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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.

If Only These Conflicts Could Be Mediated …

Thursday, September 28th, 2017

The past week was a challenging week for all of us, including those of us who consider ourselves to be mediators. What does the mediation profession have to offer toward resolution of national and international disputes that have not been submitted to mediation (so far as we know)? Some of the attributes that an effective mediator might bring to the table if such disputes were mediated, and in turn might bring to the discussion of these disputes even if they are not mediated, include: (1) an interest in identifying the fundamental interests of both sides, (2) an ability to understand the significance of language and its nuances, in the rhetoric of the parties, and in the mediator’s own rhetoric, which will be calculated to transform a contentious matter into a joint effort directed toward a solution, and (3) to understand the audiences and constituencies to which each of the disputing parties must report upon and justify any agreed solution.

In this post, I posit hypothetical mediations of two significant sources of conflict in recent days: the  killing of three Israeli soldiers by a Palestinian man who in turn was killed, while still armed and shooting, by Israeli forces (“Jerusalem Mediation,” below) and the protests by National Football League teams in response to comments by President Trump about NFL players (“Anthem Mediation,” below). They are many differences between these disputes. Notably, the first of them is in its general contours merely a new instance of a perennial problem in the Israel-Palestine conflict, i.e. random acts of violence regarded as terrorism, whereas the latter is a new stage of a dispute that has been percolating for more than a year over NFL player protests during the National Anthem, but has entered a new phase because of the entry of the President of the United States into the controversy.


  1. Jerusalem Mediation


Suppose that the State of Israel and the Palestinian Authority (“PA”) had a valid and binding agreement to mediate disputes concerning retaliation measures against the families and neighbors and property of perpetrators of violence, before such retaliatory measures are undertaken. Obviously this is contrary to fact, and Israel’s practices in this regard are a source of controversy at many levels — within Israel, in Palestinian communities, in past negotiations between Israel and the PA or its predecessor, and in the international human rights community.   Below I present what might be imagined to be the pre-mediation or opening statements of the parties, followed by the mediator’s summary and some suggestions for how the mediation might be resolved successfully.

  1. PA Mediation Statement: On the morning of September 26, a 37-year old father of four who lived peacefully with his family decided to become a martyr in the ongoing crusade for the liberation of Palestine by giving his life in an armed struggle with military occupation forces at the gates of an illegal Jewish settlement on Palestinian land 15 kilometers north and west of Jerusalem. The military occupation forces now insist upon the right to destroy the family home of the martyr, to revoke the work permits held by members of his family, and to prevent any entry to or exit from their village by any of its residents except in cases of clear emergency.  The occupation forces propose to take these measures, which constitute collective punishment in violation of international law, despite there being no evidence or even suspicion that members of the family of the martyr, or his neighbors, or the leaders of the community, had any involvement in or gave any encouragement to, the act of martyrdom in which he alone decided to engage.   Such measures are not a deterrent to future violence, but rather they are a cause of the hatred and anger that justifiably provoke such acts, and the contentions of the Jewish occupiers that they are necessary to prevent such acts in the future are contradicted by the history of such internationally unlawful activity over the many decades in which it has been practiced as well as by systematic research that has been done by creditable scholars.


  1. Israel Mediation Statement:  On the morning of September 26, a ruthless PA Arab terrorist, posing as a worker going to his job in a Jewish Israeli town, a Jerusalem suburb, drew his concealed pistol at a security checkpoint and opened fire, killing three young Israeli soldiers (two of them Jewish, one Arab), and seriously wounding another person, before Israeli military police prevented an even greater massacre by taking the life of the terrorist. The incitement of this murderous assault by the PA is obvious, and Hamas and Islamic Jihad have hailed this murderer as a hero and a martyr, as the PA has now done in its mediation statement today. It is primarily because of the forceful response to such unprovoked violence that the State of Israel has been able to protect itself and its people, to keep such terrorism from overwhelming and destroying our State. We cannot continue to have a program that allows Arabs living in West Bank villages to work inside Israel, a program that benefitted this assailant and his family and his community for many years, if we cannot assure the security of our people and our communities. We accomplish that security through deterrence, and the deterrence that has proved effective for decades has been swift retribution against the families and homes and communities of the terrorists. To deny Israel the ability to act in this fashion, in lawful self-defense under international law, and in accordance with a practice that dates back at least to the Mandatory period under British control pre-dating the formation of the Jewish State, is to deny Israel’s right to secure borders and in turn its right to exist,

3. The Mediator’s Summary: On the morning of September 26, a 37 year old man, appearing to be on his way to work in the community of Har Adar where he had worked for many years, opened fire and killed three security guards and wounded another at a checkpoint adjoining the town. The man was killed by military police. Har Adar is a Jewish town lying mainly just beyond the so-called Green Line, i.e. the pre-1967 geopolitical boundary, and the assailant’s home town in the West Bank was only a few hundred meters to the east of Har Adar. Israel contends that this act was incited by the Palestinian Authority, not in a direct sense but by its policies giving encouragement to individual acts of violence against Jewish Israelis. The PA contends that Israel’s occupation of the West Bank and its policies toward the people living in that territory have provoked and continue to provoke individual acts of violence. Those policies include, the PA contends, the proposed measures in dispute here, which the PA contends do not serve to deter future violence but instead to foment it. Israel, for its part, contends that the proposed measures have been effective as deterrents to violence, that credible and objective research has proven this to be the case, that the courts of Israel have repeatedly ruled that the practices are lawful, and that they are not violations of international law. Further Israel contends that this policy has been employed to the mutual benefit of Jewish and Arab residents, that is to say that they have functioned as an effective deterrent to violence which causes death and injury to Jews and Arabs, but also have materially contributed to the system of economic interchange that allows non-Jewish West Bank residents to lead relatively normal lives and to travel to and from their jobs in Israel without this system being seen by the Jewish populace as a threat to their security.


A Mediator’s Solution?? – As a preliminary comment, I note that the statements set forth above are constructed to illustrate how each party’s narrative is built around its fundamental beliefs, and that the mediator’s version of the statement avoids the rhetorical devices and buzz words that are critical to each side’s narrative. Moreover, many if not all of the disagreements reflected in the narratives are peripheral to the issue that needs an immediate solution in this hypothetical: whether there can be some substitute for the retaliatory action that Palestinians, with broad international support, regard as collective punishment in violation of international law. Thus, the parties are unlikely to agree in the near term, but need not agree in order to resolve the dispute, on whether: (1) the killer is a “terrorist” or a “martyr”; (2) Har Adar is a lawful community; (3) the West Bank is part of Israel; (4) Israeli administration of the West Bank is an “occupation”; or (5) the PA bears any responsibility for the incitement or encouragement of the actions of this or other Palestinian perpetrators of violence against Israelis.

Moreover, the PA and Israel are unlikely ever to agree on the legality under international law of what the PA regards as “Collective Punishment,” or to come even close to a mutual position on the effectiveness of such measures as a deterrent to violence. From the Israeli press one may discern that officers in the Israeli Defense Forces doubt the effectiveness of retaliation against families and communities, especially since such measures (according to press reports) tend to be temporary save for the destruction of the perpetrator’s home (and also, it is reported, destruction of the mourner’s tent as part of the planning for the demolition of the home). One also discerns from the press reports that communities like Har Adar benefit from having a Palestinian Arab labor force and yearn for a return to the status quo of relatively peaceful employer-employee relations. But the taking of retaliatory measures such as revocation of work permits in and/or quarantine of the perpetrator’s village apparently has considerable political value, as a demonstration of “strength” in regard to the security of Jewish communities in the West Bank.

What is the adequate substitute politically for the Prime Minister of Israel, acceptable to the PA, in exchange for a commitment by Israel to take no such retaliatory measures in this instance?  A PA pronouncement condemning that Act? – Not politically possible for the PA in all likelihood. A protocol for the diversion of Palestinian tax revenues, collected by Israel and otherwise payable to the PA, into a fund to compensate the Israeli victims and their survivors, not only in this instance but in future instances, with an initial stated agreed amount of funds to be diverted with regard to this instance, coupled with a statement of sympathy for the personal losses sustained by the loved ones of the victims? … I rather like this solution, as it is a form of economic sanction that from an Israeli perspective penalizes the PA for what is perceived to be its incitement of such violence and creates an economic incentive for the PA to inhibit it.  The main difficulty with the solution is its optics on the Palestinian side, which raises the question of how and even whether the accord would be reported publicly. Possibly such an agreement could be effective without reporting of details of the diversion of taxes. The PA could announce a “victory” in having negotiated a commitment from Israel not to take retaliatory measures and to restore immediately the rights of Palestinian workers from the perpetrator’s village and family. Israel for its part could report in a general way having secured strong assurances from the PA of efforts to deter violence. And the parties could each state that non-disclosure of the details was an essential element of the agreement.

I invite your views and your suggestions for alternatives.


  1. Anthem Mediation

Suppose that in this fourth week of the National Football League’s 17-week season, an individual team’s owner and its players agree to mediation, on an as needed basis, of the question of what position the Team and the players, collectively or individually, should take with respect to comportment on the playing field during the playing of the National Anthem. You have been engaged as the mediator. The ongoing nature of the engagement reflects to prospect that the contours of the issue will change from week to week, and also that approaches may vary based on whether the Team is playing in its home stadium or is the visiting team.

This week, the Team (Atlanta Falcons) is playing at home on Sunday, October 1, and the Team’s owner calls for a mediation session on Friday September 29 (by which date one game has been played, on Thursday night in Green Bay, Wisconsin).  The mediation begins with opening statements from both sides.

Owner’s Mediation Opening Statement: I would like to see our organization take a unified position at this week’s game. As the owner of this team I am completely supportive of the causes that originally inspired some individual players to engage in kneel-down protests during the National Anthem as a way to express their views on racially sensitive issues like disparate police treatment of suspects in African-American communities. But the President’s remarks portray protesting players as unpatriotic, ungrateful, disrespectful of our American flag and our country and especially of people who have served our country in the armed forces and given their lives to protect our freedom. I am concerned that this message resonates with a large segment of our fan base and that if we don’t conform our behavior to be sensitive to that, we do harm to our Team in the community and we do harm to the underlying causes that inspired some players to protest, before the President became involved.  The solution I propose for this week is this: (1) We will all stand together, owners, coaches, players, with arms linked and hands over our hearts during the playing of the national anthem, (2) the anthem will be sung by an African-American recording artist of international renown, and (3) the color guard will be presented by a four-person contingent of US Marines from Fort Benning GA, two African-Americans and two Caucasians, and in the pre-game ceremony just prior to the Anthem we will honor two recently-returned veterans, Marines who have served in Afghanistan, both women, one African-American and one Caucasian.

Players’ Mediation Opening Statement: The difficulty now is that we do not know what the President might say between now and the time of the National Anthem. Last week the President stood up on Friday night in Alabama and called us all SOBs who should be fired. We had to decide on Saturday what to do on Sunday. This week he has already said that he thinks the Team owners are afraid of the players. It sounds like he is prodding the Team owners to show that they can assert control over their uppity African American workers, like strong plantation owners would. And who knows what he might say on Saturday night or Sunday morning. Our right to choose how to act during the National Anthem, one by one, is a deal-breaker for us. The race of the Anthem singer looks like a token gesture. And the color guard and honoring of veterans, while worthy things to do in another context, in the context of your proposal look like answers to the President’s contentions that African American protesting players are unpatriotic, and we think we should not have to answer, because the President’s assertions that kneeling players are being disrespectful or unpatriotic are absurd — even if they are believed by some of his supporters — and these statements should not be dignified with a direct answer. Answering this President glorifies this President and makes the issue about him and his narrative.  It is not about him, and we should not allow him to alter and direct the terms of discussion.

The Mediator’s Proposal:  [which ensues after an exploration of various alternatives, including ways to return the focus of the protest to its original message of concern about unequal treatment of African Americans, solutions to express unity that do not entail conformity, and the pros and cons of engaging in a debate with the President on his terms]. Here is a proposal for each side to consider, and from my private sessions with each side I have some degree of confidence that you will be able to reach agreement on most of what I propose: (1) When the Anthem is played, the Team’s owner, the coaches, and the players, will arrange themselves in a single horizontal line on the on-the-field side of the sideline with the owner at the center of the line, and everyone is free to stand, kneel, or sit, but we will all be linked by contact with the persons adjacent – whether by linking arms or touching shoulders, etc.; (2) the auxiliary scoreboards will display this message: “Our Team, Our Community, Our Nation”, (3) prior to the singing of the Anthem, the public address announcer will state “Please join the Atlanta Falcons as we honor America with our National Anthem” and there will be no direction or request to the fans to stand or remove hats,  and (4) at the conclusion of the Anthem, there will be an announcement that the Atlanta Falcons have made a donation in the amount of $__ million to the Urban League of Greater Atlanta to support its ongoing work in the area of police reform and accountability.

I invite your views and your suggestions for alternatives.




Salvation of the Baby-Splitters

Monday, August 7th, 2017

Perhaps one should have a valid excuse, in the company of intended readers of Arbitration Commentaries, to re-open the well-worn subject of compromise outcomes on damages in international arbitration – “triangulation,” in the parlance of some eloquent and perceptive commentators (e.g., M. Kantor, Avoiding Triangulations and Chimeras Alike, Global Arbitration Review (July 31, 2012))*; but here identified by its colloquial name: “baby-splitting.”  I claim to have such an excuse, having recently been permitted to participate as a speaker in a program about damages before a knowledgeable audience, and for that purpose having tried to compose some thoughts on the matter. A few of those thoughts, falling short (as these essays usually do) of being a definitive treatment, are set forth here:

  1. “Institutional/environmental” factors often weigh against baby-splitting (at least overt forms of it). Let’s first consider investor-State arbitration. Investment arbitration awards, unless made confidential by agreement or order, are published in accessible online sources. They are studied and discussed by practitioners in the field and scholars in academia. The transparency factor is one element that should encourage investment arbitrators to be thorough and objective in their approach to damages. The relatively concentrated nature of the investment arbitration bar, and its well-developed communication networks, also serve to place investment arbitrators under a microscope. The prospect of annulment proceedings in ICSID cases is perhaps a factor – but high professionalism may be the best explanation – that motivates investment law arbitrators to display in their awards painstakingly detailed and thorough exposition of the parties’ contentions and equally painstaking Tribunal analysis on both liability and quantum. This would seem to be not particularly out of fear of an actual annulment, but for two reasons: first, to inhibit the prospects of and the costs associated with annulment proceedings, and second, to avoid the negative peer review (with full transparency to the investment arbitration community) that could appear in an annulment committee’s decision even if the award is sustained. Let’s now consider commercial arbitrations, with lesser degree of institutionalized transparency. In ICC arbitrations and others where there is similar “peer review” of draft awards (members of the ICC Court who scrutinize awards being viewed as peers of the arbitrators for this purpose), the incentives to resolve quantum issues analytically are also present. Many arbitrators approach damages analytically mainly because this is what arbitrators consider that they are duty-bound to do. Whether subjective choices of damages amounts are more prevalent where the awards are less scrutinized and less transparent is difficult to say. I know many arbitrators who consider themselves duty-bound to tackle difficult quantum issues as objectively and thoroughly as the evidence and circumstances permit, without regard to transparency factors. At the same time, we know that wrestling with complex quantum issues demands great discipline, stamina, and time, and presiding arbitrators are sometimes selected for reasons having little to do with their willingness or ability or availability to make the required effort. Some of them will compensate by delegation, whether to another member of the Tribunal, or to a Tribunal assistant, who claims to have quantitative skills and a consequent ability to decipher and analyze the evidence about damages.
  2. Are Disappointed Parties Propagators of the Myth of Baby-Splitting?: I have no survey data to support this hypothesis. But is seems entirely plausible to suppose that some of what is perceived as “baby-splitting” by arbitration participants is a speculative attempt to ascribe a subjective motive to the arbitrators’ rejection or partial rejection of the party’s position on damages. When arbitrators have latitude to omit detailed statements of their reasons – as they do in many settings other than investment law cases, the arbitrators may have specific reasons for omitting their reasons. For example, an award that is highly critical of the analysis or the credibility of an expert to whom a party has presumably paid considerable sums in professional fees may strain relationships. Arbitrators may prefer to leave a gap in the reasoning, seeing reticence as the lesser evil. In such a case, the perception of baby-splitting may be justified, but the reality may be otherwise. Conversely, arbitrators may state detailed reasons for having adopted particular assumptions or discredited particular elements of the Claimant’s position on damages. And yet the Claimant and its counsel may remain convinced that this rejection was subjectively not analytically motivated, the award’s stated reasons being seen to operate as an arbitrary tool to make a subjective outcome appear rational. These kinds of reactions are understandable byproducts of an adversary process that entails substantial financial and emotional investments by the parties and their professionals. Consider this example. In a recent investment arbitration case, Claimant claimed that the expropriated assets had a 40-year expected life, while the Respondent State contended for 25 years. Each party submitted extensive expert evidence on this specific question. Opting for the 25-year term, the Tribunal provided detailed assessments of the reliability and credibility of each expert’s submissions. This choice had a 35 percent reduction impact on valuation under the discounted cash flow (DCF) methodology. Will the Claimant or its professionals admit, in any public forum or private survey, that Respondent had the better of the argument? Perhaps not. But if the award is the objective evidence, and the arbitrators’ motives and stated conclusions are presumed to be sincere, the case for baby-splitting is difficult to make.
  3. Survey Evidence Disputes Baby-Splitting as Mostly Myth: Evidence that arbitrators do not systematically gravitate toward moderation in damages outcomes comes from some sources even more authoritative than your Commentator. A 2015 study by the American Arbitration Association covering 2,384 AAA domestic and international commercial arbitration awards in cases where monetary relief was claimed found that 41 percent of the cases resulted in awards of 80 percent or more of the amount claimed, 31 percent resulted in claims denied, and only 28 percent resulted in awards of less than 80 percent of the amount claimed. (“AAA/ICDR Awards Do Not Split the Baby: Countering Counsel Perception in Commercial B2B Arbitration Cases,” a 2016 AAA report that may be found at; for apparently technical reasons owing to changes in the AAA’s website, this AAA whitepaper is not currently posted there). A broader study in 2014 that canvassed multiple empirical analyses concluded: “Practically all the research under consideration came to the conclusion that arbitral tribunals very often grant claimant or respondent the full or almost the full amount claimed; awards in the mid-range are the exception and not the rule.” (A.C. Weber, C.A. Pascuzzo & G. De Siqueria Pastore, Challenging the “Splitting the Baby” Myth in International Arbitration, 31(6) Journal of International Arbitration 719-734 at 733 (2014)). Such surveys have their own limitations of course. A survey of all AAA/ICDR awards in a given year may include a large number of cases where the amount of the award, if there is liability, is relatively well-defined by contract. A more selective sampling of business valuation and lost profits cases would probably yield different results.
  4. Salvation of the Baby-Splitters?: Even if there is no consensus about how prevalent baby-splitting may be, we may all agree that it would be desirable to take concrete steps to reduce the arbitrator’s temptation. Here there is shared responsibility of advocates and arbitrators. Suppose, as is wont to happen in some cases, the Claimant submits a thorough DCF analysis with a specific outcome, and Respondent’s expert submits an “attack” report that questions Claimant’s experts’ assumptions, methodology, data accuracy, etc., but does not make a counter valuation or even a sensitivity analysis on key variables (or, mainly for rhetorical purposes, opines that there are no damages, that the value of the property taken is zero or negative, etc). Responses of arbitrators in such situations may in part be cultural. For American arbitrators, especially in a case with American counsel, the norm of party autonomy translates into a strong momentum toward allowing the parties to present their cases as they wish. If this leaves the Tribunal at the deliberation stage with less guidance on quantum than might be desirable, at least the dysfunction is a byproduct of the parties’ choices. But even American arbitrators do find ways to manage the problem. One approach, suitable for a case where quantum stands to be a complex valuation or lost profits endeavor with foreseeably conflicting expert testimony and substantial potential variations based on data and assumption choices, is to encourage the Respondent, even at the preliminary conference stage, to respond to Claimant’s quantum evidence with a quantified counter-position. Another possibility is to await receipt of both sides’ expert submissions, and if Respondent has made an attack report only, to invite this to be supplemented with a counter-calculation. (More commonly, but perhaps less effectively, the Claimant submits a reply expert report purporting to show that Respondent’s criticisms have been taken into account, resulting in modest adjustments).  Another strategy is for the parties’ experts to share their damages models with the Tribunal, or to develop jointly a serviceable model for the Tribunal’s own use. (This phenomenon can be observed in the reading of a recent investment arbitration award, see Burlington Resources v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award dated Feb. 7, 2017, published on This solution raises further issues about the Tribunal’s ability to manipulate the model, the possible need for a Tribunal-appointed expert, and the possibility of ongoing dialogue with the party experts beyond the confines of a merits hearing.


*“Triangulation” in social science terminology refers to the use of multiple methods in a study in order the cross-check the validity of the results. In the arbitration context the term initially had reference to an arbitral tribunal’s examination of possibly three different quantum outcomes based on possibly three different valuation methods  — income-based (DCF), market-based (comparables) and asset-based (net asset value).  See C. Amirfar, The Role of Damages Calculations in the Legitimacy of International Investment Arbitration, in A. Rovine, ed., CONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND MEDIATION: THE FORDHAM PAPERS 2015, Chapter 7 at 108, 110 & nn. 10, 11, citing to M. Kantor, supra.)

Beach Reading from the US Courts of Appeals

Monday, August 7th, 2017

Perhaps it is an indication that the rehabilitation of air conditioning systems in certain US Courthouses has proceeded apace, an unheralded early accomplishment of the current US Administration’s vaunted infrastructure program, that this summer has so far produced an impressive output of federal appellate decisions concerning international arbitration. Whereas a beach-and-boat reading guide is something of a mid-summer tradition at Arbitration Commentaries, here, dutifully, are reviews and recommendations:

Non-Enforcement of Annulled Awards — Decisions last month in the US Courts of Appeals for the Second and District of Columbia Circuits further entrenched the US position that enforcement under the New York Convention of an award judicially annulled at the seat of the arbitration may only be obtained if the annulment is offensive under the same very restrictive US public policy standards that govern denial of the recognition and enforcement of a New York Convention award made at a foreign seat of arbitration. (Thai-Lao Lignite (Thailand) Co. v. Government of the Lao People’s Democratic Republic, 2017 WL 3081817 (2d Cir. July 20, 2017); Getma International v. Republic of Guinea, 862 F.3d 45 (D.C. Cir. July 7, 2017)). In holding that considerations of “comity” should normally lead to denial of enforcement of the annulled award unless such denial would be “repugnant to fundamental notions of what is decent and just,” the courts acknowledge that they have embraced a test adopted from the Restatement (Second) of Conflict of Laws concerning recognition and enforcement in the United States of valid judgments of the courts of foreign nations (§117, comment c). Thus the US law position on how the discretion lodged by the New York Convention to refuse, or not, confirmation of an award that has been set aside at the arbitral seat is that the annulment judgment should be regarded, in terms of its convertibility to a US judgment, in essentially the same fashion as foreign judgments generally, and should not be treated with reference to any distinctive attributes of the judgment owing to its status as an intervention overruling the adjudication of an international arbitral tribunal. This short post is not the setting for a debate on the wisdom of such a categorical approach. It is worthy of note however that the source of this governing principle is not the New York Convention itself, and the motive for its adoption is not to implement the perceived purposes of the drafters of the Convention or those of the Congress that implemented the Convention by enacting FAA Chapter 2. This approach instead appears to be an expression of American jurisprudence in the realm of foreign relations more generally — that comity among nations calls for foreign arbitral annulment judgments to be treated on par with other foreign judgments. The New York Convention itself takes no position on what should be the position of a Contracting State as to enforcement of a vacated award, and expressly leaves open the possibility that different Contracting States may take more or less liberal enforcement positions: “The provisions of the present Convention shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.” (Art. VII(1)). Note is taken here, but without much further discussion, that the Thai-Lao Lignite case also involves additional considerations under US civil procedure law (FRCP 60(b)(5)) because, owing to the delays in the annulment proceedings in Malaysia, a judgment confirming this award had already been entered in a US District Court in New York. The procedural posture of this appeal was that the District Court had entered a post-annulment judgment vacating its pre-annulment confirmation judgment. That may be expected to be the exceptional circumstance, the more usual situations being either that annulment is obtained before confirmation is sought, or confirmation is postponed under the Convention, by the court petitioned to confirm the award, on the basis of a pending annulment proceeding (Art. VI).

Arbitral Determination of the Seat of Arbitration — The US Eleventh Circuit Court of Appeals held (perhaps without entirely realizing it was doing so) that in a US-seated international arbitration, an arbitrator’s interpretation of the arbitration clause in regard to the proper seat of arbitration for counterclaims lodged by the Respondent was entitled to deference, as it was a procedural matter primarily for arbitral determination, not a “gateway” question primarily for a court to decide or re-decide independently. (Bamberger Rosenheim, Ltd. v. OA Development, Inc., 2017 WL 3014354 (11th Cir. July 17, 2017)). Here the arbitration agreement between companies of US and Israeli nationality provided for ICC arbitration and that the “venue” of the arbitration would be in the home country of the party against whom the “dispute” was “submitted.” The Israeli company submitted a dispute to the ICC, thus triggering an Atlanta-seated arbitration. When the US company submitted a counterclaim, the Israeli firm asserted that the Tribunal lacked jurisdiction and that in all events the counterclaim had to be arbitrated at a Tel Aviv “venue.” The ICC Court of Arbitration invited the arbitrator to decide whether the parties had an agreement on the seat of arbitration for counterclaims (see Art. 18(1) of the ICC Rules). The arbitrator ruled in a partial final award, in effect, that the parties had agreed that counterclaims would be heard at the same “venue” as that established by their agreement for the Claimant’s claim. The ICC Court treated this under Art. 18 (1) as dispositive of the question whether the parties had an agreement on the seat, and the arbitration proceeded to final award as an Atlanta-seated arbitration. Both the US district court judge in Atlanta and the Eleventh Circuit treated the question, parroting the wording of the arbitration clause, as one of “venue” – seeming to assume that this term had no potentially distinctive aspects in international arbitration — and decided the case on the basis that under FAA domestic case law, disputes about the hearing “venue” are procedural matters that parties are presumed to want arbitrators rather than courts to decide with only the very limited judicial review associated with awards on the merits. But in fact this was a question about the arbitral seat, and neither the arbitrator’s award, the District Court decision, nor the Eleventh Circuit affirmance, addresses the issue from the perspective that the fundamental issue was what arbitral legal regime would apply to a claim made against a party, and whether the meaning of the “venue” provision was that each party intended that it would only be required to defend a claim under the arbitral legal regime of its home country. Some might say that this is a sufficiently fundamental issue about the legal complexion of the arbitration that the parties, if they had given the matter thought, presumptively would have wanted a court not an arbitrator to decide. After all, if US arbitration law regards the enforceability of a New York Convention award as primarily subject to the judicial power of courts at the seat of the arbitration — see note above re recent cases — is it not more consistent with that view to treat a dispute about whether the seat was agreed to be in Country A or Country B as a “gateway” question of (or closely akin to) “arbitrability”? The courts in this case evidently were not guided to consider the issue in these terms.


On more sanguine note: The Eleventh Circuit, evidently having been alerted that its 1998 decision, holding that only FAA Chapter 2 and the New York Convention, and not FAA Chapter 1, provide vacatur standards applicable to a New York Convention award in a US-seated international commercial arbitration (Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1445-46 (11th Cir. 1998)), states in a footnote in the Bamberger decision that it assumes without deciding that FAA Section 10 (of FAA Chapter 1) applies. This is a welcome signal that the 1998 decision will be formally overruled on a suitable occasion, and that the Eleventh Circuit will join other federal judicial circuits that have adopted the position that in a US-seated international commercial arbitration the statutory grounds for vacatur of an award found in FAA Chapter 1 are applicable.

Enforcement of ICSID Convention Awards — The US Second Circuit Court of Appeals held that the 1976 Foreign Sovereign Immunities Act (FSIA) governs subject matter jurisdiction, personal jurisdiction, and procedure, in regard to the enforcement against a foreign sovereign of an ICSID Convention award. This ruling overrules a series of decisions in New York federal district courts that had construed the 1966 statute implementing the ICSID Convention (28 USC § 650a) as a source of subject matter jurisdiction over all ICSID Convention award debtors including foreign sovereigns, and as a source of power to engage state law procedures including ex parte procedures to seize foreign sovereign assets in the US for execution. Critical to the Court’s reasoning was the fact that the US Supreme Court has stated several times, beginning with the Amerada Hess case in 1987, that the FSIA is the exclusive basis for obtaining jurisdiction over a foreign sovereign in US courts. Finding no express conflict between the 1976 FSIA and the 1966 ICSID legislation, the Second Circuit concluded that the Supreme Court’s emphatic statements about FSIA’s exclusivity weigh in favor of finding that the FSIA prevails over the earlier-enacted ICSID Convention-specific statute. While there are several other federal judicial circuits where this question has not been definitively resolved, the practical consequences are significant, as foreign governments that expect to be ICSID Convention award debtors have even greater incentives than exist already to concentrate any US-based assets in New York institutions. (Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 2017 WL 2945603 (2d Cir. July 11, 2017)).

Enforcement of Bifurcated Partial Final Award on Liability — The US First Circuit Court of Appeals held that an award on liability in an international arbitration bifurcated by agreement into liability and damages phases satisfies the New York Convention’s requirement that the Award shall have become “binding” on the parties, and thus may be confirmed under the Convention and FAA Chapter Two. This extends to Convention awards a rule of long standing in domestic FAA case law. A few years ago your Commentator, discussing that rule in this space, asked whether agreed bifurcation ought to be the outer limit for enforcement of awards that are intended to determine liability, or whether for example the arbitrator’s unilateral decision to bifurcate or her adoption of a contested party application to bifurcate might also suffice. This latest decision offers no hint of how that issue would be decided, but agreed bifurcation is clearly presented in this decision as a sufficient — but not necessarily necessary — condition for confirmation of a partial final award on liability in a case falling under the Convention. Also, you are encouraged read this case to admire the craft of Associate Justice (Ret.) of the US Supreme Court David Souter, proof that there is a robust judicial life to be had after leaving service on the Court. (University of Notre Dame (USA) in England v. TJAC Waterloo, LLC, 861 F.3d 287 (1st Cir. June 28, 2017)).

Program Notes for the NAFTA Renegotiation

Wednesday, July 5th, 2017

Canada celebrated Canada Day two weeks early in Washington DC, completing its NAFTA Chapter 11 arbitration takedown of T. Boone Pickens’ Mesa Power with a New York Convention award confirmation in the US District Court of a NAFTA Arbitral Tribunal’s rejection of Mesa’s unfair treatment claims against the Government of Ontario in regard to Ontario’s procurement of wind-powered electricity from Mesa’s Canadian renewable energy venture.  (Mesa Power Group, LLC v. Government of Canada, 2017 WL 2592414 (D.D.C. June 15, 2017)). Your Commentator, having failed despite mighty efforts to determine if Mr. Pickens called his friend the incumbent President to affirm that NAFTA is “a total disaster” and “the worst trade deal ever,” instead devoted some quiet hours of the Independence Weekend to compiling some program notes for the gripping drama that is to unfold starting later this summer:  the US-requested renegotiation of NAFTA. Whereas I maintain, in my modest free trade zone, an adequate supply of softwood lumber and a sturdy vehicle assuredly not manufactured in a factory on the soil of a NAFTA Party, I focus here on prospects for changes to the investment protection chapter (#11) of the treaty.

  1. Devotees of Investor State Dispute Settlement (ISDS) looking for hints of what might be Canada’s Chapter 11 agenda would take interest in prominent think-tank analysis that might make its way to PM Justin Trudeau’s nightstand: A report by scholars at Waterloo, Ontario-based Center for International Governance Innovation (CIGI) urging that measures already adopted by the parties via the NAFTA Free Trade Commission, or better yet those adopted in the EU-Canada Comprehensive Economic and Trade Agreement (CETA), for transparency of and access to investment arbitration proceedings (including amicus participation) should be incorporated in the revised text. And while giving a full account of the CETA permanent investment tribunal and appellate tribunal features, the report stops short of urging that this be a key element of Canada’s Chapter 11 renegotiation agenda. They do however endorse adoption of CETA’s provisions for accelerated dismissal of frivolous claims. (“Modernizing NAFTA: A New Deal for the North American Economy in the Twenty-first Century,” CIGI Papers No. 123 March 2017).
  2. A recent submission by the US Council on International Business (USCIB) to the US Trade Representative devotes only three paragraphs to ISDS in a 16-page submission, and in general terms endorses reference to the 2012 US Model Bilateral Investment Treaty as a reference point for modernizing Chapter 11. (“USCIB Comments on Negotiating Objectives Regarding NAFTA Modernization,” Dkt. No.: USTR-2017-0006, June 12, 2017).
  3. The Trump Team at the NAFTA negotiation table may have its eye on maintaining the US’s unblemished records of wins in ISDS cases, perhaps anxiously taking note of recent published reports that the US withdrawal from the Paris climate change accord might lead to a surge in ISDS claims against the US by foreign investors who claim to have relied on a US regulatory framework favorable to (for example) renewable energy. (See “Could the US Withdrawal from the Paris Agreement Spur ISDS Claims?,” Stockholm Chamber of Commerce ISDS Blog, posted June 21, 2017). If so, and even if the Trump-led US trade team remains as resolute in remaining outside the Trans-Pacific Partnership (TPP) as many of the other TPP nations are in their resolve to forge ahead (see “Canada, other countries will move forward on new Trans-Pacific Partnership after U.S. withdrawal,” Toronto Sun, May 21, 2017), we could see a US pitch to add to Chapter 11 a pro-State-regulatory-power provision akin to TPP Article 9.15: “Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity units territory is undertaken in manner consistent with environmental, health or other regulatory objectives.”
  4. Some one or more persons on the Trump Team will have read (perhaps out of view of colleagues and superiors) an excellent brief report by Brookings Institution analyst Geoffrey Gertz entitled “Renegotiating NAFTA: Options for Investment Protection” (Global Views, No. 7, March 2017), which briefly sketches:

four broad options for the future of investment protection in NAFTA:

  1. Upgrading the treaty’s investment chapter while leaving the main substantive and procedural aspects of investment protection in place.
  2. Abandoning legalized treaty-based investment protections, leaving any provisions on investment not directly legally enforceable.
  3. Shifting from an investor-state framework to a state-state framework, in which states would be responsible for legal enforcement of investment regulations.
  4. Linking NAFTA to the recently proposed multilateral investment court.

The report takes no prescriptive position but advocates “for more ambitious and creative thinking on investment protection policy, particularly in the US.”

To date there appear to be no particular indications that Chapter 11 on investor protection is a priority agenda item for negotiators from any of the NAFTA Parties. But the fact that negotiation of changes to Chapter 11 lacks the high political profile of issues like import tariffs and government subsidies need not mean the issues will receive no attention. Perhaps thoughtful investment arbitration specialists will make useful progress, out of the spotlight, in a quiet room at the far end of the hotel corridor.



A Quick Read Before Your Next Emergency …

Wednesday, July 5th, 2017

Linked below is my article “A Glance Into History for the Emergency Arbitrator”, published last month in the Fordham International Law Journal. The article was written in conjunction with my presentation on the same topic at the Fordham Conference in New York in October 2016.