US courts routinely tout federal policy that strongly favors recognizing and enforcing international arbitration awards. That policy appears particularly robust in the US District Court for the Southern District of Florida.
An award creditor ordinarily has few obstacles to recognizing and enforcing such an award, because Article V of the New York Convention provides limited defenses.
Now, a line of cases is developing in the Southern District of Florida that in some circumstances limits the time for raising such defenses, further strengthening the award creditor's position and requiring the award debtor take prompt action to preserve its Article V defenses.
Thus, the Southern District of Florida is an appealing venue for an award creditor when the award debtor hasn't moved to vacate or modify the award within three months.
Untimely Defenses
A recent decision, Noble Prestige Ltd. v. Horn, held that the Federal Arbitration Act precludes a party from asserting a defense for enforcement under the New York Convention if that party hasn't served notice of a motion to vacate, modify, or correct an award within three months after the award was filed or delivered.
Noble Prestige Ltd. applied to the court pursuant to Chapter 2 of the Federal Arbitration Act for recognition and enforcement of three arbitration awards rendered by an arbitration tribunal appointed by the Hong Kong International Arbitration Center. In opposition, respondents Paul Horn and Craig Thomas Galle raised six Article V defenses.
Noble argued that the respondents couldn't assert Article V defenses because they failed to provide notice of a motion to vacate, modify, or correct any of the awards within three months of their respective award delivery, as required by Chapter One of the FAA.
Neither the New York Convention nor Chapter Two of the Federal Arbitration Act limit the time for asserting Article V defenses.
Still, the opinion by US District Judge Rodney Smith found the Chapter One limitation period should apply to Chapter 2 proceedings. Smith pointed to a clause in Chapter Two that says that Chapter One applies whenever it's not in conflict with Chapter Two or any treaty provisions the US adopted.
Ultimately, Smith concluded the respondents were barred from raising Article V defenses because they didn't provide timely notice or move to vacate, modify, or correct the awards.
In reaching that decision, Smith relied on prior opinions in Florida's Southern District, including Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int'l GmbH, Commodities & Mins. Enter. Ltd. v. CVG Ferrominera Orinoco, C.A., and Grupo Unidos por el Canal, S.A. v. Autoridad del Canal de Panama.
Will the Ruling Stand?
The decision is subject to attack on appeal because it doesn't address the distinction between the district court's roles, and the available defenses, when a court sits in its secondary jurisdiction and its primary jurisdiction.
Courts sitting in secondary jurisdiction—which arises under Chapter 2 of the FAA with regard to a foreign arbitral award—can only recognize and enforce the award; they can't vacate or modify an award. Only a court sitting in primary jurisdiction—the country where the arbitration was seated—can vacate, modify, or correct an award.
The litigants and the court didn't bear in mind the lesson in CBF Industria de Gusa v. AMCI Holdings, which is to "specify explicitly the type of arbitral award the district court is evaluating (domestic, nondomestic, or foreign), whether the district court is sitting in primary or secondary jurisdiction, and whether the action seeks confirmation of a domestic or nondomestic arbitral award under the district court's primary jurisdiction or enforcement of a foreign arbitral award under its secondary jurisdiction."
In Noble, the Florida court was sitting in secondary jurisdiction because the award was made in Hong Kong. The respondents couldn't have made a motion to vacate, modify, or correct the award in a US court. Neither the parties nor the court addressed whether such a motion was untimely under the laws of Hong Kong, which had primary jurisdiction.
Respondent Galle filed an appeal on May 3, which is pending. For now, the case reinforces the Southern District of Florida as a favorable venue for seeking to recognize and enforce an award after the three-month period has lapsed without a motion to vacate, modify, or correct the award.
The case is Noble Prestige Ltd. v. Horn, 2024 BL 121159, S.D. Fla., 20-82357-CIV-SMITH, 4/3/24
Originally published by Bloomberg Law.
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