Third Circuit, in U.S. litigation over staging of California art exhibit, affirms enforcement of Swiss arbitration awards under Arbitration Convention
In 1990, The Stephen and Mary Birch Foundation, Inc. (Defendant), a not-for-profit corporation, contracted to buy "Luna Luna," an open-air art exhibit, from Admart AG (Plaintiff). Defendant paid $3 million at contracting time with $3 million due once the exhibit was set-up.
The Agreement provided for arbitration of any disputes in Zurich, Switzerland. It also contained provisions designed to ensure the authenticity of the works and to guarantee clear title.
The following year, however, Defendant announced that it was rescinding the contract for insufficient evidence that Plaintiff had clear title to Luna Luna. The parties then went to arbitration in Zurich. Three years later, a Swiss arbitration panel issued a Final Arbitral Award (FAA) in favor of Plaintiff. During arbitration, Defendant had expressed its concern that operating Luna Luna in the U.S. might expose them to costly litigation there.
The arbitration panel, however, ruled that proof that many of the artists had expressly consented to Luna Luna's display of their works as well as the contract's indemnification provision should have allayed such fears. The FAA directed Defendant to pay the outstanding $3 million as agreed; it also required Plaintiff to deliver the specified art works to Defendant. After the parties had failed to comply with the FAA, Defendant appealed to the Swiss Federal Supreme Court, which affirmed the award, prompting another appeal.
At about the same time, Plaintiff sued the Defendant in Delaware federal court to enforce the FAA. It relied on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 [21 U.S.T. 2517, T.I.A.S. No. 6997] (the Convention), as implemented in the U.S. by 9 U.S.C. Section 201 et seq. The District Court stayed the proceedings pending the Swiss court's decision.
In 1999, Defendant filed a second arbitration petition in Switzerland, seeking damages resulting from Plaintiff's failure to comply with the first award. Although the panel decided it had jurisdiction over the claims, it has yet to rule on the merits of Defendant's new claims.
Three years later, the District Court resumed its confirmation proceedings. On June 8, 2004, it ruled for Plaintiff. The Court confirmed the FAA and required Defendant to pay the amount due under the contract. Defendant appealed. The U.S. Court of Appeals for the Third Circuit affirms.
The Court first addresses Defendant's arguments that the court (1) should stay its proceedings to await a final order from the second Swiss arbitration panel and (2) should grant Defendant's motion to adjourn the enforcement of the 1994 FAA under Article VI of the Convention.
The Third Circuit, however, affirms the District Court's decision to resume confirmation proceedings. It holds that enforcement proceedings may continue with respect to issues no longer contested in on-going arbitration proceedings. Since the issues raised in the second Swiss arbitration proceedings do not overlap those arising in the instant case, there is no need for further delays.
Next, Defendant argued that the lower court had improperly modified the award by not requiring concurrent performance by both parties. The appellate court rejects this argument. "Consistent with the policy of favoring enforcement of foreign arbitral awards, parties have limited [sic] defense to recognition and enforcement of an award as set out in Article V of the Convention." [Slip op. 50].
Adequate grounds for refusal under Article V, include (1) incapacity, (2) improper notice of arbitration, (3) awards beyond the scope of the original agreement, (4) arbitration procedure in violation of the agreement, and (5) invalidation of the award by another competent authority.
A competent authority at the situs of the arbitration may also set aside an award if it determines (1) that the subject matter of the dispute may not be arbitrable under that country's law or (2) that enforcement of the award would be contrary to local public policy.
Furthermore, the Convention is ""clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the Convention.' Thus, mistake of fact and manifest disregard of the law do not justify setting aside an award." [Slip op. 63, 64].
Moreover, enforcement courts have to interpret the "public policy" defense narrowly; it is only available ""οΌ where enforcement would violate the forum state's most basic notions of morality and justice.' Parsons & Whittemore Overseas Co., Inc. v. Societe Generale de L'Industrie du Papier (RAKTA), 508 F.2d 969, 974 (2d Cir. 1974)." [Slip op. 65].
In the absence of Article V grounds, the only action a district court may take is to interpret or clarify the meaning of the award. Previous cases "did not give the arbitrator's decisions a brittle rigidity but found some flexibility to modify [the] execution of [an] award without altering its substance. That leeway, however, is very small and is available only in limited circumstances so as not to interfere with the Convention's clear preference for confirmation of awards." [Slip op. 71].
"The District Court judgment confirming the Award was consistent with its substance ... The passage of ten years from the rendition of the Award and the date of the District Court's confirmation order understandably necessitated some deviation from the original terms of execution." [Slip op. 81]
Citation: Admart AG v. The Stephen and Mary Birch Foundation, Inc., 457 F.3d 302 (3d Cir. 2006).
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