The Southern District of New York rejected public policy and due process defenses and confirmed an international arbitration award while rejecting an argument that the award debtor could withhold a portion of the damages to offset Taiwanese tax obligations.  Petitioner Mondis Technology Ltd. (“Mondis”), a company involved in the purchase, assertion, and licensing of patent rights, petitioned to confirm an arbitral award entered in its favor against Respondent Wistron Corporation (“Wistron”), a Taiwanese manufacturer of electronics, under the Federal Arbitration Act (the “FAA“) and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“).

The two parties entered into a Patent License Agreement (“PLA”) in 2009, under which Mondis granted Wistron a license to use certain patents. The PLA provided for settlement of disputes by arbitration. The parties later disputed Wistron’s obligations under the agreement. In 2014, an arbitral tribunal issued a final award in Mondis’s favor, ordering Wistron to pay Mondis in excess of $3 million. Wistron made some of its required payments under the award, but withheld roughly 20% due to claimed obligations under Taiwanese tax laws and regulations. Mondis sought an order confirming the award.

The FAA and the New York Convention require courts to confirm arbitral awards except under limited circumstances.  These grounds include corruption, fraud, evident partiality, misconduct on the part of the arbitrators, if recognition or enforcement of the award would be contrary to public policy, or if the party against whom the award was invoked was unable to present its case.

Wistron argued that the award should not be entered based on (1) the public policy exception, because enforcement would require Wistron to violate Taiwanese tax law; (2) due process, because Wistron was unable to present its case detailing its right to deduct Taiwanese withholding taxes; and (3) it having already fulfilled its award obligations by paying the award in full, net Taiwanese withholding taxes.

The court rejected all three arguments. First, Wistron’s Taiwanese tax obligations were unclear, and Wistron had not shown that payment was required via withholding, instead of through other means. The court is required to construe the New York Convention’s public policy exception “very narrowly” and, because of the lack of clarity surrounding the Taiwanese tax law, the exception did not apply.

Second, Wistron’s due process claim failed because it never made any claim about its right to deduct taxes from royalty or other payments under the contracts during the course of the arbitration. Wistron, therefore, was never denied the opportunity to present this argument.

Wistron’s third claim failed because the award required Wistron to make payments in full, without any qualification or mention of withholding.

Mondis Technology Ltd. v. Wistron Corp., No. 15-cv-02340, (S.D.N.Y. Nov. 3, 2016) [click for opinion]

 

A version of this post originally appeared in the January 2017 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.