Facilities Development Corporation, a Virginia-based company, contracted with the U.S. Department of State to renovate the American Embassy in Copenhagen, Denmark. Facilities subcontracted the construction work to Adserballe & Knudsen A/S, a Danish firm. The contract incorporated Danish industry standards known as AB 92, which mandated binding arbitration in Copenhagen for disputes. A conflict arose when Facilities withheld payment, claiming Adserballe & Knudsen failed to comply with U.S. Federal Acquisition Regulations (FAR) and Department of State Acquisition Regulations (DOSAR). Adserballe & Knudsen argued it was bound only by Danish law. The Danish arbitration court appointed a tribunal of three members, including two experts in Danish contracting law, and ruled in favor of the Danish company, finding that Danish regulations governed the dispute. When Facilities refused to pay, Adserballe & Knudsen sought enforcement of the award in federal court in Virginia under the New York Convention.
The Fourth Circuit reviewed the enforcement petition de novo, emphasizing that the New York Convention is designed to encourage the recognition of foreign arbitral awards and that grounds for refusal are interpreted narrowly. The court addressed two primary defenses raised by Facilities. First, regarding the public policy exception, the court noted that enforcement can only be denied if it violates 'fundamental notions of what is decent and just in the United States.' The court found that applying Danish contracting rules to a Danish subcontractor performing work in Denmark does not reach this high threshold. The court distinguished cases involving prime government contracts, noting that subcontracts are not subject to FAR unless specified, and that Facilities' objection was essentially an attempt to relitigate the merits of the contract interpretation. Second, regarding the composition of the tribunal, the court applied the standard that courts should only determine if the arbitral authority 'reasonably construed its own rules.' The AB 92 rules allowed the arbitration court to appoint experts 'on a case-by-case basis, depending upon the nature of the dispute.' Since the dispute concerned Danish regulations, the court found it reasonable for the arbitration court to appoint experts in Danish law rather than U.S. federal regulations. The court concluded that Facilities offered no valid argument beyond an impermissible challenge to the merits of the arbitration.
The decision confirms that foreign arbitral awards involving U.S. companies performing work abroad under foreign contracts are enforceable in the United States unless the appellant can meet the exceptionally high bar of the public policy exception. It clarifies that U.S. federal acquisition regulations do not automatically override foreign law in subcontracting disputes performed outside the U.S., and that challenges to the composition of an arbitral tribunal will be limited to whether the tribunal reasonably interpreted its own appointment rules. The judgment is affirmed, and the award is now legally enforceable against Facilities Development Corporation.