District of Columbia Circuit holds that, if Country where arbitration award was made lawfully nullifies it, this makes award unenforceable in the U.S. under the Federal Arbitration Act or New York Arbitration Convention
TermoRio S.A. E.S.P. (Plaintiff) entered into a Power Purchase Agreement (PPA) with Electrificadora del Atlantico S.A. E.S.P. (Defendant). Plaintiff generally agreed to generate electricity and Defendant, a state owned public utility, agreed to buy it. When a dispute arose, the parties submitted it to arbitration in Colombia, pursuant to the terms of the PPA. The arbitration
tribunal eventually awarded Plaintiff more than $60 million.
Thanks to its excellent connections, Defendant obtained an "extraordinary writ" in a Colombian court to overturn the award. Later on, Colombia's highest administrative court, the Council of State (Consejo de Estado), nullified the award because the PPA's arbitration clause violated Colombian law.
Plaintiff and one of its investors filed the present case in the District of Columbia to enforce the Colombian award under the Federal Arbitration Act (FAA), 9 U.S.C. Section 201. The FAA implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, [in force for U.S. Dec. 29, 1970; 21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3] ("New York
Convention"). The U.S. has ratified another pertinent convention on the enforcement of foreign arbitral awards. This is the Inter American Convention on International Commercial Arbitration [in force for U.S., Oct. 27, 1990, O.A.S.T.S. No. 42, 1438 U.N.T.S. 245] ("Panama Convention"). Because the U.S. codification of the Panama Convention contains by reference the relevant sections of the New York Convention, the Court only refers to the New York Convention.
The district court dismissed for failure to state a claim and, alternatively, on forum non conveniens grounds. Plaintiff appealed. The U.S. Court of Appeals for the District of Columbia Circuit, however, affirms.
The Court finds that the Colombian Council of State had the power to set aside the arbitration award as contrary to Colombian law. See Art. V(1)(e) of the New York Convention. It provides that "Recognition and enforcement of the award may be refused ... if ... [t]he award ... has been set aside ... by a competent authority of the country in which, or under the law of which,
that award was made.". Thus, Plaintiffs have no U.S. cause of action to seek enforcement of the award under either the FAA or the New York Convention. Colombia, too, is a party to both Conventions. If, for example, the competent authority in the country where the award was made sets it aside, Article V(1)(e) of the New York Convention permits a fellow state party to refuse to enforce that award.
"... [H]ere, where appellants seek to enforce an arbitration award that has been vacated by Colombia's Consejo de Estado. For us to endorse what appellants seek would seriously undermine a principal precept of the New York Convention: ... This principle controls the disposition of this case." [Slip op. 10 11]
Citation: Termorio S.A. E.S.P. v. Electranta S.P., 2007 WL 1515069, No. 06 7058 (D.C. Cir. May 25, 2007).
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