Bridas S.A.P.I.C. v. Government of Turkmenistan

• Decision Date: 09 September 2003
• Docket Number: No. 02-20929.,02-20929.
• Citation: 345 F.3d 347
• Parties: Bridas S.A.P.I.C.; Bridas Energy International, Ltd.; Intercontinental Oil & Gas Ventures, Ltd.; Bridas Corporation, Plaintiffs-Appellees, v. Government of Turkmenistan; et al., Defendants, Government of Turkmenistan; State Concern Turkmenneft, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

345 F.3d 347

Bridas S.A.P.I.C.; Bridas Energy International, Ltd.; Intercontinental Oil & Gas Ventures, Ltd.; Bridas Corporation, Plaintiffs-Appellees, v. Government of Turkmenistan; et al., Defendants Government of Turkmenistan; State Concern Turkmenneft, Defendants-Appellants.

No. 02-20929.

United States Court of Appeals, Fifth Circuit.

Filed September 9, 2003.

Revised September 12, 2003.

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Mary L. O'Connor (argued), Jesse Z. Weiss, Akin, Gump, Strauss, Hauer & Feld, Susan L. Hays, Waters & Kraus, Dallas, TX, for Plaintiffs-Appellees.

William H. Knull, III (argued), James E. Tancula, Timothy J. Tyler, Mayer, Brown, Rowe & Maw, Houston, TX, Jeffrey W. Sarles, William H.J. Hubbard, Mayer, Brown, Rowe & Maw, Chicago, IL, for Defendant-Appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before DAVIS and BENAVIDES, Circuit Judges, and RESTANI^*, District Judge.

BENAVIDES, Circuit Judge:

I.

Plaintiffs-appellees, Bridas S.A.P.I.C., Bridas Energy International, Ltd., Intercontinental Oil & Gas Ventures, Ltd., and Bridas Corporation (collectively, "Bridas") originally brought this action to confirm an international arbitration award rendered in Bridas's favor against Defendants-appellants, Government of Turkmenistan ("the Government" or "Turkmenistan"), Concern Balkannebitgaz-Senegat, and State Concern Turkmenneft (collectively "Turkmenneft").

Bridas, an Argentinian corporation, entered into a joint venture agreement ("JVA" or "the agreement") on February 10, 1993, with a production association, Turkmenneft, formed and owned by the Government at the time that the JVA was signed. The Government itself was not a signatory to the agreement. The JVA designated Bridas as the "Foreign Party," and Turkmenneft as the "Turkmenian Party." Over time, the Government substituted various other entities to serve as the Turkmenian Party, ultimately resting with State Concern Turkmenneft and Concern Balkannebitgaz-Senegat (collectively, "Turkmenneft").

The JVA created a joint venture entity called Joint Venture Keimir ("JVK"). JVK was established "for the purpose of conducting hydrocarbon operations in an area in southwestern Turkmenistan, known generally as Keimir." The relevant part of Article XXIV of the agreement stipulates that "[a]ny dispute, controversy or claim arising out of or in relation to or in connection with th[e][a]greement shall be exclusively and finally settled by arbitration, and any Party may submit such a dispute, controversy or claim to arbitration." The parties further agreed that any arbitration would be "conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce as amended from time to time." The law governing the interpretation of the agreement was to be the law of England.

Bridas claims that in November 1995, the Government "ordered Bridas to suspend further work in Keimir, and prohibited Bridas from making imports and exports in or from Turkmenistan." Consequently, on April 16, 1996, Bridas initiated an arbitration proceeding against Appellants with the International Chamber of Commerce ("ICC").

On June 21, 1996, Turkmenistan argued to the ICC Court of Arbitration that it was not a proper party to the arbitration because, among other reasons, it did not sign the JVA and was thus not a party to the arbitration clause contained within it. The ICC Court subsequently confirmed by letter that the arbitrators themselves would determine whether the Government was subject to their jurisdiction. The dispute was subsequently referred to a three-person tribunal. Although the arbitration agreement contemplated that the arbitration proceeding would be held in Stockholm, Sweden, the parties instead agreed to arbitration proceedings in Houston, Texas.

The arbitral proceedings, which began in January 1997, involved 19 days of hearings, various expert reports, testimony concerning damages, and extensive legal briefing. On June 25, 1999, a two-person majority of the Tribunal issued its First Partial Award ("FPA"). The FPA held that (1) the arbitrators had jurisdiction to determine whether they had jurisdiction over the Government, and (2) that "the Government [was] a proper party to the arbitration." The Tribunal also ruled that Appellants had repudiated the JVA. The FPA stated:

[I]f [Bridas] were to accept repudiatory conduct by the [Defendants] and [Turkmenistan] and thus to bring the [joint venture] [a]greement to an end, their damages would be calculated on a loss-of-bargain basis, involving 218,560,935 barrels of oil equivalent at a net-back price of $10.50 per barrel, using a discount rate of 10.446% based on a contract term of 25 years.

In a letter dated July 5, 1999, Bridas formally accepted the Defendant's repudiation of the JVA.

On October 21, 1999, the arbitrators issued their Second Partial Award ("SPA"). In its SPA, the same two-person majority held that the Tribunal had "the jurisdiction to consider and make an award concerning [Bridas's] claim for damages arising out of their acceptance of the repudiatory conduct of the [appellants]."

The Third Partial Award ("TPA") was rendered on September 2, 2000. In the TPA, the same two-person majority clarified its previous rulings in the FPA and calculated damages for Bridas. The majority held that the 10.446% discount rate was the appropriate rate for calculating damages because "[i]t was higher than the non-risk [7.5%] discount factor advanced initially by [Bridas] and takes into account the various risk referred to by the parties in the evidence." The Tribunal then awarded a grand total of $495,000,000 in damages to Bridas. The Final Award was issued on January 26, 2001.

Bridas initiated this lawsuit on July 7, 1999, when it filed its application for confirmation of the FPA.¹ The Government and Turkmenneft, in response, filed motions to dismiss the application for confirmation and to vacate and refuse confirmation of the FPA. On December 22, 2000, Turkmenneft, conditionally joined by the Government, moved to vacate or modify both the TPA and the Final Award.

The district court denied Appellants' motions to vacate or modify the FPA, TPA, and the Final Award.² The Government and Turkmenneft appealed the district court's judgment to this court.

Appellants ask us to resolve the following issues on appeal: (1) whether the Tribunal had jurisdiction over the Government; (2) whether the arbitral majority's rulings on the merits were in manifest disregard of the law; and (3) whether the arbitral majority exceeded its authority in calculating the damage award.

II.

United States federal courts have jurisdiction to hear this case under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. We have jurisdiction to hear this appeal under § 16(a)(3) of the Act. 9 U.S.C. § 16(a)(3) et seq. (permitting appeal of "a final decision with respect to an arbitration that is subject to this title.").

A.

The first issue we address is whether the Tribunal properly exercised jurisdiction over the Government. In reviewing a district court's refusal to vacate an arbitration award on the ground that one of the parties never agreed to arbitrate the dispute, the district court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The district court's interpretation of the arbitration agreement, and whether it bound the parties to arbitrate, is a question of law. R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534, 537 (5th Cir.1992). See MS Dealer Service Corp., v. Franklin, 177 F.3d 942, 946 (11th Cir.1999) (noting that a district court's denial of a petition to compel arbitration on the ground that a party was not a signatory to the contract is reviewed de novo); Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1513 (10th Cir.1995) (same). The factual findings upon which such a determination is based are, of course, subject to review only for clear error. MAG Portfolio Consultant, GMBH v. Merlin Biomed Group, LLC, 268 F.3d 58, 61 (2d Cir.2001). The parties agree that federal common law governs the determination of this issue.

B.

In order to be subject to arbitral jurisdiction, a party must generally be a signatory to a contract containing an arbitration clause.³ Even though the Government did not sign the JVA, the Tribunal held that the Government was bound to arbitrate the dispute with Bridas because (1) the Government had not taken any steps to extricate itself from the proceedings and (2) its evaluation of the evidence revealed at least 22 commitments in the JVA "that only the Government could give or fulfill."

The district court, because it did not find "clear and unmistakable" evidence that the parties agreed that the Tribunal would determine its own jurisdiction, undertook an independent review of whether the Government was bound to arbitrate with Bridas. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-47, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Accord AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Whether a party is bound by an arbitration agreement is generally considered an issue for the courts, not the arbitrator, "[u]nless the parties clearly and unmistakably provide otherwise."⁴ AT&T Tech., 475 U.S. at 649, 106 S.Ct. 1415. The district court concluded that despite the Government's non-signatory status, principles of agency and equitable estoppel bound the Government to the JVA.

C.

As a preliminary matter, we will address Bridas's assertion that the Government waived its right to contest the Tribunal's jurisdiction because: (1) it failed to challenge the Tribunal's Order No. 5; and (2) it voluntarily took part in the arbitration through Turkmenneft.

Both...