Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. v. Petrobras America, Inc., Petrobras Venezuela Investments & Services B.V., and Petroleo Brasileiro S.A.-Petrobras

At a glance

Parties

Vantage Deepwater Company (Cayman Islands) and Vantage Deepwater Drilling, Inc. (Delaware) v. Petrobras America, Inc., Petrobras Venezuela Investments & Services B.V. and Petróleo Brasileiro S.A. – Petrobras

Case no.

U.S. Court of Appeals, Fifth Circuit, No. 19-20435

Court

U.S. Court of Appeals for the Fifth Circuit (Southwick, Costa and Duncan, Circuit Judges), on appeal from the U.S. District Court for the Southern District of Texas

Underlying award(s)

Final Award of 29 June 2018 in an ICDR/AAA arbitration seated in Houston, Texas (majority: Chairman William Park and Charles N. Brower; James Gaitis dissenting)

Treaty

Arbitration clause in the Third Novation and Amendment Agreement (October 2014) to the Drilling Services Agreement; Panama Convention (FAA Chapter 3)

Sector

Offshore oil and gas drilling

Outcome

Affirmed the district court's confirmation of the award and its denial of vacatur and of discovery.

Amount

Award of over USD 620 million (described as USD 622 million). The district court entered judgment for USD 733,968,000 (award plus interest), plus post-judgment interest. Vantage had claimed over USD 450 million in expectancy damages and over USD 800 million in reliance damages.

The dispute

In 2009 Vantage Deepwater Company and Petrobras Venezuela signed an eight-year Agreement for the Provision of Drilling Services (DSA) for the ultra-deepwater rig Titanium Explorer. Petróleo Brasileiro guaranteed Petrobras Venezuela's obligations under the DSA. Vantage's largest shareholder, Nobu Su, had agreed to pay about USD 30 million in bribes to Petrobras-linked individuals to win the contract; the scheme later formed part of the Lava Jato investigation. Petrobras terminated the DSA in August 2015. A majority of the arbitral tribunal found that Petrobras had not proved Vantage knew of or took part in the bribery, and that Petrobras had knowingly ratified the DSA. The tribunal awarded Vantage over USD 620 million. On appeal against confirmation, Petrobras argued that enforcing an award on a contract procured by bribery breached U.S. public policy. It also argued that the district court wrongly refused discovery from the dissenting arbitrator and from the AAA on arbitrator Brower's alleged bias, and that the award was not reasoned as to Petróleo Brasileiro.

Key holdings

1. The court did not decide whether the appeal waiver in the Third Novation is valid, because it could affirm on the merits. It said it was inclined to find persuasive the Tenth Circuit's approach in MACTEC, which enforces clear and unequivocal waivers of appellate review. The 'to the extent' wording does not make the waiver equivocal. p. 9
2. There is no public policy bar under Article V(2)(b) of the Panama Convention. Courts defer to the arbitrators' findings that Petrobras ratified the DSA and that Vantage was not shown to have participated in the bribery. Once those findings are accepted, neither the DSA nor the award violates public policy. Whether the underlying contract was voidable for bribery was a question about the DSA's validity, which the arbitration clause reserved to the arbitrators (following Europcar). pp. 11–14
3. An alleged error in the definition of ratification is a mistake of law or fact and is not a ground for refusing confirmation. The district court's decision did not rest only on 'mutual misconduct'. pp. 14–15
4. Refusing leave to depose the dissenting arbitrator, Gaitis, was not an abuse of discretion. Rule 52(e) of the AAA Commercial Arbitration Rules, which the parties incorporated, bars calling arbitrators as witnesses. In any case, the alleged hearing conduct of Judge Brower showed no red flags of partiality. pp. 15–17
5. Refusing a subpoena on the AAA for its investigation of the challenge to Brower was not an abuse of discretion. The AAA's rejection of the bias challenge was not a red flag. The motion came late and would have delayed the case. The court also noted the case law extending arbitral immunity to the AAA. pp. 17–18
6. No vacatur under FAA Section 10(a)(4). The award discussed whether Petróleo Brasileiro was a proper defendant and found it a primary obligor under the DSA and the Guaranty. That is 'more than a simple result' and meets the reasoned-award requirement. pp. 20–21

Procedural history

1. 2009Vantage Deepwater Company and Petrobras Venezuela sign the DSA; Petróleo Brasileiro gives a payment and performance guaranty.
2. October 2014Third Novation and Amendment Agreement adds an ICDR/AAA arbitration clause with its seat in Houston.
3. August 2015Petrobras terminates the DSA; Vantage demands arbitration.
4. 16 May – 1 June 2017Evidentiary hearings. On 7 June 2017 Petrobras asks the AAA to disqualify Judge Brower; the AAA denies the motion.
5. 29 June 2018Final Award: the majority awards Vantage over USD 620 million; Gaitis dissents.
6. July 2018Vantage petitions the Southern District of Texas to confirm the award; Petrobras moves to vacate.
7. May 2019The district court confirms the award and enters judgment for USD 733,968,000; it had earlier denied the motions to subpoena Gaitis and the AAA.
8. 16 July 2020The Fifth Circuit affirms.

Tribunal, counsel and experts

Decided by

• Leslie H. Southwick Judge, U.S. Court of Appeals for the Fifth Circuit
• William W. Park President, Arbitral Tribunal (underlying award) — chosen by the co-arbitrators
• Charles N. Brower Co-arbitrator, Arbitral Tribunal (underlying award) — appointed by the claimant (replaced David Keltner, removed for a conflict of interest; challenge rejected by the AAA)
• James Gaitis Co-arbitrator, Arbitral Tribunal (underlying award) — appointed by the respondent (dissented)
• David Keltner Co-arbitrator, Arbitral Tribunal (underlying award) — appointed by the claimant (removed due to a conflict of interest)

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Keywords

• Petrobras
• Vantage Deepwater
• Titanium Explorer
• Lava Jato
• bribery
• ratification
• public policy
• Panama Convention
• New York Convention
• confirmation
• vacatur
• FAA Section 10(a)(4)
• reasoned award
• evident partiality
• arbitrator deposition
• AAA Rule 52(e)
• appeal waiver
• arbitral immunity

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