The FSIA and Agreements to Aribtrate

The enforcement of foreign arbitral awards has led to contested questions about personal jurisdiction, about the scope ofthe arbitration exception to the Foreign Sovereign Immunities Act (FSIA), and about the relationship between that exception and the New York Convention. A new case from the D.C. Circuit, Global Voice v. Republic of Guinea considers the scope of the arbitration exception, and which law governs whether a sovereign is a party to an arbitration agreement such that the exception applies.

Background

Global Voice (Global Voice) is a Seychellois financial services and telecommunications company. It entered into an agreement with the Postal and Telecommunications Regulatory Authority of Guinea (PTRA), a public entity established under Guinean law. Under the agreement, Global Voice was to assist the PTRA in creating a “regulatory framework” for telecommunications in Guinea and was also to provide tools to the State of Guinea that would allow the government to track and bill for telecommunications traffic.  The relationship between Global Voice and PTRA went downhill, and PTRA stopped paying Global Voice’s invoices.

Pursuant to the agreement, Global Voice initiated arbitration against the PTRA and Guinea in Paris. Both Guinea and the PTRA argued that the arbitral tribunal lacked jurisdiction over Guinea because it was not a party to the agreement.  Global Voice responded that Guinea was a party because Guinea’s Minister of Telecommunications and New Information Technologies signed the agreement.  Global Voice also argued that in any event Guinea was a “beneficiary” to the agreement and thus bound by it.  The PTRA and Guinea argued that an official from Guinea signed it only as a “as [a] supervising authority” and “did not consent to being a party.” The arbitral tribunal agreed with Global Voice on the question of jurisdiction and also on the merits, awarding it more than $21 million in damages.

Global Voice then sued Guinea (not PTRA) in federal court in the District of Columbia, seeking both to confirm the arbitral award and to recognize a French court judgment that had confirmed the arbitral award and entered judgment against the PTRA and Guinea. The district court dismissed both claims, holding that Guinea is immune from suit under the FSIA and that the court thus lacks subject matter jurisdiction.

The appellate court began its analysis by correctly distinguishing between Global Voice’s claim to confirm the arbitral award and its claim to recognize the French judgment.

Confirmation of the Arbitral Award

The question before the court was not whether to confirm the arbitral award, but whether it had subject matter jurisdiction to decide whether to confirm the arbitral award. That question is governed by the arbitration provision of the FSIA, which provides in relevant part for an exception to immunity (and a grant of subject matter jurisdiction) if an “action is brought … to enforce an [arbitration] agreement made by the foreign state … or to confirm an award made pursuant to such an agreement.”  The district court held the arbitration exception inapplicable because Guinea was not a party to the agreement between Global Voice and PTRA.

The appellate court vacated the dismissal of this claim and remanded, directing the district court to determine which law governs the enforcement of the agreement and then to determine whether, under that law, Guinea is required to arbitrate based on the agreement (whether because Guinea is a party or because it is non-party beneficiary bound by the arbitration agreement).  The court based its decision on TIG Insurance v. Republic of Argentina, which reasoned that the arbitration exception potentially applies to a foreign state that was not a party to agreement, if the law governing the enforcement of that agreement legally binds the foreign sovereign to arbitrate.

The court’s reasoning in Global Voice was succinct, and potentially open to misinterpretation.  The issue in TIG Insurance was whether an arbitration agreement was “made by” Argentina if Argentina was the successor-in-interest to the party that originally concluded the agreement. The court rejected Argentina’s argument that a foreign state only “makes” an agreement to arbitrate if it is the party that actually concludes the agreement. The court reasoned instead that the phrase “made by” in the FSIA was best interpreted as potentially including Argentina because “to ‘make’ in the context of making a contract or agreement is commonly understood to include later adoption of that agreement.”  But because the FSIA does not itself spell out principles of contract law, the court should first do a choice of law analysis and then apply the relevant law to decide whether Argentina was bound to arbitrate.

The issue in Global Voice was not about a successor-in-interest but instead about whether a foreign state could be bound to arbitrate an agreement that it did not sign – or at least that no one purported to sign on behalf of the foreign state. The Global Voice opinion reasoned that this issue, too, was governed by the law applicable to the enforcement of the contract. The potential for misinterpretation arises because the Global Voice court did not make clear that the overarching law that governs the issue is the arbitration exception of the FSIA.  In other words, at least in my view, the key question is the meaning of the statutory phrase “made by,” and whether that phrase might include a foreign state that was merely a beneficiary of a contract concluded by others.  That step is clear in TIG Insurance which framed its overall analysis as an interpretation of the FSIA (specifically, the words “made by”) and which concluded that the phrase could include successors-in-interest based on what the word “make” is commonly understood to mean. The same is presumably true of beneficiaries who did not sign an agreement at all, but the correct question is whether agreements are “commonly understood” in this way, so that the arbitration exception can be interpreted to encompass it. One might read Global Voiceas saying instead that the scope of the arbitration exception is always governed by the law governing the original agreement to arbitrate.  That is not correct, in my view. Courts should begin with the language and structure of the FSIA, even if in some cases the arbitration exception is best interpreted with reference to the law governing the original agreement.

The point is illustrated by another part of the Global Voice opinion, in which the court notes that on remand the district court may consider whether the PTRA and Guinea are “one and the same for purposes of establishing subject matter jurisdiction under the arbitration or waiver exceptions.”  The choice of law question arises here as well: is it the law of Guinea that determines whether they are one and the same?  The Fourth Circuit considered an analogous question under the commercial activity exception, in a case in which Iraq argued that Iraqi law should govern. The court reasoned that “it is the FSIA, and not Iraqi law, that provides the framework for determining whether Iraq and IMOD are to be treated as “separate legal persons.”  The same is true here – even if the FSIA is at times best interpreted with reference to the law that governs the arbitration agreement itself.

Conclusion

The arbitration exception to the FSIA is getting a full workout in the federal courts, along with a related set of complex questions about choice of law, personal jurisdiction, the New York Convention and more. Courts should tread lightly and with great precision as they navigate these interesting and ever-expanding questions.