Notes on EU Center Arbitration Seminar

I attended a seminar downtown today on “European Union Law and U.S. Business: Front Line Issues of International Dispute Resolution” sponsored by the UM EU Center (with help from the UM law school), and Greenberg, Traurig.

It was an unusually high-quality event, but as arbitration law is something of a specialist taste, you’ll have to click “there’s more” to read my notes from it. (Unless of course you get the full feed, or followed a link to this post, in which case you get to enjoy the whole thing right now.) I’m interested in this stuff because back when I was in private practice, I worked in the London office of US law firm doing international arbitration, and have very occasionally since then acted as an arbitrator.

Joaquin Roy, holder of the Jean Monnet Chair, led off a round of introductions with an introduction to the European Union Center — one of only ten in the US. The center has, as part of its current cycle of activities, sought to expand beyond its traditional focus on political science and into law and business.

Jan Paulsson, a partner at Freshfields’s Paris office, an internationally renowned leader in the international arbitration bar, and currently a visiting professor of law at the University of Miami spoke on “Some Controversies Involving EU Law and International Dispute Resolution”. He got the audience’s attention by promising to say “some scandalous things”. And, compared to the usual lawyers’ talk, he did.

Prof. Paulsson began by noting how much EU harmonization initiatives are displacing common law in many areas — even contract law is on the drawing board. While the harmonizers claim they are not drafting a European code, what they do often ends up looking just like one, and the contract effort — being drafted by academics, not by legislators — looks much like one also, even though they continually disclaim it. They call it the “CFR” – common frame of reference (which, I thought, would confuse US lawyers, who know CFR as the “code of federal regulations) — for ‘non-sector specific references’, which Paulsson said amounts to a transnational code. As this document gets more familiar, and if the European constitution ever gets adopted, along with its ideas of social solidarity and other peremptory norms, then one might see those norms infusing how contracts are interpreted. If it were to become the default rule for interpretation, it could be very influential. And it’s notable that the document is being drafted without need for adoption by any elected body. [Here are some links on the CFR, as collected by Diana Wallis, a British MEP]

As an example, he gave us the English Owusu case [see the case summary], which concerned two English persons’ contract for rental of a villa in Jamica. Renter had an accident there and alleged that lessor should have warned him of the dangers of the ocean in front of the property. Defendant wished to implead several Jamaican persons. The English court thus had to consider if this might be a an occasion for forum non conveniens; the court said that Jamaica would have been the right place to hear the case under English law given the location of the evidence and the witnesses, but the trial judge held that European law didn’t let him transfer the case. The panel of the court which heard the case was composed, as it happened, entirely of civil lawyers — who may have had no experience with forum non as practiced in the common law system. And they held that European law didn’t recognize this principle of judicial discretion, and the case should be tried where the defendant resides in order to protect his expectations. The problem, of course, is that forum non applications are always by the defendant — so there is no expectations interest of his to protect, something the court seemingly didn’t comprehend.

Thus, a race to the court house – the “Italian torpedo” as it has come to be called: a party fearing being sued runs to an Italian court, files there, and happily waits some ten years for that court to even decide if it is the right court to hear the case. Thanks to the European doctrine of lis pendens, this has become an effective blocking strategy for guilty people.

Well, what if the parties have agreed a forum in a contract. See the Gasser case [phonetic spelling] in which the contract specified Austria, but the Italian party filed in Italy anyway. The UK intervened in the case in its own right, and said that contractual choice of forum clauses should not follow the usual rule that the first filer rule controls; instead the court mentioned in the contract should be allowed to determine whether the choice of forum clause is valid. In the alternative, the UK argued that the specified forum should be allowed to take the jurisdictional matter if the first court unreasonably delays. The Court, however, rejected both theories.

Can a would-be plaintiff get an anti-suit injunction when faced with a ‘torpedo’? Short answer, no.

Does this mean that parties should choose NY law to protect their interests? Paulsson didn’t say, but just left that dangling.

Or, perhaps, the answer is to choose arbitration clauses with forum clauses which are more likely to be respected by the courts since the EU courts will not apply to that? Perhaps. The EU convention on recognition of judgments excludes arbitration because they expected a separate convention to occupy that field. But only Belgium and Luxembourg signed the latter, and only Belgium ratified it, so it is meaningless. But the NY Convention covers the field to a large extent; and all EU members accept it, so that may answer the problem? No, says Paulsson, “it ain’t so”: there is an inevitable collision between the NY convention and the EU rules — on the very lis pendens issue in the “Italian torpedo” style facts.

The award may be enforceable under the NY convention, but the judgement of the court may have primacy under the Brussels convention.

Yet, while this is a problem one reads about, it doesn’t seem to happen frequently in real life — Paulsson says he’s never encountered one in his practice. It’s like a “pink rhinoceros”: scary if you saw one on the street, but you don’t see them.

He concluded by noting proposals to include arbitration in the Brussels convention; amending the NY convention would be too difficult. But sub-groups of members to the NY convention can draft protocols to it for relations among themselves. And the EU states could add to Art. 2 of the NY convention, without touching art. 5 (enforcement) on a national basis. And it could create a role for the ECJ. He described the following specific proposals for amendment drawn from an academic article whose name I was unable to scribe: (1) Eliminate the arbitration exception; (2) Exclusive jurisdiction of lex arbitri should be recognized – let the contract control–if the argument is about where the contract specifies, there are some problems that remain to be solved; (3) having removed the arbitration exception, but in a “true arbitration exception”: no other court should get involved until the properly allocated court has decided the validity of the agreement; (4) once there is a valid award, no judgment should be enforced that is incompatible with it (a form of res judicata), just as with ordinary court judgments.

Ramon M. Mullerat, OBE, spoke next on legal ethics issues in arbitration proceedings. He noted some disturbing judgments from European national courts which might cut against ordinary ethical obligations, such as rules on disclosure. Then there are national differences on issues of lawyer advertising and fees (can a Bulgarian client pay non-Bulgarians more than domestic arbitrators? If not, they either go broke paying everyone the same, or pay so little that they cannot get foreign arbitrators since domestic fees are so low) . Not only do the national rules differ on ethics issues, but some of the arbitration institutions have rules that vary substantially.

But there are common features to all the rules, e.g. the independence and impartiality of arbitrators. (Although some rules do it less explicitly than others.) In that, arbitrators are treated more like judges than lawyers. He contrasted the European rule with the US rules which he said used to let party-appointed arbitrators discuss some matters with their appointing party. Today, he said, the US rules now seek neutrality on the part of all arbitrators.

The International Bar Association has guidelines for conflict of interest in international arbitration, which create disclosure requirements. National ideas of what constitutes a conflict differ widely: is being a member of the same tennis club as a party a conflict? The IBA approach was to divide conflicts into four groups: (1) Non-waivable conflicts (the “non-waivable red list”), e.g. being counsel for a party; (2) The “waivable red list”: Waivable conflicts that require disclosure, and explicit knowing waiver (e.g. arbitrator has a relative related to a party); (3) The “orange list”: Matters that require disclosure, but failure to object will be considered consent; (4) and, the “green list”: Matters that do not require disclosure.

He then described the Council of Bars and Law Societies of Europe (CCBE). He noted that US/Europe have differences that matter, e.g. on attorney-client privilege. In the US the client can waive it; in Europe the privilege is sometimes absolute and non-waivable, as it is considered to be a privilege that belongs to society. But fee-sharing agreements are much more rigorously policed in Europe than the US. Europe limits lawyer advertising; used to be an absolute bar, now there are signs of a slow movement towards allowing some of it. In Europe, lawyers have an obligation to tell clients about the option of settlement options and ADR when this might save the client money. In parts of Europe, especially France, conflict of interest rules prevent lawyers from being on the board of a client and other ‘incompatible occupations’.

The envoi was particularly interesting: the future, he predicted, will bring new strains on conflicts of interest and independence as firms grow and are more global, and as legal service firms (‘the Tesco lawyer”) become mass-market providers. [I’m afraid that here my notes don’t do the talk justice.] Already, the ECJ has held that in-house counsel can’t claim legal privilege on the grounds that the lawyer is not independent of the employer and hence can’t be acting as a true lawyer. The issue is coming back to the ECJ which may get a chance to reconsider. Another live issue is Patriot Act type monitoring of suspects’ talks with their lawyers. Still another: the ‘gatekeeper initiative’; Europe has three directives which require lawyers to report even mere suspicions of money laundering. Similarly, the Sarbanes-Oxley requirements of lawyer “noisy” withdrawal if the board of a client is not taking certain kinds of advice. And, the “worrying” rule in the sentencing guidelines that waiver of attorney-client privilege may be taken into account to reduce sentence — creating an incentive to undermine the duty of confidentiality.

His final words were to recite the classic advice on how Americans can impress Europeans: when visiting, dress like the French, speak with authority like the Germans, and only mention Presidents Lincoln, FDR and JFK. (And, he added, cite to the rules of the CCBE.)

Then, Pedro J. Martinez-Fraga, the Chair of the International Litigation and Arbitration Practice group at Greenberg Traurig, spoke on “Amendments to the NY Convention and the convergence of European civil law and US common law cultures in modern commercial arbitration”.

Despite the title, one theme of the talk was also cultural differences between civil and common law lawyers. One cultural difference evident from the talk, and indeed noted in the paper in the conference materials, was that US lawyers like to do stuff on paper: the European speakers provided only outlines; Mr. Martinez-Fraga had a very nice paper, with many footnotes. Europe has more of an oral culture.

Another theme, counterposed to the first, was convergence. Within Europe, of course, the court has seen its role as encouraging convergence. This is evident in criminal as well as commercial law.

In arbitration, he said, there is a “fundamental problem” as regards civil/common law legal/cultural differences, notable when one faces a mixed panel of arbitrators. The problem is that we don’t have actual convergence.

1. How to explain the difference between dicta and a holding when showing a civil lawyer a decision of the supreme court. How to explain the weight of a concurrence and a dissent? Or the weight of a recent appellate court decision versus an older supreme court case?

2. How to explain to civilians when courts interpret a statute differently from its seeming plain meaning? Or might be likely to do so even if the statute hasn’t been interpreted yet? (Even the sophisticated civilian lawyer will say, “courts are not supposed to make law” and the statute is plain — why look to the court decisions?)

3. How to explain the role of the Restatements to civilians? Civilians are only too happy to grab on to something that looks like a code and is written by academics and the ALI — but they need to understand that it is not law, but at best only persuasive.

4. How to explain what a court would do if the US state has no law on point. A court might well adopt a rule from another jurisdiction. Lawyers have an obligation to raise this potentially persuasive authority, but will civilians know how to evaluate it.

5. Civilians expect an inquisitorial proceedings; common lawyers are used to a more passive judge in an adversarial proceeding. Common lawyers expect to have an opening argument, to call witnesses on direct, and to cross-examine witnesses. Civilian arbitrators may find much of this offensive. Not to mention the idea of a rebuttal argument…

6. The ICC Rules and the UNIDROIT Principles tell arbitrators to use ‘relevant trade usages’; this helps.

7. The panel in an arbitration has jurisdiction to decide the relevant law.

8. In civil law the case is seen to start from the filing of the complaint; the common law sees the real start at the opening argument [Personally, I wasn’t sure I saw this as quite as sharp a difference].

9. Rules for taking evidence differ greatly. US lawyers want depositions to set up cross-examination; that is not congruent with the civilian tradition.

John H. Rooney, Jr., who in addition to being a partner at Shutts & Bowen, and Chair-Elect of the Florida Bar International Section, is also an extraordinarily energetic and effective adjunct professor of law at UM Law, spoke on the enforcement of international arbitral awards in Europe in the US.

[Alas, by this point, my fingers were tired, so my summary is much more summary.]

There are, Mr. Rooney noted, a lot of potentially relevant agreements. And, the US doesn’t have UNCITRAL model law articles 35 or 36 as apart of our law. We do, however, adhere to the NY Convention, and the Panama Convention, more formally “The Inter-American Convention on International Commercial Arbitration”. Even so, US rules on vacation and confirmation of arbitration awards differ from the norms in Europe (and even from the norms under the NY Convention). For example, an arbitration between two US parties about foreign property or foreign performance might fall under the NY convention. Or it might not, depending on where the arbitration takes place. If it took place abroad, it’s clearly a NY convention case. If it took place in the US, and one party is foreign, some courts will treat that as a “foreign” award and apply Art. 5 of the NY convention, at least in part. The issue is the applicability of art. 10 of title 9 of the US Code for the vacation of the award. That statute gives a short list of possible reasons to vacation, and even contemplates a possible remand. Plus there are three court-created reasons to vacate: violation of public policy, manifest disregard of law, [here my notes are unclear as to what Mr. Rooney gave as the third reason, but I have read US cases which cite two other rationales, that award fails to draw its essence from the contract or that it is arbitrary and capricious; these are of course very similar] but do these apply to NY convention cases? US courts of appeal are not unanimous on this question.

[There was lots more, including a summary of interesting recent cases, but I didn’t write it down. Similarly there was a very spirited discussion after the lunch break, with different views expressed on the likelihood of real convergence or even a single global legal system; some participants said our grandchildren would enjoy it; others aid it was certain to come, but the date was uncertain, others were rather more skeptical. One commentator went as far as to note that it took the Romans 800 years to get the Code of Justinian — “and by then it was too late” interjected another.]

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