USA (1) Mélida Hodgson Anna Toubiana Foley Hoag LLP
1717 K Street, NW Washington, DC 20006-5350 202 223 1200 main 202 785 6687 fax Memo Date: March 31, 2015 To: cc: Pascal Hollander, IBA Sub-Committee on Recognition and Enforcement of Awards From: Mélida Hodgson Anna Toubiana Regarding: IBA Public Policy Project Country Report, USA I. Introduction The purpose of this Country Report is to examine how the concept of public policy is defined by domestic courts and applied in the context of enforcement and setting aside of arbitral awards under the New York Convention in the United States. In particular, this Report discusses the concept of public policy generally as a ground for refusal of the enforcement of awards in the United States legal framework (Section II) and provides an overview of U.S. case law where the concept of public policy was used to deny enforcement of arbitral awards under the New York Convention (Section III). II. The Concept of Public Policy as Defined by the United States Legal Framework In general, in the United States there is a strong public policy favoring arbitration and the enforcement of arbitral awards, as demonstrated by the recent BG Group v. Argentina ATTORNEYS AT LAW BOSTON WASHINGTON PARIS FOLEYHOAG.COM
Supreme Court decision (not a New York Convention case). 1 An action to enforce an arbitral award can be brought under the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention or NYC ) 2 1975 Inter-American Convention on International Commercial Arbitration (the Panama Convention ) 3, and the domestic U.S. Federal Arbitration Act (the FAA ) 4. It should be noted that when the award involves States that are both parties to the Panama and the New York Conventions, 305 of the FAA provides that if a majority of parties to an arbitration agreement are citizens of a State or States that have ratified or acceded to the Panama Convention and are member States of the Organization of American States, the Panama Convention will apply. In all other cases the New York Convention is applicable. The concept of public policy as a ground for refusal of confirmation, recognition or enforcement of foreign awards under the New York Convention is codified in 207 of the FAA which states that the court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the [New York] Convention. Thus, this section serves to implement Article V of the New York Convention. Accordingly, the concept of public policy as expressed in Article V(2) (b) of the New York Convention is directly applicable in the United States. Article V(2)(b) states that: 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (b) The recognition or enforcement of the award would be contrary to the public policy of that country. 1 March 2014, Argentina apparently argued its public policy grounds under the Federal Arbitration Act itself rather than the New York Convention (see Annex for a discussion of the lower court case). 2 9 U.S.C. 201-208. 3 9 U.S.C. 301-307. 4 9 U.S.C. 1-16. When the litigious arbitral award is not subject to either the Panama or the New York Convention, the domestic FAA will apply. -2-
As discussed in the section below, the concept of this public policy is narrowly construed by U.S. courts, implementing their own national public policy which clearly favors recognition and enforcement of foreign awards. In the United States, this provision has generally been expressed as contrary to the most basic notions of morality and justice or repugnant to fundamental notions of what is decent and just in the United States. 5 Although U.S. litigants may try to borrow concepts from national public policy grounds for vacating arbitral awards, in the applicable cases courts generally will only consider the New York Convention bases for recognition or enforcement. III. Overview of United States Case Law The body of work from which we highlight specific cases was presented in an October 10, 2014 report prepared by our colleagues Virginia Allan and Nicolette Ward, which is annexed to this report. We see from a number of 11th Circuit (Federal appeals court covering Florida) 6 cases arising either out of cruise ship labor disputes or personal injury cases, that U.S. courts have sometimes been asked, and agreed, to apply the NYC public policy exceptions to stages of an arbitration earlier than confirmation, recognition and enforcement. 7 But it is now uniform across the United States that courts will only consider these exceptions after an award has been rendered. 5 See Corporación Mexicana de Mantenimiento Integral v. Pemex Exploración y Producción at page 4 of Annex (not an Article V(2)(b) case, but notions were borrowed in refusing to enforce an award annulled by a Mexican court decree. This Second Circuit decision was remanded to the District Court, which upheld its prior conclusion confirming the award because it held that a law not in existence at the time of parties contract was applied by the Mexican court and that this was repugnant to fundamental notions of what is decent and just. ) 6 Without entering into too much detail, on a very basic level there are three levels of federal courts in the United States - the Supreme Court (which of course also has jurisdiction over State Courts subject to the U.S. Constitution); federal appeals courts which are called circuit courts of appeal covering regions of the country and numbered (from First to Eleventh ) as well as the District of Columbia Circuit Court of Appeals, and the specialized court Circuit Court of Appeals for the Federal Circuit; and district courts, which are courts of first instance for federal question cases. Issues related to the enforcement of a foreign arbitral award will almost exclusively be handled by the federal courts (except for the Federal Circuit). 7 See for example discussions in the Annex on pp.1,7-8, 22. -3-
Not surprisingly, what constitutes contrary to the most basic notions of morality and justice or is repugnant to notions of what is decent and just is not easily defined or uniform - nevertheless it cannot be said that it has been used broadly. In the Ameropa AG v. Havi Ocean Co. case 8, Havi Ocean argued against enforcement of the arbitral award because it claimed that the award violated U.S. sanctions. The federal court for the Southern District of New York enforced nonetheless held that implications of foreign policy disputes do not satisfy the threshold of most basic notions of morality and justice. Moreover, Ameropa was a Swiss company and this not subject to U.S. sanctions. 9 Some cases do shed light on what would offend U.S. notions of morality and justice - for revealing the narrow scope of the exception by what kinds of awards will be enforced. For example, the tribunal s consideration of results of foreign criminal proceedings in arriving at the award does not offend this notion because it not a finding criminal liability (see AO Techsnabexport v. Globe Nuclear Services and Supply GNSS Lmt. on page 11 of Annex A). Other situations that do not constitute a public policy exception include: i) an award requiring specific performance (NTT Docomo Inc. v. Ultra D.O.O. at page 11 of Annex A); ii) ex-parte hearings (China Nat l Bank v. BNK at page 14 of Annex); iii) dueling proceedings (Steel Corp v. Int l Steel at page 14 of Annex); 10 iv) cases involving allegations of abuse of rights which is not a U.S. legal concept (Karaha Bodas v. Pertamina at page 24 of Annex); v) where the public policy exception is domestic (manifest disregard for the law) and v) does not contravene Article V of the NYC (Int l Standard Electric v. Bridas Sociedad Anónima at page 29 of Annex). There are cases where enforcement will be denied not on the basis of Art. V(2)(b) but on the basis of V(1), with courts using the public policy analysis while explaining that Art. 8 See p. 9 of Annex. 9 See also Iran v. Cubic Defense Systems, Inc. at p. 8 of Annex. 10 Including dual criminal and civil proceedings (see Consorcio v. Briggs at p. 25 of Annex). -4-
V(1) has a public policy gloss. 11 So for example, in TermoRio S.A. v. Electranta S.P., the D.C. Circuit Court of Appeals refused enforcement because the award had been set aside by a competent authority (courts of Colombia)(see page 2 of Annex). Similarly, the Second Circuit affirmed a decision of the SDNY not to enforce an award that had been set aside by the Nigerian Federal Court (see Baker Marine v. Danos and Curole Marine at page 3 of Annex). Part Two: Table of Cases Denying Enforcement of Arbitral Awards on Public Policy Grounds Not surprisingly then, there situations in which U.S. courts will deny enforcement on Art. V(2)(b) public policy grounds are extremely rare. This table is duplicative of the Annex to highlight the rarity of enforcement being refused ( and enforcement being accepted is covered in Annex A). Four cases are noted in the table and two could be considered substantive public policy cases 12 - Puliyurumpil Mathew v. Carnival and In Lamirois- Trefileries v. Southwire. But only In Lamirois-Trefileries is a true enforcement case, since Puliyurumpil Mathew, the most recent case, was at a motion to compel stage. We note the previously discussed cases of TermoRio and Baker Marine where a public policy gloss analysis was used in refusing enforcement under Art. V(1). Identification of the decision Puliyurumpil Mathew Thomas v. Carnival Corporation, 07-21867-CV- Summary of the public policy argument The Court considered Article V(2)(b) of the NYC to create an affirmative public policy defense that could be used at the motion to compel stage to find an arbitration clause unenforceable because it requires a Subs tanti ve Proce dural Enforc ement denied Enforceme nt accepted 11 NYC Art. V(1) allows non-enforcement on grounds generally of incapacity(a), procedural unfairness (b), the award is outside the scope of the terms of reference (c), the proceedings were inconsistent with the parties agreement, and the award has been set aside or suspended by a competent authority (e). 12 We note that in the landmark Mitsubishi Motors v. Soler Chrysler case, discussed at page 31 of the Annex, antitrust claims were held to not be automatically non-arbitrable, but courts may refuse to enforce such awards on public policy grounds. -5-
JAL, 11th Circuit, July 1, 2009. In Laminoirs- Trefileries- Cableries de Lens, S.A. v. Southwire Co, 484 F. Supp. 1063, 1067 (N.D. Ga. 1980). TermoRio S.A. E.S.P. (Colombia) v. Electranta S.P. (Colombia), 06-7058, Court of Appeals of the District of Columbia Circuit, May 25, 2007 prospective waiver of [Thomas s] rights to pursue statutory remedies without the assurance of a subsequent opportunity for review. The Court determined that the dispute was not capable of settlement by arbitration. Southwire alleged that the arbitrators adopted a French legal rate of interest on the amounts due that violated the enforcing forum s public policy because the interest rate was excessive. The court agreed and refused to enforce that part of the award, holding that an award of interest that is penal in nature clearly violates public policy. Recognition and enforcement must be refused if the award has been set aside by a competent authority in the country of origin of the award. The Court found that the Consejo de Estado was a competent authority in Colombia, and accordingly, the arbitral award was lawfully nullified and the Appellants had no cause of action in the U.S. to seek enforcement of the award. The Court dismissed the argument that proceedings before the Consejo de Estado or the judgment of that Court violated any basic notions of morality and justice, and noted that there was no public policy ground on 13 13 Enforcement partially denied. -6-
which to refuse enforcement under Article V(2)(b) of the NYC. 14 Baker Marine (Nigeria) Ltd. v. Chevron (Nigeria) Ltd. v. Danos and Curole Marine Contractors, 97-9615, 97-9617, 2nd Circuit, August 12, 1999. The Second Circuit affirmed the decision of the District Court and declined to enforce the arbitration awards because they had been set aside by a competent authority of the country in which, or under the law of which, the award was made, in accordance with Article V(1)(e) of the NYC. Baker Marine did not deny that the contract was governed by Nigerian law and the awards were set aside by a competent Nigerian Court. As such, the Second Circuit declined to confirm the awards. 15 IV. Conclusion Enforcement of arbitral awards under the New York Convention Article V(2)(b) public policy exception is almost never denied. 14 Enforcement denied because a competent Court in the country of origin of the award had set aside the decision. Enforcement NOT denied on V(2)(b) grounds. This has a public policy gloss. 15 The Court did not cite Article V(b)(2) s public policy exception as the basis for refusing to enforce the arbitral awards. However, there is a public policy gloss to Article V(1)(e) based in principles of comity. -7-
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