Do You Have the Authority?

by Lionel M. Schooler, FCIArb
Jackson Walker LLP1

Introduction. In Doraleh Container Terminal S.A., v. Republic of Djibouti, 109 F.4th 608 (D.C. Cir. 2024), the United States Court of Appeals for the District of Columbia Circuit addressed the question of the impact upon an arbitration proceeding of the status of an attorney to represent a client in that proceeding.

Background. The Republic of Djibouti entered into a public-private partnership with Doraleh Container Terminal S.A. to build and manage a new port for container ships. Over 65% of Doraleh Container was owned by a an entity affiliated with the government of Djibouti. The remaining 1/3 was owned by a Dubai corporation (DP World) that was granted authority to control Doraleh Container.

The port was developed as contemplated by the parties and succeeded. Such success triggered arbitral disputes and litigation. Djibouti then built a competing port (in apparent violation of an exclusivity agreement with Doraleh Container), and followed this by trying to force Doraleh Container out of the original port.

After Djibouti’s initial effort to eject Doraleh Container from the original port failed, Djibouti then initiated arbitration before the LCIA to void the contract. That failed.

Djibouti did not take the hint.

It then enacted a law purporting to authorize renegotiation or voiding of the contract. Attempting to exploit this legal creation, Djibouti then sought to negotiate control of the port with Doraleh Container without success.

Still not taking the hint, Djibouti then terminated the contract and seized the original port. Doraleh Container then took its turn to invoke arbitration, challenging termination of the contract. A second arbitral panel sustained Doraleh Container’s position and held that its management contract with Djibouti remained in effect.

Still not taking the hint, Djibouti then tried to take over control of Doraleh Container by “nationalizing” the 2/3 ownership interest in Doraleh Container held by the government affiliated entity. It then sued in its own courts and, on the basis of its newly generated status as majority shareholder, obtained relief from the Djiboutian Court which appointed an administrator to oversee the operations in place of the Board of Directors of DP World. As the D.C. Circuit noted in its opinion, in its response to the claim filed by Djibouti before the LCIA, Doraleh Container and DP World filed a counterclaim for breach of contract. The law firm of Quinn Emanuel represented both entities in that counterclaim.

When this issue later came to the attention of the Djibouti Court, the person designated as the Provisional Administrator informed the tribunal that he considered Quinn Emanuel to lack the authority to continue to represent Doraleh Container in the arbitration. Quinn Emanuel challenged the Administrator’s appointment. The Tribunal denied this request on the basis that the Administrator’s authority was not relevant to the merits of the existing dispute.

The tribunal then awarded Doraleh Container $474MM for Djibouti’s breaches of contract (and also awarded DP World $148MM for such conduct). However, the Administrator, having been appointed by the Djibouti Court, took no steps to enforce the award against Djibouti.

Lower Court’s Rulings. On behalf of Doraleh Container as its client, Quinn Emanuel sought to enforce the arbitral award in the United States District Court for the District of Columbia. In response, Djibouti invoked an affirmative defense of lack of Quinn Emanuel’s authority to enforce the award on behalf of Doraleh Container.

The District Court rejected this defense, deciding that Djibouti had forfeited the right to object by failing to raise this challenge in the arbitration proceeding. It then confirmed the award in favor of Doraleh Container on the basis of “waiver” of the right to object to Quinn Emanuel’s involvement, and on the basis that the New York Convention as codified limits award enforcement to specific reasons listed in the Convention, of which lack of attorney authority is not one.

Issues Presented. In response to these results, Djibouti appealed, contending that the District Court erred by not determining whether Doraleh Container had authorized Quinn Emanuel to seek enforcement of the award. The issue focused upon by the Court of Appeals was therefore whether the subject of attorney authority was a proper one within the context of the arbitral proceedings and the New York Convention as codified.

Court’s Analysis: Scope of Relief. The Court of Appeals commenced its analysis by commenting that the governing principles were well-established in U.S. Supreme Court decisions and “a traditional understanding of our adversarial judicial system.” Acknowledging that the Federal Rules of Civil Procedure do not address the issue of attorney authority, the Court nevertheless focused upon Supreme Court decisions, starting in 1824, that attorney authority must always exist, and that such authority can be “presumed.” Even so, the Court further emphasized, on the basis of a 1927 Supreme Court decision, that a federal court “has the power, at any stage of the case, to require an attorney, one of its officers, to show his authority to appear,” derived by a court’s “duty to superintend the conduct of its officers.”

On the basis of such precedents, the Court then stated that when confronted with a party’s request for an inquiry into a lawyer’s authority, supported by evidence showing sufficient grounds to question such authority, a court should always grant such a request. The Court went on to state that if authority is shown to be lacking, then any ruling obtained by such counsel is a nullity and must be dismissed without prejudice.

Applying these principles to the controversy before it, the Court brushed aside Quinn Emanuel’s arguments of waiver and lack of authority under the New York Convention. It rejected Quinn Emanuel’s contention that failure to raise the issue of attorney authority in the arbitral proceeding constituted waiver of that issue because all parties agreed that there was not a reason to challenge to Quinn Emanuel’s authority until Doraleh Container sought enforcement of the arbitration award in federal court. Further, the Court determined that the New York Convention does not abrogate the procedure governing unauthorized appearances by counsel.

The Court concluded that the issue of authority could not be determined by it on the record before it, and therefore remanded the matter to the District Court to determine authority in the first instance. The Court majority’s decision triggered a detailed dissent, pointing out the misapplication of the arbitral process by the majority, including the impact of Djibouti’s waiver of the claim of attorney authority by its conduct during the arbitration.

Conclusion. It is of course rare for attorney authority to be considered as a point of contention in an arbitral proceeding. Even so, the Doraleh Container v. Djibouti decision by the D.C. Circuit demonstrates dramatically the impact of a party’s ignoring or overlooking authority when pursuing relief in arbitration. It also focuses attention upon the issue of whether internal ownership changes of a party during arbitration can be invoked to undercut enforcement of an arbitral award otherwise valid on its face.

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1 Mr. Schooler is former Board Member of the North America Branch of the Chartered Institute of Arbitrators, and the immediate Past Chair of its Texas Chapter.