The U.S. Court of Appeals for the Fifth Circuit affirmed a judge’s dismissal of the People’s Republic of China and a Chinese company, Xiamen, from litigation in the U.S. District Court for the Eastern District of Louisiana. The appeals court agreed with the trial court that the federal judiciary lacked personal jurisdiction and subject matter jurisdiction over the Chinese company and the PRC, respectively. The result was that the district court could not enforce an arbitral award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention.
The underlying issue is a contract dispute between Covington Marine Corporation and Xiamen Shipbuilding. Pursuant to their contract’s arbitration clause, the dispute went to arbitration under the rules of the London Maritime Arbitration Association. The tribunal found neither side liable, but issued a separate award requiring Covington to pay 40% of the costs and Xiamen 60%. Xiamen then filed a petition in a Chinese court to have the liability award recognized and enforced. Covington did the same with the costs award.
Meanwhile, Covington appealed to the English High Court. The High Court found Xiamen liable, ordered Xiamen to pay 100% of the costs to Covington, and sent back the case to the tribunal for modification of the award. The arbitral tribunal changed their ruling and Covington petitioned the Chinese court to recognize the new awards.