Archive for the ‘Uncategorized’ Category

Arbitrator Disclosure: A Plea for Help to the US Supreme Court

Monday, January 29th, 2024

There are many good reasons for the Supreme Court of the United States to grant the petitions for writ of certiorari now before the Court in two cases involving the question of whether international arbitrators’ undisclosed professional relationships justify vacatur on the basis of evident partiality.  The main theme of each of those cert. petitions – that there is a “split” among the federal judicial circuits concerning the relevant test derived from the Court’s 1968 decision in the Commonwealth Coatings case – is sensibly crafted to attract the enthusiasm of the Court. But for those of us who, perhaps more acutely than the Justices of the Supreme Court, have an anxious preoccupation with the subject of arbitrator disclosure, a compelling reason for the Court to take the cases is because the US arbitration community would benefit from authoritative guidance on how the “evident partiality” standard of the Federal Arbitration Act (“FAA”) Section 10(a)(2) applies to the active arbitrator’s multi-layered web of professional and personal relationships in a highly­-networked global community. That type of community did not exist in 1968 – two years before the US acceded to the New York Convention – and its eventual existence was neither considered nor anticipated in the quaint domestic setting of Commonwealth Coatings.

What the Supreme Court actually held in Commonwealth Coatings has been debated now for 55 years in US federal courts and in the arbitration community. That debate has swirled because the Supreme Court has declined to shed light on how the “evident partiality” test for vacatur applies in different contexts. The consequence has been that advocates and courts have on various occasions taken out of context phrases from the opinion of the Court authored by Justice Black (often said to have been only a “plurality opinion” although it was not denominated as such), and the concurring opinion authored by Justice White, and have struggled to extend them to a variety of situations that scarcely resemble Commonwealth Coatings.

Commonwealth Coatings involved a local construction arbitration in Puerto Rico, over sums unpaid to a paint-job subcontractor. The tribunal was composed of two party appointees who were non-neutral by agreement and a presiding arbitrator whom the parties expected to be a neutral. The presiding arbitrator’s “day job”  was as an engineering consultant, and he had provided such services, off-and-on over a five-year period before the arbitration, to the Respondent in the arbitration. This was not disclosed by the presiding arbitrator or by the Respondent, and Claimant only learned of it after losing the case. The Court described this undisclosed business relationship in the following terms: “[T]he [Respondent’s] patronage was repeated and significant, involving fees of about $12,000 over a period of four of five years, and the relationship even went so far as to include the rendering of services on the very projects involved in this lawsuit.

These facts were essential to the Court’s holding. The Court’s objection to the non-disclosure, in FAA “evident partiality” terms — and here I quote from Justice Black’s “opinion of the Court”  — was that “neither this arbitrator nor the [Respondent] gave to petitioner [Claimant in the arbitration] even an intimation of the close financial relations that had existed between them for a period of years.” Justice Black then entered upon a discussion of a 1927 Supreme Court case in which it had been decided that a criminal defendant was denied the constitutional right to a fair trial because, under the Ohio local criminal court’s rules and practices, the judge derived income from court fees taxed against convicted defendants.  The Opinion of the Court in Commonwealth Coatings  then interpolated this principle into FAA Section 10: “Since in the case of courts this is a constitutional principle, we can see no basis for refusing to find the same concept in the broad statutory language that governs arbitration proceedings and provides that an award can be set aside on the basis of ‘evident partiality’ or the use of ‘undue means’.

The paragraph containing this quotation concludes with the sentence hosting the catch-phrase that has made Justice Black’s Opinion famous. The catch-phrase is “might create an impression of possible bias.” The full sentence reads: We can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias” (emphasis supplied, purposefully). In this 2024 retrospective, taking into account five decades of concern with potential overreach of the phrase “might create an impression of possible bias,” perhaps it is useful to ask, by way of limitation: what did the Supreme Court mean by “dealings”? It seems to be a question worth considering. One can only imagine how many briefs in how many courts over the span of 55 years have argued that Commonwealth Coatings requires all arbitrators in FAA cases, on pain of potential award vacatur, to disclose “any matter”  or “any information” or “any relationship” or “any facts” that “might create an impression of possible bias.”  But it seems entirely possible that Justice Black and his colleagues — including the concurring Justices White and Marshall — used “dealings” more narrowly, in alignment with the facts of the case to refer to the business activities that are regularly engaged in by the arbitrator for profit, and the potential influence of the profit motive on the arbitrator’s objectivity. Such an interpretation seems to harmonize Justice Black’s opinion with Justice White’s concurrence, cutting against a tendency in some of the lower federal court case law to view those opinions as pronouncing different standards.

There is evidence of this in Justice White’s concurrence. Clearly Justice White was focused on  arbitrators’ “business relationship with the parties before them” and “any financial transactions which he has had or is negotiating with either of the parties.” He then described the holding of the Court to be that “where the arbitrator has a substantial interest in a firm which has done more than trivial business with a party, that fact must be disclosed.”  And it is worthwhile to observe that there is no hint in Justice Black’s Opinion that Justice White misstated the holding of the Court.

I see quite a bit of unity in the White and Black opinions in Commonwealth Coatings, and it may well be that the divergence that has been ascribed to those opinions by some lower federal courts has resulted from efforts to apply Commonwealth Coatings to disclosure scenarios at a considerable remove from the one that case presented.

These remarks surely apply to the non-disclosure facts presented by the certiorari petitions in the Andes and Grupo Unido cases. Each involves non-disclosures by arbitrators who, at the times of their appointments, were lawyers in private practice, serving both as arbitration advocates and as arbitrators. Neither case has to do with a business relationship between the arbitrators (or their law firms) and any of the parties. Andes concerns nondisclosure of an arbitrator’s concurrent service on a different tribunal with a party’s counsel. Grupo Unido concerns (inter alia) nondisclosure of a presiding arbitrator’s concurrent service on a second tribunal with one of the co-arbitrators. (Related to this, but not dealing with Grupo Unido itself, is the Post on this Site entitled “On Overlapping Appointments” dated November 2, 2022. It is easily located using the Search by Keyword feature in the right-hand margin).  These are arbitrators in an arbitration world that bears no resemblance to the local construction industry of San Juan, Puerto Rico in the 1960s.  A compelling reason for the Supreme Court to grant certiorari, from the perspective of our community, has much to do with giving guidance to participants in the contemporary world of complex high-value arbitrations, international and domestic, where busy arbitrators constantly encounter other busy arbitrators in contexts, well known to all of you, ranging from other tribunals to workshop faculties to Bar Association task forces.

The cert. petitions in Grupo Unido and Andes cast a spotlight on the unstable relationship between arbitrator disclosure and arbitrator bias.  That relationship is unstable, in the US market, because rules about arbitrator disclosure mainly come from the rules and standards of arbitration-sponsoring institutions (with the overlay of soft law, notably the IBA Conflict of Interest Rules), while rules about arbitrator bias mainly come from jurisprudence under the FAA in cases where a losing party seeks to have an award vacated, or refused confirmation, because an arbitrator was “evident[ly] partial[]” or “corrupt.” Which set of rules should guide an arbitrator in deciding what disclosures to make?  Does the answer vary from case to case? From one federal judicial circuit to another? From one institution to another?

The Grupo Unido and Andes decisions in the federal courts of appeals reflect a view that the FAA is only concerned with undisclosed professional relationships that are prima facie indicative of bias. That Prominent Arbitrator A in Case 1 promotes the candidacy of Prominent Arbitrator B in Case 1 to chair the Tribunal in Case 2 in which Prominent Arbitrator A serves as a party appointee – one of the nondisclosure scenarios in Grupo Unido —  doesn’t meet the prima facie test according to the Eleventh Circuit in Grupo Unido.  To be sure, chair appointments in big cases are lucrative, and in some sense marketable to get more of them. But the concern of a losing party that Prominent Arbitrator A had purchased Arbitrator B’s adoption of the position of the party that appointed Prominent Arbitrator A, or at least purchased a more sympathetic audience for the position of that party, is speculative not reasonable unless other unfavorable and undisclosed relationship facts indicate that Arbitrator B withheld disclosure to conceal the fact that her or his vote and/or sympathy was in some sense for sale.  This seems to be a sensible view, and the problem that justifies the granting of cert. in both cases is that it is not consistently shared across all federal courts actively and regularly concerned with international arbitrations.

Consider, for example, a case that is to be argued in the US Ninth Circuit Court of Appeals in April 2024, called Equicare Health Inc. v. Varian Medical Systems, Inc. (No. 23-15698 in the 9th Circuit, for those of you with PACER accounts who may wish to track down the briefs).  This is an appeal from a US District Court judgment in the Northern District of California that vacated an ICDR arbitration award on grounds of evident partiality due (mainly) to a wing-arbitrator’s non-disclosure. What did the wing arbitrator fail to disclose – evidently unwittingly?: That years earlier, in a long-since-settled legal malpractice case, he and his law firm as local counsel for an out-of-California law firm, had been represented by a legal team that included (in the final stages before settlement) a lawyer now appearing before the Tribunal as a partner of a different law firm. And (assuming the accuracy of the appellant’s version of the facts) that lawyer had taken only a back-office brief-writing role in the malpractice case; and her presence on the malpractice defense team had been entirely unknown to the arbitrator/former client, such that her appearance in the arbitration triggered no connection that would have caused him to make a disclosure.

Those of you who are intrepid enough to read the District Court’s opinion granting the motion to vacate in the Equicare case (2023 WL 3089093 (N.D. Cal. April 19, 2023)) may share my consternation that the Court appears to hold that FAA Section 10 “evident partiality” is present when an arbitrator, innocently or through inadvertence, fails to discover his or her own transitory and attenuated prior status as a client of a law firm whose legal team on the matter included an attorney now appearing before him. Even more disconcerting,  the District Court supports this conclusion with the observation that the non-disclosure violated the terms of the ICDR’s arbitrator questionnaire that requires that all such relationships be disclosed, and the consequence was to deprive the losing party (the vacatur movant) of the ability, in the initial striking and ranking of the ICDR’s candidate list, to strike from the list the arbitrator that it instead ranked without taking into account the undisclosed facts.

This is troublesome for at least a few reasons. First, a party may strike an arbitrator from an institution-provided candidate list for any reason, and so at the selection stage party autonomy includes the right to speculate about a candidate’s predisposition. A party striking and ranking an institution’s list, when the list is composed after pre-screening candidates by asking them to make conflicts disclosures, is perfectly entitled to prefer candidates whose disclosures do not invite speculative suspicion of bias. But it does not follow that a candidate’s innocent nondisclosure at that stage of information that entails at most a speculative concern about bias, rises to the status of award-vacating evident partiality when the same information surfaces after the case has concluded.  To do so wrongly conflates party autonomy in arbitrator selection with the impression of arbitrator bias that compromises an award. Further, disclosure standards such as the broad disclosure instructions given by the AAA/ICDR in its disclosure questionnaire are not sensibly understood as a guide to the meaning and application of “evident partiality” in FAA Section 10. Those instructions would seem to have a two-fold purpose: (1) to better ensure full disclosure of material information by calling on arbitrators to disclose all information about relationships without making threshold judgments about materiality, and (2) fostering a perception among arbitration users, who make choices among institutions, that the AAA/ICDR’s broad disclosure philosophy provides a certain level of assurance that its Tribunals will observe high ethical standards of independence and impartiality. The FAA’s “evident partiality” standard is applied, however, when the arbitration has ended (or partially ended in a Partial Final Award or an Interim Measures Award), and so it is concerned with the striking of an appropriate balance between overturning conflict-clouded results and defeating the very purpose of arbitration by requiring completed cases to be repeated before new tribunals.

One of the most useful contributions the Supreme Court of the United States could make, by accepting certiorari in the Grupo Unido and Andes cases, would be to deliver guidance clarifying when an undisclosed professional relationship of an arbitrator is insufficient to justify setting aside an award, even though the non-disclosure may well have violated the reasonable disclosure expectations of the losing party derived from institutional rules and practices, state procedural law and soft law like the IBA Conflicts Rules.  A logical consequence of such a ruling from the Supreme Court might well be that arbitral institutions and state arbitration laws would more explicitly adopt disciplinary remedies for disclosure omissions by their arbitrators  — and/or more transparency about the criteria guiding their challenge decisions on nondisclosure issues — so that jeopardy to the arbitrator’s standing and eligibility to serve, rather than jeopardy to the award, would more often govern the disclosure decisions of arbitrators in situations akin to Grupo Unido and Andes.


Thoughts on the Public Policy Exception to Award Enforcement: Potential Foreign Influences on US Law

Monday, January 8th, 2024
This Commentary concerns the scope of judicial review in US courts when an arbitral tribunal in an international case decides whether or not to enforce a contract that is illegal, or is tainted with illegality, whether under the law applicable to the contract or other relevant law such as the law in force at the place of performance. If the losing party in such a case asks a US court to refuse recognition and enforcement of a foreign award, or in a US seated case asks for the award to be vacated, in either situation on the basis that enforcement of the award would violate US public policy, what if any scope exists for the court to revisit arbitral findings of fact and conclusions of law that were made on the issues of illegality?

As our collective instinct is that there is no such scope for a judicial revisiting of arbitral determinations on illegality, when made by the arbitral tribunal within the scope of its mandate. But our concern is that this is an underdeveloped position in the US jurisprudence of international arbitration, a situation that seems related to the fact that the award losers who raise public policy objections do not often present positions that are seriously arguable, as raising matters of illegality that are established and explicit matters of public policy in US law and also offend “our most basic notions of morality and justice.” It may be useful to see how this issue has been treated in the courts of some other major common law jurisdictions – judgments that might inform future US law development should an important or difficult case arise – and so that is a major part of the task I undertake in this Commentary.

Public Policy Objections to Award Enforcement in Notable UK and Singapore Judgments

Two important arbitration jurisdictions whose courts have considered these questions are the United Kingdom and Singapore. We examine here four major cases, before turning to a sampling of US decisions to consider to what extent they are in harmony or in tension with those judgments.

The first case comes from the UK but is not a decision applying UK law. It emanates from the Privy Council, whose Judicial Committee functions as the court of last appellate resort for judgments from the courts of Mauritius – – a consensual legacy that dates from the time Mauritius gained independence from the UK in 1968. The case arises in the framework of the UNCITRAL Model Law as adopted by Mauritius.

In this case, Betamax Ltd. v. State Trading Corporation, [2021] UKPC 14, the Privy Council held that, under the Model Law’s provision for vacatur of an award whose enforcement would be contrary to the public policy of the Model Law-adopting State, the Mauritius court of first instance was without power to reconsider the arbitral tribunal’s interpretation of the contract at issue as being exempt from obligatory compliance with Mauritius’s public procurement laws. This was received by UK commentators as a vindication of the principles of finality and autonomy in arbitration and of judicial non-intervention. But as shown in a decisive quotation from the Judgment, as quoted below, we know that the possibility of substantive judicial review of arbitral findings on a public policy issue was not entirely foreclosed in principle, albeit such review will only be available in some exceptional circumstances that the Privy Council opted not to specify in ultimate detail:

 “If [the arbitral tribunal, within its jurisdiction] holds that the contract is not illegal, then that decision will be final, in the absence of fraud, a breach of natural justice or any other vitiating factor. There may be some exceptional cases, where the court under the Model Law provision may be entitled to review the decision on legality, but it is not easy to think of such a case arising in practice. In the light of experience, it would not be helpful to seek in this appeal to go further by delineating possible circumstances or making observations about them.”

(at para. 52 in the Judgment).

The second case is also a UK case. However it is from the UK Court of Appeal, dates from 1999, has found disfavor in subsequent judgments as we will discuss, and is controversial for its obiter dicta about the potential scope for judicial review on an issue of illegality/public policy when an arbitral tribunal either finds no illegality or fails to state its reasons on this issue. The case is Soleimany v. Soleimany, [1999] Q.B. 785 (19 February 1998). Importantly, the position taken in Soleimany, possibly allowing for a more expansive judicial role, has been rejected in the Betamax case discussed above, and in other judgments in the UK and Singapore discussed below. But we are looking to the potential influence of these foreign judgments in the evolution of US law, so Soleimany deserves our attention.

The case involved a dispute over the division of profits between the partners in a scheme to smuggle Persian rugs out of Iran in violation of Iranian export control regulations. The partners, both observant Jews, submitted their dispute for resolution before an Orthodox Jewish religious tribunal (Beth Din) under Jewish law. It was common ground that under Iranian law the contract was illegal because it violated export control regulations, and this was stated explicitly in the Beth Din award, where it  was held that under Jewish law illegality of the object of the contract under Iranian law was irrelevant to the rights of the contracting parties inter se.   The UK Court of Appeal held that enforcement of the Award would violate UK public policy, upon the principle that a UK court would not enforce an award in respect of what the arbitral tribunal had accepted to be an illegal contract. But the key component of Soleimany, for the jurisprudence of the public policy exception to award enforcement, was the counter-factual dictum of Lord Justice Waller concerning what the judge in an enforcement court should consider if the arbitral tribunal has found that the contract was not illegal (and perhaps equally if the Tribunal has not addressed the issue of illegality even though the issue was apparent):

“The difficulty arises when arbitrators have entered upon the topic of illegality, and have held that there was none.  … In such a case there is tension between the public interest that the awards of arbitrators should be respected, so that there be an end to lawsuits, and the public interest that illegal contracts should not be enforced.  We do not propound a definitive solution to this problem, for it does not arise in the present case.  So far from finding that the underlying contract was not illegal, the Dayan in the Beth Din found that it was.   …

In our view, an enforcement judge, if there is prima facie evidence from one side that the award is based on an illegal contract, should inquire further to some extent.  Is there evidence on the other side to the contrary? Has the arbitrator expressly found that the underlying contract was not illegal? Or is it a fair inference that he did reach that conclusion? Is there anything to suggest that the arbitrator was incompetent to conduct such an inquiry? May there have been collusion or bad faith, so as to procure an award despite illegality? Arbitrations are, after all, conducted in a wide variety of situations; not just before high-powered tribunals in international trade but in many other circumstances. We do not for one moment suggest that the judge should conduct a full-scale trial of those matters in the first instance.  That would create the mischief which the arbitration was designed to avoid.  The judge has to decide whether it is proper to give full faith and credit to the arbitrator’s award.  Only if he decides at the preliminary stage that he should not take that course does he need to embark on a more elaborate inquiry into the issue of illegality.”

(at page 800 of [1999] QB).

What lesson should we take from this view? It is neither decisively in favor of arbitral finality as the prevailing public policy consideration, nor wholly dismissive of the possibility that arbitral finality may in some circumstances prevail over policy concerns over enforcement of an illegal contract.  But the dictum does suggest that courts ought to be open to a weighing of competing considerations, and that the weight to be assigned to arbitral finality may vary widely depending on the nature of the arbitral forum and even on the quality of the arbitral tribunal’s analysis.

The next UK case, Westacre Investments Inc  v Jugoimport-SDRP Holding Co., [1999] App. L.R. 05/12 (May 12, 1999), is to be considered in conjunction with Soleimany, as the author of the Court of Appeal decision in the latter case, Lord Justice Waller, once again took the position that some form of reopening of the arbitral factual record on corruption would potentially be allowable in an appropriate case. But on this occasion Lord Justice Waller was in the minority, with the two other Court of Appeal Justices standing with the High Court first instance judge, Justice Colman,  in rejecting a judicial reopening to consider new evidence about whether the Claimant’s consultancy in regard to weapons sales to Kuwait was an engagement to pay bribes to relevant Kuwaiti officials. It is the opinion of Justice Colman at first instance that stands, in UK law and in the Singapore cases as revealed below, as the standard bearer for the UK position.

In brief the essentials of Westacre were these: There was a contract for a lobbyist/agent to interact with the Government of Kuwait to secure weapons sales contracts for the Claimant, and the public policy issue was whether in fact the contract was made with intent that the lobbyist/agent should bribe Kuwaiti officials. A Swiss-seated ICC Tribunal heard evidence on the bribery issue, and decided in the Award that bribery was not the purpose of the contract nor was it established in contract performance. Before reaching the UK courts in an enforcement case, that Award was upheld against an annulment petition in the Swiss courts. In the Swiss set-aside case, Kuwait sought to expand the record on bribery with an affidavit from a witness who had testified before the Tribunal, giving additional facts. The Swiss court declined to accept the new evidence, and in the UK enforcement case Kuwait tried again and failed for the reasons given by Justice Colman.

The rejection of the new affidavit evidence for its failure to meet well-understood judicial procedural standards for reopening (not materially different in the UK from US federal Rule 60 (b)) was thoroughly addressed by Justice Colman, but the legacy of Westacre is not on this matter, but on the significance of the fact that the questions of bribery had been thoroughly ventilated and resolved by Award before an ICC arbitral tribunal of unquestioned high competence, and this, in combination with a view that the policing of commercial corruption in transactions that were not performed in the UK was not at the apex of the UK courts’ public policy concerns, was determinative of the proper balance on the facts of the case. To quote in material part from Justice Colman’s decision:

“Outside the field of such universally-condemned international activities as terrorism, drug-trafficking, prostitution and paedophilia [and, we may add, human trafficking], it is difficult to see why anything short of corruption or fraud in international commerce should invite the attention of English public policy in relation to contracts which are not performed within the jurisdiction of the English courts. That it should be the policy of the English courts to deter the exercise of personal influence short of corruption and fraud to obtain valuable contracts in foreign countries in which such activity is not contrary to public policy by refusing to enforce contracts would involve an unjustifiable in-road into the principle of pacta sunt servanda.


It is necessary to take into account the importance of sustaining the finality of international arbitration awards in a jurisdiction which is the venue of more international arbitrations than anywhere else in the world. …[A]lthough commercial corruption is deserving of strong judicial and governmental disapproval, few would consider that it stood in the scale of opprobrium quite at the level of drug-trafficking.  On balance, I have come to the conclusion that the public policy of sustaining international arbitration awards on the facts of this case outweighs the public policy in discouraging international commercial corruption… That conclusion is not to be read as in any sense indicating that the Commercial Court is prepared to turn a blind eye to corruption in international trade, but rather as an expression of its confidence that if the issue of illegality by reason of corruption is referred to high calibre I.C.C. arbitrators and duly determined by them, it is entirely inappropriate in the context of the New York Convention that the enforcement court should be should be invited to retry that very issue in the context of a public policy submission.”

But when a two-justice majority in the Court of Appeal, on the appeal in Westacre, embraced Justice Colman’s rationale, its rejection of a reopening of the record was not based on an unqualified embrace of arbitral finality. Instead, with only a rhetorical nod in that direction (“some difficulty with the concept” of a reopening in the form of a “preliminary inquiry short of a full-scale trial”), the Court of Appeal majority rejected reopening “by reference to the criteria given by way of example in Soleimany itself.” Thus the majority appears to have conducted at least implicitly the “preliminary inquiry” into the merits but reached the conclusion that the arbitral process had been untainted by any material irregularity:

“First, there was evidence before the tribunal that this was a straightforward commercial contract. Secondly, the arbitrators specifically found that the underlying contract was not illegal. Thirdly, there is nothing to suggest incompetence on the part of the arbitrators. Finally, there is no reason to suspect collusion or bad faith in the obtaining of the award.”

When we come to the US case law, I suggest we may conclude that many American judges would be as reluctant, in a proper case, to reject any form of or any possibility of arbitral record reopening, as were Lord Justice Waller’s Court of Appeal colleagues in Westacre. The question may well be: what is a proper case? Lord Justice Waller’s answer seems to be some combination of (i) the gravity of the alleged illegality implicated, with a focus on matters that genuinely and directly engage international public policy, such as corruption, drug trafficking, human trafficking, trafficking in stolen government data, etc. (and not, on the other hand, technical illegality under regulatory laws of the place of contract performance), and (ii) possible shortcomings in the arbitral process, ranging in severity from an entirely collusive arbitration (which is what Lord Justice Waller suggested was involved in Soleimany) at one extreme to more technical deficiencies such as the arbitral tribunal failing to elaborate in the award the reasons for a finding that there was no illegality involved.

Before we come to the US case law, first let’s examine one more non-US case: the 2022 decision of the Singapore International Commercial Court in CHY et ano. v. CIA, [2022] SGHC (I) 3, where the Court after examining prior case law in the Singapore Court of Appeal as well as the UK precedents up to and including Betamax, adopted a hybrid approach to review, in the framework of a Model Law annulment petition, of the fact and law issues pertaining to illegality that had been considered in the Award: (i) issues of fact properly determined by the tribunal within the scope of the submission to arbitration including determinations of  issues of foreign law may not be reopened (absent proof of fraud or other manifest injustice in the arbitral process) – a position grounded in settled principles of award finality expressed in the Model Law – but (ii) issues of Singapore law pertinent to whether the public policy of Singapore has been violated may possibly be reopened – under the principle that the Model Law’s public policy exception to award enforcement makes the courts of the Model Law-adopting State the ultimate arbiters of whether a contract or a course of conduct offends the State’s public policy.

In the case before it, the Singapore International Commercial Court (Ramsey, J.) considered that all the questions resolved by the arbitral tribunal pertaining to Singapore public policy – including issues of interpretation of India’s laws governing certain Foreign Exchange transactions – were issues of fact that could not be reopened, and so the Court did not go further to address in what circumstances a reopening of a question of law decided by the arbitral tribunal might be allowed.

But Justice Ramsey did have some helpful observations about circumstances that often underlie “public policy” based objections to award enforcement but, in her view, categorically would not invite re-examination of questions of law decided by the Tribunal. These are recurrent situations where the losing party’s “public policy” submission is made in two steps: first, to assert that “international comity” is a public policy rule or principle of the State where enforcement is sought, and second, to say that entering judgment enforcing an arbitral award that reaches an incorrect position on an issue of foreign law violates the enforcing State’s comity-based obligation to give effect only to the correct applications of foreign law. But Justice Ramsey rejected the proposition that “comity” is per se such a powerful public policy principle that it reaches all manner of foreign law illegality that might be involved in enforcement of an award. As she wrote in the Judgment: “[M]aintaining international comity [does not] mean that, absent the type of criminal activity such as corruption, bribery or fraud, which would violate the most basic notions of morality and justice or would ‘shock the conscience’, public policy should be engaged”

US readers in particular will note in this quotation the American law formula for the public policy exception taken from the Parsons & Whittemore case – a good indication that the Singapore International Commercial Court Justice was striving toward a transnational principle and (without using the phrase) an approach based on international public policy — that is to say, species of illegality that are not only seriously offensive, to a level of egregiousness, but are uniformly so regarded in many or most nations that have well-developed legal systems.


Looking at US Case Law on the Public Policy Exception With the Foreign Case Law in Mind

From a sampling of the recent US case law, two general observations seem possible. One is that the arguments raised against award enforcement generally do not remotely implicate a truly international public policy or even explicit US domestic public policy norms of high importance that find expression in specific US laws. The consequence is that the public policy exception is often raised as the last item in a laundry list of the award-loser’s objections to enforcement, and thus receives perfunctory judicial examination. The second observation relates to the first: that there is reason to think that in a case that did seriously implicate international (or high-level domestic) public policy embedded in US law, US courts could find reasons to adopt the kind of carefully calibrated approach that we see in the foreign case law. Accordingly we should be careful not to quickly leap to the conclusion that the US is a more “pro-arbitration” jurisdiction where judicial re-consideration of the arbitral record in a public policy exception case is simply off the table.

1.In a Los Angeles-seated international arbitration, a Hong Kong-domiciled owner of downtown LA real estate, as payment guarantor for its US affiliate, had refused to make payments to a construction contractor, and defended on the ground that the construction contract was illegal because the contractor did not maintain licenses required by California law. The arbitrator decided that the guarantee contract was not a construction contract, and that licensure issues were therefore outside the arbitrator’s jurisdiction under the terms of the guarantee. In the US District Court, the motion to vacate on grounds of a violation of public policy was denied, and the Court stated: “Respondent’s public policy argument would require a finding that the Guarantee was a construction contract under which licensure was necessary, which would be an inappropriate reinterpretation by the Court.” (Lendlease (US) Construction Inc. v. China Oceanwide Holdings Ltd., 2021 WL 8443761 at *7 (C.D. Cal. June 15, 2021)).

2.In a Malaysia-seated international arbitration between a US hydrocarbons exploration firm and the Government of India, the Tribunal in its award found that India had wrongfully evicted the firm from the coastal waters exploration area and, as a specific performance remedy, ordered India to permit the firm to return and resume exploration. In the US District Court in Washington DC where the award was brought for enforcement, India successfully invoked the New York Convention’s public policy exception, persuading the Court that respect for the territorial sovereignty of a foreign nation was for the US “a most basic notion of morality and justice” and that the intrusion upon such sovereignty from recognition and enforcement of the specific performance award was a US public policy violation that outweighed the policy in favor of the finality of foreign arbitral awards. (Hardy Exploration & Prod. (India), Inc. v. Government of India, 314 F. Supp.2d 95 (D.D.C. 2018)). That decision furrowed more than a few brows in the arbitration community; the disgruntled award-holder took an appeal to the DC Circuit; and the Parties evidently reached a settlement before the appeal was decided (as indicated by the voluntary dismissal of the appeal on the docket of the DC Circuit). Why was there much brow-furrowing? Mainly because India could be seen as having submitted the question of remedy for breach to private commercial arbitration without excluding specific performance as a potential remedy, and thus arguably had made a sovereign decision to forgo defenses to award enforcement based on sovereign ownership and control of the coastal waters of the Claimant’s exploration concession.

3.In a Paris-seated investment treaty arbitration between Russian investors and the Government of Ukraine, a final award was entered in favor of the Russian investors even though the award gave effect to corporate share purchases that were allegedly unlawful under Ukraine law. Here however Ukraine only first raised the illegality issue as an objection to recognition and enforcement of the final award, and its efforts were rejected by the US courts. (Tatneft v. Ukraine, 21 F.4th 829 (D.C. Cir. 2021), affirming judgment in the District Court, 301 F.Supp.3d 175 (D.D.C. 2018)). And while the DC Circuit cited US domestic arbitration case law for the proposition that there is no general public policy principle against enforcement of a contract that involves illegality, the decision provides no particular guidance on what types of illegality – or what degree of infection of the contract arising from the illegality— might indeed rise to the level of a US public policy objection to foreign award enforcement.

Tatneft is a prime example of a case that is not even close to “our most basic notions of morality and justice,” with the result that the US courts can make easy work of rejecting the public policy objection with little depth of analysis. In Tatneft, Ukraine, having lost an investment arbitration to Russian State-related parties conducted at a Paris seat under UNCITRAL Rules based on the Ukraine-Russia BIT, and having been found liable for $173 million in damages, first failed to obtain annulment in a Paris court, then sought to fend off enforcement in Washington. Ukraine sought to avoid enforcement based on the alleged illegality under Ukrainian law of the procedure by which the Russian entities had acquired their shares in a jointly-owned oil refinery. Ukraine’s main “illegality” argument against Award enforcement, which it had failed to raise before the Tribunal and had also failed to timely raise in the US District Court, was that the alleged illegal share acquisition vitiated Ukraine’s consent to arbitrate. The District Court declined to address this contention because it was not timely raised, and the DC Circuit followed suit.  So Ukraine’s alternative argument that the alleged share-acquisition illegality under Ukraine law violated US “public policy against illegality” was more or less a throwaway – an insubstantial argument offered up with no serious prospect that it would succeed. Said the DC Circuit: “[T]he U.S. does not have a policy against enforcing arbitral awards predicated on underlying violations of foreign law.”  So the more interesting question of what kinds of illegalities under foreign law would or could genuinely raise US “morality and justice” hackles was never even close to being in play.

4.In a New York-seated international arbitration in which the Tribunal afforded extensive opportunity for the losing party to prove its claim that the contract was procured by corruption, and the Tribunal specifically examined and rejected that claim, the Second Circuit affirmed the District Court’s rejection of the public policy defense to enforcement. (Commodities & Minerals Enterprise Ltd. v CVG Ferrominera Orinoco CA, 49 F.4th 802, 818-19 (2d Cir. 2022)). The Court declared that “[i]n reviewing an arbitral award for violations of public policy, a court may not ‘revisit or question the fact-finding or the reasoning which produced the award.’”

The Orinoco case calls to mind another reason we don’t get much “morality and justice” nourishment from the jurisprudence:  that raising a public policy defense to enforcement is not – at least not systematically — a side-door entry to judicial review of an arbitral determination that there was in fact no corruption or other illegality or public policy obstacle to enforcement of the Claimant’s claim. When the party resisting enforcement argues that “the law governing the contract, interpreted correctly as the Tribunal failed to do, makes enforcement of the claim unlawful” that party can be expected to lose. Call it a finality exception to the public policy exception. The public policy infraction must arise from the award as is, not the award as the loser argues that it ought to have been. Orinoco is an example.  In this case, the arbitration Respondent, a Venezuelan State-owned exporter of iron ore, defended before the Tribunal on the ground that the Claimant’s contract to haul ore down river from the mine to an ocean transfer station had been procured by corruption. The Tribunal heard the evidence on that issue, and found no such corrupt procurement. Venezuela then failed on a public policy defense to enforcement in the US District Court and the Second Circuit, and the latter court cited Supreme Court precedent in a domestic context for the proposition that: “[A] court’s task in reviewing … possible violations of public policy is limited to determining whether the award itself, as contrasted with the reasoning that underlies the award, creates an explicit conflict with other laws and legal precedents and thus clearly violates an identifiable public policy…. [Venezuela’s] public policy argument attacks the [contract] itself, not the Award or its enforcement. The Panel carefully considered [Venezuela’s] corruption allegations and gave [Venezuela] ample opportunity to substantiate its claim.

5.We may however question whether this categorical statement of non-reviewability is uniformly the position in US law. In the passage quoted above, the Court drew upon a precedent in the domestic context of labor arbitration under a collective bargaining agreement. We should compare this to the phrasing from a recent US District Court decision from Texas: “Erroneous legal reasoning or misapplication of law is generally not a violation of public policy within the meaning of the [New York Convention].” (Kora Pack Private Ltd.  v. Motivating Graphics LLC, 2023 WL 4826222 at *9 (N.D. Tex. July 27, 2023) (emphasis supplied)). That statement was taken from a rather prominent decision in the US international arbitration jurisprudence, Karaha Bodas Co. v. Perusahaan Pertambangan, 364 F.3d 274 (5th Cir. 2004), and in Karaha Bodas this statement about what should “generally” be deference to the Tribunal on all decided issues of fact and law was qualified a few sentences later by this: “An arbitration tribunal’s contract interpretation does not violate public policy unless it ‘violates the most basic notions of morality and justice’”. 364 F.3d at 306. As that appears to define the exception to the “general” rule of deference – in the Fifth Circuit at least, but also potentially elsewhere because it is an influential decision in the US canon — the door is in fact rather more open to judicial review of the substance of a Tribunal’s analysis in cases that the reviewing court perceives as (i) implicating a compelling issue of US public policy that is explicitly reflected in US law, and (ii) an instance where the depth of the Tribunal’s examination of the issues was not on par with their public policy significance.

There is important guidance for arbitral tribunals, especially those seated in the US, in this potentially unstable US legal terrain cohabited by tribunals and courts. Some judges, while in most respects considering themselves to be “pro-arbitration” may be more covetous of their own power when the question entails violation of public policy that is reflected in specific statutes, treaties and rules that, but for the agreement to arbitrate, the courts would enforce even if enforcement meant invalidating a contract as an unlawful bargain. If arbitrators apply their energies to issues of illegality as they believe judges would, and produce awards on those issues that are models of precision and clarity, judges will be less disposed to craft new exceptions for substantive judicial review on illegality and other public policy issues under the malleable rubric of “basic notions of morality and justice.”


Gotham Novit Curia

Thursday, November 2nd, 2023

If you insist that international arbitrators sitting in an environmentally common law case cannot properly look at or consider any legal authorities other than those submitted by the parties, stop reading here. I am here to preach to the convertible.

Let’s begin this discussion with a nod toward a legal doctrine that has essentially no shelf space in US arbitration law or US practice of domestic or international commercial arbitration: Jura Novit Curia (“JNC”), or in its arbitral variant, Jura Novit Arbiter (“JNA”).  We start there because among those who arbitrate in a procedural culture called the adversary system, which accounts for probably the vast majority of international arbitration whether contract-based or treaty-based, we are well-advised to have in our grasp the historical and theoretical foundation for the arbitrator to take any initiative to figure out the content of the law she is charged with applying. And by “initiative” we do not mean opening and reading the authorities submitted by the Parties. We mean anything other than that, including what you simply remember.

One contemporary commentator purports to credit Aristotle as a pioneering advocate for  JNC, and quotes the Great Greek from Stagira as having said at least once:

[A] litigant has clearly nothing to do but to show that the alleged fact is so or is not so, that it has or has not happened. As to whether a thing is important or unimportant, just or unjust, the judge must surely refuse to take his instructions from the litigants: he must decide for himself all such points as the law-giver has not already defined for him.

[as quoted in Fried Rosenfeld, “Iura Novit Curia in International Law,” European Int’l Arb. Rev.  Vol. 6, Issue 1 (2017)].

Granted this view of the judge as oracle predates by well over a millennium the emergence of an adversary system based on advocacy, never mind the refinement of the adversary system into the party-created body we now know as the arbitral tribunal. But even if it there is only negligible support for an arbitrator-as-oracle model in contemporary international arbitration, does that imply that there is no space for oracular behavior within the adversarial framework of arbitration? Do we, as avowed non-oracles, simply keep our fingers off the keyboard and our noses out of the legal databases where authorities the parties did not furnish to us might be found? Do we, moreover, purge our minds of whatever legal knowledge of arbitration law and applicable substantive law that (presumably) qualified us in the eyes of the parties to be selected as arbitrators, and approach each case as voracious neophytes craving legal education from the parties?

To answer this question, it is probably helpful to have a working knowledge of what JNA is, and what it isn’t. You can spend a good portion of your remaining lifetime reading volumes that have been written on the subject. Or trust your Commentator’s reductionist version: It is the principle that an arbitral tribunal may — consistent of course with due process — decide a case on the merits by furnishing legal reasoning for the outcome that has been fashioned by the Tribunal rather than by any of the parties.  And the due process right, in reductionist terms, is the right of the parties to learn of the proposed Tribunal reasoning from the Tribunal, and to endorse or deplore it, and to endorse or deplore the very fashioning of it (that is to say, the adoption of JNA methodology) before the Final Award is issued.

My source for these reductive nuggets on JNA? — The writing of a respected comparative law scholar in her chapter of a recent major academic compilation on JNA. To quote Professor Guiditta Cordero-Moss:

It is widely recognized that the will of the parties plays a determinant role in international commercial arbitration. The aim of this book is to investigate to what extent the arbitral tribunal may nevertheless develop its own legal reasoning. An independent legal reasoning will not necessarily be based on the will of the parties as manifested in the terms of the contract, in the law chosen in the contract or in the legal arguments presented by the parties.

[G. Cordero-Moss, General Report on Jura Novit Arbiter, in F. Ferrari and G. Cordero-Moss eds., Iura Novit Curia in International Arbitration (Juris 2018), Ch. 17 at p. 463].

Another contemporary commentator, possibly channeling his inner Aristotle, also suggests that the quest for the right legal reasoning to resolve the merits is at the core of JNA:

“Knowledge of law” must be understood in a manner related to the specific case. The arbitrator is not obliged to know all the laws, but his mission is to use the legal tools (within the rules of the game) to settle the dispute in accordance with justice. Is it not precisely for this reason that they were appointed by the parties? It would be absurd to say that a tribunal exercises its powers to settle the dispute only on the basis of what has been said by the parties.

If within their analysis of the laws the arbitrators identify some rule or principle that has been ignored by the parties (involuntarily or intentionally) and that could be crucial for the decision of the case, should the tribunal simply ignore said rule or principle because the parties did not mention it? The task of the tribunal to submit an award strictly according to law is not bound by what has been said by the parties.

[C. Collantes, Give Me The Facts and I’ll Give You the Law: What Are the Limits of the Iura Novit Arbiter Principle in International Arbitration?, Kluwer Arbitration Blog, Jan. 10, 2019].

If the core content of JNA is the power of the arbitrator to fashion the legal reasoning that resolves the merits, then the Americanized version of the JNA question — roughly, “can we as arbitrators ever do our own legal research?” — asks a question that is not the same as the JNA question, and while that question may intersect with JNA it is very far from a concentric overlap with JNA  [See, e.g., P.B. Marrow, Can an Arbitrator Conduct Independent Legal Research? If Not, Why Not? (May 6, 2013). Available at SSRN: or]

The troubling implication of the JNA doctrine’s core principle is that it is possible, not likely but certainly possible, that an arbitral tribunal could see its way to reject a legal outcome based on the submissions of either party, determine the outcome based on entirely on legal theories and authorities identified by the Tribunal, and salvage its award from annulment by sharing those theories and authorities with the parties for them to provide comments in advance of the award. In that case, so much for party autonomy beyond picking the panel. That JNA core principle, however rare might be its implementation by an arbitral tribunal in actual practice, is rejected by legal cultures based on the adversary system, which is to say most common law legal cultures.

The difficulty JNA presents for arbitrators sitting in US seated international cases or foreign seated cases governed by US substantive law is what guidance for our conduct do we take from our rudimentary understanding that the adversarial system rejects JNA (or, stated differently, that we are presiding in an adversarial, not an inquisitorial process)? In the perennial unresolved debate in our community about the proper role if any for arbitrators in identifying legal authorities other than those presented by the parties, the understanding that we reject JNA divides us into more or less two camps: the absolute rejectionists, who see no role for any legal inquiry by the Tribunal beyond the submitted authorities of the parties, and the moderate rejectionists who permit that such legal inquiry may be made but in narrow windows whose opening does not fundamentally alter the party-driven character of the overall process.

Consider this Commentator to be a moderate rejectionist, and let’s look at the content of moderate rejectionism.  Several practical examples can lead the way.

EXAMPLE NO. 1. In a New York-seated arbitration, the contract provides that New York law governs and that mediation shall be completed before arbitration is commenced. The Federal Arbitration Act is clearly applicable. Even before the Tribunal is fully constituted, Claimant files (with the provider organization) a motion to dismiss Respondents’ counterclaim, arguing that there is no arbitral jurisdiction over the counterclaim until a mediation of the counterclaim is completed. The Claimant cites only New York state court non-FAA cases concerning when mediation is treated by a state court a condition precedent to its subject matter jurisdiction. Respondent responds, also citing only New York State non-FAA cases, and argues that mediation is not a condition precedent to jurisdiction under that case law as properly understood and as applied to the present facts.

It would be apparent to many arbitrators that case law under the FAA treats an agreement for pre-arbitration mediation as a procedural condition whose fulfillment is a procedural aspect of the arbitration and  not  a condition precedent to the parties’ consent to arbitration. (BG Group, anyone? Maybe Howsam?) The presiding arbitrator taps into her preferred legal research tool, retrieves and reads the leading cases, shares the cases with counsel, and invites written comments on how they bear (if at all) on the jurisdiction motion.

Fair or foul?

Has the Tribunal exceeded its powers, or otherwise overstepped a procedural norm of arbitration? The parties remain free to instruct the Tribunal that they are in agreement to have the obligation to mediate be enforced as it would be enforced in a non-arbitrable case in the New York courts. If they do not have such an agreement, they are free to comment upon and argue for or against the treatment of mediation indicated by the federal cases. Whether the Tribunal has impermissibly intervened in favor of the party opposing the jurisdiction objection is more complicated, but only slightly so. The Tribunal’s powers are defined by the contract, and the contract by necessary implication (because it involves interstate and international commerce and specifies a New York seat) calls for the Tribunal to apply federal and New York arbitral procedural law. The Tribunal would exceed its powers by applying New York judicial civil procedure law to a question of arbitral jurisdiction, unless the parties, modifying their written agreement, now agree that the Tribunal should do so.

Has the Tribunal committed a due process violation by saving one party from the outcome that might have resulted from proper application of the wrong body of law? I think not: The Tribunal was motivated to apply the right content of the agreed applicable law,  not to help one party win.  At least one commentator agrees, so I am not alone;

[A]n arbitrator should not be deterred from seeking the information he needs to correctly resolve a case just because that information may weigh in favour of one of the parties’ positions. In requesting such information, the arbitrator is not seeking to help one party over another. He’s trying to reach the right result. The right result will necessarily go in favour of one party and against the other, but that fact alone does not convert an arbitrator’s request for further information into a due process violation.

[J. Kirby, How Far Should an Arbitrator Go to Get it Right?, in The Powers and Duties of an Arbitrator, Liber Amicorum Pierre A. Karrer, Ch. 20 p. 193 at 197 (Kluwer 2017)].

I should add that I do not read the quoted commentator  as limiting “information” to evidence and excluding information about the content of the law. Nor do I read the position as limiting the request to a request to the parties and not to an online legal library at rue arbitrator’s disposal. The transparency-due process issue needs to be separated from the question of the legitimacy of the arbitrator’s quest for the content of the law.

EXAMPLE NO. 2. The Tribunal in a partial final award has decided that it will impose a sanction by entering a contemporaneous procedural order, and specifies in the PFA that relief from the sanction may be obtained only upon the fulfillment of certain conditions. The entire subject matter of this PFA is what if any sanction should be imposed and what should be the conditions for relief from the sanction.  No merits claims are resolved in this PFA. The affected party applies for relief from the sanction, admits that only some of  the PFA conditions for relief have been met, but advances no legal arguments about how the functus officio doctrine (or the limits in the agreed arbitration rules on modifying an award) impacts the Tribunal’s power to grant the requested relief. The presiding arbitrator taps into her preferred legal research tool, refreshes her recollection on the leading cases defining the contours of the functus officio doctrine and its exceptions, and with agreement of the co-arbitrators after sharing those cases, invites the applicant to submit written comments on how the making of an award bears on the Tribunal’s power to grant the requested relief under the functus officio doctrine or other limits on Tribunal powers to modify an award.

Has the Tribunal exceeded its powers or otherwise encroached on a procedural norm by “doing its own research”? I put the term in quotes here, because what the Tribunal has in fact done is not to embark on independent research for a Tribunal-motivated legal solution that the movant has not addressed, but has simply resorted to its recollection about a well-established universe of case law concerning a legal doctrine affecting the power of the Tribunal that obviously ought to bear on the decision. It seems unlikely that the functus officio doctrine is inapplicable just because the parties fail to mention it, although they might agree to dispense with it.

In this instance the Tribunal elects not to present specific cases for comment because relevant principles might be found in various cases and the applicant, having the burden of persuasion, does not deserve to have the Tribunal conduct legal research for (or against) her. Depending on what is received from both parties, there would be another opportunity if the briefing is inadequate to ask both sides to comment on specific cases that the Tribunal might be inclined to cite in a ruling. This is not to suggest, however, that a Tribunal must always revert to the Parties for comment on specific cases if it wants to cite a case that neither party has cited. One consideration is that if the decision involved is a procedural matter, an aggrieved party may seek to have the order vacated or modified by the Tribunal and may argue that the case law the Tribunal cites is inapposite.  Another consideration is that if the Tribunal’s question seeking comments is adequately phrased, the case law the Tribunal cites is unlikely to be obscure and reasonably ought to be found in competent research by the parties. (Unpublished decisions known to Tribunal members for unique reasons may be viewed differently).

EXAMPLE NO. 3. Suppose one party has sought issuance of an arbitral subpoena that would require a witness in California to testify via Zoom in a New York-seated arbitration. The other party objects to the subpoena in various respects but raises no issue about the Tribunal’s power to command Zoom testimony from a non-party. But one or more Tribunal members, tapping the databases of their own recollections in the first instance, know there is case law on both sides of the question of arbitral power to require non-party Zoom testimony under FAA Section 7. In an email to the Parties, the Tribunal mentions a few of those cases and directs the parties to comment on what they believe to be the right approach. This recourse to case law that has not been mentioned by either party has nothing to do with the merits directly — although the non-party’s evidence might well affect the outcome. Rejection of JNA in a common law environment should not mean that arbitrators must pretend to forget about an unsettled and controversial issue of arbitral power that is well known to them but possibly much less familiar to the parties.

EXAMPLE NO. 4. The fourth and final example for today’s Commentary relates to how common law court decisions are reported in certain online legal research tools: with hyper-linked citations to precedents cited (approvingly or otherwise) in the opinion. Do the arbitratorsimpermissibly “do their own research”, in violation of our Rejection-of-JNA,  by reading the court-cited precedents within the party-cited precedents to obtain a more complete understanding of the legal doctrine invoked by the party? This Moderate Rejectionist would say NO.  My first defense: this conduct does not seek a legal theory to resolve the case that neither party has mentioned. The arbitrator is seeking clarity about the contours of the legal theory invoked by a party, contours that might be clearer from reading the embedded precedents within the party-cited case. My second defense: If a legal theory is advanced by a party, the Tribunal should apply that legal theory (or principle) as it exists in the law, not only as it exists in the renditions of the law advanced by the Parties. The prescriptive norms of arbitration as an adversarial process will lead the Tribunal to give procedural primacy to the submissions of the Parties. But a quest for correctness in the content of the law, if the Parties’ renditions are not fully satisfactory, should not to be conflated with adoption of a Tribunal-conceived legal theory. This is not the importation of JNA into common law arbitration.

If I am an outlier in believing the arbitrator has a power of inquiry, and that the fairness issue is separate and is addressed by transparency to the parties about the results of the inquiry, then at least I have some good company. As the International Law Association stated in its 2008 Report on Ascertaining the Contents of the Applicable Law in International Commercial Arbitration:

[Arbitrators] should inquire about the applicable law within the general parameters of the arbitration defined by the parties and, considering costs, time and relevance issues, may conduct their own research, provided the parties are given an opportunity to be heard on material that goes meaningfully beyond the parties’ submissions.

We often debate the implications of what provider rules say or fail to say on a given issue. And on this issue we find mostly silence. The AAA Commercial Rules are and have long been silent. The CPR Non-Administered Rules are also silent save that “[s]ubject to these Rules, the Tribunal may conduct the arbitration in such manner as it shall deem appropriate.” (Rule 9.1). This leaves the door open. The JAMS Comprehensive Rules are also silent. This is a curious institutional silence, given that there is considerable sentiment in the domestic arbitrator ranks in the USA that when it comes to the law, the panel should take what the parties give them and seek no more.

When we look to the leading international rules, our attention goes first to the LCIA, whose Rule 22.1 (iii) (in the 2020 version)  has provides expressly — and has done since at least the 1998 version of the Rules that:

The Arbitral Tribunal shall have the power, upon the application of any party or … upon its own initiative, but in either case only after giving the parties a reasonable opportunity to state their views and upon such terms (as to costs and otherwise) as the Arbitral Tribunal may decide … (iii) to conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient, including whether and to what extent the Arbitral Tribunal should itself take the initiative in … ascertaining … the law(s) or rules of law applicable to the Arbitration Agreement, the arbitration and the merits of the parties’ dispute.

Let’s call the LCIA Rules approach — not widely adopted as far as I can find — Ambivalent Moderate Rejection of JNA. Ambivalent in the sense that it gestures in the direction of party autonomy by requiring input from the parties to be considered (but without requiring party acceptance) before the Tribunal starts foraging. That ILA Report formulation, which came ten years after the LCIA Rule, does not require this preliminary party-consultation step. And we find that most international rules leave the door wide-open for whatever position the Tribunal may wish to take. See for example ICC Rule 21(1): “In the absence of any [party] agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.” The Singapore Centre Rules list among the “Additional Powers of the Tribunal” absent agreement of the parties limiting such power : “to … conduct such enquiries as may appear to the Tribunal to be necessary or expedient” (SIAC Rule 27(c)) and also “to … decide, where appropriate, any issue not expressly or impliedly raised in the submissions of a party provided such issue has been clearly brought to the notice of the other party and that other party has been given adequate opportunity to respond” (SIAC Rule 27(m)). Broadly speaking, the landscape of international arbitration rules is marked by approaches more flexible than the LCIA model, leaving the Tribunal broad discretion to conduct inquiries into the content of the applicable law without previewing with the parties the prospect that such inquiries will or may be made. The ultimate criteria universally applicable are post-inquiry: was there equal treatment of the parties and were the parties given an opportunity to be heard on any outcomes of the Tribunal research into the content of the law that might affect the outcome in a material way?

Let’s address one more objection from the JNA literature before you leave.

Some commentators object in principle to Tribunal initiatives to ascertain the law, saying that the JNC principle as applied in civil law courts, i.e. the version inherited from Aristotle, rests on the premise that judges in the courts of a state are protectors and purveyors of a law of their forum (lex fori), and that arbitrators, having no comparable position and instead serving the parties not the state, have “no forum .”  [See, e.g., P. Landolt, Arbitrators’ Initiatives to Obtain Factual and Legal Evidence, Vol. 20 No. 2 Arb. Int’l at pp. 184-85 (2012)]. Not to argue the issue exhaustively, I would only point out by way of examples: (1) if the Parties in a international case governed by New York substantive law constitute a Tribunal of two party-appointed retired New York judges and as Chair one lioness of the New York litigation bar who has also given long service as an international arbitrator, did they not intend to have a Tribunal function on New York substantive law as a New York court would?, and (2) if the Parties to an international case governed by the law of Ontario constitute a Tribunal composed of two lions of the Toronto litigation bar and one retired Justice of the Supreme Court of Canada, did they not intend to have the Tribunal function on Ontario law as an Ontario court would?

It is time for some takeaways, as you have other blogs to read and other work to do!

The commentator who writes in favor of flexible arbitral power in the search for the content of applicable law risks to be mis-branded as a zealot and a maverick, as a closeted autonome perpetually foraging for his own legal guidance in disrespect of the parties’ autonomy, not to mention the competence of their legal representatives. I hope to be acquitted of these charges. But it seems that we as a community can do better than the broad homilies that buttress polar positions: “arbitration is a party-driven process” at one extreme, and “due process is all that matters” at the other.  Perhaps we can draw some guiding principles from the examples and the discussion provided in this post.

  1. Occasions for input on the applicable law from the Tribunal do not arise only when a merits award is being written. Applicable law may come into play at any number of mileposts, including threshold objections to jurisdiction, proposed issuance of arbitral subpoenas, etc. Parties may not even be aware of applicable law affecting the proposed procedural step, as in the case of a proposed arbitral subpoena. If the Tribunal asks the Parties “what about these cases concerning our power to command a Zoom appearance?” it is not taking sides between the parties, but is seeking in good faith to exercise its powers in regard to non-parties within applicable legal limits. If the Tribunal, in the mediation-as-condition-precedent example, asks “what about the FAA case law on this subject from the US Supreme Court?” it fairly raises the question of whether the Parties’ counsel truly wish to mutually exclude application of the FAA, or rather are skilled courtroom advocates who misconceived the application New York civil procedure law in an FAA-applicable arbitration.
  2. The context for arbitrator research may be critical to how we view it. Suppose a Tribunal decides during deliberation that it is important to study the cases cited, discussed and quoted within the cases cited by the Parties, and the Tribunal proceeds to do so, then deliberates further about whether the older precedents are sufficiently material to warrant asking the parties for further comments. By doing this the Tribunal carries out, in a manner that is fair to both sides, a process that may generate a more precise rendition of the law the parties have agreed to have the Tribunal apply to decide the case, and legal theories under that law that they have specifically invoked. On the other hand, a party-appointed arbitrator who conducts research in pursuit of a legal analysis not articulated by either party, based on case law not cited by either party, but that would advantage the party that appointed her if embraced by the Tribunal, generally speaking is acting inappropriately. But the infraction is not of a rule or a proscriptive norm against arbitrator research. It is a violation of the broader obligation to behave impartially.
  3. Timing is crucial. When arbitration is in a common law environment, the parties expect the development of claims and defenses, the legal theories and authorities supporting those theories, to be primarily their counsels’ handiwork. If an arbitrator in such a case suggested at a preliminary conference that case A v. B might well be controlling on the merits, the parties would naturally be dismayed. On other hand, parties arguably do have a reasonable expectation that the Tribunal might at the post-hearing stage of deliberations and award-drafting check to see if there have been new developments in a line of authorities relied upon by the parties, or appellate reversals of authorities cited by the parties. If this were not aligned with the expectations of the parties, we might expect to see party initiatives to stipulate that the Tribunal will not, or will not without the parties consent, conduct any legal research.


On Contempt and Award Compliance

Friday, August 4th, 2023

Arbitral tribunals are in the habit of thinking seriously about how their handling of the case affects the “enforceability” of their Awards. But we mainly think of “enforceability” as the potential for confirmation under the New York or Panama Convention, and/or applicable domestic arbitration law,  and potential vacatur in a court at the arbitral seat. We give less attention to true “enforcement” – the forced compliance of the losing party with a Judgment confirming an Award. When the Award simply orders payment of money, or declares ownership of property, the laws and mechanisms of execution come into play. But if the Award regulates the conduct of the losing party, as by specific performance or an injunction, the merger of an Award into a Judgment brings into play the court’s powers to coerce compliance with its Judgments by imposing contempt sanctions.

If a losing party in such a case is determined to fight on, not only after an adverse Award but beyond the judicial confirmation of the Award, the contempt scenario may arise. Arbitrators who sense they are in a “fight to the finish” type of case are well advised to understand how the applicable law of contempt may have an impact. What follows is a brief sketch and discussion of some relevant aspects of the contempt law landscape affecting arbitration Awards in US federal courts.

  1. Before a contempt sanction may be imposed, it must be shown by the applicant that the conduct required by the judgment or order was clear and unambiguous, leaving no doubt of what the prospective contemnor was required to do. That means our Awards, especially those that entail a remedy of specific performance or an injunction (whether mandatory or prohibitory) should state with precision the conduct that is required or forbidden. This guidance is seemingly straightforward. But if the Tribunal anticipates that non-compliance, at any cost, may be the objective of the losing party, arguments that could be raised before the enforcing court that the Award (as converted to a Judgment by recognition) lacks a clear conduct mandate ought to be anticipated in the Award drafting. To take a recent example, a US federal court denied a contempt sanction where the alleged non-compliance with the Award/Judgment was the refusal to grant the applicant two appointees to a corporate board of directors. The stumbling block for the applicant was that the Award/Judgment, while it recognized the ongoing validity of the agreement that provided the right to have two seats on the board, did not direct specifically that the losing party should implement the applicant’s board nominations.
  2. Tribunals may find it useful to know that non-compliance with a Judgment confirming an arbitral award may be addressed by contempt sanction in a US distric court even while an appeal of the Judgement is pending – absent a stay from the Judgment-rendering court or the appellate court. (This is the general rule as to any Judgment, not a special attribute of award-confirmations). So while it may be anticipated that the well-resourced and determined losing party may litigate over recognition of the Award all the way to a denial or grant of review in the US Supreme Court, a process that might consume several years, the coercive force of a contempt sanction may be sought (barring a stay) once the Judgment has been entered and after the passage of any deadline for compliance fixed by the Award/Judgment. It is regrettable, but a fact, that coercion is a factor Tribunals must sometimes take into account. It may bear on the Tribunal’s effective ability to regulate party and/or counsel conduct in an ongoing arbitration. It may well bear on the efficacy of the entire arbitral process, if a party determined to pay any price for victory decides to marginalize the arbitration into but one of many battlefronts in a multiple-forum war.
  3. US federal law permits coercive incarceration as a civil contempt sanction, upon the theory that the contemnor goes behind bars while holding the keys to her release: compliance with the Judgment turns the latch. And the coercive effect of such a sanction may have international commercial dimensions that begin before any actual arrest and lockup. The prototype may be the non-US controlling person of a foreign business entity, who may travel to the United States regularly to carry on business and may also have one or more US places of residence for herself and her family. For that person, the coercive effect of incarceration as a civil contempt sanction may begin with the Court’s order to notify US Customs and Border Protection to detain the contemnor upon her attempt to enter the US for any purpose. Judges may naturally prefer to test the efficacy of monetary civil contempt sanctions before ordering incarceration, but upon a proper record concerning a contemnor’s conduct, business practices and obduracy, a confinement order as a contempt sanction for non-compliance with a judicially-confirmed Award may be obtainable.
  4. Not to be overlooked in this survey is that the companion category of civil contempt sanctions, alongside the “coercive,” is the “compensatory.” The legal costs incurred by the successful civil contempt sanctions applicant, or other out-of-pocket costs resulting from the non-compliance, are comfortably within this category. But there could be more complicated scenarios. Suppose the judicially-confirmed Award directed specific performance of a contractual obligation. If coercive sanctions prove unfruitful, may the applicant obtain in a compensatory civil contempt judgment a sum of money to be substituted for the unattainable specific performance? Does the question of damages as an alternative remedy for the contract breach remain arbitrable? Or does the judicial confirmation of a conduct-regulating Award transform what would be, in other circumstances, a squarely arbitrable issue of breach of contract damages, into a matter of Judgment enforcement that is exclusively in the judicial realm? Or are both solutions possible, with the claimant/applicant having the option to pursue one or the other? I did not happen upon an answer in the reading that supported this post. But this is an issue that some court or Tribunal may well have faced, or may have to face, as more arbitral awards involving conduct-based rather than monetary relief are resisted by the losing side not only in confirmation/vacatur litigation but beyond that in contested contempt sanction proceedings.


[The cases informing this post include: Smagin v. Yegiazaryan, 2023 WL 4002730 (C.D. Cal May 22, 2023); Micula v. Gov’t of Romania, 2023 WL 2127741 (D.C. Cir. Feb. 21, 2023); Absolute Nevada, LLC v. Grand Majestic Riverboat Co., 2022 WL 17156624 (S.D.N.Y. Nov. 22, 2022); Inversiones Y Procesadora Tropical Inprotsa, S.A., 2021 WL 3508370 (S.D. Fla. Aug. 19, 2021); Telenor Mobile Communications AS v. Storm LLC, 587 F.Supp.2d 594 (S.D.N.Y. 2008), aff’d 351 Fed.Appx. 467 (2d Cir. 2009); CE Int’l Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, 2013 WL 324061 (S.D.N.Y. Jan. 23, 2013).]


Predicting Rain for Spain

Tuesday, May 30th, 2023

I spent a recent weekend in a former Member State of the European Union. You know, the one that didn’t care for all this EU Primacy stuff, and bailed. I was amidst a sizeable group of QCs turned KCs. And they all asked the same question: “What’s up in Washington?” I started in about Tucker Carlson but was quickly cut short. “No, no, young fellow. We mean all this stuff about Spain and the DC Circuit.

So I gave them the two-minutes-over-cocktails version of “Achmea in the US Courts 2023.” But you all have your own beverages, and more time.  So here is the story.

You remember the Achmea case, and its younger sibling the Komstroy case. Both from the Court of Justice of the European Union (CJEU). The core holding of these cases is that EU Member States may not validly agree to arbitrate disputes to which EU law potentially applies if the arbitral award is not reviewable – at least for EU law issues — within the EU judicial system.  You also remember that Spain has been on the losing side of a number of investment arbitrations against investors domiciled in other EU States – under bilateral investment treaties (BITs) and under the multilateral Energy Charter Treaty (ECT) —  for having pulled the rug out from under solar energy investors by changing its regulatory regime. And in many of those arbitrations, since 2018, Spain made “the Achmea argument” against arbitral jurisdiction before the arbitral tribunals, and lost. Some of these were ICSID Awards, reviewable only in ICSID annulment proceedings. Spain lost those annulment initiatives. Some of these were New York Convention awards under UNCITRAL or Stockholm Rules. Spain raised AchmeaKomstroy in motions to vacate, and mostly lost.

Many of these winning investors have sought to enforce their awards against Spain in the USA. To succeed, of course, they first need for there to be subject matter jurisdiction over Spain. Spain says it enjoys sovereign immunity. The investors say “It’s within the ‘arbitration exception’ of the Foreign Sovereign Immunities Act (FSIA).” (They also argue “waiver” but that’s not our topic del dia). And investors are mainly saying this in the US District Court in Washington (DDC), the default venue for FSIA cases.

The FSIA’s “arbitration exception,” ICYMI, says there is no sovereign immunity if there is an agreement to arbitrate and “the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.”

As relevant here, the USA has two such treaties in force: the ICSID Convention and the New York Convention. But, says Spain, the awards are not based on agreements to arbitrate, because the holdings of AchmeaKomstroy were that EU Member States (at ALL relevant times) lacked legal capacity even to offer arbitration to EU-domiciled investors, the texts of the relevant BIT and ECT arbitration clauses notwithstanding.

All this would be less than intriguing if the judges in DDC had a uniform view of the matter. But they do not. Most of the cases say this is a question of arbitrability, not FSIA subject matter jurisdiction. These cases say “arbitrability is part of the ‘merits’ of the investment arbitrations, arbitrability was decided by the tribunals against Spain based on what US arbitration law regards as a valid delegation of arbitrability issues to the Tribunal, and the validity of that delegation makes the ‘merits’ effectively unreviewable in a US District Court.” (quotation created to summarize). The exception is a case decided March 29, 2023 called Blasket Renewable Investments, LLC v. Kingdom of Spain, 2023 WL 2682013 (D.D.C. Mar. 29, 2023), where a DDC judge accepted Spain’s argument that there was no agreement to arbitrate and therefore the investor could not get subject matter jurisdiction over Spain under the FSIA “arbitration exception.” For the DDC judge in Blasket, the lack of legal capacity to arbitrate issue presented by AchmeaKomstroy undermines the existence of an arbitration agreement, this is not a question of arbitrability for purposes of FSIA jurisdiction, and the non-existence of an agreement to arbitrate slams door of the DDC courthouse on the investors (in Blasket, Luxembourg domiciliaries). So the Blasket case and at least one case taking the opposite view (that FSIA subject matter jurisdiction does exist) are on their way to the DC Circuit Court of Appeals. But all of you want the answer now. So here is your Commentator, with his often-reliable crystal ball!

The disparate outcomes in DDC were possible because there is at least an argument – adopted by the DDC judge in Blasket — that the DC Circuit’s prior cases on the FSIA “arbitration exception ” treated as questions of arbitrability (i.e. merits not jurisdiction) issues that are fundamentally different. There was a Chevron v. Ecuador case in 2015. Ecuador argued that it didn’t agree to arbitrate with Chevron because Chevron made its investment before the relevant BIT entered into force. The DC Circuit said this was a question of arbitrability, not whether an arbitration agreement existed, and thus not about FSIA subject matter jurisdiction. Then in 2021 there was the first DC Circuit Judgment in Stileks v. Moldova. That was an ECT case. Moldova argued that Stileks’s claim was not based on an “investment” as the ECT defined “investment.” For the DC Circuit, this was also a question of arbitrability, not an FSIA threshold jurisdiction issue about existence of an arbitration agreement.

You can see why there is at least room for debate about Spain’s Achmea-based “no jurisdiction” plea. Neither Chevron v. Ecuador nor Stileks v. Moldova treated the issue of whether an arbitration agreement failed ever to come into existence because the State making the arbitration offer in a treaty lacked legal capacity to make the offer. Both Chevron and Stileks involved questions of whether the investors were entitled under the terms of the investment treaty to accept the State’s standing offer to arbitrate, an offer that the State conceded was validly made to investors qualified under the treaty to accept the offer.

Spain’s argument gets its energy from the retroactivity dimension of the CJEU’s holdings in Achmea and Komstroy. Those decisions in effect had two dimensions – the fact of the EU law illegality of an intra-EU offer to arbitrate without potential EU judicial review, and the consequence of that illegality. The consequence, per the CJEU, is that even on the date of execution of the ECT by an EU Member State nearly 30 years ago, that Member State lacked legal capacity to offer arbitration to investors of other EU Member States, and the offer of arbitration was, as to them, a nullity “ab initio.”

Does US arbitration law (in the DC Circuit) treat such retrospective de jure lack of capacity to arbitrate (not of capacity to make contracts generally) as (i) a question of arbitrability, capable of being delegated to a Tribunal, or (ii) a question of the existence of any arbitration agreement, that could not have been delegated to a Tribunal because the parties were by definition unable to make a delegation agreement?

Based on the precedents treated in the DDC cases that are on their way to the DC Circuit, the “question of arbitrability” position seems to be the better one. The following discussion is confined to those cases.

The first of three DDC cases cited in Blasket concerned a disputed factual issue of whether the one party ever signed the document containing the arbitration agreement, and if he did, whether he had adequate opportunity to appreciate that the document contained an arbitration agreement. This was plainly an issue of de facto not de jure “existence” of an arbitration agreement. The second DDC case cited in Blasket turned on whether the commercial contract containing an arbitration clause had even been formed under the basic contract formation principles of offer and acceptance in the applicable DC common law. And that DDC judge took particular note of the distinction made in US arbitration law between arbitrability disputes and contract formation disputes: “The Supreme Court has distinguished between challenges to the validity of a contract on grounds related to its formation and challenges to the validity of a contract on the ground that it is void and revocable.” In the third DDC case cited in Blasket, it was held that a factual dispute over whether the signer of the arbitration agreement was intoxicated at the time of signing concerned mental capacity to form a contract, and therefore had to be decided by a court. The judge found persuasive, and adopted, the distinction made between the situation of an arbitration contract signer who lacked mental capacity at the time of signature, which cannot be arbitrated, and the issue of an “ultra vires” signatory, which may be delegated to an arbitrator.

Spain, we will assume, was not intoxicated when it signed the ECT. While the CJEU ruling from an EU law perspective conceives the illegality of intra-EU arbitration agreements as having a retroactive effect equivalent to a lack of mental capacity at the time of signature — i.e. erasing the existence of the standing offer to arbitrate in a BIT or the ECT, and rendering the investor’s Notice of Arbitration ineffective as an acceptance — one wonders whether the CJEU’s perspective counts toward US judicial construction of the FSIA statutory term “agreement to arbitrate.” Uniformity in the application of the FSIA “arbitration exception,” and in turn uniformity in the availability of the “arbitration exception” with respect to all foreign sovereigns – not to mention predictability for investors and their counsel —  should point in the direction of applying US arbitration law to resolve the threshold FSIA subject matter jurisdiction issue. Through that lens, this seems to be plainly an issue of illegality/revocability of the arbitration agreement that stands to be addressed as a merits issue of arbitrability, and not as a barrier to obtaining jurisdiction over Spain in a US district court.

Convention Clarity in the USA

Thursday, April 20th, 2023

In the world of the New York Convention, it is widely if not universally understood that the grounds for annulment of an Award to which the Convention applies are provided not by the Convention, but by the domestic arbitration law of the arbitral seat (or other lex arbitri agreed by the parties). That principle has also been widely understood in US federal courts, but alas, until last week, not – at least not definitively and clearly — in the important US Eleventh Circuit Court of Appeals.

The Eleventh Circuit has now come around. This was foreshadowed in a panel decision of that Court ten months ago, summarized in a Post on this site called “Mea Culpa in Miami” (June 21, 2022 – Type “Miami” in the keyword search box in the right-hand margin!) .

The Eleventh Circuit’s en banc decision last week is Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., 2023 WL 2922297 (11th Cir. April 13, 2023).