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INTERN. STD. ELEC. v. BRIDAS SOC. ANONIMA

August 24, 1990

INTERNATIONAL STANDARD ELECTRIC CORPORATION, PETITIONER,
v.
BRIDAS SOCIEDAD ANONIMA PETROLERA, INDUSTRIAL Y COMERCIAL, RESPONDENT.



The opinion of the court was delivered by: Conboy, District Judge:

OPINION and ORDER

In this action, the parties seek, on the one side, to vacate a foreign arbitration award, and, on the other, to enforce that award pursuant to an international convention. This case, then, requires us to evaluate and apply the relevant standards for vacatur and enforcement of an award made under the aegis of the International Chamber of Commerce Court of Arbitration in Paris.

BACKGROUND

Petitioner, International Standard Electric Corporation ("ISEC"), is a wholly owned subsidiary of the International Telephone and Telegraph Company ("ITT"). Respondent Bridas Sociedad Anonima Petrolera, Industrial Y Comercial. ("Bridas") is a corporation organized and doing business in Argentina. At issue in this case is the interpretation of certain provisions of the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention" or the "Convention"), signed in New York City on June 10, 1958, 3 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38, and implemented after United States ratification in 1970 at 9 U.S.C.A. §§ 201 et seq. (West Supp. 1990).

On April 17, 1985 Bridas filed with the International Chamber of Commerce ("ICC") in Paris a Request for Arbitration and Summary of Complaint, and nominated as a member of the Arbitral Panel Dr. Eduardo Jimenez de Ariechaga of Uruguay, former President of the International Court of Justice at the Hague. ISEC sought to block the arbitration by applying for injunctive relief in the New York State Supreme Court, which relief was denied on June 11, 1985. See Bridas S.A.P.I.C. v. International Standard Electric Corp., 128 Misc.2d 669, 490 N.Y.S.2d 711 (Sup.Ct.N.Y.Cty. 1985). In July of 1985, ISEC nominated as a member of the Arbitral Panel Edward Hidalgo, Esq. of the United States, a practicing attorney and former Secretary of the Navy in the Administration of President Carter. On September 25, 1985, the ICC International Court of Arbitration designated as the third and presiding member of the Arbitral Panel Lic. Manuel Lizardi Albarran of Mexico. Mexico City was designated as the place of the arbitration, and pursuant to Article 9(2) of the ICC Rules, each party was directed to pay one half of the ICC advance on costs of $190,000.

On February 27, 1986, the Appellate Division of the New York State Supreme Court unanimously affirmed the denial of ISEC's attempt to enjoin the arbitration. 117 A.D.2d 1027, 499 N YS.2d 566 (1st Dep't 1986). On July 24, 1986, ISEC filed "Objections to Jurisdiction" with the Arbitral Panel, asserting lack of jurisdiction over three of the four claims set forth in Bridas' complaint. On August 19 and 20, 1986, the Arbitral Panel conducted a hearing in Mexico City, heard argument on the jurisdictional question, and in conjunction with the parties drafted the Terms of Reference, which were then signed by the parties. These terms defined the issues to be decided. The Panel also established a schedule for the submission of briefs on the jurisdictional question.

Shortly after both parties had submitted their briefs on that matter, the ICC International Court of Arbitration, on November 7, 1986, suspended the arbitral proceedings because of ISEC's refusal to pay its half of the ICC advance on costs. On February 17, 1987, Bridas filed suit against ISEC in New York State Supreme Court to compel ISEC to comply with its costs obligations under the Rules. Four months later, Bridas posted a letter of credit with the ICC guaranteeing payment of ISEC's share of the costs, and the suspension on the proceedings was lifted.

On September 1, 1987, the Panel held a hearing and heard oral argument on the jurisdictional issues, and shortly thereafter, on October 22, 1987 issued a "Preliminary Award on Jurisdiction," concluding that the relevant clause is "sufficiently broad to comprehend the particular dispute now before it and to permit it to proceed to a full consideration of the merits of such dispute. . . ." Bridas Notice, Exhibit F, ¶ 8. On December 18, 1987, ISEC filed its Answer to the Complaint, and on March 15, 1988, the Panel issued a schedule for submissions of evidence, expert opinions and memoranda of law. On nine separate dates from June 6, 1988 through November 28, 1988 the parties filed a daunting volume of material with the Panel, including affidavits from no less than seven experts.

On January 16, 1989, at the request of the Panel, each party filed the full text of all authorities, including cases, statutes, rules and all other sources, upon which it relied. The material submitted by ISEC contained no reference to the aforementioned court expert selection procedure. Nor was any reference made to it by ISEC either in the final hearing before the Panel in Mexico City on March 30-31, 1989 or in the final Reply Memorandum and Exhibits filed by ISEC with the Panel on April 25, 1990.

On December 20, 1989, the Panel, in accordance with the rules which require the advance review and approval by the ICC International Court of Arbitration, signed the final Award, which was released and issued to the parties on January 16, 1990.

The Arbitral Award ("Award") (Bridas Notice, Ex. A.), found unanimously by the Panel, concluded that Bridas had not established that ISEC had made misrepresentations or committed fraud in connection with the sale of certain stock to Bridas in 1979 (Award at 17); that Bridas had not established that ISEC had unlawfully mismanaged CSEA (Award at 18); that Bridas had established that in July of 1984 ISEC breached its fiduciary obligations to Bridas in connection with a 1984 recapitalization of CSEA (Award at 19-20); and that Bridas had established that in March of 1985 ISEC breached its contractual and fiduciary obligations to Bridas by selling, over Bridas' objection, its 97% interest in CSEA to Siemens, the German multinational corporation and a major competitor of Bridas in Argentina. The Panel also concluded that ISEC had failed to "comply with the norms of good faith demanded of a fiduciary" by not giving Bridas adequate notice of the proposed sale and its terms (Award at 21-24). Though describing these findings against ISEC as erroneous, ISEC concedes that they are beyond this Court's review. Memorandum of Law in Support of ISEC's Petition to Vacate and in Opposition to Bridas' Cross-Petition to Enforce Arbitration Award, dated April 27, 1990 ("ISEC Mem."), at 5, 7. The Panel awarded Bridas damages of $6,793,000 with interest at 12%, compounded annually, from March 14, 1985. Bridas was also granted $1 million in legal fees and expenses plus $400,000 for the costs of the arbitration.

On February 2, 1990, ISEC filed a petition in this Court to vacate and refuse recognition and enforcement of the Award. Respondent Bridas has cross-petitioned to dismiss ISEC's petition to vacate on the grounds that this Court lacks subject matter jurisdiction to grant such relief under the Convention, and for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(1) and (6). Bridas further cross-petitions to enforce the Award pursuant to Article III of the Convention.

ANALYSIS

We will first address the question of whether, under the binding terms of the New York Convention, we lack subject matter jurisdiction to vacate a foreign arbitral award. The situs of the Award in this case was Mexico City, a location chosen by the ICC Court of Arbitration pursuant to rules of procedure explicitly agreed to by the parties. Since the parties here are an American Company and an Argentine Company, it is not difficult to understand why the Mexican capital was selected as the place to conduct the arbitration.

Bridas argues that, under the New York Convention, only the courts of the place of arbitration, in this case the Courts of Mexico, have jurisdiction to vacate or set aside an arbitral award. ISEC argues that under the Convention both the courts of the place of arbitration and the courts of the place whose substantive law has been applied, in this case the courts of the United States, have jurisdiction to vacate or set aside an arbitral award.

Under Article V(1)(e) of the Convention, "an application for the setting aside or suspension of the award" can be made only to the courts or the "competent authority of the country in which, or under the law of which, that award was made." (Emphasis added). ISEC argues that "the competent authority of the country . . . under the law of which [the] award was made," refers to the country the substantive law of which, as opposed to the procedural law of which, was applied by the arbitrators. Hence, ISEC insists that since the arbitrators applied substantive New York law, we have jurisdiction to vacate the award.

ISEC cites only one case to support this expansive reading of the Convention, Laminoirs-Trefileries-Cableries de Lens v. Southwire Co., 484 F. Supp. 1063 (N.D.Ga. 1980). That case, however, did not involve a foreign award under the Convention, and did not implicate the jurisdictional question here raised, since there the parties' substantive and procedural choice of law, and the situs of the arbitration were both New York. It seems plain that the Convention does not address, contemplate or encompass a challenge to an award in the courts of the state where the award was rendered, since the relation of the courts to the arbitral proceedings is not an international, but a wholly domestic one, at least insofar as the Convention is concerned. Whether such an arbitration would be considered international because of the parties' nationalities under the Federal Arbitration Act, is irrelevant. See A. Van den Berg, The New York Arbitration Convention of 1958 19-20, 349-50 (Kluwer 1981).

Bridas has cited a case decided by our colleague Judge Keenan, American Construction Machinery & Equipment Corp. v. Mechanised Construction of Pakistan Ltd., 659 F. Supp. 426 (S.D.N.Y.), aff'd, 828 F.2d 117 (2d Cir. 1987), cert. denied, 484 U.S. 1064, 108 S.Ct. 1024, 98 L.Ed.2d 988 (1988), as authority against the ISEC position. This case involved a dispute between a Cayman Islands Company and a Pakistani company, arguably controlled by Pakistani substantive law and arbitrated in Geneva. Judge Keenan was asked to decline enforcement of the award on the ground that a challenge to it was pending in the courts of Pakistan. He ruled that "[t]he law under which this award was made was Swiss law because the award was rendered in ...


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