In Geneva-Roth Capital, Inc. v. Edwards, 956 N.E.2d 1195 (Ind. Ct. App. Nov. 16, 2011) the Indiana Court of Appeals held that when the parties to an arbitration agreement select a specific arbitrator, and that arbitrator is no longer available, the arbitration agreement is null and void on grounds of impossibility. In the present case, Akeala Edwards filed a class action suit on behalf of herself and a purported class of Indiana residents who obtained small, short-term pay-day loans from LoanPoint USA. The loan agreement included an arbitration provision, which provided: Arbitration: Both parties agree that any claim, dispute, or controversy between us, any claim by either party against the other or the agents, services, or assigns of the other, including the validity of this agreement to arbitrate disputes as well as claims alleging fraud or misrepresentation shall be resolved by binding arbitration by and under the Code of Procedures of the National Arbitration Forum (NAF) at the time the claim is filed. Rules and form of the NAF may be obtained and all claims shall be filed at any NAF office on the World Wide Web at www.arbforum.com or at P.O. Box 50131, Minneapolis, MN 55405. Any arbitration hearing, if one is held, will take place at a location near Customer’s residence. Customer’s arbitration fees will be waived by the NAF in the event you cannot afford to pay them. This arbitration agreement is made pursuant to a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act 9 USC Section 1-18. Judgment upon the award may be entered by any party in court having jurisdiction. Notice: Without this arbitration agreement, both parties have the right to litigate disputes through the law courts but we have agreed instead to resolve disputes through binding arbitration. When LoanPoint USA moved to compel arbitration of the suit pursuant to the above arbitration clause, Edwards claimed that the arbitration clause in her loan agreement with LoanPoint USA was invalid and unenforceable due to unconscionability and due to impossibility because the named arbitrator, the National Arbitration Forum (the NAF), was no longer available. The trial court ruled that that the loan agreement was not unconscionable, but that the arbitration provision contained within the loan agreement was “null and void as impossible to perform” because the forum selected to serve as the arbitrator of disputes (the NAF) is no longer available to serve in such capacity. The appellate court, applying ordinary contract principles, affirmed. Technorati Tags: law, ADR, arbitration

By S.I. Strong Some interesting new arguments found their way into the dissenting opinion. For example, the dissent considered how mass claims are treated under various United Nations mass claims processes, claiming that these processes are analogous to ICSID arbitrations. See Award dated October 28, 2011, ¶¶ 176-81. This is an interesting proposition that bears closer analysis, since there are likely a variety of ways that the Permanent Court of Arbitration could help address certain cross-border collective injuries. See S.I. Strong,Class and Collective Relief in the Cross-Border Context: A Possible Role for the Permanent Court of Arbitration, 23 The Hague Yearbook of International Law __ (forthcoming 2011). The next critique was aimed at the procedural measures adopted by the majority. First, the dissent took the view that these procedures are not gap-fillers, as the majority claimed, but are instead measures that conflict with existing ICSID Arbitration Rules, most particularly Article 19. See Award dated October 28, 2011, ¶¶ 198-99. Although the majority said that it was not modifying the ICSID Arbitration Rules in an impermissible manner, the dissent believed that such a modification was both unavoidable and unwarranted. See Award dated October 28, 2011, ¶¶ 210-12. To support its position, the dissent considered the extent to which the proposed changes regarding the taking of evidence affected the rights of the parties. See Award dated October 28, 2011, ¶¶ 223, 236. In particular, the dissent noted that Argentina’s procedural rights – particularly those relating to the right to mount an individualized defense to individualized claims – would be detrimentally affected by the majority’s proposed procedures. See Award dated October 28, 2011, ¶ 238. To a large extent, the dissent’s position on this point was driven by the dissent’s belief that the claimants’ allegations are not homogenous. However, the dissent was also not persuaded by the majority’s view that the rights in question are “merely” procedural. Instead, the dissent concentrated on the fact that substantive rights are built on procedural rights and that both need protection. See Award dated October 28, 2011, ¶ 225. The dissenting opinion, which runs over 100 pages in length, is obviously much more nuanced than this very brief summary suggests. Although more analysis is necessary before any firm conclusions can be drawn, several points may nevertheless be made. First, the dissent interpreted the silence of the relevant treaties in a relatively conservative manner. While the approach may be similar in ways to that adopted by several justices of the U.S. Supreme Court, there are larger questions to be answered about whether that is the best course of action as a matter of contract or treaty interpretation and as a matter of policy. (Notably, the dissent embarks on a limited policy discussion at the end of the opinion. See Award dated October 28, 2011, ¶¶ 263-74.) These are issues that the international legal community will have to debate in the coming months and years. Second, the dissent made several important points about the importance of procedural rights and the need to limit collective relief to situations where it is truly necessary. See Award dated October 28, 2011, ¶ 254 (noting the possibility of relief in Italian courts). While this point was also made by the majority, see Award dated August 4, 2011, ¶484, it bears repeating that collective redress in the international investment context is and should remain an extraordinary remedy. Third, much of the dissent’s analysis turned on the characterization of the bondholders’ claims as non-homogenous in nature. However, this is a matter of perspective. See Award dated October 28, 2011, ¶ 142. On the one hand, there are numerous similarities regarding questions of liability, as noted by the majority. On the other hand, there may be certain elements that must be determined on a more individualized basis, as the dissent suggested. Whether such matters can be determined through the use of subclasses has yet to be determined. However, differences in the way the question is considered are somewhat typical in the realm of class and collective redress and will doubtless be repeated in other disputes in the future. At the end of the day, the dissent reflects an effective enunciation of the concerns of states that do not wish to be subject to mass claims in ICSID proceedings. While states – like many corporate respondents – may not appreciate being subject to such claims, collective redress may in fact be a necessary remedy for some of the types of legal injuries suffered today. However, the international legal community would be well advised to consider the advantages and disadvantages of cross-border collective redress on a proactive basis rather than let such issues be decided case by case. Fortunately, there are a variety of measures currently underway in this regard, ranging from the 5th Annual International Conference on the Globalization of Class Actions, held on December 8 and 9, 2011, in The Hague, to the recent public consultation by the European Commission on cross-border collective relief. See European Commission, Public Consultation: Towards a Coherent European Approach to Collective Redress, SEC(2011) 173, Feb. 4, 2011. Other efforts include joint efforts between the American Bar Association (ABA) and Canadian Bar Association (CBA) to facilitate cross-border class actions involving the two countries and guidelines published by the International Bar Association (IBA) regarding the international recognition and enforcement of judgments arising out of collective redress. See ABA, Protocol on Court-to-Court Communications in Canada-U.S. Cross-Border Class Actions and Notice Protocol: Coordinating Notice(s) to the Class(es) in Multijurisdictional Class Proceedings (Aug. 2011), available here; CBA, Consultation Paper: Canadian Judicial Protocol for the Management of Multijurisdictional Class Actions (June 2011); IBA Guidelines for Recognising and Enforcing Foreign Judgments for Collective Redress (Oct. 16, 2008), available here. Doubtless similar initiatives will be organized in the coming years as the international legal community seeks a reasoned and reasonable solution to the problems associated with large-scale legal injuries in investment and other fields. [This is Part II of the Guest-Post: No Mass Arbitration in ICSID Cases – The […]

By S.I. Strong On October 28, 2011, a dissenting opinion regarding the preliminary decision on jurisdiction and admissibility was issued in the ground-breaking case of Abaclat (formerly Beccara) v. Argentine Republic, ICSID Case No. Arb/07/5 (available here ). The majority award was issued on August 4, 2011 (available here ) and was discussed on this blog here. The majority decision was remarkable in that it constituted the first time that an arbitral tribunal allowed a large group of individual claimants – in this case, 60,000 Italian bondholders – to join together to bring a claim in an investment arbitration filed with the International Centre for Settlement of Investment Disputes (ICSID). However, the very novelty of the claimants’ approach worked against them, at least in the dissent’s mind, constituting one of the reasons why the dissent opposed the majority decision. See Award dated October 28, 2011, ¶¶ 164-65 (stating the unforeseeability of this type of claim at the time the relevant treaties were signed augured against permitting collective relief). The facts of the dispute are outlined in an earlier posting and will not be repeated herein. Furthermore, one of the dissenting opinion’s major concerns – whether the dispute in question constituted an “investment” under the relevant treaties – will not be addressed in this discussion. See Award dated October 28, 2011, ¶¶ 34-117. Instead, the focus here is on the dissent’s views regarding the collective nature of the claims at issue. The dissent framed its analysis in terms of three related issues. See Award dated October 28, 2011, ¶ 121. First, did Argentina’s consent to arbitration include collective or mass actions? Second, what was the nature of the collective claims at issue, and what effect did that characterization have on the interpretation of the relevant arbitral clauses? Third, did the tribunal have the ability to impose the special collective procedures outlined in the majority award? The dissenting opinion began by considering the nature of the claims asserted by the Italian bondholders. Unlike the majority, the dissent did not view these claims as “hybrid” in nature. See Award dated October 28, 2011, ¶ 138. Instead, the dissent took the view that these were individualized claims with none of the representative elements that are necessary for an action to be characterized as a class arbitration. See Award dated October 28, 2011, ¶¶ 131, 140-41 (citing S.I. Strong, From Class to Collective: The De-Americanization of Class Arbitration, 26 Arbitration International 493 (2010) (unfortunately misattributed to “Stacy I. Strong”)). Furthermore, the dissent did not agree with the majority that the claims asserted by the Italian bondholders were “homogenous,” instead finding the claims to be highly individualized, particularly with respect to a number of elements relating to the claimants’ security entitlements. See Award dated October 28, 2011, ¶ 143. The lack of homogeneity, along with the absence of any representative element, boded against the collective treatment of the claims, at least to the dissent. In an interesting interplay between international and domestic law, the dissenting opinion suggested that the majority’s decision to allow the claims to go forward as a mass proceeding was strongly influenced by the approach taken by U.S. courts with respect to judicial class actions. See Award dated October 28, 2011, ¶¶ 146-47. However, the dissent noted that an ICSID tribunal is not a court of general jurisdiction and therefore does not have the same power as a court to order certain remedies and procedures. See Award dated October 28, 2011, ¶ 147. Reference was also made to recent case law from the U.S. Supreme Court regarding the expansion of U.S.-style class actions into the arbitral realm. See Award dated October 28, 2011, ¶ 148. For example, the dissent looked to Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010), for the proposition that arbitrators cannot infer that class or collective treatment is proper simply because the arbitration agreement is silent on that issue. See Award dated October 28, 2011, ¶ 150. The opinion then cited AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), for the proposition that class arbitration differs from bilateral arbitration in certain fundamental respects. See Award dated October 28, 2011, ¶¶ 152. These references are very interesting, since they suggest a merging of analyses regarding public and private forms of class and collective arbitration, a possibility that was noted in an earlier posting discussing the majority opinion in Abaclat. The dissent then disputed the majority’s analysis of the relevant treaties as reflecting a “qualified silence.” See Award dated October 28, 2011, ¶ 161. Instead, the dissent suggested that any sort of silence in the treaties should be read as prohibiting class or collective treatment. See Award dated October 28, 2011, ¶ 166. This approach is very common among those who take a strict constructionist view of arbitral agreements in the private law realm. See S.I. Strong The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Michigan Journal of International Law 1017, 1043-45 (2009). The dissent therefore took the view that permitting collective treatment in this case constituted a quantum leap in arbitral procedure that could not be inferred from mere silence. See Award dated October 28, 2011, ¶¶ 171-72. Instead, the dissent believed that the parties would need to establish “secondary consent” to these types of procedures before they could be permitted. See Award dated October 28, 2011, ¶ 173 (citing S.I. Strong, Does Class Arbitration “Change the Nature” of Arbitration? Stolt-Nielsen, AT&T and a Return to First Principles, 17 Harvard Negotiation Law Review __ (forthcoming 2012, currently available on SSRN here.) ). However, in doing so, the dissent did not mention that secondary consent may be found through implicit means. See Strong, Sounds of Silence, supra, at 1055-83. [This is Part I of the Guest- Post: No Mass Arbitration in ICSID Cases – The Abaclat Dissent. Part II is here.] Technorati Tags: law, ADR, arbitration S.I. Strong is currently Associate Professor of […]

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