Many cross-border transactions rely on detailed arbitration provisions to resolve future contract disputes. Should a dispute arise, how do these mechanisms work in practice? A recent arbitration between the developers and owners of a 148.5 MW wind farm in northeast Mexico a subsidiary of the Spanish conglomerate Abengoa offers a helpful case study.
The dispute arose from two “balance of plant” contracts entered into in 2014 for Abengoa de México SA de CV, as general contractor, to provide construction services for the 45-turbine Tres Mesas 1&2 wind farm in the coastal state of Tamaulipas in Mexico. The contracts between the Mexican companies (contractor and owners) were governed by New York law and called for arbitration in New York in the case of a dispute.
In the course of performing work under these agreements, Abengoa failed to meet critical project milestones and did not pay amounts it owed to its subcontractors nor damages due under the contracts. Abengoa’s parent company in Spain became insolvent, and Abengoa failed to complete the project. Due to various defaults by Abengoa under the construction contracts, the owners of the wind farm, Eólica Tres Mesas SA de CV and Eólica Tres Mesas 2 SA de CV (together, Eólica), terminated the agreements for cause.
After the termination, Abengoa commenced arbitration in October 2016, seeking damages for alleged contractual violations by Eólica. The defendant Eólica (represented by Milbank) filed a counter-memorial denying Abengoa’s claims and asserted counterclaims on Eólica’s behalf. The case was seated in New York and governed by New York law, with the hearing held at Arbitration Place in Toronto.
The arbitration was conducted under the auspices of International Arbitration Rules of the AAA International Centre Dispute Resolution by a tribunal composed of J. William Rowley QC, Oscar M. Garibaldi and Alejandro Ogarrio Ramirez España.
The award by the three-arbitrator tribunal vindicated the positions the Milbank team had advanced in the arbitration on behalf of Eólica. The tribunal rejected all claims for breach of contract that Abengoa had advanced against Eólica and agreed that the contracts had been properly terminated due to Abengoa’s defaults and failures to perform. The tribunal ruled in favor of Eólica on its counterclaims for all liquidated damages due under the contracts and also awarded Eólica attorneys’ fees and arbitration costs.
A New York federal court confirmed an arbitration award against the Mexican Abengoa unit stemming from its default on a 45-turbine wind farm project, holding that the two owners were entitled to damages. The US District Court for the Southern District of New York confirmed the award on February 28, 2019, finding that none of the enumerated grounds for setting aside an award under the U.S. Federal Arbitration Act was present.
With the favorable arbitral award in hand, as confirmed by the New York court, Eólica was able to pursue enforcement of the award against Abengoa in Mexico without relitigating the underlying claims.
Mexico’s Commercial Code basically incorporates the United Nations Commission on International Trade Law (UNCITRAL) Model Law of 1985 as Mexico’s arbitration law. In addition, Mexico is party to the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards, the Inter-American Convention on International Commercial Arbitration (known as the Panama Convention), and the Inter-American Convention for Extraterritorial Validity of Foreign Judgments and Arbitral Awards (Montevideo Convention). Accordingly, the arbitration award is enforceable and binding in Mexico and may be enforced by filing a request for recognition and enforcement with any Mexican commercial court.
The contracts functioned as envisioned by the parties when drafted, and the arbitration provisions allowed for the contract disputes to be resolved by confidential, binding international arbi- tration with the arbitral awards directly enforceable in Mexico.