July 19, 2020

Fifth Circuit rejects argument that public policy against bribery precludes enforcement of arbitration award

On July 16, 2020, the US Court of Appeals for the Fifth Circuit affirmed a district court’s grant of a petition to confirm a $622 million arbitration award against Petrόleo Brasileiro S.A. and two subsidiaries (collectively, “Petrobras”) and affirmed the dismissal of Petrobras’s motion to vacate the award.  The award was for damages arising from Petrobras’s early termination of a contract with Vantage Deepwater Company (together, with Vantage Deepwater Drilling Incorporated, “Vantage”).  Petrobras had argued the award should not be confirmed because Vantage obtained the contract by bribing Petrobras employees. 

In August 2015, Hamylton Pinheiro Padilha, Jr. pled guilty to paying bribes to Petrobras employees on behalf of Vantage.  Around the same time, Petrobras terminated its contract with Vantage, and Vantage shortly thereafter demanded arbitration claiming expectancy and reliance damages collectively exceeding $1 billion.  In June 2018, arbitrators awarded Vantage $622 million in damages.  Shortly thereafter, Vantage filed a petition to confirm the arbitration award in the US District Court for the Southern District of Texas.  Petrobras opposed the petition and filed a motion to vacate the award.  In May 2019, the district court denied the motion to vacate and granted the petition to confirm the award. 
On appeal to the Fifth Circuit, Petrobras again argued that the award should not be confirmed because Vantage had secured the contract with Petrobras through bribery.  Specifically, under the Federal Arbitration Act and the Inter-American Convention on International Commercial Arbitration, a court can refuse to recognize an arbitration decision if doing so would be contrary to that country’s public policy.  The district court had deferred to the arbitrators’ findings that Petrobras had not proved Vantage was guilty of bribery and that Petrobras had knowingly ratified the contract after becoming aware of the bribery.  (Although not discussed in the opinion, Vantage settled an FCPA matter with the SEC in which Vantage acknowledge failing to maintain reasonable internal controls, and in which Vantage acknowledged that its former outside director and largest shareholder had bribed Petrobras officials via an intermediary.) 
The Fifth Circuit agreed with the lower court that it was appropriate to defer to the arbitrators’ finding that Petrobras had ratified the contract.  As such, it rejected Petrobras’s appeal of the confirmation of the arbitration award.  The Fifth Circuit also rejected additional arguments by Petrobras that the award should have been vacated and that the district court should have allowed discovery as part of Petrobras’s motion to vacate the award. 

Fifth Circuit Opinion