CORPORACION AIC, SA, Plaintiff-Appellant, versus HIDROELECTRICA SANTA RITA S.A., a Guatemalan company, Defendant-Appellee.
No. 20-13039
United States Court of Appeals For the Eleventh Circuit
May 27, 2022
[PUBLISH]
D.C. Docket No. 1:19-cv-20294-RNS
Appeal from the United States District Court for the Southern District of Florida
Before JORDAN, JILL PRYOR, and TJOFLAT, Circuit Judges.
This case involves the interplay between the Federal Arbitration Act (“FAA“) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention“). We believe that our Circuit is out of line with Supreme Court precedent, but we are powerless to change the course as a three-judge panel. As a result, today, we must affirm the District Court‘s determination that it could not vacate an arbitral award under the New York Convention on the exceeding powers ground. In so doing, we hope that this case will be taken en banc where this Court may overturn Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH, 921 F.3d 1291 (11th Cir. 2019), and Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998), and hold that under a correct understanding of Supreme Court precedent the exceeding powers ground is a valid basis for vacatur under both the New York Convention and the FAA. Until an en banc panel of our Court takes up this issue, our hands are tied.
I.
In a nutshell, Corporacion AIC, SA (“AICSA“) and Hidroelectrica Santa Rita S.A. (“HSR“), two Guatemalan companies, signed a contract in March 2012 (and restated it in February 2013) for the construction of a hydroelectric power plant in Guatemala. Under the terms of the contract, AICSA was responsible for creating a new power plant for HSR. However, in October 2013, AICSA had to discontinue the project because HSR issued a force majeure notice.1 Next, HSR sought reimbursement for the advance payments it had made to AICSA and ultimately commenced arbitration proceedings, as specified in the original contract, in the International Court of Arbitration to recover them. AICSA sought dismissal of HSR‘s claims and counterclaimed for damages, costs, reimbursements for its subcontractor, and attorney‘s fees and expenses. AICSA also sought to join one of its subcontractors to the proceeding. The arbitration was held in Miami, Florida, and a split, three-member arbitration panel denied AICSA‘s request to join the subcontractor to the arbitration and, in short, ruled for HSR on the merits claims. The panel ordered AICSA to return about $7 million and about €435,000 to HSR in advance payments while allowing AICSA to keep what it had earned pursuant to the
Dissatisfied with the arbitration panel‘s decision, AICSA initiated a case in the District Court, seeking to vacate the arbitral award on the basis that the arbitration panel had exceeded its powers.2 The District Court denied AICSA‘s petition. It said that Eleventh Circuit precedent foreclosed AICSA‘s claim that a party to a New York Convention arbitration could challenge an arbitration panel‘s decision on the exceeding powers ground under
II.
We review de novo questions of law in a district court‘s refusal to vacate an arbitral award. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-49, 115 S. Ct. 1920, 1926 (1995). We review a district court‘s factfinding for clear error. Bamberger Rosenheim, Ltd., (Israel) v. OA Dev., Inc., (United States), 862 F.3d 1284, 1286 (11th Cir. 2017). As a general rule, our review of an arbitration decision itself is extremely limited, “among the narrowest known to the law,” for the very reason that arbitration is not litigation. AIG Baker Sterling Heights, LLC v. Am. Multi-Cinema, Inc., 508 F.3d 995, 1001 (11th Cir. 2007).
III.
There are two questions on appeal. First, may we, under our precedent, decide that an arbitration panel exceeded its powers in a non-domestic arbitration under the New York Convention? And second, if so, did the arbitration panel in this case indeed exceed its powers? Because we are bound to answer the first question in the negative, we cannot reach the merits of the second question.
Starting with the basics, arbitrations may be either domestic or non domestic (international). Chapter 1 of the FAA applies to domestic arbitrations, and Chapter 2 of the FAA applies to non-domestic arbitrations. Indus. Risk, 141 F.3d at 1439-40. Under Chapter 2 of the FAA, the only domestic arbitration awards are those arising out of a commercial relationship “entirely between citizens of the United States” with enforcement in the United States.
Now, things get trickier when we start trying to figure out how the New York Convention and FAA work together. The New York Convention “must be enforced according to its terms over all prior inconsistent rules of law,” including Chapter 1 of the FAA applying to domestic arbitrations. Indus. Risk, 141 F.3d at 1440 (quoting Sedco, Inc. v. Petroleos Mexicanos Mexican Nat‘l Oil Co. (Pemex), 767 F.2d 1140, 1145 (5th Cir. 1985)). At the same time, under Chapter 2 of the FAA, “Chapter 1 [i.e., domestic law] applies to actions and proceedings brought under” Chapter 2 “to the extent that” Chapter 1 “is not in conflict” with Chapter 2 or the New York Convention.
Today, the parties disagree about the parameters of the New York Convention‘s terms. Article V of the New York Convention provides seven grounds on which recognition and enforcement of an international arbitration award may be refused. And, according to Industrial Risk, an “arbitral award must be confirmed unless appellants can successfully assert one of the seven defenses against enforcement of the award enumerated in Article V of the New York Convention.”4 Indus. Risk, 141 F.3d at 1441; id. at 1441 n.8 (explaining that the New York Convention‘s defenses against enforcement are “exclusive“). The burden of proof for establishing one of these seven defenses lies with the appellants. Id. at 1442. In Industrial Risk, which involved two foreign corporations arbitrating in Tampa, Florida, the appellants raised three grounds for vacatur of the arbitration award, one under Article V(1)(d), one under Article V(2)(b), and one ground recognized domestically5 but not explicitly in the New York
Significant for our purposes is the fact that the Industrial Risk court did not consider whether the “arbitrary and capricious” defense was tucked into Article V(1)(e). Article V(1)(e) states:
(1) Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
. . . .
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
New York Convention, Art. V(1)(e). Article V(1)(e) suggests that our domestic courts and law have some role to play when either the United States is the “country in which” the arbitration occurred or when United States’ law governed the award. Under Article V(1)(e), our courts may apparently set aside or suspend an award when the United States was either the location of the arbitration or was the source of law for the arbitration. And it is conceivable that domestic law—that is, the arbitrary and capricious standard in the Industrial Risk case—could govern in such a case. See
Sixteen years later, the Supreme Court touched on Article V‘s connection to the FAA in BG Group, PLC v. Republic of Argentina, 572 U.S. 25, 134 S. Ct. 1198 (2014). The question before the Supreme Court in that case was “whether a court of the United States, in reviewing an arbitration award made under the [the applicable treaty], should interpret and apply the local litigation requirement [of that treaty] de novo, or with the deference that courts ordinarily owe arbitration decisions.” 572 U.S. at 29, 134 S. Ct. at 1203-04. The specific context was a dispute between a British investment group, BG Group, and Argentina based on the investment group‘s part ownership of an Argentine gas company. Id. at 29, 134 S. Ct. at 1204. BG Group‘s contention was that Argentina‘s adjustment of calculating gas tariffs in pesos rather than dollars (when the exchange rate at the time was three pesos to one dollar) violated an investment treaty that existed between the United Kingdom and Argentina. Id. at 29-30, 134 S. Ct. at 1204. The treaty called for arbitration in that context. Id. BG Group and Argentina agreed to arbitration in Washington, D.C., and the arbitration panel ultimately awarded BG Group $185 million in damages on the basis that Argentina had denied BG Group fair treatment. Id. at 31, 134 S. Ct. at 1205.
After the arbitration award was issued, BG Group sought enforcement of the award in federal district court, and Argentina sought to vacate the award, in part based on the ground that the arbitrators lacked jurisdiction under the FAA because the arbitrators “exceeded their powers.” Id. at 31-32, 134 S. Ct. at 1205; see
For our purposes, what matters is not the ultimate decision on the local litigation requirement of that treaty, but rather how the Supreme Court then proceeded to evaluate the arbitrators’ determinations about the local litigation requirement under a highly deferential standard of review. The Supreme Court explained that it could not “agree with Argentina that the arbitrators ‘exceeded their powers’ in concluding they had jurisdiction.” Id. at 44, 134 S. Ct. at 1212 (internal quotation marks omitted) (quoting
Although reluctant to say that the Supreme Court implicitly overruled Industrial Risk in BG Group, our opinion in Bamberger Rosenheim, Ltd., (Israel) v. OA Development, Inc., (United States), acknowledged the tension between the two decisions. 862 F.3d 1284, 1287 n.2 (11th Cir. 2017) (citing both decisions and an influential Second Circuit decision and explaining that it was “assum[ing], without deciding, that [
Now, we are bound to apply Inversiones. Because of Inversiones, we are compelled to say that we may not vacate the arbitration award in this case between AICSA and HSR on the exceeding powers ground, a domestic ground for vacatur not explicitly listed in Article V of the New York Convention. Consequently, we cannot reach the merits of whether vacatur would be appropriate in this case on the exceeding powers ground. We are dissatisfied with the conclusion that we cannot review the international arbitration award in this case on the exceeding powers ground because we think it is inconsistent with the thrust of BG Group. Below, we offer an alternative path forward if an en banc panel of this Court chooses to take up this case.
IV.
We missed an important distinction in Industrial Risk that set us on a path that ended up being out of sync with the Supreme Court—that of primary and secondary jurisdiction under Article V of the New York Convention. Under the New York Convention, a country has primary jurisdiction when it is either the location of the arbitration or its laws were used to conduct the arbitration. See Art. V(1)(e). On the other hand, a country has secondary jurisdiction when it is simply asked to recognize and enforce a foreign arbitration award it had nothing to do with otherwise. See, e.g., Art. V(2)(b) (providing an example of when a country is only being asked to enforce a foreign arbitration award). To flesh out this distinction, we return to the reasoning of Industrial Risk in holding that there was not an arbitrary-and-capricious exception to enforcement of a New York Convention arbitration, even though such an exception existed for domestic arbitrations as derived from Chapter 1 of the FAA.
The Court in Industrial Risk looked to Chapter 2 of the FAA, which requires a federal court to “confirm [an international arbitral award] unless it finds one of the grounds for refusal or deferral of . . . enforcement of the award specified in the [New York] Convention.” Indus. Risk, 141 F.3d at 1446 (quoting
Rightly, Industrial Risk acknowledged that Article V provides the exclusive grounds for vacating an arbitral award under the New York Convention. But, wrongly, the Industrial Risk court (which included me) failed to consider that domestic defenses to enforcement of arbitration awards were nestled in Article V(1)(e). That is because we did not note the difference between primary and secondary jurisdiction. We provide Article V for reference here because it is essential to see the structure of Article V to understand the difference between primary and secondary jurisdiction:
Article V reads:
(1) Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement . . . were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
(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:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
New York Convention, Art. V. Compare Article V(1)(e) to the rest of Article V. Article V(1)(e) defines primary jurisdiction. The United States has primary jurisdiction when the United States is the location of the arbitral award or when United States law is used to decide the arbitration dispute.6 When the United States has primary jurisdiction, based on Article V, a competent authority, i.e., the District Court here, has the authority to “set aside” an arbitration award, rather than just refuse to enforce it. The implication is that a district court would set aside such an arbitration award based on domestic law such as Chapter 1 of the FAA. Otherwise, Article V(1)(e) is circular and redundant. If Article V(1)(e) did not incorporate domestic law, it would say that a district court could refuse to enforce an arbitration award if it could set aside an arbitration award under the other provisions of Article V. That would be odd indeed because Article V(1) already says that refusal of enforcement is allowed if made on one of the bases of Article V.7
Although not calling it as such, the Supreme Court nodded to the idea of primary jurisdiction in BG Group. See BG Grp., 572 U.S. at 37, 134 S. Ct. at 1208. (“And where, as here, a federal court is asked to interpret [a treaty‘s] intent pursuant to a motion to vacate or confirm an award made in the United States under the Federal Arbitration Act, it should normally apply the presumptions supplied by American law.“). The Supreme Court then cited to Article V(1)(e) for the proposition that an award may be “set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” Id., 134 S. Ct. at 1208-09 (also citing Kenneth J. Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation 446 (2010), for the proposition that arbitral awards pursuant to treaties are “subject to review under the arbitration law of the state where the arbitration takes place” and Christopher Dugan et al., Investor-State Arbitration 636 (2008), for the proposition that “national courts and the law of the legal situs of arbitration control a losing party‘s attempt to set aside [an] award“).
In essence, the Supreme Court interpreted Article V(1)(e) as conferring a special kind of reviewing power to courts with primary jurisdiction, where domestic law plays a unique role in evaluating whether an international arbitral award should be vacated. That role stands in contrast to the role courts play when a country has secondary jurisdiction—that is, when a country‘s courts may only refuse to enforce rather than annul an
The difference between primary and secondary jurisdiction is a recognition that when a country‘s laws are being used or it is the location of an arbitration, it has more of an interest in the outcome of an arbitration and the substance of an arbitration award than a country that is simply being asked to enforce an award it had nothing to do with in the first place. See Leonard V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1070 (1961) (explaining that
So, what happened in Industrial Risk is the Court treated all cases of vacatur under
For these reasons, we think we‘ve gotten it wrong in Industrial Risk and Inversiones, and an en banc panel of this Court should hold that we can review international arbitration awards based on
AFFIRMED.
JORDAN, Circuit Judge, Concurring:
The New York Convention encompasses two types of arbitral awards—(i) awards made abroad, i.e., those “made in the territory of a State other than the State where the recognition and enforcement . . . [is] sought,” and (ii) non-domestic awards, i.e., those “not considered as domestic awards in the State where their recognition and enforcement are sought.” Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. 1(1), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 4739. Under the Federal Arbitration Act, a non-domestic award is one “arising out of a legal relationship which is considered as commercial,” so long as the relationship is not “entirely between citizens of the United States.”
I agree with the court that we are bound by Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1445-46 (11th Cir. 1998) (holding that
I
As a general matter, once an international arbitral award is issued the parties can ask a national court to enforce or vacate the award. Various treaties regulate the enforcement of international arbitral awards, and one of them is the New York Convention.
Corporación AIC argues that it can seek vacatur of the arbitral award under the grounds listed in
A
It has been said that “one cannot understand the Constitution‘s meaning without first considering the underlying depth of historical experience, including the dangers the Constitution was meant to prevent.” Philip Hamburger, Vermeule Unbound, 94 Tex. L. Rev. 204, 215 n.46 (2016). The New York Convention similarly cannot be understood without an appreciation of its history and framework. I therefore begin by detailing what led to the adoption of the Convention and its binary framework.
Before the New York Convention was adopted in 1958, the Geneva Protocol on Arbitration Clauses, Sept. 24, 1923, 27 L.N.T.S. 157, and the Geneva Convention on the Execution of Foreign Arbitral Awards, Sept. 26, 1927, 92 L.N.T.S. 301—the Geneva Treaties—provided the framework for international arbitrations. The Geneva Protocol required all signatory States to enforce arbitral agreements, but it mandated enforcement of arbitral awards only in the seat of arbitration (i.e., the country in which the award was rendered). See Domenico Di Pietro & Martin Platte, Enforcement of International Arbitration Awards: The New York Convention of 1958 15 (2001); Nigel Blackaby et al., Redfern and Hunter on International Arbitration 70-71 (5th ed. 2009).
Relevant for our purposes, the Geneva Protocol provided that arbitral proceedings were governed by the parties’ agreement and the law of the arbitral seat. See Geneva Protocol at Art. 2. It also directed the seat of arbitration to ensure the execution (or not) of arbitral awards made in its territory “in accordance with the provisions of its national laws.” Id. at Art. 3.
The Geneva Convention broadened the scope of the Geneva Protocol by providing for the recognition and enforcement of arbitral awards in countries other than the seat. See Di Pietro, International Arbitration Awards, at 15; Blackaby, International Arbitration, at 71. Unlike the Geneva Protocol, which addressed the execution of awards at the arbitral seat and left the
The Geneva Treaties thereby established a binary framework in which two jurisdictions were relevant to the life of international arbitral awards. They also created obstacles to the recognition and enforcement of such awards. Arguably the highest hurdle was the Geneva Convention‘s requirement that an award be recognized and enforced only if it was already “final in the country in which it ha[d] been made.” Id. at Art. 1(d). That requirement, known as the “double exequatur,” subjected the enforcement of awards made abroad to their recognition in both the arbitral seat and the enforcement jurisdiction. See Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 22 (2d Cir. 1997); Certain Underwriters at Lloyd‘s London v. Argonaut Ins. Co., 500 F.3d 571, 576 (7th Cir. 2007); Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 333 (1981). The double exequatur made the recognition and enforcement of awards issued abroad excessively burdensome. See Yusuf, 126 F.3d at 22; Jan Paulsson, Enforcing Arbitral Awards Notwithstanding Local Standard Annulments, 6 Asia Pac. L. Rev. 1, 8 (1998).
B
The New York Convention replaced the Geneva Treaties with the goal of facilitating the recognition and enforcement of international arbitral awards. See Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357, 366-67 (5th Cir. 2003); Paulsson, Local Standard Annulments, 6 Asia Pac. L. Rev. at 7. It accomplished that by, among other things, eliminating the double exequatur. See Karaha Bodas, 335 F.3d at 367 n.41; Yusuf, 126 F.3d at 22; van den Berg, The New York Arbitration Convention, at 9; Emmanuel Gaillard & John Savage, Fouchard Gaillard Goldman on International Commercial Arbitration 971 (1999). Although the New York Convention permits the denial of recognition and enforcement of awards that have been vacated at the country of origin, it does not require the recognition of awards at that country for enforcement elsewhere. See New York Convention at Art. V(1)(e) (“Recognition and enforcement of the award may be refused . . . [if] [t]he award . . . has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.“) (emphasis added). See also Reinmar Wolff, The New York Convention 356 (Hart Publishing 2012) (“The main purpose of Article V(1)(e) was to remedy the shortcomings of the Geneva Convention of 1923, the most onerous of which was the double exequatur requirement.“) (emphasis and internal citation marks omitted).1
The New York Convention modified the framework established by the Geneva Treaties (e.g., by eliminating the double exequatur), but it did not abolish that framework. Under the New York Convention,
American courts refer to the country of origin as the primary jurisdiction. The arbitral law of the primary jurisdiction (known as the lex arbitri) governs the arbitration. See Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 291 (5th Cir. 2004); Born, International Arbitration: Law and Practice, at 37; Blackaby, International Arbitration, at 173-77. And, as recognized by the New York Convention, only the primary jurisdiction can vacate an arbitral award. See New York Convention at Arts. V(1)(e) & VI. See also BG Group, PLC v. Republic of Argentina, 572 U.S. 25, 37 (2014) (“[T]he national courts and the law of the legal situs of arbitration control a losing party‘s attempt to set aside [an] award.“) (internal quotation marks omitted); Karaha, 364 F.3d at 287 (“Only a court in a country with primary jurisdiction over an arbitral award may annul that award.“); Yusuf, 126 F.3d at 23 (explaining that under the New York Convention “a party may seek to vacate or set aside an award in the state in which, or under the law of which, the award is rendered“); M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 849 (6th Cir. 1996) (same); Jan Paulsson, The Role of Swedish Courts in Transnational Commercial Arbitration, 21 Va. J. Int‘l L. 211, 242 (1981) (“[T]he fact is that setting aside awards under the New York Convention can take place only in the country in which the award was made.“); van den Berg, The New York Arbitration Convention, at 20 (stating that Articles V(1)(e) and VI “affirm the well-established principle of current international commercial arbitration that the court of the country of origin is exclusively competent to decide on the setting aside of the award“).2
A request to vacate is a challenge to the validity of the arbitral award. See Blackaby, International Arbitration, at 626. Subject to the particularities of the lex arbitri, a vacated award is generally a nullity in the primary jurisdiction. See Restatement of International Arbitration, at § 1.1 cmt. pp & § 4.1 cmt. d.; Blackaby, International Arbitration, at 618. Vacatur also has legal consequences internationally, as it is a ground on which recognition and enforcement of the vacated award can be refused. See New York Convention at Art. V(1)(e). See also Blackaby, International Arbitration, at 586 (“If an award is set aside or annulled by the relevant court, it will usually be treated as invalid and accordingly unenforceable not only by the courts of the seat of arbitration but also by national courts elsewhere.“) (internal footnote omitted).
The country of recognition and enforcement is, in the parlance of American courts, the secondary jurisdiction. Unlike
Recognition and enforcement seeks to give effect to the award. See Blackaby, International Arbitration, at 626. The term “recognition and enforcement” means the reduction to a judgment of a New York Convention award. See CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 72 (2d Cir. 2017). As opposed to the vacatur of an award, the legal effect of the recognition and enforcement (or the denial of recognition and enforcement) of an award is limited to the secondary jurisdiction that ruled on the request. See Blackaby, International Arbitration, at 632 (“The immediate consequence of a refusal to enforce an award is that the winning party fails to get what it wants; namely, seizure of the loser‘s assets in the place in which enforcement is sought . . . [I]t should be borne in mind that it may still have an award that can be enforced in another State.“).4
II
With that framework in mind, I turn to the parties’ dispute about whether the grounds for vacatur of a New York Convention award are found in
A
Corporación AIC argues that
“The interpretation of a treaty, like the interpretation of a statute, begins with its text.” GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637, 1645 (2020) (internal quotation marks omitted). See also Vienna Convention on the Law of Treaties, May 22, 1969, at Art. 31(1), 8 I.L.M. 4 (1969) (“A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty.“). So I begin with the relevant language of the New York Convention.5
Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that . . . [t]he award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
(emphasis added). Given the difference between recognition and enforcement on the one hand and vacatur on the other, interpreting the text of
The context of
The text and context of
B
On the other hand, I think Hidroeléctrica Santa Rita is mistaken in asserting that “the only difference between ‘primary’ and ‘secondary’ jurisdictions are the types of requests they can consider.” See Hidroeléctrica Santa Rita Br. at 17-18. The grounds on which courts analyze those requests also differ.
How other signatory States interpret the New York Convention matters. See id. at 1645-46 (“Because a treaty ratified by the United States is an agreement among sovereign powers, we have also considered as aids to its interpretation the postratification understanding of signatory nations.“) (internal quotation marks omitted); Vienna Convention on the Law of Treaties at Art. 31(3)(b) (“There shall be taken into account, together with the context . . . any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation.“). And other signatory States read the Convention in the way I propose. As set out below, the lex arbitri of the United Kingdom (excluding Scotland) and Switzerland, for example, permit challenges to international arbitral awards (including New York Convention awards) issued in their respective territories on native grounds.
In England, Wales, and Northern Ireland, an international arbitral award can be challenged on two grounds—that it was made without substantive jurisdiction or that the tribunal was affected by a serious irregularity that has caused or will cause substantial injustice to the applicant—and it can be fully appealed on questions of law. See Arbitration Act 1996, c. 23, §§ 2, 67-69 (Eng.). In Switzerland, an international arbitral award can be vacated on only five grounds, including that the tribunal wrongly accepted or denied jurisdiction. See Bundesgesetz über das Internationale Privatrecht [IPRG] (“Federal Act on Private International Law“), Dec. 18, 1987, SR 291, at Art. 190(2). If
That is the way our sister circuits have interpreted the New York Convention. See Yusuf, 126 F.3d at 22 (“There is no indication in the Convention of any intention to deprive the rendering state of its supervisory authority over an arbitral award, including its authority to set aside that award under domestic law.“); Karaha Bodas, 335 F.3d at 368 (“By its silence on the matter, the Convention does not restrict the grounds on which primary-jurisdiction courts may annul an award, thereby leaving to a primary jurisdiction‘s local law the decision whether to set aside an award.“); Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V., 994 F.3d 1181, 1190 (10th Cir. 2021) (“‘[T]he [New York] Convention mandates very different regimes for the review of arbitral awards (1) in the state in which, or under the law of which, the award was made, and (2) in other states where recognition and enforcement are sought.‘“) (quoting Yusuf, 126 F.3d at 23). Their perspective is not dispositive, but it is significant.
The Restatement reads the New York Convention in the same manner. See Restatement of International Arbitration, at § 4.14 cmt. a (“The Convention[ ] contemplate[s] that competent authorities at the seat of arbitration may set aside an award
Significantly, [Article V(1)(e)] fails to specify the grounds upon which the rendering State may set aside or suspend the award. While it would have provided greater reliability to the enforcement of awards under the Convention had the available grounds been defined in some way, such action would have
constituted meddling with national procedure for handling domestic awards, a subject beyond the competence of the Conference.
Leonard V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1069-70 (1961). Accord Paulsson, Local Standard Annulments, 6 Asia Pac. L. Rev. at 23 (explaining that the text of the Convention “fails to define any—let alone ‘carefully prescribed and limited‘—grounds upon which the courts of the country of origin may annul an award“); Blackaby, International Arbitration, at 650 (“[T]he New York Convention does not in any way restrict the grounds on which an award may be set aside by the court of [primary jurisdiction]. This is a matter that is left to the domestic law of the country concerned.“); van den Berg, The New York Arbitration Convention, at 95 (“[T]he grounds on which the award has been set aside in the country of origin can be any ground set out in the arbitration law of that country.“); Wolff, The New York Convention, at 367 (“The NYC sets neither any standards nor any limits for the courts of the State where the award was rendered for their decision-making process as to setting aside or suspending the award. An application to set aside the award in the country of origin is governed by the domestic law of the seat State.“) (emphasis in original).
Hidroeléctrica Santa Rita says that applying domestic grounds to the vacatur of international arbitral awards would run counter to the New York Convention‘s objective of standardizing the treatment of such awards. See Hidroeléctrica Santa Rita Br. at 14-17; Oral Arg. Audio at 16:30-17:05. That argument, however, is flawed.
For starters, the argument starts from a faulty premise. It presumes that the New York Convention seeks to standardize the vacatur of international arbitral awards. But, as explained above, the Convention does not provide (nor seek to provide) grounds for vacatur. See, e.g., Wolff, The New York Convention, at 7 (“While the Convention, in Article V, provides the grounds for refusal of recognition and enforcement of an award by the enforcing court, it does not harmonize the grounds for challenging an award.“) (emphasis in original and internal citations omitted). The Convention does not aim to make uniform that which it does not address.
The solution to divergent domestic law, at least as to vacatur, is to modify the domestic law. Take, for instance, the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (“UNCITRAL Model Law“), a model law with a long name whose purpose is to assist countries to reform and modernize their legal arbitral framework by taking into account the particular features and needs of international commercial arbitration. See generally UNCITRAL Model Law on International Commercial Arbitration 1985 with Amendments adopted in 2006 (2008), https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf.
Countries that adopt Article 34(2) of the UNCITRAL Model Law therefore fill in the New York Convention‘s vacatur gap in a way that (i) harmonizes and unifies their vacatur grounds with Article V‘s grounds for refusal of recognition and enforcement and (ii) aligns their vacatur grounds with those of other countries that implement Article 34(2). That is the case of Spain, which has based its current arbitral law on the UNCITRAL Model Law. See generally
Consequently, Hidroeléctrica Santa Rita‘s conclusion—that applying domestic vacatur grounds would run counter to the goal of predictability and frustrate the parties’ agreement—also fails. To the contrary, parties expect that the lex arbitri will govern the arbitral proceedings and provide the bases for vacatur. The selection of the primary jurisdiction is therefore one of the most important decisions of the arbitral process. See Paulsson, The Role of Swedish Courts, 21 Va. J. Int‘l L. at 215 (“The appropriateness of a country as the place of arbitration depends upon many factors . . . One of the most important factors is the role of the country‘s courts in the arbitral process. Where a court retains the authority to scrutinize arbitrators on a wide variety of grounds, or to decide questions of law, the efficacy of the arbitration procedures may be greatly reduced.“); Lea H. Kuck & Amanda R. Kalantirsky, Vacating an International Arbitration Award Rendered in the United States: Does the New York Convention, the Federal Arbitration Act or State Law Apply?, 3 Arb. L. Rev. 4, 7 (2011) (“The Convention contains no description of or limitation on the capacity of the jurisdiction where the award was rendered to apply its own law vacating the award. This means that the parties’ choice of the seat of arbitration can have significant consequences for any judicial review of the award.“).
Precisely because they expect the application of domestic law to vacatur requests and other challenges, parties sometimes contract to exclude the application of less-favorable provisions (to the extent they are permitted to do so). For example, in a recent arbitration at the Permanent Court of Arbitration, the parties selected London, United Kingdom, as the arbitral seat. See Carrizosa v. The Republic of Colombia, PCA Case No. 2018-56, Procedural Order No. 1, ¶ 2.1 (Jan. 29, 2019). And they excluded the application of § 69 of the English Arbitration Act, which allows parties to an arbitration seated in England, Wales, or Northern Ireland to appeal an award on questions of law. See id. at ¶ 2.2. Compare English Arbitration Act, at §§ 2 & 69.
III
Because the arbitration in this case was seated in Miami, we must look to United States domestic law, the FAA, for the grounds available for vacatur. Hidroeléctrica Santa Rita claims that § 207 of the FAA “limits the grounds to oppose an award solely to those ‘specified in the [New York] Convention,’ [and thus] the enumerated grounds in Article V of the Convention are ‘exclusive.‘” Hidroeléctrica Santa Rita Br. at 16. That is true regarding an opposition to recognition and enforcement, but it is incorrect as to vacatur. A proper reading of the FAA confirms that courts can vacate a New York Convention award only on the grounds enumerated in
A
The FAA is divided into three chapters. Chapter 1, codified at
The FAA, through
First, confirmation and vacatur under Chapter 1 “serve different purposes, request different relief, and are governed by different provisions of the FAA.” McLaurin v. Terminix Int‘l. Co., LP, 13 F.4th 1232, 1238 (11th Cir. 2021). The prevailing party in an arbitration “seeks confirmation by a court generally because he fears the losing party will not abide by the award; when he is [a]rmed with a court order[,] the winning party has a variety of remedies available to enforce the judgment.” Id. (internal quotation marks omitted). Vacatur, on the other hand, is a challenge to the award, often by the losing party. See id. The same is true in international arbitration: “[W]hile recognition and enforcement are concerned with giving effect to
Given these differences, conflating confirmation and vacatur when reading
Second, titles and headings can indicate a provision‘s meaning, and the title of
Third, Chapter 2, which is in pari materia with the New York Convention, should be read harmoniously with the latter. See 2B Singer & Singer, Statutes and Statutory Construction, at § 51:2; Scalia & Garner, Reading Law, at 252. As noted,
Consonant with the New York Convention and its binary framework,
The Second, Tenth, and Third Circuits have held that
The Fifth Circuit has similarly recognized that, under the New York Convention, a court exercising primary jurisdiction can vacate an award in reliance on its domestic law. See Karaha Bodas, 335 F.3d at 368; Gulf Petro Trading Co., Inc. v. Nigerian Nat‘l Petroleum Corp., 512 F.3d 742, 746 (5th Cir. 2008). And it has already held that
The same FAA analysis applies to awards encompassed by the Panama Convention and those encompassed by the New York Convention. Like the New York Convention, the Panama Convention does not supply vacatur grounds. See Ved P. Nanda, David K. Pansius & Bryan Neihart, 3 Litigation of International Disputes in U.S. Courts § 19:32 (Feb. 2022) (“FAA defenses—Evident Partiality“). Chapter 3 of the FAA governs the recognition and enforcement of awards encompassed by the Panama Convention, as
All things considered, courts can vacate New York Convention awards issued in the United States only on the grounds
B
On a final note, I would like to examine why courts have had trouble properly interpreting Chapter 2 of the FAA and the New York Convention. I do so with the hope of providing litigants and courts with some guidance and clarity, the importance of which will only increase in tandem with the rising number of international arbitrations seated in our circuit. See Dan Packel, Miami Surges as International Arbitration Hub, but NYC Undaunted, Daily Bus. Rev., Jun. 5, 2018, https://www.law.com/dailybusinessreview/2018/06/05/miami-surges-as-international-arbitration-hub-but-nyc-undaunted/.
Over the years, courts have conflated confirmation and vacatur when discussing New York Convention awards. I am not the first one to pick up on the problem. See Jarred Pinkston, Toward A Uniform Interpretation of the Federal Arbitration Act: The Role of 9 U.S.C. § 208 in the Arbitral Statutory Scheme, 22 Emory Int‘l. L. Rev. 639, 670 (2008) (“[C]onfusion exists in the case law due to many courts’ failure to clearly distinguish between a petition to confirm and a motion to vacate an arbitral award.“); Susan L. Karamanian, The Road to the Tribunal and Beyond: International Commercial Arbitration and United States Courts, 34 Geo. Wash. Int‘l. L. Rev. 17, 99 (2002) (“U.S. courts have failed to appreciate the Convention‘s basic distinction between a local action to vacate an award and the separate confirmation process set forth under the Convention.“).
A cursory Westlaw search reveals various opinions discussing vacatur when referring to confirmation/recognition and enforcement proceedings. See Goldgroup, 994 F.3d at 1188 (erroneously referring to a prior case on recognition and enforcement as “recogniz[ing] that the defenses to enforcement specified in the Convention provide the exclusive basis for vacating an arbitration award rendered in or under the arbitral law of a foreign jurisdiction“) (emphasis added); Jacada (Europe), Ltd. v. Int‘l Mktg. Strategies, Inc., 401 F.3d 701, 709 n.8 (6th Cir. 2005) (incorrectly describing a prior case on the recognition and enforcement of an award made in England as ruling “that a party seeking to vacate an arbitral award was limited to raising the exclusive grounds found in Article V of the Convention“) (emphasis added), abrogated on other grounds by Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008); Mgmt. & Tech. Consultants S.A. v. Parsons-Jurden Int‘l Corp., 820 F.2d 1531, 1533–34 (9th Cir. 1987) (stating that “[u]nder the Convention, an arbiter‘s award can be vacated only on the grounds specified in the Convention” though the court was reviewing an order enforcing an award that had been issued in Bermuda) (emphasis added). Despite the linguistic missteps, I think those courts ultimately reached the correct result. See Goldgroup, 994 F.3d at 1189–90 (holding that
The muddling may be a consequence of two causes. First, the FAA grounds for denying confirmation of a domestic award are also the grounds for vacatur. See
But just as we must exchange currency when travelling internationally, we must change terminology when discussing international arbitration. Taking a fact about domestic arbitration and transposing it into the international context ignores the text of the New York Convention, its binary framework, and, in this case, the text of
Under the New York Convention and Chapter 2 of the FAA, denial of recognition and enforcement and vacatur are not two sides of the same coin—they are different legal tender. Parties should make clear whether they are opposing recognition and enforcement or seeking vacatur, and district courts must recognize the nature of the request on which they are ruling.
IV
I concur in the affirmance of the district court‘s order of dismissal because Industrial Risk and INPROTSA bind us. But Industrial Risk and INPROTSA misinterpreted the New York Convention, did not appreciate its binary framework, failed to grasp the distinction between recognition and enforcement and vacatur, and consequently misread
Notes
- where the award was procured by corruption, fraud, or undue means;
- where there was evident partiality or corruption in the arbitrators, or either of them;
- where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
- where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.