Reflecting recently on the fact that the question of interest compounding has received essentially no attention in the submissions of the parties in nearly all of my recent cases, I set out to search the online universe for recent scholarship on the issue, and found rather little. Seminal treatments of the question, such as those by Professors Gotanda and Mann , date back more than a decade and in some instances much longer. Instances of commentaries from the investment arbitration community are the exception rather than the rule it seems (see for example Judge Brower’s article in collaboration with Jeremy Sharpe in Transnational Dispute Management in 2006), perhaps because the prominent exponents of the position that the right to compound interest should be recognized as a more or less general principle prefer to confine their advocacy of the position to their awards.

Here it is not my purpose to review the literature or the case law, but mainly to provide some thoughts on why this matter should be so persistently overlooked in the submissions of parties in commercial arbitrations involving relatively large amounts in dispute. But for the reader who would like a nudge in the direction of some cases and contemporary literature on the subject, a very partial list of  respectable sources that support the position that awarding compound interest should be the norm in an international arbitration absent a prohibition in the agreement, treaty, or governing law would include: the awards of ICSID tribunals in the LG&E v. Argentina case and the BG Group v. Argentina case of 2007; the Yukos v. Russian Federation case of 2014 (but only as to Post-Award Interest); and, notably, a comprehensive scholarly treatment by Enrik Haxhirexha, Awarding Interest In Investment Arbitration (CTEI Working Paper 2014) at pp. 33-45, where the reader will find citations to additional relevant investment treaty awards and to many if not most of the leading scholarly treatments on the subject dating back at least to F.A. Mann’s seminal treatment in 1986 (remembered fondly by this commentator who was an eyewitness to the submission of Professor Mann’s expert opinion on this subject in the Starrett Housing v. Iran case, an opinion that in turn was cited by Judge Holtzmann in his dissenting opinion in that case). [* The citations here are a shorthand, sufficing to allow the reader to locate online the complete citation and full text].

A first level of challenge for the Arbitral Tribunal in a commercial case is likely to be that the question of compounding interest, indeed the question of interest generally, may have received little to no attention in the submissions of the parties. This is true even in cases with substantial sums in dispute. The lawyers and arbitrators who have been exposed to the issue are mainly those who have been involved in investment arbitrations with claimed damages in the billions of dollars and interest accrual periods that run a decade or more. When parties engage US counsel who mainly litigate rather than arbitrate, their counsel may assume that the historical reluctance of common law courts to award compound interest will carry over to arbitral tribunals, and for this reason opt not to raise the issue on a Claimant’s behalf. And among those arbitrators who sit in cases governed by New York substantive law, we suppose that Claimants seeking the nine percent rate prescribed in the New York Civil Practice Law and Rules (whose mandatory applicability in arbitration is doubtful) reason that the rate is so far beyond the market or the client’s borrowing costs that a request for compounding would not only appear to the Tribunal to be unduly voracious but might attract attention to the interest rate question from an adversary who might otherwise not be moved to comment.

Consider the following fact patterns from recent cases in which this commentator sat as an arbitrator, each involving substantial claims for damages beginning at accrual dates some years prior to the arbitration hearing, but in which no demand for an award of compound interest was made:

1. Claim for lost royalties due to distributor’s alleged failure to market the product effectively. Alleged continuing breach beginning four years prior to the arbitration hearing.
2. Claim for failure to pay contingent additional consideration in buy-sell agreement, where the parties disputed whether the condition precedent for the payments had been fulfilled. Accrual date 2.5 years prior to the arbitration hearing.
3. Claim for value-diminution damages upon buyer’s re-sale at a loss of a product delivered by the seller with an allegedly latent defective condition. Accrual date three years prior to the arbitration hearing.

Each case presented a legitimate scenario for the awarding of compound interest, assuming liability and damages could be established. By saying this, I mean to convey that the following conditions were met: (1) neither the parties’ agreement nor the applicable law prohibited compound interest;  (2) neither the agreement nor the applicable law fixed a rate of interest, so there was not a situation where a prescribed above-market rate furnished an alternative approach to full compensation, (3) none of the Tribunal members came from legal cultures known to be formally opposed or informally hostile to compound interest; and (4) the jurisdiction of potential award enforcement in each instance was the US, so that the Tribunal need not have been concerned about a public policy obstacle to enforcement. Further, each Claimant was a significant corporate entity that presumably was active in financial markets, at least from time to time, as a borrower paying interest on a compound basis and as an investor deploying disposable cash in instruments that accrue compound interest.

So, on the basis that the trend in the law and outlook toward compound interest that is evident in investment arbitration should in principle influence commercial arbitrators in the same direction, I would ask two questions for the sake of discussion: (1) why are Claimants not claiming compound interest in suitable commercial cases as a matter of course, and (2) what should Tribunals do about this, if anything?

On the first question, I suppose that many advocates are simply not prepared for the issue, or, if they are advocating for the New York CPLR rate of nine percent or another above-market rate mandated by the law of the relevant jurisdiction, recognize that this rate on a simple interest basis may provide compensation exceeding that which might be calculated using the Claimant’s actual borrowing costs on a compound basis. Also, the Claimant’s counsel who knows of the legal uncertainty about the applicability of the CPLR nine percent rate in arbitrations might place an educated wager on the adversary’s and/or the Tribunal’s unawareness of this uncertainty —  by deliberately not making a request in the alternative for a compounded market-based interest rate.

Perhaps this is a dynamic peculiar to arbitrations, whether international or domestic, governed by New York law. But at least two other factors come into play that are not a function of an idiosyncratic interest rate environment. One is the ancient pull of the common law against compound interest, based in jurisprudence originating in a long-ago period when there was pervasive economic imbalance between debtors and creditors, lenders and borrowers, and compound interest came to be seen as a form of oppression. This legacy is well-described and annotated in the literature.  A second dynamic is that the advocate who knows she must persuade the Tribunal that her client’s aggressive position on damages should be seen as “conservative” may be reluctant to advance any position on the subject of interest that risks being seen as aggressive — even though, in the case of compound v. simple interest, the position is no more than a pragmatic combination of modern finance theory and practice, and principles of full compensation. The day has not quite yet come when the advocate for compounding of interest can be seen as simply invoking an accepted international standard.

On the question of what commercial arbitrators shall do about the all-too-common deficit of attention to the compounding issue, I have no clear solution but one principal discussion point. It is that we as arbitrators need to come to terms with whether the question of compounding is a special claim to be pleaded/requested at the risk that it will not otherwise be considered – a posture that gives a wide berth to a presumption of simple interest that does not seem to have a solid legal foundation. Arguably the question of simple v. compound interest is intrinsic to the Tribunal’s task once any request for an award of interest is made, even when made without specification that it should be compounded. Some arbitrators who will have already studied the literature and jurisprudence may be satisfied that the question of compounding interest is simply a component of the more general duty of the Tribunal recognized by the applicable law to provide “full compensation” to the Claimant.

But even where the arbitrators recognize that they have such a duty, the question of what to do when the Claimant is silent is not one that admits of a clear and easy answer. If the Tribunal detected a flaw in Claimant’s damages analysis whereby the Claimant’s plea for damages actually fell short of full compensation from the Tribunal’s perspective,  most Tribunals would refrain from taking the initiative to award more than the Claimant had demanded or to ask the Claimant to reconsider its request. The stated elements of the Claimant’s claim arguably form the upper boundary of the Claimant shall recover; the principle of full compensation mandates full compensation insofar as it is claimed in accordance with the applicable arbitral procedure. Should that position carry over to simple v. compound interest? Arguably not. If the Claimant fails to advocate for a particular interest rate, or an accrual date, still the Tribunal if asked to award interest must decide those issues. Should not the same be said of the compounding issue, i.e. that any request for an interest award necessarily puts before the Tribunal decisions concerning the conceptual elements of interest: accrual starting date, rate, simple or compounded, compounding period, and accrual ending date. This may strike some readers as an aggressive position on the arbitrator’s discretion to award compound interest where it has not been specifically requested nor specifically opposed. But if we accept that most applicable legal systems, and contemporary practice and principles, furnish no basis for a presumption that interest shall be awarded on a simple basis unless compound interest has been specially demanded, then it is legitimately a matter for arbitral discretion unless by agreement the parties have withdrawn that discretion.

In a recent New York Convention award enforceability case in the federal district court in Washington D.C., the Court held that the interim Award of an Emergency Arbitrator in a Singapore-seated arbitration, to the extent it enjoined a party to the arbitration from speaking publicly or to American government authorities about the matters in dispute, was not subject to denial of recognition and enforcement in the United States under Article V(2)(b) of the Convention on the basis of its alleged conflict with the First Amendment of the US Constitution as an embodiment of fundamental US public policy. (Sharp Corp. v. Hisense USA Corp., 2017 WL 5448805 (D.D.C. Nov. 13, 2017), appeal filed, U.S. Court of Appeals for the D.C. Circuit, Nov. 16, 2017)). This post does not concern that ultimate holding. Instead, it examines the Court’s foundational determination that FAA Chapter 2, implementing the New York Convention, provided subject-matter jurisdiction to hear the Award loser’s petition based on the Declaratory Judgment Act for a declaration of the non-enforceability of the “gag order” portion of the Singapore Emergency Arbitrator’s Award in a case where the Award winner did not cross-move or separately move for US recognition and enforcement of that Award.

Hisense, the Award winner, was Sharp’s licensee for the manufacture and distribution of Sharp-branded televisions in the US market. The Singapore arbitration, evidently ongoing, concerns a dispute over license termination, and the Emergency Arbitrator made an essentially two-pronged ruling, directing, firstly, that Sharp should continue Hisense’s license in effect during the arbitration, and, secondly, that Sharp should refrain from disparagement of Hisense and more generally from discussing Hisense’s performance as licensee with the market participants or government authorities. The second ruling, the so-called “gag order,” was the subject of Sharp’s declaratory action to declare the unenforceability of the gag order in the United States. Hisense responded, inter alia, with a motion to dismiss the case for lack of subject-matter jurisdiction and took the position that FAA Chapter 2 did not confer jurisdiction over the case.

The decision on subject-matter jurisdiction attracts the attention of this commentator because there is evidently no authoritative precedent for US courts to invoke FAA Chapter 2 to consider granting this type of relief, and there appear to be reasons in the underlying philosophy of the Convention, not to mention its text and the text of FAA Chapter 2, to suppose that the Convention is understood internationally to be invocable at the election of Award winners seeking recognition and enforcement, and not invocable at the election of Award losers seeking pre-emptive determinations against recognition in the Courts of Contracting States other than the seat of the arbitration.

In support of the motion to dismiss, Hisense’s counsel evidently found rather little in the way of directly apposite precedent, and elected not to submit a broader discussion in its brief of the history and philosophy of the New York Convention.  Hisense also did not take up the theme, that might have been sounded, that FAA Chapter 2 unlike other federal statutes that provide private civil remedies, trumps the Declaratory Judgment Act because it specifically forecloses the type of declaration sought by Sharp here. Hisense’s main theme, instead, was that a declaratory relief application was like a motion to vacate the award, and therefore was barred because the US court had no jurisdiction to vacate an award made in Singapore under Singapore procedural law. This framework evidently led the District Court to analyze the issue as it was presented, i.e. in terms of whether and to what extent this application was or was not equivalent to a motion to vacate the Award. Arguably that was not the proper framework, as the ensuing discussion seeks to show.

Hisense cited a Southern District of New York case in which the Court, while accepting FAA Chapter 2 jurisdiction through removal under Section 205, observed that the request in the state court complaint for a declaration that the Award was unenforceable was the equivalent of a motion to vacate the Award. But in that case the Award had been made in the United States, so Convention/Chapter 2 jurisdiction to vacate the Award was perfectly proper. (Kolel, 863 F. Supp.2d 351). The District Court in Sharp v. Hisense distinguished Kolel on the basis that it involved a motion to invalidate the entire Award rather than only a portion of it.  But isn’t the relevant distinction simply that when the Award is made at a US seat, an application framed as being for declaratory relief that the Award is invalid is not different in legal terms from an FAA-sanctioned motion to vacate the Award?

Hisense also cited, as authority that there is no Convention/Chapter 2 jurisdiction for a declaration of partial unenforceability in the US, a District Court case in which the Award loser in a domestic arbitration had coupled a time-barred FAA motion to vacate with a request for a declaratory judgment seeking as judicial relief the commercial outcome rejected in the Award. (Stedman, 2007 WL 1040367). The District Court held that the declaratory claim was merely a different way to state the claim to vacate the Award, and was equally time-barred. But the fact that declaratory relief and a motion to vacate have the same legal effect, and face the same legal constraints, when the Court has FAA jurisdiction to vacate, does not make it appropriate to characterize a claim for declaratory relief as an impermissible motion to vacate when the Court has no jurisdiction to vacate. All that the Court in Sharp v. Hisense could really take away from Stedman is that the analogy between vacatur and a declaratory judgment of non-recognition/non-enforceability breaks down when the Court has no jurisdiction to vacate.

But a third case relied upon by Hisense was not so readily distinguishable. In that case, the plaintiff, having been the Award loser in an arbitration in Ireland, commenced suit in Chicago seeking “‘a declaration that the Awards issued by the arbitrator are invalid and not enforceable….’” The federal district court judge  held that “the Convention does not empower us to enter such an order, which would be akin to setting aside or vacating the Awards.” (Gemini Consulting Group v. Horan Keogan Ryan Ltd., No. 06 C 3032, unpublished Memorandum Opinion, US District Court for the Northern District of Illinois, May 30, 2007). In the Gemini Court’s view, the fact that the Award loser was being “proactive not reactive” was dispositive because the text of the Convention and FAA Chapter 2 appeared to envision the assertion of the defenses in Article V of the Convention only in response to the Award winner’s application for recognition and enforcement. The mere fact that the movant was “contesting” enforceability of a foreign award did not, in the Gemini Court’s opinion, bring its declaratory relief complaint within the Court’s jurisdiction under the Convention.

The Court in Sharp v. Hisense however saw a distinction: that the Gemini declaratory claim sought to declare the Ireland-made Awards “[in]valid worldwide,” (as characterized by the Sharp v. Hisense Court) whereas Sharp sought “to determine only whether the Emergency Order is enforceable in the United States.” But that is not a faithful account of Gemini; the Gemini Court’s opinion reflects that the movant did not seek a global injunction against enforcement of the Award and indeed expressly disclaimed that it was seeking an anti-suit injunction.  Gemini held that a US District Court could not declare a foreign award unenforceable under the Declaratory Judgment Act because its authority under the Convention/Chapter 2 is confined to “enforcing or refusing to enforce the Awards.” Stated differently, Gemini supports the view that FAA Chapter 2 is a jurisdiction-conferring federal statute that makes declaratory relief unavailable, and that the Declaratory Judgment Act, as the more general of the two federal statutes, cannot overcome the specific mandate in the FAA that it should be invoked in regard to recognition and enforcement of an Award,  other than at the seat, only by the Award winner seeking confirmation.  This latter feature seems to be what sets FAA Chapter 2 apart from the run-of-the-mill declaratory relief scenario, as there are few if any federal statutory private causes of action (or common law claims) where the statute (or the common law) provides expressly or by implication that the allegedly injured party shall be the plaintiff and the putative defendant may not initiate suit to establish non-liability.

The District Court in Sharp v. Hisense cited no precedent directly holding that the Convention in tandem with the Declaratory Judgment Act confers subject-matter jurisdiction of an Award loser’s petition to declare the US unforceability of a foreign award. Instead, the Court cited a 2013 decision of a US District Court, in which the Court granted declaratory and injunctive relief to declare the non-existence of any agreement between the parties for international arbitration under the ICC Rules and to enjoin the arbitration Claimant from proceeding against the injunction movant.  (Hospira, Inc. v. Therabel Pharma N.V., 2013 WL 3811488 (N.D. Ill. July 19, 2013)).  But the Declaratory Judgment Act was not a necessary element of the movant’s application in Hospira. The FAA would have sufficed. There was (and is) considerable federal appellate authority under the FAA that judicial power to enjoin arbitration, where no arbitration agreement exists, is an implicit corrollary of  the FAA’s grants of power to compel arbitration, under both Chapters 1 and 2. Also, in regard to the existence of a justiciable case-or-controversy, the Constitutional quid pro quo for a declaratory action, the existence of an ongoing ICC case that the arbitration Claimant was actively prosecuting against the movant would appear to confer on the declaratory relief action the necessary elements of a live case-or-controversy. But that scenario is quite different from what was presented in Hisense, i.e. an Emergency Arbitrator Award that the Award winner was not seeking to have recognized and enforced in the United States. Arguably, the case-or-controversy point should make it unnecessary for courts to reach the question, posed in the preceding paragraph, of whether FAA Chapter 2 and the Convention by their terms foreclose a declaratory action for non-recognition/non-enforcement. If the Award winner in such a case cross-moves for recognition and enforcement, the question is moot; if the Award winner does not so move, then shouldn’t there be a finding of no case-or-controversy?

The Hisense decision, as to FAA Chapter 2 subject-matter jurisdiction, does not come to terms with a key underlying premise the Convention, which is to ensure the international portability of a Convention Award. That is to say, the Convention envisions that an Award winner might take the Award for enforcement to several different jurisdictions, and that refusal of recognition in one jurisdiction will not preclude recognition in another, save as the Award may have been vacated by a court of the State in which or under the law of which the Award is made, in which case the Convention permits but does not require refusal of recognition and enforcement. If a US Court refused enforcement on the basis that the Tribunal decided issues outside the mandate of the arbitration agreement, a Canadian court in a subsequent enforcement proceeding might be persuaded or not by the US Court’s view. but in all events it would determine the scope issue de novo. The Convention’s architecture, however, appears to envision that the Award winner will need to persuade the court in Country B to reject the reasoning behind a Country A court’s refusal of recognition and enforcement only if the Award winner had earlier submitted the Award to the Country A court for recognition and enforcement. The marriage of the Convention with the Declaratory Judgment Act as envisioned by the District Court in Hisense allows the Award loser to obtain a US judicial view on enforceability when the Award winner may have no interest in obtaining US recognition, and the Award winner may indeed consider that a US decision amounting to an advisory opinion on recognition and enforcement might be an impediment to recognition elsewhere.  When US courts are confronted in future cases with the same subject-matter jurisdiction issue as was presented in Sharp v. Hisense, they may perhaps devote more systematic attention to this question and more fully explore both the international framework for recognition and enforcement that the Convention provides, and the material difference that arguably exists between the Declaratory Judgment Act, on the one hand,  and the FAA as compared to federal statutory civil causes of action generally, on the other.

In the United States, federal and state trial courts recognize a legal duty of a litigant to retain documents, a duty that comes into existence upon coming into possession of facts providing the party with actual or constructive notice of the reasonable possibility of litigation. The scope of the duty, i.e. the documents to which the duty applies, are those documents that would be subject to production under the court’s discovery rules in response to a (properly-framed and timely-presented) document request made by the adverse party. Documents potentially shielded from the obligation to produce them because they are covered by an evidentiary privilege such as the attorney-client privilege are covered by this duty to retain, because the existence of the privilege might be overruled by the court, or the privilege might be waived, or — the privilege being qualified and not absolute — the court might determine that special circumstances require production of a privileged document.

Whereas federal and state civil procedure rules broadly define “documents” to include all manner of electronically-stored information (ESI), the duty to retain such information is not limited by the possibility that a court might eventually but as a matter of discretion limit the types of ESI that must be produced. Prudent litigating parties in US state and federal courts who wish to avoid making a very broad litigation hold at great internal cost, and also wish to avoid the risk that they would be charged with breach of the duty of retention, negotiate the scope of a litigation hold, and if agreement cannot be reached seek judicial resolution of the areas of disagreement so that the scope of retention matches what is prescribed in the court’s order. Less cautious parties who fail to establish agreed or ordered limits on retention run the risk that they will suffer the loss of data that is later deemed subject to production in discovery, and run the risk of court imposed sanctions ranging from monetary penalties to preclusion of certain positions to more sweeping, possibly case-dispositive, adverse inferences.

Let us assume that these rules, essentially common law extensions of discovery rules found in  codes of judicial civil procedure, are not generally applicable to an international arbitration at a US seat unless the parties, against expectations, have agreed that the arbitrators should apply judicial rules of procedure and evidence. With that assumption in mind, consider how these rules might or might not become implicated in an international commercial arbitration. First, suppose there is a dispute between a US and a foreign company, each represented by US lawyers admitted to the New York Bar, under a contract that provides that it is governed by New York law, but the seat of the arbitration is in Canada. As these are evidently rules of judicial procedure, the generic New York choice of law clause does not bring them into play in the arbitration. And whereas these rules are not classified as rules of professional conduct governing the conduct of attorneys generally, the fact that counsel for each party is New York-admitted does not logically lead an Arbitral Tribunal to adopt automatically rules governing retention of documents as rules governing the conduct of counsel in the arbitration. And it cannot be assumed that ethical constraints and ethical disciplinary risks in the attorney’s jurisdiction of admission will lead counsel to cause the client to retain documents to the same extent it would in a litigation. Further, even if one assumes that Canada’s provinces have relatively similar rules governing retention of documents that might be discoverable in judicial litigation, such rules have not been adopted into (for example) the international arbitration statutes as mandatory rules of arbitral procedure in Ontario, Quebec, or British Columbia.

But the rules that parties most often select to govern procedure in their international arbitrations contemplate that there will be some opportunity to obtain some documents possessed by the adverse party that are not merely the documents the adverse party wishes to present to advance its case. (The ICC Rules and those of a few arbitration centres in civil law European countries like Austria and Italy are actually exceptional in omitting express reference in their rules to the Tribunal’s power to order production of documents, and even in arbitrations under such rules the possibility of such document disclosure cannot be excluded because arbitrators have the power to conduct the proceedings as they consider appropriate). And the IBA Rules of Evidence, so widely and willingly adopted by mutual consent of parties and Tribunals, reflect a similar vision. Whereas neither these rules nor the arbitration statutes applicable in major arbitration venues provide very specific guidance about the scope of permitted inquiry into documents stored by the adverse party, the scope of any duty to retain documents cannot be linked, as it is in American courts, to a common expectation about what may need to be produced. This state of uncertainty would seem to serve as an invitation to parties and Tribunals to discuss the scope of document retention at an initial stage of the case. But in my own experience it seems that this is rarely done.

Several factors account for this, I believe. First, there are international arbitrations in which both sides are represented by litigators who are not arbitration specialists and bring along assumptions about the similarity of arbitration to litigation that are only challenged when a dispute arises. At the other extreme, where both counsel are specialist international arbitration practitioners, each may assume that the other will proceed upon a shared view that broad disclosure of ESI is antithetical to efficient arbitral process and will not become a contentious issue. Perhaps the main reason it is not done is that the Tribunal will not regard ESI retention as a primary item of its procedural agenda, being reluctant to initiate discussion on a subject that might imply that the Tribunal takes a liberal view of the scope of pre-hearing disclosure.

But in a few cases one or both parties will ask the Tribunal for the arbitral equivalent of what the American common law duty rule provides, and the question arises as to what the Tribunal ought to do. There is very little published guidance. The IBA Evidence Rules do not touch the question. In 2010, a working group of US practitioners under the auspices of the International Institute for Conflict Prevention (CPR) issued the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration, and this Protocol adopts the premise that “speed and efficiency” is at least one of the considerations affecting disclosure in arbitration and that “requests for information based on possible relevance are generally incompatible with these goals, [and] disclosure should be granted only as to items that are relevant and material and for which a party has a substantial, demonstrable need in order to present its position.” Section (d)(3) of the CPR Protocol entitles “Preservation of Electronic Information” provides:

“In view of the high cost and burden of preserving documents, particularly in the form of electronic information, issues regarding the scope of the parties’ obligation to preserve documents for potential disclosure in the arbitration should be dealt with at an early scheduling conference, or as soon as possible thereafter. The parties’ preservation obligations should comport with the Schedule 2 mode of disclosure of information selected.” Schedule 2 of the CPR Protocol envisions that the parties ideally will agree upon one of the four “Modes” for disclosure of electronic information described in Schedule 2 — each involving more ESI than the preceding Mode, such that that retention duty stipulated would, logically, correspond to the disclosure protocol adopted.”

Writing about e-discovery in arbitration nearly a decade ago, thoughtful commentators observed: “The ‘preservation’ of ‘relevant’ documents once litigation is anticipated or commenced also requires rethinking in light of the fact that electronic information is dispersed and dynamic throughout a company’s computers, rather than statically awaiting collection in a drawer.” (R. Smit & T. Robinson, E-Disclosure in International Arbitration, 24(1) Arbitration International 105 at 109 (2008)). Those commentators proposed the following as a general guideline to be applied by international arbitration Tribunals with regard to retention: “The obligation to preserve electronically stored information requires reasonable and good faith efforts to retain information that may be necessary for pending or threatened arbitration. It is unreasonable to expect parties to take every conceivable step to preserve all electronically stored information that may potentially be relevant and necessary in the arbitration.”  (Id. at 133, Proposed Guideline 19). And yet as we turn the calendar to 2018, such rethinking either has not taken place, or has occurred ad hoc in case-specific settings and has not crystallized into a set of published best practices concerning e-document retention for potential arbitration disclosure.

One of the major challenges is that even where counsel accept that an international standard of relevance and materiality applies and that document requests should be very specific, counsel cannot know at the outset whether the key communicators of the adverse party, in their communications internally and with third parties, mainly used desktop servers in their offices to send e-mails, or also used mobile devices without generating copies of the messages on the desktop server. The cannot know whether the key communicators used personal e-mail accounts, or text messaging, as the standard or more than occasional means of business communication. So there is a cost-benefit calculation to be made by the parties, with very imperfect information, if they are to commit to limitations on e-discovery at an early stage of the case. If the parties do not agree upon the scope of potential ESI disclosure, however, they are unlikely to agree to the scope of document retention measures. The Tribunal, if asked to enter a document retention order, risks inefficient imposition of the costs to the parties for broad document retention (e.g., directions that various persons must save or centrally deposit mobile device messages) if this later proves to have been unnecessary because the scope of what later must be produced is far more limited that what is initially ordered to be retained.  At the opposite extreme, the Tribunal that concludes perhaps prematurely that (for example) metadata, text messages, i phone e-mails, and voice mails need not be the targets of specific retention measures, or draws a narrow circle of persons required to take retention measures, risks sanctioning the disappearance of evidence to an extent it may later regret.

The excellent and comprehensive report of the ICC Commission on Arbitration and ADR entitled “Management of E-Document Production” sensibly states that if production of electronic documents is confined in accordance with the IBA Rules of Evidence to the same extent of production of paper documents, as the IBA Rules expressly envision, then most of the efficiency challenges associated with E-Discovery should be avoidable. But these guideposts often will be unhelpful to the Tribunal in a case with US counsel on both sides, particular where those counsel are litigators bringing their litigation instincts to bear in the arbitral forum. Even when one or both parties are represented by specialist arbitration practitioners, they may prefer to follow their litigator instincts for tactical reasons.  As soon as the Tribunal accommodates the parties’ professed mutual desire to work out disclosure matters by agreement without Tribunal involvement — a common posture at the preliminary conference stage — there is a recipe for trouble if disputes arise. Suppose, for example, that at a time just after the deadline for the parties to produce requested documents to one another — the Tribunal per the parties’ agreement on procedure having taken no active disclosure-management role up to this point — now receives an objection by one party that the other has produced the electronic equivalent of several hundred thousands of pages of documents in a format that is not keyword-searchable or otherwise searchable by use of search software, ostensibly forcing the objector into a costly page-by-page review of the producing party’s production. Possibly search software usable with the production exists, but neither the objector nor its counsel has acquired it nor has heretofore employed IT specialists capable of applying it. Possibly the document in searchable format still exist in some electronic data storage facility of the producing party but the retrieval costs are substantial. The objector might assert that the producing party should be made to bear this cost, as a penalty for having violated a duty (articulated in judicial but not arbitral e-disclosure rules) to preserve and produce in a readily searchable format.

What sort of initiative might become an operating standard for Tribunals? Perhaps some sort of e-disclosure questionnaire would suffice: (1) Do you envision e-disclosure by the adverse party of e-data from sources other than e-mail (and attachments) stored on corporate servers? If yes, what sources/devices, and why will this be sought? (2) Can the needed documents be obtained by searching the e-mails (and perhaps text messages) of a limited number of persons? (Each party is asked to reasonably investigate to determine the person most directly involved in the transactions at issue). (3) What is the relevant time period for production? Do auto-delete protocols based on message age make some portion of the data universe less readily accessible? Can the parties agree to do without data if that vintage, and if not, how should retrieval costs be borne? Has the auto-delete protocol been overridden, at least for relevant individuals, to prevent impediments to the gathering of relevant data? (4) What is the format in which production of electronic documents is expected to be made? Is this satisfactory the adverse party?

A questionnaire of this type does not appear to favor either party nor does it encourage e-discovery of a scope comparable to what might be permitted in a US court. It may indeed prompt parties to recognize and concede early on that disclosure in arbitration often is different and more limited unless both parties clearly want an arbitration that resembles a US litigation at least in its discovery phase. And the questionnaire seems reasonably calculated identify whether there is a need for some sort of retention order, and to lead to an order whose scope is tailored to the expected scope of e-disclosure.

American arbitration law in force since 1925 empowers arbitrators to issue subpoenas to non-parties. This power is found in Section 7 of the US Arbitration Act (FAA). This provision is essentially the only provision of the FAA that directly states a micro-level rule of procedure concerning how proceedings shall be conducted in  an arbitration involving interstate or international commerce. Therefore authoritative decisional law about the meaning of FAA Section 7 has considerable importance to the day-to-day work of arbitrators in domestic and international cases that are seated in the United States (or by agreement are governed by US arbitral procedural law).

It is a rare occasion when an issue concerning enforcement of an arbitral subpoena is decided by a US Circuit Court of Appeals. Such a rare occasion occurred last month when the US Court of Appeals for the Ninth Circuit, agreeing with holdings of the Second, Third and Fourth Circuits, held that an arbitrator’s power under FAA Section 7 to obtain documents by subpoena is confined to requiring a witness to come to an arbitral hearing and to bring along documents for submission as evidence at the hearing. (CVS Health Corp. v. Vividus, LLC, 2017 WL 6519942 (9^th Cir. Dec. 21, 2017)). According to these four federal appellate courts — in decisions from 1999, 2004, 2008, and now 2017 — that conclusion is compelled by the plain meaning of the words used in the statute: “… may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence.”

One US appellate court, the Eighth Circuit, adopted a different view in a decision in 2000 that predates the Second and Third Circuit cases. The Eighth Circuit held that an implicit power to require document production in advance of a hearing — in the manner of discovery in a US litigation — could be inferred from the explicit statutory power to order production in conjunction with the appearance at a hearing of a witness under subpoena.

In US legal parlance a “Circuit split” exists whenever different federal courts of appeals rule differently on the same issue. And so it has been conventional in discussion of the arbitral subpoena power to refer to a “Circuit split” because of the 8th Circuit ruling (and to a small degree because the Fourth Circuit allowed that, despite the evident plain meaning of the statutory words, perhaps in a case of special need or hardship there might be a power to subpoena documents to be produced separately from any hearing).

Here we have a “split,” but it is far from being down-the-middle, for multiple reasons. First one should consider the US cities whose US District Courts are bound by the Eighth Circuit’s decision, as compared to the list of cities in the Second, Third, and Ninth Circuits. The former includes Minneapolis, St. Louis, Kansas City, Des Moines, Little Rock, and Omaha. The latter includes New York, Philadelphia, Los Angeles, San Francisco, San Jose/Silicon Valley, San Diego, Seattle, Phoenix, Portland, and Pittsburgh. Consider also the fact that US District Courts in Dallas, Chicago, Miami, New Orleans, and Northern Virginia have followed the 2d-3d-4th (and now 9th) Circuit view — this survey is based only on published decisions — on the basis of the persuasive force of this position and not because of appellate authority they were bound to follow in their own Circuits.

The consequence is that in most of the US cities of greatest economic significance, and thus probably in most of the places where non-party witnesses in US-seated international arbitrations and high-value domestic arbitrations will be found, the rule is likely to be that the arbitral subpoena must summon a witness to a hearing in order to compel the witness to produce documents.  The Eighth Circuit view has no such retinue of unbound District Court adherents, and this is presumably because its view is simply less persuasive. It finds no support in the text of the statute and relies upon an analogy between arbitration and litigation: that whereas a judicial subpoena may issue for trial or discovery, an arbitral subpoena should be able to issue for a hearing or for discovery. But evidently most courts have been persuaded that this analogy fails because discovery occupies a different place in arbitration.

It is also inferable that this is not the type of “Circuit split” that is likely to be resolved by the US Supreme Court — not when the issue has only reached federal appellate courts four times in almost 20 years and participants in an ongoing arbitration are likely to find solutions that do not involve taking this avoidable issue to the Supreme Court.

So what shall the arbitrator do? Arbitration counsel who are sensitive to the issue may be willing to design the proposed subpoena to order production at a witness hearing. To that end, since 2015 many arbitrators have provided to counsel the New York City Bar’s Annotated Model Federal Witness Summons.   (A link can be found on this Commentator’s general website www.lexmarc.us) But what if counsel, so informed, insists on a discovery-style subpoena and declares its willingness to litigate for its enforcement in a jurisdiction where the issue is technically open?  And suppose the adverse party does not object? It is not for the Tribunal to declare predictively that the subpoena is not likely to be enforced. But if arbitral persuasion of counsel fails, it is surely within the Tribunal’s discretion to warn counsel that delays in obtaining non-party evidence due to judicial enforcement proceedings might not furnish a basis for postponement of the final merits hearing, thereby encouraging counsel to follow the now-customary pre-merits hearing route for document disclosure: i.e. the issuance of a subpoena calling for a pre-merits hearing before members of the Tribunal, at a place of compliance close to where the witness is found, with the understanding conveyed by the Tribunal to counsel that if the witness and both parties will agree to waive the hearing, there is no obstacle to consensual third-party document production in a non-hearing setting in advance of the merits hearing.

In the past two days, the international news media following the Catalonia independence movement crisis have reported that the independence leader and deposed Catalonia President Carlos Puidgemont has arrived in Brussels, possibly eventually to seek asylum, conceivably to form a “government in exile,” perhaps only, and ostensibly, to secure assurances of fair judicial process for his potential criminal prosecution in Spain.  The New York Times reports that “Belgium is virtually the only national government in Europe that has been even remotely sympathetic to Mr. Puidgemont’s pleas for mediation, not least perhaps because the country has faced separatist tensions of its own led by Flemish hard-liners.”

Those readers who take an interest in the elements of successful mediation of international disputes have perhaps been giving thought recently to how mediation might play a role in bringing about a solution to the Catalonia crisis. I have done so over the past several days, and here present some of my own thoughts. (My motivation of course is not to solve the crisis, but to derive lessons that those who act as mediators might apply to the successful resolution of complex disputes both international and domestic, commercial and political).

1. Why mediation has not happened: It appears that the Catalan leader Puidgemont began advocating mediation quite immediately after the independence referendum held on October 1. The invitation was renewed several times in October, was rejected each time by Spain, and Puidgemont’s advocacy for EU intervention as a mediator was rejected by the EU.  The EU’s refusal to act as mediator may be seen as an admission that it could not be an independent and impartial neutral, as its interest (and the interest of its members) in the unity of EU member states is evident. As to Spain’s rejection of mediation, it appears as a classic case of a disputant considering that any form of engagement is a legitimation of the other side’s position. But here it seems possible that Spain had options short of refusing negotiations to declare publicly its non-negotiable positions: the illegality of the referendum, the absence of a Catalan mandate for independence, the unacceptability of secession under any circumstance.  Spain evidently concluded that it had a better alternative to any imaginable negotiated agreement: the dismantling of Catalonia’s regional government under Art. 155 of the Spanish Constitution, and the criminal prosecution of Puidgemont and other Catalan leaders. That is what is unfolding, but whether it is a good solution remains to be seen.
2. Defining an agenda for mediation: Mounting a confidential mediation that allows the participants flexibility without pressure from their constituencies is extremely difficult in such a transparent, media-saturated environment. But if such a confidential channel could be established, an initial mediation session might be devoted to defining an agenda for further mediated discussions within the period preceding the new regional election in Catalonia scheduled for December 21.  What would a possible confidential agenda items be? Adjournment of criminal proceedings in Madrid against the deposed Catalan leaders pending the December 21 elections? Security arrangements for the December 21 elections and methods for tabulating the ballots? Terms and conditions for campaigning and debates ahead of those elections? A commitment to a moratorium on unilateral action and to engagement in discussions for a minimum period of time following the December 21 elections?
3. The Mediator’s preparation:  There are many effective mediators who refrain from actively seeking opportunity for separate discussions with each disputant prior to the first mediation “session”. There are also many effective mediators, I believe a smaller group, who seek leave from the parties to treat the mediation as underway as soon as the mediator’s engagement is established, such that the mediator may (and actually does) conduct separate telephonic or in-person discussions before bringing the parties together for a joint session. Would the latter approach be advisable for this dispute, assuming it can be accepted by Spain and the representatives of Catalonia? While this is a dispute about sovereignty, autonomy, and culture, among other things, from a mediation perspective its shares many of the attributes of complex inter-corporate disputes: e.g., personal motivations and idiosyncrasies of the leaders, dynamics between the leaders and their constituencies, highly-evolved narratives of each side’s position that may operate at least early on as barriers to creativity in the negotiation process.   Consensual separate sessions before any joint session is convened might begin to overcome these potential barriers to progress.
4. Defining success in the mediation: Sometimes success in a mediation needs to be defined incrementally, and this is as true of civil and geopolitical conflicts as it is for commercial disputes. In a difficult mediation that promises no immediate final status solution, an initial measure of success can be that the mediation does not fail, that the parties agree to return for another session, and that the parties to commit to refrain from or at least not to expand upon efforts to bring about a final status change by other means. In a conflict like this one involving the very fabric of civil society and how the “rule of law” and “democracy” are defined and understood, an agreement to continue  discussions and to refrain from certain pressure tactics outside the mediation might well be an interim measure defining success in the mediation. (Possible voluntary restraint measures for Catalonia: no civil service strikes? no establishment of a government-in-exile? No Catalan efforts to establish international diplomatic recognition?  For Spain: no violent action by police against non-violent protest? suspension of the prosecution of Catalan secession leaders? restraint from seizing control of news media in Catalonia?).

***

As the question of Catalonia’s political autonomy moves forward in this post-Declaration, post-Dismantlement, pre-Election phase, it will be interesting to see if initiatives for mediation are forthcoming from any source other than the advocates for Catalan independence. It seems evident that much can be gained from effective mediation. If the initiative were to come from another source such that Spain might embrace mediation without the embrace being seen as a capitulation, perhaps some progress or at least a deferral of a seriously destabilized civil and political environment can be achieved.

Here in common law America we do not have much direct and systematic discussion about when and under what conditions international arbitrators may or should conduct their own legal research to ascertain or clarify the applicable law that they should apply. We have a passing familiarity, from contacts with our civil law colleagues, with the civil law term iura novit curia (literal translation, “the judge knows the law”). But the reality is that some American international arbitrators consider the law to be what is found in bound volumes of submissions (briefs and authorities) presented by the parties, while others consider those submissions to be the point of departure for inquiry into the applicable law, especially when the law is our “own,” notably, the common law of a State of the United States. Some of the passivity of the former group is not necessarily borne of rigorous analysis of the issue, but rather of some combination of lassitude and resignation, percolating at the conclusion of a long career as an advocate, at a time when the arbitrator, now dis-affiliated from any law firm and spending more time in the quiet confines of a family residence, may find himself or herself not only without the skills needed to conduct legal research in an online database but without the most basic tool needed: a database subscription. (This is not a description that fits your commentator, or many of his peers, but the ranks of the disconnected are nevertheless substantial. Arbitrators who could not gain access to legal authorities in an online database, and so insist on having paper supplied to them, create significant copying, printing, copy-checking, and shipping costs for the parties – sometimes for sending “bankers box”-sized Express packages over a net distance of a few city blocks. This is something parties seem to accept, possibly with pursed lips and tight grimaces, rather than insist that their arbitrators conform to modern norms).

But we do have a legal issue in regard to arbitrator initiatives to conduct legal research, and it is one that to my knowledge has not often if at all been decided in the federal courts under the FAA: does an arbitrator perhaps exceed her powers by conducting such research, or in some circumstances deny a party a fair hearing by not inviting comments on the fruits of such research? The relevant FAA case law tells us in general terms that a party is denied a fair arbitral hearing when it has been deprived of the opportunity to present relevant evidence and arguments. (See, e.g., Rogers v. Ausdahl Financial Partners, Inc., 168 F. Supp. 3d 378, 389 (D. Mass. 2016), citing First Circuit authorities). When might there be denial of opportunity to present arguments, such as to justify vacatur of the award, if the parties were allowed to submit two or more rounds of briefs, but the arbitrators cited and discussed in their award some cases that were not cited by either side?

The circumstance of the arbitrator invoking legal authorities not presented by the parties is to be distinguished, in the first instance, from the arbitrator resolving the case by applying a legal or equitable remedy that neither party requested. The latter situation was famously examined by the Quebec Superior Court in Louis Dreyfus s.a.s. v. Holding Tusculum B.V. [2008 QCCS 5903, Dec. 8, 2008], where the Court annulled an ICC Award rendered by a Tribunal seated in Montréal on the basis that the Tribunal had exceeded its jurisdiction and denied a fair hearing (the civil law rule audi alteram partem, literal translation “let the other side be heard as well”) when  neither the legal theory adopted by the Tribunal nor the remedy applied had been presented by either party and the parties had not been invited by the Tribunal to comment on whether that theory and remedy should be invoked. The Dreyfus judgment however did not deal with the sua sponte identification of the dispositive theory and remedy by the Tribunal as misconduct separate from the Tribunal’s failure to give the parties notice and an opportunity to be heard. Indeed the judgment may fairly be read as focused on the latter, and does not hold or particularly clearly suggest that a Tribunal exceeds its jurisdiction if it interjects a legal theory and potential remedy — grounded in the applicable law — into the case, but does no upon proper notice to the parties and with adequate opportunity for the parties to be heard concerning the Tribunal’s premises.

For American arbitrators this question of sua sponte interjection is often considered under the rubric of impartiality of the Tribunal (and the appearance thereof throughout the proceedings). The open suggestion to the parties, in the middle of the case, that the case might be resolved on a theory that neither party has raised, threatens to foster the impression that at least the arbitrator making the suggestion, if not the full Tribunal, is predisposed toward the position of the party advantaged by the new theory thus advanced. And whereas this will be a large risk even if the arbitrator(s) making the suggestion have serious reservations about the novel solution, American arbitrators will be reluctant to advance such proposals. We sometimes display such reluctance by invoking the bromide that the Tribunal should receive the case as the parties present it, under the party autonomy principle, but probably the root concern is about the perception of prejudgment of the case.

Is that a concern that should impel arbitrators to refrain from any independent research into the applicable law? Suppose a party has made a general reference to an equitable principle that it says should be applied in its favor, but the argument is not embellished by case law or other authorities.

The Tribunal — clearly charged with deciding whether the application of that principle is justified under the substantive law it is required to apply — might call on the proponent of the theory to provide additional authority, or the Tribunal might do its own research, or do nothing. To resolve the issue for or against the proponent without any further inquiry into applicable authorities may seem to disregard the Tribunal’s duty to apply the applicable law. The fact that a party has failed to bring the applicable law to the Tribunal’s attention does not mean that no such law exists. To ask the party for further authority, on the other hand, risks the appearance of predisposition toward that party – favoring the party with a second chance to shore up its case. If the Tribunal does the research, and then shares at least the nature of its inquiry if not all the specifics with the parties in such a way that they have a fair opportunity to replicate the Tribunal’s research work and present their conclusions, perhaps the interwoven causes of fair process, perceived impartiality, and fidelity to the applicable law, are well-served.

What support can be found for this position? (I daresay more than I present here, as this is a commentary not a journal article! But see the excerpt from the 2010 ILA Report cited at the end of the commentary). Consider that in an arbitration seated in the UK, the 1996 Arbitration Act provides in Section 34 that it is for the Tribunal to decide subject to any agreement of the parties “whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law.” Of course an initial and critical factor in the exercise of this discretion is whether the arbitrator is educated in and an experienced practitioner at the Bar of a jurisdiction where the applicable law is in force. I may not hesitate to take research initiatives in New York and other US state and federal law. In regard to the law of Romania, or even the law of Canada or the UK, I might well defer to counsel from the relevant jurisdiction or the proffered party-appointed expert of the applicable law, often a leading academic or advocate in the relevant jurisdiction. No less formidable an authority as Professor Gabrielle Kaufman Kohler supports both this practical instinct to do one’s own research, and the practical/prudential constraints. (See G. Kaufman-Kohler, The Arbitrator and the Law: Does He/She Know It? Apply It? And a Few More Questions, Vol. 21(4) Arb. Int’l 631, 635 (2005)). For purposes of this commentary, we focus on the “easy” case — in which the Tribunal or at least the presiding arbitrator is applying their/her “own” law.

Without acceptance as a norm that arbitrators may conduct their own research in the applicable law, at least in this “easy” case, perhaps there is a certain hollowness to the promises made by arbitration centers that the stability and predictability of local commercial law should attract parties to select both the venue and its law. Is it not indeed the promise held out by such centers that the local commercial law will the best version of it, as understood by wise arbitrators standing as proxies for wise judges? Or is the promise merely that arbitrators will dutifully apply whatever distillation or representation of that law is produced by the participating counsel?

Iura Novit Curia is a civil law concept with no exact common law counterpart. So when one reads the hesitations of civil law-oriented commentators about arbitrator initiatives concerning the applicable law, the civilian jurist’s methods for legal research, compared to those of the common law Judge, must be taken into account. With disclaimers for my limited exposure to civil law, it may be said generally that civil law in the commercial field has two frequently occurring elements:(1) a detailed legislatively-enacted code of contract law in the relevant State, and (2) a considerable body of commentary from academic writers. For the civilian jurist or arbitrator, then, a prominent part of the exercise of “finding” the applicable legal principle is to determine which code provision best corresponds to the facts of the case. This entails that if the civil law arbitrator considers the application of code provisions other than those identified by the parties, she is arguably considering both an interpretation of the evidence and an applicable legal theory not advanced by either party. It is also the métier of the civilian jurist or arbitrator to shape her view of the law from the commentaries written by leading academic scholars (who in some nations may also be leading advocates). But there is no official hierarchy of such commentators, and no sovereign sanction of their positions except to the extent that as a position once stated only in the commentaries might eventually have become codified. Accordingly the civil law arbitrator who examines the commentaries of a scholar who has not been cited by either party may be doing so because of a personal preference for the opinions of that commentator or she may be seeking out a position that has been considered and rejected by both parties as a basis for the Tribunal’s resolution of the case. These elements of departure from the norm of party autonomy, in a civil law setting, do not seem to have direct parallels in common law systems — or at least in the systems with which I am most familiar, the federal and state judiciaries of the United States.

If the arbitrator’s charge is to resolve the case under New York law, because that is the applicable substantive law agreed in the contract, the parties’ choice of law would seem to include certain jurisprudential rules about the ascertainment of that law. First, where the law of a State (of the US) governs – and, mostly, contract law is State law — the definitive and controlling legal rule is one that has been pronounced and not overruled by the highest court of the State. In New York State, this is the New York Court of Appeals. Second, within the federal system, decisions of the Supreme Court of the United States are the supreme law of the land, prevailing over conflicting decisions of all subordinate federal courts, and decisions of the US Circuit Courts of Appeals prevail over, and effectively overrule, prior conflicting decisions of US District Courts within that Circuit on the same point of law. While the arbitrator has no geographic forum absent an agreement of the parties, and thus when considering US federal court authorities that apply State law such as New York law, she faces a very definite hierarchy: (1) none of the federal authorities cited is authoritative as to State law if it is conflict with a ruling on that point of law from the highest court of the State, (2) the federal authorities concerning state law are equally unauthoritative if the lower appellate courts of the State have uniformly pronounced on the same point of law,  (3) if there is lack of uniformity in the pronouncements of those intermediate appellate courts, the federal court authorities are persuasive but not controlling, and (4) however, a federal circuit appellate decision that rejects the pronouncement of State law by a district court within that circuit renders the district court precedent effectively null and void.

There are peculiar risks to the arbitration if the arbitrator who must apply the contract law of a State of the United States relies only upon the cases identified by the parties. Have both parties perhaps overlooked a controlling statement of the law by the highest court of the State, leading the non-researching Tribunal to apply a version of the applicable law that does not correspond to reality but is only a law applicable to this arbitration, adapted from overruled judicial decisions? Have the parties neglected to cite a pending application for review by the Supreme Court of the United States, on the basis that a pronouncement of State law is pre-empted by federal law, such that the Tribunal might render an award based on State law that ceases to be valid law shortly after the award is issued? Have the parties relied mainly on federal court precedents from circuits that ordinarily do not deal in the law of the relevant State (for example, the Seventh Circuit, which embraces several midwestern States, but occasionally must decide issues of New York law) — decisions that further research might reveal to be completely at odds with the federal court decisions of the Circuit that decides questions of New York law every day and is mainly populated by judges who are experienced practitioners of that law and admitted to the Bar of the State (the Second Circuit)? Has one of the parties relied upon a State law precedent from an intermediate State appellate court that has in fact been directly reversed by the highest court of the State — without the opposing party having detected this omission?

Whereas in New York, as in many US States, appearance as an advocate in an arbitration is not considered to be the practice of law in New York State that may only be conducted by members of the Bar of the State, parties frequently appear in international arbitrations governed by New York substantive law with legal representation only by counsel from outside the United States, or by counsel admitted in States of the US other than New York.  Legal errors of the type described here occur for such reasons. They also occur, sadly, because overzealous advocates sometimes omit negative news, like appellate reversals of lower court cases that help their clients.

What are the reasonable expectations of the parties who have selected New York arbitrators to decide an international case under New York law? Does their agreement that New York law is the governing substantive law reasonably mean only “the representation of New York law emerging from the authorities presented to the Tribunal by the parties?” Or is it more reasonable to construe that choice-of-law clause to mean “New York law as it would be applied by a State or federal court, enforcing the same choice-of-law clause, if the parties had not agreed to arbitrate?”  If the latter, should it not be assumed by the parties that the arbitrators will do what judges (directly or through their law clerks) do, i.e. take reasonable initiatives to be assured that the parties have presented the appropriate authorities, and that those reasonable initiatives may be assumed to entail research on one of the recognized electronic databases (WestLaw, Lexis) that contain all published decisions of the federal and state trial and appellate courts and applications permitted verification as to whether an appeal has been taken, whether the authority has been reversed or overruled or questioned, etc.?

Perhaps this is a way of raising the question: Is it not the common law counterpart of the principle iura novit curia that, in common law systems, the judge is expected to find (rather than presumed to know) the law, and to do so within a recognized hierarchy of sources and according to well-understood and accepted research methods?

And, in international arbitrations where the arbitrators are required to apply common law such as the contract law of New York, is it more or less problematic, more or less a problem for the integrity and efficacy of the arbitration, if the arbitrators merely apply a version of that law emerging from the authorities presented by parties — treating it as a risk assumed by the parties that there could be a disparity between the law as it actually is and the law as the parties have presented it?

If it has not been clear up to now, I reiterate that the foregoing analysis pertains mainly when the applicable law is the law of a common law jurisdiction, and when at least the sole or presiding arbitrator, and more ideally all three arbitrators, is/are admitted to the Bar of the jurisdiction whose law applies. If these limiting conditions are not present, the endorsement made or implied here for legal research initiatives by arbitral tribunals would become more equivocal as the variance between this norm and the realities of the case grows larger.  Which is to say, for instance, that as Chair in a case governed by Argentine law, I would not propose to conduct research in that law even if this could be done in English, nor would I embrace the conducting of such research on behalf of the Tribunal by the Argentine arbitrator(s) appointed by one or both parties.

In conclusion, I offer the reader a benchmark for testing whether the views expressed here are radical, reactionary, mainstream, or somewhere in between. That benchmark is the general recommendation made on this subject made by a committee of the International Law Association in 2010:

“Arbitrators should primarily rely on the parties to articulate legal issues and to present the law, and disputed legal issues. They should give appropriate weight to information so obtained. Arbitrators must through the proceeding develop a sufficient understanding of the applicable law that they can fulfill their mandate to decide the dispute according to law. Arbitrators who attempt to develop legal issues in a strict application of iura novit curia approach risk taking the arbitration from the parties and appearing partial. Yet arbitrators who completely fail to seek clarification of legal issues in a strictly laissez faire approach risk not having sufficient guidance when they go to render an award, or risk making an award that is incorrect on the legal issue in question. Accordingly, arbitrators should inquire about the applicable law within the general parameters of the arbitration defined by the parties and, considering costs, time and relevance of issues, may conduct their own research, provided the parties are given an opportunity to be heard on material that goes meaningfully beyond the parties’ submissions.”

(International Law Association International Arbitration Committee’s Report and Recommendations on ‘Ascertaining the Contents of the Applicable Law in International Commercial Arbitration,” Vol. 26(2) Arb. Int’l 193, 217-218 (2010)).