Enforcing and Challenging Maritime Arbitral Awards in the United States

Thomas H. Belknap, Jr.

When we speak of maritime arbitral awards in the United States, we could mean one of three kinds: 1) “domestic” awards, 2) “nondomestic” awards, or 3) “foreign” awards. This distinction is important, because it controls what law applies to matters of recognition and enforcement. To understand the source and importance of these distinctions, we must start with the Federal Arbitration Act (“FAA”).[1]

The FAA and the New York Convention

The FAA is in three chapters. Chapter 1 is titled “General Provisions,” and it applies generally except where there is a conflict with a provision of one of the other applicable chapters. Chapter 2 is titled “Convention on the Recognition and Enforcement of Foreign Arbitral Awards” and is the implementing legislation for the international treaty of the same name (also called the “New York Convention”), to which the United States is a party.

Chapter 1 of the FAA expressly defines “maritime transactions” to mean “charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies, furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction.” Section 2 of the FAA states that a “written” arbitration agreement “in any maritime transaction or a contract evidencing a transaction involving commerce…shall be valid, irrevocable, and enforceable” on the same basis as any other contract term.

Thus, the FAA applies with respect to all maritime transactions, and this section has been widely construed as preempting otherwise applicable state laws relating to enforcement and challenge of arbitration awards where the dispute involves a maritime transaction. This is not the end of the analysis, however, because Section 202 of the FAA provides that an arbitral agreement or award governed by Section 2 of the FAA also “falls under the Convention,” unless it arises out of a relationship that is “entirely between citizens of the United States”—except that even then, it will nevertheless fall under the Convention if the relationship between U.S. parties “involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.”

From these statutes, then, the courts have distinguished three categories of awards: 1) a “domestic” award made in the United States between U.S. citizens where the relationship does not involve property or performance abroad and has no reasonable relation with a foreign state; 2) a “nondomestic” award made in the United States but not falling within Section 202’s carve-out for domestic awards; and 3) a “foreign” award, meaning one made outside the United States. A domestic award may be subject to Chapter 1 of the FAA but will not fall under the New York Convention or Chapter 2 of the FAA. Nondomestic awards and foreign awards, on the other hand, are subject to the New York Convention and thus are governed by Chapter 2 of the FAA.

Enforcing Arbitration Awards

Enforcement of arbitral awards under the FAA and the New York Convention is, by design, quite simple. Section 9 provides that where a party makes an application to confirm an award, “thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” Any grounds for vacating, modifying, or correcting the award would need to be asserted by the respondent in answer to the petition. Similarly, where the New York Convention applies, Section 207 provides that “[t]he 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.” Here, however, the distinction is important as to whether the award is a foreign award or a nondomestic award as the Second Circuit explained in CBF Industria de Gusa S/A v. AMCI Holdings, Inc.:

Under the New York Convention, this process of reducing a foreign arbitral award to a judgment is referred to as “recognition and enforcement.” “Recognition” is the determination that an arbitral award in entitled to preclusive effect; “enforcement” is the reduction to a judgment of a foreign arbitral award….  Recognition and enforcement occur together, as one process, under the New York Convention.[2]

The CBF Industria court further explained, however, that the process is different where a nondomestic award (i.e., issued in the United States but subject to the New York Convention) is concerned:

The process by which a nondomestic arbitral award is reduced to a judgment of the court by a federal court under its primary jurisdiction is called “confirmation.” Under its primary jurisdiction in a confirmation proceeding, the district court is…free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief.

This distinction is important: the country where the award is made is the “primary jurisdiction,” and any other signatory country is a “secondary” jurisdiction. As the CBF Industria court explained:

The New York Convention specifically contemplates that the state in which, or under the law of which, an award is made, will be free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief.…Courts in countries of secondary jurisdiction may refuse enforcement only on the limited grounds specified in Article V of the Convention.

Vacating Arbitration Awards

Unlike an application to enforce an arbitration award, an application to vacate an award may only be made in the jurisdiction where the award was made (i.e., the primary jurisdiction). And, because the New York Convention contains no provisions relating to vacating an award, Chapter 1 of the FAA (i.e., sections 10 and 11) will govern such an application in a U.S. court irrespective of whether it is a domestic or nondomestic award that is the subject of challenge. Importantly, under Section 12, an application to vacate an arbitration award must be served within three months after the award is filed or delivered.

Grounds to Vacate Award under Section 10(a)

Sections 10 and 11 of the FAA specify the grounds on which an application to vacate an arbitration award may be made, which are quite limited. Section 10 allows vacatur upon proof by the challenging party that: a) the award was procured through corruption, fraud, or undue means; b) there was evident partiality or corruption in the arbitrators; c) there was arbitrator misconduct; or d) the arbitrators exceeded their authority. Section 11 allows a court to modify or correct an award: a) where there was an evident material miscalculation of figures or description of person, thing, or party; b) where the arbitrators have awarded on a matter not submitted to them; or c) where the award is imperfect in matter of form not affecting the merits.

Manifest Disregard of the Law

There is ongoing debate as to whether a court may also set aside an arbitration award on the basis that it was issued in manifest disregard of the law. In 2010, the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Intl. Corp.,[3] expressly declined to decide “whether ‘manifest disregard’ survives… as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth in [Section 10].” For now, then, a district court may still vacate an arbitral award that demonstrates a “manifest disregard of the law.” An arbitration panel acts in manifest disregard of the law if the governing law alleged to have been ignored is well defined, explicit, and clearly applicable, and the arbitrator appreciates the existence of the governing legal principle but decides to ignore or pay no attention to it. It is fair to say that successful applications to vacate on this basis are very much the exception.

Contesting Enforcement of an Award

Domestic Award under FAA

Section 9 of the FAA provides that an arbitration award subject to its provisions must be enforced “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” Thus, where a party seeks to oppose enforcement of an arbitration award governed by the FAA but not the New York Convention (e.g., a “domestic” award), then the same grounds applicable in an application to vacate such an award will apply.

New York Convention, Article V

A party opposing an application in a U.S. court to enforce an award governed by the New York Convention, on the other hand, bears the burden of establishing one of the grounds enumerated in Article V of the Convention, namely where:

a) the parties to the agreement were, under the law applicable to them, under some incapacity, or the said agreement is not valid under governing law;

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;

c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;

d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties; 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.

Recognition and enforcement of an arbitral award may also be refused where a) the subject matter of the dispute is not capable of settlement by arbitration under the law of the country where enforcement is sought, or b) the recognition or enforcement of the award would be contrary to the public policy of that country.

As can be seen, many of these grounds overlap with the grounds for vacatur set out in Section 10 of the FAA, and often the distinction between Section 10 and Article V will not be significant. Nevertheless, in a case governed by the New York Convention, the Article V defenses are exclusive and are strictly applied. Thus, for instance, the defense of “manifest disregard of the law” is not available under the New York Convention.

This last point creates a critical twist insofar as nondomestic awards are concerned: as noted above, a party seeking to vacate such an award does so pursuant to Section 10 of the FAA and may also assert manifest disregard of the law as grounds for vacatur. Once the three-month time bar to commence such an action passes, however, it can no longer do so even in response to a motion to confirm the award. At that point, the defendant is limited to asserting only the defenses available under Article V of the Convention.

Conclusion

Choosing a strategy for either enforcing or challenging an arbitral award starts with understanding what kind of award you are dealing with, and the answer to that question can have a material impact on what rights the parties have and where they should be looking to exercise them.

Note: This article is a preview of a fuller discussion of the enforcement and challenge of maritime arbitral awards, which will be included in the forthcoming book Navigating Maritime Arbitration: The Experts Speak, published by Juris Legal Information, to which Tom is a contributing author.

[1] 9 U.S.C. § 1 et seq.

[2] CBF Industria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 72 (2d Cir. 2017).

[3] 559 U.S. 662, 671 n.3 (2010).