First Kuwaiti Gen. Trading & Contracting W.L.L. v. Kellogg Brown & Root Int’l, Inc., No. 1:23-mc-1 (E.D. Va. May 12, 2023)[1]
Factual Background
Petitioner First Kuwaiti General Trading & Contracting W.L.L. (“FKTC”) and Respondent Kellogg Brown & Root International, Inc. (“KBR”) entered into various logistics contracts during the invasion of Iraq in 2003. FKTC experienced increased costs while performing some of the work, which was memorialized by two change orders, and KBR agreed to reimburse FKTC’s costs in the amount of roughly $48 million.
Several disputes arose from this subsequent work, as well as over other agreements, and by 2009 the parties entered into an arbitration agreement to resolve any remaining claims. During the pendency of these outstanding claims, a former administrator for KBR pled guilty to his role in an illegal kickback scheme, implicating FKTC and others, and this led the U.S. Government to refuse to reimburse KBR for the $48 million change order-related work. The Armed Services Board of Contract Appeals, and then the Federal Circuit, affirmed the denial of the funds.
On July 26, 2022, the ICDR tribunal issued a “final award” in favor of KBR, denying FKTC’s claim for the unpaid change order funds, on the grounds the Federal Circuit’s decision was dispositive, and allowing KBR to withhold payments due to FKTC under other subcontracts as an “equitable adjustment.” On August 24 and 25, both parties filed applications under Article 30 of the ICDR International Arbitration Rules, which provides that, “[w]ithin 30 days after the receipt of an award, any party, with notice to the other parties, may request the tribunal to interpret the award or correct any clerical, typographical or computation errors or make an additional award as to claims presented but omitted from the award.”
By decision dated October 13, 2022, issued and delivered to the parties on October 20, 2022, the ICDR tribunal largely dismissed both applications as beyond the scope of Article 30 review, but granted KBR’s application to state the net amount awarded to FKTC under the relevant subcontract, applying “straightforward math” (without objection from FKTC) to subtract one already determined number from another already determined number. In response, on January 5, 2023, FKTC filed a motion to vacate the award, while on February 2, 2023, KBR filed an opposition and its own motion to confirm the award.
In support of its motion to vacate, FKTC argued that the tribunal had showed a manifest disregard for the applicable law sufficient to vacate the award. However, the district court focused first on KBR’s argument that FKTC’s motion to vacate was untimely under Section 12 of the Federal Arbitration Act (the “FAA“), 9 U.S.C. § 12, which provides that a notice of a motion to vacate an award “must be served upon the adverse party or his attorney within three months after the award is filed or delivered.”
The district court decision
The district court held that the issuance of the “final award” triggered the three-month clock and that the motion was therefore untimely. In so holding, the district court rejected FKTC’s argument that the Article 30-related opinion triggered the deadline under the “complete arbitration rule.” That rule has been recognized in instances where, for example, the tribunal had not yet rendered a decision on damages. Here, however, the tribunal’s decision was clearly and expressly intended to be a final award as to all outstanding claims before it, including liability and damages, and in fact decided all such issues. The decision on the Article 30 motions for clarification did not substantively change any aspect of the final award, which was thus not so “unclear or incomplete” that any further action of the tribunal would be necessary for it to constitute “an award that was filed or delivered” under FAA Section 12.
The court then confirmed the award, rejecting FKTC’s contention that the parties did not explicitly agree that a court could enforce the award. The district court held that the reference to “final and binding arbitration” in the agreement indicated an intent to have a judicially enforceable award, with no ability to relitigate these claims in court. The fact that the parties contemplated judicial enforcement was further confirmed when FKTC applied to the court to vacate the award.
This Article was originally published in the North America Newsletter.
