A New Rule for Vacatur of International Arbitration Awards

Overruling Industrial Risk Insurers v. M.A.N. Gutehoffnunshutte GmbH, 141 F.3d 1434 (11th Cir. 1998) and Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH, 921 F.3d 1291 (11th Cir. 2019), the Eleventh Circuit has held that an international arbitration award falling under the New York Convention may be vacated by courts in the arbitration’s “primary jurisdiction” on any of the grounds set forth Chapter 1 of the Federal Arbitration Act (“FAA”). Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., 2023 WL 2922297 (11th Cir. April 13, 2023).

Corporación AIC and Hidroeléctrica Santa Rita, both Guatemalan companies, were parties to an agreement for construction of a power plant in Guatemala. When the deal fell apart, they proceeded to arbitration in Miami. The resulting arbitration award required Corporación AIC to return some payments Hidroeléctrica.  Corporación AIC filed an action in federal court seeking to vacate the award and arguing that the arbitral tribunal had exceeded its powers, a ground for vacatur set out in Chapter 1 of the FAA—which Chapter also applies to domestic arbitration awards. The district court denied the motion, applying Industrial Risk and Inversiones to hold that a challenge based on Chapter 1 of the FAA was not available for non-domestic awards falling under the New York Convention, which is codified in the FAA’s Chapter 2. A panel of the Eleventh Circuit affirmed, also because of Industrial Risk and Inversiones, with Judge Jordan filing a lengthy concurrence questioning whether Industrial Risk and Inversiones had been correctly decided. (You can see our post on the panel decision here.) After vacating the panel opinion and ordering rehearing en banc, the full court overruled Industrial Risk  and Inversiones and vacated the district court’s order.

The court’s opinion, written by Judge Jordan, began by reviewing the holding of Industrial Risk. There, the court held that when a party seeks vacatur of an arbitral award issued under the New York Convention—that is, a “non-domestic” award as defined in the convention—the only grounds the district court can consider are those set out in Article V of the Convention. But those grounds, the court noted, are identified in the convention as defenses to recognition and enforcement of an arbitral award—not as grounds for vacatur of the award. Thus in Industrial Risk, “we equated the defenses to recognition and enforcement with the grounds for vacatur.” Two decades later, Inversiones followed Industrial Risk as binding precedent with respect to the available grounds for vacatur of an award falling under the New York Convention.

In Corporación AIC, the Court revisited the question. The court reviewed the distinction between a motion to recognize and/or enforce an award and a motion to vacate an award, noting that each has an analog in domestic arbitration law: “Confirmation under the FAA is essentially the same as recognition and enforcement under the New York Convention,” and “[s]et aside, suspend, and annul under the New York Convention are, in turn, generally interchangeable with vacatur under the FAA.” The New York Convention, the court observed, distinguishes among jurisdictions with respect to the recognition/enforcement and vactur. The country which is the “legal seat” of the arbitration, and whose law governs the conduct of the arbitration (as opposed to the merits of the underlying dispute) is the primary jurisdiction, and under the New York Convention, “only courts in the primary jurisdiction can vacate an arbitral award.” If that occurs, other jurisdictions—secondary jurisdictions—may (but need not) refuse to recognize and enforce an award. Secondary jurisdictions may also refuse recognition and enforcement of an award on the other grounds set forth in Article V of the New York Convention, but they lack the power to vacate the award.

And the New York Convention, the court held, does not prescribe any standards for vacatur. Article V by its terms provides defenses to recognition and enforcement, but not grounds for vacatur. The Convention’s “catchall” provision at § 207 of the FAA similarly directs courts to enforce an award “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the . . . Convention.” That leaves a gap to be filled by domestic law, the Court held, as envisioned by § 208 of the FAA, which provides that Chapter 1 of the FAA (which also applies to domestic awards) applies to actions brought under Chapter 2 (which enacts the New York Convention) to the extent Chapter 1 is not inconsistent with Chapter 2 or the Convention as ratified by the United States. So, “in a case like this one, § 208 of the FAA contemplates that the grounds for vacatur are the ones set out in Chapter 1 of the FAA.” In so holding, the Court joined the Second, Third, Fifth, and Seventh Circuits.

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