Northrop Grumman Ship Systems, Inc. v. The Ministry of Defense of the Republic of Venezuela

At a glance

Parties

Northrop Grumman Ship Systems, Inc. (formerly Ingalls Shipbuilding, Inc., now Huntington Ingalls Incorporated) v. the Ministry of Defense of the Republic of Venezuela

Case no.

Civil No. 1:02cv785-HSO-RHW

Court

U.S. District Court, Southern District of Mississippi, Southern Division (Judge Halil Suleyman Ozerden)

Underlying award(s)

Final Award of 19 February 2018, ICC-administered arbitration with its legal seat in Rio de Janeiro, Brazil

Treaty

Inter-American Convention on International Commercial Arbitration (Panama Convention); arbitration clause in the 1997 frigate refurbishment contract

Sector

Shipbuilding; naval defence

Outcome

Motion for recognition and enforcement granted (31 March 2020). The Ministry's objection under Article V(1)(d) of the Panama Convention, based on the change of seat, was rejected.

Amount

Judgment for the net award of $128,862,457.27, plus post-award interest of $864,539.50 at 8.713% to the date of the order, post-judgment interest under 28 U.S.C. § 1961, and costs and fees.

The dispute

On or about 18 December 1997, Ingalls Shipbuilding (later Northrop Grumman Ship Systems, now Huntington Ingalls) agreed with Venezuela's Ministry of Defense to refurbish two frigates for the Venezuelan Navy. The contract was worth $315,000,000.00. It provided for arbitration in Caracas under the rules of Venezuela's Civil Procedure Code. A dispute arose over payment for additional work. After long litigation, the Mississippi court refused to enforce the Caracas forum clause because of the political situation in Venezuela. The parties then agreed on Washington, D.C. as the place of arbitration. The ICC-administered tribunal later found that the Ministry had repudiated that agreement and moved the legal seat to Rio de Janeiro. It issued an award largely in Huntington Ingalls' favour. Huntington Ingalls sought recognition and enforcement under the Panama Convention and Chapter 3 of the Federal Arbitration Act. The Ministry argued that holding the arbitration in Rio de Janeiro instead of the agreed seat breached the arbitration agreement (Article V(1)(d)).

Key holdings

1. The court has secondary jurisdiction only. The tribunal sat in Brazil and the arbitration was governed by Venezuelan arbitration law, so the court decides only whether the award may be enforced in the United States. p. 11
2. The standard of review is considerable deference to the tribunal, not de novo review. Defences under the Panama and New York Conventions, which are interpreted interchangeably, are construed narrowly. The party resisting enforcement bears the burden of proof. pp. 10–12
3. The court declined to revisit the Ministry's arguments that the arbitration should have taken place in Venezuela. Its 4 December 2010 Order had already resolved that issue, and the parties had then agreed on Washington, D.C. p. 9 n. 3
4. The Ministry waived the Washington, D.C. seat by later objecting to it. Once it repudiated that agreement, it was reasonable for the tribunal to find there was no agreement on the place of arbitration. Under Article 9 of the Venezuelan Commercial Arbitration Law, the tribunal was then permitted to set the seat, including in Rio de Janeiro. pp. 14–15
5. The Article V(1)(d) defence failed. The tribunal complied with the contract by applying Venezuelan law to the change of seat. There were no extraordinary circumstances justifying reconsideration of its findings, so the Ministry did not carry its burden. p. 15
6. The award was recognised and executed. Judgment was entered for $128,862,457.27, plus post-award interest at 8.713% of $864,539.50, post-judgment interest under 28 U.S.C. § 1961, and costs and fees. p. 16

Procedural history

1. 24 October 2002Ingalls filed its complaint in the Southern District of Mississippi. On 16 April 2003 the court compelled arbitration and retained jurisdiction to enforce any award.
2. 27 November 2008The Mexico City arbitration under the Inter-American Commercial Arbitration Commission Rules was discontinued; it had been stayed by the court since 31 March 2005.
3. 9 July 2009The Fifth Circuit vacated the judgment enforcing a settlement and remanded the case for the district court to decide whether to compel arbitration again.
4. 4 December 2010The court compelled arbitration again but refused to enforce the Caracas forum clause. The Ministry's appeal was dismissed by the Fifth Circuit on 23 March 2011.
5. 30 March 2011The parties agreed on Washington, D.C. as the place of arbitration.
6. 16 July 2013Tribunal's Procedural Order No. 2: jurisdiction upheld and the legal seat moved to Rio de Janeiro, Brazil.
7. 12–18 January 2015Hearing on the merits in Rio de Janeiro.
8. 19 February 2018Final Award: net $128,862,457.27 in favour of Huntington Ingalls. The tribunal later rejected the Ministry's 5 April 2018 request for correction as untimely.
9. 13 June 2019The U.S. District Court for the District of Columbia dismissed Huntington Ingalls' petition to enforce, deferring to the Mississippi court's retained jurisdiction.
10. 31 March 2020The Southern District of Mississippi granted the motion for recognition and enforcement of the award.

Tribunal, counsel and experts

Decided by

• Halil Suleyman Ozerden Judge, U.S. District Court, Southern District of Mississippi

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Keywords

• Panama Convention
• New York Convention
• recognition and enforcement
• Article V(1)(d)
• seat of arbitration
• change of seat
• Rio de Janeiro
• Venezuelan Commercial Arbitration Law
• secondary jurisdiction
• Federal Arbitration Act Chapter 3
• Huntington Ingalls
• Ingalls Shipbuilding
• frigates
• Venezuelan Navy
• ICC
• waiver
• Karaha Bodas

Summary generated with AI from the published documents — refer to the award for the authoritative text.