BREAKING: CALIFORNIA PASSES LANDMARK LEGISLATION ON INTERNATIONAL COMMERCIAL ARBITRATION
On 5 July 2018, the California Legislature amended the California International Arbitration and Conciliation Act (CIACA) (Cal. Civ. Proc. Code § 1297.11 et seq). The amendment, Senate Bill 766, now allows foreign and out-of-state attorneys to represent clients in international arbitrations without having to register with the local courts or local bar. Other U.S. jurisdictions (like New York, D.C. and Texas) have similar rules, but California’s statute is now arguably the most welcoming to foreign attorneys.
This legislation will bury California’s somewhat undeserved anti-arbitration reputation that stemmed from the 1998 California Supreme Court decision Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court (Birbrower). In that case, 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 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 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 have represented parties in California-seated arbitrations with no negative repercussions. But now, with the passing for Senate Bill 766, all of those concerns are put to rest 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:
“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 text of Senate Bill 766 was based on the ABA Model Rule, but is even more inclusive.
For the law to apply, the attorney must be in good standing in his/her home jurisdictions. In addition to this, the international commercial arbitration itself must meet any one of five conditions before a foreign (or out-of-state) attorney can participate: (1) a California-licensed attorney is participating along 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.”
Under the newly amended California International Arbitration and Conciliation Act (originally based on the UNCITRAL Model Law), California will become an even more convenient jurisdiction for international arbitrations and better capitalize on its international based economy which now ranks as the world’s fifth largest economy. With a unique position straddling Canada, Mexico and the Asia Pacific, California practitioners and users of international commercial arbitration have high hopes that the State will become a leading international arbitration hub.