June 2015

The Broken Promises of International Arbitration


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Lawyers routinely advise their clients on the benefits of international arbitration. A contract without a disputes resolution clause is incomplete. The advantages of arbitration are obvious, aren't they?

The process is private. Streamlined. Concierge justice. What patient would rather wait in the emergency room for treatment when a private physician was immediately available?

Unfortunately, experience has shown that the advantages of international arbitration are illusory at best:

1. Not Streamlined

 Commencing an arbitration is fairly straightfoward if both sides agree. Unfortunately, the good feelings shared at the time of contract execution are absent later when one side invokes the arbitration clause. Getting cooperation is an exercise in agony.

One British court, commenting on a Saudi arbitration noted: "the parties disagree about everything." The respondent in an arbitration is much more likely to drag his feet, fail to nominate arbitrators, fail to pay arbitration fees, etc. unless compelled to do so.

And who can compel? If you have to go into court to compel your counterparty to arbitrate you have just added a layer of complexity (not to mention appeals) to the process. Arbitral awards are not self-enforcing, though, to be fair, neither are court judgments. The courts nevertheless have the execution procedures missing from arbitral rules. So much for streamlining.

2. No Privacy

The minute you go into court to enforce any aspect of the arbitration, including the obligation to arbitrate itself, all privacy is lost. Some countries' legal systems are less than public by their very nature. Orders to seal civil files in non-criminal cases are rarely granted. And such orders can be appealed. So much for privacy.

3. Lower Costs

Clients are sold on the idea that arbitration is cheaper than going to court. Experience shows the opposite, starting with the fees charged by the various international arbitral bodies for the privilege of using their facilities. Six figure arbitral fees are not uncommon.

The arbitration business has become so lucrative that the popular centers--London, Paris, New York, DFC--are fighting off the competition and complaining about "sham" arbitration centers. At an international conference on arbitration, one Saudi lawyer, who should have known better, went so far as to decry publicly the evils of "sham" arbitration, claiming that a lawyer who recommends a "sham" arbitration center should be disbarred.

By definition, there can be no such thing as a "sham" arbitration center. If the parties to a dispute decide to entrust the resolution of their dispute to a beggar on the corner, they are free to do so. If they decide to use a private mediation center run out of an attorney's office (or engineer's office, for that matter) there is nothing stopping them from doing so.

Need I point out that the Saudi lawyer in question is on the list of arbitrators for a major arbitration center? And yet if you were to ask, "what are the advantages of ICC arbitration over the DIFC?" few would be able to provide a coherent answer.

4. "Gotchas" Not Eliminated

One of the supposed advantages of international arbitration is the supposed elimination of the hidden "gotchas" of local practice. Not so. Recently, a Qatari court called upon to enforce a Qatari arbitral award refused to do so because the arbitrators forgot to staple a copy of their decision to the request for enforcement in accordance with local Qatari rules. As far as I know, there is no shortage of staplers in Qatar. But why pick up a stapler when everyone can squabble while charging a few hundred pounds per hour to do so? "Gotchas" such as these  are not eliminated by recourse to arbitration.

5. Elimination of Local Counsel

The possibility of eliminating local counsel from an international dispute arising from a mandatory standard form contract has large corporations salivating. Why are in-house counsel on the payroll anyway? The idea is good in theory, but not in practice. See No. 4 above. Local counsel are along for the ride, especially if enforcement is sought. And it will be.

6. Enforcement is Always an Issue

At some point, you will obtain an award. Now all you have to do is enforce it. This almost always means a trip into local courts except in the unusual circumstance where the losing party enthusiastically pays voluntarily.  Of course, the loser in the arbitration will object to enforcement. This means that the matter will be relitigated, even if the rules prohibit relitigation. For fairness' sake, of course.

7. The New York Convention is Meaningless

In many countries, the fact of accession to the New York Convention on the Enforcement of Arbitral Awards is touted as yet another reason to do business in a foreign jurisdiction. After all, these signatory countries have proclaimed to the world their intention to honor foreign arbitral awards.
Assuming of course, that these awards do not violate local law. Or local traditions. Or were unfair.

One side will always claim that the award, or part of it, is in violation of the local law. Whether the papers comprising the award were properly stapled in accordance with local practice was recently another issue to litigate in Qatar.

As a last recourse, the arbitration itself can be attacked as unfair and every adverse decision proof of injustice. In Saudi Arabia, perhaps less than five foreign arbitral awards have ever been enforced, and only after parallel proceedings that proceeded to relitigate.  Every. Little. Thing.

Avoid Arbitration

Given all these obstacles, it is difficult to explain why parties simply do not sue their opponents in local courts where jurisdiction can be obtained and where executable assets are located. Yes, local courts and rules present a new set of problems and "gotchas" but even Western countries are far from blameless in this regard.

The advantage of local courts is that a whole level of what is perhaps useless complexity is eliminated--the arbitral process itself. The parties are always free to engage in settlement discussions after sufficient sparks have flown, or even to engage in non-binding mediation. Good-faith mediation is worth a lot more than an arbitration in which a respondent fights every step of the way.

It is time to re-examine how international business disputes are resolved.

The opinions set forth in this article are those of the author and no other person. 

For British Readers: Half and Half and Of Counsel

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They say that England and America are two countries separated by a common language. There are many examples of this. Ask an American what a Zimmer Frame is and you will get a blank stare.
Americans call it a “walker.”

In America, if you want to boil water, you put a pot on the stove. This is not the case in the United Kingdom where you need something called a cooker. Strangely, both look the same.

British cooks are often mystified when a recipe calls for “Half and Half.” This exotic concoction is unavailable in British grocery stores. Research will reveal that this is a dairy drink consisting of cream and milk. The name is somewhat inaccurate. The Half and Half sold in U.S. grocery stores only contains 20% cream, not 50%.

In American legal practice,‘of counsel’ refers to an attorney who has a relationship with a law firm or an organization, but is not an associate or a partner.” Usually this will be a senior attorney, an attorney who advises the firm as an entity, or someone who handles a specific area for the firm, such as appeals.

In the United Kingdom the term is, to borrow a phrase from Mary, Queen of Scots, “most unknown.” This is not entirely surprising since the structure of the legal profession in the United Kingdom is radically different from that of the United States. In the United Kingdom there are solicitors and barristers with only the latter (theoretically) appearing in court.

In the United States, all admitted attorneys (again, with a few exceptions) have the right of audience. Commonwealth countries follow the U.K. model. The real question is, why did the Americans choose a different path? After the American revolution, judges rode circuit accompanied by a copy of Blackstone’s
Commentaries on the Laws of England. English law, at least as retold by Blackstone, was American law, with a few accommodations due to the lack of a king. But somehow the bifurcation of the English bar was overlooked.

This question bothered me while ordering coffee in a Starbucks in Bahrain. Prior to 1971, Bahrain was a U.K. protectorate, its foreign affairs managed by London. Walk into any Starbucks in North America and you will find pitchers of Half and Half. Asking for “cream and sugar” for your coffee in Bahrain--and the U.K. as well--will invariably draw an inquiry about milk. But milk is not Half and Half. To be fair, a request for “cream” for your coffee in the U.S. will usually result in the provision of Half and Half, except in Wisconsin, a dairy state. There these important distinctions are preserved.

Half and Half is also known in Canada, but there milk is sold in bags. Canada follows the British bifurcated bar practice, however. So assuming that the availability of Half and Half in a country is an indicator of that country’s legal practice structure would be an error.

Canadian lawyers are also familiar with the “of counsel” concept.

Given how law firms can crash and burn (Dewey? Heenan Blaikie?), sometimes not being a partner is quite an advantage, as former Dewey attorneys (and their new law firms) are finding out. Being “of counsel” is a good, flexible compromise. The American Bar Association’s ethical rules even permit an attorney to be “of counsel” to more than one law firm at a time (but not more than two).

Confusing legal structures or dairy products happens often when cultures clash. Down the street, a U.S. Navy sailor was unsuccessfully trying to convince a store clerk that the milk he had purchased had gone bad. The clerk pointed out that the sailor hadn’t purchased milk at all, but laban.

Try to find that in America.

5 Roots of the Rohingya Crisis

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135 Minorities but the Rohingya Ain’t One

Myanmar is an extraordinarily diverse multi-ethnic society ranging from the (former) headhunting clans of Naga warriors to the majority Burmese. There are 135 recognized different groups. Muslims of Indian descent are not considered to be part of the body politic but a consequence of the colonization of Myanmar by Britain.

Migration from British India

In 1862 Burma was designated a province of British India. On January 1, 1886 Britain overthrew King Theebaw and annexed the Kingdom of Burma. For the next fifty years Burma was ruled as a part of India, though Burma was always considered a separate administrative jurisdiction. More migrants came to Burma from the rest of India.

Partition and Independence

In August, 1947, British India was partitioned into India and West and East Pakistan. Five months later, Burma became independent. East Pakistan, the historical home of many migrants, would eventually become Bangladesh.

1962 Revolution

In 1962 a military coup overthrew the government in Rangoon and Burma became Myanmar. The new government forced the expropriation of Indian businesses and the deportation of Indians. Over 400,000 left.

Is this a Religious Conflict?

The current conflict is often cast as one between Bhuddists and Muslims, but this is not entirely accurate. There are other religious minorities in Myanmar whose religious rights are not affected. The Karen, for example, are overwhelmingly Christian, due to proselytizing by missionaries in the 19th century.

The Rohingya Today

Muslims whose families came to Myanmar from British India have consistently been considered foreigners by successive Myanmar governments since 1962. They are not counted in the census and cannot even obtain national identification. An impoverished group, they are refused asylum by the countries of their origin, Bangladesh or India and so have sought refuge in litoral nations that will accept them.

Myanmar’s recent claims that other nations ignore history in expecting Myanmar to solve the Rohingya problem alone are based on this history, a history not well-known or remembered outside the country.

Doing Business in Myanmar is available through Amazon and is distributed by Ingram.