Enforcement of $51M Honduras Award Denied

     (CN) – A contractor with a $51 million arbitration award against Honduras cannot enforce the judgment here, a federal judge ruled, citing jurisdiction.
     DRC Inc., a construction firm, contracted with Fondo Hondureno de Inversion Social (FHIS), a government-sponsored social investment fund, to build water and wastewater projects in Honduras after Hurricane Mitch ripped through it in 1998.
     DRC demanded arbitration in 2009, claiming that it had suffered $86 million in damages because FHIS breached the 2000 construction contract.
     An arbitral tribunal of three Honduran attorneys heard 29 witnesses, inspected seven sites and reviewed more than 2,000 documents before awarding DRC $51 million.
     The Supreme Court of Honduras later overturned the award, however, because the tribunal was not validly constituted under Honduran law.
     DRC then filed a federal complaint in Washington, D.C., seeking confirmation of the award against Honduras directly.
     U.S. District Judge Paul Friedman noted Thursday the court’s subject matter would be would indisputably “had this confirmation action been brought against FHIS – the award debtor.”
     “But DRC brings its petition against the republic itself, which contends that it is not amenable to suit under the arbitration exception,” the ruling continues.
     Although the award was rendered against FHIS, DRC says that the agency is an organ of the government, and the arbitration exception deprives the republic of sovereign immunity.
     For Friedman, however, FHIS is a separate legal entity, and Honduras cannot be sued directly to confirm FHIS’s liability.
     “In the case of FHIS, certain elements of its composition appear to link it to the republic in meaningful ways,” the 29-page opinion states. “But these attributes do not counteract the unequivocal statement in FHIS’s enabling law establishing its independent juridical identity, which is reinforced by FHIS’s independence in conducting its daily operations, subject to some degree of oversight by the government and within the confines of the general policies established by FHIS’s Supreme Council of Administration.”
     FHIS’ projects constituted a critical part of Honduras’ rebuilding efforts after the hurricane, but that does not mean that the fund served as the country’s alter-ego, the court found.
     “A sovereign such as the republic of Honduras may derive benefits from a contractual relationship between its instrumentality and a firm such as DRC, yet still avoid amenability to suit in United States courts in an action stemming from that relationship,” Friedman wrote.

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