The Second Circuit Court of Appeals Confirms That Annulled Awards Can Be Enforced
One year after the Pemex case (Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploración Y Producción, 832 F.3d 92, 106 (2d Cir. 2016), cert. dismissed, 137 S. Ct. 1622, 197 L. Ed. 2d 746 (2017)), in which it enforced an annulled award, the U.S. Second Circuit distinguished a more recent decision by confirming that annulled awards cannot be enforced. Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People’s Democratic Republic, Docket Nos. 14-597, 12-1052, 14-1497 (2d Cir. July 20, 2017). The unique circumstances of the case led the court to issue this ruling: although the award was originally enforced in the U.S. and the U.K., it has been denied in France and annulled by the primary jurisdiction, Malaysia.
The case concerns a series of mining contracts concluded in the 1990’s. Some of the work was not fully performed due to the Asian financial crisis that took place between 1997 and 2000. In September 2006, a notice of default was sent by the Lao People’s Democratic Republic to the mining company, Thai Lao Lignite Co., Ltd., which initiated arbitral proceedings a year later.
An award of $57 million plus interest was rendered in Malaysia in November 2009 in favor of Thai Lao Lignite Co., Ltd. and its subsidiary, Hongsa Lignite Co., Ltd. The French Court of Appeal of Paris overturned a trial level decision that enforced this award, on the basis that the arbitrators ruled on matters that were outside the scope of the arbitration agreement. However, the U.S. District Court, the U.S. Court of Appeals for the Second Circuit, and the High Court of Justice of England and Wales enforced the award. During these proceedings, Laos initiated other procedures in Malaysia in order to have the award annulled.
In December 2012, the award was annulled by the Malaysian High Court on the ground that the arbitral tribunal exceeded their jurisdiction. In fact, they addressed disputes under contracts not covered by the relevant arbitration agreement because the subsidiary was not a party to the mining contracts. On the basis of that decision annulling the award, Laos initiated a Federal Rule of Civil Procedure 60(b) motion before the U.S. District Court in order to vacate its earlier decision. The District Court granted Laos’s motion and vacated its judgement in February 2014.
Because the District Court abused its discretion when issuing its prior ruling, the Second Circuit reviewed its decision as well. Article V of the New York Convention provides that enforcement of an award can be denied if the award was set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
The Second Circuit followed the doctrine of international comity in order to make a decision and ruled that it was constrained by this prudential concern to promote a uniform and predictable arbitral framework. As it noted in its opinion and applying its view on foreign awards in the Bakercase, “to do otherwise would give a losing party every reason to pursue its adversary with enforcement actions from country to country until a court is found, if any, which grants the enforcement.” Baker Marine Ltd. v. Chevron Ltd., 191 F.3d 194 (2d Cir. 1999). It also distinguished this case from the Pemex case, in which it was justified to enforce the annulled award because the claimant was deprived of any recourse under the contract as a result of a retroactive legislation. Therefore, in July 2017, the Second Circuit decided to follow the second ruling of the District Court and to vacate its prior decision. Thus, the court ruled that annulled awards cannot be enforced and opened the door to new arbitration proceedings in this case.
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