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Silence Has a Price
DC Court Holds Refusal to Abide by International Arbitration Without Justification
Anecdotal evidence indicates that the vast majority of international arbitration awards are paid voluntarily. For example, a 2008 study conducted by PricewaterhouseCoopers in conjunction with the School of International Arbitration, Queen Mary, University of London entitled “Corporate Choices in International Arbitration: An Industry Approach” found that the losing party in international arbitrations honored the award in full in approximately 90 percent of cases. But what of the small percentage of awards that are not honored voluntarily? As the recent decision of Concesionaria Dominicana de Autopistas y Carretereas, S.A. v. Dominican State, 2013 WL 646475 (D.D.C) demonstrates, a party who ignores an international arbitration award does so at its peril because it may be found liable not only for the amount of the confirmed award but also additional damages in the form of attorneys’ fees.
It is the general rule that the Federal Arbitration Act “does not provide for attorney’s fees to a party who is successful in confirming an arbitration award in federal court.” Matter of Arbitration Between Trans Chem. Ltd. and China Nat’l Mach. Import & Export Corp., 978 F. Supp. 266, 311 (S.D. Tex. 1997), aff’d sub nom. Trans Chem. Ltd. v. China Nat. Mach. Imp. & Exp. Corp., 161 F.3d 314 (5th Cir. 1998). Like most general rules, however, there is an exception. When confirming a domestic arbitration award, courts have long used their inherent equitable powers to award attorneys’ fees when “the opponent’s reasons for challenging the award are ‘without merit,’ ‘without justification,’ or legally frivolous,’” i.e., brought in bad faith to harass rather than to win. Id. (citing, inter alia, Executone Info. Sys. v. Davis, 26 F.3d 1314, 1331 (5th Cir. 1994)); see also Amalgamated Meat Cutters & Butchers Workmen of N. Am. AFL-CIO, Local Union 540 v. Great W. Food Co., 712 F.2d 122, 125 (5th Cir. 1983). And in fact, “[a]s applied to suits for the confirmation and enforcement of arbitration awards, . . . when a challenger refuses to abide by an arbitrator’s decision without justification, attorney’s fees and costs may properly be awarded.” Int’l Chem. Workers Union (AFL-CIO), Local 227 v. BASF Wyandotte Corp., 774 F.2d 43, 47 (2d Cir. 1985).
In 2011, the Ninth Circuit in In the Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Def. Sys., 665 F.3d 1091 (9th Cir. 2011), using its inherent equitable powers, extended the award of attorneys’ fees to the confirmation of an international arbitration award. Relying on Ministry of Def. & Support, the United States District Court of the District of Columbia in Concesionaria Dominicana de Autopistas y Carretereas, S.A. v. Dominican State not only joined the Ninth Circuit in holding that fees are recoverable when seeking confirmation of an international arbitration award, but also awarded the sum of $324,932.76 in attorneys’ fees and costs. Concesionaria, 2013 WL 646475 at *2-3 (D.D.C. Feb. 22, 2013).
In Concesionaria, the underlying arbitration award had been issued in January 2012; a subsequent addendum issued in May 2012. Id. at *2. In June 2012, Concesionaria made several attempts to secure assurances from the Dominican Republic that it would honor the award. Id. Although the Dominican Republic acknowledged receipt of the requests, it failed to substantially respond. Furthermore, once the confirmation proceedings began, the Dominican Republic refused to participate in the confirmation proceedings, resulting in the entry of a default judgment. Id. The Court condemned that behavior, saying, “[simply put, the Dominican Republic has ignored CODACSA’s arbitral award, and the Court finds that this inaction in inherently unjustified and in bad faith.” Id.
Consequently, the Court justified its award of attorneys’ fees and costs, noting “at first blush, $324,932.76 in fees and costs seems an exorbitant amount to spend on a relatively perfunctory proceeding to confirm an arbitration award . . .. Nevertheless, the Court has conducted an independent review of CODACSA’s submissions and has satisfied itself that the scope of CODACSA’s request is fair and reasonable, particularly given the complexity of the issues involved in this case and the international implications of CODACSA’s arbitral award.” Id. at 3.
Concesionaria not only demonstrates that courts are increasingly prepared to make the losing party pay the fees incurred by the prevailing party in a confirmation proceeding, but also confirms that the fees to be awarded, if properly documented, can be substantial. Parties who consider initiating a meritless challenge to an award, or who wish to ignore an arbitral award, should heed the Court’s warning: you may be penalized for your failure to voluntarily pay the award.
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