Luxembourg court of appeal refuses enforcement of annulled Pemex award

In a judgment dated 27 April 2017, the Luxembourg Court of Appeal has confirmed its earlier jurisprudence by refusing the enforcement of a US$300 million ICC award against the Mexican state oil and gas company Pemex that was set aside at the seat of arbitration.

This judgment appears to confirm a shift in Luxembourg case law towards the court not exercising its discretion to confirm an arbitration award where it has been set aside  by the courts of the seat of arbitration.

The case presented to the appeal judges arose from a dispute between COMISSA, a subsidiary of US engineering firm Kellogg Brown & Root (KBR), and PEMEX, which was settled by an arbitrational tribunal in Mexico on 16 December 2009.

By decision of 25 October 2011, the Mexican appeal judges had set aside the award.

On 22 March 2013, the District Court of Luxembourg (“Tribunal d’Arrondissement de Luxembourg”) initially granted the enforcement of the Mexican arbitral award in favour of COMISSA. However, PEMEX appealed this decision before the Luxembourg Court of Appeal, who reversed the decision.

The Court held that it is possible for national courts to enforce an arbitral award which has ceased to exist in the country of origin, but used its discretion to refuse  enforcement pursuant to Article V(1)(e) of the New York Convention. Under Article V,  recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that the award has not yet become binding on the parties, or 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.

Whereas the New York courts had confirmed the ICC award despite the Mexican appeal judgment, ruling that the Mexican courts had “violated basic notions of justice” by relying on a law that did not exist at the time the arbitration agreement was signed, the Luxembourg Court of Appeal held that this had not been established. More generally, the Court of Appeal held that it does not have standing to rule on the application of Mexican law.

The Court of Appeal ruled that an arbitral award that does not produce legal effects in its country of origin because it has been annulled or is not yet final, cannot produce legal effects in Luxembourg. In other words, according the court’s latest ruling, an award can only be enforceable in Luxembourg on the condition that it is also enforceable in its country of origin.

In conclusion, whereas traditionally the objective of the Luxembourg court of appeal has explicitly been to declare enforceable as many awards as possible, the Court now takes a more prudent and cautious approach. In line with its earlier ruling of 25 June 2015, the Luxembourg Court of Appeal seems to confirm its shift in case law by using its discretionary power under Article V of the New York Convention to refuse the enforcement of an award which has been set aside by the courts of the seat of arbitration.