On Monday, March 10, 2014, Cozen O’Connor’s Martin Gusy participated in a panel discussion on current trends in international arbitration at Cardozo School of Law in New York. Other panelists included Ank Santens of White & Case LLP and Hagit Elul of Hughes Hubbard and Reed LLP, and the panel discussion was moderated by Matthew Weldon, also of Cozen O’Connor. The speakers covered a variety of recent developments in international arbitration and mediation, specifically focusing on ethical guidelines, interim relief and revisions of institutional rules.
The issue of ethical guidelines in international arbitration was introduced through a hypothetical to illustrate certain ethical dilemmas faced by international arbitration practitioners; namely, a situation where a U.S. practitioner faces a Brazilian practitioner in the context of an international arbitration, and how each may deal with the issue of witness preparation in the dispute resolution process: While in the United States lawyers are generally at liberty to extensively prepare a witness, in Brazil or other civil law jurisdictions, lawyers may not usually engage in this type of activity. Traditionally, a conflict of law type of analysis has been applied. For example, if the international arbitration were seated in New York, then the ethical rules of New York would apply. However, if the international arbitration were seated in Brussels, then the ethical rules of Belgium would apply. But this presents various additional issues, including in this context that neither a New York lawyer nor a Brazilian lawyer would likely have much of a clue as to the applicable ethical rules in Belgium. Alternatively, traditional conflict of law analyses have resulted in the conclusion that each attorney should simply abide by the ethical rules applicable in her in her own jurisdiction, but this could result in an obvious uneven playing field resulting in one attorney being permitted to prepare her witness and the other being prohibited from doing so. Indeed, some party representatives in an international arbitration are not even licensed attorneys and therefore no ethical rules would be applicable to them.
Enter the IBA Guidelines on Party Representation in International Arbitration, which was promulgated in 2013 (the “IBA Guidelines”), and represents the advent of ethical rules in international arbitration. The IBA Guidelines aim to address some of the issues raised in the above hypothetical and according to some commentators, provide much needed clarity and guidance on the topic. Because arbitration is contractual, it was noted that the guidelines would only apply if the parties specifically agree to them; but even if they did not bind party representatives in a particular situation, the IBA Guidelines may also serve as helpful general guidance to a tribunal if an ethical issue arises. This is especially important given that as the number of international arbitration cases increases, party representatives appear from a greater cross-section of jurisdictions. Some of the areas the IBA Guidelines cover are the prohibition of ex parte communications, a general duty of integrity and honesty and avoidance of activity which would cause undue delay or expense, a prohibition on providing knowingly false statements to the tribunal and a general permission for preparing witnesses. Further, the IBA Guidelines provide direction relating to remedies for infractions of ethical rules.
The discussion of interim relief began with the observation that in the past, interim relief (such as a preliminary injunction or attachment order) was typically sought from a court. For example, pursuant to Article 75 of the Civil Practice Law and Rules, a party may direct requests for interim relief to New York state courts under a fairly liberal standard. In recent years, however, there has been a growing trend to provide for interim relief in particular institutional rules in order to supply an alternative to a court when seeking pre-arbitration emergency relief. One such provision, Article 37 of the ICDR Rules, provide a mechanism for an emergency arbitrator to be appointed to address requests for interim relief before the arbitral tribunal has been constituted.
Although the issuance of interim relief is fairly widely accepted today, there has not been a consensus among U.S. courts as to the arbitrator’s power to issue interim relief in the form of an award, and in any event whether such award is enforceable by the courts. In addition, U.S. courts have in the past been reluctant to recognize and enforce interim orders because it is unclear whether they are “final” within the meaning of the Federal Arbitration Act. Pivoting off of this interaction between the U.S. courts and awards issued by emergency arbitrators, the discussion moved to the October 21, 2013 decision of the U.S. District Court for the Southern District of New York in Yahoo! Inc. v. Microsoft Corp., No. 13-cv-7237, in which Judge Patterson upheld and enforced such an award. In the Yahoo! case, Yahoo! had “paused” its performance under the relevant agreement generally providing for technical cooperation between the parties aimed at increasing the coverage and capabilities of their respective search engines. The parties then entered into arbitration pursuant to their agreement. Before the constitution of the arbitral tribunal, Microsoft sought and was granted an injunction by an emergency arbitrator directing Yahoo! to stop “pausing” its performance under the agreement, which meant that it would be required to continue the technical migration mandated by the agreement.
Judge Patterson upheld the award and its injunction, rejecting Yahoo!’s argument that the arbitrator exceeded his authority and manifestly disregarded the law because he had in effect issued a “final permanent relief.” Yahoo! maintained that because the technical migration when done could not be undone, such relief was in effect “final.” The Court found that the parties had agreed to empower an emergency arbitrator to issue injunctive relief to restore the status quo, which was what the arbitrator had done. Further, the Court found that such equitable relief awarded was final, and confirmed the award, giving some guidance to parties as to how a U.S. court may currently view interim relief issued by an arbitrator.
Revisions of Institutional Rules
Finally, the panel discussion turned to the revision of institutional rules, highlighting one of the well-established differences between litigation (and many times even domestic arbitration), on the one hand, and on the other, international arbitration: Depositions, interrogatories, and requests to admit, discovery devices regularly found in U.S. federal and state rules of civil procedure, have little part in an international arbitration. This is largely due to the fact that international arbitration is hearing focused – that is, the goal is to get to a hearing as quickly as possible where the parties will present their evidence. Generally, parties can expect to see this contrast highlighted in the forthcoming revision of the ICDR Rules, as well as other revisions focusing on the efficiency of the arbitral process. The forthcoming revision will be the first major revision in a decade.
It can also be expected that the forthcoming rules will feature a mechanism for dealing with smaller claims. Because a full-blown arbitration for cases under a certain monetary threshold is often unnecessary, there is an understanding among institutions that abbreviated procedures should be developed for smaller claims to help move these cases through the system more efficiently. In addition, a noteworthy feature of the revisions will likely include an increased focus on the role of mediation in helping resolve international arbitration disputes at an early stage. Rather than the current “opt-in” procedures for mediation contained in the rules, parties should expect to be prompted automatically by the institution to proceed to mediation at an early stage of the dispute, and thus be required to instead “opt-out” pursuant to the revised rules. In light of the helpfulness of the mediation program in the U.S. District Court for the Southern District of New York, such a scheme should help move some cases out of the institution at an early stage and increase efficiency. Further, there is debate as to whether joinder rules should be added to the ICDR Rules, such as those that were included in last year’s revision of the rules of the Hong Kong International Arbitration Centre (HKIAC), which would take into account the increasing complexity and multi-party nature of international arbitration disputes.
In closing, Rule 33 of the AAA Commercial Arbitration Rules, sometimes applicable to international arbitrations per party agreements, was discussed. Added through last year’s revision of these rules, Rule 33 addresses dispositive motions, such as a motion to dismiss or a motion for summary judgment, acknowledging that such a motion may be appropriate in arbitration. However, the rule also requires that a party wishing to file a dispositive motion must first request the permission of the arbitrator, recognizing that an unsuccessful dispositive motion can dramatically delay the progression of a dispute. This rule then balances the general disfavor of dispositive motions in international arbitration against circumstances where such a motion may be particularly helpful in quickly resolving a dispute, such as where the applicable statute of limitations may bar a claim.