Arbitration Enforcement and Consent

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This Term, the Supreme Court will hear a case that could have profound ramifications for international arbitration: CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd.  The petitioners are seeking to enforce an arbitration award they won against a state-owned company in India.  The district court enforced the award, relying on the New York Convention and the exception for arbitration enforcement in the Foreign Sovereign Immunities Act (FSIA).  The Ninth Circuit reversed on the ground that the state-owned company lacked sufficient “minimum contacts” with the United States.  The Supreme Court granted review to determine what role minimum contacts should play in arbitration enforcement.

Our firm recently filed an amicus brief supporting the petitioners on behalf of Mark B. Feldman, the primary drafter of the FSIA’s arbitration exception.  That brief urges that neither the statute nor the Constitution requires minimum contacts when a party seeks to enforce an award under the New York Convention.  Congress enacted the arbitration exception based on principles of consent, not minimum contacts:  When a party agrees to arbitrate in a New York Convention state, enforcement in other Convention states is part of the agreed-upon dispute resolution process.  The party’s consent not only waives sovereign immunity but also satisfies any due process limitations on personal jurisdiction.

Rethinking Minimum Contacts Under the New York Convention

The New York Convention plays a critical role in international arbitration by requiring signatory states to enforce arbitral awards rendered in other signatory states subject only to narrow exceptions.  The United States has traditionally taken a broad view of that obligation, consistent with its pro-arbitration policy.  In recent years, however, creditors seeking to enforce foreign awards in United States courts have often encountered a new obstacle: objections that the court lacks personal jurisdiction over the award debtor.  As a result, many enforcement cases have detoured into disputes over whether the award debtor or its property has sufficient connections to the United States to support jurisdiction — an inquiry that is common in commercial litigation against foreign defendants but fits poorly with the New York Convention’s mandate of enforcement.

Last year, in Mallory v. Norfolk Southern Railway Co. (2023), the Supreme Court issued an important decision on personal jurisdiction that — despite having nothing to do with arbitration enforcement — could have a major impact on how courts approach personal jurisdiction in the arbitration context.  Mallory involved a Pennsylvania statute that required out-of-state companies to consent to jurisdiction as a condition of registering to do business in the state.  The defendant argued that the statute violated due process by subjecting it to jurisdiction without the “minimum contacts” required for specific jurisdiction.  The Supreme Court disagreed, noting that the statute relied on principles of consent rather than minimum contacts and that the two grounds for jurisdiction “sit comfortably side by side.”  Although several Justices disagreed over whether Pennsylvania’s statute was a valid basis for finding consent, there was broad consensus that consent is a proper ground for personal jurisdiction.

Mallory suggests a renewed focus on consent as a basis for personal jurisdiction.  That basis is nowhere more important than in arbitration — a process that rests fundamentally on party consent.  Mallory invites a reexamination of the role of personal jurisdiction in arbitration enforcement with a greater emphasis on principles of consent.

Consent in International Arbitration

Consent plays a foundational role in arbitration.  The whole premise of arbitration is that the parties have agreed to resolve a dispute before a tribunal that would otherwise lack jurisdiction.  By agreeing to arbitrate, a party of course consents to the jurisdiction of the arbitral tribunal itself.  But disputes often arise over whether that consent extends to the award enforcement proceedings that follow if the losing party refuses to pay.  Courts have found consent to those enforcement proceedings from a variety of sources.

First, parties may consent to enforcement in the arbitration agreement itself.  Many arbitration clauses include language that expressly authorizes enforcement proceedings.  Contractual consent can provide a basis for personal jurisdiction.

Second, parties may consent to enforcement by agreeing to arbitrate under rules that provide for enforcement.  Many arbitral rules expressly provide that an agreement to arbitrate under the rules includes a consent to enforcement.  Where a party agrees to arbitrate under such rules, the agreement incorporates the consent in the rules by reference.

Third, some courts have found consent to enforcement from an agreement to arbitrate under a regime where a treaty or other legal instrument makes enforcement proceedings the natural consequence of refusing to pay.  As noted above, the New York Convention expressly requires signatory states to enforce awards rendered in other signatory states.  When a party agrees to arbitrate in a Convention state, the party should understand that an award may be enforced in any other Convention state.  A party that signs a forum selection clause that designates a particular district court to hear disputes necessarily consents to any proceedings on appeal as well.  On the same reasoning, arbitration enforcement is the natural next step in the agreed-upon dispute resolution process when a party fails to pay an award.

Consent Under the Foreign Sovereign Immunities Act

Consent plays a dual role in arbitration enforcement against foreign sovereigns and state-owned entities:  The same consent principles that bear on personal jurisdiction are also relevant to whether the respondent waived sovereign immunity.  When Congress enacted the FSIA in 1976, it included an exception to immunity for express or implied waivers.  The committee reports show that Congress expected that waiver provision to apply when a foreign state agreed to arbitrate a dispute.  The statute also provides that personal jurisdiction over a foreign state exists whenever an immunity exception applies and the state is properly served.  The committee reports explain that Congress considered due process principles when enacting that provision and determined that the immunity exceptions were properly tailored to comply with due process, based on either minimum contacts or consent.  Congress’s rationale was clear:  A state that agrees to arbitrate a dispute consents to jurisdiction for enforcement, satisfying both the waiver exception to sovereign immunity and the due process limitations on personal jurisdiction.

Unfortunately, lower courts struggled to apply the waiver exception to arbitration cases.  Congress responded in 1988 by enacting a new immunity exception that applies specifically to arbitration.  In congressional hearings, the amendment’s principal drafter, Mark B. Feldman, explained that the exception satisfies due process for the same reason as the original statute’s waiver exception: consent.

Restoring the Central Role of Consent

In the decades since Congress enacted the arbitration exception, consent has not played the role that Congress envisioned.  In investor-state cases, courts have fixated on whether the foreign state respondent is a “person” within the meaning of the Due Process Clause.  Whatever the answer to that question, it is not the theory Congress relied on when it enacted the FSIA or its arbitration exception.  The whole line of “person” cases stems from dicta in a Supreme Court case that post-dates the arbitration exception by four years.  Congress enacted the FSIA and its arbitration exception on the understanding that they complied with due process, not the understanding that certain sovereign respondents lacked due process rights.

Other courts have simply overlooked the role of consent.  In Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain (2002), for example, the Ninth Circuit ruled that the New York Convention could not trump the Constitution’s Due Process Clause, so a petitioner seeking to enforce an award had to show that either the respondent or its property had sufficient contacts with the forum.  That holding ignores that consent, too, is a valid basis for jurisdiction.  The Ninth Circuit committed the same error that led to reversal in Mallory: treating minimum contacts as the sine qua non of personal jurisdiction, when in reality minimum contacts and consent “sit comfortably side by side.”

CC/Devas gives the Supreme Court an opportunity to build on its holding in Mallory and refocus the meandering arbitration enforcement case law on principles of consent — the principles Congress relied on when it enacted the FSIA and its arbitration exception many years ago.