"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Wednesday, September 1, 2010

Fortnightly Roundup of SSRN Articles on Arbitration (August 15- 31)

Anatomy of the First Public International Sports Arbitration and the Future of Public Arbitration after USADA v. Floyd Landis

Maureen Weston

Mere weeks after American professional cyclist Floyd Landis seemingly won the 2006 Tour de France, the United States Anti-Doping Association (USADA), under the authority granted to it by the U.S. Congress, and through its enforcement of the World Anti-Doping Code (WADC), accused him of having committed doping violations during the race. Landis vehemently denied these allegations, and accused the French laboratory that had performed the testing of his post-race samples, the Laboratoire National du Depistage du Dopage (LNDD), of bias and misconduct in his case.

Under USADA rules, an American athlete accused of doping may request an arbitration hearing before the American Arbitration Association (AAA), using the AAA Supplementary Procedures for the Arbitration of Olympic Doping Disputes. Although arbitration hearings are generally held in private, under these Supplementary Procedures, the athlete may choose to have this hearing open to the public. Landis requested a public hearing for his case, the first athlete to ever have done so.

This Article chronicles the public arbitration hearing in the Landis case, which was held at the Pepperdine University School of Law in 2007. Following its initial explanation of the regulatory and procedural framework involved when a U.S. athlete challenges a doping allegation, the Article describes the strategy and events leading up to Landis’ hearing, including the preparation, financing, and publicizing of Landis’ defense, the selection of the arbitration panel, and key pre-hearing rulings related to procedure and discovery. The Article examines the hearing itself, considering each side’s execution of its arbitration strategy, the scientific and personal testimony offered during the hearing, and the arbitral panel’s 2-1 ruling in favor of the USADA. The Article describes the subsequent legal action pursued by Landis, including an unsuccessful non-public appeal to the Court for Arbitration of Sport (CAS), and an attempt to persuade a U.S. Federal Court to vacate the CAS ruling. The Article concludes by discussing the value to the public and the legal community that came from having the initial Landis arbitration hearing open to the public, including increased awareness of the need for more transparency and greater organizational accountability in the doping arbitral process.

While the Article was published prior to the recent admission of doping by Floyd Landis, certainly the anti-doping standards and adjudicatory process continues to play a vital role in the lives and careers of international sport athletes.

Arbitration as Delegation
David Horton

Hundreds of millions of consumer and employment contracts include mandatory arbitration clauses, class arbitration waivers, and other terms that modify the rules of litigation. These provisions ride the wake of the Supreme Court’s expansive interpretation of the Federal Arbitration Act (“FAA”). For decades, scholars have criticized the Court’s arbitration jurisprudence for distorting Congress’s wishes and ignoring the fact that companies use fine print dispute resolution provisions as a clandestine way to eliminate substantive rights. This Article claims that the Court’s reading of the statute suffers from a deeper, more fundamental flaw: it transforms the FAA into an unconstitutional delegation of legislative power. Article I, section 1 of the Constitution forbids Congress from conferring the right to make law upon private parties. As construed by the Court, that is exactly what the FAA does. Invoking the statute, firms have created a parallel system of civil procedure for consumer and employment cases.This widespread procedural rulemaking is especially troubling because it establishes a private regulatory regime in an area that Congress has already attempted to regulate. In light of these concerns, the Article proposes several ways that the Court can narrow the statute and thus assuage concerns about its constitutionality.

Investment Treaty Arbitration, Procedural Fairness, and the Rule of Law
Gus Van Harten

Investment treaty arbitration is often promoted as a fair, rules-based system that advances the rule of law. The system falls short of this expectation, however, due to its unique combination of arbitration and public law, its asymmetrical claims structure, its reliance on executive officials to make case-by-case appointments, and its attenuation of judicial oversight. The focus of concern is not actual bias on the part of individual arbitrators but, more appropriately, institutional and procedural aspects of the adjudicative process that raise suspicions of bias.

Chinese Labour Contract Arbitration: 'No Union, No Problem'
Jinyue Sun , Ruth Obar and E. Patrick McDermott

There has been an explosion of labour contract disputes in China. The authors surveyed participant demographics, experience and opinions concerning the arbitration of these disputes under the local government Labour Dispute Arbitration Bureau (LAB) in the city of Dalian, Liaoning Province. Contrary to the Chinese labour union’s statutory duties, the findings show that the union is not involved in advocating for the rights of the employee from the inception of the dispute through to the LAB hearing. While some scholars have questioned the quality of the LAB process, particularly its fairness for workers, Chinese workers and employers reported high levels of satisfaction with the arbitration process on a range of procedural due process and substantive due process measures. Results indicate overall party satisfaction with the arbitration, a belief that the arbitration was fair, and a willingness to recommend it to others who are similarly situated. Demographic data indicate that the process was somewhat inclusive, with lesser educated workers, migrant workers, and women all participating.

Necessity in Investor-State Arbitration: The Sempra Annulment Decision
Sahib Singh

Available at EJIL: Talk! (Blog of the European Journal of International Law)

This is a short comment piece looking at the Annulment Committee's approach to interpretation. In particular it looks at how the interpretive tools of public international law are applied between the customary based norm of necessity and the necessity defence available under the Argentina-US bilateral investment treaty. It concludes that there is a severe lack of methodological vigour in the Committee's approach.

The Legal Standing of Shareholders Before Arbitral Tribunals: Has Any Rule of Customary International Law Crystallised?
Patrick Dumberry

States have concluded thousands of bilateral investment treaties (“BITs”) in the 1990s that regulate the treatment of foreign investors and their investments in the host State where an investment is made. These investment treaties provide foreign investors with an unprecedented level of substantive legal protection over and above the usual protections otherwise available to them. BITs also offer groundbreaking procedural benefits to foreign investors by allowing them to submit their disputes with the host State directly to an international arbitral tribunal.

One area of the law on foreign investments where significant new developments have occurred in recent decades is the legal standing of shareholders of corporations investing abroad to submit claims to arbitral tribunals constituted under investment treaties. The focus of this Article is not to systematically analyse the legal standing of shareholders under these treaties. This Article focuses instead on whether or not any rule of customary international law has emerged concerning the protection of shareholders and their legal standing before arbitral tribunals.

This paper argues that no such customary rule has crystallized. This is mainly because the scope and extent of legal protection offered to corporations and shareholders under BITs are not consistent enough to constitute the basis for any custom rule. Thus, there are some important inconsistencies between BITs with respect to how they specifically define “investor” and the nationality of corporations. There is also no evidence of any opinio juris in the context of investment treaties. Moreover, any such customary rule would be contrary to the general principle that corporations lack any automatic jus standi before international tribunals in the absence of specific State consent. It would also be contrary to the principle that an arbitral tribunal cannot exceed its powers.

Are BITs Representing the 'New' Customary International Law in International Investment Law?
Patrick Dumberry


The question of the existence of legal protection for foreign investors under customary international law (or “custom”) has always been controversial. As a result of this perceived lack of established customary principles, States concluded thousands of bilateral investment treaties in the 1990s for the promotion and the protection of investments (“BITs”). The number of BITs is now so overwhelming and their scope so comprehensive that a new debate has recently arisen in doctrine about the impact of these treaties on the existence of custom in the field of international investment law. It has been recently argued in doctrine that these BITs represent the “new” custom in this field. For some writers, the content of both custom and BITs is now simply just the same.

This paper rejects this proposition. The main reason is based on the fact that taken together BITs are missing the two necessary elements of customary international law. First, these BITs are very diverse in their content and scope and certainly not consistent enough, taken together, to constitute the basis for any customary rule. Second, BITs also lack any opinio juris. States sign BITs clearly not out of a sense of legal obligation, but for economic motive, i.e. to attract foreign investments and to offer protection to their investors doing business abroad.

This paper also argues that BITs will nevertheless influence customary international law. Thus, BITs will contribute to the consolidation of already existing custom rules (codification). BITs will also contribute to the crystallisation of new rules of customary international law in the future. In this age of BITs proliferation, the determination of the content of customary rules of international investment law remains of fundamental importance. Thus, custom is the applicable legal regime between a foreign investor and the host State in the absence of any BIT. The content of custom remains also essential in cases where BITs make explicit reference to custom. Finally, custom has a gap-filling role whenever a BIT is silent on a particular legal issue.

One Bridge Too Far: Why the Employee Free Choice Act Has, and Should, Fail
Richard A. Epstein


The Employer Free Choice Act has had enjoyed strong academic support. but thus far has been stymied by fierce political resistance to its central positions that first institute a card-check for the selection of a union and then requires mandatory arbitration if the parties cannot agree to a new contract within 130 days of union recognition. This article critiques the arguments made in support of this fundamental revision of labor law offered by Craig Becker, Benjamin Sachs, and Catherine Fisk & Adam Pulver, all of which purport to show that flaws in the current system of collective bargaining need major prounion adjustments. The key theoretical insight of the paper is that no ad hoc justifications for particular changes in the statute can be considered in isolation of the fundamental decision under the National Labor Relations Act to impose a system of mandatory collective bargaining. Once an employer may not refuse to bargain to a union, it must receive in exchange a broad number of offsetting rights, such as the ability to speak during organizing campaigns, and to reject in good faith those offers that it finds unacceptable, as current law provides. EFCA has failed because of the widespread political perception that it would usher in a new wave of union dominance that would destroy job opportunities and create major administrative burdens and political dislocations.

Green Eggs and Ham: The CISG, Path Dependence, and the Behavioural Economics of Lawyers’ Choices of Law in International Sales Contracts
Lisa Spagnolo


Why do lawyers in some jurisdictions continue to ‘automatically’ exclude the 1980 UN Convention on Contracts for the International Sale of Goods (CISG) in their choices of law for international sales contracts? Why do lawyers in other jurisdictions approach the decision very differently? Why do standardized commodity contracts universally opt out of the CISG?

This article identifies the key reasons for opting in or out of the CISG across jurisdictions and markets, and then turns to economics and psychology in order to expose the underlying causes for choices of law for international sales contracts.

A number of perspectives are utilized within this analysis: neoclassical economics, including agency costs, information costs, moral hazard and market distortion; rational decision making within game theory frameworks under different jurisdictional background conditions; behavioural economics, including notions of path dependence and satisficing; psychological and behavioural perspectives including heuristics and group polarization; and finally, the forces behind institutionalization of choices of law and network effects.

The breadth of this approach provides new insight into the reasons for choices of law, and enables a thorough analysis of current and future trends in exclusion of the CISG. The author concludes that choices of law in jurisdictions that presently overwhelmingly favour ‘automatic’ exclusion of the CISG will inevitably change.

This paper is an extended version of an earlier paper published in the Vindobona Journal of International Commercial Law & Arbitration. It contains extended analysis of the psychological & economic aspects, and new sections dealing with the commodities trade sector.

Forum Shopping and Anti Suit Injunctions: A Brief Overview (and Update)
Noel Rhys Clift


The subject of this paper is “Forum Shopping, Anti-Suit Injunctions and EU Law: A Brief Overview (and update)". This is substantially but not wholly an English perspective.

This paper is based upon a talk I gave in January 2006. It has now been slightly amended and updated for two reasons. First, the “FRONT COMOR” was heard by the House of Lords in early December 2006. Judgment was issued on 21 February 2007. The case will now progress to the European Court of Justice.

Secondly, from 1 January 2007 there are two new members of the European Union, Romania and Bulgaria. How will these developments affect planning of the defence (or prosecution) of claims, in particular choice of forum? The legal landscape in this field (at least with regard to arbitration clauses) may be about to undergo another shift.

For these reasons, perhaps it is time to review strategy in cases where the dispute is subject to either an English Jurisdiction Clause or an English Arbitration Clause.

The main body of this paper has (as usual) been broadly designed so that you can dip into any section or point of interest, or alternatively read the whole narrative. This paper is an overview and deliberately states a rather simplified picture, in short form.

Frailty in Contractual Limits When a Grievance is Arbitrated: The Parry Sound Ruling
Fernand Morin


In a recent ruling (Parry Sound (District) Social Services Administration Board v. O.P.S.E.U., Local 324, 2003 SCC 42), the Supreme Court of Canada states that an arbitrator has jurisdiction to hear a dispute that involves rights guaranteed by codes, charters and employment legislation even if the arbitrator has been barred from such recourse under a collective agreement. In the case at issue, an employee with probationary status benefited from maternity leave and was discharged upon her return.

Despite the clarity of the wording under the collective agreement stating that a probationary employee may not resort to arbitration, a grievance was filed and was worded as follows: [Translation] “. . . was discharged without reason and this decision is arbitrary, discriminatory, unjust and vitiated by bad faith.”

Owing to the rights vesting in the employee under the Employment Standards Act (Ontario), the Board of Arbitration ruled on its own jurisdiction to hear such a grievance. This decision was quashed in judicial review (Superior Court) and but was then upheld in Court of Appeal and once again by the Supreme Court of Canada (majority 7/9).

The Supreme Court of Canada began by making several observations concerning the criteria of judgment applicable to judicial review, namely that which is considered patently unreasonable. An attempt was made to distinguish between an unreasonable decision and one that would be patently unreasonable. It seems to us that such a distinction remains ambiguous and further confuses the exercising of a fair judicial review; unreasonableness should not be graded by degrees.

In a second approach, the ruling establishes the relationship between State standards (Codes, Charters and employment legislation) and contractual standards. Working from the basis that State standards would be incorporated into the collective agreement, the Court establishes that the limit imposed upon the collective agreement regarding access to arbitration had the practical effect of denying the right to maternity leave, elsewhere guaranteed by law. For this reason, the arbitrator had to intervene and exercise control in order to ensure respect for established standards of public order. To achieve these ends, the Supreme Court of Canada seemed to experience considerable difficulty in qualifying the collective agreement and classified it in the category of private contracts.

Such a categorization, confined to the traditional “public/private” dichotomy, dismisses the true legal and desired effect seeking to make the collective agreement a regulatory labour provision complementary to statutes governing public order and intimately related to the latter.

In support of his line of reasoning, Judge Iacobucci, on behalf of the majority (7/9), repeatedly referred to the ruling: McLeod v. Egan, [1975] 1 S.C.R. 517. The referrals denied under this ruling are hardly convincing and uselessly weigh down the reasoning. Moreover, Judge Major (dissenting) also referred to it and considered that Judge Iacobucci was reading into the McLeod v. Egan ruling a purport that it just does not have.

In all, we believe that the codes, charters and employment legislation serve as the basis upon which the collective agreement is built and, consequently, the parties’ contractual freedom both derives from this basis and is limited thereto. This interrelation would be analogous to that of the Constitution and employment statutes, without it being possible to affirm that the Constitution would be found to be a part of each of these statutes.

This ruling is especially interesting because it recognizes the employee’s right to resort to arbitration in order to ensure respect for guarantees stipulated in employment legislation, despite wording to the contrary in the collective agreement. Parties to collective agreements and arbitrators must therefore respectively correct their approach and grant access to arbitration for all employees from the very moment that their fundamental rights are jeopardized in any way.

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