Join virtually Sarah Biser, Robert Rubin, Mark Hess, James Perry, Micha Tollman and Roberto Hernandez-Garcia for a discussion regarding the use of Dispute Review Boards in domestic and international projects.  The Webinar will be broadcast live on September 17, 2020 at 11:00 eastern.  Kindly register at the link below.

Join virtually Sarah Biser and other international law practitioners for a discussion regarding the successful delivery of domestic and international construction projects at the 2020 Construction Webinar Series organized by the American Arbitration Association.   The Webinar will be broadcast live on September 15, 2020 at 11 am ET.  Kindly register at ADR.org.

Co-authored by Robert Rohrberger

Objectives and Considerations

The majority of international arbitrations are decided by three-member arbitration panels. Each party selects its “party-appointed” arbitrator, and the president or chair of the three-member panel is selected by the two party-appointed arbitrators, by a neutral authority or by other agreement of the parties.[1] This blog discusses some of the more critical considerations that a party and its attorney should review in the selection of its arbitrator. The importance of an in-depth review and analysis of an arbitrator’s background, experience and ability to work with her co-arbitrators cannot be overstated. Indeed, the selection of an arbitrator may be one of the most critical decisions a party makes.

Predisposition vs. Appearance of Bias

The ideal party-appointed arbitrator is a person who, because of her legal or cultural background, nationality, history and professional and technical experience is likely to be predisposed toward the selecting party’s side. To that end, prior professional positions and relationships, arbitration experience, including prior decisions, and academic writings should be scrutinized. However, a commonality of views with the appointing party cannot override her conscience and professional judgment, undermine her effectiveness and/or violate the governing arbitration rules regarding bias, independence and partiality. She should have not only stature, experience and gravitas, but the credibility to persuade her co-arbitrators of the strength of her party’s position.

The major international arbitration institutions have rules relating to bias, impartiality and/or independence. For example, the arbitration rules of the United Nations Commission on International Trade (UNCITRAL),[2] the London Court of International Arbitration (LCIA)[3] the International Arbitration Rules of the American Arbitration Association (AAA)[4] and the International Chamber of Commerce (ICC)[5] embody one or more of these concepts. There are requirements regarding the disclosure of bias, and there are provisions regarding the potential overruling of an arbitration award if bias can be demonstrated.

Both parties expect to pursue justice in an unbiased fashion. Even if the party-appointed arbitrator may be generally predisposed to the party personally or to its position, the other arbitrators should believe that the appointee will vote against the appointing party if required by the facts and/or law. Although an arbitrator may qualify as non-biased pursuant to relevant rules, a party should avoid selecting an arbitrator who will be perceived by the other arbitrators as biased in favor of the appointing party. A party-appointed arbitrator is expected to vote for the party with the better or more compelling arguments, law and facts, even though the arbitrator may be sympathetic to the appointing party because of a common nationality, shared background, culture or shared legal perspectives ― such as a common or civil law training, view about contract interpretation and summary disposition, and inclination regarding limited or more expansive discovery.

Experience as an Arbitrator

In most cases, it is best to select an individual with multiple experiences in international arbitration, or at least to avoid an individual who has never served as an arbitrator. The lack of experience can undermine confidence in the appointee during deliberations and in crafting an award, and limit the appointee’s effectiveness. Of course, there must be a first time for every arbitrator and there may be times when an individual’s other qualities are compelling enough for the appointing party to give the individual an opportunity, even if he or she lacks experience in arbitrations.

Knowledge/Stature in Field

For similar reasons, it is important to select a person who is knowledgeable or an expert in the area that is the focus of the arbitration and ideally enjoys a level of stature and respect. Knowledge is needed for the arbitrator to fully understand the issues and to participate in a meaningful way in deliberations and the drafting of the award. A reputation in the relevant area adds weight to any arguments that the arbitrator may present to the other arbitrators. For example, in a complex construction matter, many parties are likely to prefer to appoint an arbitrator with expertise not only in construction generally, but in the technical issues critical to the resolution of the dispute.

People Skills

A knowledgeable and experienced person will have little impact on their fellow arbitrators if they lack interpersonal skills or have off-putting personality traits. An arbitrator who is the greatest figure in his field will not be persuasive if he constantly announces himself as such. It is best to select a person who is confident and forceful, as well as collegial and capable of participating in a respectful, meaningful and persuasive discussion.

Availability

Checking the availability of a prospective candidate is a must. Selecting a highly skilled arbitrator who is too busy can be problematic. So it’s best to evaluate this issue and try to get an honest assessment of the arbitrator’s schedule in advance.

Sources of Information

The best source of information to be used in selecting an arbitrator is the appointing party’s or its lawyers’ personal experience with the individual. However, in many cases, the decision will be made in the absence of that direct personal knowledge. In these situations, the decision is usually based on a recommendation from a network of friends and professional connections or an evaluation of the individual’s CV and information that can be garnered from the internet and other public sources of information.

Some private vendors are attempting to develop more detailed, data-driven analytics to aid in a more objective assessment of arbitrators and their professional qualities. For each prospective arbitrator, these vendors obtain a variety of information relating to critical aspects of an arbitration(s) from participants. This data includes:

  • How the arbitrator under discussion administered the proceedings
  • How often the tribunals (on which the arbitrator sat) engaged in an early resolution of issues
  • How satisfied or dissatisfied the parties were with the award.

The vendors then create reports on each arbitrator candidate that include graphs and charts, as well as information regarding how to interpret the data.

Conclusion

A party-appointed arbitrator is selected with the hope that she will be able to persuade the other two arbitrators about the merits and truths of her client’s position. Remember that the opposing party has the same view about its arbitrator. A party-appointed arbitrator with stature, the requisite skills and experience will understand the importance of independence and the appearance of objectivity, which cannot be overstated. The checklist of arbitrator characteristics set forth above is not a guarantee that one’s position will prevail, but the list will help guide a party in the appointment of an arbitrator who can maintain that balance.

[1]           Each arbitral institution has its own rules about the selection of the presiding arbitrator if the parties cannot agree. Those rules are beyond the purview of this blog.

[2]           UNCITRAL Arbitration Rules, Articles 11 and 12.

[3]           LCIA Arbitration Rules, Articles 5, 10 and 11.

[4]           AAA International Rules, Articles 7 and 8.

[5]           ICC Arbitration Rules, Articles 11, 13, and 14.

In these series of posts, we discuss the differences that have emerged in rulings by federal appeals courts in the United States Circuits on certain issues that may affect the ability of a party in an international arbitration to obtain evidence from non-parties to the arbitration.

Arbitrator’s Power To Order Pre-Hearing Document Production Or Testimony From Non-Parties

In Part I of our post on the Circuit Courts split over discovery matters in international arbitration, we have discussed the Courts’ different views on whether a private international arbitration constitutes a “foreign or international tribunal” within the meaning of section 1782. The federal Courts of Appeals do not agree on another discovery matter that relates to obtaining evidence from non-parties in arbitration—including international arbitration—with the seat in the United States.  There is a Circuit split on whether an arbitrator may compel pre-hearing document production or testimony from non-parties pursuant to Section 7 of the Federal Arbitration Act (“FAA”), which applies to any arbitration in the United States involving interstate or international commerce.

The Second Circuit, Third Circuit (which includes Delaware, New Jersey, Pennsylvania), and Ninth Circuit (which includes Arizona, Alaska, California, and Hawaii) have ruled that an arbitrator does not have power to compel pre-hearing discovery of documents and testimony pursuant to the FAA, and can compel such discovery only for an arbitration hearing.

Continue Reading U.S. Circuit Courts Split Over Issues Concerning the Ability To Obtain Evidence From Non-Parties In International Arbitration, Part II

In these series of posts, we discuss the differences that have emerged in rulings by federal appeals courts in the United States Circuits on certain issues that may affect the ability of a party in an international arbitration to obtain evidence from non-parties to the arbitration.

 Application Pursuant 28 U.S.C. §1782

 A federal statute, 28 U.S.C. § 1782, states that U.S. district court may provide assistance to foreign or international tribunals by ordering discovery of persons in the district.  The Circuit Courts, however, disagree whether a private international arbitration constitutes a “foreign or international tribunal” within the meaning of section 1782.

In In re Application of Hanwei Guo for an Order to Take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. § 1782, 965 F.3d 96 (2d Cir. July 8, 2020), the U.S. Court of Appeals for the Second Circuit reaffirmed its previous holding that a party cannot invoke 28 U.S.C. § 1782 to obtain documentary and testimonial evidence to be used in a private international commercial arbitration proceeding. Continue Reading U.S. Circuit Courts Split Over Issues Concerning the Ability To Obtain Evidence From Non-Parties In International Arbitration, Part I

Join virtually Oksana Wright and many other international law practitioners for a discussion of relevant international arbitration and litigation topics at the 12th Annual Conference on the Resolution of CIS Related Business Disputes organized by the ABA International Law Section and Russian Arbitration Association.  Oksana will be speaking on September 17 at the session entitled “Is the use of remote technology a new advantage for arbitration over litigation?”

You can register for free here. 

 

The London Court of Arbitration (LCIA) released 2020 update to its arbitration and mediation rules (the “Rules updates”), which comes into effect on October 1, 2020.  The purpose of the update is to “aim to make the arbitral and mediation processes even more streamlined and clear for arbitrators, mediators and parties alike.”

The Rules updates, among other things, address the increased use of virtual hearings and the primacy of electronic communication, which became more prominent in the Covid-19 era. Notable and substantive amendments to the Rules include:

Electronic Communications and Signatures

The Rules updates confirmed “the primacy of electronic communication with the LCIA and in the arbitration, as well as…the facilitation of electronically signed awards.”  Specifically, requests for arbitration must now be submitted electronically.  Otherwise, in accordance with Article 4, a prior written approval must be sought from the LCIA to submit the request for arbitration by any alternative method.  Same rule applies to the response and other applications, including for expedited proceedings, emergency arbitrators and expedited appointment of a replacement arbitrator.

The Rules updates now require that all communications be delivered by email or any other electronic means. Under appropriate circumstances, however, the LCIA may order written communications in the event a party is unable to receive electronic communications.

Article 26.2 also provides for electronically signed awards: “[u]nless the parties agree otherwise, or the Arbitral Tribunal or LCIA Court directs otherwise, any award may be signed electronically and/or in counterparts and assembled into a single instrument.”  This Rule may facilitate changes to legal practice, including enforcement of the foreign awards under the New York Convention, which requires a party seeking to enforce a foreign arbitral award to provide a duly authenticated original award or its certified copy.  It is not clear under the New York Convention, whether an electronically signed award will satisfy this requirement.

Virtual Hearings

Article 19.2 now specifically allows virtual hearings: “[a]s to form, a hearing may take place in person, or virtually by conference call, videoconference or using other communications technology with participants in one or more geographical places (or in a combined form).”

Tools Allowing Arbitrators To Expedite Proceedings

The Rules updates include new provisions that allow for more expedited proceedings under certain circumstances.  For example, new Article 9A allows, “[i]n the case of exceptional urgency,” any party to apply to the LCIA Court for the expedited formation of the Arbitral Tribunal.

Article 22.1(viii) provides the Arbitral Tribunal with power of early determination.  Specifically, the Arbitral Tribunal has power “to determine that any claim, defence, counterclaim, cross-claim, defence to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the Arbitral Tribunal, or is inadmissible or manifestly without merit; and where appropriate to issue an order or award to that effect.”

Role of Tribunal Secretaries

Article 14A clarifies and limits the role of the Tribunal Secretaries.  Although, “an Arbitral Tribunal may obtain assistance from a tribunal secretary in relation to an arbitration,” “[u]nder no circumstances may an Arbitral Tribunal delegate its decision-making function to a tribunal secretary.” Further, “[a]ll tasks carried out by a tribunal secretary shall be carried out on behalf of, and under the supervision of, the Arbitral Tribunal which shall retain its responsibility to ensure that all tasks are performed to the standard required by the LCIA Rules.” Finally, “[a]n Arbitral Tribunal may only obtain assistance from a tribunal secretary once the tribunal secretary has been approved by all parties.”

Broadening of LCIA Court and Tribunal Power to Order Consolidation and Concurrent Conduct of Arbitrations

Article 22A also now allows the Arbitral Tribunal to order consolidation of certain proceedings, without all parties consent, into a single arbitration.  The proceedings that may be consolidated are the ones commenced under the same arbitration agreement or any compatible arbitration agreement.  The proceedings have to be either between the same disputing parties or arise out of the same transaction or series of related transactions.

 Data Protection

New Article 30A recognizes significance of data protection during arbitration and provides for various mechanisms to ensure protection of the Parties’ sensitive data and information, including adoption of “any specific information security measures to protect the physical and electronic information shared in the arbitration.” This provision is particularly important in light of the LCIA’s adoption of the primacy of electronic communication and availability of virtual hearings.

CONCLUSION

LCIA’s 2020 updates adopt arbitration proceedings to challenges of Covid-19 era, which include travel restrictions and social distancing, and significantly expand application of electronic means and virtual hearings.  The Rules updates also contain important provisions concerning expeditious determination of arbitration proceedings under certain circumstances, including early determination.

A uniform pronouncement of the burden of proof necessary for a party to succeed in summary disposition of a case is conspicuously absent from international arbitration today. The rules for summary disposition of cases proceeding before ICSID and the ICC generally explain what is necessary to succeed, but few cases have addressed the evidentiary standard the Tribunal requires in order to grant summary disposition. In order to discern the standard, parties look to published ICSID decisions and those few ICC decisions that are publicly available. The formulation seems to be similar in before both, but the effective standard of proof required can be very different.

Summary Disposition under the ICSID Rules.

ICSID Arbitration Rule 41(5) empowers the Tribunal to dismiss claims early in the proceeding which are “manifestly without legal merit.” The Tribunal must render an award under ICSID Arbitration Rule 41(6) where the Tribunal lacks jurisdiction or that the claims are “manifestly without legal merit.”

ICSID maintains a list of decisions addressing ICSID Arbitration Rule 41(5) on its website.[i] Of the 26 cases listed, three cases have a finding that the claim was manifestly without legal merit[ii], three have partial findings to that effect, six denied such a finding and the remainder of the cases did not decide the issue.

One of the cases resulting in a partial finding that the claim was” manifestly without legal merit,” Trans-Global Petroleum v. Jordan (“Trans-Global”), contains this frequently cited standard:

[T]he ordinary meaning of the word [“manifestly”] requires the respondent to establish its objection clearly and obviously, with relative ease and despatch. The standard is thus set high. Given the nature of investment disputes generally, the Tribunal nonetheless recognizes that this exercise may not always be simple….The exercise may thus be complicated; but it should never be difficult.[iii]

In Ansung Housing, the Tribunal using the Trans-Global formulation, dismissed all claims based on time limitations and finding that Respondent had established its objection “clearly and obviously, with relative ease and dispatch.”[iv] The Tribunal did not find it necessary to entertain Respondent’s argument that the Tribunal must ignore facts that were “incredible, frivolous, vexations or inaccurate or made in bad faith” because the case could be decided on undisputed facts.[v]

The time for making an application under ICSID Arbitration Rule 41(5) is early in the case. The deadline is “no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal.” As the application is made early in the case, the Tribunal generally cannot decide disputed facts necessary to dispose of the application.[vi]

Summary Disposition under the ICC Rules.

Article 22(3) of the ICC Rules require the Tribunal and parties to “make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute.” Complementarily, Article 22 of the ICC Rules empowers the Tribunal to take procedural measures “to ensure effective case management.” Paragraphs 59-64 of the ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under ICC Rules (2017) contemplates summary disposition of claims that are “manifestly devoid of merit.” The Tribunal has full discretion to allow such an application at any stage of the proceeding.[vii]

No published ICC decisions have explained the legal standard of “manifestly devoid of merit.” A 2019 unpublished ICC decision, which denied summary disposition, has explained that this is a high standard, with “manifestly” meaning “without ambiguity,” and “devoid” requiring the lack of merit to be absolute. The Tribunal was concerned about several issues of mixed fact and law involving the interpretation of a contract, and chose not to perform any fact finding.

Paragraph 61 of the ICC Note contemplates that the application can be entertained at any stage of the proceedings. Paragraph 62 mentions that additional evidence after the application is filed should be “allowed only exceptionally.” These paragraphs suggest that in order to succeed, the application must stand on its own – as a matter of law – without presentation of substantial evidence. The Tribunal is, nevertheless, empowered to conduct a hearing on the application under paragraph 62 of the ICC Note. The 2019 unpublished ICC decision suggests that this power to conduct a hearing would be rarely invoked.

Contrast Between the Standards of the ICSID and the ICC Rules

The ICSID and ICC standards appear to be similar, but they are not the same. For ICSID cases, the Tribunal must ask itself “what additional evidence can be adduced which could prevent early dismissal if the case were to continue?” The ICSID case issues are binary, bright-line issues beyond dispute because the application must be brought before information exchanges occur. The bright-line issues are generally jurisdictional issues.

In ICC cases, the Tribunal and the parties have the benefit of document exchanges, and have additional information to either clarify or obscure the facts. Moreover, the Tribunal is entitled to conduct a hearing to decide facts, but apparently, materials supplementing the facts after the initial findings should be “allowed only exceptionally.” This means that the ICC Tribunal will expect the application to be brought later in the case and only when the evidentiary record is ripe for disposition. Practitioners should not rely on the possibility of serial filings as the record must first be adequately developed. The standard of proof after hearing would normally be dictated by lex arbitri, the law of the seat of the arbitration, as would the level of proof for summary disposition. Even with the application of the lex arbitri, the decisions from tribunal to tribunal without the benefits of previous published decisions renders outcome prediction difficult.

We look to the publication of additional cases in order to aid future arbitrators and practitioners on the standard of proof required.

[i]           Https://Icsid.worldbank.org/en/Pages/Process/Decisions-on-Manifest-Lack-of-Legal-Merit.

[ii]           The three cases are Global Trading Resource Corp. and Glovex International, Inc. v. Ukraine (ICSID Case No. ARB/09/11), Award December 1, 2010, RSM Production Corporation and others v. Grenada (ICSID Case No. ARB/10/6 Award December 10, 2010 and Ansung Housing Co., Ltd. v. People’s Republic of China (ICSID Case No. ARB/14/25 Award March 9, 2017.

[iii]          Ansung Housing Co., Ltd. v. People’s Republic of China, (“Ansung Housing”) ICSID Case No. ARB/14/25, Award March 9, 2017, citing Trans-Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/07/25, para. 88 (Decision on the Respondent’s Objection Under Rule 41(5).

[iv]          Ansung Housing at para. 70.

[v]           Ansung Housing at para. 71.

[vi]          Trans-Global at para. 97.

[vii]         ICC Note para. 59-61.

In cases involving contracts between U.S. companies, courts frequently allow a nonsignatory to a contract to enforce an arbitration provision in the contract against a signatory when the signatory to the contract relies on the terms of that agreement in asserting its claims against the nonsignatory.  On June 1, 2020, the U.S. Supreme Court ruled unanimously that this principle — known as “equitable estoppel” — may also be applied to international contracts governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, because nothing in that Convention conflicts with the enforcement of arbitration agreements by nonsignatories under domestic law equitable estoppel doctrines.

The Supreme Court’s decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC[1] overturned a ruling of the U.S. Court of Appeals for the 11th Circuit, and resolves a split on this issue between the 11th and 9th Circuits on the one hand, and the 1st and 4th Circuits on the other.

The Supreme Court’s decision brings the enforcement of arbitration provisions in international contracts into conformity with the enforcement of such provisions in domestic contracts in regard to the potential for nonsignatories to compel a signatory to bring its claims in arbitration, rather than to litigate against the nonsignatory in court, when the conditions for equitable estoppel are met.

GE Energy concerned a company that entered into three contracts with F.L. Industries, Inc. for the construction of cold rolling mills at a steel manufacturing plant in Alabama. Each of the contracts contained an identical arbitration clause, providing for arbitration of disputes to take place in Germany in accordance with the Rules of Arbitration of the International Chamber of Commerce. After executing those agreements, F.L Industries entered into a subcontract agreement with GE Energy Power Conversion France SAS, Corp. (GE Energy) for the design, manufacture and supply of motors for the cold rolling mills. The owner of the steel plant and its insurers filed suit against GE Energy in Alabama state court, alleging that the motors it supplied failed, resulting in substantial damages.

GE Energy removed the action to federal court and then moved to dismiss and compel arbitration of the claims, relying on the arbitration clauses in the contracts between F.L. Industries and the original owner of the plant. The District Court ruled that GE Energy qualified as a party under the arbitration clauses because the contracts defined the terms “seller” and “parties” to include subcontractors and compelled arbitration.[2]

The 11th Circuit reversed, ruling that the New York Convention includes a requirement that the parties sign an actual agreement to arbitrate their disputes in order to compel arbitration.[3]  It then ruled that GE Energy could not rely on state law equitable estoppel doctrines to enforce the arbitration agreement as a nonsignatory because, in the court’s view, equitable estoppel conflicts with the New York Convention’s signatory requirement. The 11th Circuit’s ruling on equitable estoppel was consistent with an earlier 9th Circuit decision,[4] and inconsistent with decisions of the 1st and 4th Circuits.[5]

The Supreme Court reversed. In a unanimous opinion written by Justice Thomas, the court noted that it has previously ruled that the Federal Arbitration Act permits nonsignatories to rely on state law equitable estoppel doctrine to enforce an arbitration agreement. The court ruled that nothing in the New York Convention prohibits the application of domestic equitable estoppel doctrines to international contracts providing for arbitration, and that the treaty’s silence on that issue was dispositive. The court also found support for its interpretation by looking to decisions by courts of other New York Convention signatories, which it found also permitted enforcement of arbitration agreements by entities that did not sign the agreement.

Because the 11th Circuit concluded that the New York Convention prohibited enforcement by nonsignatories, it did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governed that determination. The Supreme Court remanded the case to the 11th Circuit to make those determinations.

[1] Case No. 18-1048 (June 1, 2020).

[2] Outokumpu Stainless USA LLC v. Converteam SAS, 2017 WL 401951 (S.D. Ala. Jan. 30, 2017).

[3] Outokumpu Stainless USA LLC v. Converteam SAS, 902 F.3d 1316 (11th Cir. 20218).

[4] Yang v. Majestic Blue Fisheries, LLC, 876 F.3d 996 (9th Cir. 2017).

[5] Aggarao v. MOL Ship Mgmt. Co., 675 F. 3d 355 (4th Cir. 2012); Sourcing Unlimited, Inc. v. Asimco Int’l, Inc., 526 F.3d 38 (1st Cir. 2008).