Recent $455 Million Payment Reaffirms Certainty of International Arbitral Awards
July 14, 2017
One of the most often overlooked features of arbitration in the context of international commercial disputes is the certainty provided by a final award. Recently, Dow Agrosciences paid Bayer Cropscience more than $455 million to satisfy an arbitral award rendered by an International Chamber of Commerce (ICC) tribunal. On July 6, 2017, the U.S. District Court for the Eastern District of Virginia released the supersedeas bond securing that payment.1
The parties' dispute originated in 2012, when Bayer sued Dow for patent infringement in the Eastern District of Virginia. The district court stayed the case pending arbitration, which eventually included both patent infringement claims under U.S. law and contract claims under French law. The ICC tribunal rendered its final award on October 9, 2015, awarding Bayer $455,459,187.
Dow first sought to have the district court vacate the arbitral award. However, on January 15, 2016, the district court denied Dow's motion to vacate and granted Bayer's motion to confirm the award. The district court entered judgment in favor of Bayer in the full amount of the arbitral award and also ordered Dow to pay post-award interest.
Next, Dow appealed the Eastern District of Virginia's decision to the U.S. Court of Appeals for the Federal Circuit. Pending appeal, the district court granted a motion by Dow for a supersedeas bond and to stay enforcement of the arbitral award. On March 1, 2017, a three-judge panel for the Federal Circuit affirmed the district court's decision to confirm the arbitral award.
After the Federal Circuit panel affirmed the decision to confirm the arbitral award, Dow filed a combined petition for panel rehearing and rehearing en banc, which the Federal Circuit denied on May 12, 2017. Although Dow filed a motion to stay the issuance of the mandate, the Federal Circuit denied it the next day. Dow then indicated its intent to file a petition for certiorari with the U.S. Supreme Court.
Following the Federal Circuit's denial of Dow's motion to stay issuance of the mandate, Bayer moved the district court to enforce the supersedeas bond. The district court did not have to enforce the bond, however, because Dow made full payment of the award amount and indicated that it would not file a petition for certiorari. On July 6, 2017, the district court released the supersedeas bond.
The Difficulty in Challenging Arbitral Awards
Dow's lack of success in challenging the ICC's arbitral award is not surprising. In the United States, a court's power to vacate an arbitral award is severely limited under the Federal Arbitration Act (FAA). Under the FAA, a court can vacate an arbitral award only if it finds: (1) fraud in procuring the award; (2) partiality on the part of the arbitrators; (3) gross misconduct by the arbitrators; or (4) failure of the arbitrators to render a mutual, final, and definite decision.2 A court cannot vacate an award merely because it would have reached a different conclusion; rather, the arbitrators must have failed to do their job in order to warrant such a drastic remedy.3
Further, under the so-called "New York Convention"—promulgated by the United Nations and adopted by more than 150 contracting states around the world to facilitate enforcement of arbitral awards made in other contracting states—any party to arbitration may apply to any court with jurisdiction for an order confirming the arbitral award within three years of its issuance.4 A court must confirm the award unless the party against whom the award has been issued can prove: (1) the parties to the arbitration agreement were legally incapacitated or the agreement is invalid under the law governing the agreement; (2) the party was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present his case; (3) the award deals with a dispute not contemplated or falling within the terms or scope of the agreement to arbitrate; (4) the award or arbitral procedure was not in accordance with the agreement of the parties or with the law governing the agreement; or (5) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country, or under the law of which, that award was made.5 Additionally, a court may refuse to enforce an arbitral award if the dispute was not capable of being settled by arbitration under the laws of the country governing the arbitral agreement, or if enforcement of the award would be contrary to the public policy of that country.6
Making arbitral awards difficult to challenge encourages arbitration and leads to more efficient and less costly resolution of disputes.
Dow's payment of the more than $455 million set forth in the ICC's arbitral award in Bayer Cropscience AG v. Dow Agrosciences LLC—and its repeated inability to successfully challenge that award—underscores the certainty of final arbitral awards. The certainty that comes from final arbitral awards is a feature of arbitration that clients, particularly those that engage in international commercial transactions, should consider in drafting dispute resolution clauses in their agreements. The relative unlikelihood that a U.S. court would vacate an arbitral award provides enhanced certainty to the parties, as compared to court decisions, which are more likely to be modified on appeal.
Ava Miller contributed to the preparation of this WSGR Alert.