Case of the Day: Belize Social Development v. Government of Belize

The case of the day is Belize Social Development, Ltd. v. Government of Belize (D.C. Cir. 2015). I covered a prior decision in the case in January 2012.

Here was my description of the facts from the prior post:

In 2005, the Prime Minister of Belize, Said Musa of the People’s United Party, on behalf of the government, signed a contract with Belize Telemedia Ltd., under which Telemedia was going to acquire properties “in order to better accommodate the Government’s telecommunications needs”, and the government was going to give Telemedia favorable tax treatments. The contract had an arbitration agreement providing for arbitration at the LCIA. The agreement “stated that it was governed by Belize law.” In 2008, the United Democratic Party took power on a good government platform, and the new prime minister, Dean Barrow, asserted that the contract was invalid and repudiated it. Telemedia initiated an arbitration, but the government, though it received notice, did not participate in the arbitration. The tribunal issued a final award in 2009 in favor of Telemdia, awarding damages of more than 38 million Belize dollars. The government, noting that the Belize courts had already rejected the agreement’s tax provisions, rejected the award. Telemedia assigned its rights to Belize Social Development Ltd., a British Virgin Islands corporation.

BSD sought confirmation of the award in Washington, and the Belize government obtained an injunction in the Belize courts against attempts anywhere in the world to seek to enforce the award. In the 2012 decision, the DC Circuit, on a petition for a writ of mandamus, held that Belize was not entitled to a stay of the proceedings to confirm. The case went back to the District Court on the merits of the question of confirmation, and Belize then argued that the court lacked subject matter jurisdiction. Its first argument was that because Prime Minister Musa had lacked authority to enter into the contract, the contract did not bind Belize. Thus the arbitration exception to FSIA immunity should not apply. The statute provides for an exception to the rule of sovereign immunity from suit in cases

in which the action is brought, either to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration under the laws of the United States, or to confirm an award made pursuant to such an agreement to arbitrate, if …

  1. the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards …

According to Belize, there was no “agreement made by the foreign state,” and thus no jurisdiction.

Belize’s argument foundered on the doctrine that agreements to arbitrate are treated separately from the underlying contract. Belize presented evidence that the Prime Minister lacked authority to enter into the main contract, but according to the Court it presented no evidence to support its assertion that he lacked authority to agree to arbitrate.

Belize also argued that the award was not governed by the New York Convention (and thus was outside the scope of the FSIA exception) because the award did not arise from a commercial transaction. The Convention itself does not contain a limitation based on the commercial or non-commercial nature of the case, but the United States made a declaration under Article I(3) of the Convention, and thus in the United States, the Convention applies only to awards arising from a commercial relationship.

This argument is interesting, because when the issue is whether the commercial activity exception to FSIA immunity applies, the rule is that a foreign state is engaged in commercial activity when it acts “in the manner of a private player within the market.” Belize has a good argument, maybe, that if you applied this definition the contract would be considered governmental rather than commercial. But the court held that the agreement, which in essence was a sale of real estate, was commercial, and that the New York Convention’s definition of “commercial” was not the same as the FSIA’s definition, because the FSIA used it as a term of art in the context of codifying the restrictive theory of sovereign immunity, where the commercial/governmental distinction was key.

Thus Belize’s arguments failed, and the court affirmed the judgment confirming the award.

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