UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
GLOBAL DISTRESSED ALPHA FUND I LP, )
)
Petitioner, )
)
v. ) Civil Action No. 10-0122 (ESH)
)
RED SEA FLOUR MILLS CO. LTD., )
)
Respondent. )
__________________________________________)
MEMORANDUM OPINION
Global Distressed Alpha Fund I LP (“Global Distressed” or “Petitioner”), as the
successor-in-interest to SASEA Holding in Bankruptcy (“SASEA”), has filed a petition to
confirm two foreign arbitral awards against Red Sea Flour Mills Co. Ltd. (“Red Sea” or
“Respondent”) pursuant to the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, New York, June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38
(“the New York Convention”) and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. §§ 201-
208. (Petition to Confirm Foreign Arbitral Awards (“Petition”), Jan. 21, 2010 [dkt. #1].) A
default has been entered against Red Sea, which has neither responded to the Petition nor
appeared in the case. (Entry of Default, June 30, 2010 [dkt. #9].) Before the Court is
petitioner’s motion for a default judgment confirming the awards. (Mot. for Default Judgment,
July 2, 2010 [dkt. #10].) For the reasons stated herein, Petitioner’s motion for default judgment
will be granted and an order confirming the awards and entering judgment for Petitioner and
against Respondent will be issued.
BACKGROUND1
Red Sea is a company organized and existing under the laws of the Republic of Yemen,
with its principal place of business in Sana'a, Republic of Yemen. (Petition ¶ 5.) Red Sea
operates one of the largest milling plants in Yemen. (Id.) SASEA, prior to its bankruptcy in
1992, was a Swiss holding company for a large group of corporations. (Id., Att. 1, Ex. B, at 5.)
During the 1980's, Red Sea accumulated a number of unpaid debts to SASEA and several of its
affiliated companies. (Id. ¶ 10.) On September 13, 1991, Red Sea and SASEA entered into a
Memorandum of Agreement to settle these debts. (Id. ¶ 10 & Att. 1, Ex. A.) Pursuant to the
Memorandum of Agreement, Red Sea agreed to pay SASEA a sum equivalent to the balance it
owed as of December 31, 1990,2 plus 6% annual interest, via monthly installment payments. (Id.
¶ 11.) Article 6 of the Memorandum of Agreement provided that “[a]ny difficulties arising
when this agreement is put into effect or from the consequences thereof, or arising from the
interpretation of this agreement or of its consequences will come under the jurisdiction of an
Arbitration Tribunal based in Geneva (Switzerland).” (Id. ¶ 13 & Att. 1, Ex. A, at 4.)
Red Sea failed to repay any of the amounts due under the Memorandum of Agreement.
(Id. ¶ 12.) On August 9, 2001, SASEA filed two requests for arbitration: the first sought an
award of $85,582,740; the second sought interest on that amount from December 31, 1990 until
full payment was made. (Id. ¶ 13-14 & Att. 1, Ex. B, at 5.) On October 10, 2002, a
1
As Respondent Red Sea has not appeared, the Court relies upon the Petition for the
factual history of the case.
2
According to the Memorandum of Agreement, Red Sea’s debt to SASEA at that time
was $154,927,774, FF5,585,173 (French francs), and ITL2,501,173,240 (Italian lira). (Id., Att.
1, Ex. A, at 2.)
2
three-member arbitral tribunal was duly constituted in Geneva, Switzerland.3 (Id. ¶ 14 & Att. 1,
Ex. A, at 5.) For the next four years, the arbitral tribunal conducted proceedings, which included
written submissions, discovery and factual investigation, and two major witness hearings. (Id. ¶
15.) In the first phase, Red Sea, through counsel, filed written submissions and participated in
the first witness hearing, but then its participation ceased. (Id.)
On January 22, 2007, the arbitral tribunal issued its “Award on the Principal Amount”
(“Award on Principle”) (Id. ¶ 2 & Att. 1, Ex. B (certified copy of Award on Principal).) The
Award on Principal declared that Red Sea was required to pay SASEA $82,733,989 as “the total
principal amount” and that all claims exceeding that amount were dismissed. (Id., Att. 1, Ex. B,
¶ 293, at 68.) The Award on Principal structured Red Sea’s payments as follows: (1)
$3,654,627, representing the amount that Red Sea owed pursuant to paragraph 2(c) of the
Memorandum of Agreement, to be paid immediately; (2) $27,725,725, representing all monthly
payments due and owing from May 30, 1993 to November 30, 2005, pursuant to Article 1 of the
Memorandum of Agreement, to be paid immediately; and (3) the remaining balance of
$51,353,637, to be paid in monthly payments of YER20,000,0004 “as from December 31, 2005”
3
As provided by the Memorandum of Agreement, SASEA and Red Sea each appointed
one arbitrator, with the chairman of the arbitral tribunal appointed by agreement of the two
party-appointed arbitrators. The final panel was comprised of three experienced Swiss
international arbitrators: Prof. Dr. Franz Kellerhals, founder of the Kellerhals firm, Bern,
Switzerland, as chairman; Dr. Wolfgang Peter, of the law firm Python & Peter, Geneva,
Switzerland; and Dr. Armand Meyer, former President of the Zurich Commercial Court. (Id. ¶
14.)
4
YER is the currency abbreviation for the Yemeni rial. The Award on Principal provides
that Red Sea is to “exercise its best efforts to obtain the conversion of these monthly payments
into US dollars at the exchange rate prevailing on the date of each such payment.” (Id., Att. 1,
Ex. B, at 68.)
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until paid in full. (Id.) The Award on Principal also ordered Red Sea to pay CHF810,0005 in
arbitration fees and costs, and CHF1,789,591.23 in legal fees and expenses. (Id. at 68-69.)
On May 18, 2007, the arbitral tribunal issued its “Award on Interest.” (Id. ¶ 2 & Att. 1,
Ex. C.) The Award on Interest ordered Red Sea to pay SASEA the following amounts: (1) 6%
simple interest per annum on the unpaid principal amount of $3,654,627 from September 13,
1991, until full payment; (2) $15,302,525, to be paid immediately, representing accrued 6%
simple interest on overdue monthly payments which should have been made from May 30, 1993,
to November 30, 2005; (3) 6% simple interest per annum on “the overdue monthly payments
which [Red Sea] should have made to SASEA” from December 31, 2005, to April 30, 2007; (4)
6% simple interest per annum for “late payment of all monthly payments which become due and
owing” from May 31, 2007, until the “remaining balance of the total principal amount of . . .
$82,733,989 is paid in full.” (Id., Att. 1, Ex. C, at 23.) The Award on Interest also ordered Red
Sea to pay an additional CHF90,000 in arbitration fees and costs. (Id., Att. 1, Ex. C, at 23-24.)
Red Sea has not complied with the terms of either Award. (Id. ¶ 18.)
Effective December 1, 2009, SASEA sold and assigned all rights, claims and interests
arising out of or related to both Awards to Global Distressed, a limited partnership established
under the laws of Bermuda and managed by CI Management Services S.A., 30a Route de Chene,
1208 Geneva, Switzerland. (Id. ¶ 3 & Att. 1, Ex. D.) On January 21, 2010, Global Distressed,
as SASEA’s successor-in-interest, filed the pending Petition to confirm both awards. (Id.)
Attached to the Petition were certified copies of the Memorandum of Understanding, the Award
on Principal, the Award on Interest, and the Deed of Assignment from SASEA to Global
5
CHF is the currency abbreviation for the Swiss Franc.
4
Distressed. (Id., Att. 1, Exs. A-D.) The Petition asks the Court to (1) confirm the awards against
Red Sea; (2) enter judgment based on the Award on Principal in the exact amounts and terms and
conditions for payment provided therein; and (3) enter judgment based on the Award on Interest
that reflects Petitioner’s calculation of interest now due on certain of the underlying obligations;
and (4) award post-judgment interest pursuant to 28 U.S.C. § 1961 on any judgment entered.
(Petition at 9.)
Petitioner was forced to attempt to serve Red Sea on multiple occasions and using a
variety on methods due to Red Sea’s efforts evade service. (Order, June 18, 2010 [dkt #8].)
Ultimately, service was accomplished as of April 5, 2010, under either Federal Rule of Civil
Procedure 4(f)(2)(A) or 4(f)(2)(C)(ii). (Id.) On June 30, 2010, after Red Sea failed to respond to
the Petition, the Clerk of Court entered a default. (Entry of Default, June 30, 2010 [dkt. #9].)
On July 2, 2010, Petitioner moved for a default judgment pursuant to Federal Rule of Civil
Procedure 55(b)(2). (Mot. for Default Judgment, July 2, 2010 [dkt. #10].) Red Sea has not
responded to the entry of default or the motion for default judgment.
ANALYSIS
The New York Convention, as ratified and implemented by Chapter 2 of the Federal
Arbitration Act, 9 U.S. C. §§ 201-208, is a multilateral treaty, ratified by the United States,
which authorizes the recipient of a foreign arbitral award that falls under the Convention to seek
confirmation of the award in federal district court. See 9 U.S.C. § 201 (providing that the New
York Convention “shall be enforced in the United States courts in accordance with this chapter);
id. § 203 (providing that “[a]n action or proceeding falling under the Convention shall be
deemed to arise under the laws and treaties of the United States” and “[t]he district courts of the
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United States . . . shall have original jurisdiction over such an action or proceeding, regardless of
the amount in controversy”). An arbitral award falls under the Convention if it was made in the
“territory of a State other than the State where the recognition and enforcement” of the award is
sought, New York Convention, Art. I, ¶ 1, it was made in another “Contracting State” – a state
that is a party to the Convention, see Creighton Ltd. v. Gov’t of the State of Qatar, 181 F.3d 118,
121 (D.C. Cir. 1999), and it “aris[es] out of a legal relationship, whether contractual or not,
which is considered as commercial” and that, with certain limited exceptions, is not “entirely
between citizens of the United States.” 9 U.S.C. § 202.6 A petition seeking confirmation must
be filed “[w]ithin three years after an arbitral award falling under the Convention is made.” Id. §
207. If a timely petition for confirmation has been filed, the court “shall confirm the award
unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the
award specified in the said Convention.” Id.
Article V of the New York Convention specifies the following grounds for refusing
confirmation:
1. Recognition and enforcement of the award may be refused, at the request
of the party against whom it is invoked, only if that party furnishes to the
competent authority where the recognition and enforcement is sought, proof that:
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“The third paragraph of Article I of the Convention provides that a party acceding to the
Convention may do so with the reservations: (1) that it will apply the Convention to the
recognition and enforcement of awards made only in the territory of another contracting state;
and (2) that it will apply the Convention only to differences arising out of legal relationships,
whether contractual or not, which are considered as commercial under the national law of the
state making so acceding. The United States signed the Convention with these reservations, the
first of which imposes what may be described as a reciprocity requirement, and the second of
which limits resort to the Convention in the United States only for enforcement of commercial
disputes.” Confirmation of Foreign Arbitral Award Under Convention on Recognition and
Enforcement of Foreign Arbitral Awards, 194 A.L.R. Fed. 291, § 2[a] (2004).
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(a) The parties to the agreement referred to in article II were, under the
law applicable to them, under some incapacity, or the said agreement is
not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the country where the award was
made; or
(b) The party against whom the award is invoked was not given proper
notice of the appointment of the arbitrator or of the arbitration proceedings
or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to arbitration, provided
that, if the decisions on matters submitted to arbitration can be separated
from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognized and
enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was
not in accordance with the agreement of the parties, or, failing such
agreement, was not in accordance with the law of the country where the
arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if
the competent authority in the country where recognition and enforcement is
sought finds that:
(a) The subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the
public policy of that country.
New York Convention, Art. V; see also G.E. Transp. S.P.A. v. Republic of Albania, 663 F. Supp.
2d 132, 137 (D.D.C. 2010) (summarizing grounds for refusing confirmation as “incapacity of the
parties; invalidity of the underlying agreement; an award beyond the scope of the arbitration
agreement; improper composition of the arbitration panel; and an award that has not yet become
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binding, or has been set aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made”); see also TermoRio S.A. E.S.P. v. Electranta
S.P., 487 F.3d 928, 934-35 (D.C. Cir. 2007)).
Based on the Court’s consideration of the record, Petitioner is entitled to confirmation of
the Awards. First, the Awards fall under the New York Convention. They arose out of a
commercial legal relationship between Red Sea, a company in Yemen, and SASEA Holding, a
Swiss company, neither of which is a citizen of the United States, and they were made in
Geneva, Switzerland, the territory of another state that is a signatory to the Convention.
(Petition ¶¶ 21-22 & Att. 1, Exs. B & C.) In addition, Petitioner filed a timely petition to
confirm on January 21, 2010, within three years of the issuance of the Awards on January 22,
2007, and May 18, 2007. Finally, none of the grounds for refusal or deferral of recognition
specified in Article V of the Convention are present in this case. Accordingly, Petitioner is
entitled to confirmation of the awards and a corresponding judgment. Petitioner is also entitled
to post-judgment interest pursuant to 28 U.S.C. § 1961.
CONCLUSION
For the reasons set forth above, an accompanying order and judgment will grant
Petitioner’s motion for default judgment, confirm the two foreign arbitral awards that are the
subject of the Petition, and enter judgment in favor of Global Distressed and against Respondent
Red Sea.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
DATE: July 28, 2010
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