Recognizing Governments, Recognition of Arbitral Awards

Image by Pete Linforth from Pixabay

A company based in Barbados won an arbitral award against the Bolivarian Republic of Venezuela (“Venezuela”) and petitioned to have it recognized and enforced in federal court in the United States. Venezuela objected on the ground that the arbitral panel allowed the Maduro regime to replace the lawyers that represented Venezuela – even though Maduro was not at that time recognized by the United States as the legitimate government of Venezuela.  Judge Cobb for the District Court of the District of Columbia nevertheless granted the petition, rejecting the “public policy” exception to the New York Convention.  The appellate court affirmed in Venezuela US SRL v. Bolivarian Republic of Venezuela, but with a lengthy and digressive dissent from Judge Walker.  Some of the issues raised by the case are interesting, but Judge Walker’s strange dissent does little to clarify them. The district court was right to grant the petition.

Background

While the underlying arbitration against Venezuela was proceeding in 2019, elections were held and the National Assembly of Venezuela declared that its president, Juan Guaidó, was Interim President of the Republic.  The Maduro government disagreed and stayed in power.  U.S. President Donald Trump then recognized the Interim Government as the legitimate government of Venezuela and derecognized the Maduro regime. It appears that the Interim Government began instructing the lawyers in the arbitration until June 30, 2020, when new lawyers appeared to represent Venezuela, apparently at the direction of the Maduro regime.  The Interim Government (and the former lawyers) seem to have made no attempts to participate in the arbitration proceedings after that point.  In 2022, the petitioner won a large award.  The question is what effect the change of counsel should have on recognition and enforcement of the award in the United States.

Under the New York Convention, as codified by the Federal Arbitration Act, domestic courts must confirm foreign arbitral awards unless one of the Convention’s grounds for refusal of recognition is applicable. One such ground is the “public policy exception,” which applies when “[t]he recognition or enforcement of the award would be contrary to the public policy of [the enforcing] country.”

Penumbra and Other Weak Arguments

The gist of Venezuela’s argument is that recognizing and enforcing of the award would violate U.S. public policy because the U.S. Constitution gives the executive branch the exclusive power to recognize foreign governments, yet in the arbitration the Maduro regime acted as the government of Venezuela even though the United States had recognized the Interim Government instead.  No one seems to argue that granting the petition in this case would constitute an act of recognizing the Maduro government, or that the Interim Government would be hindered in performing its diplomatic functions if the award were enforced.

The argument, at least as advanced by the dissent, is more in the style of a penumbra.  The Constitution’s recognition power should “inform” five other public policy considerations:  the right to be heard, the right to adequate representation, the right to counsel, respect of foreign sovereigns, and the separation of powers.  These five policy concerns merit weighty considerations, to be sure, and an actual violation of the rights to be heard, to adequate representation, and to counsel might provide grounds to reject the petition – although under a different exception to the New York Convention, which as the panel opinion notes, provides a defense to recognition if a party receives inadequate notice “or was otherwise unable to present his case.”

In this case, however, it is hard to see how counsel was inadequate, or even that there was any conflict of interest between what the two competing regimes would want in the arbitration. In other words, presumably no government of Venezuela wants to face a $50 million arbitral award. Even Venezuela apparently disavowed reliance on arguments about inadequate representation, resting instead on the U.S. recognition power as constituting a “public policy” exception under the New York Convention – a concession in some tension with the dissenting opinion.

The Interim Government seems to have failed to even complain to the arbitral tribunal about the change in lawyers, and it made no further effort to participate in the arbitration itself, making it doubly hard to see the public policy problem here.  For his part, Judge Walker excuses the Interim Government’s failure to object by noting that “the legitimate Venezuelan government does not have unlimited resources at its disposal,” so we should not “demand that it continue intervening in every single arbitral proceeding worldwide.”

That reasoning cuts against the grain of basic principles of the adversary system.  In the U.S. system, we have no special procedural rules for under-resourced parties.  Poorer litigants can only afford overworked lawyers who miss deadlines and present weak arguments – well, in our system, that is just part of how it works.  We do not expect federal judges to come to their rescue with case-specific sympathy (and case-specific legal rules) for parties that do not have “unlimited resources.”  It also seems unfair to the private parties engaged in arbitration that they may invest their time and resources, only to be told that the judgment cannot be enforced against a losing party that could not be bothered to notify the tribunal of its objections.  And, of course, if Venezuela had won, the judgment would bind the losing party despite the change in counsel.  But such considerations are, apparently, an affront to the “dignity” of the Interim Government of Venezuela – at least according to the dissent.

Conclusion

Judge Walker also expressed concerns about separation of powers and judicial overreach, which in the posture of this case is strange. The political branches have expressed a clear, well-established policy in favor of enforcing arbitral awards, as the district court and the appellate panel made clear. Moreover, if the U.S. government believed that the enforcement of this particular award presented diplomatic, political, or policy problems, it could file a statement of interest and explain those problems to the court.  But the executive branch has not done so. Instead, Judge Walker seeks to insert the judiciary into foreign policy through his rambling opinion that skips from doctrine to doctrine, cobbling together an argument that unfortunately can only be seen as a political.