Thai-Lao Lignite (Thailand) Co., Ltd. v. Lao People's Democratic Republic, No. 10-cv-5256 (S.D.N.Y. Feb. 6, 2014) [click for opinion]

In August 2011, Petitioners Thai-Lao Lignite (Thailand) Co., Ltd. and Hongsa Lignite (Lao PDR), Co. Ltd. obtained a judgment in the Southern District of New York enforcing a $57 million arbitral award against the Government of the Lao People's Democratic Republic.  The Second Circuit affirmed the judgment.  Thereafter, in December 2012, the Malaysian High Court vacated the arbitral award underlying the SDNY judgment; Respondent then moved to vacate the SDNY judgment enforcing the award.

The arbitration arose out of a dispute concerning the termination of a Project Development Agreement, which called for any dispute arising out of the agreement to be submitted to arbitration in Malaysia.  The agreement also specified that any arbitral award "shall be final, nonappealable, binding, and conclusive upon the parties, and judgment may be entered in any court of competent jurisdiction.  The parties waive to the extent permitted by law any rights to appeal or any review of such award by any court or tribunal of competent jurisdiction."  Respondent also waived sovereign immunity "from jurisdiction, attachment (both before and after judgment), and execution to which it might otherwise be entitled in any action or proceeding relating in any way to this Agreement."

After the tribunal issued the award against Respondent, Petitioners began enforcement proceedings in New York while Respondent initiated proceedings to set aside the award before the Malaysian High Court.  The High Court set aside the arbitral award and ordered re-arbitration of the dispute before a new panel on the grounds that the arbitrators exceeded their jurisdiction in violation of Malaysian law by assuming jurisdiction over disputes concerning contracts that pre-dated the agreement and by deciding claims by non-parties to the agreement.  The Malaysian Court of Appeal affirmed.

Respondent moved to vacate the SDNY's judgment pursuant to Article (V)(1)(e) of the New York Convention, which provides that the recognition and enforcement of an arbitral award may be refused if the award "has been set aside or suspended by a competent authority of the country in which, or under the law of which that award was made."  The court decided that the use of the permissive word "may" afforded it discretion to enforce a foreign arbitral award where the award has been nullified by a court in the state with primary jurisdiction over the award, but that this discretion was "narrowly confined."  Adopting the standard espoused by the D.C. Circuit in TermoRio S.A. E.S.P. v. Electranta S.P., the court held that its discretion could only be exercised when a foreign court's nullification is "repugnant to fundamental notions of what is decent and just in the State where enforcement is sought" or  violates "basic notions of justice." 

The court determined that none of Petitioners' arguments warranted the exercise of discretion in favor of ignoring the annulment.  Petitioners objected that Respondent violated a covenant in the agreement not to commence a proceeding to set aside the award.  The court rejected this argument since the parties had only waived the right to review an arbitral award "to the extent permitted by law," Malaysian courts were the only courts competent to set aside the award, and the evidence showed that Malaysian law would not permit such a waiver. 

Petitioners also argued that there was no basis for the Malaysian Court of Appeal's decision to excuse Respondent's delay in filing with the Malaysian court since Respondent's attorneys were Malaysian-qualified attorneys.  The court disagreed, finding that the Court of Appeal had an adequate basis to find that Respondent's counsel (whether Malaysian or not) failed to inform Respondent of the limitations period.  Likewise, the court dispensed with Petitioners' argument that there was no basis for the Court of Appeal's determination that Respondent had filed the action promptly upon retaining new counsel.  Despite the lack of exact dates in the record, the court found that the Court of Appeal had a sufficient basis to determine that, under Malaysian law, the action was filed "soon enough." 

The court also rejected Petitioners' argument that the High Court's decision setting aside the arbitral award was unworthy of deference, finding that, at most, Petitioners' criticisms showed weaknesses in legal reasoning rather than violations of basic notions of justice.  Petitioners' complaint that the High Court failed to give preclusive effect to the New York rulings on arbitral jurisdiction was unpersuasive since the High Court reviewed jurisdiction de novo, while the New York rulings applied a deferential standard of review. The court also held that the High Court had no obligation to grant res judicata effect to the New York rulings enforcing the award, as these were not truly decisions on the merits.  In sum, the court found that the facts of the case did not amount to the "extraordinary circumstances" envisioned by TermoRio for refusing vacatur, particularly as Malaysia was a neutral, third country chosen by the parties as the seat of arbitration, the award was set aside on a universally-recognized ground, and the decision did not leave Petitioners without a remedy, but merely ordered a new arbitration.

The court also rejected Petitioners' request to order Respondent to post security as a condition for moving to vacate the judgment.  Doing so, the court found, would violate the Foreign Sovereign Immunities Act (“FSIA”),28 U.S.C. § 1609, because Petitioners had not identified any property in the United States that was used for a commercial activity.  The court refused to credit Petitioners' argument that the New York Conventionshould prevail over the FSIA, finding that the court's authority under Article VI of the New York Convention to order a foreign sovereign to pay security pending the outcome of a set-aside action was inapplicable to a motion to vacate under Article V(1)(e).