Source: http://www.newyorkconvention.org/news/the+us+court+of+appeals+for+the+dc+circuit+reverses+by+majority+lower+decision+the+new+york+convention+applies+and+there+is+no+waiver+of+sovereign+immunity
Timestamp: 2019-04-19 13:09:18+00:00

Document:
On 31 May 2016, the US Court of Appeals for the District of Columbia Circuit reversed by majority the district court’s decision which had denied the enforcement of a foreign arbitral award for lack of subject-matter jurisdiction. The New York Convention was applicable in this case and the Czech Republic had not waived its sovereign immunity under the Foreign Sovereign Immunity Act (Diag Human, S.E., v. Czech Republic – Ministry of Health, No. 14-7142 (D.C. Cir., 31 May 2016).
In 1990, the Ministry of Health entered into a Framework Agreement agreement with Diag Human, a blood plasma technologies and production company. Under the Framework Agreement, the Ministry contracted to purchase the necessary technical equipment and to provide training for medical personnel to ensure fractionated blood products would be safely transported and made available to transfusion wards throughout the Czech Republic. In lieu of monetary compensation for monetary performance under the Framework Agreement, Diag Human agreed to accept a share of the total volume of fractionated plasma produced.
When disputes arose over events which took between 1990 and 1996, Diag Human sued the Ministry in the Prague Commercial Court and the parties agreed to resolve their dispute in arbitration. The arbitration ended in 2008, with the tribunal concluding that the Czech Republic and the Ministry had breached their duties to Diag Human, resulting in commercial losses. The tribunal awarded damages and interest totaling more than USD 325 million to Diag Human.
Diag Human then filed suit in the district court for the District of Columbia, seeing to enforce the 2008 arbitration award against the Czech Republic. Diag Human invoked the Federal Arbitration Act, 9 U.S.C. § 201, which among other things, codifies the New York Convention.
The district court, however, dismissed the case sua sponte for lack of subject-matter jurisdiction. The district court concluded that the relationship between Diag Human and the Ministry was not “commercial” in nature and, therefore, the New York Convention did not apply. Furthermore, the district court concluded that the Czech Republic had not waived its sovereign immunity under under the terms of the Foreign Sovereign Immunity Act (FSIA), 28 U.S.C. § 1605(a)(1).
The Court of Appeals, by majority, stated that I has held that where jurisdiction is sought over a foreign sovereign for the enforcement of an arbitral award, two conditions must be satisfied: “First, there must be a basis upon which a court in the United States may enforce a foreign arbitral award; and second, [the foreign sovereign] must not enjoy sovereign immunity from such an enforcement action.” The US Court of Appeals found those two conditions satisfied.
According to the US Court of Appeals, two aspects of that standard were in dispute in the case before it: (1) whether Diag Human shared with the Czech Republic “a defined legal relationship, whether contractual or not” and (2) whether the arbitration award “is or may be governed by a treaty or other international agreement in force for the United States”. The US Court of Appeals answered both of these questions in favor of Diag Human and concluded that the arbitration exception of the FSIA was satisfied.
First, the 1990 Framework Agreement defined a legal relationship with the Czech Republic beginning in 1990 with the Framework Agreement. For the purposes of the FSIA’s arbitration exception, the US Court of Appeals found that it need not determine if the Framework Agreement constituted a contract. It need only determine that the Framework Agreement created “a defined legal relationship, whether contractual or not,” 28 U.S.C. § 1605(a)(6), and it concluded that it did.
Second, Diag Human had amply demonstrated that its arbitration award “may be governed by a treaty or other international agreement,” namely, the New York Convention. 28 U.S.C. § 1605(a)(6). In the United States, an arbitral award falls under the Convention when it “aris[es] out of a legal relationship, whether contractual or not, which is considered as commercial” The “commercial” aspect of this standard is optional – chosen (or not) by each individual signatory. The United States has adopted this commercial restriction. The US Court of Appeals concluded that Diag Human had satisfied its burden of showing that its arbitration award “may be governed” by the New York Convention because, Diag Human had a legal relationship with the Czech Republic and additionally, that relationship was commercial in nature. In the field of international arbitration, “commercial” refers to “’matters or relationships, whether contractual or not, that arise out of or in connection with commerce’”. Accordingly, a matter may be commercial even if not contractual, “so long as it has a connection with commerce.” Diag Human’s legal relationship with the Czech Republic through the Framework Agreement was commercial in nature. The provision of healthcare technology and medical services had an obvious connection to commerce.
Thus, the US Court of Appeals found that the Czech Republic was not entitled to sovereign immunity under the FSIA’s arbitration exception.
To satisfy its standard for subject-matter jurisdiction in an international arbitration case against a foreign sovereign, the US Court of Appeals had to assure itself not only that the foreign sovereign is not entitled to sovereign immunity, but also that a basis exists upon which “a court in the United States may enforce [the] foreign arbitral award”. The US Court of Appeals’ FSIA analysis answered this question. It had already established that the New York Convention, as codified by the United States, grants federal courts jurisdiction over arbitration disputes that fall within its ambit. 9 U.S.C. § 203. And it had established that in the United States, an arbitral award falls under the Convention when it “aris[es] out of a legal relationship, whether contractual or not, which is considered commercial”. Here, Diag Human’s relationship with the Czech Republic qualified as a commercial legal relationship, and the arbitration at issue arose out of that commercial legal relationship. A legal basis existed for federal courts to enforce this arbitration award, and so the US Court of Appeals was satisfied that subject-matter jurisdiction existed.
With respect to a question that arose at oral argument, i.e., whether the arbitration award to be enforced is final and how finality might (or might not) affect the resolution of this appeal the US Court of Appeals found this to be a question going to the merits of the case, as it could determine whether the arbitration award can be enforced or not. The US Court of Appeal’s opinion expressed no view on the matter. It was enough for it to establish that the district court possesses subject-matter jurisdiction to proceed with this case.
For these reasons, the US Court of Appeals, by majority, reversed holing of the district court and remanded the case for further proceedings consistent with its opinion.
Sentelle, Senior Circuit Judge, dissented finding that there was no error in the district court’s finding that any legal relationship between Diag Human and the Czech Republic ended before the present dispute. Nor that the Czech Republic has otherwise waived its sovereign immunity. Sentelle would, therefore, have affirmed the district court.

References: v. 
 § 201
 § 1605
 § 1605
 § 1605
 § 203