Iraq Telecom Ltd. v. IBL Bank S.A.L., No. 21cv10940 (S.D.N.Y. Apr. 8, 2022)
In 2011, Iraq Telecom Ltd. (“Iraq Telecom”) agreed to subordinate a loan to a third party company by entering into a Subordination Agreement with Intercontinental Bank of Lebanon S.A.L. (“IBL”). The Subordination Agreement provided for binding arbitration in Lebanon and the application of Lebanese law. It also provided that any arbitration award would be final and binding, and that any award could be enforced by any court with jurisdiction.
After learning that it had been fraudulently induced to enter into the Subordination Agreement, Iraq Telecom brought an action against IBL in arbitration in Lebanon. In September 2021, Iraq Telecom received an award in its favor in the arbitration, to which a Lebanese court later gave executory effect. IBL then initiated an exequatur proceeding in a Lebanese court seeking to annul the award.
The Enforcement Proceedings
Iraq Telecom petitioned the Southern District of New York to confirm the arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention,” or the “Convention”). IBL requested a stay of enforcement due to the risk that a Lebanese court might set aside the arbitration award pursuant to its request to vacate the award.
In considering Iraq Telecom’s petition for confirmation and IBL’s request for a stay, the court explained that, under Article III of the Convention, the country in which (or under the law of which) the award was made has primary jurisdiction over the arbitration award. All other signatory States are secondary jurisdictions. Secondary jurisdictions may only refuse to enforce an award on the limited grounds specified in Article V of the Convention. Article V(1)(e) permits refusal where (i) the award has not yet become binding on the parties, or (ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
In this case, Lebanon was the country with primary jurisdiction, as Lebanese law governed the agreement and the arbitration took place in Lebanon. However, the court found that the Convention “does not require a party seeking enforcement of an award in a secondary jurisdiction — here, the United States — to await the conclusion of all challenges to the award that may be pursued in the primary jurisdiction — here, Lebanon.” The court found that (i) the award was binding pursuant to arbitration provision of the Subordination Agreement, regardless of the annulment action pending in Lebanon, and (ii) no court in Lebanon had yet set aside or suspended the award. Further, the court found that IBL failed to demonstrate a likelihood of success in the annulment action. The court therefore granted Iraq Telecom’s petition to confirm the award, which included issuing a declaratory judgment reflecting the findings of the Lebanese Tribunal.
The court additionally denied IBL’s request for a stay of enforcement pursuant to Article VI of the Convention. The court found that the Lebanese Tribunal made lengthy, detailed findings of fact and law after three years of arbitration, and that IBL had not provided any estimate of how long its annulment action might take. The goals of arbitration—”settling disputes efficiently and avoiding long and expensive litigation”—therefore weighed against a stay. Further, the court found that IBL had delayed bringing its annulment action for four months, and that its arguments in that action were weak; despite the Lebanese court’s greater leeway to vacate the award as a primary jurisdiction under the Convention, IBL failed to show that it was likely to do so. The balance of hardships also weighed against a stay, particularly where IBL’s precarious financial condition meant it might not honor its obligations under the award.
This Article was originally published in the North America Newsletter.