Last month a number of noteworthy arbitration-related developments took place in Moscow.

Firstly, the international conference “Commercial Arbitration in Russia, Sweden and the UK: New Business Opportunities”, was held on 9-10 June at the Congress Center of the Russian Chamber of Commerce and Industry. The conference was jointly organized by the Center of Arbitration and Mediation at the Russian Chamber of Commerce and Industry in cooperation with the Stockholm Chamber of Commerce, CIA and BE Capital. More than 100 lawyers from Russia and abroad attended the conference with a wide range of interesting topics. In conjunction with this event, a meeting of the newly elected SCC Secretary General Annette Magnusson and Kaj Hobér with members of the Russian Young Arbitration Lawyers Group, MAF40 was held to discuss arbitration in Sweden in general, and activities of the SCC in particular (http://www.sccinstitute.com/?id=23696&newsid=34412).

Secondly, on June 23, 2010, the Russian Chamber of Commerce and Industry took some initiatives with regard to the International Commercial Arbitration Court (ICAC), which is acting under the auspices of that Chamber. To this, a new list of arbitrators of the ICAC was approved by the Russian Chamber of Commerce and Industry. The list currently includes 179 Russian and foreign practitioners. The previous list that was approved in 2005 with later amendments included 176 Russian and foreign arbitrators. The current list, taken into account the number of deceased arbitrators and those who were not included in the list, there are 30 newly listed arbitrators, among them 10 are foreigners.

The list is not mandatory for the parties to choose from in disputes to be considered by the ICAC; however, the Chairman of the arbitral tribunal (in case there are three arbitrators) shall be appointed by the Presidium of the ICAC only from that list. Should the Presidium of the ICAC decide that the dispute should not be resolved by a panel, a sole arbitrator shall also be appointed by the Presidium of the ICAC only from that list.

In addition, the Russian Chamber of Commerce and Industry has also introduced several important amendments to the ICAC Rules (the “Rules”).

The position of the First Deputy- Chairman of the ICAC has been created. The person in that position is intended to replace the Chairman of the ICAC in case of a need. Subject to the ICAC previous Rules, there were two Deputy- Chairmen with the same legal status.

Furthermore, the amendments increased the number of the members of the Presidium of the ICAC, who are elected during the general meeting of the ICAC arbitrators every 5 years, from fine to seven. Furthermore, the Rules of the quorum of the Presidium of the ICAC (important body in everyday activities of the ICAC) were also amended.

In addition, a new provision was added in relation to the number of copies of all documents that need to be submitted to the ICAC (one extra copy is to be provided); the additional copy is to be provided to the Rapporteur in an ICAC case. The involvement of a Rapporteur is a special procedural feature of every ICAC case: a Rapporteur is a knowledgeable person appointed by the secretary of the ICAC (subject to the proposal of the Chairman of the arbitral tribunal of the sole arbitrator) to help the arbitral tribunal or the sole arbitrator with the file. In the ICAC, there is a list of rapporteurs. A Rapporteur whose name is not included in the list of Rapporteurs can still be appointed subject to the prior approval of the ICAC Chairman.

Moreover, two major amendments were introduced to the Rules in order to promote transparency and efficiency. Firstly, the Rules provides that party in a dispute can request to submit its oral arguments via a video conference. This request is considered by the arbitral tribunal or the sole arbitrator subject to the circumstances of the case, opinion of the other party(s) and technical availabilities. Secondly, the Rules state that a person can hold a position of an ICAC Chairman for two terms only (not more than 10 years).

On June 28, 2010, the General Meeting of Arbitrators of the ICAC was held. Professor Alexey A. Kostin was elected as the Chairman of the ICAC, while Professor Ivan S. Zykin was elected as the First Deputy-Chairman of the ICAC, and Professor Evgeniy A. Sukhanov was elected as the Deputy-Chairman of the ICAC.

Professor Alexey A. Kostin, supported by 80 % votes of the ICAC arbitrators replaced Professor Aleksandr S. Komarov, who held that position for 17 years (since 1993). The following persons were elected members of the Presidium of ICAC for a five-year term: professor Nina G. Vilkova, professor Alexey N. Zhiltsov, professor Aleksandr S. Komarov, professor Sergei N. Lebedev, professor Aleksandr L. Makovskiy, professor Mikhail G. Rozenberg, professor Oleg N. Sadikov.

I believe that all amendments are positive with real intention to make the ICAC more transparent and more competitive.

Just to mention one last thing that I found is interesting, thus worth noting. A few mass-media in Russia broadcasted a rumors on the potential relation between the new elections and the cases heard by ICAC arbitrators almost four years ago (http://www.kommersant.ru/doc.aspx?fromsearch=32838547-ebbf-4c10-bab5-a749b20307c6&docsid=1405322). among the cases were Yukos Capital s.a.r.l. (Luxembourg) v. OJSC Yuganskneftegaz (former subsidiary of Yukos Oil Company, which was held insolvent by Russian courts due to huge tax liabilities because of its involvement in tax scams. OJSC Yuganskneftegaz was finally acquired by the Russian state oil company Rosneft). The claimant sought to enforce four loan agreements. In the four similar cases, the ICAC Arbitral Tribunal found in favor of the claimant. Later on, the debtor successfully challenged the awards before the Russian Commercial (Arbitrazh) Court, which set the awards aside for a number of procedural violations. Then Yukos Capital s.a.r.l. applied to Dutch courts to enforce the awards. The Court of the First Instance rejected enforcement while the Appellate Court found in favor of Yukos Capital s.a.r.l.

On June 25, 2010, three days before the ICAC Meeting, the Dutch Supreme Court denied Rosneft the right to appeal in that case on enforcement. That decision of the Dutch Supreme Court provided a good ground for rumors. It was rumored that the ICAC Chairman was replaced for political reasons, i.e. perhaps due to his influence on the outcome of the said arbitral cases in 2006 or for failing to prevent granting the awards by the ICAC Tribunals in favor of Yukos Capital s.a.r.l. In my opinion, such rumors are mere gossip by people who are not aware of the ICAC procedures taken to resolve the cases and the amount of preparation needed, or that they have an intent to distort the ICAC procedures. You may believe everything you read in the newspapers or hear in the media unless you were a witness to an event. I was.

Alexander Muranov

I recently spoke at a conference co-sponsored by the Milan Chamber of Arbitration and the ICC on the occasion of the publication of the new Italian arbitration treatise entitled Commentario Breve al Diritto Dell’Arbitrato Nazionale ed Internazionale (CEDAM 2010) by my colleague Massimo Benedettelli, along with co-authors Claudio Consolo and Luca Radicati di Brozolo. The topic of my panel was general trends in international arbitration.

Although I would have liked to have spoken on a substantive trend in international arbitration, I decided I could not ignore a much bigger, procedural trend that has been the topic of conferences in both the United States and Latin America – that is the growing discontent of corporate users with international arbitration.

The criticisms regarding international arbitration center around cost and efficiency. A recent study of the Corporate Counsel International Arbitration Group (CCIAG) found that 100% of the corporate counsel participants believe that international arbitration “takes too long” (with 56% of those surveyed strongly agreeing) and “costs too much” (with 69% strongly agreeing).

Three main questions arise from these criticisms. The first is whether these criticisms are justified? The second is, if so, then what (or who) is to blame? The third and final question is what can the arbitration community do about these critiques? The answers to the first two questions depend on where one sits. But I am increasingly impatient with our responses to the third, as I think there are relatively simple solutions if we are willing to be creative and proactive.

First, much of the criticism regarding cost and efficiency in international arbitration is targeted at investor-state arbitration. These by their nature involve a more transparent and political process than international commercial arbitration, and the problems and solutions are, in part, different in each.

Second, there is plenty of blame to go around. Many blame complaints on outside counsel – especially those from the United States – for requesting too many documents, making too many motions, and generally filing too many pages. Others blame in-house counsel for not using their authority to rein in practices they criticize as inefficient or wasteful. And some blame the arbitral institutions themselves for not constructing a system that reins in everyone.

My most negative experiences recently, however, have been with arbitrators – and especially chairs – who are oftentimes overscheduled, unprepared, disorganized, reactive, timid and slow. Without suggesting I am blameless as a chair, there is no way to defend arbitrators who cannot schedule hearings for months or produce awards for years. But don’t take it from me. The CCIAG survey lists the following factors as contributing to the rising inefficiency of international arbitration: (i) 100% of those surveyed identified arbitrator availability and excessive document disclosure; (ii) 95% identified the “failure of tribunals to narrow issues, evidence and argument leading parties/counsel to feel need to cover all bases” and (iii) 90% identified excessive concern for due process over efficiency, leading to a free-for-all on timing.

So, then, what are the solutions? Fortunately several have already been identified and implemented. The CEDR and ICC have published rules and techniques for controlling time and costs. The ICC has revised its Arbitrator Statement of Independence to include information on availability, in the form of data about other cases in which an arbitrator candidate is serving. Despite the many complaints regarding the “Americanization” of document discovery, it is the AAA that has issued international guidelines calling for arbitrators to manage document disclosure strictly, using cost assessment as a control mechanism.

We can go farther. Institutions should require more than the ICC’s disclosure on availability. Why not require a simple calendar with black-out dates for scheduled hearings and deliberations as arbitrator, teaching commitments, hearings and major filings as counsel? No disclosure of details, of course, but just calendar dates – based on then-available information – on when an arbitrator is and is not available for hearings.
As for efficiency in issuing awards, why not require arbitrator candidates to disclose not just how many prior cases they have handled as arbitrator, but also, for each case, how much time passed between the close of the record and the issuance of the award? Provided there is a field for an explanation, i.e., delay caused by suspension, or illness, this is simply objective ‘data’ helpful to the parties.

How about building into the procedural calendar a one or two day private (and paid) meeting of the tribunal to allow (and in some cases, force), the arbitrators to study the record together, prepare focused hearing directions, and (ideally) issue (neutral) questions to parties to prioritize use of witnesses and hearing time. (This is the “Reed Schedule” I mentioned in prior talks and blogs.)

Finally, if these proposals seem radical, consider that the CCIAG has proposed a far more radical solution: linking arbitrator remuneration to achieving milestones in the procedural calendar.

Whether or not concerns about international arbitral efficiency are exaggerated, the international arbitration community must face this discontent and, more importantly, take steps to fix these problems if it is to maintain legitimacy with its users.

As is well known, Section 1782(a) provides that a “the district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal”.

The applicability of 28 U.S.C. § 1782 to international arbitration has generated an interesting debate, especially on this blog (see lastly G. Born’s post, L. Reed’s post, E. Triantafilou’s post, adde, Y. Lahlou, l’applicabilité de l’article 28 USC 1782 à l’arbitrage commercial international, Gaz. Pal., 2009-3). The debate is essentially concerned with the question whether an international arbitral tribunal constitutes a “foreign tribunal” for purposes of § 1782 (see the recent: In re Application of Chevron, 2010 WL 1801526, at *6 (S.D.N.Y. May 6, 2010 and Roger Alford’s blog). Conflicting solutions on this issue have been rendered in the United States (against the application of § 1782 to international arbitration see e.g.: National Broadcasting Co. Inc and NBC Europe v. Bear Steans & Co., Inc et al, 165 F.3d 184 (2d Cir. 1999); El Paso Corp. v. La Comision Ejecutiva Hidroelectrica del Rio Lempa No 08-20771, 2009 US App. Lexis 17596 (5th Cir. Aug. 6 2009); In re Arbitration in London, England, No. 09-C-3092, 2009 US Dist. Lexis 49827. For the application of § 1782 to international arbitration see e.g. In re Oxus Gold plc, MISC 06-82-GEB, 2007 WL 1037387 (D.N.J. April 2,2001), In re Roz Trading Ltd, 469 F. Supp. 2d 1226; In re Hallmark Capital Corp., 534 F Supp. 2d 951 (D. Minn. 2007), Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14 2008).

A related, and somewhat minor question, has however attracted little interest, and that is whether costs incurred by the party to an arbitration procedure in court proceedings based on § 1782 (“the Discovery costs”) may be treated as costs of the arbitration and allocated by the arbitral tribunal. The question will be relevant to the parties since, as it is known, costs are not refunded to the prevailing party in the context of Discovery court proceedings in the United States.

The critical issue is whether the Arbitral Tribunal has jurisdiction to allocate Discovery costs as costs of the arbitration.
The first element of answer may be found in the arbitration agreement.
Proceedings related to a Discovery application in aid of the arbitration may well be considered as a dispute arising out or relating to the underlying contract. Hence, there should not be any difficulty to admit that, in principle, Discovery applications are related to the contract. As a consequence, a broadly formulated arbitration clause (such as a clause worded as follows “all disputes arising out of or in connection with the present contract shall be finally settled through arbitration by one or more arbitrators”) may well be construed as applying to Discovery costs. This is not the end of the story, however.

A first argument against the arbitral tribunal’s jurisdiction to apportion Discovery costs is that applications for Discovery in aid of the arbitration applications usually involve third parties in possession of the evidence sought. Such circumstance, however, should not be relevant as long as the parties in dispute in the arbitration are also parties to the Discovery court proceedings.
Another possible objection relates to the concept of “costs of the arbitration”.

In the context of UNCITRAL or institutional arbitration, it should be seen whether the applicable arbitration rules permit to treat such costs as costs of the arbitration.

It is for example doubtful that, under Article 38 of the 1976 UNCITRAL rules, Discovery costs can be treated as costs of the arbitration. Article 38 provides that “the term ‘costs’ includes only: (a) the fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39; (b) the travel and other expenses incurred by the arbitrators; (c) the costs of expert advice and of other assistance required by the arbitral tribunal; (d) The travail and other expenses of witness to the extent such expenses are approved by the arbitral tribunal; (e) the costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable; (f) Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at the Hague”.

The new 2010 UNCITRAL rules, however, include a new wording of § (e) below. The new Article 40 (e) of the Rules now provides that costs include “the legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable”. Arguably, Discovery costs are costs incurred “in relation to the arbitration”. As a consequence, Discovery costs would be treated as costs of the arbitration.

The ICC rules, with respect to costs, provide in Article 31(3) that “The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties”. Article 31(1) also provides that the costs of the arbitration include the “reasonable legal and other costs incurred by the parties for the arbitration”. Such a provision does not seem to encompass costs incurred “in relation” to the arbitration. It is generally admitted, however, that arbitrators have wide discretion in apportioning costs. Whether such discretion could be used to allocate Discovery costs remains to be seen.
The LCIA rules confer to an arbitral tribunal the power to “order in its award that all or part of the legal or other costs incurred by a party be paid by another party” (Article 28.3). However, this provision seems to relate to the costs incurred in the arbitration, and would thus not apply to costs incurred in court proceedings. The ICDR rules refer in Article 31 to “the costs of arbitration”. Although the rules also provide for a non-exhaustive list of what “may” be included as such costs, , the concept of costs of arbitration is arguably not equivalent to that of costs incurred “in relation to” the arbitration. The same observation applies with respect to Article 38 of the Swiss Rules.

Another possible ground to recover Discovery costs could be as damages for breach of the arbitration agreement. It is unlikely that the lex arbitri would prevent a party from seeking Discovery in aid of the arbitration, but it may well be that the arbitral tribunal enjoined the party from doing so or from pursuing an application made without the tribunal’s leave.

A U.S. court has, in this respect, decided that § 1782 application suppose the consent of the arbitral tribunal (see In re Bacock Borsig AG, 583 F. Supp. 2d a 233 (D. Mass. 2008)). Such principle is healthy as Discovery applications – as they include leave to depose witnesses and suppose broad discovery – are likely to be inconsistent with the tribunal’s procedural directions. In such a scenario, an application made in disregard of the tribunal’s directions or order would constitute a breach of the arbitration agreement insofar as the arbitration agreement obliges the parties to cooperate in good faith to the proceedings. There should be no valid reason why such a breach could not give rise to damages.

Alexis Mourre/Alexandre Vagenheim

“With over 20,000 contracts executed each year, it is simply impossible to address the problems of cost and delay in arbitration through artful drafting.” That was the gist of comments made by a general counsel of a major corporation at last month’s ITA workshop. To which another general counsel on the panel replied, “No, we have developed language in our contracts that deals with the issue quite effectively.”

There is no end to the discussion of arbitration as the new litigation, with all the attendant costs and delays. But the ITA workshop helpfully presented a slightly different question: who is to blame for the problem? If the clients care so much about cost and delay why don’t they police it better? And if they were to police it, how would they go about doing so? They can either: (1) fix the problem before it happens through careful drafting; (2) minimize the problem by settling early; or (3) police the problem through scrupulous oversight of outside counsel.

The panel discussion included (1) Eric Liebeler, Associate General Counsel of Siemens; (2) Pedro Alberto Costa Braga de Oliveira, General Counsel of Enel Brasil; (3) Alan Crain, General Counsel for Baker Hughes; and (4) Carla Powers Herron, Group Counsel–Litigation for Shell.

The corporate counsel panel discussed all three options at some length, but reached no consensus. Drafting to avoid cost and delay requires foreknowledge about the nature of a future dispute. Certain disputes are so important that cost and delay are minor issues relative to the goal of winning. Settlement assumes that the transactions costs of arbitration will drive parties toward an early solution, which may or may not be cost effective. Policing outside counsel means careful monitoring of their behavior, including the quantum of hours invested in the case and the quality of their litigation tactics. It also assumes a lack of trust in outside counsel to act in the best interest of the client.

At the end of the discussion, the panel members were asked whether they still believe that international arbitration is preferable over the alternatives. Only one corporate counsel said he would go with litigation over arbitration every time, but then he qualified that statement by saying this assumed he could choose his home jurisdiction. The Brazilian corporate counsel said, “Compared with litigation in my country, which can take decades, I will choose international arbitration every time. No question.”

This year’s ICCA Congress in Rio de Janeiro not only confirmed that nobody knows to party better than cariocas, but also served as an impressive reminder of the increasing pro-arbitration approach of Brazilian courts, the remarkable growth in the number of arbitration proceedings in Brazil and the high sophistication of the Brazilian arbitration bar.

Yet less than two weeks after the ICCA Congress concluded, a court in São Paulo issued an injunction ordering a sitting ICC arbitration tribunal to widen the scope of the expert evidence it was considering. The underlying dispute arose out of the construction of the “Yellow Line,” a new subway line in the city of São Paulo. In order to timely complete the construction, the subway operator, Companhia do Metropolitano de São Paulo, known simply as “Metrô,” and the consortium constructing the new subway line, Consórcio Via Amarela, agreed to change the tunneling method, which resulted in additional costs. A dispute arose as to which party had to cover these costs. After a Dispute Avoidance Board recommended that Metrô compensate Via Amarela for the additional costs, Metrô initiated an ICC arbitration. The three-member ICC tribunal, seated in São Paulo and chaired by Brazilian arbitrator Carlos Alberto Carmona, issued a partial award in June 2009 holding that Via Amarela was entitled to be compensated for the additional costs and that the quantum of compensation would be fixed in the second phase of the arbitration by an accountant.

Metrô subsequently requested that the quantum be determined by engineering experts. After the tribunal rejected the request, Metrô initiated proceedings before São Paulo courts to set aside the partial award. In addition, Metro sought a writ of mandamus (“mandado de segurança”) ordering the tribunal to accept engineering evidence.

On 7 June 2010, the São Paulo Tribunal de Justiça issued a writ of mandamus ordering the ICC tribunal to consider the engineering expert evidence, which in the court’s view was a more reliable means of establishing the compensation amount. At least two aspects of the court’s order are worth noting here. First, the judge interfered in the ongoing arbitration proceedings by reviewing the tribunal’s decision not to consider the engineering expert evidence and concluding that in doing so, the tribunal had violated the principles of “reasonableness” and public policy. In issuing the writ, the judge not only violated the Brazilian Arbitration Act and the New York Convention, but also ignored a number of strong precedents by Brazilian courts confirming the autonomy of arbitration proceedings. It goes without saying that due process and public policy arguments, whatever their merits in this case, can only be raised in annulment proceedings.

Second, the use of a mandado de segurança as a procedural tool to interfere in arbitration proceedings is highly questionable and reminiscent of the use of amparos in some other Latin American jurisdictions. Under Brazilian law a court may issue such a writ to protect a “clear and perfect” (“liquido e certo”) right, whenever the party responsible for the illegal actions or abuse of power is a public official or an agent of a corporate legal entity exercising Government functions. The judge reasoned that arbitrators should by analogy be regarded as public officials, and hence be subject to a writ of mandamus, because arbitration involved the “delegation of the jurisdiction by the State.” However, to equate arbitrators with public officials not only appears to be mistaken, but would also open the floodgates for further judicial intervention in arbitration proceedings.

The decision is troubling to many because it was issued by a court in São Paulo, which, together with Rio de Janeiro, serves as seat for the great majority of arbitrations in Brazil and has been building a reputation as a seat for international arbitrations. It therefore does not surprise that the court’s anti-arbitration injunction has caught international attention and has been reported in the Global Arbitration Review.

Yet the import of this decision should not be exaggerated. Since the adoption of the 1996 Arbitration Act and the Supreme Court’s December 2001 decision confirming the constitutionality of the provision in the Arbitration Act regarding the specific performance of the arbitration clause, courts in Brazil have increasingly adopted a pro-arbitration approach. Anti-arbitration injunctions have remained the exception rather than the norm. At the same time, Brazilian courts have shown no reluctance to grant emergency conservatory measures in support of arbitration proceedings. As a result, the number of arbitrations in Brazil has increased drastically.

The attention raised by the occasional anomalous court decision, such as the writ of mandamus in Metrô v. Consórcio Via Amarela, is more likely to strengthen than weaken the pro-arbitration approach of Brazilian courts, because such decisions engender a healthy debate about important arbitration issues within the judicial community. Such anomalous decisions further provide higher courts with the opportunity to rule on appeal on important arbitration issues thereby adding to and strengthening their pro-arbitration jurisprudence. At the same time, they highlight the importance of the continued need to educate lower-level judges about arbitration.

On 30 June 2010 Via Amarelo obtained a suspension of the effect of the injunction pending a decision on the appeal. It is likely that the injunction will be overturned on appeal and that Brasil will have yet another important pro-arbitration precedent.

Dietmar W. Prager, Debevoise & Plimpton LLP

Less than two weeks before arbitration practitioners’ eyes turned to Rio de Janeiro for the ICCA Congress 2010, a court from that same jurisdiction rendered a decision improving case law on important matters related to arbitration.

On May 12th, 2010, the Tribunal de Justiça do Estado de Rio de Janeiro (which is similar to a Court of Appeals) rendered a decision on the timing and admissibility of urgent measures before Brazilian courts. In Durval Biancalana da Silva e outros vs. DTP Participações e Investimentos S/A e outros the dispute arose from a quota purchase agreement containing an institutional arbitration clause providing for the administration by CCBC – Centro de Arbitragem e Mediação da Câmara de Comércio Brasil-Canadá.

The court of first instance examined a request for injunctive relief based on arguments of an urgent need to prevent irreparable harm, considering contractual breaches and default committed by the respondents. The claimants argued that unless certain restraining orders were granted against the company’s administration, its officers would have the opportunity to act contrary to the purchaser’s interests, causing substantial damages to the business. However, the court decided to dismiss the request on the ground that only the arbitral tribunal should rule on any matter originated from the contract due to the presence of an arbitration clause, including a decision on injunctive remedies.

In the consideration of the appeal, the Tribunal de Justiça overturned the decision, partially granting the relief sought by the claimant. The Tribunal de Justiça first examined the language of the arbitration clause which included a provision on the possibility of requesting urgent measures to the judiciary before and after the arbitral proceedings, and concluded that until the arbitral tribunal had been constituted the parties were allowed to request such remedies.

The respondents, however, had filed a memorial with evidence contending that the arbitration proceedings were already initiated under the auspices of the CCBC. Despite this argument, the Tribunal de Justiça found that the constitution of the arbitral tribunal was still on its way and that only after that point would the judiciary lack jurisdiction. It also pointed out that the appointment of arbitrators, the acceptance of their duties and the signature of the term of independence would all together take enough time to justify the injunction issued by the judiciary with regard to the urgency.

In sum, the Tribunal de Justiça correctly reversed the decision from the court of first instance, interpreting the initiation of the arbitral proceedings as the constitution of the arbitral tribunal. This ruling complies with the competence-competence principle and the generally accepted moment of the constitution of the arbitral tribunal and the rules enshrined in the national arbitration statute, which are applicable both to domestic and international arbitration.

This case reveals two relevant arbitration trends in vogue in Brazil. First, the decision from the court of first instance shows the recent eagerness of more engaged Brazilian judges to enforce arbitration agreements and respect the jurisdiction of arbitral tribunals. It is in essence a very good sign in favor of arbitration, from a country where the full understanding of the institute and its implications is yet to be widely consolidated.

Second, the position of the judiciary to review the matter from a supportive perspective also reveals a growing understanding of the limits and duties of every actor in the dispute resolution process through arbitration, including courts. A decision such as this ensures international observers that it is now much safer to set their arbitration seats in Brazil.

Recent legislative developments in Oklahoma, and a few other U.S. states, reflect a growing mistrust of international and foreign law and legal systems. These proposed statutes and constitutional amendments are one aspect of parochial backlash in the United States and elsewhere against developments in international law and dispute resolution over the past decades. There are substantial doubts about the constitutionality of these legislative proposals under the U.S. Constitution, but they may prove to be the source of substantial mischief. For the moment, these legislative developments are more in the nature of eccentric curiosities than anything else. They nonetheless warrant careful monitoring – particularly if comparable legislative provisions begin to be proposed on a federal level in the U.S. Congress. Indeed, the proposed Arbitration Fairness Act, pending in Congress, has hints of a similar disregard for U.S. international obligations.

The leading example of legislative backlashes against international and foreign law is a proposed amendment to the Oklahoma State Constitution (1). Grandiosely titled the “Save our State Amendment,” the proposed amendment would purport to forbid Oklahoma State courts from “look[ing] to the legal precepts of other nations or cultures” or from “consider[ing] international law or Sharia Law.” The full text of the proposed amendment is available here.

The “Save our State Amendment” overwhelmingly passed in the Oklahoma House on 18 May 2010 (91 for – 2 against) and in the Senate just six days later, on 24 May 2010 (41 for – 2 against, 5 excused). The proposed amendment would provide:

“The [Oklahoma] Courts …, when exercising their judicial authority, shall uphold and adhere to the law as provided in the United States Constitution, the Oklahoma Constitution, the United States Code, federal regulations promulgated pursuant thereto, established common law, the Oklahoma Statutes and rules promulgated pursuant thereto, and if necessary the law of another state of the United States provided the law of the other state does not include Sharia Law, in making judicial decisions. The courts shall not look to the legal precepts of other nations or cultures. Specifically, the courts shall not consider international law or Sharia Law. The provisions of this subsection shall apply to all cases before the respective courts including, but not limited to, cases of first impression.” (2)

The proposed amendment is to be submitted to a referendum of Oklahoma voters, likely in November 2010. News sources predict that the amendment will be adopted by a large margin.

If Oklahomans adopt the amendment, what will it mean (putting aside questions of validity under the U.S. Constitution)? This is not an issue that has drawn the attention of the amendment’s sponsors, whose interest appears limited to stoking parochial bias and fear. Still, if adopted, courts will have to interpret the legislation.

One obvious area where the amendment may have application is conflict of laws. The amendment specifically provides that Oklahoma courts may not “consider” either international or Sharia law, and may only apply the law of sister states in the United States “provided the law of the other state does not include Sharia Law.” That fairly clearly excludes application of, for example, the law of states which have adopted Sharia law – presumably in cases where there is a contractual choice-of-law clause, as well as in cases where there is not. Although principles of international law are less likely to arise in commercial litigation, particularly in state courts, in those instances where they do (e.g., some human rights litigation, cases raising issues concerning foreign territorial boundaries), the Oklahoma amendment would appear to preclude application of those principles. Exactly how the amendment’s prohibition against the application of international law relates to the amendment’s preliminary acknowledgment that Oklahoma courts must apply federal law (which, under well-settled U.S. precedent, includes international law) is not addressed by the amendment or its drafting history.

There is a further issue, of greater practical importance, particularly if the amendment’s approach were adopted outside Oklahoma. Under the amendment, may an Oklahoma court apply any foreign law, as distinguished from international or Sharia law? In addition to providing that Oklahoma courts may not consider international and Sharia law, it also prohibits Oklahoma courts from “look[ing] to the legal precepts of other nations or cultures.” A serious argument could be made that this text forbids the application of foreign law in Oklahoma courts – including, for example, in tort, contract and other commercial disputes. Thus, if a dispute arose under a contract with a choice of law clause selecting foreign law (e.g., French or Russian), there is a substantial argument that the amendment would forbid application of French or Russian law; the argument is at least as strong in tort or contract cases where no choice-of-law clause existed. In neither case, the argument would run, could an Oklahoma court apply “the legal precepts of other nations.”

Choice of law issues in most contexts are, under domestic U.S. law, governed by state (not federal) law. That would appear to make the amendment’s prohibition against application of foreign or Sharia law fully applicable in Oklahoma courts – absent some constitutional basis for invalidating the amendment (discussed below). Moreover, although the amendment applies, by its terms, only in Oklahoma state courts, at least arguably, U.S. federal courts in Oklahoma would be obliged to adopt the same rules as state courts in matters ordinarily governed by state law.

It is also not clear how the Oklahoma amendment might impact the recognition and enforcement of foreign judgments which are based on the application of foreign (or international) law by a foreign court. At least arguably, recognition of a foreign judgment would involve the indirect application of foreign (or international) law and, thereby, run afoul the Oklahoma amendment. For example, is a judgment from Egypt or Saudi Arabia capable of recognition in an Oklahoma court under the Oklahoma amendment? In the United States, the recognition of foreign judgments is largely the subject of state law and, as a consequence, the amendment would again appear prima facie to apply to the recognition and enforcement of foreign judgments in Oklahoma state and federal courts. Arguably, similar conclusions would apply to forum selection agreements providing for litigation in a foreign forum (particularly a forum where the Sharia might be applicable).

The impact of the proposed Oklahoma amendment on international arbitration would appear to be much more limited – reflecting in part the superior legal regime applicable to international arbitration, as compared to other means of dispute resolution. In particular, the Oklahoma amendment would not seem to preclude a party from enforcing a foreign award or international arbitration agreement, even if the award applied foreign or international law. The New York Convention and Federal Arbitration Act (Chapter 2) impose federal standards for most aspects of recognition of Convention awards and agreements, in either state or federal courts. The Oklahoma amendment would likely (very likely…) be preempted by the Convention and the FAA.

The immediate practical consequences of the amendment are limited. Oklahoma is not a forum for appreciable amounts of international commercial litigation and, if the amendment is adopted, Oklahoma choice-of-court and choice-of-law clauses will become (even) less common. In practical terms, few international disputes of any consequence are likely to be affected by the amendment.

There is also a substantial argument that various aspects of the Oklahoma amendment run afoul of constitutional limitations under the U.S. Constitution. As noted above, under well-settled U.S. authority, international law is both part of the law of the United States and is treated as federal law. As such, international law preempts, or supersedes, contrary state law and, if the Oklahoma amendment were interpreted to forbid application of international law in Oklahoma courts, it would likely be invalidated.

The amendment’s prohibition against application of foreign or Sharia law raises more complex U.S. constitutional issues. The prohibition may well run afoul of restrictions on state involvement in national foreign relations, imposed by a series of U.S. Supreme Court decisions from the mid-20th century. Singling out the laws of particular foreign states (e.g., Sharia law, which is the foundation of several foreign states’ law) and prohibiting their application in U.S. courts arguably violates these constitutional prohibitions by inserting state legislatures into matters of U.S. foreign relations. Finally, if the amendment is applied to prohibit application of any foreign law, it arguably would violate limitations imposed by the federal due process clause on choice-of-law decisions of state courts – although the existence and contents of such limits is a highly disputed topic.

One might be tempted to dismiss the “Save our State Amendment” as a local eccentricity without practical consequence. Unfortunately, that conclusion is premature. Similar legislative proposals are presently being considered in the Arizona State House and Senate Judicial and Rules Committees. The Arizona bill provides that “[a]ny decision or ratification of a private agreement that is determined, on the merits, by a judge in this state who relies on any body of religious sectarian law or foreign law is null and void, is appealable error and is grounds for impeachment and removal from office.” The full text of the Arizona House bill is here. Although predictions are always risky, one suspects that similar legislative proposals will surface in other states and, eventually, the U.S. Congress.

More broadly, and of even greater practical concern, the Oklahoma amendment is not unrelated to the so-called “Arbitration Fairness Act,” currently pending in the U.S. Congress. Versions of that legislation would invalidate broad categories of agreements to arbitrate consumer, employment, franchisee, and “civil rights” disputes. These legislative proposals are all designed to enhance the litigation options of local constituencies by guaranteeing a more favorable local forum applying local protections – including where parties (in an international commercial agreement) have agreed to resolve their disputes by arbitration. That result is very difficult to square with U.S. commitments under the New York Convention (and the Inter-American Convention). The Convention permits derogation from Article II’s obligation to recognize international arbitration agreements only in limited instances of disputes that are not capable of settlement by arbitration. Article II’s exception cannot easily be expanded to accommodate the proposed Act’s sweeping invalidation, in all circumstances, of broad categories of international arbitration agreements.

The Arbitration Fairness Act parallels the Oklahoma amendment in an even more troubling fashion in its treatment of the separability presumption and the doctrine of competence-competence. Both principles are universally-recognized, in national and international arbitration instruments, judicial decisions, arbitral awards and commentary from all of the world’s leading legal systems. Indeed, U.S. courts played a central role in developing both doctrines (for example, in the Supreme Court’s classic decision in Prima Paint).

Despite that, versions of the proposed Arbitration Fairness Act would abrogate both the separability presumption and the competence-competence doctrine in the context of international arbitration agreements (including in agreements outside the context of consumer, employment and franchise disputes). If adopted, this approach would violate the parties’ express and implied agreements in most international contexts — including where institutional rules, agreed to by the parties, adopt both doctrines; where foreign law, applicable to the agreement to arbitrate, adopted one or both principles; and where parties impliedly intend for these international principles to apply, which is true in virtually all international commercial contexts. By denying effect to the parties’ agreements on these issues, the Arbitration Fairness Act would also violate U.S. commitments under the New York (and Inter-American) Convention – preferring parochial domestic law and constituencies to the United States’ international engagements under Article II of the New York Convention and parallel provisions of the Inter-American Convention, in a manner uncomfortably reminiscent of the Oklahoma amendment.

It remains to be seen whether the legislative instincts that inspired the “Save our State Amendment” will spread in their most virulent form to Washington, DC. The likelihood appears slim. Nonetheless, if the Arbitration Fairness Act is ultimately passed in its current form it would violate U.S. treaty commitments – under the New York Convention – and depart from universally-accepted principles of international arbitration law. The possibility of this occurring remains uncertain and the risk of jingoistic federal legislation appears even more remote. But that conclusion is by no means certain. To put the question in practical terms, what odds would one have given twelve months ago for adoption of something like the “Save our State Amendment” in Oklahoma or anywhere else?

(1) 2010 Okla. Sess. Law Serv. Hs. Jt. Res. 1056 (West).
(2) The Oklahoma Attorney General has since supplemented the initially proposed Preliminary Ballot Title (the question that will be posed to the voters as a referendum) to explain to the voters what international law and Sharia law comprise: “This measure amends the State Constitution. It changes a section that deals with the courts of this state. It would amend Article 7, Section 1. It makes courts rely on federal and state law when deciding cases. It forbids courts from considering or using international law. It forbids courts from considering or using Sharia law. .International law is also known as the law of nations. It deals with the conduct of international organizations and independent nations, such as countries, states and tribes. It deals with their relationship with each other. It also deals with some of their relationships with persons. The law of nations is formed by the general assent of civilized nations. Sources of international law also include international agreements, as well as treaties. Sharia Law is Islamic law. It is based on two principal sources, the Koran and the teaching of Mohammed.” Letter from the Office of the Attorney General for Oklahoma State to the Oklahoma Secretary of State, the Speaker of the Oklahoma House of Representatives, and the Senate President Pro Tempore of Oklahoma, dated 4 June 2010, Re: Preliminary Ballot Title for State Question No. 755, Legislative Referendum No. 355.

By Gary Born and Noelle Berryman

Having had their wings clipped by the European Court of Justice in West Tankers, the English courts have recently confirmed that there is life in the anti-suit injunction yet. In AES UST-Kamenogorsk Hydropower Plant LLP v UST-Kamenogorsk Hydropower Plant JSC [2010] EWHC 772 (Comm), Burton J granted anti-suit relief to restrain litigation in Kazakhstan even in the absence of any actual or intended arbitral proceedings.

Various disputes arising in connection with a twenty year concession agreement led, despite the existence of an arbitration agreement, to several sets of proceedings in the courts of Kazakhstan. One suit involved allegations by UST-Kamenogorsk Hydropower Plant JSC (”JSC”) that AES UST-Kamenogorsk Hydropower Plant LLP (”AES”) had failed to comply with certain requests for information regarding the concession’s assets. AES objected to the court’s jurisdiction on the basis of the arbitration clause. Its challenge was rejected, however, because in proceedings to which AES was not a party the Supreme Court of Kazakhstan had already found the arbitration agreement to be in conflict with Kazakh public policy.

AES then sought anti-suit relief from the English courts. It did so directly under the Arbitration Act (by section 44, the court has the same powers to grant injunctive relief in relation to arbitral proceedings as it does in connection with legal proceedings) and in the context of the court’s inherent jurisdiction to award injunctive relief where it is “just and convenient to do so” (section 37 of the Senior Courts Act 1981).

No “gateway” to the Arbitration Act in the absence of actual or contemplated arbitral proceedings: AES did not intend to commence its own arbitral proceedings, it merely wished to resist and prevent the continuation of the Kazakh proceedings. The court confirmed that no relief is available under the Arbitration Act in those circumstances: an application under s44 of the Arbitration Act can only be made by “a party or proposed party to the arbitral proceedings”.

Inherent jurisdiction of English courts to award anti-suit relief: The court was nevertheless prepared to protect AES’ contractual right to insist on arbitration. Burton J was “entirely satisfied” that the Court had jurisdiction to entertain a claim for a declaration and an anti-suit injunction because, as Lord Hobhouse had put it in Turner v Grovit [2002] 1 WLR 107 HL, the applicant was “relying upon a contractual right not to be sued in the foreign country . . . because of . . . an arbitration clause [and thus] he has by reason of his contract a legitimate interest in enforcing that right against the other party to the contract”.

No usurpation of tribunal’s jurisdiction: In this case, the applicant had also sought a declaration that the arbitration clause itself was valid and binding. The court drew a distinction between parties seeking to enforce an arbitration clause who subsequently intend to make a claim within it and those who simply seek to enforce their contractual right not to be sued other than in arbitration. In respect of the former, the court will respect the principle of non-intervention enshrined in section 1(c) of the Arbitration Act 1996, leaving the issue of the validity of the clause to the tribunal, unless and until a subsequent application under section 32 is made, while in the case of the latter, the intervention of the court to determine validity may be entirely appropriate.

In order to avoid any usurpation or ouster of the very arbitral jurisdiction invoked by AES, however, Burton J granted only a limited declaration; that JSC could not bring the claim, the subject matter of the Kazakh proceedings, or any other claim arising out of or in connection with the concession agreement, otherwise than by commencing arbitral proceedings.

In sum, the case comes as a welcome reminder in the post-West Tankers environment that the English courts will still act to protect a contractual right to arbitrate and that they are willing to do so even where the applicant does not itself wish to initiate arbitral proceedings.

Post authored by Sophie Lamb and Ruth Stackpool-Moore

In the past year, there have been several posts (here , here, and here) on the applicability of 28 U.S.C. § 1782 to international arbitration and on the issuance of conflicting judicial opinions on this topic. As reported by Roger Alford in a recent post , a federal district court in the Southern District of New York held four weeks ago in the Chevron case that an international arbitral tribunal operating under the UNCITRAL Rules constitutes a “foreign tribunal” for purposes of § 1782 largely because the arbitration arose out of a bilateral investment treaty rather than out of a purely private agreement (see: In re Application of Chevron, 2010 WL 1801526, at *6 (S.D.N.Y. May 6, 2010). While the court in Chevron said little else about the applicability of § 1782, an opinion issued by a federal magistrate judge in the Southern District of Florida one week before, in In re Winning (HK) Shipping Co. Ltd., offered a detailed approach to determining whether a private international arbitral tribunal is a foreign tribunal that qualifies for judicial assistance under § 1782. Specifically, the court in Winning discussed a functional test for determining whether an international arbitral tribunal qualifies as a foreign tribunal under § 1782. The Winning opinion is yet another addition to the growing body of conflicting case law on whether, and if so when, judicial assistance under § 1782 is available to parties in international arbitral proceedings – a body of conflicting case law that ultimately will need to be clarified by the federal appellate courts and possibly by the U.S. Supreme Court.

The Winning court’s functional test, which focuses on the judicial reviewability of arbitration awards, is reminiscent of a functional test provided ten months ago by the U.S. District Court for the Middle District of Florida in Operadora. According to the Operadora court, federal district courts evaluating whether an entity is a “foreign tribunal” under § 1782 should analyze, among other things, whether the tribunal: (1) has the ability to gather evidence; (2) is obligated to apply the law to the facts in an impartial manner; (3) has the authority to issue a binding decision; (4) will issue opinions that are judicially reviewable; and (5) is state-sponsored or purely private. According to the Operadora court (and the magistrate judge in Winning), the issue of whether a decision is judicially reviewable is of decisive importance because of the Supreme Court’s heavy focus on judicial review in Intel v. AMD, which is the only Supreme Court case to touch upon the meaning of the term “foreign tribunal” under § 1782.

According to the Winning court, the arbitration at issue – which had not yet been commenced but was merely being contemplated by the party that made the § 1782 request – would be sited in London. The Charter Party Agreement between the potential claimant and respondent did not specify any institutional rules to be used in connection with the arbitration. According to the court, in the absence of any such rules specified in the Charter Party Agreement, either the London Maritime Arbitrators Association (“LMAA”) Rules or the English Arbitration Act (1996) (the “Act”) would apply to the arbitration. Relying on the LMAA website’s “FAQs” about appealing an arbitral award, the court stated that regardless of whether the arbitration was governed by the LMAA Rules or not, the Act provided for both substantive (§69) and procedural (§68(2)) judicial review of any resulting arbitral award. Based on this reasoning, the Winning court concluded that “to the extent the arbitration forum at issue is subject to the Arbitration Act 1996 (of England) or . . . the rules of the London Maritime Arbitrators Association, Winning is proceeding before a ‘foreign tribunal.’” (see: Application of Winning (HK) Shipping Co. Ltd., 2010 WL 1796579, at *10 (S.D. Fla. Apr. 30, 2010).

In its opinion, the Winning court also favourably discussed the Second Circuit’s decision in NBC and the Fifth Circuit’s decision in Biedermann – both pre-Intel cases holding that private arbitral tribunals are not “foreign tribunals” under § 1782 – stating that there is no reason to believe that either the ICC arbitration in NBC or the Stockholm Chamber of Commerce arbitration in Biederman would have resulted in judicially reviewable awards. According to the Winning court, in post-Intel cases that have not extended § 1782 to private arbitral tribunals, courts also have examined whether the tribunals in question would issue judicially reviewable awards.

Under the functional test applied by the Winning and Operadora courts, only private arbitrations sited in jurisdictions where awards can be judicially reviewed qualify as “foreign tribunals” under § 1782. It is not clear, however, when exactly an arbitral award can be said to be judicially reviewable for the purpose of this functional test. Moreover, this test could prove to be challenging in practice, insofar as it would require federal district courts confronted with § 1782 requests to examine in detail the institutional rules that may be applicable in a particular case, the laws of the seat of the arbitration, and the parties’ arbitration agreement.

At present, it is unclear if the functional test set forth in Winning and Operadora will be adopted by any circuit courts in the United States. Indeed, the current variance in opinions on the applicability of § 1782 to international arbitration suggests that it is unlikely that a uniform approach will emerge any time in the near future. To the contrary, the addition of this functional test to the conflicting body of § 1782 case law that currently exists only strengthens the case for why the federal appellate courts – and, if a circuit split emerges, the U.S. Supreme Court – should address sooner rather than later whether, and if so when, § 1782 extends to cover proceedings before international arbitral tribunals.

Justin Lugar and Gary Born

The preliminary hearings in the Pacific Rim v. El Salvador CAFTA arbitration went off without a hitch at the start of this week.

I’d like to report that I hung on every word via the live webcast that had been arranged by the International Centre for Settlement of Investment Disputes. However, I spent my Monday – a public holiday here in the United States – digesting nothing more challenging than the latest Stieg Larsson potboiler.

But, when I returned to the office on Tuesday I caught the second half of the on-line hearings. (For background on the case click here and here).

The arbitration is particularly noteworthy because the parties were bound – by the terms of the CAFTA – to conduct their arbitration in public. Under the Central American Free Trade Agreement’s investor-state arbitration mechanism, legal pleadings and oral hearings are open to public scrutiny.

Thanks to the CAFTA’s clear wording, the parties do not have the luxury of turning to the tribunal for a confidentiality order at the first sign of any public or media scrutiny of the proceedings. Thus, PacRim and El Salvador found themselves above-deck, tied firmly to the mast, in full view of the public and critics.

This made for an interesting experiment: would the arbitration’s participants be able to steer the ship past the Scylla of the nosy media and the Charybadis of noisy environmental activists?

A first test came last week, when protesters organized a demonstration outside the Washington offices of Crowell and Moring – who represent PacRim in the arbitration.

A brief online video of the demonstration shows several dozen activists making speeches and holding posters. One activist tottered around rather precariously on a pair of stilts. Critics, in D.C. and elsewhere, are calling on PacRim to respect El Salvador’s right to bar gold mining out of an abundance of environmental caution.

Ultimately, the protesters got to howl at Crowell, and the arbitration process seemed to emerge none the worse for wear.

In fact, when I called Crowell and Moring after the demonstrations, a Partner with the firm told me that he and his colleagues continued to work away on their last-minute hearing preparations. He added that the firm and PacRim “firmly believe that people have a right to demonstrate and make their views known, as long as it’s done in a peaceful way.”

Of course it remained to be seen whether the hearings themselves would come off without a hitch. But, come Monday and Tuesday of this week, there was nary a hiccup.

Of course, it’s instructive to think what might have happened had the CAFTA not mandated full openness.

Perhaps at the first sign of media or public criticism, the claimant would have made an urgent request for provisional measures, ostensibly to protect the right to non-aggravation of the proceedings. Such orders have been issued from time to time in ICSID proceedings, perhaps most notoriously in the Biwater v. Tanania arbitration arising out of a particularly contentious water-privatization dispute.

In the Biwater case, the tribunal issued a Procedural Order which famously held that arbitrators could act pre-emptively – in the absence of actual harm – so as to lock-down the release of certain information about the case.

I’m not sure that this Order had much effect in terms of silencing interested observers or critics of Biwater. But, the Order has had a rather depressing knock-on effect in other ICSID cases, where tribunals have continued to crack down on public access and disclosure – in the absence of any real threat to the arbitration proceedings.

These days, tribunals are all too prepared to slam the door and lock all the windows at the first hint of public interest in a case.

Against this rather depressing backdrop, it was nice to see that a politically-charged arbitration like the PacRim v. El Salvador case is perfectly capable of being conducted in a highly-public manner without the arbitral proceeding falling into disarray.

Interested practitioners, wary activists, and the system as a whole were all winners this week.

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