Enforceability of International Arbitration Court Awards

By Martha Onate Inaingo

Published on: December 03, 2023 at 10:33 IST

Disputes are inevitable in any sphere of relationship between individuals, organizations, companies, and countries. The world is a global village, no country is an island of its own that shuts out the rest of the world. Countries build and develop relationship for economic reasons, security, sports and entertainment etc., and most of these relationships are based on international agreements that contain a clause of arbitration as the method of settlement where any dispute arises.

The arbitration clauses typically provide for arbitration before a three-person tribunal in a neutral seat that is either in New York, London, Singapore or Hong Kong, and is conducted under the rules of the international arbitral institution, such as the International Chamber of Commerce (ICC), the International Centre for Dispute Resolution of the American Arbitration Association or the London Court of International Arbitration.

Consequently, in recent times parties in an international disputes resort to settlement by instituting the matter in International Court of Arbitration. Companies often choose international arbitration because awards granted by an international arbitral tribunal may be enforced worldwide through the New York Convention.^[1]

The new trend is that international arbitration is utilized more than litigation because the arbitral award that is granted to any party is enforceable in almost every country in the world while a judgement obtained from litigation in a domestic court is only enforceable in the country that issued it. The enforceability of international arbitral award is made possible by two principal conventions, the United Nations Commission on International Trade Law (UNCITRAL) and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, also known as the New York Convention.

The enforceability of an international arbitral award are therefore based on two principles: a written agreement to arbitrate, which contains a contractual arbitration clause, and enforcement decision made by the court subject to certain narrow exceptions.

This article intends to show the international legal position of enforcing international arbitral award, the International Laws and the remedies or methods that a party can resort to enforce or set aside an arbitral award.

Enforcement of International Arbitration Award

International arbitration are determined by applying and interpreting contract laws, law of tort and treaty laws. The major treaties that contemplate international arbitration and the enforceability of arbitral awards are:

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (the New York Convention)

This is the landmark treaty that govern arbitration agreements with the central objective of facilitating and promoting the enforcement and recognition of International arbitral awards. The New York Convention has about 169 contracting States that have signed, ratified and adopted the convention. The Convention mandates national courts of contracting States to recognize and enforce foreign arbitral awards and arbitration agreements.^[2]

United Nations Commission on International Trade Law (UNCITRAL)

The United Nations Commission on International Trade Law (UNCITRAL) was established in 1966 by the United Nations as a subsidiary of the General Assembly, with a mandate to develop a framework that will progressively harmonize and modernize the law of international trade. UNCITRAL pursues this objective by formulating modern, fair and harmonized rules on commercial transactions and promotes the use and adoption of both legislative and non-legislative instruments in areas of commercial law.

These include conventions, model laws and rules which are acceptable worldwide; legal and legislative guides and recommendations of great practical value; updated information on case law and enactments of uniform commercial law; technical assistance in law reform projects; regional and national seminars on uniform commercial law.^[3]

UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, was designed to assist States in reforming and modernizing their laws on arbitral procedure in accordance with the unique features of international commercial arbitration. The scope of the law covers the stages of the arbitral process, the composition and jurisdiction of the arbitral tribunal and the role of the court in the recognition and enforcement of arbitral award.^[4]

Unlike the New York Convention, the UNCITRAL Arbitration Rules does not make provision for the recognition and enforcement mechanism or procedure, however the recognition and enforcement of an award made under the UNCITRAL Rules is governed by the law of the place of arbitration, including any applicable treaties e.g. the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards which makes adequate provisions. The New York Convention clearly states in Article IV the enforcement and recognition procedure of an arbitral award, and the role of the competent authority to that effect.^[5]

There is no debate of the efficiency of arbitration, however one of the most pivotal issues that parties consider in an international arbitration is whether an award that is granted would be enforceable against the opposing parties.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, addresses the issue of enforcement by making provisions for the straight forward process or means to enforce an award.^[6]

Article I (1) of the New York Convention provides:

This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.^[7]

To that effect, Article III of the New York Convention explicitly states that arbitral awards are binding and should be enforced by the contracting States according to the rules of procedure of the territory the award is relied upon.^[8]

Similarly, an award made under the UNCITRAL Arbitration Rules is also binding on all parties to the proceeding, where a party fails to comply with the award, the successful party has the right to seek to have that award recognized and enforced in domestic courts.^[9]

Can a Contracting State refuse to enforce and recognize an arbitral award?

The New York Convention requires parties to recognize arbitral awards as binding and enforce them, however there are exceptional grounds for the denial of enforcement by a party to an international arbitration. The grounds are provided in Article V(1)(a-e), they include:^[10]

That the arbitral agreement is not legally valid;
That the party against whom enforcement is sought was not notified or allowed to present their case;
that the award is beyond the scope of the parties’ agreement to arbitrate;
That the tribunal was not properly constituted;
that the award has been set aside at the arbitral seat;
that the subject matter is not suitable to arbitrate; or
that enforcement would be contrary to public policy.

These exceptions possess an exclusive character and are required to be interpreted narrowly.

Under the UNCITRAL Model Law the grounds for refusal to enforce an arbitral award are not different from those enacted in the New York Convention. Article 36 of the UNCITRAL Model Law is very similar to Article V of the New York Convention and subjects the enforcement to the exceptions grounded in the Convention. Three fundamental features of the framework concerned must be identified:^[11]

Exhaustive list of exceptions to enforcement, excluding review of the merits of the award;
Discretion to enforce an award notwithstanding the grounds to refuse enforcement; and
Preclusion of parties’ objections.

With regards to the first feature of exhaustive list of objections, the provisions of Article V of the New York Convention was replicated in Article 36 of the UNCITRAL Model Law. Under these conventions the recognition and enforcement of an award may be refused even if only one of the exceptions can be proven.

Thus, a party who refuses the enforcement of an award cannot successfully bring a defence that is not grounded in the provisions of the New York Convention or any national law, or review the merits of the award or base the refusal to enforce on the ground of an error of law or fact by the arbitral tribunal; only serious irregularities can be used as a ground of defence for the refusing party.^[12]

On the second point of discretion to enforce an award, it is important note that the provisions of Article V of the New York Convention and Article 36 of the UNCITRAL Model Law do not use the mandatory term ‘shall’ rather the provision uses a permissive term that enforcement ‘maybe…’, this implies that the court has the power to overrule the defence to enforcement and grant the award regardless of whether one of the objections or grounds in Article V of the New York Convention has been established.

The enforcing court is allowed to used its discretion and without any external interference assess the potential defects of the arbitral award and procedure, and in appropriate circumstances, enforce even those awards that were annulled at the seat.^[13]

The third feature which is on preclusion of parties, a party can be barred from invoking the provisions of Article V as defence for refusal to enforce, in a case where such a party failed to raise the relevant objection such as jurisdiction objections or objections to set aside the award, during the arbitration process or before the courts of arbitral seat. Even though this principle is not explicitly stated in the New York Convention, national arbitration laws that support the principle of preclusion are used to complement the New York Convention.^[14] The practice of this principle may differ from one jurisdiction to the other.

In the English case of Dallah Real Estate and Tourism Holding Company Vs. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46,^[15] the court held that a party is not precluded from relying on a given defence in the enforcement proceedings even if that party failed to bring the same defence in an action to set aside the award at the seat.

In another jurisdictions a different conclusion was reached, in H Kronke (et al), Recognition and Enforcement of Foreign Arbitral Awards (Wolters Kluwer 2010)^[16] where the courts held that a party who failed to bring certain defects by way of an action to set aside an award may not rely on the same defects in the enforcement procedure.

Grounds of Refusal for the Enforcement and Recognition of Arbitral Award

As earlier mentioned, Article V(1) of the New York Convention prescribes the grounds that need to be proven by a party to successfully resist enforcement of an award. The grounds for the refusal of enforcement of an award would be discussed in seriation:

A party to the arbitration agreement was under some incapacity

Article V(1)(a) of the New York Convention provides that enforcement of an award may be refused on the basis that the award debtor lacked the capacity to conclude a binding arbitration agreement. The two issues to consider from the provision are that firstly the parties capacity must be determined by reference to the law applicable to the parties, and secondly that the lack of capacity of the parties to enter into the agreement is restricted to the time such an agreement was made.

The arbitration agreement was invalid

Article V(1)(a) of the New York Convention explicitly states that enforcement of an award may be refused if the arbitration agreement falls short of any requisite element under the law of the country where the arbitral award is made or the arbitration agreement was not valid under the law to which the parties have subjected it.

This provision expresses a consensus between the parties of arbitration, Article V(1)(a) establishes that the law that would give validity to the arbitration clause should be chosen by the parties’ and where there is no such consensus (the consensus of the parties can be express or implied ) or clear provision in the agreement, then the applicable law to the rest of the contract or the law applicable in the arbitral seat should prevail. These conditions can be raised as grounds for refusal of enforcement and lack of jurisdiction.^[17]

The enforcement court is empowered under the provisions of the New York Convention to independently assess and analyse the validity of any arbitration clause that raises as an objection on the basis of validity. This could even mean hearing the matter that has been determined by the arbitration tribunal over again.

In the case of De Rendon Vs. Ventura, U.S. District Court for the Southern District of Florida,^[18] where various parties entered into a share ownership and settlement agreement concerning a Colombian pharmaceutical company, which provided that if a dispute arise arbitration should be held before an ICC tribunal in Bogota, Colombia. As a result of a dispute, one of the parties obtained an arbitral award of $900,000 for breach of the agreement’s confidentiality provisions. The losing party opposed enforcement of the award on a variety of grounds inter alia, under that the arbitration clause, as applied, had become invalid because the ICC had improperly treated the case as an international (rather than domestic) arbitration. The court rejected the challenge and emphasized that its power to review arbitral awards are extremely limited.

The procedure before the arbitral tribunal was affected by procedural unfairness

Article V(1)(b) of the New York Convention provides that where a party against whom an award is granted was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings, or was unable to present his/her case, it is a formidable ground for the refusal of enforcement of that award. The lack of notice or hearing of one party constitute procedural unfairness. Therefore, defence brought under this ground of irregularity is considered seriously except where it is without doubt that regardless of the irregularity the award would have been granted in the same vein.

As stated earlier the provision under Article V (1) are to narrowly interpreted, thus the provisions of Article V(1)(b) does not contemplate omission of evidence by a tribunal or an order to discontinue document production as an irregularity under this ground.

Therefore under this ground of defence, awards issued in international arbitrations are not enforceable when one or more parties has been denied fundamental fairness in the arbitration proceedings. Evidence can be tendered by the claimant to challenge this ground that the notices were served but the defendant did not reply.

It is conclusive that a non-participating party named in an arbitration proceeding reserves a statutory right oppose the obligation to arbitrate or failure to comply with agreed-upon arbitration procedures.^[19]

In the case of Bartlit Beck LLP Vs. Okoda,^[20] the US Court of Appeals Seventh Circuit, confirmed the award noting that multiple notices and opportunities to participate in the arbitration proceedings were provided to the non-participating respondent. The Court of Appeals would have had no solid ground to confirm the award if the Dr claimant had no formidable record of notices and opportunities provided to the non-participating respondent.^[21]

Where a party actively participates in an arbitration proceedings regardless of the procedural defects, it may result to a waiver of this ground of objection. In the English case of Minmetals Germany GmbH Vs. Ferco Steel Ltd (1999) 1 All ER (Comm) 315,^[22] the party resisting enforcement of an award failed to challenge the findings undertaken by the arbitrators and the court held that the party waived its right to object by failing to contest the improperly acquired evidence in the course of arbitral proceedings.^[23] The court concluded that under such circumstances, the enforcement of the award would not result to any substantial injustice.

Article V(1)(b) of the New York Convention does not make provision or inference of the law that should govern the determination of procedural unfairness, however the standard of procedure have been stipulated that the law of the enforcing state is applicable.

The award deals with issues falling outside the scope of the submission to arbitration

Article V(1)(c) of the New York Convention covers awards that are decided on issues falling outside the scope of the submission to arbitration, or awards that contain decisions on matters beyond the terms of the submission to arbitration. Issues of jurisdiction that question the mandate of the arbitrators, whether or not they have exceeded their mandate can be raised under Article V(1)(c). In particular, this provision covers awards ultra petitum i.e., where the arbitrators granted relief not requested by the party, but does not cover award infra petitum,i.e., where the tribunal fails to address all the issues presented to it.^[24] The first circumstance present the ground for a party to resist enforcement of an award under Article V (1)(c), while the second covers other grounds.

Although the wordings Article V(1)(c) are specific and clear, it is also applicable that the provision checks the authority of arbitrators so that it is not only the scope of request submitted to arbitration that is restricted but also if the issues raised in the decision of an award are outside the ambit of the relevant arbitration clause. A party can however waive the defence in Article V(1)(c) by failing to raise a timely jurisdictional objection.

Unlike the clear provisions of Article V(1)(a) on applicable laws to arbitration agreement, Article V(1)(c) does not provide any guidance regarding the law applicable for the assessment of the scope of the arbitrators’ jurisdiction. There is even more confusion when the issue of determining the applicable laws on the scope of arbitrators’ jurisdiction intermingled with issues of interpretation of the arbitration agreement.

The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, absent such an agreement, the law of the arbitral seat

This ground is covered by the provisions of Article V(1)(d) of the New York Convention which provides for cases where the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, in the absence of such an agreement, with the law of the arbitral seat^[25]. The provision confirms the consensual nature of the arbitral procedure, how parties have the autonomy in determining and selecting the laws or rules that would govern the arbitration, and also confirms the requirement for the procedure to conform to the law of the seat having a subsidiary role.

In the instance where the parties agree that the arbitration proceedings should be governed by institutional rules, the defence under this ground becomes inoperative because of the discretionary powers vested on the arbitrators by those rules. On the aspect of composition which is a frequently raised ground of substantial objection, compliance with the parties’ agreement is very significant. The defence would be deemed to have been waived if not raised promptly too.

The 2019 case of Al-Qarqani Vs. Chevron Corporation in the U.S. District Court for the Northern District of California,^[26] demonstrates fundamental elements of the basic threshold requirements that must be met to enforce a foreign arbitration award, which includes that the award must be decided from the arbitration agreement and the integrity of the arbitral process. In the instant case Saudi Arabian nationals instituted a petition to recognize and enforce a purported arbitral award of approximately $18 billion that had granted to a many individuals and companies under the auspices of the International Arbitration Centre in Cairo, Egypt. The case involved a myriad of questions, based on its unique facts, about the source of the award and conduct of purported arbitration in Egypt. The US respondents (two Chevron affiliates), argued in their response to the petition, that:^[27]

The Award was the product of sham proceedings that were propelled to favour the Petitioners; there was no agreement to arbitrate between the parties and the proceedings were in complete violation of the terms of the arbitration agreement that the arbitral tribunal relied on. Additionally, that the claims made by the petitioner were beyond the scope of the arbitration agreement, which consequently amounts to a ridiculous arbitral process tainted with irregularities and criminal misconduct.

After the court considered whether there was an arbitration clause between the Saudi individuals and the U.S. companies, and found that the Saudi claimants had never been parties to the agreement thus, they don’t have the power to invoke the arbitration clause against Chevron. With no agreement to arbitrate, the court dismissed for lack of jurisdiction. The court added that aside the fact that the claimants were not parties to the agreement, recognition would have been denied still because the composition of the tribunal was not in accordance with the agreement and the decision was on matters that fall outside the scope of arbitration agreement.

The award has not yet become binding on the parties

Under Article V(1)(e) of the New York Convention, an award may be denied enforcement if it has not yet become binding on the parties.

The New York Convention eliminated the double exequatur requirement under the Geneva Convention, which meant that a party seeking to enforce an award had to prove that it was final in the country where it was made and the country where it is sought to be enforced. The approval could only be proven by obtaining an exequatur i.e., a leave for enforcement in both countries.

The New York Convention removed the double exequatur by replacing the word ‘final’ with ‘binding’ and by shifting the burden of proof from the party seeking enforcement to the party opposing the enforcement. The necessity to prove that an award is final in the country that decided it has been eliminated, however whether a binding award should be according to the law of the country of origin or where enforcement is sought is still a debate.

The award has been set aside in the country where it was made

Article V(1)(e) of the New York Convention, provides that the court may refuse to enforce an award annulled by the court of the arbitral seat. However, the discretionary nature of Article V gives the national courts the power to give effect to an award that the arbitral seat has set aside.

There is no international standard or provision in the Convention that spells out the steps the court should consider when determining the enforcement of an annulled award, as a result courts in different jurisdictions take varying approaches. In most jurisdictions the circumstances that can be considered to enforce the award are the following:

The annulment procedure may have been tainted by serious procedural irregularity or contrary to natural justice or the integrity of the court.
An annulment may be based on local public policy standards or other local standards of review; and
The annulment may be a result of an extensive substantive review.

In the English case of Yukos Capital SARL Vs. OJSC Rosneft Oil Company,^[28] the court gave effect to several arbitral awards were set aside in Russia.

However, in the case of Maximov v. OJSC Novolipetsky Metallurgichesky Kombinat, [2017] EWHC 1911 (Comm),^[29] the court arrived at a different decision and refused to give effect to an arbitral award set aside in Russia.

Similarly in the US case of Chromalloy Aeroservices Vs. Arab Republic of Egypt 939 F. Supp. 907, 912-13 (DDC 1996),^[30] where the award was set aside in Egypt but the US court enforced the award based on the US public policy for final and binding arbitration of commercial disputes.

Non-arbitrability of the dispute

Article V(2)(a) also provides a ground for the refusal of enforcement of an award which is based on the arbitrability of the subject matter under the laws if the enforcing state. This ground does not have any uniform international standard or definition of non-arbitrable matters, nevertheless a matter may be considered non-arbitrable if the national laws stipulate that certain issues are to be decided by domestic courts.

Based on the uncertainty of the New York Convention on this ground, contracting states are able to designate specific matters or claims as non-arbitrable. The enforcement of an award under this ground is however limited.

Violation of public policy

Article V(2) of the New York Convention provides that where the court finds that the subject matter of a dispute is not under arbitration or the award is contrary to the public policy of the enforcing state, the court can refuse the enforcement, on its own motion or that of parties’.

The exception of public policy is not defined in Article V(2)(b) of the New York Convention, its meaning evolves and varies between the contracting states. The International Bar Association’s ‘Report on the Public Policy Exception in the New York Convention’ confirms that there is no uniformity in the extent to which a review of an award can be effected by the enforcing courts. Many jurisdiction localized the public policy exception in accordance with the pro-enforcement approach of the convention, thus violation is considered seriously to warrant refusal of enforcement

The Paris Court of Appeal found serious infringement of due process in a matter in which the arbitrators decided to conduct the case as an ad hoc proceeding seated in Tunis rather than as a Qatar-seated arbitration administered by the Qatar International Centre for Conciliation and Arbitration.^[31]

The English Court of Appeal in the case of RBRG Trading (UK) Limited Vs. Sinocore International Co Ltd [2018] EWCA CIV 838,^[32] confirmed that public interest in the finality of arbitration awards outweighed an objection to enforcement on the grounds that the transaction was ‘tainted’ by fraud.

The issue of waiver and reclusion on this ground is considered differently from the other ground of objections; it is suggested that where a party fails to seek annulment of an award on the ground of public policy, such a party should not be precluded from resisting the enforcement of that award. This is not conclusive, there a number of considerations that may apply to the denial of enforcement when the ground of public policy is raised. Some courts consider the findings of the arbitrators to determine the matter and refuse to entertain the defence de Novo. Public policy principally based on the national law of the enforcement court, which may render recourse to the courts of the arbitral seat inadequate.

Non-New York Convention enforcement

The New York Convention governs enforcement and recognition of arbitral awards within contracting states which covers a very large number of States in the world. Article VII of the Convention provides that if a party has the option of a more favourable alternative enforcement regime then the more advantageous treaty for enforcement should prevail. This is applicable to domestic laws too when there are no international laws available to the party seeking enforcement of the award. In some jurisdictions the New York Convention is incorporated into their domestic frameworks so that there is no difference of convention and non-convention awards.

A practical example is the UNCITRAL Model Law which applies little or no modalities in the incorporation of the New York Convention in the national legislations which could be very distinct from one jurisdiction to the other on the enforcement rules for Convention and Non -convention awards. Other instances of subjecting

Other examples of subjecting enforcement requirements prescribed outside the New York Convention include;

application of internationally recognised non-New York Convention grounds for refusal of enforcement,
disregard of the Convention by the courts of the contracting states, contrary to their international law obligations, and
enacting in national legislation grounds for refusal of enforcement inconsistent with the Convention.

Conclusion

International Arbitration Award are generally enforceable and recognized in all contracting States of the world. The enforcement of an arbitration award can be challenged by a party who has to prove the aforementioned grounds.

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