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CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership

Issue Discussed: Security

Submitted by Michael T. Carolan, Thomas J. Kinney*

Date Promulgated: December 10, 2012

 

CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, No. 12 Civ. 8087 (CM), 2012 WL 6178236 (Dec. 10, 2012)

Court: U.S. District Court for the Southern District of New York

Issue Decided: Whether an arbitration panel’s interim order requiring respondent to post $10 million in pre-hearing security and enjoining respondent from transferring any assets in the world if they failed to post the ordered security was a final award subject to review and confirmation.

 

In CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, the U.S. District Court for the Southern District of New York confirmed an arbitration panel’s interim award requiring respondent to post $10 million in pre-hearing security and enjoining respondent from transferring any assets in the world if they failed to post the ordered security, holding it was a final order subject to review and confirmation.

The Arbitration

CE International Resources Holdings LLC (“CE”) and S.A. Minerals Ltd. Partnership (“S.A.”), two foreign corporations, arbitrated a dispute between them (and certain other parties) in New York.  While the arbitration was ongoing, on October 26, 2012, the arbitrator issued an interim award providing that S.A. must post $10 million in pre-hearing security. The award also enjoined S.A. from transferring any assets located anywhere in the world (up to $10 million), if the pre-hearing security was not posted.

CE moved the U.S. District Court for the Southern District of New York to confirm the interim award.  In pertinent part, CE asserted that the interim award should be confirmed because the parties, by adopting the International Dispute Resolution Procedures of the American Arbitration Association (the “AAA IDP”), had agreed that the arbitrator had the power to award interim security.  One of the respondents (not S.A.) opposed confirmation, asserting that the court was without the power to confirm the interim award and the implementing injunction and that the award was contrary to New York law.

The District Court Opinion

The District Court confirmed the interim award.  First, the court noted that “the styling of an award as ‘interim’ does not insulate it from review if it finally determines a severable issue in the case.”  In that regard, the court held that “an award of temporary equitable relief, such as a security award, [is] separable from the merits of the arbitration, and thus subject to federal review.”

Second, the court held that although the parties’ arbitration agreement “does not specifically provide for the posting of security pending a final award,” because the parties agreed that the arbitration would be “governed by” the AAA IDP – which does permit interim security awards by an arbitrator – the parties “agreed that the arbitrators could issue an award that provides for interim security” and granted the arbitrator the “power to award injunctive relief as an interim measure.”

Third, the court disagreed that the arbitrator was bound to follow New York law with respect to interim security awards.  In the court’s view: “It lay with the parties to confer on the arbitrator whatever powers they wished.”  Because the parties – including S.A. and the other respondents – “adopted rules that allowed the arbitrator to award interim security,” they were “bound by their bargain.”  The court further held that “[n]othing about enforcing an order rendered in accordance with the procedures to which the parties agreed offend either New York law or New York public policy.”  Thus, the arbitrator was empowered to order interim security even though, if the dispute was before the New York courts, no such security was available.

Finally, the court also confirmed the injunctive aspect of the interim award.  It initially noted that the AAA IDP expressly empowers the arbitrator to grant injunctive measures “for the protection or conservation of property.”  More broadly, the court stated that “[i]n the context of arbitration, the public policy favoring the enforcement of arbitration agreements and the confirmation of arbitral awards trumps” any countervailing concerns.

 

* Michael T. Carolan and Thomas J. Kinney are partner and associate, respectively, in the Insurance & Reinsurance group of Crowell & Moring LLP.  They each represent cedents and reinsurers in disputes involving a broad spectrum of issues.