In the case of the day, AO Techsnabexport v. Globe Nuclear Servs. & Gas Supply, Ltd., No. 09-2064 (4th Cir. Dec. 15, 2010), the Fourth Circuit affirmed a district court’s decision confirming an international arbitral award between a U.S. firm and a Russian firm buying and selling uranium, over objections that the tribunal had violated its own procedural rules and had deprived the U.S. firm of the opportunity to present its case, and because the tribunal exceeded its authority and reconsidered, in its final award, matters that it had already decided in a partial award. All of these are permissible grounds for refusing recognition and enforcement under Article V of the New York Convention.
Globe’s argument about exceeding its powers under the arbitration clause is interesting. The dispositive issue at the hearing was whether Tenex could prove that the contract was inequitable and thus unenforceable under Swedish law, which the parties had chosen to govern. The factual question was whether a Globe executive and a Russian government official, who had been indicted in the United States and were under criminal investigation in Russia, had conspired to gain control of Globe and then to deceive the Russian government about the nature of their ownership stake in Globe. The tribunal found that the executive and the official had acted as Tenex alleged. Globe’s argument was that by considering, in effect, whether the executive and the official were guilty of the criminal charges, the tribunal exceeded its authority, which was merely to apply Swedish law to the rights of the parties to the contract.
The court rejected this argument by citing the broad language of the arbitration agreement:
The tribunal’s authority under the plain language of the arbitration clause broadly provides that “any [] dispute, controversy or claim arising out of or relating to [the contract] or the breach, termination or invalidity thereof” shall be settled by arbitration. … Therefore, the tribunal was permitted to consider the alleged criminal acts of various individuals to the extent that those acts related to the issue of the contract’s validity under [Swedish law].
This is the right result, but the court’s reference to the arbitration agreement seems out of place because it seems to suggest that the court thought that the issue of the executive’s and the official’s criminal conduct was a separate dispute that was related to the contract. It seems clear that there was only a single dispute–whether Tenex was liable to Globe for breach of contract–and the alleged criminal acts were part of that dispute because, if proved, they invalidated the contract under Swedish law.
The other point of interest was the tribunal’s consideration of witness statements containing transcripts of interviews between witnesses and the Russian prosecutors. The arbitration was conducted pursuant to ad hoc rules that required any witness to give a written statement, to testify, and to be available for cross-examination. But while Globe objected, during the hearing, to the consideration of the witness statements on the grounds that the tribunal lacked authority “to review matters involving Russian criminal law,” it did not object on the grounds that the procedural rules agreed by the parties required an opportunity for cross-examination. The court held that by failing to object on these grounds, Globe had waived the argument.
HT to Louis M. Solomon, who blogged on this case yesterday.