Super-Duper Disregard Of Law
Posted on February 14, 2011
At the talk I gave last week on choice of law in international IP arbitration (thanks to those who attended!), someone asked whether a mistake as to the law governing the substance of an IP dispute would justify a court in refusing recognition and enforcement of the award. I gave what I think is the best (but not the indisputable) answer: no. Article V of the New York Convention does not list “manifest disregard of law, ” as the American cases call it, as grounds for refusal of recognition or enforcement. And I referred to the recent International Trading v. DynCorp case, which squarely held that manifest disregard is not a permissible basis for refusal of recognition and enforcement. (The survival of manifest disregard after the Hall Street case is hotly disputed, and I don’t mean to say that the cases are uniform on this).
But the question persisted. When we were discussing the limitations on the parties’ freedom to choose a law other than the law of the state of registration to decide certain core IP issues (e.g., the validity of a patent), someone asked whether there was no conflict of laws decision that would be so far beyond the pale that it would justify refusal of recognition and enforcement. Suppose, for example, that under the law of country X, drugs were not patentable subject matter. Suppose that an American drug company asserted an arbitrable claim for infringement against a competitor in country X for infringement of its U.S. patent in the United States, and suppose that the tribunal, sitting in country Y, decided that the U.S. patent was invalid under the law of country X. The competitor then sought recognition and enforcement of the award in the United States. Sure, the award would only have inter partes effect, but that is probably small comfort to the U.S. firm! Is it really the case that because manifest disregard of law is not grounds for refusal of recognition and enforcement, the U.S. court would have no choice but to recognize the award? Or as I have been thinking of the question: in those circuits that have rejected manifest disregard of law as a grounds for refusal of recognition and enforcement, is there some level of super-duper disregard of the law that justifies refusal of recognition?
I suggested that Article V(2)(b) might conceivably provide a back-door through which to raise the super-duper disregard of law issue. Article V(2)(b) provides for refusal of recognition and enforcement if the court finds that :
The recognition or enforcement of the award would be contrary to the public policy of [the] country [where recognition and enforcement is sought].
This is not a novel suggestion. See, e.g., Int’l Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, 745 F.Supp. 172, 181-82 (S.D.N.Y. 1990); Edward Ti Seng Wei, Why Egregious Errors of Law May Yet Justify A Refusal of Enforcement Under the New York Convention, Sing. J. Legal Studies 592 (2009) (SSRN abstract here). As an aside, I think Seng Wei’s sober label for this idea–“egregious error of law”–isn’t nearly as good as my proposed label–“super-duper disregard of law”. One could also try to shoehorn this notion into other prongs of Article V, e.g., that the arbitral procedure was not in accordance with the parties’ agreement.
I am not sympathetic to this idea for two reasons. First, I tend to think that when parties contract to arbitrate their dispute, they should get what they asked for, which is an arbitrator’s decision rather than a court’s second-guessing of the arbitrator’s decision. If the parties want to provide for what is essentially appellate review of the arbitrator’s decision, they can do so any one of a number of ways in their contract.
Second, the notion that an error can be so egregious that there must be a remedy to correct it not true even outside of the arbitration context. When a court of last resort makes an egregious error, and where all opportunities for rehearing under its rules are exhausted, the mistake stands.
This is just a long way of saying that if the question is whether a court really means it when it says that manifest disregard of law is not a basis for refusal of recognition or enforcement, the answer at least plausibly should be yes.