By Deborah Slattery-Pereira

In August 2024, the 11^th Circuit addressed the role of U.S. Courts in recognizing non-domestic awards when one of the parties alleged that corruption tainted the contract.  This case involved a breach of contract dispute between Commodities & Minerals Enterprise, Ltd. (“CME”), a commodities intermediary trader under the laws of the British Virgin Islands, and CVG Ferrominera Orinoco, C.A. (“FMO”), a Venezuelan state-owned mining entity.

Allegations of corruption in international arbitration concern public policy.  In arbitration proceedings, parties do not allege corruption as a criminal offense but as a defense to annul consent to a contract.  More precisely, in commercial disputes, respondents argue that corruption voids the contract, canceling any breach-related damages that claimants seek under that agreement.

In Commodities & Minerals Enterprise, Ltd. v. CVG Ferrominera Orinoco C.A., FMO contracted to supply iron ore to CME.  CME claimed that FMO did not fulfill its contractual obligations.  Pursuant to their arbitration agreement, CME started a seated arbitration dispute in Miami, Florida, under the substantive general maritime law of the United States.  In response, FMO argued that corruption voided the contract, referring to CME’s bribery in obtaining the contract and further argued that bribery tainted its consent.  The arbitrators, however, found the contract valid and awarded over $187 million in damages to CME.  CME sought confirmation of the award in the United States under the New York Convention.

The 11^th Circuit confirmed the award, stating that the New York Convention applies directly to international arbitrations, including those seated in the United States.  The court reasoned that “the award arose out of a commercial relationship among parties which are domiciled in foreign countries,” and the seat of the arbitration was in the United States.  The court found that the United States is the primary jurisdiction under the New York Convention, thereby, its procedural domestic law applies to the arbitration, specifically the Federal Arbitration Act (“FAA”).

The 11^th Circuit outlined two paths for a party challenging an international award rendered in the United States.  First, a party can move to vacate the award, pursuant to Chapter 1 of the FAA, within 3 months from the date the arbitral tribunal rendered the award.  The court adopted the Supreme Court’s decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, reasoning that “the New York Convention does not prohibit the application of domestic law addressing the enforcement of arbitration agreements.”

Second, a party can assert the grounds for non-recognition under the New York Convention.  The court reaffirmed its recent decision in Corporación AIC, SA v. Hidroélectrica Santa Rita S.A.  The court stated that, although a party cannot argue public policy to vacate an award under the FAA, a party can assert corruption as a public policy defense in opposing confirmation under Article V(2)(b) of the New York Convention.

However, the 11^th Circuit did not agree with FMO’s public policy defense on its merits.  The court reasoned that even if FMO could invoke public policy as a defense to the confirmation of the award, the arbitrators had already decided the issue of corruption in the underlying agreement.  The court stated that FMO’s argument failed on its merits because it only attacked the contract but not the award itself.  The court emphasized that “[a] court is bound by the arbitrator’s findings and conclusions even when it is convinced that the arbitrator committed serious error.”

The 11^th Circuit concluded that public policy is a narrow defense and refused to review the arbitrator’s decision regarding the alleged corruption in the contract.  The court followed a decision involving the same parties from the 2^nd Circuit, holding that an Article V(2)(b) public policy defense applies only when the enforcement award itself violates basic notions of morality and justice.  Similarly, the court adopted a decision from the 5^th Circuit, stating an award cannot have enforcement denied under the public policy defense if that defense focuses solely on the merits of the underlying award.

“Allegations of corruption in international arbitration concern public policy.” 

Deborah Slattery-Pereira

The 11^th Circuit opinion aligns with the Supreme Court’s arbitration-friendly approach.  In Prima Paint Corp. v. Flood & Conklin Mfg. Co., the Supreme Court held that “arbitration clause … are ‘separable’ from the contracts in which they are embedded, and that, where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud.”  Likewise, in United Paperworkers v. Misco, Inc.,the Court found that allegations of corruption in the contract do not justify judicial interference with the arbitrators’ role.  The Supreme Court emphasized that courts should not enforce arbitral awards only if the parties procured the arbitrators’ decisions through fraud or the arbitrators’ dishonesty.

Corruption remains a key issue in international arbitration, as it touches on the balance of power between courts and arbitrators and the application of public policy defenses to enforcement.  According to the doctrine of separability, the arbitration agreement is an independent contract, separate from the underlying contract of which it is a part.  Thus, even if corruption voided the underlying contract, the arbitral tribunal’s jurisdiction remains preserved in the arbitration agreement.  Considering the separability doctrine, U.S. courts will recognize international awards independently of defects found in the contract.

Nonetheless, no unanimity exists on how national courts react to public policy defenses as grounds to deny recognition of a non-domestic award.  Parties should consider this strategically when deciding whether a court will enforce an international award.  U.K. Courts have adopted a narrow view of public policy defense, similar to that of US case law.  The Court of Appeals of England and Wales held that “there is nothing which offends English public policy if an arbitral tribunal enforces a contract which does not offend the domestic public policy under either the proper law of the contract or its curial law, even if English domestic public policy might have taken a different view.”  Other jurisdictions have a more interventionist approach.  The French Cour de Cassation held that French courts have a broader authority to review the implications of public policy violations when enforcing an international award within the French legal order.  These different approaches highlight the need for a careful consideration when determining arbitral venues.