Zeevi Holdings Ltd. v. Republic of Bulgaria, No. 09 Civ. 8856 (S.D.N.Y. Apr. 2011), decides whether a party with a valid arbitral award may invoke the provisions of the New York Convention to enforce the award in the U.S. or rather must comply with the forum-selection clause of the underlying agreement, which the Court here read as requiring execution solely in Bulgaria.  The District Court upholds the forum selection clause in a discussion pertinent to several recurring issues of international practice.

Zeevi,  an Israeli company, sought to confirm a non-U.S. arbitral award against Bulgaria.  The underlying dispute related to a commercial, international matter involving the purchase of 75% of Balkan Airlines, the Bulgarian national carrier.  The underlying agreement contained two choice of forum provisions, the first calling for arbitration in accordance with the rules of arbitration of the United Nations Commission on International Trade and the second providing that “execution of an award against the Seller may be conducted only in Bulgaria in accordance with the provisions of Bulgarian law”.   In other litigation Zeevi has succeeded in obtaining from an Israeli court what appears to have been confirmation of the arbitral award, which was for in excess of $10 million.  

In the Southern District of New York action,

First, the District Court held that the Israeli judgment was not entitled to preclusive effect because it was made under Israeli law, and the District Court found that Bulgarian law governs the meaning and scope of the Agreement.  The District Court did not address whether the Bulgarian entity had raised or waived that defense in the Israeli proceeding.

Second, the District Court found that the New York Convention governed the substantive issues before it.  Acknowledging that the grounds set forth in the Convention did not include an objection for improper venue, the Court relied on the Second Circuit’s decision in Monegasque de Reassurances S.A.M. v. Nak Naftogaz of Ukr., 311 F.3d 494 (2d Cir. 2002) (Monde Re), for the proposition that the Convention provided the exclusive substantive grounds for challenging an award but that the Court could apply local procedures as well.  In Monde Rethe Court of Appeals affirmed the doctrine of forum non conveniens as applied to the attempt to enforce an arbitral award.  Here the District Court applied the same reasoning to enforce an exclusive venue provision. 

Third, the District Court read the second choice-of-forum provision as requiring the claimant to use Bulgarian courts for any effort to execute on the award.  The Court did not address whether there was a way of reconciling what arguably are inconsistent provisions in the underlying agreement (invoking the international arbitration procedures (the first choice of forum provision) carries with it the right to enforce under the New York Convention, so should the second, venue provision be limited to efforts to enforce in Bulgaria?).  Nor did the District Court address whether, in the face of inconsistent provisions, it might permit extrinsic evidence to discern the intention of the parties, or simply whether it might prefer a reading that upholds the claimant’s right to utilize the New York Convention’s broad grant of right to enforce in many relevant jurisdictions.

Fourth, the District Court held that evidence of corruption sufficient to void the forum clause as read by the District Court required “evidence of corruption specifically targeted at a party rather than broad claims about the foreign judicial system as a whole”.  The District Court did not address the recent discussion, in the Southern District of New York as well as in the Third Circuit involving Chevron and Ecuador, concerning the type of evidence that is necessary for a successful challenge to a non-U.S. forum as corrupt (see our discussion of that topic here).