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…)

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.

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
XX”
….
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.

Corruption — of the bribing State officials variety — can seem like a distant abstraction. Until one reads about it, in excruciating detail. We had that opportunity recently, courtesy of a 360-page ICSID Tribunal Award that declared inadmissible, on grounds of corruption, the expropriation and FET (and other) claims of an investor that deployed an elaborate bribery and influence peddling scheme to secure its investment rights from the State. BSG Resources Ltd. v. Republic of Guinea, ICSID Case No. ARB/14/22 (Award dated May 18, 2022, available at www.italaw.com with the document identifier italaw170322.pdf, hereinafter the “BSGR” case).

What should we as arbitrators and advocates take away from a case like BSGR, a case that was resolved, effectively in its entirety, on the singular question of whether there was a corrupt procurement of mining exploration rights such that, as a matter of international law and international public policy, the investor should have no right of recourse in arbitration for subsequent State inference with the investment? That is a good question for an observer to answer, as the Tribunal’s business is to write for the Parties and for an potential annulment committee, while my job (as always, and for somewhat lower pay) is to entertain you.

So my organizing idea for this Post is this: Can we discern some procedural principles or lessons from the BSGR Tribunal’s painstaking review of evidence and contentions for and against the alleged corruption that was successfully established by the State Respondent in this case — principles and lessons we might use counsel or as arbitrators in future cases when complex facts — often obscured by the passage of time and the motives of perpetrators to conceal prosecutable misconduct — are presented? I will give it a try. So here, without further adieu, I propose…

Arbitration Commentaries’ Possible Principles in the Arbitral Procedural Law of Corruption

1. Due Diligence: Investors who fail to conduct thorough due diligence of the people they engage as intermediaries to the State may be found to have not cared what such due diligence would have revealed, or worse, to have known what such due diligence would have revealed!(“What you should know will hurt you”)

2. Regularity: Tribunals are keen to see that there has been strict observance of corporate governance and internal financial control principles, as well as applicable accounting standards, in regard to payments and reimbursements to State officials or agents/intermediaries. Non-observance unless well-justified by any exceptional circumstance will likely be seen as a badge of corruption.

3. Silence Clause Drafters Beware: Confidentiality and non-disclosure clauses may be seen as normal routine corporate prudence, but when they are found in contracts with intermediaries enlisted as buffers in relationships with State Offices, they may be seen by Tribunals as instruments to suppress illicit facts. It all depends.

4. Hazards of Outsourced Shredding: Causing the destruction of documents is bad, doing so with offers of money is worse, and having your paymaster convicted in the USA of obstruction of justice, for causing such destruction with such inducements, is singularly unhelpful!

5. Attempted Corruption Bad, Successful Corruption Worse: Attempted influence peddling is an act of corruption by international law standards applicable in the West Africa community of nations as elsewhere. (ECOWAS* Protocol Art. 6.1c)). Claimants may argue that evidence of having effectively influenced the State decision is lacking, but will therefore gain little from such argument. On the other hand, evidence that there was actual influence on the decision-making of the State in favor of the Investor and that the desired result was achieved , while not legally necessary, will carry significant weight.

6. FBI Still Popular, Outside Florida: Tribunals can be expected to assign significant weight, other things being equal, to evidence obtained (even when obtained from witnesses who have a possible motive to fabricate in order to self-exonerate) by internationally reputable law enforcement agencies. In this case, that agency was the US Federal Bureau of Investigation, and the the most direct purveyor of influence on the key State official, the fourth wife of the then-President of Guinea, had agreed to cooperate with the FBI. (If memory serves, this was an observable factor in the Niko Resources case few years ago, as to which much of the investigative work has been done by Canada’s Royal Canadian Mounted Police. If memory does not serve well, a person with knowledge will correct me!)

****
As a bonus to those of you who have read this far, here are a few concluding “takeaways” about the law of corruption applied in the BSGR case — points that should not be obscured by the hundreds of pages necessarily devoted in the Award to the evidence and arguments presented concerning the central issue of whether Claimant had acted corruptly:

1. While it will seem obvious that once corruption in the Claimant’s obtaining of State-awarded natural resource concessions has been established, its claims against the State for violation of the rights so obtained should be ruled inadmissible – as they were in the BSGR case. Less intuitive perhaps is the question of whether the State impacted by the corrupt procurement should be considered a victim, with rights to economic (or moral) damages resulting from the Claimant’s enjoyment of the ill-gotten exploration rights without material benefit to the State. The BSGR Tribunal’s answer is decisively NO and is based on an amalgam of international law and common sense. As to international law, per the Tribunal, the International Law Commission Articles on State Responsibility treat unlawful acts by State officials as attributable to the State even if such unlawful acts were beyond the scope of the officials’ lawful powers. Thus the alleged damages sustained by Guinea were a product of the corruption of its Prime Minister and his fostering of an environment in which the corrupt activities of the Investor could flourish. Common sense led to the same conclusion. To quote the Tribunal (at last!): “[H]ere the harm caused by the Claimants’ actions would not have occurred if the Guinean state officials … had not been on the receiving end of the corruption scheme. Had they resisted the corruption attempts [Claimant’s ] mining applications would have been processed without undue influence, and the damage for which the counterclaims seek reparation would never have been inflicted.” (That’s para. 1104 at page 351, in case I get graded for reading stamina).

2. As to the law applicable to the question of whether bribery (active or passive) or influence peddling (active or passive) is to be seen as unlawful, the Tribunal was deliberate in its assessment that (i) such bribery had been criminalized under the domestic criminal code of Guinea, (ii) such bribery and such influence peddling were broadly regarded as violating international and transnational public policy and therefore international law as evidenced by declarations in innumerable UN and other multilateral conventions on corruption and also in several international Arbitral awards, and (iii) that Guinea even though it had not ratified all the cited international anti-corruption conventions at the relevant times, had indeed ratified prior to the events at issue the ECOWAS Protocol and that could be regarded as having adopted the relevant principles of international law into its domestic law. (fn. The phrasing “active” and “passive” refers to the offering or payment of a bribe or an actual or proposed payment for the exercise for undue influence, on the one hand, or the receipt or solicitation of a bribe or the exercise or offer to exercise undue influence in consideration of a payment. This terminology is elaborated in, for example, on the website of Transparency International UK, www.antibriberyguidance.org/guidance/5-what-bribery).

* That would be the Economic Community of West African States.

Dear Readers, you have a lengthy double-feature here on the Blog, for the soon-to-be-departed month of August. And in the movie-going days of our parents’ youth that usually meant the rest of the show would consist of “short subjects” – maybe a newsreel and Woody Woodpecker cartoon.
So I bring you one short subject, and it would be longer but I have to go back to work.
Most of you are Chromalloy buffs. That is, you crave new developments in the evolution of the law concerning recognition and enforcement, or not, of foreign awards that have been set aside by a court at the place of arbitration.
So, dear readers, please read Esso Exploration & Production Nigeria Ltd. v. Nigerian National Petroleum Corp., 40 F.4th 56 (2d Cir. July 8, 2022) and, if you can retrieve it (which I have done but cannot link it), Professor Bermann’s amicus brief that presented arguments tending to support potential US enforcement of the vacated award, where he wrote by way of introduction that “US international arbitration law would benefit if the Court were to take this opportunity to confirm that courts must holistically consider all circumstances before them in deciding whether to give effect to a foreign annulment decision.”
And if you are organizing a little Chromalloy Coffee Klatsch, or maybe a chat group around the 18th tee at Gleneagles, take up the question of when and how the burden may shift to the proponent of a foreign annulment judgment that favors the host State as a party, to demonstrate the entire fairness of and the absence of corruption influencing the judicial process by which the foreign judgment was rendered.

Sometimes the answers to our most difficult questions are found hiding in plain view.
Take for example a question of transcendent global importance — where a New York-seated international arbitrator should “sit” to take testimony from America’s leading non-party witnesses like Google, or Facebook, or Microsoft or Apple Computer. I have been urging you since 2015 to fly to San Jose or Seattle — and upon arrival, to sit — or at least make a plan to do that. This turns out to have been pretty good advice. But for reasons that were, well, hiding in plain view.
You can read about this hot topic in a case from the U.S. Ninth Circuit Court of Appeals, called – don’t be frightened – Jones Day v. Orrick, Herrington & Sutcliffe, 42 F.4th 1131 (9th Cir. Aug. 1, 2022). If that case caption is too daunting, I understand. Relax, I’m here for you.
Simple facts. A Paris-based Jones Day partner jumps ship and moves to Orrick. (Some people just can’t resist the 16th Arr., right? I get it. I’m one of them). A dispute ensues, and the Jones Day partnership agreement requires arbitration seated in Washington D.C. (Does anyone remember Cleveland?) Jones Day gets from the Arbitrator an arbitral subpoena to Orrick calling for compliance in, and potential enforcement in, San Francisco — Orrick’s ancestral home and continuing global HQ. But NO, says Orrick, FAA Section 7 says a US District Court “for the district in which such arbitrators … are sitting may” enforce the subpoena, and the Arbitrator is “ sitting” in Washington because that’s the arbitral seat, and there is no personal jurisdiction over Orrick in Washington, so leave us alone. Jones Day goes to the US District Court in San Francisco, and the US District Judge agrees with Orrick that FAA Section 7 makes the US District Court at the arbitral seat the only proper venue for a subpoena enforcement. Case dismissed, subpoena not enforced. By dismissing on venue grounds, the District Court opted not to address Jones Day’s position that the Court had subject matter jurisdiction under FAA Chapter Two. But as it turns out, in the Ninth Circuit’s decision , the question of Chapter Two subject matter jurisdiction and venue for enforcement go hand-in-hand.
So on to the Ninth Circuit went this much-discussed case … but not of course before your Commentator had been skewered by many colleagues – who, upon learning of the District Court’s decision, expressed remorse about their reliance on the New York City Bar Model Arbitral Witness Summons report of 2015 for whose errors (if any) I am mostly at fault. “Goldstein you have been preaching for seven years that the arbitrators can ‘sit‘ to hear non-party evidence wherever they want, far away from the arbitral seat, and telling us to make plans to do that, and we listened to you, and now look!, an actual thoughtful learned federal district judge is San Francisco says you are wrong!” Ouch.
But wait. Patientez. In the Ninth Circuit, the Court finds it necessary to address subject matter jurisdiction because unlike the District Court it does not agree that the District Court’s analysis of subpoena enforcement venue under FAA Section 7 is dispositive. The panel is captivated by a Jones Day argument that our 2015 Report really did not treat in depth: that the enforcement of an arbitral subpoena in a US-seated international arbitration is a proceeding “falling under the [New York] Convention,” even though it does not involve directly the enforcement of an Award or an arbitration clause. Enforcement of the subpoena is instrumental to the effective enforcement of the Parties’ agreement to arbitrate, says the Ninth Circuit, and that makes it a “proceeding falling under the Convention.” Adopting reasoning from the Supreme Court’s decision in the Outokumpu case – that domestic law grounds for enforcement of arbitration agreements such as equitable estoppel are available in international arbitrations governed by the Convention and FAA Chapter Two unless the text of the Convention or the FAA clearly prohibits their application – the Ninth Circuit held that nothing in the Convention or FAA Chapter Two clearly the disallows the subpoena enforcement process mandated by Section 7 of the FAA:

The only limitation is set forth in §208 [of the FAA], which as the Supreme Court noted in [Outokumpu], disallows only those processes provided for in domestic arbitrations under Chapter One that conflict with Chapter Two or the Convention. … Far from conflicting with the Convention, judicial enforcement of an arbitrator’s summons only aids in the arbitration process. We therefore conclude that “Section 7 is a nonconflicting provision in Chapter 1 that residually applies through Chapter [] 2” [Citations to the International Arbitration Restatement, for which Professor Bermann has our awe/admiration and gratitude for more than a decade of work, and the City Bar Report!].

All well and good, you say… but you ask … how does the Ninth Circuit come to accept that venue of the subpoena enforcement action is proper in San Francisco when, even though the witness resides in San Francisco, (i) the seat of the arbitration is in Washington, (ii) FAA Section 7 provides for enforcement by the District Court where the arbitrators are sitting, and (iii) FAA Chapter Two Section 204 provides that an action or proceeding falling under the Convention “may be brought in any court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States.” Easy says the Ninth Circuit – the venue provision in FAA Chapter Two is to be construed as permissive not exclusive unless its text clearly indicates otherwise, which it does not. So FAA Section 204 is not exclusive but permissive, as to venue, and does not foreclose reliance on the general federal venue statute to lay venue in a particular district. The panel adopts this rule of FAA construction from a domestic FAA case in the Supreme Court (concerning venue under Sections 9 and 11) —

Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co.

, 529 U.S. 193 (2000). Extending the Cortez case to Chapter Two’s venue provision in Section 204, the Ninth Circuit held that Section 204 is permissive not exclusive, that Jones Day could therefore venue the enforcement action against Orrick in San Francisco based on the general federal venue statute (i.e. in San Francisco where Orrick has its headquarters). In what I will call a rather tongue-in-cheek concluding footnote, the panel writes that “[b]ecause we hold that 9 U.S.C. § 204 is a non-exclusive venue provision that supplements, rather than supplants, other venue rules … we need not resolve the parties’ dispute as to whether 9 U.S.C. § 7 provides for venue (or where).”
Perhaps it is a case of necessity being the mother of invention, and if so Jones Day’s team deserves a well-provisioned maternity leave in the Napa Valley. But after reading the Ninth Circuit panel’s decision, Jones Day’s core argument in favor of taking the step from Section 208 — which makes Section 7 applicable to US-based Convention arbitrations – to finding that Chapter Two is the source of federal subject matter jurisdiction over the subpoena enforcement case, seems an obvious one. Here was part one of the solution hiding in plain view. Part two of the solution is to think in terms of venue – obvious under Chapter Two, Section 204, which slaps you across the cheek with the word “Venue”. Hello! Good morning! It is less obvious to think of Chapter One, Section 7 as containing language pertaining to “venue,” because Section 7 is such a mash-up of different subpoena ingredients – witness appearance, documents, method of service, witness fees, number of arbitrators who must sign the summons, number of arbitrators who must be “sitting,” enforcement court, etc.
This is big stuff. Keep in mind that there has been no meaningful judicial resistance to the conclusions we drew in the 2015 Model Witness Summons Report that an arbitrator sitting in New York or in Washington has power (i) to summon a witness located in San Francisco, (ii) to require compliance with the subpoena in San Francisco, and (iii) to convene a hearing in San Francisco in the presence of the Tribunal to hear from the witness. The unsettling question about the “are sitting” language in FAA Section 7 has been about judicial power to enforce the subpoena in a court at the place of compliance, not about the intrinsic enforceability of the subpoena’s terms or the right of the New York-seated Tribunal to jet off to the West Coast for a witness hearing. Venue for the enforcement case has been the major concern, because many witnesses will not be subject to personal jurisdiction in the courts at the arbitral seat, or at least not clearly so, and FRCP 45 as interpolated into FAA Section 7 would make the subpoena unenforceable if it purported to require the witness to travel from San Francisco to Washington to appear before the Tribunal. [Rule 45 geographically limits the reach of a trial subpoena, and Section 7 tracks this limitation by saying the summons “shall be served in the same manner as subpoenas to appear and testify before the court”]. The ability to venue the enforcement case in a district court in proximity to the residence or principal place of business of the witness removes a major basis for resistance to the arbitral subpoena by a witness looking to withhold cooperation.
The Jones Day/Orrick case also has significance for domestic arbitrations, where FAA Chapter 2 and the New York Convention do not come into play. In such cases of course the issue of federal subject matter jurisdiction most often depends upon diversity of citizenship between the applicant for arbitral subpoena enforcement and the resisting witness. If there is no diversity of citizenship, the enforcement case should end up in a state court. But if the interstate commerce requirement is met, the state court should apply the FAA (or state arbitration law that gets to the same outcome). And if the enforcing court, state or federal, is persuaded that the venue provision is FAA Section 7 is permissive and non-exclusive, following the reasoning in Cortez and in Jones Day/Orrick, then subpoenas from Washington-seated arbitrators calling for San Francisco witnesses to testify before them in San Francisco should be enforceable in a court where venue is proper under a general venue statute (state or federal), and arbitrators should be able to issue such subpoenas with confidence in their enforceability.
There are attractive arguments for treating as a permissive venue clause Section 7’s laying of venue in a “United States district court for the district in which such arbitrators, or a majority of them, are sitting.” For one thing, the statute says that such a district court “may” enforce the subpoena. Now, “may” could perhaps only mean discretion to say thumbs up or thumbs down. On the other hand, “may” could mean “we grant you permission.”
The latter interpretation is supported by history. In 1925 when the FAA (including Section 7) was enacted, the general venue statute for the federal courts dated from 1887-1888 and provided that no civil suit could be brought against “any person” in “any other district than that whereof he is an inhabitant, but where the jurisdiction is founded only on the fact that the action is between citizens of different states, suit shall be brought only in the district of residence of either the plaintiff or the defendant.” See 25 Stat. 433 (1888) as quoted in Edward L. Barrett, Jr., Venue and Service of Process in the Federal Courts – Suggestions for Reform, 7 Vand. L. Rev. 608 (1954), available at https://scholarship.law.vanderbilt.edu/vlr/vol7/iss4/11 (last visited August 30, 2022).
Congress in 1925, legislating for arbitration against a backdrop of a general venue statute that made venue of civil actions possible in only one or two judicial districts, logically might have decided that enforcement of an arbitral subpoena should be permitted in the district where the arbitration hearing would take place, say the Southern District of New York, even if the non-party witness and the party seeking enforcement resided elsewhere, say New Jersey. That seems much more logical than to suppose that Congress wished to make the place of an arbitration hearing the only place where enforcement of an arbitral subpoena could be sought. To make that supposition effectively attributes to Congress in 1925 a specific purpose to limit the enforceability of arbitral subpoenas, in order to make them less effective tools in arbitrations than they were in court litigation. I have not studied the matter, but I seriously doubt that any such legislative history of Section 7 exists. And if that was the objective, how does one explain that so much of Section 7 makes the procedure applicable to an arbitral subpoena align with procedure applicable to a federal trial court subpoena? Why would Congress have aligned nearly all other aspects of Section 7 with federal court subpoena practice, but then completely spurn the default federal court position on the venue of civil proceedings?
It is reasonable to forecast that the Jones Day/Orrick case will bring about an important clarification of FAA Section 7 in domestic cases, including a much-needed rejection of the position that “where the arbitrators, or a majority of them, are sitting” means the place of arbitration as provided for in the arbitration agreement. Although the Ninth Circuit panel found it unnecessary to reach that issue, this was the District Court’s rationale, and it was undone by the Ninth Circuit’s reversal. And that reversal includes a remand with directions to the District Court to enter an order enforcing the subpoena.
Granted there are a handful of federal district court cases that have relied on this “are sitting” equals “arbitral seat” rationale. But they are thinly and poorly reasoned, and are impliedly criticized by the Ninth Circuit judgment (the District Court order having cited them in support of its rejected rationale). Moreover, none of those cases, to my knowledge, demonstrated through legislative history that in 1925 the phrase “are sitting” referred to the “seat of arbitration” as the latter term came to be understood in US legal parlance much later in the 20th Century. Finally, none of those cases, to my knowledge, explains why it is that Congress when it enacted Chapter Two in 1970, did not frame the venue provision, Section 204, to refer to the place where the arbitrators “are sitting”, but instead adopted the phrase “the place designated in the agreement as the place of arbitration.” Further, Congress in 1970 did not amend Section 7 to conform its text to that of Section 204. Are we not bound by rules of statutory construction to conclude that different phrases within a single statute have different meanings, unless some clear indicator of legislative intent to establish equivalency exists?
And so, dear colleagues “sitting” in cases whose “place of arbitration” is on the US East Coast, international or domestic, keep up those subpoenas wherein you vow to appear in San Francisco or San Jose to hear the non-party witness (and negotiate the Zoom later)! The enforcement picture looks quite bright.
And please don’t leave your heart in San Francisco. There are supply chain issues.