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Therepublic of Iraq, Including As Parens Patriae On Behalf of the v. Abb Ag

March 3, 2011


The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.


The Republic of Iraq initiated this action against more than ninety defendants to recover damages stemming from the alleged corruption of the United Nations Oil-for-Food humanitarian aid program. Among the accused wrongdoers is BNP Paribas, which operated the escrow account for the program's funds pursuant to a contract between its corporate predecessor and the United Nations. The Republic claims to be a third-party beneficiary of that contract, which it alleges BNP breached by, inter alia, assisting others in violating the program's rules and concealing information about this malfeasance.

The contract between BNP and the United Nations contains an arbitration provision. The Republic seeks to avail itself of that provision and moves to compel arbitration of this dispute. BNP maintains it cannot be compelled to arbitrate and cross-moves to enjoin arbitration. The Court concludes that the plain language of the contract precludes the Republic from compelling arbitration. Accordingly, the Court denies the Republic's motion to compel arbitration and grants BNP's motion to enjoin arbitration.


To alleviate the human suffering resulting from international economic sanctions against Iraq, the United Nations Security Council adopted a resolution in 1995 establishing the Oil-for-Food Programme. See S.C. Res. 986, U.N. Doc. S/RES/986 (Apr. 14, 1995). The Programme permitted the sale of Iraqi oil as a means of raising funds for the purchase of humanitarian goods for the Iraqi people. Id. ¶¶ 1, 8.The Programme, which ceased in 2003, did not perform as intended. The Republic's complaint alleges a litany of abuses, the substance of which is not relevant to these motions.

Security Council Resolution 986 directed the U.N. Secretary-General to establish an escrow account for Programme funds. Id. ¶ 7. The cross-motions to compel and enjoin arbitration concern a 1996 contract ("the Banking Agreement") in which Banque Nationale de Paris S.A., BNP's predecessor, agreed to "open the account provided for in [Security Council Resolution] 986 on behalf of the United Nations for the receipt of funds and for the making of payments pursuant to" that resolution. (Banking Agreement art 1.3.1, Ex. 1 to Decl. of Mark Maney in Supp. of Pl.'s Motion to Compel Arbitration ("Maney Decl."), dated April 30, 2010.)

Under the Banking Agreement, Iraqi oil proceeds were deposited in the BNP escrow account. (Banking Agreement art. 2.2.) BNP issued payments from those proceeds for Iraq's purchases of food, medicine and other supplies. (Id. art 2.3.) These transactions occurred under the supervision of the United Nations and in accordance with the procedures and requirements of the Oil-for-Food Programme. (See id. art 1.2.) Subject to certain limited exceptions, the agreement required BNP to take instruction only from the United Nations. (Id. art. 1.8.) Under no circumstances was BNP to "act in accordance with procedures [provided by] or accept information from" anyone "in or acting on behalf of the Government of Iraq, or representing persons or entities in Iraq." (Id.)

The Banking Agreement contains an arbitration clause that provides in pertinent part as follows:

Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, unless settled amicably under Article 1.23.1 within sixty (60) days after receipt by one Party of the other Party's request for such amicable settlement, shall be referred by either Party to arbitration in accordance with the UNCITRAL Arbitration Rules then obtaining and the directions contained in this Article 1.23.2. (Id. art 1.23.2.) As defined in the Banking Agreement, a reference to a "Party" is a reference only to either the United Nations or BNP. (Id. at 1.)

The Republic invoked this arbitration provision on April 30, 2010-nearly two years after initiating this action-when it provided BNP with a notice of arbitration. (Maney Decl., Ex. 2.) At the same time, the Republic moved in this litigation to compel arbitration. BNP subsequently cross-moved to enjoin arbitration. The parties contest whether the Republic is entitled to compel arbitration of its claims. They further dispute, as an antecedent matter, whether it is the Court or an arbitration panel that should decide that question of arbitrability.


A. Standard on Motions to Compel or Enjoin Arbitration

The Banking Agreement-a written contract for banking services between a French corporation and the United Nations providing for arbitration in the United States, (see Banking Agreement at 1, art. 1.23.2)-comes within the ambit of the Convention on the Recognition of Foreign Arbitral Awards (the "New York Convention"). See 9 U.S.C. § 202; Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 92 (2d Cir. 1999). The Federal Arbitration Act ("FAA") grants original jurisdiction to federal courts over actions falling under the New York Convention, see 9 U.S.C. § 203; Sarhank Grp. v. Oracle Corp., 404 F.3d 657, 659-60 (2d Cir. 2005), and empowers a court to compel arbitration where appropriate, see 9 U.S.C. § 206. Though not expressly provided for in the FAA, it has long been held that a court has the concomitant authority to enjoin arbitration as well. See, e.g., Societe Generale de Surveillance, S.A. v. Raytheon European Mgmt. & Sys. Co., 643 F.2d 863, 867-68 (1st Cir. 1981); Satcom Int'l Grp. PLC v. Orbcomm Int'l Partners, L.P., 49 F. Supp. 2d 331, 342 (S.D.N.Y. 1999).

In determining whether claims are subject to arbitration, the summary judgment standard applies "whether the relief sought is an order to compel arbitration or to prevent arbitration." Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003). Summary judgment is appropriate where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). When the matter hinges on interpretation of a disputed contract provision, a court's "primary objective is to give effect to the intent of the parties as revealed by the language they chose to use" and it should grant ...

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