Case of the Day: Corporación Mexicana de Mantenimiento Integral v. PEMEX-Exploración Y Producción
Posted on September 16, 2013
The case of the day is Corporación Mexicana de Mantenimiento Integral v. PEMEX-Exploración Y Producción (S.D.N.Y. 2013). PEMEX Exploración y Produccion (“PEP”) was a subsidiary of the Mexican state-owned petroleum company, PEMEX. COMMISA was a Mexican subsidiary of KBR, Inc. In 1997, PEP and COMMISA entered into a contract for the construction of two offshore natural gas platforms in the Gulf of Mexico. The contract had a Mexican choice of law clause and an arbitration clause calling for arbitration of disputes in Mexico. The contract also required COMMISA to obtain a performance bond and had a provision allowing PEP to rescind the contract if COMMISA breached certain requirements of the contract. The arbitration agreement was consistent with PEMEX’s enabling statute, which authorized PEP to enter into such agreements.
A dispute arose. PEP indicated that it was going to rescind the contract. COMMISA demanded arbitration, and PEP rescinded the contract. COMMISA challenged the constitutionality of PEP’s rescission power in an indirect amparo proceeding in a Mexican court. The court dismissed COMMISA’s petition on procedural grounds. COMMISA appealed, and the appellate court reversed the lower court’s dismissal and referred the merits of the constitutional issue to the Mexican Supreme Court. The Supreme Court held that the power of rescission was constitutional and remanded the case to the lower court for consideration of COMMISA’s non-constitutional claims. The lower court held that the rescission was proper and dismissed the amparo proceeding on the merits.
Meanwhile, the arbitration proceeded. Over PEP’s objections, the tribunal found that it had jurisdiction. But while the arbitration was proceeding, Mexico’s statutory law changed, and under the new law, a special court was made the exclusive forum for administrative rescission disputes; such disputes were made non-arbitrable; and the statute of limitations, instead of ten years, was forty-five days. The tribunal eventually entered an award in favor of COMMISA, though a dissenting arbitrator argued that the amparo proceeding was res judicata and in any event the claim about the administrative rescission was not arbitrable in light of the new statute.
COMMISA moved to confirm the award in New York. The court confirmed the award but stayed enforcement pending appeal. And PEP did appeal to the Second Circuit.
Meanwhile PEP brought an action Nuevo Leon and then in Mexico City to annul the award. The Mexican court rejected its arguments on the grounds that PEP had waived them and that the award did not violate public policy. PEP then brought an indirect amparo proceeding. It lost in the Tenth District Court on Civil Matters in the Federal District, but on appeal to the Eleventh Collegiate Court for the Federal District, it finally prevailed. It held that the award was contrary to public policy and that PEP had not waived its arguments because public rights cannot be waived. On remand, the lower court annulled the award. There was additional skirmishing in Mexico.
In light of the developments in Mexico, the Second Circuit remanded to the district court in New York for consideration of the effect of the Mexican annulment in light of Article V(1)(e) of the New York Convention, which permits a refusal to enforce an award if it “has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.”1
The judge noted TermoRio SA ESP v. Electranta SP, 487 F.3d 928 (D.C. Cir. 2007), which noted that an award could be confirmed notwithstanding an annulment if the foreign judgment of annulment was contrary to public policy “to the extent that it is repugnant to fundamental notions of what is decent and just in the United States.” The district court in Washington actually refused to confirm an award in such circumstances in Chromalloy Aeroservices v. Egypt, 939 F. Supp. 907 (D.D.C. 1996).
The judge determined that the Mexican annulment decision violated basic notions of justice, because the decision was at least informed by a law that had only been enacted after the fact, because the Mexican court was expressly trying to “favor a state enterprise over a private party,” and because, in light of the new statute of limitations, COMMISA would have no remedy in the courts.