Marc J. Goldstein Arbitrator & Mediator NYC
August 07, 2017

Beach Reading from the US Courts of Appeals

Perhaps it is an indication that the rehabilitation of air conditioning systems in certain US Courthouses has proceeded apace, an unheralded early accomplishment of the current US Administration’s vaunted infrastructure program, that this summer has so far produced an impressive output of federal appellate decisions concerning international arbitration. Whereas a beach-and-boat reading guide is something of a mid-summer tradition at Arbitration Commentaries, here, dutifully, are reviews and recommendations:

Non-Enforcement of Annulled Awards — Decisions last month in the US Courts of Appeals for the Second and District of Columbia Circuits further entrenched the US position that enforcement under the New York Convention of an award judicially annulled at the seat of the arbitration may only be obtained if the annulment is offensive under the same very restrictive US public policy standards that govern denial of the recognition and enforcement of a New York Convention award made at a foreign seat of arbitration. (Thai-Lao Lignite (Thailand) Co. v. Government of the Lao People’s Democratic Republic, 2017 WL 3081817 (2d Cir. July 20, 2017); Getma International v. Republic of Guinea, 862 F.3d 45 (D.C. Cir. July 7, 2017)). In holding that considerations of “comity” should normally lead to denial of enforcement of the annulled award unless such denial would be “repugnant to fundamental notions of what is decent and just,” the courts acknowledge that they have embraced a test adopted from the Restatement (Second) of Conflict of Laws concerning recognition and enforcement in the United States of valid judgments of the courts of foreign nations (§117, comment c). Thus the US law position on how the discretion lodged by the New York Convention to refuse, or not, confirmation of an award that has been set aside at the arbitral seat is that the annulment judgment should be regarded, in terms of its convertibility to a US judgment, in essentially the same fashion as foreign judgments generally, and should not be treated with reference to any distinctive attributes of the judgment owing to its status as an intervention overruling the adjudication of an international arbitral tribunal. This short post is not the setting for a debate on the wisdom of such a categorical approach. It is worthy of note however that the source of this governing principle is not the New York Convention itself, and the motive for its adoption is not to implement the perceived purposes of the drafters of the Convention or those of the Congress that implemented the Convention by enacting FAA Chapter 2. This approach instead appears to be an expression of American jurisprudence in the realm of foreign relations more generally — that comity among nations calls for foreign arbitral annulment judgments to be treated on par with other foreign judgments. The New York Convention itself takes no position on what should be the position of a Contracting State as to enforcement of a vacated award, and expressly leaves open the possibility that different Contracting States may take more or less liberal enforcement positions: “The provisions of the present Convention shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.” (Art. VII(1)). Note is taken here, but without much further discussion, that the Thai-Lao Lignite case also involves additional considerations under US civil procedure law (FRCP 60(b)(5)) because, owing to the delays in the annulment proceedings in Malaysia, a judgment confirming this award had already been entered in a US District Court in New York. The procedural posture of this appeal was that the District Court had entered a post-annulment judgment vacating its pre-annulment confirmation judgment. That may be expected to be the exceptional circumstance, the more usual situations being either that annulment is obtained before confirmation is sought, or confirmation is postponed under the Convention, by the court petitioned to confirm the award, on the basis of a pending annulment proceeding (Art. VI).

Arbitral Determination of the Seat of Arbitration — The US Eleventh Circuit Court of Appeals held (perhaps without entirely realizing it was doing so) that in a US-seated international arbitration, an arbitrator’s interpretation of the arbitration clause in regard to the proper seat of arbitration for counterclaims lodged by the Respondent was entitled to deference, as it was a procedural matter primarily for arbitral determination, not a “gateway” question primarily for a court to decide or re-decide independently. (Bamberger Rosenheim, Ltd. v. OA Development, Inc., 2017 WL 3014354 (11th Cir. July 17, 2017)). Here the arbitration agreement between companies of US and Israeli nationality provided for ICC arbitration and that the “venue” of the arbitration would be in the home country of the party against whom the “dispute” was “submitted.” The Israeli company submitted a dispute to the ICC, thus triggering an Atlanta-seated arbitration. When the US company submitted a counterclaim, the Israeli firm asserted that the Tribunal lacked jurisdiction and that in all events the counterclaim had to be arbitrated at a Tel Aviv “venue.” The ICC Court of Arbitration invited the arbitrator to decide whether the parties had an agreement on the seat of arbitration for counterclaims (see Art. 18(1) of the ICC Rules). The arbitrator ruled in a partial final award, in effect, that the parties had agreed that counterclaims would be heard at the same “venue” as that established by their agreement for the Claimant’s claim. The ICC Court treated this under Art. 18 (1) as dispositive of the question whether the parties had an agreement on the seat, and the arbitration proceeded to final award as an Atlanta-seated arbitration. Both the US district court judge in Atlanta and the Eleventh Circuit treated the question, parroting the wording of the arbitration clause, as one of “venue” – seeming to assume that this term had no potentially distinctive aspects in international arbitration — and decided the case on the basis that under FAA domestic case law, disputes about the hearing “venue” are procedural matters that parties are presumed to want arbitrators rather than courts to decide with only the very limited judicial review associated with awards on the merits. But in fact this was a question about the arbitral seat, and neither the arbitrator’s award, the District Court decision, nor the Eleventh Circuit affirmance, addresses the issue from the perspective that the fundamental issue was what arbitral legal regime would apply to a claim made against a party, and whether the meaning of the “venue” provision was that each party intended that it would only be required to defend a claim under the arbitral legal regime of its home country. Some might say that this is a sufficiently fundamental issue about the legal complexion of the arbitration that the parties, if they had given the matter thought, presumptively would have wanted a court not an arbitrator to decide. After all, if US arbitration law regards the enforceability of a New York Convention award as primarily subject to the judicial power of courts at the seat of the arbitration — see note above re recent cases — is it not more consistent with that view to treat a dispute about whether the seat was agreed to be in Country A or Country B as a “gateway” question of (or closely akin to) “arbitrability”? The courts in this case evidently were not guided to consider the issue in these terms.


On more sanguine note: The Eleventh Circuit, evidently having been alerted that its 1998 decision, holding that only FAA Chapter 2 and the New York Convention, and not FAA Chapter 1, provide vacatur standards applicable to a New York Convention award in a US-seated international commercial arbitration (Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1445-46 (11th Cir. 1998)), states in a footnote in the Bamberger decision that it assumes without deciding that FAA Section 10 (of FAA Chapter 1) applies. This is a welcome signal that the 1998 decision will be formally overruled on a suitable occasion, and that the Eleventh Circuit will join other federal judicial circuits that have adopted the position that in a US-seated international commercial arbitration the statutory grounds for vacatur of an award found in FAA Chapter 1 are applicable.

Enforcement of ICSID Convention Awards — The US Second Circuit Court of Appeals held that the 1976 Foreign Sovereign Immunities Act (FSIA) governs subject matter jurisdiction, personal jurisdiction, and procedure, in regard to the enforcement against a foreign sovereign of an ICSID Convention award. This ruling overrules a series of decisions in New York federal district courts that had construed the 1966 statute implementing the ICSID Convention (28 USC § 650a) as a source of subject matter jurisdiction over all ICSID Convention award debtors including foreign sovereigns, and as a source of power to engage state law procedures including ex parte procedures to seize foreign sovereign assets in the US for execution. Critical to the Court’s reasoning was the fact that the US Supreme Court has stated several times, beginning with the Amerada Hess case in 1987, that the FSIA is the exclusive basis for obtaining jurisdiction over a foreign sovereign in US courts. Finding no express conflict between the 1976 FSIA and the 1966 ICSID legislation, the Second Circuit concluded that the Supreme Court’s emphatic statements about FSIA’s exclusivity weigh in favor of finding that the FSIA prevails over the earlier-enacted ICSID Convention-specific statute. While there are several other federal judicial circuits where this question has not been definitively resolved, the practical consequences are significant, as foreign governments that expect to be ICSID Convention award debtors have even greater incentives than exist already to concentrate any US-based assets in New York institutions. (Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 2017 WL 2945603 (2d Cir. July 11, 2017)).

Enforcement of Bifurcated Partial Final Award on Liability — The US First Circuit Court of Appeals held that an award on liability in an international arbitration bifurcated by agreement into liability and damages phases satisfies the New York Convention’s requirement that the Award shall have become “binding” on the parties, and thus may be confirmed under the Convention and FAA Chapter Two. This extends to Convention awards a rule of long standing in domestic FAA case law. A few years ago your Commentator, discussing that rule in this space, asked whether agreed bifurcation ought to be the outer limit for enforcement of awards that are intended to determine liability, or whether for example the arbitrator’s unilateral decision to bifurcate or her adoption of a contested party application to bifurcate might also suffice. This latest decision offers no hint of how that issue would be decided, but agreed bifurcation is clearly presented in this decision as a sufficient — but not necessarily necessary — condition for confirmation of a partial final award on liability in a case falling under the Convention. Also, you are encouraged read this case to admire the craft of Associate Justice (Ret.) of the US Supreme Court David Souter, proof that there is a robust judicial life to be had after leaving service on the Court. (University of Notre Dame (USA) in England v. TJAC Waterloo, LLC, 861 F.3d 287 (1st Cir. June 28, 2017)).

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