Posts Tagged ‘International Arbitration’

Alan Scott Rau on “Arbitrating ‘Arbitrability’”

April 16, 2013

Alan Scott Rau (University of Texas at Austin School of Law, The Center for Global Energy, International Arbitration, and Environmental Law) has posted “Arbitrating ‘Arbitrability‘”, World Arbitration and Mediation Review, 2013/U of Texas Law, Public Law Research Paper No. 403.  The abstract reads:

This paper was prepared for a presentation at the Institute for Transnational Arbitration/American Society of International Law program on “Gateway Issues in International Arbitration.”

It is quite common, in the case law and the secondary literature, to focus discussions in terms of “gateway” or “threshold” challenges to the arbitration of a commercial dispute. Like most metaphors, this is rife with ambiguity: The notion of a “gateway” may, purely as a semantic matter, direct us to distinguish between issues that must be resolved before a party can be permitted to proceed and fully adjudicate the “merits” of the dispute — issues that may after all include such things as the non-payment of fees, or the untimely making of an application — and those that need not be. Or alternatively, it may ask us to distinguish between issues that must be resolved before a party may even invoke arbitral jurisdiction — and those that may instead be left to the arbitrators themselves. And even within this second category, it is still frequently unclear whether: (1) the metaphor of a “gateway” is being used to evoke what is a logically prior prerequisite to arbitral jurisdiction — asking us, that is, to distinguish between those issues that (whenever raised) will condition the ultimate validity of an award — and those that do not; or whether (2) the term is being used, instead, to evoke what is merely chronologically prior to arbitral proceedings — asking us, that is, to distinguish between those issues that (whoever will have the final word on the subject) must be resolved before a party is permitted even to have access to the arbitral tribunal — and those that need not be.

These last two questions are often conflated, but ought best be kept distinct. I discuss the question of timing and chronology, which is largely a matter of efficiency, but only the former question, I think, is truly challenging. The inquiry is thus into the allocation of decisionmaking authority between courts and arbitrators. This question — the respective roles of courts and arbitral tribunals — is, in one form or another, the foundational, primal question around which our whole law of arbitration revolves.

It is obligatory these days to begin and end every discussion with the Supreme Court’s decision in First Options, and in particular Justice Breyer’s suggestion there that parties may entrust arbitrators with the power to decide jurisdictional questions — and if they have done so “clearly and unmistakably,” the tribunal’s decision on the subject will be entitled to the same deference as is any arbitral award. It seems fair to say that Justice Breyer’s discussion has often been overread. And in practice, and in positive law, the supposed lessons have now become marginalized — have dwindled into insignificance — to the point that to invoke them begins increasingly to sound hollow and perfunctory. This is why any requirement of “clear statement” — even if in theory made necessary by Justice Breyer’s taxonomy — is here so routinely and trivially satisfied.

This impression is reinforced by the common practice of fleshing out agreement through the use of institutional rules. Contractual incorporation of the Rules of the AAA — adopted precisely to take advantage of the hint dropped by Justice Breyer — is now routinely deemed to constitute party agreement to the arbitrability of “jurisdictional disputes.” This common reading has now become a default rule that treats a reference to the Rules as a simple “term of art” denoting the choice of a particular scheme for the allocation of power. And while the backstory, and the preconceptions, underlying other commonly-used bodies of institutional rules are entirely different, it was inevitable that U.S. courts have been led to treat all these facially-similar rules as identical.

If this is troubling in theory, one cannot avoid the impression that it doesn’t seem to make much of a difference in result. The point is illustrated nicely by two very recent decisions of our Second Circuit, the Thai-Lao and Schneider/Kingdom of Thailand cases. Reading them, it is hard to avoid the conclusion that in where U.S. arbitration law appropriately governs the agreement, the rules of arbitral institutions — however they are construed — are as likely as not to amount to a makeweight; it does no great harm to assume that they may be properly treated in the end as tangential to any actual decision. What seems “overdetermined” is that even if the challenges in such cases — such as the right of a non-signatory to compel arbitration, or the existence of an approved investment under a BIT — is somehow to be construed as “jurisdictional” (which I very much doubt) — U.S. law will properly, and through a default rule methodology, allocate the decision to arbitrators. The implication is that even transnational cases will be expected to remain within the framework of the present complex structure of our common law — notwithstanding the siren calls of “international consensus.”

 A pdf copy of the article is available for download via SSRN here.

Alan Scott Rau on “The Errors of Comity: Forum Non Conveniens Returns to the Second Circuit”

June 11, 2012

Alan Scott Rau (University of Texas at Austin School of Law; University of Texas – School of Law, The Center for Global Energy, International Arbitration, and Environmental Law) has posted “The Errors of Comity: Forum Non Conveniens Returns to the Second Circuit”, American Review of International Arbitration, Forthcoming August 2012/Energy Center Research Paper No. 12-04. Here’s the abstract:

What a federal court is expected to do when asked to enforce a foreign arbitral award — what constraints the Conventions impose on its normal course of adjudication — is of course a vast question. But there is one small piece of the puzzle that recurs frequently, and which has in particular been troublesome to the Second Circuit.: What remains of the inherent power of a common-law court to defer or dismiss litigation of a Convention case on the grounds that it constitutes an “inconvenient” forum?

A decade ago a federal district court in Monde Re, “relying on the doctrine of forum non conveniens,” dismissed a petition to confirm a foreign arbitral award, and the Second Circuit affirmed. The received wisdom ever since has been quite hostile — uniformly to the effect that the obligations imposed by the New York and Panama Conventions make any recourse to the doctrine inappropriate. Despite the fact that the Convention in art. III allows contracting states to continue to use their “rules of procedure” in recognizing or enforcing foreign awards, that is a category of very weak explanatory power: While litigants may have to take local courts as they find them, the one thing art. III cannot be intended to do, is to permit local courts to devise rules that compete with, or undermine, or put up obstacles to, the rules of decision under which the Convention expects them to assess the legitimacy of awards.

Now in Monde Re itself the respondent, the state of Ukraine, had not been a signatory to the contract nor did it participate in the arbitration: Its defense — “I was never a party to any agreement to arbitrate” — would indeed constitute an art. V ground for the refusal of recognition and enforcement. The inquiry then becomes, “just how do we go about answering the question?” — or more precisely, “just who is best placed to evaluate whether these ‘grounds’ are present? Or perhaps, “just who is to make the decision?” It is a familiar notion that the grounds for decision, and the identity of the appropriate decisionmaker, are likely to call for entirely distinct inquiries, and it seems plausible to say that the former may be so intertwined with the need to obtain foreign-source evidence, and with the need to assess foreign law, that it may become prudent to defer the decision to a foreign court.

But by contrast the Second Circuit’s latest venture into the area, in Figueiredo Ferraz, is astonishing: Here the court deferred the enforcement of a Peruvian award on the basis of the “public interest factors” called for in the usual forum non conveniens analysis — and these “factors” did not refer in any way to any supposed difficulties a U.S. court might face in establishing the identity of the “proper party.” Instead the “public interest” was entirely that of Peru, for Peruvian legislation imposed a limit on what a government agency was permitted to pay annually in satisfaction of a judgment against it. Apparently such “public factors” were closely congruent with considerations of international comity. But none of this even comes close to being an art. V ground for the refusal of recognition and enforcement, and in a Convention case the usual recourse to a court’s “discretion” must be foreclosed: While by its terms the Convention may allow a contracting state to enforce awards even where the canonical art. V grounds are present, it extends no leeway whatever to refuse to do so when they are not.

Whether on a motion to confirm a Convention award — or at an earlier stage on a motion to stay litigation or compel arbitration — a doctrine of forum non conveniens must in the structure of our law have only the most marginal presence. Anything more robust would be in considerable tension with the goals of the Convention to increase the currency of awards by limiting challenges and expediting enforcement. But although forum non must play a slender role of only intermittent interest, it has a role nonetheless, whenever a Convention defense is in play and the identity of the appropriate decisionmaker is in doubt. The trick is to preserve the classic virtues of prudence and restraint and economy of means in adjudication, while at the same time managing to respect the structure of the Convention, and being alert to the policies in support of the arbitral process that the Convention seeks to advance.

A pdf copy of the article is available for download via SSRN here.


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