Arbitration and the Enforceability of International Judgments

While I was doing some legal research for a pro bono project, I came across an interesting issue that (admittedly) I know little about. In the United States, the Full Faith and Credit Clause typically places a strong presumption in favor of the enforceability of judgments between the individual states. See Fauntleroy v. Lum, 210 U.S. 230 (1908). In the international arbitration context, however, the same principle on respecting foreign judgments has been somewhat different. Specifically, U.S. courts have sometimes refused to recognize valid judgments rendered by foreign nations.

Though U.S. courts are not bound to do so under the Full Faith and Credit Clause, there are associated treaty obligations; specifically, contracting States to the New York Convention (to which the United States is a party) “[must] recognize [foreign] arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon.” However, the “[r]ecognition and enforcement of the award may be refused, at the request of the party against whom it is invoked . . . if that party furnishes . . . proof that” the arbitration award, as rendered, falls under one of the grounds for refusal under Article V of the Convention. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), 9 U.S.C. § 201, et seq. One such ground for refusal under Article V(1)(e) is where the state in which the arbitration took place vacates the award of the final judgment.

Thus, if a party gets an arbitration award in Country A, and attempts to enforce it in Country B, Country B must honor the award unless Country A sets it aside (in which case it should not honor the award).

But U.S. courts have not always complied. In Chromalloy Aeroservices v. Egyptian Arab Republic, 939 F. Supp. 907 (D.D.C. 1996), for example, the court was faced with a peculiar set of facts which required it to assess this principle in light of conflicting public policies between two nations. In that case, the plaintiff entered into a contract with the defendant to “provide parts, maintenance, and repair for helicopters belonging to the Egyptian Air Force." Id. at 908. The plaintiff alleged that the defendant later terminated the agreement unlawfully, and thus commenced arbitration proceedings in Egypt pursuant to an arbitration clause in the contract. Id. After the proceedings, the arbitration panel entered an award for the plaintiff, which the plaintiff subsequently sought to enforce in the United States District Court for the District of Columbia. However, shortly after the plaintiff's enforcement action commenced, the defendant obtained an order from the Egypt Court of Appeal, nullifying the award on the grounds that the arbitrator in the case applied incorrect law to the dispute--notwithstanding the fact that the parties had agreed not to seek judicial review of any award. Id. Accordingly, Egypt argued that the District Court should refuse enforcement out of deference to the Egyptian court under Article V(1)(e) of the Convention. Id.

The Court declined Egypt's request because, as it reasoned, the conduct of the Egyptian court in vacating the award strongly cut against U.S. policy favoring arbitration, and thus, should not be respected. Id. at 915. Other courts have recognized this limited policy-based exception to Article V(1)(e), while openly questioning its application in situations presenting different factual circumstances than Chromalloy. See, e.g., Termorio S.A. E.S.P. v. Electrificadora Del Atlantico S.A. E.S.P., 421 F. Supp. 2d 87 (D.D.C. 2006) (recognizing the exception, but limiting it to the facts of Chromalloy).

The distinction between U.S policy on the pro-enforceability of judgments between (U.S.) states and this limited exception recognized by some U.S. courts with respect to foreign states is quite interesting. And I'm not sure the difference can be reconciled solely by reference to the requirements imposed by the Full Faith and Credit clause and New York Convention treaty obligations, respectively. I look forward to hearing any feedback or thoughts on this from our readers.