One of the larger waves crashing on the shores of international arbitration as the result of the Restatement (Third) of the Law of International Arbitration is the position — clearly restating existing law — that the grounds stated in Article V of the New York Convention for refusal of recognition of an award should be the exclusive grounds for U.S. judicial annulment of an award made in the U.S. — notably to the exclusion of the doctrine of manifest disregard of the law, and, for that matter, all of the grounds in FAA Section 10. (This is Section 4-11 of the Restatement, Council Draft No. 3, approved by the American Law Institute on December 23, 2011).

Professor George Bermann in a 2011 article provided the general outline of the argument in favor of applying the Convention grounds for refusal of recognition and enforcement as the exclusive grounds for annulment of a Convention award made in the United States (“Domesticating” the New York Convention: The Impact of the Federal Arbitration Act, 2 J. Disp. Settlement, no. 2, 317-32  (2011)): that the United States in ratifying the Convention elected to treat as awards governed by the Convention those awards made in the United States but involving some substantial relationship with a foreign State, that in Convention terms such awards are “not considered as domestic” and therefore should be considered as “foreign,” or as if they were “foreign”; and therefore annulment proceedings in U.S. Courts with regard to such awards should proceed, analytically, as if they were enforcement proceedings with regard to foreign awards, i.e. exclusively according to the grounds in the Convention for refusal of recognition and enforcement.

Recently, this position seems to have gained some momentum in federal courts in America’s heartland. In March, we had the decision of the U.S. Seventh Circuit Court of Appeals in Johnson Controls, Inc. v. Edman Controls, Inc., 712 F.3d 1021, authored by Circuit Judge Diane Wood (an ALI Council member). Without citing the Restatement but with citation to Professor Bermann’s 2011 article, Judge Wood observed in dictum inJohnson Controls:

“Chapters 2 and 3 of the FAA state that a Convention award may be vacated only on the grounds specified in the applicable Convention. … This could be important in some cases, because the Convention grounds for vacatur are slightly different from those in Chapter 1 of the FAA…. It is not clear whether a party may bring an action under Chapter 1 to vacate an award issued by an arbitrator in a U.S. jurisdiction, but governed by the Convention.  If it made any difference to our case, we would need to decide whether the district court erred by allowing this action to proceed under Chapter 1 of the FAA, or if the party who might have been advantaged by analysis under the proper Convention might have waived its arguments.“

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Tags: Convention award, Law of International Arbitration, New York Convention