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( Source of the document: ICC Digital Library )
Eric Morgan, Senior Litigation Associate at Osler, Hoskin & Harcourt LLP in Toronto and Floriane Lavaud, Senior Associate at Debevoise & Plimpton LLP in New York report on new international commercial arbitration legislation in Canada and on a recent decision from the United States Court of Appeals for the Second Circuit on the enforcement of a foreign award against third parties.
A major development in the Canadian arbitration landscape is that Ontario earlier this year passed a new international commercial arbitration act. Canada has a federal legal system and arbitration is primarily a provincial matter. Ontario is Canada’s most populous province which includes Toronto, the largest city and commercial centre.
The International Commercial Arbitration Act 2017 (SO 2017, c 2) (the ‘new Act’) received royal assent on March 22, 2017 with immediate effect. The new Act replaces the International Commercial Arbitration Act (RSO 1990, c I.9) and incorporates the updated version of the UNCITRAL Model Law, including the 2006 amendments.
The new Act applies to all international commercial arbitration agreements and awards rendered in Ontario, whether made before or after the coming into force of the new Act, and brings several key changes that are important both for transactional and dispute resolution lawyers:
In January 2017, the United States Court of Appeals for the Second Circuit rendered a controversial decision concerning the enforcement of a New York Convention award.1 The case arose out of sales contracts entered into between Gusa and Steel Base. After Gusa commenced arbitration for breach of contract, Steel Base transferred all of its assets to a shell company owned by Steel Base’s shareholders and eventually filed for bankruptcy. An ICC tribunal sitting in Paris issued an award, finding that Steel Base had repudiated the contracts, but refused to reach the assets of the shell entity for lack of sufficient evidence of fraud.
Gusa subsequently sought to enforce the award in the United States District Court for the Southern District of New York against the shell company and other related third parties on the ground that such entities were the alter egos of Steel Base. The District Court denied enforcement. While other issues were involved, the two main questions on appeal were: first, whether a foreign award must be confirmed before it can be enforced; second, whether a foreign award can be enforced against entities that were not parties to the arbitration agreement or the arbitration proceedings.
With regard to the first question, the Second Circuit held that the New York Convention does not require prior confirmation of a foreign award at the seat before such award can be enforced elsewhere. The confusion arose in part from Chapter 2 of the Federal Arbitration Act, which uses the term 'confirm’ instead of ‘enforce’ to describe the process by which a court recognizes and enforces a foreign award.2 However, as the Second Circuit recognized, eliminating the double exequatur was ‘the entire purpose of the New York Convention’.3
With regard to the second question, the Second Circuit initially held that whether a New York Convention award may be enforced against an entity that was not a party to the arbitration or named in the award turned on the scope of the arbitration agreement. In doing so, the Court applied the logic of previous cases, in which an arbitrator had made a non-signatory to the arbitration agreement a party to the arbitration and issued an award that included the non-signatory.4 As the New York City Bar Association and Debevoise & Plimpton emphasized in their amicus brief, however, the Court’s analysis is ‘inapt’ where the award does not by its terms purport to bind non-signatories to the arbitration agreement.5
If an award creditor seeks to enforce an award against third parties, ‘whether it may do so should be determined by legal principles concerning enforcement of awards under the applicable state law, not by New York Convention and Federal Arbitration Act principles concerning the ambit of the arbitration agreement’.6 Furthermore, imposing a rule that turns on the intent of the parties at the time of the arbitration agreement may encourage award debtors to transfer all of their assets to shell entities for the sole purpose of avoiding enforcement.
Following the submission of the amicus brief, in March 2017, the Second Circuit issued an Amended Opinion, implicitly recognizing that the intent of the parties at the time of the agreement is irrelevant under the circumstances. The Court’s revised approach will avoid confusion and facilitate the enforcement of foreign awards, reinforcing New York’s role as a leading arbitration centre.
CBF Indústría de Gusa S.A. v. AMCI Holdings, Inc. (846 F.3d 35, 2d Cir. ), vacated and superseded on reh’g sub nom. CBF Indústría de Gusa S.A. v. AMCI Holdings, Inc.(850 F.3d 58, 2d Cir. ).
9 U.S.C. § 207.
CBF, 846 F.3d at 50.
Id. at 53, citing VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., (717 F.3d 322, 325 2d Cir. ).
CBF Indústría de Gusa S.A. v. AMCI Holdings, Inc., Amicus Curiae Memorandum Brief, February 17, 2017 at *2.
Id. at *3.