Schneider v. The Kingdom of Thailand , 688 F.3d 68 ( 2012 )

11-1458-cv
Schneider v. The Kingdom of Thailand
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
_____________________
August Term, 2011
(Argued: May 22, 2012; Decided: August 8, 2012)
Docket No. 11-1458-cv
_____________________
WERNER SCHNEIDER, acting in his capacity as insolvency administrator of
Walter Bau AG (In Liquidation),
Petitioner-Appellee,
-v.-
THE KINGDOM OF THAILAND,
Respondent-Appellant.
_______________________
BEFORE: PARKER, HALL, and WALLACE*, Circuit Judges.
_______________________
The Kingdom of Thailand appeals from a judgment of the United States
District Court for the Southern District of New York (Batts, J.) confirming an
arbitration award in favor of appellee Schneider, the insolvency administrator of
*
Judge J. Clifford Wallace of the United States Court of Appeals for the Ninth Circuit,
sitting by designation.
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Walter Bau AG. We conclude that the district court, before performing a
deferential review of the arbitration award, should have determined whether there
was clear and unmistakable evidence that the parties agreed that the scope of the
arbitration agreement would be decided by the arbitrators. Nevertheless, we
conclude that such clear and unmistakable evidence exists in the record.
AFFIRMED.
_______________________
STANLEY MCDERMOTT III (Claudia T. Salomon, David S. Wenger, on
the brief) DLA Piper LLP (US), New York, New York, for
Respondent-Appellant.
ANDREW M. BEHRMAN (Joseph P. Cyr, on the brief), Hogan Lovells
US, LLP, New York, New York, for Petitioner-Appellee.
_______________________
WALLACE, Circuit Judge:
Schneider, as the insolvency administrator of the German company Walter
Bau AG (Walter Bau), successfully petitioned the district court to confirm an
arbitration award against the Kingdom of Thailand. Thailand appeals, contending
that the district court should have independently adjudicated the arbitral tribunal’s
jurisdiction instead of performing only a deferential review of the tribunal’s
decision. We have jurisdiction under 28 U.S.C. § 1291. We affirm.
I.
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In 2002, Germany and Thailand signed the Treaty between the Kingdom of
Thailand and the Federal Republic of Germany concerning the Encouragement and
Reciprocal Protection of Investments (2002 Treaty). This bilateral investment
treaty provides that disputes concerning investments between a Contracting Party
(i.e., Germany and Thailand) and an investor of the other Contracting Party may be
resolved by arbitration at the request of either party. 2002 Treaty art. 10, para. 2.
The 2002 Treaty applies to “approved investments made prior to [the Treaty’s]
entry into force by investors of either Contracting Party in the territory of the other
Contracting Party consistent with the latter’s laws and regulations.” Id. art. 8.
In 2005, Walter Bau initiated arbitration against Thailand. Walter Bau
claimed that Thailand had unlawfully interfered with investments made by its
predecessor in interest between 1989 and 1997 in a tollway project in Thailand. A
three-member arbitration tribunal was convened in accordance with the agreed
Terms of Reference, signed by representatives of both Walter Bau and Thailand.
The Terms of Reference empowered the tribunal to “consider . . . objections to
jurisdiction” and provided that the United Nations Commission on International
Trade Law (UNCITRAL) Arbitration Rules were to be the applicable procedural
rules.
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Thailand objected to the tribunal’s jurisdiction on the ground that Walter
Bau’s investments were not “approved investments” that enabled arbitration
because Walter Bau never obtained a “Certificate of Admission” from Thailand’s
Ministry of Foreign Affairs. Walter Bau responded that the tollway project was
comprised of “approved investments” because Walter Bau was invited to make the
investments by the Thai Council of Ministers, which approved the project at
various stages, and because the Thai Board of Investment issued two certificates of
investment for the project. The arbitration tribunal reviewed the parties’ written
submissions, conducted a two-day hearing including expert testimony from both
parties, and issued a 43-page opinion unanimously concluding that it had
jurisdiction because the dispute concerned “approved investments” within the
meaning of Article 8 of the 2002 Treaty.
In 2009, the tribunal held an 11-day hearing on the merits of Walter Bau’s
claim. The tribunal then awarded Walter Bau over 30 million euros in damages,
costs, and expenses.
In 2010, Walter Bau petitioned to confirm the arbitration award in the
district court under 9 U.S.C. § 201 et seq., which implements the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New
York Convention). Thailand cross-moved to dismiss Walter Bau’s petition under 9
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U.S.C. § 207, arguing that the tribunal lacked jurisdiction to render the award
because Walter Bau did not make an “approved investment.” Thailand also moved
to dismiss on the ground of forum non conveniens. Thailand does not, however,
appeal the district court’s rejection of its forum non conveniens defense.
The district court concluded that it did not need to conduct a de novo review
of the arbitration award because the issue of whether the tollway project involved
“approved investments” was an issue of arbitration agreement scope and did not
“concern a question of agreement formation.” The district court then performed a
deferential review of the tribunal’s jurisdictional determination and held that the
arbitration award met the “light burden imposed by Section 10(a) [of the Federal
Arbitration Act] and the ‘Manifest Disregard Standard.’” The district court then
entered judgment confirming the arbitration award.
We review de novo whether the district court was required to make an
independent determination of the arbitrability of the tollway dispute. Contec Corp.
v. Remote Solution, Co. Ltd., 398 F.3d 205, 208 (2d Cir. 2005).
II.
“The question whether the parties have submitted a particular dispute to
arbitration, i.e., the ‘question of arbitrability,’ is ‘an issue for judicial
determination [u]nless the parties clearly and unmistakably provide otherwise.’”
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Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting AT & T
Techs., Inc. v. Commc’ns Workers, 475 U.S. 643, 649 (1986)). Thus, a party
resisting confirmation of an arbitration award is entitled to an independent court
review of a question of arbitrability unless there is clear and unmistakable evidence
that the parties agreed to arbitrate that question. First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944, 947 (1995). “‘Question[] of arbitrability’ is a term of
art covering ‘dispute[s] about whether the parties are bound by a given arbitration
clause’ [i.e., formation] as well as ‘disagreement[s] about whether an arbitration
clause in a concededly binding contract applies to a particular type of controversy’
[i.e., scope].” Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 393 (2d Cir.
2011) (quoting Howsam, 537 U.S. at 84).
Schneider contends that, because the question of whether the tollway project
involved “approved investments” does not relate to whether an arbitration
agreement was formed, but instead concerns the scope of the agreement, the district
court correctly performed a deferential review of that question without first
determining whether there was clear and unmistakable evidence of the parties’
intent to submit the question to the arbitral tribunal. Schneider is correct that the
question whether the tollway project involved “approved investments” concerns
the scope of an arbitration agreement rather than its formation. The existence of an
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arbitration agreement between Walter Bau and Thailand is beyond dispute.
Thailand, “by signing the [2002 Treaty], and [Walter Bau], by consenting to
arbitration, have created a separate binding agreement to arbitrate.” Republic of
Ecuador, 638 F.3d at 392. Whether the tollway project involved “approved
investments” involves the scope of that separate arbitration agreement, the terms of
which are defined by the 2002 Treaty and the Terms of Reference.
However, whether the district court properly declined to determine
independently whether the tollway project involved “approved investments” does
not turn on whether that question was one of scope or formation. It turns on
whether there was clear and unmistakable evidence of the parties’ intent to commit
that question to arbitration. For in the absence of such clear and unmistakable
evidence, questions of arbitrability are presumptively resolved by the court,
regardless of whether they are related to scope or formation. See id. at 393; Granite
Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 2856 (2010) (where there is
no valid provision committing the issue to arbitration, “the court must resolve any
issue that calls into question the formation or applicability of the specific
arbitration clause that a party seeks to have the court enforce”). It is true that, in the
absence of such clear and unmistakable evidence, a court discharges its duty
independently to resolve scope-related questions of arbitrability by applying the
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“presumption of arbitrability.” See Granite Rock, 130 S. Ct. at 2858–59. But the
district court here never inquired into whether such clear and unmistakable
evidence existed. Instead, it conflated the concepts of (1) deferentially reviewing
arbitrators’ resolution of questions of arbitrability when there is clear and
unmistakable evidence that the parties intended to commit such questions to
arbitration; and (2) discharging the duty independently to review scope-related
questions of arbitrability by applying the presumption of arbitrability in the
absence of such evidence. The district court should not have refused to determine
independently whether the tollway project involved “approved investments”
without first finding clear and unmistakable evidence of the parties’ intent to
submit that question to arbitration.
III.
But rejecting Schneider’s argument does not result in a victory for Thailand.
We have “the power to decide cases on appeal if the facts in the record adequately
support the proper result.” Stetson v. Howard D. Wolf & Assocs., 955 F.2d 847,
850 (2d Cir. 1992). The district court should have inquired into whether the parties
intended to arbitrate arbitrability. But if it had done so, the district court would
have discovered clear and unmistakable evidence that the parties did so intend.
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Where “parties explicitly incorporate rules that empower an arbitrator to
decide issues of arbitrability, the incorporation serves as clear and unmistakable
evidence of the parties’ intent to delegate such issues to an arbitrator.” Contec, 398
F.3d at 208. That is precisely what occurred here. Thus, Thailand is not entitled to
independent court adjudication of whether the tollway project involved “approved
investments.”
Walter Bau and Thailand agreed in the Terms of Reference to use the
UNCITRAL Arbitration Rules as the rules of procedure. Article 21 of those rules
provides:
The arbitral tribunal shall have the power to rule on objections that it
has no jurisdiction, including any objections with respect to the
existence or validity of the arbitration clause or of the separate
arbitration agreement.
UNCITRAL Arbitration Rules art. 21, para. 1 (recommended by the U.N. General
Assembly for use in settlement of disputes arising in the context of international
commercial relations, G.A. Res. 31/98, U.N. Doc. A/RES/31/98 (Dec. 15, 1976)).
In Republic of Ecuador, we held that a bilateral investment treaty’s
incorporation of the same UNCITRAL rules was clear and unmistakable evidence
that the parties intended questions of arbitrability to be decided by the arbitral
panel “in the first instance.” 638 F.3d at 394. The instant appeal is no different.
Walter Bau and Thailand’s adoption of the UNCITRAL rules providing that the
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tribunal has “the power to rule on objections that it has no jurisdiction” is clear and
unmistakable evidence of their intent to arbitrate issues of arbitrability, including
whether the tollway project involved “approved investments.” See id.; see also
Contec, 398 F.3d at 208 (incorporation of rule providing that “[t]he arbitrator shall
have the power to rule on his or her own jurisdiction” is clear and unmistakable
evidence of the parties’ intent to delegate issues of arbitrability to the arbitrator).
Thailand argues that the parties’ adoption of Section 4 of the Terms of Reference is
evidence that the parties did not agree to arbitrate arbitrability. But Section 4
provides that “[t]he Tribunal may consider . . . objections to jurisdiction,” which is
entirely consistent with and parallel to the language in Article 21. Thus,
considering both Section 4 of the agreed Terms of Reference and the incorporation
of Article 21 of the UNCITRAL rules, we hold that Walter Bau and Thailand
clearly and unmistakably agreed that the tribunal would consider matters affecting
its jurisdiction in the first instance.
Thailand argues that Republic of Ecuador does not resolve its appeal
because our use of the phrase “in the first instance” limits the holding to cases
presenting the same procedural stance of determining whether the district court
properly refused to stay arbitration. According to Thailand, Republic of Ecuador
merely confirmed the arbitrators’ power to decide their jurisdiction at the outset of
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the arbitration without delay, and did not hold that the agreement to the
UNCITRAL rules precluded independent judicial review at the later confirmation
stage. We do not read Republic of Ecuador to be so lifeless.
“Although the [New York] Convention recognizes that an award may not be
enforced where predicated on a subject matter outside the arbitrator’s jurisdiction,
it does not sanction second-guessing the arbitrator’s construction of the parties’
agreement.” Parsons & Whittemore Overseas Co., Inc. v. Societe Generale De
L’Industrie Du Papier (RAKTA), 508 F.2d 969, 977 (2d Cir. 1974). Once the
parties have agreed that an arbitrator may decide questions regarding the scope of
arbitrable issues in the first instance, requiring the district court to decide such
questions de novo would “frustrate[] the basic purpose of arbitration, which is to
dispose of disputes quickly and avoid the expense and delay of extended court
proceedings,” and “would make an award the commencement, not the end, of
litigation.” STMicroelectronics, N.V. v. Credit Suisse Sec. (USA) LLC, 648 F.3d 68,
78 (2d Cir. 2011) (internal quotation marks and citations omitted).
Our view is underscored by the facts of this appeal. Failing to give any
deference to the tribunal’s jurisdictional decision—delivered in a 43-page opinion
which followed hundreds of pages of party submissions and a two-day hearing, and
which served as the foundation for the 11-day hearing on the merits—would entail
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an enormous waste of resources contrary to the purposes of the New York
Convention. See Parsons, 508 F.2d at 977. Thus, under Republic of Ecuador, when
parties incorporate UNCITRAL rules, they clearly and unmistakably intend to refer
questions of arbitrability to the arbitrators “in the first instance.” 638 F.3d at 394.
This necessarily means that a district court considering whether to confirm the
award must review the arbitrators’ resolution of such questions with deference.
Walter Bau and Thailand agreed to be governed by the UNCITRAL rules and to
substantially similar language in Section 4 of the Terms of Reference. Therefore,
they clearly and unmistakably committed questions of arbitrability to the
arbitrators.
IV.
Because Walter Bau and Thailand clearly and unmistakably agreed to
arbitrate issues of arbitrability—including whether the tollway project involved
“approved investments”—Thailand is not entitled to an independent judicial re-
determination of that same question. See First Options, 514 U.S. at 943–44. This
resolves the appeal before us. Although Thailand briefly argues that the district
court should not have applied the manifest disregard standard embedded in 9
U.S.C. § 10(a)(4) because that standard does not apply to foreign arbitration
awards, Thailand never suggests that the tribunal’s jurisdictional decision would
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flunk the deferential standard of review properly applied to foreign awards. See
Parsons, 508 F.2d at 976–77 (reviewing award pursuant to New York
Convention). We express no opinion on the precise standard for that review or
whether the tribunal’s jurisdictional decision would survive that review because
those issues were not presented to us.
AFFIRMED.
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