Key takeaways
- The Eleventh Circuit has confirmed that under Chapter 1 of the FAA, public policy cannot serve as a basis for vacating an arbitration award, affirming the restrictive limits of judicial review in such cases.
- The ruling emphasizes the principle that arbitration awards are final and binding, with courts having a limited role in reviewing and overturning these awards.
- The decision establishes that, for non-domestic international arbitration, the vacatur grounds are set by Chapter 1 of the FAA rather than Chapter 2, aligning with the New York Convention's requirements.
Summary
The U.S. Court of Appeals for the Eleventh Circuit has upheld the confirmation of a $187.9 million arbitration award in favor of Commodities & Minerals Enterprise, Ltd. (CME) against CVG Ferrominera Orinoco, C.A. (FMO). This ruling highlights the rigorous standards required to vacate arbitration awards pursuant to the Federal Arbitration Act (FAA) and how the FAA interplays with the New York Convention.
Background
CME, a trading intermediary incorporated in the British Virgin Islands, entered into a series of agreements with FMO, a state-owned mining entity of Venezuela, for the supply of iron ore. The parties' relationship culminated in a management contract in 2010. Disputes arose when CME claimed FMO failed to fulfill its contractual obligations, prompting CME to terminate the parties' agreement.
Arbitration and district court proceedings
In 2016, CME initiated arbitration proceedings against FMO. Pursuant to the parties' contract, the parties agreed to arbitrate disputes in Miami, Florida, under the substantive general maritime law of the United States. As the arbitration involved international parties and the seat was established in the United States, the resulting award is classified as a non-domestic international award. Consequently, both the FAA and the New York Convention are applicable.
After nearly three years of proceedings, the arbitration tribunal issued an award in favor of CME, granting $187.9 million in damages. In late 2019, CME filed an application in the Southern District of Florida (the District Court) to confirm the award pursuant to Chapter 2 of the FAA and the New York Convention. Chapter 2 of the FAA incorporates the provisions of the New York Convention. FMO opposed the confirmation, asserting that the parties' contract had been procured through fraud, bribery, and corruption, and argued that enforcing the award would contravene U.S. public policy. The District Court confirmed the award, ruling that FMO was precluded from raising its public policy defense under Article V(2)(b) of the New York Convention due to its failure to seek vacatur within the FAA's three-month time limit.
Eleventh Circuit decision
On appeal, the Eleventh Circuit reviewed the District Court's confirmation of the arbitration award. The court held that FMO should have been permitted to assert its public policy defense in opposition to the confirmation, which is distinct from vacatur. The court noted that, after its en banc decision last year in Corporacion AIC, SA v. Hidroelectrica Santa Rita, S.A., 66 F.4th 876, 886 (11th Cir. 2023), the grounds for vacating a New York Convention arbitration award rendered in the United States are those established in U.S. domestic law under Chapter 1 of the FAA (9 U.S.C. § 10(a)), rather than Chapter 2. However, the Eleventh Circuit clarified that FMO's challenge would have been unsuccessful regardless, as public policy is not a recognized ground for vacatur under Chapter 1, citing AIC, 66 F.4th at 886. The Eleventh Circuit affirmed the District Court's confirmation of the award, emphasizing that FMO's defense targeted the underlying contract rather than the award itself, and that the arbitration tribunal had thoroughly considered and rejected FMO's allegations of corruption.
The Eleventh Circuit reaffirmed the principle that judicial review of arbitration awards is one of the most limited forms of review in law. U.S. courts generally are bound by the findings and conclusions of arbitration tribunals, even in instances where the court may believe that the arbitrators committed serious errors. Consequently, FMO's attempt to relitigate the factual determinations made by the arbitration tribunal was regarded as an impermissible collateral attack on the award.
Implications
The Eleventh Circuit's ruling carries significant implications for parties involved in international arbitration:
- Narrow scope of the grounds for vacatur: The Eleventh Circuit's decision emphasizes that parties cannot use grounds for vacatur to challenge the merits of the underlying contract or to relitigate issues already resolved by the arbitration tribunal.
- Finality of arbitration awards: The ruling reinforces the finality of arbitration awards and the limited role of courts in reviewing such awards. This affirms arbitration as an efficient and conclusive method for resolving international commercial disputes.
- Strategic considerations for arbitration: Given that the award in this case is classified as non-domestic, Chapter 1 of the FAA is applicable. Parties involved in arbitrations resulting in non-domestic international arbitrations should carefully assess the interplay of the FAA and the New York Convention for the applicable procedures for confirmation and vacatur.
It is advisable for international parties engaged in arbitration to retain U.S. counsel with expertise in international arbitration to effectively navigate the complexities of determining when the FAA is applicable.
This article is presented for informational purposes only and is not intended to constitute legal advice.