Rau: Understanding (and Misunderstanding) 'Primary Jurisdiction'

Alan Scott Rau (Univ. of Texas - Law) has posted Understanding (and Misunderstanding) 'Primary Jurisdiction' (American Review of International Arbitration, forthcoming). Here's the abstract:

In our “Westphalian” regime of international arbitration, conflict and competition between national jurisdictions, with overlapping and yet plausible claims to supervise the process, become inevitable. The conventional starting point for any discussion - the fulcrum around which the entire arbitral enterprise pivots - has been the supposed dichotomy between the state of the “seat” - where the arbitration finds its juridical “home,” and whose jurisdiction over the process is therefore “primary” - and all other states whose jurisdiction must therefore be deemed only “secondary.” Both legislation and Convention envisage an exclusive role for the former in setting the process in motion - for example, by appointing the arbitrators - and above all in monitoring compliance with the agreement - for example, by annulling or vacating the resulting award.

That the “seat” is the privileged starting point with respect to any allocation of judicial authority has traditionally been a simple reflection of the power of any sovereign over acts taking place within its “territory”; an alternative and perhaps more robust explanation would be somewhat more “contractualist,” giving priority to the parties’ exercise of autonomy in the very act of selecting the place of arbitration - and to the intuition that, by extension, they have presumptively chosen to subject themselves both to a certain body of “arbitration law,” and to the supervisory jurisdiction of the courts charged with applying that law.

I begin by canvassing the various fact patterns in which the traditional allocation of international competence on the basis of “primary” and “secondary” jurisdiction might possibly be thought useful: It has become, for example, the heuristic of choice to test the extraterritorial effect of an award, in circumstances where the agreement of the parties has subjected the arbitral process to a particular legal system whose own courts have found it lacking in legitimacy. All this is much controverted, but generally well understood.

The inevitable problem, though, is that none of this is a universal solvent - the world can after all be understood and patterned and divided up in all sorts of ways. What may have begun as a rough attempt to allocate responsibility over the unfolding of the process, has often been unthinkingly applied to all sorts of new and unexpected and inappropriate contexts.

Where, for example, a party has asked a court to enjoin an arbitration against him that has been threatened or initiated - perhaps on the fundamental ground that he has never even given his assent - American courts will increasingly hold that, whatever power they might have to enjoin a “local” arbitration, it would be “inconsistent with the purpose of the New York Convention” to enjoin arbitral proceedings in a state of “secondary jurisdiction” - and thus they “lack jurisdiction” to do so. Where a party has claimed that a foreign award has been obtained by bribery and corruption, and wishes to institute a “collateral attack” in this country through a RICO action, it may equally be held that the court lacks “subject matter jurisdiction” to reassess an award rendered in a state of “primary jurisdiction”; “under the framework of the New York Convention, the proper method of obtaining this relief is by moving to set aside or modify the award in a court of primary jurisdiction.”

American courts thus seem curiously mesmerized, when asked to deploy familiar procedural devices in aid of their nationals, by a rhetoric invented for quite different purposes. What purports in cases like these to be a commendable solicitude for the needs of international arbitration, takes the form of an abdication of any decision making power whatever, in favor of the courts of the seat. To invoke a putative lack of “power” based upon absolute prohibitions that supposedly emanate from the Convention seems a crude and clumsy and overbroad and irresponsible way of responding; even a legal system quite committed, for example, to the proposition that attempts to evade the arbitral process are likely to be quite without merit - or for that matter to the proposition that international neutrals cannot possibly be corrupt - need not shrink, on the prophylactic grounds of lack of jurisdiction, from testing any challenges.