A federal appellate court has upheld a $40 million international arbitration award against a challenge by the losing party that side-switching by two of its attorneys during the proceedings tainted the award. While the challenge to the award was unsuccessful, ABA Litigation Section leaders caution about the risks associated with an attorney conflict of interest in arbitration and the failure to timely object.
November 09, 2022 Top Story
Attorney Conflict Can Put Arbitration Award at Risk
Losing party waited too long to object to attorney side-switching
By Steven B. Chaneles
Counsel Switches Sides Before Issuance of Arbitration Award
The dispute that became Técnicas Reunidas De Talara S.A.C. v. SSK Ingeniería y Construcción S.A.C. began with a general contractor hired to update an oil refinery in Peru subcontracting out certain work for the project. After a contract dispute arose, the subcontractor filed a demand for arbitration against the general contractor in the International Chamber of Commerce International Court of Arbitration, with Miami, Florida, as the arbitral seat per the contract. In April 2020, at the conclusion of the hearing but prior to the tribunal rendering the award, the general contractor’s attorney advised the client, tribunal, and opposing counsel that he moved (with one of his former firm’s associates) to the firm representing the subcontractor. The parties filed post-hearing briefs, none of which mentioned the side-switching.
Almost a year later, in March 2021, the tribunal issued the award in favor of the subcontractor. In April 2021, the general contractor objected to alleged conflicts of the arbitrators but made no mention of the side-switching. In June 2021, the general contractor petitioned the U.S. District Court for the Southern District of Florida to vacate the award pursuant to the “public policy” exception under the convention governing the enforcement of international arbitration awards. In response, the subcontractor argued that the general contractor waived any defense by waiting too long to assert it. The district court confirmed the award, the general contractor appealed, and the U.S. Court of Appeals for the Eleventh Circuit affirmed.
Attorney Conflict Can Trigger a “Public Policy” Exception
As the single ground for vacatur, the general contractor asserted that the award was unenforceable because the side-switching violated U.S. public policy as a “direct, adverse and non-waivable conflict of interest” which fundamentally and irreparably tainted the award. The district court proceeded under Article V(2)(b) of the Inter-American Convention on International Commercial Arbitration (Panama Convention), codified in section 305 of the Federal Arbitration Act, because both parties were Peruvian, and Peru is a member of the Organization of American States and ratified the Panama Convention. Known as the “public policy” exception to enforcement, Article V(2)(b) permits a court to refuse to enforce an award if it violates the public policy of the country in which the award is sought to be enforced.
The Eleventh Circuit recognized that the United States has a public policy against attorney side-switching due to concerns about fairness and the integrity of the judicial system. However, the court found it problematic that the general contractor, as the objecting party, did not timely object on that basis. Although the public policy defense can only be raised during the enforcement stage, the general contractor could have objected sooner, either to the tribunal or to a court, to seek disqualification of the subcontractor’s attorneys from continued representation.
Litigation Section leaders agree. “Speak up if you believe that you have been prejudiced by side-switching after the hearing on the merits has been completed,” advises John M. Barkett, Miami, FL, cochair of the Section’s Ethics & Professionalism Committee.
A Cautionary Tale: Make Timely Objections
The Eleventh Circuit observed that its conclusion was “consistent with the ‘well settled’ principle in the United States “that a party may not sit idle through an arbitration procedure and then collaterally attack that procedure on grounds not raised . . . when the result turns out to be adverse.” “This case is a warning to parties and counsel to be vigilant and attentive to conflict issues throughout the entire arbitration process,” cautions Henry R. Chalmers, Atlanta, GA, immediate past cochair of the Section’s Alternate Dispute Resolution Committee.
“Most arbitral rules require parties to inform the arbitral body of any possible conflicts that might arise during the course of the arbitration, and preliminary hearing and scheduling reports commonly reinforce that message,” explains Chalmers. “Counsel can’t just provide their conflict checklists at the beginning of a case and then ignore [subsequent] events,” he concludes.
Hashtags: #ADR; #arbitration; #award; #conflict; #construction; #international; #Panama Convention; #vacatur; #waiver
Resources
Copyright © 2022, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Litigation Section, this committee, or the employer(s) of the author(s).