Protecting Against Protectionism: Commisa v. Pemex

• Publication year: 2017

PROTECTING AGAINST PROTECTIONISM: COMMISA V. PEMEX

Victoria Aynne Barker^*

[Page 225]

Table of Contents

I. Introduction...............................................................................227

II. Background.................................................................................230

A. Selecting Arbitration................................................................230
B. Legal Principles: The Panama Convention, the New York Convention, and the Federal Arbitration Act...........................232
C. History of COMMISA v. PEP..................................................235

III. Approaches U.S. Courts Have Taken in Deciding Whether To Enforce Annulled Awards...............................238

A. Broad Enforcement Authority..................................................238
B. No Enforcement Authority........................................................239
C. Limited Enforcement Authority................................................241

IV. International Approaches to Enforcement.........................242

A. Ability to Annul Arbitral Awards..............................................242

1. France: Broad Enforcement Authority..............................243
2. The Netherlands: Narrow Enforcement Authority.............245
3. No Enforcement Authority.................................................246

B. The Paulsson—van den Berg Debate.......................................246

V. Analyzing the Protectionist Rationale in Enforcing Annulled Awards.......................................................................248

A. Protectionism in COMMISA v. PEP.......................................248
B. Protectionism in Arbitration: Annulling Awards and Limiting Arbitration.................................................................251
C. Protecting Arbitration and Judicial Values.............................253

[Page 226]

D. Enforcing Annulled Awards: Upholding Pre-Contractual Expectations and the Purposes of International Arbitration................................................................................255
E. Upholding the Parties' Informed Expectations........................257
F. Protecting International Comity..............................................258
G. Possible Enforcement Scenarios in the United States..............259

VI. Conclusion...................................................................................260

[Page 227]

I. Introduction

Suppose that an American company enters into a contract with a subsidiary of a foreign country. The deal falls apart after the contract is nearly complete. According to the investment contract, all contractual disputes must be resolved through arbitration in the foreign country. The American company initiates arbitration, but then the foreign government adopts a series of substantive and procedural measures intended to harm the American company's interests. Though the international arbitration panel proceeds to find in favor of the American company, the foreign country's courts later annul the favorable award. Under such circumstances, can the American company nonetheless enforce the favorable award in the United States or in another foreign country? Does this answer accord with international arbitration practice?

Such a scenario recently confronted the Second Circuit Court of Appeals in Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. (COMMISA) v. Pemex-Exploración y Producción (PEP).¹ There, the Second Circuit upheld the Southern District of New York's enforcement of an arbitration award annulled in Mexico, the forum state.² This brought at least a temporary end to the thirteen-year dispute between COMMISA and PEP.³ The Second Circuit concluded that the district court's holding was in line with the Panama and New York Conventions, despite the rarity of such a ruling.⁴ The court declined to defer to the Mexican court in the interest of international comity,⁵ holding that the Mexican court's decision to annul the award went against the U.S. policy of allowing recourse for contractual violations, and procedural technicalities made it nearly impossible for COMMISA to bring suit against PEP in any other forum.⁶ The court reasoned that the enforcement

[Page 228]

of this annulled award was justified to "vindicate 'fundamental notions of what is decent and just' in the United States."⁷

While the Panama and New York Conventions do grant courts considerable discretion in the enforcement of arbitration awards, this ruling marked the first time that a court enforced an annulled arbitration award explicitly on the basis of U.S. judicial and public policy.⁸ This decision changed the judicial landscape of enforcing arbitral awards in the United States and furthered a discussion around the enforceability of awards annulled in their arbitral forum. This Note provides a way to categorize different approaches to interpreting decisions regarding the enforcement of annulled awards and argues that U.S. courts implement U.S. judicial values to determine whether to enforce annulled awards.

Part II of the Note will give a brief overview of the Second Circuit's decision in COMMISA v. PEP before explaining the reasons parties select arbitration to adjudicate disputes and the overall purposes and benefits of selecting arbitration, rather than judicial litigation to resolve disputes. It will then discuss the prevalence of arbitration clauses in certain contracts, particularly in procurement contracts. This section then explains the importance of the Second Circuit's decision, particularly as it relates to understanding the reasons why parties select arbitration to resolve their disputes, and the usual deference to international comity when courts are faced with a decision to enforce awards arbitrated in a different forum. Part II will conclude by discussing the reason why COMMISA v. PEP was a landmark decision, and how this case differed from the only other decision in which a U.S. court upheld a lower court's enforcement of an award annulled in the arbitral forum.

Part III will discuss the ability of states to enforce, or decline to enforce, arbitral decisions awarded or annulled in a different forum state under the New York and Panama Conventions. This section will also address the Federal Arbitration Act, which affords U.S. courts the ability to implement provisions of these Conventions. It will then discuss the history of COMMISA v. PEP and the application of these Conventions by the Southern District of New York and the Second Circuit to enforce an annulled award.

[Page 229]

This part will include an analysis of the United States' Court of Appeals for the District of Columbia's decision in In re Chromalloy Aeroservices and the Arab Republic of Egypt to understand the first time that an annulled award was enforced in a U.S. court—twenty years before COMMISA v. PEP was decided. An overview of Chromalloy will provide an explanation of one of the three approaches that U.S. courts have taken in deciding whether to enforce annulled awards. After a discussion of the "broad enforcement authority" approach in Chromalloy, the "no enforcement authority" approach from Baker Marine⁹ and Spier¹⁰ will be analyzed before finally analyzing the "limited enforcement authority" approach under TermoRio.¹¹ Each of these enforcement approaches, or rather lack of enforcement in many cases, has revolved around an interpretation of the authority courts have under the New York or Panama Conventions, as well as a discussion of applicable U.S. judicial policy.

Part IV will then discuss how other states have interpreted the enforcement authority granted under the New York Convention. Based on the same three categories outlined above, this section will focus on "broad enforcement authority" in France, a "limited enforcement authority" followed by Dutch courts, and the "no enforcement authority" reasoning of British and German courts. This part will also provide a commentary on the debate between Jan Paulsson and Albert Jan van den Berg regarding the scope of the New York Convention and whether states may enforce awards that have been annulled in the seat of arbitration.

Finally, this Note will discuss states' underlying protectionist reasons for enforcing annulled awards. This Note will argue that courts that choose to enforce or not to enforce annulled awards do so to protect their judicial values. This was the circumstance in COMMISA v. PEP, where the Second Circuit's decision and interpretation of the New York and Panama Conventions was a way to protect American judicial values in response to the Mexican government's protectionist measures. This section will analyze the Second Circuit's deference to judicial principles of equity, res judicata, and the importance of providing parties with a forum in which to have their disputes heard. Finally, this part will examine contractual principles governing expectations at the time of contracting and risk allocation. While it would seem that the Second Circuit's decision to enforce the annulled award was a way to protect an American company against an unfair retroactive application of a law that benefitted a subsidiary of a foreign government, by analyzing other states' rationales for enforcing annulled

[Page 230]

awards, it appears that this was actually a way to protect judicial values rather than to protect a particular company. Ultimately, Western judicial systems, particularly the U.S. judicial system, take pride in upholding core judicial values of fairness and party autonomy.

II. Background

The invocation of what commentators have called the "judgment recognition framework," rather than an "arbitration policy framework," has raised debate over the inquiry to be applied to determine whether to enforce annulled arbitration awards.¹² A judgment recognition framework analyzes whether the judgment rendered in the forum state is valid. An arbitration policy framework analyzes whether the arbitral...