United States District Court, District of Columbia
MEMORANDUM OPINION DENYING PETITION TO CONFIRM
ARBITRATION AWARD; DENYING AS MOOT PETITIONER'S MOTION
FOR LEAVE TO FILE SUR-REPLY; DENYING AS MOOT RESPONDENT'S
CROSS-MOTION FOR LEAVE TO FILE RESPONSE
RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE.
1997, Hardy Exploration and Production (India), Inc.
(“HEPI”) entered into a contract with the
Government of India that would allow HEPI to search for and
potentially extract hydrocarbons from an area off of
India's southeastern coast. The contract provided that if
HEPI found crude oil, it would have two years to ascertain if
that oil was commercially viable, but that if it found
natural gas, that assessment period would last for five
years. HEPI discovered a reserve of hydrocarbons in 2006 and
claimed that it was natural gas, entitling it to a five-year
appraisal period. India disagreed, and after two years, it
informed HEPI that its rights to the Block had been
relinquished. When the Indian Government refused to change
its position on the type of hydrocarbons that had been
discovered, HEPI initiated arbitration proceedings pursuant
to the contract. The Tribunal ultimately found in HEPI's
favor and ordered India to allow HEPI back onto the Block for
another three years to continue its assessment of whether the
natural gas it had discovered was commercially viable. The
Tribunal also awarded HEPI interest on its original
investment in the Block, as well as certain costs. India
immediately appealed the award to the Delhi High Court, and
HEPI filed a separate suit in the Delhi High Court to enforce
the award. As far as the Court is aware, those cases remain
pending. Three years after it had won the arbitral award,
HEPI had still not been allowed back onto the Block, and
therefore filed a petition for confirmation of its arbitral
award in this court under the Federal Arbitration Act. India
opposed the confirmation, claiming that the enforcement of
the award's specific performance order would violate U.S.
public policy, as would confirmation of the interest portion
of the award, which India claimed is punitive and coercive,
rather than compensatory. For the reasons set forth below,
the Court finds that confirmation and enforcement of the
specific performance portion of the award would violate U.S.
public policy, and therefore, the Court declines to confirm
that portion of the award. Additionally, the Court finds that
granting the award of interest, which is predicated on India
complying with an order that this Court cannot issued, would
also violate U.S. public policy, and therefore declines to
confirm that portion of the award as well.
FACTUAL AND PROCEDURAL BACKGROUND
case stems from HEPI's participation in a Production
Sharing Contract (“PSC”) with the Government of
India for the extraction, development, and production of
hydrocarbons in a geographic block found off the southeastern
coast of India called CY-OS/2 (the “Block”).
See Decl. of Ian MacKenzie (“MacKenzie
Decl.”) ¶ 3, ECF No. 1-2; see generally
MacKenzie Decl. Ex. 2 (“PSC”), ECF No. 1-4. The
PSC was originally entered into in November 1996 by three
private companies; India's state-owned oil company, the
Oil and Natural Gas Corporation Limited (“ONGC”);
and “[t]he President of India, acting through the Joint
Secretary, Ministry of Petroleum and Natural Gas.” PSC
at 1. The PSC permitted the three private companies to
explore the Block and, if they found commercially viable
hydrocarbon reserves, to extract those resources under a
production sharing arrangement. See Pet'r's
Mem. Law Supp. Pet. to Confirm Arbitration Award
(“Pet'r's Mem.”) at 2-3, ECF No. 1-1; PSC
arts. 14-15. While HEPI was not an original participant in
the PSC, it acquired a 25% participation share from one of
the original participants in 1997, and by August 2001, HEPI
had acquired a 100% participation share in the PSC.
See Pet'r's Mem. at 3; see also
MacKenzie Decl. Ex. 1 (“Award”) at 3, ECF No.
1-3; MacKenzie Decl. Ex. 4 at 1-2, ECF No. 1-6. HEPI then
transferred 25% of its interest in the PSC to GAIL (India)
Ltd, a state-owned retail gas processing and distribution
company in India. MacKenzie Decl. Ex. 5 at 2, ECF No. 1-7.
HEPI maintained a 75% interest in the PSC at all times
relevant to this dispute. See Pet'r's Mem.
participant in the PSC entered the agreement at their own
risk. If a participant discovered a reserve of hydrocarbons
that was capable of being extracted and produced
commercially, then it would be entitled to extract and
produce the hydrocarbons, and would be entitled to keep a
percentage of the hydrocarbons for itself, with the rest
going to the Government of India. See PSC arts.
14-15. If participants' work on the Block yielded no
commercially viable discovery, the participants would be
entitled to no compensation for the investment they had put
into the Block. See PSC art. 7.4 (providing that the
contractor shall “conduct all Petroleum Operations at
its sole risk, cost and expense and provide all funds
necessary for the conduct of Petroleum Operations . .
.” unless otherwise provided in the PSC); see
also Award at 41 (observing that “[t]here is no
dispute” that a contractor “is not entitled to
any compensation if it is unable to get commercial discovery
of the product within the period specified in the
outlined the procedures the parties would follow in the event
of a hydrocarbon discovery. See PSC art. 9. Under
the PSC, after the discovery of hydrocarbons, the
participants would enter into an appraisal period to
determine whether the production of the hydrocarbons in the
newly discovered reserve would be commercially feasible.
See Pet'r's Mem. at 4; PSC arts. 9.5,
21.4.4. The PSC provided for appraisal periods of different
lengths depending on the type of hydrocarbons discovered. If
the discovery was crude oil, the appraisal period would be
two years, see PSC art. 9.5; if it was natural gas,
the appraisal period would be five years, see PSC
2006, HEPI and GAIL discovered a reserve of hydrocarbons and
promptly informed the Ministry of Petroleum and Natural Gas
of their discovery. Pet'r's Mem. at 4; Award at 7-8.
HEPI believed that the hydrocarbons it had discovered was
natural gas, and more particularly, Non-Associated Natural
Gas (“NANG”), and therefore that its declaration
of commerciality would not be due until January 7, 2012.
Id. at 6-7, 9-11. However, the Ministry insisted
that the discovery was in fact crude oil, and accordingly
that HEPI's declaration of commerciality was due on
January 7, 2009. Id. at 9-11. Therefore, the
Ministry informed HEPI via letters dated February 20 and
March 23, 2009, that HEPI's rights to the Block were
relinquished due to its failure to submit its declaration of
commerciality on time. Id. Despite HEPI's
efforts to convince the Ministry over the next year that its
discovery was natural gas and therefore that it had not
missed its deadline to file a declaration of commerciality,
India would not yield. Id. at 5. Therefore, HEPI
initiated arbitration proceedings pursuant to Article 33 of
the PSC to resolve the question of which assessment period
applied to the discovery of relevant hydrocarbons in the
Block. Id. at 4. A tribunal of three former Chief
Justices of the Supreme Court of India was empaneled to
preside over these proceedings. Id. at 5.
33 of the PSC provides that “any unresolved dispute,
difference or claim which cannot be settled amicably within a
reasonable time may . . . be submitted to an arbitral
tribunal for final decision, ” PSC art. 33.3; sets
forth the procedures for any arbitration; and selects Kuala
Lumpur, Malaysia as the venue for the proceedings, PSC art.
33.12. Article 33 further provided that “[t]he decision
of the arbitral tribunal, and, in the case of difference
among the arbitrators, the decision of the majority, shall be
final and binding upon the Parties.” PSC art. 33.8.
Tribunal first turned to preliminary issues, and issued an
order on May 28, 2011 finding that the dispute between the
parties was subject to arbitration and within the
Tribunal's jurisdiction. See MacKenzie Decl. Ex.
7, ECF No. 1-9; see also Award at 5. The Tribunal
heard argument on the merits of the dispute on August 20-22,
2012, in Kuala Lampur, Malaysia. Award at 5. During the
course of these proceedings, HEPI presented the testimony of
two expert witnesses to support its contention that the
discovery was of natural gas, and India produced no expert
testimony to the contrary. Id. at 26-29. On February
2, 2013, the Tribunal, still sitting in Kuala Lampur, issued
a unanimous 43-page Award to HEPI, finding that “the
nature of the discovery in the Block . . . would
unequivocally qualify under the term of the [PSC] as Non
Associated Natural Gas.” Id. at 29. Because
the discovery was natural gas, not crude oil, the Tribunal
decided that HEPI was “denied the time provided for in
the contract for appraisal and to come to [a] conclusion
about the commerciality of the discovery.” Id.
at 36. The Tribunal concluded that severing HEPI's
interest in the Block was “illegal, being on the
erroneous impression that the discovery was Oil.”
Id. at 43.
remedy what it found to be a breach of the PSC, the Tribunal
ruled that India's “order of relinquishment is
declared to be null and void.” Id. Because
India had ordered the relinquishment of the Block before HEPI
was able to determine the commercial viability of the
hydrocarbons it had discovered, the full extent of the
monetary damage to HEPI due to India's breach of the PCS
remained unclear. Id. at 41. Therefore, the Tribunal
ordered that “the parties shall be immediately
relegated to the position in which they stood prior to the
order of the relinquishment and the block shall be restored
to [HEPI].” Id. at 43. Additionally, it
ordered India to pay interest on HEPI's Rs. 500 crores
investment in the Block, at a rate of 9% per year up to the
date of the award, and 18% per year thereafter until the
fulfillment of the award. Id. The Tribunal also
awarded certain costs to HEPI. Id.
date, the Government of India has only complied with the
latter portion of the Award, the payment of Rs. 51 lakhs for
India's share of the arbitration costs. See 4th
MacKenzie Decl. ¶ 8, ECF No. 29-1. However, in order to
challenge the other two portions of the award, India filed a
petition with the Delhi High Court to invalidate the award in
July 2013. Id. ¶ 9. In November 2013, HEPI
filed a petition to enforce the award with the same court.
Id. ¶ 10. After two years of delays,
“counsel for GOI ultimately withdrew the [invalidation]
petition on the grounds that it was not properly under the
jurisdiction of the Delhi High Court, ” but rather that
of the Madras High Court in Chennai, the high court
geographically closest to the Block. Id. ¶ 14.
However, less than a month later India filed a review
petition seeking to reverse the order dismissing its action
to invalidate the award. Id. ¶ 15. After the
Delhi High Court dismissed this review petition in January
2016, India filed an appeal of the dismissal of the review
petition. Id. ¶ 19-21. Following several
adjournments at the request of India's counsel, the
matter was heard in May 2016 and dismissed by the Delhi High
Court, again on jurisdictional grounds, in July 2016.
Id. ¶ 22. This time, however, the
jurisdictional basis of the dismissal was not the fact that
the high court in Chennai was the proper court to hear the
case. Rather, it was because the Delhi High Court had found
that the seat of arbitration had been Malaysia, rather than
India, and therefore, that Indian courts did not have the
power to set aside the arbitral award pursuant to Section 34
of the Arbitration and Conciliation Act, 1996, India's
statute governing arbitration. See 4th MacKenzie
Decl. Ex. 5 (“Judgment”) at 17-22, ECF No. 29-6.
October 2016, India filed for leave to appeal the dismissal
with the Supreme Court of India. 4th MacKenzie Decl. ¶
23. It also moved for the Supreme Court to stay the
arbitration award, which the court denied. Id.
Arguments on the appeal were delayed for almost a year due to
the unavailability of India's counsel and the Supreme
Court, and the docket in this case does not indicate whether
the appeal has yet been fully heard, nor does it indicate
whether the Supreme Court has ruled on the appeal.
Id. ¶ 27. In the meantime, HEPI's petition
for execution of the Award before the Delhi High Court has
been repeatedly adjourned pending the disposition of
India's appeal. Id. ¶ 28.
this delay, HEPI decided to avail itself of the enforcement
powers of this Court as well, and in January 2016 filed the
instant petition for enforcement of the arbitral award.
See Pet'r's Pet. to Confirm Arbitration
Award (“Pet'r's Pet.”), ECF No. 1.
Following briefing and an order from this Court regarding
proper service of India, India filed its response to
HEPI's petition, arguing that the Court should decline to
enforce the arbitral award because confirming both the
specific performance and interest aspects of the Award would
violate U.S. public policy. See Resp't's
Resp. Pet'r's Pet. (“Resp.”), ECF No. 28.
It further moved for the Court to stay these proceedings
while its petition to set aside the arbitral award remains
pending in India. Id. HEPI's petition, and
India's request that the Court stay these proceedings,
are now ripe for decision.
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of June 10, 1958, also known as the
‘New York Convention, ' [21 U.S.T. 2517, ] is
enforced through the Federal Arbitration Act, 9 U.S.C. §
201 (2012).” Matter of Arbitration of Certain
Controversies Between Getma Int'l & Republic of
Guinea, 142 F.Supp.3d 110, 112-13 (D.D.C. 2015). Under
the New York Convention and the Federal Arbitration Act, a
recipient of a foreign arbitral award may seek confirmation
and enforcement of the award in U.S. federal courts.
See 9 U.S.C. §§ 202, 207.
with the ‘emphatic federal policy in favor of arbitral
dispute resolution' recognized by the Supreme Court[, ] .
. . the FAA affords the district court little discretion in
refusing or deferring enforcement of foreign arbitral
awards.” Belize Social Development Ltd. v.
Government of Belize, 668 F.3d 724, 727 (D.C. Cir. 2012)
(quoting Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)).
Courts “may refuse to enforce the award [brought under
the New York Convention] only on the grounds explicitly set
forth in Article V of the Convention.” TermoRio
S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 935 (D.C.
Cir. 2007) (citation omitted); see also Int'l Trading
& Indus. Inv. Co. v. DynCorp Aerospace Tech., 763
F.Supp.2d 12, 19 (D.D.C. 2011) (collecting cases). Because
“the New York Convention provides only several narrow
circumstances when a court may deny confirmation of an
arbitral award, confirmation proceedings are generally
summary in nature.” DynCorp Aerospace Tech.,
763 F.Supp.2d at 20 (citing Zeiler v. Deitsch, 500
F.3d 157, 169 (2d Cir. 2007)). “[T]he burden of
establishing the requisite factual predicate to deny
confirmation of an arbitral award rests with the party
resisting confirmation, and the showing required to avoid
summary confirmation is high.” BCB Holdings Ltd. v.
Gov't of Belize, 110 F.Supp.3d 233, 247 (D.D.C.
2015) (alteration in original) (internal citations and
quotation marks omitted).
has presented two major arguments for why HEPI should not be
granted the confirmation it seeks. First, it argues that
confirmation of the two remaining portions of the arbitral
award-specific performance and interest-would violate U.S.
public policy. See Resp. at 6-7. Second, it argues
that if the Court finds that the award does not violate U.S.
public policy, and therefore that it should be confirmed, the
Court should stay the enforcement of the award while
India's appeal of the award and HEPI's parallel
litigation to enforce the award proceed through the Indian
court system. Id. at 40. The Court first addresses
India's arguments regarding a stay of these proceedings,
and, finding that a stay is not warranted, then addresses
India's arguments regarding whether confirmation of the
award would violate U.S. public policy.
Request for Stay
has moved for a stay of these proceedings pending the
resolution of its appeal of the arbitral award in India
pursuant to Article VI of the New York Convention, which
provides that “[i]f an application for the setting
aside or suspension of the award has been made to a competent
authority referred to in article V(1)(e), the authority
before which the award is sought to be relied upon may, if it
considers it proper, adjourn the decision on the enforcement
of the award.” New York Convention, art. VI. A
“competent authority” referred to in Article
V(1)(e) is one “of the country in which, or under the
law of which, that award was made.” New York
Convention, art. V(1)(e). India further argues that this
Court should stay the proceedings pursuant to the doctrines
of forum non conveniens and international comity.
See Resp. at 40. HEPI counters that because India
brought a set-aside suit in India, rather than Malaysia, the
requirements of an Article VI stay have not been met.
See Pet'r's Mem. P. & A. Resp.
Resp't's Opp'n (“Pet'r's
Resp.”) at 34- 35, ECF No. 29. It further argues that
forum non conveniens and international comity are
not available as defenses to enforcement actions in this
Circuit. See Id. at 23, 31-32. For the reasons set
forth below, the Court finds a stay of these proceedings
unwarranted, and therefore denies India's request.
D.C. Circuit has explained that “the FAA affords the
district court little discretion in refusing or deferring
enforcement of foreign arbitral awards: the Convention is
‘clear' that a court ‘may refuse to enforce
the award only on the grounds explicitly set forth in Article
V of the Convention, '” and a court “may
adjourn enforcement proceedings only on the grounds
explicitly set forth in Article V(1)(e) of the
Convention.” Belize Soc. Dev. Ltd. v. Gov't of
Belize, 668 F.3d 724, 727 (D.C. Cir. 2012) (quoting
TermoRio S.A. E.S.P, 487 F.3d at 935). While other
circuits have found that “a district court nevertheless
retains the inherent authority to issue a stay for the
purposes of managing its own docket” in FAA cases, the
D.C. Circuit has eschewed such flexibility. Cf. Four
Seasons Hotels & Resorts, B.V. v. Consorcio Barr
S.A., 377 F.3d 1164, 1172 n.7 (11th Cir. 2004); see
also Hewlett-Packard Co. v. Berg, 61 F.3d 101, 106 (1st
Cir. 1995) (concluding that a district court may consider
staying a case in broader circumstances than those found in
Article VI of the Convention, but cautioning that the power
to stay should be used judiciously). As such, the Court is