Strategies to Collect International Arbitration Awards
One of the problems that parties to international arbitration face is that the opposing party may attempt to move its assets so that if an award it entered against it, the assets will no longer be available to satisfy the award. Here, we discuss a recent case in which a losing party in an international arbitration allegedly attempted to do just that, and some strategies to avoid such an occurrence.
The Lao PDR Arbitration
In 2019, the Lao People’s Democratic Republic (“Lao PDR”) successfully defended claims in an arbitration before the International Centre for Settlement of Investment Disputes (“ICSID”) and the Permanent Court of Arbitration (“PCA”) brought by two foreign investment companies alleging that Lao PDR failed to afford sufficient protection to their foreign investments, in violation of international obligations arising under two bi-lateral investment treaties. The ICSID Tribunal awarded Lao PDR $1.9 million in fees, expenses and costs of arbitration, and the PCA Tribunal awarded $1.8 million for similar reimbursement.
In April 2020, Lao PDR filed a complaint in federal court in Idaho to enforce the arbitral awards against James Baldwin and Bridge Capital, LLC, alleging that they were alter egos of the two arbitral award debtors, Lao Holding N.V. and Sanum Investments Ltd. Lao PDR filed the complaint pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), as implemented by Title 9 of the United State Code, the Federal Arbitration Act.
After Bridge Capital moved to dismiss the complaint for lack of jurisdiction, Lao PDR moved to amend the complaint to add another Bridge Capital entity as a defendant. After Baldwin moved to dismiss the complaint for lack of jurisdiction, Lao PDR moved to amend the complaint again, seeking to add a fraudulent transfer claim and a new defendant, Coleman, LLC. Lao PDR alleged that Coleman is an Idaho LLC that is owned by Baldwin, managed by his relatives, and owns real estate in Idaho.
In May 2021, Lao PDR filed a motion for leave to file a third amended complaint and a motion for a temporary restraining order and preliminary injunction, seeking to enjoin the disposal, transfer, or encumbrance of property alleged to be Baldwin’s. The Third Amended Complaint alleged the judgment debtor was attempting to shield his assets through an elaborate series of transfers, including the sale of a property originally listed for sale at $12 million to entities related or controlled by the judgment debtor for just $5.5 million. Lao PDR also alleges that the judgment debtor removed certain bank accounts from Idaho, and that the defendant entities in Idaho were alter egos of the judgment debtor.
The U.S. District Court in Idaho granted Lao PDR’s motion for leave to file its Third Amended Complaint in July 2021. Government of the Lao People’s Democratic Republic v. Baldwin, 2021 WL 3007251 (July 15, 2021). The Court ruled that Lao PDR had plausibly alleged that the judgment debtor had transferred and encumbered property to put it out of the reach of Lao PDR, knowing the Lao PDR might seek to enforce its arbitral award in Idaho.
Security for Costs
Most arbitrable tribunals have procedural rules that allow orders to establish security for costs as a matter of interim relief, to avoid the kinds of collection issues Lao PDR alleges it has faced. Aside from the procedural rules of the forum, the tribunals have the inherent power to order an advance payment for security.
Interim Relief from the Courts or the Tribunal
New York’s Civil Practice Law and Rules provides for a temporary attachment or preliminary injunction against conveying assets in New York as an interim remedy to secure future recovery. CPLR 7502(c) is available for 30 days to secure payment in an arbitration that “is pending or that is to be commenced.” New York courts expect that the arbitral tribunal will then decide whether that provisional remedy should be continued while addressing the merits of the case.
Joining an Additional Party in the Arbitration
Tribunal procedural rules also provide for joining additional parties to the arbitration, which made aid in collection of an award. Where conveyances of assets occurs during the arbitration, and the contract giving rise to the arbitration is one of those assets, the successor and assigns provisions of the contract may allow the arbitration to continue against the successor. Using this tool may delay the arbitration as the newly joined party can contest jurisdiction and fairness, but it may also make the tribunal aware of questionable transfers that raise doubts about the credibility and trustworthiness of the counterparty. Often, rather than allowing the tribunal to delve into the questionable transfer, the successor will simply agree to be liable on any ultimate award.
In sum, collection is frequently an issue in any dispute resolution, as the Lao PDR case demonstrates. But these strategies may help in alleviating such issues.