Hardy Exploration & Prod. (India), Inc. v. Gov’t of India, Ministry of Petroleum & Natural Gas, Civil Action No. 16-140 (D.D.C. June 7, 2018) [click for opinion]

In 1997, Hardy Exploration & Production (India), Inc. (“HEPI”) entered into a contract with the Government of India (“India”) that would allow HEPI to search for and potentially extract hydrocarbons from an area off of India’s southeastern coast (the “Block”). 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.

In 2006, HEPI discovered a reserve of hydrocarbons and claimed that it was natural gas, entitling it to a five-year appraisal period. India disagreed and insisted the discovery was crude oil, subject to the two-year appraisal period. Two years later, India notified HEPI that its rights to the Block were relinquished due to its failure to submit its declaration of commerciality on time. HEPI initiated arbitration proceedings to resolve which assessment period applied. The tribunal declared India’s order of relinquishment null and void and ordered that (i) the parties be returned to their positions prior to the order of relinquishment, and (ii) the Block be restored to HEPI. The tribunal also ordered India to pay interest on HEPI’s investment in the Block.

India filed a petition in the Delhi High Court to invalidate the award and HEPI filed a petition to enforce the award with the same court. After years of delay in the Delhi courts, HEPI filed a petition in the District Court for the District of Columbia to enforce the remaining portions of the award. India responded by arguing that the US proceedings should be stayed pending the outcome of the proceedings in the Delhi High Court. India further argued that, if the US proceedings were not stayed, the district court should refuse to enforce the award, because to do so would violate US public policy.

The district court first denied India’s request to stay the US enforcement proceedings. In doing so, the court considered: (1) the general objectives of arbitration; (2) the status of foreign proceedings and the estimated time for those proceedings to be resolved; (3) whether the award sought to be enforced would receive greater scrutiny in the foreign proceedings under a less deferential standard of review; (4) the characteristics of the foreign proceedings; (5) a balance of the possible hardships to the parties; and (6) any other circumstances that could shift the balance in favor of or against adjournment.

The court explained that the first and second factors should weigh more heavily in the determination, because the primary goal of the New York Convention is to facilitate the recognition and enforcement of arbitral awards. With respect to these factors, the court found that the fact that the underlying arbitral award had been rendered five years earlier—and the parties gave no indication how long the court in India would take to reach its final resolution or to reach the merits of HEPI’s enforcement action—weighed against granting a stay.

As to the third factor, the indication that Indian courts have broader discretion when deciding whether to enforce arbitral awards weighed in favor of a stay. The fourth factor counseled against a stay, as India had drawn out the litigation in Indian courts. The fifth factor likewise weighed against a stay because HEPI would be burdened should the court delay confirmation of the award, given the amount of time HEPI had waited to receive the award. Finally, the court noted that the Supreme Court of India had already declined to stay the arbitration award pending India’s appeal in the Delhi High Court, a determination the district court was “disinclined to question.”

Having refused to stay the proceedings, the court next considered whether to enforce the award. India argued that confirmation of the portion of the award requiring return of the Block to HEPI would violate US public policy by divesting India of possession and control of its own territorial waters and natural resources. India further argued that an award of interest for disobedience of the tribunal’s injunctive decree would act as a punitive measure against India, and would similarly violate US public policy.

The court acknowledged that there is a strong US public policy favoring confirmation of foreign arbitration awards, and that a party opposing an award bears the heavy burden of demonstrating that confirmation would violate the “most basic notions of morality and justice.” The court was therefore required to balance two important policy values here: respect for the sovereignty of other nations and respect for foreign arbitral agreements.

The court acknowledged that the United States had a public policy interest in respecting the rights of other nations to control the extraction and processing of natural resources within their own sovereign territories. This recognition and respect of other nations’ sovereignty is expressed in the Foreign Sovereign Immunities Act (the “FSIA“). While one exception to immunity arises when a party seeks to have a foreign arbitral award confirmed, the FSIA does not specify whether US courts’ jurisdiction extends to awards of specific performance to be completed outside the territorial jurisdiction of the United States. The court found that “forced interference with India’s complete control over its territory violates public policy to the extent necessary to overcome the United States’ policy preference for the speedy confirmation of arbitral awards.” The court also concluded that, because the two components of the award were so intertwined, confirmation of the interest portion of the award would violate US public policy as well.

For these reasons, the court denied HEPI’s petition to confirm the arbitral award.

A version of this post originally appeared in the September 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.