JAMS neutrals discuss how to navigate international arbitration in the states

In this podcast, JAMS neutrals Laura C. Abrahamson, Esq. FCIArb, Robert Davidson, Esq., FCIArb, and Shelby Grubbs, J.D., FCIArb, discuss selecting a seat for international arbitration proceedings, the current regulatory framework that governs them and factors contributing to rise of the United States as a hub for international arbitration and the trends fueling disputes. To start the conversation, the neutrals provide an overview of the considerations that come into play when selecting a seat for international arbitration, including adopted regulatory frameworks, access and any potential limits on the arbitrability of certain cases and/or arbitrators who may oversee disputes.

Next, the group delves into the different regulatory frameworks that may apply to international arbitrations and where overlap and differences emerge. The neutrals also share their thoughts on benefits to seating an international arbitration in the United States and the regions nationally that are serving as hubs for case seatings. The podcast wraps up with a discussion on where region-specific focuses are emerging—such as financial disputes being seated in New York—and what economic and disruptive factors will be key to fueling international disputes in the coming years.

JAMS - International Arbitration Podcast

[00:00:00] Moderator: Welcome to this podcast from JAMS. In this episode, we're going to discuss selecting a seat for international arbitration proceedings, the current regulatory framework that governs them, the rise of the United States as a hub and trends that may fuel activity in the coming years. I'm joined today by three JAMS neutrals: Shelby Grubbs, who has decades of experience handling complex international and cross-border disputes; Robert Davidson, the executive director of JAMS’ arbitration practice, who has participated in over 200 domestic and international arbitrations across practice areas; and Laura Abrahamson, the former head of global litigation for an American multinational infrastructure consulting firm who also has extensive experience handling arbitrations within the U.S. and significant jurisdictions around the world.

[00:00:51] So, thank you all for joining me today. To start, Shelby, can you just help listeners understand the factors that are involved when selecting a seat for international arbitration? What do they need to be thinking about?

[00:01:04] Shelby Grubbs: Well, I think that first of all, you want to be sure that the place you select as the seat has adopted the New York Convention or the Panama Convention. Typically, the New York Convention is what you'll be seeing, but having the convention in place—or a convention in place—will enable you to enforce your agreement to arbitrate and also the arbitration award. And then similarly, you want a place with a strong rule of law tradition, which respects and ideally fosters arbitration in a court system with reasonably current dockets.

[00:01:38] Assuming those items are covered, I think that you will frequently want to seat your arbitration in the place that it is going to be enforced. Now, certainly, it is possible to enforce an arbitration outside the seat, but your life may be a little less complicated if you seat the arbitration at the spot where you expect it to be enforced. And that's particularly true if you anticipate being an award creditor; that is, if you're going to prevail and you're going to be trying to collect an amount that is awarded. So, typically, you'll want to consider where you might want to enforce and where assets are located. I think you also want to be sure that you're in a country in which your dispute is arbitrable.

[00:02:22] In other words, you want to be sure that the country that you have selected as the seat will enforce the arbitration given its subject matter. There are countries where there are limits on arbitrability. Lastly, you want a place that is reasonably easy to get to. You want to consider cost and convenience, and so you want to be sure that the seat that is selected has the infrastructure you need, has reliable transportation, hearing space, hotel space, translators and so forth.

[00:02:53] Moderator: All right. Well, thank you, Shelby. What—what about challenges or hazards that can emerge when selecting a seat for different types of disputes?

[00:03:03] Shelby Grubbs: Well, I mentioned the question of arbitrability. The United States allows us arbitration of almost every type of commercial dispute, so we're accustomed to assuming that pretty much anything and everything is arbitrable. However, there are countries where the law does not allow the arbitration of particular types of disputes. So, for example, employment disputes in certain countries cannot be determined by arbitration. So, [let’s say] you're in one of those countries and you have an employment matter. You want to be sure that it does not fall within the prohibition, and then there are other countries in which certain types of IP disputes cannot be determined by arbitration. So, you want to be sure that the arbitration—that the seat of arbitration allows arbitration of the subject matter of the dispute.

[00:03:49] Laura Abrahamson: I was just going to chime in there for one second. Another hazard that people may not think about is there are certain jurisdictions which place significant limits on which arbitrators can actually work within that jurisdiction. For example, for many years, Thailand prohibited international arbitrators who weren't Thai from sitting in jurisdictions. So, if you have a dispute where you want a certain diversity of your arbitrators, you want to make sure that your seat wouldn't preclude that.

[00:04:18] Shelby Grubbs: Absolutely. Along the same lines, you want to be sure that you're going to be able to get to the spot that is designated as a seat to the extent that you need to, and there can be geopolitical impediments. There are, for example, cases in which Iran was designated as a seat, but getting there proved to be difficult, if not impossible. And then I think the last point I wanted to mention here, Andrew, is that you want to be sure you have a durable administering institution. Recently, there was an arbitration agreement providing for arbitration in the United Arab Emirates, which was tripped up because the administering institution had ceased to exist.

[00:04:57] Moderator: Wow. Robert, can you talk a little bit about the current regulatory framework that governs many of the international arbitrations seated in the United States?

[00:05:06] Robert Davidson: Sure. I mean, the framework really—and Shelby presaged this—first and foremost is the New York Convention, which is a very important, multilateral treaty that allows arbitration and allows awards to be enforced in any signatory country. That's really the first. Below that is the Federal Arbitration Act, and here in the United States, there are some recent cases that conclude that, let's say, grounds for vacating or denying recognition and enforcement to an arbitration award include the grounds that are set forth in the Federal Arbitration Act, as well as the very limited grounds which are set forth in the New York Convention. So, there are expanded grounds to challenge an award in the United States, although there's a lot of overlap between the FAA (Federal Arbitration Act) grounds to vacate an award and the Article V grounds under the New York Convention to deny recognition and enforcement to an arbitration award. Finally, you've got the provider rules, and Shelby also touched on those. There are institutions in the United States—American Arbitration Association, JAMS and CPR, to name three—and whatever rules that you select, even if they're not domestic rules in the United States, you can pick any rules you want. You can pick the LCIA or the ICC rules for an arbitration which takes place in the United States. Those will also govern. One of the main points I think that I want to set forth is the fact that an international arbitration that takes place in the United States is subject to venue rules, which allow all court proceedings to be submitted to federal courts in the United States and not state courts.

[00:07:06] That means you get rather specialized judges who are used to hearing these cases. You will not get any interference with a case while it is going on, and you will make sure that you have a rational judiciary with a long-established set of case law to govern whatever proceedings that you want to institute.

[00:07:28] Moderator: Hmm. Well, those are definitely very strong benefits to instituting an international arbitration in the United States. Are there any others you want to mention here?

[00:07:37] Robert Davidson: Well, there's of course broad arbitrability rules, which are very important. You can arbitrate patent cases here. You can arbitrate antitrust cases. You can arbitrate securities cases in the United States. You have access here—and this is very important—to very experienced people. There are many international arbitrators here in the United States who are specialists that you can pick to populate your panels and that will make excellent arbitrators. I also want to just mention, a people—a lot of companies are afraid to enter the United States because they think the broad discovery rules, which usually apply to U.S. cases and domestic cases, are going to be applied to their cases, and I want to dispel that myth. International arbitration here is just as restrictive or expansive as maybe in any country. The last thing I want to say is that you are completely free here to appoint whoever you want as an arbitrator. So, if you don't like Americans, you can appoint Europeans. And if you want someone from Asia, you can do that. There is no impediment to who actually is authorized to hear a case.

[00:08:53] Shelby Grubbs: I might make another point, which I think Bob touched on, but the courts in the U.S.—you are going to be in federal court, and there is a strong policy favoring the enforcement of arbitration agreements and arbitration awards. Courts are also, in the United States, unlike courts in some places, very reluctant to vacate or annul an award based on public policy considerations. There's a provision and the New York Convention which allows for the refusal to enforce an award based on public policy considerations, and we do see that occasionally abused in some jurisdictions, but the United States is very stingy about that. So, I think I could count on probably one hand the number of reported cases in which there've been public policy annulments.

[00:09:47] Robert Davidson: Well, one of the things that's quite important too is that the seat of the arbitration will generally govern the availability of provisional relief and arbitration. And here in the United States, arbitrators can issue injunctions. There are some jurisdictions where they can order orders of attachment. They can order—and there's a recent case on this—they can order that some disgruntled party cease parallel proceedings in other jurisdictions in order to frustrate the arbitration which is being conducted in the United States. There are substantial availability, and if a party succeeds through emergency application or otherwise succeeds in getting a provisional order or injunction, the courts here are friendly and will enforce that generally, so you don’t have to wait till the end of the day if the arbitrators order an injunction—you know, stop that board meeting from taking place or stop the securities transaction from closing by a certain date and the other side refuses to abide by it. The courts are very friendly to enforcing those interim awards.

[00:11:04] Moderator: Hmm. Great points, Laura, let's talk about the U.S. states and those states that have adopted frameworks based on the UNCITRAL model law, like California, and what differences exist among the states.

[00:11:20] Laura Abrahamson: Seven states in the U.S. have enacted the UNCITRAL model law. Not surprisingly, five of those states, including California, are ones where there's large cities with promising arbitration seats. You know, we have California with Los Angeles and San Francisco; Atlanta, Georgia; Chicago, Illinois; Houston, Texas; and Miami, Florida. Of course, the advantage of seeding your arbitration in one of these states is that their laws align with the law of international arbitration in a number of other jurisdictions around the world. But one of the things these states have done is they've modified the model laws in a couple of ways to one, give greater clarity and definition where it's lacking in the model law; two, to fill gaps in the model law; or three, in ways that innovate. I think some examples people might be interested in with those, in terms of clarity, the UNCITRAL trial model law doesn't define “commercial” for purposes of what's an international commercial arbitration that it applies to. California and Texas, for example, their versions of the model law they've adopted include long, non-exhaustive lists of activities that qualify as commercial and thus come under the umbrella of the law.

[00:12:32] You know, an example of filling the gaps that I think is important for parties and is an attractive feature—with respect to disclosures and challenges, everyone knows that the—the model law requires potential arbitrators to disclose circumstances that may give rise to justifiable doubts about their impartiality or independence, but it doesn't define what that is or what disclosures need to be made. Now there's a body of soft law that's developed—the IBA Guidelines on Conflicts of Interest, for example—but the model law in California is probably the most comprehensive. And it requires potential arbitrators to disclose matters where they've served as a lawyer for one of the parties, they've served as an arbitrator in another proceeding for the parties or where they, either in a personal or fiduciary capacity, or their family members have a financial interest or if they've got a close personal relationship or close professional relationship with a party, a lawyer, another arbitrator a material witness or someone who might have a financial interest.

[00:13:44] Under the New York Convention, one of the few grounds to overturn an award is where there is some suggestion of bias on behalf of the arbitrator, and these expanded disclosures in places like California and Texas, under their version of model law, I think gives parties comfort on that point going into an arbitration.

[00:14:07] Another example of filling the gaps—and where California I think has taken the forefront—is that new California law specifically allows attorneys who are not admitted to practice in California to nonetheless represent parties in international arbitrations as long as they're qualified.

[00:14:26] Attorneys either admitted in another state or another foreign country. Additionally, an example of this filling the gap is the issue of arbitrator immunity. The model law does not contain any provisions addressing arbitrator immunity, but you know, there's concerns in a number of jurisdictions around the world about arbitrators being subject to liability as a result of their participation in proceedings. And the California and Florida model laws give the same immunity to arbitrators that judges are given.

[00:15:01] Robert Davidson: Yeah. Let me just chime in on one point that Laura made [, which] was California's rule that allows any attorney to represent a party in an international arbitration, not just California lawyers. I don't want to leave the impression that that rule is also common in the United States. California was kind of an outlier in that regard, and thankfully and very happily, they took care of that by statute. But you can appoint anybody to represent you in connection with an arbitration without worrying about pro hoc vice admissions or anything of that sort.

[00:15:38] Moderator: Shelby, have you seen other regions in the United States respond to the growing demand for international arbitration? What have they been doing?

[00:15:47] Shelby Grubbs: Well, absolutely. I think the grand champion in the United States continues to be New York. Roughly speaking, I think probably 30% or so of international arbitrations seated in the United States are placed in New York, and the New York State Bar has done a good job and the New York City Bar has done a good job of maintaining that advantage.

[00:16:10] There was a study by Charles River Associates a few years ago dealing with Toronto, which got a fair amount of coverage and drew a lot of attention, which suggested that hosting international arbitrations was very good for a local economy. And as a result of that, we've seen a lot of organized efforts to attract international arbitration in various cities. These include Miami, Los Angeles, Atlanta, certainly Boston, Chicago, Houston and others. And typically, these efforts include, but are not limited to, enacting laws like the UNCITRAL model law and taking legal initiatives like those mentioned by Laura: local bar rules that remove impediments to foreign lawyers representing their clients, and arbitration proceedings and local court rules that that expedite applications to compel arbitration.

[00:17:06] So that if a party is not cooperating in an effort to compel arbitration pursuant to an agreement, you can get your case expedited, and you can get your application to compel arbitration expedited and get it determined. So that arbitration's promise of expedition is discharged. I mentioned Toronto. I'll go back to that just for a second. You mentioned the United States, but Toronto, following up on the Charles River study, has also done a very good job of attracting international arbitration. And I think their pitch there is interesting because they sometimes want to take advantage of the fact that they're near, but not actually in, the United States. They're fun, and I think all these communities are learning from one another. Certainly, here in Atlanta, we've learned a good deal from our competitors and friends in other cities.

[00:17:59] Laura Abrahamson: I think what you've also seen is the emergence of a variety of areas of the United States developing stronger international arbitration practices and hosting international arbitration weeks. For example, in California, CalArb, which is the organization for lawyers and arbitrators interested in international arbitration, has now put on with the California Lawyers Association for the last two years the California International Arbitration Week. The third California International Arbitration Week's going to take place March 11 through 14 in San Francisco. And it's been tremendously successful. Washington has also seen a very successful development of an international arbitration week in Washington, D.C., and New York has been having an international arbitration week for some years.

[00:18:42] Moderator: Robert, what about regions that have a focus on certain practice areas or types of disputes? What do you see in that area?

[00:18:50] Robert Davidson: Well, I suppose oil and gas. You have the Texas—Houston area, which is known for having these types of cases, international and otherwise, although it's difficult to pinpoint. I mean, the thing about Texas, for example, is a lot of oil and gas folks there—for that reason, some people don't choose Texas if they have an oil and gas dispute; they'll go elsewhere. [In] New York, we see an awful lot of financial disputes—you know, whether it be investment, M&A activity and things of that sort. Florida has a reputation for arbitrating disputes arising out of or relating to Latin America.

[00:19:33] And California has got a significant, I think, attachment to Asia. And for that reason, I think a number of cases, significant cases, coming out of that part of the world are going to California. One thing that I do want to mention that someone mentioned that I think is quite important is that we have here a legal regime that enforces rather robust rules regarding disclosure, and there have been substantial or significant cases coming out of other parts of the world in which after an award is rendered, it's challenged because someone finds out that an arbitrator had an undisclosed relationship with either another arbitrator or a party, and that taints the award. Here, we have—under the regimes of the domestic providers—we have very robust rules of disclosure. And, you know, if you've sat with another person as an arbitrator, you're supposed to disclose that. If you've been appointed several times by the same party or the same law firm, you have to disclose that. So, a lot of the problems that have cropped up somewhat recently in other places rarely come up here.

[00:20:51] Moderator: Laura, why don't you look into your crystal ball and tell us what factors you think will be key to fueling international disputes over the next few years?

[00:21:03] Laura Abrahamson: You know, I think that what creates more disputes are things that are disruptive. When parties are into a contract and they have certain expectations about pricing and supply when events like the COVID pandemic happen, or there's huge supply chain disruptions or emerging or new technologies develop in ways that impact prices—you know, that's what really fuels business disputes and therefore fuels international disputes. So, I don't think, Andrew, that international disputes are different in origin other than, of course, issues arising out of, you know, wars, such as what we see with Ukraine, but it's really what's disrupting the business model that the parties were looking at when they entered into a contract. So, changes in legislation—you know, we saw a number of international disputes in the solar energy space after some of the European countries started changing their legislation on what incentives they were going to give the companies who are investing in those industries.

[00:22:19] Robert Davidson: That's a very good point. I think the one thing that came to mind when you were speaking was that AI—you know, things move faster. Suppose you have a company that sells medical information, and all of a sudden AI comes along and disrupts the business model because it could be done faster and more accurately by some other company. And then you've got problems. A lot of this is—you know, what's going to expand international arbitration is the constant means of disruption in commercial matters, which are fueled not by evil people as much as they are by expanding technology—you know, COVID events. And I don’t think international arbitration is going away by any means.

[00:23:16] Shelby Grubbs: Here’s an example, I totally agree with you, Bob, and also with you, Laura. I was thinking this morning—there's a map or a graphic showing all the backup at the Panama Canal at the moment, which is really a matter of weather. There's been a drought and the canal is not able to operate at its normal capacity, and therefore, ships lined up all out in—on both sides of the canal trying to get through the canal. And you can bet that that kind of stress on the supply chain will result in disputes and international disputes as people look for ways to cover their losses as a result of this sort of supply chain disruption.

[00:23:59] Robert Davidson: Yeah, good point.

[00:24:00] Laura Abrahamson: I think that's—that's exactly right, Shelby. And, you know, another example might be—and the supply chain affects, obviously, so many different industries. But you know—particularly in some emerging industries—you look at the solar industry, and I sat as an arbitrator in a dispute last year which was driven largely by both the supply chain impact, where the solar panels weren't getting from Asia to the U.S. in time, and, secondly, legislation in the U.S. having to do with human rights abuses in China, which was stopping solar panels from China, specifically from being imported to the U.S. So, you had a combination both of supply chain disruption and regulatory disruption. That was preventing some of these big solar projects from being constructed on time, leading, of course, to a significant number of disputes.

[00:24:59] Moderator: So, death, taxes and international arbitration. We will count on that. Thank you so much for the really fascinating discussion. Really appreciate it.

[00:25:13] You've been listening to a podcast from JAMS, one of the largest private alternative dispute resolution providers in the world. Our guests have been JAMS neutrals Shelby Grubbs, Robert Davidson and Laura Abrahamson. For more information about JAMS, please visit www.jamsadr.com. Thank you for listening to this podcast from JAMS.