In an April 2015 decision, Asignacion v. Rickmers Genoa Schiffahrtsgesellschaft MBH & CIE KG, 783 F.3d 1010 (5th Cir. 2015), the U.S. Court of Appeals for the Fifth Circuit overturned a trial court decision that refused enforcement of a Philippine arbitral award on public policy grounds.
Plaintiff Lito Martinez Asignacion (“Asignacion”), a citizen and resident of the Philippines, signed a contract to work as a seaman aboard a vessel owned by Defendant, German company Rickmers Genoa Schiffahrtsgesellschaft mbH & Cie KG (“Rickmers”). The vessel sailed under the flag of the Marshall Islands. As required by Philippine law, Asignacion’s contract incorporated the terms governing the employment of Filipinos on ocean-going vessels (“Standard Terms”). The Standard Terms included a mandatory arbitration clause, and also included a choice of law clause providing that Philippine law would govern any dispute between the parties.
When the vessel was docked in the Port of New Orleans, Asignacion suffered severe burns and injuries when a cascade tank aboard the vessel overflowed. Asignacion sued Rickmers in Louisiana state court to seek recovery for his injuries. The state court granted Rickmers’ request to enforce the arbitration clause in Asignacion’s contract, stayed the litigation, and ordered arbitration in the Philippines. During the arbitration, the Philippine panel refused to consider United States or Marshall Islands law, instead applying Philippine law based on the contract’s choice of law provision. The panel accepted Rickmers’ physician’s finding that Asignacion had the lowest grade of compensable disability under the Standard Terms, and granted Asignacion total damages of $1,870.
Asignacion filed a motion in Louisiana state court asking Rickmers to show cause as to why the Philippine arbitral award should not be set aside for violating United States public policy. Rickmers removed the suit to federal court and sought enforcement of the award. The district court then evaluated the award under Article V(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which allows a signatory country to refuse enforcement if “recognition or enforcement of the award would be contrary to the public policy of that country.” The district court held that the award implicated the public policy exception because applying Philippine law “effectively denied Asignacion the opportunity to pursue remedies to which he was entitled as a seaman, i.e., maintenance and cure, negligence, and unseaworthiness.” The district court also held that the prospective waiver doctrine, which invalidates certain choice of law provisions, applied to Asignacion’s contract. As such, the district court refused to enforce the Philippine arbitral award. Rickmers then appealed the decision to the Fifth Circuit Court of Appeals.
On appeal, the Fifth Circuit reversed the district court and reinstated the Philippine panel’s arbitral award. The Fifth Circuit observed that under the New York Convention, which governed enforcement of the award, a court “shall confirm” the foreign arbitral award save for particularized exceptions, including the public policy exception. The public policy exception must be applied “only where enforcement would violate the forum state’s most basic notions of morality and justice.” As the party opposing enforcement, Asignacion bore the burden of proving that the public policy exception applied to render the award unenforceable.
The Fifth Circuit rejected both premises of the district court’s ruling concerning applicable law. First, the Philippine arbitrator’s “exclusive reliance on the contract’s choice of law provision” to apply Philippine law was, at most, an “unexceptional legal error” that did not merit reversal of the award. Second, the district court erred in relying on the prospective waiver doctrine to invalidate the contract’s choice of Philippine law because the doctrine “is limited to statutory rights and remedies.”
Moreover, the Fifth Circuit held that the district court erred in ruling that the public policy exception applied in this case, noting that the “Supreme Court has rejected the concept that all disputes must be resolved under our laws and in our courts, even when remedies under foreign law do not comport with American standards of justice.” Therefore, “even with regard to foreign seamen, United States public policy does not necessarily disfavor lesser or different remedies under foreign law.” Furthermore, the Court commented on the importance of the Standard Terms, which Philippine law required be incorporated into the parties’ contract. That requirement raised concerns over international comity and the need for predictability in the resolution of disputes in the international commercial system, weighing in favor of enforcement. This, added the Court, would have been the case “even assuming that a contrary result would be forthcoming in a domestic context.”
Based on Fifth Circuit precedent, the court was reluctant to hold that lesser remedies make an award unenforceable on public policy grounds. Likewise, the district court’s finding that the award “effectively denied Asignacion the right to pursue his general maritime remedies” was insufficient to invoke the Convention’s public policy exception. The Fifth Circuit found “no evidence that the Philippine arbitral award was inadequate relative to Asignacion’s unmet medical needs, let alone so inadequate as to violate this nation’s most basic notions of morality and justice.”
Concluding that the “district court erred in determining that Asignacion’s award violated the public policy of the United States,” the Fifth Circuit reversed and remanded the case to the district court to enforce the award.
A version of this post originally appeared in the July 2015 edition of Baker & McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.