Only 2 weeks into 2010 and I’m seeing a lot of positive movement on the street. The international markets are roaring back to life. Deal makers are picking up the phone again. And lawyers are being hired to put these deals together. Based on this snapshot view, I expect to see international transactions skyrocket as investor confidence and flexible credit terms return. While some may perceive this forecast as abundantly rosy, it is not without its thorns.
As the number of international transactions skyrocket, so do foreign parties’ attempts to escape from their arbitration agreements and to force disputes into foreign courts. All too often, a party that thought it would be arbitrating international disputes – and that may have commenced arbitration in the agreed forum – may nevertheless find itself the target of foreign litigation.
A recent federal court decision reinforces strong public policies in favor of arbitration and against improper collateral litigation. In Telenor Mobile Communications v. Storm LLC, the United States Court of Appeals for the Second Circuit affirmed the district court’s granting of an anti-suit injunction against Ukraine litigation in aid of an UNCITRAL arbitration. You can read the decision here.
As the case illustrates, U.S. federal courts are increasingly resistant to efforts to use foreign litigation to interfere with pending international arbitration, and are increasingly willing to brandish their injunctive powers to prevent such interference.
The Telenor decision should cause parties to arbitration agreements to think twice before staging "friendly litigation" in an effort to avoid their contractual obligations, as Judge Robert D. Sack wrote for the court:
Our view, in light of the findings of the arbitration panel and the district court, is that it is Storm’s improper collateral litigation, not the arbitral award that is contrary to public policy, viz., the well-established federal public policy in favor of arbitration. "Through the FAA, Congress has declared a strong federal policy favoring arbitration as an alternative means of dispute resolution." (Internal quotation marks omitted)). Collateral and unilateral litigation of arbitrability – or any other issue pertinent to arbitration, for that matter –undertaken in a foreign forum by a party to that arbitration in an attempt to protect itself from an adverse arbitral award would, if indulged, tend seriously to undermine the underlying scheme of the FAA and the New York Convention.
It’s reassuring to see that U.S. federal courts are increasingly protecting the integrity of awards rendered in international arbitration and that collateral litigation commenced by a foreign party to avoid an arbitral award will not be tolerated.
Trend to Watch: Look for More U.S. federal courts to hold international parties to their arbitration agreements, and to prevent them from seeking refuge in litigation abroad.