Today Arbitration Commentaries briefly notes a new decision from a respected federal district judge in Houston, Texas, holding that a sale of goods contract that was between two US companies, but which provided for discharge of the shipped goods in a foreign port to be designated by the buyer created a sufficient international nexus to make the New York Convention applicable to the contract’s arbitration clause. (Tricon Energy, Ltd. v. Vinmar International, Ltd., 2011 WL 4424802 (S.D. Tex. Sept. 21, 2011).
The issue is litigated from time to time, especially when one party sees a tactical advantage to holding award confirmation or vacatur proceedings in a state court, and federal jurisdiction based on diversity of citizenship would not exist.
Curiously the Convention itself does not directly address when an award between domiciliaries of the same Convention State is governed by the Convention. This is expressly left to domestic law by Article I(1): “[The Convention] shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.” Chapter Two of the Federal Arbitration Act (FAA) in Section 202 provides that an agreement or award entirely between US citizens “shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.”
The Court in Tricon, calling the Section 202 standard “expansive,” had no difficulty in concluding that where the entire contracted product volume was to be delivered abroad, the award was a Convention award.
But suppose the contract had provided for a series of deliveries, most of which were to US ports? Suppose further, or alternatively, that the dispute arose over the deliveries scheduled for US rather than foreign ports? Perhaps the most critical words in Section 202 are “reasonable relation with one or more foreign states.” It is doubtful that Congress intended for the Convention’s coverage to extend to an entirely domestic dispute merely because a portion of the contract’s scope involves performance or property abroad. Nor is there any reason of arbitration policy why coverage should be so extended. If a contract involves a series of instances of performance, some of which have will occur abroad, it makes sense to look at the performance giving rise to the dispute as the relevant contract for purposes of the Convention’s coverage. (See, e.g., Amato v. KPMG LLP, 433 F. Supp.2d 460 (M.D. Pa. 2006), in which US investors contracts with a US affilate of Deutsche Bank to provide a. Certain iinvestment strategy, but execution of the strategy on each transaction at issue in the case involved significant elements of foreign performance including the purchase of foreign securities and a swap transaction with a foreign taxpayer).