Case of the Day: First Investment Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding
Posted on March 20, 2012
The case of the day is First Investment Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd. of the People’s Republic of China (E.D. La. 2012). The case involved a shipbuilding contract. The Fujian Group, a Chinese state-owned enterprise, and Mawei, a private corporation that was majority-owned by Fujian, refused to honor a contractual option to purchase additional vessels unless the contract were amended. First Investment Corp. initiated an arbitration in London under the terms of the London Maritime Arbitrators Association and under English law.
The panel consisted of two party-appointed arbitrators (FIC appointed Bruce Harris and the Chinese defendants appointed Dr. Wang Sheng Chang), and a president, Prof. J. Martin Hunter, appointed by Harris and Wang. After a hearing, the arbitrators circulated drafts of the award (and of Wang’s dissent) by email, and the award was finalized and sent to the arbitrators for their signatures. But Wang received neither the last draft nor the finalized award, “because he had been indefinitely detained by Chinese authorities.” (This post provides some details of the charges against Wang and their resolution).
Hunter informed the parties that he believed the award could be finalized with Wang’s signature, because Wang had fully participated in the tribunal’s deliberations and had indicated that he would sign the award (subject to his dissenting opinion), but the Chinese defendants disagreed. The tribunal issued its final award—signed by only two of the three arbitrators—and issued a separate procedural order finding that since the LMAA terms provided that “After the appointment of the third arbitrator decisions, orders, or awards shall be made by all or a majority of the arbitrators,” and since the arbitrators had agreed that they could finalize the award without in-person meetings that proved impossible after Wang’s arrest, the award was proper.
FIC sought recognition and enforcement of the award in the Xiamen Maritime Court. In 2008, that court refused to grant recognition and enforcement on the grounds that the composition of the tribunal was not in accordance with the agreement of the parties. (This, of course, is one of the grounds for non-recognition permitted by Article V of the New York Convention). The court reasoned that although the LMAA terms provided that the award could be made by a majority of the tribunal:
the factual condition for [that rule] to apply is that each member of the tribunal has fully participated in the arbitration proceedings. On this premise, and on this premise only, may decisions, orders, or awards be made by the majority of arbitrators under the LMAA rules. Failing this premise, the majority has no power to do so.
FIC then sought confirmation of the award in New Orleans. What could have been a really interesting decision about the LMAA terms and the effect, if any, of the Xiamen Maritime Court’s decision was instead a disappointing decision (to me, anyway), since the judge found that the court lacked personal jurisdiction over Fujian under the ordinary long-arm and due process analysis that apply in typical cases. The one point that was pretty interesting in the personal jurisdiction discussion was whether Fujian was entitled to the protections of the Due Process clause as it was ultimately controlled by the Chinese state. The judge found that there was insufficient evidence of actual day-to-day control to overcome the presumption of separateness, even if, as several cases have held, a foreign sovereign, like a state of the United States, is not a “person” for purposes of the Due Process Clause.
Although the decisions keep piling up, I continue to think that it is a mistake to apply the ordinary rules of personal jurisdiction in recognition and enforcement cases, where, presumably, the plaintiff is proceeding solely to get at the defendant’s assets in the jurisdiction where enforcement is sought. Here is the language from Shaffer v. Heitner, 433 U.S. 186 (1977), to which I’d point:
The primary rationale for treating the presence of property as a sufficient basis for jurisdiction to adjudicate claims over which the State would not have jurisdiction if International Shoe applied is that a wrongdoer should not be able to avoid payment of his obligations by the expedient of removing his assets to a place where he is not subject to an in personam suit.” This justification, however, does not explain why jurisdiction should be recognized without regard to whether the property is present in the State because of an effort to avoid the owner’s obligations. Nor does it support jurisdiction to adjudicate the underlying claim. At most, it suggests that a State in which property is located should have jurisdiction to attach that property, by use of proper procedures, as security for a judgment being sought in a forum where the litigation can be maintained consistently with International Shoe. Moreover, we know of nothing to justify the assumption that a debtor can avoid paying his obligations by removing his property to a State in which his creditor cannot obtain personal jurisdiction over him. The Full Faith and Credit Clause, after all, makes the valid in personam judgment of one State enforceable in all other States. (citations omitted)
This is all dicta, of course, but I think the point is a strong one: the constitutional limits that the court put on quasi in rem jurisdiction were never meant to apply to judgment creditors’ remedies (I use the term judgment creditor even though we are talking about arbitral awards), but only to cases where the underlying liability was to be decided. My own view is that courts that dismiss recognition and enforcement cases on personal jurisdiction or forum non conveniens grounds are over-reading these doctrines in contexts where they don’t make much sense.
You could imagine cases where there are real concerns about a judgment creditor’s choice of forum. For example, suppose A. won an arbitration in London, and B., the loser, has assets in New York. Should A. be able to seek recognition and enforcement in New Jersey, and then register the judgment in New York? Perhaps there should, in other words, be a requirement that the judgment creditor be able to give reasons for believing that the judgment debtor has assets in the district where it seeks recognition and enforcement. Perhaps we could go so far as to say, as in a true quasi in rem case, that the court in New Jersey should have jurisdiction only to the extent of A.’s property there. But that’s not what this case is about.
A footnote: I guess I am not surprised that the judge did not address what, to me at least, seemed a pretty strong political subplot in the case. Put crudely: China, faced with an impending arbitral award unfavorable to one of its state-owned enterprises, arrests one of the arbitrators on charges that “caused significant concern among the international arbitration community” (according to the post I linked to earlier), thus rendering the award unenforceable in its own courts. I have no way of knowing whether Wang’s arrest had anything to do with this arbitration, but the affair seems somewhat suspicious.