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

usa-flag-5-1444783-1024x683This post continues our discussion on the United States Fifth Circuit Court of Appeal’s analysis of the public policy exception in Article V(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). As discussed in the previous post, Article V(2)(b) of the New York Convention permits a signatory country to refuse the recognition or enforcement of a foreign arbitral award if “recognition or enforcement of the award would be contrary to the public policy of that country.”

To reset the stage, a brief review of the facts is warranted. Lito Martinez Asignacion, a Filipino sailor was injured aboard a German vessel docked in the Port of New Orleans. He sued in Louisiana court, but the court ruled that the dispute should proceed to arbitration in the Philippines. A Philippine arbitration panel applied the Philippine law and awarded Asignacion the lowest grade of compensable disability under the Standard Terms in his contract. Asignacion sought to have the Philippine arbitral award set aside in the United States under the public policy exception in Article V(2)(b) of the New York Convention.

Asignacion’s public policy argument rested on the adequacy of remedies available under Philippine law. Asignacion pointed out that United States public policy provides “special solitude to seamen” and requires that foreign arbitral panels give seamen an adequate choice-of-law determination. He argued that the Philippine arbitral panel erred by relying exclusively on the choice-of-law provisions in his contract, which dictated that Philippine law apply.  

In the United States, the Federal Arbitration Act (“FAA”) implements the New York Convention, guaranteeing that it “shall be enforced in United States courts.” Under the FAA, a United States court must confirm a foreign arbitral award “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the [New York] Convention.” United States courts apply an extremely narrow standard of review when it comes to foreign arbitral awards. Even a blatant error of law or fact will not convince a District Court to set aside a foreign arbitral award. The party seeking to set aside a foreign arbitral award has the burden of proving that the award falls into one of the specified grounds for refusal in the New York Convention, such as the public policy exception. United States courts have imposed a high burden for parties seeking to set aside a foreign award on the public policy exception. This exception is construed narrowly and applied by courts “only where enforcement would violate the forum state’s most basic notions of morality and justice.”

The Fifth Circuit had “little doubt” that Asignacion would have the greater recovery under United States law, but declined to set aside the Philippine arbitral award. It found that the Philippine arbitral award was not so inadequate as to violate the United States’ “most basic notions of morality and justice.” The Fifth Circuit’s analysis is particularly interesting because of its weighing of the United States and international public policy considerations.

The Fifth Circuit considered that the United States “has a strong public policy favoring arbitration, which applies ‘with special force in the field of international commerce.’” On the other hand, it considered that United States law accords seamen special status and provides them special remedies in maritime injury cases. Yet, as the Supreme Court has stated: “To determine that American standard of fairness . . . must [apply] demeans the standards of justice elsewhere in the world, and unnecessarily exalts the primacy of United States law over the laws of other countries.” Based on this reasoning, the Fifth Circuit concluded that despite the special status accorded to seamen under United States law, the provision of lesser remedies under the Philippine law did not violate United States public policy such that Asignacion’s award should be set aside.

While the Fifth Circuit noted that in analyzing an award under the New York Convention, a court should consider the public policy of the country in which it sits (i.e. United States public policy), it also looked to Philippine public policy. It considered that the principle of reciprocity or “comity” between states, “respect for the capacities of foreign and international tribunals,” and predictability in the resolution of international disputes should be taken into account when analyzing foreign arbitral awards. This is rightly so, a decision to set aside an arbitral award can have drastic effects on the international economy.

Under the Philippine law, foreign employers must hire Filipino workers through the Philippines Overseas Employment Administration (POEA). The POEA requires Filipino seamen’s contracts to include Standard Terms. These Standard Terms require any disputes arising out of the overseas employment to be arbitrated under Philippine law. The Fifth Circuit considered the importance of the POEA’s Standard Terms to the Philippine economy and concluded that courts should be “reluctant to conclude that lesser remedies make an award unenforceable on public policy grounds.”

This case certainly illustrates the complexities of international litigation. International disputes implicate multiple layers of international and domestic laws and court decisions can have the massive impact on the global economy. United States courts play an important role in interpreting international agreements, helping define the contours of private international law. In this case, the Fifth Circuit added greater clarity as to what a court may consider a valid public policy ground in refusing the recognition or enforcement of a foreign arbitral award under the New York Convention. Arbitral panels and tribunals worldwide often look to United States jurisprudence in resolving international commercial disputes. It goes without saying that the best international lawyers keep current with the latest jurisprudential trends around the globe.

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

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

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