National Litigation Policy - Comment

From inveterate litigant to responsible litigant

Part I

The recently espoused National Litigation Policy is an attempt to convert the compulsive litigant into an efficient and responsible litigant with the higher motive to lessen the average pendency time of the litigation. Government being the prime litigant, adoption of a policy guideline for the Government litigation makes sense. Similar and effective policies need to be formulated by States to accomplish the target of slashing down the pending cases of the Government.

Change in the mindset

The policy attempts to inspire a change in the approach towards litigation which was to go to court for everything to the opposite, to court only for unavoidable causes. Use of judicial proceedings efficiently and responsibly is the motto.

Fair enough, but why the tendency “[l]et the court decide”, has crept in the Babudom at the first place? Will this policy prescriptive address the real issue? Pushing things to courts have been a convenient strategy followed not only by the bureaucracy but by politicians also. Passing the buck to the judiciary absolves the politicians from taking unpleasant decisions which may deride vote banks. For Babus, it is a way of eschewing responsibility of the decisions.

Whereas, the right decision at the right stage is a stitch in time. The first level of check therefore should be to see whether anything could be done to avoid matters turning into litigation. To avoid litigations at the formative stage requires a change in the mindset in the Government officials. By giving freedom to take decisions, enabling the officers to take appropriate decision and fixing accountability is one measure.

Efficient nodal officer for efficient litigation

The policy is hinged on the integrity and efficiency of the ‘nodal officers’ who will oversee case management. The national and regional ‘Empowered Committees’ are expected to monitor the implementation of the policy.

It is refreshing to see the acknowledgment that most of the cases are lost even before beginning or are filed without any need, due the incompetence of the empanelled lawyers or Government Counsels. The incompetence of these representatives are well accepted by the Governments themselves that high profile cases will be conducted by high profile lawyers outside the panel, spending from public exchequer while there are dime a dozen lawyers in the pay lists of Governments. The selection and retention of Government counsels therefore is a prime factor in being an efficient litigant.

Pay packet is a crucial factor and the policy is evasive here. Why would one want to be a Government Counsel, when pay is rock bottom? Lawyers fight tooth and nail to be Government representative. It is the political clout of the person generally sees him through. Let us be rational here. If not from Government brief, the counsel is benefiting from elsewhere being a Government counsel. This is a highway to corruption.

Proper conduct of the case, through prompt paper work and making progress in the proceedings depends heavily on the flow of relevant information from respective departments. Experience tells that it is hard to come by from Government departments ill famed for its lethargy. The policy recognizes this challenge. Here also reliance is on the nodal officers to oversee the conduct of the cases. One more pointer that the success of the policy is heavily dependent upon the selection of the nodal officers.

Contd.

Rent-a-Center v Jackson- The Dissent

One of us had, in the Lex Arbitri blog, written a guest post on the US Supreme Court's decision in Rent-a-Center v Jackson. We had noted that the majority (MAJ) had held that unless an agreement to arbitrate a gateway issue (A gateway issue here refers to issues pertaining to arbitrability of the dispute, whether as a matter of law or as a matter of the scope of arbitration agreement) is specifically challenged, decision on such issues would go to the arbitrators.

To get a grasp of what the court held, we suggest perusal of the at least the summary contained in the said post, if not the judgement.

This purpose of this post would be to analyse the minority decision, which we'll call DIS. Both judgements are equally convincing. Here, we will summarize the DIS but we will attempt to point out where both judgements have disagreed in a subsequent post.

1. The arbitration agreement (AA) between Rent-a-Center (RC) and Jackson (J) is a part of the broader service contract between RC and J.

2. Since arbitration is a "matter of contract", courts usually intervene less and enforce the agreement of the parties to arbitrate. However certain conditions precedent ("necessary antecedents") of arbitration, known as gateway issues or questions of arbitrability, are assigned to the courts by the Federal Arbitration Act (FAA). Such questions include the questions relating to the existence and validity or the scope of the arbitration agreement. This case is on the question relating to the existence and validity of the arbitration agreement.

3. The 'Who decides the arbitrability?' question is governed by two series of cases:

[We have summarized this aspect in the order in which the court has dealt it with. We suggest readers first read 3(b) and then read 3(a). That way, this makes a lot of sense]

      a) One line of cases suggests that gateway questions can be delegated to the arbitrator provided there is a clear and unmistakable intent on the parties to do so. In order to assess the clear and unmistakable intent on the parties to delegate gateway issues to the arbitrator, the courts should generally apply ordinary state law principles that govern the formation of contract. Thus, decision on whether such clear and unmistakable intent exists is for the court to determine. 

     b) The second series of cases govern the law on who should decide challenges to the validity of the arbitration agreement. Two kinds of challenges are contemplated:

                i)  Challenge as to the validity of the arbitration agreement specifically

                ii) Indirect challenge to the arbitration agreement by challenging the entire contract

As per the prevailing cases, challenges in the nature of b(i) go to the court and challenges in the nature of b(ii) goes to the arbitrator.

 4. The simple question in this case is whether there was a clear and unmistakable intent of the parties to delegate gateway issues to the arbitrator.

5. J's contention that the AA was unconscionable shows that J never clearly or unmistakably intended to arbitrate the gateway issues. It may be noted that a more rigorous standard applies when such a question arises. This was recognised in First Options of Chicago v. Kaplan 514 US 938 (1995) [First Options] as a reverse presumption, that is, a presumption in favour of reference of the matter to the court as against the usual presumption in favour of arbitration.

[Readers may note that Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) was prior to First Options]

6. A contention of unconscionability is a contention as to the existence of the clear and unmistakable intent to arbitrate gateway issues.Such a question is to be decided as per state law. J here has claimed he never "meaningfully" assented to the AA in the first place. Thus,

"when a party raises a good-faith validity challenge to the arbitration agreement itself, that issue must be resolved before a court can say that he clearly and unmistakably intended to arbitrate that very validity question."

To decide whether there was a valid AA under § 2 FAA, the District Court should have decided whether there was a valid arbitration agreement to refer threshold issues to the arbitrator in the first place. § 2 FAA reads:

"Section 2. Validity, irrevocability, and enforcement of agreements to arbitrate:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

7. Therefore, the judgement of the Court of Appeals is affirmed, and the matter remanded to the District Court to decide on whether the AA was invalid for unconscionability.

[Sections III and IV of the DIS deal with an analysis of the MAJ. We will defer analysis of this aspect to a future post, where we would compare the MAJ and the DIS.] 

Handicrafts & Handloom Exports Corporation of India v. Ashok Metal Corporation

Today's Business Standard has reported a judgement of the Delhi High Court wherein the court is said to have held in Handicrafts & Handloom Exports Corporation of India v. Ashok Metal Corporation that:

• S 5 is a provision which bars a civil court from entertaining a suit which is the subject matter of arbitration, unless authorised by the Arbitration and Conciliation Act, 1996.
• A civil court cannot go into the question of non-existence of arbitration agreement in a suit for declaration, in view of S 5 as well as the competence of the arbitrators to rule on their own jurisdiction.

We had analysed a case which discussed the same issue in a previous post, wherein we had noted a few judgements which went against the above view.

Fortnightly Roundup of SSRN Articles on Arbitration (June 16-30)

Marina Lombardo & Carlo Garbarino, Arbitration of Unresolved Issues in Mutual Agreement Cases: The New Paragraph 5, Art. 25 OECD Model Convention, a Multi-Tiered Dispute Resolution Clause

Abstract:
The paper deals with arbitration of unresolved issues in mutual agreement cases as regulated by the new paragraph 5, Article 25 of the OECD Model Convention to avoid double taxation in respect to income taxes. After general introductory remarks on the arbitration method in international tax matters, the paper describes the evolution of international tax arbitration. The central part of the paper is devoted to the analysis of the procedure of the tax arbitration established by new Article 25(5) of the OECD Model Convention, which has the features of a a multi-tiered dispute resolution clause. The paper concludes with a discussion on the effectiveness of the tax treaty arbitration of Article 25(5) OECD Model Convention.

Patrick Dumberry, Compensation for Moral Damages in Investor-State Arbitration Disputes

Abstract:
This article examines the issue of monetary compensation awarded by arbitral tribunals for moral damages suffered by foreign investors in the context of investor-State arbitration. It examines the nature and the function of moral damages in international investment law as well as several controversial issues, including the proper form of reparation to remediate moral damages suffered by a State, whether proof of malicious intent is a necessary condition for a tribunal to award compensation and whether compensation should be limited to cases involving “egregious” or grave treaty violations. The article argues that particularly condemnable governmental actions toward foreign investors will have a bearing on the actual quantification of the amount of compensation to be awarded for moral damages. The goal is not only to remediate the actual damage suffered but also to send a “clear message” to the host State.

Amy Schmitz, Legislating in the Light: Considering Empirical Data in Crafting Arbitration Reforms

Abstract:
Consumer advocates and policymakers call for abolition of predispute arbitration clauses in consumer contracts, while proponents of arbitration claim such abolition would increase companies’ dispute resolution costs, leading to higher prices and interest rates. Policymakers on both sides of the debate, however, rarely consider the empirical research necessary for crafting informed arbitration disclosure rules. This article therefore focuses on how varied research, including my own empirical studies, may inform policies regarding arbitration disclosure regulations. The article also offers suggestions for regulations tailored to have the most impact for the cost in light of this research.

Amy Schmitz, ‘Drive-Thru’ Arbitration in the Digital Age: Empowering Consumers Through Regulated ODR

Abstract:
Online Dispute Resolution (ODR) has been promoted for quickly and conveniently resolving claims using online “drive-thru” processes instead of more costly and time-consuming face-to-face meetings and hearings. Most commentators have nonetheless focused mainly on non-binding or automated bidding processes, perhaps due in part to fairness concerns associated with off-line arbitration. This Article, however, explores the potential for online binding arbitration (OArb), and sheds new light on arbitration as means for empowering consumers to obtain remedies on their e-merchant claims. By moving arbitration online, OArb helps address concerns regarding companies’ use of arbitration clauses to curb consumers’ access to remedies on their typically small claims. This Article offers suggestions for regulations that aim to capitalize on OArb’s potential for providing consumers with convenient and cost-effective access to remedies while augmenting companies’ cost-savings from avoiding court and class actions, which they may pass on to consumers through lower prices and better quality products.

John W. Hinchey & Thomas V. Burch, The Effect of Forum Selection Clauses on District Courts’ Authority to Compel Arbitration
 

Abstract:
This is a short piece written for the AAA's Dispute Resolution Journal on two competing provisions in Section 4 of the FAA. One provision tells district courts to compel arbitration in accordance with the parties' agreement, including any forum selection clause. The other says that the court can compel arbitration only within its own territory. This, of course, creates a problem when the forum selection clause calls for arbitration in another jurisdiction. This short article addresses the conflict, showing how courts tend to rule on the issue (as of 2006).

John W. Hinchey & Thomas V. Burch, Georgia General Assembly Adopts 'Manifest Disregard' as a Ground for Vacating Arbitration Awards: How Will Georgia Courts Treat the New Standard?

Abstract:
This is a short piece written for the Georgia Bar Journal on the General Assembly's adoption of manifest disregard as a statutory ground for vacating arbitration awards.

Thomas V. Burch, Necessity Never Made a Good Bargain: When Consumer Arbitration Agreements Prohibit Class Relief

Abstract:
Courts rely on the "national policy favoring arbitration" to restrict the review of arbitration agreements under state laws of unconscionability. Consequently, banks, phone companies, and other consumer businesses implement mandatory arbitration clauses that provide complete immunization from both class actions and classwide arbitrations. As potential defedants, these companies hope that courts will force individual resolution of all consumer claims against them by upholding their agreements to arbitrate. Such an exercise raises an important question, which is the subject of this Article: To what extent should courts use the "national policy favoring arbitration" to protect consumer arbitration agreements that prohibit all class relief?

John W. Hinchey and Thomas V. Burch, An Arbitrator's Authority to Award Attorney Fees for Bad-Faith Arbitration

Abstract:
This is a short piece written for the AAA's DIspute Resolution Journal discussing when an arbitrator may award fees against a party for arbitrating in bad faith.

Abhijit P.G. Pandya and Sandy Moody, Legitimate Expectations in Investment Treaty Arbitration: An Unclear Future?

Abstract:
The dangers of the excesses of legitimate expectations as a public law doctrine are exposed when it is applied to investment treaty arbitration. Current jurisprudence makes a strong case for restraint by arbitrators. However, recent decisions, have only paid lip-service to deference to sovereignty of states, as the EDF v. Romania decision shows.

Aubrey Laine Thomas, Nonsignatories in Arbitration: A Good-Faith Analysis

Abstract:
As businesses conduct more and more transactions in the world market, the ability to settle disputes between international parties in a neutral forum has become a paramount concern. For this reason, the arbitration clause is an integral part of the international commercial contract. Still, due to the complex nature of most international commercial transactions, a nonsignatory, often times a subsidiary or parent corporation of one of the signatories, becomes materially involved in the performance of the contract. All of the benefits of the arbitration clause relied on by the contracting parties - such as a neutral forum, dispute finality, party autonomy, and reliance on enforceability - can be lost if the nonsignatory is not required to arbitrate disputes arising out of the contract.

Acknowledging this problem, U.S. courts have applied a variety of legal theories to require arbitration with a nonsignatory. Still, application of these different theories is inconsistent from jurisdiction to jurisdiction and is incongruent with the delocalization movement inherent in international transactions. This Comment proposes that U.S. courts should apply the principle of good faith to determine whether arbitration including a nonsignatory is appropriate. Essentially, courts should utilize the equitable principle of good faith to analyze both the contractual language as well as the conduct of the parties during negotiation and performance of the contract to determine whether the nonsignatory may compel or be compelled to arbitrate. This Comment focuses on past cases dealing with the nonsignatory issue to exemplify how the principle of good faith would create a uniform test and to demonstrate how this principle is consistent with the public policy underpinnings of arbitration. Last, this Comment concludes with arbitration clause drafting tips. Parties must engage in “conscious drafting” so that when the principle of good faith is used to interpret the parties’ contract, it will be clear when a nonsignatory should or should not arbitrate.

[The timing of this article cannot be more right. Extension of arbitration agreement to non-signatories has been an issue post the decision of the Indian Supreme Court in Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr]

Maureen Weston, The Other Avenues of Hall Street and Prospects For Judicial Review of Arbitral Awards

Abstract:
In Hall Street Associates, L.L.C. v. Mattel, Inc., the U.S. Supreme Court held that the Federal Arbitration Act (FAA) provided the exclusive grounds for judicial vacatur and modification of arbitral awards covered under the Act. In so ruling, the Court rejected the contention that the FAA’s requirement to enforce arbitration contracts as written includes private contracts that seek to expand the scope of judicial review beyond the grounds enumerated in the FAA. Despite holding that parties cannot expand a court’s power to review an arbitration award under the FAA, the Court alluded to the possibility of “other possible avenues” for judicial review of arbitration awards. This decision arguably raised more questions than it answered. For example, did Hall Street limit a court’s power to review an arbitral award for a judicially recognized standard of manifest disregard of the law or violation of public policy? Can parties achieve essentially the same result through creative drafting, such as provisions that limit the scope of an arbitrator’s powers to render only factually or legally correct decisions? Are state courts bound by the FAA’s narrow modification and review standards, and Hall Street’s interpretation thereof? This Article analyzes these questions and considers Hall Street’s impact on arbitration practice and judicial willingness and ability to review arbitral awards.

Katia Fach Gómez, CSID Claim by Spanish Companies Against Mexico Over the Center for the Integral Management of Industrial Resources

Abstract:
On December 11, 2009, The ICSID Secretary General registered a request for the institution of arbitration proceedings. Abengoa, S.A. and COFIDES, S.A. are the companies who requested the arbitration against the United Mexican States. There is no further information about this claim on the ICSID’s website, but the Spanish press has reported that these companies require the Mexican federal government to pay USD $ 96 million plus interest for failure to implement the waste plant in Zimapán -USD $40 million for the cost of the plant and USD $56 million for lost profits.

The request for arbitration stresses that the inability to operate the project is a consequence of various acts carried out by Zimapán’s municipal authorities, such as the revocation of the municipal license to operate, the digging of trenches and roadblocks to keep out truck en route to the landfill, and the diversion of public funds to prevent the operation. The Spanish companies also accuse the federal government and the state of Hidalgo’s authorities of various acts and omissions that may encompasses a violation of the Bilateral Investment Treaty between Mexico and Spain.

[Abstract in Spanish omitted]

Caroline Osborne, Pathfinder on International Investment Law and Alternative Dispute Resolution Web Based Resources

Abstract:
This pathfinder is intended to assist government officials, investors, practitioners, arbitrators, scholars, and other stakeholders in locating literature on the dialogue of international investment law and dispute resolution. This document covers online resources useful in promoting collaborative relationships among experts in international investment law and dispute resolution.

Primary international investment law materials include multinational and bilateral investment and trade agreements, as well as domestic laws and regulations of foreign investments made in other countries. Traditional topics of interest under international investment law include tax, antitrust, securities, corporate, environmental, and labor laws.

Arbitration is a dispute resolution process typically conducted in a non-judicial setting. As a general concept alternative dispute resolution is broadly construed to include negotiation, mediation, conciliation, and arbitration. These techniques are not considered to be mutually exclusive and one or more techniques may be used in sequence or as part of a combination. The process is simple and traditionally governed by the rules of a neutral arbitration organization selected by the parties or an agreement administered by a panel of arbitrators agreed upon by the parties. Confidentially requirements are often included. The presence of confidentiality requirements can limit access to information.

The large number of dispute resolution institutions adds a complexity to locating certain information on awards. This paper presents selected resources in the areas of international investment law and dispute resolution, including the following categories: locating literature and resources; organizations, associations, societies, and institutions; arbitration; rules; news services, discussion lists and blogs; resources regarding conventions, treaties, cases, and awards; other web resources; specialized journals; resource guides, pathfinders and annotated bibliographies; and UNCTAD. Resources available solely in print and resources the scope of which is limited solely to an individual nation are excluded as beyond the scope of this document.