CIArb News

Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., 66 F.4th 876 (11th Cir. 2023)

13 Sep 2023

US Eleventh Circuit Court of Appeals rules that domestic grounds for vacating arbitration awards apply to international arbitration awards rendered in the US

 

By Jeffrey M. Dine FCIArb

United States public policy takes a favourable view of arbitration and international arbitration. Chapter 1 of the Federal Arbitration Act (‘FAA’), title 9 of the US Code, addresses the life cycle of domestic arbitration, including confirmation and vacatur. Chapter 2 of the FAA provides specific rules implementing the New York Convention (‘Convention’) for international arbitrations, both conducted abroad and those with an international nexus that are seated within the US. Chapter 2 also provides international arbitration matters enhanced access to the federal court system and streamlined procedures for the resolution of disputes. As an expression of US policy, a federal court will only rarely vacate an award of an international character.[1]

That said, US courts regularly wrestle with the wide range of complex issues generated by international arbitration, including the interpretation of the Convention within the FAA’s statutory framework, and the different regional federal circuit courts of appeal can differ in their approach. One area of difference has been whether the standard for vacating an international award — an award arising out of an arbitration where at least one of the parties is not a citizen of the United States or where certain other non-US factors exist — rendered by a US-seated panel (a “US-International Award”) is determined under the FAA’s domestic arbitration provisions or the Convention’s standards. The Eleventh Circuit Court of Appeals[2] recently confronted this issue in Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., 66 F.4th 876 (11th Cir. 2023), and its decision in that case brings greater uniformity to the US courts’ approach to proceedings to vacate US-International Awards.

Section 10 of the FAA lays out narrow grounds for vacatur of a domestic award. In summary, that:

  • The award was procured by corruption, fraud or undue means;
  • An arbitrator was evidently partial or corrupt;
  • The arbitrators committed misconduct in refusing to postpone the hearing for sufficient cause, or in refusing to hear pertinent evidence, or they otherwise engaged in ‘misbehaviour’ to the prejudice of the rights of a party; or
  • The arbitrators exceeded their powers or failed to make ‘a mutual, final, and definite award’ on the subject matter submitted to them.

A motion to vacate an award under Section 10 must be brought within three months of the filing or delivery of the award.

Article V of the Convention, for its part, sets out a different set of reasons for a court’s refusing to recognise and enforce a foreign award, including, for example, invalidity of the arbitration agreement, lack of notice to a party, or that enforcement of the award would be against the public policy of the country in which enforcement is sought. 

The FAA does not say whether Section 10 or the Convention standard applies when a party seeks to vacate a US-International Award. At least four circuit courts have held that vacatur of such awards is determined under Section 10, not the standards of the Convention.[3]

The Eleventh Circuit Court of Appeals, which covers the Southeastern US, including the significant international arbitration hub of Miami, had taken the opposite view, that the Convention’s standards exclusively apply to the vacatur of such awards.[4] But recently, in Corporación AIC, the court reversed its position, joining other appellate courts in holding that Section 10 sets the standard for vacatur of a US-International Award.

In Corporación AIC, two Guatemalan companies convened an ICC international arbitration seated in Miami. The losing party sought to vacate the award on the Section 10 basis that the panel had exceeded its powers, which is not an express ground under the Convention. The district court and a panel of the appeals court denied vacatur based on Eleventh Circuit precedent. However, the appeals panel suggested that Eleventh Circuit precedent should be overturned, which could only be done by the full court en banc.[5]

The full Eleventh Circuit bench did just that. The court distinguished between national courts’ review of arbitration awards issued within their countries’ borders for the purpose of vacatur (primary jurisdiction) and review for the purpose of recognition and enforcement of awards in other countries (secondary jurisdiction). As the Eleventh Circuit considered it, the Convention, by its terms and intent, applies only to recognition and enforcement in secondary jurisdictions; the Convention was not intended to supplant countries’ internal arbitration laws concerning vacatur of awards rendered domestically. Consistent with the Convention, Section 208 of the FAA preserves domestic arbitration law, providing that domestic law (Chapter 1) continues to apply where the provisions do not contradict each other. Chapter 2 does not address vacatur. Thus, Section 10 governs efforts to vacate US International-Awards. 

At least one prominent commentator and some international arbitration practitioners have argued to the contrary.[6] It should also be noted that this decision does not affect proceedings to confirm US-International Awards, which by statute (FAA § 207) may only be denied on the grounds set out in the Convention[7] — although a US-International Award that is vacated may not be confirmed.  

The Eleventh Circuit’s changed position will bring greater uniformity to the US courts’ approach to vacatur of US-International Awards. Because there is a presumption against vacatur and it is a rarity, the decision is unlikely to meaningfully change the ultimate likelihood that awards will be vacated; indeed, on remand, vacatur of the award in Corporación AIC was denied under the FAA standard.

Jeffrey Dine FCIArb is Counsel at Pachulski, Stang, Ziehl & Jones LLP in New York, where he practices bankruptcy/insolvency and commercial litigation and arbitration. Jeffrey’s practice includes domestic and international arbitration, and the enforcement of international arbitration agreements and awards in United States courts. He is on the neutral rosters of FINRA, the National Futures Association and Ciarb’s Dispute Appointment Service.

 

[1] Grupo Unidos por el Canal, S.A. v. Autoridad Del Canal de Panama, No. 21-14408, __ F.4th __, 2023 U.S. App. LEXIS 21750, at *15 (11th Cir. Aug. 18, 2023).

[2] The United States Court of Appeals for the Eleventh Judicial Circuit has jurisdiction over appeals of federal cases originating in the states of Alabama, Florida and Georgia. 

[3] See Corporación AIC, 66 F.4th at 886-87 (collecting cases).

[4] E.g., Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998).

[5] The Eleventh Circuit rule had been criticized on in the academic press, in an article cited in the decision. See Juan C. Garcia and Ivan Bracho Gonzalez, ARBITRATION IN THE ELEVENTH CIRCUIT: Interpretation of Article V of the New York Convention in the Eleventh Circuit: Industrial Risk Insurers, 74 U. Miami L. Rev. 1080 (2020).

[6] See Corporación AIC, 66 F.4th at 887-88 (citing Gary B. Born, International Commercial Arbitration 3211 (3d ed. 2021); Amicus Br. of Atlanta Int’l Arb. Soc’y (‘aTLas’), Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A. No. 20-13039 (11th Cir. Aug. 26, 2022).

[7] See, e.g., Grupo Unidos por el Canal, S.A., 2023 U.S. App. LEXIS 21750 at *23 ( (citing Corporación AIC and FAA § 207)

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