International Arbitration In California
Important changes are afoot for international commercial arbitration in California. The California Legislature is contemplating changes to the California International Arbitration and Conciliation Act (CIACA). CIACA is based on the UNCITRAL Model Law and the new amendment is designed to make California an even more convenient jurisdiction for international arbitrations.
As recently reported in the New York Times, California reached a milestone last week, becoming the world’s fifth largest economy, ahead of Great Britain. With a diverse economy and a unique position straddling Canada, Mexico and the Asia Pacific, California is a global driver of commercial activity. High quality dispute resolution services is a key part of this success; the state possesses a stable legal framework, including progressive statutes on commercial arbitration.
Despite this, California does not enjoy a status as a seat of international commercial arbitration commensurate with its economic might. Part of this disconnect is tied to a historic ambiguity in the laws regarding the ability of foreign and out of state counsel to represent clients in international arbitrations seated in California. This ambiguity stems from a 1998 case Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court (Birbrower), in which the California Supreme Court ruled that an out-of-state attorney was unauthorized to represent a client in a domestic arbitration seated in California. The Court in Birbrower included dicta that its decision would not impact international arbitrations. Nevertheless, practitioners and scholars have criticized Birbrower, arguing that it likely does apply to international arbitrations – adding to the uncertainty in the process. Specifically, the statute that the Court thought shielded international arbitrations from its ruling is a provision that (probably) only applies to international conciliations (a form of mediation) and would not apply to international arbitrations. As a result, California has developed an undeserved “locals only” reputation as being inhospitable to international arbitration, and specifically to foreign attorneys. It is worth noting that in practice, foreign attorneys do represent parties in California-seated arbitrations, with no negative repercussions. Yet, until now, the uncertainty persisted.
The proposed amendment to CIACA (Senate Bill 766) seeks to remedy this ambiguity by expressly allowing foreign and out-of-state attorneys to participate in international arbitrations in California.
The International Commercial Arbitration Working Group
The current reform efforts gained momentum in February 2017 when Chief Justice Tani G. Cantil-Sakauye of the California Supreme Court created the Supreme Court International Commercial Arbitration Working Group (Working Group). The Working Group consisted of eleven practitioners and academics in the field of international arbitration. The Supreme Court tasked the Working Group to investigate “whether foreign and out-of-state attorneys should be authorized to represent parties in international commercial arbitrations held in California.”
The Working Group recommended that:
“California should join the 13 U.S. jurisdictions (including New York, Florida, Illinois, Texas, and the District of Columbia) and numerous foreign jurisdictions (including Great Britain, France, Italy, Switzerland, Singapore, and Hong Kong) that authorize foreign and out-of-state attorneys to represent parties in international commercial arbitrations without any filing or fee requirement.”
Of all the potential proposals, the Working Group unanimously recommended that California adopt a rule based on the American Bar Association’s Model Rule for Temporary Practice by Foreign Lawyers (ABA Model Rule). The Working Group found the ABA Model Rule was “clearer and more inviting” than any alternative.
Senate Bill 766
The California Legislature quickly acted on the Working Group’s findings. Senator Monning took the language proposed by the Working Group and drafted it into Senate Bill 766, which would amend the California International Arbitration and Conciliation Act.
First and foremost, the new law would only apply to members of the legal profession in good standing in their home jurisdictions.
In addition to this, the international commercial arbitration itself must meet any one of five conditions before a foreign attorney can participate: (1) a California-licensed attorney is participating with the foreign attorney; (2) the international arbitration arises out of or reasonably relates to the foreign attorney’s non-Californian practice; (3) the client has offices in a jurisdiction where the foreign attorney is admitted to practice; (4) the dispute reasonably relates to a matter that’s connected a jurisdiction where the foreign attorney is admitted to practice; or (5) the dispute is governed by non-Californian law.
Of these five options, the last is perhaps the most inclusive. It allows for participation in an international arbitration if “a dispute [is] governed primarily by international law or the law of a foreign or out-of-state jurisdiction.” This language is even broader than the ABA Model Rule, which only allows temporary practice if the dispute is “governed primarily by international law or the law of a non-United States jurisdiction.” Indeed, the new California law has the potential to be the most inclusive provision of its kind in the United States.
Senate Bill 766 unanimously passed the California Senate in January 2018 and is currently pending before the California Assembly. To date, the bill has proceeded unopposed, and the expectation is that it will pass before the end of the 2018 legislative session.