Sunday, September 13, 2009

White Rabbit

I followed a case down the rabbit hole this weekend. I post here what I have found. It is mildly interesting. It was the strangest thing to read about a case and not be able to look away. For me, I have not spent this much time looking at and studying a domestic case in years. To be honest, my ultimate conclusion is that arbitration laws in the US are very complex and will employ lawyers who work in the area for decades. I have spent a little time with the English Arbitration Act and even less time with the US Federal Arbitration Act (FAA). The case I discuss here is based on the California Arbitration Act (CAA). It is decided by the Supreme Court of California on the narrowest of legal arguments. For those averse to navel gazing, turn back now….

The cases concern the single issue of whether parties to a contract that contains an arbitration clause, can draft that clause to allow for greater judicial review of the ultimate arbitration award, than would be available under the applicable arbitration statute. One of the hallmarks of arbitration is that it is private dispute resolution with limited review by the courts. This is intended to make arbitration a faster dispute resolution method. That is not the case in the states or elsewhere. Increasingly, arbitration cases carry on as long, if not longer, than litigation. That is for various reasons and different ones depending on whether the case is domestic or international. At any rate, these cases surround a very narrow issue that seems to raise all sorts of fundamental questions. Such as, is arbitration about the contract or party autonomy? That is to say, should courts decide these matters focused on upholding contract law principles or the arbitration principle that parties are free to construct arbitration clauses as they see fit for their purposes? Additionally, the in the states with state and federal arbitration laws very similar but with differences there is always the matter of federalism. Frequently, the FAA pre-empts state arbitration laws which keeps matter simply. The California court was able to work around all of these issues and decide a matter that avoided the FAA. It is maverick and I liked the case because of that. Here are the brief details.

In Cable Connection, Inc. v. DirectTV, Inc. (2008) 44 Cal.4th 1334, the Supreme Court of California managed to throw into question the ability of parties to expand by agreement judicial review of arbitral awards where the arbitrators made an error of law. The Supreme Court of the United States had just settled a split in the circuit courts on this matter when it decided Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) 128 S.Ct. 1396. The Court in Hall Street held that under the FAA, and federal law, parties could not agree to expand judicial review of arbitration awards. The Cable Connection decision was limited to arbitration agreements that were governed by the CAA and where the parties had drafted the agreement to provide for expanded judicial review explicitly and unambiguously. Also, such review was only available under the CAA where arbitrators exceeded their powers (CCP §1286.2,) by committing an error of law or legal reasoning.

Both cases involved business contract disputes. While the decision in Cable Connection is fairly limited, it does represent a break in theory with the approach the US Supreme Court was trying to achieve in terms of expanding judicial review. The Hall Street decision did seem intent on keeping all the circuits on the straight and narrow. Before Hall Street only the 7th, 8th, 9th and 10th circuits thought it was NOT OK to expand judicial review by contract. The other circuits approved of it. What I found interesting was that the commentary about both decisions focused on the basic tenets of arbitration like finality of the award, choice of law, and party autonomy. I wondered why no body saw judicial review for legal error as a big vote of no confidence in private arbitrators and their training. Getting the courts to double check on decisions for legal error is a safeguard parties should have. How can arbitration be reasonably restricted in this way?

These cases were interesting and the one matter that I thought merited comment was one article that described the sad condition of state arbitration laws in comparison to the FAA. I must admit, I had not thought about that. It does however seem that California is trying to carve its own way forward by sticking two fingers up to the Supremes-always interesting. However, arbitration awards would need to be very carefully drafted in order to take advantage of the fact that under the CAA parties can expand judicial review by agreement. So lawyers will be fully employed because of this.

Ultimately, after reading around these issues and the cases, I concluded that international disputes that go to arbitration may actually be better off resolving matter in Europe or elsewhere outside the US. Things are messy and complicated here. England, as far as dispute resolution, is looking mighty good in this light. The English Arbitration Act is concise and forward looking in many ways that the FAA can not dream to be in its present state. The FAA is ambiguous and the decisions of the Supreme Court do not help. For example, the Hall Street decision effectively eviscerated the courts decision in Wilko v. Swan, 346 U.S. 427 (1953), Wilko created the policy that arbitration awards could be vacated for manifest disregard of the law. Manifest disregard is not even mentioned in the FAA. These kinds of decisions are a full employment act for international arbitration lawyers.

These cases were decided last year and they do demonstrate the uncomfortable position arbitration continues to be in here. The FAA has not kept up with the times and maybe the states can make a difference but only through the back door at this point.

Derek Scott, Note and Comment: The Zen of Arbitration: Contracting for Judicial Review of Arbitration Awards, 29 Whittier L. Rev., 743 (2008)

Edward Brunet, The Minimal Role of Federalism and State Law in Arbitration, 8 Nev. L. J. 326 (2007)

Monday, September 7, 2009

Pacta servanda sunt

In 2008, a Tribunal ruled against the government of Zimbabwe. The case concerned white commercial farmers whose land was acquired by the government as part of the land reform programme. The Tribunal ruled that it was illegal for Zimbabwe to take the farmers land. A few days ago, the government of Zimbabwe denied the legitimacy of the SADC Tribunal. Why is the international arbitration and alternative dispute resolution (adr) community silent about this?

The legitimacy of the Tribunal’s jurisdiction is what is really at the heart of Zim’s latest manoeuvre. The question surrounds the Tribunal’s competency to hear this dispute and issue an award. In general, if a tribunal is competent, meaning it has jurisdiction, then the parties are bound by tribunal decisions. The Justice Minister of Zim is arguing that the SADC Tribunal had no jurisdiction over the farmer disputes and consequently, Zim is not bound by any decision of the Tribunal. Zim is arguing that the SADC Treaty provisions establishing the Tribunal required further ratification by member states before it was competent to hear disputes and rule on them. Up until that ratification the Tribunal, as an institution of SADC, was incapable of deciding matters.

Below I provide the Treaty provisions for your enjoyment. There may be a (weak) argument that Article 16(2) is ambiguous and it is unclear whether the Protocol for the Tribunal was incorporated in to the Treaty itself. If it was, then the Tribunal was legitimate on the day the general SADC Treaty was ratified. (17 August 1992) If the Protocol required separate ratification of two-thirds of the SADC’s 15 members, then that has not yet happened.

Even though the Treaty discussion is exciting, lawyer-justifying activity, this all begs the question of why the government of Zimbabwe participated in the hearings and expressly agreed to the Tribunal’s jurisdiction throughout the entire case only to argue 10 months after the main ruling that the Tribunal has no jurisdiction? There is no legal loophole here. The rulings written by the Tribunal all cover the jurisdiction of the Tribunal over the matter at hand. Whether it was the main case or the request for interim measures by the commercial farmers not to be ejected from the land until a decision was issued by the Tribunal, each discussed jurisdiction. No objection was raised by the respondent Zimbabwe. That means they accepted the Tribunal's competency and they are bound by it's decisions.

This is not about legal procedure. This is about respect for processes that go on everyday all over the world. Arbitration and adjudication happen in countries all over the world regardless of the race, creed or colour of any of the parties. There is no requirement for democracy to have a tribunal formed, with the consent of parties, to preside over disputes. This is about respecting agreements. That is certainly not an idea that the West owns. This is about agreements between African nations by and for their own benefit. It is also about a process of dispute resolution that has been going on in Africa and the West for centuries. Why are advocates for international and domestic arbitration not making more noise about what is happening in this situation?

The community of lawyers, academics, associations and forums who promote adr and arbitration must be more active in supporting the SADC Tribunal. Legitimacy in terms of the law is not just about formal courts and proper legislation. That is what is so ultra-cool about things like arbitration. It can resolve disputes without a lot of legal stuff. Parties agree on how to resolve things, submit themselves to the Tribunal, and obey the decision. There is a rich and powerful community which should be more involved. This is an opportunity to support an emerging dispute resolution forum in a place where it is sorely needed.

Where are those voices??

Thanks again to JRW!

Article 16(2) of the SADC Treaty reads “the composition, powers, functions, procedures and other related matters governing the Tribunal shall be prescribed in a Protocol, which shall, notwithstanding the provisions of Article 22 of this Treaty, form an integral part of this Treaty, adopted by the Summit.” Article 22 of the Treaty states that no Protocol is binding on member states unless it is ratified by two-thirds of the SADC signatories. The Protocol for the Tribunal has not been ratified by two-thirds of the member states of SADC.


Doonesbury is still relevant