US District Court for the Southern District of New York stays enforcement of an ICC award pending annulment proceedings in Paris

On 17 February 2016, the US District Court for the Southern District of New York stayed enforcement of an International Chamber of Commerce (“ICC”) arbitration award rendered in Paris, pending a determination of an annulment proceeding brought before the Paris Cour d’Appel (InterDigital Comm., Inc. v. Huawei Investment & Holding Co., Ltd., 15-cv-4485 (S.D.N.Y. Feb. 17, 2016)).

Factual Background

The action before the US District Court for the Southern District of New York arose out of an arbitration between the petitioner, InterDigital Communications, Inc. and several InterDigital entities (collectively “InterDigital”), and the respondent, Huawei Investment & Holding Co. and several Huawei entities (collectively “Huawei”). The parties spent several years litigating and negotiating a licensing scheme for InterDigital’s patents for 3G and 4G wireless technology.

In 2014, the parties agreed to submit to a binding arbitration before an Arbitral Tribunal governed by the ICC Arbitration Rules. Pursuant to an Arbitration Agreement entered into by the parties, the parties’ Terms of Reference, and Joint Request for Arbitration, the Tribunal would determine fair, reasonable, and non-discriminatory terms and conditions for a patent license agreement between the parties.

On 22 May 2015, the Tribunal issued a Partial Award in favor of InterDigital.

On 9 June 2015, InterDigital petitioned the US District Court for the Southern District of New York for an order confirming the Partial Award.

Also on 9 June 2015, Huawei filed an action in Paris, the seat of the arbitration, to set aside the Partial Award.

On 14 July 2015 the Tribunal issued a Final Award in favor of InterDigital.

On 24 July 2015, Huawei-cross petitioned the US District Court for the Southern District of New York to stay the enforcement proceeding and to dismiss InterDigital’s petition with prejudice.

On 14 August 2015, InterDigital filed an amended petition, seeking an order confirming the Final Award.

District Court’s Order

The preliminary question before the District Court was whether it should stay InterDigital’s petition to enforce the Award pending a decision by the Paris Court on Huawei’s action to annul the Award.

According to the District Court, the decision on whether to stay an enforcement proceeding is a matter that lies in the court’s discretion. The District Court referred to Article VI of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which provides: “If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V(1)(e), [namely the country in which or under the law of which, that award was made] the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.”

The District Court also referred to the decision of the Court of Appeals for the Second Circuit in Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F. 3d 310, 317-318, which set out several, non-exclusive factors to consider in determining whether a stay is appropriate:

“(1) the general objectives of arbitration – the expeditions resolution of disputes and the avoidance of protracted and expensive litigation;

(2) the status of the foreign proceedings and the estimated time for those proceedings to be resolved;

(3) whether the award sought to be enforced will receive greater scrutiny in the foreign proceedings under a less deferential standard of review;

(4) the characteristics of the foreign proceedings including (i) whether they were brought to enforce an award (which would tend to weigh in favor of a stay) or to set the award aside (which would tend to weigh in favor of a stay) or to set the award aside (which would tend to weigh in favor of enforcement); (ii) whether they were initiated before the underlying enforcement proceeding so as to raise concerns of international comity; (iii) whether they were initiated by the party now seeking to enforce the award in federal court; and (iv) whether they were initiated under circumstances indicating an intent to hinder or delay resolution of the dispute;

(5) a balance of the possible hardships to each of the parties, keeping in mind that if enforcement is postponed under Article VI of the Convention, the party seeking enforcement may receive “suitable security” and that, under Article V of the Convention, an award should not be enforced if it is set aside or suspended in the originating country, …; and

(6) any other circumstances that could tend to shift the balance in favor of or against adjournment.”

Huawei contended that its motion to stay the enforcement satisfied each of these factors.

The District Court found that on balance, the Europcar factors tipped decidedly in favor of staying the enforcement proceeding to await the outcome of the proceeding in France to annul the Award.

With respect to the first Europcar factor, the general objectives of arbitration and speedy resolution of disputes, weighed in favor of the stay. The Cour d’Appel in Paris will hold a hearing on Huawei’s annulment action on 8 March 2016. According to Huawei, a decision is expected approximately four to six weeks after the hearing. While that proceeding could be delayed, there would assuredly be duplication and delay from pursuing the enforcement proceeding. Further, a stay avoided the possibility of inconsistent results between the District Court’s determination on enforcement and the Paris court’s decision on whether to vacate the Award.

Moreover, the second factor, the status of the foreign proceedings, weighed in favor of a stay. Both the enforcement and annulment actions were initiated on the same day. Huawei acted promptly to have the Award annulled. Huawei’s prompt action in Paris has resulted in a situation where there is likely to be a prompt decision by the Cour d’Appel without any inordinate delay.

The third factor, whether the award will receive greater scrutiny in foreign proceedings, weighed somewhat in favor of staying the enforcement action. Paris is the seat of the arbitration, and therefore a primary jurisdiction under the New York Convention. The French courts can apply the specific grounds for refusing to enforce the Award found in Article V of the Convention, and can also rely on any relevant provisions of local law. The District Court would be limited to the grounds in Article V. In the annulment proceeding, Huawei largely relied on the same grounds that it has asserted before the District Court to resist enforcement of the Award, but it had also relied to a minor degree on a provision of French law that would not be available in this proceeding.

With respect to the fourth factor, the type of foreign proceeding, Huawei’s proceeding in France is an action to vacate an award which is normally not preferred over an action to enforce an award. However, there was no evidence that Huawei’s annulment action is intended to hinder or delay resolution, is frivolous, or is an abusive tactic by Huawei to forestall the resolution of the licensing dispute.

With respect to the fifth factor, the balance of hardships, and the sixth factor, other significant circumstances that should be considered, it was plain that InterDigital has significant interest in the prompt enforcement of the Award which provided it with substantial, immediate monetary relief, which Huawei has refused to comply with. The District Court found that both parties can be protected by an order that Huawei post security pursuant to Article VI of the New York Convention in the amount of the Final Award together with interest to date.

Accordingly, the US District Court granted Huawei’s cross petition to stay the enforcement proceeding.

Amore 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 Order available at http://law.justia.com