Yesterday, a U.S. court upheld a $406 million award to a U.S. company against a Mexican owned company. The case arose out of a dispute over oil platforms to be built in the Gulf of Mexico by Commisa, a Mexican subsidiary of a U.S. company for Mexico’s state-owned oil company, Pemex.
In August 2013, Judge Alvin K. Hellerstein of the United States District Court for the Southern District of New York rendered a decision granting the enforcement of an award made in Mexico between Commisa and Pemex. Commisa was awarded $300 million. The 2004 Commisa award had been set aside by the supervisor court in Mexico by a law that had allegedly been enacted after the award was rendered. The lower court had also added $106 million to reimburse for Commisa’s bonds.
The Court of Appeal yesterday found that the lower court did not abuse its discretion in granting the enforcement of an award that had been set aside in the country of origin.
Professor Marike Paulsson teaches regularly on the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards at the University of Miami School of Law. She is the co-founder of the ICCA New York Convention Roadshow that aims to familiarize judges around the world with the New York Convention. She has published extensively on the New York Convention and just published the treatise "The 1958 New York Convention in action."
What is the impact of this decision for the worldwide application of the New York Convention?
The floodgates are opened and with the New York Convention, the rest of the world looks to the U.S.: "Unfettered discretion" might mean: abuse of discretion. One must proceed with caution as enforcing annulled awards may lead to forum shopping and create uncertainty and counter current efforts made by the international arbitration community.
What are the likely problems with the decision?
Where the shoe pinches: was there sufficient evidence submitted in a U.S. summary enforcement proceeding to warrant an enforcement of an award that has ceased to exist in Mexico? Courts are creating what I call the Russian Doll effect: arbitration and award by tribunal; annulment phase at the court of the country where the award was rendered and appealed; and review of the award and annulment decision in the country (or even countries) where enforcement is sought and appealed.
What's does the future look like?
If we had a crystal ball, what we would want to see is an appeal to the Supreme Court. We would want that court to have the final say in a matter that has now gone through many judicial layers in Mexico and the U.S. We would hope that the Supreme Court will acknowledge the rule of thumb that awards that are annulled should not be enforced with exceptions allowed in unusual circumstances. Sometimes we must remember what the rules are and what the exceptions are because that is for the best for the effectiveness of the New York Convention.
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