CPR Council Panel Looks at Chicago's Potential for More International Arbitration

Posted By: Jonathan Baccay CPR Speaks,

At a Sept. 6 Chicago Regional Meeting of the CPR Council, hosted by Sidley Austin, a panel consisting of attorneys Jennifer Glasser, an international arbitration partner in White & Case’s New York office; Timothy Ray, a Chicago-based Holland & Knight partner, and Javier Rubinstein, a King & Spalding partner in Chicago, and moderated by CPR Council co-chair Adolfo E. Jimenez, a partner and Practice Group Leader for South Florida Litigation in the Miami office of Holland & Knight, discussed whether Chicago is well-positioned to become a leading choice as a seat of arbitration in international disputes.

 Tackling the question at length, the panelists indicated that there are several factors in place for Chicago that make it an attractive option.

The rapid growth of international arbitration has seen the entrance of new venues for arbitration. Aside from more established locations, such as New York and Paris, more cities have become popular alternatives, such as Singapore and Miami.

Yet not all recent entrants have seen success, as Adolfo Jimenez pointed out, with cities like Lima and Mexico City facing uphill battles when trying to attract parties to arbitration agreements away from more established seats. So, in order for a city like Chicago to become a potential international seat of arbitration, it must first be asked: What makes a city a good seat for arbitration?

To answer this question, the Chicago CPR panel explained what a seat of arbitration is and why it is important. At first glance, a seat of arbitration is exactly as it seems, the place whose law will govern the procedural aspects of the arbitration and most likely where the hearings will be held. This, however, would not encapsulate the full importance of a seat of arbitration. There are several legal implications when it comes to choosing a seat.

As panelist Jennifer Glasser explained, the seat of arbitration in international disputes determines which national arbitration law will apply.

Furthermore, wherever the seat is, the court whose jurisdiction the seat falls under will have supervisory authority over the dispute. That can affect the types of actions that can be taken by both the parties to the arbitration, and the arbitrators.

As the panel noted, the seat of arbitration also determines the nationality of the final award, which will affect the award’s enforceability. Of particular note, the seat also may determine the qualifications necessary for any counsel participating in the matter. Conceivably, it could be the case that counsel is barred from participating in arbitration in a seat of arbitration by virtue of not being credentialed or licensed in that jurisdiction.

The panel concluded the explanation by noting that the choice of the seat influences the type of law in the contract. Therefore, the panel concluded, it is highly beneficial for parties to an arbitration clause in a contract to establish a seat of arbitration.

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The panel noted that while Illinois arbitration jurisprudence is relatively scarce, such a scarcity is not necessarily a bad thing. Then, the panel proceeded to discuss characteristics of a suitable  seat.

At the outset of the discussion on the elements of a strong seat of arbitration, the panel noted that the hallmark of a good seat begins at the top, with a clear and effective national arbitration law, and preferably one that has ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention. Ideally, the national law should be strongly supportive of arbitration, and be deferential to arbitrators’ powers and decisions.

In line with this, a good seat would also have an independent judiciary, one that is able to effectively adjudicate arbitration matters. Still, the panelists agreed, the judiciary in the seat would ideally limit its intervention in arbitration disputes, affording deference to the arbitrators.

A seat should have a plurality of professionals available to aid the parties in arbitration disputes, according to the panel. Concurrently, strong law schools that teach arbitration in the seat of arbitration would help with increasing the availability of legal professionals qualified to participate and counsel clients in arbitration.

With that stated, the seat of arbitration should encourage and support the independence and freedom of arbitrators operating within their jurisdiction. The seat of arbitration should also have a strong record of enforcing arbitration awards that are in line with the jurisdiction’s applicable laws.  It also should encourage professional norms that promote ethical behavior.

As to the physical attributes of a seat of arbitration, the location should be one generally accessible to the parties, with safe and suitable hearing facilities to encourage all parties to actively participate.

Finally, a good seat of arbitration should have laws that allow for arbitrator immunity and allow them to effectively be able to discharge all of their duties under domestic and international law.

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As a major city situated in the middle of the country, Chicago meets all of these criteria. It is home to some of the nation’s leading law schools with strong academic records of producing highly competent arbitration professionals, and who teach international arbitration to their students. It has the physical infrastructure necessary for safe and accessible arbitration hearings and provides support for parties wishing to actively participate. Finally, the Illinois legal environment is highly supportive of international arbitration matters.

The panelists see Chicago as having all the legal ingredients necessary to make it an international seat of arbitration. Illinois was one of the first and only states to enact state-specific international arbitration laws, based on the UNCITRAL Model Law on International Commercial Arbitration. With legislative support at both the state and federal level in the form of the Federal Arbitration Act, Illinois law also holds that attorneys participating in international arbitration do not need to be licensed to practice in Illinois.

The panelists pointed out that in general, Illinois law strongly supports international arbitration. Illinois courts are deferential to arbitration; awards made within the jurisdiction are presumptively valid. Awards are thus usually upheld so long as the arbitrator made the award by “arguably construing or applying the contract and acting within the scope of this authority.” Catalina Holdings (Bermuda) Ltd. v. Muriel, No. 18-CV-05642, 2020 WL 1675464, at *4 (N.D. Ill.2020).

Panelist Jennifer Glasser noted that the jurisprudence of Illinois courts, and specifically the Seventh U.S. Circuit Court of Appeals, are also favorable to international arbitration matters. In particular, Glasser highlighted that the Seventh Circuit rejected the manifest disregard of law standard for overturning arbitration awards that has been upheld in other courts, on the grounds that it is not an express basis for vacatur under the FAA and is an invalid judicial expansion of the act.

Finally, although the Illinois arbitration case docket is small, Glasser argued that this scarcity could be beneficial, as the lack of applicable case law allows for greater creativity in the framing of arbitration issues before a court.

It appears that Chicago is in position to become an international seat of arbitration. Panelist Javier Rubinstein is leading the formation of the Chicago International Arbitration Center, which will offer hearing facilities designed for international arbitration matters, as well as providing learning and training for attorneys located throughout the Midwest. Rubinstein described the status of the launch for the meeting attendees.

As panelist Timothy Ray sees it, Chicago has “all the ingredients, it’s just about helping the world see it.”

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The author, a second-year law student at the Northeastern University School of Law in Boston, is a Fall 2023 CPR intern.