THE BASICS OF INTERNATIONAL ARBITRATION

Transcription

1 THE BASICS OF INTERNATIONAL ARBITRATION CILS INTERNATIONAL CONSTRUCTION LAW PRESENTATION FEBRUARY 13, 2003 Steamboat Springs, Colorado LIONEL M. SCHOOLER JACKSON WALKER, L.L.P MCKINNEY AVE., SUITE 1900 HOUSTON, TEXAS (713) (713) (FAX)

2 THE BASICS OF INTERNATIONAL ARBITRATION PRESENTATION by LIONEL M. SCHOOLER February 13, 2003 WHAT S INSIDE TAB A B C D DESCRIPTION THE LAW OF INTERNATIONAL ARBITRATION INSTITUTIONS SUPPORTING INTERNATIONAL ARBITRATION DRAFTING AN ARBITRATION AGREEMENT RELEVANT STATUTES CONTENTS THE LAW OF INTERNATIONAL ARBITRATION I. WHAT CASE LAW SUPPORTS INTERNATIONAL ARBITRATION A. HISTORICAL PERSPECTIVE B. ADOPTION OF THE CONVENTION II. WHAT STATUTES SUPPORT INTERNATIONAL ARBITRATION A. THE CONVENTION ON RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS B. THE INTER-AMERICAN CONVENTION ON INTERNATIONAL COMMERCIAL ARBITRATION III. JUDICIAL REVIEW OF THE CONVENTION

3 I. INTRODUCTION INSTITUTIONS SUPPORTING INTERNATIONAL ARBITRATION II. UNCITRAL RULES WHAT KIND OF AN ARBITRATION SHALL IT BE I. INTRODUCTION II. DRAFTING AN ARBITRATION AGREEMENT A. WHAT WILL BE ARBITRATED? B. WHAT RULES APPLY? C. WHAT LAW APPLIES? D. WHERE WILL THE ARBITRATION OCCUR? E. WILL YOU BE ABLE TO UNDERSTAND THE PROCESS? F. NUTS AND BOLTS OF COMMENCING THE ARBITRATION PROCESS G. NUTS AND BOLTS OF THE PRE-HEARING PHASE OF THE ARBITRATION PROCESS H. NUTS AND BOLTS OF THE ARBITRATION HEARING I. NUTS AND BOLTS OF POST-HEARING MATTERS INDEX AND TEXT OF RELEVANT STATUTES - ii -

4 LAW OF INTERNATIONAL ARBITRATION

5 I.WHAT CASE LAW SUPPORTS INTERNATIONAL ARBITRATION? A. HISTORICAL PERSPECTIVE International arbitration is considerably easier to utilize today than it was 35 years ago. There are two reasons: the Congressional response to the demands of the international business community; and the judicial response to the realities of international business transactions. 1. CONGRESSIONAL RESPONSE The Congressional response came in the form of its ratification in 1970 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ( Convention ), and its corresponding enactment of enabling statutes, 9 U.S.C et seq., and 9 U.S.C et seq., to provide for the use and enforcement of the Articles of the Convention JUDICIAL RESPONSE The judicial response took the form of three very far-reaching decisions by the United States Supreme Court under Warren Burger: The Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972) ( Bremen ); Scherk v. Alberto Culver Co., 417 U.S. 506 (1974) ( Scherk ); and Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ( Mitsubishi ). These cases signaled a new era for international dispute resolution. THE BREMEN V. ZAPATA OFFSHORE CO.: DOCTRINE OF FORUM SELECTION. The first case of this trilogy was The Bremen. While the Supreme Court had previously recognized a decade earlier in National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, (1964), that It is settled that parties to a contract may agree in advance to submit to the jurisdiction of a given court, to permit notice to be served by the opposing party, or even to waive notice altogether, the lower courts had continued to express hostility towards the process of litigation on foreign soil involving American companies. The Bremen gave the Burger Court the opportunity to ad- 1 The Convention is discussed in more detail in Part II. below. 1

6 dress this situation. Zapata and Bremen negotiated an agreement about Bremen s towing Zapata equipment overseas which contained a clause stating that any dispute would be resolved in London according to English law. After the contract was signed, an accident occurred near the coast of Florida as The Bremen was towing heavy equipment from the Gulf Coast to Europe. Zapata sought to litigate these matters in federal court in Tampa, Florida, the locale closest to the incident. The owners of The Bremen insisted that pursuant to the terms of the Agreement, it was entitled to have the matter resolved in London. The Supreme Court agreed with The Bremen. The Court s reasoning is instructive for the radically new approach it took in crafting a doctrine for resolving international business disputes. The doctrine reflected a practical approach: For at least two decades we have witnessed an expansion of overseas commercial activities by business enterprises based in the United States. The barrier of distance that once tended to confine a business concern to a modest territory no longer does so. Here we see an American company with special expertise contracting with a foreign company to tow a complex machine thousands of miles across seas and oceans. The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts. The Bremen, 407 U.S. at 8-9. The Court went on to state: It accords with ancient concepts of freedom of contract and reflects an appreciation of the expanding horizons of American contractors who seek business in all parts of the world. Not surprisingly, foreign businessmen prefer, as do we, to have disputes resolved in their own courts, but if that choice is not available, then in a neutral forum with expertise in the subject matter. Plainly, the courts of England meet the standards of neutrality and long experience in admiralty litigation. The choice of that forum was made in an arm's-length negotiation by experienced and sophisticated businessmen, and absent some compelling and countervailing reason it should be honored by the parties and enforced by the courts. The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting. 2

7 The Bremen, 407 U.S. at 11-12, Having espoused this doctrine of the primacy of forum selection clauses, the Bremen Court adopted a test (after a fashion) for determining the validity of forum selection clauses: 2 [O]ther courts are tending to adopt a more hospitable attitude toward forumselection clauses. This view is that such clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be "unreasonable" under the circumstances. 407 U.S. at 10. There are compelling reasons why a freely negotiated private international agreement, unaffected by fraud, undue influence, or overweening bargaining power, such as that involved here, should be given full effect. 407 U.S. at Still, despite its support, the Bremen Court did identify boundaries outside of which forum selection clauses could be held invalid: A contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision. Similarly, selection of a remote forum to apply differing foreign law to an essentially American controversy might contravene an important public policy of the forum. 407 U.S. at 15, 17. Finding the forum selection clause before it to contain no such infirmity, the Bremen Court upheld the validity of the clause and required the parties to litigate in London. SCHERK V. ALBERTO-CULVER CO.: FORUM SELECTION IN INTERNATIONAL ARBITRATION PROCEEDINGS. The next case in the trilogy was the Scherk case, decided in 1974, which involved not only a choice of forum clause but also an arbitration clause. The Scherk case involved a contract signed in Vienna, Austria, which provided for the transfer of the ownership of 2 Practitioners are well-advised to adhere to the general guidelines identified in The Bremen when drafting arbitration agreements for clients involved in international construction projects who wish to arbitrate disputes arising from such involvement. 3

8 Scherk's enterprises to Alberto-Culver, along with all rights held by these enterprises to trademarks in cosmetic goods. The contract contained a number of express warranties. In addition, the contract contained an arbitration clause providing that any controversy or claim [that] shall arise out of this agreement or the breach thereof would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that the laws of the State of Illinois, U. S. A. shall apply to and govern this agreement, its interpretation and performance. 417 U.S. at 508. The Scherk Court enthusiastically supported the concept of enforcing this clause in the context of parties establishing an alternative means of resolving a dispute arising from an international transaction: A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved. 417 U.S. at516. Whatever recognition the courts of this country might ultimately have granted to the order of the foreign court, the dicey atmosphere of such a legal no-man's-land would surely damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international commercial agreements. 417 U.S. at 517. Echoing the theme first sounded in The Bremen, the Court also had little difficulty in concluding that the dignity to be accorded an agreement to arbitrate in a particular foreign forum was congruent with the dignity to be accorded any other foreign forum selection clause. An agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute. We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts. 417 U.S. at 519 citing The Bremen, 407 U.S. at 9 n

9 MITSUBISHI MOTORS V. SOLER CHRYSLER-PLYMOUTH: SUBSTANTIVE BREADTH OF INTER- NATIONAL ARBITRATIONS. The third case in the trilogy, decided about a decade later, was Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). Mitsubishi involved a dispute between a Japanese car manufacturer and a Puerto Rican car dealer. 473 U.S. at 616. The agreement of the parties stated in pertinent part: Arbitration of Certain Matters : All disputes, controversies or differences which may arise between [Mitsubishi] and [Soler] out of or in relation to Articles I-B through V of this Agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association. 473 U.S. at 617. The case presented two interesting legal issues for the Mitsubishi Court: (1) whether this arbitration agreement/forum selection clause was enforceable; and (2) whether an American statutory antitrust claim being prosecuted by Soler could be included within the arbitration process. The Mitsubishi Court answered yes to both questions. The Court began by reiterating its support for international resolution of disputes which it had initiated a decade earlier. As in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), we conclude that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' agreement, even assuming that a contrary result would be forthcoming in a domestic context. 473 U.S. at 629. It then indicated its growing sophistication and awareness of the practicalities of international transactions and the growing suitability of submission to international arbitrators of disputes arising from these transactions. International arbitrators frequently are drawn from the legal as well as the business community; where the dispute has an important legal component, the parties and the arbitral body with whose assistance they have agreed to settle their dispute can be expected to select arbitrators accordingly. n18 5

10 473 U.S. at 634. In espousing this philosophy, the Mitsubishi Court expressed seminal support for the legitimacy of international arbitration tribunals. There is no reason to assume at the outset of the dispute that international arbitration will not provide an adequate mechanism. To be sure, the international arbitral tribunal owes no prior allegiance to the legal norms of particular states; hence, it has no direct obligation to vindicate their statutory dictates. The tribunal, however, is bound to effectuate the intentions of the parties. Where the parties have agreed that the arbitral body is to decide a defined set of claims which includes, as in these cases, those arising from the application of American antitrust law, the tribunal therefore should be bound to decide that dispute in accord with the national law giving rise to the claim. 473 U.S. at The Court concluded by approving the sending of the dispute to arbitration in Japan, including the dispute pertaining to American statutory antitrust claims. B. ADOPTION OF THE CONVENTION As noted above, the Congressional response to modernizing the American approach to alternative methods of resolving international business disputes was the ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ( Convention ), and its corresponding enactment of enabling statutes, 9 U.S.C et seq., and 9 U.S.C et seq., to provide for the use and enforcement of the Articles of the Convention. In 1970, Congress ratified the Convention to secure for United States citizens predictable enforcement by foreign governments of certain arbitral contracts and awards made in this and other signatory nations. See 21 U.S.T. 2517, T.I.A.S. 6997, reprinted following 9 U.S.C.A To gain rights under the Convention, though, Congress had to guarantee enforcement of arbitral contracts and awards made pursuant to the Convention in United States courts. See Con- D. 3 The text of the Convention, and the enabling statutes, 9 U.S.C. 201 et seq., are attached at Tab 6

11 vention Art. XIV. 4 So Congress promulgated the Convention Act in 1970 to establish procedures for United States courts to implement the Convention. McDermott International, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, (5 th Cir. 1991). Of course, the Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq., had been on the books since 1925, and it represented a domestic equivalent of the Convention by guaranteeing enforcement of domestic arbitral contracts and awards. Even so, to avoid possible interference with well-settled jurisprudence construing the FAA, Congress enacted new legislation in the Convention Act rather than amend the FAA. The Convention Act incorporates the FAA except where the FAA conflicts with the Convention Act's few specific provisions. SENATE COMM. ON FOREIGN RELATIONS, FOREIGN ARBITRAL AWARDS, S.REP. NO. 702, 91st Cong., 2d Sess. 5 (1970), U.S.Code Cong. & Admin.News 1970, p. 3601; 9 U.S.C The Supreme Court, in Mitsubishi, particularly noted the importance and contributions of the Convention and the corresponding Congressional enactments: The Bremen and Scherk establish a strong presumption in favor of enforcement of freely negotiated contractual choice-of-forum provisions. Here, as in Scherk, that presumption is reinforced by the emphatic federal policy in favor of arbitral dispute resolution. And at least since this Nation's accession in 1970 to the Convention, and the implementation of the Convention in the same year by amendment of the Federal Arbitration Act, that federal policy applies with special force in the field of international commerce. Mitsubishi, supra, 473 U.S. at 631 citing The Bremen and Scherk. II. WHAT STATUTE(S) SUPPORT INTERNATIONAL ARBITRATION? A. THE CONVENTION ON RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS The goal of the Convention was aptly described by the Supreme Court in Scherk: The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement 4 A Contracting State shall not be entitled to avail itself of the present convention against other Contracting States except to the extent that it is itself bound to apply the Convention. 7

12 of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, S. Exec. Doc. E, 90th Cong., 2d Sess. (1968). 417 U.S. at 520 n. 15. As adopted, the Convention establishes a mechanism for submitting cases to arbitration, and then for enforcing arbitral awards, as indicated in the following table Enforcement of Convention The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be enforced in United States courts in accordance with this chapter [9 USCS 201 et seq.] Agreement or award falling under the Convention An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title [9 USCS 2], falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States Jurisdiction; amount in controversy An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States (including the courts enumerated in section 460 of title 28 [28 USCS 460]) shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy. In this respect, the Convention differs from the Federal Arbitration Act because the FAA does not have its own jurisdictional clause; thus, anyone wishing to compel or resist arbitration, or enforce or challenge an arbitral award under the FAA cannot do so without some independent source of subject matter jurisdiction. Rio Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683 (5 th Cir. 2001) Venue An action or proceeding over which the district courts have jurisdiction pursuant to section 203 of this title [9 USCS 203] may be brought in any such court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be 8

13 brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States Removal of cases from State courts Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. For the purposes of Chapter 1 of this title [9 USCS 1 et seq.] any action or proceeding removed under this section shall be deemed to have been brought in the district court to which it is removed. As noted recently by the United States Court of Appeals for the Fifth Circuit in Beiser v. Weyler, 284 F.3d 665, 671 (5 th Cir. 2002), The language of 205 strongly suggests that Congress intended that district courts continue to be able to assess their jurisdiction from the pleadings alone. Section 205 provides in part: The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. 9 U.S.C. 205 (emphasis added). This language does create one difference between the federal question jurisdiction conferred by 205 and most other forms of federal question jurisdiction: it permits removal on the basis of a federal defense Order to compel arbitration; appointment of arbitrators A court having jurisdiction under this chapter [9 USCS 201 et seq.] may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States. Such court may also appoint arbitrators in accordance with the provisions of the agreement Award of arbitrators; confirmation; jurisdiction; proceeding Within three years after an arbitral award falling under the Convention is made, any party to the arbitration may apply to any court having jurisdiction under this chapter [ 201 et seq.] for an order confirming the award as against any other party to the arbitration. The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention. 6 5 Practitioners should note the far-reaching opinion and expansive philosophy of the United States Supreme Court in a significant case involving determinations of venue under the FAA. See Cortez Byrd Chips, Inc. v. Bill Harbert Construction Company, Inc., 529 U.S. 193 (2000). 6 This differs from the FAA s mechanism and standard of review of an arbitral award. The FAA affords a litigant the opportunity to file an action challenging an award, 9 U.S.C. 10, 11and the FAA also specifies a test for determining whether an award should be vacated or modified. Id. 9

14 208. Chapter 1 [9 USC 1 et seq.]; residual application Chapter 1 [9 USC 1 et seq.] applies to actions and proceedings brought under this chapter [9 USC 201 et seq.] to the extent that chapter is not in conflict with this chapter [9 USC 201 et seq.] or the Convention as ratified by the United States. B. THE INTER-AMERICAN CONVENTION ON INTERNATIONAL COMMERCIAL ARBITRATION Following adoption of the Inter-American Convention on International Commercial Arbitration in 1975, the Congress further amended Title 9 in 1990 to add Chapter 3 enforcing this Convention. The provisions of that Convention (with annotations) are as follows: 301. Enforcement of Convention The Inter-American Convention on International Commercial Arbitration of January 30, 1975, shall be enforced in United States courts in accordance with this chapter. The United States Court of Appeals for the Second Circuit, in Productos Mercantiles E Industriales, S.A. v. Faberge USA, Inc., 23 F.3d 41 (2d Cir. 1994), has ruled that a district court has jurisdiction under this Convention to confirm an arbitration award rendered in the United States, not just in foreign countries which are signatories to this Convention Incorporation by reference Sections 202, 203, 204, 205, and 207 of this title shall apply to this chapter as if specifically set forth herein, except that for the purposes of this chapter the Convention shall mean the Inter- American Convention Order to compel arbitration; appointment of arbitrators; locale (a) A court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States. The court may also appoint arbitrators in accordance with the provisions of the agreement. (b) In the event the agreement does not make provision for the place of arbitration or the appointment of arbitrators, the court shall direct that the arbitration shall be held and the arbitrators be appointed in accordance with Article 3 of the Inter-American Convention Recognition and enforcement of foreign arbitral decisions and awards; reciprocity 10

15 Arbitral decisions or awards made in the territory of a foreign State shall, on the basis of reciprocity, be recognized and enforced under this chapter only if that State has ratified or acceded to the Inter-American Convention Relationship between the Inter-American Convention and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 When the requirements for application of both the Inter-American Convention and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, are met, determination as to which Convention applies shall, unless otherwise expressly agreed, be made as follows: (1) If a majority of the parties to the arbitration agreement are citizens of a State or States that have ratified or acceded to the Inter-American Convention and are member States of the Organization of American States, the Inter-American Convention shall apply. (2) In all other cases the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall apply Applicable rules of Inter-American Commercial Arbitration Commission (a) For the purposes of this chapter the rules of procedure of the Inter-American Commercial Arbitration Commission referred to in Article 3 of the Inter-American Convention shall, subject to subsection (b) of this section, be those rules as promulgated by the Commission on July 1, (b) In the event the rules of procedure of the Inter-American Commercial Arbitration Commission are modified or amended in accordance with the procedures for amendment of the rules of that Commission, the Secretary of State, by regulation in accordance with section 553 of title 5, consistent with the aims and purposes of this Convention, may prescribe that such modifications or amendments shall be effective for purposes of this chapter Chapter 1; residual application Chapter 1 [9 USCS 1 et seq.] applies to actions and proceedings brought under this chapter to the extent chapter 1 is not in conflict with this chapter or the Inter-American Convention as ratified by the United States. On the basis of this incorporation, specifically the provisions of the FAA which empower federal district courts to review an award under certain criteria (and not just automatically confirm it, see 9 U.S.C. 10, 11), the United States Court of Appeals for the Second Circuit, in Productos Mercantiles E Industriales, S.A. v. Faberge USA, Inc., 23 F.3d 41 (2d Cir. 1994), has ruled that a district court has jurisdiction under this Convention to modify an arbitration award, not just to confirm one. III. JUDICIAL REVIEW OF THE CONVENTION There have been significant interpretations of the Chapter 2 Convention made by 11

16 Courts of the United States, some of which are highlighted here. JURISDICTION; REMOVAL BEISER V. WEYLER. On the question of proper jurisdiction and removability of an action pursuant to the terms of the Convention, the United States Court of Appeals for the Fifth Circuit, in Beiser v. Weyler, 284 F.3d 665 (5 th Cir. 2002), recently examined the requirements imposed upon litigants seeking to take advantage of the Convention s provisions as follows. In Beiser, Horizon contracted to consult with Roy M. Huffington, Inc. on the acquisition of development rights to an oil and gas field in Hungary. Horizon also entered into a line of credit agreement with Hungarian Horizon Energy Limited ("Hungarian Horizon"). The line of credit agreement provided financing for the development of the oil interest. Both agreements contained clauses providing for the arbitration of any dispute in London. Beiser signed both agreements on behalf of Horizon. 284 F.3d at 667. Ultimately, a dispute arose, and Beiser filed suit in state court, alleging state law causes of action. The question was whether the lawsuit fell within the coverage of the Convention and, therefore, whether the lawsuit could properly be removed to federal court for adjudication. The issue framed by the Beiser Court was the following: [W]hether the plaintiff's lawsuit, alleging only state law causes of action, "relates to" an international arbitration agreement with the defendants, such that the district court had removal jurisdiction under 9 U.S.C That section permits defendants to remove a plaintiff's state-filed lawsuit to federal court when the subject matter of the suit "relates to" an arbitration agreement that "falls under" the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter "the Convention"). 284 F.3d at 666. To address this issue, the Court commenced its analysis with a review of the proper jurisdictional scope of the Convention: In order for an agreement to fall under the Convention, it must arise out of a commercial relationship. At least one of the parties to the agreement must not be a U.S. citizen, or, if the agreement is entirely between U.S. citizens, it must have 12

17 some "reasonable relation" with a foreign state. 9 U.S.C. 202, see also Sedco, Inc. v. Petroleos Mexicanos Mexican Nat. Oil Co., 767 F.2d 1140, 1144 (5th Cir. 1985) (describing when arbitration agreements fall under the Convention). 284 F.3d at 666 n. 2. This analysis prompted the Court to consider whether the plaintiff s claims related to an arbitration agreement within the jurisdictional universe of the Convention, and it concluded they did: Here, the two agreements are the only written contracts governing Beiser's work in Hungary. Beiser was Horizon's only employee; the contracts were entered into specifically to secure his personal expertise and advice in developing the oil interest. Developing Beiser's case will necessarily involve explaining the scope and operation of the two contracts. Even if Beiser is right on the merits that he cannot ultimately be forced into arbitration, his suit at least has a "connection with" the contracts governing the transaction out of which his claims arise. Similarly, whenever an arbitration agreement falling under the Convention could conceivably affect the outcome of the plaintiff's case, the agreement relates to to the plaintiff's suit. Thus, the district court will have jurisdiction under 205 over just about any suit in which a defendant contends that an arbitration clause falling under the Convention provides a defense. As long as the defendant's assertion is not completely absurd or impossible, it is at least conceivable that the arbitration clause will impact the disposition of the case. That is all that is required to meet the low bar of relates to. 284 F.3d at 669. The Beiser Court also considered another issue, the nature of the proceeding a court should conduct in assessing whether it has jurisdiction under Section 205 of the Convention. On this matter, the Court stated as follows: The district court may not be able to resolve from the petition itself whether the arbitration clause actually falls under the Convention. For example, 9 U.S.C. 202 provides that the Convention applies only to arbitration agreements arising out of commercial relationships. The Court may have to consider evidence to resolve whether the party's relationship was commercial. But, as we observed in Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil Co., 767 F.2d 1140, 1144 (5th Cir. 1985), the Convention contemplates a very limited inquiry by the courts. Resolving the question of whether the agreement falls under the Convention will ordinary prove quick and easy, without requiring too much merits-like investigation by the district court. 284 F.3d at 672 n.7. 13

18 COMPELLING ARBITRATION Section 206 affords federal courts the power to issue an order compelling arbitration. One federal court considered whether such power would include ordering the parties to arbitrate in another country. In the Matter of an Arbitration Between West of England Ship Owners Mutual Assurance Association and American Marine Corporation, F.Supp., 1992 U.S. Dist. Lexis 1868 (E.D. La. 1992). The West of England Owners Court, applying the Fifth Circuit s decision in Sedco, 767 F.2d at , held that Section 206 authorized district courts to order parties to proceed to arbitration, even if such arbitration were to occur in another country. That Court also ruled that a federal court had the power to stay litigation of claims of litigants who were not parties to the arbitration while the arbitration was pending. ENFORCEMENT OF AWARDS Certain cases have focused upon technical points of enforcement of international arbitration awards which bear discussion. FINALITY OF JUDGMENT. A subject near and dear to any litigator s (or client s) heart is (or should be) the subject of finality of an arbitration proceeding. As one court found, failure to have finality resulted in extra work and extra proceedings for all concerned. In In Re Dworkin Cosell Interair Courier Services, Inc., 728 F.Supp. 156 (S.D. N.Y. 1989), the Court was confronted with certain jurisdictional and enforceability issues. The first of these was whether the award had been properly entered pursuant to the Convention. The parties challenging the award contended that it could not be enforced under the Convention because it was a domestic award. 728 F.Supp. at Faced with no definition of domestic award or nondomestic award in the Convention, the Court turned to American law, see Bergesen v. Joseph Muller Corp., 710 F.2d 928 (2d Cir.1983), and concluded that awards not considered as domestic denoted awards which are subject to the Convention not because made abroad, but because made within the legal framework of another country, e.g., pronounced in accordance 14

19 with foreign law or involving parties domiciled or having their principal place of business outside the enforcing jurisdiction. Id. at 159 (Original emphasis). It therefore decided that the award had been properly entered pursuant to the Convention and was enforceable on that basis pursuant to Title 2 of Article 9. Even so, the DworkinCo urt detected another infirmity which precluded enforcement. It recognized, first, the general rule that [t]he power to review an arbitration is limited under the Convention and the burden of proving that an award should be overturned is on the party challenging the enforcement and recognition of the award. Id. citing La Societe Nationale v. Shaheen Natural Resources Co., Inc., 585 F.Supp. 57, 61 (S.D.N.Y.1983), aff'd, 733 F.2d 260 (2d Cir.), cert. denied sub nom. Shaheen Natural Resources Co., Inc. v. La Societe Nationale, 469 U.S. 883 (1984). Nevertheless, it also recognized that finality of an award was required where the law of the country in which the arbitration is conducted requires finality. Id. at 161. Because the Dworkin Court also believed that courts could not enforce an award that is incomplete, ambiguous or contradictory, id. at 162, that is, that it was necessary for an award to resolve all issues submitted to arbitration, and determine each issue fully so that no further litigation is necessary, it imposed a requirement of finality upon the award before it and concluded that the award was not final and therefore had to be remanded to the arbitration tribunal for completion. FOREIGN CURRENCIES. In Sae Sadelmi S.p.A. v. Papua New Guinea Electricity Commission, F.Supp U.S. Dist. Lexis (S.D.N.Y. 1994), the Court was confronted with a situation where some of the damages and costs awards were expressed in foreign currencies. Reviewing American law, see Fils et Cables D'Acier de Lens v. Midland Metals Corp., 584 F. Supp. 240, 245 (S.D.N.Y. 1984), the Sae Sadelmi Court concluded that an American court could only enter a money judgment in U.S. dollars. (citations omitted). It therefore directed the parties to convert the award into U.S. dollars as of the date judgment. 15

20 WHAT INSTITUTIONS SUPPORT INTERNATIONAL ARBITRATION

21 WHAT INSTITUTIONS SUPPORT INTERNATIONAL ARBITRATION? A. INTRODUCTION There are several different institutions which support international arbitration. No. Web Site Institution 1. American Arbitration Association Center for International Dispute Resolution 2. United Nations Commission of International Trade Law 3. London Court of International Arbitration 4. International Chamber of Commerce World Business Organization 5. Permanent Court of Arbitration (Netherlands) 6. Singapore International Arbitration Centre B. UNCITRAL RULES As an example of the role undertaken, and services provided, by an institution supporting international arbitration, the following is an excerpt from the web site of UNCITRAL (United Nations Commission of International Trade Law) which is illustrative of the type of activities undertaken by an organization of this type to facilitate the convening and conducting of international arbitrations. Introduction The UNCITRAL Arbitration Rules were adopted in 1976, after extensive deliberations by the United Nations Commission on International Trade Law. This Commission consists of thirty-six member States representing the different legal, economic and social systems and geographic regions of the world. In the preparation of these Rules, various interested international organizations and leading arbitration experts were consulted. The General Assembly of the United Nations has recommended the use of the UNCITRAL Arbitration Rules for inclusion in international commercial contracts. The universality and flexibility of the UNCITRAL Rules have prompted a number of arbitral institutions, including the PCA, to adapt them for use as their own institutional arbitration rules. All of the various sets of Permanent Court of Arbitration (PCA) arbitration rules are closely based on the UNCITRAL Arbitration Rules, and the PCA Conciliation Rules follow the 1980 UNCITRAL Conciliation Rules. In addition to these situations involving the preparation and adoption of an institution's own rules, UNCITRAL has noted the willingness of a number of arbitral institutions to act as appointing authority and to provide administrative services in arbitrations under the UNCITRAL Arbitration Rules. In 1982, UNCITRAL issued 'Recommendations to Assist Arbitral Institutions and Other Interested Bodies with Regard to Arbitrations under the UNCITRAL Arbitration Rules', in 17

22 order to assist institutions both in adapting the UNCITRAL Rules, and in offering to provide administrative and appointing authority services. Although the PCA was established in 1899 to facilitate arbitration and other forms of dispute resolution between States only, it has evolved, in its nearly one-hundred years of existence, into a modern, multi-faceted arbitral institution that provides a wide variety of dispute resolution services to the international community. In addition to administering, pursuant to its own rules, arbitration involving States or intergovernmental organizations involved in disputes with one another or with private parties, the International Bureau of the PCA offers hearing facilities and ancillary administrative services to tribunals operating ad-hoc or under the auspices of another institution, and is available to facilitate arbitrations conducted under the UNCITRAL Arbitration Rules. The UNCITRAL Rules expressly provide that in the absence of an agreed 'appointing authority', a party may request the Secretary-General of the PCA designate the appointing authority. In addition, when properly requested or designated by agreement, the Secretary-General, or the International Bureau, of the PCA will act as the appointing authority under the UNCITRAL Arbitration Rules. The International Bureau will also provide administrative services within The Netherlands to help parties and arbitrators conduct cases under the UNCITRAL Arbitration Rules. Acting as Appointing Authority The International Bureau, or the Secretary-General, as the case may be, will act as appointing authority if so designated by the parties. Administrative services may be requested by the parties or the arbitral tribunal, with the consent of the parties. When requested to appoint a sole or the presiding arbitrator, the International Bureau will follow the list-procedure set forth in article 6 of the UNCITRAL Arbitration Rules, if appropriate. In accordance with the UNCITRAL Arbitration Rules, the International Bureau will exercise its discretion when requested to appoint a second arbitrator. Article 12 of the UNCITRAL Arbitration Rules requires that all contested challenges be decided by the appointing authority. When deciding challenges at the request of any party, the International Bureau will appoint a special committee to make the decision, consisting of three persons, a majority of whom will be of nationalities different from that of any party. The UNCITRAL Arbitration Rules provide that the fees of arbitrators shall be reasonable in amount, taking into consideration the amount in dispute, the complexity of the subject-matter, the time spent by the arbitrators, and other relevant circumstances of the case (art. 39, para. 2). The rules provide that parties may request the appointing authority to provide to the arbitrators and the parties a statement setting forth the basis for establishing fees that is customarily followed in cases in which the appointing authority acts (art. 39, para. 3). The International Bureau has no schedule of fees for arbitrators, but it will furnish a statement concerning customary fees based on its experience in administering dispute resolution. Administrative Services When the International Bureau of the PCA is appointed as the administrator, it will, upon the request of all parties or the arbitral tribunal, provide the following administrative services: Communications 18

23 Transmitting - except at hearings - all oral and written communications from the parties to the arbitral tribunal and vice-versa and between the parties. When transmitting communications to a party, the International Bureau will use the address set forth in the notice of arbitration or any other address that has been furnished by a party in writing to the International Bureau. Hearings Upon request, the International Bureau will assist the arbitral tribunal to establish the date, time and place of hearings, giving such advance notice thereof to the parties as the tribunal determines pursuant to the UNCITRAL Arbitration Rules (art. 25, para. 1). The International Bureau will provide a room for hearings at the Peace Palace in The Hague on a rental basis. If a hearing room is not available at the Peace Palace, the International Bureau will arrange a hearing room elsewhere. The cost of hearing rooms will be billed separately and excluded from the fees for administrative services. Stenographic Transcripts, Tape Recording and Interpretation Upon request, the International Bureau will make arrangements for stenographic transcripts, for tape recordings of hearings, and for the services of interpreters at hearings. The cost of these services will be billed separately and excluded from the fees for administrative services. Fees of Arbitrators and Deposits Upon request, the International Bureau will make all arrangements concerning the amounts of the arbitrators' fees, and advance deposits to be made on account of such fees in consultation with the parties and the arbitrators. The International Bureau does not fix the amount of fees of arbitrators and has no fee schedule for arbitrators. Upon request, the International Bureau will hold deposits from the parties and account for the same. Registration of Awards Upon request, the International Bureau will assist in the filing or registration of arbitral awards in countries where such filing or registration is required by law. Other Services Upon request, the International Bureau will consider providing other appropriate administrative services, including arranging for the services of a legally-trained tribunal secretary. 19

24 WHAT KIND OF AN ARBITRATION SHALL IT BE: DRAFTING AN ARBITRATION AGREEMENT 20

25 WHAT KIND OF AN ARBITRATION SHALL IT BE A. INTRODUCTION The genius of arbitration is its flexibility. In the international dispute resolution context, this flexibility translates into the parties ability to interject comprehensive dispute resolution management into their contractual relations to ensure maximum control over the timing, expense and completion of the dispute resolution process. However, frequently parties to international construction projects (like parties to other international transactions) fail to think ahead about how they want their disputes resolved and there are always disputes to resolve with the result that in an international construction context, a contractor can find itself in very, very unpleasant territory (literally and figuratively) when such a dispute arises. The following discussion highlights issues to consider in advance of the signing of a construction agreement for an international dispute, together with suggested language to review, in drafting an appropriate international dispute resolution agreement. B. DRAFTING AN ARBITRATION AGREEMENT I. WHAT WILL BE ARBITRATED? A. PARTIES CAN NEGOTIATE SCOPE OF DISPUTES TO BE ARBITRATED B. PARTIES CAN NEGOTIATE LIMITS TO ARBITRABLE MATTERS C. WILL THE ARBITRATION MEAN ANYTHING (I.E., IS IT BINDING)? D. WILL THE ARBITRATION BE A SECRET (I.E., CONFIDENTIALITY OF PRO- CEEDINGS)? SAMPLE CLAUSE: Any dispute, controversy, or claim arising out of or relating in any manner to this contract or any other document being executed contemporaneously, or the breach, termination, or invalidity thereof, or the relationship between or among the parties to this contract, shall be settled by binding arbitration in accordance with the terms of this Agreement. Any such proceeding shall be kept strictly confidential by the Arbitrators, the administering authority and the parties, 1

26 except to the extent that the parties require court process to effect the purposes of this Agreement. II. WHAT RULES APPLY? A. HAVING SOME RULES IS BETTER THAN HAVING NO RULES AT ALL B. PARTIES CAN NEGOTIATE WHAT RULES APPLY SAMPLE CLAUSE: The arbitration proceeding to be conducted for any arbitrable dispute shall be conducted according to the {Rules of International Arbitration of the American Arbitration Association}/{UNCITRAL Arbitration Rules/the Rules of the London Court of International Arbitration} then in effect. 7 III. WHAT LAW APPLIES? A. PICK THE LAW WHICH MOST LOGICALLY APPLIES TO THE PROJECT OR WHICH SERVES BEST THE INTERESTS OF YOUR CLIENT B. STATE CLEARLY WHICH LAW GOVERNS SAMPLE CLAUSE: The arbitration proceeding to be conducted for any arbitrable dispute shall be conducted in accordance with the law of the {locale of the Project}/{United States of America}/{State of Colorado}/{State of Texas}, pursuant to the requirements of the {Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and its corresponding enactment of enabling statutes, 9 U.S.C et seq.,}/{inter-american Convention on International Commercial Arbitration and its corresponding enactment of enabling statutes, 9 U.S.C et seq.,} IV. WHERE WILL THE ARBITRATION OCCUR? A. THIS IS PERHAPS THE MOST SIGNIFICANT CLAUSE OF ALL. B. LOCALE OF PROJECT; LOCALE OF OWNER; LOCALE OF CONTRACTOR; NEUTRAL LOCALE SAMPLE CLAUSE: The arbitration proceeding shall be conducted in {the country of the location of the project}/{london}/{the Hague} or at such other location as the parties may mutually agree in writing. V. WILL YOU BE ABLE TO UNDERSTAND THE PROCESS? A. WHAT IS TO BE THE LANGUAGE OF THE PROCEEDINGS? 7 A very important clause, when you think about it. 2

27 B. WILL THE PARTIES WANT DOCUMENTS TRANSLATED FOR THE PROCEED- INGS? C. WILL THE PARTIES OR THE ARBITRATORS NEED INTERPRETERS? D. WHO IS GOING TO PAY FOR THIS? SAMPLE CLAUSE: The arbitration proceeding shall be conducted in {English}/{the language of the country where the project is located}. The parties agree that all documents introduced into evidence at the proceeding shall be in English or accompanied by a translation into English {or the applicable language} in order to be admissible to the tribunal. The parties further agree that they shall share equally the cost of an interpreter fluent in {the language of the proceeding} and in {the language of the country of origin of the Arbitrator or witness} for any Arbitrator or witness who requests interpreting. VI. NUTS AND BOLTS OF COMMENCING THE ARBITRATION PROCESS A. WILL THE ARBITRATION BE ADMINISTERED? IF SO, BY WHOM? 8 B. WHO WILL BEAR THE COSTS OF ADMINISTRATION, IF ANY? WHO WILL PAY THE UP FRONT COST OF ARBITRATING? C. HOW MANY ARBITRATORS ARE NEEDED FOR THE ARBITRATION? D. WHAT SHOULD THE QUALIFICATIONS OF THE ARBITRATORS BE? E. HOW ARE THE ARBITRATORS TO BE SELECTED? F. HOW LONG DOES A PARTY HAVE TO FILE A CLAIM? SAMPLE CLAUSE: The arbitration proceeding shall be administered as follows. The appointing authority shall be the {International Bureau of the Permanent Court of Arbitration}/{Secretary-General of the Permanent Court of Arbitration}. The case shall be administered by the International Bureau of the Permanent Court of Arbitration in accordance with the 'Permanent Court of Arbitration Procedures for Cases under the UNCITRAL Arbitration Rules. The Arbitration Proceeding shall be conducted before {three neutral arbitrators selected by the administering authority} {three arbitrators, one arbitrator to be appointed by each of the parties thereto and the presiding arbitrator, a neutral, to be selected by the {administering authority} {the two appointed arbitrators. The rules determining neutrality shall be those established by the American Arbitration Association s Rules of Ethics for Arbitrators and the law interpreting the United States Federal Arbitra- 8 You have no idea what aggravation is until you participate in a non-administered arbitration. 3