October 02 2014

Facts
New York Convention
New York Convention and Taiwan
Uniform Foreign Money Judgment Recognition Act
Comment
In Clientron Corp v Devon IT, Inc a US federal trial court recently refused
to confirm an arbitration award rendered in Taiwan on the grounds that
Taiwan is not a signatory to the 1958 United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the 'New York
Convention').(1) The Clientron decision reinforces the significance of
seating an arbitration in a New York Convention signatory state, as well
as the importance of considering likely enforcement venues at the clause
drafting stage.
Facts
The underlying dispute in Clientron concerned the breach of a supply and
purchase agreement for the manufacture and delivery of computer parts.
Taiwanese corporation Clientron alleged that Pennsylvania corporation
Devon had failed to make payments for three products that were not
specifically mentioned in the agreement, and commenced arbitration
against Devon before the Chinese Arbitration Association in Taiwan to
resolve its dispute.
Clientron prevailed in the arbitration and was awarded $6,574,546.17 by
the tribunal. Clientron subsequently commenced enforcement
proceedings both in Taiwan and before a federal court in Pennsylvania. In
the Pennsylvania enforcement proceedings, Clientron sought to enforce
the award pursuant to the New York Convention as well as Pennsylvania's
version of the Uniform Foreign Money Judgment Recognition Act.(2) In
response to Clientron's enforcement actions, Devon commenced
proceedings in Taiwan to set aside the award and also opposed
enforcement in Pennsylvania.

While the US enforcement proceedings were underway, the Taiwanese

court granted Clientron's petition to confirm the award. However, the US
federal court refused to enforce the award under either the New York
Convention or the Uniform Foreign Money Judgment Recognition Act.
(3)
New York Convention
The New York Convention, which currently has 150 signatories,
generally requires the national courts of a signatory state to enforce
foreign arbitral awards as national judgments of the enforcing court.
Article I.3 of the New York Convention further provides that contracting
states may make a reciprocity reservation, pursuant to which they will
recognise and enforce only awards that were rendered in other contracting
states.
As the court noted, the United States made a reciprocity reservation at the
time it ratified the New York Convention. Accordingly, US courts are
obliged to recognise and enforce only "those awards made in the territory
of another Contracting State".(4) The court therefore proceeded to
examine whether Taiwan could be considered to be another contracting
state for the purposes of the New York Convention, which is enacted into
US law in Chapter 2 of the Federal Arbitration Act.
New York Convention and Taiwan
To determine Taiwan's status for the purposes of the New York
Convention, the court first looked to US federal law specifically, the
Taiwan Relations Act of 1979, which was designed to define the nondiplomatic relations between the United States and Taiwan.(5) After
considering that act, the court concluded that although Taiwan is not
recognised as an independent sovereign nation by the United States, the
court was nevertheless "required to consider Taiwan as a state for the
purposes of applying Chapter 2 of the Federal Arbitration Act".(6)
Following its decision to treat Taiwan as a separate state for the purposes
of Chapter 2 of the Federal Arbitration Act, the court considered whether
Taiwan was a signatory to the New York Convention and concluded that
it was not.(7) The court therefore refused to enforce the award under the
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New York Convention on the grounds that Taiwan was not a contracting
state.(8)
Uniform Foreign Money Judgment Recognition Act
In addition to arguing that the New York Convention required
enforcement of the award, Clientron also contended that the award should
be enforced pursuant to Pennsylvania's enactment of the Uniform Foreign
Money Judgment Recognition Act. This uniform act has been adopted by
a majority of US states and generally requires the recognition and
enforcement of foreign court money judgments.
The court first concluded that the Uniform Foreign Money Judgment
Recognition Act does not provide a basis for recognising and enforcing a
foreign arbitral award, which is not a "judgment" issued by a foreign
"governmental unit".(9) However, the court noted that a Taiwanese court
had rendered a judgment confirming the award and therefore considered
whether the Taiwanese court judgment could be enforced under the act.
The Uniform Foreign Money Judgment Recognition Act permits courts to
refuse to recognise foreign judgments on the grounds that the foreign
court proceeding was conducted in violation of an agreement between the
parties to settle their dispute by means other than that court. The court
focused solely on that provision of the act and determined that certain
disputed products were outside the scope of the aforementioned supply
and purchase agreement, which permitted the court to decline to
recognise the Taiwanese court judgment.(10)
Comment
The Clientron decision underscores the significance of seating
arbitrations in New York Convention jurisdictions, as well as the
importance of considering at the clause drafting stage where enforcement
might be likely. While it is becoming increasingly difficult to find
countries that have not acceded to the New York Convention (with some
notable exceptions), practical and legal restrictions within signatory
countries still require strategic drafting. In short, careful consideration at
the drafting phase can often alleviate significant issues at the enforcement
stage.
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For further information on this topic please contact JP Duffy, Priha

Chadha or Erica R Iverson at K&L Gates by telephone (+1 212 536
3900), fax (+1 212 536 3901) or email (JP.Duffy@klgates.com,
priya.chadha@klgates.com or erica.iverson@klgates.com). The K&L
Gates website can be accessed at www.klgates.com.
Endnotes
(1) 13-05634, 2014 WL 3892970 (ED Pa August 8 2014).
(2) As an alternative approach, Clientron also sought to enforce the award
under the Treaty of Friendship between the United States and the
Republic of China (Taiwan).
(3) The court similarly declined to enforce the award based on the Treaty
of Friendship.
(4) 2014 WL 3892970, at *2.
(5) 22 USC 3301 et seq.
(6) 2014 WL 3892970, at *1 n2.
(7) China ratified the New York Convention in 1987 and the treaty
entered into force there the same year.
(8) The court also concluded that a 1946 treaty between the United States
and the Republic of China (Taiwan) which contains a provision
addressing the enforcement of arbitral awards did not supersede the New
York Convention, which came into force in the United States in 1970,
approximately one year before the United Nations General Assembly
admitted China to the United Nations.
(9) 2014 WL 3892970, at *12.
(10) The court granted Devon's motion to dismiss with respect to the New
York Convention, but denied without prejudice Devon's motion to
dismiss on the Uniform Foreign Money Judgment Recognition Act point.
The court cited lack of clear procedural precedent for cases decided under
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the act and opted instead to convert Devon's motion to dismiss to one for
summary judgment.