10/15/2014

U.S. Court Refuses to Enforce Taiwan Arbitral Award: Lesson for Drafting Arbitration Clauses in Korea

My friends over at the publication The International Law Office directed me to an interesting case involving the enforcement of arbitral awards that brings light to the fact that, in most cases, arbitration should not be held in a nation that is not a signatory to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award ("New Convention").

U.S. Court Reuses to Enforce Taiwan Arbitral Award
In Clientron Corp. v. Devon IT, Inc. a U.S. Federal Court in Pennsylvanian refused to enforce a US$ 6.5 million award rendered at the Chinese Arbitration Association in Taiwan.  A Taiwanese Court accepted the award for enforcement in Taiwan. 

The U.S. Court in Clientron refused to enforce the judgment under the New York Convention and Pennsylvania's version of the U.S. Uniform Foreign Money Judgment Recognition Act based on the argument noted below.

Likely, Korean courts would come to the same conclusion.

I bet Clientron (Plaintiff) Board is less than happy with the attorneys that drafted the arbitration clause (if attorneys even drafted the agreement).  Please don't just cut and paste these things from arbitration center websites - consider the issues or get someone capable of considering the issues.   

Not Enforceable Under the New York Convention
The court opined that U.S. courts are obliged to enforce only "awards made in the territory of another Contracting State."  The Clientron Court held that Taiwan is not a contracting party under Chapter 2 of the Federal Arbitration Act and, thus, a U.S. Court is not obliged to recognize and enforce the arbitral award.

Not Enforceable under U.S. or Pennsylvania's Uniform Foreign Money Judgment Recognition Act
U.S. or Pennsylvania's Uniform Foreign Money Judgment Recognition Act, only, are the basis of the enforcement of foreign "judgments" from "government units."  An arbitral award is not considered a "judgment" under these acts and, additionally, the arbitration center is not a "government unit."

However, a Taiwanese Court  rendered a "judgment" recognizing and enforcing the arbitral award, thus, arguably a judgment from a government unit was made.

The Clientron Court  noted, however, that the Taiwenese Court proceeding should have been resolved outside of court as agreed in their agreement, thus, no "judgment" was being rendered within the meaning of the acts. 

Additionally, certain products were "outside" the scope of the supply and purchase agreement between the parties.

Word to the Wise
Think this stuff through guys and gals or you can easily be the scorn of your company or your client.
Amazing that any party with the possibility of the need to enforce a judgment outside of Taiwan would hold arbitration in Taiwan. 

The ILO can be found at: The International Law Office.

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.