The Sojitz case means assets can be seized to secure Israeli or other arbitration awards.
/ Mitchell C. Shelowitz and Darya Dominova /
In Sojitz Corp. v. Prithvi Info. Solutions Ltd., the Appellate Division, First Department of the New York State Supreme Court issued a groundbreaking ruling allowing the seizure of receivables in New York to secure a possible win in a foreign arbitration – that had not yet been commenced.
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Instead, receivables due to the Indian respondent by its New York-based customer, gave rise to claimant’s opportunity for interim relief. Payments for goods purchased (the receivables) by the customer were owed to the respondent. The lower court in Sojitz issued a seizure order of the receivables to secure a possible judgment against the respondent in a prospective non-US arbitration.
On appeal, the court affirmed that “a creditor can attach assets in New York for security purposes in anticipation of an award that will be rendered in an arbitration proceeding in a foreign country, [even] where there is no connection to New York by way of subject matter of personal jurisdiction.”
The New York statute which authorizes pre-award attachment of assets is the New York Civil Practice Law and Rules (“CPLR”) Section 7502(c.(
In the Sojitz case, the Japanese claimant sold telecommunications equipment produced in China to the Indian respondent pursuant to a written supply agreement. The supply agreement required all disputes to be resolved by arbitration in Singapore under the laws of England. Neither party regularly transacted business in New York.
The Japanese claimant delivered the equipment to the respondent in India, and after accepting delivery of the equipment from the Japanese claimant, the Indian respondent failed to pay roughly $48.4 million.
Even prior to commencing arbitration in Singapore, the Japanese Claimant commenced a special proceeding in New York seeking an order of attachment against respondent for $40 million to ensure that assets would be available to satisfy any arbitration decision. The New York County Supreme Court granted the attachment order, and required the Japanese claimant to post a $2 million bond.
While the respondent “did not maintain any offices in New York, was not licensed to do business in New York, and had no property, bank accounts, or employees in New York” the respondent had at least one New York customer, which owed it $18, 480 – against which the attachment was enforced.
The appeals court affirmed the lower court’s decision explaining that, in an attachment for security pending litigation or arbitration in an out-of-state forum, “a petitioner is in no way seeking to compel a respondent to litigate in an improper forum to save [its] property; 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.”
The Sojitz decision was subsequently applied by a New York federal court – the U.S. District Court for the Southern District of New York in the case of Mishcon de Reya New York LLP v. Grail Semiconductor, Inc. There, the claimant- Mishcon de Reya New York LLP, a New York law firm, obtained an attachment in aid of arbitration against its former client respondent Grail Semiconductor, Inc., a California corporation, which it claimed owed claimant over $2 million in overdue legal fees.
The claimant attached respondent’s sole asset – a patent for a semiconductor memory chip. The district court initially granted the attachment order on the basis that respondent intended to transfer the patent, “making it likely that any arbitration award won by [claimant] would be ineffectual absent an attachment of the . . . [p]atent.”
The Sojitz decision has paved the way for Israeli companies to attach New York-based assets prior to obtaining any arbitration award. Of course, the decision of whether to seek such attachment must be carefully evaluated, giving due consideration to the merits of the arbitration claims, the amount of the assets to be attached compared to the amount of the arbitration claim, and any other conditions which could render the arbitration award ineffectual absent the attachment.
Mitchell Shelowitz is a partner at Pearl Cohen Zedek Latzer Baratz in New York City and Israel. Darya Dominova is a senior litigation associate at Pearl Cohen Zedek Latzer Baratz in New York City.
Published by Globes [online], Israel business news – www.globes-online.com