damages, pursuant to paragraph 23 of the contracts. Before the sixty days expired, the bottling companies, on October 1, 1996, petitioned a civil court in Caracas, Venezuela for a declaration that the amount of liquidated damages actually due petitioners was a much smaller sum. In support of the petition, the bottling companies alleged, inter alia, that the arbitration provision of paragraph 30 of the bottling contracts was "inoperative" because of its "obscurity and ambiguity" and because it was, in any event, "not applicable to the present case." Petitioners responded on October 11, 1996 by filing a formal request for arbitration with the International Chamber of Commerce, and then, on October 16, 1996, by filing the Petition now before this Court.
Respondents expressly concede this Court's subject matter jurisdiction and power to compel arbitration in this case.
They nonetheless urge the Court to decline jurisdiction in favor of the Venezuelan court. In this regard, Article II.3 of the United Nations Convention On The Recognition And Enforcement Of Foreign Arbitral Awards, to which both the United States and Venezuela are signatories, provides that "The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement [to arbitrate] . . . shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed."
As noted, respondents, in their papers previously filed in the Venezuelan court, contend that the arbitration agreement set forth in paragraph 30 of the bottling contracts is either entirely "inoperative" or else "not applicable" to a dispute over the calculation of liquidated damages. Whether or not this is so is plainly a matter of Venezuelan law, for paragraph 30 flatly states that the contracts are governed by the laws of Venezuela.
While the Court is not blind to the facially flimsy aspect of the objections to arbitrability raised in the papers respondents have filed in the Venezuelan court, respondents have submitted some authority to support their contention that the objections have arguable merit. See Iberian Tankers Co. v. Terminales Maracaibo, C.A., 322 F. Supp. 73, 75 (S.D.N.Y. 1971). In any event, in the absence of any challenge to the adequacy of the Venezuelan legal process (see Tr., 10/21/96, at 26-27; see also Blanco v. Banco Industrial de Venezuela, S.A., 997 F.2d 974, 981 (2d Cir. 1993)) the Venezuelan court that already has the issue of arbitrability before it ought to be afforded the initial opportunity to determine this threshold question of Venezuelan law before a non-Venezuelan court is called upon to do so.
It makes obvious good sense, as well as offering a considerable savings of judicial time and resources, for this Court to have the benefit of a Venezuelan court's speedy determination of a threshold question of Venezuelan law that must be resolved before this or any other court can compel arbitration in this case. Nor will any material delay be occasioned thereby, for respondents have represented, through the sworn declaration of their Venezuelan law expert, that the Venezuelan court is required to decide such jurisdictional issues within five workings days of the November 21, 1996 date when petitioners are required to file their answering papers in the Venezuelan action. See Declaration of Oscar E. Ochoa dated Oct. 21, 1996 at P 10. In addition to considerations of legal economy and international comity, such deference is also consistent with the parties' reasonable expectations: for when they expressly agreed that these contracts, involving largely Venezuelan activities by mostly Venezuelan parties, would be governed by Venezuelan law except as to disputes submitted to arbitration, they plainly anticipated that such disputes as a court might have to decide (such as arbitrability) would quite likely be submitted to a Venezuelan court.
Accordingly, the motion for immediate determination of the Petition is denied. At the same time, this Court is mindful not only of the strong policy favoring prompt arbitration expressed in the U.N. Convention, but also of the many facial indications that respondents are utilizing dubious strategems to try to evade their plain contractual obligations. A thimblerig is still a scam even if the thimbles be courts of separate sovereigns. To entirely eschew oversight of this controversy in such circumstances would be a derogation of duty and an invitation to fraud. See Caspian Investments, Ltd. v. Vicom Holdings, Ltd., 770 F. Supp. 880, 887 (S.D.N.Y. 1991). Accordingly, notwithstanding the pendency of the Venezuelan action, this Court will retain jurisdiction of the underlying Petition in this case, see China Trade and Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987), but stay further proceedings for a period of 60 days (i.e., through December 27, 1996), see Borden, Inc. v. Meiji Milk Prod. Co., Ltd., 919 F.2d 822, 829 (2d Cir. 1990), in order to afford the Venezuelan court the opportunity to determine, if it chooses, the threshold question of arbitrability under Venezuelan law.
JED S. RAKOFF, U.S.D.J.
Dated: White Plains, New York
October 28, 1996