Parsons & Whittemore Overseas Co., Inc. v. Societe Generale de L'Industrie du Papier (RAKTA), s. 174 and 637
| Citation | 508 F.2d 969 |
| Decision Date | 23 December 1974 |
| Docket Number | Nos. 174 and 637,D,s. 174 and 637 |
| Parties | PARSONS & WHITTEMORE OVERSEAS CO., INC., Plaintiff-Appellant-Appellee, v. SOCIETE GENERALE DE L'INDUSTRIE DU PAPIER (RAKTA), and Bank of America, Defendants-Appellees, Societe Generale de L'Industrie du Papier (RAKTA), Defendant-Appellee-appellant. ocket 74-1642 and 74-1676. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Malcolm A. Hoffmann, New York City (Edward A. Woolley and Frank J. Kaufman, New York City, of counsel), for plaintiff-appellant-appellee.
Jerome Doyle (Cahill, Gordon & Reindel, New York City, Martin L. Lieberman and Edward F. Hummer, Jr., New York City, of counsel), for defendant-appellee-appellant.
Before SMITH, HAYS and MANSFIELD, Circuit Judges.
Parsons & Whittemore Overseas Co., Inc., (Overseas), an American corporation, appeals from the entry of summary judgment on February 25, 1974, by Judge Lloyd F. MacMahon of the Southern District of New York on the counter-claim by Societe Generale de L'Industrie du Papier (RAKTA), an Egyptian corporation, to confirm a foreign arbitral award holding Overseas liable to RAKTA for breach of contract. RAKTA in turn challenges the court's concurrent order granting summary judgment on Overseas' complaint, which sought a declaratory judgment denying RAKTA's entitlement to recover the amount of a letter of credit issued by Bank of America 1 in RAKTA's favor at Overseas' request. Jurisdiction is based on 9 U.S.C. 203, which empowers federal district courts to hear cases to recognize and enforce foreign arbitral awards, and 9 U.S.C. 205, which authorizes the removal of such cases from state courts, as was accomplished in this instance. 2 We affirm the district court's confirmation of the foreign award. Since it has been established that RAKTA can fully satisfy the award out of a supersedeas bond posted by Overseas, we need not and do not rule on RAKTA's appeal from the adjudication of its letter of credit claim.
In November 1962, Overseas consented by written agreement with RAKTA to construct, start up and, for one year, manage and supervise a paperboard mill in Alexandria, Egypt. The Agency for International Development (AID), a branch of the United States State Department, would finance the project by supplying RAKTA with funds with which to purchase letters of credit in Overseas' favor. Among the contract's terms was an arbitration clause, which provided a means to settle differences arising in the course of performance, and a 'force majeure' clause, which excused delay in performance due to causes beyond Overseas' reasonable capacity to control.
Work proceeded as planned until May, 1967. Then, with the Arab-Israeli Six Day War on the horizon, recurrent expressions of Egyptian hostility to Americans-- nationals of the principal ally of the Israeli enemy-- caused the majority of the Overseas work crew to leave Egypt. On June 6, the Egyptian government broke diplomatic ties with the United States and ordered all Americans expelled from Egypt except those who would apply and qualify for a special visa.
Having abandoned the project for the present with the construction phase near completion, Overseas notified RAKTA that it regarded this postponement as excused by the force majeure clause. RAKTA disagreed and sought damages for breach of contract. Overseas refused to settle and RAKTA, already at work on completing the performance promised by Overseas, invoked the arbitration clause. Overseas responded by calling into play the clause's option to bring a dispute directly to a three-man arbitral board governed by the rules of the International Chamber of Commerce. After several sessions in 1970, the tribunal issued a preliminary award, which recognized Overseas' force majeure defense as good only during the period from May 28 to June 30, 1967. In so limiting Overseas' defense, the arbitration court emphasized that Overseas had made no more than a perfunctory effort to secure special visas and that AID's notification that it was withdrawing financial backing did not justify Overseas' unilateral decision to abandon the project. 3 After further hearings in 1972, the tribunal made its final award in March, 1973: Overseas was held liable to RAKTA for $312,507.45 in damages for breach of contract and $30,000 for RAKTA's costs; additionally, the arbitrators' compensation was set at $49,000, with Overseas responsible for three-fourths of the sum.
Subsequent to the final award, Overseas in the action here under review sought a declaratory judgment to prevent RAKTA from collecting the award out of a letter of credit issued in RAKTA's favor by Bank of America at Overseas' request. The letter was drawn to satisfy any 'penalties' which an arbitral tribunal might assess against Overseas in the future for breach of contract. RAKTA contended that the arbitral award for damages met the letter's requirement of 'penalties' and counter-claimed to confirm and enter judgment upon the foreign arbitral award. Overseas' defenses to this counterclaim, all rejected by the district court, form the principal issues for review on this appeal. Four of these defenses are derived from the express language of the applicable United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention), 330 U.N.Treaty Ser. 38, and a fifth is arguably implicit in the Convention. These include: enforcement of the award would violate the public policy of the United States, the award represents an arbitration of matters not appropriately decided by arbitration; the tribunal denied Overseas an adequate opportunity to present its case; the award is predicated upon a resolution of issues outside the scope of contractual agreement to submit to arbitration; and the award is in manifest disregard of law. In addition to disputing the district court's rejection of its position on the letter of credit, RAKTA seeks on appeal modification of the court's order to correct for an arithmetical error in sum entered for judgment, as well as an assessment of damages and double costs against Overseas for pursuing a frivolous appeal.
In 1958 the Convention was adopted by 26 of the 45 states participating in the United Nations Conference on Commercial Arbitration held in New York. For the signatory state, the New York Convention superseded the Geneva Convention of 1927, 92 League of Nations Treaty Ser. 302. The 1958 Convention's basic thrust was to liberalize procedures for enforcing foreign arbitral awards: While the Geneva Convention placed the burden of proof on the party seeking enforcement of a foreign arbitral award and did not circumscribe the range of available defenses to those enumerated in the convention, the 1958 Convention clearly shifted the burden of proof to the party defending against enforcement and limited his defenses to seven set forth in Article V. See Contini, International Commercial Arbitration, 8 Am.J.Comp.L. 283, 299 (1959). Not a signatory to any prior multilateral agreement on enforcement of arbitral awards, the United States declined to sign the 1958 Convention at the outset. The United States ultimately acceded to the Convention, however, in 1970, (1970) 3 U.S.T. 2517, T.I.A.S. No. 6997, and implemented its accession with 9 U.S.C. 201-208. Under 9 U.S.C. 208, the existing Federal Arbitration Act, 9 U.S.C. 1-14, applies to the enforcement of foreign awards except to the extent to which the latter may conflict with the Convention. See generally, Comment, International Commercial Arbitration under the United Nations Convention and the Amended Federal Arbitration Statute, 47 Wash.L.Rev. 441 (1972).
Article V(2)(b) of the Convention allows the court in which enforcement of a foreign arbitral award is sought to refuse enforcement, on the defendant's motion or sua sponte, if 'enforcement of the award would be contrary to the public policy of (the forum) country.' The legislative history of the provision offers no certain guidelines to its construction. Its precursors in the Geneva Convention and the 1958 Convention's ad hoc committee draft extended the public policy exception to, respectively, awards contrary to 'principles of the law' and awards violative of 'fundamental principles of the law.' In one commentator's view, the Convention's failure to include similar language signifies a narrowing of the defense. Contini, supra, 8 Am.J.Comp.L. 283 at 304. On the other hand, another noted authority in the field has seized upon this omission as indicative of an intention to broaden the defense. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1070-71 (1961).
Perhaps more probative, however, are the inferences to be drawn from the history of the Convention as a whole. The general pro-enforcement bias informing the Convention and explaining its supersession of the Geneva Convention points toward a narrow reading of the public policy defense. An expansive construction of this defense would vitiate the Convention's basic effort to remove preexisting obstacles to enforcement. See Straus, Arbitration of Disputes between Multinational Corporations, in New Strategies for Peaceful Resolution of International Business Disputes 114-15 (1971); Digest of Proceedings of International Business Disputes Conference, April 14, 1971, in id. at 191 (remarks of Professor W. Reese). Additionally, considerations of reciprocity-- considerations given express recognition in the Convention itself 4 -- counsel courts to invoke the public policy defense with caution lest foreign courts frequently accept it as a defense to enforcement of arbitral awards rendered in the United States.
We conclude, therefore, that the Convention's public policy defense should be construed narrowly. Enforcement of foreign...
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