By Francesca Coletta –
Commentary on the Macromex case.
As several studies conducted by the University of London demonstrate, in the current days the majority of the multinational corporations prefer the international commercial arbitration to trials. Arbitration proceedings are confidential, fast, efficient, relatively less expensive than litigation. And when it comes to enforce the award, it is certain that it will be enforced. Everywhere. Where the money of the unsuccessful party is.
According to article 34(2) (a) of the UNCITRAL Model Law, the model upon which numerous commercially significant States now shape their lex arbitri rules on, a party making an application to set an award aside in the State in which it was rendered, must furnish to proof of:
(i) the arbitration agreement’s invalidity,
(ii) insufficient notice of the arbitral proceedings,
(iii) an award beyond the agreement’s scope, or
(iv) unauthorized or illegal arbitral procedures.
Article 34(2)(b) provides two further ex- officio grounds which complete the list:
(i) a non-arbitrable subject matter or
(ii) an award [otherwise] contrary to public policy.
As the reader can notice, it might be quite difficult to prove one of those allegations in a court. The rationale who inspired the aforementioned article is that an award should be enforced, despite a court’s disagreement on it on the merits, if there is a barely colourable justification for the outcome reached. The opposite would not be possible and any attempt to this principle, would hit arbitration’s foundations. However there is some controversial jurisprudence on the award’s enforcement and the Macromex case shows how strong is the position of U.S. Courts on the confirmation of arbitral awards.
In 2008 The U.S. District Court of south New York was asked to enforce an award rendered in U.S. (the seller State). The seller Globex International, Inc. contracted to sell and ship 112 containers of chicken parts to the buyer Macromex Srl, a Romanian merchant. The contract was governed by the CISG, providing for the arbitration of disputes in U.S. When the seller didn’t ship all the goods, claiming reason to Romanian’s government bans, the buyer Macromex brought arbitration proceedings against Globex for breach of contract, demanding $608,323.00. Globex submitted to arbitration and lost. The substance of the case was concerned with the application of the Article 79 of CISG, the exempt from liability by reason of force majeure. But, when applying the CISG rules, the arbitrator instead of applying article 7(1) CISG, which demands an international interpretation, referred to his domestic sales law and precedents to interpret Article 79 CISG. Most CISG commentator would agree that the arbitrator clearly misapplied the applicable substantive law by using domestic law to interpret the treaty.
Having decided for Macromex, the final award came to $876,310.58 up on Globex.
What should be noticed here is that if the case had been discussed in a court, the result would probably have been the opposite. Some can argue that the arbitrator reached the “wrong result”. Macromex Srl petitioned for confirmation of an arbitral award against Globex International, Inc. and Globex cross-petitioned to have that award vacated. U.S. district court dismissed the Globex International, Inc cross-petition, confirming without any doubt the arbitral decision. In the court’s view there was no ground to set the award aside.
This brief example is a good one to prove that arbitration is not perfect. Undoubtedly it is the present and the future of commercial litigation all around the world, but when using it companies should also be aware of its few risks.
That’s how the game is.
You better play well.