District Court denies petition to attach state property to satisfy default arbitral award | Practical Law

District Court denies petition to attach state property to satisfy default arbitral award | Practical Law

Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate) and Daniel Hickman (Associate), White & Case LLP

District Court denies petition to attach state property to satisfy default arbitral award

Published on 03 Apr 2012 • USA (National/Federal)
Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate) and Daniel Hickman (Associate), White & Case LLP
The United States District Court for the Southern District of New York has denied without prejudice an application to attach a commercial property of the State of Eritrea in satisfaction of a confirmed default arbitral award because of the petitioner’s failure to comply with notice requirements under the Foreign Sovereign Immunities Act.
In Delizia Ltd. v Eritrea, (S.D.N.Y. Mar. 5, 2012), the petitioner, Delizia, entered into a contract with the Eritrean Ministry of Defense for the sale of defense-related equipment. After Eritrea stopped making payments, Delizia initiated arbitration at the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) in Sweden as required by the contract. Eritrea took no part in the proceedings, and the tribunal issued a default final arbitration award in Delizia's favor. The award was confirmed by the Southern District of New York. Delizia then sought to attach rental payments owed to Eritrea by a tenant of Eritrea's commercial condominium property—the Permanent Mission of the Marshall Islands to the United Nations—to satisfy the default judgment.
The district court explained that, to attach state property to satisfy a default arbitral award, a petitioner must show that the state was adequately informed of the default judgment by sufficient service of process. According to section 1608 of the Foreign Sovereign Immunities Act (FSIA):
"a foreign state must be served
(1) in accordance with any special arrangement for service between the plaintiff and the foreign state;
(2) if no special arrangement exists, then in accordance with an applicable international convention on service of judicial documents;
(3) if service cannot be made by methods (1) or (2), then by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the head of the ministry of foreign affairs of the foreign state concerned; or
(4) if service cannot be made within 30 days under method (3), then by procedures involving the United States Secretary of State."
Delizia used method three, relying on dispatch from a clerk of the court. The court concluded that method three can be used only when the first two methods are not available, and required a declaration from Delizia's counsel explaining why the first two methods were not possible methods of service.
In addition, the district court explained that regulations governing service of process on sovereign states require the inclusion of a copy of the FSIA. The court noted that, while Delizia proffered a supporting affidavit alleging that a copy of the FSIA was served with the default notice, the certificate of mailing signed by the clerk of the court did not indicate that it had been included. Accordingly, the court required Delizia to provide evidence demonstrating that a copy of the FSIA was served.
Thus, the district court denied the attachment application without prejudice so Delizia could remedy the service of process defects. The court also advised Delizia's counsel to "consider and address provisions of the FSIA and Vienna Convention on Diplomatic Relations that . . . may preclude the court from authorizing the relief request [to attach funds used by diplomatic missions]."
This case demonstrates the importance of complying with the strict requirements of service when attempting to enforce a default arbitral award against a sovereign state.