Court Rules Question of Arbitral Venue Presumptively for Arbitrator to Decide

In an international arbitration dispute between an Israeli company (“Profimex”) and an American business (“OAD”) incorporated in the state of Georgia, the Eleventh Circuit ruled this week “that questions of arbitral venue, even those arising in international arbitration, are presumptively for the arbitrator to decide.” Bamberger Rosenheim, Ltd., (Israel) (“Profimex”) v. OA Development, Inc., (United States), 2017 WL 3014354 (11th Cir. July 17, 2017).  Profimex is in the business of raising capital for real estate investments and, in 2008, entered into a solicitation agreement with OAD that required the parties to arbitrate any disputes between them.  Specifically, the arbitration provision stated that “[a]ny such proceedings shall take place in Tel Aviv, Israel, in the event the dispute is submitted by OAD, and in Atlanta, Georgia, in the event the dispute is submitted by Profimex.”  When a disagreement arose that the parties were unable to amicably resolve, Profimex commenced arbitration in Atlanta for breach of contract and, in the same proceedings, OAD submitted a counterclaim for defamation.  Over Profimex’s objection that OAD’s counterclaim was improper and must be arbitrated in Tel Aviv, the arbitrator held that Atlanta was the appropriate venue for OAD’s counterclaim because the “dispute” was submitted by Profimex.  At the conclusion of the arbitration, the arbitrator found Profimex liable for defamation, and Profimex subsequently filed suit in district court (N.D. Ga.) to vacate the award.

In reviewing Profimex’s challenge to the arbitrator’s award, the district court looked to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), which is codified as part of the Federal Arbitration Act at 9 U.S.C. §§ 201–08. The New York Convention applies to “non-domestic” arbitral awards, i.e., “when one of the parties to the arbitration is domiciled or has its principal place of business outside of the United States.”  A district court must confirm an arbitral award under the New York Convention unless the party challenging the award can successfully assert one of seven specific defenses.  Profimex argued that “the arbitral procedure was not in accordance with the agreement of the parties.”  New York Convention, Art. V(1)(d).  Ultimately, the district court rejected Profimex’s position and confirmed the arbitral award.

On appeal, the Eleventh Circuit noted that the dispositive issue in the case is whether the court must defer to the arbitrator’s venue determination. The court looked to well-established precedent holding questions of arbitrability are for the courts to decide while the arbitrator must generally decide “disputes about the meaning and application of particular procedural preconditions for the use of arbitration.”  Because venue provisions determine where the parties arbitrate and “not whether there is a contractual duty to arbitrate at all,” the court ultimately held “that disputes over the interpretation of forum selection clauses in arbitration agreements raise presumptively arbitrable procedural questions.”  The court highlighted consistent prior holdings by the Second, Fourth, Tenth, and First Circuits.

After concluding that the question of venue was properly before the arbitrator, the court found that its review of the arbitrator’s decision was limited to “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” The court held that this standard was easily satisfied where, as here, the arbitrator “engaged with the language of the venue provision” and determined the “dispute” was submitted by Profimex.  The bar, however, is admittedly low and the court was bound by the arbitrator’s construction “however good, bad, or ugly.”  In closing, the court remarked that parties can remove arbitral venue disputes from the arbitrators’ sphere of authority by contractually limiting the issues they wish to arbitrate.

Posted by John Sharpe.

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