Steven K. Davidson and Michael J. Baratz | Steptoe & Johnson LLP | February 9, 2016
Three Tips for Better Enforcement of Arbitral Awards
Congratulations—you won your arbitration but now the other side refuses to pay. Steptoe’s judgment enforcement practice is among the best in enforcing and collecting on awards and judgments. Enforcing an award can be difficult. But with a few changes to your dispute resolution provision, you can improve your chances (and speed) of recovery. Follow these three practical suggestions to reduce your headaches after a hard fought victory.
Three practical tips to improve your dispute resolution provision should you need to enforce an arbitral award:
- Consent to Personal Jurisdiction and Select a Forum for Enforcing an Award
Parties often include forum selection clauses as well as explicit consent to personal jurisdiction when they opt not to arbitrate. Yet, when parties select arbitration, they focus exclusively on the arbitration (rules, location, procedures, etc.) but often neglect to consider enforcing an award—typically failing to select a forum for converting the award into a judgment.
This omission can present real issues as some courts have required award-creditors to establish personal jurisdiction over the award-debtor to enforce the award. See, e.g., Frontera Res. Azer. Corp. v. State Oil Co. of Azerbaijan, 582 F.3d 393 (2d. Cir. 2009); First Inv. Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742 (5th Cir. 2012). Other courts have entertained forum non conveniens challenges. See, e.g., Monegasque Du Reassurances v. Nak Nafogaz of Ukraine, 311 F.3d 488 (2d Cir. 2002). Regardless of your view of these decisions, parties can control this issue through proactive drafting of dispute resolution clauses.
We suggest including provisions in your agreements that both consent to personal jurisdiction for enforcement of an arbitral award and select forums in which enforcement can proceed. There can be particular issues that arise in various jurisdictions and so you should consult with us or counsel before adopting boilerplate language. Such consent could materially streamline enforcement and eliminate procedural hurdles.
- Appoint Domestic Agents for Service of Process on Foreign Individuals or Entities
Relatedly, converting a commercial arbitral award into a judgment often requires commencing a plenary action—including service of process. More and more disputes involve international arbitration and when an award-debtor is “not within any judicial district of the United States,” service of process can be arduous. Whether through the Hague Convention on Service, letters rogatory, pursuant to a foreign country’s law, or other means, the process is fraught with peril and delay. These issues can become even more pronounced if the award-debtor is a foreign sovereign or an agent or instrumentality of a foreign sovereign. Here too, proactive drafting can streamline the process.
For private individuals or corporate entities in a foreign country, we recommend that dispute resolution provisions appoint an agent within the United States to accept service on behalf of the foreign award-debtor for purposes of enforcing an award. “[P]arties to a contract may agree in advance to the jurisdiction of a given court, to permit notice to be served by the opposing party, or even to waive notice altogether.” National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 315 (1964). The United States Court of Appeals for the Second Circuit found proper service of process where the dispute resolution provision specifically allowed service by mail on a party’s representative. Doctor’s Associates, Inc. v. Distajo, 107 F.3d 126, 136 (2d Cir. 1997). We recommend appointing the agent within the United States so that you will be able to serve process efficiently without resort to foreign methods—we have noted that issues can arise if a foreign agent is selected but that foreign country does not permit service in that way.
When it comes to serving process on foreign sovereigns and their agents and instrumentalities, the FSIA expressly authorizes parties to enter into a private arrangement. The Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1608, governs service of process on a foreign sovereign or its agents and instrumentalities and provides that service of process may be accomplished “in accordance with any special arrangement for service” between plaintiff and the foreign state and its agents or instrumentalities. Id. Successfully serving a foreign government can be difficult; a contractual provision provides a pragmatic approach.
- Setting Post-Judgment Interest Rate in Dispute Resolution Provision
Given today’s low interest rate environment, many post-judgment interest rates are below one percent. Indeed, the current federal post-judgment interest rate as of this writing is 0.33%. Even if the arbitral panel sets a decent post-award interest rate, some courts hold that the Federal Arbitration Act (FAA) requires application of the post-judgment statutory rate after an arbitral award is converted to a judgment. See Westinghouse Credit Corp. v. D’Urso, 371 F.3d 96, 100 (2d Cir. 2004); Tricon Energy Ltd. v. Vinmar Int’l, Ltd., 718 F.3d 448, 457 n.14 (5th Cir. 2013); Fid. Fed. Bank, FSB v. Durga Ma Corp., 387 F.3d 1021, 1024 (9th Cir. 2004); Parsons & Whittemore Ala. Mach. & Servs. Corp., 744 F.2d 1482, 1484 (11th Cir. 1984). (It should be noted, however, that ICSID awards are treated differently since the recognition of such awards are governed by separate treaty and statute in the US).
But these same courts also hold that private parties have…