Full 11th Circuit considers new rules for vacating foreign arbitration awards

ATLANTA (CN) — The en banc 11th Circuit heard arguments Tuesday to determine whether the federal appeals court should set new standards governing enforcement challenges of foreign arbitration awards.

For more than two decades, the Atlanta-based court has held that a party’s ability to vacate such an award is exclusively controlled by the standards for nonenforcement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, which oversees foreign and nondomestic arbitration awards for over 169 contracting nations.

However, the majority of other federal circuits have used the four factors set out in Section 10 of the Federal Arbitration Act.

While both sets of standards for vacatur are similar in concept, they are textually different and have been interpreted and applied differently by various courts.

The 11th Circuit granted a petition in October to rehear the case of Corporación AIC v. Hidroeléctrica Santa Rita en banc and vacated a three-judge panel's initial affirmation of a district court's refusal to vacate an arbitration award, after the panel could not reach the merits of whether vacatur was warranted based on its longstanding precedent.

AIC sought to vacate an arbitration award in the Southern District of Florida on the basis that the arbitrators “exceeded their powers,” a domestic ground for vacatur that is listed under Section 10 of the Federal Arbitration Act but not explicitly under the New York Convention.

The Guatemalan corporation was hired by Hidroeléctrica Santa Rita in March 2012 to build a hydroelectric power plant along the Icbolay River. But they were ordered to suspend their work the following year in response to opposition from members of the local community, who blockaded access to the site and threatened construction workers.

After Hidroeléctrica Santa Rita terminated the construction contract in 2015, the companies commenced arbitration in Miami according to the Rules of Arbitration of the International Chamber of Commerce. Hidroeléctrica Santa Rita was awarded more than $7 million from AIC.

U.S. District Judge Robert N. Scola Jr. denied AIC’s motion to vacate in 2020, noting that under 11th Circuit precedent, "the only potential grounds for vacating the arbitration award are the seven defenses enumerated in the New York Convention."

Counsel for AIC argued Tuesday that the domestic laws of the country in which the award was rendered should dictate the grounds for vacating. Attorney Andrew Lee, from the New Orleans office of Jones Walker, said that several other countries such as Australia and Spain have applied domestic laws in such cases.

"The convention is silent on the precise grounds on which a primary jurisdiction may vacate an international arbitration award, leaving to that jurisdiction’s domestic law when to set aside or suspend an award. Here, that means that the FAA’s exceeding-powers ground for vacatur is available," AIC's brief to the court states.

U.S. Circuit Judge Adalberto Jordan, a Barack Obama appointee, expressed concerns over the argument that those grounds conflict with the goal of the New York Convention to unify the treatment of international arbitral awards.

"Uniformity is not a stated goal of the convention," Lee said.

Representing Hidroeléctrica Santa Rita, attorney Jaime Bianchi of White & Case disagreed and argued that adhering to the New York Convention reduces complexities in the applicability of the arbitral award process. He contested that AIC's framework sets up the possibility of multiple jurisdictions using conflicting domestic standards for vacatur.

Bianchi told the circuit judges that their precedent is the only one that does justice to the language and structure of the convention, but U.S. Circuit Judge Kevin Newsom said his argument was "slippery with terminology." The Donald Trump appointee added that nothing in the convention's grounds for refusing enforcement say "vacate."

"You're contemplating on changing the law drastically," Bianchi said, arguing that the court must consider the possible consequences for parties who have relied on the 11th Circuit precedent.

U.S. Circuit Judge Robin Rosenbaum, an Obama appointee, responded that if the judges had to worry about reliance in reconsidering precedent, then they could never correct the law.

The judges did not signal when they intend to issue a ruling.

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