Inadequate Remedies Under Foreign Law Do Not Make Arbitral Awards Unenforceable on Public Policy Grounds (Part I)

 

new-york-city-xmas-2007-15-1213202-768x1024The world we live in today is more interconnected than ever before. International commerce has led to rapid economic development in the United States and abroad. As more and more firms participate in international commerce, complex legal disputes arise. International disputes involve a multitude actors of different nationalities, implicating various national and international legal frameworks. In the mid-20th century, the United States and countries around the world sought to harmonize international commerce by codifying rules governing the resolution of international disputes. As a global commercial hub, United States courts have been pivotal in interpreting these international rules and more generally, contributing to the development of private international law. In 2015, the United States Fifth Circuit Court of Appeal interpreted the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York convention”), adding clarity as to when a court may refuse to recognize foreign arbitral awards on public policy grounds.

In this case, Lito Martinez Asignacion, a citizen of the Philippines was hired by Rickmers, a German corporation to work aboard its vessel, which sailed under the flag of the Martial Islands. While docked in the Port of New Orleans, Asignacion suffered injuries in an accident aboard the ship. After receiving medical treatment in Baton Rouge and the Philippines, Asignacion sued Rickmers in Louisiana state court. However, the Louisiana court ruled that the dispute should proceed to arbitration in the Philippines. The Philippine arbitration panel refused to apply the law of the Marshall Islands, the law of the flag state (a potential legal error), applied the Philippine law and awarded Asignacion the lowest grade of compensable disability under the Standard Terms in his contract, a lump sum of $1,870.

Asignacion returned to Louisiana state court seeking to have the Philippine arbitral award set aside for violating United States public policy. Rickmers removed the case to the United States District Court for the Eastern District of Louisiana. The District Court held that the Philippine arbitral award violated United States public policy because it effectively denied Asignacion the opportunity to pursue damages he would be entitled to as a seaman. The Fifth Circuit reversed and remanded the case to the District Court to enforce the award. It held that even with regard to seamen – who are normally accorded special remedies under United States law – the provision of lesser remedies under the foreign law does not violate United States public policy.

When international legal disputes arise, companies increasingly resort to arbitration as an alternative to domestic courts. Arbitration is commonly referred to as “private court.” Arbitration is an alternative dispute resolution mechanism whereby parties agree to be bound by the decision of a panel of impartial arbitrators. The United States and international law favors arbitration because it offers greater flexibility, predictability, and efficiency in resolving international legal disputes.

The New York Convention harmonizes international arbitration by codifying common international legal standards for court recognition and enforcement of foreign arbitral awards. Signatories to the New York Convention undertake to recognize and enforce foreign arbitral awards in their court systems. The principle behind the New York Convention aims to prevent discrimination by ensuring that foreign arbitral awards are recognized and enforced in a signatory country’s courts and treated the same way as domestic awards. One of the limited grounds for refusing the recognition or enforcement of a foreign arbitral award is the contravention of a country’s public policy. Article V(2)(b) of the New York Convention permits a signatory country to refuse recognition and enforcement of a foreign arbitral award if “recognition or enforcement of the award would be contrary to the public policy of that country.”

The Fifth Circuit’s decision is significant not only in the United States but the world over. The New York Convention does not define “public policy.” This is left for signatory countries to the Convention to define individually. In a 2015 report, the International Bar Association Subcommittee on the Enforcement of Arbitral Awards surveyed over 40 countries and found that only two – the United Arab Emirates and Australia – define their public policy in statutory law. The report stated that across jurisdictions, the public policy exception is nebulous and virtually impossible to precisely define.

The Fifth Circuit’s decision sheds some light, clarifying that United States courts will not set aside foreign arbitral awards due to the inadequacy of remedies provided under foreign law. In resolving international commercial disputes, arbitral panels both domestic and international often look the jurisprudence of United States courts. Skilled international lawyers and arbitrators keep up with latest international jurisprudence in order to analyze cutting edge and novel legal issues.

A more in-depth review of the Fifth Circuit’s analysis is provided in the following post.

Additional Sources: LITO MARTINEZ ASIGNACION,  v. RICKMERS GENOA SCHIFFAHRTSGESELLSCHAFT MBH & CIE KG

Written by Berniard Law Firm Blog Writer: Noah Al-Malt

Additional Berniard Law Firm Articles on Arbitration: What Authority, If Any, Do Courts of Law Have In Reviewing Arbitration Awards?