Texas court confirms arbitration award for Carpatsky Petroleum Corp.

By Sara McCleary | Oct 16, 2017

HOUSTON – A Texas judge has granted an American company’s motion to confirm an international arbitration award as a result of a dispute related to a joint venture agreement.

District Judge Gray H. Miller of the Houston Division of the Southern District of Texas filed the decision on Oct. 2. He confirmed the award that a Stockholm arbitral tribunal had issued in favor of the defendant, Carpatsky Petroleum Corp (CPC). The plaintiff, OJSC Ukrnafta, had argued that the court should find the agreement unenforceable.

The two businesses had entered into an agreement in 1994 to jointly develop an oil field in Ukraine. That agreement stipulated that any disputes must be submitted to arbitration in Stockholm, Sweden and that Ukrainian law would apply. In 2007, CPC filed such a dispute.

Ukrnafta, however, filed a petition with a Texas district court in February 2008 claiming that the arbitration agreement had been nullified because Ukrnafta had signed the agreement with CPC-Texas, but that company had later merged with and become CPC-Delaware, a new company. 

“Ukrnafta contends that this failure to inform it of the change was inconsistent with the agreements between the parties and contrary to the requirements of Ukrainian law, which governs the agreements,” according to Miller’s written opinion.

After several motions to dismiss and appeals in the U.S. courts, CPC filed a motion to confirm the arbitration award in March 2011, as a result of the Stockholm arbitral tribunal awarding CPC a final award. The case remained in limbo for several more years, seeing several more motions to dismiss, motions to reinstate the case, and motions to confirm the award. The court finally reinstated the case on Feb. 1 in response to an unopposed motion by CPC to do so.

According to Miller, “the recognition and enforcement of foreign arbitral awards is governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘New York Convention’).” 

However, he further points out that under the New York Convention, the U.S. court in this case has secondary jurisdiction, therefore it "may only refuse enforcement under the specific grounds enumerated in Article V of the Convention. A court of secondary jurisdiction ‘may not refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a mistake of law or fact,’” writes Miller.

Ukrnafta brought several arguments under Article V to support its claim that the court should not confirm the award, first of which was its assertion that CPC’s failure to provide certified copies of the award documents at the time it submitted its motion makes the agreement unenforceable. Miller, however, pointed out that the court had already received those documents from Ukrnafta as part of an earlier motion.

“Sometimes procedural rules need to be viewed through a lens of reason,” writes Miller. “The court declines to deny enforcement of an arbitration award entered by a foreign jurisdiction based on a procedural issue that in reality has no impact whatsoever.”

The court then went on to overrule all of Ukrnafta’s other arguments, such as its claim that CPC’s merger into a new company made the arbitration agreement invalid, as it had signed the agreement with CPC-Texas, not CPC-Delaware. The court, however, addressed this by pointing out that the district court found Ukrnafta continued to do business with CPC-Delaware for several years after learning of the merger, and therefore it “must be deemed to have entered into the arbitration agreement now being called into question through acceptance by conduct.”

The court next overruled Ukrnafta’s claim that it had been afforded due process during the arbitration hearing, asserting that “it had an opportunity to be heard and was thus afforded due process.” It then responded to the plaintiff’s claim that the court should not confirm the award because the tribunal “showed manifest disregard for the law.” The court found that this standard does not apply to this case, and “even if it did, there has been no showing that the arbitration panel deliberately disregarded what it knew to be the law to reach a particular result.”

The court however refused to address Ukrnafta’s argument that the arbitral tribunal calculated the award incorrectly, pointing out that as a court of secondary jurisdiction, it is not empowered to address any potential errors of fact or law made in coming to the arbitration decision.

The court confirmed the arbitration award while simultaneously denying without prejudice CPC’s motion to dismiss all of Ukrnafta’s claims, inviting CPC to submit a new motion in the proper format with more information.

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