March 28 2013
In a significant development for international litigants and practitioners, a New York court recently enforced as a court judgment a $25 million award that had been issued by a tribunal from the Bahrain Chamber for Dispute Resolution (BCDR-AAA). The decision in Standard Chartered Bank v Ahmad Hamad Al Gosaibi and Brothers Company (653506/2011, 2012 WL 6554881 (NY Sup Ct December 12 2012), not only highlights New York's status as a friendly jurisdiction for parties seeking to use foreign arbitral awards or money judgments to collect assets in the United States, but also provides a preview of issues that are likely to confront a growing number of courts in countries around the world, as an increasing number of disputes are adjudicated by quasi-judicial bodies like the Bahraini tribunal.
The case involved an unauthorised foreign currency exchange transaction that a manager at Saudi bank Ahmad Hamad Al Gosaibi and Brothers Company (AHAB) had initiated with Standard Chartered in Bahrain. To execute his scheme, the AHAB manager presented forged documents to Standard Chartered that induced Standard Chartered to transfer $25 million. The AHAB manager then diverted the stolen funds to himself.
In 2010 Standard Chartered commenced proceedings against AHAB and over 20 of its partners in Bahrain before the BCDR-AAA. While there was no arbitration agreement that required the parties to arbitrate disputes before the BCDR-AAA, the amount in dispute and its international nature made the action fall within the jurisdiction of the BCDR-AAA pursuant to a mandatory Bahraini law.
In 2009 Bahrain created the BCDR-AAA in partnership with the American Arbitration Association to provide a regional centre in the Gulf for arbitrating international commercial disputes. The BCDR-AAA has been successful in accomplishing its mission, and to date has resolved 71 disputes collectively worth nearly Bd500 million – including 24 cases in 2012 worth a combined estimated value of Bd79 million (approximately $208 million). According to the BCDR-AAA, the majority of its 2012 caseload arose from the financial sector and the parties were typically either banks or insurance companies from Bahrain and abroad. Consistent with its mission to become a preferred forum for resolution of commercial disputes in the Middle East and North Africa region, the BCDR-AAA has recently indicated its intent to focus on disputes involving Islamic finance.
The BCDR-AAA is one of a number of regional arbitration centres in the Gulf that parties may voluntarily select to administer international commercial arbitrations. However, unlike other regional centres, the BCDR-AAA also exercises mandatory jurisdiction over a range of commercial and financial actions pursuant to its initiating legislation. Specifically, the BCDR-AAA enjoys mandatory jurisdiction over any commercial claim brought in Bahrain that:
The tribunals hearing mandatory cases are referred to as 'mandatory tribunals', and various commentators have described matters before mandatory tribunals as 'statutory arbitration'. However, the structure and procedures of the mandatory tribunals may be more appropriately described as a combination of both international commercial arbitration and litigation. For example, whereas at least two of the three tribunal members must be Bahraini judges (akin to litigation), a non-lawyer may serve as the third member of a tribunal (as with arbitration). Additionally, parties can be required to adjudicate their disputes before the BCDR-AAA regardless of whether they agreed to the forum (similar to litigation), yet the available grounds for appealing an award by a mandatory tribunal are narrower than those available to litigants in Bahrain's traditional court system (akin to arbitration).
Following the BCDR-AAA's formation, some observers raised the question of whether awards issued by the BCDR-AAA in mandatory cases would be enforceable outside Bahrain as arbitration awards under the New York Convention or as court judgments. The decision of the New York court in Standard Chartered suggests that the latter will be the trend in the United States.
After it obtained an award in its favour from the mandatory BCDR-AAA tribunal, Standard Chartered initiated proceedings in New York to enforce the award as a foreign money court judgment under New York's version of the Uniform Foreign Money Judgment Act. The act is legislation which has been enacted in one form or another in all 50 US states and allows for the summary domestication of foreign money judgments issued by non-US courts.
Notably, Standard Chartered did not seek to characterise the award as one that would be subject to enforcement under the New York Convention, and AHAB apparently did not contest that position even though it argued that the BCDR-AAA proceedings were essentially compulsory arbitration. Accordingly, neither the parties nor the court addressed the applicability of the New York Convention to the award.
Ultimately, the New York trial court rejected AHAB's enforcement defences in their entirety and enforced the award as a foreign money judgment. In short, the New York court converted the BCDR-AAA award into a New York court judgment that could be readily enforced in any other US court.
The Standard Chartered decision is significant to international practitioners because it sheds light on how New York and US courts might approach the enforcement of awards from mandatory BCDR-AAA awards in the future, and provides authority for the position that such awards should be enforced as foreign money judgments under the Uniform Foreign Money Judgment Act regime, rather than as New York Convention awards.
Notably, however, the decision does not appear to foreclose the possibility of such awards being enforced as international arbitral awards under the New York Convention. Moreover, it should not affect the ability to enforce awards issued by consensual international arbitral tribunals convened under the BCDR-AAA rules as New York Convention awards.
For further information on this topic please contact Richard F Hans, JP Duffy or E Job Seese at DLA Piper by telephone (+1 212 335 4500), fax (+1 212 335 4501) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org).
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JP Duffy IV