Parties to international contracts have long chosen arbitration as the preferred method to resolve disputes; among other reasons, it provides them with a neutral decision-maker, rather than the home courts of either party, and international arbitration awards are more easily enforced than court judgments because of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention), which celebrates its 60th anniversary this year. Moreover, a web of more than 3000 bilateral and multilateral investment treaties offers arbitration if an investor believes that the state has violated a promise under that treaty, and the number of such investor-state arbitrations has grown significantly.
In this context, it is important to understand the law that governs international arbitrations, particularly enforcement of agreements to arbitrate, the proper role of the courts with respect to the proceedings, and the standards for vacating or enforcing arbitration awards. The statutory law in the United States governing international arbitrations is notably sparse, however. It is contained in the sixteen sections of the Federal Arbitration Act and in two international conventions adopted by the United States: the New York Convention and its Western Hemisphere counterpart, the Panama Convention; to a certain extent the Uniform Arbitration Act and other state laws may also be relevant. Therefore, much of the law governing international arbitration proceedings has been judicially made.
In an international context, this has long caused problems, as foreign parties considering contracts with American parties or contemplating placing an international arbitration in the United States have often had difficulty determining what U.S. law is. American parties and courts have also had to consider a plethora of decisions that have not always been clear or consistent.
For these reasons, the ALI embarked 10 years ago in drafting a first Restatement of the U.S. Law of International Commercial and Investment Arbitration. The Restatement has been designed, as with all Restatements, to provide a “clear formulation[ ] of common law and its statutory elements or variations and reflect the law as it presently stands or might plausibly be stated by a court.” For the first time, U.S. courts and practitioners may thus look to this single authoritative source to understand how statutes and courts have dealt with particular issues, through the usual black letter, commentary, and Reporters’ Notes.
The project has been led by Professor George A. Bermann of Columbia Law School as the Chief Reporter and by Associate Reporters Jack J. Coe Jr. of Pepperdine University School of Law, Christopher R. Drahozal of University of Kansas School of Law, and Catherine A. Rogers of Penn State Law. The Reporters have worked carefully with the ALI’s Advisers and Members Consultative Group to draft sequentially the Chapters of the Restatement, and the final Sections were approved by ALI’s members at the Annual Meeting in May. However, because the law has progressed over the past 10 years and because it is important to consider, now that it has been completed, the entire text to make sure that it is accurate and internally consistent, the Reporters have embarked in a careful review of the full Restatement. Any proposed changes will be presented to the Advisers and MCG in September, and the Restatement as a whole will be presented for final approval to the ALI Council and then the members at the Annual Meeting in May 2019.
The Restatement’s Chapters deal chronologically with the course of an international arbitration: from general provisions such as federal preemption of state law, to the enforcement of the arbitration agreement, to the judicial role during an arbitration proceeding, to post-award issues involving enforcing or vacating the arbitration award. A separate Chapter covers specific issues that may arise in investor-state arbitration to the extent they may differ from other international arbitrations. While the Restatement deals with cases that are by definition international, it presents only the U.S. law on such issues.
Of course, it is not always easy to discern what law to “restate” given the occasionally conflicting decisions by courts and the views of commentators. For example, the Supreme Court held in First Options of Chicago v. Kaplan that a party challenging the arbitration tribunal’s jurisdiction may have that issue finally decided by a court unless the parties “clearly and unmistakably” reserved the issue for the arbitration tribunal. Courts have differed whether adopting institutional rules stating that the tribunal may decide its own jurisdiction is such a “clear and unmistakable” choice. In one of the few instances in which the Restatement does not adopt the view expressed by a numerical majority of cases, it follows the logic of First Options to state that incorporation by reference to institutional rules does not satisfy the “clear and unmistakable” test.
Another difficult and controversial issue involves the standards to be applied by a U.S. court in considering a motion to vacate an “international” award that was rendered in the United States. The Restatement holds that “manifest disregard of the law” is not specifically identified in Chapter 10 of the Federal Arbitration Act or in the New York Convention and therefore, based on statements by the Supreme Court, should not be viewed as a separate ground for vacatur. The Restatement also currently takes the position that, in considering a motion to vacate an international award, the court should refer to the standards set forth in the New York Convention.
The Restatement also deals with such important and controversial issues as the availability of 28 USC Section 1782 for production of evidence in an international arbitration proceeding, arbitration class actions, potential enforcement of an award that has been vacated by a court at the seat of arbitration, and whether forum non conveniens may be raised as a defense to enforcement of an award covered by the New York Convention.
As with so many other ALI Restatements, the Restatement of the U.S. Law of International Commercial and Investment Arbitration is bound to be an extremely useful source of the law for practitioners, both domestic and foreign, and courts alike.