Monthly Archives: August 2013

US confirms PEMEX Arbitration Award despite Annulment

In a decision reminiscent of Chromalloy, a US Court earlier this week confirmed an award in favour of Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V., a subsidiary of Delaware registered and Houston based construction and military contractor KBR, Inc., against PEMEX-Exploración y Producción, a subsidiary of Mexican state-owned Petróleos Mexicanos (‘PEMEX’).

The case concerned the scope and application of the US Court’s discretion whether or not to confirm a foreign arbitration award that had been annulled by a competent authority at the seat of arbitration.  The question fell to be determined pursuant to Article 5 of the Inter-American Convention on International Commercial Arbitration (the ‘Panama Convention’), but the principles at stake are the same as for the substantially identical provision in Article V(1)(e) of the New York Convention.

Judge Alvin K. Hellerstein of the U.S. District Court of the Southern District of New York gave judgment on 27 August 2013.  He followed established case law that normally required deference to the annulment decision of the competent court at the seat of arbitration save in exceptional circumstances where that decision violated “basic notions of justice”.

The competent Mexican Court had annulled the award by applying a law that had been passed after the underlying contract had been made to the effect that arbitrators are not competent to hear and decide cases brought against the sovereign or one of its instrumentalities.  Judge Hellerstein found this annulment decision to be a basic violation of justice since it offended elementary considerations of fairness: it was applied retroactively to an arbitration agreement that had been entered into under specific statutory authorization; it “was undertaken to favor a state enterprise over a private party”, and its unfairness was exacerbated by the fact that it left the Claimant without any remedy to litigate the merits of the dispute that the arbitrators had resolved in its favour.

A copy of the judgment is available at

ICSID Tribunal grapples with Effect of Corruption on Access to Investor-State Arbitration

In a Decision on Jurisdiction dated 19 August 2013 an ICSID tribunal addressed the question whether acts of corruption should deprive a claimant from proceeding to have its claims considered and ruled upon at the merits stage.

The tribunal allowed the claim to continue based on their findings that:

  • the respondent state party had not argued that there was anything illegal about the object and content of the contracts in question (which concerned the development of gas fields and the sale of that gas);
  • there was no proof of any link of causation between the acts of corruption and the conclusion of the contracts, nor had the respondent sought to avoid the contracts, so the contracts remained in force and binding; and
  • the tribunal’s jurisdiction derived from a specific agreement to arbitrate between the parties contained in two investment contracts (as opposed to an arbitration agreement deriving from an investor’s acceptance of an offer to arbitrate in an investment treaty, where different considerations might apply).

In such circumstances, the questions whether the investment had been made in good faith and what consequences should be drawn from a lack of good faith should be determined as part of the merits of the dispute in accordance with the parties’ arbitration agreement.  The doctrine of clean hands had narrow application in international law and did not to apply to bar such jurisdiction in the present case.

The Decision determined a number of other jurisdictional objections and includes a detailed consideration of the meaning of “designated” within the meaning of Article 25(1) of the ICSID Convention as regards the jurisdiction of the Centre over constituent subdivisions or agencies of a state.

See: Niko Resources (Bangladesh) Ltd v People’s Republic of Bangladesh, Bangladesh Petroleum Exploration & Production Company Limited (“BAPEX”) and Bangladesh Oil Gas and Mineral Corporation (PETROBANGLA”), ICSID Cases Nos. ARB/10/11 and ARB/10/18, Decision on Jurisdiction (as published on the ICSID website)

New Istanbul Arbitration Center Expected in 2014

2014 should see the establishment of a new Arbitration Center in Istanbul.  A draft law establishing the Center was submitted to Parliament on 25 March 2013 and is currently in committee stage.  If the process runs smoothly it should come into force on 1 April 2014.

The Center will have two separate Arbitration Courts to monitor arbitration proceedings, one each for domestic and for international disputes.  The draft law provides that the Center must determine its rules of arbitration as well as other alternative dispute resolution mechanisms within six months of the law’s enactment.

Turkey’s High Planning Council has approved the initiative as part of a strategic plan for an Istanbul International Financial Center.  It sees the establishment of an “independent and autonomous institutional arbitration centre capable of competing internationally with respect to cost, speed and effectiveness” as a priority.

There has been a significant growth in the number of international arbitrations involving Turkish entities over the last two decades.  Nearly 10% of the 793 new claims referred to ICC arbitration in 2010 involved at least one Turkish party.  Turkey’s International Arbitration Law – substantially based on the UNCITRAL Model Law – has been in force since 2001.

For a fuller report of this law and of other recent arbitration developments in Turkey see Kolcuoğlu Demirkan’s 2013 e-Bulletin ‘Arbitration Law in Turkey’.

Congo accedes to New York Convention

The Democratic Republic of the Congo will become the 150th state to apply the New York Convention.  The Convention will apply to arbitration awards made after its entry into force in the DRC.  The law was promulgated at the end of June and will enter into force 90 days after the DRC’s deposit of this instrument with the Secretary-General of the United Nations following its official publication.

The DRC is understood to have made both the reciprocity and commercial reservations permitted by Article I(3) of the Convention as well as an additional reservation excluding the Convention’s application to disputes related to immovable property situated in the DRC.

The DRC’s accession to the New York Convention follows hot on the heels of its joining OHADA (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) in July 2012, which entails application of its Uniform Act on Arbitration based on the UNCITRAL Model Law.

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