United States legal framework
Interest on the award
In any dispute resolution process, the war does not necessarily end upon receipt of an award or judgment. Where a losing party refuses to honour the award, the winning party will need to go through the legal process of recognition and enforcement of the award in all jurisdictions where the losing party has assets. In doing so, the winning party can incur not-insignificant costs. An important question for parties seeking enforcement is whether a court will grant a winning party their lawyer's fees, interest on the award and costs of court. In the United States, the answer may well be "yes" on all three counts, as illustrated in the recent case of Gulf Haulage Heavy Lift Co v Swanberg International.
In the United States, confirmation of an arbitration award that was issued in another country is nearly always governed by either the New York Convention or its close cousin, the Panama Convention. These international conventions generally oblige a signatory country to enforce foreign arbitration awards issued within the territory of another signatory country, unless the party opposing confirmation proves any of the exceptions to enforcement specified in the relevant convention.
The New York and Panama Conventions do not address specifically whether an enforcing court should grant anything else to a prevailing party, such as its costs in seeking confirmation and enforcement or interest on the award. However, the conventions do not exclude the possibility. In fact, the New York Convention provides at article III that signatory countries must generally enforce a foreign arbitration award "in accordance with the rules of procedure of the territory where the award is relied upon". Similarly, the Panama Convention provides at article 4 that execution on an award "may be ordered in the same manner as that of decisions handed down by national or foreign ordinary courts, in accordance with the procedural laws of the country where it is to be executed". The conventions leave questions of ancillary compensation, such as costs and interest, up to the laws of the country where enforcement is sought.
In the United States, the New York and Panama Conventions are implemented as federal law through the Federal Arbitrations Act. The act does not expressly address whether and when courts confirming foreign arbitration awards can grant ancillary compensation. Given this legislative silence, it has fallen on the courts to decide these questions. As shown below, a growing judicial consensus recognises that ancillary compensation for prevailing parties is often available.
United States courts usually decline requests for lawyers' fees in confirmation actions, even when the winning party successfully obtains confirmation of the foreign arbitration award. In doing so, courts frequently note the "American rule", whereby even prevailing parties must bear their own lawyers' fees, in the absence of express authority in a contract or statute.
That said, a growing body of US case law holds that courts have the discretion to award lawyers' fees to the prevailing party, at least when the losing party has opposed confirmation in bad faith, vexatiously, wantonly, or for oppressive reasons. For example, a federal district court in New York ordered a losing party to pay lawyers' fees after it failed to provide any briefing or evidence in support of its opposition. A district court in San Diego did the same, granting lawyers' fees against a private company whose opposition it characterised as "weak" and "dilatory". Sovereign states are not immune to adverse fee awards, either. A court in the District of Columbia awarded lawyers' fees against a sovereign state respondent that had, in the court's words, "refused to participate" in the court proceeding in a display of "inaction [that] is inherently unjustified and in bad faith."
To this line of cases, one can now add Gulf Haulage Heavy Lift Co v Swanberg International, Ltd [4:18-CV-04392 (SD Tex 12 November 2020)]. In this case, it was argued that the award creditor was entitled to its lawyers' fees in seeking confirmation of a Saudi arbitral award. The losing party's case was construed against confirmation as being not only in bad faith, but also largely irrelevant to the recognised exceptions to confirmation under the New York Convention. The court agreed. Thus, in an apparent first for a federal court sitting in Texas, the court granted lawyers' fees to a winning party that successfully obtained confirmation of its foreign award pursuant to the New York Convention.
What is the takeaway? Although somewhat rare, an award of lawyers' fees is possible in a US confirmation action, particularly if the court concludes that the losing party's opposition to confirmation is legally groundless or in bad faith.
A winning party may also wish to recover interest on the unpaid arbitration award. Such a recovery may not always be possible (for example, if the question of post-award interest was specifically considered but denied by the arbitration tribunal). But if post-award interest was not decided in the award, then a US court may well have the power to decide the issue.
Assuming the court has the requisite power, there are two types of post-award interest that a US court can award, with different rules for determining the available interest rate to be applied.
Post-award, pre-judgment interest – that is, interest accruing between the date of the arbitration award and the date of the court judgment confirming the award – is considered an equitable remedy. Federal courts sometimes determine the equitable rate of interest by reference to the pre-judgment rate that would ordinarily apply under the laws of the particular US state where the court sits. This is not a hard and fast rule, however, and the court may determine that a higher or lower rate of interest – or even no interest at all – should be awarded in a given case.
In contrast, the availability and amount of post-judgment interest are determined in accordance with a federal statute that governs money judgments (ie, 28 US Code section 1961). This statute essentially mandates the award of post-judgment interest, with the interest rate to be determined based on the going rate for the US one-year treasury bond.
Although both types of post-award interest are usually available, a surprising number of winning parties fail to request either when seeking confirmation of an arbitration award.
In the Gulf Haulage example, the court was invited to award both types of post-award interest. The court agreed, granting in the final judgment nearly $1 million dollars in additional compensation.
While often overlooked, the prevailing party should also not forget the possibility of recovering court costs. In many cases, these costs can be comparatively minor, possibly no more than a few hundred dollars for the case filing fee. In confirming a foreign arbitration award, however, the costs of court may well be higher. For instance, interpreters may be needed, and the costs of engaging them may be recoverable costs. Copying and printing costs can also be voluminous and, if properly documented, they too may be recoverable.
Whether such costs are large or small, the client is out of pocket. Therefore, when preparing a bill of costs, it can be well worth the small effort to consult the list of potentially recoverable costs found in 28 US Code section 1920.
Obtaining an award is often not the end of the process. The end game – getting the client paid – is always the priority for experienced arbitration counsel. As in any legal process, there are tactics to achieving the best enforcement outcome for a client and part of that is the costs position. In seeking enforcement of a foreign arbitration award in the United States (and elsewhere), award creditors should consider seeking ancillary compensation beyond that granted on the face of the award to cover the costs of enforcement and the time lost in receiving payment on the award.
In law, as in life, it certainly pays to ask.
For further information on this topic please contact C Mark Baker or Denton Nichols at Norton Rose Fulbright by telephone (+1 713 651 7708) or email ([email protected] or [email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.