Court Declines to Enforce Arbitration Award on Public Policy Grounds

Background

The U.S. and Philippines are both signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. According to the Convention, when an award is rendered in a signatory country, that country has primary jurisdiction over the award. Courts in other signatory countries have secondary jurisdiction, which allows those courts to decide whether or not to enforce the award in their respective countries.

Article V of the Convention allows a country with secondary jurisdiction to decline to enforce an award where enforcement “…would be contrary to the public policy of that country.”

In Asignacion v. Schiffahrts, CIV.A. 13-0607, 2014 WL 632177 (E.D. La. Feb. 10, 2014), the Eastern District of Louisiana set aside an arbitration clause in an employment contract as offensive to U.S. public policy under Article V of the Convention.

Facts

Plaintiff, Asignacion, is a citizen of the Republic of the Philippines, and was employed by defendant, Schiffahrts, a Germans corporation. Plaintiff worked aboard the M/V RICKMERS DALIAN, a vessel owned by the defendant but flagged under the Republic of the Marshall Islands.

The plaintiff and defendant entered into a standard employment contract executed by the Philippine government. The contract incorporated the Philippine government’s ‘Standard Terms,’ which required that all employment claims be resolved through arbitration in the Philippines and that Philippine law would be applied to any dispute.

While working aboard the M/V RICKMERS DALIAN in 2010, a cascade tank in the vessel’s engine room overflowed and caused boiling water to splash on plaintiff. Plaintiff sustained severe burns on over 35% of his body including his abdomen, lower extremities and genitalia. The surgical procedure required the removal of a significant amount of scar tissue from the affected areas. The amount of skin-displacement ultimately damaged his body’s heat control mechanism while also causing multiple skin ulcerations and sexual dysfunction.

Plaintiff initially filed suit in state court under the Jones Act. The state court granted defendant’s exception to enforce the employment contract’s arbitration clause. The arbitration took place before the Philippine Department of Labor and Employment in Manila. The arbitration panel determined that Philippine law applied, and as a result, plaintiff was only entitled to scheduled benefits amounting to only $1,870.00 USD.

Plaintiff then filed in state court requesting that the arbitration award be set aside. Defendant removed that action to federal court in the Eastern District of Louisiana. Before the court was defendant’s motion to Recognize and Enforce the Arbitral Award rendered in the Philippines.

The ‘Prospective Waiver’ Defense

U.S. courts have jurisdiction over the issue of whether or not to enforce an arbitral award, even if a contractual choice-of-law clause mandates the application of foreign law. Citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614 (1985) and Vimar Seguros y Reaseguos, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995), the court recognized that a choice-of-forum and choice-of-law clause cannot work in tandem as a ‘prospective waiver’ of a party’s right to pursue those remedies one is entitled to as a matter of law.

U.S. General Maritime Law Applies

Thus, a court may re-consider the choice-of-law question in an arbitration-enforcement case to ensure the plaintiff has been given a fair opportunity to pursue any remedies that he may be entitled to under law. In this case, the court used the Lauritzen-Rhoditis test to determine the applicable law. The court found the following under this test:

1) Plaintiff’s injury occurred while the vessel was located in the U.S.

2) The vessel was registered under the Marshall Islands

3) Plaintiff was a Philippine resident

4) The vessel was owned by defendant, a German corporation

5) The contract was executed in the Philippines

6) The forum law was U.S. maritime law, and

7) Defendant had its base of operations and principal place of business in Germany

While six of the factors failed to clearly point to an applicable law, the court found the second factor to carry the greatest weight because “the law of the flag is ‘the most venerable and universal rule of maritime law,’ which overbears most other connecting events in determining applicable law…” Because the 1990 Marshall Islands Act expressly

adopted U.S. maritime law as the general maritime law of the Marshall Islands, the court found that U.S. maritime law was the applicable law in this dispute.

Having determined that U.S. general maritime law applied to plaintiff’s claim, the court found that potential claims for maintenance and cure, unseaworthiness and negligence were completely unavailable to plaintiff before the Philippine arbitration panel.

The Unavailability of U.S. Maritime Claims a Violation of U.S. Public Policy

The court found that depriving the plaintiff of those certain protections that he was entitled to receive as a seaman under U.S. maritime law constituted a violation of U.S. public policy considering the long-standing deference U.S. courts have provided to seamen as ‘wards of admiralty.’ Because the arbitral panel failed to provide any remedies that would have been similar to remedies under U.S. maritime law, the court held that enforcing the arbitral award would violate U.S. public policy.

Thus, the court denied defendant’s motion to Recognize and Enforce the Arbitral Award against the plaintiff.