Archive for the ‘Uncategorized’ Category

Justice Kagan and the Kindred Spirit

Thursday, June 1st, 2017

Surely you sometimes wonder why Elena Kagan is a Justice of the Supreme Court and a former Dean of the Harvard Law School, while you, on the other hand, plod along in your quotidian existence as a world-renowned, universally-esteemed, brilliant and magnificently accomplished international arbitrator.  Well, you should read Justice Kagan’s masterful opinion for the nearly-unanimous* Supreme Court in Kindred Nursing Centers v. Clark, 137 S.Ct. 1421, 2017 WL 2039160 (May 15, 2017). If you could write such compelling prose, you might have had a different destiny. (Note: It helps to breathe the air of Manhattan’s Upper West Side, as Justice Kagan did in her youth, and your Commentator has done each day for 28 years. But the Justice re-read Jane Austen’s Pride and Prejudice every year in her youth, whereas for your Commentator that masterpiece remains on a very long to-do list).

You need not read Kindred Nursing to discern any change in US arbitration law. It is a reaffirmation of first principles, a smack-down of a State court that was trying to be too clever by half in its hostility to arbitration. Arbitration agreements stand on equal footing with other contracts under the FAA, and shall not be invalidated or denied enforcement by the individual States on grounds not generally applicable to all contracts. You knew that (or else you have been practicing arbitration law under a rock since 1925).

2017 is the year of alternative facts, and the Supreme Court of Kentucky had contrived a set of alternative facts about why it was OK to deny arbitration where a nursing home made an arbitration agreement with an elderly resident through the agency of a compos mentis relative of the resident who held a valid and broad power of attorney. Presumably so that the outcome would not have the appearance of being the handiwork of the conservative wing of the Court supporting the nursing home industry in the vicitimization of the elderly, the task of writing the opinion of the Court fell to a member of the Blue State liberal quartet.

Referring to the Kentucky court’s so-called “clear statement rule” that a power of attorney must declare in express terms a delegation of authority to enter into a contract that would waive the “sacred” and “God-given” right to a trial by jury, Justice Kagan wrote that the Kentucky court “adopted a legal rule hinging on the primary characteristic of an arbitration agreement — namely, a waiver of the right to go to court and receive a jury trial.” The requirement of special express authorization to delegate such contractual power to an attorney-in-fact “subject[s] [agreements to arbitrate] by virtue of their defining trait, to uncommon barriers …” And answering the arguments advanced by Respondent in support of the Kentucky court’s decision, that the “clear statement rule” applied equally to other kinds of contracts that could forfeit fundamental rights – the examples given at argument were contracts sacrificing freedom of worship, providing for an arranged marriage, or committing the principal to personal servitude – Justice Kagan characterized these examples as “a slim set of both patently objectionable and utterly fanciful contracts that would be subject to its rule.”  She continued: “Placing arbitration agreements within that class reveals the kind of ‘hostility to arbitration’ that led Congress to enact the FAA. … And doing so only makes clear the arbitration-specific character of the rule, much as if it were made applicable to arbitration agreements and black swans.”

I intend to read, and then re-read, Pride and Prejudice….and to breathe more Upper West Side air. Anything for a chance at such vivid clarity in legal writing.

 

*Justice Thomas insists the FAA does not apply in courts of the individual States. Justice Gorsuch arrived too late participate.

 

What We Learn from the Suez/Vivendi v. Argentina Non-Annulment (2) — Greener Grass in More-Favored Nations

Thursday, June 1st, 2017

You are not finished learning from the ICSID annulment committee’s non-annulment of the Suez/Vivendi v. Argentina award, at least not if you actually read these posts (a covert activity that leaves cookies, and suggests you probably did not heavily annotate the latest issue of the ICSID Review). Some number of you will remember that Argentina turned up at the US Supreme Court a few years back, trying to sell the idea that the Supremes should tell British investors they had to spend 18 months cooling off in the Argentine courts day-by-day (with an allowance for Tango and Malbec at night) if they wanted to eventually pursue international arbitration at the World Bank to show that Argentine fiscal policies had sunk the profitability of their investments against settled expectations. The Court did not buy the argument that 18 months in the Cooler was a condition of Argentina’s consent to ICSID arbitration, because the UK-Argentine investment treaty couldn’t fairly be read to say that (not even after a half bottle of REALLY GOOD Malbec). [BG Group PLC v. Republic of Argentina, 134 S. Ct. 1198 (2014)]

So it will not surprise you to know that in the Suez/Vivendi case [Suez & Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Annulment, May 5, 2017], Argentina also tried and failed to convince the arbitrators that the investors should be shut down because they refused to comply with the 18 months in the Cooler clause – this one in the Spain-Argentina investment treaty. What sunk Argentina in this case was that the France-Argentina investment treaty had no such clause, and the Spain-Argentina treaty had a “most favored nation” (MFN, hereinafter Grass-is-Greener) clause. Said the Spanish investor to the ICSID Tribunal: “The Grass-is-Greener in France, so we play by French rules.” Game, set, and match to the Spanish investor. (R. Nadal, citing this precedent, won his round of 64 match at Roland-Garros yesterday, 6-2, 6-4, 6-1. On clay not grass).

So Argentina told the annulment committee that the Grass-is-Greener argument has a long history of not working for investors in regard to dispute resolution provisions in treaties, i.e. that many investment tribunals have rejected similar arguments by investors that MFN clauses gave them an escape from procedural preconditions to investment arbitration that were present in the treaty they invoked to launch arbitration, but not in another treaty between the Host State and another State. Argentina apparently was quite right about this, except for a small problem: that MFN clauses get interpreted one-by-one on their own terms, treaty by treaty, so what’s Green Grass for one may be weeds for another. The problem that sunk Argentina in the Suez/Vivendi case is that the MFN clause in its investment treaty with Spain had been construed as being applicable to dispute settlement procedures – and thus to give Spanish investors the benefit of less-encumbered passage to arbitration found in other States’ investment treaties with Argentina — on approximately four other occasions by four other Tribunals.

The ICSID annulment committee, after duly reminding its readers that its mandate is limited to ensuring that arbitrators act like a Tribunal and not like a lynch mob, found no basis to dislodge the Tribunal’s thoroughly-explicated and case-law-supported position (you get in trouble if you say “precedent”) that the Spanish investor was entitled to the benefit of the France-Argentina treaty rule of No Time in the Cooler Before Arbitration.

So today’s lesson, readers: get out there in cyberspace and read the bilateral investment treaties of some likely arbitration-target States. The Grass-is-Greener question is a hot topic – not only for dispute resolution, but for substantive protections like “fair and equitable treatment” which might mean one thing between Spain and Ukraine, and something else between the US and Ukraine, and who knows what between the EU and Ukraine, who sort of finalized a new treaty courtesy of a Dutch ratification vote as reported in yesterday’s New York Times.

 

 

Hot Off the Press ….

Thursday, June 1st, 2017

Some of you, gluttons for punishment, demand longer, more heavily-annotated versions of these usually short and mainly citation-free posts. Trying to oblige, I draw your attention to:

  • A Glance Into History for the Emergency Arbitrator” just published in the Fordham International Law Journal as part of the collection of papers presented at the Fordham Conference On International Arbitration in November 2016.
  • Efficiency With Dignity: Early Dispositions and the Beleaguered Arbitrator”, a soon to be published manuscript on which your comments are welcomed.

Each is available upon emailed request, and the Fordham article is already uploaded to the Publications page of my website.

Best wishes.

Marc Goldstein

What We Learn from the Suez/Vivendi v. Argentina Non-Annulment (1) — Arbitrator Disclosure

Monday, May 8th, 2017

Engaging in imitation as a sincere form of flattery I begin this post with a warning: very short post, as your author on May 8 is already a week overdue to you, and is threatened with duties not consistent with his devotion to you for the next two weeks.

So, let us consider, quickly and with more than the usual disarray and risk of error from which these posts chronically suffer, what we take away from an ICSID Annulment Committee’s decision dated May 5, 2017 in the Vivendi and Suez v. Argentina case (Suez & Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Annulment, May 5, 2017), in regard to the issue of the Arbitral Tribunal’s refusal to accept a challenge to the service of one of its members – a decision held by the Annulment Committee to have been not manifestly unreasonable. (Faint praise can be a blessing!)

Buffs who follow investment arbitration intensely will recall that a famous Swiss arbitrator famously joined the Board of Directors of a famous if not infamous Swiss bank in 2006, gave the Bank a list of her pending arbitrations, and in effect delegated to the Bank the task of ascertaining if any of her case commitments could result in her being perceived to lack independence of judgment as a Bank fiduciary. She determined not to investigate, on her own, the extent of the Bank’s proprietary or client-based investments in the companies appearing before her in this and another related investment arbitration against Argentina, and elected not to disclose, in either case, the fact of her election to the Bank’s board.

From the Annulment Committee’s holding and its remarks, we may discern that the following key elements of analysis by the Tribunal were at least not manifestly unreasonable: that the Bank’s holdings in the Claimant companies (proprietary and for clients in their accounts, combined), while making it a large if not the largest shareholder of each company with something north of two percent, constituted a very small fraction of the Bank’s investments even though the dollar amount of such investments, more than $2 billion, would appear substantial. Equally, while the stakes in the arbitration were in the hundreds of millions of dollars, in relation to the size and turnover of the Claimant companies the amounts in dispute were not particularly material, certainly not of “bet the company” proportions. Also, the arbitrator determined in 2009, at which point the Tribunal had unanimously upheld its jurisdiction but had not issued an award on liability or quantum, to give up her Board seat at the Bank.

Having promised brevity, I leave you with these questions: Should full time arbitrators, especially those who are regularly called upon to decide high-stakes cases involving large multinationals and States, confine their fiduciary service to predictably conflict-free institutions, mainly in the non-profit sector? Should an arbitrator’s duty to investigate potential conflicts of interest ever be delegable, at least not without disclosure to the parties of the determination to delegate? In the interest of making awards as invulnerable as possible, and of reducing the costs and uncertainties involved in post-Award challenges – whether in Annulment Committees or in ordinary courts – should prominent arbitrators involved with high-stakes disputes and high-profile entities more often err on the side of disclosure even where a strong case can be made under IBA Guidelines and other relevant conflicts guidance that disclosure is not required?

In Praise of Small Edits in the ICC Rules!

Monday, May 8th, 2017

This month Arbitration Commentaries applauds the ICC for a small but valuable edit made in Article 6(3) as part of the ICC Rules revisions that became effective March 1, 2017. This edit, as explained below, is likely to fix a recent small dent in the armor of compétence-compétence in the US courts.

In a recent case in a US District Court, the Court held that a challenge by the prospective Claimant to the validity of the arbitration agreement, raised in opposition to a motion to compel arbitration made by Respondent in Claimant’s plenary action, was to be decided by the Court not an arbitrator because Article 6(3) in the 2012 version of the Rules did not, as the Court construed it, delegate to the arbitrator arbitrability objections raised in Court by the putative arbitration Claimant in opposition to the putative Respondent’s motion to compel arbitration. (Eisen v Venulum, Ltd., 2017 WL 1126137 (WDNY Mar. 27, 2017, appeal filed, 2d Cir., April 25, 2017).

In the 2012 version of the Rules, presumably still extant when this case was briefed and argued, Article 6(3) provided in relevant part: “If any party against which a claim has been made does not submit an answer, or raises one or more pleas concerning the existence, validity or scope of the agreement to arbitrate … any question of jurisdiction… shall be decided directly by the arbitral tribunal….” One can appreciate why the ICC edited the Rule. Some judge might otherwise read it — in the English version of the Rules — to assign arbitrability issues to the Tribunal only when raised by a “party against which a claim has been made.” This was the interpretation of Article 6(3) advanced by defendant (putative arbitration Respondent) in its motion to compel arbitration in the Eisen case. The District Judge embraced it, and held that the issue of unconscionability of the arbitration clause, clearly a “validity” issue, was for the US District Court because the parties had not clearly and unmistakably delegated it to the arbitrators.

Evidently neither party informed the Court that the ICC had fixed the syntax problem effective March 1, 2017. Article 6(3) as amended reads: “If any party against which a claim has been made does not submit an answer, or if any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement….” (emphasis supplied). Syntax problem solved. The intent of the Rule is not changed, presumably. Presumably it was always intended that under Article 6(3)  a jurisdiction issue raised by “any party” and not only a party “against which a claim has been made” would be resolved by arbitration. But the language difficulty was only acute in the pre-arbitral setting of a litigation in which the party asserting the claim denies that she is bound to arbitrate the claim. In the courthouse, she is not a party against whom a claim is made but rather is the Plaintiff. And that was the dispositive consideration for the US District Court in Eisen.

Defendant/Respondent counsel in Eisen evidently did not inform the Court of the March 1, 2017 amendment, and evidently also did not call the Court’s attention to Article 6(1) (unchanged from 2012 to 2017 version): “Where the parties have agreed to submit to arbitration under the Rules, they shall be deemed to have submitted ipso facto to the Rules in effect on the date of commencement of the arbitration, unless they have agreed to submit to the Rules in effect on the date of their arbitration agreement.” The parties in Eisen did not specify the 2012 Rules, so they are signed up for the 2017 version.

Somebody should tell the Judge! It’s not too late to correct the ruling. But at the moment the case seems destined for the US Second Circuit Court of Appeals, and presumably for a reversal by a Summary Order that finds the case to be squarely within existing Second Circuit precedent (Shaw Group and Linhas cases) that an agreement to arbitrate under ICC Rules delegates arbitrability issues to the Tribunal.

All of this makes a difference, of course, because the Court proceeded to find that the arbitration agreement was unconscionable — itself a close question in the context of the underlying dispute which concerns a securities scam based on fine wine investments, and, of particular note, an agreement between Toronto scammers and their Buffalo NY victim to arbitrate in the British Virgin Islands under BVI law. But chances are this analysis will fall by the wayside save as the Arbitral Tribunal that will hear the case might find it persuasive.

 

 

Crystallex, Crystallized

Monday, April 3rd, 2017

Specialists of investment arbitration practicing beyond US borders shall take comfort from the decision of a US District Judge in Washington DC confirming a Canadian mining investor’s $1.2 billion award against Venezuela for expropriation and denial of fair and equitable treatment, under the Canada-Venezuela bilateral investment treaty. (Crystallex International Corp. v. Bolivarian Republic of Venezuela, 2017 WL 1155691 (D.D.C. Mar. 25, 2017)).  Why “comfort”?: (1) Because the Court applied relatively well-settled US arbitration law that treats questions of “arbitrability” as having been delegated to the arbitrators when the applicable agreed-upon arbitration rules state that the arbitrators shall have power decide questions relating to the existence of arbitral jurisdiction; (2) Because the Court did not hesitate to conclude that Art. 45 of the ICSID Arbitration (Additional Facility) Rules, which states that “[t]he Tribunal shall have the power to rule on its competence” was a clear and unmistakable delegation to the Tribunal of the arbitrability issues raised by Venezuela, such that the arbitrability decisions of the Tribunal were to be reviewed with substantial deference; (3) Because the Court properly recognized that the Tribunal resolved Treaty/international law claims (fair and equitable treatment, expropriation) that related to a mining contract, and not contract breach claims under that contract, and so the Tribunal was well within its discretion to conclude that the claims presented and decided were within the Tribunal’s jurisdiction and therefore were arbitrable, and (4) Because the Court read and assimilated the Tribunal’s award, and described its relevant conclusions with sufficient precision that readers of the decision may gain confidence in the investment arbitration process as a fair one leading to correct outcomes, and not merely a faulty process whose errors go uncorrected due to a very deferential US judicial standard of review.

Two further points deserve mention, one of general interest and one mainly for the Canadian reader (I believe there may be one). The general interest point is that the Court expressed doubt of the continued vitality of “manifest disregard of the law” as a separate non-statutory ground for vacating an award made at a US seat, and suggested in a footnote without much elaboration that perhaps an argument could be made that in all events “manifest disregard” is not available as a ground to vacate an award that is subject New York Convention standards with respect to confirmation. (Perhaps a point for development in a separate post on this page!). The mainly-for-Canadians point is that Venezuela argued that the Canadian investor was more or less estopped to advocate for a deferential standard of review of arbitrability determinations by investment tribunals deciding the rights of Canadian investors because Canada, as a non-party intervenor before an Ontario court that was asked to confirm a NAFTA award against Mexico in favor of a US investor, had urged a “correctness” standard be applied to arbitrability issues (in particular, the scope of awardable damages). Here the Court declined to delve into the record of the Mexico v Cargill case to determine if indeed the argument made there by Canada was for “de novo” review and was sufficiently similar that it could bind Canada and its investors under the Venezuela BIT. On the record before the Court, it was not convinced that Canada had bound itself to a “de novo review” position.

In these terms I offer Crystallex, crystallized.