Case of the day: Thai-Lao Lignite v. Laos
Posted on July 21, 2017
The case of the day is Thai-Lao Lignite (Thailand) Co. v. Government of the Lao People’s Democratic Republic (2d Cir. 2017). I’ve written about the case before. Here was my description of the facts:
Lignite is a low-quality coal used for generating electricity. The Hongsa region of Laos, near the Thai border, has it, and in the early 1990s, Thailand needed to import electricity. And so a joint venture was born. Thai-Lao Lignite, a Thai company, entered into a Project Development Agreement with the Lao government giving it exclusive exploration and mining rights in the region. The idea was that Thai-Lao Lignite would build a Lignite-fired power plant on the Lao side of the border, and Laos would sell the electricity to Thailand. The PDA called for Thai-Lao Lignite to organize another entity, Thai-Lao Power Co., under Lao law, and to assign its rights and obligations under the PDA to the Lao company. Thai-Lao Lignite never made the assignment, and the Lao government dealt with Thai-Lao Lignite as though it were a proper party to the PDA. The PDA had an arbitration agreement calling for arbitration in Malaysia at the Kuala Lumpur Regional Centre for Arbitration under the UNCITRAL Rules. The substantive law governing the contract was the law of New York. A dispute developed …
Thai-Lao Lignite demanded arbitration. The parties agreed that the ICC would replace the Kuala Lumpur Regional Center as the appointing authority. The tribunal issued an award in favor of Thai-Lao Lignite in 2009.
Thai-Lao sought and received confirmation of the award in 2011. The judge rejected Laos’s argument that the dispute was not arbitrable. The Second Circuit later summarily affirmed. Laos unsuccessfully sought a rehearing en banc, and, represented by Professor George Berman, it unsuccessfully petitioned the Supreme Court for review. So things were looking pretty good for Thai-Lao.
Unfortunately for the company, however, in 2012 the Malaysian High Court vacated the award on the grounds that the dispute was not arbitrable. And so Laos returned to New York and sought to set aside the order confirming the award under FRCP 60(b)(5), which provides for relief from a judgment if “the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable,” and under Article V(1)(e) of the New York Convention.
The District Court set aside the judgment confirming the award, and Thai-Lao appealed.
The key point of interest in the Second Circuit’s decision was the analysis of the interplay between FRCP 60(b)(5) and the New York Convention. The Court held that when an award within the scope of the Convention has been set aside by the court with primary jurisdiction after a US court has confirmed it, the US court should apply FRCP 60(b)(5) as it would in any other case, which means considering the timeliness of the application to set aside the judgment and other equitable considerations. The court should give comity significant weight, as long as the case is not one of those rare cases where the annulment of the award violates “fundamental notions of what is decent and just in the United States.” The District Court looked at this the wrong way, holding, more or less, that the Convention required it to set aside the award. But the Second Circuit found that application of the correct standard would have led to the same result, and it therefore affirmed.
I agree with the technical holding about FRCP 60(b)(5) on procedural grounds, because I think a judgment is a judgment is a judgment. I am also sympathetic to the outcome of the case, because I think that in general, the grounds on which a court should be empowered to confirm an award (or refuse to set aside a judgment confirming an award) that has been set aside by the court with primary jurisdiction should be very narrow and reserved for truly extraordinary cases. A broader rule leads to what I think of as the problematic phenomenon of “delocalized” arbitration, unmoored from the national law of the place of the arbitration, though I’m just going to assert that delocalization is problematic without defending the view in this post.