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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).

On Taking Back Land for Pandas 🐼

Saturday, March 25th, 2023

Readers of this post will fall into two groups. The first and largest don’t pay much attention to investment arbitration. They will wonder why I write this. The second and much smaller group lives and breathes investment arbitration. I will rejoice if they read this. (more…)

Ay, Chihuahua!!

Friday, January 27th, 2023

Just when you thought the US law concerning judicial enforcement of annulled foreign arbitral awards was becoming relatively settled and predictable, if not very satisfactory, along comes the US Tenth Circuit Court of Appeals with a fresh and helpful perspective. That Court has held that a US district court did not abuse its discretion when it refused to vacate its initial judgment giving recognition and enforcement to such an award, and declined to give effect to a judicial annulment judgment thereafter sought and obtained from a court at the seat of arbitration in Bolivia. (Compañia de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua, 2023 WL 140552 (10th Cir. Jan. 10, 2023)). (hereinafter, for the dog-lovers among you, “Chihuahua,”).

“Why unsatisfactory?” you might ask. To simplify greatly, it is because the US law about enforcing (or not) annulled awards has become conveniently but uncomfortably linked to the US law applying the New York Convention’s public policy exception to award enforcement in Article (V)(2)(b). We all learned early in our arbitration careers that such refusal of enforcement is available only if enforcement of the foreign award “would violate our most basic notions of morality and justice.” We committed that phrase to memory, if not also the US Second Circuit case that coined the phrase: Parsons & Whittemore Overseas Co. v. Société Générale, 508 F.2d 969 (2d Cir. 1974). When US courts have been asked whether they will enforce a foreign arbitral award even though it has been judicially set aside at the arbitral seat, more often than not the same formulation of the public policy exception had been applied to the question of giving effect to the foreign court’s annulment judgment. See, e.g., Getma Int’l v. Republic of Guinea, 191 F.Supp.3d 43, 49-51 (D.D.C. 2016), aff’d, 862 F.3d 45 (D.C. Cir. 2017) (“The Court is unconvinced that the annulment judgment … violated the most basic notions of justice”). Because after all the two questions: recognition of the annulled award, and recognition of the judgment that annulled the award, would appear to be the same question.

Right? Well, not necessarily, says the Tenth Circuit in Chihuahua. It is not the same question, says the Tenth Circuit, when the annulment judgment is issued after a US district court has already entered a judgment recognizing the award under the New York Convention and FAA Chapter Two, and procedurally the application before the Court is not to recognize the foreign award in the first instance, but to vacate the already-entered recognition judgment.

When we have a prior judgment recognizing the award (usually but not necessarily before its annulment), we have what old-fashioned US litigation types call a “60(b)(5) Issue.” This refers to the number and sub-section of the Federal Rule of Civil Procedure concerning vacatur of a previously-entered final judgment of a United States District Court.

On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons … (5) the judgment has been satisfied, released, or discharged; it is based upon an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable

The 60(b)(5) Issue potentially adds (and in Chihuahua actually did add) different and important elements to the annulled awards recognition equation. The Federal Rules of Civil Procedure are expressly tied to the New York Convention by Article III of the latter (“Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon”). Nice. You might therefore say (and the Tenth Circuit in Chihuahua indeed said at least implicitly) that the policies underlying Rule 60(b)(5) – policies generally oriented toward the finality of judgments — have some respectable status under the Convention when the judgment sought to be vacated under Rule 60(b)(5) is a judgment granting recognition to an award falling under the Convention.

When the jurisprudence of Rule 60(b)(5) comes into play, on a motion to vacate a judgment that recognized a foreign award, this has at least three important consequences: (1) Rule 60(b)(5) case law places a high burden on the moving party seeking “relief from” (i.e. vacatur of) a judgment (the loser in the arbitration, in Chihuahua a Mexican cement company), a posture quite different from an effort by the award winner to get initial recognition of an annulled award, when the applicant has the high burden to show the recognition trumps comity because basic US notions of morality and justice would otherwise be offended. (2) a Rule 60(b)(5) motion made to a federal district judge, perhaps more accustomed to getting such motions from disgruntled and occasionally devious domestic litigants, brings into focus the systemic (and societal) interest in the finality of judgments, and puts the conduct of the movant on trial for assessment of possibly inequitable tactics. (3) The federal appellate court reviews a district court’s Rule 60(b)(5) decision only for abuse of discretion, and this commodious standard affords a district court judge quite a bit of latitude to give effect to her subjective views of what may have happened, or what generally tends to happen, or what is reputed to tend to happen, in the courts of a place like …. ummm … Bolivia.

And this brings me to a very subjective point, but an important one. Surely it has occurred to many of you that the foreign countries whose award annulment judgments have spawned our Chromalloy case law (that’s the fountainhead US case, young people, remembered fondly by those of us nearing or even beyond Geezer status) are generally not medal of honor winners, for judicial independence and integrity, in the view of organizations like Human Rights Watch. Egypt, Nigeria, Mexico, Colombia, Malaysia, Guinea and (in the Chihuahua case) Bolivia. And yet the principle of “international comity” as developed in the case law generally gives succor to the outcomes in the courts of such nations unless our “basic notions of morality and justice” are offended, and generally such an offense will not be found unless there is direct and persuasive evidence that the party seeking recognition of an annulled award was denied basic due process in the annulment case. That evidence is almost never available.

And yet we naturally cringe, and a rational district court judge might cringe, just thinking about and reading just a little bit about the state of the judiciary in Bolivia. For example:

“Theoretically, the judiciary is an autonomous and independent institution with far-reaching powers. In reality, the judicial system remains highly politicized; its members often represent partisan viewpoints and agendas. Court membership still reflects political patronage. As a result, the administration of justice is held hostage to the whims of party politics.” (US Government Publishing Office (GPO) country study prepared for the Library of Congress in 1989).

“[Former Bolivian President Evo] Morales had called judicial independence a ‘doctrine’ of the United States and of ‘capitalism’. In fact, during almost 14 years in office, Morales’ administration actively weakened judicial independence. For example, the 2009 Bolivian Constitution established that high court judges and members of the Magistrates Council, the body that appoints and dismisses judges, would be elected by voters from lists created by Congress. MAS, however, controlled two thirds of the seats in both houses, and ultimately packed the lists with people linked to the government.” (Article published 11/25/20 by leaders of the Americas division of Human Rights Watch).

The procedural facts about the Bolivia annulment judgment that mattered to the district court in Chihuahua were, stated simply for present purposes, that annulment had been sought without success in Bolivian courts before the US recognition judgment was obtained, but after that US recognition judgment was obtained the award-losing Mexican company renewed its efforts in the Bolivian courts, ultimately taking the matter to Bolivia’s highest constitutional court for a second time, where it finally prevailed in obtaining annulment. As summarized by the Tenth Circuit: “GCC thus continued raising the same challenges in Bolivia until it received the answer it wanted.”

Thus, the district court did not abuse its discretion in finding that the movant’s conduct in making dogged and repetitive pursuit of an annulment judgment after the initial entry of the US recognition judgment was so offensive to US policy principles enshrined in our protective approach to the finality of judgments, as expressed in Rule 60(b)(5), that refusal to give effect to the Bolivian annulment judgment was a defensible exercise of discretion, even without direct consideration of the fairness or regularity of the Bolivian annulment proceedings.

A brief excerpt from the Tenth Circuit’s opinion captures this point:

GCC [the award-losing, eventual annulment-winning, Mexican company] asserts that the district court applied the wrong legal test when it denied vacatur. It contends the district court “alter[ed] … the [relevant] test in a manner never adopted by any other court” by concluding that “even though the Bolivian annulment orders were not repugnant to public policy, vacatur of its own judgment supposedly would be.” … The only relevant inquiry, GCC says, is whether the “order itself is repugnant to fundamental notions of what is decent and just.”… We disagree. GCC advances a flawed analysis and a selective reading of the case law. A district court may decline to enforce a primary jurisdiction’s annulment order if the order itself is repugnant or if enforcing that order would offend public policy. The Second Circuit articulated this approach, the Convention supports it, and we adopt it here.

The Court then proceeded to analyze one of the leading Second Circuit case, the Pemex (a/k/a/ COMMISA) case, in essence to point out that the rationale of the case was that US public policy was not violated because the Mexican annulment judgment violated US public policy, but because “giving effect to” the Mexican annulment judgment would violate US public policy.

In the interests of brevity, I refrain from a detailed revisitation of Pemex. And I also refrain from a detailed recitation of the different points of view on Pemex and its Second Circuit progeny expressed by the Chihuahua panel majority and the dissenting judge, respectively. But the fundamental points are these: (1) the panel majority, but not the dissent, read the Second Circuit case law to allow a district court to consider offenses to US public policy that would result from “giving effect to” a foreign award annulment judgment, even if the annulment judgment itself does not violate US public policy, and (2) the panel majority, but not the dissent, allows that in the context of a Rule 60(b)(5) motion to vacate a prior US award recognition judgment based on a later-obtained foreign annulment judgment, US public policy as reflected in Rule 60(b)(5) brings within the discretion of the district court public policy considerations that go beyond “basic notions of morality and justice” to include, in the award recognition judgment context: “[t]hree strong United States interests … (1) protecting the finality of judgments, (2) upholding parties’ contractual expectations, and (3) the policy in favor of arbitral dispute resolution.”

So, you ask, why is this Tenth Circuit case significant, given that most annulled award enforcement contests are fought in New York (Second Circuit) or Washington (D.C. Circuit)? The answer is that the Tenth Circuit panel majority analysis purports to be synchronous with the law of those Circuits, and especially the Second Circuit. And advocates for recognition of annulled awards in the district court of those Circuits will refer to Chihuahua as a persuasive if not controlling take on the state of Second Circuit law. (I will leave out the DC Circuit for this post, to keep things relatively short and readable. Readers there will reach their own conclusions on whether Chihuahua is consistent with the Termo Rio and Getma cases, and will note that neither case arose in a Rule 60(b)(5) context.)

In the Second Circuit we have most recently the Exxon-Nigeria case (Esso Exploration & Prod. Nigeria Ltd. v. Nigerian Nat’l Petroleum Corp., 40 F.4th 56 (2022)). There the Court affirmed a district court decision to deny recognition to an award annulled by the “primary jurisdiction” court in Nigeria. But unlike Chihuahua and unlike the Second Circuit’s Thai-Lao case from 2017 (Thai-Lao Lignite (Thailand) Co. v. Gov’t of Lao People’s Republic, 864 F.3d 172 (2d Cir. 2017)) the primary jurisdiction annulment preceded the US recognition proceedings. This procedural posture distinction will be important to how Exxon-Nigeria will figure in the analysis a New York-seated US district court would make if asked to vacate its own judgment recognizing a foreign arbitral award in deference to a subsequent foreign judgment annulling that award.

Two formulations of governing legal principles within Exxon-Nigeria have potentially different implications if the case before a district court entails a motion to vacate a prior judgment confirming an award. First, the Court in Exxon-Nigeria states that “the critical question [is] whether a foreign judgment setting aside an Arbitral award offends ‘fundamental notions of what is decent and just in the United States” [quoting from Pemex, and channeling and paraphrasing Parsons & Whittemore as did the Pemex court]. But second, elsewhere in Exxon-Nigeria, the Court treats Pemex in terms that are (i) less directly linked to the Parsons & Whittemore catch-phrase, and (ii) more directly linked to the question of when it is improper to give effect to foreign judgment that annulled the award. As to the latter, the Exxon-Nigeria decision quotes Pemex: “‘[A] final judgment obtained through sound procedures in a foreign country is generally conclusive unless enforcement of the judgment would offend the public policy of the state in which enforcement is sought.’”

One can therefore read both Pemex and Exxon-Nigeria as supporting the discretion of a US district court to give a more capacious treatment of US public policy when focusing its attention on whether there would be an offense to US public policy from giving effect to the foreign annulment judgment. That is precisely the reading of the Second Circuit case law embraced by the panel majority in Chihuahua. Further, we can take comfort that we are on the right track in discerning an acceptance of this capacious view, because the Second Circuit’s decision in Exxon-Nigeria builds upon, and is authored by the same judge who wrote for the panel in the Thai-Lao case from 2017. Thai-Lao remains the only Second Circuit case that, like Chihuahua, treated the interplay between award enforcement under the Convention and vacatur of a US award recognition enforcement judgment under Rule 60(b)(5). In Thai-Lao the Second Circuit struck a malleable balance among competing policy considerations, in these terms:

In conducting a Rule 60(b)(5) analysis, district courts should analyze the full range of Rule 60(b) considerations, including timeliness and the equities. In conducting this analysis, courts – in accordance with Pemex – ought to assign significant weight to considerations of international comity in the absence of a need to vindicate “fundamental notions of what is decent and just in the United States.”

That position is essentially what the Tenth Circuit has now adopted. But whereas the Tenth Circuit found no abuse of discretion in the district court’s refusal to vacate its prior award recognition judgment, the Tenth Circuit decision stands to remembered and cited for the power of a US district court — while giving “significant weight” to considerations of comity — to give significant weight also to the US public policy values underlying the restrictive approach to vacatur of a prior judgment under Rule 60(b)(5) — notably the policy favoriting finality of judgments generally, the fulfillment of contractual expectations, the favorable regard for arbitral dispute resolution, and the unfavorable regard for inequitable conduct by applicants for equitable relief.

On Overlapping Appointments

Wednesday, November 2nd, 2022

In a dream last night, YOU, Dear Wing, received an email from the Chair of the Tribunal, “Re: New Case”:

“My Dear Colleague X:
I am serving as a Wing in a recently filed ICC Arbitration with an amount in dispute in excess of US $3 Billion. Together with my Fellow Wing Ms. Z, who knows and admires you, as I do, we are charged with the joint selection of the Chair. I would like to put your name forward if OK.
The parties and counsel are completely different from our current case together and there is no subject matter connection either.
I realize we are in the midst of difficult deliberations in our current case and that you might well share with our fellow Wing a position on the central claim that I do not share, and that I might well be in the uncomfortable position of being a Tribunal Chair in dissent (although I still hope to persuade you). But no matter. I admire you as an arbitrator and consider that you would be ideally suited to serve as Tribunal President on my new case.
I do not consider that our Fellow Wing’s views about this matter. It is however an appointment we should disclose to the Parties once your nomination is submitted to the ICC.
Hope to be working with you in this new case.
With best wishes

The arbitrator neutrality questions posed by appointment-overlap is a “coming attraction” in an important case approaching its oral argument date (now said to be in January 2023) in the US Court of Appeals for the Eleventh Circuit, on appeal from a judgment of the federal district court in Miami in

    Grupo Unido por el Canal, S.A. v. Autoridad del Canal de Panama

, 2021 WL 5834296 (S.D. Fla. Dec. 9, 2021). The District Court recognized and enforced the final award in a Miami-seated international arbitration, and denied a motion to vacate that award based on the losing party’s contention that it was denied procedural rights protected by the New York Convention due to nondisclosures by two members of the Tribunal, one Wing and the Chair, that (1) during the case, the Chair secured through the Wing another appointment as Chair of a second tribunal in which the Wing was also a Wing; and (2) the Wing was concurrently sitting, on another tribunal, with one of the co-counsel on the winning side of this case, and had sat recently on another tribunal with another one of the winning side co-counsel.

My mission in this Post is not to take you through the Grupo Unido case in detail. It is an enforcement/vacatur case set in the context of overlapping appointments that were unquestionably not disclosed. I believe it is the prevailing best practice among international arbitrators, at least in the North American market, to make some disclosure in both Grupo Unido scenarios (i.e. beginning to sit in in unrelated Case 2 with Tribunal colleague in ongoing Case 1, and sitting (or having recently sat in) Case 2 with counsel in Case 1).

My rant today is about the content of the disclosure in the scenario of a proposed Case 2 with the co-arbitrator in Case 1. And the question I raise is whether, in many instances, disclosure may be so incomplete without violating the confidentiality of Tribunal deliberations in Case 1 that the best practice should be to decline the new appointment.

Still it is worthwhile to review some of the major themes in the appellate briefing in Grupo Unido, as background to consideration of the best practice issue raised here.

Armed with my trusty yellow e-highlighter, I marked two phrases in particular from the Appellants’ brief in Grupo Unido: “structural incentives” and “informed consent.” These are fancy words, so let me explain. “Structural incentives” captures a set of natural and obvious human dynamics in the business relationships among international arbitrators. The first is that we are always grateful for a new appointment, especially a Chair appointment, to the persons responsible for the appointment. The gratitude might be for the compensation potentially to be earned, or the prestige of the new appointment, or the ego gratification, or the thrill of a new intellectual challenge, or a combination of all four. If the gratitude is bestowed by one arbitrator in Case 1 upon another, how should the Parties expect, or fear, that the gratitude will find expression? Perhaps only in a nice dinner and bottle of wine shared after both cases end? But also perhaps — and a party to Case 1 might (reasonably?) fear — by having a certain sympathy toward or flexibility to accept the position taken on the merits by the generous co-arbitrator. Who shall decide whether such natural human instincts affect the impartiality of the arbitrator?

If the new appointment need not even be disclosed, the participating arbitrators decide. In that case, Appellants argue in Grupo Unido, “informed consent” — as the bedrock principle of arbitration — is compromised because the Parties are deprived of the ability even to evaluate whether to raise an objection to the new appointment before it occurs, or to make a challenge in Case 1 if the arbitrator proceeds to accept the new appointment in Case 2 notwithstanding an objection. Case 1 proceeds, in the absence of disclosure, with the Parties having important misconception about the state of intra-Tribunal relations.

Appellee in Grupo Unidos, the prevailing party in the arbitration and in the District Court that enforced the award and rejected the motion to vacate, also states its position convincingly. But while the argument for award enforcement within the framework of the applicable Eleventh Circuit case law is forcefully stated, that argument offers little support for non-disclosure of overlapping appointments as sound or acceptable professional practice. The strands of the argument against award vacatur that might be said also to support non-disclosure as a practice are, more or less, the following: (1) the arbitrator was and is widely-admired and in demand, as indicated by his robust roster of appointments and counsel engagements and his status as leader of the arbitration practice in his well-regarded law firm, (2) his expertise in the technical discipline involved in Case 2 (construction) was a substantial and perhaps decisive factor in his selection, (3) the arbitrator was jointly selected to chair Case 2 by the two co-arbitrators, not only by the co-arbitrator with whom he was sitting in Case 1, and (4) the IBA Rules on Conflict of Interest do not treat overlapping appointments even as an “Orange List” item.

Hmm. Let’s think about this. Starting with the IBA Rules, which say on this subject in the prefatory comment to the Orange List : “While the Guidelines do not require disclosure of the fact that an arbitrator concurrently serves, or has in the past served, on the same Arbitral Tribunal with another member of the tribunal, or with one of the counsel in the current proceedings, an arbitrator should assess on a case-by-case basis whether the fact of having frequently served as co-counsel with, or as an arbitrator on Arbitral Tribunals with, another member of the tribunal may create a perceived imbalance within the tribunal. If the conclusion is ‘yes’, the arbitrator should consider a disclosure.”

That strikes Your Commentator as not such a robust blessing for non-disclosure. Especially because the type of “imbalance” mentioned as a potential downside of “frequent[]” service with the same arbitrator on other tribunals could also arise when there is high frequency of contact in a single case. If one case goes on for five years and entails six partial final awards, 15 contested procedural orders, and 50 hearing days — this is my example, and not knowingly a description of Grupo Unido!- the frequency and intensity of interaction among Tribunal members deserves to be considered as comparable to, for instance, five cases over five-year span that involve less intensive collaboration and contact.

And there is more to digest in the IBA Orange List, because para. 3.3.3 treats as a situation where disclosure ought normally to be made, that “[t]he arbitrator was, within the past three years, a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the arbitration.” Taking this paragraph in light of the above-quoted statement about overlapping appointments, we can fairly assume that 3.3.3 does not clearly regard an arbitral tribunal as a business partnership or business affiliation among the members. But certainly we are in business together, as we three are earning income from a joint endeavor and from a common payment source. We worry together about the adequacy of deposits for our fees and expenses. We sometimes worry together about whether to suspend a case based on non-payment of deposits, or to forge ahead and bear financial risk. In ICC cases, we worry together about whether the amount in dispute has been fairly stated in the Financial Table; we discuss whether or not to seek interim compensation at key milestones; we worry together about timely issuance of our awards to avoid penalty for tardiness. By these and other measures, we as Tribunal members are in business together.

And if the absence of a clear mandate against disclosure is not evident in the IBA Guidelines, the other factors identified by Appellee in Grupo Unido seem even less convincing. Why should arbitrators of high professional standing and untarnished reputations for integrity have less reason to disclose? To some of us New World types, this perspective grates as a hangover from the 20th Century reign of the self-possessed Francophone Arbitration Empire. It also seems unconvincing to say the Case 2 appointment was driven by the appointee’s technical expertise, when the same expertise could be found in dozens of other capable arbitrators. And the argument that the appointment as Chair in Case 2 is derived from joint nomination with the participation of a non-overlapping Wing in Case 2 seems to ring hollow, as the overlapping Wing may well have been the driving force behind the selection and the parties in Case 1 have good cause to say they should be entitled to consider this as an element of their ongoing informed consent to the procedure in Case 1.

So at least in my neighborhood, where many fairly reputable international arbitrators can be found standing on line to buy smoked salmon on Sunday morning, there is quite a lot of sympathy for disclosure in the context of concurrent overlapping appointments. But I would like return now to the theme of my Dream E Mail: precisely what should be disclosed about the appointment in Case 2 to the Parties in Case 1, and what should the two overlapping appointees do if material information cannot be disclosed due to the confidentiality of Tribunal deliberations? Such inaccessible information includes not only the Tribunal members’ fully- or partially-formed views on key substantive issues in the case, but also details about the relationship dynamics in the Tribunal.

Let’s suppose that the Dream Email scenario culminates in Case 1 Wing X getting the Chair Nomination for new Case 2. And that either Wing X or Chair XX, or both jointly, make a prompt but antiseptic disclosure in Case 1 that Chair XX as Case 2 Wing and Ms. Z as Case 2 Wing have jointly nominated Case 1 Wing X to Chair Case #2? Let’s suppose further that both sides confirm they have no concerns. Are we satisfied that the parties’ rights to an independent and impartial Tribunal have been served?

The argument for “Yes” is, essentially, that the concerns that should have led to disclosure in the Grupo Unido case (according to the Appellant in 11th Cir.) are addressed — that disclosure of the basic facts of the new appointment fully puts on the table for the parties’ consideration the obvious sources of potential bias: gratitude for a lucrative new gig, a new platform for “truncated Tribunal” coalition-building in Case #1 away from the other Wing, and a possibly perverse cross-incentive to align in Case #1 as an incubator of goodwill in Case #2.

Such basic facts disclosure should suffice, the argument goes, to allow the Parties to assess whether they have confidence that their arbitrators are above allowing such factors to influence their judgment (or that, all things considered, they are willing to bear the risk of dysfunction).

But the argument for “No” – the argument that such basic facts disclosure falls short – is that the parties are not in a good position to evaluate because they know little or nothing about the internal workings of the Tribunal in Case 1. They do not and cannot know more, because the deliberations of the Tribunal are confidential, and ethical canons constraining arbitrators to respect that confidentiality provide no exception for the type of situation depicted here. Are the newly-conjoined arbitrators to be acquitted on charges of partial disclosure because they have disclosed up to the ethical limit imposed by deliberations confidentiality? Perhaps not, because they have an obvious escape from the ethical trap: to Just Say No (politely and with thanks for the offer) to the new appointment. The parties simply cannot be put in a sufficiently informed position to seriously evaluate whether Chair XX in Case 1 might, explicitly or otherwise, seek to redeem an IOU at crunch time in Case 1 and whether Wing X might consciously or unconsciously submit to such influence. By Just Saying No, the offeree of the overlapping appointment spares the parties from making a difficult and uninformed decision.

I will not go so far as to say that Just Say No is trending as a best practice among leading arbitrators who often face this issue. But there are indeed some leading arbitrators who will decline to even to be considered for overlapping appointment driven by a nomination in which a colleague in Case 1 is a participant, even when overlapping Case 1 is in its infancy and alignment within the Tribunal on important procedural and substantive issues is months or years into the future, but is a foreseeable issue of discomfort in an overlapping tribunal setting.

If you encounter any of these arbitrators on the smoked salmon line, ask them where they stand on this question. Some best practices evolution in this area would certainly be welcome.