Transocean Offshore Gulf of Guinea VII Ltd. v. Erin Energy Corp., 2018 U.S. Dist. LEXIS 39494 (S.D. Tex. Mar. 12, 2018)

On March 12, 2018, in Transocean Offshore Gulf of Guinea VII Ltd. v. Erin Energy Corp., the U.S. District Court for the Southern District of Texas became the second U.S. court to recently determine that the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), as codified in the Federal Arbitration Act (“FAA”), applies to consent awards. Although seemingly inconsequential at first glance, the question of whether consent awards—i.e., settlement agreements recorded by arbitral tribunals as awards—are subject to the New York Convention, has remained the subject of much debate within the field of international arbitration for many years.

In Transocean, the petitioners, Transocean Offshore Gulf of Guinea VII Limited and Indigo Drilling Limited, entered into an agreement to provide drilling equipment, personnel, and services in the waters off the coast of Nigeria to the respondent, Erin Energy Corporation. Prior to the completion of the contract, a dispute arose and, pursuant to an arbitration clause, the petitioners initiated an arbitration under the rules of the London Court of International Arbitration (“LCIA”). Before the tribunal made a decision on the merits, the parties reached a settlement and, at the parties’ request, the tribunal issued a consent award setting forth the terms of the parties’ settlement.

When the respondent allegedly failed to pay the amounts owed, the petitioners moved to enforce the award in the U.S. District Court for the Southern District of Texas. The respondent objected to the enforcement action arguing that the court lacked subject-matter jurisdiction under the FAA. Specifically, the respondent argued that while the FAA grants the U.S. district courts jurisdiction over actions to confirm arbitral awards governed by the New York Convention, the New York Convention did not apply because the award was a consent award. In support, the respondent advanced two separate arguments.

First, citing the 2016 United Nations Commission on International Trade Law Secretariat Guide on the Convention, the respondent highlighted the fact that the drafters of the New York Convention specifically considered the issue of consent awards, but declined to explicitly state whether such awards were subject to the New York Convention. Accordingly, the New York Convention’s silence on the matter meant that the drafters did not intend for it to apply to consent awards.

Second, the respondent argued that “consent awards” are fundamentally different from other “arbitral awards” (the term used by the New York Convention) because an arbitral award reflects the tribunal’s determination on the merits, not the parties’ agreements. In support, the respondent cited the LCIA Rules 26.2 and 26.9. Rule 26.2 provides that “[t]he Arbitral Tribunal shall make any award in writing and, unless all of the parties agree in writing otherwise, shall state the reasons upon which such award is based. Separately, Rule 26.9 states:

In the event of any final settlement of the parties’ dispute, the Arbitral Tribunal may decide to make an award recording the settlement if the parties jointly so request in writing (a “Consent Award”), provided always that such Consent Award shall contain an express statement on its face that it is an award made at the parties’ joint request and with their consent. A Consent Award need not contain reasons. If the parties do not jointly request a Consent Award, on written confirmation by the parties to the LCIA Court that a final settlement has been reached, the Arbitral Tribunal shall be discharged and the arbitration proceedings concluded by the LCIA Court . . . .

According to the respondent, because Rule 26.2 requires every “award” to include written reasons, consent awards cannot be “awards” per se because Rule 26.9 exempts them from the written-reason requirement.

The court summarily rejected both of the respondent’s arguments and, following the reasoning in Albtelecom SH.A v. UNIFI Commc’ns Inc., 2017 U.S. Dist. LEXIS 82154 (S.D.N.Y. May 30, 2017), concluded that a consent award falls within the scope of the New York Convention. According to the court, “[n]o binding or persuasive statutory language or case law requires a court to hold that a tribunal must reach its own conclusions, separate from the parties’ agreement, to make a valid binding award subject to the Convention.” The court added that a ruling to the contrary would “dissuade parties from seeking arbitration in the first place or benefiting from the efficiencies it is meant to provide.” The court also refused to accept the respondent’s interpretation of LCIA Rules 26.2 and 26.9, concluding that the “rules make no distinction between consent awards and other arbitral awards.”

Transocean, along with Albtelecom, should be viewed as a welcome precedent that brings the U.S. courts’ approach to consent awards in line with the majority of foreign jurisdictions and provides greater certainty to those parties seeking to enforce consent awards in the United States.

To view the full text of the court’s decision, courtesy of Lexis®, click here.