The case of the day is Constellation Energy Commodities Group Inc. v. Transfield ER Cape Ltd. (S.D.N.Y. 2011).It raises the question whether forum non conveniens should be a defense to a petition to confirm an arbitral award. I think the answer should be no.
Constellation was a Maryland corporation, and Transfield ER Cape Ltd. was a British Virgin Islands corporation with itsprincipal places of business in Hong Kong. It had been registered to do business in New York, but its registration became inactive in mid-2010. ER Cape is undergoing liquidation proceedings before the High Court of Justice in the British Virgin Islands.
Constellation and ER Cape were parties to a contract of affreightment for the shipment of iron ore from Brazil to China. The agreement was negotiated and signed in Hong Kong. It contained an arbitration agreement providing for arbitration in London under English law.
Constellation initiated two arbitrations in London against ER Cape. In each case, the award was in favor of Constellation. The total of the two awards was more than $15 million. ER Cape appealed to the High Court of Justice under § 69 of the Arbitration Act. The court denied the appeals. Constellation then sought recognition and enforcement of the awards in New York. It served the summons on ER Cape while ER Cape was still registered in New York, and it asserted that the service was effective as to ER Limited, the parent company, on an alter ego theory, but ER Limited did not appear in the case.
ER Cape sought dismissal on forum non conveniens grounds, seeking dismissal in favor of a forum in the British Virgin Islands, the UK, or Hong Kong. The court went through the usual analysis, considering the deference due to the plaintiff’s chosen forum, the adequacy of the foreign forums, and the balance of the private and public interest factors, including (1) court congestion; (2) the local interest in having controversies decided in home; (3) the forum court’s familiarty with the governing law; (4) avoidance of conflict of laws problems; and (5) the unfairness of burdening citizens in an unrelated forum with jury duty. Weighing all of these factors, the court denied the motion. The court also denied a motion to dismiss on grounds of improper venue, holding that as an alien, ER Cape could be sued in any district. As there was no substantive ground offered for refusing to confirm the awards, the court confirmed them.
Here is the question: does the doctrine of forum non conveniens make sense in the New York Convention context? I don’t see that it does. Here are some considerations that, I think, bear on the question:
- The Convention has a list of grounds for refusal of recognition and enforcement that is exclusive. Of course, constitutional issues override this, and thus there are going to be cases where the exercise of personal jurisdiction is inconsistent with the Due Process Clause. Fair enough. But forum non conveniens is a common law doctrine that need not necessarily override the Convention’s exclusive grounds, even if we agree (as I think I may) that forum non conveniens is a rule of procedure rather than a rule of substantive law.
- When a prevailing party seeks recognition and enforcement of an award, it’s looking to enforcement. Presumably Constellation chose the US as the forum for seeking recognition and enforcement because ER Cape has assets here. Otherwise, recognition and enforcement has little practical importance, since ultimately Constellation would need to obtain recognition of the award in the states where the assets are located. So allowing a forum non conveniens defense is in a sense equivalent to saying that the prevailing party in the arbitration cannot look to the losing party’s assets in the US to satisfy the award. Courts ought to emphasize the summary nature of the proceedings in a petition to confirm an award and bear in mind that the substance of the dispute has already been litigated in the forum of the parties’ choice.
My concerns about the application of forum non conveniens in the New York Convention context echo the concerns in a 2005 report of the International Commercial Disputes Committee of the Association of the Bar of the City of New York (available here), a 2007 article by William W. Park in the ICC International Court of Arbitration Bulletin (available here), and in Gary Born’s International Commercial Arbitration, which uses the US cases as an example of a developed state’s judicial decisions “that do not comport with the Convention’s requirements.” 1 Gary Born, International Commercial Arbitration 100 n.591 (2009).