Enforcing International Arbitral Awards in US Courts
The issuance of an arbitral award in favor of the claimant may not be the end of the road to redress. Obtaining recognition of, and attaching assets in aid of execution of an arbitral award in the United States can be a complex process involving multiple sets of statutes and procedural rules, particularly when the award debtor attempts to evade its obligations under the award by dissipating or divesting its assets. When the award debtor is a sovereign State, additional challenges arise. In cases in which the award debtor does not comply voluntarily with the tribunal's order to pay compensation, the award creditor will have to decide whether to commence recognition and enforcement proceedings and seek the attachment of assets of the award debtor to obtain satisfaction of the award. In any event, the award creditor should plan in advance a strategy for enforcement of the award, including the potential attachment of assets, even before the arbitral award has been recognized by a US court.
This Advisory provides an overview of the legal framework for the recognition and enforcement of international arbitral awards in the United States, examining in particular the applicable multilateral treaties and US federal legislation. It discusses the relevant domestic-law procedures for execution of arbitral awards against assets in the United States, as well as the specific limitations on execution against assets of sovereign States.
I. Recognition and enforcement of international arbitral awards in the United States
A. Legal framework for the recognition and enforcement of foreign arbitral awards in US courts
The recognition and enforcement of international arbitral awards in the United States is based primarily on two multilateral treaties: the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention)1 and the 1975 Inter-American Convention on International Commercial Arbitration (the Panama Convention).2 The Federal Arbitration Act (the FAA)3 implements these two Conventions in the United States.
The New York Convention mandates the enforcement of an award rendered in any of the 156 sovereign States4 that are parties to the Convention by the courts of the other parties. The Panama Convention is similar to the New York Convention; it was conceived to fill the lacunae created by the non-adherence of certain Latin American States to the New York Convention. US law mandates that where a majority of parties to an arbitration agreement are from signatory countries to the Panama Convention and are members of the Organization of American States (OAS), the Panama Convention will take precedence over the New York Convention.
Chapters 2 and 3 of the FAA incorporate the New York Convention and the Panama Convention, respectively, into US law. The specific provisions governing the recognition and enforcement of awards are found in Sections 207 and 304 of the FAA. Section 207 mandates that the court "shall" confirm the award "unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention."
B. Jurisdictional requirements for the recognition and enforcement of foreign arbitral awards in US courts
Although the FAA mandates the recognition and enforcement of foreign arbitral awards that fall under the New York and the Panama Conventions, parties seeking enforcement of awards in US courts must satisfy requirements of both personal and subject matter jurisdiction under US law.
The FAA expressly grants subject-matter jurisdiction to actions related to the New York Convention and the Panama Convention.
On personal jurisdiction, an award creditor seeking enforcement must prove that the award debtor has "minimum contacts" with the state where enforcement is sought. This can be done by showing, for example, that:
- the award debtor has direct contact with the forum state (e.g., is a resident, has place of business there);
- the award debtor has a contract with a resident of the forum state and that contract is related to the subject matter of the dispute that led to the arbitral award;
- the award debtor has placed products into the stream of commerce such that it reaches the forum state; or
- the litigation arises out of the arbitral debtor's contacts within the forum state.
C. Procedures for filing in a US court to enforce an arbitral award
The application to enforce the arbitral award should be submitted either as a motion or as a petition, containing the following documents:
- "The agreement; the selection or appointment, if any, of an additional arbitrator or umpire; and each written extension of the time, if any, within which to make the award;
- The award; and
- Each notice, affidavit, or other paper used upon an application to confirm, modify, or correct the award, and a copy of each order of the court upon such an application."5
Additionally, where the award was rendered in a language other than English, the award creditor should check the pertinent rules of the competent US court regarding translations.
D. Grounds for non-recognition
Article V of the New York Convention and Article 5 of the Panama Convention set forth the grounds on the basis of which a domestic court may refuse the recognition of an arbitral award.
The grounds for non-recognition are substantially identical as between those two conventions. Article V of the New York Convention states that recognition and enforcement may be refused if the award debtor can prove that:
(a) the parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present his case; or
(c) the award deals with a difference beyond the scope of the arbitration agreement; or
(d) the arbitral tribunal was improperly constituted; or
(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made; or
(f) the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(g) the recognition or enforcement of the award would be contrary to the public policy of that country.
Article V of the New York Convention also provides that the recognition and execution of an arbitral decision may be refused if the court finds:
(a) the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) the recognition or enforcement of the award would be contrary to the public policy of that country.
Pursuant to the doctrine of forum non conveniens, the court may dismiss the case—even if it otherwise has jurisdiction—if there is a more appropriate forum to hear the case than the one chosen by the award creditor. However, dismissal on this basis is in practice the exception rather than the rule.
As stated in Article VI of the New York Convention (and similarly also in Article 6 of the Panama Convention), a US court could postpone a decision on an enforcement petition where an action to set aside the award is pending in a court at the seat of the arbitration. In practice, based on these provisions of the New York and Panama Conventions, US courts generally refuse to enforce an award that has been set aside at the seat. However, a recent ruling of the Court of Appeals for the Second Circuit6 observed that the Panama Convention appears to grant domestic courts "unfettered discretion" to enforce nullified awards and confirmed an award rendered in an ICC arbitration seated in Mexico, notwithstanding the Mexican courts' nullification of that award.
E. Recognition and enforcement of ICSID awards
The ICSID Convention, ratified by 153 Contracting States, establishes the legal framework for the settlement of investment disputes between foreign investors and sovereign States that have consented to international arbitration pursuant to the ICSID Convention. Article 54 of the ICSID Convention imposes on all its Contracting States the obligation to enforce an award issued in an ICSID arbitration "as if it were a final judgment of a court in that State."7 The Convention "does not prescribe any particular method to be followed in its domestic implementation, but requires each Contracting State to meet the requirements of the Article in accordance with its own legal system."8
Article 54(2) requires the party seeking recognition or enforcement of an award to furnish to the competent court or other designated authority of the Contracting State where recognition or enforcement is sought a copy of the award certified by the ICSID Secretary-General.9 Courts in New York typically allow ex parte enforcement proceedings, where the creditor's application is considered by the court without notice to the debtor, or an opportunity for the debtor to present a defense or counterarguments.10 However, recent case law of the US District Court for the District of Columbia11 indicates that a judgment debtor must file a plenary proceeding, which gives both parties the opportunity to be heard and would also provide the debtor notice that the creditor is intending to initiate execution proceedings.
Claimants seeking to enforce ICSID awards (or indeed arbitral awards from other fora) must deal with the additional challenge posed by sovereign immunity under international and domestic law. Indeed, Article 55 of the ICSID Convention clarifies that nothing in Article 54 (concerning the obligation to recognize and enforce ICSID awards) shall be construed as derogating from any Contracting State's laws on sovereign immunity from execution.
II. Procedures for executing a confirmed award
Once the award obtains recognition through the appropriate procedure before a US court, it becomes a domestic judgment in the United States and is therefore subject to domestic procedures and rules on execution of judgments.
A. Pre-recognition remedies as a precautionary measure to aid enforcement
Pursuing post-recognition remedies in aid of execution of a confirmed award may be time-consuming due to automatic stays of enforcement, waiting periods during discovery, and various practical delays. There is thus the risk that an award debtor will dissipate or divest its assets before the creditor is permitted to begin execution proceedings or before the creditor has identified assets against which to execute. In many cases, if the debtor dissipates or divests assets during the automatic stay period, the remedy is a state-law action for fraudulent transfer. Because the creditor's recourse in the event of dissipation of assets will likely entail the burden and expense of additional litigation, it is advisable to plan in advance for enforcement efforts, including by seeking pre-recognition remedies, where available. Pre-recognition attachment offers the further possible advantage of gaining priority over other creditors competing for a limited pool of assets.
While the exact remedies available vary from jurisdiction to jurisdiction, common remedies include the following:
- A writ of attachment—a court order that prevents a (potential) debtor from transferring or selling property subject to seizure (such as equipment) to hide them from eventual creditors.
- A writ of garnishment—the court orders a third party (most commonly, a bank) that holds assets belonging to the debtor to restrain or surrender those assets to ensure satisfaction of the creditor's claim against the debtor. This is similar to a writ of attachment, except it operates against third parties.
Pre-recognition attachment proceedings are governed by state law. Even in federal court, the law of the state where that federal court is located supplies the available remedies for seizing property to secure satisfaction of a potential award.12
B. Automatic stay of execution of an award
Many jurisdictions impose an automatic stay of execution, which prevents a creditor from moving immediately to execute an award. For proceedings in federal court, the Federal Rules of Civil Procedure provide for a 14-day stay.13 In state court, a different stay period may apply, so creditors should check the applicable rules. In general, the automatic stay rules protect debtors from being unfairly surprised by execution proceedings on a recognized award or other judgment of which they have no notice.
C. Post-recognition discovery: identifying assets for attachment and possible execution
After the stay period elapses, execution proper may begin. The procedures for execution of a recognized award are governed by state law, even where execution is sought in federal court. The first step is to identify assets against which to execute the award. The Federal Rules of Civil Procedure permit post-recognition discovery in aid of execution.14
D. Execution against identified assets
State law generally defines which assets are subject to execution. Most states permit execution against goods, property, and credits.15 States generally exempt from execution some kinds of personal property, as well as "homestead property" (i.e., the debtor's actual primary residence).16 Specific federal statutes also exempt certain property from execution, such as retirement or disability benefits or annuities. These exemptions are relatively unlikely to come into play in the commercial context.
III. Specific limitations on attachment of assets of foreign sovereign States
In cases involving awards against foreign sovereign States, these procedural details are further complicated by special rules limiting attachment of assets of foreign sovereign States.
A. Sovereign immunity from jurisdiction
The Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. FSIA is the sole means for obtaining jurisdiction over a foreign sovereign State in US court.17 Under the FSIA, foreign sovereign States are presumptively immune from jurisdiction unless an express exception enumerated in the statute applies.18 Section 1605(a)(6)(B) of the FSIA provides such an exception for actions to enforce foreign arbitral awards. In addition to subject-matter jurisdiction, the creditor must still establish that the court has personal jurisdiction over the sovereign. In practice, this simply means establishing that the foreign sovereign was validly served under 28 U.S.C. § 1608(a).19
B. Sovereign immunity from execution
Even if a foreign sovereign State cannot claim immunity from jurisdiction in an action to enforce an award, under § 1609 of the FSIA the sovereign's property is "immune from attachment, arrest and execution," except where property is "used for commercial activity in the United States" and one of the criteria provided under § 1610 applies. Notably, under § 1611, property of a foreign central bank or monetary authority held for its own account, as well as military property, is immune from execution even if it would otherwise qualify for one of the exceptions to immunity in § 1610.
Relevant here, § 1610(a)(6) permits attachment in aid of execution "where the judgment is based on an order confirming an arbitral award rendered against the foreign state." Thus, an award creditor would likely be able to invoke this exception. On the other hand, whether the property sought to be attached is "used for commercial activity in the United States" may be a complicated question.
The standards for attachment are less stringent with respect to property of an instrumentality or agency of a foreign sovereign State.
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The international legal framework established by the New York Convention, the Panama Convention, and the ICSID Convention facilitates the recognition and enforcement of international arbitral awards in the United States and in other sovereign States that are parties to those treaties. That fact does not mean, however, that the specific procedure for the recognition and enforcement of international arbitral awards is without procedural and practical intricacies. Award creditors, and even claimants that reasonably anticipate a favorable arbitral award, can and should take certain steps to minimize the difficulties and complications in these proceedings. Charting an enforcement strategy in advance, in consultation with specialized counsel, will undoubtedly improve the award creditor's chances of obtaining satisfaction of the award.
Convention on the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter "ICSID Convention"), Art. 54(1).
Report of the Executive Directors on the Convention, ICSID, at 47.
Mobil Cerro Negro Ltd. v. Bolivarian Republic of Venezuela, 87 F. Supp. 3d 573 (S.D.N.Y. 2015) (finding that the ICSID Convention permitted the application of New York State procedures for judgment enforcement actions, which allowed for the use of ex parte proceedings).