Pemex loses U.S. appeal of US$406 million arbitration award

A U.S. appeals court on Tuesday upheld a decision confirming a US$406 million arbitration award won by a unit of KBR Inc in a contract dispute with Mexico's national oil company, Pemex. 

The 2nd U.S. Circuit Court of Appeals in New York let stand a decision confirming an award of US$300 million even though a Mexican court had nullified it, and upheld a lower court ruling that added $106 million to the judgment.

Representatives of Pemex and KBR, a U.S. engineering and construction company, did not immediately respond to requests for comment.

The ruling came after years of litigation between COMMISA, a Mexican subsidiary of KBR, and , a Pemex subsidiary, that began in 2004 and resulted in court challenges in two separate countries.

The dispute stemmed from agreements COMMISA reached with Pemex beginning in 1997 to build oil platforms in the Gulf of Mexico.

Difficulties between the two companies emerged as Pemex insisted the platforms be fully constructed before being placed in the Gulf of Mexico, which COMMISA considered impractical, according to court papers.

In 2004, Pemex gave notice that it intended to rescind the contract, saying COMMISA had failed to meet various terms and had abandoned the project. Pemex also seized the platforms, which were largely complete, and ejected COMMISA from the work sites.

COMMISA subsequently began legal proceedings, including an arbitration demand filed with the International Chamber of Commerce (ICC). An ICC tribunal in 2009 found that Pemex breached its contracts with COMMISA and awarded US$300 million.

U.S. District Judge Alvin Hellerstein in Manhattan subsequently confirmed the award in August 2010. Pemex appealed to the 2nd Circuit and also challenged the award in Mexico, where a court nullified it.

The 2nd Circuit then sent the case back to Hellerstein to consider the effect of the Mexican court's ruling. He ultimately declined to defer to that decision and again confirmed the award.

The case is Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploración Y Produccion, 2nd U.S. Court of Appeals, No. 13-4022.