CC BY
34Diora Ziyaeva,
TSUL Researcher, Senior Associate at Dentons US LLP ORCID: 0000-0002-8745-2936 Email: [email protected]
Enforcement of Annulled Awards in the United States
Abstract. This article addresses recent decisions by US courts regarding the application of Article V of the New York Convention to the enforcement (or lack thereof) of awards set aside at the seat of arbitration. Under Article V(l) (e), enforcement may be refused when the award has been set aside by a competent authority of the country in which, or under the law ofwhich, that award was made. Though US courts have clarified that the use of the word 'may ' in Article V(1)(e) does not imply unfettered discretion, they have struggled to articulate consistent standards. Nevertheless, an analysis of relevant US case law, with specific focus on the decisions in TermoRio v. Electranta, COMMISA v. Pemex, Getma Int'l. v. Republic of Guinea, and Thai-Lao v. Laos demonstrates that US courts will, typically, only enforce set aside awards where 'extraordinary circumstances ' 'violate basic notions of justice'. That US courts enforce awards set aside by foreign courts only in exceptional circumstances that implicate 'basic notions of justice ' requires that those parties who seek to enforce an award in the US become familiar with US public policy. These parties should prepare themselves for the inevitable fact-intensive inquiry that US courts will engage in to determine whether to enforce an annulled award. With this understanding, the cases discussed in this article can serve as guideposts, delineating which facts satisfy the 'extraordinary circumstances ' standard and which do not. Some more recent U.S. cases spoke the same, but made a distinction between enforcement of vacated arbitral awards and enforcement of arbitral awards pending set aside proceedings. For example, in March 2019, a U.S. District Court case in D. Colorado confirmed a foreign arbitral award under New York Convention despite pending set aside proceedings as to damages portion of the award in the arbitral seat. While in another case in September 2019, the District Court of S.D. New York declined confirmation of an award vacated at arbitration seat, given that the foreign court's holdings did not offend basic standards of justice and that the subject matter was a non-arbitrate tax dispute.
Keywords: annulled, awards, enforcement, arbitration, convention, New York Convention, Chromalloy, Egypt, TermoRio, Electranta, COMMISA, Pemex, Getma, Guinea, Thai-Lao, Laos, Gulf Petro, Nigeria, Belmont, Mina Mar, Citigroup, Fiorilla, S. De R.L. De C.V., Pemex, Scherk, Alberto-Culver, Jiangsu, Burlington, CBF, AMCI, Baker Marine, Chevron, CIMSA, Grupo Cementos.
I. Introduction
The 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 'Convention') is a pillar of the international arbitration system. [1] With 159 state signatories, the Convention provides a means for parties in one member state to enforce awards issued by arbitration tribunals in another member state.
Under the Convention, courts are given only a limited ability to refuse enforcement of foreign arbitral awards. [3, 8] Article V(1)(e) of the Convention specifically deals with the enforcement of awards set aside at the seat of arbitration (also referred to as the primary jurisdiction) and provides that enforcement in a secondary jurisdiction may be refused if the award has been 'set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made', or where 'recognition or enforcement of the award would be contrary to the public policy
of that country'.1 When an award is annulled at the seat of arbitration, the enforcing courts in secondary jurisdictions must decide between enforcing the award or honoring the decision of the court at the seat.
This article will delve into the recent decisions by courts in the United States (US) regarding the application of the Convention to the enforcement of annulled awards and their limited review of arbitral awards based on the grounds listed in Article V(1) of
1 See New York Convention, Art. V. The terms 'primary jurisdiction'
and 'secondary jurisdiction' are constructs created by courts to differentiate between those courts located at the seat of arbitration and those courts
located outside the seat of arbitration. Courts in the primary jurisdiction can review an award and determine its validity. Courts in secondary jurisdictions may only determine whether to enforce the foreign award in their jurisdiction. See, e.g., Gulf Petro Trading Co. v. Nigerian National Petroleum Corp., 512 F.3d 742, 746-47 (5th Cir. 2008); see also Albert Jan van den Berg, The New York Arbitration Convention of 1958, at 20 (Kluwer 1981).
the Convention, discussed above.2 US courts generally set a high standard for refusing enforcement of awards set aside at the seat. [5, 6] Though US appeals courts have clarified that the use of 'may' in Article V does not provide courts in the secondary jurisdiction with unfettered discretion to refuse enforcement, they have struggled to articulate consistent standards. [7] The decisions in recent cases discussed below demonstrate that the US will, typically, only enforce annulled awards where 'extraordinary circumstances' [25] that 'violate basic notions of justice'3 are present. [8, 9]
II. Applying the Convention in the US
One of the primary goals of the Convention was to make arbitral awards rendered in a foreign country enforceable in any other state party to the Convention, [10, 11] thus eliminating the need for parties to first confirm the award in the courts of the foreign state before
2 See Federal Arbitration Act (FAA), 9 U.S.C. § 201; New York Convention, Art. V. While not the subject of this article, two cases merit brief mention because of their potential applicability to litigation in the US. In Belmont Partners LLC v. Mina Mar Group, Inc., Belmont sought confirmation in the US of an award rendered in the US. Mina Mar cross-motioned to vacate the award in the US while at the same time seeking to enforce the award in Canada. In enforcement proceedings in Canada, the Superior Court of Justice in Ontario recognized the award and ordered its enforcement. Then, Mina Mar sought to stay enforcement of the award in Canada in order to avoid contempt proceedings brought by Belmont in Virginia for Mina Mar's failure to comply with the terms of the arbitral award. Of note, when Mina Mar sought to stay enforcement of the award in Ontario, it also sought to modify it. The Ontario court held that it lacked authority to modify the award under Ontario law, and that Mina Mar's recourse would be to the superior court in Virginia and not Ontario, since the arbitration proceeded in Virginia. Then, the US court granted Belmont's motion to confirm the award and denied Mina Mar's motion to suspend and vacate the award, finding that the judgment by the Ontario court had a claim preclusive effect, barring it from deciding whether to modify or vacate the award. The US court's reliance on res judicata in Belmont was surprising given that the US was the seat of arbitration and raises questions about the use of res judicata to prevent enforcement of awards at the seat of arbitration. Belmont Partners, LLC v. Mina Mar Group, Inc., 741 F. Supp. 2d 743 (W.D.Va. 2010). In Citigroup Global Mkts., Inc. v. Fiorilla, a New York State appellate court enjoined the foreign enforcement of an arbitration award annulled at the seat (New York), raising questions about whether US courts can reach into a foreign jurisdiction. There, the court affirmed a permanent injunction preventing an award creditor from enforcing an annulled award in France and opposing the award debtor's efforts to appeal or vacate a French court order that recognized the annulled award. Surprisingly, the decision did not apply the principle of international comity embodied in the Convention nor did it consider application of Article V of the Convention, which provides secondary jurisdictions with the explicit discretion to determine for themselves whether to enforce an award annulled at the seat. Rather, the New York court in Fiorilla relied on the use of an anti-suit injunction to prevent a litigant and award creditor from seeking to enforce the award before a French court. While the applicability of this decision to future US court cases remains to be seen, the fact that a US court would think that it possessed the authority to prevent the enforcement of an award in a foreign jurisdiction is cause for concern. Citigroup Global Mkts., Inc. v. Fiorilla, 54 N.Y.S.3d 586 (1st Dep't 2017).
3 See, e.g., TermoRio S.A. E.S.P. v. Electranta S.P., et al., 487 F.3d 928, 938 (D.C. Cir. 2007).
attempting to have the judgment recognized elsewhere.4 In the US, the Federal Arbitration Act (FAA) sets forth the basis for recognition, enforcement, and vacatur of foreign arbitral awards in the US.5 Chapter 2 of the FAA, which incorporates the Convention, requires a US court to recognize and enforce a foreign arbitral award unless it finds that one of the grounds for refusal or deferral of recognition enumerated in the Convention provides a basis on which to refuse confirmation. [13] US courts characterize the process of recognition and enforcement of a foreign arbitral award under the Convention as a 'summary proceeding' that merely converts the award, which is understood to be a final decision, into a judgment of a court. [14] Recognition, on its own, refers to a court's determination of an arbitral award's preclusive effect; enforcement refers to the reduction of the award to a court judgment. [14] While these may seem like two independent procedures, US courts note that a party does not need to first obtain recognition before obtaining enforcement.6 Instead, the Convention allows for a single process whereby an award can be both recognized and enforced.7
A party can apply to any federal district court in the US to recognize and enforce the award within three years of the making of the award. Under this procedure, a party initiates proceedings to confirm the award by filing either a petition or motion to recognize and enforce the award. Pursuant to the terms of the Convention, the party seeking confirmation must furnish (1) a duly authenticated original award or duly certified copy; (2) the original arbitration agreement between the parties or a duly certified copy; and (3) an official or sworn translation if the award was not made in an official language. The court then enters judgment on the award, which 'shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered'.8 Once the court has confirmed the award, a creditor can use that judgment to
4 See Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15 (1974) (citations omitted):
The goal of the Convention and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and en- forcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.
5 See FAA, 9 U.S.C. ch. 1, et seq.
6 CBFIndustria de Gusa S/A v. AMCIHoldings, Inc., 850 F.3d 58, 72 (2d Cir. 2017).
7 See Lahlou & Poplinger, et al., supra n. 14, at 103.
8 See FAA, 9 U.S.C. § 207 and 208.
seek out and obtain assets belonging to the award debtor.
III. The First Generation of US Case Law on the Enforcement of Annulled Awards
A. Chromalloy Aeroservices v. Arab Republic of Egypt
The language of the Convention is permissive and, as such, a court may deny recognition and enforcement. [15] The term 'may' strongly suggests that, while courts may deny enforcement of an award on the basis of any one or more Convention grounds, they are not bound to exercise that authority in every case. Rather, they have the latitude, in appropriate circumstances, to recognize or enforce an award, notwithstanding the presence of a ground that would enable them to decline to do so. [7] Because Article V(1)(e) gives the reviewing courts the discretion to enforce an annulled arbitral award, it introduces a 'fundamental tension between two important presumptions in US international litigation and arbitration law' - (1) respect for arbitral awards via enforcement and (2) respect for foreign set aside judgments via comity. [8] The prevailing rule in the US today is that courts should only ignore a foreign court's decision setting aside an award when 'extraordinary circumstances' have been met. [20] However, the first case to deal with the issue of enforcing an annulled award - Chromalloy Aeroservices v. Arab Republic of Egypt - did not set such a high standard. [2] There, an award was rendered in favor of Chromalloy against the Arab Republic of Egypt. Then, in 1994, Chromalloy applied to the US District Court for the District of Columbia (DC District Court) to confirm the award. However, before the DC District Court could decide Chromalloy's petition, the Egyptian Court of Appeal nullified the award based on its finding that the award was not 'properly grounded under Egyptian law'. The Egyptian Court found that the arbitrators had mistakenly applied Egyptian civil law instead of Egyptian administrative law. Egypt asked the DC District Court to dismiss Chromalloy's petition because the DC District Court was obligated to refuse confirmation of the award since it had been set aside by a competent authority in Egypt pursuant to Article V(1)(e) of the Convention.
Despite the Egyptian set aside, the DC District Court granted Chromalloy's petition to enforce the award. [2, 13] The DC District Court found that refusing to enforce the award, despite it having been annulled, would be inconsistent with US public policy, which requires that the intention of the parties to the arbitration agreement be upheld. [12, 17, 18] To support this position, the DC District Court relied on Article VII of
the Convention,9 under which the Court was required to consider Chromalloy's claims under applicable US law, rather than Article V, which provides only a permissive standard under which the Court 'may refuse to enforce an award.'10
The DC District Court thus declined to rely on Article V's discretionary authority to enforce the award and chose, instead, to adopt Chromalloy's use of Article VII to invoke the FAA and the language of the Convention. [21] Particularly as understood by courts subsequently, a critical factor in Chromalloy was a provision in the parties' arbitration agreement according to which '[t]he decision of the [arbitral tribunal] shall be final and binding and cannot be made subject to any appeal or other recourse'. The Chromalloy court considered that to respect a judgment of annulment under those circumstances would offend US public policy that strongly favors giving final and binding effect to international arbitral awards. 11 This rationale - for which the Chromalloy case continues to be cited -amounts to saying that if a judgment of annulment by a foreign court is truly lacking in integrity or is otherwise illegitimate, it would offend US public policy to deny enforcement of the award on the basis of that annulment.
B. The Evolution of US Case Law After Chromalloy: TermoRio S.A. E.S.P. v. Electranta S.P.
Following Chromalloy, US courts have generally held that recognition and enforcement should be refused where a court at the seat has set aside the award, even if a different result could have been reached had US law applied. The Court of Appeals for the District Court of Columbia (hereinafter 'DC Circuit') found that a judgment by a court at the seat of arbitration setting aside an award should be respected unless it was 'repugnant to fundamental notions of what is decent and just in the State where enforcement is sought...or violates "basic notions of justice"'. [21, 22]
There, TermoRio S.A. E.S.P. (TermoRio) and Electrificadora del Atlántico S.A. E.S.P. (Electranta), a utility company owned by the Republic of Colombia, entered into a Power Purchase Agreement in June 1997 (PPA), whereby TermoRio agreed to generate energy which Electranta agreed to purchase. The PPA included an arbitration clause providing that any dispute between the parties would be resolved by arbitration in Colombia
9 Article VII of the Convention provides that:
The provisions of the present Convention shall not ... deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law ... of the count[r] y where such award is sought to be relied upon.
10 See Chromalloy v. Egypt, 939 F. Supp. at 914.
11 Chromalloy, 939 F. Supp. at 912-913.
under the ICC Rules. After Electranta breached the PPA by failing to make payments, TermoRio initiated an arbitration proceeding against both Colombia and Electranta under the ICC rules as required by the dispute resolution clause in the PPA. The arbitral tribunal found that Electranta had breached the agreement and awarded TermoRio USD $60.3 million. Both Colombia and Electranta refused to pay the award, and Electranta filed an 'extraordinary writ' in a Colombian court, requesting that the award be overturned. The Colombian Council of State vacated the award, finding it was invalid because the arbitration had not been conducted in accordance with Colombian law which, at the time that the PPA was executed, did not expressly allow for the use of the ICC Rules.12
TermoRio then filed a complaint in the DC District Court seeking, inter alia, enforcement of the arbitration award. The court dismissed the complaint finding that TermoRio had failed to state a claim since a Colombian court had vacated the award. TermoRio appealed the decision.13
The DC Circuit affirmed the lower court's decision, holding that because the arbitration award had been set aside by a competent authority in Colombia, TermoRio could not seek enforcement of the award under the Convention. While the DC Circuit admitted that the US was, generally, pro-enforcement of foreign arbitral awards, the DC Circuit was concerned about what might happen if it were to allow enforcement of an arbitral award set aside in the primary jurisdiction. Specifically, the DC Circuit noted that a party whose arbitration award has been vacated at the seat of the award could 'automatically obtain enforcement of the awards under the domestic laws of other nations'.14 In such an instance, a losing party could rationally pursue its adversary 'with enforcement actions from country to country until a court is found, if any, which grants enforcement'.15 In clarifying the standard for application of Article V(1)(e), the court held that 'a state is not required to give effect to foreign judicial proceedings grounded on policies which do violence to its own fundamental interests'.16 However, for courts to enforce an annulled award, it must take much more than a mere assertion that the judgment of the primary state offends the public policy of the secondary State.17 Ultimately, the TermoRio court
12 See TermoRio, 487 F.3d at 928.
13 See TermoRio, 487 F.3d at 929.
14 See TermoRio, 487 F.3d at 930 and 936 (internal citations omitted).
15 TermoRio, 487 F.3d at 936 (citing Baker Marine v. Chevron, 191 F.3d 194, 197, n. 2 (2d Cir. 1999)).
16 Id. See also Paulsson (ed.), supra n. 25, at 207-208.
17 See TermoRio, 487 F.3d at 936-937. See also Paulsson (ed.), supra
n. 25, at 207-208.
refused to apply the public policy exception to enforce the annulled award because it could find 'nothing in the record . . . indicating that the proceedings before the [Colombian court] were tainted or that the judgment of that court is other than authentic'.18
C. Meeting the Bar: COMMISA v. Pemex The only case thus far finding that this high bar was met was Corporación Mexicana de Mantenimiento Integral (COMMISA), S. De R.L. De C.V. v. Pemex Exploración y Producción (Pemex). In fact, the decision in Pemex was the first and only US federal appellate decision to confirm a foreign award that had been set aside at the seat. Pemex arose from a dispute between COMMISA, a Mexican subsidiary of a Texas-based corporation, and Pemex, the Mexican state-owned oil company, regarding two contracts to build oil platforms in the Gulf of Mexico. The dispute regarding the contracts was to be arbitrated under Mexican law. In 2009, an arbitral tribunal awarded COMMISA nearly USD $300 million in damages for breach of the construction contracts. In 2011, a Mexican court set aside the award, on the grounds that Mexican administrative law did not permit arbitration of claims against a state instrumentality. Despite the Mexican court's ruling, COMMISA sought enforcement of the award in the US. 19
In 2013, the Southern District of New York (hereinafter 'Southern District') held that the Mexican court had offended 'basic notions of justice' by retroactively applying administrative laws in such a manner that rendered the case nonarbitrable.20 The court concluded that its discretion to enforce such an award was 'narrow', positing as the test whether the overseas annulment offended 'basic notions ofjustice'. In 2016, the Second Circuit Court of Appeals (Second Circuit) affirmed the lower court's decision. 21
The Second Circuit's decision stands in contrast with previous rulings on the issue, including TermoRio, where the court held that a US Court 'must enforce an arbitral award rendered abroad unless a litigant satisfies one of the seven enumerated defenses' in Article V of the Convention; 'if one of the defenses is established, the district court may choose to refuse recognition of the
18 The annulment court based its decision in part on the fact that Colombian arbitration law, which was the applicable arbitration law, did not permit the use of ICC rules in arbitration proceedings conducted in that country. See TermoRio, 487 F.3d at 935.
19 COMMISA, 832 F.3d at 98-99.
20 Corporación Mexicana de Mantenimiento Integral (COMMISA), S. de R.L. de C.V. v. Pemex-Exploración y Producción, 962 F. Supp. 2d 642, 644 (S.D.N.Y. 2013); COMMISA, 832 F.3d at 100-101.
21 COMMISA, 962 F. Supp. 2d at 657.
award'. 22 Despite the fact that US courts have discretion as to whether to give effect to the Mexican court's ruling, the Second Circuit held that this discretion is 'constrained by the prudential concern of international comity', under which a foreign court judgment is considered conclusive 'unless.the enforcement of the foreign judgment would offend the public policy of the state in which enforcement is sought - which requires the US court to analyze whether the foreign set aside decision violated fundamental notions of what is decent and what is just'.23
The Second Circuit found that the Mexican court's decision setting aside the award violated these principles. Key to this holding was the Second Circuit's finding, among others, that the retroactive application of Mexican statutes shielded Pemex from arbitration. The Second Circuit described its decision as necessary to uphold 'public confidence in laws' and to prevent the diminishing of 'personal rights and liberty'.24
IV. A Look at the Next Generation of US Case Law on Enforcing Annulled Awards
Pemex stands alone among US court cases enforcing a foreign award annulled at the seat. Two cases from 2017 - Getma Int'l. v. Republic of Guinea and Thai-Lao v. Laos - have followed the TermoRio approach, in keeping with the general trend that US courts are unlikely to enforce awards annulled at the seat. Another similar case from 2019 - Esso Exploration and Production Nigeria Limited v. Nigeria National Petroleum Corporation25 - also declines confirmation of an award vacated at arbitration seat, given that the foreign court's holdings did not offend basic standards of justice and that the subject matter was a non-arbitrate tax dispute.
Notably, a recent case from 2019 - Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua, S.A.B. de C.V.26 - may have started a new approach to enforcement of arbitral awards pending set aside proceedings, as it confirmed a foreign arbitral award under New York Convention despite pending set aside proceedings as to damages portion of the award in the arbitral seat.
A. Getma Int'l. v. Republic of Guinea
On July 7, 2017, the DC Circuit affirmed the DC
22 Id. Although the Second Circuit was applying Article V of the Panama Convention, for our intents and purposes, Article V of the Panama Convention is the same as that found in the Convention, and thus, the principles identified by the court apply just as equally to cases brought under the Convention.
23 Id.
24 Id. at 111.
25 Esso, 397 F.Supp.3d 323.
26 CIMSA v. Grupo Cementos, 2019 WL 8223562.
District Court's decision refusing to enforce an award that had been annulled by the Common Court of Justice and Arbitration (CCJA) of the Organization for the Harmonization of Business Law in Africa (OHADA), holding that the CCJA's decision did not violate 'basic notions of morality and justice'. The case, Getma Int'l. v. Republic of Guinea, is the latest in a series of decisions spanning multiple jurisdictions arising out of the award, which had been issued in favor of Getma International, a French cargo company, against the Republic of Guinea in 2014, in a dispute regarding a concession agreement between the parties over a port. Guinea had terminated the concession agreement in 2011 after which Getma sought damages through CCJA arbitration, as provided in the agreement's dispute resolution clause. The fees of the three-arbitrator tribunal were fixed at roughly €61,000 by the CCJA. After 14 months of arbitration, the arbitrators contacted the CCJA, requesting an increase in their fees to €450,000. The CCJA denied the arbitrators' requests, prompting the arbitrators to inform the parties that they would withhold the arbitral award until the parties paid them €450,000. In May 2014, the arbitral tribunal issued its final award in Getma's favor, awarding it over €38.5 million plus interest. 27
Guinea then petitioned the CCJA to set aside the award because the arbitral tribunal did not fully consider evidence in support of Guinea's allegations that Getma obtained the agreement through corruption. Before the CCJA rendered its set aside decision, Getma sought enforcement of the award in the United States. Guinea petitioned the court to stay proceedings pending the outcome of the CCJA appeal. The court granted the stay. In the meantime, the CCJA annulled the award on the basis that the arbitrators had 'breached [their] duty by deliberately ignoring the mandatory provisions of the OHADA arbitration rules on tribunal fees, even though the parties had agreed to a different fee arrangement'.28 Despite the annulment, Getma sought to confirm the now-annulled award in the US. On 9 June 2016, the DC District Court denied the petition to confirm, holding that even though it possessed discretionary authority to enforce an annulled award under the Convention, that discretion is limited to cases in which the foreign court's annulment decision violates public policy. The DC District Court adopted a narrow view of public policy and held that the foreign court's decision must violate 'the most basic notions of morality and justice'. Following the narrow public policy gloss established in the TermoRio case, the DC Circuit affirmed the district
27 Getma, 862 F.3d 45 at 49-50.
28 Getma, 862 F.3d 45 at 48-50.
court's decision. [23] The DC Circuit found the CCJA was a 'competent authority' for purposes of Article V(1)(e) of the Convention and, pursuant to principles of international comity, 'declined to "second-guess" a competent authority's annulment of an arbitrary award absent "extraordinary circumstances"'. The DC Circuit rejected Getma's argument that the CCJA had thwarted the parties' intent to contract around the institution's mandatory arbitrator fees. [24] The court noted that the parties' arbitration agreement did not address how the parties would determine arbitrators' fees. The lack of specificity in their agreement was construed as evidence of the parties' intent to accept the CCJA's fees by providing for arbitration under the CCJA Arbitration Rules (which mandate that an arbitrator's fees are set exclusively by the CCJA.) Relying on TermoRio, the court found that despite the US' 'emphatic public policy' in favor of arbitration, 'a foreign sovereign's different policy was not repugnant to [the US' policy]'. Thus, the CCJA's longstanding precedent to set arbitrator fees and expenses, despite being contrary to the parties' wishes, did 'not violate the United States' most basic norms of morality and justice'. 29
B. Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People's Democratic Republic The 2017 Second Circuit's decision in Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People's Democratic Republic, illustrates just how unusual or extraordinary circumstances must be in order for a US court to enforce an award annulled at the seat. There, the dispute had arisen out of terminated agreements with the Government of the Lao People's Democratic Republic (Laos) to mine lignite coal and develop a power plant to convert the coal into electricity. Thai Lao Lignite Co., Ltd. and its subsidiary, Hongsa Lignite Co., Ltd. (HLL) (together, 'Thai-Lao') brought an arbitration under the UNCITRAL Rules against Laos after Laos sent Thai-Lao a notice of default and terminated its contracts. In 2009, the arbitral tribunal issued an award for USD $57 million. [25]
After the time for applications to set aside the award under Malaysian law had passed, Thai-Lao sought to enforce the award in three separate jurisdictions - the US, the United Kingdom, and France. In 2010, amidst these enforcement proceedings, Laos initiated set aside proceedings in Malaysia, defending its tardiness by claiming its 'lack of knowledge of the local law and inadequate advice from its legal advisors'. While the trial court denied Laos' request, the Court of Appeal
29 See Getma Int'l. v. Republic of Guinea, 191 F. Supp. 3d 43 (D.D.C.
2016).
of Malaysia granted the request to set aside the award, finding that a sovereign should be given special treatment because to 'refuse the extension of time [would be] tantamount to shutting out the Government of Laos from challenging the award'. In 2012, the Malaysian High Court affirmed the Court of Appeal's decision and ordered the parties to re-arbitrate their claims. [25]
Laos then moved the Southern District to vacate its 2011 judgment pursuant to Federal Rule of Civil Procedure (FRCP) 60(b)(5), which allows a district court to relieve a party from a final judgment when that judgment is based on an earlier judgment that has been reversed or denied. The Southern District granted Laos' motion and vacated its earlier judgment, interpreting the Convention to require the court to give effect to the later Malaysian decision annulling the award. The Southern District found that honoring the Malaysian decision did not 'rise to the level of violating basic notions of justice such that the Court here should ignore comity considerations'. On appeal, the Second Circuit reviewed the decision for abuse of discretion by the Southern District because the judgment 'rested on a decision to extend or deny comity to the courts of a foreign sovereign'. [25]
The Second Circuit read Article V of the Convention to 'anticipate that an arbitral party that has prevailed may sue elsewhere to enforce an award before the award has been reviewed by courts in the arbitral seat'. Thus, under Article V, when a 'prevailing party files an action to enforce the award in a secondary jurisdiction and then, the primary jurisdiction sets aside the award, Article V(1)(e) declares that a court of a secondary jurisdiction "may" refuse to enforce the award...in contrast to the general directive that such a court "shall" enforce the award'. [25]
In a twist that makes the Thai-Lao decision unique, the Second Circuit explained, citing Pemex, that in conducting a Rule 60(b)(5) analysis, district courts should readily incorporate Article V(1)(e) and assign 'significant weight to considerations of international comity in the absence of a need to vindicate "fundamental notions of what is decent and just" in the United States'. [25] Thus, the Second Circuit's ruling in Thai-Lao stands for the proposition that the Convention applies even where an action seeking to annul an award in the US is not brought directly under the Convention but through other procedural rules, such as the FRCP.
C. Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua, S.A.B. de C.V
On 25 March 2019, the U.S. District Court in D. Colorado in Compañía de Inversiones Mercantiles
S.A. v. Grupo Cementos de Chihuahua, S.A.B. de C.V, confirmed a foreign arbitral award under New York Convention despite pending set aside proceedings as to damages portion of the award in the arbitral seat. In its arbitral proceedings, the parties agreed to bifurcate the proceedings into two phases: merits phase and damages phase. Later, the arbitral tribunal issued a partial final award on liability in 2013 (the "Merits Award") in favor of CIMSA. In 2015, the arbitral tribunal issued a final award on damages (the "Damages Award") and quantified CIMSA's damages at approximately $34.1 million, plus fees and costs. Grupo Cementos initiated court proceedings in Bolivia seeking to annul both the Merits Award and the Damages Award. 30
Initially, Grupo Cementos's request was denied by the court, so Grupo Cementos filed an amparo action, which is a distinct action to address official conduct that violates a party's constitutional rights, claiming that the judge had violated its rights by, inter alia, failing to explain the decision. While CIMSA's amparo against this decision was pending, the Plurinational Constitutional Tribunal (the "PCT"), the highest constitutional court in Bolivia, revoked the original Guarantee Court resolution. CIMSA, believing the first decision denying annulment to be controlling, withdrew its amparo against the subsequent annulment decision. 31 The court proceedings related to the damages award commenced in Bolivia, and a similar series of court proceedings followed. In these proceedings, the court initially annulled the damages award. An amparo by CIMSA followed, which was rejected by the Guarantee Court, but accepted by the PCT, which vacated the annulment order. While these proceedings were still pending, CIMSA initiated this action in Colorado to confirm the arbitral award against Grupo Cementos.32 The U.S. District Court analyzed both the Merits and Damages Awards, and while recognizing that courts should generally give deference to decisions of the competent authority in the arbitral seat under the New York Convention, the District Court can ignore this rule when a foreign judgment setting aside the award is "repugnant to fundamental notions of what is decent and just in the State where enforcement is sought ... or violated basic notions of justice."33
In the U.S. District Court's analyses, the court found the Merits Awards valid and enforceable. When considering the Damages Awards, the court analyzed
30 CIMSA v. Grupo Cementos, 2019 WL 8223562 at 2.
31 Id. at 3-5.
32 Id. at 3-6.
33 Id. at 7.
the arguments against enforcement and found that they relied on application of Bolivian law, not the law of the place of enforcement. Although the agreement containing the arbitration clause was governed by Bolivian law and the annulment proceeding was pending in Bolivia, the relevant inquiry for the district court was whether, under U.S. law and the New York Convention, the existence of ongoing judicial proceedings in Bolivia was a defense to enforcement. The court held that it was not, and recognized that the main goal of the New York Convention is to facilitate the enforcement of awards by enabling parties to enforce them in third countries without first having to obtain confirmation from the courts of the arbitral seat.34
The U.S. District Court further analyzed whether a Stay would be appropriate. The court cited Europcar, where the second circuit articulated six non-exclusive factors to consider in determining whether a stay is warranted. The district court decided that "although the Bolivian proceedings were initiated before the proceedings in this Court, the remaining considerations counsel against a stay and in favor of enforcement."35 In conclusion, the district court confirmed the arbitration award in favor of CIMSA.
V. Analyzing US Courts' Varying Assessments of Foreign Court Annulments
Chromalloy, Pemex, Getma, Thai-Lao, and CIMSA demonstrate US courts' continued struggles to identify when a foreign court's annulment decision violates public policy in contravention of the Convention such that it would warrant enforcement of the award. Notwithstanding the US' traditional pro-enforcement stance,36 in keeping with the underlying principle of enforcement in the Convention, US courts appear to be nevertheless 'constrained by prudential concerns of international comity'37 and tend not to enforce an annulled award unless it 'offends basic notions of morality and justice'.38 Determining what constitutes a violation of 'morality' and 'justice', however, requires that US judges make normative judgments about why foreign courts rendered set aside decisions. [26]
In Pemex, the Second Circuit reasoned that the Mexican court's annulment violated particular fundamental legal norms, including 'the vindication
34 Id. at 10-12.
35 CIMSA v. Grupo Cementos, 2019 WL 8223562 at 15.
36 The Convention's pro-enforcement stance has been recognized by numerous judicial decisions in the United States. See, e.g., AO Techsnabexport v. Globe Nuclear Servs. & Supply, Ltd, 656 F.Supp.2d 550, 554 (D. Md. 2009) ('The Convention manifests a general pro-enforcement bias'.), aff'd, 404 F. Appx. 793 (4th Cir. 2010).
37 COMMISA, 832 F.3d at 106.
38 Getma, 862 F.3d at 49 (internal citations omitted).
of contractual undertakings', 'the repugnancy of retroactive legislation', 'the need to ensure legal claims find a forum', and 'the prohibition against government expropriation without compensation'.39
In Getma, the DC Circuit conceded that the annulment was harsh but ultimately found that the circumstances did not warrant direct contravention of the primary jurisdiction's judgment and so affirmed the lower court's decision denying the petition to enforce the award.40
The decisions in Pemex and Getma suggest that a US court will extend comity where the court in the primary jurisdiction complied with fundamental US legal norms. In Pemex, the court refused to extend comity where the Mexican court applied retroactive legislation - violating a US legal norm. In Getma, the court granted comity and denied a petition to enforce the annulled award because the ability of the CCJA to set its own rules on arbitrator fees complied with a US legal norm. But these decisions demand a fact-intensive inquiry and do not provide a much-needed litmus test identifying the specific factors to consider when assessing whether there has been a violation of 'morality and justice'. [14]
In distinguishing Thai-Lao from Pemex, the district court judge in Thai-Lao pointed out that the set aside judgment in Thai-Lao was in a neutral country (Malaysia) and did not involve any entity of the State of the seat. [25] The Thai-Lao court underscored that the case before it 'is not a case in which the Respondent is an entity of Malaysia's government, which might raise a suspicion of the Malaysian courts' partiality; rather, Malaysia is a neutral, third country that the parties mutually chose as the seat of the arbitration'. [25] The court was referring to a very legitimate concern in the international arbitration community that courts of the place of arbitration sometimes use their annulment authority to nullify awards principally because those awards run contrary to the economic or other interests of the State (or an instrumentality of the State) to which those courts belong. [27] Moreover, the grounds for the set aside in Malaysia was the equivalent of a Convention defense whereas the ground in Mexico was arguably a 'local' arbitrability issue favorable to the state entity.41 Additionally, as distinguished by the district court in Thai-Lao, unlike in Pemex, the Malaysian High Court did not leave the losing party without a remedy, as it merely ordered re-arbitration before a different panel of arbitrators. [25]
39 COMMISA, 832 F.3d at 107.
40 Getma Int'l. v. Guinea, 862 F.3d 45 (D.C. Cir. 2017).
41 Ibid.
One of the most recent cases to address enforcement of an award nullified at the seat further adds to an Article V analysis insofar as it throws into question what it means for an award to be 'set aside' at the seat. In Diag Human S.E. v. Czech Rep. - Ministry of Health ('Diag'), the D.C. Circuit found that a review panel's 'discontinuance of proceedings' was an effective 'set aside' for the purposes of determining whether to enforce an award pursuant to Article V of the Convention. There, Diag Human, S.E., a corporation organized under the laws of Liechtenstein filed an arbitration against the Czech Republic for the Czech Republic's alleged interference with Diag's blood plasma business in the early 1990s. In 1997, an arbitral panel seated in the Czech Republic found that the Czech Republic had committed a wrongful act and had caused damages to Diag (the 'Interim Award'). The Interim Award left the question of damages for later proceedings. Then, in 2002, a partial damages award was rendered for damages totaling nearly $10 million (the "Partial Award"). Finally, in 2008, another arbitral panel considered the full scope of damages and awarded Diag nearly $400 million in damages and interest (the 'Final Award'). Diag sought to enforce the Final Award in the D.C. District Court. The D.C. District Court declined to enforce the Final Award. The D.C. Circuit
affirmed.42
Key to the D.C. Circuit's decision was a Czech Republic arbitration law that allows parties to engage in a review process in which a second arbitral panel can revisit an original award and possesses the power to uphold, nullify, or modify that award.43 As the D.C. Circuit summarized, the Interim Award and Partial Award had been subjected to this review process and the review panels for each respective review process had affirmed the awards. However, when the Czech Republic sought review of the Final Award, the review panel did not affirm the award. Rather, the review panel issued a Resolution discontinuing the proceedings. The review panel concluded that the Final Award was precluded by res judicata because, in the panel's eyes, the Partial Award was actually a complete decision.44 The D.C. Circuit interpreted this discontinuance as a nullification of the Final Award and found that the
42 Diag Human S.E. v. Czech Rep. - Ministry of Health, 907 F.3d 606 (D.C. Cir. Oct. 26, 2018) ("Diag").
43 Diag, 907 F.3d at 611.
44 Under Czech Republic arbitration law, 'a partial decision may only be issued on one of otherwise separate claims or on a claim against only one of several defendants. ' Diag, 907 F.3d at 610. The Partial Award did not state that it was issued with regards to only one claim or on a claim against one of several defendants (the only defendant in this case was the Czech Republic). The Partial Award, therefore, was actually a final award and preempted any later proceedings. Diag, 907 F.3d at 610.
Final Award was, therefore, not 'binding' and, as such, unenforceable.45
Interpretation of the public policy exception under the Convention is a fact specific inquiry. Chromalloy, Pemex, Getma, Thai-Lao and CIMSA all illustrate that US courts carefully consider individual facts of the case when assessing the validity of foreign judgments. That being said, the decisions do not identify clear outer boundaries of permissible conduct by a foreign sovereign, for instance, when assessing the enforceability of an annulled arbitral award. [26] The Southern District in Pemex, as affirmed by the Second Circuit, acknowledged that Chromalloy still 'remains alive' since 'both Baker Marine and TermoRio recognized that a district court should hesitate to defer to a judgment of nullification that conflicts with fundamental notions of fairness'. [5] But these decisions still beg the question of what set of facts will persuade a US court to enforce an annulled award, as in Pemex, or refuse enforcement, as in Getma and Thai-Lao? In order to answer this question, it appears that the courts had to review the local courts' annulment orders and determine whether they complied with 'basic notions of morality and justice'. While Getma and Thai-Lao may not provide parties with a clear-cut answer to this question, they do provide some comfort to award debtors that US courts' analysis of foreign court judgments remain constrained by the principles of international comity and pro-enforcement embodied in the Convention. Thai-Lao, in particular, emphasizes that the presumption of
45 Diag, 907 F.3d at 612.
deference to foreign judgments will only be rebutted in the most 'extraordinary circumstances', which should not allow US courts to disagree with the merits of a foreign judgment.
VI. Conclusion
The decisions in Chromalloy, TermoRio, Pemex, Getma, Thai-Lao and Diag demonstrate the ongoing refinement of the public policy standard that US courts use in assessing whether to enforce annulled award. Award creditors and debtors should keep in mind that when litigating enforcement of an annulled award in the US, the standard is a high one and, under the prevailing standards, US courts tend to exercise great restraint in disregarding the annulment of an award by a competent foreign court. As the TermoRio court stated, 'we must be very careful in weighing notions of "public policy" in determining whether to credit the judgment of a court in the primary State vacating an arbitration award'. [17, 20] This should not, however, deter parties from seeking to enforce awards in the US. That US courts enforce awards annulled by foreign courts only in exceptional circumstances that implicate 'basic notions ofjustice' is consistent with a more general understanding of public policy in US law. Rather, parties should merely prepare themselves for the inevitable fact-intensive inquiry that US courts will engage in when determining whether to enforce an annulled award. With this understanding, the cases discussed in this article can serve as guideposts, delineating which facts satisfy the 'extraordinary circumstances' standard and which do not.
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