Texas and international arbitration
When I was speaking at a law firm last week I was asked whether Texas courts are friendly towards arbitration and this question prompts today’s blog post. (Spoiler: the answer is yes).
Earlier this year, U.S. District Court Judge Alfred H. Bennett of the Southern District of Texas granted Vantage Deepwater Company’s and Vantage Deepwater Drilling, Inc.’s petition to confirm its international arbitration award against Petroleo Brasileiro S.A. (“Petrobras”) and certain subsidiaries in connection with their breach of a drilling services contract with the Vantage entities in 2015. The Court also denied the Petrobras entities’ motion to vacate the arbitration award, which had awarded over USD 615 million plus interest to Vantage. The award was rendered by a majority of the tribunal (Professor William “Rusty” Park was chair, and he was joined by Judge Charles Brower in the decision, with Mr James Gaitis dissenting).
As noted, Petrobras’ motion to vacate the arbitration award failed, and the order of the Texas court is notable for its recitation of a number of key principles of international arbitration. The court noted a “national policy favouring arbitration”, emphasized that a court might vacate an award only in “very unusual circumstances” and that any doubts must be “resolved in favor of upholding” the award. It is unsurprising but still comforting to see a Texas court signaling the pro-enforcement bias that is at the heart of the New York Convention.
In its application, Petrobras sought to re-argue bribery allegations that it had asserted in the arbitration and these were given short shrift by the court, which stated “Petrobras’s arguments concerning the merits of the dispute are irrelevant to the Court’s determination of whether there are statutory grounds for vacatur”. In relation to the statutory grounds, Petrobras argued that the award was incomplete (because it allegedly failed to address a key defence), that it had been denied the opportunity to adduce evidence and that Judge Brower exhibited “evident partiality”.
Judge Brower’s alleged partiality was based on the fact that a former law clerk of his was a partner in the law firm representing Vantage. Judge Brower had disclosed the relationship at the start of the arbitration and there had been a subsequent challenge to him by Petrobras. This challenge was denied by the ICDR, the institution administering the arbitration. The court dismissed the “evident partiality” argument, holding that “Petrobras has not met its burden of showing that a significant compromising connection exists between [the law firm] and Judge Brower”. Petrobras further complained that Judge Brower had been “snide and snarky” during proceedings and had been aggressive and antagonistic towards witnesses. Again, this argument was swiftly addressed by the court, which held that there was no precedent for finding that an award should be vacated due to conduct of an arbitrator which was similar to the conduct Petrobras was highlighting.
The court also dealt firmly with the arguments that Petrobras had been precluded from fully arguing its case, finding that “the record does not support the position that Petrobras was denied a fair arbitration or that the Arbitration was fundamentally flawed”. Mr Gaitis’ dissent had alluded to an allegation that Petrobras had been denied due process, but the court found that he had “provided no reasoning or factual support for his conclusions” and went on to hold that the existence of a dissent per se “does not make vacatur arguments more meritorious”. Petrobras additionally argued that the award should not be enforced because to do so would be contrary to public policy. The court dismissed this argument, emphasizing that the “standard was high and infrequently met” and that Petrobras had not shown that “enforcement of the actual arbitration decision in this case would violate the most basic notions of morality and justice”.
It appears that Petrobras subsequently satisfied the arbitration award, but retain the right to appeal the District Court’s ruling.
As a Texas-qualified attorney (and loyal fan of Texas, having lived in the state for over ten years), of course I replied “absolutely, Texas courts are highly supportive of arbitration” when the question was put to me last week. The court’s ruling in Vantage Deepwater et al -v- Petrobras America Inc et al endorses this.
