International Commercial Arbitration, Southern-Style

Tennessee increasingly is enmeshed in the global economy. The state is emerging as a prime location worldwide for manufacturing facilities, data centers, research facilities and international headquarters, and Tennessee companies have been growing their exports, from approximately $20.5 million in 2009 to almost $30 billion in 2011. During the same period, Tennessee also has benefited from an influx of foreign direct investment. The Tennessee Department of Economic and Community Development cites the amount of foreign direct investment as more than $23 billion as of April 2012,[1] and more than 98,000 Tennesseans are employed by foreign-owned businesses.[2] All of this has created many opportunities in the international business field for Tennessee lawyers, and these will only continue to increase.

Tennessee lawyers are accustomed to incorporating arbitration provisions in international business contracts, but often agree to arbitral venues far from the Volunteer State, including the traditional three — London, New York and Paris — or Geneva, Hong Kong or Stockholm. An important new initiative launched by a coalition of southeastern law firms and law schools aims at promoting an arbitral center closer to home — Atlanta — and that initiative offers opportunities to Tennessee lawyers.

International Commercial Arbitration

International arbitration is the leading method for resolving cross-border business disputes, in part because companies engaged in international business naturally fear litigating in foreign courts. Arbitration allows parties to resolve disputes in a neutral forum before arbitrators of their choosing. An international treaty also makes it easier to enforce an arbitration award across borders than a court judgment. While the United States has no treaties with any other country for the enforcement of court judgments, more than 140 countries, including the U.S. and most of its major trading partners, are parties to the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Worldwide, the success rate in enforcing foreign arbitration awards is approximately 90 percent, although experience varies by country.[3]

While most international arbitrations continue to be conducted in a relatively small number of cities, a recent survey of corporate counsel and international arbitration specialists indicates that parties are “increasingly looking beyond the ‘traditional’ seats of arbitration.”[4] For instance, Singapore, Dubai and Miami have become leading venues for international arbitration in just the past decade, and the island nation of Mauritius recently launched an initiative to become a center for Africa-related arbitrations. In effect, arbitrations are migrating closer to the locus of the disputes. This trend creates opportunities for Tennessee and other southeastern lawyers as our region’s economy continues to globalize.

And globalizing it is. Using World Bank figures, the core southeastern states — Alabama, Georgia, Mississippi, North Carolina, South Carolina and Tennessee — would, as an independent country, represent the 11th largest economy in the world. With Florida included, the region would be seventh. Given our economic clout, lawyers in the Southeast increasingly are able to negotiate for more convenient, less expensive arbitral venues and appropriately are considering ways to bring (and keep) arbitrations nearer to home.

An Atlanta Alternative

With a view toward these developments, the authors, along with a number of other Southeastern lawyers have embarked upon an initiative, presently focused on Atlanta, to promote Southeastern cities as alternatives to London, Paris and New York. This initiative is organized through the newly incorporated Atlanta International Arbitration Society Inc. or AtlAS, a coalition consisting of major U.S.-based arbitral institutions, southeastern law firms, law schools, and chambers of commerce.[5] Its work provides a template for other communities and jurisdictions that hope to become more frequently selected for international arbitration.

Legal and Travel Infrastructure

Surveys of corporate counsel indicate that the most important factor in picking an arbitral venue is legal infrastructure, including the jurisdiction’s arbitration law and track record in upholding arbitration agreements and arbitral awards.[6] Georgia fares well in that regard. Georgia’s international arbitration-friendly state statute was enacted in 1988[7] and amended in the 2012 session of the Georgia Assembly. The statute is based largely on the United Nations Commission on International Trade Law (UNCITRAL) model international arbitration law.[8] It also incorporates a number of non-UNCITRAL Model Law provisions representing international best practice, including, for instance, a provision allowing non-Georgia parties to opt out of certain grounds of judicial review of an award.[9]

In addition, subject to minor restrictions, Georgia allows parties to be represented by counsel of their choice in international arbitration proceedings without regard to prohibitions on the unauthorized practice of law.[10] Moreover, the right to appear and advocate in arbitrations extends not only to lawyers from Tennessee and other states, but also to attorneys not licensed in any U.S. jurisdiction.[11] If the underlying contract is governed by, say, German law, the parties are free to employ German lawyers to prosecute or defend.[12]

Federal law also is favorable to Atlanta-based arbitrations. Indeed, the Atlanta-based 11th Circuit is arguably the most international arbitration-friendly court in the United States, as illustrated by the following:

The 11th Circuit precludes challenges to arbitration awards on the basis of “manifest disregard for the law.”[13] This eliminates a concern expressed by some non-U.S. lawyers with respect to conducting international arbitrations in the U.S.[14]

The 11th Circuit is the only federal circuit to eliminate domestic arbitration law as a basis for vacating international arbitration awards rendered in the United States.[15]

Recognizing that “[a]rbitration’s allure is dependent upon the arbitrator being the last decision maker in all but the most unusual cases,” the 11th Circuit does not hesitate to impose sanctions to deter baseless contests of arbitration awards.[16]  Courts in the 11th Circuit are instructed to “ensure arbitration is an alternative to litigation, not an additional layer in a protracted contest.” [17]

The 11th Circuit recently became the first federal appellate court to allow 28 U.S.C. § 1782 — which provides U.S. district courts with the power to order parties to give testimony or produce documents “for use in a proceeding in a foreign or international tribunal” — to be used to obtain evidence located in the United States for use in foreign arbitration proceedings.[18] The only two other circuits to rule on this issue have taken a contrary position.[19]

The 11th Circuit holds that domestic law exclusions with respect to matters that may be subject to arbitration are trumped by the New York Convention.[20]

Atlanta is also easy for foreign parties to access. Hartsfield-Jackson is the world’s busiest passenger airport, serving nonstop flights to 151 U.S. destinations and more than 90 international destinations in 55 countries. In May 2012, the city opened a new $1.2 billion international terminal, which has enhanced substantially the efficiency of international travel through the airport.

The Big Tent

Understanding that protectionism will hamper the growth of international arbitration in Atlanta, the local international arbitration bar has embraced a “big tent” approach, encouraging lawyers from throughout the Southeast and, indeed, the entire world, to participate. The AtlAS organization already includes lawyers from Birmingham, Charlotte, Oxford (Miss.), Chattanooga and Nashville, among other southeastern cities, and even offers membership to these lawyers at reduced rates.[21]

Conclusion

The AtlAS initiative is demonstrating that Atlanta and other Southeastern cities can be highly attractive alternative venues for international arbitration. Tennessee lawyers should consider participating in the initiative in two ways: first by considering and, where appropriate, specifying Atlanta for the resolution of international disputes, and second by considering ways to recast Tennessee law and bar and professional licensing rules in ways that will make Tennessee a similarly hospitable venue.

There are many potential advantages to Tennessee, its lawyers and their clients. Not least are the savings to Tennessee companies engaged in international arbitrations by keeping those arbitrations close to home. Moreover, it never hurts to send a message to the world at large that Tennessee, along with other Southeastern states, is open for and friendly to global business.

Notes

  1. See “Report on Foreign Direct Investment in Tennessee,” http://www.tn.gov/ecd/pdfs/ FDI_Employment_11.pdf at 4.
  2. Tennessee Economic and Community Development Report, http://www.tn.gov/ecd/ multimedia_center/pdf/FINALataglance_combinedSmall2010.pdf).
  3. Albert Jan van den Berg, “Refusals of Enforcement Under the New York Convention of 1958: The Unfortunate Few, Arbitration in the Next Decade,”  special supplement 1999, ICC Court of Arbitration.
  4. Paul Friedland & Loukas Mistelis, “2010 International Arbitration Survey: Choices in International Arbitration,” at 19, http:// www.whitecase.com/articles-10062010/); see also “Survey Highlights Importance of Choice of Law,” Global Arbitration Rev. (Oct. 5, 2010).
  5. AtlAS is an initiative of approximately 20 law firms, most (but not all) of which are based in the Southeast; ADR providers such as Judicial Arbitration and Mediation Services Inc. (JAMS) and the American Arbitration Association/International Centre for Dispute Resolution; and professors from southeastern law schools. AtlAS aims to promote international arbitration throughout the entire southeastern United States and welcomes the membership and involvement of firms, law schools, and providers from within the region and beyond. More information is available about AtlAS at www.arbitrateatlanta.org.
  6. Friedland & Mistelis, “Choices in International Arbitration,” at 19.
  7. O.C.G.A. § 9-9-30 et seq.
  8. The Georgia law excludes certain controversial provisions in the 2006 Model Law amendments authorizing arbitrators to issue ex parte interim relief. See UNCITRAL Model Law on International Commercial Arbitration (2006), art. 17(B)-17(C); see also Victoria M. Fraraccio, “Ex Parte Preliminary Orders in the UNCITRAL Model Law on International Commercial Arbitration,” 10 Vindobona J. Int’l Com. L. & Arb. 263, 265 (2006) (arguing that “ex parte measures in international arbitration are contradictory to the consensual nature of arbitration; offend the basic arbitral principle of equality between the parties …; are difficult to enforce; make prejudiced arbitrators; and are unable to meet the timely demands of the parties. As a result of these problems … ex parte provisions … run[] the risk of adversely affecting the proper development of international arbitration”); Gary B. Born, International Commercial Arbitration 2017-19 (2009) (suggesting that ex parte relief in arbitration “virtually never makes any sense or accomplishes any serious purpose”).
  9. O.C.G.A. §§ 9-9-36.
  10. Both Tennessee and Georgia permit lawyers from other U.S. jurisdictions to provide legal services on a temporary basis that “are in or reasonably related to a pending or potential arbitration, mediation, or other alternative dispute resolution proceeding in this or another jurisdiction, if the services arise out of or are reasonably related to the Domestic Lawyer’s practice in a jurisdiction in which the Domestic Lawyer is admitted to practice and are not services for which the forum requires pro hac vice admission.” See Georgia Bar 5.5(c)(3); TN R S CT Rule 8, RPC 5.5(c)(3). Neither state requires pro hac vice admission to appear in the arbitration proceeding itself, as opposed to judicial proceedings that are ancillary to the arbitration. Unlike Tennessee, Georgia extends the same right to foreign (non-U.S.) lawyers. See Georgia Bar 5.5(e)(3).
  11. See Georgia Bar 5.5(e)(3). Foreign lawyers also can appear in state court on a pro hac vice basis. See Uniform Rules, Superior Courts of the State of Georgia, Rule 4.4. The American Bar Association’s Task Force on International Trade in Legal Services notes that “Georgia has assumed a leadership position in adopting rules that specifically address and regulate some of the various means by which lawyers from foreign countries may seek to perform services in that state.” Memorandum from American Bar Association’s Task Force on International Trade in Legal Services to State Supreme Courts and State and Local Bar Associations regarding “International Trade in Legal Services and Professional Regulation: A Framework for State Bars Based on the Georgia Experience,” Feb. 4, 2012, at 1.
  12. Tennessee, like the majority of states, takes a more traditional approach, one that should be relaxed in order to facilitate the selection of Tennessee for international arbitrations. The other states having a liberal rule allowing foreign lawyers to participate in international arbitrations are Delaware, Florida, New Hampshire, New York, Pennsylvania and Virginia. See David D. Caron & Leah D. Harhay, “A Call to Action: Turning the Golden State into a Golden Opportunity for International Arbitration,” 28 Berkeley J. Int’l L. 497 (2010).
  13. Frazier v. CitiFinancial Corporation, 604 F.3d 1313 (11th Cir. 2010). The Sixth Circuit has not yet entirely eliminated manifest disregard of the law as a standard for reviewing arbitration awards. See Coffee Beanery Ltd. v. WW LLC, 300 Fed. Appx. 415, 418-19. (6th Cir. 2008) cert. denied, 130 S.Ct. 81 (2009) (holding that while the U.S. Supreme Court’s decision Hall Street Associates v. Mattel Inc. “significantly reduced the ability of federal courts to vacate arbitration awards for reasons other than those specified in 9 U.S.C. § 10 … it did not foreclose federal courts’ review for an arbitrator’s manifest disregard of the law”); but see Grain v. Trinity Health, Mercy Health Servs. Inc., 551 F.3d 374, 380 (6th Cir. 2008) (stating in dicta that Hall Street “casts some doubt on the continuing vitality of the [manifest disregard] theory”).
  14. See, e.g., “The US Restatement on International Arbitration: First European Reactions,” Global Arbitration Rev. (Dec. 9, 2010) (quoting a French arbitration expert who “warned that if the doctrine of manifest disregard of the law were to be maintained by the US courts, it would seriously endanger the attractiveness of the US as a venue for international arbitration”). Manifest disregard represents “a very narrow, seldom-exercised power of judicial review.” Gary B. Born, International Commercial Arbitration 2639 (Wolters Kluwer, 2009). Nevertheless, as noted by the president of the London Court of International Arbitration, the mere “availability of a right to attack awards for ‘manifest disregard’ gives losing parties the opportunity to disrupt the arbitral process, whatever the ultimate outcome of a challenge might be. Hanging like a sword of Damocles over the arbitration, ‘manifest disregard’ serves as a vehicle for attempts to renege on the bargain to have a dispute decided by arbitrators. The result is to give the United States a competitive disadvantage compared to arbitral venues where judicial intervention is limited to matters related to fundamental procedural integrity.” William W. Park, The International Currency of Arbitral Awards, 770 PLI/Lit 359 (2008); see also William W. Park, “The Specificity of International Arbitration: The Case for FAA Reform,” 36 Vanderbilt J. Transnational L. 1241 (2003) (“The prospect of such judicial meddling in the arbitral process can only alarm foreign enterprises contemplating arbitration in the United States”).
  15. Industrial Risk Insurers v. M.A.N. Gutenhoffnungsbutte, 141 F.3d 1434 (11th Cir. 1998). In May 2012, the membership of the American Law Institute endorsed the 11th Circuit position, as set forth in Sections 4-3 and 4-11 of the Draft of the Restatement Third, The U.S. Law of International Commercial Arbitration. See American Law Institute, Restatement Third, The U.S. Law of International Commercial Arbitration, Tentative Draft No. 2 (April 16, 2012); see also ALI 89th Annual Meeting Updates, http://2012am.ali.org/updates.cfm?startrow=41.
  16. World Business Paradise Inc. v. Suntrust Bank, 403 Fed.Appx. 468 (11th Cir., 2010).
  17. B.L. Harbert Int’l v. Hercules Steel Co., 441 F.3d 905, 913-14 (11th Cir. 2006), overruled on other grounds, Hall Street Associates LLC v. Mattel, 552 U.S. 576 (2008), as recognized by, Frazier v. Citifinancial Corp. LLC, 604 F.3d 1313 (11th Cir. 2010)(stating that the court was “ready, willing, and able to consider imposing sanctions in appropriate cases”).
  18. Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA) Inc., No. 11–12897, 2012 WL 2369166 (11th Cir. June 25, 2012). 
  19. See El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 F. App’x 31 (5th Cir. 2009); Rep. of Kazakhstan v. Biederman Int’l, 168 F.3d 880 (5th Cir. 1999);  Nat’l Broadcasting Co. Inc. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999).
  20. Bautista v. Star Cruises, 396 F. 3d 1289 (11th Cir. 2005). The New York Convention, formally the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, obligates contracting states to recognize foreign arbitral awards as binding and to enforce them according to Article III of the Convention. The United States ratified the New York Convention on Sept. 30, 1970 with certain declarations and reservations. The treaty entered into force that same year. More information about the New York Convention is available at http://newyorkconvention.org.
  21. AtlAS meets monthly, with the noon meetings rotating between law firms and arbitration institutions in Atlanta. Next year, meetings outside of Atlanta and Georgia are planned. All are most welcome to attend, without regard to formal membership in the AtlAS organization. The meeting schedule appears on the AtlAS website at http://arbitrateatlanta.org/the-atlanta-international-arbitration-society/.

SHELBY GRUBBS is a member of the Miller & Martin PLLC, practicing in its Chattanooga and Atlanta offices; he is on the board of directors of the Atlanta International Arbitration Society. He can be reached at sgrubbs@millermartin.com.

GLENN HENDRIX, the managing partner at Arnall Golden Gregory LLP and a former chair of the ABA Section of International Law, is the president of the Atlanta International Arbitration Society. He is available at glenn.hendrix@agg.com.  

The authors acknowledge with thanks the assistance of Allison Wiseman, a summer associate at Miller & Martin and a second year student at the Harvard Law School.