Third Circuit, in deciding whether to enforce arbitral award while appeal is pending in South African High Court, affirms dismissal without prejudice based on New York Arbitration Convention ruling; holds, as matter of first impression, that proper standard of review for deferring to foreign annulment proceedings under Article VI is "abuse of discretion"
Tech, Inc., a New Jersey company (Appellant), entered into a large contract to provide customized telecommunications software to Telkom (Appellee), a South African telecommunications company. When disputes arose over contract performance, the companies began binding arbitration proceedings in South Africa. During the arbitration, Appellee requested the South African High Court (SAHC) to intervene to correct alleged arbitration errors. Before the SAHC could do so, the International Court of Arbitration issued its final award to Appellant.
Appellant then sued to confirm its award in District of Columbia federal court pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3; in force for U.S., Dec. 29, 1970] ("The New York Convention"). Appellee filed an action in the SAHC to have the award set aside. Article V of the New York Convention would deprive Appellant of any enforcement right if the SAHC set aside or annulled the award.
The District Court dismissed Appellant's case without prejudice for lack of personal jurisdiction and on grounds of forum non conveniens. Appellant appealed. The District of Columbia Circuit affirmed the district court. It did hold, however, that the lower court should have adjourned the proceeding pending the outcome of Appellee's action in the SAHC.
The SAHC next set aside the award. While Appellant's appeal was pending in the Supreme Court of Appeal of South Africa, [SCASA], Appellant brought a petition to enforce the award in the New Jersey federal court. That court also dismissed the petition, this time with prejudice, "based on estoppel vis-a-vis the D.C. Circuit Court decision and, alternatively and cryptically, dismissed without prejudice pursuant to the New York Convention." [Slip op. 27] The New Jersey Court also entered an order dismissing the petition for lack of personal jurisdiction over Appellee. Appellant timely appealed.
The U.S. Court of Appeals for the Third Circuit reviews the dismissal for lack of personal jurisdiction de novo. The standard of review of a district court's decision to defer to foreign annulment proceedings under Article VI of the New York Convention is a matter of first impression in this Circuit. Agreeing with the Second Circuit on this point, the Court adopts an abuse of discretion standard for review.
The Court holds that the district court did have personal jurisdiction over Appellee. It then directs the lower court to dismiss the petition without prejudice based on the proper interpretation of the New York Convention and on comity grounds.
The Court finds, first, that the district court had jurisdiction to enforce the arbitral award. New Jersey's long-arm statute provides for jurisdiction up to the limits of protection provided to non-residents by the Due Process Clause of the Fourteenth Amendment. The minimum contacts required for jurisdiction depend on the circumstances. In a breach of contract matter, the district court must consider the totality of the circumstances.
"In regard to Appellee's contacts with New Jersey, it is undisputed that Appellee and Appellant entered into a relationship to exchange customized merchandise. Put another way, their contract did not constitute the isolated interaction of a supplier putting an item into the stream of commerce to be fished out by a consumer. As such, Appellee's lack of a physical presence in New Jersey becomes less determinative. ..."
"It is also undisputed that Appellee's representatives traveled into New Jersey pursuant to the business relationship. For example, representatives visited New Jersey to participate in testing-related matters once problems arose in the contract. Such consultations, when they constitute a significant part of the business relationship, represent purposeful availment. ..."
"Given the specific nature of the requested goods, the close relationship and resulting consultations were a significant part of the business arrangement. Moreover, the breach of contract, i.e., the failure to pay for contractually compliant software, occurred when the payment was not placed in a New Jersey bank pursuant to the parties' course of dealings. ..."
"Finally, the fact that the proceeding was for the enforcement of an arbitral award, rather than adjudication on the merits, rightly colors our analysis. Although the New York Convention does not diminish the Due Process constraints in asserting jurisdiction over a nonresident alien, the desire to have portability of arbitral awards prevalent in the Convention influences the answer as to whether Appellee "reasonably anticipate(d) being haled into' a New Jersey court. World-wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)."
"Moreover, the fact that the arbitration at issue was between a New Jersey corporation and the former government-owned state telecommunications monopoly illustrates New Jersey's interest in adjudicating this dispute. Id. ... Thus, the totality of the circumstances points toward sufficient contacts by Appellee with New Jersey." [Slip op. 5]
The Court then turns to the Article VI issue. The district court chose to exercise its discretion not to enforce the award. The Circuit Court reads the district court's order as one for adjournment pursuant to Article VI of the Convention. It provides that: "If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V (1) (e), the authority before which the award is sought to be relied upon may ... adjourn the decision on the enforcement of the award and may also ... order the other party to give suitable security."
Here, an appeal is pending before the SCASA. In effect, that is an application to set aside the award. The district court's decision of dismissing without prejudice is consistent with this Circuit's notions of comity in the international arena. The Court, however, declines to analyze the complex interplay of Articles V and VI of the Convention. The Court notes that Appellant can re-file the case when the SCASA has handed down its judgment.
Citation: Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172 (3rd Cir. 2006).
USA visa and immigration information is available at www.immigrationtelevision.com.
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