New York Convention does not apply to arbitral award where parties never agreed to arbitrate (NY District Court) | Practical Law

New York Convention does not apply to arbitral award where parties never agreed to arbitrate (NY District Court) | Practical Law

In VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., the US District Court for the Southern District of New York considered a request to enforce an arbitral award rendered in Brazil under the New York Convention.

New York Convention does not apply to arbitral award where parties never agreed to arbitrate (NY District Court)

by Practical Law Arbitration
Published on 09 Oct 2014 • USA (National/Federal)
In VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., the US District Court for the Southern District of New York considered a request to enforce an arbitral award rendered in Brazil under the New York Convention.
The US District Court for the Southern District of New York has refused to enforce airline VRG Linhas Aereas SA's (VRG) Brazilian arbitration award against MatlinPatterson Global Opportunity Partners (MatlinPatterson) over the airline's sale because the parties had not clearly and unmistakably agreed to arbitrate the question of arbitrability.
VRG is a subsidiary of Gol Linhas Aereas Inteligentes S.A. (Gol), a Brazilian airline, and is based in Brazil. MatlinPatterson is a New York-based private equity firm. Gol, through a subsidiary, GTI S.A. (GTI), acquired VRG in 2007 from two of MatlinPatterson's indirect subsidiaries, Varig Logistica S.A. and Volo do Brasil S.A., via a Share Purchase and Sale Agreement (Agreement). Several addenda to the Agreement were also executed, including Addendum 5, which is the only document MatlinPatterson signed.
Addendum 5 stated only that MatlinPatterson agreed not to compete with VRG or to invest in any of its competitors in the passenger airline market for three years. Although Addendum 5 did not mention arbitration, VRG argued that Addendum 5 incorporated by reference Section 14 of the Agreement, the arbitration clause. (For a detailed analysis of arbitration with non-signatories through incorporation of arbitration clauses by reference and other doctrines, see Article, Joining non-signatories to an arbitration.)
The arbitrators concluded that Addendum 5, that MatlinPatterson signed, was similar to the other five addenda signed in connection with the Agreement, was an integral part of the Agreement, and must be read together with the Agreement, including the Agreement's arbitration clause. As evidence of the parties' intention to arbitrate, the arbitrators noted that Addendum 5 specifically referred to the Agreement in its subject line and elsewhere and used defined terms from the Agreement without redefining them or expressly incorporating the Agreement's definitional sections, thereby showing that Addendum 5 was part and parcel of the Agreement.
The US court disagreed. It found that it is clear that MatlinPatterson did not agree to the terms of the arbitration clause in the Agreement because:
  • MatlinPatterson signed only an addendum to that Agreement, which explicitly spells out the only obligation MatlinPatterson was prepared to assume (the non-compete).
  • Addendum 5 refers only to the non-compete provision of the Agreement contained in Clause 11.1 and restates that clause in its entirety in the text.
  • No language within Addendum 5 purports to obligate MatlinPatterson, a non-party to the Agreement, to any of the Agreement's other provisions.
The finding that MatlinPatterson did not consent to the arbitration clause contained in the Agreement means that the parties did not delegate to the arbitrators the power to decide their own jurisdiction regarding claims against MatlinPatterson. (For a more detailed analysis of delegating to the arbitrators of authority to determine their own jurisdiction, see Practice Note, Jurisdictional issues in international arbitration: Kompetenz-kompetenz.) The finding that MatlinPatterson did not consent to the arbitration clause also compelled denial of VRG's petition to confirm the award.
Case: VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., 11 CIV. 0198 MGC, (S.D.N.Y. Oct. 2, 2014).