Transcript Enforcement of Awards Koji Takahashi (Doshisha University

Enforcement of an Arbitral
Award which Has Been Set
Aside at the Seat of Arbitration
Koji Takahashi
(Doshisha University Law School, Japan)
(Authored in the spring of 2007
Updated in the autumn of 2008)
Can an award set aside at the seat
be enforced in other countries?
• The host country may have influence over its
judiciary.
• The investor may negotiate to avoid litigation and
choose arbitration.
• The host country may negotiate to nominate itself
as the seat.
• If the award is unfavourable to the host, the court
of the seat may set it aside.
• The investor may still wish to enforce it elsewhere.
Policy Arguments: against
enforcement
• An award is a creature of the seat.
• The choice of the seat may have been
made in exchange for reciprocal
concessions. The attendant risk has
been assumed by the investor.
• Endless attempts to enforce a vacated
award in a number of countries should
not be allowed.
Policy Arguments: in favour of
enforcement
• An award is stateless.
• The courts of the seat may set aside
an award on capricious grounds.
• The country of enforcement, where
the assets are seized, has a greater
interest in reviewing the award.
Setting aside awards at the seat
• New York Convention sets forth no
grounds.
• Model Law, Article 34(2), allows setting
aside on such grounds as nullity of
arbitration agreement, procedural
deficiencies, and public policy.
• Model Law does not allow the review of
the merits but the laws of some countries
do.
Enforcement of a vacated award?
• Article V(1) of the New York Convention
Recognition and enforcement of the award
may be refused ... only if …:
…
e. The award … has been set aside or
suspended by a competent authority of the
country in which, or under the law of which,
that award was made.
• Article 36(1)(a)(v) of the Model Law
Interpretation of those provisions
• Explanatory Note on the UNCITRAL Model Law
“[t]he setting aside of an award at the place of
origin prevents enforcement of that award in all
other countries by virtue of Article V(1)(e) of the
1958 New York Convention and Article
36(1)(a)(v) of the Model Law,”
• The words “may be refused” confer discretion.
• Restrictive reading: limiting to the setting aside
on internationally recognised grounds, e.g. those
listed in Article 34 of the Model Law
1961 European Convention on
International Commercial Arbitration
Article IX
• (1) “The setting aside in a Contracting State of an arbitral
award covered by this Convention shall only constitute a
ground for the refusal of recognition or enforcement in
another Contracting State where such setting aside took
place in a State in which, or under the law of which, the
award has been made and for one of the following
reasons:
[a list replicating Article 34(2) of the Model Law save grounds of
non-arbitrability and public policy]
• (2) In relations between Contracting States that are also
parties to the New York Convention …, paragraph 1 of
this Article limits the application of Article V(1)(e) of the
New York Convention solely to the cases of setting aside
set out under paragraph 1 above.
“more-favorable-right” provision
• Article VII(1) of the New York Convention:
The provisions of the present Convention shall
not … deprive any interested party of 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
award is sought to be relied upon.
• e.g. Article 1502 of le Code de procédure
civile of France does not contain an equivalent
of Article V(1)(e) of the New York Convention.
Res judicata effect of the foreign
annulment decision
• Always give res judicata effect.
• Give res judicata effect only if the foreign decision was
based on an internationally recognised ground.
• Give res judicata effect only if to do so would not
contravene the public policy of promoting circulation of
awards.
“The test of public policy cannot be simply whether the courts of
a secondary State would set aside an arbitration award if the
award had been made and enforcement had been sought within
its jurisdiction. … the Convention contemplates that different
Contracting States may have different grounds for setting aside
arbitration awards.” TermoRio v. Electranta (D.C.Cir.,2007)
• Never give res judicata effect.
French case law
• Article VII of the New York Convention and
Article 1502 of le Code de procédure civile.
• The enforcement of vacated awards is not
refused, irrespective of the grounds of
setting aside.
• Possible exception: awards on matters
purely internal to the seat.
Société Hilmarton v. OTV
(23 March 1994, Cass. 1re civ.)
• Arbitration in Geneva between an English
company and a French company concerning the
procurement of a government contract in Algeria.
The Swiss courts set aside the award by
reviewing the merits.
• The French Cour de cassation: the award in
question was “an international award which was
not integrated into the legal order of
[Switzerland], so that its existence continued
despite its being set aside ….”
• See also Putrabali (29 June 2007, Cass. 1re
civile ).
U.S. case law
Chromalloy AeroServices v. Egypt
(939 F. Supp. 907 (D.D.C. 1996))
• Arbitration between a U.S. company and Egypt
in Cairo. The award unfavourable to Egypt was
set aside by the Egyptian court on the ground of
a mistake of the application of Egyptian law.
• The U.S. District Court allowed enforcement.
– Article V(1)(e) granted discretion.
– Via Article VII, Chapter 1 of the Federal Arbitration Act
(9 U.S.C.10), which set forth grounds for setting aside
domestic awards, does not permit review of merits.
– Public policy grounds to deny res judicata effect to the
Egyptian court’s decision.
U.S. case law
Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd.
(191 F.3d 194 (2d Cir. 1999))
Spier v. Calzaturificio Tecnica S.p.A.
(71 F. Supp. 2d 279 (S.D.N.Y. 1999))
The U.S. Court of Appeals and the District
Court refused to enforce vacated foreign
awards.
– Enforcement under Chapter 1 of the FAA was
not allowed.
– Article V(1)(e). The discretion was exercised
against enforcing the awards.
– There was “no adequate reason for refusing
to recognize the judgment of the [foreign]
court.”
When will the U.S. courts enforce
vacated foreign awards? 1
When there is a breach of “no recourse”
clause, i.e. an explicit promise not to
appeal the award?
• Chromalloy: the party who moved in Egypt for
the setting aside of the award had “repudiate[d]
its solemn promise.” cf. Baker Marine and Spier.
• No-recourse clauses are prevalent, e.g. in rules
of arbitral institutions.
• Its effect is, according to the law of the seat,
usually restricted to barring an appeal on the
merits.
When will the U.S. courts enforce
vacated foreign awards? 2
When the U.S. law is chosen as the law
governing the procedure?
• cf. Baker Marine “[n]othing suggests that the parties
intended United States domestic arbitration law to
govern their disputes” (cited in Spier).
• Then, Chapter 1 of the FAA applicable to set aside the
award?
• In practice, it is unusual for an arbitration agreement to
choose the U.S. law as the governing law of the
procedure while specifying another country as the seat.
Further reading
• Dana H. FREYER “United States Recognition and
Enforcement of Annulled Foreign Arbitral Awards - The
Aftermath of the Chromalloy Case” Journal of
International Arbitration 2000
• David W. Rivkin “The Enforcement of Awards Nullified in
the Country of Origin: The American Experience” ICCA
Congress Series1999 Paris (no. 9)
• Emmanuel Gaillard “Enforcement of Awards Set Aside in
the Country of Origin: The French Experience” ICCA
Congress Series, 1999 Paris (no. 9)
• Felix Weinacht ”Enforcement of Annulled Foreign Arbitral
Awards in Germany” Journal of International Arbitration
2002