Over the past 50 years, with the quickening pace of economic globalization and an ever-greater share of U.S. businesses participating in cross-border transactions, there has been a parallel explosion of international commercial litigation. International legal systems for resolving disputes have been globalizing as well, and international arbitration has been leading the way — for good reason. As an alternative to using the national courts of one of the litigants, international arbitration offers the promise of greater speed, flexibility, efficiency, predictability, and a neutral locale. And, international arbitration awards are often more easily enforced than a traditional court judgment.
But how exactly does a U.S. litigant enforce an international arbitration award? Compared with enforcement of domestic arbitration awards, the answer can be relatively complex, and practitioners must evaluate additional factors, such as whether a state-owned company or state party is involved.
This article gives an overview of how to enforce an international arbitral award in the United States. It provides a guide to applicable treaties and explains special procedural considerations that should be taken into account. The article also explains what a party can expect in an enforcement proceeding, and discusses issues that may arise when enforcing such an award.
Guide to Applicable Treaties And Laws
The treaty that will govern the enforcement of an international arbitration award depends on the nationality of the parties. The treaty applied most often is the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, more commonly known as the New York Convention. The Convention has 148 party states, listed at the website of the United Nations Commissions on International Trade Law (UNCITRAL). (see article). These include most of the nations in the world, with Taiwan and a handful of other countries providing notable exceptions. The United States is also a party to the 1975 Inter-American Convention on International Commercial Arbitration, known as the Panama Convention, which has 17 ratifying states in the Americas. The Panama Convention is similar to the more commonly cited New York Convention. When both the New York and Panama Conventions nominally apply, federal courts will apply the Panama Convention when a majority of parties to the arbitration agreement are members of the Organization of American States.
Both conventions “‘are intended to achieve the same results, and their key provisions adopt the same standards, phrased in the legal style appropriate for each organization.’” Energy Transp., Ltd. v. M.S. San Sebastian, 348 F. Supp. 2d 186, 198 (S.D.N.Y. 2004) (quoting H.R. Rep. No. 501, 101st Cong., 2d Sess 4 (1990), reprinted in 1990 U.S.C.C.A.N. 675, 678); see also International Ins. Co. v. Caja Nacional de Ahorro y Seguro, 293 F.3d 392, 396 n.9 (7th Cir. 2002) (noting that various provisions of both conventions “are substantively identical”). Courts therefore expect to achieve “‘a general uniformity of results under the two conventions.’” Energy Transp., Ltd. v. M.S. San Sebastian, 348 F. Supp. 2d at 198 (quoting H.R. Rep. No. 501, 101st Cong., 2D Sess 4 (1990), reprinted in 1990 U.S.C.C.A.N. 675, 678).
The Federal Arbitration Act (FAA) is the enabling legislation that allows an action to enforce an arbitral award under either the New York Convention or Panama Convention. None of these laws affect the validity of multilateral or bilateral agreements or any other mechanisms which may be available to particular parties. Practitioners should evaluate the potential application of other law that may be more favorable than either the New York Convention or Panama Convention.
How to Enforce an International Arbitral Award in U.S. District Courts
The Court Must Have Jurisdiction
Neither the New York Convention nor the Panama Convention eliminates the traditional due-process requirement of personal jurisdiction, and courts will dismiss actions to enforce foreign arbitral awards when jurisdiction is lacking. Numerous courts have required personal or quasi in rem jurisdiction in enforcing a foreign arbitral award under the New York Convention. See, e.g., Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172, 178-79 (3d Cir. 2006); Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1120-22 (9th Cir. 2002); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory,” 283 F.3d 208, 212-13 (4th Cir. 2002); see also Transatl. Bulk Shipping Ltd. v. Saudi Chartering S.A., 622 F. Supp. 25, 27 (S.D.N.Y. 1985). As most enforcement actions seek attachment of assets in the United States, there should be quasi in rem jurisdiction over the defendant, however, practitioners should be especially careful to find such minimum contacts when enforcing an award against a foreign sovereign or state controlled entity, as discussed below.
Timing of Application
A party must make an application for an order confirming an arbitral award within three years after such an award is rendered. 9 U.S.C. § 207. The statute of limitations begins to run when the final decision is made by the arbitrators, not when all appeals are exhausted. See Transport Wiking Trade Schiffarhtsgeseellschaft MBH & Co. v. Nivimpex Centrala Navala, 989 F.2d 572, 581 (2d Cir. 1993).
What to Include in an Enforcement Application
Typically, a party submits a motion or petition for enforcement of an award. With this motion, the party must supply the court with duly authenticated or duly certified copies of the arbitration agreement and arbitration award at issue, translated if necessary. (New York Convention, art. IV.) Practitioners should consult local and state rules to determine what additional supporting documents might be necessary in an application for enforcement, including a memorandum of law, supporting affidavit, and proposed order.
In many jurisdictions, an application for enforcement does not require a hearing. A party may request one, and in unusual circumstances, a judge may allow witnesses. In cases involving a foreign sovereign or state-controlled entity, it may be necessary to conduct jurisdictional discovery. But in these cases, the plaintiff should make a prima facie case for jurisdiction, as a district court has wide latitude to determine the scope of discovery, and will not subject a defendant to the burden and expense of discovery unnecessarily. Frontera Resources Azerbaijan Corp. v. State Oil Company, 592 F.3d 393, 401-402 (2d Cir. 2009). For the most part, the judge will review the motion and supporting papers and decide the motion without further proceedings.
Special Considerations Regarding Enforcement
Non-Recognition of Arbitral Award
Both the New York Convention and the Panama Convention allow for non-recognition of arbitral awards in certain situations, although such awards are presumed valid. The party resisting enforcement of an award bears the burden to prove invalidity in the following instances:
- A party is suffering from an incapacity;
- The arbitral agreement is invalid;
- The party seeking non-recognition of an award could not participate in the arbitration because that party was not notified of the appointment of an arbitrator or applicable procedure or was unable to present a defense;
- The decided issue is outside the scope of the arbitral agreement;
- The arbitral tribunal did not follow the parties’ agreement or applicable law;
- The award is not yet binding; or
- The award has been annulled or suspended in the state where the award was made.
Panama Convention art. V(1), New York Convention, art. V(1).
Under each convention, recognition and enforcement of an arbitral may also be refused if:
- the subject matter of the dispute is not capable of settlement by arbitration under the law of that country; or
- the recognition or enforcement of the award would be contrary to the public policy of the United States.
Panama Convention, art. V(2), New York Convention, art. V(1).
Postponement of Execution
A competent authority of the country in which an award was made may adjourn a decision on the enforcement of the award, pending an application to set it aside or suspend it. Such authority may also order the other party to give suitable security during this adjournment. (Panama Convention, art VI; New York Convention art. VI.)
Forum Non Conveniens
The common-law doctrine of forum non conveniens may override the Panama Convention and the New York Convention, as a procedure rule. A court may dismiss a case based on forum non conveniens, finding that a more appropriate forum exists to enforce the award.
In one recent case, Figueiredo Ferraz e Engenharia de Projeto Ltda. v. Republic of Peru, the Second Circuit held that a Peruvian statute limiting the amount of money that a Peruvian government agency may pay annually to satisfy a judgment was a principal public interest factor to be weighed by the court in consideration of a petition to enforce an international arbitral award in the United States. Nos. 09-3925-cv (L), 10-1612-cv (CON), 2011 U.S. Ap. LEXIS 24748 (2d Cir. Dec. 14, 2011). Although enforcement of international arbitral awards is normally a favored policy of the United States, “that general policy must give way to the significant public factor of Peru’s cap statute.” Id. at *19-20. The court further held that Article 4 of the Panama Convention explicitly provides that execution of international arbitration awards “may be ordered … in accordance with the procedural laws of the country where it is to be executed … .,” and forum non conveniens is a doctrine “of procedure.” Id. The New York Convention has a similar provision in Article III.
But other courts have not agreed that forum non conveniens should automatically be a basis for dismissal when a party seeks to enforce an award against property that could only be attached in the United States. TMR Energy Ltd. v. State Property Fund of Ukraine, 411 F.3d 296, 304 (D.C. Cir. 2005).
Practitioners should carefully evaluate the case law in the jurisdiction where enforcement is sought. The Second Circuit especially has signaled that it will not automatically enforce an award if an argument for application of forum non conveniens can be made.
When attempting to enforce an international arbitral award against a state party or state-controlled entity, practitioners may face additional challenges based on the state party’s sovereign immunity. Sovereign immunity protects a state party from the jurisdiction in U.S. courts unless that state party has consented to the court’s jurisdiction or waived immunity. Gray v. Bell, 712 F.2d 490, 507 (D.C. Cir. 1983).
For the enforcement of an arbitral award, most state parties will have waived immunity by consenting to the arbitral process. The Supreme Court held in C & L Enterprises, Inc. v. Citizen Band, Potawatomi Indian Tribe of Oklahoma that sovereign nations that have agreed to participate in arbitration are not immune under the FAA, as arbitration is a matter of contract between the parties, and consent to the arbitrator’s jurisdiction constitutes a voluntary waiver of immunity. 532 U.S. 411 (2001).
Although the Foreign Sovereign Immunity Act also codifies waiver of sovereign immunity U.S. courts when a state party consents to arbitration, this does not apply to subsequent actions to enforce an award or judgment. 28 U.S.C. § 1605(a)(6). To enforce an award against a state party’s assets located in the United States, a court must determine whether the assets meet two exemptions to the general protection of state property from attachment in the Foreign Sovereign Immunities Act. 28 U.S.C. §§ 1610 and 1611.
Section 1610(a) of the FSIA allows execution against a foreign state’s property located in the United States if the property is used for “commercial activity.” The FSIA defines “commercial activity” as “either a regular course of commercial conduct or a particular commercial transaction or act.” 28 U.S.C. §1610(d).
Section 1611 of the FSIA exempts certain property from execution in all circumstances. If the foreign state has not waived its immunity and property is “held for its own account,” such property may not be attached, even if it is used for commercial purposes.
Resolving international disputes through arbitration — and getting paid when you win — is more certain than ever with the existence of widely adopted international treaties. The prevailing party can file a motion for enforcement, attach the award and agreement, and have a good chance of collecting the award. But uncertainties still remain, and the prevailing party should pay close attention potential arguments for non-recognition of an award and the specific procedural rules of each jurisdiction before filing.
Reprinted with permission from the May 2013 issue of The Corporate Counselor. Copyright 2013 ALM Media Properties LLC. Further duplication without permission is prohibited. All rights reserved.
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