Where a court case was filed to uphold arbitral award against Belize, District of Columbia Circuit rejects Belize's immunity claim since exchanges at issue were basically the offer of land and thus commercial in nature; New York Convention's meaning of "business" isn't the same as the FSIA's definition

In 2005, Belize Telemedia Limited ("Telemedia"), Belize's biggest private broadcast communications organization, and the Government of ("Belize"), acting under the course of then-Prime Minister Said Musa, went into an assention styled "The Accommodation Agreement" to buy properties from Belize which the nation wanted to offer keeping in mind the end goal to better suit the Government's correspondence needs. As indicated by this assention, Telemedia was to acquire alleviation from charge and administrative weights generally material to the organization, and get other huge advantages. The gatherings additionally conceded to the accompanying discretion statement:


Any debate emerging out of or regarding this Agreement including any inquiry with respect to its reality, legitimacy or end, which can't be settled agreeably between the gatherings will be alluded to lastly settled by intervention under the London Court of International Arbitration (LCIA) Rules which Rules are esteemed to be fused by reference under this Section.


In 2008, the Prime Minister Dean Barrow took office. The Prime Minister Barrow repudiated the Accommodation Agreement, attesting that it was repulsive to the laws of Belize and in this manner invalid. At the point when Belize stopped to respect its legally binding commitments, Telemedia presented the question to mediation before the LCIA in London. Belize declined to take an interest in the mediation procedures, fighting that the assertion provision was invalid and that the authorities needed ward. On March 18, 2009, the arbitral court decided that the Accommodation Agreement was legitimate and authoritative on Belize; that the council had locale over Telemedia's cases; and that Belize had ruptured the Accommodation Agreement. The court conceded Telemedia revelatory alleviation, and granted more than 38 million Belize dollars in harms. Telemedia allocated the financial part of this honor to Belize Social Development Limited ("BSDL").


In November 2009, compliant with area 207 of the Federal Arbitration Act ("FAA"), BSDL got suit the District Court for the District of Columbia to affirm the arbitral honor. Belize moved to stay affirmation of the honor pending determination of related suit in Belize, which the locale court conceded. BSDL at that point requested.


The United States Court of Appeals for the District of Columbia Circuit turned around, taking note of that under the FAA, the stay arrange was not in similarity with government law and worldwide duties. The Court remanded and trained the locale court to audit and concede BSDL's appeal to affirm the Final Award truant a finding that an identified special case to implementation connected. On remand, Belize contended that the Prime Minister at the season of the passage of the understanding needed expert to enter either the agreement or the assertion assention, and that the area court needed topic purview over the debate guaranteeing its sovereign insusceptibility under the Foreign Sovereign Immunities Act ("FSIA"). Since Belize had not offered help for its case concerning the discretion assention, the region court held that locale was appropriate under the intervention special case to the FSIA, and allowed BSDL's request of to affirm the honor. Belize bid.


The United States Court of Appeals for the District of Columbia Circuit confirms the judgment of the District Court. The key issue here is whether and under what conditions the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605(a)(6), assertion special case applies to a case in which the activity was brought to affirm a honor made compliant with a consent to parley. “The Foreign Sovereign Immunities Act is ‘the sole basis for obtaining jurisdiction over a foreign state in the courts of [the United States].’ Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989). Its terms are absolute: Unless an enumerated exception applies, courts of this country lack jurisdiction over claims against a foreign nation. Saudi Arabia v. Nelson, 507 US. 349, 355 (1993). BSDL claims the arbitration exception applies to this case.” [Slip op. 3]
“The arbitration exception provides: ‘A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which the action is brought, either to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration under the laws of the United States, or to confirm an award made pursuant to such an agreement to arbitrate, if . . . the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.’ 28 U.S.C. § 1605(a)(6).”
“Where a plaintiff has asserted jurisdiction under the FSIA and the defendant foreign state has asserted ‘the jurisdictional defense of immunity,’ the defendant state ‘bears the burden of proving that the plaintiff’s allegations do not bring its case within a statutory exception to immunity.’ Phoenix Consulting Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000). […]” [Slip op. 3-4]
Belize argued that the arbitration exception does not apply. First, it argued that the arbitration exception to sovereign immunity does not apply because there was no “agreement made by the foreign state.” 28 U.S.C. § 1605(a)(6). Belize deducted that the Prime Minister lacked authority to bind the sovereign in an unconstitutional agreement; and that the Accommodation Agreement violated the Constitution and laws of Belize. Therefore, the Prime Minister lacked authority to bind Belize in the Accommodation Agreement and execute it on behalf of Belize. Belize concluded that the agreement was void ab initio, and that every provision in the agreement, including the arbitration provision, was void.
The Court does not agree with this argument.
“The language of the FSIA arbitration exception makes clear that the agreement to arbitrate is severable from the underlying contract. The exception only requires a valid ‘agreement . . . to submit to arbitration,’ 28 U.S.C. § 1605(a)(6). It also distinguishes between the underlying ‘legal relationship’ and the agreement to arbitrate disputes arising from that relationship. Id. As we have previously noted, the agreement to arbitrate is ‘separate from the obligations the parties owe to each other under the remainder of the contract.’ Marra v. Papandreou, 216 F.3d 1119, 1123, 1125 (D.C. Cir. 2000). It is, for all intents and purposes, ‘a distinct contract in and of itself.’ Id.; see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 40304 (1967) (distinguishing between the agreement to arbitrate and the underlying contract). In order to succeed in its claim that there was no ‘agreement made by the foreign state . . . to submit to arbitration,’ 28 U.S.C. § 1605(a)(6), Belize must show that the Prime Minister lacked authority to enter into the arbitration agreement. This Belize has failed to do.” [Slip op. 4]
“More briefly put, this case turns on the proposition that Belize entered two agreements: the Accommodation Agreement and the Agreement to Submit to Arbitration, albeit the two were entered simultaneously. The argument of Belize that the Accommodation Agreement was beyond the authority of the Prime Minister might provide a defense if we were considering this controversy de novo on its merits. However, in order to bring that argument before us, Belize must first establish that the arbitration provision of the contract is void, so that we would not be bound to honor the arbitral tribunal’s determinations. We cannot determine the merits of the defense if the arbitration clause applies. Since Belize has not negated the clause, we do not reach the merits defense.” [Slip op. 5]
Second, Belize argued that the arbitration exception does not apply because the award is not “governed by a treaty or other international agreement . . . calling for the recognition and enforcement of arbitral awards.” 28 U.S.C. § 1605(a)(6). Belize contended that the New York Convention does not govern the award because the treaty requests that the award arise from a commercial transaction while this award arose from a governmental transaction.
“The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) is a multilateral treaty providing for ‘the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.’ Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’), art. I(1), 21 U.S.T. 2517 (1970). For most signatories, the New York Convention applies to all private arbitral agreements, regardless of the subject matter. Restatement (Third) of Foreign Relations Law § 487 cmt. f (1987). The United States, however, made a declaration, authorized by Article I(3) of the Convention, that the Convention would be applicable ‘only to differences arising out of legal relationships whether contractual or not, which are considered commercial under the national law of the State making such declaration.’ New York Convention, 21 U.S.T. 2517. The United States implemented the Convention in the Federal Arbitration Act, 9 U.S.C. § 201 et seq. See id. at § 202 (applying the Convention to an award that arises ‘out of a legal relationship, whether contractual or not, which is considered as commercial’).”
“The New York Convention, as codified in the FAA, does not define the term ‘commercial.’ ‘When a statute uses [a term of art], Congress intended it to have its established meaning.’ McDermott Int’l, Inc. v. Wilander, 498 U.S. 337, 342 (1991). In the context of international arbitration, ‘commercial’ refers to ‘matters or relationships, whether contractual or not, that arise out of or in connection with commerce.’ Restatement (Third) of U.S. Law of Int’l Comm. Arbitration § 11 (2012); see Restatement (Third) of Foreign Relations Law § 487 cmt. f (1987) (‘That a government is a party to a transaction does not destroy its commercial character; indeed, the fact that an agreement to arbitrate is in the contract between a government and a private person may confirm its commercial character. . . .’). As the Comment to the Restatement on International Commercial Arbitration explains, ‘A matter or relationship may be commercial even though it does not arise out of or relate to a contract, so long as it has a connection with commerce, whether or not that commerce has a nexus with the United States.’ Restatement (Third) of U.S. Law of Int’l Comm. Arbitration § 11 cmt. e; see Island Territory of Curacao v. Solitron Devices, Inc., 356 F. Supp. 1, 13 (S.D.N.Y. 1973) (‘[I]t seems clear that the full scope of ‘commerce’ and ‘foreign commerce,’ as those terms have been broadly interpreted, is available for arbitral agreements and awards.’ (quoting Leonard V. Quigley, Convention on Foreign Arbitral Awards, 58 A.B.A. J. 821, 823 (1972))). Using the Restatement’s definition of ‘commercial,’ the New York Convention applies to the Accommodation Agreement.”
“The text of the FAA’s codification of the New York Convention is consistent with this conclusion. While the New York Convention, as codified in the FAA, does not expressly define ‘commercial,’ it does expressly encompass any ‘transaction, contract, or agreement described in’ 9 U.S.C. § 2. 9 U.S.C. § 202. Section 2 in turn includes contracts ‘evidencing a transaction involving commerce,’ 9 U.S.C. § 2 — a term the Supreme Court has interpreted ‘as the functional equivalent of the more familiar term `affecting commerce’ — words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power,’ Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). The Accommodation Agreement falls within that term’s broad compass.”
“The Agreement involves the sale of real property in exchange for certain accommodations, a transaction with a connection to commerce. See Holzer v. Mondadori, No. 12 Civ. 5234, 2013 WL 1104269, at *5 (S.D.N.Y. Mar. 14, 2013) (noting that the sale of property is commercial under the New York Convention). The provision of telecommunication services has an even more obvious connection to commerce. Indeed, in today’s technological age, telecommunication services are often a ‘crucial segment of the economy.’ AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 397 (1999). The taxes Belize levies against a company also have a connection with commerce, see Commonwealth Edison Co. v. Montana, 453 U.S. 609, 61415 (1981) (noting the impact taxes have on commerce), as do the duties Belize charges (or forgoes charging). We thus conclude that the Accommodation Agreement is commercial and is governed by the New York Convention.” [Slip op. 5-7]
Furthermore, Belize argued that the court should adopt the definition of “commercial” as articulated by the Supreme Court in Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992). In examining the scope of the FSIA’s “commercial activity” exception, 28 U.S.C. § 1605(a)(2), the Supreme Court held in this case that a foreign state engages in commercial activities when it acts in the manner of a private player within the market; and reasoned that the FSIA “largely codifies the so-called ‘restrictive’ theory of foreign sovereign immunity”; that the word “commercial” was a “term of art”; and that Congress therefore intended the word to have “the meaning generally attached to that term under the restrictive theory at the time the statute was enacted,” i.e., distinguishing between “state sovereign acts, on the one hand, and state commercial and private acts, on the other.” Weltover, 504 U.S. at 614.
“Belize’s reliance on Weltover is misplaced. Unlike with the FSIA, Congress was not codifying the restrictive theory of foreign sovereign immunity when it ratified and implemented the New York Convention. Rather, the treaty concerns international arbitration. We thus recognize that: (1) the Convention’s purpose was to ‘encourage the recognition and enforcement of commercial arbitration agreements in international contracts,’ TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 933 (D.C. Cir. 2007); (2) the word ‘commercial’ is a ‘term of art’; and (3) in implementing the Convention, Congress intended that word to have the meaning generally attached to that term in the international commercial arbitration context. As we discussed above, ‘commercial’ in the context of international arbitration refers to matters which have a connection to commerce. Belize’s argument to the contrary will not sell.” [Slip op. 7]
The Court affirms the District Court’s decision.

Citation: Belize Social Development Ltd. v. Government of Belize, No. 14-7002 (D.C. Cir. 2015).

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