International Law Update

In dispute over enforcement of Swedish arbitral award against Respondent Azerbaijan oil company, Second Circuit overrules Texas Trading case and remands to district court to determine whether Respondent is agent of foreign state and whether it is entitled to Due Process protections

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“Since Texas Trading, however, the case law has marched in a different direction. In Republic of Argentina v. Weltover, Inc., the Supreme Court ‘assum[ed], without deciding, that a foreign state is a ‘person’ for purposes of the Due Process Clause,’ 504 U.S. 607, 619 (1992), but then cited South Carolina v. Katzenbach, 383 U.S. 301, 323‑24 (1966), which held that ‘States of the Union are not `persons’ for purposes of the Due Process Clause,’ 504 U.S. at 619. Weltover did not require deciding the issue because Argentina’s contacts satisfied the due process requirements, see id. at 619 & n.2, but the Court’s implication was plain: If the ‘States of the Union’ have no rights under the Due Process Clause, why should foreign states?”

“In Price v. Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82 (D.C. Cir. 2002), the D.C. Circuit reasoned that, because ‘the word ‘person’ in the context of the Due Process Clause of the Fifth Amendment cannot, by any reasonable mode of interpretation, be expanded to encompass the States of the Union,’ Katzenbach, supra at 323, ‘absent some compelling reason to treat foreign sovereigns more favorably than ‘States of the Union,’ it would make no sense to view foreign states as ‘persons’ under the Due Process Clause,’ Price, supra at 96.”

“The Price court found no such reason, see id. at 95‑100, and we find that case’s analysis persuasive. As the Price court noted, the States of the Union ‘both derive important benefits [from the Constitution] and must abide by significant limitations as a consequence of their participation [in the Union],’ id. at 96, yet a ‘foreign State lies outside the structure of the Union,’ …”

“If the States, as sovereigns that are part of the Union, cannot ‘avail themselves of the fundamental safeguards of the Due Process Clause,’ Price, supra at 97, we do not see why foreign states, as sovereigns wholly outside the Union, should be in a more favored position. This is particularly so when the Supreme Court has ‘[n]ever… suggested that foreign nations enjoy rights derived from the Constitution,’ and when courts have instead ‘relied on principles of comity and international law to protect foreign governments in the American legal system.’ Id. … Thus, we hold that the district court erred, … by holding that foreign states and their instrumentalities are entitled to the jurisdictional protections of the Due Process Clause.” [Slip op. 11‑14]

The precise issue in this case is whether SOCAR, as an instrumentality or agency of a foreign state, enjoys Due Process protections.“The district court did not decide whether SOCAR is an agent of the state because Texas Trading rendered the question unnecessary and, unsurprisingly, there was scant briefing on the issue. …”

“ … The Supreme Court has gone so far as to accord due process protections to privately owned foreign corporations. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 418‑19 (1984) … Accordingly, we choose to remand so that in the first instance the district court can determine, in light of Texas Trading’s demise and [First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba (Bancec), 462 U.S. 611, 626‑27, 629, 632 (1983)]’s new relevance to this context, (1) whether SOCAR is an agent of Azerbaijan, and if not, (2) whether SOCAR is entitled to the protections of the Due Process Clause.” [Slip op. 17‑19]

Citation: Frontera Resources Azerbaijan Corp. v. State Oil Co. Of the Azerbaijan Republic, No.07‑1815‑cv (2d Cir. September 28, 2009).

Filed in: 2009 International Law Update, Issue 9

Despite already pending litigation between United States and Australian religious organizations in Australian court, Sixth Circuit finds that international comity does not stand in way of U.S. federal suit to compel arbitration under arbitration convention to which both U.S. and Australia are parties

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“Further, it is difficult to see how comity concerns could come into play where both Australia and the United States, as signatories to the Convention, apply the same law. Defendant did not seek to compel arbitration in its action. Plaintiff instead filed the first action seeking to compel arbitration. To assume that the district court’s order infringes on comity concerns is to assume that Australian courts would not follow their obligation under the Convention, as Defendant’s argument must rest upon an assumption that an Australian court would be less likely to order arbitration. Such an argument both demeans the foreign tribunal and hardly advances the comity interests that Defendant claims to seek to vindicate. Cf. Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349, 1355 (6th Cir. 1992) (noting that federal courts should not seek to convey a message that they have ‘little confidence in the foreign court’s ability to adjudicate a given dispute fairly’).”

“Finally, we note that the other factors delineated in Colorado River do not clearly weigh in Defendant’s favor. The Australian proceeding is only in its initial stages, and the Australian courts have yet to consider Plaintiff’s jurisdictional and venue defenses. Because one group of witnesses is in Australia and another separate group is in Kentucky, either forum will be inconvenient for half of the parties such that this factor is a draw.”

“The issues raised by the parties involve the interpretation of a half‑century‑old Convention whose terms are largely unambiguous, and no sovereign is participating in these proceedings. Cf. Colorado River, 424 U.S. at 820. Consequently, because neither international comity nor the traditional abstention factors applicable to parallel proceedings require abstention, we hold that the district court did not err in declining to abstain in favor of the prior‑filed Australian proceedings.” [Slip op.4‑6]

Citation: Answers in Genesis of Kentucky, Inc. v. Creation Ministries Int’l, Ltd., 556 F.3d 459 (6th Cir. 2009).

Filed in: 2009 International Law Update, Issue 2

First Circuit holds that subsequent oral agreement is subject to foreign arbitration agreement contained in prior written contract and that Circuit Court has jurisdiction to hear interlocutory appeal of this matter under Federal Arbitration Act and Convention on Recognition and Enforcement of Foreign Arbitral Awards

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First Circuit holds that subsequent oral agreement is subject to foreign arbitration agreement contained in prior written contract and that Circuit Court has jurisdiction to hear interlocutory appeal of this matter under Federal Arbitration Act and Convention on Recognition and Enforcement of Foreign Arbitral Awards

In October, 2004 Sourcing Unlimited, Inc, d/b/a Jumpsource (Plaintiff), a Massachusetts corporation, entered into a written partnership agreement (Agreement) with Asimco Technologies, Inc. (ATL), a Delaware corporation headquartered in China. John Perkowski, the Chairman and CEO of ATL, was also Chairman of Asimco International, Inc. (Asimco). Michael Porter, the CEO Plaintiff, and Wilson Ni, President of ATL, signed the Agreement. Neither Asimco nor any other of ATL’s subsidiaries did so.

The Agreement contained an arbitration clause and a choice of law clause that stated: “This agreement shall be governed by, and construed in accordance with, the laws of the P.R. China, without regard to conflicts of laws principles thereof. Any action to enforce, arising out of, or relating in any way to, any of the provisions of this agreement shall be brought in front of a P.R. China arbitration body.”� [Slip Op. 1 2] After disputes arose with ATL, Plaintiff filed suit in a Massachusetts Court in June 2007. The complaint named only Asimco and Perkowski as Defendants, and claimed that Plaintiff had entered into an oral contract with Perkowski.

Defendants next removed the case to the Massachusetts federal court. Defendants moved to dismiss, arguing that the complaint failed to state valid claims and calling for dismissal in favor of arbitration based on the Federal Arbitration Act (FAA), 9 U.S.C. Sections 201 208, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), Sept. 30, 1970, 21 U.S.T. 2517; T. I. A. S. No. 6997, reprinted at 9 U.S.C.A. Section 201 at 511 (West 1999).

“[Defendant]‘s motion argued that the arbitration clause in the Jump source ATL contract was subject to [FAA] Chapter 2 and the New York Convention because (1) there was a written arbitration agreement; (2) the agreement provided for arbitration in the territory of a signatory to the Convention; (3) the agreement arose in a commercial relationship; and (4) the commercial relationship is related with [sic] a foreign state.”�

Defendants countered that the oral agreement between Plaintiff and Perkowski was a modification of the written Agreement and that Plaintiff should not be able to evade the arbitration clause by suing Asimco and Perkowski. Defendants asked the court to dismiss the complaint in favor of arbitration. Plaintiff replied that the oral agreement constituted a separate contract not subject to the arbitration agreement.

The district court denied the Defendants’ motion to dismiss and they filed an interlocutory appeal. The U.S. Court of Appeals for the First Circuit remands with instructions to enter an order to compel arbitration and to dismiss the case. Plaintiff moved to dismiss this interlocutory appeal for lack of appellate jurisdiction because Asimco is not party to a written arbitration agreement.

The Court disagrees. The Federal Arbitration Act (FAA), 9 U.S.C. Sections 201 208, through 9 U.S.C. Section 16(a)(1), creates three explicit statutory exceptions to the ordinary rule against interlocutory appeals. “The FAA, in 9 U.S.C. Section 206, authorizes federal courts to compel international arbitration according to agreements subject to the [Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) Sept. 30, 1970, 21 U.S. T. 2517, T. I. A. S. No. 6997]. Section 16(a)(1)(C), in turn, allows interlocutory appeals of orders refusing to compel arbitration under Section 206.”�

“[Plaintiff] urges this court to adopt the rule of two sister circuits that reject interlocutory appeals taken under different provisions of Section 16(a)(1) from orders denying motions to compel domestic arbitration when the parties are not signatories to a written arbitration agreement. …This appeal concerns an agreement to arbitrate an international commercial dispute, which is subject to the New York Convention and Chapter 2 of the FAA.”�

“Chapter 2 of the FAA employs broader statutory language than does Chapter 1. The Chapter 2 provision authorizing district courts to compel international arbitration reads, “�A court . . . may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States.”� 9 U.S.C. Section 206. We do not read anything in the language of Chapter 2 to suggest that a party seeking an appeal from an order denying international arbitration must have signed a written arbitration agreement firsthand.”�

“To erect a bright line rule that this court lacks jurisdiction to review appeals taken under Section 16(a)(1)( c) … unless all parties to the dispute are signatories to a written arbitration agreement would insulate a whole class of denials of motions to compel arbitration from review until after the litigation has run its course. Such a rule would contravene the courts’ obligation to enforce arbitration agreements under the New York Convention and Chapter 2 of the FAA.”� [Slip Op. 5 6]

Addressing the merits, the Court notes that “[t]he present dispute is sufficiently intertwined with the Jumpsource ATL Agreement for application of estoppel to be appropriate. On these facts, there is no need to explore further what is required to show intertwining. Most of Jumpsource’s claims either directly or indirectly invoke the terms of the Jumpsource ATL Agreement.”� [Slip Op. 8]

Citation: Sourcing Unlimited, Inc., v. Asimco International, Inc., 526 F.3d 38 (1st Cir. 2008).

Filed in: 2008 International Law Update, Issue6

In arbitration dispute, Fifth Circuit holds that, where it only has secondary jurisdiction under New York Arbitration Convention, it should treat Plaintiff’s claims based on RICO and state fraud law that seek to rectify harm suffered from unfavorable Swiss arbitration award as collateral attacks subject to dismissal for lack of subject matter jurisdiction

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In arbitration dispute, Fifth Circuit holds that, where it only has secondary jurisdiction under New York Arbitration Convention, it should treat Plaintiff’s claims based on RICO and state fraud law that seek to rectify harm suffered from unfavorable Swiss arbitration award as collateral attacks subject to dismissal for lack of subject matter jurisdiction

In 1993, Petrec International, Inc. (Plaintiff) and Nigerian National Petroleum Corporation (NNPC) (Defendant) entered into a joint venture under which Plaintiff agreed to reclaim and salvage slop oil discarded by Defendant during the course of its oil business off the Nigerian coast. For this, the parties agreed to create a Nigerian company, Petrec (Nigeria) Limited (PNL), to be jointly capitalized and owned by Petrec and NNPC. They also consented to resolve any disputes arising under the conflict through arbitration.

Later, when a dispute did arise, Plaintiff filed arbitration proceedings in 1998 with the Chamber of Commerce and Industry of Geneva, Switzerland. The panel issued a Partial Award on July 5, 2000, finding that Plaintiff had standing to pursue its claims and that Defendant had failed in one of its duties under the contract. The panel also ruled that the joint venture agreement had not conferred exclusive rights to all of Defendant’s slop oil on PNL, as Plaintiff had argued. Rather, Defendant’s obligation was only to make available enough slop oil to keep PNL’s operations viable and profitable.

At a later session to determine the measure of damages, Defendants produced evidence showing that Plaintiff was a Texas corporation formed after the joint venture agreement, and therefore lacked capacity to maintain its claims. The panel agreed, and issued a Final Award to that effect.

Plaintiff next challenged the Final Award in a Swiss federal court on grounds that it violated Swiss arbitration law and public policy. In April 2002, however, the Swiss court upheld the panel’s decision. Plaintiff then filed a U.S. lawsuit in the Northern District of Texas to confirm the Partial Award. The district court dismissed it for lack of subject matter jurisdiction (SMJ). The court explained that, in seeking confirmation of the Partial Award, Plaintiff, in effect, was asking the federal court to set aside or modify the Final Arbitration Award.

In the court’s view, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (usually dubbed the “New York Convention”�) precludes such a result. The court also held that the doctrines of res judicata and international comity barred it from revisiting the Swiss court’s decision to uphold the Final Award.

Petrec International, Inc. and other Plaintiffs (jointly “Plaintiff”�) brought the present action in the Eastern District of Texas, in September 2005, presenting claims under both RICO and state law charging that Defendant had won the Final Award through fraud, bribery, and corruption. Defendants moved to dismiss based on lack of SMJ jurisdiction (1) under the New York Convention and (2) under the Foreign Sovereign Immunities Act (FSIA).

The district court granted the motion on two grounds. It first ruled that it lacked SMJ jurisdiction because one of Plaintiff’s claims was a collateral attack on the Final Award, which the New York Convention does not allow. It also found that it lacked personal jurisdiction over two of the Defendants, and two others were entitled to immunity under the FSIA.

Plaintiff timely appealed. It conceded that the lower court had properly dismissed its claim seeking vacatur of the Final Award for lack of SMJ. Plaintiffs nevertheless urged that (1) the district court erred in ruling that the Convention required dismissal of its remaining claims for lack of SMJ and (2) that the court improperly relied upon F. R. Civ. P. 12(b)(1) in dismissing their federal and state law claims for lack of SMJ. The U.S. Court of Appeals for the Fifth Circuit, however, affirms.

The Court explains its rulings on the Convention. “The Convention provides that it “�shall apply to the recognition and enforcement of arbitral awards made in the territory of a [country] other than the [country] where the recognition and enforcement of such awards are sought.’ Convention, Art. I(1).

“The award at issue in this case, … is clearly a foreign award within the scope of the Convention. … the Convention “�mandates very different regimes for the review of arbitral awards (1) in the countries in which, or under the law of which, the award was made, and (2) in other countries where recognition and enforcement are sought.’ [Cite].”� [Slip op. 5]

There was no dispute that Switzerland was the country of primary jurisdiction with respect to the Final Award, and that the U.S. had only secondary jurisdiction. “Although the Convention permits a primary jurisdiction court to apply its full range of domestic law to set aside or modify an arbitral award, secondary jurisdiction courts may only refuse or stay enforcement of an award on the limited grounds specified in Articles V and VI. … ” [Those Articles] “�unequivocally lay down the principle that the court in the country in which, or under the law of which, the award was made has the exclusive competence to decide on the action for setting aside the award.’ … Accordingly, a U.S. court sitting in secondary jurisdiction lacks [SMJ] jurisdiction over claims seeking to vacate, set aside, or modify a foreign arbitral award.”� [Slip op. 6]

“[Plaintiff] argue[d] that a fair reading of its complaint shows that the RICO and state law claims are not disguised attempts to vacate or attack the Final Award. Rather, it contend[ed] that it has alleged a pattern of racketeering and conspiratorial conduct that, while arising in the context of arbitration proceedings, constitutes an independent violation of federal and state law and compels relief analytically distinct from vacatur. … Like the district court, [the Court of Appeals] conclude[d] that the claims asserted by [Plaintiff[ are no more, in substance, than a collateral attack on the Final Award itself."� [Slip op. 6]

Plaintiff contended that their RICO claims did not try to relitigate the facts and defenses raised in the prior arbitration, and thus were not collateral attacks on the Final Award. The Circuit Court disagrees: “In one sense… [the claims] do seek to relitigate certain issues, since [Plaintiff] asks for, as damages, the award it believes it should have received in the arbitration, which would require an inquiry into questions of liability that were already presented to the arbitration panel.”�

“We do recognize that the specific allegations of bribery and corruption are separate from the contract dispute over slop oil that was the subject of the arbitration. However, it does not follow that these claims cannot be construed as a collateral attack… The harm in this case did not result when the arbitrators failed to disclose business dealings, engaged in ex parte communications with Defendant, or were bribed.”�

“Rather, it resulted from the impact that these acts had on the Final Award. The relief [Plaintiff] seeks”�the award it believes it should have received, as well as costs, expenses, and consequential damages stemming from the unfavorable award it did receive”�shows that its true objective in this suit is to rectify the harm it suffered in receiving the unfavorable Final Award.”� [Slip op. 9]

On the improper dismissal claim, the Court states its reasoning. “Plaintiffs’ second challenge asserted that (1) there is no basis for the notion that a complaint can be dismissed on [SMJ] grounds as a collateral attack on an arbitral award, (2) the dismissal acted so as to create an “arbitration exception”� to federal subject matter jurisdiction, which would entail undesirable results if upheld, and (3) any limitations imposed on courts of secondary jurisdiction by the Convention should be overlooked in this case because further relief is not available in the primary jurisdiction of Switzerland. The court concluded that because the Convention bars the litigation of claims that are collateral attacks on the Final Award in all courts save the courts of the primary jurisdiction, dismissal for lack of [SMJ] was appropriate.”�

Plaintiffs’ first argument rested on a lack of precedent for an SMJ dismissal. In the Court’s view, Plaintiff has misread the precedent it cites; the precedent does not guide the final disposition of the case, it shows only that the Plaintiffs’ claims constitute a challenge to the Final Award. Once this is clear, the Convention dictates the appropriate disposition.

The Court also spurned Plaintiff’s contention that the absence of another chance to set aside the Award in the primary jurisdiction should invalidate [Convention] protections. “In the interest of finality, every primary jurisdiction undoubtedly will foreclose review of an award at some point. It would seriously undermine the functioning of the Convention if the fact that the opportunity for judicial review of an award in the primary jurisdiction has passed could open the door to otherwise impermissible review in a secondary jurisdiction. …”� [Cite] [Slip op. 11 12]

Citation: Gulf Petro Trading Co. Inc. v. Nigerian National Petroleum Corp., 2008 WL 62546, No. 06 40713 (5th Cir. 2008).

Filed in: 2008 International Law Update, Issue 1

In action by Canadian consumer against U.S. computer maker for latter’s failure to honor mistakenly posted lower on line prices, majority of Supreme Court of Canada upholds validity of arbitration clause in Defendant’s sale contract since its choice of National Arbitration Forum headquartered in United States did not introduce “foreign element”

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In action by Canadian consumer against U.S. computer maker for latter’s failure to honor mistakenly posted lower on line prices, majority of Supreme Court of Canada upholds validity of arbitration clause in Defendant’s sale contract since its choice of National Arbitration Forum headquartered in United States did not introduce “foreign element”

Dell Computer Corporation (Dell), a U.S. company, sells computer equipment retail over the Internet. It has its Canadian head office in Toronto and a place of business in Montreal. In the late afternoon of Friday, April 4, 2003, the order pages on Dell’s English language Web site indicated a price of $89 rather than $379 for the Axim X5 300 MHz handheld computer and a price of $118 rather than $549 for the Axim X5 400 MHz handheld computer.

The pages of the site that advertise the products, however, listed the correct prices. On April 5, Dell discovered the errors, and blocked access to the erroneous order pages through the usual address, although it did not withdraw the pages from the site.

On the morning of April 7, Olivier Dumoulin (Plaintiff), a Quebec consumer, found out about the low prices from an acquaintance that sent him the “deep links.” These links made it possible to bypass the corrective measures Dell had taken. Using a deep link, Plaintiff ordered a Dell computer at the price of $89.

Later that same day, Dell posted a price correction notice and, also announced that it would decline to process orders for computers at the prices of $89 and $118. At trial in Superior Court, a Dell employee testified that over the course of that weekend, 354 Quebec consumers had placed a total of 509 orders for these Axim computers; on an average weekend, Dell would sell from one to three of them in Quebec.

On April 17, Plaintiff put Dell in default by demanding that it honor his order at the $89 price. When Dell refused, the Union des Consommateurs (Union) and Plaintiff filed suit in the Quebec Superior Court. They also moved the court to authorize the filing of a class action against Dell.

Dell, however, asked the court (1) to refer Union’s and Plaintiff’s claim to arbitration pursuant to the clause set out in the terms and conditions of sale, and (2) to deny the motion to institute a class action. The Union and Plaintiff replied that the arbitration clause was null and void and that, in any event, Defendant could not invoke it against Plaintiff.

The trial judge pointed out that, according to the arbitration clause, the rules of the National Arbitration Forum (NAF), which is “located in the United States,” should govern any arbitration proceedings. Accordingly, she ruled that a “foreign element” was present for purposes of the rules of Quebec private international law and that the bar of the Civil Code of Quebec (CCQ) Art. 3149 should apply. In her view, moreover, the court could not apply the arbitration clause against Plaintiff. She also authorized a class action against Dell.

The Quebec Court of Appeal dismissed Plaintiffs’ appeal from that decision and it appealed to the Canadian Supreme Court. On November 9, 2006, the Quebec Minister of Justice introduced Bill 48, An Act to amend the Consumer Protection Act and the Act respecting the collection of certain debts in the National Assembly. One of the Bill’s provisions would bar a consumer from referring a dispute to arbitration. Bill 48 entered into force the day after the hearing of the appeal in the Supreme Court.

Section 2 of that Bill provides: “Any stipulation that obliges the consumer to refer a dispute to arbitration, that restricts the consumer’s right to go before a court, in particular by prohibiting the consumer from bringing a class action, or that deprives the consumer of the right to be a member of a group bringing a class action is prohibited. If a dispute arises after a contract has been entered into, the consumer may then agree to refer the dispute to arbitration.”

In this Court, Dell submits that no article of Quebec legislation in effect voids the arbitration clause. It, therefore, (1) is not contrary to public order, (2) Art. 3149 CCQ does not forbid it and (3) it is neither external nor abusive.

After Bill 48 went into effect, the Court asked the parties to brief its applicability vel non to the instant case. Dell made three points on why Bill 48 does not affect this case: (1) that the Bill does not have retroactive effect; (2) that the new legislation cannot apply to disputes already before the courts; and (3) that Dell had a vested right to the arbitration procedure provided for in its contract with Plaintiff. The Union contended only that the provision on arbitration clauses merely confirms a pre existing prohibition.

Of the many issues raised, in this Court’s view, the most significant one deals with the application of Art. 3149 CCQ. This question is one that involves the ordering of the rules in the CCQ; its answer will influence the future interpretations of that Code. Article 3149 provides that: “A Québec authority also has jurisdiction to hear an action involving a consumer contract or a contract of employment if the consumer or worker has his domicile or residence in Québec; the waiver of such jurisdiction by the consumer or worker may not be set up against him.”

This provision appears in Title Three, designated “International Jurisdiction of Québec Authorities”, and is located in Book Ten of the CCQ entitled “International Law”. In the Supreme Court majority’s view, Article 3149 applies only where there is a relevant “foreign element” that justifies resorting to the rules of Quebec private international law.

“When the Quebec legislature began its revision of the civil law in the mid twentieth century, it did so in a way that was consistent with the civil law tradition in its purest form. The codification process, therefore, entailed a reflection on all the Code’s principles and on how to organize them in one central document with a view to simplifying and clarifying the rules, and thus making them more accessible. The organization of rules is an essential feature of codification.”

“According to Professors Brierley and Macdonald: ‘The rational and systematic character of the Code also bears on its mode of presentation. One of the central features of the Code is its taxonomic structure. This affects both its organization and its drafting style. Just as the very existence of a Code labelled ‘Civil Code’ presupposes a larger legal universe that can be divided and subdivided — public law, private law; and, within private law, procedure and substance; and, within substantive private law, commercial law and civil law — the same taxonomic approach is carried through into the Code itself.’”

“.. [T]he inventory of subjects selected for inclusion and the manner of their placement serve to define the range of meaning that each of the subjects so included may have. The initial organizational choices bear directly on the manner in which the Code adapts to changing circumstances…. [Cite].”

“Private international law is the branch of a state’s domestic law that governs private relationships that ‘exten[d] beyond the scope of a single national legal system.’ … [There are] a variety of conceptions of private international law. Thus, in some countries, this branch of law is limited to the conflict of laws, whereas in France, private international law has a broader scope, extending also to questions concerning the status of foreign nationals and the nationality of persons.”

“In English private international law, an intermediate approach has been adopted that generally concerns three types of questions: (I) conflict of laws, (ii) conflict of jurisdictions and (iii) the recognition and enforcement of foreign judgments. [Cites]. What is the situation in Quebec law?” [¶ 16].

“The drafters of the original rules of Quebec private international law naturally drew on French law. Like the Code Napoléon, the Civil Code of Lower Canada contained only a few articles on this subject, and until the CCQ was enacted in 1991, they and a few provisions of the Code of Civil Procedure (CCP) and from specific statutes constituted the private international law of Quebec.”

” … [I]n the nineteenth and early twentieth centuries, a growing number of states had recourse to codification, adopting increasingly comprehensive and systematic rules. [Cites]. The subsequent project to codify Quebec’s private international law was part of that trend; it was included in the mandate for the proposed general reform of the Civil Code that was assigned to the Civil Code Revision Office (the Office) in 1965.”

“In 1975, an initial draft codification of the rules of Quebec private international law was submitted to the Office by its private international law committee, … The content of this report was amended slightly and was incorporated two years later into Book Nine of the Draft Civil Code. [Cites]. The structure of Book Nine attests to the Quebec legislature’s adoption of the intermediate approach of English private international law … The commentaries shed light on the distinction between rules of jurisdiction governing purely domestic disputes and those that, because of a foreign element, form part of private international law. …” [¶¶ 17 20].

“Given that domestic disputes are governed by the general provisions of Quebec domestic law, there is no reason to apply the rules relating to the international jurisdiction of Quebec authorities to a dispute that involves no foreign element.” [¶¶ 23 24].

“This foreign element … must be ‘[a] point of contact which is legally relevant to a foreign country’, which means that the contact must be sufficient to play a role in determining whether a court has jurisdiction.”

“…[O]ur private international law is based on English law. … North and Fawcett define private international law as follows: ‘Private international law, then, is that part of law which comes into play when the issue before the court affects some fact, event or transaction that is so closely connected with a foreign system of law as to necessitate recourse to that system.’ …”

“The connecting factor and foreign element concepts are recognized in Quebec private international law, too: These two concepts can, therefore, overlap. A connecting factor is a tie to either the domestic or a foreign legal system, whereas the foreign element concept refers to a possible tie to a foreign legal system. Thus, in a personal action brought in Quebec, the fact that a defendant is domiciled in Quebec is a connecting factor with respect to the Quebec legal system but not a foreign element, whereas the fact that a defendant is domiciled in England will be considered both a connecting factor with respect to English jurisdiction and a ‘foreign element’ with respect to the Quebec legal system.”

“A state is free to determine what connecting factors or foreign elements it considers to be relevant. In Quebec, the legislature adopted a number of factors already found in the main Western private international law systems. ….”

“Article 3148 provides in part: ‘In personal actions of a patrimonial nature, a Québec authority has jurisdiction where (1) the defendant has his domicile or residence in Québec; (2) the defendant is a legal person, is not domiciled in Québec but has an establishment in Québec, and the dispute relates to its activities in Québec; (3) a fault was committed in Québec, damage was suffered in Québec, an injurious act occurred in Québec or one of the obligations arising from a contract was to be performed in Québec; (4) the parties have by agreement submitted to it all existing or future disputes between themselves arising out of a specified legal relationship; (5) the defendant submits to its jurisdiction. However, a Québec authority has no jurisdiction where the parties, by agreement, have chosen to submit all existing or future disputes between themselves relating to a specified legal relationship to a foreign authority or to an arbitrator, unless the defendant submits to the jurisdiction of the Québec authority.’” [ ¶¶ 26 30].

“It can be seen that what these traditional factors have in common is a concrete connection with Quebec; if private international law is invoked, it can be assumed that there is an equally concrete foreign element that can serve as a basis for applying a foreign legal system. …”

“…[T]he title on the conflict of laws … [makes] it possible for the parties to provide that a purely domestic juridical act will be governed by the law of a foreign jurisdiction. However, immediately after recognizing the autonomy of the will of the parties where the designation of the applicable law is concerned, the legislature hastened to limit it in the second paragraph of the provision. Thus, in the absence of a foreign element, a juridical act remains subject to the mandatory rules that would apply if no law were designated. …” [¶ 31].

“… [T]he wording of Art. 3111 CCQ is based on that of Art. 3 of the Convention on the Law Applicable to Contractual Obligations (Rome Convention of 1980) which authorizes the ‘[choice of] a foreign law’ where there is no foreign element. It is also conceivable that the determination of the law applicable to a juridical act will at times require a more complex analysis than the one to be made where adjudicative jurisdiction is in issue. …”

“In the title on the international jurisdiction of Quebec authorities, on the other hand, there is no exception to the foreign element requirement, and it is clear that a court asked to apply the rules of private international law must first determine whether the situation [does involve] a foreign element. This position is consistent with the traditional definition of private international law and with the Office’s intention. It must now be asked whether, in the case at bar, the [mere] choice of arbitration procedure gives rise to a foreign element warranting the application of Art. 3149 CCQ. …”

“International arbitration law is strongly influenced by two texts drafted under the auspices of the United Nations: the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 330 U. N. T. S. 3 (‘New York Convention’), and the UNCITRAL Model Law on International Commercial Arbitration, U. N. Doc. A/40/17 (1985) (Model Law).”

“The New York Convention entered into force [for Canada in 1986] Article II … provides that a court of a contracting state that is seized of an action in a matter covered by an arbitration clause must refer the parties to arbitration. At present, 142 countries are parties to the Convention. The accession of this many countries is evidence of a broad consensus in favour of the institution of arbitration.”

“The Model Law … is a model for legislation that the UN recommends that states take into consideration in order to standardize the rules of international commercial arbitration. The Model Law was drafted in a manner that ensured consistency with the New York Convention: The final text of the Model Law was adopted on June 21, 1985 by the U. N. Commission on International Trade Law (UNCITRAL). … [T]he UNCITRAL Secretariat states that it: ‘…reflects a worldwide consensus on the principles and important issues of international arbitration practice. It is acceptable to States of all regions and the different legal or economic systems of the world.’ In 1986, Parliament enacted the Commercial Arbitration Act, … which was based on the Model Law. The Quebec legislature followed suit that same year and incorporated the Model Law into its legislation.” [ ¶¶ 36 41].

The Model Law, however, has a different status. “… [T]he Model Law is a non binding document that the United National (sic) General Assembly has recommended that states take into consideration. Thus, Canada has made no commitment to the international community to implement the Model Law as it did in the case of the New York Convention. Art. 940.6 CCP provides that Title I on arbitration proceedings is to be interpreted in light, where applicable, of the Model Law and certain documents related to it ‘[w]here matters of extraprovincial or international trade are at issue in an arbitration’.” In fact, this [italicized] language came straight from Art. 1492 of the French Code of Civil Procedure. [¶ 46]. … Quebec authors agree that Art. 940.6 CCP has imported the concept of international arbitration from French law.” [¶ 48].

“The matter of international trade test is different from connecting factors such as the parties’ place of residence or the place where the obligations are performed. … [T]he test under Art. 940.6 CCP is clearly distinct from the foreign element requirement. Where the Quebec legislature intended different rules to apply, it has made this clear.”

“The rules on arbitration proceedings set out in Title I of Book VII of the [CCP] apply, … to any arbitration proceeding subject to Quebec law. The parties are free to attribute foreign connections to an arbitration process, in which case the rules of private international law may be applicable. However, an arbitration clause is not, in itself, a foreign element warranting the application of the rules of Quebec private international law. The commentators are unanimous on this point.”

“The neutrality of arbitration as an institution is one of the fundamental characteristics of this alternative dispute resolution mechanism. Unlike the foreign element, which suggests a possible connection with a foreign state, arbitration is an institution without a forum and without a geographic basis. [Cite]. Arbitration is part of no state’s judicial system.. The arbitrator has no allegiance or connection to any single country. [Cite]. In short, arbitration is a creature that owes its existence to the will of the parties alone. [Cite].”

“To say that the choice of arbitration as a dispute resolution mechanism gives rise to a ‘foreign element’ would be tantamount to saying that arbitration itself establishes a connection to a given territory, and this would be in outright contradiction to the very essence of the institution of arbitration: its neutrality. This institution is territorially neutral; it contains no foreign element. Furthermore, the parties to an arbitration agreement are free, subject to any mandatory provisions by which they are bound, to choose any place, form and procedures they consider appropriate. They can choose cyberspace and establish their own rules.”

“It was open to the parties in the instant case to refer to the CCP to base their procedure on a Quebec or U.S. arbitration guide or to choose rules drawn up by a recognized organization, such as the International Chamber of Commerce, the Canadian Commercial Arbitration Centre or the NAF. The choice of procedure does not alter the institution of arbitration in any of these cases. The rules become those of the parties, regardless of where they are taken from.” [¶¶ 49 52].

“The trial judge saw a foreign element in the fact that [t]he NAF is located in the U.S. The Court of Appeal rejected this conclusion, and the Union has abandoned this argument. … The place where decisions concerning arbitration services are made or where the employees of these organizations work has no impact on the disputes in which their rules are used.” [¶ 55].

“My [dissenting] colleagues … nonetheless consider it logical to accept that an arbitration clause, in itself, constitutes a foreign element that can result in application of the provisions on the international jurisdiction of Quebec authorities. Their interpretation has [undesirable ] consequences for agreements other than consumer contracts. … This interpretation [also] … implies that the codifiers failed to achieve their objective of ordering the rules in both Book Ten on private international law and Chapter XVIII on arbitration agreements in Book Five.” [¶ 60].

“In enacting Art. 3149 CCQ, the legislature could not have intended to take an obscure approach requiring a decontextualized reading of the Title on the international jurisdiction of Quebec authorities. … It would not be appropriate to shatter the consistency of the rules on arbitration and those on the international jurisdiction of Quebec authorities by placing all disputes concerning an arbitrator’s jurisdiction within the scope of the rules on the jurisdiction of Quebec authorities regardless of whether there is a foreign element.” [¶ 65].

On the application of Article 3149 CCQ, the majority concludes as follows. “The legal experts who worked on the reform of the Civil Code, the Minister of Justice who was in office at the time of the enactment of the CCQ and many Canadian and foreign authors recognized that a foreign element was a prerequisite for applying the rules on the international jurisdiction of Quebec authorities. The ordering effected in a codification process and the rule that a provision must be interpreted in light of its context require an interpretation of Art. 3149 CCQ that limits it to cases with a foreign element.”

“Since it is important for the Court to maintain the internal consistency of the [CCQ] , the Court should adopt a contextual interpretation that limits the scope of the title on the international jurisdiction of Quebec authorities to situations with a relevant ‘foreign element.’ The prohibition in CCQ Art. 3149 against waiving the jurisdiction of Quebec authorities only applies to that type of case.”

“Arbitration is essentially a neutral institution, so it does not in itself have any foreign element. An arbitration tribunal has only those connections that the parties to the arbitration agreement intended it to have. The independence and territorial neutrality of arbitration are characteristics that must be promoted and preserved in order to foster the development of this institution. At the time a party invoked it, no provision of Quebec legislation barred the arbitration clause.” [¶¶ 3, 66].

As a result, a majority of six Justices allows the present appeal, reverses the Court of Appeal’s judgment, refers Plaintiff Dumoulin’s claim to arbitration and dismisses the motion for authorization to institute a class action.

Citation: Union des Consommateurs c. Dell Computer Corp., Docket: 31067; 2007 CarswellQue. 6310 (Sup. Ct. Can., July 13, 2007).

Filed in: 2007 International Law Update, Issue9

Seventh Circuit rules that, in absence of choice of law provision in arbitration agreement, court will apply federal common law rule under New York Arbitration Convention to agreed time limits for demanding arbitration

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Seventh Circuit rules that, in absence of choice of law provision in arbitration agreement, court will apply federal common law rule under New York Arbitration Convention to agreed time limits for demanding arbitration

Certain Underwriters at Lloyd’s London (Appellees) were a reinsurance syndicate, which included citizens of the United Kingdom. It entered into certain reinsurance contracts with Argonaut Insurance Company (Appellant), a California based insurer.

The contracts contained an arbitration provision that provided in relevant part that: “If any dispute shall arise between the Company and the Underwriters with reference to the interpretation of this Agreement or their rights with respect to any transaction involved, this dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within thirty days after receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators, who shall choose the third.” [Slip op. 2]

A dispute arose when Appellant made a claim for reimbursement from Appellees for settlement of certain claims. Appellees requested additional information from Appellant. Appellant sent an arbitration demand on August 4, 2004, which included a request that the Appellees name its arbitrator within 30 days. Appellees named an arbitrator on September 3, 2004. On August 6, 2004 Appellees sent a demand that Argonaut name its arbitrator within 30 days.

Argonaut’s 30 day period ended on September 5, 2004 a Sunday. Appellant had not yet named an arbitrator by that date. On September 6, 2004, which was Labor Day, a legal holiday in the U.S. but not in the U. K., Appellees sent notice to Appellant that the time limit had expired and itself designated a second arbitrator. Because of the parties’ competing demands for arbitrators, Appellees filed a petition in the U.S. district court under 9 U.S.C. § 5 for an order confirming the appointment of its two nominees as arbitrators in the dispute. The U.S. district court granted summary judgment for the Appellees Underwriters at Lloyd’s London, confirming the arbitrators’ decision. Argonaut now appeals.

The U.S. Court of Appeals for the Seventh Circuit affirms. “The [United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 (implemented by 9 U.S.C. § 201 et seq.) (New York Convention)] is a multilateral treaty that entered into force on June 7, 1959. The substantive provisions of the Convention mandate first that courts of contracting nation states give effect to arbitration provisions included in international commercial agreements; they further require courts to recognize and enforce arbitral awards made within the jurisdiction of other contracting nation states.” [Slip op. 7]

Because the arbitration agreement contained no choice of law provision the court turned to the issue of what law applies. “We believe that this overarching federal concern with the uniformity of treatment of international arbitration agreements requires that the issue before us be resolved by a federal common law rule, rather than by a state rule of decision.” [Slip op. 10]

“We stress that we deal here with more than a generalized federal interest in uniformity that might be insufficient to warrant application of a federal rule. [Cite] The uniformity at issue here is one that implicates the very specific interest of the federal government in ensuring that its treaty obligation to enforce arbitration agreements covered by the Convention finds reliable, consistent interpretation in our nation’s courts.”

“The application of parochial rules that excuse or extend contractual deadlines to agreements arising under the Convention would frustrate one of the primary objectives of the United States in becoming a signatory to the Convention: securing uniform standards by which agreements to arbitrate international disputes are governed.”

“[W]e hold that, in this circumstance, the injection of a parochial rule that interprets a contractual deadline other than by its plain wording is contrary to the interests of the United States as embodied the Convention.” [Slip op. 11]

“[T]he substantial federal interests in uniform interpretation of agreements under the Convention justify the application of a uniform rule of decision on the question presented. In the absence of a choice of law provision, we conclude that parties are to be bound to the explicit language of arbitration clauses, with no state specific exceptions that would extend otherwise clear contractual deadlines.”

“As the foregoing discussion makes plain, the content of the federal rule we today adopt must provide that, when the parties do not otherwise determine by contract, deadlines included in arbitration agreements under the Convention will admit of no exceptions. Thirty days must mean thirty days. When the end of the thirty days falls on a Saturday, a Sunday, a national holiday or a state or parochial holiday, the parties will be bound nonetheless to comply with the deadline for which they bargained.” [Slip op. 12]

Citation: Certain Underwriters At Lloyd’s London v. Argonaut Insurance Co., 2007 WL 2433139 (7th Cir. 2007).

Filed in: 2007 International Law Update, Issue8

Eleventh Circuit holds that arbitration agreement in collective bargaining contract for seamen is enforceable under Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which supersedes relevant portions of the Seaman’s Wage Act

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Eleventh Circuit holds that arbitration agreement in collective bargaining contract for seamen is enforceable under Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which supersedes relevant portions of the Seaman’s Wage Act

His employer, Celebrity Cruises, Inc. (Defendant) required Ignacio Eufemio Lobo (Plaintiff), a stateroom attendant on a passenger ship, to share his gratuities with his assistant by paying the assistant $1.20 per passenger per day from his own earnings. Plaintiff alleges that Defendant imposed this requirement through duress as a result of the unequal bargaining position of the parties. This requirement breaches the collective bargaining agreement governing the terms of his employment, which include gratuities as part of a stateroom attendant’s pay.

Plaintiff filed suit in federal district court. The Defendant moved to dismiss on the grounds that, pursuant to the same collective bargaining agreement, his wage claim must be sent to arbitration. Plaintiff responded that the arbitration clause in the collective bargaining agreement was invalid because it conflicted with both the Seaman’s Wage Act which gives seamen the right to access federal courts to resolve wage disputes, 46 U.S.C. Section 10313, and the Supreme Court’s decision in U.S. Bulk Carriers, Inc. v. Arguelles, 400 U.S. 351 (1971). The district court dismissed the complaint ruling that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) 9 U.S.C. Sections 202 208 the Seaman’s Wage Act and Arguelles had been superseded by. Plaintiff appealed to the U.S. Court of Appeals for the Eleventh Circuit.

The Court affirms, holding that the Convention superseded the Seaman’s Wage Act and that Arguelles did not apply here.

“In Arguelles, the Court considered whether the provisions of the Seaman’s Wage Act were displaced by the subsequent enactment of the Labor Management Relations Act (LMRA), which ‘provides a federal remedy to enforce grievance and arbitration provisions of collective bargaining agreements’ in commercial industries. Supra, at 352. The Supreme Court held that the LMRA did not abrogate the Seaman’s Wage Act remedy.” [Slip op. 2].

In the Court’s view, “the underlying basis of the Supreme Court’s decision in Arguelles was the fact that there was nothing in the language or legislative history of the LMRA to indicate an intent to abrogate the statutory right to sue in federal court afforded by the Seaman’s Wage Act.” [Slip op. 3].

On the other hand, in discussing the Convention, the Court determined that “Congress explicitly agreed to ‘recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen . . . between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.’ Convention, Article II(1). Indeed, the Convention compels federal courts to direct qualifying disputes to arbitration.” In light of this distinction the Court held that “to nullify the arbitration provision here would hinder the purpose of the Convention and subvert congressional intent.” [Slip op. 4].

Citation: Lobo v. Celebrity Cruises, Inc., 488 F.3d 891 (11th Cir. 2007).

Filed in: 2007 International Law Update, Issue6

District of Columbia Circuit holds that, if Country where arbitration award was made lawfully nullifies it, this makes award unenforceable in the U.S. under the Federal Arbitration Act or New York Arbitration Convention

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District of Columbia Circuit holds that, if Country where arbitration award was made lawfully nullifies it, this makes award unenforceable in the U.S. under the Federal Arbitration Act or New York Arbitration Convention

TermoRio S.A. E.S.P. (Plaintiff) entered into a Power Purchase Agreement (PPA) with Electrificadora del Atlantico S.A. E.S.P. (Defendant). Plaintiff generally agreed to generate electricity and Defendant, a state owned public utility, agreed to buy it. When a dispute arose, the parties submitted it to arbitration in Colombia, pursuant to the terms of the PPA. The arbitration

tribunal eventually awarded Plaintiff more than $60 million.

Thanks to its excellent connections, Defendant obtained an “extraordinary writ” in a Colombian court to overturn the award. Later on, Colombia’s highest administrative court, the Council of State (Consejo de Estado), nullified the award because the PPA’s arbitration clause violated Colombian law.

Plaintiff and one of its investors filed the present case in the District of Columbia to enforce the Colombian award under the Federal Arbitration Act (FAA), 9 U.S.C. Section 201. The FAA implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, [in force for U.S. Dec. 29, 1970; 21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3] (“New York

Convention”). The U.S. has ratified another pertinent convention on the enforcement of foreign arbitral awards. This is the Inter American Convention on International Commercial Arbitration [in force for U.S., Oct. 27, 1990, O.A.S.T.S. No. 42, 1438 U.N.T.S. 245] (“Panama Convention”). Because the U.S. codification of the Panama Convention contains by reference the relevant sections of the New York Convention, the Court only refers to the New York Convention.

The district court dismissed for failure to state a claim and, alternatively, on forum non conveniens grounds. Plaintiff appealed. The U.S. Court of Appeals for the District of Columbia Circuit, however, affirms.

The Court finds that the Colombian Council of State had the power to set aside the arbitration award as contrary to Colombian law. See Art. V(1)(e) of the New York Convention. It provides that “Recognition and enforcement of the award may be refused … if … [t]he award … has been set aside … by a competent authority of the country in which, or under the law of which,

that award was made.”. Thus, Plaintiffs have no U.S. cause of action to seek enforcement of the award under either the FAA or the New York Convention. Colombia, too, is a party to both Conventions. If, for example, the competent authority in the country where the award was made sets it aside, Article V(1)(e) of the New York Convention permits a fellow state party to refuse to enforce that award.

“… [H]ere, where appellants seek to enforce an arbitration award that has been vacated by Colombia’s Consejo de Estado. For us to endorse what appellants seek would seriously undermine a principal precept of the New York Convention: … This principle controls the disposition of this case.” [Slip op. 10 11]

Citation: Termorio S.A. E.S.P. v. Electranta S.P., 2007 WL 1515069, No. 06 7058 (D.C. Cir. May 25, 2007).

Filed in: 2007 International Law Update, Issue5

Third Circuit, in U.S. litigation over staging of California art exhibit, affirms enforcement of Swiss arbitration awards under Arbitration Convention

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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 “‘ 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).

Filed in: 2006 International Law Update, Issue10

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”

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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).

Filed in: 2006 International Law Update, Issue9