Iraq Telecom Limited v. IBL Bank S.A.L.

Background

Iraq Telecom petitioned under the New York Convention, as implemented by the Federal Arbitration Act, to confirm a September 21, 2021 Lebanese arbitration award against IBL Bank S.A.L. The arbitration arose from a 2011 agreement requiring Iraq Telecom to subordinate an earlier loan to a loan that IBL provided to Korek Telecom Company LLC.

The tribunal found that IBL participated in a scheme to deceive Iraq Telecom by concealing collateral connected to the IBL loan. A majority of the tribunal found that Iraq Telecom would not have entered the Subordination Agreement without the fraud and declared that agreement null and void. The tribunal awarded attorney’s fees and costs jointly and severally against IBL, Korek, and International Holdings Limited. After the stated offset, Iraq Telecom’s net award was approximately $2,759,867.50, plus interest.

IBL had begun a proceeding in Lebanon seeking to annul, or set aside, the award. IBL asked the United States court to stay confirmation until that proceeding ended. IBL also argued that the pending Lebanese proceeding made the award nonbinding under Lebanese law and offered to pay approximately $3 million in Lebanon through a tender-and-deposit procedure. Iraq Telecom rejected the payment, citing the difficulty of moving funds out of Lebanon because of capital controls.

Confirmation of the Award

The court explained that confirmation is a limited review that turns a final arbitration award into a court judgment. Under the New York Convention, a court generally must confirm a covered foreign award unless one of the Convention’s specified defenses applies.

The court rejected IBL’s reliance on Article V(1)(e). The Subordination Agreement stated that the award was final, binding, and not subject to appeal, so the award was binding despite the pending annulment proceeding. In addition, no Lebanese court had set aside or suspended the award. The court further found that IBL had not shown a likelihood of success on the grounds it raised in Lebanon for vacating the award.

The court therefore granted Iraq Telecom’s petition to confirm the award.

Stay of Confirmation

The court denied IBL’s request for a stay under Article VI of the Convention. That provision allows a court to postpone enforcement while a proceeding to set aside or suspend an award is pending in the country where the award was made, but the decision is discretionary.

Applying factors identified by the Court of Appeals, the court found that the arbitration’s goals of efficient dispute resolution favored immediate confirmation. The Lebanese annulment proceeding was in its early stages, and IBL supplied no reliable estimate of how long it would take. The court also found that IBL had waited roughly four months after the award to begin its Lebanese challenge, while Iraq Telecom had acted diligently to enforce the award. Because of Lebanese capital controls and IBL’s financial condition, the court found that delaying enforcement could harm Iraq Telecom. Only the possibility that a Lebanese court might apply broader grounds for review supported a stay, and that factor supported delay only slightly.

Declaratory Relief

The court also granted Iraq Telecom’s request for declaratory relief. It adopted the tribunal’s declarations that IBL fraudulently induced Iraq Telecom to enter the Subordination Agreement and that the agreement was null and void. The court held that confirmation applies to the tribunal’s declaratory findings as well as its monetary award because both were final provisions of the award.

Disposition

The court granted Iraq Telecom’s petition to confirm the September 21, 2021 award and for declaratory relief. It denied IBL’s request for a stay. The court directed the parties to submit a proposed judgment reflecting the award, the applicable offset, and interest accruing at 9% from September 21, 2021, together with the declarations concerning fraud and the Subordination Agreement.