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LIBERIAN EASTERN TIMBER CORP. v. GOVT. OF THE REPU

December 15, 1986

In the Matter of the Application of LIBERIAN EASTERN TIMBER CORPORATION, Putative Arbitration Award Creditor, For Enforcement of an Arbitration Award
v.
THE GOVERNMENT OF THE REPUBLIC OF LIBERIA, Putative Arbitration Award Debtor



The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, D. J.

The Government of the Republic of Liberia ("Liberia" or "Republic") moves to vacate a judgment entered ex parte by Judge John F. Keenan enforcing an arbitration award issued under the rules of the International Centre for the Settlement of Investment Disputes ("ICSID"). The Republic also moves for a preliminary injunction enjoining the enforcement of, and execution upon, the aforesaid judgment pending determination of Liberia's motion: (1) to vacate the judgment, or, in the alternative, (2) to vacate the execution of that judgment on its property located in the United States. Liberia's contention is that the ex parte judgment violated its sovereign immunity which it did not waive.

 In 1970 Liberia granted a concession to Liberian Eastern Timber Corporation ("LETCO") to harvest and exploit over 400,000 acres of Liberian timber. In 1972 LETCO began to exploit its concession and harvest, process and export the timber. In 1980, Liberia, based upon alleged shortcomings of LETCO and concerned over conservation and proper utilization of its timber resources, reduced LETCO's concession area by 279,000 acres. It later terminated the concession entirely, whereupon LETCO commenced arbitration under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the "Convention") pursuant to Article IX of the parties' Concession Agreement, which provides that if there:

 . . . shall be any question or dispute with respect to the Construction, meaning or effect of this Agreement or arising out of this Agreement or concerning the rights or obligations hereunder the parties shall have the right to require the dispute to be settled by conciliation and arbitration as hereinafter provided. Any of the parties to such dispute may commence conciliation or arbitration proceedings by giving notice to the other party and to the Secretary-General of the International Centre for Settlement of Investment Disputes . . . .

 (2) The Rules of Conciliation and Arbitration of the International Centre for Settlement of Investment Disputes shall govern the conciliation and arbitration . . . .

 (4) The decision of the arbitrator shall be final and binding upon the parties of this Agreement . . . .

 After nominating an arbitrator on its behalf and designating a law firm to represent it, *fn1" Liberia refused to participate in the arbitration and commenced an action against LETCO in the Liberian courts to resolve the dispute. Nonetheless, the arbitration panel proceeded with the arbitration and it awarded LETCO $8,793,280, plus interest.

 Judge Keenan, sitting in the Motion Term, Part 1, signed an ex parte order directing entry of judgment for $9,076,857.25, including interest, based upon and as specified in the award issued by the ICSID arbitration panel. A Writ of Execution was issued to the United States Marshal for the Southern District of New York, pursuant to the Judgment, on September 25, 1986.

 DISCUSSION

 LETCO's opposition to Liberia's motion misapprehends Liberia's position. The Republic does not, in this litigation, seek to vacate the award as determined by the arbitration conducted pursuant to the ICSID Convention and Rules. What Liberia seeks to vacate is the judgment entered in this court based upon the arbitration award and to enjoin the issuance of executions to seize its property or assets in order to satisfy the judgment. It contends that this court was without jurisdiction to enter the judgment or to enforce the award by the issuance of executions against its property in the United States under the Foreign Sovereign Immunities Act ("FSIA"), *fn2" and that it did not surrender or waive its sovereign immunity by entering into the Concession Agreement, by agreeing to arbitration, or by reducing the forestry area and then finally cancelling the contract.

 In broad outline, the concession contract, which involved the Liberian forest, one of its most valuable resources, was intended to bolster Liberia's economy, create new jobs, protect the forest preserve, stimulate reforestation, and provide funds for the needs of the people of Liberia. LETCO and other entities engaged by Liberia for that purpose were regulated to ensure better utilization of the forest and to prevent waste. The granting of a concession to exploit that natural resource and the subsequent revocation of that concession were regulations of Liberia's natural resources and entailed an exercise of powers peculiar to a sovereign. *fn3" Indeed, LETCO does not dispute that such activities were a governmental function. However, LETCO contends that Liberia waived its sovereign immunity in this case by entering into the concession contract whereby it agreed to submit any disputes arising under that contract to ICSID arbitration pursuant to the Convention, a treaty ratified by more than seventy-five countries, including the United States, the Liberian Republic and France. *fn4" In support of its position plaintiff emphasizes Article 54 of the Convention, which provides:

 Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.

 The United States, as a signatory to the treaty, is such a state and the Foreign Sovereign Immunities Act is also applicable here. The broad questions presented are: whether the District Court had subject matter jurisdiction, under sections 1604 and 1605 of the FSIA, to enter judgment based upon the arbitration award, *fn5" and if so, whether it also had the power to issue executions, under sections 1609 and 1610 of the FSIA, upon property of Liberia to enforce the judgment. These issues require a determination of whether or not Liberia expressly or impliedly waived its sovereign immunity, and whether the property which LETCO seeks to execute the judgment upon is used for a commercial activity in the United States.

 First, as to whether this Court has subject matter jurisdiction, reference has already been made to Article 54 of the Convention, which obligates the United States, as a signatory thereto, to recognize and enforce the pecuniary obligation of the award as if it were a final judgment of a court of the United States. The ex parte judgment makes reference to 22 U.S.C. 1650a, which provides the enabling legislation for Article 54. The FSIA provides that a foreign state is immune from the jurisdiction of the courts of the United States and of the states except for specifically enumerated exceptions. *fn6" One such exception occurs when "the foreign state has waived its immunity either explicitly or by implication, ...


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