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Why the Arbitral Seat Matters

The recent Tenth Circuit case of Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V., 994 F.3d 1181 (10th Cir. 2021) helps to show why the selection of an arbitral seat can make a significant difference.

The background to the case is a shareholder dispute under an Option Agreement.  After the option was exercised, both Goldgroup and DynaResources owned 50% of DynaMexico, a gold mining operation in Mexico.  The Agreement specified that disputes arising under the Option Agreement would be handled by arbitration administered by the AAA in Denver, Colorado.

In 2013, following disputes between the parties, DynaResources convened a shareholders meeting without Goldgroup, and issued new shares, diluting Goldgroup’s interest from 50% to 20%. Goldgroup sued in Mazatlán, Mexico to annul the actions taken at the meeting, and was awarded with declaratory and injunctive relief invalidating the issuance of the new shares.

Goldgroup then initiated an arbitration in Denver. In both the arbitration and in lawsuits brought in Colorado and Mexico City, DynaResources tried to stop the arbitration, arguing in part that Goldgroup had waived its right to arbitrate by seeking injunctive relief in the Mexican courts. Goldgroup did not appear in the Mexico City lawsuit, and asserted that it had not been properly served.

The arbitrator and the Colorado court determined that the arbitrator had power under the AAA rules to determine questions of arbitrability, including waiver. The Mexico City court, however, reached the opposite conclusion and ruled the arbitration agreement was unenforceable due to waiver. The arbitrator nonetheless proceeded with the arbitration (although DynaResources refused to participate based on the Mexico City Court’s order), ruling that the arbitration clause was valid and that Goldgroup had not waived its right to arbitrate, and awarding Goldgroup with monetary and equitable relief.

Dynaresources then sought to vacate the award on the basis of the Mexico City Order.  The Tenth Circuit first confirmed that the incorporation of the AAA rules into the Option Agreement are clear and unmistakable evidence that the parties have agreed to have the arbitrator determine questions of arbitrability, including of waiver. Then, the Tenth Circuit determined that the Mexico City Court was not competent to annul an award rendered in the United States, and that even if it had been competent, it would have to apply US procedural law (as the law of the seat), rather than Mexican substantive law, to determine waiver. The Tenth Circuit thus upheld the arbitrator’s award.

This case offers a good example of why it is important to pick your arbitral seat carefully, and why having an arbitration in a pro-arbitration jurisdiction like the United States is a good idea.

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