Introduction
Background
Figueiredo and the New York Convention
Comment
In Figueiredo Ferraz e Engenharia de Projeto Ltda v Republic of Peru,(1) the US Court of Appeals for the Second Circuit recently relied on the forum non conveniens doctrine to dismiss an action to confirm a foreign arbitral award under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention). The Figueiredo decision is significant not only because it relied on forum non conveniens to dismiss a petition to confirm a foreign arbitral award, but also because the basis for the court's forum non conveniens dismissal was in an internal Peruvian law that forbids Peru from paying more than 3% of its annual budget to satisfy awards against it.
The Figueiredo matter concerned the enforcement of a $21 million arbitral award rendered against the Water for All programme, which was a Peruvian governmental entity.(2) The claimant in whose favour the award was rendered – Figueiredo Ferraz e Engenharia de Projeto Ltda – was also a Peruvian registered entity. Accordingly, the award was effectively a domestic Peruvian award and not an international arbitration award, which figured prominently in the Second Circuit's decision that US public policy required the dismissal of the action on the grounds of forum non conveniens, a US procedural doctrine that permits courts to dismiss actions over which they have jurisdiction, but that should be heard elsewhere.
The underlying dispute arose from an engineering consulting agreement between the parties, pursuant to which Figueiredo was to provide Water for All with studies on Peruvian water and sewage services. Figueiredo commenced arbitration against Water for All in Peru, alleging that it had failed to pay Figueiredo the fees agreed upon in the consulting agreement. The arbitral tribunal agreed with Figueiredo and awarded it $21 million.
Following the tribunal's issuance of the award, Water for All moved to vacate it in the Peruvian courts. The Peruvian court denied that challenge and ruled that the award was valid. In light of that ruling, Water for All began to make payments in satisfaction of the award, but relied on a Peruvian statute – which limits the amount of money that governmental entities can pay to satisfy a judgment to 3% of their annual budget – to pay less than the full amount of the award.
Having received only $1.4 million, or approximately 6% of the total liability, Figueiredo petitioned in New York to confirm the entire award. Peru responded by moving to dismiss the petition for forum non conveniens.
In considering Peru's forum non conveniens arguments, the Second Circuit noted that Peru's arguments concerning internal Peruvian law favoured the dismissal of Figueiredo's petition.(3) The Second Circuit held that, because of the fundamentally Peruvian nature of the award, the public interest factor of permitting Peru to apply its cap statute to the disbursement of its funds to satisfy the award tipped the forum non conveniens balance decisively against the exercise of jurisdiction in the United States.(4)
Figueiredo and the New York Convention
The Second Circuit first employed the forum non conveniens doctrine to dismiss a petition to confirm an arbitral award subject to the New York Convention in Monegasque de Reassurances SAM v Nak Naftogaz of Ukraine (Monde Re).(5) The Monde Re decision has remained controversial because forum non conveniens is not a ground listed in Article V of the New York Convention for refusing to confirm a foreign arbitral award. Monde Re therefore provoked a fair amount of negative commentary, and, indeed, the dissent in Figueiredo to argue that forum non conveniens is not a valid ground for dismissing a petition to confirm an award governed by the New York Convention.
However, in Figueiredo the Second Circuit held that the New York Convention permits courts of signatory states to dismiss confirmation petitions for procedural reasons, and that forum non conveniens is a matter of procedure (and not of substantive law) in the United States. Accordingly, the Second Circuit determined that forum non conveniens is a valid ground for refusing to confirm foreign awards, because it is a procedural rule that applies equally to domestic awards, which therefore complies with the New York Convention's prohibition against imposing requirements for foreign awards that are more onerous than those for domestic awards.(6)
The Figueiredo decision is sure to generate a good deal of discussion, not only for following the Monde Re precedent, but also for relying on an internal Peruvian law to do so. Practitioners should therefore follow Figueiredo's subsequent treatment to determine the permissible grounds for dismissing petitions to confirm foreign arbitral awards.
For further information on this topic please contact JP Duffy, Rana Bahri or David Wenger at DLA Piper by telephone (+1 212 335 4500), fax (+1 212 335 4501) or email ([email protected], [email protected] or [email protected]).
Endnotes
(1) 2001 WL 6188497 (2d Cir December 14 2011).