Confirmation / Vacation of Arbitration Awards

International Engineering and Construction (IEC) commenced arbitration against Baker Hughes (formerly GE Oil and Gas) over construction delays in the building of a liquefied natural gas power plant in Nigeria. The three-arbitrator panel issued an award finding that both GE and IEC breached the construction contracts. While the panel awarded IEC more than $7 million plus interest from GE, it also ordered IEC to pay GE $11 million plus interest, as well as 95% of the arbitration costs and GE’s costs. The net result was that IEC was ordered to pay more than $8 million plus interest.

GE moved to confirm the arbitration award and IEC cross-moved to vacate the award on the grounds that the arbitrators manifestly disregarded the law and the plain language of the parties’ contracts. Although the district court noted that IEC’s arguments “might have traction” if the court were writing on a blank slate, based upon the strong deference owed to arbitrators, the court found that IEC’s vacatur arguments “fell short,” and confirmed the award in favor of GE.

Baker Hughes Energy Services, LLC v. International Engineering & Construction S.A., No. 1:21-cv-01961 (S.D.N.Y. Nov. 16, 2021)

The plaintiff, ITT Engineered Valves LLC, sought to vacate an arbitration award finding it had improperly terminated its employee, Douglas Wood, and ordering that Wood be reinstated. While recognizing the general presumption in favor of enforcing arbitration awards, ITT claimed an exception to that rule applied here: “well-defined and dominant” public policies would be violated if the award were to be enforced. Specifically, it pointed to public policies against (1) racial/national origin harassment and discrimination and (2) threats of workplace violence. Wood’s labor union, the defendant in the action, argued that the so-called public policy exception is exceedingly narrow and did not warrant vacatur. The court agreed with the union.

The court explained that applying the public policy exception requires a two-step analysis. First, can a “well-defined and dominant” public policy be identified? If so, would enforcing the award violate that policy? The court noted that the exception is available only when the award creates an “explicit conflict with an explicit public policy.” Even assuming the public policies identified by ITT were “well-defined and dominant,” the court found enforcing the award would not thwart the purpose of either policy. As an initial matter, the court found ITT failed to demonstrate that any public policies required the discharge of an employee who engaged in discrimination or harassment and/or made threats of violence. The court also accepted the arbitrator’s conclusion that Wood’s conduct was neither discriminatory nor harassing and did not constitute a threat of violence in the first instance. Thus, while sympathizing with ITT’s desire to maintain a safe workplace, the court denied its motion for summary judgment and granted the union’s cross-motion.

ITT Engineered Valves, LLC v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union, No. 5:21-cv-00205 (E.D. Pa. Aug. 3, 2021).

The Northern District of New York confirmed this month an arbitration award made in June 2018 by the China International Economic and Trade Arbitration Commission (CIETAC) in favor of two Chinese companies and against a U.S. tool manufacturer. The Chinese companies had contracted to purchase and import machine tools used in the manufacture of automobile engines and other machine parts from New Monarch Machine Tool Inc., a company based in Cortland, New York. New Monarch allegedly defaulted on its delivery and installation obligations under the parties’ sales contracts, which required arbitration of any disputes to take place in Beijing before CIETAC.

The CIETAC panel ultimately awarded the Chinese companies approximately $2.4 million, plus interest, payable within 30 days. When New Monarch failed to pay, a petition for confirmation of the award was filed. New Monarch argued that the award should not be confirmed because the arbitration was not conducted per CIETAC’s own rules and that the award was against the public policy of the United States.

The New York Convention governs the enforcement of arbitral awards stemming from disputes that are commercial and not entirely between citizens of the United States. Article V of the convention provides the grounds for refusing to recognize or enforce a foreign arbitral award, which include the grounds raised by New Monarch. However, the party opposing enforcement of an arbitral award under the convention has the “heavy” burden of proving that one of the grounds applies.

New Monarch failed to meet that burden. It argued that CIETAC failed to follow its own rules by taking more than a year to render a decision despite the rules imposing a six-month deadline. The court noted that the rules permit the deadline to be extended if the panel receives permission from the president of the arbitration court, which the panel did in this case.

New Monarch also argued that the deterioration of U.S.-Chinese trade relations during the yearlong delay made it “impossible for an American company like New Monarch to get a fair shake before the Chinese-based CIETAC.” The court rejected this argument, noting that the public policy defense must be “construed very narrowly to encompass only those circumstances where enforcement would violate our most basic notions of morality and justice.” The court “boil[ed] down” this argument to an “assertion that the confirmation of a foreign arbitral award somehow hinges on the current state of trade relations between signatories to the New York Convention.” The court stated that such a finding would be contrary to the goals and purpose of the New York Convention, which is “to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.”

Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. Aug. 3, 2021).