New York, 4 October 2019

Bench and bar in conversation: Landmark decisions in North America

Members of the Panel: Janet Walker (moderator), Member Arbitrator, Arbitration Place, Toronto; Honorable Ian Binnie, Of Counsel at Lenczer Slaght in Toronto and former Justice of the Supreme Court of Canada; Marc J. Goldstein, Independent Arbitrator, MJG Arbitration, New York; Justice Saliann Scarpulla, Judge, Commercial Division, Supreme Court, New York; Judge Shira A. Scheindlin, Of Counsel at Stroock & Stroock & Lavan LLP in New York and retired Senior Judge of the U.S. District Court for the Southern District of New York.

The overview of landmark decisions in the U.S. and Canada was kicked off by Mr Goldstein, who discussed the question of when arbitral tribunals are permitted to modify or correct awards they previously issued. He discussed two cases in particular:

  • American International Specialty Lines Insurance Co. v. Allied Capital Corp.1 An ad hoc arbitration panel deciding an insurance-coverage dispute issued a partial final award denying indemnification. The claimant requested reconsideration of the partial final award and the panel issued a corrected version, awarding indemnification. The corrected award was confirmed by the New York Supreme Court, but the Appellate Division reversed the confirmation on the ground that the arbitral tribunal was functus officio when it modified the award. The case is now pending review in New York’s Court of Appeals, and one question which may be dispositive will be the extent to which the tribunal’s procedural rulings (which permitted the reconsideration of the partial final award) are subject to judicial review in New York.
  • Credit Agricole Corporate and Investment Bank v. Black Diamond Capital Mgmt.2 The respondent moved the arbitral tribunal to modify the final award, and the arbitral tribunal discovered that the interest it had awarded therein was greater than what it had intended. Considering this to be a calculation error, the tribunal issued a modified final award, which recalculated the interest, thereby reducing the amount of the award by several million. In a proceeding to vacate the award, the U.S. District Court for the Southern District of New York found that, in modifying the original award, the arbitration panel had exceeded its authority under AAA rules and had acted in manifest disregard of the law. The court vacated the modified final award and confirmed the original award.

Judge Scheindlin’s presentation focused on the three U.S. cases hinging on the subject of arbitrability and jurisdiction, and gave rise to a lively exchange of views by conference participants on whether specific legislation on labor and consumer arbitration is desirable.

  • In the consolidated case Epic Systems v. Lewis, Ernst & Young v. Morris and National Relations Board v. Murphy Oil USA, Inc.,3 the U.S. Supreme Court held that arbitration agreements in which an employee agrees to arbitrate any claims against an employer on an individual rather than on a class or collective basis are enforceable and do not violate the National Labor Relations Act. In reaching its decision, the U.S. Supreme Court held that the right to engage in concerted activities for collective bargaining under the National Labor Relations Act did not derogate from the supposedly conflicting provisions of the Federal Arbitration Act (‘FAA’), and therefore class- and collective-action waivers were enforceable.4
  • In Henry Schein, Inc. v. Archer & White Sales, Inc.,5 the U.S. Supreme Court held that there is no ‘wholly groundless’ exception to its holding in the landmark First Options case, in which it held that parties may delegate gateway issues to an arbitrator so long as the arbitration agreement presents clear and unmistakable evidence of their intent to do so.6 The court below had decided that, where an argument to compel arbitration was ‘wholly groundless’, the courts were not required to defer to the arbitrator regarding gateway issues of arbitrability. The decision resolved a split in the lower courts regarding the ‘wholly groundless’ exception. The panel’s commentary focused on the fact that the parties may need to spell out in their contracts the delegation of arbitrability to aribtrators with greater precision than is commonly seen.
  • In Lamps Plus Inc. v. Varela,7 the personal information of an employee was given to a hacker by his employer, resulting in a false tax return being filed in the employee’s name. The employee sued the employer on behalf of a class of employees whose tax information had been likewise wrongfully divulged. The employer moved to dismiss the lawsuit and compel arbitration based on the arbitration agreement that was contained in the employment agreement. The trial and appellate courts found that that the language of the arbitration agreement was ambiguous with regards to the availability of class arbitration and that the ambiguity should be resolved in favor of the party that did not draft the language (the employee). The U.S. Supreme Court reversed the lower court decision and reaffirmed that courts may not infer that a respondent consented to class arbitration by silence or implication.

Justice Binnie followed with an exposition on an important arbitrability case in Canada.

  • Heller v. Uber Techonologies, Inc.8 An Uber driver disputed his compensation and commenced a class action on behalf of other Uber drivers. Uber's stance was that a class action could not be commenced given that there was an arbitration agreement in the contract. The plaintiffs sought a declaration that the mandatory arbitration provisions of the services agreements between Uber and the drivers were void and unenforceable.9 The first instance court upheld the plain meaning of the arbitration clause, disallowing the class action. On appeal, the Ontario Court of Appeal determined that the arbitration clause was unconscionable due to the unequal bargaining power of the parties and therefore set aside the stay of the class action. The case will be heard by the Supreme Court of Canada, and the ICC Court has moved to intervene in the case.10

Justice Scarpulla ended with a case currently before the U.S. Supreme Court relating to non-signatories.

  • GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC.11 The Eleventh Circuit reversed a lower court decision to compel arbitration between an Alabama steel plant owner and a French division of GE. The Eleventh Circuit held that a non-signatory to a contract could not be compelled to arbitrate under the doctrine of equitable estoppel. This case highlights a current circuit split among U.S. federal appellate courts wherein the First and Fourth Circuits have accepted that equitable principles under the FAA may be incorporated into the New York Convention while the Ninth and Eleventh Circuits disagree, holding to the strict requirement of a writing signed by the party who is to be compelled to arbitrate.

Tackling tricky scenarios: What would you do?

Members of the Panel: Ina C. Popova, Partner, Deveboise & Plimpton LLP, New York (moderator); Edna Sussman, independent arbitrator and mediator, New York; Hagit Muriel Eleul, Partner, Hughes Hubbard & Reed, New York; Thomas H. Webster, lawyer and arbitrator, law offices of Thomas Webster, London); Rodrigo Zamora, Partner, Galicia Abogados, Mexico City.

The second panel was an interactive discussion of difficult scenarios, which provided an occasion for the audience to share their views through a live poll on the ‘ICC DRS’ app.12

Scenario 1. In a fight over document disclosure, the claimant’s parent company, which possesses responsive documents, is in another country. After document disclosure is ostensibly complete, the claimant submits a witness statement from the parent company’s employee containing exhibits that would have been responsive but were not produced during the disclosure phase. The respondent seeks to either (i) exclude the witness statement or (ii) obtain an order of production for all responsive documents in the parent company’s possession. Along with the merits of the relief sought by the respondent, the panel members discussed other possible solutions such as admitting the witness statement while excluding the exhibits or having a hearing to permit the claimant to explain its position regarding disclosure. In general, the panelists agreed that an appropriate remedy should take into account how far along the parties are in the briefing schedule when such issue arises.

Scenario 2. After respondent has filed its rejoinder, the arbitrator realises that neither party has briefed an issue that the arbitrator believes is important to the resolution of the dispute. In this example, both parties agree that interest should be awarded but neither party has argued for any particular interest rate. While the panel members generally agreed that arbitrators have the power to raise questions and ask for additional briefing on any topic, they discussed the pros and cons of such initiative. Prominent among the arguments against arbitrator initiative were the risk of appearing biased and the risk of reinforcing actual cognitive biases in the arbitrator’s own mind.

Scenario 3. The claimant set forth its damages calculation for each claim and the respondent addressed them in its counter-memorial. One month before the merits hearing, the respondent submits an entirely new economic analysis. The claimant then requests that the report be stricken from the record. The panel discussed the prejudice that might be suffered by the claimant if the report were admitted into evidence, but the overall consensus was that (i) claimant should be granted a surreply to address the issue or (ii) respondent should be required to explain why the new report is necessary. Emphasis was placed on the importance of determining whether the respondent’s apparent ‘sandbagging’ was deliberate.

Scenario 4. The claimant informs the tribunal that the respondent has been declared bankrupt and that a trustee has been appointed to manage it. Respondent alleges that it has challenged the bankruptcy and that a decision is pending. The tribunal must decide who represents the respondent in the arbitration. The panelists agreed that this was a particularly thorny issue and discussed the appropriateness of staying the arbitration pending the final decision.

Claudine Helou (afternoon sessions)

Partner, HSLF, Beirut

Handling the hot potato: Issues of corruption in international arbitration

Members of the panel: Monica Jimenez, Secretary General, ECOPETROL SA, Colombia; Cheng-Yee Khong, Associate Investment Manager, IMF Bentham International Litigation Funding, Hong Kong; Alexander J. Marcopoulos, Counsel, Shearman & Sterling LLP, Paris; Richard Kreindler, Partner, Cleary Gottlieb Steen & Hamilton LLP, Frankfurt/New York; Teddy Baldwin (moderator), Partner, Steptoe & Johnson LLP, Washington, D.C.

The debate touched upon the challenges encountered by a party or by an arbitral tribunal when faced with allegations of corruption.

From an in-house counsel perspective, Ms Jimenez emphasized the need for a robust compliance system within the company/party to commercial or investor-state arbitration, in order to mitigate the legal, financial and reputational risks arising from allegations of corruption. She affirmed that predictability is threatened when corruption is defined with respect to different laws or international legal standards and when many jurisdictions come into play. The arbitrators, whilst taking into account potential parallel proceedings including criminal lawsuits, should seek guidance in the governing law and the different laws that might be applicable in relation to the jurisdictions where the case might evolve.

From a third party funder’s perspective, Ms Khong stressed that any indication of corruption or non-reliability of enforcement courts constitutes a barrier to funding a case. Prior to their decision, the funders perform due diligence and ask piercing questions to the client about the project and the investors.

Mr Marcoulos raised the issue of the ‘traditional’ approach13 adopted by common and civil law tribunals, i.e. to deny either party, whether in commercial or investment treaty arbitrations, any recourse or remedy where the underlying contract is tainted by corruption. This approach was taken in World Duty Free Company Limited v Republic of Kenya where Claimant’s claims were dismissed as the agreement obtained by corruption ‘does not have force of law’.14

He voiced concerns as to uncertainty and unfairness resulting from this policy and expressed the need to a balancing test in relation to the parties’ participation to corruption. This was illustrated in Nizamuddowlah v Bengal Cabaret, Inc. where the Court found in favor of the plaintiff reasoning that the defendant was the main perpetrator of the illegal contract.15 Similarly, in Patel v Mirza, Lord Toulson held that the claim for unjust enrichment should not be barred by reason only that the money sought was paid for an unlawful purpose.16

Mr Kreindler indicated that an arbitral tribunal might face challenges regarding the law applicable to corruption issues in addition to the various allegations of corruption used by the respondents as a ‘shield’ and by the claimants as a ‘sword’ either in the commercial or in the investment treaty arbitrations, whilst assessing a variety of decisions rendered in such cases.

Finally, it was concluded that the tribunals must strike a balance between the requirement of fairness and the interest of preventing corruption.

Radical proposals for dispute resolution: An efficiency revolution

Members of the panel: Andrea Gross (moderator), Manager of Litigation, Americas, Bechtel Global Corporation, San Francisco; Michael Schottler, Lead Legal Counsel, Litigation, Anglo American plc, South Africa; William Crosby, Vice President and Associate General Counsel, Interpublic Group, New York; Erin Gleason Alvarez, Independent Arbitrator, Gleason Alvarez ADR, LLC, New York; Alexandre de Gramont, Partner, Dechert LLP, Washington DC.

The last session was an interactive exchange of innovative ideas aimed at increasing the efficiency of arbitral proceedings. The panellists noted that predictability is assured where arbitrators set rules from the outset of a case, suggested a project management approach to ‘cure the defect’ (dispute), and voiced the need for predictability and reliability of institutions and tribunals. The panel discussed seven propositions, submitted to the voting of the conference participants through the live poll on the ‘ICC DRS’ app.

Proposition 1: Whether mediation should be a mandatory component of arbitrations and scheduled by the arbitrators at the outset of arbitration. According to the voting results: 10% of the participants strongly agreed, 20% agreed, 45% disagreed and 25% strongly disagreed.

Ms Gleason Alvarez suggested that mediation enhances the efficiency of the process by streamlining the issues. Mr Crosby agreed that mediation is effective if parties opt in voluntarily. Mr Schottler, however, advocated for mandatory mediation on the ground that proposing mediation can be considered a weakness.

Proposition 2: Whether we should dispense with party-appointed arbitrators. According to the voting results: 8.33% of the participants strongly agreed, 13.88% agreed, 41.66% disagreed and 36.84% strongly disagreed.

Mr Crosby was not surprised by the results as the notion of party–appointed arbitrators is one of the sacred concepts of arbitration that is party-driven. Mr Schottler’s view was to let the forum appoint the chairman of the arbitral tribunal which leads to more equity.

Proposition 3: Whether all arbitral bodies should include a mandatory independent assessment function that collects (and shares in some fashion) feedback from the arbitration participants regarding the performance of the arbitrators. According to the voting results: 21.5% of the participants strongly agreed, 57% agreed, 14.5% disagreed and 7.5 % strongly disagreed.

The panelists agreed on this method of feedback. Živa Filipič (Managing Counsel, ICC International Court of Arbitration, Paris) stated that the ICC evaluation forms remain confidential and are taken into account in future appointments.

Proposition 4: Whether we should eliminate or dramatically limit the written (i.e. memorials) or oral phrase of arbitral proceedings, to avoid costly duplication of efforts. According to the voting results: 5% of the participants strongly agreed, 22.5% agreed, 50% disagreed and 22.5% strongly disagreed.

Mr de Gramont clarified that having a full-blown written phase and a full-blown oral phase would be reserved for cases where the stakes are very high.

Proposition 5: Whether disclosures should be limited to evidence on which a party intends to rely. According to the voting results: 14% of the participants strongly agreed, 30.5% who agreed, 33.5% who disagreed and 22% who strongly disagreed.

Mr Crosby and Mr de Gramont noted that although discovery is very helpful, it is very costly and would make more sense high-value cases. Generally, a cost-benefit analysis should be made.

Proposition 6: Whether international arbitrations should more routinely include motions similar to those used in the US litigation. According to the voting results: 7.5% of the participants strongly agreed, 37.5% agreed, 42.5% disagreed and 12.5% strongly disagreed.

Ms Gleason Alvarez explained that motion practice provides a more streamlined process and noted that both the ICC Rules17 and the Note to Parties and Tribunals allow summary disposition of claims.

Mr de Gramont agreed and cited a recent case where the tribunal granted a motion in limine, rather than re-opening the proceedings thereby delaying the case. Mr Schottler strongly agreed but Mr Crosby thought that the US motions are generally time-wasting and ineffective.

Proposition 7. The last proposition was whether arbitration bots will soon be the best way to obtain true impartiality and efficiency in arbitrations. According to the voting results: 5.88% of the participants strongly agreed, 17.64% agreed, 29.41% disagreed and 47.05% strongly disagreed.

Mr de Gramont stated that the advances in artificial intelligence have been extraordinary.18 However, he thinks this will not happen soon as it is culturally and psychologically difficult to write algorithms that are free from the biases of their writers. The audience and the panelists were unanimous in this regard.


1
American Int’l Specialty Lines Ins. Co. v. Allied Capital Corp., 167 A.D. 3d 142 (N.Y. App. Div. 2018) (http://nycourts.gov/reporter/3dseries/2018/2018_07194.htm).

2
Credit Agricole Corporate and Investment Bank v. Black Diamond Capital Mgmt., No. 1:18-cv-7620, 2019 U.S. Dist. LEXIS 48618 (S.D.N.Y. Mar. 22, 2019) (memorandum and order granting petition to vacate the amended final award and to confirm the final award).

3
Epic Systems Corp. v. Lewis, 584 U.S., 138 S. Ct. 1612 (2018) (https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf).

4
On class arbitrations in the U.S., see J. Carter, ‘Class Arbitration In the United States: Life After Death?’ and C. Drahozal, ‘Class Arbitration in the United States’, in Class and Group Actions in Arbitration (Dossiers of the ICC Institute of World Business Law, 2016) (https://library.iccwbo.org/).

5
Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S., 139 S. Ct. 524 (2019), slip op. available at https://www.supremecourt.gov/opinions/18pdf/17-1272_7l48.pdf.

6
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (https://www.supremecourt.gov/opinions/boundvolumes/514bv.pdf).

7
Lamps Plus, Inc. v. Varela, 587 U.S., 139 S. Ct. 1407 (2019) (https://www.supremecourt.gov/opinions/18pdf/17-988_n6io.pdf).

8
Heller v. Uber Technologies Inc., 2019 ONCA 1 (https://www.ontariocourts.ca/decisions/2019/2019ONCA0001.pdf).

9
The arbitration clause provided: ‘Any dispute, conflict or controversy [,] howsoever arising out of or broadly in connection with or relating to this Agreement, including those relating to its validity, its construction or its enforceability, shall be first mandatorily submitted to mediation proceedings under the International Chamber of Commerce Mediation Rules ("ICC Mediation Rules"). If such a dispute has not been settled within sixty (60) days after a request for mediation has been submitted under such ICC Mediation Rules, such dispute can be referred to and shall be exclusively and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce ("ICC Arbitration Rules")’. See e.g. https://canliiconnects.org/en/summaries/65431.

10
The ‘Factum of the Intervener (ICC)’ submitted to the Supreme Court of Canada on 16 Oct. 2019 is published in this issue 2020/1 of the ICC Dispute Resolution Bulletin (in ‘Practice and Procedure’).

11
Outokumpu Stainles USA, LLC v. Converteam SAS, 902 F.3d 1316 (11th Cir. 2018) (http://media.ca11.uscourts.gov/opinions/pub/files/201710944.pdf) .

12
The app ‘ICC DRS’ is available free of charge and easily downloadable via the Apple App Store, Google Play, and also accessible via desktop (https://iccdrs.eventapp.live/login).

13
In English law, this approach is illustrated by Lord Mansfield in Holman v Johnson [1775] 1 Cowp 341: ‘The principle of public policy is this: … no Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act’.

14
ICSID Case No. ARB/00/7, 2006, available at https://www.italaw.com/cases/3280. Claims were dismissed on the grounds that the law protects the people of Kenya and not the parties.

15
Nizamuddowlah v Bengal Cabaret, Inc., 399 NYS 2d 854 (1977).

16
United Kingdom Supreme Court, [2016] UKSC 42, on appeal from: [2014] EWCA Civ 1047, which mentions Holman v Johnson and Nizamuddowlah v Bengal Cabaret, Inc. (https://www.supremecourt.uk/cases/docs/uksc-2014-0218-judgment.pdf).

17
Article 22(2): ‘In order to ensure effective case management, the arbitral tribunal, after consulting the parties, may adopt such procedural measures as it considers appropriate, provided that they are not contrary to any agreement of the parties’. See, in particular, the ‘https://iccwbo.org/publication/note-parties-arbitral-tribunals-conduct-arbitration/’, paras. 72 to 79.

18
A 2016 article in the Peer Journal of Computer Science (available at https://peerj.com/articles/cs-93/) reported a model that predicted the results of decisions by the European Court of Human Rights ‘with a strong accuracy (79% on average)’.