Foreign arbitration clauses – sometimes useful, sometimes not

A recent decision by the US Court of Appeals 11th Circuit in Suazo v. NCL (Bahamas), Ltd. confirmed that the US federal courts are receptive to enforcing foreign arbitration clauses in seafarer contracts under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

The Suazo decision was the first time that the 11th Circuit addressed the question of whether a cruise ship employee, whose employment contract contained an arbitration agreement governed by the Convention and Chapter 2 of the Federal Arbitration Act, could avoid arbitration by showing that the high costs of arbitrating his personal injury claim in a foreign forum effectively prevented him from vindicating his statutory rights. The Court rejected the plaintiff’s arguments and affirmed the decision of the district court ordering the parties to arbitration.

The case, reported in UK P&I Clubs Summer 2016 “Bodily Injury News” involved Nicaraguan citizen Willman Suazo. His lawyers wanted to assert an “effective vindication” defence to a motion to compel arbitration under the New York Convention, but the defence argued that this was available only in connection with a motion to enforce an arbitral award after arbitration had taken place.

The 11th Circuit suggested that such a rule would be supported by both precedent and public policy. Ultimately, the Court decided the case by finding that Suazo failed to carry his burden of proof that the costs of arbitration effectively barred him from enforcing his statutory rights and it affirmed the district court’s order, which ruled for arbitration.

Fundamental to the Court’s decision was the specific language of the arbitration clause in the seafarer’s contract of employment and the collective bargaining agreement which was incorporated by reference into that contract:

NCL employed language making arbitration under the New York Convention mandatory and exclusive, while the designated place of arbitration was the seafarer’s home country or Nassau, Bahamas, should the home country not be a signatory to the New York Convention.

The clause contained a choice of law provision and the contract incorporated a cost allocation clause, which gave the seafarer the option to use a union designated attorney and proceed to arbitration at no cost, or alternatively, to retain counsel at his own expense. The Court highlighted the inherent contradiction of Suazo’s argument — that he was too poor to pay the costs of arbitration, but rejected the option to arbitrate with NCL at no cost using a union lawyer.