Probably, the most important issue in arbitration is enforcement of arbitral awards, particularly international and foreign ones. Hence, a crucial role in arbitration practice is played by the courts in the enforcing country, at the point of enforcement. The court in the country where the recognition and enforcement of an award is sought does not usually decide on the merit of an arbitral award on the basis of law or fact.105 Nevertheless, all legal systems as well as international or regional conventions stipulate the possibility of denying the enforcement of an arbitral award. They usually set out grounds for refusing the recognition and enforcement of awards. These grounds have been proved, however, to be controversial and subject to abuse. It has been the purpose of international conventions as well as the Model Law to provide for a uniform regime of enforcement less susceptible to misinterpretation and accepted by as many countries as possible.
In order to examine grounds for refusing enforcement of awards, the most relevant legal instrument is the New York Convention. Most other international or regional conventions as well as national laws have followed the same pattern provided by the New York Convention. For instance, grounds for the refusal of recognition of arbitral awards provided under the UNCITRAL Model Law on International Commercial Arbitration106 are similar to those stipulated under the
104
Id., para . 49. 105
Redfe rn and Hunter, at 464. 106
New York Convention. The same can be said about the Panama Inter-American Convention.107
Under Article V(1) of the New York Convention, „Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that‟ certain grounds, mentioned in Articles V(1)(a) to V(1)(e), apply to the case. The wording of the Article shows that the onus is on the party opposing the recognition or enforcement of an award to prove that one or more grounds apply to the case. Article V(2) provides that „Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that‟ grounds specified in Articles V(2)(a) and V(2)(b) apply to the case. This indicates that the burden of proof is on the court to prove that an award is unenforceable due to the grounds mentioned under the latter articles. The important point is that the party seeking the enforcement of an award only needs to provide the court with the arbitration agreement and the award, and does not need to prove that the award is enforceable. Moreover, the wording of the above articles and using the term “may” shows that the competent authority is not obliged to refuse the recognition and enforcement of the award, even if there are grounds for doing so. In other words, t he court has the discretion to enforce an award, though one or more grounds apply to it. This is where the court considers that the violation is merely of technical, rather than substantial, nature.108 Probably, it is because of these reasons that the New York Convention is described as having a “pro-enforcement bias”.109
The Convention
107
Redfe rn and Hunter, at 476-477. 108
Ca rr, at 638. 109
expressly restricts grounds for non-enforcement of an award to those specified in Article V. Thus, courts of the enforcing country cannot invoke other ground, including those with a substantive nature, for refusing enforcement of an award covered by the Convention. In the following, we turn to the grounds for denying the recognition and enforcement of an award.
Under Article V(1)(a) of the New York Convention, an arbitral award may be refused enforcement, if „The parties to the agreement referred to in article II [that is, 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.‟ A similar ground is mentioned under Article 36(1)(a)(i) of the Model Law, and Article 5(1)(a) of the Panama Convention. It is important to notice that, under the above articles, it is the applicable law that determines the conditions of the incapacity of the parties or the invalidity of the arbitration agreement. In the absence of provisions with this regard in the app licable law, the national law of the seat of arbitration determines such conditions. A difficulty might arise as to sometimes the applicable law may deliberately be silent about certain conditions leading to the incapacity of a party or invalidity of an arbitration agreement. In such cases, relying on the law at the seat of arbitration would be untenable.
The incapacity of a party was the ground for refusing enforcement of awards issued by the International Chamber of Commerce, in Fougerolle SA (France) v. Ministry of Defence of the Syrian Arab Republic. The Administrative Tribunal of Damascus held that the Syrian party did not have the capacity to enter into an arbitration agreement with the French party. According to the Tribunal, „the preliminary advice on the referral of the dispute to arbitration … must be given by
the competent Committee of the [Syrian] Council of the State.‟110 The claim on the invalidity of the arbitration agreement was raised in Bobbie Brooks Inc. (USA) v. Lanificio Walter Banci s.a.a (Italy), though it was rejected by the court.111
Article V(1)(b) of the Convention provides that a court may refuse recognition and enforcement of an award, if „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.‟ An identical ground is stated under Article 36(1)(ii) of the Model Law and Article 5(1)(b) of the Panama Convention. The purpose of setting this condition is to guarantee the fairness and impartiality of an arbitration process, in the sense that both parties to an arbitration agreement must be given notice that the arbitration tribunal is formed and that at which stage the arbitration proceedings are. More importantly, the parties must be treated on an equal standing, and have the opportunity to know the other party's claims and defences and their grounds, to put forward their own claims or defences,112 to be represented or accompanied by a lawyer. The award made by the Iran-United States Claims Tribunal in Iran Aircraft Ind. v. Avco Corp, was denied enforcement by the US Court, on the basis of this ground. In the arbitration proceedings, the parties were told that it was not necessary to present detailed invoices to the tribunal, but then the American party unduly lost its claim because it had not produced detailed invoices.113 Unfairness of arbitration process is a serious claim that must be given enough notice. A grave violation of due process may even be regarded as a violation of public policy. Nevertheless, it may provide a losing
110 International Council for Co mme rcia l Arbit ration, Yearbook Commercial Arbitration, XV (1990), (Kluwer: London), at 515.
111
International Council for Co mme rcia l Arbitrat ion, Yearbook Commercial Arbitration, IV (1979), at 289.
112
The audit et alteram partem princip le. 113
party with an opportunity for avoiding the enforcement of the award. Hence, international treaties or national laws should make circumstances leading to unfairness clear and objective, as done by the drafters of the New York Convention.
Article V(1)(c) of the New York Convention states that an award can be denied enforcement, in case that
The award deals with a difference 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, pro vided 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.
A similar ground is mentioned under Article 36(1)(a)(iii) of the Model Law and Article 5(1)(c) of the Panama Convention, which provides that the execution of an award may be refused if „the decision concerns a dispute not envisaged in the agreement between the parties to submit to arb itration.‟ Hence, a court may refuse recognition of an award on the ground that the arbitral tribunal has not had the jurisdiction to resolve the dispute, or a part of it. Examination of the jurisdiction o f the tribunal should not, however, be carried out so broadly as to leading to a substantive review of the award.114
Under Article V(1)(d) of the New York Convention, an award can be refused recognition and enforcement, if „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.‟ This ground for the non-enforcement of awards is also provided under Article 36(1)(a)(iv) of the Model Law and Article 5(1)(d) of the Panama Convention. Hence, a violation of the arbitration agreement in the
114
constitution of the tribunal or the procedure may trigger the non-enforcement of an award. As can be seen, under the New York Convention and some recently modified municipal laws, such as the French Code of Civil Procedure, the parties' agreement prevails over the law at the seat of arbitration. It can be argued that the lo cal law of the place of arbitration plays a complementary role, under the New York Convention, and does not replace the parties' agreement. If the arbitration agreement is silent on these issues, then the law of the country where arbitration has taken place applies to the issues of arbitration tribunal and procedure; and hence its non- observance may lead to the non-enforcement of the award. It should be added that since there is much difference between various legal systems about these issues, it is important to pay attention to the national law at the seat of arbitration. Despite the prevalence of the parties' agreement, an agreement contrary to the mandatory rules at the seat of arbitration, particularly those on due process, may risk non-enforcement or nullification of the award, when its vacation is considered by the court at the place of arbitration.
In Rhone Mediterranee Comagnia di Assicurazioni e Riassicuazoni v. Lauro, it was said that since under the law of Italy, the seat of arbitration, the number of arbitrators must be odd, but in the relevant arbitration agreement the number was two, the consequent award must not be recognised, under Article V(1)(d). However, the US Court of Appeal for the Third Circuit held that it was at the Court‟s discretion to refuse enforcement of an award, under the New York Convention. It also stated that Italian law generally favoured the enforcement of awards and the issue of
number of arbitrators was at the best of procedural nature. Hence, the request for the non-enforcement of the award was rejected.115
Article V(1)(e) of the New York Convention provides that a court may not recognise an award, if
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.
An identical ground is mentioned under Article 36(1)(a)(v) of the Model Law and Article 5(1)(e) of the Panama Convention. This shows that binding awards, whether final or interim, must be recognised. It has been argued that an award should be considered as binding, „unless it is proved that in the country of the seat it would be treated as non-existent, in the sense that it would be ignored in all judicial proceedings, without the need for a judgment setting it aside.‟116
In other words, if normal ways of appeal are no longer open to the losing party, the award is binding. Most commentators of the New York Convention do not consider the possibility of challenging the award at the seat of arbitration as a normal way of appeal, and consequently do not regard it as a ground for denying the enforcement of the award.117 With regard to interlocutory awards, which provide an interim relief, Markus Wirth argues that, under the Convention, they can be enforced if two criteria are satisfied. First, „the decision must be final in the sense that it cannot be changed by the arbitrators in the further course of the arbitration until the final decision on the merits‟; and second, „the measure must be one which the arbitrators have been authorized to order by the parties' agreement in the arbitration clause either expressly
115 Monroe Le igh, “ Decision: A rbitration – Convention on the Recognition and Enforce ment of Foreign Arbitral Awards – Choice of Law – Procedural defect in arbitration clause insufficient to bar enforcement f clause”, The American Journal International Law, vol. 78, no. 1 (January 1984). 116
Ca rr, at 640. 117
or by reference to a specific arbitration law‟.118
If an interim relief is issued in the form of an order rather than an award, there is a disagreement among scholars as to its enforceability. Gunter argues that „if the interlocutory award or order can be changed by the arbitrator in the course of the procedure it does not qualify as an "award" under the Convention. Indeed, it could not be considered as binding under Article V(1)(e) of the Convention since it does not finally resolve an issue.‟119 In Publicis Communications & Publicis SA v. True North Communications Inc,120 the US Federal Court of Appeals for the Seventh Circuit held that the tribunal‟s order requiring Publicis to furnish True North with the relevant tax records was enforceable, under the New York Convention, despite lacking the label “award”. This was because the content of the order determined finality the issue of tax records, though other issues remained to be addressed by the arbitrators. Nevertheless, the court ruling was criticised for doing a disservice to t he Convention.121
Although Article V(1)(e) of the New York Convention allows the court not to recognise an award set aside at the seat of arbitration, there are some cases where an award set aside at the seat of arbitration was enforced in the forum country, because of the discretion granted to the latter court under the New York Convention. For instance, in Hilmarton Ltd. v. Omnium de traitement et de valorisation, the French
118 Gunter. 119 Id.
120 Publicis Communications & Publicis SA v. True North Communications Inc, 203 F. 3d 725 (7th Cir. 2000).
121
M. J. Go ldstein, “Interpreting the New York Convention: When Should an Interlocutory Arbitral
Court recognised an award set aside in Switzerland.122 The French legislator has gone as far as omitting setting aside as a ground for non-enforcement of an award, in the 1981 Amendment of the French Code of Procedure. In the US, in Chromalloy Aeroservices Inc. v. Arab Republic of Egypt, the Federal Court enforced awards set aside in Egypt.123
With regard to such few cases and countries, it may be questioned that a set aside award cannot have an effect outside the country of origin that it lacks inside the country. In response, it can be argued that those legal systems that permit enforcement of a foreign award set aside at the country of origin regards the contractual feature of arbitration as prevailing over its judicial feature. Therefore, an award made through a contractually established procedure of arbitration is considered as still enforceable, although it is vacated at the seat of arbitration. A decision as to vacating the award is a judicial decision legitimised by the sovereignty of the state at the seat of arbitration, but such sovereignty and the judicial decision based on that is not what the court in the enforcing country in a private case is concerned with. According to this theory, international arbitral awards are not subject to any particular national legal system, but are of internat ional nature. Hence, despite being vacated by the court at the seat of arbitration, they may still be valid.124 Such a theory, while requiring enforcement of foreign arbitral awards, does not entail recognition and enforcement of foreign judgements. It should be added that countries and authorities that allow enforcement of vacated awards do not regard every set aside award as enforceable. They may employ a municipal or international
122 Hilmarton Ltd. v. Omnium de traitement et de valorisation (OTV) Revue de l’arbitarge 1994, 327, English excerpts in International Council for Co mmerc ia l Arbitration, Yearbook Commercial Arbitration, XX (1995), at 663.
123
Chromalloy Aeroservices Inc. v. Arab Republic of Egypt, 939 F Supp. 907, at 909 (D.D.C. 1996). 124
See Jan Paulsson, "The Case for Disregarding LSA (Local Standards Annulments), under the New Yo rk Convention", American Review of International Arbitration , vol. 7 (1996), at 105-6.
rule to distinguish between vacated awards that can be enforced and those that cannot. For instance, in Chromalloy Aeroservices Inc. v. Arab Republic of Egypt, the US Federal Court enforced the award, since, unlike the Egyptian law, the US Federal law of arbitration did not consider a proper implementation of the applicable law as a ground for vacation of an award. The court did so, drawing upon Article VII of the New York Convention on the more favourable regime of enforcement.
In general, it can be argued that allowing enforcement of a vacated award may have inappropriate consequences such as conflict with a res judicata decision of a foreign court, and disrespect for the rights as well as the agreement of the parties to have judicial control at the seat of arbitration. It gives the vacated award, rather than the decision of the court to annul it, res judicata status, blocking any new proceeding, whether litigation or arbitration, on the issues in quest ion. In such circumstances, the winning party to arbitration, despite the vacation of the award, may request its enforcement in whatever country he wishes, but the losing party who succeeded in challenging the award is in an uncertain position in which the award can be enforced at any time. He may not even be able to release his properties attached for the purpose of future enforcement. This may endanger confidence in arbitration in the international arena.
On the other hand, a problem with the New York Convention is that it is silent about the grounds for vacating an award, and leaves to the municipal laws of the place of arbitration. Different grounds may be invoked in different countries for