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

I was bundled in my favorite leather coat last week, having an outdoor lunch and braving the late April snow flurries with an arbitrator friend, who began to tell me not about a case he had, but about a case he dreamed he had. It was a bad dream, he said, and it went something like this:

“So in my dream I get appointed to chair what looks like a pretty simple non-payment case except that Claimant is a Company in Haiti, of all places, and the Respondent is like a Haitian government agency. And the really odd thing is I get approached by the party-appointed arbitrators who tell me they are both appointed by the Claimant.”

“Sounds a bit odd,” I offered. “But I assume it’s what the contract provided. And that when you got to PO #1 you had both sides sign it with the stipulation that the Tribunal was duly constituted and no contention to the contrary would be made at any time in any forum. Right?”

My friend cringed. “Well…” he replied “yes the contract said Claimant could appoint the second arbitrator if Haiti failed to appoint. But I confess I didn’t get that stipulation in my dream. I mean, it was the middle of the night … and they had an agreed form of PO#1 and I didn’t want to rock the boat….”

“Ok, I see how this gets to be a bad dream,” I say, mustering solace and zipping my coat. “You should have called me, even in the middle of the night. So then what happened?”

“Well we made a schedule — this is all about interim relief, mind you, security for an eventual award, you know — and got Claimant’s Memorial a couple of months later, March I think and two days after that there is an email from Haiti’s lawyer and it says ‘you don’t have jurisdiction and by the way back in December we filed in the New York State Supreme Court for a stay of the arbitration, to enjoin the arbitration.’”

“Nice of them to let you know.” I dabbed at the hot soup running down my chin. “Did they get it? You didn’t stop did you?”

“No, no. I figured it’s now April and they filed in Court in December and so far they don’t have an order so let’s go ahead. And for a while we did.”

“I thought you said this was a bad dream?”

“It got worse from there. They say we can’t have a Zoom hearing, it violates due process. They say the Covid in Haiti is so widespread that you can’t do a Zoom anyway. They say we have no jurisdiction and the court will decide that. They say ‘if you hold a hearing we won’t come, not even on Zoom.’ Eventually they say their star witness has bad Covid anyway so forget about it. And the President of Haiti who was in charge of the case, he just got shot, and you can’t possibly make us arbitrate in this situation.”

“OK it’s a bad dream,” I concede. “I hope you got up and had some warm milk.”

“I should have,” he admits. “But you know, it’s 3 am, my wife and the dogs are sound asleep, and I think we were out of milk anyway.”

“Ok can we finish this? Sorry but I have a 2:30 Zoom in a gnarly case of my own.”

“Ok really quick. So then there is this terrible scene where my co arbs said – screamed really – ‘we gotta wait! We look terrible! The courts will vacate it! It will be all over Law360 saying a runaway Tribunal ran roughshod over this struggling poor nation and made a mockery of due process. All three of us will be in disrepute. Our Chambers rankings will go up in smoke!”

“Don’t tell me you bought into that.”

“I didn’t. We put things off a couple of weeks for the witness to get over his Covid. We sent them the Zoom link like four times. They didn’t show. They said we were biased against Haiti and we’re denying them due process and the courts would say so and give them real Justice. We went ahead with our hearing and issued a Partial Final Award for security of $23 million.”

“You’re a brave soul my friend. My compliments. I know of a few judges who would back you up.”

“Well, one did. You can read it.

Preble-Rush Haiti, S.A. v. Republic of Haiti

, 2022 WL 229701 (S.D.N.Y. Jan. 26, 2022) but they filed an appeal so who knows. Let’s go back to work. Thanks for listening.”

No I did not retire. And I didn’t have long Covid, or any Covid. I just had stuff to do. Mostly stuff I can’t tell you about. Confidentiality, tender egos, taciturn Tribunals, all that. It’s better to be quiet. But seriously, readers, if you really like this Blog and crave regular Blog posts with your morning coffee, just stop sending me arbitral appointments, or stop making motions in my pending cases, and then I will have enough time to do what I am meant to do, which is to entertain you. To make you smile. Which we all need to do. And yes, thanks for asking, I WILL do the 560-mile Empire State Ride again this year. (July 24-30, no motions please). Last year I got two new appointments in the week of the ride. So what’s not to like? You can donate to cancer research at Roswell Park Cancer Center in Buffalo (Go Bills!) by supporting my ride at www.empirestateride.com, or my 100-mile warm-up ride on June 25 at www.RideforRoswell.com. Now, back to the entertainment!

Some people just won’t admit that they read this Blog. The judges of the Ninth Circuit, for example.
When last read by many of you, in February 2021 (sorry for the long silence; I’ve had to work), your Commentator reported on a decision in the US Ninth Circuit Court of Appeals in which the panel majority, despite a persuasive dissent, held that the law governing the arbitrability of US federal trademark claims, when contested in a US court whose jurisdiction is based on those federal claims, and contested between a non-signatory and signatory, each of Indian nationality, of an arbitration agreement made in India, concerning a family-owned Mumbai-based incense-selling business, is … US federal common law. (See the Post on this site “Nonsignatories Unmasked,” dated February 11, 2021, discussing Setty v. Shrinivas Sugandhalaya LLP, 2020 WL 192820 (9th Cir. Jan. 20, 2021), since then officially reported at 986 F.3d 1139, and withdrawn, at 998 F.3d 897 (9th Cir. June 4, 2021)).
I sided with the dissenting member of the Ninth Circuit panel, who would have held that the law applicable to such an arbitrability issue is the ordinary contract law of the relevant state (whether a US state or a foreign state), as determined by applying the forum’s choice-of-law rules. And I predicted, in that February 2021 Commentary. that an application for review in the US Supreme Court might ensue.
That is not quite what has happened, but it appears that a sensible outcome for US international arbitration law has emerged, by another procedural route. The disappointed proponent of arbitration in India, in the Setty case, submitted a petition for rehearing en banc in the Ninth Circuit. (Non-US readers, that is a request for review by an enlarged appellate panel, and in the populous and raucous Ninth Circuit it meant that 11 appellate judges, from the Court’s full roster of 29, would sit on the re-hearing). But after the re-hearing briefs were in, and before the 11 made a ruling, a funny thing happened on the way to the Courthouse: the majority in original panel of three judges withdrew its original opinion, in an order dated June 4, 2021 that instructed that the withdrawn opinion “may not be cited by or to this court or any district court of the Ninth Circuit.” (No injunction there against bloggers on the US East Coast). “A new disposition will be filed in due course. … [T]he petition for rehearing en banc is DENIED as moot.” Hmm.
Granted that the Ninth Circuit spans the full length of the coffee-centric US West Coast, from Canada to Mexico, and that this case came up on appeal from the US District Court for the Headquarters of Starbucks, but still, a bit of TEA LEAF reading is in order: It looks as if one or both judges in the original Setty panel majority will now join the dissenter, and hold that arbitrability under a contract made in India, as between competing factions of a family in the incense business in Mumbai and Bangalore, is to be determined by a US district court under the contract law of India provided that is the contract law applicable to the arbitration agreement, as indicated by applying the usual choice-of-law rules of the forum. And it looks as if the panel will hold, or at least strongly indicate, that this approach prevails in any procedural context in which enforcement of an arbitration agreement to which the New York Convention applies is presented to a US district court – that is to say, not only in a Setty-like case, where the plaintiff has invoked federal court jurisdiction by suing under the federal trademark laws, but also (1) if an action were brought in federal court based on diversity of citizenship, asserting only violations of state law, (2) if the action were a free-standing petition to compel arbitration under the Federal Arbitration Act, and (3) in a proceeding to recognize and enforce, or to vacate, an arbitral award governed by the New York Convention.
We do care about this. Because here in the US our Supreme Court just one year ago settled, once and for all, that when international arbitration is sought to be compelled in a US District Court, by or against a non-signatory, principles of equitable estoppel available under the applicable state contract law are not made inoperative by the “agreement in writing” requirement of the New York Convention (GE Energy Power v. Outokumpu, 140 S.Ct. 1637). So now, in nonsignatory arbitrability cases that fall under the Convention, the question “What law is the applicable ‘state’ contract law?” comes to the forefront.
The Ninth Circuit panel majority in Setty initially thought that the answer was “federal common law” because the underlying claim was a federal statutory claim under US trademark law and that statutory claim was the plaintiff’s admission ticket to a US district court. But the precedent it relied on for that choice was a case decided in the context of a domestic federal securities law dispute, and in that case the choice of law question was a species of what American lawyers call an “Erie question” (never mind why): that is, a question whose answer is tied up with the tug-of-war for legal hegemony between the states of our Imperfect Union and E Pluribus Unum itself. In that older case (OK insomniacs, it’s Letizia v. Prudential Bache Securities, 802 F.2d 1185 (9th Cir. 1986)) it made sense that arbitrability of federal statutory claims should not potentially vary from one US district court to another based on variations in the common law of contracts from one state to another. In that context, a choice of “federal common law” was a specialized choice of law rule based on special considerations of federal supremacy and US internal legal consistency.
But such internal federalism considerations have little resonance when the choice is between the contract law of India and federal common law of contracts. The risk calculus is different. The court need not worry about whether American businesses might be subject to different arbitrability outcomes on claims governed by federal law, depending on the state in which a US district court was asked to compel arbitration. Instead, the concern should be that federal common law rules might be influenced by concerns that are not relevant to litigants domiciled outside the US – like protecting a judicial forum for litigation of federal statutory claims, a not-quite-moribund legacy of the bad old days before ~ 1985, when Mitsubishi was just Mitsubishi, another cool foreign car.
That sort of influence appears to have been present in the Ninth Circuit’s legacy federal common law rule, from the Letizia case, about equitable estoppel as a basis for a nonsignatory to require a signatory to arbitrate: the rule was that, for equitable estoppel to be a basis for compelling arbitration, the claim proposed to be arbitrated had to be closely “intertwined” with the contract containing the arbitration clause (a rule that seems to be quite the mash-up of contract law and substantive federal arbitration law, and scarcely a rule of generally applicable contract law – as to this tension, see the Arthur Andersen case discussed in the February 11 Post). Finding no such “intertwining” in the Setty case, the panel majority had originally rejected the motion to compel arbitration.
Happily it seems that the prevailing view among the participating judges in the Ninth Circuit (the back-channel en banc ‘hearing’ that evidently motivated the panel’s change of heart) is that a “traditional” choice of law rule – taking into account relevant contacts and interests of India and the US in applying their contract law to the question – was the way to go. That seems to be a ‘win’ for international arbitration in the US, whether or not it is ultimately determined that, under the law of India, these Indian parties with competing incense businesses in Mumbai and Bangalore, each a derivative of the family business whose partnership agreement called for arbitration, are required to arbitrate. However it is decided, at least they (and other foreign parties in disputes over their US business activity) can take comfort that a US court thought seriously about the geographic and juridical context in which the arbitration agreement was made, and in which the parties’ respective connections to that arbitration agreement were forged.
Stand by for a replacement judgment from the original 9th Circuit panel, which presumably will remand the case to the US District Court from whence it came, in Seattle (home of Starbucks), with instructions to re-determine the law applicable to the arbitrability issue – US or India – and to apply the law so determined.

This Commentary begins, innocently, with a report of a new decision in the US Ninth Circuit Court of Appeals, about choice of law in the arbitrability realm. I realize you are watching lot of daytime TV these days. The Edge of Night, etc. So I will try to make it interesting. Settle in, remove your mask, stay awhile.

This story actually begins with the Outokumpu case. You remember Outokumpu, from last June. It is famous for a few reasons. One is that Justice Thomas wrote the opinion for a unanimous US Supreme Court. How often has that happened in 30 years? It’s also famous, in our world, because the Court held that the New York Convention doesn’t prevent a Court from compelling arbitration for or against a non-signatory based on equitable estoppel. What’s sauce for the FAA Chapter 1 domestic goose, held the Court, is also sauce for the FAA Chapter 2 international gander. Birds of a feather. No conflict, no problem.

Well, maybe a technical problem. Because the 11th Circuit US Court of Appeals, from whence Outokumpu emerged, was not the only such US Court – the 9th Circuit was another — to have held that the New York Convention not only required the courts of Contracting States to enforce arbitration agreements in writing within the coverage of the Convention upon the application of one of the parties, but also that the Convention by implication prohibited such courts from enforcing such agreements upon the application of a non-party who invokes estoppel principles in support of enforcement. So, in the 9th Circuit case that is the text for today’s sermon, the Supreme Court granted certiorari, and sent the case back to the 9th Circuit to figure out what happens next in light of Outokumpu. The 9th Circuit heard new arguments, and then held that, in a federal district court, federal common law, not state law, controls the question of whether non-signatories can enforce arbitration agreements based on equitable estoppel when federal statutory claims are asserted in the district court in the underlying dispute. And so the 9th Circuit held that the District Court did not err, in the first go-round, in denying the motion to compel arbitration. One judge dissented, elaborately, on the question of what law governs the equitable estoppel/arbitrability issue. The position taken was that the choice of law for the non-signatory arbitrability issue ought probably to be the law of India, and that a remand to the District Court to re-decide the motion to compel arbitration after considering anew the choice-of-law issue should have been the outcome. So here we are, with material for a Commentary. Setty v. Shrinivas Sugandhalaya LLP, 2020 WL 192820 (9th Cir. Jan. 20, 2021).

Where I would like to take you in this Commentary eventually, dear Readers, is to the question of what a US-seated arbitrator should do if confronted with a jurisdiction objection raising the equitable estoppel issue, in an international case between parties of non-US nationalities. That is a particular challenge because in the USA, maybe more than in other beehives of international arbitration activity, because the US jurisprudence on arbitrability mostly concerns how judges should act or refrain from acting. Translating that into guidance for arbitrators, for whom US arbitration law is lex arbitri, can be a major challenge.

So let’s first sort out the different views of the Panel majority and the dissent in the Setty case. That should qualify you to sit on the District Court in some reliably sunny place, say Phoenix or LA or San Diego. Even Seattle, if you like coffee and rain. But since you are, or aspire eventually to be, an international arbitrator sitting in such places from time to time, let’s eventually try to sort out what a case like Setty means for you.

Setty is about a family business in India selling incense. Due to a family feud, one branch of the family ended up with its incense business in Mumbai, the other in Bangalore. The only question for the 9th Circuit, after the post-Outokumpu remand from the Supreme Court, was what law applies to the question of using equitable estoppel as a basis for a non-signatory to enforce an arbitration clause against a signatory, to require the signatory to arbitrate not litigate its claims against the non-signatory. Is it the law of India, or federal common law? The arbitration clause is found in a “partnership deed”, and the family members who run the Mumbai operation are not parties to the deed. They are parties to a federal district court lawsuit brought against them by the Bangalore business, claiming trademark infringement under US federal trademark laws. Even though the partnership deed evidently was made in India between partners who were of Indian nationality and provided for arbitration governed by the law of India, the Ninth Circuit swiftly dismissed the partnership deed as irrelevant to the choice of law issue, reasoning that, under 9th Circuit precedent, what it called a “threshold issue” of arbitrability arising under FAA Chapter 2 and the New York Convention is governed by federal common law. The Panel cited a 2016 9th Circuit case holding that when it is for a court to decide whether a binding agreement to arbitrate exists in an FAA Chapter Two case, i.e. whether an agreement to arbitrate falling under the New York Convention was formed, that issue is determined based on federal common law. So the first problem with the Setty Panel majority’s reasoning is that it relies on a precedent that involved whether any arbitration agreement ever was made, not whether a non-party could enforce such an agreement that indisputably was made.

As the next and essentially final step in its analysis, the Panel majority in Setty relied on a 1986 9th Circuit decision in which it was held – in a domestic arbitration context – that when a party to an arbitration agreement seeks to arbitrate US federal statutory claims (there, under the federal securities laws’ anti-fraud provisions) against non-signatories, federal common law rather than state law governs the arbitrability issue. Appellant in Setty had contended this conclusion was incorrect, invoking a US Supreme Court decision in 2009, Arthur Andersen LLP v. Carlisle, 556 U.S. 624, where the Court held in a domestic FAA case that the relevant state contract law determines whether a non-signatory of the arbitration agreement may require its enforcement. But per the 9th Circuit majority in Setty, prior 9th Circuit decisions had only applied Arthur Andersen as the choice of law rule in cases involving state substantive law claims that came before the federal district court based on diversity of citizenship jurisdiction, and (by implication) not in cases raising federal statutory substantive law questions and no in cases involving arbitration itself as a federal question under FAA Chapter Two. The affirmative limitation of Arthur Andersen to a non-federal claims and domestic arbitration agreements is, for the 9th Circuit, evidently a new development in Setty. And whereas the federal common law version of equitable estoppel for purposes of arbitrability requires that the claims be “intertwined” with the contract containing the arbitration agreement, and the District Court had already found that there was no such intertwining, the Panel re-affirmed its earlier judgment that sustained the District Court’s denial of the motion to compel arbitration.

So, you may ask, tell us more about Arthur Andersen. OK. Simplified, the Supreme Court in Arthur Andersen held that when a party to a federal lawsuit seeks a stay of the action under FAA Section 3, claiming the dispute is arbitrable, and the arbitrability issue is a non-signatories issue (i.e. who is bound by a valid arbitration agreement) that issue is determined according to the ordinary, generally applicable principles of state contract law that apply to contracts generally. The litigation in an Ohio federal court underlying Arthur Andersen did not involve federal statutory causes of action, and this was a domestic FAA case where diversity of citizenship provided the needed independent basis for federal subject-matter jurisdiction. But nothing in the Court’s opinion states expressly that a choice of federal arbitrability law would have been required had there been federal statutory claims. And nothing said expressly in Arthur Andersen limited its holding to FAA Section 3 motions (to stay litigation pending arbitration) affecting purely domestic arbitration agreements.

Not only your Commentator, but also the dissenting 9th Circuit panelist in Setty, thinks the Setty panel majority’s attempt to pigeon-hole Arthur Andersen to domestic arbitration of non-federal substantive claims was not justified. And not only your Commentator, but also the dissenting 9th Circuit panelist in Setty, believes the Supreme Court would transpose the notion of “state law” in Arthur Andersen in the context of a dispute between non-US parties to mean the law governing the enforceability of the arbitration agreement by or against a non-party as determined by the applicable choice-of-law principles in the forum where enforcement is sought. So, to conclude the first section of this Commentary, I would say to stay very tuned for a petition for writ of certiorari to the US Supreme Court in the Setty case. An elaboration of how the choice-of-law principle of Arthur Andersen applies in the setting of international arbitration and/or in the setting of underlying US federal statutory substantive law claims may attract the interest of the Court.

Ok so now let’s consider how all of this arcane US law on arbitrability affects you as an arbitrator if you must decide arbitrability. Suppose the facts of the Setty case (Mumbaians v. Bangaloreans, incensed), and that the partnership deed identifies no seat of arbitration but does provide for ICC arbitration. The parties make submissions to the ICC Court concerning the place of arbitration. The Claimant prefers Mumbai and the Respondents prefer Seattle (where the federal district court case leading to Setty was heard, after a transfer from Alabama). The ICC Court picks Seattle, and the Parties eventually, by agreement, pick YOU!

When you must rule on an objection to the jurisdiction of the Tribunal, with the objecting parties urging that the non-signatories cannot rely on equitable estopped principles to enforce the arbitration agreement, what choice of law rules shall you apply? The answer in an ICC arbitration may be less than clear. Article 21 of the ICC Rules states that with respect to the law applicable to the merits of the dispute, in the absence of agreement of the parties the Tribunal shall apply the laws or rules of law that it considers to be appropriate. But is the choice of law rule at issue applicable to the merits? It seems that the issue of jurisdiction is preliminary to the merits, and the ICC Rules contain no express reference to law applicable to the issue of arbitral jurisdiction. If your case were under the ICDR Rules, on the other hand, Article 31.1 provides, without limitation only to “the merits,” that the Tribunal in the absence of party agreement “shall apply such law(s) or rules of law as it determines to be appropriate.” Under the literal text of ICDR Art. 31.1, if you reject the Panel majority approach in Setty and instead apply a traditional contacts-and-connections based choice of law rule, your choice of law rule is protected by the agreement of the parties to arbitrate the jurisdiction issue under the ICDR Rules, and the Federal Arbitration Act protects the agreement, so the courts ought not second guess you.

With only slightly less confidence, I believe the same outcome is achieved under the ICC Rules. Article 42 of the ICC Rules provides that “[i]n all matters not expressly provided for in the Rules, the Court and the arbitral tribunal shall act in the spirit of the Rules….” And of course the empowerment of the arbitrator to decide upon her own jurisdiction is embedded in those Rules. Your ability to select a choice of law rule, in relation to the extension of the arbitration agreement to non-signatories, seems to be protected by the agreement to arbitrate jurisdiction under the ICC Rules, and in turn by the FAA whose core principle is to enforce the agreement. Add to this the observation – which I make from recollection and not from a systematic review of Supreme Court decisions got this Commentary, but I believe it to be correct – that the Supreme Court’s interpretations of the requirements of the FAA pertaining to arbitrability – apart from allocation of power between courts and arbitrators — have concerned how courts shall address arbitrability when it is required to be decided by a court. That is to say, the US jurisprudence on arbitrability is not mainly concerned, perhaps concerned almost not at all, with what rules of law the arbitrator decides to apply to arbitrability issues, unless the arbitration agreement imposes rules she must apply and it is claimed that she failed to apply them.

If this characterization of US arbitration law is accurate, then unlike many leading arbitral jurisdictions the United States really does not have an American arbitration law approach to the law applicable to issues of arbitrability that binds arbitrators. When you instinctively apply New York law because the contract provides for a New York seat and New York substantive law, be aware that you are not enforcing an implied choice of law on arbitrability. Instead you are adopting one of several perfectly supportable approaches to the choice of law issue. And so it is a useful bank of knowledge for the US-seated international arbitrator, or the arbitrator applying a contract that generally selects New York or other US state law, to have in mind generally how other major arbitral jurisdictions treat the question. Here are some basics.

1.The Law of England: The UK Supreme Court chimed in on October 9, 2020 with a decision called Enka v Chubb ([2020] UKSC 38). Per this decision, a general choice of law clause in the contract will also govern the arbitration agreement if the parties have not chosen other law applicable specifically to the arbitration agreement. If no choice of law is made, there will be a presumption that the law of the seat of arbitration governs the arbitration agreement, a presumption derived from the UK conflict rule that points to the law with which the arbitration agreement is most closely connected. Caveat: this was a case concerning the scope of arbitrable disputes and not about who other than a signatory may enforce or be bound by the clause.

2. The Law of Singapore: At least pending any new decision, where the influence of Enka v Chubb might be felt, Singapore law declines to treat the contract’s general choice of law clause as a choice made for the arbitration agreement where no specific choice for the latter has been expressed. It was so held by the Singapore Court of Appeal in BNA v. BNB et ano. ([2019] SGCA 84). The “proper law” of the underlying contract (what we US types call the substantive law applicable) is however presumptively the proper law of the arbitration agreement in the absence of an express choice for the latter. As to what circumstances might bring about rebuttal of this presumptive choice, first on this list is where the proper law of the contract would deny enforcement of the arbitration agreement despite other clear manifestations of the parties’ intent to arbitrate. Stay alert for new developments in Singapore: the presumption sustained in BNA was drawn from UK case law prior to Enka v Chubb, notably in an English Court of Appeal case called (for short) Sulamerica. Does the “Sulamerica Presumption” survive Enka? It’s Topic #1 at the outdoor bar at the Raffles Hotel. Listen closely to the chatter! And caveat reader once more: this is not a case about enforcement by or against non-signatories!

3. The Law of Switzerland: Treading carefully now in the potential quicksand of civil law tradition, a federal arbitration statute without a decisive single construction on the question by the nation’s highest court, and a vast and influential academic and professional literature, an educated guess at the Swiss law position is as follows: One key provision of the Swiss federal arbitration statute (referring to relevant portions of the Swiss Private International Law Act (PILA)) treats an arbitration agreement as valid if it is valid under one of three sources of law: “the law chosen by the parties, or the law governing the subject-matter of the dispute, in particular the main contract, or [under] Swiss law.” (PILA Art. 178(2)). In Europe they call this “in favorem validitatis”; which at your kitchen table means (roughly) “whatever works.” But here’s the thing. Clause “validity” is obviously just a small piece of larger arbitrability puzzle, so it is robustly debatable whether the Swiss position on clause validity applies to non-signatory issues (what in European lexicon pertains to the “extension of” the arbitration clause). But wait, the plot thickens : If you go down a ways in the PILA you get to Art. 187 (1) which is a “special conflict of laws provision just for international arbitration” (said an actual reliable source, Pierre Karrer, in 2014). It says “The Arbitral Tribunal shall decide the case according to the rules of law chosen by the parties or, in the absence thereof, according to the rules of law with which the case has the closest connection.” For some scholars (e.g. Prof. Karrer) this test inevitably leads to applying the law of the seat in the absence of a different express choice. But what if the seat in Switzerland is not chosen by agreement, but by the ICC Court, as a compromise choice wanted by neither party? Happily there is clarity in the Swiss law on extension of the arbitration clause to non-signatories if the conclusion on choice of law is that Swiss law applies: a concept effectively equivalent to common law equitable estoppel prevails – “behavior with respect to the conclusion or the performance of the principal agreement that either clearly demonstrates its (implied) intent to be bound by the arbitration clause, or that under the general principle of good faith may and must have been understood by the other party in such a way that the non-signatory intended to join the principal agreement, including the arbitration clause being part thereof.” (I quote Georg von Segesser paraphrasing the Swiss Supreme Court in a 2009 Kluwer blog post).

4. The Law of France: Choice of law is easy in France because no national law stands to be chosen. The arbitration clause is considered to be governed by general principles focused on the common intent of the parties that are not associated with any national legal system. Voila, another good reason to go to Paris, if ever again we can.

It is a distinctive aspect of American arbitration law there really is not an “American law approach” to be added to this list. Effectively, American arbitration law prescribes to some extent how judges decide issues of arbitrability, but does not prescribe rules about how arbitrators decide issues of arbitrability so long as they respect the agreement of the parties. So it is open to arbitrators sitting in the US to consider all of foregoing approaches to choice of law applicable to the arbitration agreement. And it is clearly open to arbitrators sitting in the US to treat US case law like the Setty case as a unique law-of-the-forum applicable to judicial proceedings and not even particularly instructive about how arbitrators sitting in the US should approach their arbitrability task.