## Facts

- Buques Centroamericanos, SA (Bucesa) and Refinadora Costarricense de Petroleos, SA (Recope) were both Costa Rican corporations; Recope was wholly owned by the government of Costa Rica.
- Bucesa and Recope entered an affreightment agreement for the transportation of crude oil from the Caribbean to Costa Rica.
- The contract contained an arbitration clause requiring that “any and all disputes” arising out of the agreement be submitted to arbitration in New York City or London.
- A dispute arose, and Bucesa initiated arbitration in New York.
- Recope appeared before the arbitral tribunal and participated in three hearings, contending that the arbitration agreement was invalid.
- Recope argued that, as a government-owned corporation, it could not enter into an arbitration agreement (or the underlying contract) without approval by the Costa Rican legislature, and that the legislature had not approved the agreement.
- The arbitral tribunal rejected Recope’s invalidity and incapacity arguments and issued an award granting Bucesa damages.
- Bucesa filed a petition in the United States District Court for the Southern District of New York (No. 87 Civ. 3256 (DNE)) to confirm the award under the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
- Recope opposed confirmation, relying on New York Convention Article V(1)(a) and repeating its position that Costa Rican law made it incapable of agreeing to arbitrate and rendered the arbitration agreement invalid.

## Issues

1. Whether, under Article V(1)(a) of the New York Convention, a state-owned corporation could defeat confirmation of an arbitral award by arguing that its domestic law required legislative approval before it could validly agree to arbitration.
2. Whether the award should be confirmed where the respondent participated in the arbitration but later sought to avoid enforcement on incapacity/invalidity grounds.

## Decision

- The court rejected Recope’s Article V(1)(a) defenses based on alleged incapacity and invalidity under Costa Rican law.
- The court granted Bucesa’s petition and confirmed the arbitral award.

## Legal Principles

- The New York Convention reflects a strong federal policy favoring recognition and enforcement of arbitral awards; the Article V defenses are construed narrowly, and the resisting party bears the burden of proof.
- Article V(1)(a) permits refusal of enforcement only where the resisting party establishes that it was under a legally recognized incapacity or that the arbitration agreement was not valid under the applicable law.
- A state-owned entity that enters a commercial contract containing an arbitration clause cannot avoid enforcement merely by pointing to an asserted internal governmental-approval requirement from its home legal system.
- A party’s participation in the arbitration, while raising its objections to the tribunal, supports confirmation absent a clear showing that Article V(1)(a) is satisfied.

## Conclusion

In Centroamericanos, SA v. Refinadora Costarricense de Petroleos, SA, the Southern District of New York confirmed a New York arbitral award and refused to apply New York Convention Article V(1)(a) where a Costa Rican state-owned corporation argued that domestic legislative approval was required for it to agree to arbitration.


Centroamericanos, SA v. Refinadora Costarricense de Petroleos, SA, 1989 U.S. Dist. LEXIS 5429 (1989)