When an arbitration award is set aside by the courts at the seat of arbitration, and that award is then brought to U.S. courts for recognition under the New York Convention, U.S. courts will generally refuse to enforce the annulled award as a matter of comity (i.e., respect for the decisions of a foreign court). When the foreign set aside decision is sound, rendered by an independent judiciary, and reached in a manner that respects due process, the deferential approach adopted by U.S. courts is typically reasonable. But sometimes that deference can be problematic, such as when the foreign court lacks independence from the state and is presented with an award issued against the state, a state-owned entity, or a powerful individual or entity. In those circumstances, one would expect U.S. courts to be more reluctant to defer to a set aside decision that protects the home-court party. Until recently, however, only one federal court of appeals, the Second Circuit, had refused comity to a foreign set aside decision, and only in a single case.
The Tenth Circuit recently became the second court of appeals to do so, in Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua S.A.B., 58 F.4th 429 (10th Cir. 2023). The Tenth Circuit affirmed a district court’s decision to deny relief from a judgment recognizing an arbitral award after that award was annulled by Bolivia’s highest constitutional court. That is, the Tenth Circuit held that an arbitral award could be enforced in the United States even though that award had been set aside by the courts at the seat of arbitration (here, Bolivia). This decision supports the conclusion that U.S. courts can consider a wide range of factors when deciding whether to defer to, or instead disregard, a foreign set aside decision—a common-sense development that will provide more stability and certainty for companies doing business abroad, and which helps to support the key role of arbitral dispute resolution in cross-border commercial agreements.
Background
The New York Convention governs the enforcement of international arbitration awards in the United States. Under the Convention, the courts of the country in which the arbitral award was issued (referred to by U.S. courts as the “primary jurisdiction”) have the exclusive power to annul, or “set aside,” an award issued in their jurisdiction. Parties can also seek to enforce the award in a different country (referred to by U.S. courts as the “secondary jurisdiction”). When a court of primary jurisdiction has set aside an award, the New York Convention provides that courts in secondary jurisdictions “may” refuse to recognize and enforce that award.
The question of what standard should govern whether to recognize and enforce an award set aside in its primary jurisdiction has received significant attention over the last several years. The Second Circuit has decided three cases on the subject since 2016. In each instance the court held that, under principles of comity, a court should generally defer to the set aside decision of the foreign court and refuse to enforce the annulled award. There is an exception to that rule, however: a U.S. court may ignore the foreign set aside decision, and enforce the award, where the foreign set aside decision is “repugnant to fundamental notions of what is decent and just” in the United States. Courts have been hesitant to find foreign set aside decisions “repugnant,” even in cases with clear evidence of bias in the foreign judicial system.
The question of whether to enforce an annulled award becomes more complicated when an award is set aside by the foreign court only after a U.S. district court has confirmed the award. In that situation, a party will usually move under Federal Rule of Civil Procedure (FRCP) Rule 60(b)(5) for relief from the judgment enforcing the award. The rule states that a “court may relieve a party . . . from final judgment” if that judgment is “based on an earlier judgment that has been reversed or vacated.” Courts have held, however, that relief under this rule is discretionary and should be limited to exceptional circumstances—that is, when it is required “to do justice in a particular case.” Since relief under Rule 60(b)(5) is an equitable remedy, courts can consider whether the moving party has acted equitably when weighing whether to grant relief from a judgment.
Both legal frameworks—the New York Convention and FRCP Rule 60(b)(5)—were at play in this case. Grupo Cementos de Chihuahua S.A.B. (GCC), a Mexican conglomerate, entered into an agreement with Compañía de Inversiones Mercantiles S.A. (CIMSA) to purchase an interest in Sociedad Boliviana de Cemento, SA, Bolivia’s largest cement company, of which CIMSA was the controlling shareholder. A dispute over share buy-backs resulted in an arbitration in which the tribunal ultimately awarded CIMSA $36 million in damages. CIMSA brought the award to the United States District Court for the District of Colorado, and after GCC’s initial attempt to have the award annulled in Bolivia was rejected by Bolivia’s highest constitutional court, the Colorado District Court recognized the award and began enforcement proceedings. After the award was recognized in Colorado, however, GCC brought further annulment proceedings in Bolivia, and eventually succeeded in persuading a different branch of Bolivia’s constitutional court to annul the award. GCC then brought that annulment decision to Colorado, where enforcement proceedings were ongoing, and sought to have the earlier recognition decision vacated under FRCP Rule 60(b)(5).
GCC argued that the award was no longer entitled to recognition because it was set aside by a court in Bolivia, the primary jurisdiction, and so the Bolivian court’s new decision required the District Court to vacate its prior judgment confirming the award. The District Court disagreed and denied GCC’s motion under Rule 60(b)(5), finding that recognizing the new Bolivian set aside decision would “offend basic standards of justice” and that the Bolivian court’s repeated reversals of its own decisions violated the U.S. policy interest in finality of court judgments. The District Court also found that GCC had acted inequitably during the Bolivian proceedings by bringing new challenges to the award after the constitutional court had issued a final decision.
GCC then appealed to the Tenth Circuit.
The Tenth Circuit’s Decision
A split panel of the Tenth Circuit affirmed the District Court’s decision (Matheson and Holmes, JJ, with Rossman, J, dissenting).
First, the majority held that the District Court had applied the correct legal test in considering whether granting comity, and thus deferring, to the Bolivian set aside decision would violate U.S. public policy. The majority then considered those policy interests. The majority focused on the U.S. public policies in favor of the finality of judgments, upholding contractual obligations, and in favor of arbitral dispute resolution—all of which supported the district court’s decision to refuse to give comity to the Bolivia set aside decision.
Second, the majority agreed with the District Court’s ruling that GCC acted inequitably in the U.S. and Bolivian proceedings. The key point here was that GCC had only initiated the second, successful challenge to the award in the Bolivian courts after the award was enforced in the United States, and after the Bolivian constitutional court had issued a final decision refusing to annul the award. The majority also noted that GCC had repeatedly avoided CIMSA’s attempts at service, which significantly delayed confirmation of the award, and refused to pay the damages award.
Key Takeaways
The majority’s decision is a rare example of a U.S. court refusing to grant comity to a foreign court’s annulment of an arbitral award and clarifies the framework for this analysis in the context of a motion for relief from judgment under FRCP Rule 60(b)(5).
The majority’s decision suggests that it is more difficult to enforce an annulled award than to enforce an (intact) award before foreign annulment proceedings are completed and then resist Rule 60(b)(5) relief, because the latter option introduces the U.S. public policy of finality as a barrier to overturning a district court’s enforcement decision. Future litigants seeking to confirm foreign arbitral awards may take note and seek confirmation before annulment proceedings in the primary jurisdiction have been fully litigated. That said, the public policy of finality will not be applicable in every case: here, the proceedings in Bolivia and the United States had been ongoing for years and resulted in several conflicting decisions from the highest Bolivian court, which presented a set of unique circumstances that undermined the U.S. court’s confidence in the Bolivian set-aside decision.
Finally, the Tenth Circuit’s decision that courts may consider U.S. policy interests when assessing whether to give comity to a foreign set aside is a proper application of the standard for enforcing an annulled award. American companies often use arbitration clauses in their contracts with foreign counterparties to ensure that they will receive a neutral forum for dispute resolution, particularly when they wish to avoid potential bias in the home courts of their contractual counterparty. This interest can be undermined by over-deference to set aside decisions by those very foreign courts, which may be willing to protect their own nationals by vacating adverse awards. The Tenth Circuit’s decision opens the door for U.S. courts to be less deferential to questionable set aside decisions and permits future litigants to explore how other U.S. public policy interests—such as due process and access to justice—might support enforcement of an annulled award.
