Panel Invites Full Court to Revisit Grounds on Which International Arbitration Awards Can Be Vacated

In Corporacion AIC, SA v. Hidroelectrica Santa Rita S.A., 34 F.4th 1290 (11th Cir. 2022), a panel of the Eleventh Circuit urged the full court to reconsider its holding in Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH, 921 F.3d 1291 (11th Cir. 2019), and to add to the grounds on which an international arbitration award rendered in the United States, or under U.S. law, can be vacated.

The dispute between Corporacion AIC, SA (“AICSA”) and Hidroelectrica Santa Rita SA (“HSR”) arose under an agreement for the creation of a new power plant in Guatemala. Arbitration in Miami resulted in an award requiring AICSA to return more than $7 million to HSR. AICSA filed an action in district court seeking to vacate the award on the basis that the arbitration panel had exceeded its powers, which is one of the grounds for vacatur specified in Chapter 1 of the Federal Arbitration Act. The district court denied the petition to vacate based on prior Eleventh Circuit decisions holding that the grounds for vacatur specified in Chapter 1 of the FAA do not apply to arbitration awards falling under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). AICSA appealed.

The Eleventh Circuit, in an opinion written by Judge Tjoflat and joined by Judges Jordan and Jill Pryor, affirmed—but only because it had to. The court agreed that the award in question was “non-domestic,” and thus fell under the New York Convention. Accordingly, the court was bound to apply Inversiones—in which Judge Tjoflat had also been a panel member—to hold that the grounds for vacatur specified in Chapter 1 of the FAA did not apply. But the panel expressed its “hope that this case will be taken en banc where this Court may overturn [Inversiones] and hold that under a correct understanding of Supreme Court precedent the exceeding powers ground is a valid basis for vacatur under both the New York Convention and the FAA.” 

In Inversiones, and before that in Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998), the court held that Article V of the New York Convention supplies the exclusive grounds for vacating an international award. Article V does not refer to an arbitrator’s exceeding his or her powers. But that ground for vacatur does appear in Chapter 1 of the FAA: “In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration— . . . (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a)(4).

According to the court’s opinion in AIC, this “domestic defense” to enforcement of an arbitration award is “nestled in” Article V(1)(e) of the New York Convention, making it applicable to awards falling under the Convention, and Inversiones was wrong to hold otherwise. The AIC court explained its rationale in terms of “primary” versus “secondary” jurisdiction, adding that the Supreme Court “nodded to” the idea of primary jurisdiction with respect to Convention awards—“[a]lthough not calling it as such”—in BG Group plc v. Republic of Argentina, 572 U.S. 25 (2014). A “primary jurisdiction” with respect to an arbitration award, according to the AIC court, is one whose laws have been used in the arbitration or in which the arbitration has taken place. A “secondary jurisdiction,” the court continued, is one “that is simply being asked to enforce an award it had nothing to do with in the first place.” “[W]e think we’ve gotten it wrong in Industrial Risk and Inversiones,” the court concluded, “and an en banc panel of this Court should hold that we can review international arbitration awards based on Chapter 1 of the FAA under Article V(1)(e) of the New York Convention when the United States has primary jurisdiction.”

Judge Jordan concurred, but under different reasoning. In his view, the grounds for vacatur set forth in Article 1 of the FAA were available to AICSA “not because they are incorporated through Article V(1)(e) [of the New York Convention], but because they apply directly to the vacatur of a New York Convention award made in the United States.” Article V of the New York Convention, Judge Jordan wrote, deals only with recognition and enforcement, not with vacatur. In his view, vacatur is always governed by 9 U.S.C. § 10, whether the underlying arbitration was domestic or non-domestic. 

AIC filed a petition for rehearing en banc on June 15, 2022. The court’s action in response to the petition will be closely watched by arbitration practitioners, as it could expand the grounds on which arbitration awards rendered in the United States (or under U.S. law) can be vacated.

Posted by Valerie Sanders.

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