MEALEY S 1 International Arbitration Report. A commentary article reprinted from the February 2017 issue of Mealey s International Arbitration Report

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1 MEALEY S 1 International Arbitration Report Extraordinary Becomes The Ordinary? Commisa Decision Urges Caution In Selecting Seat Of Arbitration As It Indicates Willingness By U.S. Courts To Enforce Arbitral Awards Previously Vacated Abroad by Purvin N. Patel Squire Patton Boggs (US) LLP Washington D.C. A commentary article reprinted from the February 2017 issue of Mealey s International Arbitration Report

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3 MEALEY S 1 International Arbitration Report Vol. 32, #2 February 2017 Commentary Extraordinary Becomes The Ordinary? Commisa Decision Urges Caution In Selecting Seat Of Arbitration As It Indicates Willingness By U.S. Courts To Enforce Arbitral Awards Previously Vacated Abroad By Purvin N. Patel [Editor s Note: Purvin N. Patel is a Senior Associate in the Washington D.C. office of Squire Patton Boggs (US) LLP. His practice focuses on domestic and international corporate and energy related matters, including cross-border transactions involving conventional and renewable power projects. Any commentary or opinions do not reflect the opinions of Squire Patton Boggs (US) LLP or Lexis- Nexis1, Mealey Publicationsä. Copyright # 2017 by Purvin N. Patel. Responses are welcome.] I. Introduction Over the past 50 years, the global economy has seen a continued rise in cross-border investments, and as a result of the increased complexities from such crossborder transactions, the need for a clear and consistent dispute resolution mechanism, including the recognition and enforcement of arbitral awards, has become imperative. As a result, most countries globally have adopted The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention ), 1 or the Inter-American Convention on International Commercial Arbitration (the Panama Convention ), 2 which is substantially similar to and is often characterized as an extension of the New York Convention. 3 Although each individual nation has specific procedural rules that must be carefully followed to enforce an arbitral award, the New York Convention and the Panama Convention each provides a general set of standard rules and procedures for enforcing such award, including with respect to enforcing any such award in one contracting state that is issued in another contracting state. 4 In such instance, the rules of each of the New York Convention and the Panama Convention have a strong preference toward the enforcement of such award and state that such arbitral award should be enforced unless subject to certain limited defenses. 5 Following principles of international comity, U.S. courts have traditionally deferred to enforcement decisions rendered by the foreign courts of the seat of arbitration. 6 As summarized by the D.C. Circuit, when a competent foreign court has nullified a foreign arbitration award, United States courts should not go behind that decision absent extraordinary circumstances. 7 Although this extraordinary circumstances doctrine has been cited on multiple occasions as the threshold requirement to deny such deference, no major U.S. court had actually applied this doctrine to deny such deference until the Second Circuit s pivotal August 2016 decision in Corporación MexicanaDeMantenimientoIntegral,S.DeR.L.DeC.V.v.Pemex-Exploración Y Producción ( Commisa ). 8 II. The Commisa Decision In the Commisa case a dispute arose between Pemex- Exploración YProducción ( PEMEX ), a subsidiary of Mexico s state-owned oil and gas company, and its contractor, Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V ( Contractor ) resulting in PEMEX administratively rescinding the underlying agreement. 9 The underlying agreement required disputes to be resolved by arbitration in Mexico City pursuant to the rules of the International Chamber of Commerce ( ICC ). 10 Although the arbitral panel 1

4 Vol. 32, #2 February 2017 MEALEY S 1 International Arbitration Report rendered an award in favor of Contractor for approximately US$300 million, the Eleventh Collegiate Court of Mexico vacated the award. 11 In rendering its decision, the Mexican court retroactively applied a Mexican law ( Section 98 ) that was enacted after the commencement of the arbitration proceedings and which precluded arbitration of claims based on administrative rescission. 12 While the Mexican court was reviewing the award, Contractor filed a parallel action in the Southern District of New York to enforce the original arbitral award. 13 On August 2, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the lower court s decision to disregard the Mexican court s ruling to vacate the award on grounds that upholding the vacated award would be against public policy because the retroactive application of Section 98 constituted extraordinary circumstances in that it violated basic notions of justice in that it applied a law that was not in existence at the time the parties contract was formed and left [Contractor] without an apparent ability to litigate its claims. 14 In addition, the Second Circuit stated that PEMEX acted on behalf of the Mexican government when it rescinded the underlying agreement and forcibly removed Contractor from the project sites. 15 The Mexican court then, according to the Second Circuit, frustrated Contractor s right to relief by applying Section 98 and precluding arbitration of Contractor s claim. 16 The Second Circuit held that such application of Section 98 constituted a taking of private property without compensation for the benefit of the government, and observed that [i]n the United States, [such action] would [constitute] an unconstitutional taking. 17 The Second Circuit concluded that such taking also violated basic notions of justice and was contrary to public policy. 18 In balancing the concerns of public policy against concerns of international comity, the Second Circuit stated that although the Panama Convention affords discretion in enforcing a foreign arbitral award that has been annulled in the awarding jurisdiction, and thereby advances the Convention s pro-enforcement aim, the exercise of that discretion is appropriate in situations similar to those that arose in the Commisa case when necessary to vindicate fundamental notions of what is decent and just in the United States. 19 III. Conclusion The Commisa decision marks the first time that a U.S. court has applied the extraordinary circumstances doctrine to enforce an arbitral award that was previously vacated by a court at the seat of arbitration. Due to the recency of the Commisa decision, its legal ramifications are still undetermined. However, even a narrow interpretation of this decision signals a willingness by U.S. courts to exercise discretion under the extraordinary circumstances doctrine to enforce previously vacated arbitral awards. Moreover, a party that has had an arbitral award vacated at the seat of arbitration against another party with assets in the United States is now more likely to attempt to pursue the enforcement of such award in a U.S. court. Of course, the Commisa case also provides a cautionary tale of the importance of selecting the seat of one s arbitration proceedings, as certain jurisdictions prove to be more pro-enforcement than others. Endnotes 1. As of publication, 156 contracting states have ratified the New York Convention, including 153 of 193 member states of the United Nations. New York Arbitration Convention, Contracting States Status Map, available at countries/status+map countries have ratified the Panama Convention. Organization of American States, Multilateral Treaties - B-35: Inter-American Convention on International Commercial Arbitration, available at oas.org/juridico/english/sigs/b-35.html. 3. Dean, Danielle, and Chelsea Masters. In the Canal Zone : the Panama Convention and its Relevance in the United States Today. The Arbitration Brief 2, no. 1 (2012): ( The trend indicates that courts continue to treat the Panama Convention only as an extension of the New York Convention ). 4. See the New York Convention, Art. I and the Panama Convention, Art See the New York Convention, Arts. I and V and the Panama Convention, Arts. I and V. 2

5 MEALEY S 1 International Arbitration Report Vol. 32, #2 February See TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007) and Ackermann v. Levine, 788 F.2d 830 (2d Cir. 1986). 7. TermoRio, 487F.3dat*938.See also Ackermann,788 F.2d at *837 (2d Cir. 1986) ( a final judgment obtained through sound procedures in a foreign country is generally conclusive unless enforcement of the judgment would offend the public policy of the state in which enforcement is sought. ). 8. Id. See also Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploración Y Producción, Case No , 2016 U.S. App. LEXIS 13991, at *4-5 (2d Cir., August 2, 2016). 9. Commisa, 2016 U.S. App. LEXIS at *4-5 (2d Cir., August 2, 2016). The Commisa holding falls within the scope of the permissible defenses offered by the New York Convention and the Panama Convention. Because the parties in the Commisa case invoked the Panama Convention, the Second Circuit provided its analysis under the Panama Convention but held that there is no substantive difference with respect to domestic enforcement of foreign arbitral awards between the New York Convention and the Panama Convention, as both agreements evince a pro-enforcement bias. The public policy defense to enforcement at the heart of the Commisa decision is available under both the New York Convention (New York Convention. Art. V) and the Panama Convention (Panama Convention, Art. V). 10. Id. at* Id. at* Id. at* Commisa, 2016 U.S. App. LEXIS 13991, at * Id. at* Commisa, 2016 U.S. App. LEXIS at * Id. 17. Commisa, 2016 U.S. App. LEXIS at * Id. 19. Id. at*29. 3

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