New York Court Reviews International Arbitration Asset Attachment Issue

For companies that must resolve commercial disputes via international arbitration, one pressing issue is the ability to enforce a judgment and collect the funds owed. For an offshore business, that can create additional expenses and other burdens while awaiting a final resolution. One strategy is to attach assets in advance as security toward an anticipated award.

A recent state appellate court decision in New York provides some good news for parties involved in a dispute with a business that has assets in New York. The case in question, Sojitz Corp. v. Prithvi Information Solutions Ltd., 82 A.D.3d 89, resolved a preliminary issue to a contractual dispute between a Japanese provider of telecommunications equipment and an Indian technology company. The underlying dispute is subject to international arbitration in Singapore, and no aspect of the transaction occurred in New York.

Sojitz shipped nearly $50 million worth of equipment to Prithvi during the first half of 2008, but alleges that Prithvi remitted only $5.6 million in payment. In advance of commencing arbitration in Singapore, Sojitz sought and was issued an order of attachment against Prithvi's assets in New York. While the Indian company had no bank accounts, property or offices in New York, Sojitz was able to attach an amount owed to Prithvi by a New York company.

Prithvi appealed the issuance of the attachment order, and the New York Supreme Court, Appellate Division, reviewed the matter, which was a case of first impression in the state and an issue that could have important implications for many parties involved in commercial arbitration.

Securing Funds in Advance of Arbitration of an International Commercial Dispute

New York City's status as a global financial center and hub of commercial activity makes it a particularly important location for attachment actions. But the ability of a company to attach another party's New York assets to prevent dissipation of funds prior to alternative dispute resolution dates only to 1985, when the state legislature extended the remedy of attachment to arbitrable controversies. Attachment was previously only available as a way to secure future damages.

In 2005, New York further amended Civil Practice Law and Rules Section 7502 to allow for preliminary injunctions or orders of attachment even if the arbitration takes place outside of New York. But Prithvi contested the grant of attachment based on its argument that the court did not have personal jurisdiction over the company because it had no presence or activities in the state.

The Appellate Division held in a unanimous opinion that attachment for security purposes was appropriate. The court based its analysis on such bedrock U.S. Supreme Court jurisdictional decisions as International Shoe Co. v. Washington, 326 U.S. 310 (1945) and Shaffer v. Heitner, 433 U.S. 186 (1977), as well as subtle distinctions between in personam, in rem and quasi in rem jurisdiction.

The court found that "attachment for security pending litigation in a proper out-of-state forum does not raise the same due process concerns as are implicated by attachment for jurisdictional purposes." This is true because "the petitioner merely seeks to have the property attached for future execution in the event a recovery is ordered by the out-of-state forum." But the court was further persuaded by the fact that a petitioner like Sojitz must show that a future arbitral award would be rendered ineffectual without relief, as well as the statutory expiration of an attachment order after 30 days if arbitration is not commenced.

Seeking Legal Representation That Understands the Full Range of Legal Complexities

As this case shows, not all aspects of international arbitration proceed under the auspices of an arbitrator. An effective international arbitration attorney must act strategically to ensure that a client's interests are protected, and sometimes that means legal action in a traditional court setting.

Businesses that face the necessity of international legal action over contract disputes, business-related torts such as fraud or misrepresentation, failed joint ventures, or enforcement of judgments obtained abroad can learn about their legal options by consulting with an international litigation and arbitration law firm. Arbitration provides great advantages and efficiencies, but success is ultimately based on collecting what is due or paying only what is fair, and your lawyer's experience can make a significant difference in the outcome.