US District Court for the District of Columbia: An arbitration award does not exist to be enforced if it has been lawfully ‘set aside’ by a competent authority in the foreign State in which the award was made

On 9 June 2016, the US District Court for the District of Columbia denied a motion to confirm a foreign arbitral award which was set aside by the Common Court of Justice and Arbitration because the arbitral tribunal breached the Arbitration Rulels of the Common Court of Justice and Arbitration and solicited increased fees despite being ordered not to do so. The District Court did not find the annulment repugnant to U.S. public policy and declined to enforce the award (Getma International v. The Republic of Guinea, No. 1:14-1616(RBW) (D.D.C., 9 June 2016)). The District Court previously stayed the case, pending the outcome of respondent’s attempt to have the award annulled (case summary reported on this site on 8 December 2015 “Stay of enforcement granted pending foreign annulment proceedings - In the matter of the Arbitration of Certain Controversies Between Getma International and The Republic of Guinea, United States District Court, District of Columbia, 3 November 2015”).

Factual Background

The facts relevant to the District Court’s opinion are the following:

In October 2011, after the parties agreed to resolve their dispute before a foreign arbitral tribunal concerning the termination of the Concession Agreement pursuant to the Common Court of Justice and Arbitration (CCJA) Arbitration Rules, the CCJA ordered that the parties pay an advance of about EUR 154,000, including approximately EUR 62,000 in arbitrators’ fees.

In April 2013, and after the tribunal was constituted, the tribunal sought permission from the Secretary General of the CCJA to contact the parties’ counsel about an increase in the arbitrators’ fees. The Secretary General granted permission and on 22 April 2013, the tribunal contacted the parties about increasing the arbitrators’ fees to approximately EUR 450,000.

The parties informed the tribunal that they had “no comments” on the tribunal’s request and the tribunal interpreted the parties’ silence as having no objection to the revision of the tribunal’s fees and sought for confirmation of this interpretation. When the parties agreed to the tribunal’s request in June 2013, the tribunal notified the Secretary General and the latter informed the tribunal that he would contact the CCJA to adjust the tribunal’s fees.

In August 2013, the CCJA denied the tribunal’s request for revision of the arbitrators’ fees citing 1999 CCJA precedent, which states among other things that:

“The arbitrator’s fees and expenses are set exclusively by the Court, in accordance with the provisions of the Rules of Arbitration. Any separate arrangement between the parties and the arbitrators concerning their fees is null and void.”

Despite the CCJA’s order, in September 2013, Getma International (Getma) urged the CCJA to reconsider its decision. However, in October 2013, the CCJA declined to increase the arbitrators’ fees.

In April 2014, the tribunal informed the parties that it had resolved their dispute and would issue an award that included a demand for EUR 450,000 in arbitrators’ fees. In May 2014, the Secretary General “formally prohibited” the tribunal from seeking any increase. The tribunal ultimately issued an award in favor of Getma, which did not include such increase.

Following that, the tribunal continued to express its frustration over the CCJA’s refusal and in September 2014, the tribunal collected half of the increased arbitrators’ fees from Getma (approximately EUR 225,000). Guinea did not pay any increased arbitrators’ fees.

In July 2014, Guinea filed an annulment petition with the CCJA. The CCJA annulled the award on the ground that the tribunal violated the CCJA Arbitration Rules and, therefore, the tribunal’s “mission” to conduct the arbitration proceeding in accordance with those rules, in seeking increased arbitrators’ fees from the parties. Despite the annulment, Getma petitioned the District Court for the District of Columbia to confirm and enforce the award.

Before the District Court, Getma contended the annulment was “repugnant to U.S. public policy” because it “violat[ed] basic notions of justice,” and the District Court should, therefore, confirm and enforce the award.

The District Court’s Opinion

Citing and quoting Termorio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C.Cir. 2007) as well as its own precedent, the District Court noted that the New York Convention confers upon courts the discretion to enforce an annulled award, but that such discretion is “narrowly” confined and may only be exercised “where the enforcement would violate the … [United States’] most basic notions of morality and justice.” The “test of public policy cannot be simply whether … [a court] would set aside an arbitration award if the award had been made and enforcement had been sought … [in the United States].” The New York Convention “contemplates that different … [countries] may have different grounds for setting aside arbitration awards.” Courts “must be very careful in weighing notions of ‘public policy’ in determining whether to credit the judgment of a [foreign] court in … vacating an arbitration award”. The New York Convention “does not endorse a regime” in which courts “routinely second-guess the judgment” of a foreign court with competent jurisdiction to annul an arbitral award. Where a foreign court has annulled an arbitral award, a court in this country may only ignore that annulment on “limited … occasions” where extraordinary circumstances have been presented. For example, “[i]n the classic formulation, a judgment that ‘tends clearly’ to undermine the public interest, the public confidence in the administration of the law, or security for individual rights of personal liberty or of private property is against public policy.”

The District Court found that none of Getma’s public policy arguments compelled it to ignore the CCJA’s annulment of the award. According to the District Court, the parties agreed to be bound by the CCJA Arbitration Rules, under which the CCJA is the highest court of review. The CCJA ordered the arbitral tribunal on multiple occasions to abandon its efforts to solicit increased arbitrators’ fees from the parties, relying on the CCJA Arbitration Rules and its own precedent and neither the tribunal nor the parties could invade that authority. However, the District Court noted that the tribunal ignored that authority.

According to the District Court, Getma could not dispute that the CCJA, and not the Secretary General, has the ultimate authority and discretion to increase the arbitrators’ fees. The Secretary General did not “encourage” the communication between the tribunal and the parties and never affirmatively represented that the CCJA would eventually approve any agreement that the tribunal solicited. Even if that were the case, the CCJA’s later rescission of that approval was entirely consistent with CCJA precedent. The District Court found that such conduct is not repugnant to United States public policy.

Further, the CCJA Arbitration Rules do not impose an obligation on the CCJA to increase the arbitrators’ fees and even if the CCJA had abused its discretion, such a transgression would be an insufficient ground to ignore the annulment.

With respect to Getma’s position that the CCJA’s refusal to increase the arbitrators’ fees was an attempt by the CCJA to “sabotage the arbitration”, the District Court found this not to be only speculative, but ill-conceived.

Regarding Getma’s argument that the CCJA should have honored the parties’ agreement to pay the increased arbitrators’ fees, the District Court referred to the parties’ agreement to the CCJA Arbitration Rules recorded in the Concession Agreement, which assign the fee-setting responsibility exclusively to the CCJA.

Further, with respect to Getma’s accusation that the Guinean Minister of Justice improperly caused a Guinean judge, Fodé Kante, to be appointed to the CCJA for the purpose of annulling the award and engaging in ex parte communications with Judge Kante during the annulment proceeding, the District Court noted that the post-annulment conduct of the Minister of Justice certainly raised concern. Nonetheless, the District Court found the Minister of Justice’s declaration denying such fact credible and that there was no dispute that Guinea’s last submission to the CCJA occurred approximately two months before Judge Kante joined the CCJA and that Guinea was unable to supplement its submissions in any substantive manner thereafter. Further, simply because Judge Kante was a Guinean judge is not alone proof that he was biased in favor of annulling the award in favor of Guinea.

Finally, regarding Getma’s argument that the annulment departed significantly from certain precedent and arbitration rules, the District Court noted that “erroneous legal reasoning or misapplication of law is generally not a violation of public policy within the meaning of the New York Convention”.

The District Court stated that although the parties’ foreign arbitration process was not without some unusual events, these events were the product of their arms’ length negotiation of the dispute resolution clause in the Concession Agreement and that the parties must bear the consequences of those events unless the events violate the “most basic notions of morality and justice”, which is a high bar to overcome. Given the “emphatic federal policy in favor of arbitral dispute resolution … that applies with special force in the field of international commerce,” the presumption favoring such resolution has not been defeated. What Getma sought in this case “would seriously undermine a principal precept of the New York Convention: an arbitration award does not exist to be enforced in … [the District Court] if it has been lawfully ‘set aside’ by a competent authority in the [foreign] State in which the award was made.” Therefore, the District Court could not confirm and enforce the arbitral award that has been annulled.

A more detailed summary and an excerpt of this decision, indexed and searchable according to the list of topics published in http://www.newyorkconvention.org/court+decisions/description will be published in the 2016 volume of the Yearbook Commercial Arbitration, published by the International Council of Commercial Arbitration (ICCA). 

Source: Original Opinion available at http://www.pacer.gov