California’s new statute resolves a significant problem that had kept international arbitration practitioners from agreeing to California as seat of their arbitrations.

Background

California enacted its International Arbitration and Conciliation Statute in 1988. Ten years after that, the Supreme Court of California entered a ruling that effectively blocked international arbitration from playing a meaningful role in the judicial system of California.

In 1998, the California Supreme Court decided Birbrower, Montalbano, Condon & Frank v. Superior Court, 17 Cal. 4th 119, which, alas, held representing parties in arbitration was the unauthorized practice of law, and a non-California lawyer could not practice or collect fees for work on arbitration in California. No exception was made for international arbitration. Since California Business and Professions Code §6126 provides the penalties for unauthorized practice of law in California may include a fine of up to one thousand dollars and up to one year in county jail, international arbitration lawyers around the world heard if they went to California to handle an international arbitration, under a technical reading of California statutes, they could go to jail. Whether that represented a realistic threat or not, it had a deterrent effect on non-U.S. counsel’s willingness to agree to seat international arbitrations in California.

The California legislature became aware of the problem. In 2014 a bill enacting the UNCITRAL standard of representation in international arbitration passed in the State Senate without opposition. The legislature viewed the issue as bringing economic activity to California and helping California based companies be able to negotiate to have their arbitrations in California. The Supreme Court of California (the ‘Court’) also aware of the advantages of California becoming an international arbitration center, needed to be involved. The Court established a Supreme Court International Commercial Arbitration Working Group (the ‘Group’) tasked with analyzing whether attorneys from foreign jurisdictions should be allowed to represent parties in international commercial arbitrations seated in California.

The Group analyzed the options in the context of an International Bar Association Country Guide showing 53 countries authorize attorneys from foreign countries to represent clients in international arbitrations seated in their jurisdictions, including England, France, Germany, Hong Kong, Singapore, India, Italy and Mexico. Strikingly, 19 U.S. states permit lawyers from foreign jurisdictions to represent parties in international arbitrations in their jurisdictions.

The Group then recommended a statute based on the American Bar Association’s Recommendation for a Model Rule for Temporary Practice by Foreign Lawyers.

The statute

The statute S.B. 766 as set out below, established the base for non-U.S. lawyers to appear in California in international arbitrations. It passed the legislature without opposition, was signed by Governor Jerry Brown, effective on 1 January 2019. S.B. 766 is focused on international commercial arbitration and does not apply to consumer issues, acquisition of goods or services for primarily for personal, family or household use, health insurance plans or interaction between an individual and a health care provider.

S.B. 766 includes what is now California Code of Civil Procedure §1297.186(a), which provides that a non-U.S. attorney who is admitted to practice in any foreign jurisdiction may provide legal services in an international commercial arbitration or related conciliation, mediation, or alternative dispute resolution proceeding, if any of the following conditions is satisfied:

1. The services are undertaken in association with an attorney who is admitted to practice in this state and who actively participates in the matter.

2. The services arise out of or are reasonably related to the attorney’s practice in a jurisdiction in which the attorney is admitted to practice.

3. The services are performed for a client who resides in or has an office in the jurisdiction in which the attorney is admitted or otherwise authorized to practice.

4. The services arise out of or are reasonably related to a matter that has a substantial connection to a jurisdiction in which the attorney is admitted or otherwise authorized to practice.

5. The services arise out of a dispute governed primarily by international law or the law of a foreign or out-of-state jurisdiction.

These provisions are sufficiently broad that any attorney admitted to practice in a foreign jurisdiction should be able to appear in an international arbitration in California. The S.B. 766 rules are consistent with other states and foreign jurisdictions that host international commercial arbitrations.

Once counsel appear they will find international arbitration in California is governed solely by the California International Arbitration and Conciliation Act, CCP §1297.11 et seq., based on the UNCITRAL Model Law. The international arbitration rules are cabined within that statute. It is important to understand that is a distinct set of arbitration rule governing the California law related to international arbitration. The rules in California for consumer arbitration and domestic commercial arbitration – between U.S. companies alone – do not apply to international commercial arbitration. Only the California international arbitration statute applies.

The scope of the statute is set out in CCP §1297.13, (in which the word ‘states’ means countries):

An arbitration or conciliation agreement is international if any of the following applies:

(a) The parties to an arbitration or conciliation agreement have, at the time of the conclusion of that agreement, their places of business in different states.

(b) One of the following places is situated outside the state in which the parties have their places of business:

(i) The place of arbitration or conciliation if determined in, or pursuant to, the arbitration or conciliation agreement.

(ii) Any place where a substantial part of the obligations of the commercial relationship is to be performed.

(iii) The place with which the subject matter of the dispute is most closely connected.

(c) The parties have expressly agreed that the subject matter of the arbitration or conciliation agreement relates to commercial interests in more than one state.

(d) The subject matter of the arbitration or conciliation agreement is otherwise related to commercial interests in more than one state.

If the arbitration or conciliation agreement includes one of the above, it is an international arbitration in California. Furthermore, if court proceedings are brought in California state court of compel arbitration, or confirm or vacate an award, that case may be removed to a United States District Court under the U.S. Federal Arbitration Act, section 205, in which reference to ‘Convention’ is to the New York Convention:

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. (9 U.S.C. §205)

Conclusion

With the legal regimes now welcoming, international counsel and parties may find great advantages to coming to California. California is home to the technology and entertainment industries, two of the essential drivers of global growth. Though parties may also wish to have arbitrators from elsewhere, California has a group of the most experienced and respected arbitrators in the world. San Francisco and Los Angeles are two of the most magnetic cities and attractive cities in the world, let alone the possibility of Napa Valley, which does have adequate facilities (and might provide an environment and motivation for conciliation as well).

California institutions are adapting and growing to help provide a home for international arbitration. A group of counsel and neutrals with experience in issues of international arbitration have formed the California International Arbitration Council (‘CIAC’), a new non-profit, to promote California international arbitration. The CIAC will reach out internationally, work with state and local governments, and plan contact and programs to help all lawyers and businesses in California benefit from the growth international arbitration. The CIAC will work with all providers, those based in California, throughout the United States, and worldwide, to guide and strengthen California’s new frontier in international arbitration.

Welcome to California!