Arbitration & ADR - USA
US court refuses to enforce award issued in Taiwan
Authors
Contributed by K&L Gates
JP Duffy
October 02 2014
Facts
New York Convention
New York Convention and Taiwan
Uniform Foreign Money Judgment Recognition Act
Comment
In Clientron Corp v Devon IT, Inc a US federal trial court recently refused to confirm an arbitration
award rendered in Taiwan on the grounds that Taiwan is not a signatory to the 1958 United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 'New York
Convention').(1) The Clientron decision reinforces the significance of seating an arbitration in a New
York Convention signatory state, as well as the importance of considering likely enforcement venues
at the clause drafting stage.
Priya Chadha
Facts
The underlying dispute in Clientron concerned the breach of a supply and purchase agreement for
the manufacture and delivery of computer parts. Taiwanese corporation Clientron alleged that
Pennsylvania corporation Devon had failed to make payments for three products that were not
specifically mentioned in the agreement, and commenced arbitration against Devon before the
Chinese Arbitration Association in Taiwan to resolve its dispute.
Erica R Iverson
Clientron prevailed in the arbitration and was awarded $6,574,546.17 by the tribunal. Clientron
subsequently commenced enforcement proceedings both in Taiwan and before a federal court in
Pennsylvania. In the Pennsylvania enforcement proceedings, Clientron sought to enforce the award
pursuant to the New York Convention as well as Pennsylvania's version of the Uniform Foreign Money
Judgment Recognition Act.(2) In response to Clientron's enforcement actions, Devon commenced
proceedings in Taiwan to set aside the award and also opposed enforcement in Pennsylvania.
While the US enforcement proceedings were underway, the Taiwanese court granted Clientron's
petition to confirm the award. However, the US federal court refused to enforce the award under either
the New York Convention or the Uniform Foreign Money Judgment Recognition Act.(3)
New York Convention
The New York Convention, which currently has 150 signatories, generally requires the national courts
of a signatory state to enforce foreign arbitral awards as national judgments of the enforcing court.
Article I.3 of the New York Convention further provides that contracting states may make a reciprocity
reservation, pursuant to which they will recognise and enforce only awards that were rendered in
other contracting states.
As the court noted, the United States made a reciprocity reservation at the time it ratified the New York
Convention. Accordingly, US courts are obliged to recognise and enforce only "those awards made in
the territory of another Contracting State".(4) The court therefore proceeded to examine whether
Taiwan could be considered to be another contracting state for the purposes of the New York
Convention, which is enacted into US law in Chapter 2 of the Federal Arbitration Act.
New York Convention and Taiwan
To determine Taiwan's status for the purposes of the New York Convention, the court first looked to
US federal law – specifically, the Taiwan Relations Act of 1979, which was designed to define the
non-diplomatic relations between the United States and Taiwan.(5) After considering that act, the court
concluded that although Taiwan is not recognised as an independent sovereign nation by the United
States, the court was nevertheless "required to consider Taiwan as a state for the purposes of
applying Chapter 2 of the Federal Arbitration Act".(6)
Following its decision to treat Taiwan as a separate state for the purposes of Chapter 2 of the Federal
Arbitration Act, the court considered whether Taiwan was a signatory to the New York Convention and
concluded that it was not.(7) The court therefore refused to enforce the award under the New York
Convention on the grounds that Taiwan was not a contracting state.(8)
Uniform Foreign Money Judgment Recognition Act
In addition to arguing that the New York Convention required enforcement of the award, Clientron also
contended that the award should be enforced pursuant to Pennsylvania's enactment of the Uniform
Foreign Money Judgment Recognition Act. This uniform act has been adopted by a majority of US
states and generally requires the recognition and enforcement of foreign court money judgments.
The court first concluded that the Uniform Foreign Money Judgment Recognition Act does not provide
a basis for recognising and enforcing a foreign arbitral award, which is not a "judgment" issued by a
foreign "governmental unit".(9) However, the court noted that a Taiwanese court had rendered a
judgment confirming the award and therefore considered whether the Taiwanese court judgment
could be enforced under the act.
The Uniform Foreign Money Judgment Recognition Act permits courts to refuse to recognise foreign
judgments on the grounds that the foreign court proceeding was conducted in violation of an
agreement between the parties to settle their dispute by means other than that court. The court
focused solely on that provision of the act and determined that certain disputed products were outside
the scope of the aforementioned supply and purchase agreement, which permitted the court to
decline to recognise the Taiwanese court judgment.(10)
Comment
The Clientron decision underscores the significance of seating arbitrations in New York Convention
jurisdictions, as well as the importance of considering at the clause drafting stage where
enforcement might be likely. While it is becoming increasingly difficult to find countries that have not
acceded to the New York Convention (with some notable exceptions), practical and legal restrictions
within signatory countries still require strategic drafting. In short, careful consideration at the drafting
phase can often alleviate significant issues at the enforcement stage.
For further information on this topic please contact JP Duffy, Priha Chadha or Erica R Iverson at K&L
Gates by telephone (+1 212 536 3900), fax (+1 212 536 3901) or email (JP.Duffy@klgates.com ,
priya.chadha@klgates.com or erica.iverson@klgates.com). The K&L Gates website can be accessed
at www.klgates.com.
Endnotes
(1)
13-05634, 2014 WL 3892970 (ED Pa August 8 2014).
As an alternative approach, Clientron also sought to enforce the award under the Treaty of
Friendship between the United States and the Republic of China (Taiwan).
(2)
(3)
The court similarly declined to enforce the award based on the Treaty of Friendship.
(4)
2014 WL 3892970, at *2.
(5) 22 USC § 3301 et
(6)
seq.
2014 WL 3892970, at *1 n2.
China ratified the New York Convention in 1987 and the treaty entered into force there the same
year.
(7)
The court also concluded that a 1946 treaty between the United States and the Republic of China
(Taiwan) which contains a provision addressing the enforcement of arbitral awards did not
supersede the New York Convention, which came into force in the United States in 1970,
approximately one year before the United Nations General Assembly admitted China to the United
Nations.
(8)
(9)
2014 WL 3892970, at *12.
The court granted Devon's motion to dismiss with respect to the New York Convention, but denied
without prejudice Devon's motion to dismiss on the Uniform Foreign Money Judgment Recognition
Act point. The court cited lack of clear procedural precedent for cases decided under the act and opted
instead to convert Devon's motion to dismiss to one for summary judgment.
(10)
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