The U.S. Court Of Appeals For The Eleventh Circuit Puts End To "Circuit Split" On Applicable Grounds For Vacatur Of "Nondomestic" Awards

• Jurisdiction: United States,Federal
• Law Firm: Herbert Smith Freehills
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Author: Mr Christian Leathley, Amal Bouchenaki, Daniela Paez and Carlos Hafemann
• Published date: 19 May 2023

On April 13, 2023, in Corporación AIC v. Hidroelectrica Santa Rita,¹ the U.S. Court of Appeals for the Eleventh Circuit overturned en banc more than two decades of prevailing precedent (Industrial Risk²and Inversiones³) which held that international arbitral awards rendered in the U.S. (known as "nondomestic awards") may only be vacated (set aside) on the grounds set out in Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The Eleventh Circuit instead ruled that only Chapter 1, Section 10, of the Federal Arbitration Act (FAA) provides the grounds to vacate these nondomestic awards rendered in the U.S. As a result of this ruling, the Eleventh Circuit has now joined the Second,⁴ Third,⁵ Fifth,⁶ Sixth,⁷ and Seventh⁸ Circuits to put an end to the long-standing circuit split on this issue.⁹

We discuss below the distinction between "domestic," "nondomestic" and "foreign" awards in the context of international arbitration in the U.S., the origin of the circuit split, an overview of the Eleventh Circuit's decision in Corporación AIC, and its significance in international arbitration in the U.S.

The U.S. distinction between "domestic," "nondomestic," and "foreign" awards

The FAA distinguishes between three types of arbitral awards: (1) domestic awards, (2) nondomestic awards, and (3) foreign awards. While both, domestic and nondomestic awards, are arbitral awards rendered in the U.S., foreign awards are rendered in arbitral proceedings having their legal seat outside of the United States. Also, both, nondomestic and foreign awards arise from an arbitration involving a non-U.S. party, "property located abroad," "performance or enforcement abroad," or "some other reasonable relation with one or more foreign States."¹⁰ Thus, the difference between each kind of award lies in a territorial criterion (where it was rendered), and the presence of other international elements.

These distinctions are supported by the language used in the New York Convention. Indeed, article I(1) of the New York Convention states that it applies to the recognition and enforcement of both "foreign" awards (those "made in the territory of a State other than the State where the recognition and enforcement of such awards are sought") and "nondomestic" awards (those "not considered domestic awards in the State where the recognition and enforcement of such awards are sought").

In the United States, domestic awards (which are those rendered in the U.S. without an international element) are governed by Chapter 1 of the FAA, which was enacted in 1925. Among other purposes, Chapter 1 regulates the enforceability of arbitration agreements, providing for very limited scope of judicial review. Nondomestic and foreign awards are governed by Chapter 2 of the FAA, which incorporates into the FAA the New York Convention.¹¹ Chapter 2 was added to the FAA in 1970 and provides a specific legal framework for arbitral agreements and awards falling under its scope. Chapter 1 still applies to nondomestic and foreign awards, but only to the extent Chapter 1 does not conflict with Chapter 2.¹²

Where did the split lie for nondomestic awards?

The specific regime for "nondomestic" awards under the FAA gave rise to the issue...