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Case of the Day: Wires Jolley LLP v. Shlaimoun

The case of the day is Wires Jolley LLP v. Shlaimoun (C.D. Cal. 2013). Wires Jolley was an Ontario law firm. Zia Shlaimoun and Oussha Arda Shlaimoun, who apparently resided in California, had hired Wires Jolley to represent it in Canadian proceedings. The written agreement between the firm and the Shlaimouns called for arbitration of disputes in Toronto.

Claiming the Shlaimouns owed it $326,000 in unpaid legal fees, Wires Jolley initiated an arbitration. The arbitrator decided that the firm’s services were “acceptable” but that the fee was somewhat excessive. He awarded Wires Jolley approximately $227,000.

Wires Jolley sought confirmation of the award. The Shlaimouns raised none of the grounds that, under Article V of the New York Convention, could justify a refusal to confirm the award, but they did argue for a stay while they litigated a claim for malpractice, fraud, and breach of contract against Wires Jolley in the Los Angeles Superior Court. Under Article VI, a stay is permissible “if an application for the setting aside or suspension of the award has been made to a competent authority referred to in Article V(1)(e),” that is, to a competent authority “of the country in which, or under the law of which, that award was made.” There is also, however, precedent permitting stays for other prudential reasons. But such stays are exceptional. Here, the Shlaimouns had had the opportunity to raise their claims in the arbitration and the arbitrator had specifically found that the lawyers’ services were acceptable. “To stay this action to allow Respondents to assert these same claims, even if it was within this Court’s authority to do so, would impermissibly thwart the purpose of the Convention, “to expedite the recognition of foreign arbitral awards with a minimum of judicial interference ….”

Case of the Day: Chevron Corp. v. Republic of Ecuador

Today’s case of the day, Chevron Corp. v. Republic of Ecuador (D.D.C. 2013), is the latest installment in Chevron’s efforts to enforce a $96 million arbitral award it obtained against Ecuador in an investment treaty arbitration held in the Hague under the US/Ecuador bilateral investment treaty. This arbitration arose out of Chevron’s claim that it had suffered damages on account of undue delay in the settlement of lawsuits TexPet (of which Chevron was a shareholder) had brought against Ecuador in the early 1990s.

I first noted the arbitration in May 2012, when I reported on the decision of a court in the Netherlands rejecting Ecuador’s attempt to have the award set aside. I noted Chevron’s motion to confirm in Washington in July 2012.

Ecuador raised four arguments against confirmation. First, it made a novel argument that the court lacked jurisdiction under the FSIA because it never agreed to arbitration of the underlying dispute about delay damages, the award was not made “pursuant to … an agreement to arbitrate,” as required by 28 U.S.C. § 1605(a)(6) for subject-matter jurisdiction to exist. But there is apparently no authority for the view that questions of arbitrability can be litigated twice, once to the arbitrator (or an appropriate court) on the merits and once as a jurisdictional matter when a foreign state seeks to block confirmation in a US court. The only appropriate questions, according to the judge, are (1) whether the award was made pursuant to an arbitration agreement to which the foreign state was party, and (2) whether the award “is or may be” governed by an agreement such as the New York Convention.

Second, Ecuador argued the same point as a matter of the merits rather than as a jurisdictional matter. Under Article V(1)(c) of the Convention, the court can refuse confirmation if the award “deals with a difference … not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.” But since there was an agreement to arbitrate (namely, the US/Ecuador BIT, which the court construed, in line with the precedents, as a standing invitation to arbitrate certain kinds of disputes), and since incorporation of the UNCITRAL Rules is, under D.C. Circuit precedent, “clear and unmistakable evidence” that the parties intended the arbitrators to determine questions of arbitrability, the judge held that he could engage only in a deferential review of the arbitrators’ decision. The judge noted the unchallenged impartiality of the arbitrators, the length of the hearings devoted to the arbitrability issue, and the length and comprehensiveness of the arbitrators’ decision. He also approved of the tribunals’ decision construing the BIT on the merits, though I do not cover the reasoning here.

Third, Ecuador argued that the award was contrary to public policy (Article V(2) of the Convention creates a public policy defense to confirmation). But the judge rejected Ecuador’s argument without much effort, noting that it was “primarily a rehashing of its position that the Award was beyond the the scope of the submission to arbitration.” Ecuador also claimed that the award violated its sovereignty—this seems like a complete non-starter in the realm of investment treaty arbitration.

Last, Ecuador sought a stay while its efforts to set aside the award continue in the Hague. A stay is permissible under Article VI of the Convention, but according to the judge, Ecuador’s briefs barely mentioned the factors the court is to consider. The judge did his own analysis and found that the factors favored Chevron. The closest question was whether “the award sought to be enforced will receive grater scrutiny in the foreign proceedings under a less deferential standard of review.” The judge found that the Dutch court would apply a standard that did not differ too much from the standard the US court applied on questions of confirmation, and he noted that “the fact that the Dutch District Court has already denied the motion to set aside suggests that to the extent the standard is any more searching, it has not helped Ecuador in its attempt to resist confirmation.”

Case of the Day: Berkenhoff GmbH v. Global Trade Network, Inc.

The case of the day is Berkenhoff GmbH v. Global Trade Network, Inc. (S.D. Ohio 2012). The parties had a licensing dispute over a patent relating to electric discharge machining wire used in precision cutting. The parties arbitrated the dispute in Frankfurt. The award was in Berkenhoff’s favor, and Berkenhoff sought to confirm the award in Ohio. However, Global Trade Network and the other defendant, Composite Concepts, challenged the award in a German court, and they moved to stay the confirmation proceedings. Composite Concepts also moved to vacate the award.

The judge stayed the case. Fair enough—Article VI of the New York Convention permits a stay when proceedings to vacate the award are pending in the proper court.

The motion to vacate was obviously improper. Only the courts of Germany had jurisdiction to vacate the award. Composite Concepts, however, conceded the point and said that it had misnamed its motion, which was, in reality, an opposition to the motion to confirm raising arguments under Article V of the Convention. The court did not decide the motion, however, as the case was stayed.