Thai-Lao Lignite (Thailand) Co., Ltd. v. Gov’t of the Lao People’s Democratic Republic, Nos. 14-597, 14-1052, 14-1497, 2017 U.S. App. LEXIS 13065 (2d Cir. July 20, 2017)

Petitioners, Thai Lao Lignite (“TLL”) and its subsidiary, Hongsa Lignite (“HLL”), initiated arbitration against the Government of the Lao People’s Democratic Republic (“Laos”). The case arose out of a series of mining contracts and a power generation project initiated in the 1990s, but culminated in a request for arbitration in June 2007. The arbitration was seated in Malaysia, where an award for $57 million was rendered in November 2009, in favor of TLL and HLL. After the term for applications to set aside the award under Malaysian law had passed, Petitioners sought to enforce the award in the U.S., the U.K. and France. In the U.S., the district court confirmed the award in August 2011 and the Second Circuit affirmed the decision in July 2012.

During these enforcement proceedings, in October 2010, Laos initiated set aside proceedings in Malaysia. Despite expiry of the time to challenge the award, Laos applied to the court for an extension due to its “lack of knowledge of the local law and inadequate advice from its legal advisors.” The trial court denied Laos’ request, but, on appeal, the request was granted. The Court of Appeal of Malaysia found that a sovereign should be given special treatment, noting that to “refuse the extension of time would be tantamount to shutting out the Government of Laos from challenging the award.” Then, in December 2012, the Malaysian High Court annulled the award and ordered the parties to re-arbitrate their claims. It reasoned that the arbitral tribunal had exceeded its jurisdiction by addressing claims under the mining contracts, to which HLL was not party.

In arbitration award jurisprudence, there is an important distinction between the primary and secondary jurisdictions. The primary jurisdiction is the jurisdiction in which the arbitration proceeding was seated or under the law of which it was decided. The secondary jurisdiction is any other jurisdiction in which a party seeks to enforce the award. Article V(1)(e) of the Convention provides that the court of the secondary jurisdiction may refuse to enforce an award if the award has been “set aside or suspended by a competent authority of the country where the arbitration took place,” i.e. the primary jurisdiction.

With the Malaysian annulment decision in hand, Laos moved the U.S. district court to vacate its August 2011 judgment pursuant to Federal Rule of Civil Procedure (“FRCP”) 60(b)(5). In February 2014, the district court granted Laos’s motion and vacated its earlier judgment.

FRCP 60 provides the procedures for challenging a final judgment. Rule 60(b)(5) states that relief from a final judgment may be “based on an earlier judgment that has been reversed or vacated.” The burden lies with the party seeking to overturn the final judgment, Laos, “to demonstrate that it is entitled to relief.” In order to determine this issue, the Second Circuit referred to the grounds for refusal of recognition of an award under Article V of the New York Convention, which, as relevant here, states:
Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: . . . (e) [t]he award . . . has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

The Second Circuit noted the apparent discretion to refuse enforcement granted by Article V’s use of the word “may,” but held “that the scope of that discretion is ‘constrained by the prudential concern of international comity.'” The court cited its recent decision in Pemex, in which it held that it was appropriate to refuse to recognize a foreign judgment annulling an award in order to “vindicate fundamental notions of what is decent and just in the U.S.” But the circumstances of that case were rare, and included retroactive legislation by Mexico, which effectively deprived the claimant of any recourse under its contract.

The court compared the extension of time to challenge the award that was granted to Laos by the Malaysian courts, with the Mexican court’s retroactive application of new legislation in order to vacate an award. It found the factual scenarios distinct, noting that “although we might not necessarily agree with the merits of the Malaysian courts’ judgments, we see no grounds” similar to those in Pemex. The Second Circuit court thus affirmed the district court’s decision to vacate its August 2011 judgment.

Another aspect of this case was that TLL and HLL had also sought enforcement of the award in England, where, in November 2012, the High Court of Justice entered judgment enforcing the award, relying heavily on the U.S. district court’s determination to do so. Thus TLL and HLL also sought to enforce the English judgment which had enforced the award in England. Laos did not file an answer to the enforcement action in the district court, leading the clerk of the court to enter a notice of default against Laos. The district court, however, sua sponte raised an issue with the enforcement of the English judgment because it “rested heavily on the English court’s deference to the now-vacated August 2011 judgment entered in the United States.” The district court thus decided that “equity favors giving the Malaysian judgment priority over the English judgment.”

TLL and HLL also challenged this decision on appeal. The Second Circuit affirmed, reasoning in part that the Malaysian judgment was a decision of the primary jurisdiction and deserved greater weight than the English judgment (a secondary jurisdiction decision).