main image

Foreign Awards | Post-Award Federal Arbitration Act Enforcement Litigation | Businessperson’s Federal Arbitration Act FAQ Guide

July 23rd, 2020 Arbitration Law, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, FAA Chapter 3, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 2, Federal Arbitration Act Section 207, Federal Arbitration Act Section 9, Foreign Arbitration Awards, Inter-American Convention on International Commercial Arbitration, International Arbitration, New York Convention, Nuts & Bolts, Nuts & Bolts: Arbitration, Panama Convention, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 9, Small Business B-2-B Arbitration 1 Comment » By Philip J. Loree Jr.
foreign awards

In previous segments (here, here, here, and here) we discussed the confirmation of Chapter One Domestic Awards and Chapter Two Domestic Awards. This segment addresses foreign awards.

There are two types of foreign awards that are or may be governed by the Federal Arbitration Act: (a) awards made in the territory of a country that is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” or “Convention”), the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”), or both, which we refer to as Chapter Two Foreign Awards; and (b) awards that are made outside the United States in a country that is not a signatory to the New York or Panama Conventions, which we refer to as Chapter One Foreign Awards.

What are Chapter Two Foreign Awards?

Chapter Two Foreign Awards are awards that are made in the territory of a foreign state that is a signatory to the New York or Panama Conventions, and which otherwise falls under one or both of those Conventions.

The New York Convention applies to awards made in the territory of a signatory state. Article I of that Convention states that it “shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons whether physical or legal.” New York Convention, Art. I(1). The Chapter Two implementing legislation limits the New York Convention to “legal relationship[s], whether contractual or not, which [are] considered commercial. . . .” 9 U.S.C. § 202.

A foreign arbitration award otherwise falling under Section 202 of the Federal Arbitration Act will fall under the New York Convention if the award was made in the territory of a New York Convention signatory state.The United States signed the New York Convention under the reservation that it “will apply the Convention, on the basis of reciprocity, to the recognition and enforcement of only those awards made in the territory of another Contracting State.” (See here.)

A foreign arbitration award that is made in the territory of a Panama Convention signatory state falls, at least potentially, under the Panama Convention. The United States signed the Panama Convention under the same reciprocity reservation reservation it made when it signed the New York Convention. See Productos Mercantiles E Industriales, S.A. v. Faberge USA, Inc., 23 F.3d 41, 44 (2d Cir. 1994).  

Section 304 implements that reservation by providing that “[a]bitral decisions or awards made in the territory of a foreign State shall, on the basis of reciprocity, be recognized and enforced under this chapter only if that State has ratified or acceded to the Inter-American Convention.” 9 U.S.C. § 304.

The New York and Panama Convention provide overlapping coverage when a foreign award is made in the territory of a Panama Convention signatory state because every Panama Convention signatory state is also a New York Convention signatory state.

Section 305 determines whether the New York Convention or the Panama Convention applies in cases where the requirements for application of both conventions are met. Section 305 deems the New York Convention to apply unless the parties expressly agree otherwise or “a majority of the parties to the arbitration agreement” are citizens of Panama Convention signatory states and states that are Organization of American States members:

When the requirements for application of both the Inter-American Convention and the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards of June 10, 1958, are met, determination as to which Convention applies shall, unless otherwise expressly agreed, be
made as follows:

(1) If a majority of the parties to the arbitration agreement are citizens of a State or States that have ratified or acceded to the Inter-American Convention and are member States of the Organization of American
States, the Inter-American Convention shall apply.

(2) In all other cases the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall apply.

9 U.S.C. § 305.

 

What are Chapter One Foreign Awards?

Chapter One Foreign Awards are awards that are made in the territory of foreign states that are not a signatory to the New York or Panama Convention.

As discussed above, foreign awards not made in the signatory state of a New York Convention or Panama Convention signatory do not fall under Chapters Two or Three of the Federal Arbitration Act. But such awards are rare, for 163 jurisdictions other than the United States are signatories to the New York Convention. (See here.)

While we describe these awards as “Chapter One Foreign Awards,” and while they never fall under Chapters Two or Three of the Federal Arbitration Act, they do not necessarily fall under Chapter One, either. As discussed further below, a Chapter One Foreign Award falls under Chapter One only if the arbitration agreement under which the award was made falls under Section 2 of the Federal Arbitration Act.

How do Confirmation and Enforcement of Chapter Two Foreign Awards Differ from Confirmation and Enforcement of Chapter Two Domestic Awards?

A prior segment addressed how Chapter Two Domestic Awards—that is, awards that are made in the United States but fall under the New York Convention—are confirmed. Those awards fall under the Court’s primary jurisdiction under the New York Convention and therefore are subject to vacation, modification, or correction under Sections 10 and 11 of the Federal Arbitration Act. (See here.)

But Chapter Two Foreign Awards are subject to the Court’s secondary jurisdiction under the New York Convention, and therefore must be confirmed unless subject to a defense, or ground for deferral of recognition, set forth in Article V or VI of the New York Convention. (See here.)

In cases where the Panama Convention applies, then the award would have to be confirmed, unless subject to a defense to enforcement, or deferral of recognition, set forth in Articles 5 or 6 of the Panama Convention. See Panama Convention, Arts. 5 & 6; 9 U.S.C. §§ 207, 301-305, 307.

There is another significant difference between the confirmation and enforcement of a Chapter Two Foreign Award and a Chapter Two or Chapter One Domestic Award. The scope of enforcement proceedings that may be permitted in a Section 207 confirmation proceeding are broader than those that may be brought under Section 9 of the Federal Arbitration Act to confirm a Chapter One Domestic Award or under Section 207 to confirm a Chapter Two Domestic Award.

A proceeding to confirm a Chapter One or Two Domestic Award is supposed to be a summary proceeding in which the only issue before the Court is whether judgment should be entered on the award under Sections 9 or 207. It is not intended to be a vehicle for enforcing the award against a third party based on, for example, an alter-ego theory. Such collateral, factbound, and potentially complex, litigation (as distinguished from ordinary, ancillary judgment enforcement procedures) is outside the scope of an application to confirm a Chapter One or Two Domestic Award:

But we hold that an action for confirmation is not the proper time for a
District Court to ‘pierce the corporate veil.’ The usual office of the confirmation action under 9 U.S.C. § 9 is simply to determine whether the
arbitrator’s award falls within the four corners of the dispute as submitted to him. This action is one where the judge’s powers are narrowly circumscribed and best exercised with expedition. It would unduly complicate and protract the proceeding were the court to be confronted with a potentially voluminous record setting out details of the corporate relationship between a party bound by an arbitration award and its purported “alter ego.” . . . .

As [the district court judge] concluded, our holding does not preclude Orion from prosecuting its action, still pending, against Signal as guarantor of Eastern Panama’s obligations. Nor does it preclude Orion from bringing a separate action against Signal to enforce the award against Eastern Panama, invoking the “alter ego” theory. But an action to confirm the arbitrator’s award cannot be employed as a substitute for either of these two quite distinct causes of action.

Orion Ship. Trad. Co. v. Eastern States Petroleum, 312 F.2d 299, 301 (2d Cir. 1963); see also CBF Indústria De Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 73-75 (2d Cir. 2017).

But when a court is sitting in its secondary jurisdiction, as it is when a party seeks to confirm a Chapter Two Foreign Award, it is authorized not only to enter judgment on the award, but also to enforce it against “a third party not named in” the “award” “under a theory of alter-ego liability, or any other legal principle concerning the enforcement of awards or judgments. . . .” See CBF Indústria De Gusa, 850 F.3d at 75, 76 & 79.

 

How do Confirmation and Enforcement of Chapter One Foreign Awards Differ from Confirmation and Enforcement of Chapter Two Foreign Awards?

Whereas a Chapter Two Foreign Award may is enforceable under the Court’s secondary jurisdiction under the New York or Panama Convention, a Chapter One Foreign Award is enforceable under Chapter One of the Federal Arbitration Act, provided that it is made under an agreement that involves commerce with the U.S.

Section 2 of the Federal Arbitration Act deems “valid, irrevocable, and enforceable”: (a) “a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof[;] or (b) “an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction or refusal[.] . . .” 9 U.S.C. § 2.

Under Section 2, a “transaction or a contract evidencing a transaction involving” international “commerce” falls under Section 2, provided that the commerce involves the U.S. Section one of the Federal Arbitration Act defines “commerce” to “mean[] commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation. . . .” 9 U.S.C. § 1.

That one might seek to confirm in the United States an arbitration award made outside the U.S. suggests that the party against whom the award was made has assets in the United States. But that, in and of itself, does not mean that the arbitration agreement under which the award was made involves international commerce within the meaning of Section 2.

If the award was made under such a contract, then it will fall under Section 2, and a party may seek to confirm it under Section 9 or vacate, modify or correct it under Sections 10 or 11.

If the award was not made under such a contract, then it cannot be confirmed under the Federal Arbitration Act, although it might be subject to confirmation under applicable state arbitration law, or it may be enforceable in a common-law action on the award. It may also be enforceable if reduced to a foreign judgment that is entitled to recognition and enforcement in the United States.  

Please note. . .

This guide, including prior instalments, and instalments that will follow in later posts, does not purport to be a comprehensive recitation of the rules and principles of arbitration law pertinent or potentially pertinent to the issues discussed. It is designed to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face in arbitration-related litigation and how engaging a skilled and experienced arbitration attorney can help them confront those challenges more effectively.

This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they elect voluntarily to do so.

If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should request legal advice from an experienced and skilled attorney or law firm with a solid background in arbitration law.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other legal-related matter, please contact the author, Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel, or legal adviser to other domestic, and international, law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.



         

Tags: , , , , , , , , , , , , , , , , , , , , , ,

One Response to “Foreign Awards | Post-Award Federal Arbitration Act Enforcement Litigation | Businessperson’s Federal Arbitration Act FAQ Guide”

  1. […] post Foreign Awards | Post-Award Federal Arbitration Act Enforcement Litigation | Businessperson’s Fede… appeared first on Loree Reinsurance and Arbitration Law […]