Year: 2021

The Zoom in Arbitration: #CPRAM21 Practitioners Focus on Virtual ADR

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By Claudia Diaz

Below are notes from the 2021 CPR Annual Meeting third-day panel, “Hot Topics In ADR And Year-End Wrap Up,” an hour-long Jan. 29 afternoon event.

  • Moderator Ana Reyes, a partner in Washington, D.C.’s Williams & Connolly, provided questions to three panels members, opening by noting that the effect of the pandemic on litigation and dispute resolution–including the adjustments the legal profession has taken, and which practices will be continuing–was the key hot topic that came up for the panel in preparing for the CPR Annual Meeting session.
  • Reyes’ first question for the panel was to comment on trends.  She said, “I have read that in this world of COVID that there are two recent trends in dispute resolution: more not less dispute resolution, and sooner not later.”  
  • Panelist Thomas J. Roberts, Chief Counsel, Litigation, Boeing Defense, Space & Security, in Arlington, Va., noted that he has seen a marginal increase toward more alternative dispute resolution. Initially there was hesitation to do mediation in a virtual setting, but he reported that his department has learned that virtual mediation works well. An in-house counsel, he said, should always think about resolution through mediation whenever a dispute arises. It is the best way to have a settlement conversation, he said, and the dispute will benefit from the guidance of a third-party neutral.
    • There are right and wrong reasons to mediate. Covid-19 has delayed dispute resolution, more so for courts than for arbitration. And he said you don’t want to mediate for the wrong reasons, focusing on entering and using the process solely because of the delays.
    • Still, with the delays, the windows for engaging in mediation are a little bit wider, which is lessening the hesitancy to mediate, giving people more time to consider it.
  • Question for Panelist Yvette Ostolaza, a Sidley Austin partner in the Dallas and Houston offices: Has the pandemic changed your clients’ desire to avoid a virtual hearing that they might not be able to delay? Are they trying to mediate where they would not before?
    • Ostolaza:
      • Virtual hearings are effective. Some clients said to wait, but the parties tried it “because there were bankruptcy issues.” After a securities class-action case mediation with 10 people, she said, “I found it way more effective to be by virtual and by a video than if I had been at an office.” So, efficiency was much better virtually than in person.
      • In virtual arbitration, there were differences in terms of the strengths of the party presentations, and more training is encouraged for participants.
      • There is something about video that makes it so obvious about who is not engaged. Participants need to behave as if they were in the courtroom. “We had one arbitrator that was clearly not paying attention and the client was pretty disappointed.”
      • “We need to remember this is a professional environment, . . . and not be too casual.”
      •  “I think there is a lot of cost-saving in the virtual world.”
  • Question on arbitrators pushing hearing forward virtually, even if that might not be best for the client.
    • Panelist J. Michael McNutt, senior litigation advisor and of counsel at the Paris law firm of Lazareff Le Bars:
      • ADR for his clients, who invest in multi-jurisdiction projects, virtual hearings adds a lot more complexity, said McNutt.
      • He said he has been working under new International Chamber of Commerce Court of Arbitration pandemic policies, which in certain circumstances pushes virtual hearings when the matter is not ready or too complex. For example, in one matter, among other logistical cross-border concerns, the parties needed translations for four languages. With due process considerations, the parties he is representing will proceed, but they will reserve their rights, noting also that there is a counterclaim.  “With international arbitration, it is a lot more complex.”
      • Moderator Reyes asked about cross-examination over video as opposed to in-person. McNutt replied, “It is very very difficult to have an effective cross examination because you can’t assume the other side is going to be honest or act properly.  You have to put another body in the room.” He says he is concerned about protecting the integrity of the proceeding.
  • Question: Are hearings different than mediations virtually?
    • Ostolaza:
      • “I wholeheartedly agree . . . that when it comes to depositions and . . . a hearing with live witnesses that you are cross examining it is very difficult.”
      • At a minimum, the attorney has a right to be with the client in person, and the other side should be socially distanced.    
      • Mediators can juggle multiple rooms better virtually than in person, knocking on doors and waiting.
  • Question to Tom Roberts of Boeing: What is one thing missing from the virtual mediation as opposed to the in-person mediation? Moderator Ana Reyes proposes that the key missing element is the mediator’s power to communicate with the individuals.  
    • Roberts:
      • “The best value that the mediator can bring” is to “credibly deliver the substance of . . . his or her view of the merits of the legal claims.”  He added, “that communicates pretty well virtually.”
      • On the downside, “there is a bit of easy-come, easy-go with virtual mediations.” No travel needed, just click in and click out, he said, concluding that it is easier now for parties to stop mediating.
      • A mediator that is committed to the process will have the people skills to stop today, but will catch up with the parties after—a mediator who wants to see it through.
    • Ostolaza:
      • She said her matters are starting earlier, with three or four calls before the actual mediation day, to go through the parameters and make the client feel comfortable so that the mediation will work.
      • For arbitration hearings, she advises practicing on exhibits and the process with the tribunal administrator
  • Question: Mediations don’t generally occur in international arbitrations—for example, the ICC does not require pre-mediations–perhaps because of a lack of availability of mediators that can work on the cross-cultural issues at play. Discuss these cultural factors.
    • J. Michael McNutt:
      • The reason the firm has offices in Dubai is for Chinese investors investing in Africa, who use arbitration in Abu Dhabi, in the United Arab Emirates, for those disputes.
      • The mentality and the civil law upon entering the contract is a fundamental issue when you have to interpret the contract in these international cases. In mediation it is difficult to find someone that “both parties would agree could accurately boil down” the essence of the dispute. He says that he cannot find qualified mediators– “Mediation is tough.”
      • For international mediation to become more relevant, it needs the ability to address these broad issues.
  • Question to Tom Roberts: Boeing is an international entity–Is that something Boeing has had to face, cross-cultural issues?
    • Roberts:
      • He agrees with McNutt, saying, “If you can find the right person then there is real value [to mediation].”
      • “The cultural differences, expectations, [and] legal understandings are very different in different parts of the world, so [finding the right person is] a big challenge.”
  • Question: Is there some loss in connecting in mediations virtually?
    • Ostolaza:
      • “There are differences in America” in negotiate style depending on the part of the country. “The art of being a great lawyer is understanding and embracing those differences and being good at it and being able to be a chameleon.”
      • She said she and her clients had discussions after virtual mediations by staying on the video for purposes of recapping client communications.
      • There can be a lack of buy-in without the travel and the commitment of an in-person mediation. But the counter is that it was “a little bit” friendlier not being in the same room with participants “hating” each other.  It counterbalanced.
  • Question: Often at the end of a mediation, noted Mediator Reyes, the mediator will ask parties to sign on to the terms of the mediation so the settlement will not unravel.  How have you addressed the technical request to sign on to the terms?
    • Ostolaza:
      • She had a term sheet at the outset for one pandemic mediation—she says she brings one to every mediation—and the parties were able to sign it two days after the conclusion of the session.
      • In another recent case, the mediation term sheet was signed with DocuSign—virtually–and no one left until it was done. That, she said, was the agreement about the deal going into the session, and it worked.
  • Question: Do you have a feeling that a couple years from now we will see a developing body of law about awards being enforced that were made in a virtual hearing?
    • McNutt:
      • If necessary, he says his firm will resist enforcement if it serves their clients.
      • He says he is a proponent of civil law issues, but in cross-border disputes, it is about the will of the parties and not the type of analysis of a common-law setting.
      • In a virtual hearing, he said, you do not know if the other lawyer is sitting across the table handing the answer to the witnesses. We have that problem even in in person hearings, said McNutt.
      • He said he looks forward to challenging the validity of awards where due process rights were abused, for example, in France, where process is fundamental to enforcement. Such challenges are “not good for arbitration,” he conceded, because finality of the award is the core reason clients turn to arbitration.
      • Tribunals need to render awards that can be enforced.
      • “The tribunal works for the parties, . . . and people need to hold tribunals accountable,” he said, for producing awards that can be enforced.
  • Question: A new issue developing, med-arb, in which you have a session with a single mediator and if a claim does not settle, then the mediator becomes the sole arbitrator, converting the matter to an arbitration from mediation. Comments?
    • Yvette Ostolaza:
      • She said she was not in a med-arb matter, but a client as part of the mediation agreed that if there is a dispute the neutral would arbitrate the mediation issues covered. She said she thought it would not work, because the mediator would think the entire time to protect himself. “I am not a fan,” she said, “Heck, I am not a fan of doing the federal magistrates’ [mediation] when they are mandatory and then going to the federal judge,” noting that she is skeptical that they will refrain from talking as the magistrate sheds the settlement role and the judge moves in to adjudicate.
    • Tom Roberts:
      • “I am generally down on the idea, but it also sort of depends on what the alternative is.” He agreed with Ostolaza’s concerns. It is impossible to not have the arbitrator contaminated by what they learned in the mediation process, said, adding he might be open to med-arb in a smaller case “where you really just want to get an answer.”
  • Moderator Reyes noted a 2021 CPR Annual Meeting chat comment advising that mediation is an old process with deep tribal roots that is common in most indigenous populations.
    • J. Michael McNutt:
      • “Mediation works when the community has already established who the mediator should be. That’s fundamentally different than a judge, of course.”
      • The skillset for arbitration: “We are hired to protect our clients and defend and win in the client’s interest. Prior to commencing arbitration there is a conversation of what is the client’s interests so that we know what they are and what to fight for.”
      • To mediate in arbitration is different, concluded McNutt, adding that the skillset is different.

* * *

The author, a third-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern. Videos from #CPRAM21 will be posted soon at www.cpradr.org.

[END]

House Reintroduces a Proposal to Restrict Arbitration at a ‘Justice Restored’ Hearing

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By Mark Kantor

On Thursday, Feb. 11, the U.S. House of Representatives Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law held a hearing, “Justice Restored: Ending Forced Arbitration and Protecting Fundamental Rights.” 

This hearing was held in connection with the same-day reintroduction of the “Forced Arbitration Injustice Repeal Act” or the “FAIR Act” (See press release here).  That proposed act, co-sponsored by 155 House Members, would ban mandatory pre-dispute arbitration agreements in cases of employment, consumer, antitrust and civil rights disputes. 

In the previous Congress, the FAIR Act passed the House by a 225-to-186 vote, with virtually all Democrats and a number of Republicans in support.  The U.S. Senate, however, then controlled by the Republicans, did not take up the legislation.  The FAIR Act thus died at the end of term in that Congress, to be revived as a proposal in the current Congress that convened last month.

The hearing was chaired by Rep. Hank Johnson, D., Ga., a leading FAIR Act sponsor.  Johnson strongly supported prohibiting such pre-dispute arbitration agreements.  In addition to employment, consumer, antitrust and civil rights disputes, Johnson also criticized the impact of mandatory arbitration on small business disputes with large businesses.

After Johnson’s opening statement, Ranking Minority Member Rep. Ken Buck, R., Colo., made his own opening remarks.  Buck opposed the FAIR Act’s general ban on pre-dispute arbitration clauses, arguing that arbitration is a fair system. 

It is very interesting to note that he did, however, offer support for reviewing coverage of sexual predation claims in arbitration and “doing away with the secrecy provisions in contracts” when workplace predatory conduct exists–“those are two issues I want to make sure we distinguish in the employment context.  . . .” 

Buck stated his particular interest in hearing the testimony from Gretchen Carlson, the former Fox News anchor who made public her story of sexual harassment and filed suit against her boss at Fox News.  Other Republican members raised the prospect of excluding “sex and race discrimination” from mandatory arbitration and for overriding class action waivers for a “pattern of behavior” by a “bad actor” rather than individual claims. 

That focus on employment discrimination/harassment claims and overriding related confidentiality provisions may signal a possible path for narrower bipartisan legislation.  A narrower approach may arise if, as many anticipate, the broader approach of the FAIR Act fails again in the Senate for lack of the 60 cloture votes necessary to overcome a filibuster or a Senate decision to eliminate the filibuster.  

Four witnesses testified at the hearing:

  • Gretchen Carlson, Journalist, Author, and Advocate
  • Myriam Gilles, Paul R. Verkuil Chair in Public Law, Benjamin N. Cardozo School of Law
  • G. Roger King, Senior Labor and Employment Counsel, The HR Policy Association
  • Jacob Weiss, Founder and President, OJ Commerce

Carlson spoke about the adverse impact of “forced arbitration” on her sexual harassment claims, as well as the barrier federal arbitration law poses to implementation of local State laws seeking to move similar claims out of arbitration.

Gilles spoke more broadly in opposition to mandatory arbitration in employment, consumer, antitrust, civil rights and small business/big business disputes, areas of her scholarship for many years. 

Weiss spoke in criticism of Amazon’s arbitration policy in contracts with its small business counterparties.  Notably, Weiss was discussing a category of B-to-B commercial claims where there is an imbalance of bargaining power, not claims involving individuals.

King testified in support of positive aspects of arbitration, the inclusion of due process rights for claimants based on procedures adopted by U.S. arbitral institutions, and reform of class action procedures.  Like Rep. Buck, he contended that concerns about confidentiality and nondisclosure agreements can be addressed separately from arbitration.

Readers should note that other legislation has also been introduced in the new Congress focusing among other matters on banning pre-dispute mandatory arbitration clauses in employment arrangements.  The most notable legislation in that respect is the proposed Protecting the Right to Organize Act.  Among as many as 50 pro-employee proposals in the PRO Act, it would prohibit employers from using mandatory arbitration agreements with employees.

Senate control has shifted to the Democrats in this Congress, even though by the narrowest of margins.  We can therefore anticipate hearings and committee activity in both the House and the Senate for these legislative proposals.  In each case, though, the fundamental political calculus in the U.S. Congress will be driven by the role of the Senate’s filibuster.

A video of the hearing, statements from House Members, witness written testimony and statements from interested parties can be found here.

* * *

Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals. Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). He also is Editor-in-Chief of the online journal Transnational Dispute Management. He has contributed frequently to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.

* * *

For more from author Mark Kantor, join CPR’s Employment Disputes Committee and Government & ADR Task Force for a free public online panel discussion on Feb. 24 on labor and employment ADR under the Biden Administration. Kantor and other experts will discuss how the current composition of the Supreme Court, the new Democratic majority in Congress, and the new leadership of the NRLB and EEOC will affect arbitration and mediation of U.S. labor and employment disputes.  For a list of Kantor’s co-panelists and registration information, please visit the CPR website at https://bit.ly/3nV4fgf.

[END]

#CPRAM21: Inside Counsel Focus on Prioritizing Dispute Prevention Efforts–How? And How Much?

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By Claudia Diaz

Here are notes from the 2021 CPR Annual Meeting second-day panel, “Expanding the Definition Of ADR: The Case for Conflict Prevention & Risk Management,” an hour-long Jan. 28 afternoon event.

Moderator:

Loren H. Brown

Partner, Global & U.S. Co-Chair, Litigation Practice, DLA Piper, New York

Panelists:

T. Reed Stephens

Partner, Winston & Strawn, Washington, D.C.

Laura Robertson

Deputy General Counsel, Litigation, Arbitration & IP, ConocoPhillips Co., Houston

Megan Westerberg

Assistant General Counsel, Eisai U.S., Woodcliff Lake, N.J.

The session opened with the panel members introducing themselves:

  • Laura Robertson manages worldwide disputes—litigation and international arbitration, as well as intellectual property matters, as deputy general counsel, and serves on CPR’s board.
  • Megan Westerberg works in risk management, among other duties, as assistant general counsel at her employer, a U.S. unit of a Japan-based pharmaceutical company.
  • Reed Stephens, a former U.S. Department of Justice prosecutor, focuses on pharmaceutical fraud and abuse, corporate compliance, and risk management.

  • Q [by Moderator Brown to Panelist Westerberg]: The role prevention takes in your in-house job?
  • A:
    • The company is in “a constant state of assessing risk benchmarking, trying to anticipate . . . what our regulators’ next move might be.”
    • A focus on robust training–constantly evolving our training.
    • Proactive monitoring–will spend resources and go out looking for processes.
    • Quarterly and monthly updates to risk assessment processes. 
    • Lawyers and business colleagues working together at all times, making efforts to assess and benchmark “anything . . . that is different, unique, novel, cutting edge.”
    • “Our goal is obviously taking smart risks.”
    • Private party conflicts–There can be internal “silos.” When the company starts to see tensions with another party, the company will assess who internally is working with the other party, and there is already a dialogue–looking for ways to de-escalate.
  • Q [to Robertson]: The role prevention takes in your company?  . . . Can you give insight into the culture of prevention in your company?
  • A [by Robertson]:
    • The legal department wants to foresee issues. Early evaluation and resolution saves money.
    • The legal department has a written litigation management mission statement focused on early resolution and early evaluation, and “feel[s] strongly” about multistep dispute resolution provisions.
    • We want to be consistent with business goals in the legal department–we want to help the business be successful.
    • A focus on trust building so we can resolve disputes early and quickly . . . before they become full-fledged litigation.
  • Q [to Stephens]: It’s probably harder to draw attention to prevention in large law firms.  Can you talk about risk management and prevention?
  • A:
    • “My perspective on this . . . is built around the idea that conflict avoidance really depends on active risk identification and active management.
    • “I am coming out on the back end” after the company has fallen into a situation, so the task is to “see how a problem really emerged.”
    • The challenge is how to persuade stakeholders to not get there in the first place.
    • Being able to explain to clients that they need an active risk management approach “can take some doing.”
    • Part of the job is to explain the value in doing this risk management—”to the extent it is proportionate to the risk” being taken.
    • The industry is important . . . different types of risk depending on what the enterprise focuses on.”
  • Q [to Robertson]: How do you measure successful prevention “in a world where everyone wants metrics” to prove outcomes and demonstrate performance. How do you measure this?
  • A:
    • Success is around the business clients feeling like the legal department helped prevent business interruptions.
    • In an example of a dispute with a foreign government, the company was able to resolve the dispute and make a framework for future disputes that clarified definitions.  “It actually improved the relationship.  . . . I use that as an example of success.”
    • It is “mak[ing] lemonade out of lemons.”
  • Q [to Westerberg]: How do you evaluate the value of the risk prevention work?
  • A:
    • We have a Japanese parent company and that has helped us . . . look to other cultures and to how they approach conflict.
    • A “proud parent moment”: “We spend a lot of time” counseling and asking why the leadership is not getting this, but “then you get struck by this a-ha moment,” and we see them explaining “the gray areas” and helping their teams navigate “with or without our help. [T]his is . . . a measure of success.”
    • If the legal department does not see that type of moment, “then it causes use to go back to the drawing board” and ask why the policy, guidance, or training was not getting through.
    • “We don’t want to be thought of as the police.  . . . We need to get to know the business . . . and let [the business executives] know you’re approachable.”  
    • The company is not “running metrics on those ‘proud parent moments’ but it sure makes us feel warm and fuzzy when they happen.”
  • Q: Prevention can be seen as different things, for example, de-escalation, or sometimes you work on contract provisions on exposure when a situation arises. You talked a little bit about risk assessment.  . . . How do you prioritize what you are going to spend your time on in terms of prevention? . . . Reed, from an outside counsel perspective, how do you think prioritization should work?
  • A [from Stephens]:
    • It’s “the idea of figuring out what’s the high value [of] catastrophe,” dollars or personal injury or reputation, “and then you back through your operational structure” to address it. It requires identifying where the employees “have the most discretion to make a decision” and focus on those potential bad outcomes with them.
    • Where outside counsel comes in is to help the enterprise align where the big risk is, with how the product or service is being delivered.
    • The effort is connecting real world problems with the consequences back to the process to identify where the highest risk, and the activities surrounding it that can lead to problems.
  • Q: I would be interested to hear about early case assessment and early resolution.
  • A [from Robertson]:
    • A tool we use for early evaluation is decision tree analysis, the “Treeage” software (see https://www.treeage.com/) that is designed for litigation and disputes. For large matters, the company brings in a consultant, but it also trains “all of” its lawyers and paralegals. The point is to “define the issue.”
    • At the end of that process, “we always come out of it with a better understanding of what is really at stake.”
  • Q [to Westerberg]: How do you approach early resolution in the pharmacy industry?
  • A:
    • “I’ve really been reflecting on the need . . . for the in-house lawyer to step back and get the team . . . in-house counsel, outside counsel, your insurance company, to pause, and in our case without the software . . . do that assessment. Where is this going . . .?”
    • “That is, I want to commit myself to [assessing] . . . the pros and cons of those options.”
  • A [from Stephens]:
    • A lot depends on your adversaries and if they are interested in early resolutions.
    • The government is more accustomed to a matter taking two or three years–“and they’re comfortable with that.”
    • “As outside counsel, being able to get the government to even entertain the thought of early resolution, without, essentially, handing over the keys to the kingdom is a challenge.”
    • Defining the problem is critical when discussing issues with the government.  “You’ve always got to be ahead of the government.”
    • “[T]he biggest challenge with dealing with government conflicts is really figuring out a pathway to get the government’s attention, [and] engage them to be willing to look at issues of exposure,” instead of allowing “months and months to go by.”
  • Q [by moderator Loren Brown]:  Regarding the pandemic, “I had no idea how much [the world] would also need lawyers, but when things are uncertain and dislocated this way, and our clients are responding to change, they need advice and counsel. . . .  How [has the] pandemic changed what you are doing . . . on your legal teams, in your practice and how that has affected prevention?”
  • A [from Robertson]:
    • “We may be too close to see really see [the long-term] impact.” But the biggest impact to how the company has managed disputes and dispute prevention and resolution in a virtual world is how much “we just skyrocketed . . . our use of Microsoft Teams and Zoom, and people have gotten so good at using virtual platform for meetings and hearings.” But how much will stay virtual?
    • This environment is challenging for negotiations. It is hard to do a negotiation with an adversary because it’s harder to develop rapport. “When we get out of this [it’s something] we won’t do—I think that’s something that’s been a real challenge for the last year.”
    • Not having courts open, “has had an interesting psychology impact on resolution.”
    • On the positive side, virtual work won’t disappear.  “There’s a lot of value” in virtual events like CPR’s Annual Meeting that can have hundreds of people all over the world “that we never could have done before.” And the cost savings from less business travel is significant.
  • Brown: Mediations have been going really well virtually.
  • A [from Westerberg]:
    • “Value transfers” with customers, healthcare providers, are “always scrutinized by the government.”
    • Has the company “been able to educate [its] providers over the past year” without having to provide entertainment and events associated with the sale of pharmaceuticals? And, if so, it may mean that the company and industry “has fundamentally shifted how we interact with customers.”
    • “Are we just going to pivot back to the old way? . . . [W]hat will the government think and say about that? We’ve proven we can educate through ways that are more nimble, less expensive.”

* * *

The author, a third-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

#CPRAM21 Day 2 Opener: Carlos Hernandez Presents Five Principles of Prevention

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Former CPR Board Chairman
Carlos Hernandez

By Antranik Chekemian

Carlos M. Hernandez, recently retired Chief Executive Officer of Fluor, opened the second day of the CPR 2021 Annual Meeting to an online audience of about 180 conflict resolution professionals focusing on dispute prevention techniques.

Hernandez, a former CPR chairman and a current board member, reflected on how his perspective on dispute resolution has evolved throughout his professional career. He said, “As I matured as a lawyer, especially after going in-house, I began to understand that disputes often had implications well beyond, and more material,  than the immediate conflict.”

Coming out of law school, said Hernandez, “my career goal was to get the opportunity to try to win cases. I wanted to deliver favorable outcomes and of course I wasn’t too concerned about the business relationship between my client and their adversaries. . . . If I delivered a win, regardless of how I got there, within ethical bounds of course, the post-dispute relationship was not my concern.”

He said his experiences as a lawyer and then as CEO have led him to think of litigation as a last resort, ADR as a better alternative, and conflict prevention as best practice.

He reflected on the decade in the construction industry and how the industry players suffered staggering financial losses with bankruptcies and lost projects. This upheaval, said Hernandez, involved tremendous amounts of litigation, much of which might have been prevented. “And the cost and destruction of litigation itself has contributed to the demise of contractors and projects, and of course, the careers of many good people,” he said.

Hernandez outlined principles he found helpful in conflict prevention, noting that these principles are still frequently disregarded.

He first emphasized that “contracts need to be fair and capable of being executed by both parties. The ‘I win, you lose’ approach often results in both parties losing.” Hernandez noted, “Entering into a bad deal with the expectation that one will work things out, or solve disputes through negotiations, frequently results in solving the dispute through costly formal proceedings.” He also acknowledged the significant imbalance in market power, often resulting in bad contracts.

Second, Hernandez mentioned the importance of entering into contractual relationships with parties that will live by the terms of the contract–meaning that parties should not take contract terms as mere suggestions. “Have some degree of trust in the counterparty and respect the bargain. Seek partnership rather than an adversarial relationship with your counterparty in the performance of the contract,” said Hernandez.

Reflecting on the keynote address of Dana Bash, CNN’s chief political correspondent (see CPR Speaks post yesterday here), about the lack of personal relationships among Beltway politicians, and the resulting lack of conflict resolution in the federal legislature, he pointed out that this theme transcends institutional boundaries.

He recommended alignment sessions at the inception stage of business ventures as ways to discuss potential uncertainties. For example, one can establish communication channels even beyond the terms of the contract. These sessions, by building working relationships, have led to greater trust, better communications, and fewer disputes, said Hernandez.

Third, Hernandez encouraged lawyers to plan for good-faith disagreements and to negotiate contracts that contemplate that disagreements will arise, and that have prescribed means of addressing them in a prompt and business-like manner.

Conflict prevention provisions, he said, should be as standard in contracts as conflict resolution provisions. This may include having a third party providing nonbinding opinions such as a standing project neutral who has an ongoing relationship with the parties and knowledge about the project during its lifetime.

His fourth principle was about confronting potential disputes early. There is often a tendency to avoid addressing potential disputes early, he said , but typically, conflicts do not get better with time.


Arguments for resisting addressing an issue with a customer early on include that it would damage the relationship and that it would make continued execution of the contract more difficult, or that it would adversely affect the prospects for future contracts.

Hernandez, however, noted that one does not have to communicate in an adversarial or threatening way. “Disagree in a respectful way, don’t overstate your position, and leave the door open.  . . . I see it as an approach with the best interests of the client in mind,” he emphasized.

His final principle was that it is seldom too early or too late to engage a neutral third party for assistance, when the contracting parties are at odds. Hernandez concluded: “If all methods of conflict prevention have been exhausted without success, then mediation is a way to engage and settle discussions with third party neutrals that is worthy of pursuing.”

* * *

Carlos Hernandez is adapting and expanding his presentation for the March issue of Alternatives to the High Cost of Litigation, which will be available at the end of next month at www.altnewsletter.com. Follow CPR on Twitter @CPR_Institute and Alternatives @altnewsletter.

* * *

The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

James Mattis’s #CPRAM21 Second-Day Keynote Focuses on Listening to Resolve Conflict

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General Jim Mattis during his Zoom #CPRAM21 keynote on Jan. 28.

By Amy Foust

Thursday’s CPR 2021 Annual Meeting lunchtime keynote by James N. Mattis, a former U.S. Secretary of Defense for the first halt of President Trump’s term and a four-star general, reflected on conflict resolution and prevention for the business audience. 

Mattis began his comments by musing on the irony in inviting a war general to #CPRAM21, to speak to a group devoted to preventing conflicts, but went on to articulate a clear and concise plan for national reconciliation and healing.  He emphasized committing to local civics action, and relying on listening skills.

Mattis is currently a senior counselor at the Cohen Group, a Washington, D.C. consulting firm founded and headed by former U.S. Senator William Cohen, who preceded Mattis as defense secretary by 20 years.  Mattis was defense secretary from January 2017 to January 2019.

In his presentation, Mattis returned frequently to the theme of handing the world off to the next generation in the same or better condition than current leaders inherited it.  He noted that often means working closely with people with whom you disagree, people who may be inexperienced, ill-spirited, or just wrong. 

It also means admitting when predicted outcomes turn out differently. He said that people of opposing viewpoints need to work together to address issues, which usually starts with relatively small tasks where there is broad consensus on how to improve—he mentioned education and infrastructure–and then working up to bigger and more divisive issues. 

Mattis encouraged the audience to hold close people whose behavior offends, because, he said, “I’ve never seen it help when we cut people off in terms of them becoming more ethical in their performance.”

Invited by the moderator, CPR President & CEO Allen Waxman, to offer advice to a Zoom room of conflict resolution professionals predominated by lawyers, Mattis urged restraint from over-specific rules, which can lead to “brittle” situations and illogical outcomes.  He mentioned the importance of building trust before a crisis. 

Mattis recounted stories of watching great leaders build trust by listening to their counterparts, learning from them, and helping them.  He recounted General George Washington’s work with an untrained volunteer army that went on to defeat the world’s best army, and would go on to defeat Napoleon’s army just a few years later. 

General Mattis said Washington’s secret was “very boring”—

He would listen, and he would listen with a willingness to be persuaded.  He would actually change his views.  He listened to these guys from Delaware who went out on the water everyday and they kept in their own boat and now they’re in the army.  And the guy from South Carolina who couldn’t even understand those funny-talking people from Boston . . .

He’s learning from them, as he’s listening he’s willing to be persuaded.  He listens. He learns.  This is showing respect and when he does this, he helps them.  He helps them with the most . . . simple things at times like getting socks and warm coats and blankets. He does anything he can to help, and only then does he lead.

Citing was he said was the business community’s “more practiced effort” for defining and solving problems, Mattis called on the meeting attendees to apply their problem-solving skills to matters of public importance. Serve on school boards, he said, or the city council.  

“Run for office, if that’s your bent,” suggested Mattis, “but spend time giving back in the governance area—local, state, federal—because we need what business is bringing right now.” 

Answering his own question as to why local action is important, General Mattis concluded, “The country’s worth it.”

* * *

The author is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021. #CPRAM21 continues on Friday, Jan. 29; registration is free at www.cpradr.org.

[END]

#CPRAM21 Keynote: CNN’s Dana Bash on Negotiations, Conflict Resolution, and Truth Telling

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CNN Anchor/Correspondent/Analyst Dana Bash kicking off CPR’s 2021 Annual Meeting

By Russ Bleemer

The International Institute for Conflict Prevention and Resolution opened its 2021 Annual Meeting Wednesday afternoon with remarks from CNN’s chief political correspondent, Dana Bash.

Bash, a three-decade veteran at the news network, brought an inside-the-Beltway view and application of negotiation and conflict resolution techniques to an online audience of about 250 conflict resolution professionals from corporations, law firms, academia and government.

[CPR’s Annual Meeting has two full days of program on Thursday, Jan. 28, and Friday, Jan. 29.  Registration for the first online event is free and open to the public.  See www.cprmeeting.org for the agenda and sign-up.]

Bash described a Capitol Hill where dispute resolution skills seem to be less valued—if not disappearing altogether.  “When I first began walking the halls of Congress, it was so different in terms of negotiation and deal making, in terms of conflict resolution,” she said at the outset, “It was different in that–name your topic, immigration, . . . Medicare reform . . . annual budget negotiations–there were always conflicts and partisan battles. But there were also meetings.  There were also discussions.”

Bash said that she and her colleagues “used to find rooms where [Capitol Hill legislators] were negotiating across party lines,” and wait out the talks to report the results. 

“The expectation was that there would be a deal,” she said.  “They didn’t know what, but the expectation was that there would be some deal.”

Things began to change, she said, well before the Trump Administration:  fewer meetings, fewer negotiations, with compromise happening less and less, often focused on “low-hanging fruit” like agriculture and defense bills that have many common constituent interests.

Senators and House members, explained Bash, simply weren’t talking like they once did.  They weren’t as likely to sit down with one another, she said, and weren’t as likely to have common ground to foster negotiations and address policy conflicts.

Bash offered the meeting attendees several reasons that she said she believes have contributed to the decline in negotiations and the increased impasses in producing federal legislation.

First, she said that lawmakers stopped moving their families to Washington.  She said it has origins in political calculation, with many lawmakers attacked because they lost touch with their districts.  “A fair criticism in a lot of states,” said Bash.

Unfortunately, she reported, the effect has now become extreme, with members going home weekends “understandably to see their family and not scheduling votes until Monday night or Tuesday.” That doesn’t leave much time to negotiate across party lines, said Bash, and the Senate and House members “don’t communicate the way they used to.”

A second reason for the decline, said Bash, is money. First is the obvious fundraising that is required to mount a House or Senate campaign.  Instead of taking time to have dinner or a cocktail with someone across the aisle, she said, candidates are “racing out of the building to go to a fundraiser” or to their party headquarters to dial for dollars. 

There’s more.  Bash attributed her analysis of the second part of the money factor to “a senior person in the Trump campaign,” who she said pointed out to her the significance of the candidates’ emphasis on the work involved in recruiting small-dollar donors, due to caps on individual donations.

“It connects to grass roots,” said Bash, explaining further, “It’s a talking point.  It’s a great form of democracy.” But the incentives of the appeal often means pitching to “the extremes of the party,” she said. 

That, Bash concluded, contributes to a gulf that has widened between the parties and contributed to the decline in negotiation efforts.

In addition, gerrymandering has gotten “so much worse,” she said, and with members worried about being primaried by a member of their own party, let alone the opposition, they aren’t looking to middle ground.

And a fourth factor, she said, is the Internet and social media.

President Biden, explained Bash, advocated in the 2020 campaign for a return to the form of face-to-face negotiation that characterized much of his political career.

“Can he recapture that?” Bash asked. She said the first test will be on the coronavirus stimulus bill. His initial $1.9 trillion proposal, she said, is a “pie in the sky” first move that the president clearly hopes will spark talks.

Countering the above trends, and an “anecdote to give hope,” Bash noted that the Senate women pre-pandemic had met monthly for an off-the-record, no-staff dinner, which helped break common ground.  She suggested that she expects that and similar efforts to return in the new Congress once it’s safe for such events.

She also cited the weekly prayer breakfast attended by members of the Senate as way for them to get to know one another and increase communications.

The biggest problem in resolving conflicts, Bash indicated, is the beliefs by many citizens in untruths.

“I don’t know what the answer is,” she lamented, adding, “People right now are not coming from the same set of facts.  It is so hard to bridge a very deep divide when you don’t agree on the same set of facts.”

She pointed to competitor Fox News, and conservative media. Conservative senators, she said, are “in a tough spot.”  She said, “It’s very hard to reason with people who believe a lie and don’t believe in a set of facts,” referring to debunked claims of election fraud.

As to her own role, said Bash, “all we can do . . . in the media is point out things that aren’t true.”

Bash concluded her nearly 45-program with interview questions from host Allen Waxman, CPR’s president and chief executive officer, and from Zoom audience members.

During the Q-and-A, Bash said that the media’s role since she started at CNN in the 1990s had changed considerably, and returned to the problem of reporting facts today. “The truth is more important than ever and you can’t just rely on the traditional journalistic formula of ‘Republican John Doe says X’ and ‘Democrat Jane Doe says Y.’  . . . You can’t do [that] when Jane Doe, [a] member of Congress, isn’t telling the truth.  So we just have to stand up for truth in a way we never did.”

Bash went further: “The first time I had to come out and say, ‘What you just heard from the president of the United States is not true,’ I felt like I was going to throw up.  . . . Then it happened over and over.  The deeper it got, the more of a responsibility, we all felt.”

She said with a sigh, “I will not take our role in democracy for granted, ever.”

After discussing the Jan. 6 attack on the Capitol and the inauguration in response to questions, Waxman and an audience member combined to ask what the dispute resolution community could do.

First, Bash said that she didn’t think there would be any fundamental changes in the political system such as a new party.

The ADR community can best act at the local level, Bash suggested. She urged attendees to talk to their neighbors and apply their skills to develop understanding.  She conceded that she wasn’t sure how to fully address misinformation, “the echo chamber, and [the focus on] only information that addresses . . . preconceived notions.”

But Bash concluded that the news business—and by extension, the ADR community—has to address what is in front of it.  “We have to rightly get back to the human element of things around us,” she said.

* * *

The author edits Alternatives to the High Cost of Litigation.

[END]

Let’s Schein Again!

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The International Institute for Conflict Prevention and Resolution presents a CPR Speaks blog discussion of the 1/25/2021 U.S. Supreme Court per curiam decision dismissing Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, and a same-day order declining to hear Piersing v. Domino’s Pizza Franchising LLC, No. 20-695. Alternatives to the High Cost of Litigation Editor Russ Bleemer hosts Prof. Angela Downes, University of North Texas-Dallas College of Law, and arbitrator-advocates contributors Richard Faulkner, also of Dallas, and Philip J. Loree Jr. in New York.

By Russ Bleemer

The panel returns to CPR Speaks and YouTube to analyze the Monday Henry Schein dismissal–a one-line decision–just a month after the Court heard oral arguments on the issue of how a contract carve-out removing injunctions from arbitration affects the delegation of the entire matter to arbitration.

In fact, the Dec. 8, 2020, Henry Schein oral argument repeatedly turned to an issue in the rejected Piersing case on the effectiveness of the incorporation by reference of arbitration rules in designating an arbitration tribunal to decide whether a case is arbitrated, rather than a court deciding whether the matter is to be arbitrated. A cross-petition by Archer and White asking for review of the incorporation by reference of the arbitration contract’s American Arbitration Association rules was declined by the Supreme Court the same day it agreed to hear the carve-out issue last June.

Our panel discussed these issues after the oral argument on this blog.  See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa) (in which the panelists also discuss their work on an amicus brief in the case, a subject that arose in this post’s video).

You can see today’s per curiam decision on the Supreme Court’s website here.

Monday’s Henry Schein dismissal ends a long period of Supreme Court litigation in the case that also included a 2019 U.S. Supreme Court decision. For now, the case returns to the Fifth Circuit for proceedings on whether the parties properly intended to arbitrate the case.

Details on the Supreme Court’s Monday cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speaks here.

For more analysis on the Henry Schein dismissal, see Ronald Mann, “Justices dismiss arbitrability dispute,” Scotusblog (Jan. 25, 2021) (available at http://bit.ly/2Yh9U4O), in which the Columbia University professor and Scotusblog analyst concludes that

it seems likely that the justices ultimately decided that they couldn’t sensibly say anything about this matter without addressing the question of whether the contract called for arbitration of the gateway question. Because they had declined to call for briefs on that question, it did not make sense to address it here. A logical course of action, then, was to dismiss the matter from the docket, providing a rare victory for a party opposing arbitration.

* * *

The author edits Alternatives for the CPR Institute.

Scotus’s Henry Schein No-Decision

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By Russ Bleemer

If the U.S. Supreme Court appeared frustrated at last month’s arbitration argument in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, this morning’s one-line decision confirmed it.

The Court today dismissed the entire case without a decision on the merits.  The entire per curiam decision:  “The writ of certiorari is dismissed as improvidently granted.”

You can view it on the Supreme Court’s website here.

The immediate effect is that respondent Archer and White Sales sees a big win:  It will get the determination of whether its long-running case over a medical equipment contract dispute is to be arbitrated made by a judge, not an arbitrator.  A Fifth U.S. Circuit Court of Appeals decision now stands. See Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/2NC7EmL).

Archer and White contended that a delegation agreement sending a matter to arbitration did not “clearly and unmistakably” send the case to arbitration because of a contract carve-out for injunctions.

With a one-line dismissal, it’s unknown why the Court did what it did. In shutting down the case, it may be backing Archer and White’s and the Fifth Circuit’s view. 

Or it may have reconsidered a point that Henry Schein’s successor status to the contract didn’t sustain its arbitration demand.

Or, in a point returned to repeatedly in last month’s argument, the Court may have botched the case on its own. When it granted Henry Schein’s cert petition on June 15 on the carve-out issue, the Supreme Court simultaneously rejected Archer and White’s cross petition challenging the determination of arbitrability of the case on a question of incorporation by reference. The cross petition contended that the “clear and unmistakable” evidence of an intent to arbitrate was insufficient; the contract incorporated American Arbitration Association rules that include a provision that arbitrators decide arbitrability.

Even though the Court rejected the cross-petition, the issue returned in the December arguments, at times overwhelming the discussion of the question of the carve-out’s effect. For more on the argument, see “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa).

One thing is certain:  The Court won’t use a follow-up petition to address the incorporation-by-reference issue, which would have interpreted the standard from the Court’s seminal decision on arbitrability, First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).

That’s because a case that a petitioner and an amicus stated presented the issue cleanly—unencumbered by the carve-out issue and Henry Schein’s long history, including a 2019 U.S. Supreme Court decision—was denied certiorari 30 minutes ahead of today’s one-line opinion. Details on the Court’s cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speaks here.

* * *

The author edits Alternatives for the CPR Institute.

[END]

Court Again Rejects Review on Incorporating Rules that Define Arbitrability

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By Temitope Akande & Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case that presented a persistent arbitration issue: whether the incorporation of a set of arbitration rules that state that an arbitrator decides whether a case goes to arbitration, instead of a court making the arbitrability decision, provides sufficient “clear and unmistakable evidence” that the parties agreed for the tribunal to make the decision.

It was the second time in eight months that the Court has rejected a significant case on the issue.

Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, would have analyzed the clear-and-unmistakable evidence standard for delegation to arbitrability from the Court’s First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).  

The question presented by the petitioner, a former employee of two Domino’s franchisers who had a claim against the parent company, was:

In the context of a form employment agreement, is providing that a particular set of rules will govern arbitration proceedings, without more, “clear and unmistakable evidence” of the parties’ intent to have the arbitrator decide questions of arbitrability?

Last June, the Court declined to hear the question on arbitrability in a cross-petition in Henry Schein Inc. v. Archer & White Sales Inc., No. 19-1080 (June 15, 2020), while accepting the case on the original cert petition on another, close issue involving the reach of carve-out provisions in arbitration agreements. 

In its December arguments in Schein, which awaits decision, the discussion of incorporation by reference on arbitrability arose.  See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa). In its brief in Piersing, the petitioner “acknowledges that [the] Court recently denied certiorari of a cross-petition presenting a similar question,” citing Schein, adding, “however, the question is presented in this case cleanly and as a stand-alone question.”

In Piersing, the petitioner worked as a delivery driver for a franchisee of respondent Domino’s, and later got an employment offer from Carpe Diem, another Washington state Domino’s franchisee. While the petitioner intended to increase his hours and earnings, the first franchisee fired him based on a no-poach clause in his employment agreement.

He eventually brought a U.S. District Court class-action suit against Domino’s alleging that the hiring rules violated, among other things, antitrust laws.

Domino’s sought to compel arbitration of Piersing’s claims based on the arbitration agreement between the employee and Carpe Diem.  Domino’s asked for arbitration, according to the Sixth Circuit opinion in the case that was the subject of the cert petition (see Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842 (6th Cir. 2020) (available at http://bit.ly/3sWDlrg)), “because the agreement’s reference to the AAA rules constituted a delegation clause in that the AAA rules supposedly provide for delegation.”

The district court held that equitable estoppel applies to permit franchiser Domino’s to enforce franchisee Carpe Diem’s agreement against Piersing and, according to the petitioner’s cert petition brief, “that the clause providing the AAA rules would govern any arbitration amounted to ‘clear and unmistakable’ evidence of Piersing’s and Carpe Diem’s intent to delegate questions of arbitrability to the arbitrator.”

Piersing appealed the district court’s decision. Relying on Rent-a-Center, West Inc. v. Jackson, 561 U.S. 63 (2010), and more, the Sixth Circuit held that the incorporation of arbitration rules that permit the arbitrator to resolve questions of arbitrability is sufficient to delegate those questions to the arbitrator.

Piersing’s Supreme Court cert petition brief analyzed the holdings in First Options, Rent-a-Center, West, and the first Henry Schein decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019), which wrestled with the question of and the standard for who decides arbitrability, the tribunal or the court.

Based on these precedents, the petitioner argued that the existing circuit court analysis allowing for incorporation of rules that included arbitrators determining arbitrability wasn’t “clear and unmistakable evidence” of the parties’ intent to arbitrate.  It emphasized that, particularly for consumers and employees, the cases weren’t sufficiently thorough in light of the First Options standard. The petitioner also noted that the Sixth Circuit’s decision conflicts with the holdings of several state high courts.

Domino’s countered that an agreement incorporating privately promulgated arbitral rules that assign questions of arbitrability to the arbitrator clearly and unmistakably show the parties’ agreement that an arbitrator, not the court, will resolve whether the case is suitable for arbitration.

Domino’s successfully argued for the nation’s top Court to reject the petition and thereby uphold the Sixth Circuit.

An amicus brief in support of the petitioner was filed by Columbia University Law School Prof. George Bermann, who described the issue in the appeal as “a central but unsettled issue of domestic and international arbitration.” Echoing the petitioner, the brief noted the importance of the issue in both Henry Schein Supreme Court cases, but stated that “the delegation question is presented front and center for review in this case.” It also cited the divergence between state and federal court views.

The amicus brief discussed the principle of “competence-competence” in international commercial law—the international equivalent of the arbitrability question under which the tribunal is presumed to be in a position to determine its jurisdiction, and which the Sixth Circuit invoked.  Bermann’s brief discussed the concept under the “clear and unmistakable” agreement standard of parties to arbitrate.

The amicus noted that the competence-competence language does not constitute “clear and unmistakable” evidence. “[A]ll modern arbitral procedure rules contain a ‘competence-competence’ clause,” the brief argued, “so that treating such language as clear and unmistakable evidence of a delegation means that parties will almost invariably lose their right to a judicial determination of what this Court has multiple times referred to as the very cornerstone of arbitration, viz. consent to arbitrate.”

Noting the state-federal divide in the interpretation of whether the incorporation of rules satisfies First Options, the brief concluded, “Only this Court can definitively resolve that issue and ensure that parties do not forfeit their right to a judicial determination of arbitrability unless they manifest that intention clearly and unmistakably.”

For more information on the case and an in-depth discussion of the issues involved, see the Supreme Court’s docket page at http://bit.ly/39Zxed1.

* * *

Akande, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021. Bleemer edits Alternatives for the CPR Institute.

[END]

Extinguishing Intra-EU Bilateral Investment Treaties: Recent Developments

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By Krzysztof Wierzbowski and Aleksander Szostak

In line with the decision of the Court of Justice of the European Union (referred to here as the “CJEU”) in Achmea (formerly Eureko) v. Slovakia (the Achmea Decision) and the political declaration issued by the governments of the European Union member states on Jan. 15, 2019, most of the EU member states, with the exception of Austria, Finland, Sweden and Ireland, have entered into a plurilateral treaty for the termination of bilateral investment treaties between the EU Member States (referred to in this article as “intra-EU BITs” and the Termination Treaty).

The Termination Treaty was signed on May 5, 2020, and entered into force on Aug. 29, 2020. See Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT] (available at http://bit.ly/3iqsTn3).

Portugal, the Netherlands, and Luxembourg have made the following formal declarations concerning the Termination Treaty:

  • “Luxembourg calls upon the European Commission and all member states to start, without any delay, a process with the aim to ensure complete, strong and effective protection of investments within the EU and adequate instruments in this regard.” It requests the  European Commission to create a plan for such a process. Declaration of Luxembourg to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
  • Portugal appears to endorse a view similar to that of Luxembourg and emphasizes its “support to the intensifying of the discussions between the European Commission and Member States with the aim of better ensuring a sound and effective protection of investments within the European Union. To this end, calls to assess the establishment of new or better tools under European Union law and to carry out an assessment of the current dispute settlement mechanisms which are essential to ensure legal certainty and the protection of interests of investors.” Declaration of Portugal to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
  • The Dutch government confirms that although the Achmea Decision does not affect the Caribbean parts of the Netherlands (as Overseas Countries and Territories), BITs concluded with those territories shall also be terminated pursuant to the Termination Treaty. In this sense and irrespective of the Achmea Decision, the effects of the Termination Treaty will extend to all parts of the Kingdom of the Netherlands. Declaration of the Netherlands to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].

* * *

So what will be the fate of intra-EU BITs and intra-EU investment arbitration?

The conclusion of the Termination Treaty is a direct consequence of the Achmea Decision, in which the CJEU declared that Investor-State Dispute Settlement (the “ISDS”) clauses in intra-EU BITs are not compatible with the EU law. (The decision is available at http://bit.ly/2Kf8OmM.)

In general, the Termination Treaty is based on the premise that all intra-EU BITs shall be terminated and their sunset clauses, providing for the temporarily continued protection of investments existing prior to the termination of the relevant BIT, shall be terminated together with the respective intra-EU BIT and thereby shall not produce legal effects.

Furthermore, it stipulates that new intra-EU investor-state arbitrations may not be initiated and that pending proceedings shall be subject to the management procedure described below.

Interestingly, the Termination Treaty does not resolve the issue of application and compatibility with the EU law of the Energy Charter Treaty (the “ECT”) in the intra-EU investment protection context. In particular, the Termination Treaty stipulates that it does not cover intra-EU arbitrations initiated based on ECT Article 26 and that this issue will be dealt with at a later stage. Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT] at 2. The ECT is available at http://bit.ly/3nUL2u7.

Considering that in recent years we have witnessed rise of the number of intra-EU ECT arbitrations, the uncertainty introduced by the Termination Treaty may put the parties engaged in pending arbitrations, or anticipating initiation of new proceedings pursuant to ECT Article 26, in an adverse position. See,. e.g., Landesbank Baden-Württemberg and others v. Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on the Intra-EU Jurisdictional Objection [25 February 2019]; Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018]; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018]; Statistics of ECT Cases (as of Oct. 23, 2019) (available at https://bit.ly/3oGCeJz).

Notably, as argued by the Advocate General Henrik Saugmandsgaard Øe in his recently issued opinion in joined cases C‑798/18 and C‑799/18, the ECT ISDS clause does not apply in the intra-EU context,  and the ECT may be entirely inapplicable to intra-EU proceedings. This indicates that if the CJEU follows the Advocate General’s reasoning, EU investors may be deprived of procedural and substantive protection under the ECT in the intra-EU relations. Joined Cases C 798/18 and C 799/18, Opinion of Advocate General Saugmandsgaard Øe [29 October 2020] (available at http://bit.ly/3bEYEHk).

Management of the pending intra-EU proceedings

Pending proceedings, defined as intra-EU investment arbitration proceedings initiated prior to March 6, 2018—the Achmea Decision linked above–and which have not ended with a settlement agreement or with a final award issued prior to March 6, 2018, where the award was duly executed prior to March 6, 2018, or the award was set aside or annulled before August 29, 2020, shall in principle be subject to the so-called Structured Dialogue, which is a mechanism that aims to assist disputing parties in finding an amicable settlement of a dispute. Art. 1(4) and (5) and Art. 9 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].

The settlement procedure is overseen by an impartial facilitator who shall find an amicable, lawful, and fair out-of-court and out-of-arbitration settlement of the dispute. Settlement of the dispute shall in principle be reached within six months. Art. 9 (1) – (14) Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT]. It can be observed that the mechanism resembles investor-state mediation.

Going a step further, the Termination Treaty implements an option for investors engaged in pending arbitrations to seek judicial remedies under national law before domestic courts against the host state measure contested in such arbitration proceedings. This option is available to investors under the condition that they withdraw pending arbitration proceedings and waive rights and claims under the relevant intra-EU BIT, or renounce execution of the issued award and commit to refrain from instituting any new arbitration proceedings. Art. 10 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT]. In such case,  limitation periods would not apply to bringing legal action before domestic courts.

This may have a severe impact on the prospect of lodging a successful claim against a state by the investor, since the legal framework of intra-EU BITs that provided a substantive and procedural legal basis in a pending arbitration will not be applicable in domestic court proceedings.

Doubtful recognition and enforcement of awards

Decisions and/or awards issued in pending, or, as the case may be, new arbitration proceedings may not be effective, because the Termination Treaty stipulates that contracting states shall, in case of domestic court proceedings, request the domestic court, including in any third country, to set the arbitral award aside, annul it, or to refrain from recognizing and enforcing it. Art. 7 (b) Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].

This raises a threat to the effectiveness of guarantees provided under, among others, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”).

It can be recalled that ICSID Convention Article 54 stipulates that each contracting state shall recognize an award rendered by an ICSID Tribunal as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court where recognition is sought. This unique recognition mechanism does not leave room for any ground on which the recognition could be refused.

Considering a rather likely scenario in which a domestic court of an EU member state is faced with a request for recognition of award or decision issued by a tribunal in an intra-EU investment arbitration case, it can be noted that such domestic court will need to resolve uncertain and complex situation concerning the conflict of treaty norms. The domestic court will need to decide whether to recognize the award, or issue a decision in accordance with the ICSID Convention, or to comply with the EU law and refuse recognition and thereby, to undermine the ICSID Convention.

Although not addressed in the Termination Treaty, it appears that the CJEU argument in the Achmea Decision regarding incompatibility of the ISDS clauses in intra-EU BITs with the EU law may potentially extend to extra-EU BITs and arbitrations between EU members states and investors from third states.

Clearly, arbitrations initiated on a basis of ISDS clauses contained in such BITs may concern treatment of investors from third states investing in the EU, and therefore the subject matter of such arbitrations may relate to interpretation and application of the EU law.

Such arbitrations may also pose a risk to the proper interpretation and application of the EU law and have an adverse effect on the autonomy of the EU law. See Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV [2018]. Such reasoning, if followed, which is rather unlikely, would further deepen the crisis concerning European Union investment treaty arbitration.

It might be further noted that the competence of the court where the arbitration is seated to set aside the arbitration award may lead to the situation where such court would be a non-EU court and would not be bound by the Termination Treaty.

Furthermore, the winning investor may seek to have the arbitration award recognized and enforced in a non-EU jurisdiction where the defendant’s assets are located.

Taming the lion: The tendency of arbitral tribunals to reject intra-EU jurisdictional objections

Despite the Achmea Decision and clear commitment of EU member states on terminating the intra-EU BITs, arbitral tribunals in intra-EU arbitrations generally reject jurisdictional objections asserting incompatibility of intra-EU BITs.vSee, e.g., Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, ICSID Case No. ADHOC/15/1, Partial Award on Jurisdiction [4 March 2020]; Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018]; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018]; UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award [9 October 2018]; Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis [12 June 2020].

As emphasized by the tribunal in the partial award on jurisdiction in Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, EU law does not form part of the law applicable to questions of the tribunal’s jurisdiction, and no extrinsic elements of interpretation under Article 31(3) of the Vienna Convention on the Law of Treaties can trump the clear expression of the parties’ common intention to arbitrate. Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, at par. 8.143. It should be noted, however, that the intention of capital importing states to arbitrate disputes may be considered as no longer existent due to the signing and entry into force of the Termination Treaty.

Notably, the tribunal further considered the issue of the enforceability of an award issued in intra-EU arbitration and recognized its duty to render an enforceable award. It noted, however, that it is not able to predict the future validity, or enforceability of the award before enforcing courts. Id. at par. 8.140-8.142.

More recently, the tribunal in Addiko Bank v. Croatia raised several interesting points when rejecting Croatia’s jurisdictional objection related to the incompatibility of the Austria-Croatia BIT with the EU acquis.

The tribunal reasoned that in light of Article 2(1)(a) of the Vienna Convention on the Law of Treaties, the law applicable to the Austria-Croatia BIT consists of the terms of that BIT itself and general principles of international law, which are the sources of law not considered by the CJEU as  incompatible with the EU law.

Furthermore, the tribunal noted that contrary to the BIT concluded between the Netherlands and Slovakia, considered by the CJEU in the Achmea Decision as incompatible with the EU law, the Austria-Croatia BIT does not incorporate EU law as part of its applicable law. Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis [12 June 2020] par.267. The tribunal concluded that the Austria-Croatia BIT does not give rise to the same functional concerns, which the CJEU found to be present in the context of the Achmea Decision. Id. at par.269.

This indicates that intra-EU BITs whose applicable law is limited to the terms of the intra-EU BIT itself and general principles of international law are not incompatible with the EU law. Following this reasoning, it can be assumed that the tribunal would reach a different conclusion if the Austria-Croatia BIT included a provision expressly or impliedly incorporating EU law as the applicable law.

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Some of the solutions implemented under the Termination Treaty may indeed be considered controversial. This is particularly the case with respect to the mode of termination of legal effects of sunset clauses, or more broadly, the retroactive effect of the Termination Treaty.

Investors may decide to seek protection under existing BITs concluded with non-EU states and, thereby, engage in the treaty shopping practice. It remains an open question whether such BITs will be affected by the Achmea Decision.

While the Achmea Decision argument has become a popular strategy for defendants in investment arbitration proceedings to challenge jurisdiction of arbitral tribunals, jurisprudence indicates that such arguments are generally rejected.

Although developments contained in mega-regional treaties, such as the Comprehensive Economic and Trade Agreement (available at http://bit.ly/2LXjQh3), may provide a model for the creation of standing investment court, which could replace the ISDS mechanism so far in place, the institutional design of the body must comply with the EU law in order to provide an effective alternative to domestic courts. In this regard, it is important to monitor development of the EU’s initiative concerning the so-called Investment Court System, which could be further developed into a Multilateral Investment Court.

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Krzysztof Wierzbowski is a Senior Partner at Eversheds Sutherland Wierzbowski in Warsaw, Poland. He is a member of the CPR European Advisory Board, which provides EAB posts for CPR Speaks. Aleksander Szostak LL.M. is a lawyer at Eversheds Sutherland Wierzbowski.

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