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Enforcement of International Arbitral Awards in the U.S. – Could a Court Abstain Due To “Inconvenience”?

Forum non conveniens is one of several judicial abstention doctrines, applied from time to time by U.S. courts, that permit a court to dismiss (without prejudice) a plenary action in its discretion.  In a forum non conveniens case, the court’s jurisdiction is not in question, but the relative legal “inconvenience” of having the matter heard in that court, as opposed to another court of competent jurisdiction, is deemed sufficient for the U.S. court to abstain from exercising its authority.  A defendant seeking abstention on forum non conveniens grounds typically is required to establish that an adequate alternative forum is available, and that a balancing of interests strongly favors dismissal by the U.S. court in favor of that other forum.  

But can – or should – such a court-made doctrine properly be a defense in a non-plenary proceeding brought by an arbitration awardee seeking enforcement vis-à-vis assets in the United States?  Could a court outside the U.S. grant that remedy instead?  And in any case, do the applicable international conventions afford U.S. courts the latitude to enforce arbitral awards in their discretion?

Federal courts in the United States have varied views regarding the matter.  Two prominent United States Courts of Appeals – the Second Circuit (which allows the forum non conveniens defense in an enforcement proceeding) and the District of Columbia Circuit (which does not) – take opposite views on the subject, and the U.S. Supreme Court recently declined to resolve the split.  Therefore, the viability of the forum non conveniens defense in connection with the enforcement of arbitral awards varies and is uncertain in U.S. courts.

Should the forum non conveniens doctrine ever be a factor in a non-plenary proceeding to enforce an arbitral award?  Arguably “no.”  The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), to which the U.S. is a party, was designed to facilitate the enforcement of international arbitration awards by means of more or less uniform judicial criteria and streamlined processes.  Article V identifies seven grounds, meant to be exclusive, upon which recognition and enforcement of intentional arbitral awards may be refused.  The Federal Arbitration Act (the “FAA”) provides, in the chapter implementing the New York Convention, that a court “shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified” in the New York Convention.  9 U.S.C. § 207 (emphasis added).  The defense of forum non conveniens, as it is understood in the U.S., is not among the seven grounds provided in the New York Convention.  Therefore, in accordance with the FAA, one would expect that forum non conveniens should not be entertained as a defense to the enforcement of an international arbitration award.

Second, it seems illogical that a non-plenary proceeding regarding recognition and enforcement of an arbitral award in the U.S., contemplating collection from assets here, could be better adjudicated or adjudicated at all in another country.

Nevertheless, the Second Circuit applied the forum non conveniens doctrine in 2002 to reject enforcement of an arbitration award in In re Arbitration between Monegasque de Reassurances SAM v. Nak Naftogaz of Ukraine, 311 F.3d 488 (2d Cir. 2002) (“Monde Re”).  In Monde Re, the Ukrainian government-owned respondent argued that the enforcement proceeding in the United States should be dismissed because Ukraine was a better forum for such a proceeding.  The Second Circuit first analyzed the New York Convention’s authorization to party-states to enforce arbitral awards “in accordance with the rules of procedure of the territory where the award is relied upon”.  The Court noted that the U.S. Supreme Court considers forum non conveniens to be a procedural, rather than a substantive, defense.  Therefore, the Court decided that the New York Convention and the FAA permit a defense to enforcement based on the forum non conveniens doctrine.  In concluding, the Second Circuit opined that

“[f]orcing the recognition and enforcement in Mexico, for example, in a case of an arbitral award made in Indonesia, where the parties, the underlying events, and the award have no connection to Mexico, may be highly inconvenient overall and might chill international trade if the parties had no recourse but to litigate, at any cost, enforcement of arbitral awards in a petitioner’s chosen forum.”  Monde Re, 311 F.3d at 496-97.

But should any of those factors matter in a proceeding merely to recognize and enforce an arbitration award?

In contrast, the Court of Appeals for the District of Columbia Circuit (“DC Circuit”) rejected another Ukrainian governed-owned respondent’s forum non conveniens defense to enforcement there of an arbitral award.  In TMR Energy Ltd v. State Property Fund of Ukraine (“TMR Energy”), 411 F.3d 296 (D.C. Cir. 2005), respondent argued that enforcement proceedings should be dismissed in favor of more convenient fora -- Sweden and Ukraine -- where petitioner had commenced other actions against the Ukrainian State Property Fund.  The DC Circuit rejected respondent’s forum non conveniens defense because only a U.S. court could authorize attachment of a foreign nation’s property located in the United States.  Thus, no other forum could grant the enforcement relief sought by the petitioner in the proceeding below.  Indeed, the DC Circuit opined that dismissal on forum non conveniens grounds would be inappropriate even when a respondent does not have attachable property in the United States, as the respondent may acquire such property subsequent to an enforcement order.

TMR Energy and Monde Re each have progeny in their respective circuits.  Monde Re was followed in the Second Circuit by Figueiredo Ferraz e Engenharia de Projeto Ltda. v. Republic of Peru, 665 F.3d 384 (2d Cir. 2011).  In Figueiredo, respondent Peru argued that enforcement in the United States should be denied on forum non conveniens grounds because Peru was a better forum for enforcement.  The case was brought under the Panama Convention which, like the New York Convention, identifies a limited set of permitted defenses to enforcement of an award, but allows that an award may be enforced “in accordance with the procedural laws of the country where [the award] is to be executed.”  The District Court, in effect adopting the reasoning of TMR Energy, rejected the defense of forum non conveniens, finding that only a United States court could adjudicate a matter involving the attachment of a foreign nation’s property in the United States.  However, the Second Circuit reversed, relying on Monde ReSee, Figueiredo, 665 F.3d at 390.  In doing so, the Court opined that when judgment and execution on a respondent’s assets is sought, the relevant question for forum non conveniens purposes is not whether the assets located in the United States could be attached from another jurisdiction, but whether the respondent has some assets in the jurisdiction of the alternate forum, even if petitioner stands to recover less in the alternate forum than it would in the United StatesId. 

But a dissent by Second Circuit Judge Lynch provided a forceful and cogent rejection of the majority’s reasoning.  First, he noted that forum non conveniens was not viable because it was not one of the New York Convention’s enumerated defenses to enforcement.  Second, he opined that permitting a respondent to avoid enforcement in the U.S. on forum non conveniens grounds undermined the express goal of “unifying the standards” by which “arbitral awards are enforced in signatory countries,” and instead afforded precedent to all New York and Panama Convention signatories that wished to avoid their international treaty obligations.  Finally, he rejected the Monde Re reasoning as flawed, pointing out that the drafters of the two similar arbitration conventions came from various legal traditions, and would not have considered or intended to permit the unique American doctrine of forum non conveniens as an effective defense when creating a global framework for the enforceability of arbitral awards.

After TMR Energy, the D.C. Circuit reviewed three related enforcement actions against the Belize government.  In each case, the D.C. Circuit rejected Belize’s forum non conveniens argument and upheld enforcement of the award.  Respondent Belize filed a petition for certiorari to the U.S. Supreme Court, which gave the high court an opportunity to resolve the relevant split between the Second and D.C. Circuits.  But after prolonged consideration, the Supreme Court declined to grant the petition to hear the case.

Should the Supreme Court (or the Second Circuit) have occasion to revisit this issue in the future, one hopes that it will support the views expressed in TMR Energy or in Judge Lynch’s dissent in Figueiredo, and hold that forum non conveniens is not an available defense in enforcement proceedings brought pursuant to the New York or Panama Conventions.  Notably, the Third Restatement of International Commercial Arbitration echoes Judge Lynch’s dissent in stating that an action to enforce a foreign award “is not subject to a stay or dismissal in favor of a foreign court on forum non conveniens grounds.”  (Emphasis added).  Second, the New York and Panama Conventions identify a limited set of defenses to enforcement of arbitral awards, and forum non conveniens is simply not one of themThird, the doctrine is merely a discretionary abstention tool, which is typically applicable at the outset of a plenary action in U.S. courts, and we submit that this American invention is misplaced in connection with the enforcement of international arbitral awards.  Finally, as Judge Lynch stated, the application of the doctrine will have a chilling effect on the enforcement of arbitral awards globally, and most especially in certain parts of the United States.

For the moment, until the U.S. Supreme Court takes this issue on (or the Second Circuit reconsiders it), prudent awardee-petitioners are well advised to seek the recognition and enforcement of an international arbitral award in the more reliable federal courts of the D.C. Circuit than in a federal court of the Second Circuit.

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Narges M. Kakalia

Chief Diversity, Equity and Inclusion Officer

Narges Kakalia is Chief Diversity, Equity and Inclusion Officer at Mintz. She leads the law firm in developing its DEI strategy and implementing steps that foster a culture that celebrates differences and ensures that every employee has an equal opportunity to succeed.