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!)

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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.

Maybe you thought your Section 1782 line of business sustained a death blow in June at the hands of the US Supreme Court [ZF Automotive US, Inc. v. Luxshare, Ltd., 142 S.Ct. 2078]. But do not despair! I’m here to boost your spirits and maybe your revenue stream. (And to entertain the rest of you, as always).

As most of you know by now, in the ZF case the Court held that neither of two different types of international arbitration tribunals qualifies as “foreign or international tribunal” under Section 1782, and that federal judicial assistance to gather evidence in the USA for use in such tribunals is not available. One was a Tribunal in a private arbitration administered by the DIS in Berlin (for simplicity’s sake, think of DIS as the German equivalent of the ICDR). The other was a investment arbitration tribunal constituted under a bilateral investment treaty that gave investors of a State party to the treaty four dispute resolution options, the one adopted by the Claimant investor having been ad hoc arbitration under UNCITRAL Rules.

Many if not most private commercial and BIT-based investment arbitration tribunals would seem to be covered by the holding and rationale of the ZF case that they do not carry our a foreign or international governmental function. Hence the widespread perception that the 1782 spigot for US-based evidence has been turned off.

But wait. What about all those arbitrations that are accompanied by or preceded by judicial proceedings, pending or contemplated, before domestic courts of the State embracing the arbitral seat that are , without any doubt, “foreign tribunals” within the meaning of Section 1782? The entire dispute, or a branch of it, might be before a court, despite the arbitration clause, with a motion to compel arbitration not yet decided. There might be a lawsuit pending over a genuinely non-arbitrable subject that the arbitration clause carves out. There might be a pending or contemplated application for judicial interim relief. Or a vacatur proceeding on a partial final award. Or a criminal complaint filed by a party to the arbitration against one or more persons who are involved in the arbitration – especially in civil law countries where in the initiation of criminal process by the alleged victim’s filing of a case is a familiar practice.

Will the application of Section 1782 to such parallel proceedings be the new frontier of arbitration-related 1782 litigation in US courts? We do now have at least one case in point, from a federal district court in Northern California – and yes, this case, and not my fertile imagination, planted the seed blossomed here into this Post. So let’s talk about the case. You can also read it. In Re Bureau Veritas, 2022 WL 3563773 (N.D. Cal. Aug. 17, 2022).

From the District Court’s opinion granting in part the Petitioners’ ex parte 1782 application, we learn that (1) Petitioners are Brazilian companies that acquired a competitor in 2015 by acquiring the equity interests of its controlling shareholders, also Brazil citizens, who agreed to stay on as consultants and signed non-solicitation and non-compete covenants; (2) the disputes arise from these consultants having allegedly diverted business away from Petitioners and into the coffers of a competitor in which they also have interests – the competitor being a Brazil operating entity controlled by a Delaware LLC whose founding members reside in Northern California, and (3) there were three pending proceedings for which evidence in the form of deposition testimony from the Northern California-resident individuals was sought, all of them commenced by Petitioners : two actions in courts in Brazil, one civil and one criminal, and an ICC arbitration, all of them naming the consultants as respondents and all arising – at least in substantial part – from the consultants’ alleged breaches of their non-compete and non-solicitation covenants.

But there is also a great deal we do not learn from the District Court’s decision, about the relationships between the ICC arbitration and the civil and criminal actions pending in courts in Brazil. Some of the answers perhaps can be found in the extensive submissions concerning the court cases made by Petitioners in response to the US District Court judge’s request for supplemental briefing that followed shortly after the ZF decision. But I have not read that voluminous material to answer questions that the District Court did not directly address — namely, a series of questions about the relationship of the Brazil court cases to the ICC case and whether granting discovery for use in the court cases was justified despite the obvious collateral consequence of allowing the same discovery to be used on the same issues against the same respondents in an ICC case that, it it stood alone, would presumably not support the 1782 application. And it is curious, to say the least, that the District Court elected not to even touch upon the question of whether the ICC arbitration tribunal is, after the ZF case, a “foreign or international tribunal” under Section 1782. The District Court opted instead to focus only on the Brazil court cases and how the “Intel factors” (discretionary factors, code-naded for the US Supreme Court case in which a non-exclusive list was made) bear on them.

We do not gain from the District Court’s opinion a full explanation of who are the Parties to the ICC case and to the court cases, or a sense of the timing of commencement of the latter in relation to the former. We do not learn who are all the Parties to the civil case in Brazil, or whether the claims asserted against the respondents who are also ICC case respondents are non-arbitrable, or whether a motion to compel arbitration has been or may be made. We do not learn anything about the timing or the substance of the criminal case brought by Petitioners – and so it is not possible to know whether it is (as such criminal complaints sometimes may be) mainly a tactical maneuver to publicly portray the accused respondent as disreputable, but may hold little interest for a public prosecutor who is ultimately responsible for whether to investigate in depth and consider pressing criminal charges.

I draw attention to these unanswered questions because the possibility of maneuvering in parallel judicial proceedings , by arbitration parties looking to circumvent the broad exclusion of international arbitrations from 1782 eligibility, seems obvious and acute. One would expect US witnesses, seeking to quash 1782 subpoenas served upon them, to raise such arguments. In a case like Bureau Veritas, which at this point involves a ruling on the basis of an ex parte application, and is so freshly-minted in the wake of the ZF decision, one can perhaps understand why these concerns were not addressed head-on.

But I suggest we may see, and probably should see, a thoughtful evolution of the discretionary considerations – the “Intel factors” – relating to the granting of 1782 discovery for use in foreign judicial proceedings that relate to a pending or anticipated foreign arbitration. In essence the question is whether permitting the discovery for use in the parallel foreign court case(s) unacceptably undermines the Congressional mandate in 1782 (as revealed to us by the Supreme Court) to confine US judicial assistance in gathering evidence to foreign judicial proceedings not foreign arbitrations. Is there a sufficiently important purpose served by making the evidence available for use in the foreign judicial proceeding that, in the interests of comity, the collateral consequence of enabling the same evidence to be used in a foreign arbitration should be accepted?

These are questions that deserve to be seriously addressed and resolved by our courts based on careful analysis of the facts in each case. And so, I suspect, the lucrative business of pursuing and resisting 1782 applications related to foreign arbitrations is destined to regain something akin to its pre-2022 footing!

Well, somebody in Arbitration World has to write about a subject other than Section 1782, so here we go….

The US 11th Circuit Court of Appeals, after nearly 25 years of living on the dark side of international arbitration, seems prepared to confess its sins and seek redemption. It appears poised to recognize that the New York Convention provides the limited grounds for a US court to refuse recognition and enforcement of an international arbitration award made at a US arbitral seat, but that US domestic arbitration law (especially Chapter 1 of the Federal Arbitration Act) supplies the grounds for judicial annulment (a/k/a set aside, vacatur) of such an award. This important leap forward into the mainstream is the anticipated end game of a case recently decided, and which supplies the text for today’s sermon:
Corporacion AIC, SA v. Hidroelectrica Santa Rita S.A., 2022 WL 1698350 (11th Cir. May 27, 2022), petition for rehearing en banc filed, June 17, 2022.

There are many reasons why we care about this. For starters, we all like Miami. For almost 25 years, when friends have asked “What’s not to like?”, we’ve had to answer candidly: “The 11th Circuit’s misconception of the New York Convention.” A second reason is related to the first: With Covid now more or less in the rear-view mirror, we want to make more hibernal hearing visits to Miami. If the local federal courts there can (like their counterparts in the Shivering North) vacate our awards when we exceed our powers, when we act with evident partiality, and even maybe when we manifestly disregard a law here and there, we will have more chances of having more do-overs in Miami!

Great stuff, right? Sit with me on a Miami case, and I will take you to my surf-less, shark-less, shimmering swimming beach just off the Key Biscayne Causeway. 🏊‍♂️

A third reason we care is that a lot of people we admire and respect have spent a lot of time for a few decades sorting out for US arbitration law the domains of “primary” and “secondary” jurisdiction in relation to New York Convention awards, and we feel for them, in their protracted wonderment at why the 11th Cir. just could not seem to “get it.” That includes your judge-friends in the 2d Circuit (remember the Toys R Us case!) and the 5th Circuit (remember the Karaha Bodas case!) and the drafters of the Restatement of the US Law of International Commercial and Investment Arbitration (and all of us who tagged along in its drafting process, to learn from the drafters without paying tuition!).

A fourth reason we care is that a big chunk of Western Hemisphere international arbitration business is going to be seated in Miami whether or not the law there makes sense, precisely because Miami* has so many other things going for it that arbitration clause-drafters will look the other way about US arbitration law as applied there. So having that law cycle forward into the present (really, into the New York Convention world created in 1958) would be a nice bonus.

A fifth reason we care (and here I get sort of semi-serious and preach-y ⚠️ ☠️ ) is that it’s good for all of us to re-visit and re-appreciate the role of “lex arbitri” in the work of arbitrators (and the work of counsel in persuading arbitrators). For those of you born in or after 1958, or at least born to international arbitration after that, it is worthwhile to remember that the significance of the seat of arbitration as the source of the arbitration law that regulates the proceeding, and thus the fundamental integration of international arbitration into the national legal system of the place where it happens, is baked into the New York Convention at Article V(1)(e). That sub-section permits a court at the place where recognition and enforcement of an award is sought to refuse such relief if the award has been suspended or set aside by a competent court of the place at which, or under the [arbitration] law of which, the award was made. Where the 11th Circuit went astray, 24 years ago, was in thinking that the impact of Article V(1)(e) was to make the vacatur (annulment, set aside) of a US-made Convention award depend entirely on whether the applicant could demonstrate that one of the Convention grounds for refusal of recognition and enforcement was present.

As 11th Circuit Judge Jordan observes, in his scholarly tour de force of a special concurrence in the Hidroelectrica case, Article V(1)(e) of the Convention, far from creating a regime of Convention hegemony in vacatur actions, was a multinational embrace of the concept of “lex arbitri” and the principle, already then well-established in European international arbitration practice, that the domestic arbitration procedural law at the seat governs the procedure in the case (alongside the particular rules agreed by the parties, which usually but not invariably take precedence and push domestic arbitration law to the sidelines). That understanding informs so much of what we do in managing our cases day-by-day, skirmish by procedural skirmish. (Arbitration World has become more complex since 1958 in so many ways, including the adoption by many States, aspirants to hosting more international arbitrations, of domestic versions of the UNCITRAL Model Law as national statutory law governing international arbitration. Under such laws, the Convention grounds for refusal of recognition and enforcement have been expressly adopted into domestic law as the exclusive grounds for vacatur of international arbitration awards made locally. The USA is an outlier, having no customized national law on international arbitration, but instead retaining the regime that has existed since 1970, when FAA Chapter 2 was added to the one-chapter FAA to give effect to US ratification of the New York Convention).

***
A few gory details about the Hidroelectrica case.
First and foremost: The most curious aspect of this case is that it is a stare decisis ruling adhering reluctantly to what the three-judge panel unanimously declares to have been wrongly-decided 11th Cir. precedent, notably a case from 1998 that held that in a US-seated international arbitration the New York Convention and not FAA Section 10 is the exclusive source of grounds to set aside the award. (Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998)). The Hidroelectrica panel urges en banc review in the 11th Circuit — a fresh consideration of the appeal by the full complement of 11 Active Judges of that Court — to rule that the 1998 case is no longer good law and to allow the District Court to consider on remand whether the award in this case should be set aside under FAA Section 10(a)(4) on the ground that the tribunal exceeded its powers.
Second: Arbitration law junkies (some of you, and you know who you are!) will note with interest that Judge Tjoflat (a Senior Judge, who as the author of the panel decision in Hidroelectrica may, under 11th Cir. Rules, join his Active Judge colleagues in the en banc review), in doing his personal mea culpa in Hidroelectrica for his authorship of Industrial Risk Insurers — invokes the Supreme Court’s 2014 decision in BG Group v Argentina, 572 U.S. 25 (2014). You will not necessarily remember BG Group as a case concerning whether the Convention or FAA Section 10 governs vacatur of US-made Convention awards. But it was a case in which the Court expressly assumed — citing Article V(1)(e) of the Convention, and two commentators — that the FAA Section 10 framework did apply to a motion to vacate the award made in a DC-seated investment arbitration under a bilateral investment treaty. 572 U.S. 25 at 38. Judge Tjoflat points out that the 11th Cir. stood by its 1998 mistake in Industrial Risk Insurers in a 2019 case, despite BG Group, because BG Group did not expressly overrule or abrogate the 1998 11th Circuit decision. But his invocation of BG Group in Hidroelectrica looks like a message to the 11th Circuit Active Judges who would sit en banc that BG Group should be a strong influence in favor of correcting the 11th Circuit law. (The relevant 11th Circuit procedural rule concerning en banc review states as a guideline that the 11th Circuit precedent should be in direct conflict with Supreme Court precedent, a standard that the Hidroelectrica panel views as being met even though no Supreme Court decision has expressly abrogated or overruled Industrial Risk Insurers).
Third: While Judge Tjoflat is doing a commendable mea culpa, there are elements of his conceptual framework that still potentially obstruct the path to correct analysis. Maybe this is a function of history. Only a few of you are old enough to have been practicing law when the FAA was just one chapter. And maybe that is the source of the dichotomy, drawn in Judge Tjoflat’s opinion, between the FAA and the New York Convention. (1) Is it not more useful, as a starting point, to think of the FAA as a three-chapter statute, with points of separation and points of integration, and two incorporated multilateral treaties (New York and Panama Conventions)? (2) Why must we think of FAA Chapter 1 as the “domestic FAA”? Before there was a Chapter 2, if you had an international arbitration award that was made in Miami and you wanted to confirm or vacate it, you used Chapter 1 if you could get federal subject matter jurisdiction (and maybe in state court, if you couldn’t). Nothing in Chapter 2 expressly confines Chapter 1 to domestic arbitrations, but instead Chapter 2 adjusts the FAA framework in two fundamental ways: to make a dispute over a Convention award or arbitration agreement a basis for federal subject-matter jurisdiction, and to make the Convention’s recognition and enforcement regime mandatory and exclusive. Beyond that, Congress said in 1970, Chapter 1 is still kicking (“Chapter 1 applies to actions and proceedings brought under this chapter to the extent that chapter is not in conflict with this chapter or the [New York] Convention as ratified by the United States.” 9 U.S.C. 208). For these reasons, I squirm to read in Judge Tjoflat’s Hidroelectrica opinion that “Chapter 1 of the FAA applies to domestic arbitrations, and Chapter 2 of the FAA applies to non-domestic arbitrations.” 34 F.4th at 1293. For starters, “non-domestic” is Convention terminology, not FAA Chapter Two terminology: Article 1(1) of the Convention said the Convention applies inter alia to “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.” That language should tell judges at least two things: the Convention is concerned with recognition and enforcement (“R&E”), not vacatur; and whether an award is domestic or not is determined by the law of the State where R&E is sought. In US federal law, that definition is furnished in FAA Section 202, which I paraphrase here for simplicity: An arbitration agreement or award “falls under the Convention,” and thus gives rise to federal subject matter jurisdiction (Section 203), except that an agreement or award entirely between US citizens only “falls under the Convention” if the underlying subject matter has a significant foreign element. Going back to what is said above about points of separation and integration, it’s helpful, I think, to getting it right, to appreciate that the domestic/international distinction is settled within US domestic law, the FAA, and entails no requirement to reconcile the “domestic FAA” with the Convention itself. This is a big step toward getting it right: “fall[ing] under the Convention” in FAA Chapter Two terms gets a motion/petition to vacate a US-made international award into federal court jurisdictionally, even when the winning side has not sought R&E in that court. (4) And, alas, this Treaty-toting Sermonizer, and maybe some of You the Faithful, will resist Judge Tjoflat’s assertion that: “Rightly, Industrial Risk acknowledge that Article V provides the exclusive grounds for vacating an arbitral award under the New York Convention. But, wrongly, the Industrial Risk court … failed to consider that domestic defenses to enforcement of arbitration awards were nestled in Article V(1)(e).” 34 F.4th at 1298. In this pulpit, and maybe elsewhere, Article V of the Convention concerns what it says it concerns: “[r]ecognition and enforcement of the award” and the grounds on which R&E “may be refused” by “the competent authority where the recognition and enforcement is sought.” Vacatur is not “nestled” in Article V(1)(e) under this view. Article V does not come into play if the only motion before the Court is a motion to vacate and the Court sits at the seat of the arbitration. Article V(1)(e) is mainly a sign at a border crossing (or maybe even on the Key Biscayne Causeway): “NOW LEAVING NEW YORK CONVENTION. WELCOME TO DOMESTIC ARBITRATION LAW. DRIVE CAREFULLY” Sigh.
Finally: An eminent law firm in our field (well-represented in the drafting of the Restatement of the US Law of International Commercial and Investment Arbitration!) finds itself on the wrong side of the stare decisis issue here, but doing what’s right for its client, getting the benefit at least for now of the Hidroelectrica panel’s adherence to bad law. But the formidable advocate on the front line for the firm stands a good chance to have a return visit to the US District Court in Miami, to defend the Tribunal’s award on the basis that the Tribunal acted within its powers under case law applying FAA Section 10(a)(4).

* US readers will appreciate that there are some big cities other than Miami in the 11th Circuit – Atlanta, Tampa, Orlando, Jacksonville, to name a few – but you go to those places mostly for other types of fun. The CEOs of Central and South American clients are most likely to have their US condos in Miami!

… and to be able to talk about it. You can copy/paste this link into your browser, to open and read it. I tried it. It works.

https://www.canlii.org/en/on/onsc/doc/2022/2022onsc1900/2022onsc1900.html