Marc J. Goldstein Arbitrator & Mediator NYC
December 19, 2011

The ‘New York Version’ of the New York Convention: Forum Non Conveniens Again Applied to Refuse Recogntion

Arbitration Commentaries wrote several months ago that the US Second Circuit’s decision in the 2002 Monegasque case (Monegasque de Reassurances S.A.M. (Monde Re) v. NAK Naftogaz of Ukraine, 311 F.3d 488 (2d Cir. 2002)) — holding that the forum non conveniens (“FNC”) doctrine of discretionary dismissal applies to New York Convention summary confirmation proceedings — was a questionable precedent that is ripe for reconsideration.  (SeeDenial of Award Enforcement Under Article III ‘Rules of Procedure’: An Expanded Commentary on Zeevi Holdings v. Republic of Bulgaria, Arbitration Commentaries, Apr. 26, 2011).

It was argued here (by no means as a new idea) that Article V of the New York Convention provides the exclusive grounds for a US court to refuse recognition of a Convention award, and that the “rules of procedure” of the courts in Convention Member States, to which the Convention refers in Article III stating that awards shall be recognized in accordance with such rules, covers rules that facilitate the seeking of relief in court but not discretionary doctrines (such as abstention or FNC) that permit a court to refrain from exercising its properly-invoked jurisdiction. It was further observed (again not as a novel thought) in that Commentary that if this is the correct, or at least the more persuasive, construction of the Convention, then the US acts in breach of its international obligations under the Convention, i.e. violates international law, when one of its courts refuses to grant recognition and enforcement to a Convention award for a reason not contained in Article V.

 That position was endorsed last week by one judge on the US Second Circuit, but regrettably the endorsement came in the dissenting opinion of a 2-1 decision that resulted in dismissal of a Panama Convention award confirmation case based on FNC. The majority overturned the order of the district court, which had rejected FNC dismissal as uncalled for in the circumstances. (Figueiredo Ferraz v. Republic of Peru, 2011 WL 6188497 (2d Cir. Dec. 14, 2011)).

More will be written here and elsewhere about the Figueiredo case in the coming days, especially as informed speculation percolates about the potential for a rehearing en banc in which the full complement of judges of the Second Circuit might revisit the Monegasque ruling. And readers will be interested not only in this mixed question of treaty interpretation and federal arbitration policy, but also in the particular application of FNC made by the Second Circuit in this case.

Essential facts to know aboout the Figueiredo case are these: First, the losing party in the arbitration, suffering a $21 million award, was an agency of the Government of Peru.  Second, it was not disputed that Peruvian sovereign assets sufficient to satisfy the award were to be found in the US. Third, Peruvian internal law provided that government agencies would dedicate only 3 percent of their annual budgets to the satisfaction of awards and judgments — with the result in this case that Claimant, before commencing proceedings in the US, had been paid only about $1.5 million.

Leaving to another Commentary whether these facts lend support to an FNC dismissal if FNC remains an applicable doctrine, let us consider here only how the scenario of this particular cqase might inform the debate over whether FNC should be a ground for a US court to refuse recognition of a Panama or New York Convention award. (I note as does the dissent that the American Law Institute has sided against the panel majorities in Figueiredo and Monegasque, declaring in the forthcoming Restatement of the Law of International Commercial Arbitration that FNC does not apply in Convention award recognition proceedings).

First, the Conventions’ purpose to secure international enforceability of awards has particular resonance with regard to awards against sovereigns. One of main accomplishments of the Conventions is to overcome sovereign efforts to frustrate their creditors through the protective enactments of domestic law or the protective practices of domestic courts. This is accomplished by permitting a sovereign’s award creditor to pursue recognition and enforcement against the sovereign’s foreign-sited assets in the courts of any Convention Member State.

Second, FNC in this case operated not as a rule of procedure but as a rule of substantive law. Whereas Peru’s payment cap was conceded by Peru to be inapplicable to proceedings in the US if the US court exercised jurisdiction, the FNC dismissal was in practical effect a merits-based dismissal based on the Peruvian payment cap law.

Third, FNC dismissal of a Convention award confirmation proceeding leaves the award creditor at liberty, in principle, to seek confirmation in any Convention Member State, and in most such States there is no FNC doctrine. Effectively Convention awards are less enforceable in the US under the Conventions than they are elsewhere, as a matter of law. At the same time, given US capital markets’ prominence, both sovereign and non-sovereign award debtors as groups are probably more likely to have assets in the US than in virtually any Convention Member State other than their domiciles. The value of the rights Member States secured for their citizens by adopting the Conventions — that is to say the Conventions’ value to the global economy as instruments of international business law — is materially diminished by US law restricting access to its courts for award enforcement.


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