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Gas Natural Aprovisionamientos, SDG, S.A. v. Atlantic LNG Company of Trinidad and Tobago

September 16, 2008

GAS NATURAL APROVISIONAMIENTOS, SDG, S.A., PETITIONER,
v.
ATLANTIC LNG COMPANY OF TRINIDAD AND TOBAGO, RESPONDENT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

Petitioner Gas Natural Aprovisionamientos, SDG, S.A. ("GNA") has filed this petition for confirmation of an arbitration award, and for attorney's fees and costs. Respondent Atlantic LNG Company of Trinidad and Tobago ("Atlantic") has opposed the petition and filed a motion to vacate the arbitration award. Atlantic principally disagrees with the arbitrators' solution to a dispute over a pricing formula. Unhappy with the arbitration panel's resolution of this hotly contested issue, Atlantic contends that the panel "exceeded its authority." For the following reasons, the arbitration award is confirmed and the motion to vacate is denied. Petitioner's request for attorney's fees is also denied.

BACKGROUND

Atlantic, a company organized under the laws of the Republic of Trinidad and Tobago, is a producer of liquefied natural gas ("LNG"). In July 1995, it entered into a sales contract with a Spanish company that was GNA's predecessor-in-interest. The long term supply contract provides for Atlantic to sell LNG to GNA that Atlantic produces at a facility in the Caribbean ("Train 1 LNG"), with deliveries beginning in 1999 and continuing for a term of twenty years. The contract further specifies that GNA may transport the LNG to its receiving facilities in Spain or to a facility in New England ("New England Receiving Facilities").

Although GNA has an unlimited right under the contract to transport its deliveries of Train 1 LNG to the New England Receiving Facilities, at the time the contract was drafted, the parties expected that the Train 1 LNG would be consumed in Spain. The pricing formula specified in the contract is thus tied to the European energy market. The formula consists of a base price and a multiplier indexed quarterly to the European prices for certain substitute petroleum products.

The contract also includes a "price reopener" provision, whereby either party may request a revision of the pricing formula if it establishes that certain preconditions have been met. Specifically, Article 8.5(a) of the contract provides:

If at any time either Party considers that economic circumstances in Spain beyond the control of the Parties, while exercising due diligence, have substantially changed as compared to what it reasonably expected when entering into this Contract or, after the first Contract Price revision under this Article 8.5, at the time of the latest Contract Price revision under this Article 8.5, and the Contract Price resulting from application of the formula set forth in Article 8.1 does not reflect the value of Natural Gas in the Buyer's end user market, then such Party may, by notifying the other Party in writing and giving with such notice information supporting its belief, request that the Parties should forthwith enter into negotiations to determine whether or not such changed circumstances exist and justify a revision of the Contract Price provisions and, if so, to seek agreement on a fair and equitable revision of the above-mentioned Contract Price provisions in accordance with the remaining provisions of this Article 8.5. (emphasis added). If the parties are unable to agree upon a new pricing formula within six months, Article 8.5(f) permits either party to "submit the matter to arbitration for decision in accordance with the criteria set out" in the contract for price reopener proceedings. An arbitration clause in the contract provides generally for arbitration to be conducted in New York City and in accordance with the UNCITRAL Arbitration Rules.

After the parties entered into the contract in 1995, Spain's natural gas market was substantially liberalized. As Spanish gas prices decreased, the New England market became more attractive and GNA entered into a long term agreement to resell all of its Train 1 LNG deliveries at the New England Receiving Facilities.*fn1 Indeed, GNA has not delivered any Train 1 LNG to Spain since at least October of 2002. Citing these circumstances, Atlantic notified GNA on April 21, 2005 that it was seeking a revision to the contract price. Because the parties were unable to agree on a new formula, Atlantic demanded arbitration on October 21, 2005, requesting an upward revision to the contract price to reflect the value of natural gas in the New England market.

A three-person arbitration panel ("the Tribunal") was formed, and it held an initial conference with the parties on July 26, 2006. After denying a motion by GNA to dismiss Atlantic's price reopener claim, and in accordance with a schedule jointly submitted by the parties, the Tribunal conducted hearings over the course of twelve days in April, May, and June 2007. The parties submitted post-hearing briefs in August and October 2007, and they presented their post-hearing arguments before the Tribunal on November 14 and 15, 2007. On January 17, 2008, the Tribunal unanimously issued a 34-page Final Award, which it then clarified and corrected on March 27, 2008.*fn2

In the Final Award, the Tribunal first determined that Article 8.5(a)'s requirements for a price reopener had been met. It proceeded to explain that "the Buyer's end user market is either Spain or New England depending on where the LNG is delivered." It concluded, therefore, that "since New England should be the basis for determining the value of natural gas when the Train 1 LNG is being sold in New England on a sustained basis, the Contract Price needs to include a New England Market Adjustment factor." Accordingly, the Tribunal decided to institute a two-part pricing scheme. First, it preserved the Spanish pricing formula contained in the contract but revised its base price component. Second, the Tribunal added a "New England Market Adjustment" for quarters in which more than a percentage identified in its decision ("the Percentage") of the Train 1 LNG is resold for delivery to the New England Receiving Facilities. This pricing scheme was made effective from April 21, 2005, the date on which Atlantic notified GNA that it was seeking a price reopener. As a result of this revised pricing scheme, Atlantic owed GNA over $70 million for the period from April 21, 2005 through December 31, 2007.*fn3 The Tribunal declined to impose interest payments on the retroactive adjustment, and it rejected the parties' respective requests for attorney's fees and costs, concluding that neither one could be regarded as "the unsuccessful party." GNA now seeks to confirm this Final Award, while Atlantic has moved to vacate it.*fn4

DISCUSSION

Atlantic contends that the Final Award must be vacated because the Tribunal violated the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10(a)(3) and (4), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), Art. V, when it acted in excess of its authority, acted against public policy, and violated Atlantic's due process rights. "[I]t is well-settled that the FAA does not confer subject matter jurisdiction on the federal courts even though it creates federal substantive law." Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 25 (2d Cir. 2000). Rather, "[t]here must be an independent basis of jurisdiction before a district court may entertain petitions under the [FAA]." Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 136 (2d Cir. 2002) (citation omitted); see also Greenberg, 220 F.3d at 25. Jurisdiction over the petition in this action exists pursuant to the New York Convention, implemented by 9 U.S.C. §§ 201-08, because the Final Award involves foreign commerce and non-U.S. parties. See id. § 202; Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 19 (2d Cir. 1997).*fn5

The New York Convention "specifies seven exclusive grounds upon which courts may refuse to recognize an award." Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 90 (2d Cir. 2005) (citation omitted). But because the arbitration took place in the United States, this action is also subject to the FAA's provisions governing domestic arbitration awards. Zeiler v. Deitsch, 500 F.3d 157, 164-65 (2d Cir. 2007). Section 10 provides the FAA's exclusive grounds for vacatur. Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S.Ct. 1396, 1403 (2008). Of these grounds, Atlantic relies principally on Section 10(a)(4) of the FAA, which permits vacatur "where the arbitrators exceeded their powers."*fn6 9 U.S.C. § 10(a)(4). It relies, as well, on the public policy provision of the New York Convention, Art. V(2)(b) (permitting courts to refuse recognition of an award that "would be contrary to the public policy of that country"), and on the due process provisions of the FAA, 9 U.S.C. § 10(a)(3) (providing for vacatur "where the arbitrators were guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced"), and the New York Convention, Art. V(1)(b) (allowing courts to refuse recognition where "[t]he party against whom the award is invoked was . . . unable to present his case").

"Normally, confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court, and the court must grant the award unless the award is vacated, modified, or corrected." D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006) (citation omitted). A court's review of an arbitration award is "severely limited" so as not unduly to frustrate the goals of arbitration, namely to settle disputes efficiently and avoid long and expensive litigation. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997) (citation omitted). Arbitration awards are not reviewed for errors made in law or fact. Id. Moreover, "[t]he arbitrator's rationale for an award need not be explained, and the award should be confirmed if a ground for the arbitrator's decision can be inferred from the facts of the case." D.H. Blair & Co., 462 F.3d at 110 (citation omitted). "Only a barely colorable justification for the outcome reached by the arbitrators is necessary to confirm the award." Id. (citation omitted). Thus, "the showing required to avoid confirmation is very high," id. ...


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