(f) of the English Arbitration Act 1996, supra note 37, the court is authorized to remit an award to the tribunal to correct uncertainty or ambiguity “as to the effect of the award.” This subsection authorizes remission when the award’s opaqueness prevents its enforcement, and is not available to remediate less substantial drafting misfortunes. See R. Merkin, Arbitration Act 1996: An Annotated Guide, 1996 100. 153 See, e. g., UNCITRAL Arbitration Rules, art. 34(3) (2010 version) (tribunal shall state the reasons upon which the award is based).

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of the Model Law to set aside a NAFTA Chapter 11 award rendered under the ICSID Additional Facility Rules. Mexico had convinced the BC court that a ground for set aside had been established as to some of the tribunal’s holdings. Based on certain Model Law travaux, Mexico argued against remission if that would enable the tribunal to hear new arguments of treaty breach not previously fully developed before the tribunal. Mexico asserted that remission was designed to address only “procedural defects.” Justice Tysoe disagreed, finding no such limitation in Article 34 of the Model Law.154 Mexico may have had better success with its argument in Sweden. Hober writes that the Swedish remission provision is intended to allow arbitrators to address “procedural” or “formal” defects, such as when the award is missing a signature.155 Under the notion of procedural defect, remission, however, is not restricted to addressing purely clerical problems. Apparently, procedural flaws may extend to the process that led to the award, meaning that remission might invite a reopening of the proceedings in a given case, leading potentially to change in a merits assessment once the process has been rectified.156 X.D.5. Systems in Which Substantive Errors May Lead to Set Aside The Model Law approach to limiting set aside grounds, which excludes merits review, is not followed everywhere, or may not be followed when the arbitration is governed by the jurisdiction’s domestic arbitration regime rather than its international counterpart.157 Jurisdictions in which merits review is available 154

Justice Tysoe ruled: I do not agree with the submission on behalf of Mexico that Article 34(4) of the Model Law (and, hence, s. 34(4) of the International CAA) was intended to be restricted to procedural defects. There is no such limitation contained in the language of Article 34(4). There is no reason why Metalclad should be prevented from endeavouring to establish a breach of [the NAFTA] on a basis other than [that ruled beyond the tribunal’s mandate by this court] so as to entitle it to additional interest. Supplemental Reasons for Judgment, supra note 66, para.15. 155 K. Hober, International Commercial Arbitration in Sweden, 2011, 346-347. He adds, however, that the class of defects covered could include the failure to hear a witness, which in turn could require the tribunal to reopen the hearing to receive that testimony and to reconsider the merits based on that testimony. Id. 156 Id., at 347. In that respect, there is more similarity between the arbitration law of Sweden as interpreted by Hober and the law of BC as interpreted by Justice Tysoe than might have been assumed by Hober’s illustration of an omitted signature. 157 See United Mexican States v. Metalclad Corporation, 2001 BCSC 664 (hereinafter: Metalclad Judgment) in which an initial issue was whether a NAFTA award was governed by the domestic arbitration act (under which the award could be attacked for errors of law) or by the statute based on the Model Law and intended for international commercial

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in some circumstances include Abu Dhabi, Australia, Canada, China, Egypt, England, Libya, Singapore, and Saudi Arabia.158 When such a jurisdiction also practices pre-set aside remission, remission to correct errors of law is possible. In a post-set aside resubmission jurisdiction that annuls awards for legal error, the scope of the tribunal’s mandate a fortiori includes reconsideration of the merits, except that, as a fully new arbitration the proceeding may involve de novo fact-finding as well as fresh consideration of the governing law (albeit in light of the reasons for set aside given by the annulling court).159 X.D.6. Functus Officio and the Tribunal’s Handling of the Award Upon Remission? Under the FAA, the functus officio doctrine is a well established limitation upon the comportment of arbitrators when seized of a remitted award. By definition, the award involved has not been vacated. The matters already decided by the

disputes (which contained the usual limited set aside grounds based on Article 34 of the Model Law). 158 See G. Born, International Arbitration: Law and Practice, 2013, 329. 159 An example of the potential differences between two regimes operating in the same jurisdiction is explained by Justice Tysoe, as he studied the consequences of the Model Law’s primacy in the case before him: Unlike in some common law jurisdictions, the [remission] procedure is not conceived as a separate remedy but placed in the framework of setting aside proceedings. The Court, where appropriate and so requested by a party, would invite the arbitral tribunal, whose continuing mandate is thereby confirmed, to take appropriate measures for eliminating a certain remediable defect which constitutes a ground for setting aside under paragraph (2). Only if such „remission“ turns out to be futile at the end of the period of time determined by the Court, during which recognition and enforcement may be suspended under Article 36(2), would the Court resume the setting aside proceedings and set aside the award. Hence, it was inappropriate for me to have followed the usual common law approach of partially setting the award aside and remitting the matter to the Tribunal. I should have clarified whether Metalclad was requesting me to adjourn the proceedings under s. 34(4) if I concluded that there were grounds to set aside the award in whole or in part and, if Metalclad had made such a request, it would have been appropriate for me to adjourn the proceedings to give the Tribunal an opportunity to deal further with the matter in view of my conclusion[s] [regarding the tribunal’s exceeding of mandate]. Metalclad, Supplemental Reasons, supra note 66, paras. 14-15.

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tribunal in principle may not be reopened.160 The principle operates in certain other systems in which remand is not based on errors of law.161

X. E. What Is the Relationship Between Corrections Requested by a Party and Remission? X. E.1. Scope of Defects A comparison of the defects that give rise to a party’s right to seek additional processing of the award from the tribunal, and those that trigger the possibility of remission from a court demonstrates that the two avenues are not always coextensive. Omitted claims provide one example;162 many statutes and rule texts allow a party to ask the tribunal to address an overlooked claim. As demonstrated by the Model Law, not all remission regimes do so.163 On the other hand, in some jurisdictions remission by a court can occur because of “procedural misconduct” or similar statutory rubric, whereas a party ordinarily may not invite a tribunal to reconsider its award based on procedural flaws not leading to a defect in the award’s coverage or manner of expression.164 160

U.S. courts endeavor to frame the remand so as not to invite tribunal reconsideration of matters already decided or to create in parties an expectation that they may by further submissions change the result of the remand. See, e. g. Colonial Penn, 943 F.2d at 332 (emphasizing need to prevent parties from attempting to persuade arbitrators “to overturn an adverse award”). The principle is the same when the return of the award is made by a party. See Colonial Penn, 943 F.2d at 332-224 (when considering party request for clarification tribunal made improper factual correction); Play Star, 02 Civ. 7364 (LLS), 2003 U.S. Dist. LEXIS 7049 (when parties asked for reasons, arbitrator changed previous award of damages; court later remanded for justification). 161 See, e. g., Carter (t / ​a Michael Carter Partnership) v. Harold Simpson Associates (Architects) Ltd., (Jamaica) [2004] UKPC 29 (14 June 2004) (appeal from the Jamaican Court of Appeal to the Privy Council; construing provisions equivalent to the English Arbitration Act 1889 to the effect that the original award continues to be valid and the arbitrator may not in curing the defect exceed those aspects of it that render it unenforceable). With respect to the Swedish Arbitration Act (1999), which contains a remission provision inspired by Model Law Article 34(4), Hober notes that while the arbitrators are given latitude, the provision “obviously does not grant [them] the jurisdiction to review the award on the merits.” Hober, supra note 155, at 374. 162 See supra notes 11-16 and accompanying text. 163 Regarding the Model Law’s treatment of omitted claims, see also supra note 150 and accompanying text. 164 See Sugar Australia Pty Limited v. Mackay Sugar Ltd, [2012] Queensland Supreme Court 38 (8 March 2012) (procedural “misconduct” as a statutory ground for set aside).

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X.E.2. Sequencing and Exhaustion Remission practices under the FAA demonstrate no predictable coordination between the parties’ self-help interactions with the tribunal and a court’s willingness to remand. The failure to integrate the two mechanisms can be explained in part by the FAA’s failure to deal with either of the two avenues for returning an award to the tribunal; when the parties have the right to seek corrections and other repairs directly, it is because they adopted one of the many rule texts that authorize a return to the arbitrators of the award, subject to timeliness, the tribunal’s gate-keeping function, and perhaps that of an institution. That a statute governs both party –to- tribunal avenues and court remission is of course no guarantee that an exhaustion principle will be in place. The Model Law contains no such sequencing requirement and the RUAA, in place in 16 U.S. states, also establishes no such requirement.165 Given the foregoing, in coordinating party-to-arbitrator options and court remission, the English Arbitration Act is distinctive. The Act requires that the parties have “first exhausted … any available arbitral process of appeal or review, and … any available recourse under [the section authorizing petitions of arbitrators for corrections or additional awards].”166

X. F. Post- Set Aside Resubmission or Reactivation of Court Jurisdiction? The FAA as augmented by the case law remission practice presents an unusual pattern. The only express pathway for reengaging the arbitral tribunal after it has issued its award is found in the FAA’s vacatur (set aside) provision, which states in pertinent part: “If an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators.”167 The RUAA, as did its 165

In the RUAA, supra note 26, there is however a coordination among the grounds for court correction and those upon which a party may petition the tribunal. Section 20 authorizes a party to seek a correction from the tribunal and lists as qualifying defects the same ones a court may correct when petitioned by a party. See RUAA, supra note 26, Sections 20 and 24(a)(1) and (3). State international arbitration statutes influenced by the Model Law such as that adopted in California replicate the Model Law’s authorization to the parties to seek correction, interpretations or additional awards, and authorize courts to remit in the context of a set aside action, but as a Model Law enactment, it does not expressly conditioned remission on exhaustion. 166 English Arbitration Act 1996, supra note 37, Section 70(2). 167 FAA Section, supra note 26, 10(b). The FAA condition that the time within which “the award was required to be made under the arbitration agreement” could be read very restrictively to preclude return of the case to the arbitrators in many cases, given the

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predecessor, has a more elaborate provision.168 Both statutes, however, assume in principle that set aside of an award does not end the capacity of the arbitral agreement to confer jurisdiction on an arbitral tribunal and thus preclude court adjudication of the matters covered in the clause. When, as is true in many civil law systems, no pre-set aside remission of the award is contemplated, post-set aside reactivation performs the same function as remission, albeit in a less complicated way; concerns for the effects of res judicata and the functus officio doctrine that would ordinarily limit reconsideration of the merits are not relevant. In contrast to this approach are systems adopting the opposite assumption – court reactivation follows set aside.169 In combination with the lack of a pre-set aside remission option, these laws place the burden on the parties themselves, within the period set by the governing rules or statute (typically 1 month) to reengage the tribunal concerning the award flaws in question. time that often elapses during a vacatur action. The RUAA seems to anticipate this problem in a comment, which provides that any time limit placed in the arbitration agreement begins to run anew upon the conclusion of the new hearing (and is not as may be argued under the FAA, subject to a continuously running period calculated based on the original period’s start time). That is: “[t]his time period should be the same in the rehearing as in the original hearing. For example, if an agreement to arbitrate required an arbitrator render an award within 90 days after the close of the hearing, the arbitrator in the new hearing must make the award within 90 days after the close of the rehearing and not of the original hearing.” Official Comment to RUAA, supra note 26, Section 23(c). 168 In pertinent part, the RUAA, supra note 26, Section 23(c) states: If the court vacates an award on a ground other than that set forth in subsection (a) (5)[non-existent arbitration agreement], it may order a rehearing. If the award is vacated on a ground stated in subsection (a)(1)[evident partiality] or (2)[corruption by an arbitrator], the rehearing must be before a new arbitrator. If the award is vacated on a ground stated in subsection (a)(3), (4), or (6), the rehearing may be before the arbitrator who made the award or the arbitrator’s successor. The arbitrator must render the decision in the rehearing within the same time as that provided in Section 19(b) for an award. 169 See, e. g., Arbitration Act of the Netherlands 1986, reprinted in H. Smit / ​V. Pechota, National Arbitration Laws, (2004) Vol. II. It provides in Article 1067 that “unless the parties have agreed otherwise, as soon as a decision setting aside the award has become final, the jurisdiction of the court shall revive;” Alternative Dispute Resolution Bill of Bhutan, Ch. 10 (2011) Section 155, available at: http: // ​w ww.nationalcouncil.bt / ​ wp-content / ​uploads / 2012 / 03 / ​ADR_Bill_Eng.pdf: “The High Court may, on a recourse under Section 151 of this Act [an application for setting aside]: 1] Confirm the award; or 2] Set aside the award in whole or in part and itself determine the matter (emphasis added).

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The Model Law does not provide for post-set aside resubmission of a dispute to the arbitrators; that silence was not an oversight. Sanders reports that “the question was raised but neither the Working Group nor the Commission dealt with the issue.”170 As such, the courts171 or lawmakers of a Model Law jurisdiction would be free to adopt either approach to reactivation. Equally, they could make that default rule subject to party autonomy. An important detail in jurisdictions in which set aside precedes resubmission is the extent to which a court must affirmatively remit the award to reverse what would otherwise be a default position that the tribunal is without jurisdiction. Recently, in Sugar Australia Pty Limited v. Mackay Sugar Ltd.,172 the Supreme Court of Queensland observed that the authorities provided conflicting guidance on the point.173

XI. Conclusion – Tentative Thoughts about Curative Mechanisms and Forum Shopping As a matter of systems design, the elements surveyed above demonstrate that several subsidiary regimes might be employed to advance quality control objectives and that a particular process for detecting and repairing defects is best understood in light of the other curative mechanisms in place for pursuing those objectives with respect to the award in question. Although by no means 170

The Work of UNCITRAL on Arbitration and Conciliation, 2nd ed., 2004, 132. Under the Model Law, a court’s authorization to remit during the pendency of a set aside action is express and is part of an architecture purpose built to limit court involvement in the arbitration process. Specifically, Model Law Article 5 states that in “matters governed by [the] Law, no court shall intervene except where so provided in [the] Law.” To fail to resubmit a dispute to the arbitrators after set aside would not violate Article 5 if, as Sanders recalled, the drafters did not address the question. A fortiori, courts could opt for a policy of resubmission without being seen to “intervene.” 172 Mackay Sugar Ltd., [2012] Queensland Supreme Court 38 (8 March 2012). 173 Mackay Sugar Ltd., at paragraphs 42-43, citing the reasoning in Alvaro v. Temple [2009] WASC 205 (29 July 2009) in which the court observed: There is Australian authority to the effect that if an award is ordered to be wholly set aside, then absent any other indication in the order, the award is deprived of all legal effect, the arbitrator reverts to his status immediately before the award was determined, the arbitrator is no longer functus officio, and the arbitrator thus remains seized of the reference … In England, the cases seem to have assumed that an order setting aside the award not only avoids the award, but also disseizes the arbitrator of the reference: [citing Mustill / ​Boyd, supra note 110, at 565]. No doubt, if there is any concern about the effect of setting aside on its own, and if it is intended that the matter be returned to the original arbitrator to be dealt with, it may be prudent, in addition, to order remitter expressly. 171

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exhaustive, the above inquiry produced a catalogue of typical features and points of departure that may in a given case affect the strategy employed by one or both of the parties. The above tour d’ horizon also sheds light on whether the variations to be found among legal systems in their approach to award defects are legitimately part of the forum shopping analysis. No one would suggest that differences in the operation of post–award party–to–arbitrator petitions, court correction, pre-set aside remission, and post-set aside revival of jurisdiction should be foremost in selecting a seat of arbitration or, more remotely still, in determining where enforcement of an award will be sought. Nevertheless, because outcomes might differ depending upon which jurisdiction’s rules of defect remediation control, an examination of such matters would indeed justifiably be part of an assessment that hopes to consider all relevant questions. Given the common ground found among the systems one encounters (common ground to a great extent promoted by the Model Law), it may suffice merely to avoid outlier jurisdictions. Thus, parties whose arbitration clause represents a shared conviction to stay out of national courts to the greatest extent possible will, other things being equal, avoid seats which combine set-aside grounds that are broadly construed, missing authority in courts to makes pre-set-aside remissions, post-set-aside reactivation of court jurisdiction, and limited party autonomy to change the foregoing system attributes. Relatedly, parties might avoid a jurisdiction for which those and related questions cannot be answered confidently. In this respect, the U.S. (despite being solidly pro-arbitration in its jurisprudence) suffers by comparison, for example, to England, which by statute has addressed clearly many of the questions left in the U.S. to case law and judicial discretion.

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Enforcement after the Arbitration: From National Courts to Public International Law Fora D. Brian King / ​Rahim Moloo* “Show me the money!” Jerry Maguire, from the eponymous film (1996)

I. Introduction One of the most touted advantages of arbitration as a method of international dispute resolution is the neutral forum that it provides. Fears of local bias, and thus a “home court advantage,” have long pervaded our legal consciousness. Even within national systems these concerns exist – as evidenced by the origin and continued existence of diversity and removal jurisdiction within the U. S. federal court system. In the international arena, those same concerns are writ larger. Commercial parties engaged in international transactions will typically resist agreeing to submit to the jurisdiction of their counterparty’s national court system. Understandably, they will fear that the home court may, consciously or unconsciously, favor the local party; and that in any event the familiarity and convenience of the home forum will provide a strategic advantage to the adversary should a dispute arise. International arbitration solves the home court problem by promising a neutral forum, largely divorced from any national court system, in which the substance of the dispute will be fairly resolved. The arbitrators’ authority, however, ends with the issuance of the final award. They have no imperium, and thus no ability to compel compliance with the award they have issued. For this the prevailing party must turn to the national courts – typically those in the State where the losing party’s assets are located – to obtain enforcement. The good news for the successful award creditor is that in the vast majority of cases, enforcement of the award will not be necessary. Recent statistical studies suggest that non-prevailing parties in international arbitrations comply with the award in approximately 90 % of cases.1 They voluntarily pay up. * 1

The views expressed in this article are solely those of the authors. Special thanks go to Jeffery Commission and Julian Arato for their invaluable assistance in its preparation. L. Mistelis / ​C . Baltag, Special Section on the 2008 Survey on Corporate Attitudes towards Recognition and Enforcement of Arbitral Awards and Settlement in International Arbitration: Corporate Attitudes and Practices, 19 The American Review of International Arbitration 319, 339 (2008).

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This is a testament, not to increasing altruism on the part of arbitrating parties, but rather to the easy enforceability and transportability of international arbitration awards afforded by the New York Convention.2 Through ratification of the Convention, 149 States have committed to “recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon.”3 The grounds upon which enforcement may be refused are narrowly circumscribed, and the burden of proving them rests primarily on the party opposing enforcement.4 At the same time, a growing number of States have adopted modern arbitration laws, often based on the 1985 UNCITRAL Model Law,5 which limit the grounds on which an award may be set aside to those the Convention provides for non-recognition or non-enforcement. The result has been an increasingly harmonized international framework in which an award must be upheld by the courts of the place of arbitration, and enforced by courts elsewhere, except on the narrow grounds for refusing enforcement that the Convention provides. This international framework provides a strong incentive for voluntary compliance by the award debtor. Resistance may not be entirely futile, but the costs and difficulties of seeking to have the award set aside or resisting enforcement – in what is likely to be a losing battle – will typically mean that the game is not worth the candle for the non-prevailing party. Still, a minority of cases do and will remain in which the non-prevailing party declines to comply voluntarily with the award, necessitating active enforcement efforts by the prevailing party. The losing party may legitimately believe that the award has been unfairly or improperly rendered. Or, where an at least colorable basis for complaint exists, the non-prevailing party may come to the strategic conclusion that challenging the award, or resisting enforcement, will give it bargaining leverage vis-à-vis its opponent. After all, the monetary and time costs of enforcement proceedings fall equally, at least in the first instance, on the prevailing and non-prevailing parties. Faced with those difficulties, the winner may be inclined to settle for less. It is in the context of non-compliance that the specter of the home court advantage can be resurrected. The losing party’s assets will often be located in its home jurisdiction, compelling the prevailing party to go there to seek en2 3

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United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 330 U. N. T. S. 38 (hereinafter: New York Convention). New York Convention, art. III. New York Convention, art. V. Note that two of the grounds can be raised sua sponte by the enforcing court: where the “subject matter of the difference is not capable of settlement by arbitration under the law of that country” (art. V(2)(a)); and where the “recognition or enforcement of the award would be contrary to the public policy of that country” (art. V(2)(b)). UNCITRAL Model Law on Commercial Arbitration, UN Doc. A / 40 / 17 Annex I (1985) (amended in 2006).

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II.  Enforcement Strategy: Using the New York Convention

forcement. Similarly, the arbitration may have been seated in the award debtor’s home State, giving those courts jurisdiction over a setting-aside action. Having chosen arbitration to avoid the national courts of its counterparty, the award creditor may be forced to return there to carry out the enforcement battle. Particular concerns will arise where the award debtor is a State, a Stateowned company, or an entity closely connected to either. In the first place, States and State entities typically enjoy immunities from execution that complicate the enforcement process, whatever the forum in which it is played out. But beyond that, worries about the home court advantage will necessarily be more pronounced where the award debtor and the enforcement court are siblings. This article considers enforcement strategy and the available fora in two scenarios. Section II discusses enforcement strategy in the ordinary context, in which the New York Convention regime – and the courts in the place of arbitration and in other enforcement fora – function as expected. It considers how parties can best plan for successful enforcement of an international award, including when that planning should begin, what its contours should be, and the fora in which enforcement may most productively be sought. Section III of this article considers the exceptional instances in which the New York Convention regime fails to result in the successful enforcement – in other words, where the courts of the place of arbitration wrongfully invalidate the award (or the arbitration agreement), or the courts in an enforcement jurisdiction fail to enforce the award in accordance with the New York Convention’s dictates. In that scenario, as will be seen, public international law remedies may be available to the frustrated award creditor. Three such remedies will be considered – investment arbitration, human rights courts, and diplomatic protection – with the advantages and disadvantages of each being compared. These issues are of more than academic interest. For the prevailing party, an arbitral award is only as good as the means of enforcing it if necessary. Collection is the ultimate goal of the arbitral proceeding, and it is upon the high likelihood of successful enforcement that the integrity of the international arbitration system rests. The system must produce reasonably certain and predictable results in order to maintain the credibility and effectiveness that the needs of international commerce demand.

II. Enforcement Strategy: Using the New York Convention Lawyers are paid to plan for the worst. While most international arbitral awards are complied with voluntarily, that result cannot be assumed. Accordingly, parties are well-advised to design an enforcement strategy at an early stage, and to refine that strategy regularly as the arbitral proceedings commence and progress. In practice, parties and even counsel often turn their minds to enforcement only after an award is obtained. That is far too late.

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The present Section of this article discusses enforcement strategy at various points in time, on the generally-justified assumption that the post-award enforcement regime will function as expected. Subsection A addresses enforcement considerations that arise already at the time of contracting. Subsection B surveys the issues relating to enforcement that should be considered once the arbitration has commenced. Finally, Subsection C looks at enforcement strategy once an award has been rendered and voluntary compliance has not been forthcoming. The lesson at each stage is similar: forewarned is forearmed. As a guide to the choices that must be made in the enforcement process, Annex A to this article compares the laws of six jurisdictions that are often chosen as the place of arbitration, or where enforcement of an award may typically be sought: England, France, Germany, The Netherlands, Russia, China and the United States (New York). While necessarily a blunt instrument that cannot capture the nuances of the laws of those jurisdictions, the chart in Annex A complements the discussion that follows by providing an overview of the differences between the laws of the fora most relevant to the enforcement of international arbitral awards.

II. A. Considerations at the Time of Contracting The primary goal in international arbitration is to obtain an enforceable arbitral award at the end of the process. Success at that stage will depend, in part, on how well the prevailing party has thought through enforcement issues when negotiating the underlying contract.6 Below, we discuss some of the key considerations at the time of contracting that are relevant to successful enforcement of the eventual award. II.A.1. Selection of the Seat An often-ignored consideration in the negotiation of arbitration clauses is the selection of the arbitral seat. Anecdotal evidence suggests that parties not infrequently choose a place because it is perceived as geographically neutral, or happens to be where the chosen arbitral institution is located, or that they may in negotiations trade away the choice of the seat for the choice of the governing law – all without conducting adequate research into what the arbitration law of the chosen seat provides. The choice of the seat can, in fact, be of considerable strategic importance. The courts of the seat will exercise supervisory jurisdiction over the arbitration, hearing any applications that may be made during the course of the proceed6

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See generally C. T. Salomon / ​J. P. Duffy, Enforcement Begins When the Arbitration Clause is Drafted, 22 American Review of International Arbitration, 271 (2011).

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ings – for example, with respect to the appointment or challenge of arbitrators7 – and will have exclusive jurisdiction over any action to set aside the resulting award.8 Thus, research into the arbitral law of the seat, and the pro- or anti-arbitration attitude of the courts there, is of substantial significance at the contracting stage. Of particular importance, as a legal matter, is to choose a seat in a country that is a party to the New York Convention and that has enacted a modern arbitration law. Seventy-four of the State Parties to the Convention have adopted the Convention’s reciprocity reservation, meaning that they will apply the Convention only to awards made in other Convention States.9 Potential challenges to the ultimate award are, of course, governed by national arbitration law and not the Convention. Accordingly, research into the grounds for setting-aside under the law of the place of arbitration is essential. Ideally, parties will select a seat with an arbitration law based on the UNCITRAL Model Law, and which will thus entertain applications to set aside only on the cabined grounds that the New York Convention prescribes for refusals to enforce. Notably, even the arbitration laws of highly-developed jurisdictions may contain idiosyncratic bases for challenging awards. United States courts may permit setting-aside on the ground of “manifest disregard of the law” with respect to international arbitrations seated in the US.10 While challenges on this basis have rarely been successful,11 the existence of that ground constitutes a risk element that parties may wish to avoid. On a different score, the Netherlands Arbitration Act provides, somewhat unusually, that if an award is set aside, the jurisdiction of the ordinary courts revives.12 Thus, research into the lex fori is advisable even with respect to often-used arbitral venues. Finally, parties will be well-advised to avoid surrendering the home court advantage by agreeing to their counterparty’s country as the place of arbitration. This may sometimes be difficult in practice. States and State-controlled entities will often demand an arbitral seat in their State, the application of their national 7

N. Blackaby / ​C. Partasides / ​A. Redfern / ​M. Hunter, Redfern and Hunter on International Arbitration, 5th ed., 2009, ¶ 4.94, p. 272. 8 Id. ¶ 10.21, p. 591. 9 An up-to-date list may be found on the UNCITRAL website, available at: http: // ​w ww. uncitral.org / ​uncitral / ​en / ​u ncitral_texts / ​a rbitration / ​N YConvention_status.html. 10 See T. Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339-340 (2d cir. 2010) (“manifest disregard remains a valid ground for vacating arbitration awards”). 11 Comm. on Int’l Commercial Disputes of the Ass’n of the Bar of the City of New York, The “Manifest Disregard of Law” Doctrine and International Arbitration in New York (Aug. 2012) p. 2 (“the Committee found that the manifest disregard doctrine has been applied sparingly, especially so in the context of international awards challenged in New York state and federal courts. Indeed, to date, no international arbitral award rendered in New York has ever been set aside in the Second Circuit on the ground of manifest disregard.”). 12 Netherlands Arbitration Act, Code of Civil Procedure, art. 1067.

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law, or both, when contracting in respect of major projects. Nonetheless, for reasons described in more detail in Section III of this article, danger lurks in conceding the home court advantage. II.A.2. Selection of the Institution A second choice that must be made at the time of contracting is between institutional and ad hoc arbitration. That election, too, may have consequences for the eventual enforcement of the resulting award. Some commentators have suggested that the selection of an internationallyrespected arbitral institution can improve the prospects for enforcement, as national courts may accord greater respect to such awards than to those rendered by ad hoc tribunals or lesser-known regional institutions. Like law degrees from Harvard or Cambridge, awards made under the auspices of the major arbitral institutions may travel better.13 In particular, the literature suggests that ICC awards, which benefit from scrutiny by the ICC Court prior to their release, may enjoy enhanced international currency.14 Institutions, or the States in which they are based, may sometimes be of assistance in the enforcement of awards. A recent example is Petrobart v. the Kyrgyz Republic.15 There, the Kyrgyz Republic lost an arbitration under the Energy Charter Treaty to a Gibraltar Company. The arbitration had been conducted under the auspices of the Stockholm Chamber of Commerce. Although the claimant was not its national, the Swedish government initiated diplomatic correspondence with the Kyrgyz government, urging the latter to comply with the award issued under the auspices of a Sweden-based institution. Following several diplomatic exchanges, the Kyrgyz Republic paid.16 13

P. Friedland, Arbitration Clauses for International Contracts, 2nd ed., 2007, § 4(1)(d) (“Certain institutions – in particular, the ICC – have developed such an established reputation for international arbitration that parties can expect that courts will accord awards rendered under their aegis a level of respect not accorded the awards of unknown institutions.”); Salomon / ​Duffy, supra note 6, at 274 (“Accordingly, while no statistics about the enforceability of administered versus ad hoc awards exist, there are enforcement benefits to administered awards that should be considered.”). 14 Friedland, supra note 13, at § 4(1)(d) (“A court called upon to enforce an ICC award thus has the comfort of knowing that the award has been reviewed and approved not only by the tribunal but also by the ICC International Court of Arbitration.”). 15 Petrobart Ltd. v. the Kyrgyz Republic, Stockholm Chamber of Commerce, Arbitral Award (29 Mar. 2005). 16 L. E. Peterson, Lengthy debt collection battle ends, as former Soviet state pays arbitral award; unusual form of diplomatic assistance seen, IA Reporter (29 Sept. 2011); see also J. Vinuales / ​D. Bentolila, The Use of Alternative (Non-Judicial) Means to Enforce Investment Awards Against States, in L. Boisson de Chazournes / ​M. Kohen / ​J. E. Vinuales eds.,

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II.A.3. Waiver of Immunities Where State Entities Are Involved Of particular moment when contracting with a State or State entity is extracting a waiver of sovereign immunity in the underlying contract. Under the laws of nearly every nation, States enjoy varying degrees of immunity against jurisdiction and execution of judgments and awards.17 Immunity may also extend to State-owned companies, depending on the degree of control the State exercises over their affairs.18 The agreement to arbitrate will typically operate as a waiver by a State entity only from arbitral jurisdiction, and not from enforcement against sovereign assets. The exception appears to be France, where caselaw has established that the agreement to arbitrate may operate as a waiver of immunity from enforcement.19 Still, at least where the place of anticipated enforcement is situated outside of France, specific contractual language will be necessary to accomplish the desired waivers of immunity. Such waiver language should cover pre- and postaward attachment as well as execution. The watchword here is to be as express as possible in drafting. For example, under the U.S. Foreign Sovereign Immunity Act, a separate and express waiver from pre-award attachment is necessary.20 Diplomatic and Judicial Means of Dispute Settlement: Assessing their Interactions, 2012, 24. 17 See Jurisdictional Immunities of the State (Germany v. Italy), 2012 I. C. J., ¶ 56 (3 Feb.), available at: http: // ​w ww.icj-cij.org / ​docket / ​fi les / 143 / 16883.pdf (“the International Law Commission concluded in 1980 that the rule of State immunity had been ‘adopted as a general rule of customary international law solidly rooted in the current practice of States.’ That conclusion was based upon an extensive survey of State practice and, in the opinion of the Court, is confirmed by the record of national legislation, judicial decisions, assertions of a right to immunity and the comments of States on what became the United Nations Convention.”), quoting Draft Articles on the Jurisdictional Immunities of States and Their Property, International Law Commission, U. N. Doc. A / 46 / 10, available at 1991 Yearbook of the International Law Commission, vol. 2., 147, ¶ 26. 18 See, e. g., RSM Prod. Corp. v. Petroleos de Venezuela Soc. Anonima (PDVSA), 338 F.Supp.2d 1208 (D. Colo. 2004). 19 See, e. g., Creighton Ltd. (Cayman Is.) v. Minister of Fin. and Minister of Internal Affairs & Agric. of the Gov’t of the State of Qatar, decision of the Cour de Cassation of 6 July 2000 reported in XXV Yearbook of Commercial Arbitration 458 (2000); Société Européenne d’Etudes et d’Entreprises (S.E.E.E.) v. République socialiste fédérale de Yougoslavie, 98 Journal du droit international 131 (1971). 20 For a specific waiver that covers pre-award attachment, see Oman Model Exploration & Production Sharing Agreement of 2002, in R. D. Bishop / ​J. Crawford / ​M. Reisman, Foreign Investment Disputes: Cases, Materials and Commentary, 2005, 308 (“Each party irrevocably agrees not to claim and irrevocably waives any sovereign or other immunity that it may now or hereafter have to the fullest extent permitted by the laws of the applicable jurisdiction from any arbitration proceedings; any proceeding to confirm,

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II.A.4. Structuring the Transaction with a View to Enforcement Lastly at the contracting stage, consideration should be given to structuring the transaction to facilitate later enforcement. Wherever possible, contractual payments should be structured to pass through a financial institution in a proenforcement jurisdiction – for example, a bank in London or New York. Doing this will ensure that a pool of attachable assets is available should a dispute arise. Furthermore, and irrespective of whether a State or State entity is involved, thought should be given to structuring the transaction to attract the protection of an investment treaty. Typically, this will mean using, as the contracting party, a vehicle incorporated in a jurisdiction that has a bilateral investment treaty (BIT) with the country where the project or transaction will occur. BITs provide powerful protections against adverse State actions affecting a contract or project,21 and, as discussed further below, may provide a public international law remedy in circumstances where national courts wrongfully fail to uphold, or enforce, an arbitral award.22

II. B. Considerations Once the Arbitration has Commenced The next important moment for enforcement planning comes when a dispute arises, and arbitration is threatened or commenced by one of the parties. At that point, the need to safeguard enforceability moves from the potential to the actual. Serious consideration must be given to the steps that can be taken, prior to the conclusion of the arbitration, to position oneself advantageously for eventual enforcement. Here, we highlight two important options to bear in mind. II.B.1. Finding and Attaching Assets If not done already, the onset of the dispute marks the point at which the counterparty’s assets should be located and itemized. In some instances this may be a relatively straightforward task – that party may have tangible assets such as plants or refineries that cannot be moved (but may possibly be encumbered). In other cases, however, the process of identifying assets can be more difficult, enforce or give effect to any arbitral award by the arbitral tribunal; service of process; suit; jurisdiction; attachment prior to judgment; attachment in aid of execution of judgment; execution of judgment or from any other legal or juridical process or remedy; and to the extent that in any jurisdiction there shall be attributed such an immunity …”). See generally B. King et. al, Enforcing Awards Involving Foreign Sovereigns, in J. Carter / J. Fellas eds., International Commercial Arbitration in New York, 2010. 21 See generally R. Dolzer / ​M. Stevens, Bilateral Investment Treaties, 1st ed., 1995. 22 See infra Section III.A.

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and outside assistance may be needed. There are a number of firms that specialize in asset location and tracing. Familiar names include Omni Bridgeway, based in Amsterdam; Control Risks, based in the U. K.; and a relative newcomer, Multinational Asset Recovery, managed by erstwhile investment treaty claimant Franz Sedelmayer, whose own enforcement efforts made law before the European Court of Human Rights.23 Holding the money is always best. Thus, once the counterparty’s assets have been located, the next step is to seek pre-award attachment of those assets. As set out in Annex A, a number of key jurisdictions provide for the possibility of pre-award attachment, although the requirements for obtaining that relief vary among them. These include China, England, France, Germany, The Netherlands, Russia and the United States (New York). The Netherlands is an example of a particularly pro-attachment jurisdiction. A broad category of assets can be attached by ex parte application, subject to the requirement that arbitral proceeding be commenced within a reasonable period thereafter (typically being two weeks to three months).24 The burden then falls on the party whose assets have been attached to seek the lifting of the attachment in summary proceedings.25 Similarly, in China, assets may be attached prior to the initiation of arbitration, provided that the applicant can show a compelling need for the attachment, posts security and commences arbitration within 30 days.26 New York is likewise a favorable jurisdiction for pre-award attachment in commercial cases. Before an arbitration is commenced, a party can apply to a New York court to attach assets if “the award to which the applicant may be entitled may be rendered ineffectual” without attachment.27 This remedy is particularly notable for the fact that the parties need not have any connection to New York at all, provided that the property in question is located there.28 Pre-award attachments, whenever available, provide a powerful enforcement tool. They secure monies to be used to satisfy an eventual award, and they avoid the risk that the counterparty will transfer or repatriate assets in anticipation of a possible loss in the arbitration. By the same token, the respondent will be well-advised to consider the potential consequences of having its assets based in enforcement-friendly jurisdictions. 23 See Omni Bridgeway, at www.omnibridgeway.com; Control Risks, at www.controlrisks.

com; and Multinational Asset Recovery (or MARCompany), at www.marcompany.com; see also infra note 169 and accompanying text (discussing Franz Sedelmayer’s saga in the European Court of Human Rights). 24 See infra Annex A (Netherlands). 25 See infra Annex A (Netherlands). 26 See infra Annex A (China). 27 Matter of Sojitz v. Prithci Info. Solutions, 921 N.Y.S. 2d 14, 17 (N.Y. App. Div. 2011) (citing N.Y.C.P.L.R. § 7502(c)). 28 Id.

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II.B.2. Requests for Security Beyond petitions to the courts for pre-award security, many sets of international arbitration rules and national arbitration laws permit applications to the arbitral tribunal for enforcement-related interim measures. Thus, a party may apply to the tribunal for an order requiring the opposing party to refrain from disposing of particular assets pending the outcome of the proceedings, or to post security for the applicant’s costs of arbitration.29 Tribunals tend to look upon such applications with circumspection, as they may be perceived as requiring some prejudgment of the merits at an early stage of the proceedings. Nonetheless, such applications do occasionally succeed, and may in any event be of strategic value by providing a means of showcasing the strength of one’s own case, or denigrating that of one’s opponent, at the start of the arbitration proceedings. By way of example, in 2001, the ICC arbitral tribunal in a case against Latvian parties ordered the respondents to place certain investment funds or their equivalent into an escrow account to be overseen by the presiding arbitrator.30 The tribunal reasoned that that there was a substantial risk of significant prejudice to the claimants’ potential recovery if the conservatory relief was not granted.31 Meanwhile, in X.S.A.R.L. Germany v. Y. AG Lebanon (20 November 2001), the ICC tribunal issued an order requiring the claimant to post security to cover the respondent’s costs arbitrator.32 The claimant in that case was manifestly insolvent and appeared to be relying on third-party funding to finance its own costs of arbitration. The tribunal held that the claimant’s right to pursue its claims in arbitration would only be allowed on the condition that “those thirdparties are also ready and willing to secure the other party’s reasonable costs to be incurred” – lest there be no one from whom to collect after the arbitration.33

II. C. Post-Award Enforcement Considerations By the time an award is issued, significant thought should already have gone into the enforcement phase of the proceedings. As already noted, the statistical 29

G. B. Born, International Arbitration: Law and Practice, 2012, 209 (“[A] wide variety of provisional measures are encountered in international arbitration. These include … (g) providing security for underlying claims; (h) providing security for costs.”). 30 Trust C (Isle of Sark), US Corporation (US) and others v. Latvian Group (Latvia), Latvian Finance Company (Latvia) and others, Interim Award, ICC Case No. 10973, 2001, in A. J. van den Berg ed., XXX Yearbook of Commercial Arbitration (2005), 77-84. 31 Id. at 81, ¶ 8. 32 See X.S.A.R.L, Leb. v. Y. AG, Ger., Procedural Order No. 3, 2008 28(1) ASA Bulletin (2010) 44, ¶ 33; see also Swiss entity v. Dutch entity, Award, HKZ Case No. 415 (20 November 2001), 20(3) ASA Bulletin (2002) 467-472. 33 See X.S.A.R.L, Leb. v. Y. AG, Ger., Procedural Order No. 3, at 41, ¶ 21.

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probability of voluntary payment of a favorable award is high. However, where voluntary compliance is either not anticipated or not forthcoming, the legwork of enforcement begins. Below, we discuss typical enforcement strategies for the prevailing party in the post-award context, as well as two options that are somewhat further afield. We also summarize the alternatives available to parties across key arbitration jurisdictions in Annex A. II.C.1. The Prompt Initiation of Recognition and Enforcement Proceedings The confirmation and enforcement regime under the New York Convention is straightforward. The award creditor simply files with the court where enforcement is sought: (a) the original award or a certified copy of the original award; (b) the original arbitration agreement or a certified copy of it; and (c) a certified translation of those documents into the language of the country in which the award is sought to be recognized and enforced.34 This streamlined procedure applies, as a matter of international obligation, in the courts of all 149 State Parties to the New York Convention. Once these materials have been furnished to the court, the burden shifts to the award debtor to prove that one of the five grounds for non-recognition provided for in the New York Convention exists.35 Two other grounds – nonarbitrability and public policy – may be considered sua sponte by the enforcing court.36 Assuming that none of these limited defenses can be established, recognition and enforcement must be granted, and the domestic court’s enforcement remedies will become available to the award creditor. Commencing an enforcement action promptly after an award is rendered can provide a substantial advantage to the prevailing party. The losing party’s main potential recourse will be to challenge the award in the courts of the place of arbitration; and under the New York Convention, the filing of such an action may result in the suspension of enforcement proceedings elsewhere.37 Typically, however, the successful party will have an enforcement “window” of thirty days or more before the non-prevailing party is in a position to file its application for setting-aside. Commencing enforcement proceedings during that window is usually advisable – in particular if pre-award attachments have been obtained – as the enforcement proceeding may be completed before the setting-aside application is filed.38 At minimum, the enforcement proceeding 34

See New York Convention, art. IV. New York Convention, art. V(1). 36 New York Convention, art. V(2). 37 New York Convention, art. VI. 38 Note that “an award-creditor need not ‘confirm’ an award in the arbitral seat before seeking recognition abroad.” G. B. Born, supra note 29, at 399. 35

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may be sufficiently advanced so that the odds of the enforcing court granting a stay are reduced. Nonetheless, the award creditor should consider the timing of its enforcement actions carefully. Dallah v. Pakistan provides a cautionary tale. In Dallah, the claimant had contracted to build housing in Mecca for Pakistani pilgrims. When the project was cancelled, Dallah obtained an award against the Pakistani government in a Paris-seated ICC arbitration,39 and thereafter commenced enforcement proceedings in England. The U.K. Supreme Court rejected the enforcement application after four years of proceedings up the appellate chain – on the ground that, as a matter of French arbitration law, Pakistan was not bound by the underlying arbitration agreement. While the appeal to the Supreme Court was pending, Dallah sought to enforce the award, and Pakistan sought to set it aside, in France.40 Three months after the U.K. Supreme Court denied enforcement, the French courts upheld and enforced the award – concluding, as a matter of French arbitration law, that a binding agreement to arbitrate existed between the claimant and the government of Pakistan. In retrospect, the outcome might well have been different had Dallah sought exequatur in the French courts prior to seeking enforcement in England. A decision by those courts that a binding arbitration agreement existed may have been accorded issue preclusive effect in England,41 and in any event would have been persuasive authority on the application of French arbitration law. As a result of its timing choices, Dallah now finds itself in the unenviable position of having an award upheld at the place of arbitration, but denied enforcement in a reasoned decision of the U.K.’s highest court.42 39 See

Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Gov’t of Pak., [2010] U.K.SC 46, available at: http: // ​w ww.supremecourt.gov.uk / ​docs / ​ U.K.SC_2009_0165_Judgmentv2.pdf. 40 Gouvernement du Pakistan – Ministère des affaires religieuses v. Société Dallah Real Estate and Tourism Holding, Cour d’appel Paris, n° R / ​G 09 / 28533 (17 Feb. 2011), available at: http: // ​a rbitration.practicallaw.com / 8-505-0043. 41 See Dallah v. Pakistan, (2010) U.K.SC 46, ¶ 98 (noting that “a determination by the court of the seat may give rise to an issue estoppel or other preclusive effect in the court in which enforcement is sought”). 42 Consider also the case of Thai-Lao Lignite (TLL) v. Laos, where, after winning a US$ 57 award, TLL commenced enforcement proceedings in the U.S., England, France and Singapore. Enforcement was granted in the U.S., England and France. Thereafter, the courts of the seat (Malaysia) vacated the award. The Paris Court of Appeal then reversed the grant of exequatur, not because the award had been set aside, but rather on similar grounds to those invoked in the Malaysian court’s decision. See Republique Democratique Populaire du Lao v. Societe Thai Lao Lignite (Thai.) Co., Ltd., Cour d’appel Paris, no R / ​G 12 / 09983 (19 Feb. 2011), available at: http: // ​w ww.globalarbitrationreview.com / ​ cdn / ​fi les / ​gar / ​a rticles / ​Paris_19_Feb_2013_.pdf.

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Despite the outcome in Dallah, it is normally still true that seeking to enforce as soon as possible is the preferred strategy. The lesson is simply that timing matters; and that a case-specific analysis of the best strategy is imperative. II.C.2. Attachment Proceedings In conjunction with recognition and enforcement, a party may also, under most national laws, seek attachment of the award debtor’s property. Prompt attachment (pre-award if available) is of considerable strategic importance. Proceeds will be secured to ensure collection of the award, and the award debtor will be prevented from moving and possibly secreting its assets. In some jurisdictions – for example the United States and England43 – discovery as to the award debtor’s assets will also be available in the context of enforcement proceedings. A recent arbitration between Sojitz Corp. (Japan) and Prithui Info. Solutions Ltd. (India), illustrates the advantage that prompt enforcement action can deliver. In August 2009, prior to commencing arbitration, Sojitz applied to the New York courts for an order attching US$ 40 million of Prithui’s assets. The Court granted Sojitz an attachment order, permitting it to secure payment for part of its claim before the arbitration had even begun.44 Other cases can take longer, but still require creative thinking in terms of the types of assets that can be attached to help satisfy an award. Walter Bau v. Thailand provides an interesting illustration.45 Having obtained an award against the Thai government in 2009, the claimant succeeded in attaching a jet 43

In New York, Rule 69(a)(2) of the Federal Rules of Civil Procedure allows a judgment creditor to obtain discovery from the judgment debtor under the Federal Rules or the procedure of the forum state. See Fed. R. Civ. P. 69(a)(2); Universitas Educ., LLC v. Nova Group, Inc., No. 11 Civ. 1590, 2013 WL 57892 (S. D. N. Y. Jan. 4, 2013) (applying Rule 69(a) (2) following the confirmation of an arbitral award). New York courts have observed that in its efforts to enforce a judgment, “the judgment creditor must be given the freedom to make a broad inquiry to discover hidden or concealed assets of the judgment debtor.” Costomar Shipping Co., Ltd. v. Kim-Sail, Ltd., No. 95 CIV. 3349, 1995 WL 736907, at 8 (S.D.N.Y. Dec. 12, 1995) (citations omitted). In England, discovery is permitted pursuant to the Civil Procedure Rules, Part 31 (covering disclosure in civil proceedings). Part 2.1 describes the scope of application of the Rules, which “apply to all proceedings in – (a) county courts; (b) the High Court; and (c) the Civil Division of the Court of Appeal” with limited exceptions, not including the enforcement of arbitral awards. 44 Sojitz, at 3, 6-7 (upholding an order from October 2009, which confirmed the attachment of certain funds owed to Prithui by one of its New York customers, and permitted Sojitz to attach additional specific assets found in New York). 45 Walter Bau AG (In Liquidation) v. The Kingdom of Thailand, UNCITRAL , Award (1 July 2009).

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owned (and piloted) by the Thai Crown Prince in Munich in July 2011.46 The Thai government was ultimately able to obtain the release of the jet, but only after posting a €38 million bond in respect of the award debt.47 Award creditors are well-advised to think broadly in terms of the categories of property that may be attached. The losing party’s assets include not only the things that it owns, but also monies owed to it by third parties.48 The national laws of many jurisdictions – including all of the enforcement fora surveyed in Annex A – permit the garnishment of third-party debts owed to the award debtor. Levying such attachments not only expands the pool of available assets, but also may deliver a strategic advantage by disrupting the award debtor’s cash flows and its commercial relationships with third parties. It remains to mention a final subject that will typically preoccupy claimants who have succeeded in arbitrations against States or State entities: sovereign immunity.49 While the modern trend is heavily in favor of the restrictive view of immunity – which permits the attachment of and execution against State assets used for commercial purposes50 – immunity will still often be an impediment to enforcement. The case reporters are replete with examples of failed attempts to attach sovereign assets.51 It is for this reason that obtaining a waiver of immunity in the underlying contract is of such importance.52 II.C.3. Challenge of the Award Fate sometimes favors the vanquished. From the perspective of the losing party in the arbitration, the main strategic alternative is to seek to set aside the award at the seat of the arbitration. Applications to set aside do not succeed with any frequency in the main arbitration venues. Most have national arbitration laws that restrict the grounds for setting-aside to substantial procedural errors identical or similar to those identified by the New York Convention as justifying non-recognition and enforcement.53 But the effort to set aside – assuming there is an arguable basis for commencing the challenge – will pay off in some cases. 46

D. Jolly / ​T. Fuller, Thai Prince’s Plane is Impounded in Germany, NY Times (13 July 2011). Thailand post German bond to free Prince’s plane, Associated Press (10 Aug. 2011). 48 See infra Annex A, discussing the key jurisdictions that permit third-party garnishment. 49 A summary of these provisions across key arbitration jurisdictions is set out in Annex A. 50 See generally Draft Articles on the Jurisdictional Immunities of States and Their Property, Int’l Law Comm’n, U.N. Doc. A / 46 / 10, in 1991 Yearbook of the International Law Commission, vol. 2. 51 For example, the failed attempt by Franz Sedelmayer to attach Russian assets in German Court. See infra note 169 and accompanying text. 52 See supra Section II.A.B. 53 See infra Annex A. 47

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Beyond the chance that the application will succeed, filing a setting-aside action may have collateral benefits in other enforcement fora. Under Article VI of the New York Convention, recognition and enforcement of an award may be suspended if an action to set the award aside has been commenced: If an application for the setting aside or suspension of the award has been made to a competent authority … the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. Suspension of enforcement is discretionary, and is hardly a foregone conclusion.54 Accordingly, the chief strategic imperative from the prevailing party’s perspective, where a challenge to the award has been raised, will be to avoid a stay in any enforcement courts, or, in the alternative, obtain an order there requiring the party challenging the award to post security as a condition of the stay. In that manner, ultimate recovery can be assured if and when the challenge to the award fails. II.C.4. Enforcement Proceedings in Relation to an Annulled Award Even where an award is set aside by the courts of the place of arbitration, all is not lost for the prevailing party. Apart from the potential public international law remedies discussed in the next Section of this article, enforcement of an annulled award remains possible under the arbitration laws of some jurisdictions. The rationale is that Article V(1)(e) of the Convention provides that an enforcing court “may” decline to enforce if an award has been set aside in the courts of the place of arbitration. Thus has arisen a longstanding debate as to the significance the “may” attracts – pitting two of the field’s most venerable scholars on opposite sides of the argument.55 54

Courts have proceeded to enforce awards prior to the conclusion of the challenge proceedings before the courts of the seat on the basis that: (i) the award is binding; (ii) the award is unlikely to be set aside by the courts at the seat; (iii) the vacatur proceedings before the seat were brought merely as a delay tactic; (iv) the vacatur proceedings are unlikely to be resolved in a short period of time; or (v) the suspension of the enforcement proceedings would substantially prejudice the award creditor. See G. B. Born, International Commercial Arbitration, 2009, 2875-2876. 55 For the two sides to the debate, see J. Paulsson, The Case for Disregarding LSAs (Local Standard Annulments) Under the New York Convention, 7 American Review of International Arbitration 99 (1996); and A. J. van den Berg, Enforcement of Arbitral Awards Annulled in Russia, 27 Journal of International Arbitration 179 (2010).

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In most jurisdictions, it is quite unlikely that the courts would enforce an award that has been set aside in the primary jurisdiction, i. e., the place of arbitration. Of the systems surveyed in Annex A, that list includes China, England, Germany and – despite an initial flirtation in the Chromalloy case – the United States.56 There are, however, notable exceptions. It is well-established in French law that the mere fact of an award having been set aside at the seat of the arbitration has no bearing on its enforcement in France.57 More recently, the Netherlands joined the list of jurisdictions prepared to enforce annulled awards, although on a different basis than the French position. In March 2007, Yukos Capital commenced enforcement proceedings in the Netherlands against Rosneft in regard to four arbitral awards rendered in Russia totaling US$ 400 million. Those awards, however, were set aside in May 2007 by the Russian courts. Nevertheless, in April 2009, the Amsterdam Court of Appeal permitted enforcement of the awards, reasoning that the judicial process in Russia that had produced the annulments was “partial and dependent,” and that therefore the Dutch courts would decline to recognize the Russian annulment judgments.58 II.C.5. Options Further Afield Two further options for the award creditor merit brief mention. While the chances of an ultimately successful enforcement effort are high, the costs of enforcement proceedings – often in multiple and diverse jurisdictions – can be substantial. Some award claimants may lack the resources, or the patience, for that effort. a. Settlement For such claimants, settlement may be an option. The award debtor may be willing to pay a portion of the award in exchange for enforcement efforts being abandoned. Taking the settlement haircut will be painful, but is sometimes the rational choice for the award creditor. 56 See infra Annex A, for a summary of the positions taken in key arbitration jurisdictions

on this issue. See also In re Chromalloy Aeroservices Inc. and Ministry of Defence of the Republic of Egypt, 939 F. Supp. 907 (D.D.C. 1996). 57 See L. J. Silberman / ​M. Scherer, Forum Shopping and the Response to Set-Asides, in this volume, for a discussion on the Hilmarton and Putrabali decisions, among others. 58 Yukos Capital SARL v. OAO Rosneft, No. 200.005.269 / 01, Judgment, Amsterdam Court of Appeal (28 April 2009), unofficial translation from Dutch version available at: http: // ​w ww. iiiglobal.org / ​component / ​jdownloads / ​fi nish / 170/4135.html. See Silberman / ​Scherer, supra note 57, for a detailed discussion of the Yukos cases.

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Indeed, the available data indicate that settlement is a not infrequent occurrence. In a survey of corporate counsel conducted in 2010, 40 % of those responding indicated that they had settled after an award was rendered.59 Though the terms of these settlements are rarely made public, an example from investment treaty arbitration is illustrative of the broader point. In Siag v. Egypt, an ICSID tribunal awarded the claimant US$ 133 million on 1 June 2009; on 19 June 2009, Siag successfully moved in the New York courts to recognize and enforce the award; and in November 2009, Siag settled the dispute with Egypt for US$ 80 million.60 b. Sale of the award to a third party A further option for the award creditor is to sell the award – again, naturally at a discount. The amount of the discount is likely to be inversely proportional to the progress made by the original party in its enforcement efforts prior to the sale. Due largely to the enforcement power of the New York Convention, the award itself has an estimable value in the market, based on the buyer’s prospects of ultimate collection.61 Although it is difficult to estimate the size and scope of this market, it appears that the sale and purchase of arbitral awards is becoming more common.62 Indeed, a number of companies now engage in the sale of arbitration awards, acting as an intermediary with investors or purchasing awards themselves. Notable among that group of companies are Blue Ridge Investments (owned by Bank of America) and Omni Bridgeway. The fact or details of such sales occasionally come to light. In 2004, FG Hemisphere, a Delaware-based company, purchased two ICC awards against the Democratic Republic of the Congo. Its ownership of them was revealed when FG Hemisphere sought to enforce the awards in various jurisdictions – including in the Hong Kong Special Administrative Region by attempting (unsuccessfully) to execute against US$ 104 million due from Chinese entities to the DRC.63 Similarly, in 2003, a Seychelles-based company purchased an award 59 See

Mistelis / ​Baltag, supra note 1 at 324. Siag v. King & Spalding LLP, S. D. Tex. Jun. 30, 2010, available at: http: // ​law.justia. com / ​cases / ​federal / ​d istrict-courts / ​texas / ​t xsdce / 4:2010cv02096 / 769952 / 19. 61 See generally L. A. Mistelis, Award as an Investment: The Value of an Arbitral Award or the Cost of Non-Enforcement, 28 ICSID Review 64 (2013). 62 International Arbitration: Corporate attitudes and practices 2008, at 2, available at: http: // ​w ww.arbitrationonline.org / ​docs / ​IAstudy_2008.pdf (noting that “almost one in five of the interviewed corporations realized value from the claim or award by selling or assigning it”). 63 FG Hemisphere Associates LLC v. Democratic Republic of Congo, CACV 373 / 2008, and CACV 43 / 2009 (10 Feb. 2010), available at: http: // ​w ww.newyorkconvention1958.org / ​ 60 See

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rendered in an arbitration under the auspices of the Chamber of Commerce and Industry of the Ukraine. The sale came to light in a 2008 action before the European Court of Human Rights brought against the Ukraine by the purchaser of the award.64 Further, albeit not in the New York Convention context, ICSID awards have also been valued or sold in recent years. For instance, the award in CMS v. Argentina was sold to Blue Ridge Investments in 2008.65 Notably, as discussed further below, the purchaser of the CMS award (along with others) has been successful in convincing the U. S. Government to provide assistance in its enforcement efforts.66

II. D. Conclusion on the Normal Enforcement Scenario The deterrent effect created by the enforcement power of the New York Convention makes enforcement unnecessary with respect to the great majority of international commercial arbitration awards – the non-prevailing parties comply voluntarily with the awards against them. Still, a minority of cases remain, and will always remain, in which enforcement is necessary to secure recovery. Planning for enforcement should begin long before the successful party obtains its award. Indeed, strategic choices made at the time of contracting can impact upon the prospects for enforcement after disputes arise. Designing an enforcement strategy must therefore begin at an early stage. It is necessarily a case-specific effort, but one that demands attention from the onset of the transaction through the successful conclusion of the arbitration, and beyond.

III. Strategic Options When the New York Convention System Breaks Down The previous Section of this article proceeded on the assumption that the New York Convention system functions as expected. Where voluntary compliance with an award is not forthcoming, conscientious enforcement efforts would be expected to lead, eventually, to full collection of the amounts awarded. The courts of the place of arbitration would uphold the award if challenged, and other national courts would enforce the award against the debtor’s assets in their territories. index.php?lvl=notice_display&id=686&seule=1. Regent Co. v. Ukraine, Eur. Ct. H. R., App. No. 773 / 03 (2008). 65 See Foreign-Investment Disputes: Come and Get Me, The Economist (18 Feb. 2012). 66 See infra Section III.C. 64

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The present Section considers the award creditor’s options when the expected result is not obtained. What can be done if the courts of the place of arbitration annul the award on arbitrary or parochial grounds? Or if the courts in another jurisdiction wrongfully fail to enforce the award? In the first circumstance  – wrongful setting-aside  – the award arguably ceases to exist, preventing enforcement in other fora.67 In the second circumstance – an improper failure to enforce – the award continues to exist and can be enforced in other jurisdictions; but that may be cold comfort to the prevailing party if the award debtor has no assets outside the non-enforcing jurisdiction. The main concern in both circumstances is the revival of the “home court” advantage that international arbitration is typically chosen to avoid. That concern will be particularly acute where the recalcitrant forum is the award debtor’s home State – and especially where the award debtor is the State itself, a Statecontrolled company, or an entity closely connected to either. The good news for the frustrated award creditor is that it may have public international law remedies in the event of wrongful setting-aside or non-enforcement of an award. In particular, three sources of international law obligations may potentially be invoked: (1) The New York Convention, which obliges all contracting States to (i) enforce agreements to arbitrate, and (ii) recognize and enforce foreign awards except in the limited circumstances provided for by the Convention;68 (2) Customary international law, which requires States and their courts to respect certain minimum standards in their treatment of foreign nationals and their property; and (3) Obligations undertaken by States in bilateral or multilateral treaties, where the award creditor can qualify for protection under those instruments. Thus, a wrongful failure to enforce an arbitral award or the underlying arbitration agreement, or the improper setting-aside of an award, may invoke the international responsibility of the State whose courts have taken one of those actions. Though what mechanisms, and in what fora, may the award creditor be able to vindicate those international law obligations? This Section will discuss three: investment treaty arbitration (Section A); adjudication by regional human rights courts (Section B); and diplomatic protection (Section C). Finally, a comparative analysis of these three potential options will be presented (Section D). 67

68

See generally van den Berg, supra note 55; L. J. Silberman / ​M. Scherer, supra note 57. New York Convention, arts. II, V. The Panama Convention imposes the same obligations on its contracting parties, which are: Argentina; Bolivia; Brazil; Chile; Colombia; Costa Rica; Dominican Republic; Ecuador; El Salvador; Guatemala; Honduras; Mexico; Nicaragua; Panama; Paraguay; Peru; United States; Uruguay; and Venezuela. InterAmerican Convention on Int’l Commercial Arbitration, O.A.S.T.S. No. 42, adopted 30 Jan. 1975, entered into force 16 June 1976, arts. 1, 4.

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There is a caveat to be made at the outset. Each of these mechanisms or fora will be available only in a minority of instances – there are significant gateway issues to accessing each. Cases will exist, however, in which pursuing one or more of these options is possible and makes commercial sense for the frustrated award creditor. Indeed, we have recently seen, in practice, a number of examples in each category.

III. A. Investment Treaty Arbitration An aggrieved party may be able to bring an investment treaty claim directly against the State whose courts wrongfully interfere with the arbitral process or the resulting award. Six published cases involving claims based upon such interference have arisen in the past four years; these are summarized in Annex B to this article.69 There is at least one other unpublished jurisdictional award on the same issues, bringing the total to seven.70 While hardly a trend, these numbers suggest the likelihood of more investment treaty claims brought by frustrated award creditors – and therefore that investor-State arbitration is an option worthy of consideration when the normal processes for seeking enforcement fail. Investment treaties afford to qualifying investors the right to initiate arbitration directly against the host State. Under most treaties, the substantive protections provided include, among other things, a prohibition against direct or indirect expropriations without prompt and effective compensation; and a guarantee of fair and equitable treatment, which includes protection against a denial of justice by the host State’s courts.71 Some treaties also include an “effective means” clause, designed to ensure that the investor will have access to efficacious methods of asserting claims and enforcing its rights in the host 69

Saipem S. p.A v. The People’s Republic of Bangladesh, ICSID Case No. ARB / 05 / 07, Award (30 June 2009); Romak S. A. v. The Republic of Uzbekistan, PCA Case No. AA280, Final Award (26 Nov. 2009); ATA Construction, Industrial and Trading Co. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB / 08 / 2, Award (18 May 2010); Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Final Award (12 Nov. 2010); GEA Grp. Aktiengesellschaft v. Ukraine, ICSID Case No. ARB / 08 / 16, Award (31 Mar. 2011) White Indus. Austrl. Ltd. v. The Republic of India, UNCITRAL, Final Award (30 Nov. 2011). 70 See Gouvernement de Region de Kaliningrad v. La République de Lituanie, Cour d’appel Paris, no 09 / 19535 (18 Nov. 2010), available at: http: // ​www.italaw.com / ​sites / ​default / ​files / ​ case-documents / ​ita0443_0.pdf (rejecting Kaliningrad’s application to set aside an ICC arbitral award. The ICC tribunal found that it did not have jurisdiction over Kaliningrad’s claims under the Russia-Lithuania BIT regarding Lithuania’s alleged expropriation of Kaliningrad’s assets through the enforcement of an LCIA arbitral award.). The underlying LCIA and ICC awards are not public. 71 See, e. g., White Indus. Austl., at ¶ 10.4.

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State.72 Investment treaties generally provide for investors’ claims to be adjudicated by international arbitration, with the State’s consent to arbitrate contained in the investment treaty itself.73 Below we discuss in further detail the investment treaty arbitration regime as it relates to claims for interference by the State with the arbitral process or an arbitral award. In particular, we evaluate: the gateway conditions that an aggrieved award creditor must satisfy in order to access investment treaty protection (Subsection 1); the relevant standards of protection, including expropriation (Subsection 2), fair and equitable treatment (Subsection 3) and effective means of asserting and enforcing claims (Subsection 4); and the remedies avail-­ able to frustrated award creditors in investment treaty arbitration (Subsection 5). III.A.1. Standing to Bring Claims: A Qualifying “Investor” and “Investment” A party whose award has been wrongfully set aside or left unenforced will need to satisfy two threshold hurdles in order to access the protections offered by investment treaties. First, there will need to be an investment treaty in place between the party’s State of nationality and the State whose courts or other organs have interfered with the award. This will make the party a qualifying “investor” for purposes of that investment treaty. Second, the party must show that it has a qualifying “investment” under the relevant treaty. Thus the question arises: is an arbitral award an “investment” for purposes of bilateral (or multilateral) investment treaties? A purely textual reading of many investment treaties might suggest that the answer is “yes.”74 The approach taken in the decided cases, however, has been 72

See generally R. Dolzer / ​C . Schreuer, Principles of International Investment Law, 2nd ed., 2012, 333; Dolzer / ​Stevens, supra note 21, at 69. 73 See generally J. Paulsson, Arbitration Without Privity, 10 ICSID Review – Foreign Investment Law Journal 232 (1995). 74 Many treaties define the term “investment” with great breadth as “every asset,” including “claims to money, to other assets or to any performance having an economic value.” See, e. g., Netherlands-Mexico BIT, art. 1; Ethopia-Sudan BIT, art. 1. Where the investment treaty arbitration is brought before an ICSID tribunal, there must also be a qualifying investment within the meaning of Article 25(1) of the ICSID Convention. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, art. 25(1), 18 Mar. 1965, 575 U.N.T.S. 159 [hereinafter: ICSID Convention] (“The jurisdiction of the Centre shall extend to any legal dispute arising out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its

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different. Tribunals have not viewed arbitral awards as investments in and of themselves, but rather as the “crystallization” of the underlying contract rights at issue in the dispute resulting in the award. In the words of the tribunal in Saipem v. Bangladesh: The rights embodied in the ICC Award were not created by the Award but arise out of the Contracts. The ICC Award crystallized the parties’ rights and obligations under the original contract.75 As a result, whether the disappointed claimant with whom we are concerned can access investment treaty protection will likely depend upon whether the underlying contract, out of which the award arose, itself constitutes an “investment” within the meaning of the relevant investment treaty. The fact pattern most likely to satisfy that requirement is where the award arises out of a contract for carrying out a project or similar transaction in the State whose courts have set aside or denied enforcement to the award. And indeed, that is the fact pattern that has been present in the cases decided thus far. Assuming that our hypothetical award creditor is able to satisfy the gateway requirements for the assertion of an investment treaty claim – i. e., that the creditor is a qualifying “investor” with a qualifying “investment” – then the next question to arise is what type of State conduct will trigger liability. We address this issue in the following Subsections.

consent unilaterally.”). Thus, the transaction at issue must constitute an investment under both the investment treaty and Article 25(1) – the so-called “double keyhole” test. See Malicorp Ltd. v. The Arab Republic of Egypt, ICSID Case No. ARB / 08 / 18, Award (7 Feb. 2011), ¶ 107; Salini Costruttori S. p. A. v. Kingdom of Morocco, ICSID Case No. ARB / 0 0 / 4, Decision on Jurisdiction (23 July 2001), ¶ 44; see also C. Schreuer, The ICSID Convention, A Commentary, 2nd ed., 2009, art. 25, ¶¶ 122 et seq. Recently, there has been a trend towards focusing on the definition of “investment” in the relevant treaty, given that the ICSID Convention purposefully did not define the term. See, e. g., Malaysian Historical Salvors Sdn BHD v. the Government of Malaysia, ICSID Case No. ARB / 05 / 10, Decision on the Application for Annulment (16 Apr. 2009), ¶¶ 67-74. 75 Saipem S.p.A v. The People’s Republic of Bangladesh, ICSID Case No. ARB / 05 / 07, Decision on Jurisdiction and Recommendation on Provisional Measures (21 March 2007), at ¶ 127; Romak, at ¶ 211; White Indus. Austl., at ¶ 7.6.10. But see GEA, at ¶¶ 161-64 (“[T]he Tribunal considers that the fact that the Award rules upon rights and obligations arising out of an investment does not equate the Award with the investment itself. In the Tribunal’s view, the two remain analytically distinct …”); see also L. A. Mistelis, supra note 61.

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III.A.2. Expropriation Where an arbitral award is wrongly denied enforcement or set aside, the value of the award will be reduced or potentially eliminated altogether. It will therefore be open to the award creditor to argue that the award has been indirectly expropriated by the State. Saipem v. Bangladesh involved a claim for expropriation based on what was, effectively, the wrongful setting-aside of an award by the Bangladeshi courts.76 The underlying arbitration in that case arose out of a construction contract between Saipem and Petrobangla, the Bangladeshi national oil company. The contract provided for ICC arbitration in Dhaka, Bangladesh. After several facially frivolous procedural objections advanced by Petrobangla were rejected by the tribunal, Petrobangla applied to the Bangladeshi courts to revoke the tribunal’s mandate on grounds of bias.77 This the courts did. The tribunal nonetheless proceeded to render an award in favor of Saipem, which the Bangladeshi courts declared to be a “nullity.”78 Its traditional options exhausted – Petrobangla’s assets appear to have been uniquely located in Bangladesh – Saipem commenced an ICSID arbitration against Bangladesh under the Italy-Bangladesh BIT. The BIT provided for international arbitration only in respect of expropriation claims, so it was on this basis that the claim was pleaded and decided.79 In international law, expropriation requires a substantial deprivation of property; and in deciding whether an expropriation has occurred, tribunals normally look primarily to the effect of the challenged measure as opposed to the State’s intention in taking the measure.80 The Saipem tribunal affirmed this approach, noting that “according to the so-called ‘sole effects doctrine’, the most significant criterion to determine whether the disputed actions amount to indirect expropriation or are tantamount to expropriation is the impact of the measure. As a matter of principle, caselaw considers that there is expropriation if the deprivation is substantial …”81 The Saipem tribunal went on, however, to conclude that where annulment of an arbitral award (or the arbitrators’ authority) was concerned, deprivation 76

77 78

79 80

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Saipem, Award at ¶ 35. Id. at ¶ 31 (rejecting, for example, Petrobangla’s request that written transcripts be made of the tape recording of the hearings). Id. at ¶ 50. Id. at ¶ 97. See, e. g., Telenor Mobile Commc’ns A. S. v. The Republic of Hungary., ICSID Case No. ARB / 04 / 15, Award (13 Sept. 2006), ¶ 65; Corn Prods. Int’l, Inc. v. United Mexican States, ICSID Case No. ARB(AF) / 04 / 01, Decision on Responsibility (15 Jan., 2008), ¶ 87(c); Metalclad Corp. v. the United Mexican States, NAFTA, ICSID Case No. ARB(AF) / 97 / 1, Award (30 Aug. 2000), ¶ 112; R. Higgins, The Taking of Property by the State: Recent Developments in International Law, 176 Recueil des Cours 259, 324 (1982). Saipem, at ¶ 133.

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alone was not enough. The tribunal reasoned that if “substantial deprivation of Saipem’s ability to enjoy the benefits of the ICC Award” was sufficient to establish an expropriation, then “any setting aside of an award could … found a claim for expropriation, even if the setting aside was ordered by the competent state court upon legitimate grounds.”82 Instead, the tribunal held, something more was required to justify a finding of expropriation: that the courts had acted “illegally” in undermining the arbitration agreement or the award.83 The tribunal found that the Bangladeshi courts did indeed act illegally in revoking the arbitrators’ authority and declaring the resulting award to be a nullity. In particular, the courts: (a) had committed an “abuse of right” in violation of international law by “abus[ing] their supervisory jurisdiction over the arbitration process”;84 and (b) had “frustrat[ed] if not the wording at least the spirit of the [New York] Convention.”85 Thus, the tribunal found that Saipem had been substantially deprived of its investment – consisting of the underlying contractual rights embodied in the award – and that the deprivation was the result of illegal conduct by the Bangladeshi courts. As such, an expropriation had been established, and Saipem was entitled to compensation. While the result reached by the Saipem tribunal seems compelling on the facts, one might still question the theoretical basis of the Tribunal’s ruling. Effectively, the tribunal grafted an additional element onto the test for expropriation – the “plus” of illegality. Can that be reconciled with the traditional “effects” test for indirect expropriation? There would seem to be two possible explanations. The first has to do with the nature of the instrument at issue – an arbitral award. Until a commercial award is recognized by a national court, it constitutes a kind of defeasible entitlement – there are legitimate, internationally-accepted grounds on which the award may be denied enforcement, or set aside. Thus, the annulment of an award might be analogized to a regulatory taking. In that context, in addition to the effect of the measure, the character of the State action and the legitimate expectations of the investor may be taken into account.86 An investor would 82

83

84 85 86

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Id. Note that where the action complained of is simply delay in enforcement or the resolution of a set-aside action, it is unlikely that a Tribunal would find that the arbitral award has been “taken.” See White Indus. Austl., at ¶ 12.3.6. Saipem, at ¶ 134. Id. at ¶ 159. Id. at ¶ 167. See, e. g., Tecnicas Medioambientales Tecmed SA v. The United Mexican States, ICSID Case No. ARB (AF) / 0 0 / 2 (NAFTA Ch. 11) (29 May 2003), ¶ 122 (“establishing that regulatory actions and measures will not be initially excluded from the definition of expropriatory acts, in addition to the negative financial impact of such actions or measures, the Arbitral Tribunal will … determine whether such measures are reasonable with respect to their goals, the deprivation of economic rights and the legitimate expectations of who suffered such deprivation”); Methanex v. United States of America, NAFTA / ​

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expect the possibility of setting-aside on the grounds provided for by the arbitration law of the place of arbitration – and should probably also expect that there is some chance of the reviewing court getting it wrong, and setting-aside an award where a proper application of national law would have led to the opposite result. On that view, only an arbitrary or wholly ungrounded setting-aside would violate the investor’s legitimate expectations. The second paradigm for explaining the Saipem test for expropriation relates to the nature of the State organ that took the challenged action – the national courts. Traditionally in international law, a State’s courts cannot be impugned unless their actions have been “clearly improper and discreditable” – that is, unless they amount to a denial of justice. 87 However – in part because of the peculiarities of the BIT at issue – the Saipem tribunal examined the Bangladeshi courts’ actions under the rubric of expropriation. The tribunal found that no exhaustion requirement applies under expropriation law (unlike in a claim for denial of justice).88 But the Tribunal did require a showing of court misfeasance –”abuse of right” – not unlike the substantive test applied in the denial of justice context. Interestingly, the Court of Appeals of Amsterdam took a not dissimilar similar tack in the Yukos enforcement action referred to above.89 Finding that the Russian courts had acted in a biased fashion in annulling the Yukos awards, the Amsterdam court disregarded those annulments. Thus, in the presence of court misfeasance, the claimant was held entitled to the benefits of the award. Finally, it is worth noting that the reverse of the Saipem fact pattern may also provide the grist for an investment treaty claim. In Kaliningrad v. Lithuania, the claimant brought an expropriation claim based on the theory that an award had been wrongfully enforced. There, an LCIA tribunal had issued an award in favor of Duke Investment Limited (a Cypriot company) against Kaliningrad, an administrative region in Russia. Duke enforced the award in 2004 against two buildings owned by Kaliningrad in Lithuania. In 2006, Kaliningrad brought an investment treaty claim against Lithuania (under the auspices of the ICC) claiming that Lithuania wrongly enforced the LCIA award and thereby expropriated its two buildings. In an unpublished award, the investment treaty tribunal found that it did not have jurisdiction over the dispute. Kaliningrad’s subsequent challenge to the award before the French courts – in which the existence of the arbitration and the content of the jurisdictional ruling were UNCITRAL (3 Aug. 2005), Part IV, Ch. D ¶ 9; 2012 US Model BIT, Annex B, available

at: http: // ​w ww.ustr.gov / ​sites / ​default / ​fi les / ​BIT%20text%20for%20ACIEP%20Meeting. pdf. See also R. Moloo / ​J. Jacinto, Environmental and Health Regulation: Assessing Liability Under Investment Treaties, 9 Berkeley Journal of International Law 1, 24 (2011). 87 Mondev Int’l Ltd. v. United States, ICSID Case No. ARB(AF) / 99 / 2 (NAFTA Ch. 11) (11 Oct. 2002), ¶ 127. 88 Saipem, at ¶ 181. 89 See supra Section II.C.4.

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revealed – was unsuccessful.90 Nonetheless, the claim raises the specter that a State court’s wrongful enforcement of an award might be collaterally challenged in the same way as an unwarranted denial of enforcement.91 III.A.3. Fair and Equitable Treatment Most investment treaties require that the host State accord “fair and equitable treatment” (FET) to foreign investors. This frequently-encountered guarantee derives from the minimum standard of treatment due to foreign nationals under customary international law.92 The assessment of whether the FET standard has been breached is a factspecific inquiry and focuses on the concept of legitimate expectations. 93 The ICSID tribunal in Biwater Gauff v. Tanzania explained that “the purpose of the standard is to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment.”94 In the view of many (but not all) tribunals, the stability and predictability of the legal framework into which the investment is made form part of what the investor may legitimately expect.95 With respect to actions by courts that detrimentally affect an investment, it is important to note that the FET standard “includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world.”96

90 91

92

93

94 95

96

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Kaliningrad v. Lituanie, at 2. Similar claims could theoretically also be brought under the other standards discussed herein, especially the FET standard. On the FET standard generally, see I. Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment, 2008; and A. Newcombe / ​L. Paradell, Law and Practice of Investment Treaties: Standards of Treatment, 2009, 232-319. A. Newcombe / ​L . Paradell, supra note 92, at 165-169. Biwater Gauff Ltd v. United Republic of Tanzania, ICSID Case No. ARB / 05 / 22, Award (24 July 2008), ¶ 602. Occidental Exploration and Production Co. v. The Republic of Ecuador, LCIA Case No. UN 3467, Final Award (1 July 2004), ¶ 191 (“The relevant question for international law is … whether the legal and business framework meets the requirements of stability and predictability under international law.… [T]here is certainly an obligation not to alter the legal and business environment in which the investment has been made. In this case it is th[is] question that triggers a treatment that is not fair and equitable.”); National Grid P. L. C. v. Argentine Republic, UNCITRAL , Award (3 Nov. 2008), ¶ 173. 2012 US Model BIT, Art. 5(2)(a). See generally J. Paulsson, Denial of Justice in International Law, 2005.

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In White Industries v. India, the tribunal applied the FET standard in the context of State interference with an arbitral award.97 That case arose out of a mining project in Paparwar, India. White Industries, an Australian company, had entered into a contract with Coal India, a State-owned entity, for the supply of equipment and development of a coal mine. A dispute arose between the parties regarding the payment of penalties and bonuses, as well as with regard to the quality of the extracted coal. Pursuant to the underlying contract, White Industries commenced proceedings before a Paris-seated ICC tribunal, which, in May 2002, awarded the claimant just over US$ 4 million in damages and interest. In September 2002, and despite the fact that the place of arbitration was Paris, Coal India applied to the Indian courts (in Calcutta) to have the ICC award set aside. At the same time, White Industries sought enforcement in India (before the court in New Delhi). The New Delhi court eventually stayed the enforcement proceedings pending the outcome of the setting-aside action. After significant delays in the courts – culminating in a critical appeal languishing on the Indian Supreme Court’s expedited docket for five years98 – White Industries brought an investment treaty claim against India in 2010 for failing to enforce its arbitral award. The tribunal in White Industries found that the Indian courts did not breach the FET standard. The tribunal reasoned that at the time White Industries negotiated its contract in 1989, “the Indian courts were regularly entertaining set aside applications in respect of … foreign awards.”99 As such, “White could not legitimately have expected that India would ‘apply the [New York] Convention properly and in accordance with international standards.’ ”100 The tribunal further found that India’s conduct had not given rise to any other legitimate expectations on White Industries’ part – such as that the India was a safe place to invest, or that the Indian court system functioned transparently – that might have been capable of founding a FET claim.101 Having dealt with the issue of legitimate expectations, the tribunal then turned to White Industries’ argument that the nine-year delay in the adjudica-

97

White Indus. Austrl., at ¶¶ 10.1-10.4.24. Id. at ¶ 11.4.18. 99 Id. at ¶ 10.3.12. 100 Id. at ¶ 10.3.13. 101 Id. at ¶¶ 10.3.14-10.3.21 (finding that “it is simply not possible for White, legitimately, to have had the expectation as to the timely enforcement of the Award that it now asserts”; that any representations on behalf of India that it was a safe place to invest were not capable of giving rise to legitimate expectations that are amenable to protection; and, that there was no reasonable expectation of transparency in court proceedings that was breached). 98

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tion of the enforcement and setting-aside proceedings constituted a denial of justice by the Indian courts.102 The tribunal reasoned as follows: Bearing in mind these various factors, the Tribunal concludes that, while the duration of the proceedings overall, as well as the delay by the Supreme Court in hearing and determining the jurisdiction appeal, is certainly unsatisfactory in terms of efficient administration of justice, neither has yet reached the stage of constituting a denial of justice. While the most recent delay [resulting from the Supreme Court’s inability to impanel a three-judge bench within a reasonable timeframe] is regrettable, there being no suggestion of bad faith, it does not amount in the Tribunal’s mind to “a particularly serious shortcoming” or “egregious conduct that ‘shocks or at least surprises, a sense of judicial propriety’.”103 White Industries thus appears to set a relatively high bar for FET claims arising out of a State’s interference with the enforcement of an arbitral award. As discussed further below, however, the tribunal had available under the BIT another, less demanding standard, which it found India had breached.104 This may potentially have influenced the tribunal’s decision to take a more cautious approach with respect to the FET claim. A more permissive approach to the FET standard was adopted by the tribunal in ATA v. Jordan.105 In that case, a Turkish company, ATA, had contracted with the State-owned Arab Potash Company (APC) to build a dike. After a section of the dike collapsed, APC commenced an arbitration against ATA in accordance with the FIDIC contract between them. The tribunal in the contractual arbitration rejected APC’s claims and granted ATA’s counterclaims, ordering APC to compensate ATA in the amount of US$ 5,906,828.30.106 Shortly thereafter, the Jordanian government sold a majority interest in APC to a Canadian company, and APC applied to the Jordanian courts to annul the award. The courts granted the application on the ground of misapplication of the governing law. Further, due to an intervening change in Jordanian legislation, the courts found that the arbitration agreement in the underlying contract was extinguished.107 Relying on this judgment, APC renewed its original contractual 102

Id. at ¶ 10.4.4. Id. at ¶¶ 10.4.22-10.4.23. 104 See supra Section III.A.4. 105 ATA Constr., Indus. and Trading Co. v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB / 08 / 2 , Award (18 May 2010). 106 Id. at ¶ 44. 107 The Jordanian arbitration act had been amended to provide that in the event an award was set aside, the jurisdiction of the competent courts would revive. Id. at ¶ 116. This is the same position taken by the Netherlands Arbitration Act, Code of Civil Procedure [Rv] art. 1067. 103

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claims before the Jordanian courts, at which point ATA commenced an investment treaty claim against Jordan. Due to temporal issues involving the date of coming into force of the Turkey-Jordan BIT, the tribunal lacked jurisdiction over most of the claims asserted.108 The sole exception was the claim relating to the extinguishment of the arbitration clause in the underlying FIDIC contract, as to which the tribunal reached an interesting, and perhaps surprising result. The arbitration clause, the tribunal ruled, was in itself a separate “investment” under the BIT.109 The retroactive extinguishment of the right to arbitrate by the Jordanian courts constituted a violation of the FET standard: it deprived ATA of the neutral forum it legitimately expected to receive, and breached the State’s obligation to recognize and enforce agreements to arbitrate in accordance with Article II of the New York Convention.110 Regrettably, the ATA tribunal was terse in its discussion of the applicable standard when reviewing a State court’s treatment of an arbitral agreement or award. It is clear that the tribunal did not require the existence of a denial of justice, but it did not articulate the elements it viewed as necessary to justify a finding of violation of the FET standard.111 The case does, however, suggest that contravention of the New York Convention can provide the predicate for a FET violation by the State. The award is also interesting in the emphasis it placed on the arbitration right. Consistent with developments in the European Court of Human Rights, discussed further below, the tribunal viewed the right to arbitrate as a kind of “golden” right – it survives whatever fate is inflicted on the underlying contract, and States interfere with that right only at their peril.112 A more extensive analysis of the test for assessing when a State’s interference with an award will violate the FET standard is provided by Frontier Petroleum v. Czech Republic.113 That case involved a Stockholm Chamber of Commerce award in Frontier Petroleum’s favor against two, apparently privately owned, Czech companies. The companies went bankrupt, and the Czech courts refused to enforce the award on public policy grounds, reasoning that enforce108

ATA Constr. at ¶ 115.

109 See id. at ¶ 117 (finding that “the right to arbitration is a distinct ‘investment’ within the

meaning of the BIT because Article I(2)(a)(ii) defines an investment inter alia as ‘claims to […] any other rights to legitimate performance having financial value related to an investment’”). 110 Id. at ¶¶ 124, 128. 111 See R. Moloo / ​J. Jacinto, Standards of Review and Reviewing Standards: Public Interest Regulation in International Investment Law, in K. Sauvant ed., Yearbook on International Investment Law & Policy 2011-2012, 2013, for a discussion of how to determine the applicable standard of review under the FET standard. 112 See infra note 161 and accompanying text. 113 Frontier Petroleum Servs. Ltd. v. Czech Republic, UNCITRAL , Final Award (12 Nov. 2010).

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ment would unfairly favor Frontier Petroleum above the companies’ other creditors.114 Its enforcement efforts stymied, Frontier Petroleum commenced an UNCITRAL arbitration against the Czech Republic under the Canada-Czech Republic BIT.115 The issues facing the Frontier Petroleum tribunal were whether it had the power to review a State court’s application of the public policy exception contained in Article V(2)(b) of the New York Convention, and if so under what standard. The tribunal, framing its analysis under the FET and Full Protection and Security (FPS) provisions of the BIT,116 answered the first question in the affirmative. It went on to conclude that the Czech courts’ application of the Convention could not be condemned unless it amounted to “an abuse of rights contrary to the international principle of good faith,” meaning in particular that the interpretation was “made in an arbitrary or discriminatory manner” or was otherwise fundamentally unfair.117 As to the question of public policy in particular, the tribunal held that Article V(2)(b) refers to “international public policy,” but found that the Convention affords States the leeway to apply their own “national conception[s]” of what international public policy entails.118 As such, the tribunal found it unnecessary to determine whether the findings of the Czech courts meet the applicable standard of international public policy or to determine the precise contents of that standard. States enjoy a certain margin of appreciation in determining what their own conception of international public policy is.119 The tribunal went on to frame the test for a FET / ​FPS violation as being (i) whether the courts had acted in good faith in denying enforcement of the award, and (ii) if so, whether their interpretation of the New York Convention was “reasonably tenable.”120 Applying that test, the tribunal found no breach by the Czech courts. Their view that public policy encompassed protecting the integrity of bankruptcy proceedings was reasonable, in the tribunal’s estimation, 114

115 116

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Id. at ¶¶ 527-28. Id. at ¶ 421. The Tribunal seems to have viewed the test for a violation of the FET and FPS standards as equivalent in assessing the State’s treatment of a foreign arbitral award. Id. at ¶¶ 273, 527 (articulating the relevant standard of review as “reasonably tenable and made in good faith”) (emphasis in original). The Tribunal noted that analysis under the FPS standard might be more appropriate than the FET standard in respect of complaints about a lack of due process in disputes concerning private parties (as opposed to where one party was a State entity). Id. at ¶ 296. Id. at ¶ 296. Id. at ¶ 527. Id. Id.

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and it found that the courts’ application of that approach was neither arbitrary nor done in bad faith.121 The Frontier Petroleum standard would arguably constitute be a serviceable test in a variety of contexts where courts are alleged to have interfered with an arbitral clause or award. Whether the question relates to the propriety of a setting-aside at the seat under domestic arbitration law (Saipem), extreme delay in enforcement (White Industries), the revocation of the arbitration agreement (ATA) or non-enforcement of the arbitral award (Frontier Petroleum), a court decision that is reasonably tenable on the merits and made in good faith would not violate the FET (or FPS) standards. Arguably, application of this approach would correspond with the legitimate expectations of the parties. At the same time, it would effectively permit a form of appellate review of State courts’ merits decisions in these regards, albeit under a deferential standard. III.A.4. “Effective Means” Clauses Some investment treaties include a so-called “effective means” clause, providing that the host State “shall … provide effective means of asserting claims and enforcing rights with respect to investments.”122 Applying the most-favorednation provision of the Australia-India BIT,123 the White Industries tribunal found that the claimant could rely on the effective means clause contained in the India-Kuwait BIT.124 This turned out to be the determinative ground for the ultimate decision in the case. Relying on an earlier decision in the Chevron v. Ecuador case,125 the White Industries tribunal found that the effective means clause provides for “a distinct and potentially less demanding test … as compared to denial of justice 121

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124 125

Of note, the tribunal emphasized that “even a decision that in the eyes of an outside observer, such as an international tribunal, is ‘wrong’ would not automatically lead to state responsibility as long as the courts have acted in good faith and have reached decisions that are reasonably tenable.” Id. at ¶ 273. See, e. g., The Treaty Between the United States of America and the Republic of Turkey Concerning the Reciprocal Encouragement and Protection of Investments, 18 May 1990, art. II(8); Agreement between the State of Kuwait and the Republic of India for the Encouragement and Reciprocal Protection of Investment, 27 Nov. 2001, art. 4(5). That clause provided that India must “at all times treat investments in its own territory on a basis no less favourable than that accorded to investments or investors of a third country.” Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, 26 Feb. 1999, art. 4(2). White Indus. Austl., at ¶ 11.2.1. Chevron Co. & Texaco Petroleum Co. v. Ecuador, UNCITRAL , Partial Award on the Merits (30 Mar. 2010), ¶ 244.

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under customary international law.”126 Applying that more flexible standard, the tribunal found that the delay associated with the enforcement proceedings in India did not fail to provide effective means for White Industries to enforce its rights under the arbitral award. This was particularly the case because White Industries had not appealed the decision staying the enforcement proceedings, which accounted for six years of the overall delay, and had not demonstrated that pursuing this appeal would have been futile.127 On the other hand, the tribunal found that the nine-year delay associated with White Industries’ attempt to obtain dismissal of the Indian setting-aside proceedings did breach the “effective means” clause. The tribunal reasoned: Having already applied for and obtained an order for expedited hearings in 2006 and 2007, White appears to have done everything that could reasonably be expected of it to have the Supreme Court deal with its appeal in a timely manner … In these circumstances, and even though we have decided that the nine years of proceedings in the set aside application do not amount to a denial of justice, the Tribunal has no difficulty in concluding the Indian judicial system’s inability to deal with White’s jurisdictional claim in over nine years, and the Supreme Court’s inability to hear White’s jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of India’s voluntarily assumed obligation of providing White with “effective means” of asserting claims and enforcing rights.128 Having found a violation of the BIT, the tribunal proceeded to carry out itself the task that the Indian courts had avoided – considering, and deciding, whether the award should be enforced under the standards contained in the New York Convention. The tribunal concluded that the award was valid as a matter of Indian law, and proceeded to order the State to compensate White Industries for the value of the award.129 III.A.5. Remedies The type of remedy available in investment arbitration will depend on the particular breach found by the tribunal. In all three of the above-mentioned cases where State courts have been found in breach of an investment treaty for interfering with arbitral proceedings or awards, the tribunals sought to remedy the wrongful conduct according to the Chorzow standard. That is, “reparation 126

White Indus. Austrl., at ¶ 11.3.1. Id. at ¶¶ 11.4.13-11.4.15. 128 Id. at ¶¶ 11.4.18-11.4.19. 129 Id. at ¶ 14.3.6. 127

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must, as far as possible, wipe-out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.”130 In Saipem, this meant awarding damages in the amount of the underlying ICC award, plus interest.131 The White Industries tribunal likewise imposed that same remedy.132 In ATA, the Tribunal ordered what was effectively specific performance, requiring Jordan to terminate the court proceedings that APC had initiated and to permit the claimant to re-arbitrate its dispute with APC in accordance with the underlying FIDIC contract.133 Notably, the respondents in the underlying arbitrations in Saipem and White Industries were State-owned companies. One might ask whether this fact should have any bearing on the remedy for a State court’s wrongful interference with an arbitration agreement or award. On one view, it might: where a State-owned entity is involved, the State is the (indirect) beneficiary of the wrongful act and should arguably be liable for the full relief granted in the underlying award; while where private parties are involved, what the claimant has lost is arguably only the opportunity to pursue enforcement, i. e., the loss of a chance.134 The cases decided thus far, however, have drawn no such distinction. Notably, in ATA, the underlying respondent had become majority privately owned prior to the commencement of the ICSID arbitration.135 III.A.6. Conclusion on Investment Treaty Arbitration What are the lessons to be drawn from the investment arbitration cases surveyed above? We suggest that there are essentially three. First, the wrongful setting-aside of an award by the courts, or the improper non-enforcement of an award, may violate investment treaty standards. In particular, actions by the courts that are taken in bad faith, are untenable in their reasoning, or are simply too long in coming, may amount to an expropriation, a violation of the FET / ​FPS standards, or a contravention of the “effective means” clause where that is available under the applicable investment treaty. Second, a violation by the courts of the New York Convention may form the predicate for a finding of liability. Thus, the failure to enforce a valid arbitration agreement in accordance with Article II of the Convention, or the misapplica130

Factory at Chorzow (Germ. v. Pol.), 1928 PCIJ (ser. A) Vol. 17 (13 Sept.) at 47. Saipem, at ¶¶ 201-12. 132 White Indus. Austl., at ¶¶ 14.3.1-14.3.6 133 ATA Constr., at ¶¶ 131-33. 134 See J. Alberro, Estimating Damages when an Investment Treaty Arbitration is Used to Enforce a Commercial Arbitration Award, 15 International Arbitration Law Review 195 (2012) (discussing appropriate damages in investor-state arbitrations used to enforce arbitration awards). 135 ATA Constr., at ¶ 34. 131

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tion of the grounds for refusing enforcement set out in Article V – if sufficiently severe – may give rise to a compensation obligation on the part of the State. Finally, although it is the national courts that have taken the impugned action, something less than a denial of justice may suffice for a finding of liability.136 Accordingly, the claimant can likely avoid the stringent exhaustion requirement that forms part of a cause of action for denial of justice in international law.137

III. B. Regional Human Rights Courts A second public international law option potentially available to a party whose arbitral award has been wrongfully annulled or left unenforced is to seek redress before one of the regional human rights courts. The three major institutions established by international human rights treaties are: the European Court of Human Rights (ECtHR), whose jurisdiction extends to all 47 States of the Council of Europe (COE);138 the Inter-American Court of Human Rights (IACtHR), with competence in respect of the 20 States within the Organization of American States that have adhered to its jurisdiction (out of 35);139 and the nascent African Court of Human and Peoples’ Rights (ACtHPR), covering the 26 Member States of the African Union to accept its jurisdiction (out of 54).140 Any claim before these tribunals must be brought under their discreet 136

See, e. g., White Indus. Austl., at ¶¶ 11.4.13-11.4.15. Articles on the Responsibility of States for Internationally Wrongful Acts, Report of the ILC on its 53d Session, UN Doc. A / 56 / 10 (2001) (ARSIWA), art. 44(b). 138 The membership of the Council of Europe is far broader than that of the European Union, and includes: Albania; Andorra; Armenia; Austria; Azerbaijan; Belgium; Bosnia and Herzegovina; Bulgaria; Croatia; Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Georgia; Germany; Greece; Hungary; Iceland; Ireland; Italy; Latvia; Liechtenstein; Lithuania; Luxembourg; Malta; Republic of Moldova; Monaco; Montenegro; Netherlands; Norway; Poland; Portugal; Romania; Russian Federation; San Marino; Serbia; Slovak Republic; Slovenia; Spain; Sweden; Switzerland; “The former Yugoslav Republic of Macedonia”; Turkey; Ukraine; and the United Kingdom. 139 Members of the OAS who have accepted the jurisdiction of the IACtHR are: Argentina; Bolivia; Brazil; Chile; Colombia; Costa Rica; Dominican Republic; Ecuador; El Salvador; Guatemala; Haiti; Honduras; Mexico; Nicaragua; Panama; Paraguay; Peru; Suriname; Uruguay; and Venezuela. At the time of this writing, Venezuela has announced its withdrawal from the ACHR and the jurisdiction of the Court with effect as from September 2013. 140 Members of the African Union that have accepted the jurisdiction of the ACtHPR are: Algeria; Burkina Faso; Burundi; Cote d’Ivoire; Comoros; Congo; Gabon; The Gambia; Ghana; Kenya; Libya; Lesotho; Malawi; Mali; Mauritania; Mauritius; Mozambique; Nigeria; Niger; Uganda; Rwanda; Senegal; South Africa; Tanzania; Togo; and Tunisia. 137 See

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constituent treaties – respectively the European Convention on Human Rights (ECHR),141 the American Convention on Human Rights (ACHR),142 and the African Charter on Human and Peoples’ Rights (ACHPR).143 In addressing the human rights courts in greater detail, we first discuss the threshold matter of who can bring claims before them (Subsection 1). Next, we consider the relevant human rights that can be invoked in cases involving the non-enforcement or annulment of arbitral awards, in particular interference with property (Subsection 2), and the right to a fair trial (Subsection 3). Finally, we discuss the remedies available (Subsection 4). Annex C provides a summary of the relevant human rights cases decided to date. III.B.1. Standing to Bring Claims The three regional human rights bodies differ materially in their jurisdictional structures. The ECtHR affords the greatest degree of access. There, both natural and legal persons may bring direct complaints before the Court on their own initiative, provided that the offending State is a party to the ECHR. By contrast, under the IACHR, a claimant must petition the Inter-American Commission on Human Rights to begin an investigation on his or her behalf, and can reach the IACtHR only on the latter’s recommendation. The Convention applies uniquely to natural persons, thus depriving corporations of any access to the IACtHR – although the Court has extended the Convention’s protection to injured shareholders in their personal capacities.144 The ACtHPR lies somewhere between the two: individuals and Non-Governmental Organizations may bring claims against States who have signed on to an optional protocol assenting to 141

Council of Europe, European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols Nos. 11 and 14, 4 Nov. 1950, E.T.S. 5, available at: http: // ​w ww.unhcr.org / ​refworld / ​docid /3ae6b3b04.html. 142 Organization of American States, American Convention on Human Rights, “Pact of San José,” Costa Rica, 22 Nov. 1969, available at: http: // ​w ww.unhcr.org / ​refworld / ​docid / 3ae6b36510.html. 143 Organization of African Unity, African Charter on Human and Peoples’ Rights (“Banjul Charter”), 27 Jun. 1981, CAB / ​LEG / 67 / 3 rev. 5, 21 I.L.M. 58 (1982), available at: http: // ​w ww.unhcr.org / ​refworld / ​docid / 3ae6b3630.html; and Protocol to the African Charter on Human and Peoples’ Rights on the Establishment of an African Court of Human and Peoples’ Rights, 9 Jun. 1998, OAU Doc. OAU / ​LEG / ​EXP / ​AFCHPR / ​ PROT(III) (establishing the Court). 144 See Cantos v. Argentina, Preliminary Objections, Inter-Am. Ct.H.R. (Ser. C), No 89 (7 Sep. 2001), ¶ 29; Ivcher Bronstein v. Peru, Judgment, Inter-Am. Ct.H.R. (Ser. C), No. 74 (6 Feb. 2001); J. M. Pasqualucci, The Practice and Procedure of the Inter-American Court of Human Rights, 1st ed., 2003, 105-107.

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such jurisdiction (including only five State Parties to date);145 and at the same time, the African Commission on Human and Peoples’ Rights and / ​or any State Party can bring a complaint against another State Party before the Court.146 Further, unlike the ECtHR and the IACtHR, the substantive jurisdiction of the ACtHPR extends not only to its underlying regional human rights treaty, but also to any other “relevant human rights treaty ratified by the States concerned” in a particular dispute subject to the Court’s jurisdiction.147 Notably, all three of the Conventions require exhaustion of national remedies as a pre-requisite to accessing their respective Courts.148 The road to relief will, thus, be neither short nor easy. In the discussion that follows we focus on the ECHR and the ECtHR, because thus far only the ECtHR has rendered judgments in respect of claims involving the setting-aside or non-enforcement of commercial arbitration awards.149 While the IACtHR and ACtHPR have yet to confront those issues, the principles enunciated by the ECtHR are likely to provide guidance as to how such claims would be adjudicated by those other Courts.150 145 See

ACtHPR Protocol, arts. 5(3), 34(6) (including Burkina Faso, Ghana, Malawi, Mali and Tanzania). 146 ACtHPR Protocol, art. 5(1). 147 ACtHPR Protocol, art. 3. It should be noted, however, that the ECtHR and IACtHR have proven willing to “read in” standards from external treaties to their own underlying treaties through interpretation in accordance with the Vienna Convention on the Law of Treaties (in particular article 31(3)(c)). See e. g., Demir & Baykara v. Turkey, App. No. 34503 / 97, 48 Eur.H.R. Rep. 54 (2008) (interpreting the ECHR inter alia in light of ILO instruments and non-binding ILO Committee resolutions); The Right to Information on Consular Assistance In the Framework of the Guarantees of the Due Process of Law, Advisory Opinion OC-16 / 99, Inter-Am. Ct.H.R. ¶¶ 113-15. See also J. Arato, Constitutional Transformation in the ECtHR: Strasbourg’s Expansive Recourse to External Rules of International Law, 37 Brooklyn Journal of International Law 349 (2012) (assessing the breadth with which the ECtHR understands its mandate under the Vienna Convention on the Law of Treaties, art. 31(3)(c)). 148 See ECHR, art. 35; IACHR, art. 46; ACHPR, art. 50. 149 Stran Greek Refineries & Stratis Andreadis v. Greece, Eur. Ct.H.R., No. 13427 / 87 (9 Dec. 1994) [hereinafter Stran]; see also Sedelmayer v. Germany, Eur. Ct.H.R., Nos. 30190 / 06 & 30216 / 06 (10 Nov. 2009); Regent Company v. Ukraine, Eur. Ct.H.R., No. 773 / 03 (3 Apr. 2008); Kin-Stib & Majkić, Eur. Ct. H. R., No. 12312 / 05 (20 Apr. 2010). 150 See J. Arato, Subsequent Practice and Evolutive Interpretation: Techniques of Treaty Interpretation over Time and Their Diverse Consequences, 9 The Law & Practice of International Courts and Tribunals 443, 489 (2010) (noting that in interpreting the Organization of American States Charter and the American Convention on Human Rights, the IACtHR frequently relies on the jurisprudence of the ECtHR – both as regards the content of particular rights and even drawing inspiration from the latter’s characterization of the object and purpose of the ECHR).

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As with investment arbitration, an initial caveat is in order. The threshold issues just discussed, as well as the still-developing nature of the jurisprudence, mean that the human rights option will be available to only a relatively small minority of frustrated award creditors. Nonetheless, as set out below, the developments in the jurisprudence of the ECtHR over recent years suggest both the potential viability of this remedy and that further growth in the law is to be expected. III.B.2. Interference with Property  / ​Expropriation a. The Stran Case The ECtHR first articulated the principles by which it would afford protection to award creditors in its 1994 decision in Stran Greek Refineries & Stratis Andreadis v. Greece, which concerned the validity and enforcement of a purely domestic arbitral award – although the Court would extend the same principles to international arbitral awards in its subsequent jurisprudence. The case originated in an application against Greece lodged by two Greek nationals – a private limited company and its sole shareholder (Stran). The underlying dispute arose out of a construction contract concluded in 1972 between Stran and the then-existing Greek military regime, which the State unilaterally terminated in 1977 after the restoration of democracy. Stran commenced a domestic contractual arbitration against the State and received a multi-million dollar final award in 1984. In subsequent challenge proceedings, the Greek courts upheld the validity of the award at first instance and in the court of appeals. Then in May 1977, after the judge-rapporteur of the Court of Cassation had circulated a draft opinion deciding in favor of Stran, the Greek legislature passed a law retroactively voiding the contract and its arbitration clause, as well as any arbitration awards resulting from the contract.151 The Court of Cassation ultimately upheld the constitutionality of that law and, accordingly, annulled Stran’s award.152 Before the ECtHR, Stran claimed that by annulling the award, the Greek legislature and judiciary had violated its right to property under Article 1, Protocol 1 of the ECHR (P1-1), as well as its right to a fair trial under the Convention’s Article 6 (as to which more will be said below). P1-1 provides: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. 151

152

Stran, at ¶¶ 19-20. Id. at ¶ 22.

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The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.153 In assessing Stran’s claim that Greece wrongfully interfered with its property, the ECtHR divided its analysis into three questions: (i) whether the arbitral award was a “possession” within the meaning of P1-1; (ii) whether the State interfered with Stran’s rights in the award; and (iii) whether any such interference was justifiable under the “fair balance” test typically applied by the Court in P1-1 cases. As to the first question, the Court held that an arbitral award constitutes a “possession” for purposes of P1-1, so long as it has “given rise to a debt in [the applicant’s] favor that was sufficiently established to be enforceable.”154 The ECtHR looked to domestic law in answering that question, determining that that “[u]nder Greek legislation arbitration awards have the force of final decisions and are deemed to be enforceable,” and are not subject to appeal on the merits.155 The Court further noted that in Stran’s case, “the ordinary courts had … already twice held – at first instance and on appeal – that there was no ground for … annulment.”156 Accordingly, and despite the contrary ruling by the Court of Cassation, the Court held the award to be sufficiently enforceable to constitute a “possession” within the meaning of P1-1.157 The Court had no difficulty finding governmental interference with Stran’s property, carried out by both the Greek legislature and the judiciary. Through those organs, the underlying contract, the arbitration clause and the subsequent award had all been voided.158 The ECtHR then turned to the third prong, assessing whether in acting as it did, the Greek State had struck “a fair balance … between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights.”159 Greece attempted to justify its actions as being “part of a body of measures designed to cleanse public life of the disrepute attaching to the military regime.”160 In assessing this submission, the Court acknowledged the State’s sovereign prerogative to amend or terminate contracts concluded with private individuals, but determined that the exercise of that right entails an obligation to pay compensation. Further, and similar to 153

154 155

156 157

158 159

160

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ECHR, Protocol 1, art. 1. Stran, at ¶ 59 (emphasis added). Id. at ¶ 61. Id. at ¶ 62. Id. Id. at ¶¶ 65-66. Id. at ¶ 69, citing Sporrong and Lönnroth v. Sweden, Series A no. 52, ¶ 69 (23 Sept. 1982). Stran, at ¶ 70.

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the reasoning of the investment tribunal in ATA,161 the Court found that Greece had acted improperly by voiding the underlying contract’s arbitration clause.162 In the Court’s words, “to alter the machinery set up by enacting an authoritative amendment to such a clause would make it possible for one of the parties to evade jurisdiction in a dispute with respect to which specific provision was made for arbitration.”163 Taking all of these factors into consideration, and while recognizing Greece’s legitimate interest in expunging vestiges of the dictatorship period, the Court determined that Greece’s actions had upset the balance between protection of the right to property and the requirements of the public interest, resulting in a violation of P1-1.164 As explained further below, the Court also found Greece’s actions to be in violation of the right to a fair trial under Article 6(1).165 The Court proceeded to award Stran full compensation, ordering Greece to pay the entire value of the award, plus 6 % interest as provided for in the award itself.166 b. Developments after Stran The ECtHR has expounded upon the principles articulated in Stran in a series of cases decided in the period 2008 to 2010. The result has been the extension of the coverage of P1-1 to the recognition and enforcement of international arbitral awards, and expansion of the scope of protections due. First, as regards the threshold question of when an arbitral award constitutes a “possession,” the Court has confirmed that the protections of P1-1 extend to arbitral awards rendered in international cases, irrespective of the nationality of the parties to the underlying arbitration, or how the applicant came into possession of the award. Regent Company v. Ukraine, decided in 2008, involved an arbitral award rendered under the auspices of the Ukrainian Chamber of Commerce in favor of a Czech company and against a Ukrainian State-owned corporation. After seeking to enforce the award in the Ukraine for four years, during which period the State-owned respondent entered bankruptcy, the Czech company sold its award to Regent Company. The latter, incorporated in the Seychelles and thus outside the CoE region, continued enforcement ef161 See

supra note 112 and accompanying text. Stran, at ¶ 72. The Court further noted that Greek law recognizes the principle of the autonomy of the arbitration clause. Id. at ¶ 73. 163 Id. at ¶ 72, citing Losinger decision of 11 October 1935, P. C. I. J. Series C no. 78, p. 110; Lena Goldfields Co. v. Soviet Gov’t, Annual Digest and Reports of Public International Law Cases, vol. 5 (1929-1930) (case no. 258); Texaco Overseas Petroleum v. Libya, preliminary decision of 27 Nov. 1975, at 53 I. L. R. 393 (1979). 164 Stran, at ¶¶ 46, 74, 75. 165 See infra Section III.B.3. 166 Stran, at ¶¶ 80-82. 162

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forts in the Ukraine, but was stymied by recalcitrant bailiffs and a law staying the enforcement of debts against State-owned entities. Regent Company then turned to the ECtHR, which found the award to be sufficiently enforceable to constitute a “possession” for P1-1 purposes.167 The Court applied a similar analysis two years later in Kin-Stib & Majkić v. Serbia, which involved an award rendered under the auspices of the Yugoslavia Chamber of Commerce in favor of a Congolese company and against a State-owned company. The courts in Belgrade enforced the award’s pecuniary obligations but not its provisions on specific performance. As in Regent Company, the Court had little difficulty in concluding that the award – the validity of which had not been contested before the Serbian courts – was sufficiently enforceable so as to constitute a “possession.”168 That the award was rendered in favor of a non-CoE national was irrelevant to the Court’s determination. The Court went further still in Sedelmayer v. Germany, which concerned a US$ 235 million award rendered by a Stockholm Chamber of Commerce tribunal in favor of a German national, Franz Sedelmayer,169 and against the Russian Federation.170 There, the applicant brought suit against the German State for its courts’ failure to enforce the award against Russian property in Germany. Though dismissing the case on other grounds (as to which more is said below), the Court nevertheless ruled that the award – which had been upheld by the Swedish courts against a setting-aside action and recognized by the German courts – constituted a “possession” that Germany was obliged by P1-1 to protect.171 This was so although Germany’s only role was as the enforcement forum: it was not a party to the underlying arbitration, and the award debtor was a third party (Russia) unconnected to the German State. Second, the post-Stran cases have defined more expansively the types of interference with arbitral awards that may give rise to liability under P1-1. Specifically, the ECtHR has held that a State may contravene P1-1 not only by refusing recognition or enforcement of an award, but also by taking inadequate steps to ensure that enforcement is effective. In Kin-Stib, the Court held that by enforcing the applicants’ valid arbitration award only in part, Serbia had effectively expropriated the remaining value in that award in violation of P1-1. The breadth of the Court’s language is striking. A Member State, the Court ruled, has a “responsibility to make use of all available legal means at its disposal in order to enforce a binding arbitration award providing it contains a sufficiently established claim amounting to a possession.”172 To that end, “the State must make sure that the execution of such an award is carried out without undue 167

Regent Co., at ¶ 61. Kin-Stib., at ¶ 83. 169 See supra note 23 and accompanying text. 170 Sedelmayer, at 2. 171 Id. at 7. 172 Kin-Stib, at ¶ 83, citing Stran, at ¶¶ 61-62. 168

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delay and that the overall system is effective both in law and in practice.”173 On the facts of Kin-Stib, Serbia fell short of the mark. The Serbian authorities had “clearly not taken the necessary measures to fully enforce the arbitration award in question.”174 Finally, the Court’s recent jurisprudence has clarified the contours of the “fair balance” test used to determine whether an interference with a possession ripens into a violation of P1-1. Here, the ECtHR seems to have set a relatively high bar for the State to meet in justifying interference with the arbitral process or the resulting award. In Stran itself, the Greek State’s policy of eradicating contractual vestiges of the dictatorship period was deemed an insufficient justification.175 Similarly, in Regent Company, the State’s defense that the bankruptcy of the State-owned respondent justified partial non-enforcement was rejected.176 On the other hand, Germany’s failure to enforce Mr. Sedelmayer’s award against Russian Federation assets in Germany was held proper by the Court. Those assets, the national courts had ruled, were protected from attachment and execution by sovereign immunity under German law.177 In assessing this defense, the Court balanced Germany’s obligation under the New York Convention to enforce foreign arbitral awards against the rules of sovereign immunity applied by the German courts, which were broadly consistent with the ECtHR’s own caselaw on sovereign immunity.178 In those circumstances, the ECtHR found that Germany’s unwillingness to enforce the applicant’s award against the sovereign assets in question struck a fair balance between the demands of the general interest and the applicant’s right to property.179 Mr. Sedelmayer thus remained a disappointed award creditor. In sum, the ECtHR’s jurisprudence establishes that a Member State may violate P1-1 where its courts fail to recognize or enforce a commercial arbitration award, provided three conditions are met. First, to be protected under P1-1, an award must be “a possession” – meaning that it must be “sufficiently established to be enforceable.”180 Second, the State must have interfered with this possession. Interference is a relatively broad concept that includes not only a State’s outright refusal to enforce an award, but also a failure to enforce fully and within a rea173

Kin-Stib, at ¶ 83. Id. at ¶ 85. 175 Stran, at ¶ 46. 176 Regent Co., at ¶ 59. 177 Sedelmayer, at 8-9 (noting that the German courts found in particular that the funds in question were earmarked for sovereign purposes and thus did not fall into the “commercial exception” to the immunity of sovereign property). 178 See Al-Adsani v. United Kingdom, Eur. Ct. H. R. App. No. 35763 / 97 (2001); Fogarty v. United Kingdom, Eur. Ct. H. R. App. No. 37112 / 97 (2001); McElhinney v. Ireland, Eur. Ct. H. R. App. No. 31253 / 96 (2001). 179 Sedelmayer, at 10. 180 Stran, at ¶ 59. 174

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sonable time. Third, the Court must determine whether any such interference is proportional – in the sense of pursuing a legitimate aim and fairly balancing that objective against the individual’s right to property. This will necessarily be a fact-specific inquiry, as to which the Court has reached divergent results in the cases decided thus far.181 Going forward, the chief open question relates to the first prong of the P1-1 test. In all of the cases so far adjudicated, the underlying arbitral awards have either been upheld by the national courts against challenge (in Stran and Sedelmayer) or not challenged there (in Regent Company and Kin-Stib). It remains to be seen how the ECtHR would view a case in which an arbitral award had been set aside in the country of origin, or denied enforcement in another forum, on arguably proper grounds. If the investment treaty cases are any guide, one might surmise that the Court would require evidence of court malfeasance – or at least misfeasance – before finding a violation of P1-1 in such circumstances. As noted earlier, neither the IACtHR nor the ACtHPR has yet faced a case involving the annulment or non-enforcement of an arbitral award. Notably, however, their constitutive instruments – the IACHR and the ACHPR – both enshrine the right to property in broadly similar terms to the ECHR.182 Further, the IACtHR has looked to ECtHR jurisprudence in its past cases.183 Accordingly, it seems reasonable to expect that the IACtHR and the ACtHPR might be inclined to follow the European Court’s jurisprudence when dealing with a claim involving an arbitral award.

181

In both Stran and Regent Co., the Court was unconvinced by the States’ respective justifications, relating to the general need to restore democracy and undo the effects of the previous military dictatorship in the former case, and to the current insolvency of the state-owned company in question in the latter. Stran, at ¶ 46; Regent Co., at ¶ 59. In Sedelmayer, by contrast, the Court held that Germany’s refusal to enforce based on the doctrine of sovereign immunity was proportional. But again, in Sedelmayer the State’s rationale conformed to the ECtHR’s own jurisprudence on the immunity of States and their property. Sedelmayer, at 10. See also Al-Adsani; Fogarty; McElhinney. 182 See IACHR, art. 21 (“(1) Everyone has the right to the use and enjoyment of his property. The law may subordinate such use and enjoyment in the interest of society; (2) No one shall be deprived of his property except upon payment of just compensation, for reasons of public utility or social interest, and in the cases and according to the forms established by law”); ACHPR, art. 14 (“The right to property shall be guaranteed. It may only be encroached upon in the interest of public need or in the general interest of the community and in accordance with the provisions of appropriate laws”). 183 See, e. g., Right to Information on Consular Assistance, at ¶¶ 114-115.

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III.B.3. Right to a Fair Trial: Unfair Processes and Unreasonable Delay In addition to finding a violation under P1-1, Stran opened a second avenue through which a State may incur liability for preventing or impeding the enforcement of an arbitral award. That avenue is the right to a fair and reasonably timely trial, as enshrined in Article 6(1) of the ECHR. Article 6(1) provides: “In the determination of his civil rights and obligations … everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law …”184 As a threshold matter, the Court confirmed in Stran that the right to recover the proceeds of an arbitral award constitutes a “civil right” within the meaning of Article 6(1). That civil right, the Court clarified, exists on the international plane under the ECHR, such that its content may not be assessed “solely by reference to the respondent State’s domestic law.”185 And as Regent Company makes clear, that civil right extends to any subsequent purchaser of the arbitral award, enabling the latter to pursue claims before the ECHR.186 Article 6(1), as interpreted by the ECtHR in Stran and the subsequent cases cited above, imposes two obligations on ECHR Member States in respect of their treatment of arbitral awards: (i) a prohibition on unfair treatment of the award creditor in the courts, and (ii) a requirement of reasonably prompt enforcement action. With respect to the first obligation, the ECtHR has held that the principle of equality of arms lies at the heart of the fair trial right.187 “In litigation involving opposing … interests, that equality implies that each party must be afforded a reasonable opportunity to present his case – under conditions that do not place him at a substantial disadvantage vis-à-vis his opponent.”188 In Stran, the Court thus found fault with both the timing and manner of Greece’s legislative intervention into the applicant’s enforcement proceedings in the Greek courts. As explained above, after the Court of Cassation had indicated to the parties that it would rule in favor of Stran, the legislature passed a law retroactively nullifying Stran’s claim and the underlying arbitration agreement. The ECtHR ruled that Article 6(1) precludes “any interference by the legislature with the administration of justice designed to influence the judicial determination of the [particular] dispute.”189 Applying that standard to the facts, the Court held the Greek State in violation of Article 6(1) for “intervening in a manner which

184 185

186 187

188 189

ECHR, art. 6(1). Stran, at ¶ 39. Regent Company, at ¶ 55. Stran, at ¶ 46. Id. Id. at ¶ 49.

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was decisive to ensure that the – imminent – outcome of proceedings in which it was a party was favourable to it.”190 The second standard imposed by Article 6(1) relates to reasonableness of the duration of enforcement proceedings. As noted earlier, Regent Company concerned an arbitration award originally rendered in favor of a Czech company against a Ukrainian State-owned company (Oriana), which later became insolvent. The original award creditor and its successor-in-interest pursued enforcement of the award in the Ukrainian courts beginning in 1999, but to no avail. By 2005, the responsible State entities had ceased any effort to enforce the award against Oriana’s assets.191 Ruling in 2008, the Court determined that nine years was an unreasonably long delay for the enforcement of an arbitral award, especially given that no recent steps had been taken by Ukrainian authorities to remedy the situation.192 In the Court’s view, neither the insolvency of the State-owned company, nor the delays inherent in appropriations for the payment of State debts, could excuse such a long delay. As a result, the Court held the Ukraine in violation of Article 6(1). Thus, while the ECtHR has enunciated an aggressive standard for expedition in the enforcement of arbitration awards – stating in Kin-Stib (in the context of its P1-1 analysis) that States are obliged to “make sure that the execution of [a binding] award is carried out without undue delay”193 – the only case to date to condemn delay under Article 6(1), Kin-Stib, has involved a lengthy delay indeed. It therefore appears that while prompt enforcement is a right under the ECHR, patience is a necessary virtue for the frustrated award creditor. Moving to the other human rights courts, the IACHR codifies a robust right to a fair trial in Article 8(1), guaranteeing a hearing by a “competent, independent, and impartial tribunal, previously established by law … for the determination of … rights and obligations of a civil, labor, fiscal, or any other nature.” That same Article further provides that such a hearing must occur “within a reasonable time.”194 Although the question of procedural fairness in the context of the enforcement of arbitral awards has not yet been tested in the IACtHR, the text of the Convention thus appears to provide similar guarantees to those articulated in the caselaw of the ECtHR. By contrast, the text of the ACHPR is more laconic in respect of civil (or any non-criminal) rights, guaranteeing to every individual only “the right to have his cause heard” (Article 7)195 – although the

190 191

192 193

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Id. at ¶ 50. Regent Co.¸ at ¶¶ 19-32. Id. at ¶¶ 59-60. Kin-Stib, at ¶ 83. ACHR, art. 8(1). ACHPR, art 7.

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African Commission on Human and Peoples’ Rights has referred to Article 7 as enshrining the “right to a fair trial” more generally.196 III.B.4. Remedies In each of the above-cited cases in which the ECtHR found a violation, the Court ordered the State to compensate the applicant in the amount of the underlying award (less any payments already received).197 In one instance, the ECtHR awarded the applicants additional compensation for non-pecuniary damages arising out of the State’s violation of the ECHR right in question.198 Finally, the Court has shown itself willing to award interest and costs.199 Notably, however, each of the cases in which the applicant succeeded featured the State or a State-owned entity as the underlying award debtor. In Stran the award debtor was the State itself, meaning that the failure to enforce amounted to a refusal by the State to pay a direct debt to the applicant.200 In Regent Company and Kin-Stib the award debtors were State-owned companies, and the Court appears to have taken the view that, as a result, the State could fairly be held fully responsible for honoring their debts.201 It therefore remains unclear whether the same remedy – full payment of the underlying award with interest – would be applied by the Court in a case involving a private award debtor. On one view the remedy should be the same – liability covers the full deprivation arising from the misconduct of the State’s judicial (or other) organs. However, as noted earlier in regard to investment arbitration,202 it could also be defended that what the applicant has actually lost in that context is the chance 196

Amnesty Int’l v. Sudan, Afr. Comm’n H. R., Comm. Nos. 48 / 90, 50 / 91, 52 / 91, 89 / 93 (1999-2000), ¶ 31, available at: http: // ​w ww.achpr.org / ​fi les / ​sessions / 26th / ​comunications / 48.90-50.91-52.91-89.93 / ​achpr26_48.90_50.91_52.91_89.93_eng.pdf. 197 Stran, at ¶ 81; Regent Co., at ¶ 66; Kin-Stib, at ¶ 96. 198 Kin-Stib, at ¶ 95 (awarding €8,000 on an “equitable basis” for non-pecuniary damage caused by Serbia’s violation of P1-1). But see Regent Co., at ¶ 67 (denying the applicant additional compensation for its claim to non-pecuniary damage, and finding a declaration of the State’s violation of Art. 6(1) and P1-1 sufficient under the circumstances. The Court noted in particular that the applicant had “purchased the debt in question … taking a commercial risk by that transaction.”). 199 Whereas in Stran the Court assessed interest at six percent on an equitable basis, see Stran, at ¶ 83, in the two more recent cases the Court awarded default interest based on the marginal lending rate of the European Central Bank plus three percentage points, see Regent Co., at ¶ 69; Kin-Stib, at ¶ 102. 200 Stran, at ¶ 80. 201 See Kin-Stib, at ¶ 96; Regent Co., at ¶¶ 59-60. 202 See supra Section III.A.5.

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to have its award enforced – an injury that might, depending on the facts, call for a lesser amount of compensation. Like the ECtHR, the IACtHR has the authority to order a respondent State to pay the victim “fair compensation.”203 In general, this means “re-establishing the previous situation and repairing the consequences of the violation, as well as payment of an indemnity as compensation for the damage caused.”204 At least in principle, in the case of improper interference with an arbitral award (especially going so far as annulment), it should be open to the Court to award the full value of the award as compensation. Similarly the ACtHPR enjoys authority to order “fair compensation or reparation” for violations of its Convention.205 III.B.5. Conclusion on the Human Rights Courts The regional human rights courts – and in particular the ECtHR – provide a potential avenue of public international law redress to award creditors frustrated by a State’s interference with the arbitral process or an arbitral award. While there are substantial gateway issues limiting access to the three human rights courts surveyed above, the jurisprudence of the ECtHR has developed in a reasonably protective manner. A State’s wrongful annulment of an arbitral award or agreement, or its failure to enforce a binding award in full and within a reasonable (if expansive) timeframe, can result in liability under either P1-1 or Article 6 of the ECHR. The chief open question concerns when an arbitral award will be sufficiently enforceable to constitute “property” for purposes of the P1-1 (or Article 6) analysis, and in particular the level of scrutiny the Court would be willing to apply in cases of arguably justified setting-aside or nonenforcement. While the Inter-American and African Courts have not yet encountered a case involving the non-enforcement of an arbitral award, their constitutive 203

ACHR, art. 63(1). See Pasqualucci, supra note 144, at 255. Ivcher Bronstein, at ¶ 178. However, the Court has taken a somewhat inconsistent approach to determining the value of such damages. In the Velásquez Rodriguez case, the Court held that this standard of compensation comes not from the domestic law of the Respondent State but rather the American Convention itself, “and the applicable principles of international law.” Velásquez Rodriguez v. Honduras, Compensatory Damages (Art. 63(1) American Convention on Human Rights), Judgment, Inter-Am. Ct. H. R. (ser. C) no. 4, ¶ 31 (21 Jul. 1989). However in Ivcher Bronstein v. Peru the Court did not resolve the question of compensation, but rather left to the national courts the determination under domestic law of how much compensation the victim should be awarded for the loss of dividends and other payments that he would have received had he continued as majority shareholder and officer of the company in question, but for Peru’s intervention. Ivcher Bronstein, at ¶181. 205 ACtHPR Protocol, art. 27.

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instruments are reasonably similar to the ECHR. Accordingly, one may expect that their approach to those issues would be similar. Thus, while not an easily available remedy, or one involving a short road to enforcement, the regional human rights courts represent an option that is worthy of consideration by frustrated award creditors.

III.  C. Diplomatic Protection The previous two parts have discussed the public international law fora that may be available to frustrated award creditors under special regimes that allow the aggrieved party to pursue recourse directly against the State that committed the allegedly wrongful act. These regimes – investment arbitration and the regional human rights courts – are exceptions to the general position under international law, which is that natural and legal persons have no capacity to pursue claims against States directly. Instead, their State of nationality must seek redress on their behalf. This process is known as diplomatic protection. The 2006 Draft Articles on Diplomatic Protection (DADP) prepared by the International Law Commission (ILC) define the term as follows: Diplomatic protection consists of the invocation by a State, through diplomatic action or other means of peaceful settlement, of the responsibility of another State for an injury caused by an internationally wrongful act of that State to a natural or legal person that is a national of the former State with a view to the implementation of such responsibility.206 The underlying rationale is that an internationally wrongful act committed against a State’s national is in reality an injury to the State itself.207 A State that chooses to exercise diplomatic protection on behalf of one of its nationals has, in principle, a variety of tools available. A State may simply initiate direct negotiations with the offending nation. It may request voluntary formal dispute settlement through arbitration or before the International Court of Justice (ICJ).208 The protecting State may also engage in retorsion, including 206 See Draft Articles on Diplomatic Protection, art. 1, Report of the ILC on its 58th Session,

UN Doc. A / 61 / 10, 2006; see also ARSIWA, supra note 137. Mavrommatis Palestine Concessions (Greece v. Gr. Brit.) Judgment, 1924 P. C. I. J. (ser. A) no. 2 at 12 (“By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights, its right to ensure, in the person of its subjects, respect for the rules of international law.”); M. Shaw, International Law, 6th ed., 2008, 809. 208 Id. To proceed before the ICJ, the home State would have to secure the offending State’s consent to submit the case to the Court’s binding “contentious jurisdiction.” ICJ Statute, art. 36; L. Reed / ​L . Martinez, Treaty Obligations to Honor Arbitral Awards and Diplo207 See

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for example certain forms of economic pressure or the severance of diplomatic relations.209 In the face of continued intransigence, a State may resort to the threat or use of countermeasures, meaning the temporary non-performance of international obligations owed toward the responsible State.210 Countermeasures may include, inter alia, withholding payments due to the offending State and / ​or freezing assets belonging to it, or the suspension of formal treaty obligations such as those affording favorable terms of trade.211 Any such countermeasures must, however, be proportional to the offense and may be taken only with an eye to compelling the offender to discharge its responsibility.212 Where a State refuses to recognize or enforce a foreign arbitral award, or wrongfully sets an award aside, it may breach its international law obligations. Specifically, the failure to recognize and enforce may violate the State’s duties under the New York Convention, assuming the State is a party to the Convention (as all major trading nations are).213 While the setting-aside of an arbitral award is governed by national arbitration law and not the New York Convention, an illegitimate set-aside could potentially contravene customary international law, in particular the duty to afford foreign nationals a minimum standard of treatment, including the prohibition on denial of justice in a State’s courts.214 Thus, in principle, a predicate violation capable of triggering diplomatic protection will (or may) be available in such circumstances. This provides a third potential public international law remedy to the aggrieved award creditor. The award creditor would have to satisfy two thresholds in order to qualify for the exercise of diplomatic protection by his home State: (i) qualifying nationality (and continuity of it), and (ii) the exhaustion of local remedies. As to the former, the determination of nationality is relatively straightforward in

matic Protection, in D. Bishop ed., Enforcement of Arbitral Awards Against Sovereigns, 2009, 13, 23. Of interest, an earlier draft of the New York Convention contained an Article providing that “any dispute which may arise between contracting States concerning the interpretation or application of the Convention shall be referred to the International Court of Justice at the request of any one of the parties to the dispute, unless the parties agree to another mode of settlement.” Report of the Committee on the Enforcement of International Arbitral Awards, UN Economic and Social Council, Doc. E / ​AC.42 / 4 / ​ Rev.1 (28 Mar. 1955), ¶ 64. That language was opposed by some of the States, including the USSR, and was ultimately removed. 209 See Reed / ​Martinez, supra note 208, at 23. 210 ARSIWA, art. 49(2). 211 ARSIWA, arts. 49, 50. Schreuer, supra note 74, at 1089; Reed / ​Martinez, supra note 208, at 23. 212 ARSIWA, arts. 49(1), 51. 213 See list maintained at http: // ​w ww.newyorkconvention.org. 214 See Paulsson, supra note 96, at 1.

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the case of natural persons,215 although complications may arise in the case of dual nationals.216 The law governing corporate nationality is more complex. In general, the nationality of a corporation will depend on its place of incorporation.217 However, the DADP provide for a narrow exception “in a particular situation where there is no other significant link or connection between the State of incorporation and the corporation itself, and where significant connections exist with another State.”218 In particular, a corporation may be held to possess the nationality of a State other than that of its incorporation where it “is controlled by nationals of another State or States and has no substantial business activities in the State of incorporation, and the seat of management and the financial control of the corporation are both located in another State.”219 In those circumstances, the State from which management and financial control are exercised may be the State of nationality.220 Further, and with respect to both natural and legal persons, the injured party must possess the nationality of the espousing State continuously from the date of the injury to the date of presentation of the claim.221 The second requirement for obtaining diplomatic protection is the exhaustion of local remedies. In general a State may not present an international claim in respect of an injury to one of its nationals before the injured person has 215 See

DADP, art. 4 (“For the purposes of the diplomatic protection of a natural person, a State of nationality means a State whose nationality that person has acquired, in accordance with the law …[and] not inconsistent with international law.”); Shaw, supra note 207, at 813-814. 216 See DADP, art. 7; Mergé claim, Italian-U. S. Claims Comm’n. 22 ILR 443, 445 (1955); Islamic Republic of Iran v. United States, Case No. A / 18, 5 Iran-U. S. C. T. R. 251 (1986). 217 DADP, art. 9. 218 DADP, art. 9 comment (4). 219 DADP, art. 9; see also Barcelona Traction, ICJ Reports 1970, at 42-43. The ILC provides for an additional (limited) exception with regard to exercising diplomatic protection on behalf of injured shareholders in a corporation, where the corporation has ceased to exist, or had the nationality of the offending State (and incorporation in that State was required as a precondition for doing business there). DADP, art. 11. 220 This rule may give rise to difficulties in the common situation in which an investor uses a special purpose (SPV) vehicle incorporated in a different State as the owner of an investment. If the SPV exercises some control over the investment, it may be deemed a national of that third State, in which case the actual investor’s home State will be unable to exercise diplomatic protection. At the same time, the third State may have no interest in exercising protection on behalf of a legal person controlled by foreigners and incorporated within its territory for reasons of convenience. See V. Pérez, Diplomatic Protection Revival for Failure to Comply with Investment Arbitration Awards, 3 Journal of International Dispute Settlement 445, 456-457 (2012). 221 DADP, art. 5. But see Loewen v. United States, ICSID Case No. ARB(AF) / 98 / 3, NAFTA Ch. 11 (26 Jun. 2003) ¶ 225.

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pursued all legal remedies open to him before the judicial or administrative bodies of the offending State.222 Limited exceptions may be available where pursuit of a particular remedy would be futile or result in “undue delay,” or where the aggrieved party is somehow precluded from pursuing the remedy in question.223 Even so, the exhaustion requirement may impose a significant burden, in terms of cost and delay, in many cases: the claimant, or its finances, may become exhausted before local remedies are. In the present context, the requirement would be to exhaust all reasonably available appellate remedies against the setting-aside or non-enforcement of the arbitral award in question. Despite these threshold hurdles, the fact remains that diplomatic protection provides a potential remedy for a frustrated award creditor, who may have no other available means of international redress. It will then be incumbent on that award creditor to convince its home government to espouse the claim, in which case the claim will become the State’s to pursue in the manner, and to the extent, it considers appropriate. Again, this is unlikely to be an easy road. As Professor Douglas has noted: [T]he state of the injured national has full discretion as to whether to take up the claim on behalf of its injured national at all. It may waive, compromise, or discontinue the presentation of the claim irrespective of the wishes of the injured national. In exercising this discretion, the state often gives paramount consideration to the wider ramifications of the espousal of a diplomatic protection claim so far as it concerns the conduct of its foreign policy vis-à-vis the host state.224 Perhaps as a result of these impediments, there are no reported instances to date of a State exercising formal diplomatic protection on behalf of a frustrated award creditor. Interestingly, however, in the investment treaty context, States have been willing to pursue less formal means of diplomatic pressure on behalf of their nationals.225 In two long-running investment disputes between US investors and Argentina, the American investors (Azurix, and Blue Ridge Investments, which had been assigned an arbitral award from CMS Energy) sought the assistance of the US government in 2010. Specifically, the investors petitioned the U.S. Trade 222

DADP, art. 14; Pérez, supra note 220. DADP, art. 15. 224 Z. Douglas, The Hybrid Foundations of Investment Treaty Arbitration, 74 British Yearbook of International Law 151, 169 (2003) (footnotes omitted). 225 In the context of an ICSID dispute, contracting States are not permitted to exercise diplomatic protection, in the formal sense, with respect to an ongoing claim. States are, however, permitted to engage in “informal diplomatic exchanges for the sole purpose of facilitating a settlement of the dispute.” ICSID Convention, art. 27. See generally J. Viñuales / ​D. Bentolila, supra note 16. 223

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Representative (USTR) to withdraw Argentina’s benefits under the Generalized System of Preferences program. The USTR acted on the petitions, and in March 2012 announced that it was suspending those trade benefits for Argentina.226 In 2011, the US had imported US$ 477 million of goods from Argentina under the trade preference regime.227 Although the financial benefit to Argentina of the program represented only a portion of that amount, the withdrawal will still be unwelcome news to the Argentine government, and thus a potential source of pressure. The European Union (EU) considered taking equivalent action against Argentina at the behest of Spanish award creditor Repsol – but ultimately opted against doing so, given that the benefits to Argentina under EU law are set to expire at the end of 2013 in any event.228 If award creditors have it their way, Ecuador may be the next in line. In September 2012, U.S. oil major Chevron petitioned the USTR to suspend preferential trade benefits to Ecuador under the Andean Trade Promotion and Drug Eradication Act, based on the latter’s failure to comply with interim measures orders issued by the arbitral tribunal in Chevron’s BIT claim against Ecuador.229 At the time of this writing, Chevron’s petition remains under review by the USTR.230 The investment treaty context is of course potentially a better candidate for attempts to obtain diplomatic protection, as the recalcitrant award debtor is the State itself, and – at least for ICSID cases – the State is subject to a self-standing treaty obligation to comply with the pecuniary obligations of any award.231 In the commercial award context, by contrast, the award debtor may be unrelated to the State, and the offending entity may be only the State’s courts. While these form part of the State itself, diplomatic pressure, directed essentially at the ex226

D. Palmer, Obama says to suspend trade benefits for Argentina, Reuters (26 Mar. 2012), available at: http: // ​w ww.reuters.com / ​a rticle / 2012 / 03 / 26 / ​us-usa-argentina-trade-idUSBRE 82P0QX20120326 (noting that the U.S. has also voted against new loans for Argentina at the World Bank and Inter-American Development Bank). 227 Id. 228 See The EU’s New Generalised Scheme of Preference (GSP), European Commission, at 3, http: // ​t rade.ec.europa.eu / ​doclib / ​docs / 2012 / ​october / ​t radoc_150028.pdf [hereinafter: EU GSP Factsheet]. 229 See W. Reinsch, Nat’l Foreign Trade Council, Inc., Petition Requesting Withdrawal or Suspension of the Designation of Ecuador as an Andean Trade Preference Act Beneficiary Country (17 Sept. 2012). 230 Jorge Viñuales and Dolores Bentolila discuss in further detail additional examples where diplomatic exchanges have occurred in the investment treaty context. For instance, they reference the dispute between Aucoven and Venezuela, where the State of incorporation of Aucoven’s parent company (Mexico) engaged in diplomatic correspondence with Venezuela in an attempt to facilitate a solution to the dispute between the parties. Viñuales / ​Bentolila, supra note 16, at 23. 231 ICSID Convention, art 54(1).

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ecutive branch, may be less effective (and less likely to be pursued by the home State) than in the case of investment treaty awards. As several authors have noted, diplomatic protection is a remedy not well attuned to protecting business interests in modern international economic life.232 It is for this reason that the BIT revolution has been so important in providing protection to investors, and the number of claims under those instruments so substantial. Nonetheless, diplomatic protection remains an option for frustrated award creditors, in particular when other public international law remedies are unavailable to them. The recent actions of the USTR show that, at least in some cases, States may be willing to take diplomatic action in support of award creditors, using trade mechanisms that are capable of exerting meaningful pressure on the offending State. This will only be the case, of course, where the home State has a big trade stick to wield.

III. D. Comparing the Public International Law Options The availability and attractiveness of the public international law options surveyed above will depend on the circumstances of the dispute and the positioning of the award creditor. In this Section, we provide a summary comparison of the options and the differing circumstances in which each might be pursued. III.D.1. Standing The first issue to consider is standing – i. e., the threshold hurdles that a frustrated award creditor must surmount in order to access the public international law remedies discussed above. With respect to investment treaty arbitration, two threshold issues arise. First, there must be an investment treaty in place between the home State of the aggrieved party and the State whose organs interfered with the arbitral process or award. Assuming an applicable investment treaty exists, the aggrieved party must further demonstrate that it has an “investment” in the host State. Under the decided cases thus far, it is unlikely that an arbitral award will itself qualify as an “investment.” Rather, the award will be seen as “crystallizing” the rights contained in the underlying contract, meaning that those contract rights will need to constitute an “investment” in the State whose courts or other organs have acted improperly. This will most likely be the case where the contract relates to a project being carried out in that State. In those circumstances, any later State court interference with the arbitration or the resulting award will constitute interference with the investment writ large. In the human rights context, no such “investment” threshold exists. Any person who is aggrieved by the conduct of a party to one of the regional human 232 See

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rights conventions may initiate a claim against that State.233 However, the applicant will need to exhaust local remedies as a pre-condition to doing so. The ECtHR has applied substantially the same approach in adjudicating claimed violations of both P1-1 and Article 6 in its arbitral award cases. Under either provision, the applicant must show that the award is sufficiently enforceable to qualify as a “possession” (for purposes of P1-1) or a “civil right” (for purposes of Article 6). The chief open question is whether an award that has been set aside or denied enforcement on arguably appropriate grounds will meet this standard. Diplomatic protection probably poses, at least from a functional perspective, the most substantial threshold hurdles. The frustrated award creditor must continuously possess the requisite nationality and must exhaust all local remedies. Further, he must convince his home government to espouse the claim – a decision in which political considerations will doubtless play a role. In all events, the petitioner will likely be required to provide convincing evidence to his home State that a violation of international law has occurred.234 III.D.2. Substantive Standards The need to surmount these gateway issues can be expected in most instances to limit the public international law fora or mechanisms available to a disappointed award creditor. However, assuming that more than one option remains open, the next consideration relates to the relative ease with which a claim can be made. In the investment treaty context, proving expropriation appears likely to be difficult – under existing jurisprudence, the claimant will need to show, at minimum, “illegal” conduct by the courts under a standard that seems not dissimilar in stringency from the traditional denial of justice test. Proving that the investor has been treated unfairly and inequitably will likely be easier, requiring less extreme conduct than a denial of justice analysis would demand. If the test applied in Frontier Petroleum is adopted by future tribunals, a State court’s setting-aside or non-enforcement of an arbitral award will be assessed on the basis of whether the decision was taken in good faith and is reasonably tenable in its analysis – thus opening the door for review on the merits, albeit under a deferential standard. Finally, where an “effective means” clause is available, the test for a violation will, once again, likely be less stringent than that for a denial of justice. Under the decided cases, undue delays by a State’s courts in dealing with setting-aside applications or enforcement can give rise to a breach of this provision. 233

Note that in the IACtHR context, a corporation is not entitled to bring claims. See supra Section III.B.1. 234 See Reed / ​Martinez, supra note 208, at 28.

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In the human rights context, demonstrating an interference with, or deprivation of, property requires a lower threshold than proving expropriation. Less than a complete taking is required to establish an “interference” under ECtHR jurisprudence. Indeed, in complete enforcement may satisfy that test. Similarly, in the IACtHR, the protection against a “deprivation” of property has been interpreted to give rise to the sorts of claims one sees in the ECtHR context for an “interference” with property.235 With respect to the right to a fair trial, the standard applied by the IACtHR has been similar to the “effective means” analysis in the investment treaty context. Thus, undue delay in the enforcement of an award has been held by the ECtHR to violate that right.236 Diplomatic protection differs from the investment treaty and human rights regimes in that, in the first instance, the legal standard is applied by the award creditor’s own home State as opposed to an external tribunal. The international wrong, for purposes of invoking diplomatic protection with respect to a non-enforced or annulled arbitral award, would be a breach of the New York Convention or of the minimum standard of treatment due to foreign nationals under customary law. As already noted, it seems likely that only very clear cases of a violation of international law would suffice to convince the home State to espouse the claim. III.D.3. Remedies In both the investment treaty and human rights contexts, the cases to date have been fairly consistent in their approach to remedies. Except for ATA, in all cases where the claimant has been successful, the State was ordered to pay the full amount of the underlying arbitral award, plus interest. The remedy applied in ATA was arguably even more far-reaching: the respondent State was required to terminate ongoing legal proceedings in its courts and cause the underlying respondent in the dispute to submit to a new arbitration. In the human rights context, the ECtHR is likewise entitled to order specific performance, including in cases involving interference with property,237 though it has not yet done so in the context of interference with arbitral awards. 235 See

Chaparro Alvarez & Lapo Iniguez v. Ecuador, Judgment, Inter-American Ct. H. R. Series C, No. 170 (21 Nov. 2007); Abrillo Alosilla et. al. v. Peru, Judgment, Inter-American Ct. H. R. Series C, No. 223 (1 July 2009) (both relying on ECtHR jurisprudence); see also Ivcher-Bronstein (interpreting the “deprivation” requirement broadly). 236 See Regent Co.; Kin-Stib. 237 See, e. g., Papamichalopoulos and Others v. Greece, App. No. 14556 / 89, 21 Eur. H. R. Rep.  439 (1995); Brumarescu v. Romania, App. No.  28342 / 95, 33 Eur. H. R. Rep.  36 (2001). See generally I. Nifosi-Sutton, The Power of the European Court of Human Rights to Order Specific Non-Monetary Relief: A Critical Appraisal from a Right to Health, 23 Harvard Human Rights Journal 51, 56 (2010).

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IV. Conclusion

The principal open question – in both contexts, but in particular in respect of the human rights jurisprudence – is whether the full value of the underlying award would be granted where the respondent in the arbitration was a private party unconnected to the State. Arguably a different standard of compensation might be applied, in order to take account of the normal risks and uncertainties inherent in the enforcement of any arbitral award. In the diplomatic protection context, the remedies available are in principle much broader, but far less certain. It is for the State to pursue the claim as it sees fit, and there is no requirement in international law that any proceeds be turned over to the underlying claimant.238 Ultimately, the home State might request the offending State to enforce the arbitral award in question, but the coercive tools that the home State would be able (or willing) to employ to achieve this end are likely to be limited. As such, it appears that diplomatic protection is the least favorable option in terms of the likelihood of achieving meaningful redress.

IV. Conclusion A fable is sometimes told about a Supreme Court Justice choosing between three applicants for a position as his law clerk. The Justice tells the three a story and invites each to ask one question, based upon which he will make his decision. The story goes as follows. A farmer sees a squirrel perched on the weathervane atop his barn. He picks up his gun and fires at the interloper. The impact of the bullet rains showers of sparks on the barn roof, which is soon ablaze. Owing to the wind, the fire then spreads to the farmer’s house. Hearing the story, the first applicant, knowing the Justice to be an environmentalist, asks as his question: “Did the farm animals get out of the barn unharmed?” “Not the right question,” says the Justice. The second applicant, aware of the Justice’s humanitarian tendencies, asks: “Did the farmer’s family escape the fire in the house?” “Also incorrect,” responds the Justice. The third applicant then tries her luck: “Did the farmer’s shot hit the squirrel?” Whereupon the Justice announces, “You’re hired!” The moral of the tale: keep your eye on the ball. So it is with international commercial arbitration. The arbitration process is a means to the end of recovering money or its equivalent. Ultimately, it’s all about enforceability. The happy news for the victor in the arbitral process is that the great majority of international commercial awards are complied with voluntarily, thanks largely to the enforcement power of the New York Convention. But experience teaches that it is unwise to bank upon that result. Prudent parties and their counsel will plan for enforcement from the very beginning – indeed, starting at 238 See

DADP, art. 19 cmm’t (1) (noting that while Article 19 recommends the practice of compensating the injured national, if a recovery is obtained, there is no positive obligation on States to do so under the general international law of diplomatic protection).

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the time of contracting – in respect of issues such as choosing the place of arbitration, obtaining waivers of immunity if the counterparty is State-related, and structuring the transaction to make assets more easily available and to attract investment treaty protection. Once a dispute arises, the well-advised claimant will turn its mind to identifying the respondent’s assets and obtaining pre-award attachments whenever possible; by the same token, the respondent will want to consider the advisability of basing its assets in attachment-friendly jurisdictions. Once the award is rendered, and absent immediate compliance, the prevailing party will wish to commence enforcement proceedings promptly, and typically in every forum where the respondent’s assets can be found. History shows that relentless enforcement efforts are difficult for all but truly impecunious award debtors to resist. The losing party’s best play will normally be to challenge the award in the courts of the place of arbitration, if there are arguable grounds for doing so, and resist enforcement elsewhere on that basis – hoping for either a victory in the challenge proceeding, or in any event to complicate matters to the extent that settlement at a discount may appear attractive to its opponent. Sometimes, however, the expected result of successful enforcement will prove elusive. The courts at the place of arbitration may wrongfully set the award aside, or those in a jurisdiction in which the losing party has assets may incorrectly refuse to enforce the award. Worries about these outcomes will be the greatest where the arbitral or enforcement forum is the respondent’s home State, and in particular where the respondent is the State itself, a State entity or a State-owned company. Where that occurs, the frustrated award creditor may be able to avail itself of public international law fora or mechanisms. The past four years have seen six published investment treaty awards in proceedings commenced on the basis of the annulment, or non-enforcement, of arbitral awards – resulting in victories for the claimant in three of the six. A second potentially-available public law forum consists of the regional human rights courts. Again, recent jurisprudence in the ECtHR confirms that relief may be available for both the wrongful annulment or non-enforcement of commercial arbitration awards. Finally, although probably the least attractive option, the disappointed award creditor may seek to invoke diplomatic protection by its home State. While this avenue may be of limited utility in the commercial award context, claimants have recently had success in lobbying their home State to retract trade preferences from States that have reneged on paying ICSID awards. The legal developments with respect to all three of these mechanisms are of relatively recent vintage, and important questions as to each remain unanswered. This article has sought to address some of those questions, but firm conclusions must await the still-developing jurisprudence and practice in the field. The future of enforcement strategy remains unwritten.

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Yes. Before commencing arbitration, a claimant may apply to the Court for an order preserving a respondent’s properties, if the claimant’s “legitimate rights and interests would suffer irreparable damage”. The claimant must: (a) provide security in the application; and (b) commence arbitration within 30 days after the Court order. (Article 101 of the PRC Civil Procedure Law (as amended)).

Yes. Upon obtaining an award, the claimant may apply to the Court for an order enforcing the award. (Article 62 of the PRC Arbitration Law; Article 236 of the PRC Civil Procedure Law (as amended)). The Court has the power to, among other things, (a) compel the respondent to produce a report detailing the respondent’s properties; and (b) seize the respondent’s properties for satisfying the award.

Post-award ­attachment

Provision of s­ uit­able security re­quired for set aside-action Yes. The PRC appears to No. Neither the PRC subscribe to the doctrine Arbitration Law nor the PRC Civil Procedure of absolute immunity, such that all State prop- Law (as amended in 2012) stipulates that erties enjoy immunity from execution. (National a party seeking to set People’s Congress Instru- aside an award needs to provide security. ment 22. Interpretation of Articles 13 and 19 of the Basic Law of the Hong Kong Special Administrative Region). The PRC also specifically confers immunities on foreign central banks’ properties. (Article 1 of the PRC Law on Judicial Immunity from Compulsory Measures Concerning the Property of Foreign Central Banks).

Special rules for State-owned ­property

Grounds for s­ etaside a­ ction  / ​refusal of ­enforce­ment The Court may set aside a foreign-related award (involving a foreign legal entity, for example) on the grounds of Article 274 of the PRC Civil Procedure Law (as amended), which are broadly similar to the ones in the Model Law. The grounds for setting aside a domestic award are slightly broader and not restricted to procedural and jurisdictional grounds only. For example, the Court may set aside a domestic award if one party “withheld material evidence impairing the fairness of the award” or “forged the evidence on which the arbitral award is based” (Article 58 of the PRC Arbitration Law).

Stay of enforcement during ­set-aside action Yes. The Court will normally grant a stay of execution of an award if a party has applied to set aside the award (Article 64 of the PRC Arbitration Law).

Enforcement despite ­set-aside Probably not. Neither the PRC Arbitration Law nor the PRC Civil Procedure Law (as amended) addresses a Chromalloytype situation.

law in those other jurisdictions.

* The authors are not admitted to practice in the jurisdictions surveyed in this chart, except for New York. Accordingly, they have relied on advice as to the

China

Pre-award ­attachment

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(Chapter 21 of the PRC Civil Procedure Law (as amended in 2012)). In addition, Article 243 of the PRC Civil Procedure Law provides for third-party garnishment to satisfy the award.

Yes. Once the English courts have given permission to enforce an award, the award can be enforced as if it was an English court judgment, including, for example, via a freezing injunction or a writ of Fieri Facias (seizing the debtor’s goods with a view to selling them). In addition, “third party debt orders” have replaced what were formerly known as “garnishee orders” (governed by

England Yes. An arbitral tri­ bunal (if seated in England) may make orders for the detention of property that is the subject of the proceedings or owned by or in the possession of a party to the proceedings (Section 38(4) of the Arbitration Act 1996 (the “Act”)). In gen­ eral, the Act requires parties to seek ­provi­sional measures from the arbitral tribunal, and only in exceptional circumstances from the courts.

Post-award ­attachment

China

Pre-award ­attachment

Yes. If a State agrees in writing to submit a dispute to arbitration, the State is no longer immune with respect to proceedings in the courts which relate to the arbitration (Section 9 of the State Immunity Act 1987 (the “SIA”)). The SIA generally prevents a party from enforcing an award against State-owned property (Section 13(2) of the SIA); however an exception exists in relation to arbitration awards for the issue of any process in respect of property that is for the

Special rules for State-owned ­property

Yes. Under Section 70(6) of the Act, the English courts may order the provision of security for the costs of an application or appeal challenging an award (Section 70(6)) or for the money payable under the award to be brought into court or otherwise secured pending the determination of the application or appeal (Section 70(7)), and may direct that the application or appeal be dismissed if the order is not complied with.

Provision of s­ uit­able security re­quired for set aside-action

An award made in England may be challenged on the grounds that the tribunal lacked substantive jurisdiction (Section 67 of the Act); or there has been a serious irregularity affecting the tribunal, the proceedings or the award (s68 of the Act). On appeal, the court may confirm, vary or set aside the award. There also exists a right to appeal on a question of law (Section 69 of the Act) but this is rare in practice given it is usually waived by the

Yes. If the English courts grant permission to enforce an award, they may also stay the execution of that order for a limited period (pending an application to challenge the award). Where there are claims to set aside or suspend a foreign award pending in a foreign court, Section 103(5) of the Act permits the English courts to “adjourn the decision on the

Grounds for s­ etStay of enforceaside a­ ction  / ​refusal of ment during ­enforce­ment ­set-aside action Enforcement of a foreign award may be denied only on New York Convention grounds (Article 283 of the PRC Civil Procedure Law (as amended)).

Probably not, although the English courts have the discretion to enforce a foreign award that has been set side or that has been suspended by the courts in the seat of arbitration (Section 103(2)(f) of the Act and Section 104).

Enforcement despite ­set-aside

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England The English courts have a broad power, i.e., in respect of property that is the subject of the proceedings or as to which questions arise (Section 44(2)(c) (i) of the Act). Generally, the courts will intervene only if the tribunal is unable to act ­effectively (Section 44(5)) (e.g. it is not yet constituted, or lacks power over the relevant party, e.g. a bank) or in ­urgent cases (Section 44(3)). France Yes. Before an arbitral tribunal is constituted, courts may order interlocutory measures. Even once an arbitral tribunal is constituted, a party can apply to a French court to attach assets in order to prevent the losing party from disposing of the

Pre-award ­attachment

If the award has been made in France in an international arbitration, the only means of recourse is an action to set aside. Less than 10 % of actions to set aside are successful. There is no judicial review of the merits of an award. Legal or factual errors, or contradictions

Yes. As a matter of principle, foreign States benefit from both immunity from jurisdiction and execution. However, in the SEEE case, the French Supreme Court found that by entering into an arbitration agreement, a State waives its immunity from jurisdiction (including its immunity in the

No. French law does not require the party attempting to set aside the award to provide suitable security to the court or the other party.

Yes. As soon as a final award has been rendered, and thus before obtaining leave to enforce (exequatur) by the court, a creditor may ask a bailiff to take immediate protective measures in order to prevent the losing party

Grounds for s­ etaside a­ ction  / ​refusal of ­enforce­ment parties in the arbitration agreement. Denial of enforcement of a foreign award may occur only on the grounds set out in the New York Convention (Section103(2) and (3) of the Act).

Special rules for State-owned ­property

Provision of s­ uit­able security re­quired for set aside-action In accordance with time being in use or part 72 of the Civil Procedure Rules), al- intended for use for “com- Section 103(5) of the Act on foreign awards, lowing garnishment mercial purposes” (Secthe English courts may of the award debtor’s tion 13(4) of the SIA). on the application of assets held by third the party claiming parties. recognition or enforcement of the award, order the party seeking to set aside the foreign award to give suitable security.

Post-award ­attachment

No. As a general rule (except in domestic arbitration), actions to have an award set aside or to appeal the decision granting leave to enforce the award do not suspend its enforcement in France (Article 1526 of the

Yes. The mere fact that the award has been set aside at the seat of the arbitration does not prevent its enforcement in France (see the decisions of the Court of Cassation in

Stay of enforceEnforcement ment during despite ­set-aside action ­set-aside recognition or enforcement of the award” until the challenge has been finally determined in the foreign jurisdiction.

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452

goods. The require ments are twofold: (i) the debt must appear “in principle to be founded”; and (ii) a threat to the debt’s recovery must exist.

Pre-award ­attachment

from disposing of the goods. The test is that: (i) the debt must appear “in principle to be founded”; and (ii) a threat to the debt’s recovery must exist. Once a final award has been rendered and leave to enforce has been obtained and notified to the losing party, a party can ask the court to seize ­assets of the debtor in France. Further, garnishment of debts owed to the award-debtor is also permitted.

Post-award ­attachment framework of an action to obtain leave to enforce an award). Moreover, in the Creighton decision, it was found that by agreeing to ICC arbitration (and to the application of article 34(6) of the ICC Rules), the State undertook to comply with the award and waived its immunity from execution. Finally, not all State assets can be seized. A party can only attempt to seize: (i) State-owned assets used in the activity pursuant to which the dispute arose; and more generally (ii) any asset utilized in relation to a commercial, as opposed to publicrelated, activity.

Special rules for State-owned ­property

Provision of s­ uit­able security re­quired for set aside-action

Grounds for s­ etaside a­ ction  / ​refusal of ­enforce­ment in the reasoning, cannot be invoked as a means to set aside the award. Article 1520 of the French Code of Civil Procedure lists the grounds for settingaside an award: 1. the arbitral tribunal wrongly upheld or declined jurisdiction; 2. the arbitral tribunal was not properly constituted; 3. the arbitral tribunal violated its mandate; 4. due process was not respected; or 5. recognition or enforcement of the award would be contrary to international public policy (the violation of international public policy must be flagrant, effective and concrete). A foreign award may be denied enforcement only on grounds (1) to (5) above.

Stay of enforcement during ­set-aside action French Code of Civil procedure, paragraph 1). However, by way of an exception to the general rule, the judge ruling in expedited proceedings (référé), or the judge assigned to the matter before the Court of Appeal (conseiller de la mise en état), may stay or set conditions for enforcement of the award where enforcement could severely prejudice the rights of one of the parties (Article 1526 of the French Code of Civil procedure, paragraph 2).

Enforcement despite ­set-aside Norsolor (Civ 1, 9 October 1984, No. 83-11355), Hilmarton (Civ 1, 23 March 1994, No. 9215137, and 10 June 1997, No. 95-18402), and Putrabali (29 June 2007, No. 05-18053)).

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Netherlands

Yes, before an arbitration is commenced, a party whose claim on the face of it appears to be justified may be granted leave by the court to levy preaward attachments. The court determines a time period within which the (arbitral) proceedings relating to the underlying claim should be

Germany Yes. The German Code of Civil Procedure (§ 916 et seq.) generally provides for provisional seizure by arrest order, if the applicant can credibly substantiate its claim and the risk that enforcement without the arrest order would be substantially impeded.

Pre-award ­attachment

Yes. Once a final award has been declared enforceable by the German courts, a party can ask the competent authority to seize movable and immovable property, claims for money and other economic rights of the debtor in Germany. Garnishment of third-party debts owed to the award debtor is also possible. Yes, as soon as leave has been granted to enforce the arbitral award and the award has been served on the losing party by a bailiff, the award can be enforced by means of post-award attachments on the assets of the losing party in the Netherlands.

Post-award ­attachment

An arbitral award may only be challenged and set aside on the following restrictive grounds (Article 1065 DCCP): (i) there was no valid arbitration agreement; (ii) the tribunal was constituted in violation of the applicable rules; (iii) the arbitral tribunal did not comply with its mandate;

No. In principle the enforcement of the arbitral award is not suspended during setting-aside proceedings and therefore no security is required. However, a party may request suspension of execution during setting-aside proceedings. If that is granted, the requesting party may be required to

Yes. Under Dutch Law it is not allowed to attach State-owned property that is meant for public services (Article 436 Dutch Code of Civil Procedure (DCCP)). That is property that is “necessary and essential for the well-functioning of the public service in question”. The same applies for foreign State-owned property.

Grounds for s­ etaside a­ ction  / ​refusal of ­enforce­ment German awards are subject to the annulment grounds laid out in §§ 1059, 1060 of the German Code of Civil Procedure. The grounds are similar to those in the Model Law. Awards rendered outside Germany may only be denied enforcement on New York Convention grounds (mostfavorable-treatmentprinciple applies).

Provision of s­ uit­able security re­quired for set aside-action Yes. Assets of other States No. Moreover, until the which are used for sover- decision to declare the eign purposes cannot be award enforceable has become res judicata subject to enforcement measures. Property used (i.e. as long as a remfor commercial purposes edy is still available or pending), the enforcemay be attached and ment of the award executed upon. may be subject to the provision of adequate security by the award creditor.

Special rules for State-owned ­property

Possibly. A party may request suspension of execution during the setting-aside proceedings.

Stay of enforcement during ­set-aside action Possibly. The court may, on application by a party, order a stay of enforcement or permit the award debtor to continue only if he posts security.

Enforcement despite ­set-aside No. Further, if an award has been recognized in Germany, the award debtor may apply for the revocation of enforcement under § 1061 III of the German Code of Civil Procedure if the award has been set aside at the seat of arbitration. Dutch courts normally give effect to setting-aside judgments rendered by the courts of the place of arbitration. However, in exceptional circumstances where the foreign court that set aside

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instituted (generally two weeks to three months after the attachments were levied).

Yes. Upon a request of a party to a pending or potential arbitration, courts can attach assets in situations where the applying party shows that failure to do so could make enforcement of the award impossible, significantly complicate enforcement or cause the applicant to incur substantial damages.

Netherlands

Russia

Pre-award ­attachment

Yes. Once a final award has been rendered, a party can apply to attach assets of (or debts owed to) the debtor in conjunction with an application for recognition and enforcement of the award. Courts will grant such applications on the same grounds as for preaward attachments.

A broad category of assets can be attached, including debts owed to the respondent party by third parties.

Post-award ­attachment

Yes. Foreign States acting in a sovereign capacity enjoy legal immunity with respect to attachment of their assets located on the territory of the Russian Federation. As a general rule, enforcement against foreign State-owned property is admissible only with the consent of the competent authorities of the relevant foreign State. Foreign States acting in a commercial capacity do not enjoy these immunities. Disputes involving Russian State-owned

Special rules for State-owned ­property

Grounds for s­ etaside a­ ction  / ​refusal of ­enforce­ment (iv) the award is not signed or does not state the grounds on which the decision is based: or (v) the award, or the manner in which it was constituted, is in violation of public policy or good morals. Enforcement of a foreign award may be denied only on New York Convention grounds. A Russian court may Yes, upon a request of the party claiming set aside an award on Model Law grounds. enforcement of the award, the court may Courts interpret very order the party which broadly the concept of public policy, which filed the application for the setting-aside of may include contradicthe award to give suit- tion with Russian law rules or principles. able security. A foreign award may be denied enforcement based on the New York Convention grounds only. However, as noted, the concept of public policy is broadly interpreted by the Russian courts.

Provision of s­ uit­able security re­quired for set aside-action provide security to the other party. If suspension is denied, the party opposing suspension may be required to provide security (Article 1066, paragraph 5, DCCP).

Enforcement despite ­set-aside the award was not considered to be impartial and independent, Dutch courts could still allow the recognition and enforcement of the arbitral award (see Yukos cases). Possibly. If a Russian court set aside the award, it cannot be enforced by Russian courts. However, Russian courts may grant applications for enforcement of foreign awards despite the setaside of these awards by foreign courts.

Stay of enforcement during ­set-aside action

Yes. If an application for the settingaside of the award has been made to a competent court, the court before which the award is sought to be enforced may, if it considers it proper, adjourn the consideration of an application for enforcement of the award.

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Russia

Pre-award ­attachment

Post-award ­attachment property, including issues related to privatization and compulsory alienation of property for State purposes, are within the sole jurisdiction of the Russian courts and cannot be referred to arbitral tribunals. As a practical matter, creditors experience difficulties enforcing arbitral awards against Russian State-owned enterprises or companies in which federal or local authorities have a substantial interest.

Special rules for State-owned ­property

Provision of s­ uit­able security re­quired for set aside-action

Grounds for s­ etStay of enforceaside a­ ction  / ​refusal of ment during ­enforce­ment ­set-aside action

Enforcement despite ­set-aside

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USA (New York)

Post-award ­attachment

Yes. Once a final award has been rendered and confirmed as a judgment, a party can ask the court to seize assets of the debtor held by any party found in New York. In addition, a New York court can order the debtor or third parties holding assets belonging to the award debtor to turn over assets to satisfy a judgment, even if the assets are outside the jurisdiction. See, e.g., Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009).

Pre-award ­attachment

Yes. Before an arbitration is commenced, a party can apply to a New York court to attach assets if “the award to which the applicant may be entitled may be rendered ineffectual” without attachment. See, e.g., Matter of Sojitz v. Prithci Information Solutions, 921 N.Y.S. 2d 14 (N.Y. App. Div. 2011). A broad class of assets can be attached, including thirdparty debts, and the proceeds of claims of the prospective award debtor. See, e.g., Motorola Credit Corporation and Nokia Corporation v. Uzan, Case 1:02-cv00666-JSR-FM, Slip. op. at 9 (S.D.N.Y. Sept. 27, 2010).

Provision of s­ uit­able security re­quired for set aside-action Yes. New York courts Yes. Under the Federal can and do order Sovereign Immunities Act, sovereign property is provision of security for set-aside actions. generally immune from See, e.g., Caribbean attachment. Trading and Fidelity Section 1610(a)(6) of Corp. v. Nigerian Nat’l the FSIA allows for the Petroleum Corp., 1990 post-judgment attachU.S. Dist. LEXIS 17198 ment (and in limited at *18 (S.D.N.Y. 1990). circumstances, the prejudgment attachment) of the property of a foreign State that is used for commercial activity in the U.S. The FSIA defines commercial activity as “either a regular course of commercial conduct or a particular commercial transaction or act … The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.”

Special rules for State-owned ­property

Grounds for s­ etaside a­ ction  / ​refusal of ­enforce­ment Awards made in the U.S. that fall under the New York or Inter-American Conventions are subject to the FAA Chapter 1 grounds to vacate. Awards made outside the United States may only be denied enforcement on the grounds set out in the New York or Inter-American Conventions.

Stay of enforcement during ­set-aside action Yes. A court in New York has discretion to adjourn or suspend enforcement proceedings when an application has been made to have the arbitral award set aside or suspended. See, e.g., Caribbean Trading and Fidelity Corp. v. Nigerian Nat’l Petroleum Corp., 1990 U.S Dist. LEXIS 17198 at *18 (S.D.N.Y. 1990).

Enforcement despite ­set-aside Unlikely, since U.S. courts accord considerable importance to the jurisdiction of the courts in the arbitral seat. See, e.g., Spier v. Calzaturificio Tecnica, SpA, 71 F.Supp.2d 279 (S.D.N.Y. 1999). However, U.S. courts have permitted annulled awards to be recognized in some circumstances. See Chromalloy Gas Turbine Corp. v. Arab Republic of Egypt, 939 F.Supp. 907 (D.D.C. 1996).

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Claimant wins

GEA (ICSID)

Non-enforcement

Claimant loses

White ­Industries Annulment / ​delay in enforcement Claimant wins ­(UNCITRAL)

Annulment / ​arbitration agreement voided

Claimant loses

Non-enforcement

ATA (ICSID)

Claimant loses

Non-enforcement

Romak (­ UNCITRAL) Frontier ­Petroleum (UNCITRAL)

Result

Revocation / ​Annulment

Saipem (ICSID)

Claimant wins

Issue

Case

Annex B: Comparison of Investment Treaty Cases Investment?

Substantive Ground / ​Test

Expropriation. Revocation of authority of arYes. Residual contractual rights as “crystallized” in ICC bitrators and declaration of nullity of award violated “the principle of abuse of rights and Award. the New York Convention.” No. Underlying transaction N / ​A not an investment. Yes. Underlying investment (i) Full Protection and Security: requires that “transformed” into Award. courts are available, act in good faith and render decision that is “reasonably tenable.” (ii) Fair and Equitable Treatment: same. Fair and Equitable Treatment: retroactive exNot decided if award is an tinguishment of arbitration clause violated investment. legitimate expectations and Article II of New Right to arbitrate is a York Convention. ­“distinct investment.” Yes. Award is “crystallization” Effective means clause: 9-year delay in of rights under contract. deciding setting-aside issues was denial of “effective means of asserting claims and enforcing rights” No. Award is not equivalent (i) Expropriation: no “egregious” or bad faith to investment itself. conduct by courts (ii) FET: no denial of justice (iii) Discriminatory treatment: not shown N / ​A

Full amount of award

Court proceedings stayed; new arbitration ordered

N / ​A

N / ​A

Full amount of ICC Award plus interest

Quantum

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Applicant loses

Sedelmayer

Non-enforcement

Applicant wins

Regent Company Non-enforcement

Partial non-enforce- Applicant ment wins

Kin-Stib

P1-1: Voiding of award and arbitration agreement violates fair balance Art. 6: Legislative intervention in court process constitutes violation P1-1: State must “use all available legal means in order to enforce a binding arbitral award” N / ​A

Substantive Ground / ​Test

Full amount of award plus interest (at 6 % rate granted in original award)

Quantum

P1-1: Yes. Award is a “possession.”

P1-1: State struck fair balance where denied enforcement against property subject to sovereign immunity

N / ​A

Full outstanding amount of award plus interest (at marginal lending rate of the European Central Bank + 3 %); Art: 6: Court did not reach. Moral damages P1-1: Yes. A claim, if sufficiently estab- P1-1: Continued non-enforcement constiFull amount of award plus lished, is a “possession.” tutes a violation interest (at marginal lending Art. 6: Undue delay in enforcement proceed- rate of the European Central Art. 6: Yes. Right to recover sums Bank + 3 %) awarded is a “civil right” ings constitutes violation

P1-1: Yes. A claim, if sufficiently established, is a “possession.” Art. 6: Yes. Right to recover sums awarded is a “civil right.” P1-1: A claim, if sufficiently established, is a “possession.”

Applicant wins

Annulment / ​arbitration agreement voided

Stran Greek ­Refineries

Threshold for Protection?

Result

Issue

Case

Annex C: Comparison of ECtHR Cases

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