The Legal Zone (S2:E2): International Arbitration: The Importance of a Governing Law

Transcript

Host: Regina M. Campbell, Esq., The Campbell Law Group (TCLG)

Guest: George A. Bermann, director, Center for International Commercial and Investment Arbitration, Columbia Law School

Introduction

Regina Campbell: Good afternoon, everybody. We want to welcome everyone back for episode two of season two of The Legal Zone. I'm your host, Regina Campbell. Today we have the pleasure of bringing on a very well-known, world-known attorney, Mr. George Bermann, who is going to help us and answer some questions for us today. The topic is one of specific interest and importance related to international law and arbitration, and specifically the importance surrounding governing law and venue clauses.

Sorry, let me bring you in. This is Mr. Bermann, as everyone can see on the screen. Mr. Bermann is the director of the Center for International Commercial and Investment Arbitration at Columbia Law. Mr. Bermann is also a world-renowned authority on comparative law, European law, international trade contracts, world trade dispute resolution, and transnational litigation and arbitration in general. Welcome, Mr. Bermann.

George Bermann: Thank you.

Regina Campbell: And thank you for coming on with us today. It's such a pleasure to have your experience to shed some light on some of these issues. In general, we all know that, as with everything in contract law, what you agree to in writing can make a world of difference. The written provisions in a contract are meant to embody the essence and the spirit of what the parties have agreed to. Therefore, most courts in the world, absent a public policy issue, will first review what the parties wrote or agreed to, so to speak, to determine how to apply different laws and what the parties intended.

Since many countries have their own laws and governing bodies of law, the jurisdiction can make a monumental difference in how a contract is interpreted and enforced. So we brought you on to help us, not just lawyers but of course business people, navigate these waters and the difficulties that often exist with not just including a governing law clause or a venue clause, but writing it properly and effectively. So we were hoping you might be able to assist us today.

What a governing law clause must have

Regina Campbell: So one of the first questions: though the requirements may vary from country to country, what do you recommend a governing law clause must have?

George Bermann: Okay, well, thanks for having me, Regina. It's a real pleasure. It's a subject I like speaking about. Let me say, before I answer your question, that on some of your questions we will distinguish between litigation and arbitration, because the circumstances are different in some respects. So from time to time, I'll drive a wedge between the two in answering you.

But as a general matter, a choice of law clause will, of course, most importantly designate the jurisdiction whose substantive law the parties are submitting to. Underscore substantive. That means the law governing the merits of any dispute that may arise in the future. Now, choosing a jurisdiction is more complicated than it may seem. Certainly in the US, with a federal system, you're advised to choose a state law rather than US law, if only because we have no US law on many subjects, including tort and contract. So you're advised to select a state. You don't need to select a county or a city. Select a state, and bear in mind that whatever the substantive law of that state is, is presumptively the law in accordance with which your rights and obligations will be defined. So Regina, that's paramount, and we want precision about that.

Now, there are some more narrowly gauged issues I'd like to mention that may not be as well known. First of all, if you are serious about the law being the law you select, then you might want to avoid the risk, and this is fairly complicated, that a court will view the law you chose as including its conflict of law rules. I'm not sure that makes sense to everybody, so maybe I should elaborate a little bit. Every jurisdiction has so-called choice of law rules, which means that if the parties haven't selected a law, that jurisdiction tells you what law will apply to that kind of case. Now, there are some countries in the world that say when you choose French law, first and foremost you're choosing French choice of law, not French law. That means French choice of law might send you to Brazil. I hope that's clear.

Fortunately, there is a presumption that when you chose a law, you did not choose the conflict of law rules of that state. I think you'll agree with me, Regina, that that's a fair presumption.

Regina Campbell: Yes, definitely.

George Bermann: When you're drafting your contract, you're lucky if you have a choice of law clause, but you're undoubtedly not going to think about whether you're choosing the conflict of law rules or the substantive law. So there's that strong presumption. But I will tell you that drafters of contracts try to leave nothing to doubt. Therefore, it's been very widely the practice to say that any and all disputes will be decided under the law of Illinois, without reference to its choice of law rules.

Regina Campbell: Yeah, notwithstanding the choice of law.

George Bermann: Skip that. Let's go right to Illinois contract law. So there could be some surprises, if you find that your contract gets governed by the contract law of a country other than the one whose law you chose.

Defining which disputes the clause covers

George Bermann: The next most important thing is to designate the universe of disputes that are meant to be covered by a choice of law clause. This will also be true of our choice of forum clause, if and when we get to it. But these clauses need to be interpreted, and depending on how the choice of law clause is drafted, it can be broadly or narrowly applicable. Let me be clear. Suppose you draft the choice of law clause as follows: "This contract shall be governed by and construed according to Brazilian law." Just take that as my example. That choice of law clause may be considered to apply only to contract cases.

Let me repeat this. If your choice of law clause says this contract shall be governed by and construed in accordance with the law of Brazil, then what you have designated is Brazilian law for your contract cases. Now, practical business people, if they really want a choice of law clause, probably want more than the contract law of that state. They want a product liability suit to be governed by the law of that state. They want a tortious interference with contract claim governed by it. So decide what it is you want to be governed by it. Most people want more rather than less.

Regina Campbell: And I don't want the confusion either.

George Bermann: Yes. Usually you want a body of law, and you're not really thinking about what the outer boundaries are of the lawsuits you want governed by that law. The way attorneys do that is generally to say something much broader than what I have just said. Rather than say the contract shall be construed in accordance with or governed by, you say something along the following lines: "Any and all disputes that may arise out of or relate to this contract shall be governed by the law of Brazil." So "arising out of or related to": that's the standard language for breadth. Don't just say "arising out of," because that may be read, again, as contract. So if you want an IP claim covered, if you want a product liability claim covered, if you want an antitrust suit covered, "related to" is very important language. That was a long answer, and I know you have many questions, so I'm going to stop there on that one. But you can trust me, there's more to say.

Regina Campbell: Yes, and I know there's so much more in it. I'm glad you touched upon the fact that if you're not careful, you're actually defining it too narrowly. You want to make sure you're doing something with purposeful intent, because if not, the court will just see it that way.

George Bermann: Yes, the court will read your contract just as you said. If you said, "I want my contract construed according to Brazilian law," they're going to say, "That's fine. We'll construe the contract. But otherwise, the dispute will be governed by the law we designate," under our choice of law rules.

Regina Campbell: Yes, which can make a huge difference, like we're talking about with torts or other issues, intellectual property rights and everything.

George Bermann: Absolutely. So I hope that's useful.

Writing requirements and party autonomy

Regina Campbell: Absolutely. In general, though, do you find that most countries require a governing law clause to be in writing? I assume there are certain minimal requirements, right?

George Bermann: Actually, not. In most jurisdictions, contracts themselves, except in very special categories, do not need to be in writing. Oral contracts are well known.

Regina Campbell: I mean, it's not advisable.

George Bermann: Exactly. It's not advisable to leave your contract in oral terms. But there's no particular requirement. If you asked me this question about choice of forum clauses, and we're not there yet, I would give you a different answer. Would you like to go there first? No, let's stick with choice of law, because I think that's the sequence of your questions, or am I mistaken?

Regina Campbell: No, you're correct. Just remind me to go back to that one, if you can recall.

George Bermann: Yes, absolutely.

Regina Campbell: Thank you. So in general, it can vary significantly from country to country, but there are some norms, like you're indicating, right, that it's going to have to be in writing. I assume that, even if it is oral, and again, not advisable, the parties intend to be bound by certain contracts. I think the courts would look at extrinsic evidence, or some evidence as to what the parties might have intended, or they will just purely apply the law of the court.

George Bermann: If you're talking about the choice of law clause itself, then yes, the plain meaning rule applies. These are not complicated clauses. This will be a lot easier than some of your other contract clauses. So you can rest assured that if you say "any and all disputes arising out of or related to this contract," it will cover it all.

I can't resist telling you, though, that this practice of allowing parties to choose their own law is, I won't say of recent vintage, but if you go back enough decades, that wasn't allowed. Parties were not allowed to choose their law. We assume it now, and we've assumed it for decades. But there was a time when choice of law clauses were viewed as against public policy and unenforceable, because parties do not have the authority to tell courts what law to apply to the disputes that come before them. That probably sounds rather quaint to you right now, but we live under a regime of party autonomy, as it goes. I just don't want people to assume that it would necessarily have to be that way, because at one time it wasn't.

Regina Campbell: Right. So it's a benefit. And I think that's why courts also probably look at what you did write and what you did agree to.

George Bermann: Oh, yes, that's the reason.

Anticipating disputes and choosing a seat of arbitration

Regina Campbell: Yes, that makes sense, definitely. So question number two I had is: are there any other factors to be considered in drafting a governing law clause? Of course you should consider the favorability of one country versus another for certain industries. But is there something else you would also recommend that we don't always know?

George Bermann: Very good. Yes, here will be a simple answer. Before you choose a law to put in your contract, this is my advice, you should try to anticipate what kind of dispute is likely to arise. Sometimes that's not feasible, but let me give you an example of where it is feasible. In distributorship contracts, almost invariably, the claim will be that the manufacturer abusively and prematurely terminated the distribution agreement. So it will be a claim by the distributor against the manufacturer, and therefore we know with a high level of confidence what the dispute is going to be. We don't always, Regina; I'm giving you an unusual example. But the more you can predict what dispute or what category of dispute is likely to arise, the more it behooves you to do some research, because countries do differ in the extent to which they protect consumers, and on and on and on. So my answer to your question is yes, but in proportion to the predictability of the disputes that are apt to arise.

Regina Campbell: Okay, that makes sense. And as you indicated, some countries are also friendlier toward transparency, or toward trying to bring in business, and they want to be known for that as well.

George Bermann: They want to be known for liberality toward party autonomy. In arbitration, I just want to insert here, you're not only going to choose a governing law, but you're also going to choose a seat of arbitration. Now, I don't know if you want to go down the arbitration rabbit hole right now, but this is one of the examples I was alluding to where there are some differences. So just to round this out: in arbitration, you should not only select your governing law, but select the seat of the arbitration, because the arbitration itself, as a process, will be governed by the law of arbitration of the seat. And the law of arbitration of the seat is not the same in all jurisdictions. Some jurisdictions are regarded as more arbitration-friendly than other jurisdictions are. So I would just say this: on many of the questions you're asking me, and are going to ask me, the answer will be bifurcated between litigation and arbitration.

Arbitration clauses and expert determination

Regina Campbell: This is a good one. Yes, and that's one of the examples I was going to go into: what the difference would be in a governing law clause, which I presume would also go into the venue clause, in making sure it's clear that you chose arbitration versus litigation and that you've successfully written it that way. So that even if there's a question as to whether you intended to arbitrate, the question of arbitration goes to an arbitrator first, versus litigating whether the intent to arbitrate should go here or there. It becomes another fertile ground for litigation.

George Bermann: Right. Well, there are standard-form arbitration clauses. Most parties that choose to arbitrate their disputes select an arbitral institution: the International Chamber of Commerce, the American Arbitration Association, the London Court of International Arbitration. So we know they've chosen arbitration, because the vehicle they've chosen is an arbitral institution. I've seldom seen a case where it was unclear whether arbitration was contemplated or not.

In the interest of full disclosure, though, and this is a detail, there is something known as an expert determination. Let me just explain. Parties are entitled to delegate to a decision maker one or more factual findings. Not legal issues, but factual issues. And if they do that, they don't go to arbitration for that, because arbitration is about the application of law. Just to make this very concrete for you: I sat in one case where there was a rupture of an underwater cable, and the parties agreed, very sensibly, that since they had a dispute over who was responsible, they would first have an expert determination as to where the leak occurred and all the scientific and technical stuff. They wisely said, "We don't need an arbitrator for that. We need an expert for that." And when that was decided, then I'm the arbitrator, and those facts have now been determined, and I will proceed to the issues that are appropriate for me. So I would say the only real confusion might be if what you intended was expert determination.

Regina Campbell: Okay. I've seen a couple of cases more recently. Actually, I do see arbitration clauses written much more clearly. They'll say the American Arbitration Association. But every so often someone will say, especially with small business owners, "We agree to arbitrate in the event of a dispute." And it's sort of like, what is that?

George Bermann: What they've opted for has a name. It's called ad hoc arbitration.

Regina Campbell: Yeah.

George Bermann: Ad hoc only means non-institutional. So there are no ground rules.

Substance versus procedure

Regina Campbell: Right. And I think that's certainly the start of our next question, which is about governing law clauses: can they account for the distinction in how a forum country would apply procedural versus substantive law? I think this is really fertile ground for the distinction between arbitration and litigation, right? Because in an arbitration, you're kind of already setting the procedural rules in place.

George Bermann: Yes, fair enough. So you're right in your questions to at least initially draw a distinction between choice of law clauses and forum selection clauses, and a well-drafted contract should have both. It shouldn't be assumed that because you chose a forum, you chose its substantive law. You simply chose its courts. That's fundamental. So basically, the jurisdiction whose law you chose will govern the substance of your dispute. The jurisdiction whose courts you chose will govern the procedural aspects of your dispute, and the courts of every country have civil procedure laws and rules. So the substance-procedure distinction, which is sometimes discredited as not as sharp as it sounds, is really critical here.

And you're right: if you choose arbitration, then you're not looking at civil procedure codes. You're looking at the procedural rules of the institution you selected, and anything mandatory, meaning you can't contract around it, in the law of the seat, the arbitration law of the seat. When you choose a seat of arbitration, you choose its law of arbitration. You don't choose its substantive law; you choose its law of arbitration. Most rules in those laws are what we call default rules, meaning that you can contract around them. But if you don't, those are the rules. So party autonomy is really built into this very heavily. But in every jurisdiction, there will be something that will be deemed mandatory in the arbitration law, and you can't contract around it.

Regina Campbell: Okay. And I think to myself, because people often overlook what one country can call procedural versus another, that it can make a difference.

George Bermann: Definitely. I'm so glad you said that. Really glad you said that. One of the issues over which there is a division of views among courts around the world, and that can be outcome determinative, is the statute of limitations. Now, this is really remarkable. We teach our students in the United States, and they learn, that the statute of limitations applicable to a dispute is the statute of limitations of the forum. It's procedural. That's just what we do. We say it doesn't matter what the governing law is. It could be a French law dispute, but if it's coming into a New York court, it's the New York statute of limitations.

That is a minority view around the world. Most jurisdictions in the world, I think rightly, but that's my opinion, take the view that the length of time within which you are permitted to bring a lawsuit is inextricably related to what your rights and obligations are. It's almost part of the definition of your right and obligation. And people from those many, many jurisdictions cannot wrap their arms around the idea that we think the court should be supplying the statute of limitations from its own law and applying it to a dispute governed by the law of another country. So I couldn't give you a better example of what you have just said, which is characterizing an issue.

One further example: remedies. There are some courts in the United States that, again, think, "Well, we'll get your rights and obligations from the law you chose, but we'll decide what remedies you're entitled to, because remedies are procedural." Other countries can't believe that. They think the remedy is indistinguishable from the right.

Regina Campbell: True.

George Bermann: That is my view, but it's not the prevailing view in this country. But what a difference it can make.

Regina Campbell: What a difference. Yes. And then if you don't know better and you choose, let's say, New York law, and it changes. The statute of limitations is something different from what you're used to.

George Bermann: This is a case I've become familiar with. It's a defamation case, and the statute of limitations on defamation in New Jersey, because it was arising in New Jersey, is one year.

Regina Campbell: Oh, wow.

George Bermann: But the defamation occurred in Belgium, if it was defamatory, and the statute of limitations there is 30 years.

Regina Campbell: Wow. Okay.

George Bermann: So have I impressed upon you that it can make a big difference, and remedies as well?

Regina Campbell: Yeah, that makes all the sense in the world: what kind of damages you're entitled to, whether you're entitled to injunctive relief.

George Bermann: Exactly. Are you entitled to specific performance? Are you entitled to punitive damages? Just on and on.

Regina Campbell: Yeah. And I think with some of those things also, like you were saying, when you're planning and doing research, if a client has a particular concern or a heightened risk in a transaction, think about how a dispute is going to come about. That could help while you're drafting a clause or picking a certain forum.

George Bermann: Unfortunately, that doesn't happen as often as we'd like. Contracting parties don't know who's going to be the claimant or the plaintiff and who's going to be the defendant, ex ante.

Regina Campbell: Yes, they don't know. It's true. I'm sure even the car manufacturers and the large multinational corporations wish they could foresee things a little differently.

George Bermann: But they don't know. And their interests would diverge on any given issue, depending upon whether they were plaintiff or defendant.

Regina Campbell: You're exactly correct.

George Bermann: So I don't want to exaggerate the level of predictability. You asked about other considerations on choice of law. Let me just say this. You did ask me, I think, about whether the body of law would be well suited for the subject matter, and that is interesting as an example. Parties in international contracts very often choose the law of the United Kingdom, even though the United Kingdom has nothing to do with their case, because they think, rightly or wrongly, that English commercial law is the soundest body of commercial law there is. They may choose English courts, but we're talking about the law for a moment. So you could say, "I want that body of law, even if it's unrelated to my transaction, because of what I think is the expertise, or the leanings, or the biases," whatever it might be.

Regina Campbell: Right. And in general, I guess the country might just be more welcoming for certain industries or certain transactions, and then you say, okay. It's kind of like Delaware. They're just very well versed.

George Bermann: Exactly right. So that's in terms of the choice of the jurisdiction whose law you want.

Choosing a forum

Regina Campbell: Yes, definitely. And a lot of this has been intertwined, because when you think about governing law, some people don't always connect governing law with venue, and I think we've already given a couple of examples of why it can make a big difference. So when we talk about venue or jurisdiction clauses, talk to me about some of the other factors that you think are necessary, and why it makes such a distinction, so everyone can understand. We got a little bit of an example with procedural and substantive. But why is it so important to pick where the dispute is going to happen?

George Bermann: Of course. Well, where the dispute is going to be litigated, let's say, rather than the underlying transaction. There are so many factors that parties will take into consideration in determining which country's courts are the optimal courts. One obvious one: if you think your own home court will tend to favor you, then you will prefer it. Your adversary won't, so that will probably not fly. I mentioned the UK when I mentioned expertise in commercial law, but there are other factors about courts. You've got to determine, frankly, unless you don't care about it, whether the courts are competent, and whether the courts have intolerable delays.

Regina Campbell: Exactly.

George Bermann: I don't want to name names, but even people from India are very quick to say that delays in the Indian courts are colossal.

Regina Campbell: That doesn't help. That's too long.

George Bermann: It may help the defendant. There is also concern about corruption, and I know many horror stories about choosing a jurisdiction whose courts end up being demonstrably corrupt. So there are a lot of those considerations. If you have counsel in whom you have great confidence and whom you use with some regularity, then it's good to choose the jurisdiction where that counsel is based. Counsel is obviously admitted to the bar there, but even more, just knows the court.

Now, I've just given you a scattering of considerations in choosing your court. But let me say here that the degree of party autonomy in choosing a court may be somewhat less than the autonomy in choosing a law, and it may not be obvious why that is so. Sometimes our courts are more concerned about whether you've chosen a court where you won't get justice. One view is, "Well, you chose it, and that's the end of the story." However, we do have a very important Supreme Court decision on this question. It's called the Bremen case, as in Bremen, Germany, and it's well worth reading if anybody's interested. It tells you that choice of forum clauses are valid, presumptively enforceable and to be construed favorably, but not if sending a case to that court would be contrary to the public policy of the court you're in. And this is the more interesting thing: not if you would not have a cause of action there. So there are some limitations. I think anybody interested in the conditions to which party autonomy in choice of court is subject should take a look at the Bremen case.

Seats of arbitration and enforcing awards

Regina Campbell: Okay, fantastic. So I have to assume that with arbitration, you would think that gets you over some trouble, right? You think, "Okay, well, with arbitration we're going to go by the arbitration's procedural rules and apply certain laws." But is there a difference in venue? Because, let's say, "I'm not going to your place, and you're not going to go to my place."

George Bermann: Okay, fair enough. So let's talk about the arbitration clause. You're not choosing a court. You're choosing a seat of arbitration. That's very different. When you choose a court of whatever country you like, you're choosing its judges. You're choosing its civil procedure law, its view of any number of things, evidence, whatever it might be. So once you make that choice, you've made many choices you don't even know you've made. When you go to arbitration, you have chosen the arbitration law of that country, and that's all.

So before you choose a seat, it's advisable to familiarize yourself with the arbitration law of the country. They differ. There is a model law, drawn up by the United Nations, that has been widely adopted. Many, many countries have enacted it, with or without modification. So you really want to do that. And you want to bear in mind that an award that has been rendered at the seat is subject to annulment by a court at that seat, and only at that seat. So when you choose a seat, you're choosing the arbitration law and the court that will have the power to annul the award. Now, whether you care about that or don't is another matter, but most people are assumed not to want a jurisdiction whose courts are going to treat...

Regina Campbell: With disrespect.

George Bermann: ...the award rendered on its territory that way. So that's an interesting consideration with respect to arbitration. And I want to repeat that the law of arbitration usually tells you very little about how the arbitration is to be conducted. The institutional rules do. They are a kind of code of civil procedure for the arbitration.

Regina Campbell: And when you indicated that, I always think to myself, okay, it's the arbitration law of the forum, and you don't always think about the country: it has to be validated, to be converted to a judgment in that country. We don't think about that. We just assume it's a given a lot of times.

George Bermann: Well, the law has evolved in this respect. There was a time when, if you won an award in country X, in order for it to be enforced anywhere else in the world, you had to convert it into a judgment by a court of country X. We don't do that anymore. That's been eliminated by an important, vital treaty to which we're a party, called the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It makes it very clear that the award does not need to become a judgment in order to be exported. So the award travels. Where it is going to be enforced, it may need to become a judgment. So it needs to become a judgment where it is going to be enforced, not where it was rendered.

Regina Campbell: Okay, so technically it used to have to be at both places.

George Bermann: Both places.

Regina Campbell: Okay, because that comes into question. So the court that receives the incoming arbitration award: I know most countries are more familiar with recognizing them if it's been done with proper procedure. But I assume it still has the right to say, "No, I'm not going to recognize it. We don't think you had jurisdiction when you got the original award," or whatever the reasons, right?

The seven grounds for refusing enforcement

George Bermann: Well, your instinct is correct. The convention I just referred to, the New York Convention, which is really all-important, has over 160 signatory states. It's one of the most widely ratified conventions in the world. That convention obligates the courts of every signatory state to give full force and effect to awards rendered outside that state. Most countries have demanded reciprocity, so it's only awards rendered in other countries that have signed that convention. And it's subject to seven exceptions: five of which the parties are expected to raise, and two of which are considered so important that the court can raise them on its own. So it's very discrete. We know the seven grounds. I'd be happy to go through them, but you probably don't want me to.

Regina Campbell: If you want to go through them quickly, it's actually very interesting, especially since I think you helped write a lot of that in your convention, right, the treaty itself.

George Bermann: Yeah. I mean, it's a very short convention. It's an easy read. So, the seven grounds, quickly. The first is the one you've already mentioned: the arbitration agreement is invalid. If the arbitration agreement is invalid in the judgment of the enforcing court, the award is as well. Second, let's call it due process. Was due process respected? If not, the award can be denied enforcement. Third, did the arbitrator or the tribunal exceed its authority? Did it decide a dispute falling outside the scope of the arbitration agreement? If it did, it won't be enforced, or to the extent it did, it won't be enforced. Fourth, did the tribunal disregard any important procedural decision the parties had reached? Did the tribunal respect the parties' procedural choices?

Regina Campbell: Okay.

George Bermann: Fifth, and this is a fascinating one: you can deny enforcement if the award brought to you was, in fact, annulled by a court at the seat.

Regina Campbell: Oh, wow. Okay.

George Bermann: So if the award was annulled, and we just talked about that...

Regina Campbell: Yes.

George Bermann: If the award was annulled at the seat, that's a ground on which you can deny enforcement. Now, those are the five that you will waive if you don't raise them. The other two are considered to have, well, literally a public policy dimension. So one of them is public policy. What are the values that are held in such esteem, that are considered so paramount in the society in which the enforcing court sits, that it will not enforce a particular award? Looking for an example: maybe you have an award based on a violation of a contract for trafficking in human beings.

Regina Campbell: Yeah, imagine.

George Bermann: Yes. Imagine.

Regina Campbell: I think there are contracts. I mean, that happens, and deals are made. They may be oral.

George Bermann: Right. But there are agreements, no question about it. So I'm just giving you a rich example, where a court would say, "Well, there's nothing else wrong with this award, but that's wrong with this award. We won't enforce it."

And finally, and this is, I think, very important to know: the court where the award is brought may regard the dispute as one that is not legally arbitrable. Arbitrability is an important concept. Every country in the world, without exception, treats some kinds of disputes as non-arbitrable, because they feel that those cases belong in courts and courts only. They could be matrimonial cases. They could be antitrust cases, to give you a sense of it.

Regina Campbell: Yes.

George Bermann: Every country decides for itself. We in the US have very few claims that are not arbitrable. Very, very few. But some countries have very broad non-arbitrability. So if you bring your award to a country that says that kind of claim is not arbitrable, it can be denied enforcement.

Regina Campbell: Wow.

George Bermann: All seven of these grounds are viewed as permissive, meaning that the court may deny enforcement, but it is not required to. It could enforce the award even if one of these were present, which doesn't usually happen. But there you go again: we still have the element of foreign law and human beings.

I know you see this, Regina, you're a lawyer, but for everybody listening: none of these grounds, none, implicates the merits. And that is fundamental. The substance of the dispute, the merits, the rights and obligations of the parties, the quantification of damages: not reviewable, either by the annulling court or the enforcing court. So you have to be impugning the arbitration agreement or the arbitral procedure.

Regina Campbell: Right. For bias, maybe.

George Bermann: Or the bias, or the offense to public policy, or non-arbitrability. But not "the tribunal got it wrong."

Regina Campbell: Right. Not the merits.

George Bermann: You're not getting an appeal. And there is no appeal in arbitration unless you specifically contract for it. Parties seldom do. But some of the institutions are changing their rules to accommodate arbitration appeals.

Regina Campbell: Yeah, I've been seeing that. I think they're not satisfied.

George Bermann: Well, they're worried. People love arbitration because they think they're going to save time and money and formalities. But if a tribunal really makes an egregious error, even of law, it's not remediable.

Regina Campbell: No, I know. That's a little scary sometimes as well.

George Bermann: It is. It is the risk you're taking, and you can't complain. You need to have your eyes open. You run the risk that the arbitral tribunal will be foolish, or maybe even dishonest, without your being able to prove it.

Regina Campbell: Right. No, it's true. And you have no recourse, except you can try to annul it.

George Bermann: Yes, or you can try to defeat its enforcement in another country. But the grounds are limited.

Regina Campbell: Yeah, they're limited. So that's kind of why it's international litigation. I mean, it's hard enough when you go from state to state, each with its own differences in laws and the way they apply them. Going from country to country, it could be a civil law country, coming from a common law country. So there are so many distinctions. But then again, they both have perils and things to be considered.

George Bermann: But in terms of enforcement, there is a parallelism. If you get a judgment from France, it too would need to be enforced in the United States. So we will also look at foreign judgments.

Regina Campbell: That's true too.

George Bermann: Yes. So foreign judgments will get scrutinized. Arbitral awards will get scrutinized, ordinarily, only on grounds of the sort that I went over with you.

Why parties choose arbitration

Regina Campbell: All right, wonderful. I thank you for being patient and going over the seven points, because you have so much knowledge. I think it's so important to know that there's a lot out here. I know we could talk for days. It's like trying to pinpoint here and there, but at least it gives us a broad overview and some specific examples of how it can make such a difference.

George Bermann: And it can be outcome determinative, in the extreme.

Regina Campbell: Yes, which is ultimately what clients and lawyers are concerned about, of course, in making these decisions.

George Bermann: I just want to stress the reasons parties take the risk that arbitration entails. There are a number of reasons. I'll mention them, and then maybe I've overstayed my welcome.

Regina Campbell: No, not at all. Go ahead.

George Bermann: It's thought to be less time-consuming. That's subject to doubt. It's said to be less expensive. That's also subject to doubt, because the biggest cost is the lawyer, and you get the lawyer either way. It's thought to be informal, but it's getting more and more formal. The real reasons, I think, the durable reasons, are, number one: you may not be able to agree on a forum, and you may very much worry about being sued in the other party's courts. So rather than choose England, which may not even take your case, because they may say they're an inconvenient forum...

Regina Campbell: Yeah.

George Bermann: ...choose arbitration. And secondly, you can choose at least one of your arbitrators. Typically, each party chooses an arbitrator, and either those two arbitrators, or the institution, or the parties themselves choose the chair of a tripartite tribunal. When you go to a court, you get the judge you get, with the experience they have or don't have.

Regina Campbell: Correct.

George Bermann: Exactly. The expertise they have or don't have, the intelligence they have or don't have. So a lot of time and effort is spent by parties and their counsel in selecting an arbitrator, because they want an arbitrator who is, I won't say biased, because we don't want to say that, but, as is often said, predisposed.

Regina Campbell: Yeah, to understand what it is. That's another thing: if you're talking about really complex issues with IP or engineering or anything of that nature, you don't want someone who's learning this stuff. You want someone with an engineering background or a patent background.

George Bermann: You also want someone you think will be sympathetic to you.

Regina Campbell: Of course.

George Bermann: So you want that. And you want an arbitrator who you think will have a clear capacity to influence the chair. Is he or she well spoken? Is he or she persuasive? Is he or she good at constructing arguments? Does he or she exemplify or exude sincerity and earnestness? It's really very interesting. I think parties do like that they're going to be able to put someone of their choosing on that panel. And the only reason they can't is if there's a conflict of interest, and therefore there will be disclosures required.

Regina Campbell: All right. I do find that initially arbitration seems to be less contentious when you start it. And then you start fighting over, okay, there's limited discovery, and then it goes into, whoa, the members are fighting.

George Bermann: No, it's every bit as adversarial. I spent this morning seeking to resolve a nasty discovery dispute, and it's a nightmare. There are counsel who will fight about everything, who will not give an inch, who will demand documents that they themselves would not want to produce.

Regina Campbell: And then it's World War III there as well. I agree with you, arbitration can be fairly expensive as well.

George Bermann: It can be very expensive, because lawyers charge the same rates. They may bill fewer hours, but maybe they won't. We really don't know. So these are two different worlds. I teach both subjects, and I sit as an arbitrator. I don't sit as a judge, but I sit as an arbitrator. So I'm constantly thinking about the comparisons between the two, which is why it was very good that you invited me to draw some distinctions where they're apt.

Closing

Regina Campbell: Yes, definitely. And I want to thank you so much for coming. It's been so informative, and I'm sure our guests love having you here and hearing all these good points from someone with great experience on this issue. It is, I think, a very important topic. I know it's maybe not the usual substance or the meat of a contract, I would say, but you'd be surprised. At the end of the day, it could be so important.

George Bermann: Yeah. And I'll just close by saying that sometimes the litigation or arbitration department of a large firm regrets that the transaction lawyers, their colleagues, didn't think about any of this.

Regina Campbell: Yes, I've been on the litigation side, going, "I wish this contract said that."

George Bermann: And they call the choice of law and choice of forum, sometimes they call them 11th-hour issues. And you know what that means.

Regina Campbell: I know what that means. A lot of crying sometimes. But in general, it's very, very important. That's why I thought to do a podcast on it, for business owners and lawyers.

George Bermann: I hope it was what you wanted.

Regina Campbell: Absolutely. And thank you so much for coming. I appreciate it very much.

George Bermann: It's a pleasure. Thank you.

Regina Campbell: Thank you. And we want to thank everyone for joining us. This podcast will be available to download and review, and so will Mr. Bermann's credentials and information, if you ever would like to contact him or use him for anything. As you can see, he's very knowledgeable and probably very helpful. It sounds like he's a good arbitrator. So we want to thank everybody, and stay tuned for our next episode. We actually have Part 2, where we're going to bring on, I think it's Carolyn Lamm, as one of the experts here to talk about her experience in litigation on the subject matter as well. So thank you, everybody. Everyone have a great weekend, and everyone stay safe. Thank you. Bye-bye.

George Bermann: Thank you.