This post is the text Mr. Goldstein has prepared for an oral presentation in a panel program on provisional relief in aid of arbitration on April 5, 2018 in Washington, D.C. at the annual conference of the American Bar Association’s Section of Dispute Resolution. Mr. Goldstein’s co-panelists are the Hon. Faith Hochberg (Ret.) and the Hon. Bruce E. Meyerson (Ret.).
These remarks about interim measures in international commercial arbitration were prepared for listeners and readers, perhaps many of you, who have become arbitrators in international cases as a rather new phase of an illustrious career spent mainly within US legal borders.
Even the phrase “interim measures” may have a rather alien ring to it, as it did for me when I first sought such relief in an international arbitration, 27 years ago. (The motion was granted).
Now a new international case arrives in your e-mail, and the Demand for Arbitration is accompanied by an “urgent” Application for Interim Measures that has already been gathering dust for several weeks during the process forming the Tribunal. And it is a US Claimant based in NY, against a Japanese company based in Japan, and the seat of arbitration is NY and the governing law is NY, and the application asks that the Japanese company should be required to continue performance while the case proceeds. And you ask yourself: “well isn’t this just another preliminary injunction motion under NY law (?), and why should the fact that it’s an international case make any difference?” And then you get an e-mail from one of your co-arbitrators, the one appointed by the Japanese party, represented by a NY law firm, and she is a recently-retired federal district court judge from Pennsylvania — not New Jersey!! — and she asks exactly that question!
Now, those of you who fit into the illustrious career profile that I announced at the start, raise your hands — because with my magic wand I will now transform you. Presto! Your nationality remains American, but you now come to this arbitration from a different career track, after a 30+ year career as an advocate in Investor-State arbitrations, and now that you are a full-time arbitrator this commercial case is rather an anomaly in your docket of mainly treaty-based disputes. (To be clear, such is not the profile of this speaker and blogger).
So what is your answer, in your transformed condition, to your retired PA (not NJ) retired US federal judge-colleague who poses this seasonally-appropriate question? (“Why is this injunction motion different from all the others?”) You take up your i-phone and you begin to draft an e-mail.
“My Dear Esteemed Colleague
The question you raise is a serious one, and it is not adequately answered in a few words so please excuse the length of this first communication between us, although I will strive to be succinct:
1) First: Like a court we must always consider first whether we have jurisdiction. But unlike many cases in court, to solve an objection to our jurisdiction might be a very complex case-within-the-case. If a State contended that an Investor was not in fact duly qualified or legally classified as such, that issue alone could in fairness consume months of proceedings. US courts might insist on expedited discovery and build an adequate record about a contested issue of subject matter or personal jurisdiction in a few weeks. That solution is scarcely possible here. And here too we have such a case-within-the-case, as the Respondent claims it did not sign the contract and resists all contentions that it is bound to arbitrate. Our escape from this conundrum is the doctrine of prima facie jurisdiction, a decades-old concept first developed by international courts. It allows us here to decide simply if Claimant makes a non-frivolous assertion of arbitral jurisdiction. And then to move on. How otherwise could we effectively handle an application like this, much less function as emergency arbitrators in comparable cases, as you may have already been called upon to do?
2) Second: The question of what legal standards govern the disposition of the application still divides our community or at least a portion of it. From an investment law vantage point, this has always been a matter of trans-national principles. In contrast, the notion that an international arbitral tribunal in a contract dispute governed by New York law and seated in New York should necessarily apply the preliminary injunction criteria of New York’s state and federal courts has a remarkable but quite unwarranted durability. In international tribunals, there appears to be no trace of a notion that where an interim measure is sought against the Host State by a foreign investor, the application should be governed by the provisional remedies procedures of the courts of that Host State. Whether or not a US state’s law would regard its courts’ interim relief standards as “substantive” or “procedural” for choice-of-law purposes, the jurisprudence, scholarship, and foundational documents in the world of international arbitration seem quite universally to treat the matter as a question of arbitral procedure. The best evidence of this is the standards, more or less vague or precise, that appear in major international instruments like the ICSID Convention and ICSID Arbitration Rules, the UNCITRAL Model Law and UNCITRAL Arbitration Rules, and in the rules of all major provider organizations. It follows that parties who elect to arbitrate international disputes elect to treat interim measures standards as matter of arbitral procedure, and from that premise it follows that a generic governing law clause in a contract selecting the laws of NY or PA ought to be construed as excluding the state’s standards concerning provisional relief, just as much as such clauses are routinely construed to exclude the state’s civil procedure law generally.
Third: If there is one fundamental difference between US judicial practice and international arbitral practice in regard to interim relief, it concerns the applicant’s burden in regard to likely success in securing the ultimate final relief. International courts and treaty tribunals have reduced this to nearly a non-factor. They tell us the applicant should have a right, relating to the interim relief sought, that is valid prima facie — which is to say, she has a non-frivolous claim to the right that she seeks to protect. Let’s illustrate that. In a significant number of investment arbitrations, the measures sought related to the Host State’s parallel pursuit of criminal proceedings against the Investor or her agents and affiliates. The right of the Investor to fundamentally effective arbitral proceedings is a cognizable and vital procedural right, and tribunals need not and do not require more concerning the merits of an underlying substantive claim of expropriation, or unfair and inequitable treatment, before turning full attention to whether it is urgent and necessary to prevent the extradition or incarceration of the Claimant so that she might effectively testify and assist her counsel. Some common law arbitrators will take up the words of the UNCITRAL Model Law — “reasonable possibility” of success on the merits, and will say this is more or less a diluted but still workable version of the American judicial rule of probability. But to read it that way gives inadequate weight to the principle, going back decades in international tribunals, that there should be no prejudgment of the merits at the stage of interim relief. To give effect to that principle, the focus of interpretation of the UNCITRAL standard should be on the choice of the word “possibility” in lieu of prospect or probability or likelihood. Credible allegations with basic documentary support ought normally to suffice. But I fear, dear Colleague, that the party opposing provisional relief, the international party here, from Japan, but represented by NY counsel and having appointed such a distinguished PA jurist as yourself, will insist so long as it may that it is appropriate to apply the NY judicial probability of success standard, because that gives its client the best chance to win at this stage. If I have persuaded you to the international standard, might we perhaps enter a procedural order about the applicable standards, and relieve the parties and ourselves of the uncertainty and burden and cost of a cumbersome evidentiary proceeding at this interim measures stage?
Fourth: When I read the interim measures orders from investment tribunals and I see the convergence around a three-part test of necessity, urgency, and proportionality, I am inclined to wonder why this test, properly understood by commercial arbitrators of common law orientation, ought not to be warmly embraced by them. Necessity, after all, captures the common law notion of irreparable injury, while not exactly replicating it. The adequacy of money damages may disprove necessity, and many investment tribunals have so stated. But an international arbitral award for money damages and a judicial judgment for the same relief against a domestic defendant sometimes cannot be directly equated because recognition and enforcement of an arbitral award remains a process fraught with idiosyncratic uncertainties, risks, and obstacles, especially in regard to prospective award debtors that are State agencies, State affiliates, or otherwise under the influence of State actors. Also, we do well to consider that arbitration more than litigation is a process for conflict management not merely conflict resolution — and this notion is reflected in another long-standing international principle that interim measures may properly serve to prevent aggravation of the dispute — which is to say (inter alia) proliferation of the issues and sums involved by virtue of a party’s unilateral action while the case is pending. This is a more powerful principle than the common law equity notion of “preserving the status quo.” It might justify a certain type of interim measure to prevent a one billion dollar dispute with two thorny valuation issues from becoming a $25 billion dispute with ten such valuation issues, even though in common law terms of irreparable harm the compensability of each injury by a sum of money differs only in regard to the sum. When we read the UNCITRAL formulation “not adequately reparable” by an award of money damages, we ought to have these notions in mind.
Fifth: As this e-mail is already too long, Dear Colleague, I invite you to consider that “urgency” and “proportionality” as the internationalists’ phrasing goes, are quite in synch with common law judicial principles concerning the imminence of irreparable injury and the so-called balance of hardship or balance of convenience. But it is useful for us as commercial arbitrators to understand that in the context of disputes with States, whether the claims are treaty-based or contractual, the State may be engaged in a prolonged and multi-layered process of implementing some aspect of State policy or sovereignty — and the example of a criminal investigation, mentioned earlier, is a useful one. If the State seeks the extradition of the arbitration Claimant to face criminal charges in the State, but must overcome three administrative hurdles even prior to a hearing on extradition in the requested State, the interim measure sought by Claimant to enjoin the State from pursuing her extradition may not satisfy the test of urgency and might be denied without prejudice. If the Claimant seeks an order directing the State entirely to suspend its criminal investigation relating to the Claimant and her affiliates that are domiciled in the State, she risks denial of relief because the sovereign interest in enforcement of the State’s criminal laws is so fundamental that the relief sought may be seen as disproportionate to the potential harm. For this reason increasingly we see that sophisticated counsel are inviting Tribunals to order one a variety of proposed interim measures within a broad range of potential palliative steps. And the process of selecting which if any of the measures satisfies the standard of “proportionality” invites us as arbitrators to hearken back to our days studying US Constitutional Law, and to think about “least restrictive means” analysis, as applied to regulations that inhibit the exercise of fundamental individual rights in service to other legitimate policy objectives of the State. (Williams-Yulee v. Florida Bar, 135 S.Ct. 1656, 1670 (2015)).
In closing, dear Colleague, I invite you to draw the conclusion that this process is not so very different from the preliminary injunction practice you have experienced so often in the US courts, save as it is rather fine-tuned to the arbitral tradition of our keeping open minds and open hearts concerning the merits of the case, at least in the perceptions of the parties, and thereby acting in service of the norms of party consent, party autonomy, and party equality, for the duration of the proceedings. That very much explains in one concept the differences of the international arbitral approach from what you were accustomed to in a U.S. district court. And I hope you will embrace it warmly.
cc: Our Other Esteemed Colleague
All typographical errors are entirely the fault of this i-phone and not its user.”
