Salini Costruttori S.P.A. v. Kingdom of Morocco

Citations: 233 F. Supp. 3d 190; 2017 WL 563956; 2017 U.S. Dist. LEXIS 19044Docket: Civil Action No. 2014-2036

Court: District Court, District of Columbia; February 9, 2017; Federal District Court

Original Court Document: View Document

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Salini Costruttori S.p.A. initiated legal proceedings against the Kingdom of Morocco to enforce a 2011 arbitration award from the International Chamber of Commerce (ICC) regarding a construction project in Morocco. Following disputes, Salini sought arbitration, which resulted in Morocco being ordered to pay Salini various amounts, including interest and reimbursements for duties and taxes. However, Morocco's Administrative Court of Rabat enforced all award components except the tax reimbursements, deeming that part outside the international court's jurisdiction. Salini's appeal on this matter was upheld by the Administrative Court of Appeal of Rabat, and a further appeal to Morocco's highest civil court is pending.

Morocco has since paid Salini 167,695,954.30 MAD, reflecting the upheld award. Salini's current petition seeks to recognize and enforce the total ICC award, including accrued interest, under the Federal Arbitration Act (FAA) and the New York Convention. Morocco filed a motion to dismiss the petition, citing lack of jurisdiction and failure to state a claim. However, the court will grant Salini's petition and deny Morocco's motion to dismiss, noting that service was properly executed and jurisdictional challenges are not currently contested by Morocco. The court recognizes that subject-matter jurisdiction will be addressed later, as it is essential for case resolution.

The background indicates Salini entered a construction agreement with Morocco in 2004, which included an arbitration clause. Disputes arose in 2008 regarding tax reimbursements, agreement termination, and financial implications of the project execution.

Salini filed a Request for Arbitration against Morocco with the ICC on August 13, 2009, after failing to settle their dispute amicably. The arbitration took place in Paris, culminating in a Final Award on December 5, 2011. The tribunal confirmed its jurisdiction and ruled that: Salini's termination of the agreement was invalid, while Morocco's termination on August 1, 2008, was valid. The final project takeover date was established as April 7, 2009.

Morocco was ordered to pay Salini €8,158,518.87 for work completed, plus 20% VAT for the non-EU financed portion, and interest of €1,040,000.00 until June 30, 2010. Subsequently, interest on the principal would accrue at the ECB rate plus 3.5 percentage points. Morocco was also responsible for reimbursing Salini €5,212,183.39 for various duties and taxes, with interest from August 13, 2009. Additional payments included €2,140,600.16 for quantity changes, also subject to VAT and interest.

Salini was required to pay Morocco €500,000.00 in delay damages and €20,000.00 for contract re-negotiation costs. Morocco had to return bank guarantees issued for Salini within eight days, and grant a release regarding a third-party notice for €3,379,776.30, with interest. The tribunal allowed mutual offsets of amounts owed between the parties, with each party responsible for its own legal costs and half of the ICC arbitration fees totaling $650,000.00.

On April 18, 2012, Salini sought to enforce the award in Moroccan courts. The Commercial Court referred the case to the Administrative Court of Rabat, which enforced the unpaid project costs but invalidated the tax-related provisions due to Moroccan law. Salini's appeal was affirmed by the Administrative Appellate Court on December 22, 2014.

The appellate court referenced Article V of the New York Convention, which allows a signatory to refuse enforcement of an arbitration award if it is not arbitrable under the country’s law or if its enforcement contradicts public policy. Salini appealed to the Morocco Court of Cassation on April 24, 2015, and the appeal was pending as of June 26, 2015. Meanwhile, the Administrative Court of Rabat ruled on May 5, 2015, that a portion of its decision was final and ordered Morocco to pay Salini, who subsequently received 167,695,954.30 Moroccan Dirham. On September 29, 2015, Salini was paid €15,236,182.16. Salini filed a petition to recognize and enforce a foreign arbitral award just before the statute of limitations expired on December 2, 2014. The court noted that an entry of default against Morocco was improperly entered on April 23, 2015, due to its failure to respond timely. Morocco moved to dismiss the petition on January 8, 2016, arguing that the unpaid part of the award was set aside by a competent authority, thus making confirmation improper. Morocco requested a stay of the ruling until the Court of Cassation's final decision. The court confirmed its subject-matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA), stating that sovereign immunity was waived, and confirmed that actions to confirm arbitration awards governed by international treaties fall under the jurisdiction of U.S. district courts. The New York Convention is recognized as a treaty included in the arbitration exception of the FSIA.

Federal Rule of Civil Procedure 12(b)(6) allows for a motion to dismiss based on the legal sufficiency of a complaint. To withstand such a motion, a complaint must present factual allegations sufficient to elevate a right to relief above mere speculation, requiring that claims be plausible rather than just possible. Courts must interpret the complaint favorably for plaintiffs and accept all well-pleaded allegations as true. 

Regarding the enforcement of international arbitral awards under the Federal Arbitration Act (FAA) and the New York Convention, a court must confirm an award unless specific grounds for refusal are established. These grounds are narrowly defined, and confirmation proceedings are typically summary in nature. A court may deny enforcement if the party seeking refusal proves that a competent authority in the jurisdiction where the award was made has set it aside. Morocco contends that a part of the arbitral award related to taxes was invalidly set aside by its authority. 

The primary jurisdiction is where the arbitration occurred or where the law governing the award originates, while other signatory states are considered secondary jurisdictions, which can refuse enforcement but not set aside an award. The procedural law governing the arbitration is referenced in the New York Convention, not the substantive law of the agreement. For Morocco's claim to be valid, it must be established as the primary jurisdiction. Morocco asserts that its law governed both the contract and the arbitration, specifying that the arbitral tribunal adhered to both the ICC Arbitration Rules and Moroccan law. The agreement's dispute resolution clause allows the contractor to choose between ICC regulations or local law after amicable resolution attempts.

Salini initiated arbitration against Morocco with the ICC in Paris on August 13, 2009, and the ICC affirmed its jurisdiction over the dispute. The ICC indicated it would adhere to the applicable law outlined in the Construction Agreement, which states that the Particular Conditions govern issues not explicitly covered by the Agreement and specify that Moroccan laws and regulations apply to the Contractor. The ICC also committed to the Arbitration Rules, which dictate that proceedings are governed by these Rules and any additional rules agreed upon by parties or established by the tribunal.

Salini opted for ICC arbitration rules for dispute resolution, establishing that the procedural law for the arbitration was based on these rules rather than Moroccan procedural law. The arbitration took place in France, and Morocco could not assert primary jurisdiction based on the relevant legal framework. The D.C. Circuit noted that secondary States cannot routinely second-guess the judgments of a primary State regarding award enforcement. 

Despite Morocco's claim that a catch-all provision in the contract should apply Moroccan law, neither party submitted a complete English translation of the contract. The tribunal confirmed that the parties agreed on the applicable law, with the Particular Conditions designating Moroccan law as governing substantive issues, while procedural law was explicitly covered in the Agreement. Morocco failed to identify any procedural rules that were employed or should have been utilized in the arbitration process. The court concluded that Moroccan procedural law did not govern the arbitration, and thus Morocco was not a primary jurisdiction with the authority to annul the award.

Morocco failed to attach a translation to its Motion, which the court noted. While Morocco cited the Moroccan Civil Code's remedy offsetting provision, it was identified as substantive law rather than procedural or arbitral law. There is no evidence that the International Chamber of Commerce (ICC) or any competent French court set aside the arbitral award, meaning the court need not consider any actions by Moroccan courts regarding the award. Article V(1)(e) of the New York Convention grants French courts, not Morocco, the authority to annul the arbitral award.

Morocco attempted to assert that its courts were acting in a primary jurisdiction role regarding the validity of the arbitral award; however, the court found that Moroccan courts were functioning in a secondary jurisdiction capacity. The Moroccan appellate court referred to its actions as "enforcement of the arbitration award," which includes a rejection of aspects related to taxes and duties. The Moroccan courts referenced the New York Convention, indicating they were monitoring compliance with Moroccan and international public policy rather than acting as a court of cassation for the award.

The Moroccan Ambassador clarified that the appellate court was exercising authority under the Convention to refuse enforcement of awards not arbitrable under Moroccan law or contrary to public policy. The distinction between primary and secondary jurisdiction under the New York Convention is emphasized, where only the competent authority of the country where the award was made can set aside the award.

Additionally, the U.S. court can refuse to enforce the award if it involves subjects non-arbitrable in the U.S. or contravenes U.S. public policy but lacks the authority to annul the arbitral award itself. The court concluded that Morocco does not hold primary jurisdiction under Article V to set aside the award. New arguments raised by Morocco in its reply were not required to be considered, although the court would briefly address them due to the opportunity for response during oral argument.

Morocco contends that Salini is estopped from challenging its status as a primary jurisdiction, citing the "revenue rule" and principles of comity and res judicata as reasons for rejecting confirmation of the arbitral award. However, the court finds that Salini is not estopped, as seeking confirmation in Morocco's courts does not equate to recognizing Morocco as a primary jurisdiction. The revenue rule, which bars U.S. courts from enforcing foreign tax judgments, does not apply here since the award relates to reimbursement of taxes improperly levied under a contractual agreement, rather than tax collection.

The arbitral tribunal affirmed its jurisdiction over Salini's claim for reimbursement of taxes paid, emphasizing that the dispute is rooted in contract enforcement rather than enforcement of a foreign revenue law. Morocco's claims regarding comity and res judicata are dismissed, as comity is not mandatory and requires that the foreign court is competent, which Moroccan courts are not in this context due to limitations imposed by the New York Convention.

Consequently, the court concludes that it cannot deny confirmation of the arbitral award under Article V(1)(e), nor does res judicata apply, allowing Salini to seek confirmation in the U.S. The court grants Salini’s Petition to Recognize, Confirm, and Enforce the arbitral award and denies Morocco’s Motion to Dismiss. An order reflecting this decision will follow.