Case of the Day: Commissions Import Export SA v. Republic of the Congo

The case of the day is Commissions Import Export S.A. v. Republic of the Congo (D.C. Cir. 2014). This is the appeal of the decision I reported in January 2013. The holding in the District Court was that where a party to a foreign arbitration has obtained a judgment confirming the award from a foreign court and then seeks recognition and enforcement of the foreign judgment rather than of the award in a US court, the statute of limitations in § 207 of the FAA preempts any longer statute of limitations available under state law governing the recognition and enforcement of foreign judgments. In today’s decision, the DC Circuit reversed.
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Case of the Day: VRG Linhas Aereas v. MatlinPatterson Global Opportunities Partners II

The Case of the Day is VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II LP (2d Cir. 2013). MatlinPatterson is a private equity fund based in New York. In 2007, Gol Linhas Aereas Inteligentes S.A., a Brazilian airline, acting through GTI, its subsidiary, purchased VRG from two MatlinPatterson subsidiaries, Varig Logistica S.A. and Volo do Brasil S.A. All of the parties I just named, except for MatlinPatterson itself, were signatories to the share purchase and sale agreement, though MatlinPatterson did sign several addenda to the agreement. In particular, MatlinPatterson signed Addendum 5, in which MatlinPatterson agreed not to compete with VRG or invest in its competitors for three years. The question in the case is whether the agreement to arbitrate in the main contract was incorporated in the Addendum so as to bind MatlinPatterson. Addendum 5 described itself as aditando os termos do Contrato,” which VRG translated as “amending” the contract and MatlinPatterson translated as “supplementing” the contract.

Soon after the sale, a dispute about adjustments to the purchase price arose. VRG initiated an arbitration against MatlinPatterson under the ICC Rules. The tribunal, after a hearing, determined that MatlinPatterson had agreed to arbitrate and that the price dispute was within the scope of the agreement to arbitrate. Following a hearing on the merits, the tribunal issued an award in favor of VRG, finding that MatlinPatterson had made fraudulent misrepresentations. MatlinPatterson challenged the award in the Brazilian courts, “so far unsuccessfully.”

VRG sought confirmation of the award in New York in 2011. The judge refused to confirm the award, holding that even if MatlinPatterson had agreed to arbitration of the non-competition matters named in Addendum 5, it had not agreed to arbitrate price issues arising out of the main contract, which it had not signed. VRG appealed.

On appeal, the Second Circuit vacated and remanded. The quesiton, under § 207 of the FAA and Article V(2)(a) of the New York Convention, was whether the dispute was arbitrable under US law. Under First Options of Chicago v. Kaplan, 514 U.S. 938 (1995), the question of whether a court or the arbitrator is to decide questions of arbitrability is distinct from the question of arbitrability itself. The question of arbitrability goes to the arbitrator only if the parties “clearly and unmistakably expressed their intention” to have the arbitrator decide it. Under Second Circuit precedent, namely Shaw Group v. Triplefine International Corp., 322 F.3d 115 (2d Cir. 2003), an agreement to arbitrate under the ICC Rules implies an agreement to commit questions of arbitrability to the arbitrator. But the judge decided the question of arbitrability without first determining whether MatlinPatterson had made an agreement to arbitrate. His holding was essentially hypothetical: if there was an agreement to arbitrate, then it could not reach matters in the main contract but not in the Addendum that MatlinPatterson had signed.

On remand, then, the judge will have to determine whether there was an agreement to arbitrate in the first place. If so, then under circuit precedent, it was for the arbitrators to decide the arbitrability of the issues VRG raised in the arbitration, and the award should be confirmed (barring, I suppose, another argument under the New York Convention, though none is apparent from the decision). If not, then the award should not be confirmed, whatever the arbitrators concluded.

Case of the Day: Daebo International Shipping Co. v. Americas Bulk Transport (BVI) Ltd.

The case of the day is Daebo International Shipping Co. v. Americas Bulk Transport (BVI) Ltd. (S.D.N.Y. 2013). Daebo Shipping, a Korean company, chartered the M/V Nicole to ABT, which, despite its name, was, according to the judge, a Liberian company. After a dispute arose, Daebo Shipping asserted a claim for more than $300,000 against ABT, and ABT asserted a counterclaim for nearly $730,000. As provided in the charterparty, the parties submitted the dispute to arbitration in London. In 2012, the tribunal awarded Daebo Shipping the full amount of its claim plus interest and costs, and it rejected ABT’s counterclaim.

After the arbitration had begun, but before the award, Daebo Shipping merged with Daebo International. Under Korean law, Daebo Shipping thereafter ceased to exist as a separate entity. Daebo International never notified the tribunal of the merger until after the merger, when it requested the tribunal to correct the award or to issue a supplementary award stating that the award was enforceable by Daebo International. The tribunal refused on the grounds that it lacked power to correct the award or to issue a supplementary award.

Daebo International then sought confirmation of the award in New York. At a very early stage in the proceedings, Daebo Shipping (not Daebo International) filed an amended petition seeking confirmation. ABT moved to dismiss, and the judge held that Daebo Shipping was an improper plaintiff, dismissing the petition but giving leave for an amendment to name Daebo International as the proper plaintiff. After the amendment, the parties filed cross-motions for summary judgment.

The judge granted ABT’s motion. Section 207 of the FAA provides that “any party to the arbitration” may apply for confirmation of an award. On the one hand, it seemed clear that Daebo International was the successor in interest to Daebo Shipping, and in Productos Mercantiles e Industriales, S.A. v. Faberge USA, Inc., 23 F.3d 41 (2d Cir. 1994), the court held that “a straightforward decision regarding successor liability” can permit the district court to confirm an award on a petition brought by a clear successor in interest. But the judge distinguished Productos Mercantiles on the grounds that the arbitration agreement in that case provided that the award would inure to the parties’ successors and assigns; there was no such clause here. The judge also emphasized the fact that Daebo International was asking the court for relief that it had previously and unsuccessfully sought from the tribunal. It was, in effect, seeking a modification of the tribunal’s orders, not simple confirmation of the award. Under Article V of the New York Convention, reasoned the judge, the enforcing court lacks the power to modify the award; requests for modification of the award had to be made to the courts at the seat of the arbitration.

Daebo seems to have made a tactical decision to proceed in New York rather than in London: it claimed it did not appeal the award because “the costs of appealing what was essentiall an arbitrators’ jurisdiction point could not be justified when weighed against the possibility of any such appeal succeeding.” It seems that Daebo chose poorly. Penny wise, pound foolish.