The Recognition and Enforcement of Foreign Arbitral Awards

Conventional wisdom dictates that in the event an arbitration award has been annulled by a national court, the award no longer exist, therefore the question of enforcement does not arise. However, by virtue of Article V(1)(e) of the New York Convention 1958, the award can be enforced provided the adjudicator seized of the matter exercises his/her discretion to enforce the annulled award. There is arguably two reasons for Article V(1)(e) refusing to impose a compulsory duty on the enforcing court to recognize an annulment.

First, it is the New York Convention’s drafters’ intention not to impose upon the enforcement court a duty to accept the annulment rendered by court or under the law making the decision to annul the award. Secondly, the New York Convention seeks to distinguish between the jurisdiction of the original court and the enforcement court. The general idea is that if jurisdiction is constrained to the place where the arbitration takes place, coherence within international law would be compromised. The approach taken by Article V(1)(e) is characteristic of the binding and final nature of arbitration awards.

In general arbitration awards are not the subject of judicial review or an appellate process. The question for investigation is whether or not Article V(1)(e) effectively achieves this purpose. It is arguably necessary and important to provide for restraints on domestic court intervention since shared jurisdiction over a dispute can lead to conflict between international and domestic adjudication. Moreover it compromises the effectiveness and intent of international arbitration and can create tensions among adjudicators in the international context.

This research paper will demonstrate the restraints on domestic courts with respect to international arbitration, the necessity for these restraints and the limits of these restraints. These tasks will be undertaken by evaluating the forms of judicial review with respect to arbitral awards, the New York Convention’s framework with respect to the annulled arbitral award with the emphasis on Articles V and VII and the judicial approach to annulled arbitral awards in the context of the seat of arbitration. II.

Forms of Judicial Review over Arbitral Awards Depending on the Type of Error Arbitral awards are capable of enforcement abroad as a result of multilateral and bilateral conventions and treaties provided refusal grounds are supported by the applicable convention or treaty. Although the arbitral award is accorded validity that corresponds with that of a court’s judgment, the arbitral award will typically require the court’s assistance for enforcement when the party against whom it is rendered is not entirely cooperative.

In general, a party against whom an international arbitral award is issued may seek redress in the domestic courts of the seat of the arbitration or the place where the award can be enforced. The award can be annulled by a domestic court at the behest of either party if the award is inconsistent with due process, or the subject matter of the dispute is not covered by the agreement to arbitrate or it is inconsistent with the State’s public policy.

Annulment or setting aside arbitration awards is calculated to invalidate the award so that it cannot be enforced against the disadvantaged party abroad. Theoretically, international arbitration should be such that it is carried out in a manner consistent with internationally recognized standards, practices and policies with no connection to national laws and in the absence of interference and/or review by national courts. Moreover, the agreement to arbitrate and its attendant agreements should also be accepted by national courts without review or complication.

The general idea is that parties to international arbitration agreements and processes are from divergent jurisdictions and deliberately select a neutral national stage for the arbitration process. The general intent is that the arbitration process is free of the national legal and procedural domain. In this regard, national law have no part to play in the control and regulating of the international arbitration proceedings. Unavoidably, the national courts and the national laws of the seat of arbitration are tied to the arbitration and the arbitration agreement to a certain extent.

There are two competing views on the extent to which the seat of arbitration is connected to the arbitration. The first view takes the position that the national laws in the place where the arbitration takes place will govern or at the very least regulate the form and make-up of the arbitration panel as well as the award form and the arbitration procedure. Ultimately, the courts in the place where the arbitration is conducted will have some measure of jurisdiction over the correct operation of the arbitration process and will either confirm or quash the arbitration award.

In this regard, the seat of arbitration ties the arbitration to the legal framework of the jurisdiction in which the arbitration is conducted. There are certain consequences associated with this concept of the link between the seat of arbitration and the actual arbitration. These consequences flow from the influence of national laws and national courts at the seat of arbitration on the arbitration process.

One view takes the position that even in those situations where the rules of arbitration provide for wide discretion with respect to the arbitration process, arbitrators are still inclined to apply the lex fori in terms of the arbitration process. Moreover, in determining the applicable laws, arbitrators are likewise inclined to defer to the choice of law rules under the laws of the place where the arbitration is conducted. By taking this approach, arbitrators may also defer to the mandatory rules of the seat of arbitration if they coincide with the rules elected by the parties as the applicable law.

In another scenario, where the laws of the seat of arbitration only requires that arbitrators only refer to national laws to determine that there is a legally binding arbitration agreement, they will typically refer to the choice of law rules applicable to the seat of arbitration in choosing the law that should govern the agreement to arbitrate. In the second concept which is particularly predominant in civil law countries, the seat of arbitration is viewed as nothing more than a mere convenience.

This concept is entirely different from the previous concept which recognizes the link between the seat of arbitration and the actual arbitration process and its resulting award. Under this concept, arbitration panels are not bound to function in the same manner as national courts merely because the seat of arbitration is located within that particular jurisdiction. This concept takes the position that arbitrators do not obtain their authority from the seat of arbitration but from the “sum of all legal orders” that facilitate the feasibility of arbitration and the resulting award to the extent that arbitration is without a forum.

Likewise, there are certain consequences that conceivably flow from this concept of the role of the seat of arbitration. To the extent that arbitration is without a forum, arbitrators are not bound to adhere to the choice of law rules of the seat of arbitration and have wide discretionary powers with respect to ascertaining and applying the applicable substantive law. The New York Convention set forth three essential standards by which to avoid interference by or recourse by one party to the jurisdiction of the national courts. These three standards are: 1.

The arbitration process must comply with the terms and conditions contained in the agreement to arbitrate. 2. Each of the parties must be accorded fair and equitable treatment. 3. The contents and subject matter of the arbitral award must respect international public policy. In general national courts are not inclined to review the arbitral process except in extraordinary circumstances. For example, US courts have demonstrated an increased inclination to review arbitral awards and processes only in instances of “grave error” such as errors in law, fact or the interpretation of the contract.

However, those errors must be of such gravity that they are proper cases for vacating the award. The New York convention does not provide a regulatory regime for the grounds upon which an international arbitral award may be vacated. Conventional wisdom dictates that while contracting states are bound to ensure that the recognition and enforcement of arbitral awards are subject to a degree of international uniformity they are likewise permitted some flexibility in securing this result. National systems are at liberty to take one of two approaches.

They may implement laws that instruct national judges to abide by convention provisions for enforcement and recognition under the umbrella of the “self-executing” principle. On the other hand national systems may implement laws which are modeled after the convention provisions. Parties to international arbitration have the right to expect that not only will their arbitration agreement ant its resulting award be recognized by national courts but that they will not be the subject of judicial review.

This expectation is facilitated by the operation and interaction of national laws and international laws, customs and practices. For example the French Nouveau Code de Procedure Civile provides the principle law for the regulation of the arbitration process under the jurisdiction of France. By virtue of this code, an order recognizing or granting enforcement of an arbitral award made in France may not be the subject of an appeal. However, an order recognizing and granting enforcement of an arbitral award rendered outside of France may be appealed against on five separate grounds. The five applicable grounds are: 1.

The arbitration tribunal made an award where there was no agreement to arbitrate or the agreement to arbitrate was void or time barred. 2. The arbitration panel was composed contrary to the arbitration agreement or the appointment of an arbitrator was contrary to the agreement to arbitrate. 3. The arbitration panel did not comply with its mission. 4. Due process was lacking. 5. Either recognition or enforcement or both would not comport with international public policy. The US also provides an example of the limitations set on judicial review of arbitral awards and this would necessarily include the annulled award.

By virtue of the Federal Arbitration Act (FAA), an arbitration award may be the subject of vacatur or annulment appeal if the award was obtained by corrupt, fraudulent or undue means; the is evidence of bias or corruption on the part of the arbitrators or any one of them; the arbitrators committed misconduct in the refusal to postpone the proceedings when it was just to do so, or they refused to admit crucial evidence, or any other material misconduct; the arbitrators went beyond their authority or exercised the authority incorrectly compromising a final, definite and mutual award; if the award is vacated and the time set for making the award is still running the court is at liberty to order a rehearing.

In addition to Section 10 of the FAA, the US has developed a set of non-statutory grounds for which an arbitration award can be vacated or annulled. The most significant ground is where the arbitrator demonstrated a “manifest disregard” for the law. Other significant grounds include circumstances where there is a discrepancy between the arbitral award and an unambiguous and firmly established public policy, the award is characterized as “arbitrary and capricious” or it is entirely “irrational” and the award does not correspond with the disputants’ contract. These examples of French and US national laws and practices demonstrate the limited grounds upon which an international arbitral award can be challenged.

Encapsulated within these frameworks is the concept that even if the award has been annulled the court before which the disputants are seeking enforcement are not obliged to accept the annulment. They may examine the award and determine whether or not it offends national laws for the enforcement and recognition of arbitration awards. As seen by the laws in France and the US, convincing the court that the award is a proper one for vacating or annulling is an onerous task. The US Fourth Circuit in Remmey v PaineWebber, Inc 32F. 3d 143 (4th Cir. 1994) explained that US courts are not at liberty to quash an arbitration decision merely because the court seized of the matter would have arrived at an entirely different conclusion on identical facts.

This was manifested by the constraints placed on the courts’ ability to vacate or annul an arbitration law under the FAA. Those grounds are generally related to misconduct arising during the course of the arbitration process and certainly will not allow annulment or vacating simply on the grounds that there is discord with the arbitrator’s decision. Similarly, Uganda’s Reciprocal Enforcement of Judgment Act which applies to foreign arbitration awards only permits the nullification of a judgment award in two specific circumstances. First, in order for an application for nullity to succeed there must be evidence that the judgment had been obtained by virtue of fraudulent means.

Secondly, the judgment is null for the purposes of registration and enforcement in Uganda if the award emanated from a cause of action which for public policy or similar reasons could not have been litigated in the Ugandan courts. More specifically, Uganda’s Arbitration Act and indorses the Geneva Conventions and together with dual municipal laws of Uganda makes provision for the recognition and enforcement of foreign arbitration awards. Under municipal law, in the event a party attempts to enforce an arbitral award rendered abroad he/she must prove that the award was made in a manner consistent with the parties agreement and that the award is final in the seat of arbitration. Under Cap. 55 which incorporates the Geneva Conventions, there are substantially more grounds upon which Ugandan courts may refuse recognition and enforcement of foreign arbitration awards.

The party seeking recognition or enforcement may be refused if there is evidence that: the arbitration clause is not valid under the applicable law; the agreement did not provide for the arbitration panel used or the panel was comprised in a manner that did not accord with the agreement; the award is not consistent with the governing law of the arbitral process; the party challenging the award was not provided with notice of the process in sufficient time to prepare a case or suffered from some legal impediment and did not have the benefit of adequate representation; the award did not cover each of the relevant issues or the decision covers issues that were not within the contemplation of the arbitration agreement. In each of the national systems reviewed above, it is obvious that the grounds upon which an international arbitration award may be the subject of judicial review are limited. The limits of judicial review are manifested by the tenuous link between the national courts/national laws of the seat of arbitration and the arbitration process and its resulting award. Ultimately, restraints on judicial review relate to actions for nullifying or vacating an award. Whether the challenge to enforcement and recognition is conducted in the seat of arbitration or abroad, the action refers some measure of judicial review.

Even if one accepts the argument that arbitrators are inclined to favour the law of the seat of arbitration, ultimately the courts are called upon to review the award and determine whether or not the award should be recognized and enforced. The limited grounds upon which national courts are prepared to set aside, vacate or otherwise nullify an arbitration award is a manifestation of the fact that international arbitration awards are loosely connected to a particular national legal regime. III. The Position of the New York Convention on the Question of the Implementation of the Annulled Arbitral Award in the Seat of Arbitration A. The Approach to the Recognition and Enforcement of Foreign Arbitral Awards The advantages of arbitration over litigation in respect of disputes with an international character are succinctly documented.

These advantages include the opportunity for disputants to avoid the “alien environment” of a foreign legal process by agreeing among themselves for a neutral or “mutually acceptable forum”. By virtue of arbitration, parties can choose the applicable law and they may also appoint adjudicators with specific expertise. However, in order to obtain the advantages of arbitration in terms of international dispute resolution processes it is necessary to have some international legal framework for bringing about consensus among the international community with respect to the recognition and enforcement of arbitral awards rendered in one jurisdiction and enforceable in another. This is the purpose and intent of the New York Convention.

Ultimately the effectiveness of any legal regime that intends to secure the recognition and enforcement of an arbitration award overseas will necessarily require that judicial review by national courts is contained. The New York Convention with its large international membership which consists of both capitalist and socialist leading nations, can be regarded as the most effective arbitration Convention and “the cornerstone of current international commercial arbitration. ” Essentially, it has been suggested that the New York Convention has been agreeable to international arbitration and ultimately, it is difficult to escape enforcement of an award subject to the New York Convention. Ideally the New York Convention laid the ground work for the concept of “autonomous arbitration.

” Autonomous international arbitration takes the position that international arbitration be carried out in a manner consistent with generally agreed upon international practices and undisturbed by national laws and perhaps more importantly, free from review or interference on the part of domestic courts. The arbitration agreements and their resulting awards should also be recognized and enforced with minimal or no difficulties or revision by national courts. Unfortunately, some national courts reserve some measure of control, albeit minimal, over access to international arbitration and the issues that can be the subject of international arbitration. These kinds of reservations can compromise the facilitation of international arbitration.

The New York Convention 1958 seeks to overcome these difficulties by first recognizing that while an arbitration award must necessarily originate from one jurisdiction, it must be capable of enforcement elsewhere. The requirement that arbitration awards be recognized and enforceable in other jurisdictions is subject to one exception and that is that unless the award is “null and void, inoperative or incapable of being performed” they ought to recognized and enforced abroad. The relevant provision is contained in Article II of the New York Convention 1958. The New York Convention sets three minimum standards for international arbitration, each of which provide the benchmark by which international arbitration standards and practices are measured.

These standards call for the arbitration to comport with the essence of the arbitration agreement. The disputants are also entitled to expect fair and equal treatment under a concept of “international due process”, and the award itself is required to be consistent with international standards of public policy relative to subject matter and content. Ultimately, the New York Convention incorporates the concept of autonomous arbitration is founded on two fundamental principles. These two principles are that, first, he arbitration process is free of national laws and secondly, national courts may only intervene in the arbitration process in limited circumstances.

Unfortunately, as delineated in the preceding section of this paper, national laws can and have reserved unto themselves the right to intervene in the sense that they have provided grounds for which national courts may annul or vacate an award. While arguably, the laws are necessary for preventing a grave miscarriage of justice. For instance, Uganda provides for judicial review in the event an award was obtained by virtue of fraud. However, this opens up the application of the national laws of Uganda for interpreting and applying what amounts to fraud and how fraud should be defined. Other national laws permit review on the grounds that the award does not accord with public policy. This necessarily invokes national mandatory laws and may be inconsistent with the concept of party autonomy and autonomous arbitration.

This is particularly so in cases where the parties deliberately intended to opt for a different jurisdiction, and did not wish to be bound by the mandatory rules of the seat of arbitration or any other jurisdiction save and except for the jurisdiction they chose to govern the arbitration process. Article VII of the New York Convention may be partially responsible for the casual link to domestic courts’ ability to intervene. Article VII contains what has been referred to as “more-favourable-right provision” and the “compatibility-provision”. The more-favourable-right provision is reflected in Article VII(1) which provides that “shall not” compromise the valid application of a multinational or bilateral treaty relative to the recognition and enforcement of an arbitration award to which the member state is a party:

…nor deprive the any interested party or any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such an award is sought to be relied upon. The consequences of Article VII (1) as cited above is that disputants may resort to domestic laws for the recognition and enforcement of arbitration award or some other treaty, rather than the New York Convention. Article VII (2) incorporates the compatibility-provision by basically conceding that it does not affect the application and relevance of other treaties relating to arbitration. This is because when read together with Article VII (1), all treaties can be included.

So while Article VII (2) refers to earlier treaties, Article VII (1) refers to treaties in general. The more-favourable provision however, does not intend to provide for a indiscriminate departure from the enforcement and recognition mandate of the convention. It only intends that in the event the conditions of the New York Convention fail to be met, the award is enforceable by virtue of some other means. This was confirmed by Cologne’s Court of Appeal which stated that the purpose of Article VII (1) intends to ensure that a party seeking recognition is not denied more “favourable possibilities under the national law of the State” where he/she is attempting to enforce an award.

Van den Berg states that the purpose and rationale of Article VII(1) is to ensure that the foreign arbitration award is enforceable under a wide variety of circumstances and situations. However, Van den Berg asserts that such an approach is not conducive to uniformity and certainty in the way the “exclusive applicability” of the Convention would be. The result is, awards that are not compliant with the New York Convention are exposed to an unidentified status. Moreover, the party against whom the award applies can also be exposed to unpredictable circumstances. For example, under the national laws of Germany, a party may successfully enforce an arbitration award even if it the arbitration award is not valid. Article V(1)(a) of the New York Convention permits non-enforcement of an award in such circumstances.

In the event the defendant is confronted with the prospect of the enforcement of an award in such circumstances and fully anticipates using Article V(1)(a) in Germany, he might be taken by surprise if the other party decides to avoid the application of the New York Convention as provided for in Article VII (1) and instead relies on the domestic law of Germany. Uniformity under the New York Convention should come with far more certainty within the ambit of Article II. Article II insists that all member states recognize arbitration agreements that are in writing. Article II (2) goes on to define what is meant by writing and this includes not only an arbitration clause contained in a contract signed by the disputants, but an arbitration agreement evidenced by either “letters or telegrams.

” These provisions in Article II of the New York Convention are significant since they have implications for enforcement purposes. For instance Article II(3) which makes provision for enforcing the arbitration agreement refers to “an agreement within the meaning of this article”. Likewise, Articles IV(1)(b) and V(1)(a) on the enforcement of the actual award refer to the “agreement referred to in article II”. Despite the fact that Article II appears to be unambiguous, uniformity of its application has been problematic. Some courts, particularly those in Italy, Germany, the Netherlands and Switzerland have interpreted Article II (2) differently and quite often, unclearly.

Whereas national courts have generally ruled that the provision contained in Article II(2) prevails over domestic law with respect to the formal requirements for the arbitration agreement in cases where the agreement is subject to the New York Convention. The truth is, while a vast majority of domestic arbitration laws mandate that the arbitral agreement be evidenced in writing the same is not always provided for in other national laws. For example, the Code of Civil Procedure of Germany does not require merchants to conclude an arbitration agreement in any particular form. Dutch law likewise provides for oral evidence of an arbitration agreement. These kinds of provisions defeat Article II(2)’s purpose of requiring that the arbitration agreement be evidenced in writing. That purpose is to make certain that the disputants do in fact agree to arbitration.

National division of laws such as these function to compromise the New York Convention’s aim at harmonization which intends to reduce the opportunities for national court intervention in the arbitration process. The United Nations, in a review of the New York Convention in 1999 commented on this aspect of the New York Convention. The United Nations observed that there is no real reason why disputants who freely opt for arbitration should have to contend with the prospects of a party opting out of the arbitration agreements to the extent that the matter eventually ends up being litigated. In essence the New York Convention attempts to bring together three interacting and overlapping legal factions in international arbitration.

These three overlapping factions are national laws, international laws and private dispute resolution. The greatest evidence of how the New York Convention functions to promote harmonization of these three overlapping factions is found in its treatment of annulled arbitration awards. This is because annulment processes determine the extent to which national courts may intervene in the arbitration process and this is where the greatest risk to universality of arbitration exists. In other words, harmonization of international arbitration procedural and substantive laws depends in large part on its detachment from national laws and national courts.

If national courts were at liberty to apply national standards and laws for enforcement of arbitration awards, the New York Convention’s ability to harmonize international arbitration is compromised by the application of diverse national laws and practices. B. Interpretation of the Relevant Provisions of the New York Convention on the Implementation of the Annulled Arbitral Awards in the State Seat of Arbitration The New York Convention by, virtue of Article I(1) only applies to the recognition and enforcement of awards rendered in the jurisdiction of a “State other than the State” where recognition and enforcement of the award is sought. The 1958 Convention also applies to an arbitral award that is not characterized as domestic in the jurisdiction where the enforcement and recognition is sought.

Traditionally a foreign arbitration award could only be enforced with permission from the court sitting in the jurisdiction where the award was made and subsequently with permission from the court where the enforcement is sought. This process is referred to as double exequatur. By virtue of the New York Convention the double exequatur was abrogated leaving arbitration awards capable of enforcement as of right. a. Article V(1)(e) of the New York Convention Article V(1)(e) of the New York Convention makes provision for the enforcement of an arbitral award in a jurisdiction other than the jurisdiction where the arbitration award has been vacated, has not yet become binding or has suspended in the seat of arbitration.

To this end, Article V(1)(e) provides that the recognition and enforcement of an arbitral award may only be denied if the party against whom the award is rendered can provide evidence proving that: The award has not yet become binding on the parties or has been set aside or suspended by a competent authority or the country in which, or under the law of which, that award was made. Article V(1)(e) is therefore capable of two contrasting interpretations. On the one hand it can be interpreted to mean that the New York Convention permits the court where enforcement is sought to refuse enforcement where the award has been annulled or vacated in the jurisdiction of the seat of arbitration. Therefore it can be assumed that vacated awards are not automatically capable of being enforced in foreign jurisdictions.

On the other hand, this assumption can be thwarted by the use of the word ‘may’ in Article V(1)(e) which makes it entirely possible for the award to be enforced despite its having been vacated in the jurisdiction of the seat of the arbitration. Or that the court where enforcement is sought is not compelled to give effect to the court that annulled the award. The word ‘may’ as it appears in Article V(1)(e) of the New York Convention has given rise to entirely different interpretations in French and English. In the English version Article V(1)(e) does not impose upon national courts a compulsory duty to refuse the enforcement of awards that is “deficient” pursuant to Article V(1). The French interpretation of Article V(1)(e) however does the opposite.

In other words, French courts are under a duty to refuse enforcement of an award that has been annulled or is otherwise “deficient” within the meaning of Article V. Of the five remaining languages that the New York Convention is written in, Russian, Chinese and Spanish interpretations of