Case of the Day: Hardy Exploration v. India
Posted on June 12, 2018
The case of the day is Hardy Exploration & Production (India), Inc. v. Government of India (D.D.C. 2018). It’s a rare example of a US court refusing to confirm an international arbitral award on the grounds that it violates US public policy.
Hardy had a contract with the Indian government to search for and extract hydrocarbons in the waters off India’s southeastern coast. If it found oil, it would have two years under the contract to determine if the find was commercially viable; but if it found gas, it would have five years. Hardy found hydrocarbons and claimed it had five years to make its determination, but the Indian government disagreed, claiming that Hardy only had two years. When two years had passed, the government declared that Hardy’s rights had expired. Hardy was never allowed back into the area. It demanded arbitration. The tribunal, seated in Kuala Lumpur, issued an award in Hardy’s favor requiring specific performance of the contract (i.e., requiring India to allow Hardy back into the site to continue its activities) and awarding interest.
Hardy sought to confirm the award in New York. India, meanwhile, had sought to set aside the award in its own courts, and those proceedings were still pending. India therefore sought a stay. The judge decided that a stay was inappropriate under the Europcar factors, and expressly refused to decide whether a stay was permissible at all under the New York Convention. This is a little surprising to me. The details of the arguments don’t appear in the decision (and I haven’t read the briefs), but I would have thought that only the Malaysian courts would have jurisdiction to set aside the award, and thus that it would be improper to stay confirmation proceedings in light of pending vacatur proceedings elsewhere.
There were two main lines of argument for Hardy. First, it could point to cases confirming awards that called for specific performance when the contract was to be performed extraterritorially. But these precedents don’t really get at the heart of the issue, which is comity and the respect of the interests of the foreign sovereign, because they involved private firms rather than states. Hardy’s better argument was to point to judgments in US lawsuits (as distinguished from US judgments confirming arbitral awards) in which courts have ordered foreign sovereigns to do some act. It noted the Chabad case, in which the court ordered the Russian government to turn over archival material and artifacts, and the NML Capital case, in which the court ordered the Argentine government not to make payments on its new bonds unless it made payments on its old, defaulted bonds. But the judge concluded that neither case was persuasive here. In Chabad, the judge noted the United States’s statement of interest, filed after the judgment, in which the government took the position that a specific performance order concerning a foreign sovereign’s property outside the United States was beyond the scope of the court’s jurisdiction (which seems correct), and in NML, the judgment was much less intrusive than the award here: it concerned the payment of money, while here the award has to do with control of the foreign state’s territory. Finding the comity concerns to have great weight, the court held that confirmation of the award would violate US public policy—a rare outcome indeed!
The decision seems likely correct to me, especially in light of the limitations in the FSIA on both jurisdiction to decide and jurisdiction to execute, which give us a sense of how the US balances the comity scales (though of course there is no real FSIA issue in this case). One thing that I don’t see in the decision but that I think could have real importance is the particulars of the agreement to arbitrate, the rules under which the arbitration was conducted, or the law of the arbitration. I put these in what I think are descending order of weight. If India had expressly agreed, in this case, that the tribunal should have the power to grant specific performance, then presumably that would overcome the point the judge made. You could make the same point if the parties agreed to rules that expressly gave the tribunal the power to order specific performance, though it would, I think carry less weight. And you can make the same point in an even more attenuated way if you point out that the parties chose to arbitrate in a place whose law authorizes tribunals to award specific performance.