Arbitration

• Author: International Law Group, PLLC
• Pages: 120-122

Page 120

Frontera Resources Azerbaijan Corporation (Frontera) is a Cayman Islands company. The Republic of Azerbaijan is the situs of and owns the State Oil Corporation of the Azerbaijan Republic (SOCAR). In November 1998, the companies agreed to allow Frontera to develop and manage Azerbaijan oil deposits and to deliver oil to SOCAR.

In 2000, disputes developed over oil payments. Not only did SOCAR seize the oil, but also the bank that had financed Frontera in this venture foreclosed on the loan and settled with SOCAR. Frontera continued to press for payment, while SOCAR denied liability based on its settlement with the bank. The matter went to arbitration before a Swedish tribunal which awarded Frontera about $1.24 million plus interest.

Frontera petitioned a New York federal court to enforce the Swedish award against SOCAR. It relied on Article II(2)of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) [June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38,] as implemented at 9 U.S.C. § 207.

The district court, however, dismissed the petition for lack of personal jurisdiction. It found that SOCAR lacked enough contacts with the U.S. to meet the Due Process Clause criteria. Frontera appealed. The U.S. Court of Appeals for the Second Circuit finds that the district court had properly acquired jurisdiction over either SOCAR or SOCAR's property. It had erred, however, in holding that the foreign states and their agents enjoy rights under the Due Process Clause. The Court overrules its prior holding in Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir. 1981), and remands for a jurisdictional analysis.

The Court first addresses the issue of jurisdiction over SOCAR. "We have previously avoided deciding whether personal or quasi in rem jurisdiction is required to confirm foreign arbitral awards pursuant to the New York Convention.

... However, the numerous other courts to have addressed the issue have each required personal or quasi in rem jurisdiction. ..."

"Unlike 'state courts[,] [which] are courts of general jurisdiction[,]... federal courts are courts of limited jurisdiction which thus require a specific grant.' ... 'The validity of an order of a federal court depends upon that court's having jurisdiction over both the subject matter and the parties.'"

"Because of the primacy of jurisdiction, 'jurisdictional questions ordinarily must precede merits determinations in...