Today’s topic is the power of a US District Court, if any, to reconsider its recognition and enforcement of a foreign arbitral award governed by the New York Convention when, after giving a judgment confirming the award here in the U.S., the award is vacated by a competent court at the foreign seat of the arbitration. And if such power exists, when should it be exercised?
To set the stage, suppose the award creditor seeks confirmation in the US, and the award debtor opts at that stage not to commence vacatur (annulment) proceedings at the seat and not to request adjournment of the confirmation case pending a vacatur action at the seat (NY Convention Art. VI), but instead initially devotes its energy to an ultimately unsuccessful effort to convince the US District Court to deny confirmation on the basis that the Tribunal lacked jurisdiction over a non-signatory claimant (an issue the US court declines to review de novo, giving deference to the Arbitral Tribunal’s award). The vacatur action at the arbitral seat’s court then unfolds as Round Two of the match, and there the award debtor obtains de novo review of the non-signatory claimant issue, and wins an adjudication vacating the award entirely. Now the award has ceased to exist in two places for opposite reasons: in the US, it is merged into the confirmation judgment; at the seat, it has been annulled.
In Round Three, award debtor asks the US Court to set aside its confirmation judgment, and enter a new judgment refusing confirmation, and says (i) the post-judgment timing and prior history should make no difference, and (ii) that the outcome should be the same as it would have been if the annulment of the award at the seat had preceded initial confirmation. (See Convention Article V(1)(e)).
Strictly speaking, the issue does not arise under the Convention or FAA Chapter Two, but only under the Federal Rules of Civil Procedure. The Convention speaks to the ability of a court to refuse recognition and enforcement, but says nothing directly about revoking recognition and enforcement once given. It might be said the Convention treats the matter indirectly as a question of local procedure because, under Art. III, awards are to be enforced “in accordance with rules of procedure of the territory where the award is relied upon.” Federal Rule of Civil Procedure 60(b) concerning setting aside a judgment would seem to be such a rule.
Rule 60(b) offers two conceivable approaches for this proposed reconsideration. Under Rule 60(b)(5), a party may be relieved from a final judgment that is “based on an earlier judgment that has been reversed or vacated” or because applying the judgment prospectively “is no longer equitable.” Under Rule 60(b)(6) relief from a judgment may be obtained for “any other reason that justifies” it. The latter is considered (in case law) to be “an extraordinary remedy which may be invoked only upon a showing of exceptional circumstances.“
The argument can be made that Article VI of the Convention, alone or in combination with Article V, resolves the issue. Article VI provides that a court “may, if it considers it proper, adjourn the decision on enforcement of the award” but only if an annulment application at the seat “has been made….” (emphasis supplied). It follows that an award debtor who is contemplating but has not yet filed an annulment case has no right to an Article VI stay and indeed a Court giving a stay in such circumstances would be ignoring clearly selected words in the Convention, words presumably chosen because the drafters considered it important to an efficient confirmation regime that unhappy award debtors should decide quickly whether to pursue annulment.
It follows that an applicant for an Article VI stay who submits only that annulment proceedings are being considered has no right to the relief. Article V(1)(e) permits refusal of confirmation only as to an award that has been annulled — not one that might be annulled. And the Convention identifies no circumstance — post-confirmation annulment or otherwise — in which a confirmation order or judgment might be reconsidered and revoked.
So how should a court address the potential Rule 60 grounds for relief from a confirmation judgment. Rule 60(b)(5) seems unpromising. It provides for relief from a judgment that is “based upon” an “earlier judgment” that has been vacated. This Rule language dates from 1937, so there is little reason to think that Congress meant for foreign arbitral awards or foreign judgments to be among the “earlier judgments” to which the 60(b)(5) would apply. Moreover, a quick look at case law regarding 60(b)(5) reveals that “based upon” means that the prior judgment was a necessary element of the judgment from which relief is sought, in the sense that it gave rise to the cause of action of defense upon which the challenged judgment is based. (Lowry Dev., L. L. C. v. Groves & Assocs., 690 F.3d 382, 386 (5th Cir. 2012). The judgment confirming an arbitral award is not “based upon” the award in this sense; the judgment flows from the existence of the award and not from any substantive element of the award.
But what about the 60(b)(6)? Is the post-confirmation foreign annulment an “exceptional circumstance”? Exceptionality would need to be based on giving effect to the mandate of the Convention that recognition should be refused to awards annulled by a court at the seat. But the more precise formulation of the Convention’s mandate is that (i) recognition should not be given to an award annulled at the seat prior to its recognition in a particular jurisdiction where recognition is sought, and (ii) recognition may in a court’s discretion be delayed if there is pending a proceeding in which such annulment might be obtained. Therefore the mandate of the Convention would seem to be that delay in commencing annulment proceedings carries with it the consequence that an annullable award will be confirmed and that the resulting judgment will be enforceable where rendered, and perhaps internationally, even if the underlying award loses its force and its direct enforceability elsewhere. And by extension no Rule 60(b)(6) exceptional circumstance exists unless the award debtor could not have timely commenced the annulment proceedings and requested the Article VI adjournment.
At least a few readers will recognize that the issue discussed above is presented by a recent Rule 60(b) motion in a case in the Southern District of New York that has been a fertile ground for examination of international arbitration issues in recent years. See Thai-Lao Lignite (Thailand) Co. v. Government of the Lao People’s Democratic Republic, 2013 WL 1703873 (S.D.N.Y. April 19, 2013) (decision granting vacatur of post-judgment restraining notices against certain sovereign assets on sovereign immunity grounds). For readers interested in the motion, it can be found in the electronic docket for Case 10cv5256 at entry no. 203.
In its broader implications, Thai-Lao Lignite entailed the question whether a court reviews an arbitrator’s decision on her jurisdiction with deference (rather than de novo) when the parties agreed to arbitrate under rules such as the UNCITRAL Rules that give arbitrators power to rule on their own jurisdiction. The district court answered this question “yes, at least where the jurisdiction issue is raised by a signatory of the arbitration agreement who concedes its existence and questions only whether a particular non-signatory may invoke it.” The US Second Circuit affirmed that ruling in a summary order based on its decisions in Contec and Chevron, and on February 25, 2013 the Supreme Court of the United States denied certiorari. Whether that issue will eventually reach the Supreme Court will be much-watched, and in the meantime the wisdom and scope of application of the Second Circuit position will be much-debated.