New York Convention

In Its ‘Setty’ Decision, the Ninth Circuit Revisits Whether a Non-Party Can Compel Arbitration Under the FAA and the New York Convention

/ CPR Staff / Leave a comment

By Temitope Akande

Litigation over a non-party compelling arbitration via the contract theory of equitable estoppel lives on in the wake of a U.S. Supreme Court decision last year, and looks as though it will continue for some time, courtesy of a still-in-progress federal appeals court case–which itself already has visited the Supreme Court.

In Setty v. Shrinivas Sugandhalaya LLP, 986 F.3d 1139 (9th Cir. Jan. 20, 2021) (available at https://bit.ly/3gCLXzk),  the Ninth U.S. Circuit Court of Appeals revisits the enforceability of an arbitration clause by a non-party. The parties in the case are two companies set up by former partners, with the petitioner seeking to arbitrate under their partnership agreement.  The respondent—the original appellee—maintains that the arbitration is between the individual parties, not their companies, and the case should not be arbitrated.

The Ninth Circuit, in a January opinion on remand from the U.S. Supreme Court, agreed, and declined to compel arbitration.  The petitioner asked for a panel rehearing, or, alternatively, a rehearing en banc by the full Ninth Circuit.  A decision is pending.  The case may eventually re-trace its steps to the nation’s top Court.

The action arises from a dispute between two brothers who formerly ran a partnership in India under the trademarked name Shrivinas Sugandhalaya. The brothers’ Deed of Partnership provides an agreement to arbitrate “All disputes of any type whatsoever in respect of the partnership arising between the partners.” The brothers separated and later established their separate incense businesses at different locations.

Ninth Circuit respondents (and original plaintiffs) Balkrishna Setty and his Indian company, referred to in the Ninth Circuit case as SS Bangalore, filed suit against brother Nagraj Setty’s company, referred to in the opinion as SS Mumbai–both references to their operating locations.

Original plaintiff SS Bangalore claimed that original respondent SS Mumbai used the partnership’s intellectual property without permission. But the suit did not name SS Mumbai owner Nagraj Setty, who signed the Deed of Partnership containing the arbitration clause. Yet SS Mumbai, despite its nonsignatory status, in the current case petitioned in federal court to stay the litigation and compel arbitration pursuant to the Federal Arbitration Act and the New York Convention.

A Washington state U.S. District Court denied SS Mumbai’s motion, holding  that since SS Mumbai was not a signatory to the Deed of Partnership, it had no right to enforce the agreement’s arbitration provisions or stay the litigation. SS Mumbai appealed, and the Ninth Circuit affirmed the District court’s decision.

The U.S. Supreme Court granted certiorari, vacated the judgment, and remanded for further consideration last year in light of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). The district court once again denied the defendant’s motions to compel arbitration and to grant a stay pending arbitration in a civil case. 

The Ninth Circuit again affirmed in January in the case cited above, but a detailed dissent, more than twice as long as the panel decision, appears to have sparked the rehearing motions now pending before the Ninth Circuit, and could eventually be the impetus to return the case to the U.S. Supreme Court in the form of a new cert petition. 

In the most recent case decided by the Ninth Circuit on remand from the Supreme Court, SS Mumbai raised two issues. The first was whether the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention, permits a nonsignatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel or similar principles of applicable law.

On that point, the petitioner argued that FAA Chapter 1 makes written arbitration agreements “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. Therefore, it also permits enforcement of an arbitration clause “against (or for the benefit of) a third party”—i.e., a nonsignatory—if enforcement would be permitted “under state contract law.” Arthur Andersen v. Carlisle, 556 U.S. 624, 631 (2009).

Consequently, state law doctrines and concepts such as equitable estoppel prevent a party from “cherry-picking” the beneficial provisions of the contract while trying to avoid provisions it deems detrimental, such as a requirement to arbitrate disputes. 21 Richard A. Lord, Williston on Contracts, § 57:19, at 200, 202 (4th ed. 2017) (cited in Arthur Andersen, above).

The petitioner’s second issue was whether the court could issue a stay of the litigation pending the arbitration.

The Ninth Circuit denied both motions.  It declined to compel arbitration since the partnership deed provided for arbitration exclusively for disputes “arising between parties,”—here, it would have between the brothers, not the brothers’ partnership–and not by a third party.

Regarding petitioner SS Mumbai’s request for a stay of the litigation under FAA Section 3, the Ninth Circuit further held that SS Mumbai’s ability to stay the litigation depended on its right to compel and, with SS Mumbai’s request to compel rejected, the district court did not abuse its discretion in denying a stay of proceedings pending arbitration.

SS Mumbai had argued that the district court and previous Ninth Circuit decisions misconstrued the New York Convention and the FAA, leaving international arbitration agreements with less protection than domestic agreements.

The decision, written by Senior Ninth Circuit Judge Dorothy W. Nelson, joined by Circuit Judge Johnnie B. Rawlinson, is a straightforward, seven-page affirmation of a denial to compel, relying on the use of federal law to determine the ability to apply equitable estoppel to allow non-party SS Mumbai to compel arbitration under the Deed of Partnership. 

But a detailed 18-page dissent by Senior Circuit Judge Carlos T. Bea, focusing on the choice of law that is needed to make the decision as to whether equitable estoppel can be applied by the court to compel arbitration in favor of the petitioners, ensures more attention for this case before it is litigated or arbitrated.

The GE Energy Supreme Court decision was pivotal–the reason for the nation’s top Court granting cert in Setty, then vacating and remanding.  In GE Energy last spring, the Court held that nothing in the New York Convention conflicted with “the application of domestic equitable estoppel doctrines permitted under Chapter 1 of the FAA.”

As a result, the Court allowed nonsignatories to agreements governed by the New York Convention—codified in FAA Chapter 2–to request compelling arbitration as permitted under FAA Chapter 1, using state law contract grounds.  For details and analysis on GE Energy, including a link to the case, see  “Holding There Is No Treaty-FAA Conflict, Supreme Court Permits Equitable Estoppel for International Arbitration Parties,” CPR Speaks (June 1, 2020) (available at https://bit.ly/2U1QrDs).

But even post-GE Energy, the Ninth Circuit panel early this year said that the Setty question involved “federal substantive law.” Under its case of Letizia v. Prudential Bache Securities Inc., 802 F.2d 1185, 1187 (9th Cir. 1986), that means that the court looks to “ordinary contract and agency principles” in determining the arbitrability of federal claims by or against nonsignatories to an arbitration agreement.

In her opinion, Senior Circuit Judge Nelson concluded that the petitioner’s claims were not clearly intertwined with the partnership deed providing for arbitration. Accordingly, she concluded, the district court properly exercised its discretion in rejecting the argument that the original plaintiffs should be equitably estopped from avoiding arbitration and denying SS Mumbai’s motion to stay the proceedings pending arbitration.

But Senior Circuit Judge Bea’s dissent viewed the majority’s choice of federal law differently. He would have sent the case back for further consideration under different law—which perhaps would have reached a different FAA result that would have allowed equitable estoppel to be applied and sent the case to arbitration.

“The Supreme Court and Ninth Circuit,” wrote Bea, “have time and again held that whichever background body of state contract law that governs the arbitration agreement also governs equitable estoppel claims to compel arbitration pursued under [FAA Chapter 1 at] 9 U.S.C. §§ 1 et seq. We should not hold differently here.”

The problem with the majority opinion, explained Bea, was the choice of federal substantive law.  He opened his dissent noting, “On remand from the Supreme Court, we are faced with the question of which equitable estoppel law governs an Indian company’s motion to compel another Indian company and its Indian owner to arbitration based on an agreement entered into in India, signed by two Indian brothers (who own the Indian companies), and governing conduct in India. The majority holds that, not Indian, but U.S. federal common law governs the issue.”

Circuit Judge Bea points out that the first Ninth Circuit refusal to compel arbitration didn’t rule on the merits of SS Mumbai using equitable estoppel, but rather held that the doctrine wasn’t available under the New York Convention.  That was the point in focus under the Supreme Court’s cert grant and accompanying order to vacate and reconsider in light of GE Energy Power.

The dissent emphasizes that the Supreme Court now backs the use of equitable estoppel under FAA Sec. 1, because GE Energy allows nonparties under the New York Convention to use Sec. 1 to compel arbitration.  He maintains that GE Energy overrules previous Ninth Circuit caselaw that barred Sec. 1 use under the New York Convention.

The current difference in the Setty matter, notes the dissent, is that the state law doctrine to be applied in the New York Convention cases should be the foreign law that applies in the case.  In Setty, the law of India on equitable estoppel would be applied to determine whether SS Mumbai can rely on its principal’s Deed of Partnership contract, according to Senior Circuit Judge Bea’s view.

“I see no reason to hold that settled FAA Chapter 1 law should somehow apply differently to nonsignatories of agreements otherwise governed by the New York Convention” codified in FAA Chapter 2, he wrote.  Circuit Judge Bea added that “neither the Supreme Court nor the Ninth Circuit has ever relied on the subject matter jurisdiction or the nature of the claims in holding that state law governs equitable estoppel under FAA Chapter 1.”

In addition, in his choice-of-law analysis, Bea noted, “It would appear to me that India is the forum with the most significant relationship to the Partnership Deed and that the traditional principles of Indian contract law may very well govern whether a signatory may be compelled to arbitrate with a nonsignatory over an issue arising from that contract.”

That analysis, however, wasn’t developed in the parties’ briefing, so Bea concluded that he would “remand the case back to the district court to resolve in the first instance which choice-of-law principles should be used to determine which contract law should govern the equitable estoppel issue, apply the principles, and resolve the equitable estoppel issue.”

* * *

SS Mumbai has asked the panel to re-hear the case or, alternatively, for an en banc rehearing before the full Ninth Circuit, following from points in the Bea dissent. 

The petition notes that:

  1. “The majority’s decision conflicts with other decisions of the Ninth Circuit recognizing that federal common law also incorporates choice of law principles; determining whether those principles continue to apply to agreements subject to the New York Convention is a question of exceptional importance”;
  2. “The majority’s decision conflicts with other Ninth Circuit decisions allowing non-signatories to enforce arbitration agreements using equitable estoppel” and conflicts with Supreme Court decisions, “creates unnecessary confusion, and involves questions of exceptional importance regarding maintaining the uniformity of the law to be applied to arbitration agreements.”

In opposition to the SS Mumbai motion, original plaintiff-appellee SS Bangalore responded that the arbitration agreement at issue is subject to the FAA’s implementation of the New York Convention and if the federal statute in question demands national uniformity, federal common law provides the determinative rules of decision.

The court need not analyze the choice of law, the response says, but instead determine the issue based on federal common law. The reply brief notes, “By concluding that federal common law governs whether a nonsignatory may invoke equitable estoppel to force a party into arbitration, the Majority’s decision furthers the New York Convention’s goal of achieving uniformity in how courts implement international arbitration agreements. [Citation omitted.] With the Majority’s ruling, signatories to international arbitration agreements can rest assured that a nonsignatory will not be able to require arbitration unless they meet the federal standard for equitable estoppel, regardless of the forum state, when invoking federal question jurisdiction.”

The parties now await the decision of the Ninth Circuit on the pending motion to rehear the appeal en banc, with the prospect of an eventual return to the nation’s top Court looming.

* * *

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.

[END]

As the Singapore Mediation Convention Enters Into Force This Week, It Is Wait-and-Watch on Its Use

/ CPR Staff / Leave a comment

By Yixian Sun

It’s a historic ADR beginning.

The 46 countries—including the United States, China, India, Japan, Israel, and Switzerland—that last year signed the United Nations Convention on International Settlement Agreements Resulting from Mediation, known best as the Singapore Mediation Convention, have been joined by seven more since August 2019.

And now, the treaty is set to go into effect.

That group of 53 will preside over the treaty’s official effectiveness date, this week, on Sept. 12.  Under the treaty’s Art. 14, when Qatar became the third nation to ratify the treaty on March 12, effectiveness takes place automatically six months afterward.

The backers will commemorate the effectiveness with an “Entry into Force Celebration” which will stream live here on Saturday: www.singaporeconvention.org/events/scm2020.

The original group signed on last September in Singapore, providing the treaty’s name, and setting the stage for ratifications and effectiveness. 

Official acceptance happened fast. The treaty, which ensures that mediation parties can take their agreements across borders and get them enforced, automatically takes effect upon ratification by three countries. 

Fiji and Singapore had signed the treaty into law in their nations on Feb. 25, which Qatar followed six months ago.  Saudi Arabia, Belarus and Ecuador also ratified the treaty this year.

For an updated status of the Convention, see at https://bit.ly/3bc4Ww3.  

The interest demonstrated with the initial signings is an impressive number compared to, for example, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, well-known in the alternative dispute resolution community as the New York Convention. That 1958 treaty had 24 signatories when it came into force.

Indeed, the world’s view toward ADR has changed fundamentally since 1958.

The Singapore Convention applies to international settlement agreements resulting from mediation and concluded in writing by parties to resolve a commercial dispute. State parties to the Convention undertake to enforce such settlement agreements. The new Convention seeks to establish a streamlined and harmonized framework for cross-border enforcement of commercial settlement agreements, thereby promoting the use of mediation for the resolution of disputes arising from international business and trade.

Find a brief introduction and the full text of Singapore Mediation Convention are at the official website at www.singaporeconvention.org.

Within the past year in the CPR Institute’s Alternatives to the High Cost of Litigation newsletter, Piotr Wójtowicz and Franco Gevaerd provided an overview of some key features of the Convention, with a focus on the basic requirements for the treaty’s application to a specific settlement agreement.  See the authors’ analysis at “A New Global ADR Star is Born: The Singapore Convention on Mediation,” 37 Alternatives 141 (October 2019) (available at https://bit.ly/3gJf7JI) and also their discussion of the grounds for States’ or parties’ refusal of enforcement, “How the Singapore Convention Will Enforce Mediated Settlement Agreements Across Borders,” 1 Alternatives 9 (January 2020) https://bit.ly/3jAMdNL).

Some treaty features already have proven to be of great importance in the age of Covid-19. For example, in the face of increasing acceptance of, or at least acquiescence to, online ADR, the Singapore Convention does not incorporate the concept of a “mediation seat.” According to the United Nations Commission on International Trade Law, best known as UNCITRAL, while an arbitral award usually has a place of issuance to help determine its “foreign” nature, it can be difficult to connect a settlement agreement to a specific place or legal seat due to mediation’s inherently flexible nature. Report of Working Group II, UN Doc. A/CN.9/861 (2015) (available at https://bit.ly/2QIgopO).

The treaty also will not just be concerned with the differences between mediation and arbitration, but also about how business disputes are resolved in the 21st century. Negotiations are conducted in video conferences; agreements are developed and reached via emails, and multiple jurisdictions can be involved in one cross-border mediation.

The COVID-19 pandemic is accelerating these activities, since parties likely can’t travel to mediate, and at least some mediation sessions have to take place remotely even for those who prefer in-person meetings.

Wherever or however the mediation is conducted, the resulting agreement will qualify as “international” under Article 1 of the Convention (i) as long as  at least two parties to the settlement agreements have their places of business in different States; or (ii) when the parties have places of business in the same State, that State “is different from either [S]tate where the obligations of the mediated settlement agreement are to be performed, or the [S]tate with which the subject matter of the mediated settlement is most closely connected.” Timothy Schnabel, “The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition and Enforcement of Mediated Settlements,” 19 Pepperdine Disp. Resol. L.J. 1, 21 (2019) (available at https://bit.ly/2GIGtmQ). The settlement agreement itself, however, is essentially “a stateless instrument.” Id. at 22.

Indeed, many have found mediation the most appropriate and least cumbersome commercial dispute resolution forum during the pandemic. It serves as an efficient and manageable process where parties are encouraged to sit together and come up with creative solutions to preserve both sides’ economic interests and long-term partnership. See, for example, Ivana Nincic, “The Impact and Lessons of the Covid-19 Crisis as Regards the Efficiency of Justice and the Functioning of the Judiciary–a View from the Mediator’s Lens,” International Mediation Institute (available at https://bit.ly/2YQmNDw).

One may even question if international mediation will become the “new normal” for many disputes. Nadja Alexander, “International Mediation and COVID-19–The New Normal?” Kluwer Mediation Blog (May 21, 2020) (available at  https://bit.ly/352B30f). See generally the CPR Institute’s web page ADR in the Time of Covid-19 at www.cpradr.org/resource-center/adr-in-the-time-of-covid-19.

Yet it is one thing to celebrate mediation’s increasing prevalence, but another to predict how successful the Singapore Mediation Convention is going to be. To be more specific, it remains to be seen whether and to what extent the potential users of the new treaty, namely multinational corporations, will be willing to invoke this brand-new framework and make necessary adjustments to their business and legal arrangement accordingly.

Here is an example raised in a panel discussion by Mark Califano, Chief Legal Officer at Nardello & Co., a New York-based international consulting firm that conducts investigations for corporations,  at this year’s American Society of International Law’s Annual Meeting. Under Convention Article 4(1)(b), mediators are expected to sign off on the settlement agreement or use other methods to indicate their involvement. Under Article 5(1)(e), serious misconduct by the mediator is a ground for refusing to grant relief.

While this design may be a reasonable requirement for the purpose of transboundary enforcement, it is, to certain extent, inconsistent with the common practice in places like the United States, where the process of mediation is highly confidential and the behavior of mediators is rarely subject to litigation.

Therefore, parties may want to draft a contract clause beforehand to make sure that whatever settlement agreement that comes out of the mediation process fulfills the requirements imposed by Singapore Convention. The Singapore Convention on Mediation and the Future of Appropriate Dispute Resolution, ASIL 2020 Virtual Annual Meeting (June 25, 2020) (available at https://bit.ly/34PHKT3).

In addition, the Singapore Convention’s limited application scope may prevent it from breaking the hegemony of the powerful, “all-encompassing” New York Convention.

Settlement agreements attained via mediation and negotiation and confirmed by the arbitral tribunal are enforceable under the New York Convention. On the contrary, Article 1(3) of the Singapore Convention excludes settlement agreements that have been approved and are enforceable as judgments or as arbitral awards from its scope of application.

As a result, cross-border businesses used to hybrid dispute resolution procedures might prefer to keep mediation as part of the arbitration proceeding, where “the success or failure of mediation will not affect the enforceability of the final award rendered by the arbitral tribunal.” Ashutosh Ray, Is Singapore Convention to Mediation what New York Convention is to Arbitration? Kluwer Mediation Blog (Aug. 31, 2019) (available at https://bit.ly/32FEjf7).

Aside from international treaties, the Singapore Convention may need to compete with the pre-existing domestic or regional legal regimes in different jurisdictions. Under Article 12(4), the Convention should not prevail over conflicting rules of a regional economic integration organization if relief is sought in a member State of that organization.

Thus, if the European Union adopted the Convention, practitioners would need to explore how to reconcile the Convention with the EU Directive on Mediation, which does not authorize direct enforcement of settlement agreement. Iris Ng, The Singapore Mediation Convention: What Does it Mean for Arbitration and the Future of Dispute Resolution? Kluwer Mediation Blog (Aug. 31, 2019) (available at https://bit.ly/34Sdw1U).

In Singapore, parties to international mediated settlement agreements are allowed to pick and choose between mechanisms of the Singapore Mediation Act 2017 and the Singapore Convention according to their needs and features of individual cases. Nadja Alexander & Shou Yu Chong, Singapore Convention Series: Bill to Ratify before Singapore Parliament, Kluwer Mediation Blog (Feb. 4, 2020) (available at https://bit.ly/3bbGlYf).

Despite all of this, we should agree with Piotr Wójtowicz and Franco Gevaerd who noted with their Alternatives articles linked above that the Singapore Mediation Convention is another milestone in international dispute resolution. The fact that the Convention was drafted and finalized in fewer than five years is itself an encouraging indication that “joint international effort is still viable,” the authors noted in their second article in January.

International businesses and lawyers will not refuse to diversify and expand their toolkit with a simplified enforcement framework. What the ADR world needs now is more practical experience and some legal precedents for the Convention to mature.

The author, a student at Harvard Law School in Cambridge, Mass., was a 2020 Summer Intern at the CPR Institute, which publishes CPR Speaks.

Tuesday’s SCOTUS Argument: Can Non-Signatories Compel Arbitration in the United States Under the New York Convention?

/ CPR Staff / Leave a comment

By Doo-Won ‘David’ Chung and Russ Bleemer

When a party files for arbitration under a contract but it is not a signatory to the contract, sparks can fly.

On Tuesday, the U.S. Supreme Court heard from both sides that non-parties can compel arbitration under the Federal Arbitration Act in oral arguments for this term’s sole arbitration case, GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048.

But the arbitration falls under the international Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention, adopted and implemented as the FAA’s Chapter 2 in the United States.

And on its surface, it appears the treatment may be different.  The Eleventh U.S. Circuit Court of Appeals rejected nonparty GE Energy’s motion to compel arbitration, focusing on the first of four treaty requirements for compelling arbitration— “there is an agreement in writing within the meaning of the Convention.” Outokumpu Stainless U.S. LLC v. Converteam SAS, 902 F.3d 1316, 1325 (11th Cir. 2018) (available at http://bit.ly/2E1eSc0).

The Supreme Court agreed to hear the case last year on whether the New York Convention allows a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel. See “The Friends Speak: Here’s What Scotus Will Decide in the GE Energy International Arbitration Case,” 38 Alternatives 2 (January 2020) (available at http://bit.ly/2v2pJ3Z).

The Court’s strong historical preference for arbitration appeared to be a tipoff that it took the case to reverse.  But early in the opening argument by GE Energy’s attorney, Shay Dvoretzky, a Washington, D.C. partner in Jones Day, Chief Justice John G. Roberts Jr. showed a concern he focused on repeatedly, that being able to force arbitration against a party who never consented would be inconsistent with “one of the central propositions of our arbitration precedents that arbitration is based on agreements.”

Dvoretzky had urged the Court to permit the use of the equitable estoppel doctrine as part of a group of methods by which nonparties can invoke an arbitration agreement under the New York Convention. Respondent Outokumpu contended that the Convention requires a signed arbitration contract by the party invoking arbitration.

Roberts seemed to share reservations about nonparties.  Responding to his own hypothetical for Dvoretzky, the chief justice said, “here somebody who never agreed to arbitration is being forced into arbitration, even though he has a clear right to take his dispute to court.”

While admitting that arbitration is a matter of consent, Dvoretzky argued that the consent by the respondent was exhibited by the contract’s existence with its arbitration provision, even if it didn’t name the party.  The scope of that agreement, at least in the context of FAA Chapter 1, had been determined Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31 (2009) (available at http://bit.ly/3442FxB), which extends the agreement’s use to nonparties under a variety of doctrines, without restriction to signatories.

The case arose out of a dispute between respondent Outokumpu, a Calvert, Ala., steel manufacturer, and a subcontractor, GE Energy, which agreed to supply nine motors to run three steel mills which failed.

While the contract between Outokumpu and its construction general contractor included an arbitration agreement, subcontractor GE Energy was not yet selected, according to Dvoretzky, and not a signatory.  When Outokumpu filed suit against GE Energy in a state court, the subcontractor removed to federal court and moved to dismiss and compel arbitration under the contract.

Alabama’s Southern District federal court granted GE Energy’s motion to compel arbitration and dismissed the action, but on appeal, the Eleventh Circuit reversed.

The appeals court acknowledged that, for domestic arbitration agreements, equitable estoppel allows the non-signatory to enforce the arbitration clause under Arthur Andersen.  But the circuit court distinguished international arbitration agreements, and held “to compel arbitration, the [New York Convention] requires that the arbitration agreement be signed by the parties before the Court or their privities.”

Shay Dvoretzky opened his argument on GE Energy’s behalf by noting that the New York Convention is silent about enforcement by non-signatories.  “That silence is consistent with the Convention’s design, which sets a floor, not a ceiling, for enforcing arbitration agreements and awards,” he explained.

According to Dvoretzky, since the Convention doesn’t say states can’t do more than what the Convention requires, the rest is left to the states’ domestic arbitration laws. Dvoretzky further contended, “Other contracting states are close to unanimous that the Convention does not preempt domestic law allowing non-signatory enforcement.”

Justice Elena Kagan told Dvoretzky, “It seems odd that Congress would have passed the implementing legislation on the view that another contracting state could compel arbitration without any consent whatsoever.”

“I think this goes to the core question of what the Convention is trying to do,” countered Dvoretzky, adding, “The Convention is trying to set forth minimum standards by which other countries will recognize and enforce arbitration agreements.”

After Justice Neil Gorsuch seemed satisfied by Dvoretzky’s response that there was nothing in the New York Convention preventing the use of the equitable estoppel doctrine in matters under the treaty, Kagan jumped back into the discussion, saying she agreed with the chief justice:

If you’re talking about an alter ego or something like that, or a successor in interest, maybe that person counts as a party, even though it is not the signatory but there is some limit.  . . .

[S]o if it’s a matter of voluntary consent, and everybody thinks that that’s what arbitration is, shouldn’t we read the parties to be, you know, the parties? Nobody else.

Dvoretzky responded with a return to Arthur Andersen. “Certainly under domestic law it is understood to be a matter of voluntary consent,” he said, “but the Court saw no issue with the possibility after an equitable estoppel theory that would allow a nonparty to enforce.”

Jonathan Y. Ellis, Assistant to the Solicitor General whose amicus argument supported GE Energy, explained that the New York Convention’s role is to assist courts in the recognition of international arbitration agreements, but it doesn’t provide a comprehensive set of arbitration rules. He argued that the Convention presumes validity of arbitration agreements, and doesn’t speak to agreements’ scope.

Justice Sonia Sotomayor leaned toward GE Energy’s case during Ellis’s argument, but pushed for a rule. She appeared to agree that there are bases for the argument that contracting states can pick who the parties are, but she also said that there should be limits.  “What’s the limiting principle of equitable estoppel?” she asked, adding, “It can’t be every single type of equitable estoppel is okay.”

She added that if GE is contemplated by the contract as a supplier, the matter “seems like a fairly straightforward case to me.”

Ellis responded that the New York Convention has standards on whether an arbitration agreement was reached between the parties, and signatory states’ limits on recognizing “other types of arbitration agreements” needs to be satisfied.  But, he said he didn’t think the Convention “can be read to impose those limits.”

Jonathan D. Hacker, a partner in Washington D.C.’s O’Melveny & Myers LLP, disagreed with GE Energy’s Convention interpretation in his argument on behalf of the steelmaker Outokumpu. Instead, Hacker asserted that the Convention makes it a ceiling—declaring that a written agreement by the parties is necessary to enforce international arbitration agreements.

After a hypothetical by Justice Stephen G. Breyer that allowed a successor party to arbitrate a contract via domestic law, Hacker contended that allowing domestic law to decide who gets to enforce arbitration “creates a huge problem under the Convention because then the states can begin subjecting parties to arbitration” even without consent, which he said is against the Convention’s requirements.

In closing, Hacker argued that “extension of an arbitration agreement to non-parties” is “supposed to be the exception that you almost never see,” and if GE Energy’s interpretation is adopted, “essentially all subcontractors would suddenly be able to arbitrate, even absent a written agreement.”

The Supreme Court’s decision, expected by the end of the term in June, may be crucial not just for arbitration practitioners, but also for parties engaged in cross-border transactions that involve performance by non-signatories.  If the Court affirms the circuit court’s decision, it may create the need for more detailed participation of potential parties, as signatories, for contracting.

* * *

Tuesday’s GE Energy arguments were the second of two for Chief Justice Roberts who, after the case concluded, walked across the street to the U.S. Capitol from the Court to begin his new second job presiding over the U.S. Senate impeachment trial of President Trump.

* * *

This post is based on the transcript of the arguments, posted Tuesday afternoon, and is available on the Court’s website at http://bit.ly/2RD1JMG.

Chung, a law student at Benjamin N. Cardozo School of Law at New York’s Yeshiva University, is a 2020 spring semester CPR Intern; Bleemer edits Alternatives for the CPR Institute at altnewsletter.com.

US Sup Ct Grants Review to Decide Whether New York Convention Permits Non-Signatory to Compel International Arbitration on Equitable Estoppel Grounds

/ CPR Staff / Leave a comment

By Mark Kantor

Kantor Photo (8-2012)

This morning the U.S. Supreme Court granted certiorari and agreed to hear in its next Term the international arbitration case of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC (Docket No. 18-1048, case documents available at https://www.scotusblog.com/case-files/cases/ge-energy-power-conversion-france-sas-v-outokumpu-stainless-usa-llc/).  The dispute addresses whether, under the New York Convention, a non-signatory can compel arbitration.  The Question Presented is:

Whether the Convention on the Recognition and Enforcement of Foreign Arbitral Awards permits a nonsignatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel.

As described in GE’s petition for cert, “Sometimes, a signatory to a contract may sue a non-signatory for claims that arise out of the contract.  When that happens, is the signatory bound by the arbitration clause it agreed to in the contract?  For domestic arbitration agreements, the answer is yes: Equitable estoppel allows the non-signatory to enforce the arbitration clause.  But the Eleventh Circuit [Court of Appeals] held that a non-signatory cannot compel arbitration if one of the parties is a foreign entity.  That erroneous holding deepens a 2-to-2 circuit split and warrants this Court’s review.”

Readers will note that GE’s quoted description of the issue speaks confusingly about both (i) a signatory compelling arbitration with a non-signatory and (ii) a non-signatory compelling arbitration with a signatory.  One hopes the U.S. Supreme Court will be able to distinguish the two situations and determine whether that distinction is relevant to resolving the question.  The 11th Circuit decision declining to compel arbitration rested in part on the non-US nature of one of the parties.

We shall learn within the next year how the U.S. Supreme Court believes non-signatories fit into the commercial arbitration universe.

_______________________________________________

Mark Kantor is a CPR Distinguished Neutral. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. 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). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

Was It Really a Foreign Arbitral Award? Ninth Circuit Says No.

/ CPR Staff / Leave a comment

By Brian Chihera

The Ninth U.S. Court of Appeals has reversed a district court’s order which had treated an order made by a Philippines arbitrator as a foreign arbitral award.

The appeals court ruled on an unusual situation.  It found that the case had been settled, and there was no outstanding dispute to arbitrate by the time the arbitrator got the case, and therefore nothing for the federal district court to confirm.

In Castro v. Tri Marine Fish Co., No. 17-35703 (Feb. 27) (available at http://bit.ly/2Zwoa8x), the three-judge appellate panel said that the arbitration decision was not a decision at all and should not be enforced under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention.

“We review foreign arbitral awards deferentially, but we do not blind ourselves to reality when presented with an order purporting to be one,” concluded Circuit Judge M. Margaret McKeown, writing for a unanimous Ninth Circuit panel. “To cloak its free-floating settlement agreement in the New York Convention’s favorable enforcement regime, Tri Marine asked an arbitrator to wave his wand and transform the settlement into an arbitral award. That is not sufficient to produce an award subject to the Convention.”

At the heart of the convention and related federal law, notes Circuit Judge McKeown, “is the principle insulating foreign arbitral awards from second-guessing by courts. But this appeal involves an even more fundamental question—whether we are presented with a foreign arbitral award at all. In the mine run of cases, the answer is uncontroversial: when it looks, swims, and quacks like an arbitral award, it typically is. Yet, in this unusual appeal, we have an arbitral award in name only. There was no dispute to arbitrate, as the parties had fully settled their claims before approaching an arbitrator.”

Michael Castro, a Philippines citizen, moved to American Samoa where he lived with his fiancé. Castro was employed by Tri Marine and worked in the company’s warehouse. He was offered a deck-hand position on a fishing vessel it owned, which he accepted.

The dispute between Castro and his employer started with an employment contract that was signed just before the fishing expedition launched. Both parties dispute the contents of what was signed. Castro said he believed that he was only signing a “a half sheet of paper with a few sentences on it” that designated the pay rate, and the employer contended that Castro signed an employment contract.

Castro, however, said that he signed the employment contract when he appeared before an arbitrator. The contract contained a clause which was applicable to all disputes or claims arising out of the employment on the vessel.

Castro injured his knee after falling down ship stairs two weeks into the trip, and immediately requested to be returned to American Samoa so he could travel to Hawaii for medical care. Tri Marine arranged for Castro to be treated in the Philippines, where he also underwent surgery for a torn anterior cruciate ligament and a torn meniscus. Castro also received physical therapy and his employer paid for the medical expenses and his monthly maintenance.

Castro approached Rhodylyn De Torres, a Tri Marine agent in the Philippines after his father had been diagnosed with kidney cancer. He negotiated a settlement of his disability claims in exchange for an advance of $5,000 to help pay for his father’s care. This was followed by an agreement in principle to release Castro’s claims in exchange for an additional $16,160.

Castro was accompanied by his fiancé when he went to see De Torres at her office to finalize the settlement. Castro was not aware of the fact that he was participating in an arbitration. Castro and De Torres both gave different versions of events of their meeting. Castro is not fluent in English and disputes that De Torres translated documents into Tagalog, the Philippine language. There was a dispute as to when the agreement was signed, although Castro did not dispute signing the agreement.

The settlement agreement signed between Castro and De Torres meant that he had released himself from any and all liability or claims. After the meeting on the release, Castro was told that he had to pick up the settlement receipt at the National Conciliation and Mediation Board, but in fact he was led to an arbitration.

Gregorio Biares was present as the arbitrator. This was the first time for Castro to be in an arbitration hearing and he was not aware of any dispute between himself and his former employer. Castro asserted that Biares hurriedly flipped through papers asking Castro to sign  and stating that the settlement was favorable to Castro. Biares reportedly told Castro that the settlement papers were “just a first payment.”

But there was no arbitral case filed by either party. Tri Marine provided Biares the release paperwork signed by Castro and a joint two-page motion to dismiss.

The New York Convention recognizes the enforcement of foreign arbitral awards. A court is obliged to confirm a foreign arbitral award unless the party resisting enforcement meets the substantial burden of proving one of the seven interpreted defenses.

The major question for the U.S. courts was whether there was an “arbitral award” that would fall under the New York Convention. In coming to its decision, the courts had to look at the definitions of “arbitration” and “arbitral award”.

The two terms, however, do not have definitions under the New York Convention and in the Federal Arbitration Act. Case law provided direction.  Using the definitions from American Law Institute’s Restatement, the Ninth Circuit decided that there was no arbitral award, tribunal or arbitration because the requirements of the parties’ arbitration agreements and the forum were not met.

Although the order was issued as an arbitral order, there were aspects of it that indicated otherwise. First, there was no dispute between Castro and his former employer Tri Marine. There was no genuine disagreement between the parties.  Therefore, they reached an agreement and there was no arbitral award handed down. Castro and Tri Marine had settled their dispute before they visited the arbitrator, with Castro releasing Tri Marine of any liability and all claims.

Arbitration is a consensual procedure, and there was no consent between Castro and Tri Marine to participate in an arbitration that was a meeting with a third party. Parties may waive contractual terms, but by his conduct, Castro did not have any intent to arbitrate the dispute in the Philippines. The meeting between the parties did not follow Philippines arbitral procedures.

The Ninth Circuit opinion stated that the parties’ free-floating settlement agreement did not transform into an arbitral award and the fact that there was an arbitrator present does not make it an arbitral award. The appeals court concluded that Tri Marine could seek to enforce the release as a contract matter, but the arbitrator’s order was not an award and it did not fall under a foreign arbitral award.

The author, a CPR Institute Summer 2019 intern, graduated last month with an LLM in dispute resolution from the University of Missouri School of Law in Columbia, Mo.

Identifying the Blind Spots: Self Reflection in the Field of International Arbitration

/ CPR Staff / Leave a comment

Sophie Nappert, selected lecturer at the 2018 Proskauer International Arbitration Lecture, discusses the tumultuous perception of international arbitration and calls for the industry to look inward

By Sara Higgins

During the 2018 Proskauer International Arbitration Lecture, renowned international arbitrator Sophie Nappert took some of the industry’s leading lawyers to task. Her address, cheekily titled “Disruption Is the New Black”, examined what she identified as “blind spots” in the field of international arbitration (IA). Branding disruptive innovation as the poster child for progress, Nappert opined that it will inevitably impact the legal field, during these times of tectonic change and revolution, in a way that forays the very heart of international arbitration – a self-governed justice system that derives its jurisdiction from party consent.

Nappert opened with the current IA landscape. She painted a rather gloomy picture, revealing the sobering fact that in-house counsel consider external lawyers to be the primary obstacle to achieving collaborative, adjudicative and non-adjudicative dispute resolution.

Nappert also pointed to growing skepticism of the arbitral process around the world. “When the Chief Justice of the UK Supreme Court, in one of the most arbitration-friendly jurisdictions on the planet, bemoans the negative influence of arbitration on the development of English law; when the EU, a behemoth not known for its nimble footing, performs a 180-degree turn in less than a year from its initial, resolutely pro-ISDS stance towards pushing forward a court proposal complete with appellate jurisdiction on fact and law”, it might be time for some self-reflection. Nappert asked us to consider, “whether, heady on its nearly unbounded autonomy, on the vast deference granted to it by state courts and legislation and assisted by the unparalleled ease of enforcement of its decisions afforded by the New York Convention (NYC), the current model of IA has overreached itself at the expense of quality of procedure and output.”

In pondering her own question, Nappert praised the unprecedented expansion of IA into areas once considered non-arbitrable but cautioned that “It has made us oblivious to some substantial blind spots, focused as we are on driving the IA chariot forward towards the next development.” She identified three such blind spots, though undoubtedly there are others: diversity, corruption and artificial intelligence.

Diverse panels increase institutional legitimacy

“Current voices in scholarship posit that the above disruptive phenomena present an important opportunity to address shortcomings, and notably as regards the diversity in composition of panels, as a vector towards a better and more legitimate decision-making in investment and commercial arbitration,” Nappert said.

She shared a number of statistics demonstrating diversity in the field – or rather lack thereof. “At ICSID, 19% of the 195 appointments made in 2017 to ICSID tribunals or ad hoc committees were women. This can be compared with 2016, where 13% of appointees were female. Of the 37 appointments of women in 2017, there were 18 different individuals who were nationals of a dozen different states, thus reflecting some regional diversity.” “The SCC reports 254 appointments for 2017, of which 18% were female. When the appointment was made directly by the SCC, 37% of the appointees were female. When made by the parties – 8%; when made by co-arbitrators – 0%. For regional diversity, 231 of the 254 appointments were from Europe, followed by Australasia and North America with 5 each, I from South America, 3 from Asia and 2 from Africa.”

The 2018 Queen Mary/White & Case International Arbitration Survey showed that respondents were generally ambivalent as to whether there is a causal connection between a diverse panel of arbitrators and the quality of that panel’s decision-making. Nappert argued that this might be the wrong query to make altogether. In her opinion, “At a time where the legitimacy of IA is in crisis, in the eyes of others a more diverse tribunal is a more representative, and thus more legitimate, tribunal; and from the prism of enhanced legitimacy the desirability for diversity in tribunal composition is undebatable.”  She stressed that the quest for more diversity ought not to be made at the expense of quality and competence.

How can IA promote diversity?

Accepting that diversity among panelists is the goal, Nappert believes this issue should be championed at the institutional level. “Institutions have a powerful statement to make by enshrining diversity in their rules as a factor for consideration in the nomination and appointment of arbitrators, alongside and to the same extent as other credentials,” she stated. Chastising the “lip-service” treatment currently afforded diversity, Nappert called for institutional rules to anchor this value in the field. She suggested that institutional rules should consider enshrining diversity as a factor in considering appointment, to the same extent as nationality is currently accepted as such a factor.

Allegations of corruption

Nappert next considered IA’s approach to allegations of corruption in the field, calling for greater self-reflection in the wake of Belokon v Kyrgyzstan, where the Paris Court of Appeal famously annulled an Award as infringing public policy, after reconsidering the case on its merits and finding  sufficient evidence of money laundering. She warned, “That a state court in a country famous for its respect for, and deference to, arbitration tribunals should consider it necessary to reopen the merits of a matter should be a cause for concern, and immediate action on our part, lest we are failing to put our house in order in the eyes of others.” She added that between the ICCA, the IBA, and the ILA, there is no lack of fora to host an open discussion about corruption in the field. Nappert seemed to imply that in failing to have such a discussion with the goal of establishing best practices, IA is missing an opportunity to improve public perception and strengthen its legitimacy.

The rise of artificial intelligence

The final blind spot that Nappert addressed in her lecture was artificial intelligence. Arbitral outcomes can be computed using a series of algorithms that, to whatever degree of certainty, offer parties a predictable outcome that might be seen as mitigating some of the risks of dispute resolution. “Scientists and suppliers of algorithms,” observed Nappert, “are currently warning litigation and arbitration users that human decision-making as we exercise it on a daily basis is no better than a lottery. In addition to being costly, time-consuming, and resource-depleting, it is unpredictable and inevitably subject to bias.”

Though not claiming to be a computer scientist, Nappert spoke on the importance that IA query “how algorithms come to their decisions; where the boundary lies between the machine’s capacity for predictive and prescriptive analysis and the human decision-making mind; [and] the public policy implications of robot-assisted justice and how these awards are reviewed by state courts, notably under Article V of the New York Convention.”

She postured that the introduction of AI into IA could create a dispute settlement system tendering predictability and speed for users, and even the ability to suggest commercial solutions to their disputes to prevent reoccurrence — a tool she ventures would speak powerfully to users.

Preserving the “human element”

If this is the inevitable future of dispute resolution, how can IA fight to stay not only relevant, but valuable? To no one’s surprise, IA’s strongest asset is its fundamental value – the notion that parties have a stake in selecting the decision-makers who will ultimately decide their fate. Though an algorithm could eliminate human unpredictability, the ability to select the decision makers in one’s own dispute is what makes arbitration appealing at a basic – and yes, emotional – level.

Nappert discussed briefly the role of human emotion in arbitration and seemed to defend it as an inherent, underlying thread of dispute resolution. She called for “arbitral institutions proactively to dialogue with AI scientists and providers to ascertain in an ethical manner, how lawyers are made to understand the way algorithms work, how exactly machine speak translates into the human language, and how we can carry on selling the human values underpinning decision making, so that we have an economically competitive and intelligible answer to give to scientists, suppliers of algorithms, and users.”

IA must put its house in order

Nappert ceded that these blind spots – diversity, allegations of corruption and artificial intelligence – are not the only ones IA possesses. But, while they need to be addressed as soon as possible, reacting to these blind spots is no longer enough, in Nappert’s opinion. “In the face of rapidly-paced and seismic disruption, we need to be proactive lest we become the Kodak and Blockbusters of dispute resolution,” she cautioned.

The IA community is largely governed by its own practitioners serving on boards and steering committees, including in arbitral institutions. This close relationship should be taken advantage of to show the rest of the legal community, and the world at large, that IA can keep its own house in order. Nappert concluded, “If we show that this closeness can deliver the benefit of building consensus on best practice and policing our own terrain in a forward-looking manner, we will make strides towards the continued legitimacy and relevance of IA in the face of disruption.”

 

Sophie Nappert is a dual-qualified lawyer in Canada and the UK. She is an arbitrator in independent practice based in London, specializing in international disputes. Sophie is ranked in Global Arbitration Review’s Top 30 List of Female Arbitrators Worldwide and is commended as a “leading light” in the field by Who’s Who Legal. She won the 2016 Global Arbitration Review Award for Best Speech for her address at the EFILA Annual Lecture, International Investment Arbitration: Escaping from Freedom? The Dilemma of an Improved ISDS. http://www.3vb.com/our-people/arbitrators-associate-members/sophie-nappert

Sara Higgins is a legal intern at CPR and a third-year law student at Northeastern University School of Law. Sara recently completed the New York State Bar Association Commercial Arbitration Training for Arbitrators and Counsel and previously worked for the United States Attorney’s Office in Boston, Massachusetts.

Second Circuit Backs Overturning Award That Had Been Annulled At Arbitral Seat

/ CPR Staff / Leave a comment

By Ugonna Kanu

The Second U.S. Circuit Court of Appeals this summer affirmed a New York Southern District federal court decision to vacate the trial court’s previous enforcement of an arbitral award after the award was annulled at its seat in Malaysia.

In Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People’s Democratic Republic, Docket Nos. 14-597, 12-1052, 14-1497 (2d Cir. July 20, 2017)(available at http://bit.ly/2wS9HpS)(available at http://bit.ly/2vKDHnE), a commercial dispute arose between Thai-Lao Lignite (Thailand) with its subsidiary, Hongsa Lignite (Lao PDR), and the Government of the Lao People’s Democratic Republic, which the parties submitted to arbitration in Malaysia.

According to the Second Circuit opinion, in the 2009 Kuala Lumpur arbitration, a panel of three U.S. lawyers conducting the matter under the United Nations Commission on International Trade Law Arbitration Rules found the defendants—the government of Laos–in breach over a dispute on mining rights the defendants had granted to the mining company petitioners.

The tribunal awarded the petitioners about $57 million.

The case, the opinion states, addresses “how a district court should adjudicate a motion to vacate a judgment that it has entered enforcing a foreign arbitral award, when that award has later been set aside by courts in the arbitral seat.” It examines the interaction between a Federal Rule of Civil Procedure 60(b) motion and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.

After a period for challenging the award expired, the petitioners successfully brought enforcement proceedings in the United States and United Kingdom. But almost a year after the award, the defendants applied at the Malaysian courts for the award to be set aside on the grounds that the arbitrators exceeded their jurisdiction by addressing disputes under contracts not covered by the relevant arbitration agreement.

The motion setting aside the award was granted in 2012. Then, returning to the United States, the defendants moved to vacate the order enforcing the award.

U.S. District Court Judge Kimba Wood relied on Federal Rule of Civil Procedure 60(b), in which the court can relieve a party from a final judgment if the judgment is based on an earlier judgement that has been vacated or reversed.

Wood analyzed the FRCP in conjunction with the New York Convention Article V(1)(e), which gives courts the discretion to refuse to recognize or enforce an award on party’s request under specific circumstances. In 2011, a year after confirming the award, Wood vacated the judgment to enforce, following the Malaysian nullification.

On appeal, the Second Circuit affirmed Wood’s decision to vacate her original judgment. In backing the district court decision, the Second Circuit referred to the clash between the federal rules and the convention. The appellate decision cited TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007)(available at http://bit.ly/2vR2S7S), where a unanimous panel, in an opinion written by Circuit Judge Susan L. Carney, noted that the convention’s “text appears to leave the District Court with discretion to enforce an award that has been annulled in the primary jurisdiction—after all, it does not say that enforcement of the award ‘must’ be refused—[but] held . . . that the scope of that discretion is ‘constrained by the prudential concern of international comity.’”

The Thai-Lao Lignite opinion endorsed TermoRio, where the D.C Circuit affirmed a decision denying enforcement of an annulled award, stating “when a competent foreign court has nullified a foreign arbitration award, United States courts should not go behind that decision absent extraordinary circumstances.” (Quoting the TermoRio appellees’ brief).  The D.C. Circuit said the exception to enforcement would be where a judgment is contrary to U.S. public policy.

The Second Circuit opinion notes that TermoRio followed the Second Circuit view on foreign awards in Baker Marine Ltd. v. Chevron Ltd., 191 F.3d 194 (2d Cir.  1999)(available at http://bit.ly/2uQIFBN). In Baker, the appellate court upheld the district court’s refusal to enforce an award that had been annulled in Nigeria, the arbitration seat, because to do otherwise would give a losing party “every reason to pursue its adversary with enforcement actions from country to country until a court is found, if any, which grants the enforcement.”

The result would be a loss of finality and conflicting judgments, as well as overall difficulty in maintaining a uniform and predictable arbitral framework and to prevent producing regularly conflicting judgments.

The Second Circuit’s Thai-Lao Lignite opinion suggested that the result would have been different if the decision of the foreign court was contrary to the “fundamental notions of what is decent and just” in the United States.  It based this public policy exception on Corporación Mexicana de Mantenimiento Integral, S. De R.L. de C.V. v. Pemex-Exploración y Producción, 832 F.3d 92, 107 (2d Cir. N.Y. Aug. 2, 2016)(available at http://bit.ly/2xcyLXZ).

In that case, the Second Circuit affirmed a district court enforcement decision to confirm an award that had been nullified at the primary jurisdiction in Mexico, on the grounds that the Mexican appellate court had retroactively applied Mexican law and deprived the plaintiff of a remedy, contrary to fundamental U.S. public policy.

The Second Circuit Thai-Lao Lignite panel notes that it held its opinion until a U.S. Supreme Court cert petition in Corporación Mexicana had been decided. The request was denied earlier this year.

But in Thai-Lao Lignite, the U.S appeals court saw no grounds for public policy concerns.  A question as to the defendant’s delay in challenging the award, and its dilatory tactics in discovery matters arising in the U.S. courts, were viewed by as justifiable by the district court; “these factors would not have materially changed the outcome,” the opinion states, considering the district court’s reasons for vacating the award.

The author is an attorney in Nigeria who has just completed her L.L.M. in Dispute Resolution at the University of Missouri-Columbia School of Law.  She was a CPR Institute 2017 summer intern.

Brexit and ADR, Untangling the Complexities

/ CPR Staff / Leave a comment

The United Kingdom’s recent referendum vote to leave the European Union (EU) is just a few weeks old, and dealmakers are rightfully concerned about its ramifications. The falling pound, the most immediate consequence, is just one of many factors that could affect pending deals with British companies. Many parties entered into contracts with UK-based companies with certain assumptions based upon the country’s membership in the EU. Now, with the UK’s situation uncertain, the lawyers are lining up to figure out next steps.

On July 18, CPR’s arbitration committee convened a panel on the topic of Brexit’s impact on cross-border arbitration and litigation involving the UK, hopefully clearing up some of the mystery. The panel was moderated by Jean-Claude Najar (France) of Lazareff Le Bars, and featured Tim Hardy (UK) of CMS Cameron McKenna LLP, Vanessa Alarcon Duvanel (Switzerland) of White & Case LLP, and Clifford J. Hendel (Spain) of Araoz & Rueda Abogados, S.L.P.

As explained by Mr. Hardy, Brexit’s main immediate impact on cross border litigation in the EU is the uncertainty as to what will happen post-exit to the existing unified regime for dispute resolution applying to all Member States. Since 1973, the UK has been required to adopt unifying arrangements to avoid duplicate litigation in different States through a series of rules intended to determine that the court of only one State can have jurisdiction and that the decision of that court should be respected by all other courts of Member States. Initially, the incorporation of these reciprocal arrangements into the legal framework of Member States was undertaken through a  series of treaties – each requiring each State to approve, ratify and implement each Treaty.  As this was extremely cumbersome and slow, subsequently, EU Regulations were implemented directly applying the rules into the law of each member state.

To exit the EU the UK will have to repeal the European Communities Act which will automatically repeal all Regulations but it will not repeal all treaties. Accordingly, a complex situation could develop where arguably some treaties will survive and may be applicable and relevant to determining parties’ positions if disputes arise. “One would hope,” said Mr. Hardy, “that the legislature will do what it can to avoid this mess. But at the moment, we don’t know what steps will be taken to address and tidy it up.”

As for the practice of international arbitration in the UK or London, Mr. Hendel explained, there is no reason to think that Brexit will have any legal effect because the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which is the lifeblood of international arbitration, is immune from what will happen with Brexit. The situation is different, however, in the world of judicial dispute resolution. Mr. Hendel referenced the falling away of important EU regulations concerning the automatic recognition and enforcement of judgments throughout the EU, jurisdiction and choice of courts, as well as choice of law, in two years’ time or so, unless the UK takes action before then through negotiation with the EU or unilateral action to keep these legal mechanisms in place. These regulations currently provide an important degree of harmonized certainty on how to deal with everyday issues that arise in EU cross-border disputes, and Brexit will inevitably undermine this certainty. Mr. Hendel noted that the UK might have an incentive to preserve this framework one way or another in order to preserve its perceived supremacy in the financial and legal industries.

Ms. Duvanel examined how Switzerland has managed in the years since it voted in 1992 not to join the European Economic Area (EEA) to overcome isolationism vis-à-vis the EU. Although it took several decades, Switzerland managed to negotiate and ratify bilateral agreements with the EU to harmonize its legislation with that of the EU. For example, the Lugano Convention addresses the issues relating to jurisdiction and recognition and enforcement of judicial decisions between Switzerland and the EU. In the end, she explained that Switzerland has its own set of legislation, but that much of it is inspired by the EU, “fully harmonized but always a bit later.” The harmonization of the two legislative systems has been long and difficult for Switzerland, and it is likely to be difficult for the UK as well. She stressed, however, that all of that had no effect on international arbitration in Switzerland. Switzerland remains very attractive. Swiss arbitrators are among the most nominated in the world in international arbitration cases. Switzerland is the second most chosen seat for international arbitration and Swiss law is one of the most chosen applicable law due to the stability of the Swiss legal system.

From an in-house perspective, explained Mr. Najar (who held various senior legal positions in GE for close to 24 years), companies must analyze the potential consequences of Brexit on their contracts governed by English law, particularly long-term contracts, and determine how to best mitigate the uncertainty related to the impact of Brexit. There is a wide array of potential issues to consider, such as currency fluctuation, access to the EU market, organization setups, employees’ rights, corporate governance, and specific regulations. Dispute resolution clauses will also need to be reviewed closely. Najar pointed out that some companies had already started to opt out of the UK, in favor of jurisdictions such as France and Switzerland, several years ago out of other concerns, such as costs or being closer to a civil law environment. Najar stressed that English law enjoys a longstanding and solid reputation as the governing law in many contracts. However, it incorporates many elements of EU law, and Brexit will therefore create some uncertainty as these elements are being pulled out of English law. Since businesses do not like uncertainty, Brexit might deter companies from choosing the UK as a seat or English law as the applicable law.

For anyone involved in business in the UK, CPR’s European Advisory Board (EAB) is an excellent resource for efficient dispute prevention and resolution. The EAB, a highly experienced and distinguished group of sophisticated practitioners and users from Europe’s leading law firms and corporations, has recently released a European Mediation and ADR Guide. Developed under the leadership of CPR’s EAB, the Guide provides a valuable overview of the most widely used alternative dispute resolution processes (particularly mediation) and when they might be suitable, with practical suggestions on how to make use of them.

While Brexit may seem like an ugly divorce, the fallout for companies doesn’t have to be messy.