(Marc J. Goldstein acts from time to time as a mediator in commercial arbitrations and commercial cases in state and federal courts in the United States. Beginning with this post, Arbitration Commentaries will occasionally be a forum for mediation commentaries as well.)

A not unusual dynamic in the mediation of complex cases is that one party insists, through the course of a full day of mediation or even multiple sessions, that it will not make a material move toward settlement, and that it would rather try the case, and yet the same party expresses willingness to continue the mediation and even to return to further sessions.

The situation presents several concerns for the mediator. One is the possibility that the party taking this position is using the mediation process merely as a vehicle to delay the progress of the case in court or in arbitration (assuming that some stay of proceedings pending mediation is in effect). It is a fair question to raise with that party in private session. However unless the circumstances are extreme, it should be for the other party to form a judgment about whether the mediation continues to be a productive route toward settlement. The mediator’s role is to help the parties toward settlement so long as they desire help — and to encourage them, with conviction but not coercion, that they should continue to desire the mediator’s help.

Another difficulty in the stubborn case arises when the parties (through counsel) openly welcome evaluative comments by the mediator, to be delivered in private session, but will not concede to the mediator in confidence any uncertainty about
the outcome on critical disputed issues of law or fact. Should the mediator suggest the futility of the exercise? Or be critical of the party for a perceived lack of candor? I think not.

For as long as the mediation is continuing with voluntary participation of parties effectively represented by counsel, the mediator should assume that his invited confidentially-expressed evaluative comments have an important impact on both sides, especially when the case is advanced and the mediator has become familiar with the key legal principles and essential disputed fact issues. Even with a mediator who enjoys great confidence from the parties, litigation counsel will understandably be reluctant in many cases to show outwardly any doubt of their positions on the merits.

But the mediator should persevere. Often there will be an advance on settlement terms without any accompanying explanation. And often the mediator will learn, at the conclusion of a difficult but successful session, that the party who was most aggressive defending its position against evaluative mediator input, is most grateful for the mediator’s determination in creating uncertainty about the outcome.

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Dear Readers:
In my continuing quest for objective reactions to my non-objective analysis of T. Co. v. Dempsey, with regard to the reconsideration of the award by the arbitrator, I present the following further provisional thoughts. Your comments are most welcome.

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Parties adopting the ICDR Rules do not agree to arbitrate the issue of correctible errors in the award to the same degree that they agreed to arbitrate the merits. By adopting the ICDR Rules, they agree that either party may present the correction issue to the arbitrator without prejudice to the right of that party to submit the same correction issues to a judge under FAA Section 11, either without first asking the arbitrator to make corrections, or notwithstanding the decision of the arbitrator refusing to make corrections. By actually submitting a corrections issue to the arbitrator, they do not, under the Rules or existing law, foreclose consideration of the same corrections by a federal judge.

Moreover the process for obtaining a decision on corrections from the arbitrator is not the same process as that for obtaining an award. The arbitrator is not required to hear the parties. The arbitrator may deny the application without any statement of reasons, indeed without issuing an order or decision.

Further, whereas the ICDR Rules do not mention an amended final award or a corrected final award as types of awards the arbitrator may issue, the parties, by adopting the Rules and submitting the 30(1) dispute to the arbitrator, do not manifest an expectation that the arbitrator will decide the corrections issue in the form of an award. Rule 30(1) states that if the arbitrator finds the application to have merit, the arbitrator shall make the corrections. The reasonable expectation of the parties is that, if the arbitrator finds the application to have merit, this would normally result in a few handwritten (or word-processed) corrections of typos or miscalculations, which could readily be done on the face of the award without issuance of an amended award. And if the requested corrections are without merit, the parties’ expectation is not to receive an award deciding as such, but to hear nothing from the arbitrator or perhaps to hear from the ICDR that the arbitrator refused to make the requested corrections.

The Second Circuit proceeded to analyze the District Court’s order vacating the amended award from the assumed premise that the arbitrator was empowered by the parties to decide the corrections issue in the form of an award. The fact that the arbitrator did in fact issue an amended award, and also issued before that an intervening Amendment Order that stated the reasons for the Amended Award, seems to have led the Second Circuit to assume that the issuance of such an Amended Award was part of the agreement of the parties to arbitrate the issue of corrections. That is incorrect. Corrections made or not made to an award have a different status under the ICDR Rules — they are simply accepted or rejected corrections to an award. As such, those decisions are not final and binding decisions of the arbitrator under the ICDR Rules or the parties’ agreement to arbitrate. Certainly the parties could have made the agreement the Second Circuit attributed to them, i.e. to arbitrate the issue of corrections, to have the arbitrator issue an award upon the corrections applications, and even to have the arbitrator withdraw or suspend the effectiveness of the original award. But the parties in the Dempsey case made no such agreement.

Thus, the Amended Award exceeded the powers of the arbitrator not because the arbitrator misconstrued ICDR Rule 30(1), but because there was no basis in the ICDR Rules for issuance of any Amended Award. The arbitrator decides the corrections application after having issued the final award, after having become functus officio under applicable law. Rule 30(1) notably does not state that the arbitrator’s jurisdiction is reinstated by the Rule 30(1) application. The better view of the arbitrator’s powers under 30(1) is that they are ministerial powers, not adjudicative powers, and that they are assigned to the arbitrator rather than the administrator simply because the arbitrator is in the best position to know whether the words used in the award were those he or she intended to use, and if indeed a typist in the arbitrator’s office mis-transcribed.

The proper framework for confirmation of an award that would embrace the arbitrator’s Rule 30(1) corrections is for a party or the parties jointly to move the District Court under FAA Section 11 to modify and correct the Original Award in accordance with those corrections, and to confirm the Original Award as so modified and corrected by the District Court. Within that framework, the arbitrator’s scope of discretion is limited as a practical matter by the text of Section 11 and jurisprudence surrounding it. And if that framework is followed, there would be one functus officio doctrine — the one applied by the District Court in the T. Co. v. Dempsey case, based on the jurisprudence of FAA Section 11. As things now stand in the Second Circuit, there are two functus officio doctrines, one applicable if the corrections are sought from the District Court, and another (whose content may vary from case to case) if the corrections are sought from the arbitrator.

Even without accepting the “ministerial not adjudicative” view of the arbitrator’s correction powers under ICDR 30(1) and comparable clerical error rules, one can reach the conclusion that arbitral discretion to make corrections to a final award is constrained by FAA Section 11.

The ICDR Rules do not provide for the arbitrator to vacate or withdraw a final award as part of the powers conferred by Rule 30(1). Nor do the Rules state that if the arbitrator accepts to make corrections, the corrected award shall be deemed the final award and the uncorrected final award shall be a nullity. The parties of course could make such impact on an original final award part of their agreement to arbitrate, but in the Dempsey case they did not do so.

As such, the original award remains a confirmable award after the arbitrator issues corrections. Assuming it is a domestic award, Section 9 of the FAA governs and provides that the upon a timely application the court “must grant” an order confirming the award “unless the award is vacated, modified, or corrected as prescribed in section 10 and 11 of this title.” The arbitrator’s purported amendment of the award is not a ground for vacatur under Section 10. The party seeking confirmation of the award subject to the arbitrator’s Rule 30(1) corrections must cross-move to modify and correct the original award in accordance with Section 11. The Court lacks power to implement an arbitral award correction that does not fall within the Section 11 categories, and so arbitral corrections exceeding the boundaries of Section 11 are ineffectual as a matter of law. The Court is subject to the affirmative command of the FAA to confirm awards unless modified or corrected according to Section 11. The First Options rule of deferential review of arbitral decisions on matters the parties clearly and unmistakably agreed to arbitrate is derived from the pro-arbitration policy of the FAA generally. But it should not trump a clear affirmative command of the FAA concerning judicial review of awards.

I do not think the Second Circuit panel in the Dempsey case would disagree with this framework of analysis. The Court’s error, in my view, is to have viewed the parties’ submission of the corrections issues to the arbitrator under 30(1) as an agreement to arbitrate the corrections issue and to have the arbitrator supersede the original award if he found the corrections to have merit. But this reads too much into the agreement to arbitrate under ICDR Rules, and into the submission of corrections issues to the arbitrator under Rule 30(1) without further agreement of the parties on the consequences of a disposition under Rule 30(1).

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Judicial enforcement of arbitral provisional measures orders
remains an area of considerable uncertainty and anxiety. But United States law on the subject is becoming clearer.

On January 15, a federal district judge in Dallas, Texas entered an order based on Section 9 of the FAA confirming as an award a preliminary injunction order entered by a three-member tribunal. Western Technology Services Int’l v. Caucho Industriales S.A., 2010 U.S. Dist. LEXIS 3279 (N.D. Tex. Jan. 15, 2010). The Court was invited by the party seeking confirmation to find that it had jurisdiction to confirm the preliminary injunction order as an award on either of two grounds: first, that Section 9 of the FAA permits confirmation of interlocutory orders as awards because it contains no finality requirement, and second, that the issue decided in the preliminary injunction order was sufficiently distinct and separate from the remaining issues in this case that the order could be confirmed as a final disposition of that issue. The Court here elected the second option, and reached the conclusion that the order had sufficient finality based in part on the parties’ expressed intent to have judicial review of temporary injunction orders.

The Court’s analysis is not particularly elaborate, but the approach is an interesting one. The underlying merits of the case involved termination of distribution agreements, the Claimant having commenced the arbitration to obtain a declaration that its termination decisions were lawful. The preliminary injunction order held, based upon a showing of probable success on the lawful termination issue, that Claimant was entitled to enforcement of the non-compete provisions in the contracts during the pendency of the arbitration.

One can readily understand the Court’s reliance on the parties’ expression of intent to have the preliminary injunction order judicially reviewed. The ability of a terminated distributor to engage in a competing business venture during the pendency of the arbitration often will have enormous commercial significance. Given to uncertain and possibly lengthy duration of a complex arbitration, competition rights during the pendency of the case may be as important to the parties’ business interests as the final determination of the legality of the termination. The Court’s reliance on the parties’ intent to make preliminary injunction orders reviewable should not be seen as acceding to a conferral of power under the FAA by consent, but as the acceptance of convincing evidence that the competitive rights of the parties during the arbitration were of sufficient importance to the parties that the determination of those rights should be viewed as a separate and distinct issue capable of a final decision. While the arbitral tribunal might ultimately find in a final award that the non-compete is unenforceable, the preliminary injunction order has potentially significant and irreversible economic impact for the duration of the proceedings, and is effectively a final determination of the enforceability of the non-compete during that substantial period of time.

In reaching its decision, the District Court in Western Technology relied on decisions of two federal circuit courts of appeals, each having held that “‘[a] ruling on a discrete, time-sensitive issue may be final and ripe for confirmation even though other claims remain to be addressed by the arbitrators.’” Arrowhead Global Solutions, Inc. v. Datapath, Inc., 2006 U.S. App. LEXIS 2786 at *9 (4th Cir. Feb. 3, 2006), quoting from Publicis Commun. v. True North Communs. Inc., 206 F.3d 725, 727 (7th Cir. 2000).

Decisions like these are encouraging for users of arbitration. Greater certainty about the enforceability as awards of arbitral interim measures orders encourages parties to use the arbitral process rather than go to court for interim measures in the first instance, and encourages voluntarily compliance with arbitral interim measures by the affected party in view of the likely futility of an application to vacate an award.

(For a review of other U.S. case law, the reader is encouraged to consult Gary Born, International Commercial Arbitration, Cases and Materials (3d ed. 2009) at page 467, and to note the distinction drawn there in the case law between interim orders that deal in permanent fashion with a substantive aspect of the disputes, and those that address procedural or evidentiary matters).

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Dear Readers:

In anticipation of a more formal article to be published elsewhere that will comment upon the T. Co. v. Dempsey decision (2010 U.S. App. LEXIS 893 (2d Cir. Jan. 14, 2010)), and in the interest of the objectivity of that article (this writer was on the losing side of the reconsideration issue), I offer some remarks here for your consideration and comment.

The Second Circuit holds that the parties’ adoption of ICDR Rule 30(1), and their submission of applications to the arbitrator under that Rule, constitute “clear and unmistakable evidence” of their intention to allocate to the arbitrator, subject to very narrow and deferential judicial review, the task of determining the scope of the arbitrator’s powers under the Rule.

I wonder how the following considerations, not examined by the Court, might be seen to affect the soundness of that conclusion.

1. Article 30(1) permits a party to ask the arbitrator to correct clerical, typographical, and mathematical errors. But Section 11 of the FAA also provides that a party may apply to the District Court to correct an “evident material miscalculation of figures” or “an evident material mistake in the description of any person, thing or property referred to in the award.” Nothing in the ICDR Rules requires a party to seek corrections before the arbitrator under Article 30(1), either as a precondition for, or as a substitute for, an application to a court for such corrections under FAA Section 11. Thus, the arbitrator and the District Court have concurrent jurisdiction on the corrections issue. If a party selects the judicial path, the District Court’s presumably reasoned correction decision is reviewed de novo by the Court of Appeals. If the party selects the arbitral path, a poossibly unexplained correction decision by the arbitrator is to be reviewed, under T. Co. v. Dempsey, with extreme deference. The adverse party has no control over the forum selection when the dispute arises; the Rule 30(1) application is made unilaterally not consensually. These considerations would seem to cut against the conclusion that either the a priori agreement to arbitrate under the ICDR Rules, or the unilateral submission of a correction application under ICDR Rule 30(1), is “clear and unmistakable evidence” of both parties’ intention to have the correction application resolved by the arbitrator with only limited deferential review by a court.

2. The ICDR Rules do not provide that the arbitrator’s decision on an application under Rule 30(1) shall take the form of an award. Indeed, the Rule does not provide for the issuance of an amended award in case the application is granted. It provides only that the arbitrator shall “comply with [the] request.” And ICDR Rule 27(7), which sets out the types of awards (”final”, “interlocutory,” “interim,” “partial”) does not mention an “amended” award.

3. The ICDR Rules do not even require that the granting or denial of an application for corrections under Rule 30(1) be supported by a statement of reasons. Indeed, the Rule does not require the arbitrator even to respond if the arbitrator concludes that the application lacks merit. Given the Rules’ requirement of reasoned awards, a court should be reluctant to conclude that the parties intended that unexplained changes to an award under Rule 30(1), altering the outcome, would receive the same deferential scope of review as the initial reasoned award itself. The fact that the arbitrator in T. Co. v. Dempsey did explain himself seems to have obscured the importance of the fact that he need not have done so.

4. The categories of corrections permitted by Rule 30(1) — clerical, typographical, mathematical — are so well-defined and objective that Rule itself stands as evidence that the parties did not bargain for arbitral discretion and judgment in the Rule’s application. It is a rule whose application the layperson would reasonably expect to involve ministerial, not judgmental, decisions. Any judgmental application of the Rule is contrary to reasonable a priori expectations. If the parties had addressed themselves specifically to the question of what scope of judicial review should apply, one would expect them to have wanted full-bore de novo review because of the substantial possibility that any exercise of discretion might be a misapplication of the Rule.

I look forward to your comments.

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Dear Readers:

It is not often I have the opportunity to write about my own cases. But today I do.

The Second Circuit yesterday decided a case called T. Co. Metals LLC v. Dempsey Pipe. It is found on 2d Cir. website, where you may read/download.

The portion of the decision that I hope is of interest involves the arbitrator’s issuance of an amended award altering the outcome on the merits, based on the arbitrator’s construction of ICDR Rule 30(1) permitting correction of “clerical” errors. Reversing the District Court, the Second Circuit holds that the arbitrator’s construction of the Rule was entitled to deference — and vacates the order confirming the original award, and remands for the amended award to be confirmed.

I invite your comments, as I am troubled by the decision for reasons that I think go beyond the disappointment of having my client on the losing side on this issue.

I argued that there had to be a limit to deference here, because there is no ground for the original award to be vacated. If the arbitrator may construe the clerical error rule, given judicial deference, to permit substantive chsnges in the outcome, there can be two enforceable awards with different outcomes (not to mention evisceration of the rules, like ICDR 30(1), limited changes to clerical,typographical and calculation errors.

The Court solves that problem by vacating the original award. But as I see it, there is no basis in the NY Convention (assuming it is a Convention award) to refuse confirmation of the original award, nor any such basis in FAA Chapter 1 if it is a domestic award. An appellate order vacating confirmation
strikes me as equivalent of district court order refusong confirmsation, and must be subject to the same FAA/Convention limits.

Is the vacatur of the order confirming orginal award is improper? I welcome your views on that!

Thanks.

Marc

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While the arbitration community awaits the Supreme Court’s decision in the Stolt-Nielsen case, US courts and commercial arbitrators continue to wrestle with the suitability of the arbitral forum for class action litigation.

In a recent case, the district judge who decided Stolt-Nielsen in the first instance upheld an arbitrator’s clause construction award in a proposed Title VII class action. The award held that the relevant arbitration clause did not prohibit class actions, and, as this was an adhesion contract between an employer and employees, the employer’s failure to include an express prohibition was dispositive in construing the clause to allow class actions. The court rejected arguments that this decision by the arbitrator either exceeded her powers or constituted manifest disregard of the law. Jock v. Sterling Jewelers, Inc., 2009 U.S. Dist. LEXIS 120782 (S.D.N.Y. Dec. 28, 2009).

Consider how the Court’s initial decision to permit an arbitrator to construe the arbitration clause impacts the outcome. The clause says nothing about class arbitration, but if the arbitrator’s decision is viewed as a construction of the clause, even a “barely colorable justification” will be enough to sustain the decision.

But this characterization of the arbitrator’s decision is not particularly appropriate — even though, under the AAA’s special rules concerning class actions, it is denominated a “clause construction award.” An arbitrator’s decision that the contract is one of adhesion, and that this results in a default rule favoring the plaintiff’s position (e.g. to proceed by class action) unless the defendant, normally a corporation, has excluded that position by specific language, is in reality a policy judgment about access to justice, effective enforcement of the federal statutes (like Title VII) under which class claims typically are brought, and the ability of arbitrators to manage large complex cases.

It is inevitable that the law will evolve to permit class actions to enforce federal statutory rights and to prevent corporations from drafting arbitration clauses to prevent even a judicial class action by forcing all potential plaintiffs into individual arbitrations. Solution of the problem should not continue to be a burden for courts and arbitrators on a case by case basis.

A simple amendment to the Federal Arbitration Act could usefully provide: “Where the claim in arbitration can meet the requirements of Rule 23 of the Federal Rules of Civil Procedure to proceed as a class action, as determined by the arbitrator(s), the arbitration clause upon which the claim is based shall not be construed to prohibit such an action.”

Following such an amendment, one would expect arbitral instutions to develop specific rules governing arbitral class actions. And one would expect that corporations that have hoped to use arbitration as a vehicle avoid class actions, whether arbitral or juidicial, to opt into or out of arbitral class actions based on the efficicacy of the competing judicial and arbitral class dispute procedures.

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A decision from the Southern District of New York reminds us that an agreement to arbitrate under arbitration rules that give the arbitrator power to rule on her own jurisdiction will be “clear and unmistakable evidence” that the parties intended the arbitrator, not a court, to resolve all issues concerning the existence, validity and scope of the arbitration agreement. Here a publisher brought suit for copyright infringement, against the same infringer it had sued in a still-pending arbitration. The publisher claimed the actions concerned infringement in different time periods, one covered by the arbitration clause, the other not. As the clause called for arbitration under the AAA Commercial Rules, which clearly confer power on arbitrators to decide issues concerning their own jurisdiction, the court stayed the action pending arbitration. Argus Media, Ltd. v. Tradition Financial Services, Inc, 2009 U. S. Dist. LEXIS 120866 (S.D.N.Y. Dec. 29, 2009).

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Investment law proceduralists will find much room for debate in the recent decision of a divided ICSID Tribunal, denying the application of an American investor to join additional claims in a BIT arbitration against the former Soviet republic of Georgia. (Itera International Energy LLC and Itera Group NV v. Georgia, ICSID Case No. ARB/08/7, Decision on Admissibility of Ancillary Claims, Dec. 4, 2009)

In broadest terms, the dispute involved non-performance by Georgia under agreements for payment of unpaid bills for natural gas that the Claimant had supplied to state-owned entities. Under one agreement, Claimant purchased a 90% interest in a State-owned company, under a privatization plan; partial payment of the gas supply debt was to take the form of forgiveness of taxes owed by the newly-privatized acquired entity. But Georgia reacquired the 90% interest by official decree, giving rise to an expropriation claim by Claimant under the US-Georgia BIT. A second arrangement for part payment of the natural gas debt entailed a commitment by Georgia’s Energy Ministry, through a financial agent called Sistema, to pay Claimant $46 million in quarterly installments over seven years. When that agreement was breached, Claimant commenced a private commercial arbitration in Russia as provided in the agreement. But in its Request for Arbitration in the ICSID case, Claimant reserved the right to bring claims under the BIT relating to non-performance installment payment contract.

Claimant, motivated in part by Georgia’s objection to the jurisdiction of the commercial arbitration tribunal in Moscow, sought in its memorial on the merits in the BIT case to interject Treaty claims concerning non-performance of the installment payment plan. Claimant relied on Article 46 of the ICSID Convention and Article 40 of the ICSID Arbitration Rules, which in similar terms allow the assertion of “additional claims . . . arising directly out of the subject matter of the dispute.” In this case, the majority of the Tribunal took a restrictive view of “subject matter of the dispute,” following the official explanatory comment to ICSID Rule 40, to the effect that the claims must be so related that resolution of the claim first asserted would necessarily require resolution of the claim proposed to be added. Under this standard, the majority reasoned, the two claims were unrelated, even if they arose from the same “subject matter” of natural gas debt payment by Georgia to Claimant, and even if some procedural efficiencies would be achieved by joinder of the claims.

The dissenting panelist, Professor Francisco Orrega Vicuna, would have concluded instead that these were “two concurrent arrangements directed to reach the same objective of making the Claimant whole for the monies owed,” and that the factual connection of the two claims was “close enough as to require their simultaneous adjudication so that settlement of the dispute will be final.”

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One of the dilatory tactics commonly employed by litigants in the arbitration process is the tactical request for adjournment of hearings. Many arbitrators, reluctant to invite a challenge to the award based on alleged procedural unfairness, will succumb to adjounment request even if it is transparently tactical and dilatory.

Arbitrators whose instincts are to resist such tactics will surely take comfort in a recent decision from the federal court in the Southern District of New York. (Bridgepointe Master Fund v. Biometrx, 2009 U. S. Dist. LEXIS 115678 (S.D.N.Y. Dec. 11, 2009)). Here, the Court rejected a motion to vacate the award based on the panel’s refusal to adjourn a hearing on the merits that was scheduled on two business days’ notice. The Court found that the movant had made “a tactical choice to absent itself from the arbitration” from the outset, and that its conduct had included: the CEO’s declaring his intention to file bankruptcy rather than defend the case; conscious refusal to participate in any aspect of the proceedings; failure to respond to the AAA’s request for an update on the plans for a bankruptcy filing; non-attendance at a pre-hearing procedural meeting; and failure to avail itself of the panel’s invitation to renew the request for adjournment on the first day of the merits hearings.

While this record of non-participation is more ample than what the arbitrator may confront in many cases, the Court held that the same legal standard applies — i.e. “barely
colorable justification” — to a motion to vacate based on refusal to postpone a hearing (FAA Section 10(a) (3)) as to motions to vacate based on other Section 10 grounds. Thus the arbitrator has substantial discretion to keep the hearings on schedule and the courts will show great deference.

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What liberty of contract do State parties to a bilateral investment treaty have to define broadly the category of “investments” that may be the subject of arbitration between one Contracting State and an investor of the other? The arbitral tribunal in Romak S.A. v. Republic of Uzbekistan (PCA Case No. AA280, available at Permanent Court of Arbitration website, www.pca-cpa.org) appears to fix limitations on such freedom of contract in its award, issued November 26, 2009, dismissing the Claimant’s claims on the basis that an account receivable arising from the sale of tens of thousands of tons of grain was not an “investment” under the Switzerland-Uzbekistan BIT.

One may readily agree that a one-off sale of goods transaction fails to qualify under the ordinary meaning of the term “investment,” normally lacking the basic and well-understood attributes of an “investment”: an economic contribution by the investor, a certain duration of the contribution, and an element of economic risk.

But what should be the outcome when the BIT defines “investment” to be “every kind of assets, and particularly. . . claims to money or to any performance having an economic value” ?

The Tribunal acknowledged that its mission, in observance of the Vienna Convention on the Law of Treaties Article 31(1), was to “resort to the ‘ordinary meaning’ of the terms of the BIT ‘in their context and in the light of its object and purpose.’” What seems curious in the reasoning of the Tribunal is that its point of departure was to seek out the ordinary meaning of “investment” — in the first instance, from Black’s Law Dictionary — notwithstanding that the Treaty established “investment” as a defined term, rather than turn immediately to the ordinary meaning of the words used in the definition. The central definitional phrase — “every kind of asset….” — appears to offer relatively clear guidance, albeit guidance that may be at loggerheads with evolving investment law conceptions of “investment,” and of what investment lawyers and arbitrators may regard as a sensible allocation of jurisdiction among State courts and BIT arbitral tribunals.

Just as provocative of debate is the Tribunal’s handling of the “object and purpose” and the “context” of the defined term “investment” in this BIT. The Tribunal refers to recitals in the preamble of the Treaty, wherein the parties declare that they are “[r]ecognizing the need to promote and protect foreign investments with the aim to foster economic prosperity of both States,” and “[d]esiring to intensify economic cooperation to the mutual benefit of both States.” The Tribunal thought it self-evident that these recitals contradict the notion that “every kind of asset” including a “claim for money” can sensibly include the account receivable arising from a large grain supply contract between a Swiss supplier and a State-owned Uzbek buyer. And the Tribunal took as guidance to the “context” of the BIT’s definition of “investment” the fact that, on the same day the BIT was signed, Switzerland and Uzbekistan also entered into an Agreement on Trade and Economic Cooperation. The Tribunal, making no specific findings, apart from the date of signature, as to whether, for purposes of Vienna Convention on the Law of Treaties Article 32((2), the Trade Agreement was an “agreement relating to the treaty which was made … in connection with the conclusion of the treaty,” nevertheless concluded that the two agreements, juxtaposed, raised an inference that sales of goods transactions were intended to be excluded from the BIT definition of “investments.”

The Tribunal also considered that it would be “manifestly absurd and unreasonable” (Vienna Treaties Convention Article 32(2)) to make a literal application of “every kind of asset” including a “claim for money,” as to do so would create a broad swath of concurrent jurisdiction, between domestic courts and international arbitral tribunals, over commercial transactions between private actors of one Contracting State and State entities of the other.
But the case stated for absurdity is not cast in terms of the Contracting States’ objectives — one can well understand why a developing country with an unstable judiciary might create such concurrent jurisdiction as an inducement to investment. Rather, the absurdity is said to lie in the prospect of a broad domain of concurrent jurisdiction over commercial matters — a conception that sales contracts “‘are not investment contracts, except in exceptional circumstances, and are to be kept separate and distinct for the sake of a stable legal order.’” (Award Par. 185, quoting from the ICSID Tribunal award in Joy Mining Machinery Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, August 6, 20045, par. 58).

Perhaps more analytically convincing is the Tribunal’s reliance on the fact that the Swiss-Uzbek BIT adopted two arbitration alternatives from which the investor might choose: ad hoc UNCITRAL Arbitration and ICSID Arbitration. For that choice to be an effective one, the Tribunal reasoned, the “investments” qualifying for arbitration under either mechanism should be the same, and thus an interpretation should be avoided that would make “investments” eligible for UNCITRAL arbitration but not ICSID Arbitration. Correspondingly, ICSID jurisprudence was held to provide suitable inspiration and guidance (but not precedent in a stare decisis sense) for deciding the treaty interpretation issue here. Of course, here again there was at least one other way of looking at things: that ad hoc arbitration under the UNCITRAL Rules was included to ensure that disputes that would not jurisdictionally qualify for ICSID arbitration under the ICSID Convention conception of “investment,” but were intended to be arbitrable under the BIT, would find their way to an arbitral forum.

With these analytical premises in place, the Tribunal proceeded to rely on ICSID jurisprudence for its conclusion that “the term ‘investments’ under the BIT has an inherent meaning (irrespective of whether the investor resorts to ICSIDE or UNCITRAL arbitral proceedings) entailing a contribution that extends over a certain period of time and that involves some risk.” And the Tribunal took pains to insist that it was completely accepting of the notion that State parties to a BIT have freedom of contract to decide what scope to give to the term “investments” — but that the parties here had not, at least not in sufficiently plain terms, elected to treat sales of goods transactions as such. This latter declaration by the Tribunal might well have been included to anticipate that some readers would raise the concern stated in the first sentence of this commentary. And the reasoning in this award appears to underscore that, in the jurisprudence of arbitral jurisdiction under investment treaties, there is an unresolved tension for arbitrators between engaging in principled treaty interpretation and choreographing a “sensible” transnational system for the resolution of disputes.

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