DIGOIL v. Democratic Republic of Congo, No. 20-cv-1130 (RJL) (D.D.C. Sept. 14, 2021) [click for opinion]
In 2007 and 2008, DIGOIL, a South African oil exploration company, entered into two contracts with the Democratic Republic of Congo (the “DRC”), promising to carry out discovery and exploitation of hydrocarbon deposits in specific regions in exchange for a share of the resulting revenue. The contracts stipulated that, consistent with DRC law, the respective contract would enter into force on the date it was approved by Order of the DRC President. However, neither of the contracts received Presidential approval (or explicit disapproval), and in 2010, the DRC awarded a production sharing agreement covering the geographical region contemplated by the 2008 contract to a different company.
The DIGOIL contracts contained an arbitration clause requiring that disputes be resolved through binding arbitration with the International Court of Arbitration of the International Chamber of Commerce. Pursuant to this clause, DIGOIL initiated arbitration on October 31, 2016. DIGOIL argued that the DRC (1) violated both contracts by failing to issue the Presidential Order, and (2) violated the 2008 contract by unilaterally awarding a different company a production sharing agreement covering the region contemplated by the 2008 contract. After considering both parties’ arguments and reviewing the evidence on records, the ICC arbitral tribunal (“the Tribunal”) ultimately sided with DIGOIL and awarded DIGOIL over $619 million in damages, including legal costs.
On April 2, 2019, the DRC appealed the arbitral award to the Paris Court of Appeal. The Paris Court of Appeal rejected the DRC’s arguments and authorized enforcement of the arbitral award.
On April 30, 2020, DIGOIL initiated proceedings in the district court seeking to confirm its arbitral award pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, 21 U.S.T. 2517 (the “New York Convention“). DIGOIL properly served the DRC through foreign mailing by the clerk of the court. Because the DRC failed to appear before the court, on September 20, 2020, the clerk entered a default against the DRC. On October 12, 2020, DIGOIL moved for default judgment.
The court stated that it is afforded little discretion in refusing or deferring enforcement of foreign arbitral awards under the Federal Arbitration Act (the “FAA“). It explained that courts must confirm arbitral awards unless one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the New York Convention applies. The party opposing confirmation bears the burden to establish one of these grounds. The court concluded that none of the grounds enumerated in the New York Convention applied.
According to the court, the grounds enumerated in Article V(I) of the New York Convention apply only at the request of the party opposing the award confirmation and thus are not available if the party did not appear in the matter. The grounds enumerated in Article V(2) do not require a party’s request and can be invoked by the court sua sponte if (1) the subject matter of the difference is not capable of settlement by arbitration under U.S. law; or (2) the recognition or enforcement of the award would be contrary to the public policy of the U.S. The court held that neither of these grounds applied either. The first ground did not apply because the subject matter of this dispute—the breach of a contract for services—is commonly settled by arbitration in the U.S. The second ground did not apply because there is no indication that enforcement of the award would be contrary to U.S. public policy. Therefore, because none of the grounds for refusing the confirmation and enforcement of an arbitral award applied, the court confirmed the arbitral award and entered a corresponding judgment against the DRC.
In a footnote, the court explained why it did not believe that staying the proceedings in accordance with Article VI of the New York Convention was proper. The court noted that courts have significant discretion in staying arbitral award enforcement proceedings under Article VI. In determining whether to stay enforcement, the court must consider (1) the general objectives of arbitration—the expeditious resolution of disputes and the avoidance of protracted and expensive litigation, and (2) the status of the foreign proceedings and the estimated time for those proceedings to be resolved. The court held that while the DRC indicated that it may further appeal the enforcement of the award, no stay would be imposed because (1) the parties have been litigating this case for nearly five years, (2) the DRC has sought an extension of its appeal deadline, making further delay likely, and (3) a French court has already declared the arbitral award valid and enforceable on appeal.
This article was originally published in the US International Litigation and Arbitration Newsletter.