Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of Parallelewelten.
2.1 A COMPARATIVE ANALYSIS OF RECOGNITION AND ENFORCEMENT PROCEDURES IN CERTAIN JUSRISDICTIONS
The New York Convention makes available certain guidelines regarding enforcement of arbitral awards in jurisdictions other than those in which the arbitral award was made in. But what is important is how various jurisdictions follow the convention in terms of enforcement of these awards and if there enforcement of an award will be in conflict with any domestic laws that exist.
Recent decisions spanning varying jurisdictions have made this an important issue to discuss as it is important to the core of any arbitration agreement and what the agreement entails.
Chapter One tried to introduce the subject of arbitration and took a look at the perceived advantages of arbitration and also examined the procedures for recognition and enforcement under the Convention. It also attempted to examine the reservations states can make in the enforcement of an arbitral award and how some states have indicated that it will only apply to certain transactions such as commercial transactions.
Chapter two will attempt to give a comparative analysis of the position in some selected jurisdictions such as the United Kingdom, United States, France, Italy and China.
The purpose of this analysis is to examine if there is any uniformity in the implementation of the specifications of the convention and where there seems to be, to make recommendations to clear any ambiguities.
2.1.1 RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS IN THE UNITED KINGDOM
The United Kingdom is a signatory to the Convention and by application; all aspects of the convention apply to this jurisdiction. It is also important to note that the United Kingdom has enacted its own Arbitration Act of 1996 which came into force on the 31st of January 1997. The Act was intended to replace the older English Acts on the subject (1950, 1975 and 1979) Arbitration Acts and the Consumer Arbitration Agreements Acts of 1988, and in addition, it was intended to make corrections and amendments to existing acts. The Act tried to adopt a lot of the provisions of the UNCITRAL Model Law of 1985 and in many ways, avoided many of the shortcomings of the model law. In my opinion, it seems to be a very advanced and modern law on the subject that covers many areas on arbitration and by international standards, can be designated as pro-active. The effect was that earlier arbitration agreements that made older acts a basis for enforcement now rely on the 1996 Act.
In the UK, arbitral awards that have been made final in foreign jurisdictions can also be enforced in England and Wales in one of the following ways:
• If the award falls under the provisions of the Convention, an action for enforcement can be brought under Part III(s. 99- 104) of the Arbitration Act of 1996 which deals with the requirements and procedures for enforcing a convention award;
• In any other situation not covered by the convention, an action for enforcement can be brought under s.66 of the Arbitration Act of 1996.
The award will be enforced in the same way as a judgement of the court granted the court has given permission for its recognition and enforcement. The more obvious distinction between the methods of enforcement will normally be on the basis of any objections which the respondent has made to enforcement.
Under s. 66 of the Arbitration Act 1996, the grounds for objecting an award will normally involve the claims to lack of jurisdiction of the arbitral tribunal and in the case of awards made domestically, where there were serious breaches of procedure or there were irregularities in making the award.
It can be observed that there is less room to securing an objection under the Convention than is possible under the English Act and it is advised that any claims for enforcement would preferably be brought under the convention as there is a higher chance of success there.
The procedure for obtaining consent for enforcement is stated in the Civil Procedure Rules (CPR) rules of the United Kingdom. The party seeking to obtain enforcement of an arbitral award must issue an arbitration claim form in the High Court coupled together with a draft order granting permission to enforce the award. The application must be also be supported by written evidence such as facts disclosing the name and last known official address of both the claimant and the respondent and a statement that the award has not been complied with in whole or in parts. The draft order must include a statement that the respondent has received the right to make an application to set the order aside and that the order cannot be enforced until either any application to set the order aside has been disposed of or a 14 day period has expired.
Once the court grants the order, the claimant must serve it on the respondent and the respondent has a certain amount of time in which to oppose the order. If no such application is made within the period, then the order may be enforced using any method that would normally be used to enforce a judgement of court. Also, it is observed that if enforcement is not challenged, the award can be enforced in a very short space of time but when the order is challenged, it could take a longer while to enforce the award.
2.1.2 RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS IN THE UNITED STATES
The United States adopted the New York Convention in 1970 albeit with several restrictions. The convention was incorporated into American Law by virtue of Chapter two of the United States Federal Arbitration Act, 9 U.S.C. Ss. 201-208.
Because of the federal nature of the US, most states have their own procedural laws and enforcing arbitral awards is normally dependent on procedural and jurisdictional issues relating to the facts of each specific case. The primary law is the Federal Arbitration Act (FAA) of 1925(as amended) which implements parts the Convention and the Inter-American Convention on International Commercial Arbitration (Panama Convention of 1975). Where either of these acts do not apply, the party seeking to enforce will rely on the general bilateral treaties where available.
The FAA contains the basic procedures for enforcing domestic and foreign arbitration awards in the United States. 1/ Its fundamental purpose is to “ensure that private agreements to arbitrate are enforced according to their terms.” 2/ Pursuant to the FAA’s underlying policy in support of arbitration, any doubts must be resolved in favor of arbitration. 3/ This policy applies equally to domestic and international arbitration. 4/
The FAA is divided into three parts. Chapter 1 contains the general provisions governing arbitration agreements and awards. These sections address: the scope, validity and irrevocability of arbitration agreements; the procedures required for arbitration; and the process and standards for enforcement, modification or annulment of the arbitral award. Although Chapter 1 embraces foreign commerce, it does not specifically provide for enforcing foreign arbitral awards. Such matters are dealt with expressly in Chapters 2 and 3, which implement respectively the New York Convention and the Panama Convention.
The New York and Panama Conventions
Scope and Applicability
The New York Convention is the primary means for enforcing international arbitration agreements and awards in the United States. 5/ It applies to: arbitral awards “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought” 6/ and arbitral awards that are “nondomestic,” i.e. “not considered as domestic awards in the State where their recognition and enforcement are sought.” 7/ Although the New York Convention does not define “non-domestic award,” FAA §202 does:
An agreement or award arising out of [a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title and] which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States. 8/
Further, in ratifying the New York Convention, the United States limited the scope of the Convention’s otherwise broad application by electing the “commercial reservation” and the “reciprocity reservation,” which limit its applicability to “commercial” disputes 9/ and restricts its scope to the enforcement of arbitration agreements with signatory countries. 10/ Presently, more than 135 countries have ratified or acceded to the New York Convention. 11/
The Panama Convention provides jurisdiction for the recognition and enforcement of arbitration agreements and awards in international commercial transactions just between persons from member countries of the Organization of American States (OAS). 12/ Like the New York Convention, the Panama Convention, as implemented by the United States, applies only to arbitration agreements “with respect to a commercial transaction” 13/ and is limited to the enforcement of arbitration agreements with signatory countries. 14/ Because the Panama Convention does not define “commercial,” courts in this country have applied the U.S. Supreme Court’s broad definition of “commerce.” 15/
As one would expect, there are times when both the New York Convention and the Panama Convention may be applied to an arbitral award. In such a case, the Panama Convention provides: “If a majority of the parties to the arbitration agreement are citizens of a State or States that have ratified or acceded to the Panama Convention and are members of the OAS, the Panama Convention applies. In all other cases the New York Convention applies.” 16/ Thus, while there is little substantive difference between the two procedures, there is a general preference in favor of the New York Convention.
Enforcement of Awards
In theory, enforcing an arbitral award through the New York and Panama Conventions is straightforward. Any case falling under the conventions is within the jurisdiction of U.S. District Courts. 17/ To confirm the award, an action must be commenced within three years of the award being issued. 18/ The party seeking enforcement establishes a prima facie case for enforcement under the New York Convention by supplying the original or a certified copy of the arbitration agreement and award. 19/
Once a prima facie case for enforcement is established, a District Court’s review of the arbitral award is extremely limited 20/ and it generally must confirm the award unless the opposing party proves that enforcement or recognition should be refused based on one of the enumerated grounds: 21/
- Incapacity of the parties or invalidity of the arbitration agreement. 22/
- Improper notice of the arbitration proceedings. 23/
- Inability to properly present one’s case. 24/
- The arbitral award exceeds the scope of the arbitration agreement. 25/
- The arbitration procedure or panel was not in accordance with the arbitration agreement or governing law. 26/
- The arbitral award “has been suspended or set aside by a competent authority of the country in which, or under the law of which, the award was made.” 27/
- Enforcement of the award would be contrary to public policy. 28/
- In addition, an award will not be recognized under the Panama Convention if “the subject of the dispute cannot be settled by arbitration under the law of [the] state” in which the recognition and enforcement is sought. 29/
In keeping with the FAA’s general policy favoring arbitration, U.S. District Courts narrowly apply these grounds for non-enforcement. For example, courts only apply the public policy ground for non-enforcement “where enforcement would violate our ‘most basic notions of morality and justice.’ ” 30/ However, as to an arbitral award that “has been suspended or set aside by a competent authority of the country in which, or under the law of which the award was made,” the District Courts are split as to whether an award vacated by a foreign court fits within this ground for non-enforcement and whether such an invalidated award nevertheless can be enforced.
In The Matter of Arbitration Between Chromalloy Aeroservices and the Arab Republic of Egypt, 31/ Chromalloy commenced an action in the United States to enforce an arbitral award rendered in Egypt against the Egyptian government pursuant to Egyptian law. During the action, the award was nullified by an Egyptian Court of Appeal in a proceeding brought by the Egyptian government for that purpose. The District Court found that by appealing the arbitral award, Egypt had repudiated its solemn promise to abide by the results of the arbitration. 32/ The court enforced the “vacated” arbitral award because to do otherwise would violate the FAA and the clear United States public policy in favor of arbitration. 33/
Likewise, in Karaha Bodas Co., LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara 34/ a Cayman Islands company sought enforcement of a Swiss arbitral award against an Indonesian government-owned company issued in Switzerland pursuant to Swiss procedural law. The Indonesian company successfully petitioned an Indonesian court to annul the award and then asserted the annulment as a defense to enforcement of the award under the New York Convention. Despite the annulment, the District Court enforced the award against the Indonesian company. 35/ The 5th U.S. Circuit Court of Appeals reasoned that Switzerland had primary jurisdiction over the arbitration because the arbitration took place in Switzerland pursuant to Swiss law while the Indonesian court only had secondary jurisdiction. The court held that the substantive difference between primary and secondary jurisdiction is that only the former has the power to annul an arbitral award and, therefore, only an annulment by a Swiss court could serve as a ground for not enforcing the arbitral award. 36/
In contrast, in Baker Marine (Nigeria) Ltd. v. Chevron (Nigeria) Ltd. 37/ Baker Marine sought enforcement of two arbitral awards by a Nigerian court while the losing party petitioned the same court to vacate the awards. After the Nigerian court set aside both awards, Baker Marine attempted to enforce the arbitral award in the United States pursuant to the New York Convention, arguing that the Nigerian court’s reasons for setting aside the awards were not valid under FAA standards. The District Court rejected the argument because Baker Marine agreed that disputes were to be arbitrated under Nigerian law, and there was no claim that the Nigerian High Court was an incompetent authority in that country. Relying on principles of comity within the Convention, the 2nd U.S. Circuit Court of Appeals affirmed. 38/
Regardless of the differing rationales employed by the courts in Chromalloy and Karaha Bodas, the primary factor that distinguishes them from Baker Marine is that those cases involved arbitration awards against sovereigns and sovereign related entities while the parties in Baker Marine were private entities. Therefore, it seems apparent that the present split in authority merely reflects the courts’ skepticism of decisions by foreign courts that vacate arbitration awards entered against their own sovereign. Nonetheless, as long as the parties, the arbitration agreement and the award fit within the scope of the Conventions, District Courts generally will enforce “non-domestic” arbitral awards that involve all foreign parties, a mix of foreign and American parties, or all American parties. 39/
Non-Convention Bases for Non Enforcement of Awards
In addition to the enumerated defenses in the Conventions, some courts have adopted further defenses that are not expressly set out in the Conventions. These defenses, instead, are derived from Chapter 1 of the FAA because the provisions of Chapter 1 are incorporated by reference into both FAA Chapter 2 (New York Convention) and FAA Chapter 3 (Panama Convention). 40/ For example, some courts have vacated or modified awards under the New York and Panama Conventions if an award was in “manifest disregard” of the terms of the arbitration agreement or the law. 41/ However, not all courts agree that they have the jurisdiction to consider a ground for non-enforcement that is not explicitly contained in the Conventions. Some courts expressly reject “manifest disregard of the law” as a basis for refusing enforcement. 42/
Jurisdictional Related Defenses to Enforcement
Even though an arbitration award may fall under the one of the Conventions and is not subject to any of the enumerated defenses, this does not mean that a District Court is capable of enforcing an award in all cases. The Conventions are not jurisdictional, and a party seeking to confirm the award in the United States may be required to overcome traditional jurisdictional defenses based on subject matter jurisdiction, personal jurisdiction, venue and sovereign immunity.
By way of example, in International Standard Electric Corp. v. Bridas Sociedad Anonima Petrolera Industrial y Commercial 43/ a District Court in New York held that it lacked the jurisdiction to vacate an arbitral award issued in Mexico against a U.S. party based on New York substantive law and Mexican procedural law because Article V(1)(e) of the New York Convention requires that an application to vacate an award only be made to a court in the country in which, or under the procedural law of which, the award was made. 44/ Also, in Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co. 45/ the 9th U.S. Circuit Court of Appeals refused to enforce an arbitral award under the New York Convention because the court lacked personal jurisdiction over the defendant, an Indian company, because that company did not have the necessary minimum s with the State of California. 46/ Similar jurisdictional issues arise when one of the parties before the court is a sovereign state, but jurisdiction still may be maintained over a sovereign if it is established that the country either waived its sovereign immunity or that the District Court has jurisdiction pursuant to the arbitration exception to the Foreign Sovereign Immunities Act. 47/
Awards Not Falling Under the Conventions
Situations may arise in which an arbitration award is not subject to one of the Conventions, such as when the award is against a company whose country of incorporation is not a signatory to either Convention. In that case, the party seeking enforcement should determine whether the unsuccessful party’s country has a Bilateral Friendship, Commerce and Navigation Treaty with the United States. If the United States has entered into such a bilateral treaty with the nonsignatory country, the two countries may recognize and enforce their arbitration agreements and awards in the country where they were made. 48/ If a judgment on the confirmed award then is brought to the United States, the party may seek enforcement under general principles of comity. 49/
Finally, as a last resort, if neither a bilateral treaty nor a convention applies to a foreign arbitral award, the party still may seek enforcement in state or federal court pursuant to FAA Chapter 1 or bring a contract action in state or federal court. 50/ In those instances, the court would look to cases interpreting the FAA’s enumerated grounds for non-enforcement of an award to determine whether the award should be enforced.
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