The Role of Forum Non Conveniens in Declining to Recognise New York Convention Awards
Jeremy Harwood
The 1958 Convention on The Recognition And Enforcement Of Foreign Arbitral Awards (the New York Convention) now has 144 signatories. Only 48 of the United Nations’ member states have not adopted the Convention. As such, it can fairly be considered the “international law of nations”.
Jeremy Harwood
It is implemented in the USA as Chapter 2 of the Federal Arbitration Act (FAA). Chapter 1 of the FAA also applies in Convention cases not in conflict with the Convention (9 USC section 208). Chapter 2 provides a specific grant of jurisdiction and venue to US federal courts in Convention cases. Recently, in Vaden v Discover Bank, et al (2009) the US Supreme Court stated “Chapter 2 of the FAA… does expressly grant federal courts jurisdiction… ”, quoting 9 USC sections 203 and 205, and further agreed, “[as] Vaden points out, these sections demonstrate that ‘when Congress wants to expand [federal-court] jurisdiction, it knows how to do so clearly and unequivocally’”.
The reciprocal nature of the USA treaty obligations under the Convention was cogently expressed in Acosta v Master Maintenance and Construction, Inc (5th Cir 2006) stating “the United States may only avail itself of the benefits of the Convention against other signatories to the extent it agrees to bind itself”.
Because the US and most other signatories have ratified the Convention on a reciprocal basis it would be reasonable to expect US courts not to find procedural exceptions to its application not expressed in the Convention or considered applicable to their recognition obligations by other signatory nations. That, however, is the present position in the prominent Second Circuit Court of Appeals (Second Circuit) in its consideration of actions for recognition (whether actions to compel arbitration are subject to the same loophole has not yet been decided by a Circuit Court) of foreign commercial awards governed by the Convention and the application of the doctrine of “forum non conveniens” (FNC).
This is especially troubling given that “the doctrine of [FNC] generally is unknown in legal systems following the continental civil law model”. See Ronald Brand, Comparative Forum Non Conveniens and the Hague Convention on Jurisdiction and Judgments (2002).
The Strange Case of Monegasque
In Monegasque De Reassurances SAM v NAK Naftogaz of Ukraine et al (2nd Cir 2002), the subrogated reinsurer filed an action under the Convention seeking to confirm a Russian arbitration award against the respondent NAK, a Ukrainian company, and against the State of Ukraine. NAK sought dismissal based on lack of personal jurisdiction, alleging that “all events leading to the arbitral award occurred in Ukraine and neighbouring countries”. The state of Ukraine separately moved on sovereign immunity grounds. The district court dismissed the petition on FNC grounds, holding that Ukraine was an “adequate alternative forum”.
The Second Circuit considered the interplay between Convention articles III and V. Article III states: “Each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the [signatory] territory” (emphasis added). Article V.1. (a)-(e) sets out grounds for non-recognition. The Second Circuit first considered the FNC doctrine as “procedural rather than substantive” (citing American Dredging Co v Miller (1994) (an admiralty case not involving the Convention)). Next, because of the reference to “rules of procedure” in Article III, the court rejected the argument that “article V… sets forth the only grounds” for non-recognition and agreed that the application of the FNC was permitted by article III 311 F3d at 496. It affirmed the FNC dismissal.
The Potential Disagreement that May Require Supreme Court Clarification
In TMR Energy Ltd v State Property Fund of Ukraine (2005) (rehearing denied), the lower court confirmed a Swedish arbitration award against the State Property Fund, which had sought dismissal based, inter alia, on FNC grounds – “[p]ointing out that TMR has already filed actions against [SPF] in the courts of Sweden and of Ukraine… ”. TMR countered that “only a court of the United States (or of one of them) may attach the commercial property of a foreign nation located in the United States” and, although the State Property Fund had no US-located attachable property at that time, “it may own property here in the future”. Accordingly, the DC Circuit Court through Chief Judge Ginsburg, with Circuit Judge Roberts (now Chief Justice) concurring, held:
Because there is no other forum in which TMR could reach SPF’s property, if any, in the United States, we affirm the district court’s refusal to dismiss this action based upon the doctrine of [FNC]
On that basis the court did not consider whether “contrary to [Monegasque], the [FNC] doctrine has no place in an action to enforce an arbitration award”. The rationale behind the decision (both involving Ukrainian state entities) leaves little doubt that, without creating a split between the Circuit Courts of Appeal (thereby requiring Supreme Court clarification) at that time, that was the DC court’s view. If only a US court can reach and attach property in the US, then a US court is always a more convenient forum for that purpose – irrespective of actions pending abroad. The New York District Court, following that logic, held in Figueiredo Ferraz [etc] v The Republic of Peru (2009) that “[b]ecause there is no other forum in which Figueiredo could reach the Republic’s assets in the United States, the Peruvian courts do not provide an adequate alternative forum” and denied the FNC dismissal motion.
Actions to Compel Arbitration Are Not Susceptible to the Monegasque Reasoning
Whereas article III’s reference to rules of procedure permitted the Monegasque court to apply the FNC doctrine in the context of award enforcement, actions to compel arbitration are governed by article II. Article II section 3 states:
The court of a Contracting State… shall at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed [emphasis added]
Accordingly, article II section 3 provides the three exclusive grounds for not compelling arbitration without reference to “rules of procedure”. The discretionary FNC doctrine should not be employed as an escape hatch to the direction that the “court of a Contracting State” “shall” make such an order.
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In “Treaty Obligations and National Law: Emerging Conflicts In International Arbitration”(William W Park and Alexander A Yanos, Hastings Law Journal) the authors recite the basic principles: “[a]ccording to the rules of international law… neither a Constitutional mandate nor the enactment of a statute provides an excuse for a treaty violation”, and US courts “should not construe a statute to violate international law if any other plausible construction presents itself”.
The discretionary FNC doctrine is arguably pre-empted by the United States’ reciprocal treaty obligations, which are the “Supreme Law of the Land”(US Constitution article VI, clause 2). This should certainly be the case not only in article II section 2 actions to compel arbitration, but also in article III recognition actions – if the USA expects its own awards to receive reciprocal recognition in other signatory countries, except for the seven limited exceptions expressly stated in article V, section 1. Monegasque construed not a statute but a reference to “rules of procedure” in the Convention itself to add an eighth ground for refusal by a signatory state to comply with its treaty obligations – its court’s own discretionary procedural rules: a slippery slope indeed.