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Thinking About Arbitral ESI Retention Orders

Tuesday, January 9th, 2018

In the United States, federal and state trial courts recognize a legal duty of a litigant to retain documents, a duty that comes into existence upon coming into possession of facts providing the party with actual or constructive notice of the reasonable possibility of litigation. The scope of the duty, i.e. the documents to which the duty applies, are those documents that would be subject to production under the court’s discovery rules in response to a (properly-framed and timely-presented) document request made by the adverse party. Documents potentially shielded from the obligation to produce them because they are covered by an evidentiary privilege such as the attorney-client privilege are covered by this duty to retain, because the existence of the privilege might be overruled by the court, or the privilege might be waived, or — the privilege being qualified and not absolute — the court might determine that special circumstances require production of a privileged document.

Whereas federal and state civil procedure rules broadly define “documents” to include all manner of electronically-stored information (ESI), the duty to retain such information is not limited by the possibility that a court might eventually but as a matter of discretion limit the types of ESI that must be produced. Prudent litigating parties in US state and federal courts who wish to avoid making a very broad litigation hold at great internal cost, and also wish to avoid the risk that they would be charged with breach of the duty of retention, negotiate the scope of a litigation hold, and if agreement cannot be reached seek judicial resolution of the areas of disagreement so that the scope of retention matches what is prescribed in the court’s order. Less cautious parties who fail to establish agreed or ordered limits on retention run the risk that they will suffer the loss of data that is later deemed subject to production in discovery, and run the risk of court imposed sanctions ranging from monetary penalties to preclusion of certain positions to more sweeping, possibly case-dispositive, adverse inferences.

Let us assume that these rules, essentially common law extensions of discovery rules found in  codes of judicial civil procedure, are not generally applicable to an international arbitration at a US seat unless the parties, against expectations, have agreed that the arbitrators should apply judicial rules of procedure and evidence. With that assumption in mind, consider how these rules might or might not become implicated in an international commercial arbitration. First, suppose there is a dispute between a US and a foreign company, each represented by US lawyers admitted to the New York Bar, under a contract that provides that it is governed by New York law, but the seat of the arbitration is in Canada. As these are evidently rules of judicial procedure, the generic New York choice of law clause does not bring them into play in the arbitration. And whereas these rules are not classified as rules of professional conduct governing the conduct of attorneys generally, the fact that counsel for each party is New York-admitted does not logically lead an Arbitral Tribunal to adopt automatically rules governing retention of documents as rules governing the conduct of counsel in the arbitration. And it cannot be assumed that ethical constraints and ethical disciplinary risks in the attorney’s jurisdiction of admission will lead counsel to cause the client to retain documents to the same extent it would in a litigation. Further, even if one assumes that Canada’s provinces have relatively similar rules governing retention of documents that might be discoverable in judicial litigation, such rules have not been adopted into (for example) the international arbitration statutes as mandatory rules of arbitral procedure in Ontario, Quebec, or British Columbia.

But the rules that parties most often select to govern procedure in their international arbitrations contemplate that there will be some opportunity to obtain some documents possessed by the adverse party that are not merely the documents the adverse party wishes to present to advance its case. (The ICC Rules and those of a few arbitration centres in civil law European countries like Austria and Italy are actually exceptional in omitting express reference in their rules to the Tribunal’s power to order production of documents, and even in arbitrations under such rules the possibility of such document disclosure cannot be excluded because arbitrators have the power to conduct the proceedings as they consider appropriate). And the IBA Rules of Evidence, so widely and willingly adopted by mutual consent of parties and Tribunals, reflect a similar vision. Whereas neither these rules nor the arbitration statutes applicable in major arbitration venues provide very specific guidance about the scope of permitted inquiry into documents stored by the adverse party, the scope of any duty to retain documents cannot be linked, as it is in American courts, to a common expectation about what may need to be produced. This state of uncertainty would seem to serve as an invitation to parties and Tribunals to discuss the scope of document retention at an initial stage of the case. But in my own experience it seems that this is rarely done.

Several factors account for this, I believe. First, there are international arbitrations in which both sides are represented by litigators who are not arbitration specialists and bring along assumptions about the similarity of arbitration to litigation that are only challenged when a dispute arises. At the other extreme, where both counsel are specialist international arbitration practitioners, each may assume that the other will proceed upon a shared view that broad disclosure of ESI is antithetical to efficient arbitral process and will not become a contentious issue. Perhaps the main reason it is not done is that the Tribunal will not regard ESI retention as a primary item of its procedural agenda, being reluctant to initiate discussion on a subject that might imply that the Tribunal takes a liberal view of the scope of pre-hearing disclosure.

But in a few cases one or both parties will ask the Tribunal for the arbitral equivalent of what the American common law duty rule provides, and the question arises as to what the Tribunal ought to do. There is very little published guidance. The IBA Evidence Rules do not touch the question. In 2010, a working group of US practitioners under the auspices of the International Institute for Conflict Prevention (CPR) issued the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration, and this Protocol adopts the premise that “speed and efficiency” is at least one of the considerations affecting disclosure in arbitration and that “requests for information based on possible relevance are generally incompatible with these goals, [and] disclosure should be granted only as to items that are relevant and material and for which a party has a substantial, demonstrable need in order to present its position.” Section (d)(3) of the CPR Protocol entitles “Preservation of Electronic Information” provides:

In view of the high cost and burden of preserving documents, particularly in the form of electronic information, issues regarding the scope of the parties’ obligation to preserve documents for potential disclosure in the arbitration should be dealt with at an early scheduling conference, or as soon as possible thereafter. The parties’ preservation obligations should comport with the Schedule 2 mode of disclosure of information selected.” Schedule 2 of the CPR Protocol envisions that the parties ideally will agree upon one of the four “Modes” for disclosure of electronic information described in Schedule 2 — each involving more ESI than the preceding Mode, such that that retention duty stipulated would, logically, correspond to the disclosure protocol adopted.

Writing about e-discovery in arbitration nearly a decade ago, thoughtful commentators observed: “The ‘preservation’ of ‘relevant’ documents once litigation is anticipated or commenced also requires rethinking in light of the fact that electronic information is dispersed and dynamic throughout a company’s computers, rather than statically awaiting collection in a drawer.” (R. Smit & T. Robinson, E-Disclosure in International Arbitration, 24(1) Arbitration International 105 at 109 (2008)). Those commentators proposed the following as a general guideline to be applied by international arbitration Tribunals with regard to retention: “The obligation to preserve electronically stored information requires reasonable and good faith efforts to retain information that may be necessary for pending or threatened arbitration. It is unreasonable to expect parties to take every conceivable step to preserve all electronically stored information that may potentially be relevant and necessary in the arbitration.”  (Id. at 133, Proposed Guideline 19). And yet as we turn the calendar to 2018, such rethinking either has not taken place, or has occurred ad hoc in case-specific settings and has not crystallized into a set of published best practices concerning e-document retention for potential arbitration disclosure.

One of the major challenges is that even where counsel accept that an international standard of relevance and materiality applies and that document requests should be very specific, counsel cannot know at the outset whether the key communicators of the adverse party, in their communications internally and with third parties, mainly used desktop servers in their offices to send e-mails, or also used mobile devices without generating copies of the messages on the desktop server. The cannot know whether the key communicators used personal e-mail accounts, or text messaging, as the standard or more than occasional means of business communication. So there is a cost-benefit calculation to be made by the parties, with very imperfect information, if they are to commit to limitations on e-discovery at an early stage of the case. If the parties do not agree upon the scope of potential ESI disclosure, however, they are unlikely to agree to the scope of document retention measures. The Tribunal, if asked to enter a document retention order, risks inefficient imposition of the costs to the parties for broad document retention (e.g., directions that various persons must save or centrally deposit mobile device messages) if this later proves to have been unnecessary because the scope of what later must be produced is far more limited that what is initially ordered to be retained.  At the opposite extreme, the Tribunal that concludes perhaps prematurely that (for example) metadata, text messages, i phone e-mails, and voice mails need not be the targets of specific retention measures, or draws a narrow circle of persons required to take retention measures, risks sanctioning the disappearance of evidence to an extent it may later regret.

The excellent and comprehensive report of the ICC Commission on Arbitration and ADR entitled “Management of E-Document Production” sensibly states that if production of electronic documents is confined in accordance with the IBA Rules of Evidence to the same extent of production of paper documents, as the IBA Rules expressly envision, then most of the efficiency challenges associated with E-Discovery should be avoidable. But these guideposts often will be unhelpful to the Tribunal in a case with US counsel on both sides, particular where those counsel are litigators bringing their litigation instincts to bear in the arbitral forum. Even when one or both parties are represented by specialist arbitration practitioners, they may prefer to follow their litigator instincts for tactical reasons.  As soon as the Tribunal accommodates the parties’ professed mutual desire to work out disclosure matters by agreement without Tribunal involvement — a common posture at the preliminary conference stage — there is a recipe for trouble if disputes arise. Suppose, for example, that at a time just after the deadline for the parties to produce requested documents to one another — the Tribunal per the parties’ agreement on procedure having taken no active disclosure-management role up to this point — now receives an objection by one party that the other has produced the electronic equivalent of several hundred thousands of pages of documents in a format that is not keyword-searchable or otherwise searchable by use of search software, ostensibly forcing the objector into a costly page-by-page review of the producing party’s production. Possibly search software usable with the production exists, but neither the objector nor its counsel has acquired it nor has heretofore employed IT specialists capable of applying it. Possibly the document in searchable format still exist in some electronic data storage facility of the producing party but the retrieval costs are substantial. The objector might assert that the producing party should be made to bear this cost, as a penalty for having violated a duty (articulated in judicial but not arbitral e-disclosure rules) to preserve and produce in a readily searchable format.

What sort of initiative might become an operating standard for Tribunals? Perhaps some sort of e-disclosure questionnaire would suffice: (1) Do you envision e-disclosure by the adverse party of e-data from sources other than e-mail (and attachments) stored on corporate servers? If yes, what sources/devices, and why will this be sought? (2) Can the needed documents be obtained by searching the e-mails (and perhaps text messages) of a limited number of persons? (Each party is asked to reasonably investigate to determine the person most directly involved in the transactions at issue). (3) What is the relevant time period for production? Do auto-delete protocols based on message age make some portion of the data universe less readily accessible? Can the parties agree to do without data if that vintage, and if not, how should retrieval costs be borne? Has the auto-delete protocol been overridden, at least for relevant individuals, to prevent impediments to the gathering of relevant data? (4) What is the format in which production of electronic documents is expected to be made? Is this satisfactory the adverse party?

A questionnaire of this type does not appear to favor either party nor does it encourage e-discovery of a scope comparable to what might be permitted in a US court. It may indeed prompt parties to recognize and concede early on that disclosure in arbitration often is different and more limited unless both parties clearly want an arbitration that resembles a US litigation at least in its discovery phase. And the questionnaire seems reasonably calculated identify whether there is a need for some sort of retention order, and to lead to an order whose scope is tailored to the expected scope of e-disclosure.


Toward a Uniform Position on US Arbitral Subpoenas

Tuesday, January 9th, 2018

American arbitration law in force since 1925 empowers arbitrators to issue subpoenas to non-parties. This power is found in Section 7 of the US Arbitration Act (FAA). This provision is essentially the only provision of the FAA that directly states a micro-level rule of procedure concerning how proceedings shall be conducted in  an arbitration involving interstate or international commerce. Therefore authoritative decisional law about the meaning of FAA Section 7 has considerable importance to the day-to-day work of arbitrators in domestic and international cases that are seated in the United States (or by agreement are governed by US arbitral procedural law).

It is a rare occasion when an issue concerning enforcement of an arbitral subpoena is decided by a US Circuit Court of Appeals. Such a rare occasion occurred last month when the US Court of Appeals for the Ninth Circuit, agreeing with holdings of the Second, Third and Fourth Circuits, held that an arbitrator’s power under FAA Section 7 to obtain documents by subpoena is confined to requiring a witness to come to an arbitral hearing and to bring along documents for submission as evidence at the hearing. (CVS Health Corp. v. Vividus, LLC, 2017 WL 6519942 (9th Cir. Dec. 21, 2017)). According to these four federal appellate courts — in decisions from 1999, 2004, 2008, and now 2017 — that conclusion is compelled by the plain meaning of the words used in the statute: “… may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence.

One US appellate court, the Eighth Circuit, adopted a different view in a decision in 2000 that predates the Second and Third Circuit cases. The Eighth Circuit held that an implicit power to require document production in advance of a hearing — in the manner of discovery in a US litigation — could be inferred from the explicit statutory power to order production in conjunction with the appearance at a hearing of a witness under subpoena.

In US legal parlance a “Circuit split” exists whenever different federal courts of appeals rule differently on the same issue. And so it has been conventional in discussion of the arbitral subpoena power to refer to a “Circuit split” because of the 8th Circuit ruling (and to a small degree because the Fourth Circuit allowed that, despite the evident plain meaning of the statutory words, perhaps in a case of special need or hardship there might be a power to subpoena documents to be produced separately from any hearing).

Here we have a “split,” but it is far from being down-the-middle, for multiple reasons. First one should consider the US cities whose US District Courts are bound by the Eighth Circuit’s decision, as compared to the list of cities in the Second, Third, and Ninth Circuits. The former includes Minneapolis, St. Louis, Kansas City, Des Moines, Little Rock, and Omaha. The latter includes New York, Philadelphia, Los Angeles, San Francisco, San Jose/Silicon Valley, San Diego, Seattle, Phoenix, Portland, and Pittsburgh. Consider also the fact that US District Courts in Dallas, Chicago, Miami, New Orleans, and Northern Virginia have followed the 2d-3d-4th (and now 9th) Circuit view — this survey is based only on published decisions — on the basis of the persuasive force of this position and not because of appellate authority they were bound to follow in their own Circuits.

The consequence is that in most of the US cities of greatest economic significance, and thus probably in most of the places where non-party witnesses in US-seated international arbitrations and high-value domestic arbitrations will be found, the rule is likely to be that the arbitral subpoena must summon a witness to a hearing in order to compel the witness to produce documents.  The Eighth Circuit view has no such retinue of unbound District Court adherents, and this is presumably because its view is simply less persuasive. It finds no support in the text of the statute and relies upon an analogy between arbitration and litigation: that whereas a judicial subpoena may issue for trial or discovery, an arbitral subpoena should be able to issue for a hearing or for discovery. But evidently most courts have been persuaded that this analogy fails because discovery occupies a different place in arbitration.

It is also inferable that this is not the type of “Circuit split” that is likely to be resolved by the US Supreme Court — not when the issue has only reached federal appellate courts four times in almost 20 years and participants in an ongoing arbitration are likely to find solutions that do not involve taking this avoidable issue to the Supreme Court.

So what shall the arbitrator do? Arbitration counsel who are sensitive to the issue may be willing to design the proposed subpoena to order production at a witness hearing. To that end, since 2015 many arbitrators have provided to counsel the New York City Bar’s Annotated Model Federal Witness Summons.   (A link can be found on this Commentator’s general website But what if counsel, so informed, insists on a discovery-style subpoena and declares its willingness to litigate for its enforcement in a jurisdiction where the issue is technically open?  And suppose the adverse party does not object? It is not for the Tribunal to declare predictively that the subpoena is not likely to be enforced. But if arbitral persuasion of counsel fails, it is surely within the Tribunal’s discretion to warn counsel that delays in obtaining non-party evidence due to judicial enforcement proceedings might not furnish a basis for postponement of the final merits hearing, thereby encouraging counsel to follow the now-customary pre-merits hearing route for document disclosure: i.e. the issuance of a subpoena calling for a pre-merits hearing before members of the Tribunal, at a place of compliance close to where the witness is found, with the understanding conveyed by the Tribunal to counsel that if the witness and both parties will agree to waive the hearing, there is no obstacle to consensual third-party document production in a non-hearing setting in advance of the merits hearing.


Mediation for Catalonia and Spain?

Wednesday, November 1st, 2017

In the past two days, the international news media following the Catalonia independence movement crisis have reported that the independence leader and deposed Catalonia President Carlos Puidgemont has arrived in Brussels, possibly eventually to seek asylum, conceivably to form a “government in exile,” perhaps only, and ostensibly, to secure assurances of fair judicial process for his potential criminal prosecution in Spain.  The New York Times reports that “Belgium is virtually the only national government in Europe that has been even remotely sympathetic to Mr. Puidgemont’s pleas for mediation, not least perhaps because the country has faced separatist tensions of its own led by Flemish hard-liners.”

Those readers who take an interest in the elements of successful mediation of international disputes have perhaps been giving thought recently to how mediation might play a role in bringing about a solution to the Catalonia crisis. I have done so over the past several days, and here present some of my own thoughts. (My motivation of course is not to solve the crisis, but to derive lessons that those who act as mediators might apply to the successful resolution of complex disputes both international and domestic, commercial and political).

  1. Why mediation has not happened: It appears that the Catalan leader Puidgemont began advocating mediation quite immediately after the independence referendum held on October 1. The invitation was renewed several times in October, was rejected each time by Spain, and Puidgemont’s advocacy for EU intervention as a mediator was rejected by the EU.  The EU’s refusal to act as mediator may be seen as an admission that it could not be an independent and impartial neutral, as its interest (and the interest of its members) in the unity of EU member states is evident. As to Spain’s rejection of mediation, it appears as a classic case of a disputant considering that any form of engagement is a legitimation of the other side’s position. But here it seems possible that Spain had options short of refusing negotiations to declare publicly its non-negotiable positions: the illegality of the referendum, the absence of a Catalan mandate for independence, the unacceptability of secession under any circumstance.  Spain evidently concluded that it had a better alternative to any imaginable negotiated agreement: the dismantling of Catalonia’s regional government under Art. 155 of the Spanish Constitution, and the criminal prosecution of Puidgemont and other Catalan leaders. That is what is unfolding, but whether it is a good solution remains to be seen.
  2. Defining an agenda for mediation: Mounting a confidential mediation that allows the participants flexibility without pressure from their constituencies is extremely difficult in such a transparent, media-saturated environment. But if such a confidential channel could be established, an initial mediation session might be devoted to defining an agenda for further mediated discussions within the period preceding the new regional election in Catalonia scheduled for December 21.  What would a possible confidential agenda items be? Adjournment of criminal proceedings in Madrid against the deposed Catalan leaders pending the December 21 elections? Security arrangements for the December 21 elections and methods for tabulating the ballots? Terms and conditions for campaigning and debates ahead of those elections? A commitment to a moratorium on unilateral action and to engagement in discussions for a minimum period of time following the December 21 elections?
  3. The Mediator’s preparation:  There are many effective mediators who refrain from actively seeking opportunity for separate discussions with each disputant prior to the first mediation “session”. There are also many effective mediators, I believe a smaller group, who seek leave from the parties to treat the mediation as underway as soon as the mediator’s engagement is established, such that the mediator may (and actually does) conduct separate telephonic or in-person discussions before bringing the parties together for a joint session. Would the latter approach be advisable for this dispute, assuming it can be accepted by Spain and the representatives of Catalonia? While this is a dispute about sovereignty, autonomy, and culture, among other things, from a mediation perspective its shares many of the attributes of complex inter-corporate disputes: e.g., personal motivations and idiosyncrasies of the leaders, dynamics between the leaders and their constituencies, highly-evolved narratives of each side’s position that may operate at least early on as barriers to creativity in the negotiation process.   Consensual separate sessions before any joint session is convened might begin to overcome these potential barriers to progress.
  4. Defining success in the mediation: Sometimes success in a mediation needs to be defined incrementally, and this is as true of civil and geopolitical conflicts as it is for commercial disputes. In a difficult mediation that promises no immediate final status solution, an initial measure of success can be that the mediation does not fail, that the parties agree to return for another session, and that the parties to commit to refrain from or at least not to expand upon efforts to bring about a final status change by other means. In a conflict like this one involving the very fabric of civil society and how the “rule of law” and “democracy” are defined and understood, an agreement to continue  discussions and to refrain from certain pressure tactics outside the mediation might well be an interim measure defining success in the mediation. (Possible voluntary restraint measures for Catalonia: no civil service strikes? no establishment of a government-in-exile? No Catalan efforts to establish international diplomatic recognition?  For Spain: no violent action by police against non-violent protest? suspension of the prosecution of Catalan secession leaders? restraint from seizing control of news media in Catalonia?).



As the question of Catalonia’s political autonomy moves forward in this post-Declaration, post-Dismantlement, pre-Election phase, it will be interesting to see if initiatives for mediation are forthcoming from any source other than the advocates for Catalan independence. It seems evident that much can be gained from effective mediation. If the initiative were to come from another source such that Spain might embrace mediation without the embrace being seen as a capitulation, perhaps some progress or at least a deferral of a seriously destabilized civil and political environment can be achieved.


Do Arbitrators Know the Law? Or Find It?

Tuesday, October 31st, 2017

Here in common law America we do not have much direct and systematic discussion about when and under what conditions international arbitrators may or should conduct their own legal research to ascertain or clarify the applicable law that they should apply. We have a passing familiarity, from contacts with our civil law colleagues, with the civil law term iura novit curia (literal translation, “the judge knows the law”). But the reality is that some American international arbitrators consider the law to be what is found in bound volumes of submissions (briefs and authorities) presented by the parties, while others consider those submissions to be the point of departure for inquiry into the applicable law, especially when the law is our “own,” notably, the common law of a State of the United States. Some of the passivity of the former group is not necessarily borne of rigorous analysis of the issue, but rather of some combination of lassitude and resignation, percolating at the conclusion of a long career as an advocate, at a time when the arbitrator, now dis-affiliated from any law firm and spending more time in the quiet confines of a family residence, may find himself or herself not only without the skills needed to conduct legal research in an online database but without the most basic tool needed: a database subscription. (This is not a description that fits your commentator, or many of his peers, but the ranks of the disconnected are nevertheless substantial. Arbitrators who could not gain access to legal authorities in an online database, and so insist on having paper supplied to them, create significant copying, printing, copy-checking, and shipping costs for the parties – sometimes for sending “bankers box”-sized Express packages over a net distance of a few city blocks. This is something parties seem to accept, possibly with pursed lips and tight grimaces, rather than insist that their arbitrators conform to modern norms).

But we do have a legal issue in regard to arbitrator initiatives to conduct legal research, and it is one that to my knowledge has not often if at all been decided in the federal courts under the FAA: does an arbitrator perhaps exceed her powers by conducting such research, or in some circumstances deny a party a fair hearing by not inviting comments on the fruits of such research? The relevant FAA case law tells us in general terms that a party is denied a fair arbitral hearing when it has been deprived of the opportunity to present relevant evidence and arguments. (See, e.g., Rogers v. Ausdahl Financial Partners, Inc., 168 F. Supp. 3d 378, 389 (D. Mass. 2016), citing First Circuit authorities). When might there be denial of opportunity to present arguments, such as to justify vacatur of the award, if the parties were allowed to submit two or more rounds of briefs, but the arbitrators cited and discussed in their award some cases that were not cited by either side?

The circumstance of the arbitrator invoking legal authorities not presented by the parties is to be distinguished, in the first instance, from the arbitrator resolving the case by applying a legal or equitable remedy that neither party requested. The latter situation was famously examined by the Quebec Superior Court in Louis Dreyfus s.a.s. v. Holding Tusculum B.V. [2008 QCCS 5903, Dec. 8, 2008], where the Court annulled an ICC Award rendered by a Tribunal seated in Montréal on the basis that the Tribunal had exceeded its jurisdiction and denied a fair hearing (the civil law rule audi alteram partem, literal translation “let the other side be heard as well”) when  neither the legal theory adopted by the Tribunal nor the remedy applied had been presented by either party and the parties had not been invited by the Tribunal to comment on whether that theory and remedy should be invoked. The Dreyfus judgment however did not deal with the sua sponte identification of the dispositive theory and remedy by the Tribunal as misconduct separate from the Tribunal’s failure to give the parties notice and an opportunity to be heard. Indeed the judgment may fairly be read as focused on the latter, and does not hold or particularly clearly suggest that a Tribunal exceeds its jurisdiction if it interjects a legal theory and potential remedy — grounded in the applicable law — into the case, but does no upon proper notice to the parties and with adequate opportunity for the parties to be heard concerning the Tribunal’s premises.

For American arbitrators this question of sua sponte interjection is often considered under the rubric of impartiality of the Tribunal (and the appearance thereof throughout the proceedings). The open suggestion to the parties, in the middle of the case, that the case might be resolved on a theory that neither party has raised, threatens to foster the impression that at least the arbitrator making the suggestion, if not the full Tribunal, is predisposed toward the position of the party advantaged by the new theory thus advanced. And whereas this will be a large risk even if the arbitrator(s) making the suggestion have serious reservations about the novel solution, American arbitrators will be reluctant to advance such proposals. We sometimes display such reluctance by invoking the bromide that the Tribunal should receive the case as the parties present it, under the party autonomy principle, but probably the root concern is about the perception of prejudgment of the case.

Is that a concern that should impel arbitrators to refrain from any independent research into the applicable law? Suppose a party has made a general reference to an equitable principle that it says should be applied in its favor, but the argument is not embellished by case law or other authorities.

The Tribunal — clearly charged with deciding whether the application of that principle is justified under the substantive law it is required to apply — might call on the proponent of the theory to provide additional authority, or the Tribunal might do its own research, or do nothing. To resolve the issue for or against the proponent without any further inquiry into applicable authorities may seem to disregard the Tribunal’s duty to apply the applicable law. The fact that a party has failed to bring the applicable law to the Tribunal’s attention does not mean that no such law exists. To ask the party for further authority, on the other hand, risks the appearance of predisposition toward that party – favoring the party with a second chance to shore up its case. If the Tribunal does the research, and then shares at least the nature of its inquiry if not all the specifics with the parties in such a way that they have a fair opportunity to replicate the Tribunal’s research work and present their conclusions, perhaps the interwoven causes of fair process, perceived impartiality, and fidelity to the applicable law, are well-served.

What support can be found for this position? (I daresay more than I present here, as this is a commentary not a journal article! But see the excerpt from the 2010 ILA Report cited at the end of the commentary). Consider that in an arbitration seated in the UK, the 1996 Arbitration Act provides in Section 34 that it is for the Tribunal to decide subject to any agreement of the parties “whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law.” Of course an initial and critical factor in the exercise of this discretion is whether the arbitrator is educated in and an experienced practitioner at the Bar of a jurisdiction where the applicable law is in force. I may not hesitate to take research initiatives in New York and other US state and federal law. In regard to the law of Romania, or even the law of Canada or the UK, I might well defer to counsel from the relevant jurisdiction or the proffered party-appointed expert of the applicable law, often a leading academic or advocate in the relevant jurisdiction. No less formidable an authority as Professor Gabrielle Kaufman Kohler supports both this practical instinct to do one’s own research, and the practical/prudential constraints. (See G. Kaufman-Kohler, The Arbitrator and the Law: Does He/She Know It? Apply It? And a Few More Questions, Vol. 21(4) Arb. Int’l 631, 635 (2005)). For purposes of this commentary, we focus on the “easy” case — in which the Tribunal or at least the presiding arbitrator is applying their/her “own” law.

Without acceptance as a norm that arbitrators may conduct their own research in the applicable law, at least in this “easy” case, perhaps there is a certain hollowness to the promises made by arbitration centers that the stability and predictability of local commercial law should attract parties to select both the venue and its law. Is it not indeed the promise held out by such centers that the local commercial law will the best version of it, as understood by wise arbitrators standing as proxies for wise judges? Or is the promise merely that arbitrators will dutifully apply whatever distillation or representation of that law is produced by the participating counsel?

Iura Novit Curia is a civil law concept with no exact common law counterpart. So when one reads the hesitations of civil law-oriented commentators about arbitrator initiatives concerning the applicable law, the civilian jurist’s methods for legal research, compared to those of the common law Judge, must be taken into account. With disclaimers for my limited exposure to civil law, it may be said generally that civil law in the commercial field has two frequently occurring elements:(1) a detailed legislatively-enacted code of contract law in the relevant State, and (2) a considerable body of commentary from academic writers. For the civilian jurist or arbitrator, then, a prominent part of the exercise of “finding” the applicable legal principle is to determine which code provision best corresponds to the facts of the case. This entails that if the civil law arbitrator considers the application of code provisions other than those identified by the parties, she is arguably considering both an interpretation of the evidence and an applicable legal theory not advanced by either party. It is also the métier of the civilian jurist or arbitrator to shape her view of the law from the commentaries written by leading academic scholars (who in some nations may also be leading advocates). But there is no official hierarchy of such commentators, and no sovereign sanction of their positions except to the extent that as a position once stated only in the commentaries might eventually have become codified. Accordingly the civil law arbitrator who examines the commentaries of a scholar who has not been cited by either party may be doing so because of a personal preference for the opinions of that commentator or she may be seeking out a position that has been considered and rejected by both parties as a basis for the Tribunal’s resolution of the case. These elements of departure from the norm of party autonomy, in a civil law setting, do not seem to have direct parallels in common law systems — or at least in the systems with which I am most familiar, the federal and state judiciaries of the United States.

If the arbitrator’s charge is to resolve the case under New York law, because that is the applicable substantive law agreed in the contract, the parties’ choice of law would seem to include certain jurisprudential rules about the ascertainment of that law. First, where the law of a State (of the US) governs – and, mostly, contract law is State law — the definitive and controlling legal rule is one that has been pronounced and not overruled by the highest court of the State. In New York State, this is the New York Court of Appeals. Second, within the federal system, decisions of the Supreme Court of the United States are the supreme law of the land, prevailing over conflicting decisions of all subordinate federal courts, and decisions of the US Circuit Courts of Appeals prevail over, and effectively overrule, prior conflicting decisions of US District Courts within that Circuit on the same point of law. While the arbitrator has no geographic forum absent an agreement of the parties, and thus when considering US federal court authorities that apply State law such as New York law, she faces a very definite hierarchy: (1) none of the federal authorities cited is authoritative as to State law if it is conflict with a ruling on that point of law from the highest court of the State, (2) the federal authorities concerning state law are equally unauthoritative if the lower appellate courts of the State have uniformly pronounced on the same point of law,  (3) if there is lack of uniformity in the pronouncements of those intermediate appellate courts, the federal court authorities are persuasive but not controlling, and (4) however, a federal circuit appellate decision that rejects the pronouncement of State law by a district court within that circuit renders the district court precedent effectively null and void.

There are peculiar risks to the arbitration if the arbitrator who must apply the contract law of a State of the United States relies only upon the cases identified by the parties. Have both parties perhaps overlooked a controlling statement of the law by the highest court of the State, leading the non-researching Tribunal to apply a version of the applicable law that does not correspond to reality but is only a law applicable to this arbitration, adapted from overruled judicial decisions? Have the parties neglected to cite a pending application for review by the Supreme Court of the United States, on the basis that a pronouncement of State law is pre-empted by federal law, such that the Tribunal might render an award based on State law that ceases to be valid law shortly after the award is issued? Have the parties relied mainly on federal court precedents from circuits that ordinarily do not deal in the law of the relevant State (for example, the Seventh Circuit, which embraces several midwestern States, but occasionally must decide issues of New York law) — decisions that further research might reveal to be completely at odds with the federal court decisions of the Circuit that decides questions of New York law every day and is mainly populated by judges who are experienced practitioners of that law and admitted to the Bar of the State (the Second Circuit)? Has one of the parties relied upon a State law precedent from an intermediate State appellate court that has in fact been directly reversed by the highest court of the State — without the opposing party having detected this omission?

Whereas in New York, as in many US States, appearance as an advocate in an arbitration is not considered to be the practice of law in New York State that may only be conducted by members of the Bar of the State, parties frequently appear in international arbitrations governed by New York substantive law with legal representation only by counsel from outside the United States, or by counsel admitted in States of the US other than New York.  Legal errors of the type described here occur for such reasons. They also occur, sadly, because overzealous advocates sometimes omit negative news, like appellate reversals of lower court cases that help their clients.

What are the reasonable expectations of the parties who have selected New York arbitrators to decide an international case under New York law? Does their agreement that New York law is the governing substantive law reasonably mean only “the representation of New York law emerging from the authorities presented to the Tribunal by the parties?” Or is it more reasonable to construe that choice-of-law clause to mean “New York law as it would be applied by a State or federal court, enforcing the same choice-of-law clause, if the parties had not agreed to arbitrate?”  If the latter, should it not be assumed by the parties that the arbitrators will do what judges (directly or through their law clerks) do, i.e. take reasonable initiatives to be assured that the parties have presented the appropriate authorities, and that those reasonable initiatives may be assumed to entail research on one of the recognized electronic databases (WestLaw, Lexis) that contain all published decisions of the federal and state trial and appellate courts and applications permitted verification as to whether an appeal has been taken, whether the authority has been reversed or overruled or questioned, etc.?

Perhaps this is a way of raising the question: Is it not the common law counterpart of the principle iura novit curia that, in common law systems, the judge is expected to find (rather than presumed to know) the law, and to do so within a recognized hierarchy of sources and according to well-understood and accepted research methods?

And, in international arbitrations where the arbitrators are required to apply common law such as the contract law of New York, is it more or less problematic, more or less a problem for the integrity and efficacy of the arbitration, if the arbitrators merely apply a version of that law emerging from the authorities presented by parties — treating it as a risk assumed by the parties that there could be a disparity between the law as it actually is and the law as the parties have presented it?

If it has not been clear up to now, I reiterate that the foregoing analysis pertains mainly when the applicable law is the law of a common law jurisdiction, and when at least the sole or presiding arbitrator, and more ideally all three arbitrators, is/are admitted to the Bar of the jurisdiction whose law applies. If these limiting conditions are not present, the endorsement made or implied here for legal research initiatives by arbitral tribunals would become more equivocal as the variance between this norm and the realities of the case grows larger.  Which is to say, for instance, that as Chair in a case governed by Argentine law, I would not propose to conduct research in that law even if this could be done in English, nor would I embrace the conducting of such research on behalf of the Tribunal by the Argentine arbitrator(s) appointed by one or both parties.

In conclusion, I offer the reader a benchmark for testing whether the views expressed here are radical, reactionary, mainstream, or somewhere in between. That benchmark is the general recommendation made on this subject made by a committee of the International Law Association in 2010:


“Arbitrators should primarily rely on the parties to articulate legal issues and to present the law, and disputed legal issues. They should give appropriate weight to information so obtained. Arbitrators must through the proceeding develop a sufficient understanding of the applicable law that they can fulfill their mandate to decide the dispute according to law. Arbitrators who attempt to develop legal issues in a strict application of iura novit curia approach risk taking the arbitration from the parties and appearing partial. Yet arbitrators who completely fail to seek clarification of legal issues in a strictly laissez faire approach risk not having sufficient guidance when they go to render an award, or risk making an award that is incorrect on the legal issue in question. Accordingly, arbitrators should inquire about the applicable law within the general parameters of the arbitration defined by the parties and, considering costs, time and relevance of issues, may conduct their own research, provided the parties are given an opportunity to be heard on material that goes meaningfully beyond the parties’ submissions.”


(International Law Association International Arbitration Committee’s Report and Recommendations on ‘Ascertaining the Contents of the Applicable Law in International Commercial Arbitration,” Vol. 26(2) Arb. Int’l 193, 217-218 (2010)).







First Monday in October

Tuesday, October 3rd, 2017

By law, since 1917, the Supreme Court has opened its single annual term on the first Monday in October. This came about by an act of Congress, modifying the federal Judicial Code, on September 6, 1916 (see article at Sixty-five years later, in 1981, Paramount Pictures released a film feature entitled First Monday in October, starring Jill Clayburgh as the Court’s first woman Justice, a conservative, who enters into a romantic relationship with her liberal colleague and mentor played by Walter Matthau.

Fast forward 36 years.

On the first Monday in October 2017, at 10:00 a.m., the Supreme Court of the United States opened the new Term of the Court with oral argument in a much-anticipated and discussed case at intersection of federal arbitration law and employment law. Following the oral argument on Monday October 2 in National Labor Relations Board v. Murphy Oil Co. and two consolidated cases, we have opportunity to consider the mood of the Court, at full strength with the seating of Justice Neil Gorsuch, on another aspect of a provocative law-and-social policy issue of the last decade: the ability of American businesses to use arbitration agreements to inhibit prosecution of claims by imposing unacceptable costs of prosecution. In the cases argued October 2, that issue arises in the context of employers contracting for arbitration directly with employees who are not represented by unions. The contracts require arbitration, and require the employee to bring any claim individually and not jointly or on behalf of any others. In short, they provide for a collective action waiver.

From the oral argument (the transcript of which is now widely available on the Internet) one can say with confidence that the position of the four “liberal” Justices on the Court (Ginsburg, Sotomayor, Kagan, Breyer) is clear:  Section 7 of the National Labor Relations Act (NLRA) guarantees to employees the right to engage in “concerted activity for … mutual aid or protection”; that the prosecution of claims against employers concerning working conditions by employees on a joint or collective basis is such concerted activity; that an employment contract by which the employer insists that the employee relinquish the right to engage in such concerted activity by arbitrating working conditions claims individually is an “unfair labor practice” under Section 8(a)(1) of the NLRA; that Sections 7 and 8(a)(1) in combination render the arbitration clause containing a collective action waiver unlawful under federal labor law; and the illegality of this arbitration agreement under federal labor law disqualifies the agreement from enforcement under Section 2 of the FAA because the illegality is a “ground that exist[s] at law … for the revocation of any contract.”

So a question to ponder while the decision is awaited is whether this framework can be accepted by one of the five “conservative” Justices on the Court (Roberts, Kennedy, Alito, Thomas, Gorsuch), and if not, on which branch[es] of the analysis will the liberals’ view falter for all five conservative Justices?

From the oral argument we can discern that the conservative Justices (at least the three of the five conservative Justices who were active in the interchange with counsel) offered little resistance to the conclusion that an arbitration agreement that is rendered unlawful by the NLRA is unenforceable under the FAA, such that any purported conflict of federal statutory commands is illusory. The conservative Justices active in the argument – Chief Justice Roberts and Justices Alito and Kennedy – appeared to be focused on the question of whether there is indeed illegality under the NLRA.

We can also discern that not one of the three actively-participating conservative Justices warmed openly to the employers’ argument that the concerted activity protected by the NLRA is limited to activity taking place, physically or otherwise, within the workplace.

Chief Justice Roberts posed a question that engaged considerable discussion: Suppose an arbitral institution has a rule that collective action may only be brought by a group of at least 50 persons, failing which the matter must proceed individually. Does Section 7 of the NLRA create a right to collective adjudication that includes the right to be free of such limitations in arbitration forum rules—or indeed to be free from FRCP 23’s requirement of numerosity for class certification?  And if the employer insists on arbitration under the rules of that arbitral forum, has the employer committed an unfair labor practice such that the contract is unenforceable? The employees’ counsel answered as follows: The right to engage in concerted activity under NLRA Section 7 is, by necessary implication, subject to other generally applicable laws and rules – a point driven home by Justice Kagan’s remark that employees who elect to riot in support of higher wages are subject to prosecution and punishment under anti-riot laws.  Thus if the employees, under their employment agreements, are permitted a choice of adjudicative forums, they are subject to the rules of the forum they select that regulate collective (or class) adjudication. But if the employer excludes any judicial forum because all or most of them permit multi-Plaintiff and class actions, and the employer instead insists on an arbitral forum whose rules embody Justice Roberts’ 50-or-One equation, then the employer-imposed interference with concerted activity violates the NLRA.

It is interesting that neither Chief Justice Roberts nor any of the other conservative Justices insisted that this response was insufficient or stated reasons to reject it. There are many possibilities. One is that one or more of the conservative Justices, perhaps the Chief Justice himself, is seeking to carve out a limitation on an envisioned pro-employee holding of the Court in these cases: that the holding pertains only to the categorical collective action waiver at issue, and leaves open for another day whether the adoption in an arbitration agreement between employer and employee – directly, or by reference to the rules of an arbitral forum – of rules regulating the procedure in collective or class actions, would result in illegality under the NLRA.



Funder, Thy Name Is …

Tuesday, October 3rd, 2017

I learned from reading the draft ICCA-Queen Mary Report on third-party funding in international arbitration a significant industry fact that perhaps is already well-known to many of you: that prominent third-party funders now engage prominent international arbitrators to work with (or perhaps indeed for) them to assist in the screening of cases for potential investment. I did not find in the draft report, however, any specific discussion of how this development in the market might affect the arbitration community’s views on the precise contours of disclosure of third party funding in international arbitration, now that a consensus appears to have evolved that there should be some form of disclosure at the beginning of a case for the purpose of allowing arbitrators to check for conflicts and make any appropriate disclosures.

Under one of the two alternative formulations of a disclosure protocol that are set forth in the ICCA-Queen Mary draft, a funded party would have a duty to disclose the existence of the funding agreement and the identity of the funder to the other party, the Tribunal and the institution that is administering the case. Under the second alternative, an arbitral tribunal would have discretion to require a party to disclose the existence of a funding arrangement and the identity of the funder.

The concern addressed in this Commentary is that disclosure of the identity of the funder to the Tribunal comes at a price: The Tribunal may form preliminary impressions about the merits of the case based on the fact that an identified funder has (or has not) decided to provide funding for a party. I suggest that this risk may be avoided by a disclosure protocol that shields the arbitrators from knowledge of the identity of the funder, albeit also at a cost — that arbitrators in law firms may need to search more broadly for funding relationships and disclose the relationships more broadly to the administering institution in order to effectuate an “identity-blind” conflict check.

Major third-party funders are understood to have constructed their businesses upon a model analogous to that of a venture capital firm.  Having raised capital from investors on the premise of their ability to generate very attractive rates of return in comparison to investments of comparable risk, the third-party funders then seek to optimize the risk-reward ratio and projected rate of return, doing so by a process of intensive evaluation of the law, facts, predilections of the arbitrators if they have already been selected, and any other factors in the environment of the case that bear upon the likelihood of a favorable award (or settlement) and its satisfaction (voluntarily or through enforcement) and the expected costs. Already staffed with skilled lawyers to make such assessments, certain well-capitalized funders in the high-value sector of dispute funding market have taken their due diligence strategies to an arguably higher level of refinement and predictability by adding renowned arbitrators to their case assessment teams. There can be little doubt that the funders seek to give assurance to potential investors that their selection of cases for investment is exceptionally rigorous. Further, it cannot have been overlooked by the funders, as funding disclosure regimes begin to be implemented in key arbitration markets (such as Hong Kong and Singapore), that if disclosure of the identity of the funder is required, the funder in order to make a favorable impression on the Tribunal that will receive the disclosure should have branded itself as an impeccable selector of meritorious cases.

This phenomenon creates a disquieting prospect. If disclosure of the identity of the funder to the Tribunal is made mandatory and automatic under applicable arbitration law or provider rules, just imagine how this might play out — after conflict issues are resolved — when the arbitrators first convene to discuss the case at the pleading/preliminary conference stage.  “Claimant is backed by one of the really first-rate funders, and they are exceptionally selective, and they use Arbitrator X (who is on their “Investment Advisory Board”) as the team leader to vet all their big cases. So we can have confidence that Claimant has quite a strong case here.” Or maybe the prudent arbitrator will not say this — but only think it.

Now suppose instead that the funder is a new entrant in the field, or is expanding to international arbitration from its established business of funding auto accident cases in the US domestic market. The spoken or unspoken reaction of the arbitrator might be “We have to have some concerns about the merit of this case. Chances are this funder is involved because the case was turned down by the better-established players.”  Also, knowing the identity of the funder might cause the Tribunal to draw inferences about the funder’s ongoing involvement in the legal strategy and tactics. A first-tier funder might be assumed to exert substantial and continuous influence, a new player perhaps not as much. Many arbitrators will insist that they are immune from such influences and will in all events decide the case strictly on the basis of the evidence and the law. But when we spend so much time worrying about so-called “unconscious bias,” can we afford to look away from this very real source of potential influence on the arbitrator’s judgment?

So it seems fair to ask whether a mandatory disclosure scheme for provider rules might be designed to mitigate this concern. Could the rule for instance require disclosure in the first instance of the identity of the funder only to the administrating institution, with the understanding that the identity of the funder will not be revealed to the arbitrators unless this becomes necessary for a determination of whether an arbitrator needs to make a disclosure? Perhaps the rule could also impose upon the party a duty to disclose its funder’s known relationships with the arbitrators. But on the basis that such disclosure might not be complete – as the funder may not fully disclose to the funded party – the administrator could then call upon the arbitrator to disclose her (or her firm’s) relationships with any funder in the funder category of the identified funder. If this disclosure reveals no relationship with the party’s identified funder, the administrator would either so advise the parties, or from the absence of a communication and confirmation of the arbitrators’ nominations it would be assumed that no arbitrator relationship with the funder exists that could be relevant to the arbitrator’s impartiality and independence.

Granted this makes the conflict checking more difficult for the arbitrator, especially one who is affiliated with a large law firm. Conflict checking for funder relationships could not under this protocol be done through the law firm’s automated system without an entity name. But would arbitrators be able by other means to determine if their clients in pending or recent cases have used funding, or if a funder was a client of the firm? Would the challenge of defining “funder” for these purposes be adequately resolved if the administrator, based on the party’s disclosure, is able to inform the arbitrator of an adequate generic classification of funder involved?

The specific concerns discussed here about the downside of mandatory disclosure are not discussed in the Task Force draft. But there was division within the Task Force about whether to make disclosure of the identity of the funder mandatory, and the advocates of such mandatory disclosure believed, according to the draft, that this is necessary in order for arbitrators to conduct reasonable investigation for potential conflicts. I leave you with these questions, which have not been analyzed in the draft ICCA-Queen Mary Report, and with the notion that there is considerably more work to be done before the notion of mandatory disclosure of the identity of the funder becomes enshrined in the rules of major arbitration provider organizations.