Case of the Day: Tricon Energy, Ltd. v. Vinmar International Ltd.

The case of the day is Tricon Energy Ltd. v. Vinmar International, Ltd. (S.D. Tex. 2011). Vinmar and Tricon were both US companies in the aromatics industry. Vinmar had contracted to purchase 5,000 metric tons of mixed xylene from Tricon for delivery in Asia. Tricon accused Vinmar of breaching the contract and demanded arbitration. The panel awarded damages of more than $1.3 million to Ticon. Tricon filed a petition to confirm the award in the federal court under 9 U.S.C. § 207. Vinmar moved to dismiss on the grounds that the court lacked subject matter jurisdiction, and also on the grounds that the parties had not agreed to arbitrate.

The jurisdictional issue is as follows: the federal courts generally lack subject matter jurisdiction over petitions to confirm domestic arbitral awards (though they may have jurisdiction in particular cases, e.g., if there is diversity of citizenship). But under Chapter 2 of the FAA, which implements the New York Convention in the United States, the federal courts do have subject matter jurisdiction over petitions to confirm arbitral awards that fall under the Convention. Article 1 of the Convention provides that the Convention applies to all awards “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought” and to awards “not considered as domestic awards in the State where their recognition and enforcement are sought.” Here, the arbitration was held under the auspices of the American Arbitration Association, and my assumption is that the place of the arbitration was in the United States. So the question is whether, under United States law, the arbitral award is deemed “domestic.”

Section 202 of the FAA  provides:

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.

So under US law, an arbitral award is within the scope of the Convention unless it is “entirely between citizens of the United States”, and even then, it is within the scope of the Convention if it “involves property located abroad, envisages performance or enforcement abroad, or as some other reasonable relation with one or more foreign states.”

Here, the judge found that because the parties’ contract called for delivery in Asia, the award arose under the Convention. This holding illustrates the sweeping scope of the Convention.

On the existence of the agreement to arbitrate, the issue was the familiar “battle of the forms.” I don’t review the facts or the holding in detail, because they turn on the custom and practice in the aromatics industry. One point of interest, though: the judge noted that the agreement was governed by the Texas Uniform Commercial Code. Why was it not governed by the UN Convention on the International Sale of Goods? Under Article 1 of the CISG, the convention applies only when the parties’ “places of business are in different States.” Thus the sales contract is treated as domestic under US law and relevant conventions while the arbitration agreement it contained, and the arbitral award that resulted, are not treated as domestic.

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