On what grounds may an arbitral award be vacated? Notes on the en banc decision in Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A.

The Eleventh Circuit has issued a significant en banc opinion regarding the available grounds for vacatur of an arbitral award governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention or Convention) in cases where the arbitration is seated in the United States, or where United States law governs the conduct of the arbitration. 

In Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., No. 20-13039, 2023 WL 2922297, at *9 (11th Cir. Apr. 13, 2023), an en banc panel of the Eleventh Circuit reversed its longstanding precedent by holding that where an award is governed by the Convention and the arbitration was seated in the US, Chapter 1 of the Federal Arbitration Act (FAA) provides the grounds for vacatur rather than Section V of the Convention.

In the district court, Corporación AIC filed a petition to vacate an award issued in an arbitration seated in Miami regarding a failed construction project, claiming that the arbitral panel exceeded its powers.  The lower court denied the petition, holding that the challenge was unavailable because under established Eleventh Circuit precedent in Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1445-46 (11th Cir. 1998) and Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH, 921 F.3d 1291, 1301-02 (11th Cir. 2019), the grounds for vacatur of an award were governed by the New York Convention, and thus limited to those listed in Article V of the Convention.

An Eleventh Circuit panel initially affirmed, concluding that it was similarly bound by Industrial Risk and Inversiones.  The panel, however, noted that it was “dissatisfied with the conclusion that we cannot review the international arbitration award in this case on the exceeding powers ground because we think it is inconsistent with the thrust of [the Supreme Court’s ruling in] BG Group.”  Corporacion AIC, SA v. Hidroeléctrica Santa Rita S.A., 34 F.4th 1290, 1297 (11th Cir. May 27, 2022).

The panel’s key statements

The en banc panel’s subsequent opinion focused largely on a textual analysis of the New York Convention and the FAA.  The panel first observed that “neither Article V of the Convention nor § 207 of the FAA provides the grounds on which a court in the primary jurisdiction can vacate an arbitral award.”  Corporación AIC, 2023 WL 2922297, at *5. 

The panel further recalled the Supreme Court’s discussion in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637, 1645 (2020) that “the Convention requires courts to rely on domestic law to fill gaps; it does not set out a comprehensive regime that displaces domestic law.”  As a result, the Eleventh Circuit held that “the primary jurisdiction’s domestic law [ie, Chapter 1 of the FAA] acts as a gap-filler and provides the vacatur grounds for an arbitral award.”  Corporación AIC, 2023 WL 2922297, at *5.

The en banc panel further rejected Hidroeléctrica’s argument that applying domestic grounds to the vacatur of international arbitral awards would run counter to the New York Convention’s objective of standardizing the treatment of such awards.  The panel noted that although the argument had some appeal on policy grounds, it wrongly assumes that the New York Convention seeks to prescribe comprehensive standards which displace domestic law across the board.  As the panel observed, the New York Convention does not provide grounds for vacatur, and therefore the Convention could not have attempted to make uniform that which it does not address.

Eleventh Circuit now aligns with others

This important decision brings the Eleventh Circuit in line with the other circuits that have ruled on this issue.  As the en banc panel noted, the Eleventh Circuit’s prior precedent was in direct conflict with decisions of the Second, Third, Fifth, and Seventh Circuits, each of which had previously held that the grounds for vacatur in Chapter 1 of the FAA apply to awards governed by the New York Convention that were issued in arbitrations seated in the United States.

By resolving a circuit split, the Eleventh Circuit’s decision provides considerable clarity on the critical issue of what procedural mechanisms are available to litigants seeking to challenge international arbitration awards – a question that is central to the award enforcement matters frequently handled by DLA Piper’s Global Enforcement and Asset Recovery team.  Each of the circuits that has addressed this issue has now squarely held that the grounds for vacatur of an arbitration award that is rendered in the US and governed by the New York Convention are found in Chapter 1 of the FAA. 

Therefore, a party to a US-seated arbitration seeking to challenge an award in the US courts should look to Section 10 of the FAA for the statutory grounds to vacate the award, and/or to Article V of the New York Convention for the treaty-based grounds for non-recognition of the award.