International Commercial Arbitration: Recognition and Enforcement

PART ONE

Chapter one:

Introduction:

The period post the Second World War II has witnessed an enormous intensity in international contractual relationships. In addition, the phenomenon of the globalisation and the advance in information technology has resulted in the world become a small village through which multinational interactions take place. The growing number of international transactions between parties from different countries with different legal jurisdictions has initiated the need for an appropriate mechanism to cope with the inevitable disputes of such international contractual relationships. Relevant issues such as the applicable law to the dispute, the procedures to follow, who decide and finally enforce the outcome, are of great significance. In effect, international commercial arbitration is considered to be the most preferred mechanism that provides for practical solutions to the divergent issues of international commercial transaction. However, it is claimed, International commercial arbitration, to a wide extent, have gained its popularity from the relatively, worldwide recognition and enforcement of its arbitral awards.

The practice shows that, however, growing numbers of arbitral awards face various obstacles when they come to recognition and enforcement. Consequently, arbitration would rendered worthless unless its final outcome; the arbitral award, is duly recognised and enforced with minimal procedural delay. Therefore, international efforts have been made to enhance and foster recognition and enforcement of international arbitral awards. Those efforts have resulted in a number of international treaties [1] were entered into between different countries, aiming at creating unified and harmonized rules for recognition and enforcement of foreign arbitral awards. The New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (NYC) is considered, worldwide, to be the most important treaty in respect of recognition and enforcement of foreign arbitral awards. It followed by the UNCITRAL Model Law 1985 [2] which provides, with the Convention, for international legal framework for recognition and enforcement of foreign arbitral awards.

This study assesses in-depth and evaluates the pertinent provisions of the NYC and the Model Law with regard to recognition and enforcement of foreign arbitral awards. It critically analyses the application of the Convention and the Model Law in the scope of international commercial arbitration. Moreover, the study explores the hurdles that face the recognition and enforcement of foreign arbitral awards, in an attempt to reach practical solutions thereof. In so doing, the study, in particular, makes reference to the recognition and enforcement of foreign arbitral awards in the USA and UK to determine which jurisdiction, among them, is the most favourable for recognition and enforcement. Finally, it endeavours to provide for a sensible conclusion that embraces rational recommendations and answer to the dissertation’s statement problem.

1.2 The significance and objective of the study:

Finality and binding nature of arbitral awards, distinct arbitration from most other alternative dispute resolution mechanisms. It is an implied term of every arbitration agreement that, its binding decision would be performed by the losing party without delay [3]. Moreover, the binding nature and the prompt performance of arbitral awards have been emphasised in most arbitration clauses and submission agreements [4]. Similarly, international arbitral institutions such as ICC and LCIA, are keen to include their model rules express provisions to that effect [5]. Therefore, once the arbitral award has been rendered, it is expected to be enforced promptly. It is true that, one of the magnetism of arbitration, in comparison with litigation, is that the successful parity is ensured that it will be able to enforce the arbitral award at the end of arbitration proceedings, with much convenience. The arbitral award which is not duly recognized and enforced, or does that with difficulties and unnecessary delay, indeed, would be a mere pyrrhic victory [6] . Thus, it could rightly be claimed that, proper recognition and enforcement of arbitral award, what arbitration is all about. It follows, therefore, recognition and enforcement of foreign arbitral award, either voluntarily or by court proceedings, is a key issue and central to mechanism of international commercial arbitration. This fact, in essence, is one of the justification and significance of this study.

However, there is no mention to recognition and enforcement of foreign arbitral awards, unless the reference to the New York Convention comes to the fore. Thus, a further rationale behind this research is the paramount significance of the NYC in the field of international commercial arbitration in particular and international commercial law in general. The NYC, unlike other conventions and treaties [7] those dealing with recognition and enforcement of foreign arbitral award, is the most applicable convention worldwide. It has been adopted by almost all the leading countries in international commercial world. Out of the 192 UN Member States, 150 have ratified the Convention [8] . It is widely agreed that, the NYC with its underline assumption the “Pro-enforcement” of arbitral awards, has laid down an international legal system facilitating recognition and enforcement of foreign arbitral awards. As a result, it increases the confidence in international commercial arbitration and made recognition and enforcement of foreign arbitral awards much easier than foreign judgement when sought to be enforced internationally [9]. In fact, an impressive corpus of legal literature praising the role of the Convention, has accumulated in the past years. For instance, it said that The NYC is “the single most important pillar on which the edifice of international arbitration rest” [10] and a convention that “perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law” [11].

That said, it is of great significance to examine the Convention, after more than half a century from its inception in 1958, to ascertain whether or not the admirations held towards the Convention in respect of recognition and enforcement of foreign arbitral awards, is remain intact. Further, how current are the provisions of the Convention under the auspice of the enormous change in the applicable circumstance since it was made? Indeed, the Convention recently has been subject to various studies by prominent commentators [12], however, the researcher is determined to revisit the Convention in a unique approach, providing for a thorough assessment aiming at a positive contribution to the previously carried out studies. This is considered, therefore, one of the main objectives of this study.

1.3 Problem statement:

Extensive international efforts have been made to overcome the hurdles in recognition and enforcement of foreign arbitral awards. However, do the New York Convention on the Recognition and Enforcement of Foreign Arbitral Award (1958) and the UNCITRAL Model Law set up an appropriate international legal framework and provide for effective mechanisms by which the winning party to arbitration can duly recognise and enforce the foreign arbitral award?

1.4 The Hypothesis:

Despite the cooperation of the concerned international organisations and several countries from different legal jurisdictions to harmonise and facilitate the recognition and enforcement of foreign arbitral awards in international commercial arbitration, there still remain many deficiencies in the international system of recognition and enforcement of foreign arbitral award.

1.5 Chapter Structure:

The study is divided into two parts. The first chapter of part one is devoted to introduce the subject of the study, clarifies the relevant terms and concepts and explores the significance of the recognition and enforcement of foreign arbitral awards. Chapter two is assigned to examine the pertinent provisions of the NYC with reference to the UNCITRAL Model law in respect of recognition and enforcement of foreign arbitral awards. The third chapter of part one critically analyses the grounds for refusal of recognition and enforcement of the foreign arbitral awards under the NYC and the Model Law. Chapter four is devoted to consider other occasions for refusal of the foreign arbitral awards.

Part two; chapter five examines recognition and enforcement of foreign arbitral awards in the U.S. and UK, providing for comparative analysis thereof. This chapter aims at reaching determination as to which of the two countries, is most favourable jurisdiction for recognition and enforcement of the foreign arbitral awards.

Chapter Six of part two is devoted to recap the issues raised in the previous chapters and the findings thereof in order to provide for a reasonable conclusion and recommendations regarding the problem statement of the study.

1.6 Scope and limitation of the study:

It is obvious that the issue of recognition and enforcement of foreign arbitral award is an immense subject that may initiate unlimited amount of analysis and discussion. However, this study is limited in space, time and methodology and does not allow for an extensive treatment of the provisions of recognition and enforcement of foreign arbitral award imbedded in other conventions and treaties at the whole international level. The choice of the NYC, however, speaks for itself. Therefore, the focus will be on the relevant provisions of the NYC with reference to the UNCITRAL Model law. However, that does not mean that this study will not exemplify any other international rules such as ICC, London International Court of Arbitration (LICA) or other international institutions for Arbitration, whenever the necessity of illustration arises.

1.7 Research methodology:

This study aims to be analytical and evaluative. Therefore, from the two main research methodologies, generally, dominate the field of research; Qualitative and Quantitative, the study adopts the qualitative approach. The justification behind the adoption of the qualitative method is that the study is, mainly, a library-based research. The study depends on the secondary data, the existing literature and relevant researches those have been previously carried out.

There may well be difficulties in gathering the relevant data of the research. However, extensive efforts are made to overcome those difficulties by utilising the well-stocked University’s libraries, inter-library loan system and the electronic data bases.

Chapter two:

Recognition and enforcement of foreign arbitral awards under the NYC and the Model Law:

2.1 introduction:

In the previous chapter, the introduction and the scope of the study were outlined. The purpose of this chapter is to explore the requirements for recognition and enforcement of foreign arbitral awards under the NYC with reference to the Model Law. The significance of the NYC has been highlighted above. However, a thorough consideration of its provisions vis a vis the grounds for recognition and enforcement will be the focus of this chapter. To put those ground in context, a historical background of the Convention and the Model Law, will be introduced.

Historical background:

2.2.1 The New York Convention:

Early the Twenty century, witnessed increase recourse to arbitration in international trade. Therefore, the League of Nation acknowledged the need for an international mechanism by which parties to arbitration from different nationalities could rely on to ensure recognition and enforcement of foreign arbitral awards [13]. To achieve that end, it was vital to join up national laws of different countries in a form of a treaty or convention whereby the national courts are ready to recognise arbitration agreements and arbitral awards. Thus, the Geneva Protocol on Arbitration Clauses of 1923 [14] and the Geneva Convention of 1927 [15] were concluded. The main objective of the Geneva Conventions was to increase confident in arbitration mechanism [16] . That objective was sought through international recognition and enforcement of arbitration agreements and the arbitral awards emerge from such agreements.

Despite the relatively successful achievement of the Geneva Conventions, their operation revealed a number of practical legal difficulties. Therefore, the introduction of an updated version that goes steps further and overcome the shortcomings of the Geneva Protocol and Convention was required. Hence, the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958. This time it was an ad hoc committee of the United Nation Economic and Social Council (ECOSOC) with a proposed draft from the International Chamber of Commerce (ICC), who brought the Convention to existence.

The NYC, as it has been claimed, proved to be a successful story in international commercial arbitration. In essence, it has provided for an effective international legal framework for recognition and enforcement of foreign arbitral awards. However, the practice revealed some incompatibility to the today’s applicable conditions. This, indeed, would be discussed in details, in the following chapters.

2.2.2 UNCITRAL Model Law:

UNCITRAL Model Law is a product of the United Nations Commission on International Trade Law (UNCITRAL). The main purpose of the establishment of the UNCITRAL in 1966 was to unify and harmonise the law concerning international trade law. The support and promotion of the NYC was also among the objectives of the NUCITRAL. In line with those objectives, the UNCITRAL adopted the UNCITRAL Arbitration Rules in 1976 and UNCITAL Model Law on International Commercial Arbitration in 1985 [17]. The Model Law seeks to provide for unified and harmonious sets of international commercial arbitration rules. As an acknowledgement of its efficiency, the Model Law has been, verbatim or with some subtle modifications, incorporated in most national arbitration laws of the leading trading countries [18].

The Recognition and Enforcement of Foreign Arbitral Awards:

What is meant by recognition and enforcement is to give effect to the arbitral award [19] . The indisputable advantages of arbitration in comparison with litigation, would not be benefited of unless the arbitral award is simply enforced. Although available statistics reveal that considerable portions of arbitral awards are voluntarily enforced, vis, without recourse to court proceedings [20] , there are still significant number of cases where the wining party invokes legal procedures to enforce the arbitral award in hand. That occurs occasionally despite the finality and binding nature of the arbitral awards.

Given the international element of International commercial arbitration, generally, it takes place in a neutral country. That is to say, in a country which is none of the parties is affiliated to; the seat of arbitration. However, that does not mean, necessarily, recognition and enforcement of arbitral award would take place in that country. Thus, it is common practice that the wining party is compelled to seek enforcement in other foreign jurisdictions. That is the case, where the successful party seeks enforcement against the defaulting parity’s assets which are located in a country other than the seat of arbitration. An award which is rendered in one country and its recognition and enforcement is sough in different one, is categorised as a foreign arbitral award [21] . That foreign arbitral award, not the domestic award/one, as the title of this study suggests, is the subject matter of this study. While the NYC deals with the foreign arbitral awards, its provisions are also applicable to the arbitral awards those do not considered domestic by the law of the country where recognition and enforcement is sought [22] .

The following discussion in this chapter will examine the requirements of recognition and enforcement of foreign arbitral award. However, before embarking in such discussion, it is appropriate at this point to clarify the seemingly inextricable link between “recognition” and “enforcement” [23].

Although the two terms are distinct, they have been frequently used in inseparable manner. The two terms given that having different meanings, can be used for different objectives in the process of recognition and enforcement of foreign arbitral awards. Recognition on its own can be used as a defensive shield in potential court litigation. That is to say, the arbitral award having disposed of all issues between the parties, it gains res judicata over those issues and between the parties. Consequently, either party can not raise such matters in subsequent court proceedings. Otherwise, the other party is entitled to ask the court to recognise the arbitral award as conclusive evidence that the arbitral tribunal has already dealt with and decided those issues.

As to enforcement, it is a step further from recognition. The successful party seeking enforcement asks the competent court in the Forum State, to use its coercive legal power compelling the losing party to perform what has been awarded. It is not uncommon that an arbitral award can be recognised without need for being enforced, however, enforcement must be preceded by recognition. Therefore, “the precise distinction, in other words, is between ‘recognition’ and ‘recognition and enforcement’” [24] In short, the two terms are distinct in meaning and purpose. For instance, recognition is a defensive shield while enforcement can be used as an attacked weapon.

2.3.1 Requirements for recognition and enforcement

At the outset and before embarking on the examination of the requirements of recognition and enforcement of foreign arbitral awards under the NYC and the Model Law, It is worthwhile to establish that those requirements are almost identical in both, the NYC and the Model Law. In fact, the provisions of the Model Law mirror those of the Convention. Therefore, avoiding repetition, the focus would be on the requirements under the NYC. However, reference would be made to the Model Law requirements whenever those are found vary from the NYC’s.

2.3.2 The Formal Requirements under Article IV of the NYC:

The requirement of recognition and enforcement is exhaustively set out in Art. IV of the NYC. It reads as follows:

• To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
• The duly authenticated original award or a duly certified copy thereof;
• The original a agreement referred to in article II or a duly certified copy thereof.
• If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.

A close reading/analysis of this article concludes that, the Convention has laid down the minimum formal requirements for recognition and enforcement of foreign arbitral awards. It can be argued that there could not be fewer formalities than what has been stipulated by the Convention. Moreover, the requirements under Art IV are exhaustive and constitute prima facie evidence that, in case of compliance with by the applicant, the court shall grant recognition and enforcement unless the respondent has proved any of the refusal grounds under Art. V [25] . In essence, it suffices to obtain recognition and enforcement that, the successful party meets three simple formality conditions, which would be examined in turn below.

2.3.2.1 Submission of the dully Authenticated original award or certified copy thereof:

It is common practice and legally established that the parties to arbitration are given certified copy of the arbitral awards [26] . Nonetheless, the successful party will not save any efforts seeking to obtain such an original award. Therefore, the wining party having the original award in hand, would not face any difficulties in complying with the requirement of submitting an authenticated original award to the enforcing court. However, if the original award for whatsoever reason is not available, Article IV in an apparently more lenient approach, provides for the choice of submitting a certified copy of the arbitral award.

Although the compliance with the requirement under Art. IV(a) virtually seems to be unproblematic, in practice there might be considerable hurdles hindering the assumed simple fulfilment. For instance, what is precisely meant by “Duly Authenticated” and “Certified”? If there any alleged deficiency in the submission requirements, can the court raise the issue from its own motion, ex officio or is it the respondent only who is entitled to do so? Should the submission of the original award or the certified copy thereof coincide with the application for enforcement or whether the subsequent submission is permissible?

2.3.2.1.1 What is meant by “Dully Authenticated” and “Certified”

As far as “Dully Authenticated” and “Certified” are concerned, the Convention has not provided any definition there for, or how they could be ascertained. However, a collective reading to the Convention may provide some help in this regard. By virtue of Article III of the Convention, recognition and enforcement of foreign arbitral award shall be “… in accordance with the rules of procedure of the territory where the awards is relied upon”. That said, the better view seems to be that, the enforcing court may apply its national law to ascertain the requirements of “dully authenticated” or “certified”. In Sodime- Societá Distillerie Meridionali v Shuurmans & Van Ginneken B.V [27] , the Italian Supreme Court, Corte di Cassazione, refused enforcement considering, according to the Italian Law, the award had not been dully authenticated. That case concerned an arbitral award rendered in England and only two signatures of the three arbitrators were authenticated. The Court held that, since the Italian law is to the contrary, the Italian courts are not obliged by the practice in England, which allows for such authentication.

2.3.2.1.2 Where there is alleged deficiency in authenticity, who may raise the issue?

Generally, it is the courts’ duty to assure the parties’ compliance of any requirements asked by the law. However, in many situations, unless the issue has been raised by either party, the court would not do so from its own motion. In situations where there is alleged deficiency in the issue of authentication, which approach the court is expected to follow? The NYC often links the performance of specific action, with the request of either party. i.e. “…at the request of the party…” (Art. V.1) and “… on the application of the party…” (Art. VI). In such situations, it can be argued, the court would not take the action from its own motion. Therefore, since the Convention is silent on the issues of challenging the authenticity or certification of the award, inspiring the Convention’s spirit that encourages enforcement, the seemingly better answer to the question would be; the court unless the challenge is made by the party contesting enforcement, should not refuse enforcement due to the apparent incompliance with the authenticity requirements.

2.3.2.1.3 Is the subsequent submission of the Authenticated original award or certified copy thereof permissible?

In practice the party seeking enforcement may, for whatsoever reason, not in posses of the authenticated original award or a certified copy thereof. Avoiding laps of the time limits [28] of applying for enforcement, the applicant may submit its application with an award that lack authenticity or uncertified copy thereof, undertaking subsequent submission of the dully authenticated original award. How far that practice is permissible according to the NYC? The Convention in Art.IV(1) requires that the party applying for enforcement “shall at the time of application supply…”. It seems that the language of the Convention is extremely restrictive in this regard. However, strict adherence to the language of the said article, towards an applicant facing the previous scenario, would arguably be against the overriding objective of the NYC, the pro-enforcement tendency. Therefore, facing such scenario, the courts should permit subsequent submission of the duly authenticated original award or certified copy thereof.

2.4.1 The overriding objective of the NYC and the Pro-enforcement tendency:

The overriding objective of the NYC is to facilitate the recognition and enforcement of foreign arbitral awards [29] . Therefore, the general tendency of the Convention is to enforce the arbitral awards rather than not to. Art.I(1) of the Convention provides that:”Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedures of the territory where the award is relied upon…” emphasise added. The use of the word “shall” reflects the pro-enforcement approach of the Convention. Interestingly, that tendency of pro-enforcement, using almost the same language, has mirrored in the Model Law [30] and most of the national arbitration laws of significant trading countries. For instance, in the U.S section 207 of the Federal Arbitration Act (FAA) [31] provides that the court:”shall confirm the award…”. Similar provision is found in the UK Arbitration Act 1996(AA) [32] where section 101states: “award shall be recognised…” Notwithstanding the enforcement assumption, the Convention provides for grounds for refusal [33] of recognition and enforcement of foreign arbitral awards (would be treated in chapter Four). However, this should not be perceived as setback to the enforcement tendency. In fact, the grounds for non-enforcement can be seen as a “watch dog/safety valve” to save guard the integrity of international commercial arbitration, without which the whole of the process could be undermined [34] . To put it in other words, recognition and enforcement of foreign arbitral award is the principal, whereas, refusal is the exception.

The roots of the Pro-enforcement tendency of the NYC can also be traced in Art.III. It reads:

“…There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards”

It can be seduced from the above Article that, the Convention ergs the Contracting States to simplified and facilitate the process of recognition and enforcement of foreign arbitral awards. Therefore, signatories to the Convention are obliged not to impose more onerous conditions on the recognition or enforcement of the Convention’s awards than those apply to the domestic awards. That is, for instance, not to impose high charges or fees on the enforcement process.

Cornerstone to the pro-enforcement policy of the Convention is the implementation of that policy by the national courts. It should be noted at this point, the Convention in giving effect to its provisions, has entirely relied on the national courts of the contracting States. That seems to be sensible from various ways. Firstly, the arbitral tribunal, by its private nature, lacks the essential power to enforce its awards.