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A panel of the U.S. Eleventh Circuit Court of Appeals asks the Court en banc to overturn Industrial Risk and INPROSTA

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Patrick W. Pearsall

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11 July 2022

Most arbitration practitioners take for granted the bifurcated post-award framework for international arbitrations. As a general matter, an arbitral award (i) can be set aside at the arbitral seat under that jurisdiction’s law, or (ii) its recognition and enforcement can be denied under (most often) Article V of the New York Convention (the “Convention”).

Most federal appellate courts in the United States share that understanding. See generally Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir. 1997); Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V., 994 F.3d 1181 (10th Cir. 2021); Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Account, 618 F.3d 277 (3d Cir. 2010). Those courts have held that the set aside grounds under the Federal Arbitration Act (“FAA”), 9 U.S.C. §10, for domestic awards apply to awards encompassed by the Convention.

The U.S. Court of Appeals for the Eleventh Circuit has been an outlier on this point, having held since 1998 that Article V of the Convention supplies the grounds for both the set aside and the refusal of recognition and enforcement of an award encompassed by the Convention. See Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1445–46 (11th Cir. 1998); Inversiones y Procesadora Tropical IMPORTS, S.A. v. Del Monte International GmbH, 921 F.3d 1291, 1301–02 (11th Cir. 2019) (reaffirming Industrial Risk). That may soon change, however, as a panel of U.S. Eleventh Circuit has asked the Court en banc to overturn that incorrect precedent.

Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., No. 20-13039, 2022 WL 1698350 (11th Cir. May 27, 2022), involved a Miami-seated arbitration between two Guatemalan companies. When the arbitral tribunal ruled in favor of Hidroélectrica Santa Rita, Corporación AIC sought to set aside the award in the U.S. District Court for the Southern District of Florida. Corporación AIC based its set aside petition on 9 U.S.C. § 10(a)(4), which authorizes the set aside of an arbitral award where the arbitrators have exceeded their powers. The district court, however, dismissed the petition because Eleventh Circuit precedent (Industrial Risk and INPROSTA) dictates that Article V of the Convention—not § 10 of the FAA—supplies the grounds for setting aside an award encompassed by the Convention.

Corporación AIC appealed to the Eleventh Circuit, arguing that it could seek the set aside of the award under the grounds listed in § 10 of the FAA because they are incorporated into Article V(1)(e) of the Convention. Article V(1)(e) reads: “Recognition and enforcement of the award may be refused ... [if] [t]he award ... has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” Hidroélectrica Santa Rita, conversely maintained that, under Industrial Risk and INPROSTA, only the grounds listed in Article V of the Convention can be used to set aside a Convention award. An Eleventh Circuit panel held that it was bound by Industrial Risk and INPROSTA to apply only the grounds listed in Article V, but both the majority and the concurring opinion asked the Eleventh Circuit Court en banc to take up the matter and overturn both cases, albeit based on different reasoning.

For the majority, Industrial Risk was correct in holding that Article V supplies the exclusive grounds for the set aside of an award encompassed by the Convention. Id. at *6. But it believed that Industrial Risk erred in “fail[ing] to consider that domestic defenses to enforcement of arbitration awards were nestled in Article V(1)(e).” Id. In short, it agreed with Corporación AIC that § 10 of the FAA is incorporated into Article V(1)(e) of the Convention. 

The concurrence also agreed that § 10 of the FAA provides the grounds for setting aside a Convention award. It considered, however, that § 10 of the FAA provides such grounds directly, rather than through incorporation into the Convention. The concurrence read Article V of the Convention as enumerating only the grounds on which the recognition and enforcement of an arbitral award can be refused. Id. at *12 (Jordan, J.,  concurring). Article V(1)(e) is one of those grounds—it recognizes that the lex arbitri provides the grounds for set aside, but, as the concurring opinion explains, it does not incorporate those domestic grounds into the Convention. Id. As far as set-aside in the United States is concerned, § 10 is located in Chapter 1 of the FAA, which governs domestic arbitrations. Id. at *16. Chapter 2 of the FAA governs arbitral awards encompassed by the Convention. Id. Chapter 2, however, does not contain a provision relating to the set aside of such awards. Accordingly, the concurrence concluded that § 10 applies to those awards through Chapter 2’s residual clause, which states that “Chapter 1 applies to actions and proceedings brought under this chapter to the extent that chapter is not in conflict with this chapter or the [New York] Convention as ratified by the United States.” Id. at *17; 9 U.S.C. § 208.

Now we wait to see whether the Eleventh Circuit Court en banc takes up the case; whether it overturns Industrial Risk and INPROSTA; and, if so, which analytical route it takes. Nonetheless, it seems likely that the days of Industrial Risk and INPROSTA are numbered.

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