The “Refusal” Provisions
There are seven discretionary and exhaustive grounds for refusing recognition or enforcement of an award under Article V of the New York Convention:
- Lack of a valid arbitration agreement
- Violation of due process
- Exceeding the tribunal’s authority
- Irregularity in the composition of the tribunal or its procedures
- The award is not yet final or binding
- The award has been set aside or suspended
- Public policy reasons
Public policy is one of the most popular grounds used by parties to international arbitration to resist enforcement of arbitral awards. In a case of first impression, the Eleventh Circuit determined that an arbitral decision under Panamanian law did not violate public policy even though the plaintiff was unable to recover a statutory remedy under United States law under the Jones Act, 46 U.S.C. § 30104.
The Eleventh Circuit’s Decision
In Cvoro v. Carnival Corp. (Carnival), 941 F.3d 487 (11th Cir. 2019), the U.S. Court of Appeals for the Eleventh Circuit affirmed the judgment of a district court denying a request to reject an arbitration award based on the public policy defense under the convention. The court considered the defense but ultimately held that it applies only “when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.”
The plaintiff in Carnival, Sladjana Cvoro, was employed by the defendant, Carnival Corporation d.b.a. Carnival Cruise Lines (CCL), on a CCL cruise ship called the Carnival Dream, which sailed under a Panamanian flag. Prior to employment, Cvoro had signed an employment agreement containing mandatory-arbitration, forum-selection, and choice-of-law clauses. The forum-selection clause provided for resolution of all legal disputes with the cruise line by arbitration in the closest of several locations to her home country, Serbia (arbitration in Monaco). It also contained a choice-of-law provision for the law of the flag (Panama).
While working, Cvoro developed carpal tunnel syndrome while waiting tables, and the ship’s doctors treated her condition, but it worsened. Cvoro requested to be repatriated to her home in Serbia, and physicians in Serbia, selected by the CCL, performed surgery on Cvoro. Cvoro later alleged that the Serbian doctor was negligent and caused her to be permanently disabled.
Cvoro filed an arbitration proceeding against CCL in Monaco and asserted claims under United States law pursuant to the Jones Act, which affords seafarers a cause of action against their employer. Cvoro asserted that CCL was vicariously liable for the alleged negligence of the shoreside doctors whom CCL selected to treat her injury. Cvoro asserted a second claim under the doctrine of maintenance and cure for CCL’s alleged failure to provide her with medical treatment and to pay for her medical bills and room and board. The second claim was later dropped because the cruise line paid for all of her medical bills and her expenses for room and board.
Applying the plain terms of the seafarer’s agreement, the arbitrator determined that Panamanian law governed the arbitration proceeding under the choice-of-law provision, and the arbitrator refused to consider Cvoro’s Jones Act claim. Specifically, the arbitrator concluded that the tort-based claim failed because Panamanian law does not provide for vicarious liability of the employer for the negligence of treating shoreside physicians. The court also determined that Cvoro did not establish that Carnival was directly negligent in any way.
Cvoro next filed suit in federal court in Florida seeking to vacate the arbitration decision or, alternatively, deny recognition and enforcement of the arbitral award under Article V of the New York Convention on the ground that the application of Panama law deprived her of the opportunity to assert the Jones Act claim of vicarious liability and was therefore a violation of the public policy of the United States. The district court denied Cvoro’s request that it refuse to enforce the arbitral award and dismissed her claims brought under the Jones Act and general maritime law, holding that Cvoro did not establish that enforcing the award would violate U.S. public policy.
On appeal, Cvoro contended that applying Panamanian law violated U.S. public policy for purposes of the Article V(2)(b) defense under the convention because it deprived her of a remedy available in the United States that is not available under Panamanian law. The court rejected this argument and confirmed the arbitration decision.
In so holding, the court concluded that the public policy defense “applies only when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.” In applying this test, the court decided that Cvoro had not made that showing because (1) she was not disadvantaged by the arbitrator’s decision to apply Panamanian law because CCL had met its obligations under Panamanian law by paying for her medical costs and because those were the benefits she would be entitled to under U.S. law and (2) Cvoro did not avail herself of any of the other remedies available under Panamanian law specifically for seafarers.
Practice Pointers
As corporations are increasingly engaged in international trade, international arbitration is becoming more recognized as the preferred option in the face of cross-border disputes. Parties agreeing to enter into international arbitration agreements, however, should not assume that the challenges in obtaining relief always end at the moment an arbitral award is issued because there are some limited substantive grounds on which local courts may refuse to recognize and enforce the award. Nonetheless, the ruling in Carnival reaffirms the Eleventh Circuit’s support for awards rendered in international arbitration pursuant to valid, mutually-agreed-upon arbitration provisions without allowing a broad interpretation of the convention’s public policy defense to erode such support.