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Null But Not Void

One may read several times over the long-awaited decision of the US Second Circuit Court of Appeals upholding the confirmation under the Panama Convention of a $300 million commercial arbitration award against Mexico that had been annulled by a Mexican court at its Mexican seat, searching upon each fresh reading for some hint of a more generous opening for US enforcement of annulled foreign awards than the very restrictive case of an annulment that offends fundamental principles of US public policy. The repeated readings are not likely to bear fruit; the Second Circuit evidently is willing to go only this far and no farther.  (Corporacion Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploracion Y Producion, No. 13-4022, 2016 WL 4087215 (2d Cir. Aug. 2, 2016)). But at least we now know that such an annulled foreign award still is considered to exist such that US judicial discretion may be brought to bear upon it. That much is implicit in the basic architecture of the Court’s opinion, which is that the judicial discretion to enforce an annulled foreign award is not expressly limited by the Panama or New York Conventions, but is impliedly limited by principles of comity applicable to foreign judicial judgments including judgments annulling arbitration awards.

So, foreign sovereign readers, you may ask how you might get into trouble with the US courts and have your judicial judgments concerning arbitral awards forfeit the warm blanket of comity among nations in the courts of the United States. Well, start out with an organic law governing the affairs of a state-owned enterprise that expressly authorizes the company to put an arbitration clause in a contract. Add to that a law that says if the counterparty breaches the contract, the state owned company can rescind the contract. Then, when a dispute breaks out, and the counterparty wants payment, and the state owned company declares a rescission, and an arbitration begins, and the arbitral tribunal rules that it has jurisdiction, go to work on the legislative front. Pass a law that says rescission of a contract by a state-owned company is a sovereign act that cannot be arbitrated but only challenged in court. Pass a law that says the judicial challenge to such a sovereign act can only be brought in a particular court, and only within 45 days of the accrual of the cause of action.  And for good measure, seize the counterparty’s 94 percent-complete work product and forcibly banish its personnel from its work sites.

If, dear sovereigns, you follow this formula with care, you will learn, as did PEMEX the state-owned petroleum enterprise of Mexico, that un-waiving sovereign jurisdiction in the courts of the State) collides with the American conception of the rule of law: “Giving effect to [PEMEX’s] twelfth-hour invocation of sovereign immunity shatters [Plaintiff]’s investment-backed expectations in contracting, thereby impairing one of the core aims of contract law.” You too, dear sovereign, may hear from another US court, quoting this one, that “[r]etroactive legislation that cancels existing contract rights is repugnant to United States law.”  You too may hear from a US court that expropriation without payment of compensation violates US domestic policy not to mention many international trade treaties including the NAFTA. And you too may hear that American jurists tend to regard the meaningful availability of some forum to resolve a claim as a fundamental principle “firmly embedded in legal doctrine.” (Of course you may also read, in other chat rooms, that Uruguay recently convinced two non-American international arbitrators, but not the American-Born dissenting arbitrator, that effective denial to a foreign investor of a judicial forum to resolve vis-à-vis the Host State conflicting rulings from different domestic courts was not a denial of justice in violation of an investment treaty’s guarantee of fair and equitable treatment. Nice work Uruguay. But at least in that case the forum stalemate was an anomalous result of an ordinary allocation of judicial power, and not the foreordained outcome of a post-dispute gerrymandering as was done by Mexico).

But take heart, foreign sovereigns, this ruling from the US Second Circuit professes to be an exceptional response to an exceptionally egregious violation of the above series of related bedrock principles bundled into the American conception of the rule of law. The decision does not move the US in the direction of French doctrine in viewing foreign arbitral awards as having a tenuous link to the legal order of the arbitral seat. And the decision does not even hint that State court judgments annulling awards against that State are generally subject to an enhanced level of scrutiny as compared to other award annulment judgments.  One can detect here nearly no movement in US jurisprudence, but only a set of circumstances without precedent in the limited body of US case law concerning enforcement of annulled foreign awards.

 

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