Recognition and Enforcement Of International Commercial Arbitration Awards

Extract of a Seminar on International Commerical Arbitration Delivered by Hefin Rees on 13th May 2010.
  1. In the recognition and enforcement of arbitral awards, the arbitral process is reliant upon national systems of law. This is the classic example of what Lord Mustill meant when he referred to the relationship between the national courts and arbitration being like a relay race. The arbitral tribunal, whilst having sufficient powers to make the award, has no coercive powers to force a reluctant party to comply with the award. This is where the national court system takes up the baton.
  2. In this regard, the NYC has been very successful as a system in obtaining the recognition and enforcement of international awards; and it continues to be the cornerstone of international commercial arbitration. Indeed, the NYC has been eulogised as “the single most important pillar on which the edifice of international arbitration rests[1] (Wetter, “The Present Status of the International Court of Arbitration of the ICC; An Appraisal” (1990) 1 Am Rev Intl Arb 91). The NYC has provided a considerable degree of uniformity in the recognition and enforcement of awards. It enshrines a strong pro-enforcement policy and there are, purposefully, very few grounds for objecting to recognition and enforcement under the NYC.
  3. Internationally, it is easier to obtain recognition and enforcement of an international arbitral award than it is of a foreign court judgment (which is dependent on a bilateral treaty of recognition, or within EU Member States under The Judgments Regulation). It is one of the main advantages of arbitration as opposed to litigation in resolving international commercial disputes. This is due to the fact that the provisions for the enforcement of foreign court judgments are less well developed with no recognition treaties that come anywhere near to the widespread adoption of the NYC, which has been adopted by 144 countries.
  4. The available statistics suggest that most arbitral awards are in fact carried out voluntarily. In a study carried out by PriceWaterhouseCoopers LLP in 2008 [2],it found that only in 11% of cases did participants need to proceed to enforce an award and, in those cases, in fewer than 20% did the enforcing parties encounter difficulties in enforcement. There are also often commercial pressures on a party to comply with an award.
  5. Before considering recognition and enforcement in detail, it is worth just mentioning the limited scope of the ability to challenge an award by way of appeal in the seat of arbitration. In considering whether or not it is possible to challenge an arbitral award, it is necessary to look at the applicable Rules of Arbitration[3], as well as the law of the seat of arbitration. Each state has its own concept of the level of control it wishes to exercise over the arbitral process, and this can vary (as well as distinguish between domestic and international arbitration). If the seat of the arbitration is London, the appeal is to the Commercial Court of the Queen’s Bench Division of the High Court of Justice; if it is in France, it is to the Cour D’Appel, Paris; and if in Switzerland, it is to the Swiss Federal Tribunal.
  6. Challenges to awards by way of an appeal are difficult to make; and, purposefully so, as the decisions of arbitrators are meant to be final and binding[4]. Having said that, in the case of Shell Egypt West Manzala GmbH & Anor v Dana Gas Egypt Ltd[5] the English High Court held that the UNICTRAL Rules that provide for “final, conclusive and binding” does not exclude the possibility of appeal on a point of law. It is, therefore, important that parties agreeing to arbitrate in London under the UNICTRAL Rules include clear and unambiguous wording in their arbitration clause if they want to prevent the possibility of an appeal on a question of law.
  7. This is because the legal system recognises that the parties have decided that they are to be bound by the decision of the arbitrators as an alternative to the national court. The law, therefore, gives effect to the intention of the parties and enforces the award just as it would a national court judgment. The House of Lords decision in Lesotho Highlands Development Authority v Impregilo SpA and others[6] clarifies the basis on which arbitral awards may be challenged in the English courts and affirms the underlying policy of the English Arbitration Act 1996, which is to reduce court intervention in the arbitration process to a minimum.
  8. In terms of the recognition and enforcement of arbitral awards, it should be noted that – unlike a challenge to the award by way of an appeal – this will probably not take place in the seat of arbitration; as the seat of arbitration may specifically have been chosen for its neutrality to the parties. Thus, it will be entirely fortuitous if the party to whom enforcement is required happens to have assets located within the neutral country chosen as the seat of the arbitration.
  9. The key consideration on enforcement is obviously the location of assets to enforce against; and the application for recognition and enforcement will be driven by that factor. In such an application, the powers of the state in which those assets are located are exercised through its national courts.
  10. The method of recognition and enforcement to be adopted depends on the place where the award was made – i.e. whether it qualifies as a NYC award. As there are 144 countries that are signatories, this is often not a point of significant practical importance.
  11. It also depends on the relevant provisions of the law at the place of intended enforcement. The procedure to be followed in any given case will vary from country to country, and it is important to obtain advice from experienced lawyers who practise in the particular jurisdiction where enforcement of an arbitral award is sought.
  12. In terms of procedure, by way of example, there may be differences in the time limits for making the application. In England, it is 6 years; but in the US it is 3 years. Also, it is often necessary to have the original or certified copies of the arbitration agreement and award. It may also be necessary to serve a translation of the award, which can sometimes require the formality of obtaining consular attestation in the country of origin.
  13. There are several different ways in which a national legal system can provide for the enforcement of arbitral awards:
    1. Where the laws of the country of enforcement provide that, with the leave of the court, the award of an arbitral tribunal can be enforced directly without the need for deposit or registration (as in England).
    2. Where the award is deposited, or registered, with a court following which it may be enforced as if it is a judgement of that court (as in Switzerland).
    3. Where it is necessary to apply to the court for some form of recognition as a preliminary step to enforcement (as in France).
  14. The formalities required under the NYC are straightforward. The party seeking such recognition and enforcement is required to produce to the relevant court the duly authenticated original award, or a duly certified copy of it; and the original agreement to arbitrate, or a duly certified copy of it. If the award and the arbitration agreement are not in the official language of the country in which recognition and enforcement is sought, certified translations are needed[7].
  15. Once the necessary documents have been supplied, the court will grant recognition and enforcement unless one or more of the 5 grounds for refusal, listed in the NYC, are present. The burden of proof for establishing any ground is upon the party seeking to object to the enforcement; and, even then, there is a residual discretion to enforce the award, The grounds are as follows:
    1. The parties to the arbitration agreement were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made;
    2. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
    3. The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or
    4. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
    5. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.
  16. For a recent Court of Appeal judgement on the first ground – where the arbitration agreement underlying the award is “not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was mad.” – the English Court of Appeal has recently refused enforcement of a NYC award.
  17. In Dallah Estate and Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan[8] Dallah sought unsuccessfully to enforce in England a US$20m award it had obtained against the Ministry in an ICC arbitration in Paris.
  18. Dallah was a Saudi Arabian company that provided accommodation, transport and other services to Muslims undertaking the Haj. The Ministry was responsible for the safety and welfare of Muslims from Pakistan. The Ministry was not named as a party to the contract containing the arbitration agreement, and did not sign it. During the arbitration, the arbitral tribunal (which included Lord Mustill) decided that the Ministry was a party to the arbitration agreement. In the absence of any governing law clause (or any other indication in the contract as to which law should be applied to determine whether the Ministry was a party) the arbitral tribunal had applied “transnational general principles and usages reflecting the fundamental requirements of justice in international trade and the concept of good faith in business.
  19. In the English enforcement proceedings, pursuant to the NYC (and s. 103 of Arbitration Act 1996) the question whether the Ministry was a party to the arbitration agreement had to be determined applying French law, as the “law of the country where the award was made”. Having considered evidence from French law experts, Aikens J decided that the Ministry had proved under French law it was not a party to the arbitration agreement. This had the consequence that the arbitration agreement underlying the award was “not valid” for the purposes of enforcement under the NYC.
  20. Dallah appealed to the Court of Appeal, which held:
  1. Where enforcement of a NYC award in England is opposed on the basis that the arbitration agreement is “not valid”, the court is required to consider all relevant factual evidence relied on by the party seeking to establish that the arbitration agreement is “not valid”.   Where the same factual evidence was also considered by the arbitral tribunal, the court is required to carry out a rehearing rather than merely a review.
  2. It is not necessary for the party opposing enforcement also to seek to have the award set aside by the courts at the seat of arbitration.  Thus, the fact that the Ministry had not sought to challenge the award in the supervisory court (i.e. France) did not render the award final and conclusive between the parties.
  3. Whilst the Court of Appeal retained some discretion to permit enforcement even when one of the grounds for refusal had been established, the discretion should not be exercised when the Ministry had never been a party to the arbitration agreement.

Leave to appeal to the Supreme Court in Dallah was given in January 2010.

References

[1] Wetter, “The Present Status of the International Court of Arbitration of the ICC; An Appraisal” (1990) 1 Am Rev Intl Arb 91

[2] See the study by the School of International Arbitration and Queen Mary, University of London (sponsored by PricewaterhouseCoopers LLP entitled “International Arbitration: Corporate Attitudes and Practices 2008”.

[3]The Rules of art 32 of UNCITRAL, the LCIA, and the ICC each state that an arbitral award is final and binding.

[4] The words “final, conclusive and binding” does not exclude the possibility of an appeal on a point of law.  Article 26.9 of the LCIA Arbitration Rules and Article 28(6) of the ICC Rules include wording which is effective to exclude the right of appeal (under section 69 of the Arbitration Act 1996) to the English Court.  The UNICTRAL Rules do not contain such wording.

[5] [2009] EWHC 2097

[6] [2005] UKHL 43

[7] Art IV(2)

[8] [2009] EWCA Civ 755

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