The case of the day is CBF Indústria de Gusa S/A v. AMCI Holdings, Inc. (2d Cir. 2017). CBF and several other plaintiffs were Brazilian companies in the business of producing and supplying pig iron. They sold the iron to Primetrade AG, a Swiss company, which then supplied it to Primetrade USA. In 2004, one of Primetrade AG’s ships exploded off the coast of Colombia, and the master and five of his crew died in the accident. In 2005, because of the bad publicity that followed the accident, Primetrade AG transferred it assets, including its contracts with CBF, to Steel Base Trade AG, another Swiss company, which had the same officers and directors as Primetrade and the same offices. In 2007, AMCI International GmbH, a company controlled by Hans Mende and Fritz Kundrun, purchased SBT and its US subsidiary, still named Primetrade USA. In 2008, CBF and SBT entered into contracts for the purchase and sale of 103,500 metric tons of pig iron for more than $76 million. The contracts called for delivery of the pig iron in the United States between April and December 2008. They contained an agreement to arbitrate all disputes under the ICC Rules in Paris. As commodity prices fell in 2008, SBT defaulted on the contracts—it purchased only 33,056 metric tons in all. Its representative told CBF that “it is not our style to walk away from obligations,” and “we are not walking away!!!” CBF later claimed these were false representations made to give Mende and Kundrun time to fraudulently convey SBT’s assets to another company they owned, Prime Carbon, which had begun making large purchases of pig iron and which had the same officers and directors as SBT and the same address as SBT’s parent, AMCI. After SBT transferred its assets to Prime Carbon, it declared bankruptcy in the Cantonal Court of Zug, Switzerland.
Sometime during these events, CBF initiated an arbitration. SBT’s bankruptcy administer sought a stay of the arbitration, but then informed the ICC that SBT had insufficient funds to participate and did not intend to defend. The tribunal entered an award for CBF and the others for $48 million, plus interest and costs and fees in the amount of $360,000. CBF sought relief from Prime Carbon and other third parties, but the tribunal held that there was insufficient evidence “to demonstrate the existence of fraud in the bankruptcy proceedings.”
While the arbitration was pending, CBF sought an order from the Second District Court of Rio de Janeiro to prevent the departure from Brazilian ports of pig iron that had been purchased by Prime Carbon while the arbitration was pending. The District Court granted the request, and the Thirteenth District Court of Rio de Janeiro affirmed. But during the week the appeal was pending, the ship carrying the pig iron nevertheless left the Brazilian port. CBF made other unsuccessful attempts to enforce the award before bringing an action in New York against several of SBT’s alleged alter egos and successors-in-interest, seeking to enforce the award against them and also asserting a claim of fraud. The defendants, which included AMCI, moved to dismiss on the grounds, among others, that the award against SBT had not been confirmed in a Swiss court or another court of competent jurisdiction, and that it could not be enforced until it was confirmed. The District Court agreed and granted the motion. It also dismissed the fraud claim on the grounds that CBF had asserted the same claim in the arbitration and was precluded from brining it again. CBF sought to confirm the award, but because SBT had been dissolved, it lacked the capacity to be sued under Swiss law, and thus the District Court dismissed the confirmation claim under FRCP 17(b). CBF appealed.
The Second Circuit rejected the District Court’s main conclusions. The basic gist of the decision is that while under the Geneva Convention, which preceded the New York Convention, an international arbitral award could not be enforced until it had been confirmed by a court in the place of the arbitration (the so-called “double exequatur” requirement), under the New York Convention only one proceeding is necessary. In international cases where the United States is the place of the arbitration, it could be that a confirmation proceeding is required before seeking to enforce; but imposing such a condition in cases where the United States is not the primary jurisdiction would be inconsistent with the Convention.
In some sense, the problem here was semantics. The draft of the Restatement of the U.S. Law of International Arbitration can help make things clearer. According to Tentative Draft No. 2, “confirmation” is “a determination that reduces to judgment a Convention award made in the United States.” “Recognition” is “a determination by a court or other tribunal that an international arbitral award is presumptively entitled to preclusive effect with respect to one or more matters determined therein.” “Enforcement” is “is the reduction to a judgment of an international arbitral award, other than a Convention award made in the United States.” Using these definitions, we see that an international award not made in the United States can be recognized and enforced, but does not require separate confirmation. The reporter’s notes spell this out in more detail:
Within the FAA framework, the prevailing party may request “confirmation” of an award made in the United States or its territories, while the opposing party may request “vacatur” of the same award. Confirmation of U.S. Convention awards is sought under a convention. A court proceeding under a convention is instructed that it “shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition of enforcement of the award specified in the said Convention.” 9 U.S.C. § 207. An award may be entitled to preclusive effect, and once confirmed may also be the basis for a coercive order on behalf of the party that prevailed in arbitration.
A Convention award rendered abroad, by contrast, with rare exception, will not be subject to vacatur in a court in the United States, but is subject in U.S. courts only to the secondary control functions authorized in the Conventions. Thus, ordinarily, a U.S. court may do no more than refuse recognition or enforcement, and may do so only on the grounds enumerated in the Conventions. Extraordinarily, an award made outside the United States may be vacated by a U.S. court. A court properly exercises such power, which it will possess concurrently with the courts of the seat, when the parties explicitly have made the arbitration subject to U.S. arbitration law.