Corporación Mexicana De Mantenimiento Integral (“COMMISA”) is a Mexican subsidiary of the US construction and military-contracting corporation, KBR. Pemex‐Exploración Y Producción (“PEP”) is one of the four subsidiaries of Petroleos Mexicanos (“PEMEX”), an oil and gas company acting for the Mexican government.
Both PEMEX and PEP are public entities of the Mexican government, with the capacity to own property and conduct business independently.
COMMISA and PEP entered into a contract that provided that the former would build oil platforms in the Gulf of Mexico. PEMEX required that the platforms be fully constructed before being placed in the Gulf, but in light of the weight of the completed platforms, COMMISA considered the requirement to be an impractical one.
This disagreement together with other cost-related issues determined PEMEX to claim that COMMISA failed to comply with its contractual obligations. As a result, PEMEX seized the platforms and ejected COMMISA from the work sites. The contract was governed by Mexican law and contained the following arbitration clause:
Any controversy, claim, difference, or dispute that may arise from or that is related to, or associated with, the present Contract or any instance of breach with the present Contract, shall be definitively settled through arbitration conducted in Mexico City, D.F., in accordance with the Conciliation and Arbitration Regulations of the International Chamber of Commerce that are in effect at that time. The arbitrators shall be three in number, and the language in which the arbitration shall be conducted shall be Spanish.
COMMISA relied on the arbitration clause and filed a request for arbitration under the ICC. The company was awarded approximately USD 300 million. During the arbitral proceedings, Mexico has undergone legislative changes, vesting exclusive jurisdiction in the Tax and Administrative court for public contract-related disputes.
Consequently, Mexico revoked the right to arbitrate disputes arising in relation to public contracts, curtailing the statute of limitations for breach of such contracts from 10 years to 45 days. Following the favourable award, COMMISA petitioned the US District Court for the Southern District of New York to confirm the award under the Panama Convention.
PEMEX appealed the judgement and simultaneously challenged the arbitral award in the Mexican courts. The main argument raised before the Mexican courts related to the then-recent legislative changes implemented in Mexico during the arbitral proceedings. In essence, PEMEX successfully argued before the Mexican courts that the arbitral award should be annulled under the new Mexican law provisions.
This case is particularly interesting, because the Court of Appeal was required to reconcile two principles that support opposite results, namely, a district court’s discretion to confirm an arbitral award and the comity owed to a foreign court’s ruling on the validity of an arbitral award rendered in that country.
Furthermore, the Southern District court had to determine whether the change of the legal provisions could apply retroactively to the case. The Southern District court confirmed the award again on the ground that annulment of the award would violate “basic notions of justice in that it applied a law that was not in existence at the time the parties’ contract was formed and left COMMISA without an apparent ability to litigate its claims”.
The court further concluded that the application of the new provisions retroactively would favour the state enterprise and COMMISA would no longer have remedies for its claims. The Court of Appeal supported the reasoning put forward by the Southern District court and further held that principles of comity require the US courts to defer to a judicial decision annulling a foreign award, provided that this is not contrary to public policy.
In the present case, deferring to the Mexican court’s annulment was against public policy, because such a deferral would disregard the agreement to arbitrate, depriving COMMISA of a forum for its claims and more specifically, depriving it of compensation.