On 20 July 2014, the Court of Appeals for the Second Circuit affirmed the decision of the US District Court for the Southern District Court of New York to to vacate its earlier judgment enforcing an arbitral award that had been annulled by Malaysian courts(Thai-Lao Lignite (Thailand) Co. v. Government of the Lao People’s Democratic Republic, No. 14-597, 2017 WL 3081817 (2d Cir. July 20, 2017)).
In 2007, Thai-Lao Lignite and its subsidiary submitted to arbitration in Malaysia a commercial dispute arising from the terminations by the Government of the Lao People’s Democratic Republic of contracts granting TLL rights to mine lignite in the Hongsa region of Laos and to build a lignite-burning power plant there.
In 2009 an arbitral tribunal had rendered an award in favour of claimants awarding them approximately USD 57 million.
Thereafter, claimants started enforcement actions against Laos in the US, the UK and France pursuant to the New York Convention. Their enforcement efforts were successful in the US and the UK: on 3 August 2011, the US District Court for the Southern District Court of New York rendered a judgment confirming the award; in November 2012, the High Court of Justice of England and Wales followed suit.
In 2012, and following the annulment of the award by Malaysian courts, Laos returned to the US seeking to vacate the District Court’s judgment which had enforced the award pursuant to Federal Rule of Civil Procedure 60(b)(5) which provides that “[o]n motion and just terms, the court may relieve a party … from a final judgement” for certain specified reasons, such as when “the judgment … is based on an earlier judgment that has been reversed or vacated”.
The District Court granted Laos’s rule 60(b)(5) motion and vacated its earlier judgment of 2011 enforcing the award. It did so on the understanding that, in the circumstances of this case, the New York Convention required it to give effect to the later Malaysian decision annulling the award, unless doing so would offend basic standards of justice in the US. It found that neither Laos’s conduct nor anything in the Malaysian courts’ reasoning so tainted the Malaysian order such that vacatur would offend fundamental standards of justice. The District Court further denied claimants’ later application to enforce the English judgment on grounds that said judgment conflicted with the Malaysian one and rejected claimant’s request for security from Laos to protect their interest in the award during the pendency of its Rule 60(b) motion and any subsequent appeals.
The claimants appealed the District Court’s orders, arguing that, in so construing its obligations, the District Court exceeded the permissible bounds of its discretion.
Decision of the Second Circuit
On appeal, the US Court of Appeals for the Second Circuit held its ruling in this matter pending its decision and resolution of the petition for certiorari in the relevant case of Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploración y Producción (the Pemex case).
The Second Circuit referred to the New York Convention stating that it adopts an approach that does not require a party seeking enforcement of an award in what is known as “secondary jurisdiction” (the US in this case) to await the conclusion of all appeals of the award that may be pursued in the “primary jurisdiction” (Malaysia in this case). It noted that, while uniquely empowering courts in the primary jurisdiction to set aside or annul an arbitral award, the New York Convention also anticipates that a party that has prevailed in the arbitration may sue elsewhere to enforce an award before the award has been reviewed by courts in the arbitral seat. Therefore, Article V of the New York Convention addresses one scenario that grows out of that approach: when the 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” found in Article III.
It thereafter referred to its ruling in the Pemex case that, although Article V(1)(e)’s permissive language could be read to suggest that a district court has “unfettered discretion” as to whether to enforce such an award, the court’s exercise of that discretion should rather be treated as “constrained by the prudential concern of internal comity”. Further, that decision carved out a “public policy” exception to the comity principle for occasions when enforcing an arbitral award annulled in the primary jurisdiction “to vindicate ‘fundamental notions of what is decent and just’ in the United States”. In the Pemex case, however, the District Court did not have occasion to consider the interaction between Rule 60(b)(5) and the primary jurisdiction’s annulment of an arbitral award. It, therefore, considered it in the present case.
The District Court decided that Rule 60(b)(5) applies to a district court’s consideration of a motion to vacate a judgment enforcing an arbitral award that has since been annulled in the primary jurisdiction. In conducting a Rule 60(b)(5) analysis, district courts should analyse the full range of Rule 60(b) considerations, including timeliness and the equities. In conducting this analysis, courts ought to 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”. The District Court found that in the present case, more explicit consideration of these factors would not have materially changed the District Court’s decision to vacate its prior judgment, especially in light of the District Court’s explanations of its rulings granting vacatur and denying sanctions.
The Second Circuit, therefore, affirmed the District Court’s decision to vacate its earlier judgment enforcing the arbitral award. It found that the District Court did not exceed the permissible bounds of its discretion in refusing to order Laos to post security during the pendency of its Rule 60(5) motion and any subsequent appeals nor did it err by refusing to enforce the English judgment. Accordingly, it also affirmed its order denying the requested security and the order denying enforcement of the English judgment.
Source: Original decision at www.law.justia.com