Parties’ choice of a seat of arbitration has especially important ramifications with respect to the law to be applied in disputes that may arise.  As the New York Convention reflects,² the jurisdiction in which the seat of arbitration lies determines the lex arbitri to be applied, meaning that the chosen jurisdiction’s courts will determine the existence, validity, and scope of the parties’ arbitration agreement.  Thus, the choice of a seat of arbitration, in addition to determining the choice of substantive law and the law to be applied to the arbitration agreement, will determine the tools available to a party to enforce an arbitration agreement and the costs associated with dispute resolution.

When used to enforce an arbitration agreement, an antisuit injunction usually arises under the following scenario: Parties A and B enter into a contract that includes an agreement to settle any disputes in arbitration to be held in Country 1, which is often a neutral country.  Party B, either ignoring the arbitration agreement or contesting its validity, brings or threatens to bring a parallel proceeding in Country 2, which is likely to be Party B’s home jurisdiction.  In response, Party A petitions a court of Country 1 to enjoin Party B from continuing with its action in Country 2 on the basis of their arbitration agreement.  Country 1’s court may issue an antisuit injunction against Party B, meaning that the court will hold Party B in contempt if Party B continues its Country 2 action.  If Party B ignores the injunction, it puts any assets or future business prospects that it may have in Country 1 at risk.

Technically, a court does not direct an antisuit injunction to a foreign court.  The effect of an antisuit injunction to enforce an arbitration agreement is to encourage the party that brings a parallel action in violation of the arbitration agreement to submit to arbitration and to save the party seeking the injunction the costs of litigating that parallel action.  The availability of an antisuit injunction can reassure parties whose agreement contains an arbitration clause that their disputes will likely stay in arbitration and not devolve into a multijurisdictional litigation nightmare.  If a party can bring a parallel action in violation of an arbitration agreement with impunity, the most frequently cited advantages of arbitration—namely confidentiality, neutrality of the arbitral tribunal, choice of procedure, and the ability to enforce an arbitral award worldwide—suddenly evaporate.

Civil-law jurisdictions have historically viewed antisuit injunctions as a violation of international comity and interference with a foreign court’s jurisdiction.  Common-law jurisdictions typically consider antisuit injunctions to be acceptable if certain criteria are met.  Following the common-law tradition, U.S. federal courts are willing, to varying degrees depending on the circuit, to issue antisuit injunctions to enforce arbitration agreements.  In this Editorial, after a brief discussion of West Tankers, I point to recent U.S. case law that demonstrates the lamentable lack of clear criteria by which a court can determine whether to grant such an injunction.  I then argue that it may be wise for a discernable group of parties, in light of the West Tankers decision, to choose a U.S. location as the seat of arbitration in the event of a dispute.

I.
West Tankers

A.     The House of Lords’ Defense of Antisuit Relief to Enforce Arbitration Agreements

Confronting the question of the compatibility of antisuit injunctions to enforce arbitration agreements with the Brussels Regulation,³ the House of Lords, rather than deciding the issue itself, referred the question to the ECJ.  In the House of Lords’ opinion, after acknowledging the ECJ’s demonstrated scorn for any measure taken by a court of a member state that has the effect of limiting the jurisdiction of another member state, Lord Leonard Hoffmann attempted to use the ECJ’s own jurisprudence to carve out an exception for antisuit injunctions to enforce arbitration agreements.  He drew upon the doctrine of Kompetenz-Kompetenz, arguing that member states should trust arbitrators and the court exercising supervisory jurisdiction to determine whether an arbitration agreement is binding and, if so, whether a given dispute falls under that arbitration agreement.  He also noted that the Brussels Regulation specifically excludes arbitration from its sphere of application.

Perhaps more interesting than the legal aspects of his argument, however, was Lord Hoffmann’s practical appeal regarding the utility of antisuit relief in the realm of arbitration.  In his view, such injunctions serve “as an important and valuable weapon . . .[,] promot[ing] legal certainty and reduc[ing] the possibility of conflict between the arbitration award and the judgment of a national court.”⁴ London—and by extension, Europe—could lose its attractiveness as a seat for international commercial arbitration if the ECJ lost sight of the fact that “[t]he courts are there to serve the business community rather than the other way round.”⁵ Specifically, Lord Hoffmann pointed to New York, Bermuda, and Singapore as jurisdictions willing to issue antisuit injunctions in support of arbitration agreements and worried that Europe would “handicap itself by denying its courts the right to exercise the same jurisdiction.”⁶

B.     The ECJ Decision

As is typical of ECJ jurisprudence, the Advocate General’s opinion, although it does not have the force of law, provides a clearer picture of the ECJ’s rationale than the ECJ decision itself.  The Advocate General stressed the importance of the concept of mutual trust among the courts of EU member states and insisted that member states’ courts be entitled to determine for themselves whether the Brussels Regulation’s arbitration exclusion is applicable.  This is in line with the civilian view that the fundamental subject matter of a dispute, rather than the existence of an arbitration agreement, determines the competence of a court.

In the final portion of the Advocate General’s opinion, she dismissed in a single sentence Lord Hoffmann’s concerns that Europe could lose a competitive edge if the ECJ were to prohibit antisuit injunctions to enforce arbitration agreements: “To begin with it must be stated that aims of a purely economic nature cannot justify infringements of Community law.”⁷ Attempting to lessen the harshness of the opinion, the Advocate General insisted that parallel litigation in a forum other than the seat of arbitration would only ensue if the parties disagreed as to the validity and scope of their arbitration agreement.  This makes light of the very real possibility that a party with superior resources to pay for a protracted legal battle in multiple forums might be inclined to bring parallel litigation simply to delay arbitration proceedings or obstruct a future enforcement attempt by the other party.  In the end, mutual trust and effet utile (effective judicial protection) won out over such worries.  The Advocate General did leave some consoling words for parties considering arbitration in an EU member state who now find themselves without recourse to an antisuit injunction to enforce an arbitration agreement: “If an arbitration clause is clearly formulated and not open to any doubt as to its validity, the national courts have no reason not to refer the parties to the arbitral body appointed in accordance with the New York Convention.”⁸ As any student of international commercial arbitration knows, this is easier said than done.

II.
The Availability of Antisuit Relief to Enforce Arbitration Agreements in U.S. Courts

In 2004, the Second Circuit decided the most recent significant appellate cases influencing the availability of antisuit injunctions to enforce arbitration agreements.  Judge Dennis Jacobs penned the opinions of both Paramedics Electromedicina Comercial, Ltda. v. GE Medical Systems Information Technologies, Inc.⁹ and LAIF X SPRL v. Axtel, S.A. de C.V.¹⁰ At first glance, the court appears to have employed differing standards in determining whether to issue an antisuit injunction to enforce an arbitration agreement.  In Paramedics, the Second Circuit, relying heavily on the federal policy in favor of arbitration, enjoined a party from continuing its parallel action in a Brazilian court.  In LAIF X, the same court gave much greater deference to comity concerns and rejected a party’s request for an antisuit injunction to stop a Mexican action from proceeding.  An examination of these cases and their progeny reveals that antisuit injunctions are certainly available as a remedy to enforce an arbitration agreement.  Unfortunately, parties interested in ensuring the availability of such relief may have trouble deciphering the formula required to do so.

Identifying some common threads in recent case law, however, creates a clearer picture of the current availability of antisuit relief to enforce an arbitration agreement.  The first is the vexatiousness of the parallel litigation that a party seeks to enjoin.  U.S. courts have shown little tolerance for parties that bring a parallel proceeding in violation of an arbitration agreement with the aim of delaying adjudication of a dispute or seeking preferential treatment in their home jurisdiction.  Another factor that enters into U.S. courts’ calculus in determining whether to issue an antisuit injunction to enforce an arbitration agreement is the substantive law of the parties’ agreement.  For example, if parties choose the law of New York State to govern their agreement and New York City as their seat of arbitration, a U.S. court is less likely to hesitate before issuing an antisuit injunction against a party that brings a parallel action in a foreign jurisdiction.  Comity concerns in this scenario are minimal, as the foreign court could hardly complain that a U.S. court was improperly applying U.S. law.

III.
Potential Beneficiaries of Antisuit Relief from U.S. Courts and How Parties Can Ensure Its Availability

A.     Potentially Interested Parties

As a result of the ECJ’s decision in West Tankers, a discernable class of parties would benefit from choosing a U.S. location rather than a European location as a seat of arbitration.  As a threshold matter, the contract in question must be commercial in nature and must not implicate any serious public policy.  Additionally, the parties must be in a financial position to participate in arbitration and litigation in either the United States or Europe.  Quite obviously, regional European parties with little or no experience in the United States will be loath to participate in arbitration or seek enforcement of an arbitral award in a U.S. city because options such as Geneva, London, or Paris are far more convenient.  The cost of participating in arbitration in the United States may well be prohibitive for such parties.  For multinational corporations with greater resources and experience hiring counsel on both sides of the Atlantic, such a problem would not be present.

For an antisuit injunction to have its intended effect, both parties must also have somewhat substantial and nonfungible assets in both the United States and Europe.  An antisuit injunction from a U.S. court will not necessarily persuade a party with no assets in the United States and no interest in developing business there to cease a parallel action in an EU member state.  Again, multinational corporations with significant operations in the United States and Europe will easily fulfill this requirement.

Parties that satisfy these threshold criteria would do well to consider the United States as a seat for arbitration largely for the same reasons that parties choose arbitration over public litigation in the first place.  Parties see the neutrality of arbitral tribunals as one of the main advantages of arbitration as compared to public litigation.  If parallel proceedings are brought in violation of an arbitration agreement in one party’s home jurisdiction, suddenly the other party faces exactly the risk that it sought to avoid by agreeing to arbitrate: the risk of bias.  A U.S. party engaged in arbitration with a non-U.S. party might conceivably benefit from such bias in seeking an antisuit injunction from a U.S. court, but this concern evaporates if neither of the parties involved is American.  In that situation, both the arbitral tribunal and the U.S. court entertaining a petition for antisuit relief would presumably be neutral.

B.     Maximizing the Availability of Antisuit Relief

After parties have determined that the availability of antisuit relief is important enough a factor to choose a U.S. city as the seat of their potential arbitration, what can they do to increase the likelihood that, should a dispute arise, a U.S. court will enjoin any attempt to bring parallel proceedings in violation of the arbitration agreement?  Unfortunately, as described in Part II, given the current state of the law regarding antisuit injunctions to enforce arbitration agreements, there is no guaranteed way to have access to antisuit injunctions.  Taking a lesson from the recent antisuit-relief jurisprudence in U.S. courts, however, parties are able to take some steps to increase the likelihood of access to antisuit relief.

Drafting an arbitration agreement is no simple task.  To ensure that arbitration takes place as the parties envision, parties must give serious consideration to drafting as airtight a clause as possible.  Under the New York Convention, the law of the seat of arbitration serves as the lex arbitri and partially governs the enforceability of an arbitral award.  Thus, if parties are explicit in choosing a location within the United States as their seat of arbitration, U.S. courts will not hesitate to apply U.S. lex arbitri and will entertain the possibility of antisuit relief.

Parties desiring the availability of antisuit injunctions from U.S. courts may also want to specify that U.S. law governs the arbitration agreement itself.  This precision will lessen the likelihood that U.S. courts will defer to other jurisdictions in determining the validity of an arbitration clause.  If parties choose another country’s law to govern their contract and choose a seat of arbitration within the United States without specifying that U.S. law shall govern the arbitration agreement, a court will likely apply the law governing the container contract to decide whether the arbitration clause is valid.  Moreover, a clause identifying the law governing the arbitration agreement will permit a court to regard an arbitration agreement purely as a contractual term and potentially reduce comity concerns.  Parties could go even further and specify in their arbitration agreement that any proceedings contesting the existence, validity, or scope of the arbitration agreement shall be held in the courts of the chosen seat of arbitration.  This language would render courts of other forums incapable of complaining that their jurisdiction had been usurped, unless a significant public policy issue was at stake.

Finally, if parties choose the law of a U.S. jurisdiction as the substantive law governing their contract, a U.S. court will be less likely to tolerate parallel proceedings brought in violation of an arbitration agreement.  With the law of a U.S. jurisdiction governing the agreement, the diminished relevance of a foreign jurisdiction’s input lessens comity concerns.  Obviously, many considerations enter into the fray when parties choose the substantive law that will govern performance of a contract.  However, parties identified in Part III.A with commercial contracts that do not implicate a specialized domain of law in which the United States is not as highly developed as another jurisdiction may not hesitate to choose, for example, New York law over the commercial law of a European jurisdiction.

Conclusion

Considering the attention that West Tankers has received, the bark of the ECJ decision may end up having more impact than its bite.  It is possible that the reputational costs that London may suffer as an arbitration venue will be larger than they should be.  Paradoxically, Lord Hoffmann’s plea to the ECJ to preserve the availability of antisuit injunctions to enforce arbitration agreements could actually do more harm than good to London’s status as an arbitration venue.  Lord Hoffman’s opinion gives arbitration counsel who argue that such equitable relief is important for parties wishing to avoid parallel litigation ammunition to convince their clients that the result of West Tankers makes London a less arbitration-friendly venue.  Thus, in the manner of a self-fulfilling prophecy, parties may choose jurisdictions that do offer antisuit relief not for substantive reasons, but simply because of Lord Hoffmann’s prediction that parties would do so if the ECJ disallowed such relief.

Despite the lack of a clear standard in U.S. courts for the issuance of an antisuit injunction to enforce an arbitration agreement, parties can expend the resources necessary at the outset of their contractual relationship to ensure that antisuit relief will be available by drafting their arbitration agreements carefully.  Presumably, if more parties choose to seat their arbitration in the United States as a result of West Tankers, U.S. courts will consider more petitions for antisuit relief.  Perhaps this will push courts, in the interest of judicial expediency, to adopt a clearer standard to which parties can refer when crafting their arbitration agreements.

Acknowledgments:

Copyright © 2010 Cornell Law Review.

Daniel Rainer is a 2011 J.D. candidate at Cornell Law School and a 2011 Master en Droit candidate at Université Paris 1 Panthéon-Sorbonne.

This Legal Workshop Editorial is based on the following Student Note: Daniel Rainer, The Impact of West Tankers on Parties’ Choice of a Seat of Arbitration, 95 CORNELL L. REV. 431 (2010).

But choice-of-law scholars tend to be very skeptical about choice of law.  The conventional wisdom is that choice of law is a mess.  It is widely believed that choice-of-law doctrine does not significantly influence judges’ choice-of-law decisions.  Instead, these decisions are said to be driven by biases in favor of domestic over foreign law, domestic over foreign litigants, and plaintiffs over defendants.  In addition, judges’ choice-of-law decisions are believed to be highly unpredictable.  If these “mess claims” are correct, it is unlikely that choice of law can make positive contributions to global governance.

My goal in Myth of Mess?  International Choice of Law in Action² was to cast some empirical light on these divergent views concerning the global-governance implications of choice of law.  To that end, I evaluated the mess claims using statistical analysis of an original dataset of over two hundred international choice-of-law decisions by U.S. district court judges in published tort cases.  Thus, unlike much scholarship on international choice of law, the Article, to borrow Roscoe Pound’s distinction, analyzes not only choice of law in books but also choice of law in action.³ That is, it examines not only choice-of-law doctrine but also broad patterns of judges’ actual choice-of-law decisions.

My findings suggest that there is reason for measured optimism about the ability of the choice-of-law system to contribute to global governance.

 
I.
The Influence of Choice-of-Law Doctrine

Choice-of-law doctrine does appear to significantly influence the international choice-of-law decisions of U.S. district court judges in published tort cases.  Two factors that permeate choice-of-law doctrine—the territorial locus of the activity giving rise to the dispute and the nationality of the parties to the dispute—strongly affect judges’ choice-of-law decisions.  The probability that a judge will apply domestic law is highest when the locus of activity and the nationality of the parties are mostly or all domestic and lowest when they are mostly or all foreign.  Looking at these factors separately, the likelihood that a judge will apply domestic law is about twenty-five percent lower when the activity occurred mostly or entirely outside U.S. territory and about forty percent lower when the parties to the dispute are mostly or all foreign.

My findings also suggest that choice-of-law doctrine matters in the sense that different choice-of-law methodologies lead to different patterns of choice-of-law outcomes.  For example, after controlling for territoriality and nationality, the probability that a judge will apply domestic law is about twenty-five percent lower when the judge is required to apply the Second Restatement’s most-significant-relationship method (compared to all other methods as a group).  There is also evidence that interest analysis and the Lauritzen method (used in maritime cases) are individually more likely than the Second Restatement to result in the application of domestic law.

These findings do not mean that choice-of-law doctrine is the only, or even necessarily the most important, factor that influences international choice-of-law decisionmaking.  But taken together, they challenge both the widely held view that choice-of-law doctrine does not significantly influence judges’ choice-of-law decisions and the more general view that legal doctrine has only a marginal impact on judicial decisionmaking.

 
II.
Little Evidence of Bias in International Choice-of-Law Decisions

The international choice-of-law decisions of U.S. district court judges in published tort cases do not appear to be biased in the ways contemplated by the mess claims.  Judges show little or no bias in favor of domestic law.  Nor do judges appear biased in favor of domestic over foreign parties or plaintiffs over defendants:  The probability that a judge will apply domestic law does not increase when domestic law is preferred by the domestic party or by the plaintiff.  Rather, the evidence suggests that judges’ choice-of-law decisions are based largely on the legal merits rather than on judicial preferences for domestic law, domestic parties, or plaintiffs.

Interestingly, however, there is some evidence that the ideology of judges may have a significant influence on choice-of-law decisions.  In one specification of my statistical model, judges appointed by Republican presidents are less likely to apply domestic law than other judges, perhaps to discourage the forum shopping that results from more plaintiff-friendly U.S. law.

 
III.
The Predictability of Choice-of-Law Decisions

My findings also suggest that judges’ choice-of-law decisions are not so unpredictable after all.  The relatively simple statistical models presented in my Article can correctly classify approximately seventy-five percent of judges’ choice-of-law decisions.  Of more practical importance, it appears possible to anticipate these decisions more accurately than the mess claims would suggest, even without statistical methods, because transnational actors can discern with relative ease key factors influencing choice-of-law decisions, including the territorial locus of activity, the nationality of the parties, and the applicable choice-of-law doctrine.

 
IV.
Implications and Extensions

Overall, these results suggest that choice-of-law doctrine—and the domestic courts that apply it—are capable of making a positive contribution to global governance.  The findings provide a preliminary empirical foundation for law and economics theories about the global welfare consequences of the choice-of-law system by showing not only that choice-of-law doctrine can influence choice-of-law decisions but also that they are not necessarily highly unpredictable or systematically biased in the ways contemplated by the mess claims.  They also suggest that domestic courts can indeed help enhance transnational rule of law by reducing uncertainty regarding which country’s laws apply to activity with connections to more than one country.

My analysis—like prior empirical analyses of choice-of-law decisionmaking—is based on published choice-of-law decisions.  This focus is appropriate for this study because published decisions are especially important for global governance.  To extend Mnookin and Kornhauser’s well-known “shadow of the law” metaphor, cross-border activity takes place in the transnational shadow of domestic law.⁴ In other words, domestic court decisions, including international choice-of-law decisions, can influence the behavior of transnational actors beyond borders and beyond the parties to particular lawsuits.  But these transnational “shadow” effects are much less likely when decisions are not published for the simple reason that transnational actors are much less likely to know about those decisions.  From a governance-oriented perspective, then, published decisions deserve special analytical attention.

Can my findings nevertheless be extended to unpublished choice-of-law decisions?  Most court decisions are not published, and published decisions are not necessarily representative of unpublished decisions.  However, an exploratory analysis of the relationship between the variables included in my statistical models and some of the likely determinants of publication (such as case complexity and issue salience) suggests that such an extension is plausible.  And can my findings be extended to domestic choice-of-law decisions?  It would seem that international choice-of-law decisions may be more susceptible to parochialism than domestic choice-of-law decisions.  If that intuition is correct, then one would expect my findings regarding the lack of bias in international choice-of-law decisionmaking to apply to domestic choice-of-law decisionmaking as well.

Of course, without replicating my analysis using unpublished and domestic decisions, there can be no firm conclusions about the generalizability of my findings beyond published international decisions.  For this reason, the question mark in Myth of Mess? should be taken seriously.  Empirical analyses, such as the one presented in my Article, may be able to reduce the uncertainty of descriptive and causal inferences about choice of law but cannot eliminate that uncertainty.  There is much more to learn about choice-of-law decisionmaking, not only in transnational tort cases but also in other contexts, domestic and international.

 
Conclusion

Even without extending my findings beyond international choice-of-law decisions in published tort cases, my hope is that my Article will both reinvigorate debates over the real-world importance of choice-of-law doctrine and the role of domestic courts in global governance and will help lead toward a more nuanced understanding of the link between choice-of-law methods and choice-of-law outcomes.  More generally, I hope the Article shows that quantitative analyses of judicial decisionmaking do not inevitably lead to the conclusion that judging is driven more by political than legal factors.

My Article falls far short of demonstrating that judges’ international choice-of-law decisions increase global economic welfare and enhance transnational rule of law.  But, by offering evidence that choice-of-law doctrine does influence choice-of-law decisionmaking and that those decisions are not biased in ways posited by the mess claims, the results do offer some good news about the potential contributions of choice of law and domestic courts to global governance.  At least in international choice-of-law decisionmaking, judges appear to be doing a better job than they get credit for.

Acknowledgments:

Copyright © 2009 New York University Law Review.

Christopher A. Whytock is Associate Professor of Law at University of Utah, S.J. Quinney College of Law.

This Legal Workshop Editorial is based on the following Article: Christopher A. Whytock, Myth of Mess? International Choice of Law in Action, 84 N.Y.U. L. REV. 719 (2009).

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