Case of the Day: Corporación AIC v. Hidroelectrica Santa Rita

The case of the day is Corporación AIC SA v. Hidroelectrica Santa Rita SA (S.D. Fla 2020). The parties had a contract for turnkey design and construction of a hydroelectric plant in Guatemala. HSR paid about $11 million to the contractor, AIC, and issued a notice to proceed. But the local community opposed the construction, and in the end, the opposition proved so fierce, including a blockade of the project and threats directed against workers, that HSR issued a force majeure notice requiring AIC to suspend work, and it eventually terminated the contract under a termination for convenience clause. The decision says very little about some key things. It says that “the Tribunal applied Guatemalan law,” which seems to mean that Guatemalan law governed the substance of the dispute, and it says that “the Tribunal conducted an evidentiary hearing in Miami.” But it does not specifically identify the seat of the arbitration, though I assume the seat was in Miami.

Anyway, the arbitration resulted in an award in favor of HSR requiring the return of much of the advance payment, and AIC petitioned for vacatur of the award. The basis for the petition was AIC’s claim that the tribunal had exceeded its powers in various ways, which constitutes grounds for vacatur under § 10(a)(4) of the FAA. But the arbitration fell within the scope of the New York Convention. In a case governed by the Convention, do the grounds for vacatur under § 10 of the FAA apply? Or is the party challenging the award limited to the grounds set out in Article V of the Convention itself?

In Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1435 (11th Cir. 1998), the Eleventh Circuit had held that Article V, rather than the FAA, governed the grounds for vacatur of an award in an arbitration governed by the Convention held within the United States. Did BG Group plc v. Republic of Argentina, 572 U.S. 25 (2014), changes that conclusion. In BG, the Court considered and rejected an argument for vacatur under § 10 in such a case. Was it making a holding, sub silentio, about the applicability of § 10? No, today’s case says, because in Inversiones y Procesadora Tropical INPROTSA, SA v. Del Monte Int’l GmbH, 921 F.3d 1291 (11th Cir.),cert. denied, 140 S. Ct. 124 (2019), held that BG had not overruled Industrial Risk.

Thus in the Eleventh Circuit, at least, it’s clear that Section 10 of the FAA has no role to play in vacatur proceedings in an arbitration subject to the New York Convention, even if the place of the arbitration was in the United States. Is this correct? There are cases that come out the other way, for example Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584 (2d Cir. 2016), and Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Account, 618 F.3d 277 (3d Cir. 2010). My view is that the Eleventh Circuit view is probably wrong, because under Article V(1)(e) of the Convention, an award can be vacated if the award “has been set aside or suspended by a competent authority of the country in which, or under the law of which, [the] award was made.” The purpose of the Convention isn’t to deprive the country with primary jurisdiction of whatever grounds exist under its law for vacatur of arbitral decisions, but rather to provide that such decisions should be made only in that country, except in the exceptional circumstances noted in Article V. Or at least that’s how I understand the Convention’s purpose. The Convention is analogous to other conventions—the Child Abduction Convention in particular comes to mind—inosfar as it’s job is to allocate jurisdiction, not to narrow the jurisdiction of the state to which the issue at hand is committed.

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