U.S. Court of Appeals for the Second Circuit Credit: ALM

A federal judge in New York had discretion to vacate a previously approved confirmation of a $57 million arbitration award against the government of Laos after the award was tossed out by a foreign court, an appeals court ruled.

The case, which involves a dispute between the government of Laos and a Thailand-based company over mining contracts, presented a novel issue for the U.S. Court of Appeals for the Second Circuit: how a court should approach a motion to vacate its own confirmation of an arbitration award after foreign courts with jurisdiction over the arbitration panel later sets aside the award.

According to the court’s decision, in the early 1990s, the Thailand-based Thai-Lao Lignite Co. entered into agreements with the Laotian government to mine lignite in northern Laos.

The mining operation was intended to support construction of a power plant in the region that would generate power to be sold to Thailand.

But during the Asian financial crisis, which lasted from 1997 to 2000, funds for the project dried up and negotiations concerning the project fell apart.

In 2006, after receiving a notice of default from Thai-Lao regarding funding for the mining project, Laos terminated the project development agreement that it had previously brokered with the company regarding the power plant, as well as mining contracts.

Thai-Lao took the dispute to an arbitration panel in Malaysia—where the parties had agreed to arbitrate if contract disputes arose—made up of three U.S. lawyers that found that Laos did not properly terminate its agreement with the company.

Thai-Lao was awarded $54.2 million, which included reimbursement of investment costs, interest and attorney fees.

The company then began a globe-trotting effort to enforce the judgment in English, French and American courts. The case, Thai-Lao Lignite v. Government of the Lao People’s Democratic Republic, 10-cv-5256, was the first time that Laos litigated in a U.S. court.

In 2011, Southern District Judge Kimba Wood confirmed the award and the Second Circuit affirmed that decision.

Courts in the United States and the U.K. rejected Laos’ efforts to toss out the arbitration award, but eventually the country found favor with the Malaysian High Court, which found that the arbitration panel had exceeded its jurisdiction by ruling on the mining contracts.

In 2014, Wood vacated her own confirmation of the arbitration award.

Wood said that, while the New York Convention—the governing document for enforcing international arbitration awards—gives her discretion to enforce an award that has been vacated by a foreign court, she could only do so if the judgment is “repugnant to fundamental notions of what is decent and just in the state where enforcement is sought” or violates “basic notions of justice,” citing the D.C. Circuit’s 2007 ruling in TermoRio v. Electranta, 487 F.3d 928.

Laos’ allegedly “inequitable” conduct in the Malaysian proceedings, Wood found—which included a breach of an agreement between the parties not to seek vacatur of the arbitration award in the courts and a late filing to the Malaysian appeals court, among other issues—it did not meet this high standard.

Thai-Lao appealed, arguing that Wood erred in giving deference to the Malaysian court over her own judgment to confirm the award.

Writing for a Second Circuit in a decision affirming Wood, Judge Susan Carney said Laos’ conduct was not “sufficiently dilatory” to justify continued enforcement of a vacated arbitration award.

To find otherwise, Carney wrote, would be akin to levying a $57 million fine on Laos for misconduct.

“A steep fine indeed, and one that the record gives no reason to think the district court would have imposed,” Carney said.

Carney was joined on the decision by Judges Robert Katzmann and Rosemary Pooler.

MoloLamken partners Steven Molo and Robert Kry and associate Joel Melendez appeared for the Laos government, as did King Branson attorneys David Branson, Anthony King, Tiana Bey; and Anthony Hatab of Dressel & Hatab.

Thai-Lao’s legal team included King & Spalding partner James Berger and J. Emmett Murphy, senior associate Charlene Sun and associate Nilufar Hossain.