The US is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York Convention is incorporated into federal law by Federal Arbitration Act which governs the enforcement of arbitration agreements and arbitral awards. A principal advantage of the New York Convention is that a US party, in whose favour an international arbitration award has been rendered, may use the Convention to enforce the award in another country that has ratified the Convention. But may a foreign party use the Convention to enforce an award arising out of an arbitration proceeding in the US?
This issue was recently presented to the US Court of Appeals for the Eleventh Circuit in Industrial Risk Insurers v MAN Gutehoffnungshutte .
Barnard and Burk Group, a Texas corporation, had agreed to install a tail gas expander in Nitram's Tampa, Florida nitric acid manufacturing plant. Barnard and Burk contracted to purchase the tail gas expander from MAN Maschinenfabrik Augsburg-Nurnberg, a German turbine manufacturer. Following installation, the expander failed causing millions of dollars of damages.
A dispute arose between Barnard and Burk and MAN as to which party had caused the expander to malfunction. MAN moved to compel arbitration under the arbitration clause in its contract with Barnard and Burk. This clause provided for binding arbitration in Tampa under the rules of the American Arbitration Association and Florida law. The arbitrators returned an award in favour of MAN which then sought to enforce the award in federal court in Florida under the Convention and chapter two of the Federal Arbitration Act. Barnard and Burk sought to vacate the award and argued that the Convention did not apply because the award had been rendered in the US.
The Court of Appeals noted that the Convention applies to only two types of arbitral awards:
- awards made in the country other than that in which enforcement of the award is sought; and
- awards not considered as domestic awards in the country where enforcement of the award is sought.
Thus, the question before the court was whether the award rendered by the Florida arbitration award was a domestic award. If so, the Convention would not apply. The Court of Appeals held that where an agreement or arbitration proceeding involves a party domiciled or having principal place of business outside the enforcing jurisdiction (in this case, MAN, a German firm), the resulting award is not a domestic award. It is the parties to the agreement and arbitration proceeding, not the location of the proceeding, that is relevant in making this determination. Accordingly, the German firm could use the Convention to enforce the award in the US.
Barnard and Burk then raised a number of defenses with respect to the enforcement of an award under the Convention, such as that the arbitral procedure was not in accordance with the agreement of the parties and that enforcement of the award would be contrary to the public policy of the US. The Court rejected these defenses and entered judgment in favour of MAN.
With its holding in Industrial Risk Insurers, the Eleventh Court joins other federal circuits in allowing foreign parties to use the Convention to enforce US arbitral awards in the federal courts. US parties could also use the Convention to enforce US arbitral awards against foreign parties in the federal courts, but they may be better advised to seek enforcement of the award in the foreign party's country of domicile — if that country is a party to the New York Convention.