International Arbitration: Lecture 8

International Arbitration: Lecture 8
Dr. Matteo Zambelli
[email protected]
University of West London
School of Law
1
Overview
A. The Award.
B. Arbitral Awards and Challenges.
C. Challenging awards.
D. Enforcement of Awards.
E. Q&A.
2
What is an award?
The award contains the tribunal’s decision on the substantive issues raised before
it in the arbitration. An award differs from a procedural ruling, which is not final
and can be reopened by the tribunal but cannot be challenged before the courts in
an appeal.
An award will contain the tribunal’s decision determining the issues in dispute
between the parties that it has been asked to resolve, whereas a procedural ruling
will deal with matters of procedure, often involving questions of discretion (
Charles
M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro)
[1999] 1
Lloyd’s Rep 225).
In deciding whether a decision is an award or a procedural ruling on the merits, an
English court will ask itself how the decision would have been understood by its
recipients, and will have regard to the issues that the tribunal was asked to
determine and whether the tribunal was asked to produce an award (
Michael
Wilson v John Forster Emmott
[2008] EWHC 2684 (Comm)).
3
What is the effect of an award?
The award is final and binding between the parties and on any person claiming
through or under them (section 58(1), Arbitration Act 1996).
An award creates a res judicata, which will prevent either party (subject to any
rights of appeal or challenge that the parties may have under sections 67, 68 and
69 of the Arbitration Act 1996), from re-opening the substance dispute.
In Fidelitas Shipping Co Ltd v V/O Exportchleb [1965] 1 QB 630, Diplock LJ and
Denning LJ confirmed that estoppel applied to arbitration as it does to litigation.
The principle of res judicata would also prevent the parties from contradicting the
award’s findings of law or fact in any future proceedings, or raising matters which
could and should have been argued in the arbitration, on the basis that to do so
would be an abuse of process (
Swallowfalls Limited v Monaco Yachting &
Technologies SAM and another
[2015] EWHC 2013 (Comm)).
4
(cont.)
Not all awards are final awards…It is important to understand that whilst all
awards are “final” in the sense that they are final and binding on the parties
pursuant to section 58(1) of the Arbitration Act 1996, (subject to any rights of
appeal and challenge), not all awards are called “final awards”.
During the arbitration, the tribunal is likely to make a number of awards,
depending on the terms of reference of the arbitration and the issues brought
before it by the parties. I.e., it may be asked to rule on the question of jurisdiction,
or it may have to resolve a preliminary issue relating to a discrete point of
contractual interpretation. These awards will all be “final” in the sense that they
are final and binding between the parties pursuant to section 58(1) of the
Arbitration Act 1996. However, when the arbitration comes to a final conclusion,
that is, when the tribunal is able to reach a decision on all the issues in the
arbitration, or all the outstanding issues in the dispute, it will issue its final award.
5
(cont.)
The parties are subject to an implied obligation to perform and comply with the
terms of the award (
Associated Electric & Gas Insurance Services Ltd v European
Reinsurance Co of Zurich
[2003] UKPC 11, Lord Hobhouse at para 9). This is also
an express requirement under some arbitral rules (article 34.2, UNCITRAL Rules
(2010 and 2013), article 32.2, ICC Rules (2021) and article 26.8, LCIA Rules
(2020)).
The award does not bind third parties, unless they fall within the category of
persons claiming “under or through” the parties to the arbitration (section 58(1),
Arbitration Act 1996) or they have agreed to be bound by the tribunal’s award.
Once a tribunal has issued an award, it becomes “functus officio”, in respect of
the issue on which it rendered the award. Once it has issued its final award, it is
no longer authorised or competent to deal with any issues between the parties.
The tribunal’s authority, and its powers that relate to that part of the reference with
which it is dealing, come to an end when the award is made (
Five Oceans
Salvage Ltd v Wenzhou Timber Group Company
[2011] EWHC 3282 (Comm)).
6
What types of award are recognised?
Three special types of award are recognised under the Arbitration Act 1996:
Partial awards. The power conferred by section 47(1) can be excluded by
agreement (though this would be relatively rare). Some institutional rules also
confer power on the tribunal to make partial awards (i.e. article 2(v), ICC Rules
(2021), article 34.1, UNCITRAL Rules (2010 and 2013) and article 26.1, LCIA
Rules (2020)).
Provisional awards. Section 39 provides that the parties are: “free to agree that
the tribunal shall have power to order on a provisional basis any relief which it
would have power to grant in a final award
.” A number of arbitral rules provide that
the tribunal shall have that power, and if the parties have agreed to arbitrate in
accordance with those rules, then that will evidence such an agreement (i.e. article
25(1)(iii), LCIA Rules 2020; article 28(1), ICC Rules 2021).
Agreed awards. An agreed award records a settlement concluded by the parties.
By recording the settlement in an award, the successful party secures the benefit
of the summary enforcement mechanisms under the Arbitration Agreement 1996
and, overseas, the benefit of the enforcement provisions of the New York
Convention in contracting states.
7
What are the formal requirements of an award?
There is no statutory definition of an award in English law.
The parties are free to agree on any formal requirements relating to an award and
some arbitral rules set out formal requirements for an award. I.e. article 26 of the
LCIA Rules 2020 states that the award shall be in writing and shall state the
reasons on which it is based.
If there is no relevant agreement (as is usually the case), the default provisions of
section 52 of the Arbitration Act 1996 apply:
The award must be in writing (section 52(3)). “Writing” for these purposes includes “its
being recorded by any means” (sections 5(6) and 83). In practice, however, a written
hard copy document is invariably produced – and will usually be required if enforcement
proceedings are necessary.
The award must be signed by all the arbitrators or all those assenting to the award
(section 52(3)). They do not all need to sign in the same place or on the same date. In
practice, the award may be signed in different places and at different times.
The award should state the reasons for the decision (section 52(4)), unless, the parties
have agreed to dispense with reasons.
The award should state the seat of the arbitration (section 52(5)).
The award should state the date on which it is made (section 52(5)).
8
What are the substantive requirements of an award?
To be recognised as a valid award, it is not sufficient for the award to be termed
“an award”, it must satisfy certain basic requirements:
It must finally resolve all the issues which arose for decision (including the apportioning
of costs), and should not leave any matters for later determination (
Ronly Holdings v JSC
Zestafoni G Nikoladze Ferroalloy Plant
[2004] EWHC 1354 (Comm)).
It must not address issues which fall outside the scope of the reference (for example,
claims arising after the date of commencement of proceedings), that is, matters within
the jurisdiction of the tribunal.
It must be final and unconditional: it must state the tribunal’s decision, and any remedies
awarded, unequivocally.
It must be certain and capable of performance.
In Konkola Copper Mines v U&M Mining Zambia Ltd [2014] EWHC 2374 (Comm),
Cooke J emphasised that it did not matter whether a decision by the tribunal was
labelled as an award, order or otherwise, as it is the substance of the decision that
is of importance. It must be final and complete as between the parties (even if
conditional on a specified event occurring), with no further decision needed from
the tribunal or any third party, unless the specified contingency arises.
9
When must an award be made and notified?
The first place to check for any provisions governing the timing of the award is the
arbitration agreement or any applicable arbitration rules. The ICC Rules require
the award to be made within six months of the signature or approval of the terms
of reference (article 30.1, 2021 Rules). Where there is an agreed time for making
an award, the court has the power to extend that time under section 50 of the
Arbitration Act 1996.
The Arbitration Act 1996 does not specify any time for the making of an award.
However, the tribunal (and the parties) are under duties to proceed with
reasonable speed. The long-stop remedy for the failure of a tribunal to make an
award within a reasonable time would be an application to remove the tribunal
under section 24 of the Arbitration Act 1996.
If the award is remitted to the tribunal by the court following a successful
challenge, the new award must be made within three months of the court order, or
any other period that the court orders (section 71(3), Arbitration Act 1996).
10
(cont.)
The parties are entitled to agree how and when the award should be notified. For
example:
The ICC Rules provide for the text of the signed award to be notified to the parties by the
Secretariat of the ICC, provided that the costs of the arbitration have been paid in full
(article 34.1, 2021 Rules).
Article 34.6 of the UNCITRAL Rules 2010 and 2013 provide for signed copies of the
award to be communicated to the parties by the tribunal.
The LCIA Rules provide for the sole arbitrator or chairman (as the case may be) to
deliver the award to the LCIA Court, which then provides certified copies to the parties,
provided that all fees have been paid (article 26.7, LCIA Rules (2020)).
If there is no agreement, then section 55 of the Arbitration Act 1996 applies. The
tribunal must notify all the parties that the award has been made by serving
copies of the award on them “without delay”. This provision is designed to prevent
one of the parties collecting and “sitting on” the award in the hope that the time
limits for challenging the award will run out. The tribunal’s obligation to notify the
parties of the award does not affect its right, under section 56 of the Arbitration
Act 1996, to withhold the award if its fees are not paid (section 55(3)).
11
Reasons
The reasons explain why the tribunal has decided the issues in the arbitration in
favour of one or other of the parties, and explain why the tribunal has awarded (or
refused to award) the remedies that it has. The reasons are important because
they enable the parties to assess whether the tribunal has made any mistake of
law that would offer the possibility of an appeal from the award.
In terms of the standard of reasons, in Compton Beauchamp Estates Ltd v
Spence
[2013] EWHC 1101 (Ch), Morgan J concluded that an arbitrator should
explain why he has decided the essential issues in the way in which he has. An
award that does not contain such reasoning would not comply with section 52(4)
of the Arbitration Act 1996, thereby enabling a party to contend that there has
been an irregularity within section 68(2)(h) of the Arbitration Act 1996.
If an arbitrator dissents from the majority’s decision, he has no right to give
“dissenting reasons” unless the parties agree to this (
Cargill International SA v
Sociedad Iberica de Molturacion SA
[1998] 1 Lloyd’s Rep 489) – although this
frequently happens in practice. The “dissenting reasons” have no legal status or
effect.
12
The date of the award
The parties are free to agree when the award is to be treated as being
made. Failing this, the tribunal may decide the date of the award. If the
tribunal fails to specify the date of the award, it is taken to be the date on
which the award is signed by the arbitrator or by the last of the arbitrators
to sign (section 54(2), Arbitration Act 1996).
The date of the award is of vital importance because the time limits for
appeals or other challenges to the award, or for applying for further
reasons or clarification, all run from the date of the award. The date of
the award is also relevant to the award of pre and post-award interest.
13
Place of the award and confidentiality
The place where the award is made is relevant to whether it can be enforced as a
“convention award” under the New York Convention. The place where the award
is made is not necessarily the same as the seat.
Under section 53 of the Arbitration Act 1996, the parties are free to agree where
the award is to be treated as being made, but, in the absence of such an
agreement, where the seat is England, Wales or Northern Ireland, the award is
treated as having been made there “
regardless of where it was signed,
despatched or delivered to any of the parties
“.
There are no express provisions in the Arbitration Act 1996 dealing with
confidentiality of the award. However, in general, English common law recognises
the confidentiality of arbitration and therefore that the award is subject to the duty
of confidentiality, that is implied into the arbitration agreement (
Emmot v Michael
Wilson & Partners
[2008] EWCA Civ 184).
14
Challenging awards
There are three ways in which an arbitration award can be challenged in the
English courts pursuant to the Arbitration Act 1996:
Challenge to the tribunal’s substantive jurisdiction (section 67).
Challenge on the ground of serious irregularity affecting the tribunal, the
proceedings or the award (section 68).
Appeal on a point of law (section 69).
Under section 72(2) of the Arbitration Act 1996, a party who has taken no part in
the arbitral proceedings, may challenge the award for lack of jurisdiction (under
section 67) or on the grounds of serious irregularity (under section 68). The
requirement (section 70(2)) to exhaust arbitral procedures before making any
such application does not apply. In
Bernuth Lines Ltd v High Seas Shipping Ltd
[2005] EWHC 3020 (Comm), the court suggested that an application under
section 72(2) would still be subject to the time limits imposed by section 70(3),
namely that any application must be made within 28 days of being notified of the
award.
A non-participating party is not entitled to challenge the award by
way of appeal on a point of law
.
15
Challenge to the tribunal’s substantive jurisdiction
Section 67 of the Arbitration Act 1996 permits an award to be challenged on the
basis that it was made without jurisdiction. The award may be the substantive
award on the merits of the claims, or may be a separate preliminary award
containing the tribunal’s ruling on its own jurisdiction.
The parties cannot contract out of section 67 (section 4(1) and Schedule 1, the
Arbitration Act 1996). Challenges can be made on the basis of:
The existence or validity of the arbitration agreement.
The constitution of the tribunal.
The scope of the arbitration agreement.
The application will be given a full hearing; the court does not simply review the
tribunal’s decision. The court may confirm the award, vary it or set it aside. If the
award challenged is a preliminary award on jurisdiction, the tribunal may continue
with the arbitration proceedings and make a further award while the challenge to
its jurisdiction is pending.
16
(cont.)
The Arbitration Act 1996 envisages applications under section 67 being made at two
alternative stages in arbitral proceedings:
After the tribunal has issued a preliminary or interim award to rule upon the issue of
jurisdiction alone (that is, when the arbitral proceedings are ongoing and potentially at an
early stage in the proceedings).
After the tribunal has issued an award on the merits of the dispute (that is, when the
arbitral proceedings are at, or nearing, their conclusion).
In France, while an award rendered in an international arbitration can be set aside if the
arbitral tribunal wrongly upheld or declined jurisdiction, Article 1526 of the Code of Civil
Procedure (
Code de procédure civile) (CCP) provides that in international arbitration,
[n]either an action to set aside an award nor an appeal against an enforcement order
shall suspend enforcement of an award
“. As a result, an award is immediately
enforceable even if it has been challenged, except where the Court of Appeal suspends
or adjusts the enforcement to preserve the rights of one of the parties.
17
Challenge on the ground of serious irregularity affecting
the tribunal, the proceedings or the award
An award can be challenged under section 68 of the Arbitration Act 1996
if there has been a serious irregularity that has caused or will cause
substantial injustice to the applicant. The irregularity may relate to the
tribunal, the proceedings or to the award.
Section 68 is mandatory and the parties cannot contract out of it (see
section 4(1) and Schedule 1, the Arbitration Act 1996).
Section 68 is designed to remedy procedural failings and not to correct
errors of fact, law or jurisdiction. An exhaustive list of the categories of
irregularity that can be challenged is set out in section 68(2) of the
Arbitration Act 1996.
18
(cont.)
The list in section 68(2) was described as a “closed list” by the House of Lords in
Lesotho Highlands Development Authority v Impregilo SpA and others [2005]
UKHL 43. The categories are:
Failure by the tribunal to comply with section 33 (which sets out the tribunal’s general
duties).
The tribunal exceeding its powers (otherwise than by exceeding its substantive
jurisdiction).
Failure by the tribunal to conduct the proceedings in accordance with the procedure
agreed by the parties.
Failure by the tribunal to deal with all the issues that were put to it.
Any arbitral or other institution or person vested by the parties with powers in relation to
the proceedings or the award exceeding its powers.
Uncertainty or ambiguity as to the effect of the award.
The award being obtained by fraud or the award or the way in which it was procured
being contrary to public policy.
Failure to comply with the requirements as to the form of the award.
Any irregularity in the conduct of the proceedings or in the award which is admitted by
the tribunal or by any arbitral or other institution or person vested by the parties with
powers in relation to the proceedings or the award.
19
(cont.)
Once an applicant has demonstrated that there has been a serious
irregularity, it must satisfy the court that the irregularity has caused, or will
cause, substantial injustice to it. It was noted in
Lesotho that this requirement
was “
designed to eliminate technical and unmeritorious challenges“. The
monetary damage caused by the injustice and the cost of remedying the
injustice may be relevant, but other factors can be taken into consideration
(
Groundshire Ltd v VHE Construction plc and another [2001] BLR 395).
Section 33 of the Arbitration Act 1996 provides that the tribunal is under a
duty to act fairly and impartially as between the parties. The tribunal must
give each party a reasonable opportunity to put its case and to respond to its
opponent’s case. The tribunal must also adopt a suitable procedure and
avoid unnecessary delay and cost, so as to provide a fair means of resolving
the case. Not every breach of section 33 will give rise to substantial injustice
(
BV Scheepswerf Damen Gorinchen v The Marine Institute [2015] EWHC
1810 (Comm).
20
(cont.)
If the court finds that there was a serious irregularity and this has caused or will
cause substantial injustice, it can either:
Remit the award to the tribunal, in whole or in part, for reconsideration.
Set the award aside in whole or in part.
Declare the award to be of no effect, in whole or in part.
The primary remedy is remission: the court must remit the award unless it is
satisfied it would be inappropriate to do so. It will be appropriate to set aside the
award where the irregularity is so serious that a full rehearing is required. It will
also be appropriate to set aside the award where it would be inappropriate to
allow the original tribunal to reconsider the award, such as in cases of bias or
incompetence. The test is whether a reasonable person would have lost
confidence in the arbitrator’s ability to come to a fair and balanced conclusion on
the issues (
Miller Construction Ltd v James Moore Earthmoving [2000] EWHC
Technology 52).
21
Appeal on a point of law
The parties can agree to contract out of the right to appeal on a point of law under
section 69 of the Arbitration Act 1996, either in the arbitration agreement or
through their choice of the rules governing the arbitration.
Factual findings or procedural errors are not errors of law and so cannot be
reviewed. The right of appeal relates only to questions of English law, issues of
foreign law will not be reviewed.
An appeal can be brought with the agreement of all the other parties to the
arbitration or with the leave of the court. Leave to appeal will only be granted if all
of the following requirements are satisfied:
Determination of the question will substantially affect the rights of one or more of the
parties.
The question of law is one which the tribunal was asked to determine.
The decision of the tribunal is obviously wrong; or the question is one of general public
importance and the tribunal’s decision is open to serious doubt.
Despite the agreement of the parties to resolve the matter by arbitration, it is just and
proper for the court to determine the question.
22
(cont.)
Unlike sections 67 and 68 of the Arbitration Act 1996, section 69 is a nonmandatory provision (see section 4(2) and Schedule 1), which means that the
parties to an arbitration agreement may agree to exclude the right to appeal on a
point of law. Such an agreement is known as an “exclusion agreement”.
Effective exclusion agreements are contained in the arbitration rules of the ICC
(article 34.6, ICC Rules 2021) and the LCIA (article 26.8, LCIA Rules 2020).
An exclusion agreement can be incorporated by reference, rather than explicitly
set out in the arbitration agreement (
Sumukan Ltd v Commonwealth Secretariat
[2006] EWHC 304 (Comm)). An agreement to dispense with reasons for the
award will be treated as an effective exclusion agreement (section 69(1)).
Although express reference to section 69 is not required, rights of appeal must be
excluded clearly. A provision in an arbitration agreement that the award shall be
“final and binding” or “final, conclusive and binding” is not sufficiently clear to
exclude rights of appeal under section 69 (
Essex County Council v Premier
Recycling Limited
[2006] EWHC 3594).
23
(cont.)
The right to appeal is severely restricted by the provisions of section 69(3). Before
a section 69 appeal can be brought, the court must grant leave (permission) to
appeal. It will only be granted if the applicant can satisfy the court:
That the determination of the question of law “will” (not “may”) substantially affect the
rights of one or more parties.
That the question of law is one which the tribunal was asked to determine.
That, on the basis of the findings of fact in the award: (a) the decision of the tribunal on
the question of law is obviously wrong; or (b) the question is one of general public
importance and the decision of the tribunal is at least open to serious doubt.
That, despite the agreement of the parties to resolve the matter by arbitration, it is just
and proper in all the circumstances for the court to determine the question.
24
(cont.)
If leave to appeal is granted, there will be a hearing of the substantive section 69
appeal, following which the court may:
Confirm the award.
Vary the award.
Remit the award to the tribunal, in whole or in part, for reconsideration.
Set the award aside in whole or in part.
Where the award is varied, the variation takes effect as part of the tribunal’s award
(section 71(2)). However, this creates uncertainty about whether this is a determination
of the court or the tribunal. In addition, there is no mechanism for the award to be
rewritten to give effect to the court’s variation. This issue may also raise issues about
enforcement under the New York Convention.
Where the award is remitted to the tribunal for reconsideration, the tribunal must make
a new award in respect of the matters remitted within three months of the date of the
order for remission (or such other period as the court may direct) (section 71(3)).
The court will not exercise its power to set aside an award (in whole or in part) unless
satisfied that it would be inappropriate to remit the matters in question to the tribunal for
reconsideration. If the award is set aside, the court may remove the arbitrators using its
powers under section 24 of the Arbitration Act 1996.
25
Procedural Issues
Challenges under sections 67, 68 and 69 must be brought within 28 days of the
date of the award.
If there has been any arbitral process of appeal or review or the tribunal has
corrected the award or made an additional award using its powers under section
57 of the Arbitration Act 1996, the challenge must be brought within 28 days of the
date when the challenger was notified of the outcome of the process (see section
70(3)). An application is material where application is material where, “
until the
award is corrected, the challenge cannot be made
“.
If a party fails to object promptly to the tribunal’s lack of jurisdiction, the conduct of
the proceedings or any other irregularity, it will lose the right to bring a challenge
later unless it can show that it did not know of the ground for objection and could
not with reasonable diligence have discovered it (section 73).
26
(cont.)
An applicant must exhaust any available arbitral process of review or appeal and
any available recourse under section 57 of the Arbitration Act 1996 before
bringing a challenge (section 70(2)).
It is common for arbitral rules to provide a means of correcting errors in the award
(the slip rule); the UNCITRAL, ICC and LCIA Rules all allow for the correction of
clerical and similar errors. Both the UNCITRAL and LCIA Rules allow the tribunal
to make additional awards on claims omitted from the award. It is less common for
arbitral rules to include an appeal process. However, arbitral rules in commodities
arbitrations (for example, the rules of the International Cotton Association) often
provide for an appeal to a second-tier tribunal.
In A Ltd v B Ltd [2014] EWHC 1870, Andrew Smith J held that an appeal to a
second-tier tribunal under the ICA rules constituted an “available arbitral process
of appeal or review” within the meaning of section 70(2). He held that the claimant
had exhausted the available arbitral process where it had sought to appeal to the
second-tier tribunal but its appeal had been dismissed for failure to pay the fees.
27
(cont.)
A challenge to the tribunal’s substantive jurisdiction under section 67 should not
be confused with a challenge under section 68(2)(b) on the ground that there has
been a serious irregularity because the tribunal has exceeded its powers. Section
68(2)(b) does not cover challenges to the tribunal’s substantive jurisdiction, but is
concerned only with situations where the tribunal has exceeded its procedural
powers.
The question of possible overlap between section 68(2)(b) and section 69 was
considered in
Lesotho. The distinction is an important one because the parties
can agree to exclude appeals on a point of law but cannot agree to exclude
challenges on the ground of serious irregularity. The arbitration in
Lesotho was
under ICC Rules and so an appeal on a point of law was not possible. The House
of Lords held that, unlike in the field of public law, a tribunal which made an error
of law had not exceeded its powers.
Where it is unclear whether the application or appeal should be made under
section 67, 68 or 69, it may be safer to make an application or appeal under all
sections that could be relevant. This is because of the strict time limits applying to
challenges under all three section.
28
Loss of the right to object
If a party taking part in arbitral proceedings fails to raise certain challenges to
the arbitral proceedings or the award promptly or within a specified time limit,
he may lose the right to object at all under section 73 of the Arbitration Act
1996. This does not necessarily mean active participation but can include
allowing the proceedings to continue without raising an objection (
Rustal
Trading Limited v Gill & Duffus SA
[2000] 1 Lloyd’s Rep 14).
Which rights can one lose?
Objection to lack of jurisdiction of the tribunal (section 73(1)(a))
Objection to improper conduct of the proceedings (section 73(1)(b))
Objection to failure to comply with the arbitration agreement or any
provisions of Part I of the Act (section 73(1)(c))
Any other irregularity in proceedings (section 73(1)(d))
29
(cont.)
A French example: in Avax v Tecnimont (Civ. 1ère, 25 June 2014, pourvoi
n° 11-26.529), the French Supreme Court (Cour de cassation) reviewed the
Paris Court of Appeal’s decision regarding the effect of the time limits in
institutional rules on the judge reviewing the award.
It held that a party that had failed to exercise its right to challenge an
arbitrator within the time limit specified by the applicable arbitration rules is
deemed to have waived its right to have the award set aside on that ground.
In other words, the French Supreme Court held that the arbitration rules that
have been chosen by the parties to govern the arbitration have a legal effect
on the judge reviewing the award and cannot be disregarded once the
arbitral award has been rendered.
The decision is a reminder to parties to consider promptly their rights under
any agreed institutional arbitration rules and, more importantly, to heed the
time limits imposed by those rules.
30
Challenges to awards in Switzerland
The grounds for setting aside an arbitral award are very limited and are applied
restrictively. Consequently, petitions to set aside arbitral awards are generally
unsuccessful. The arbitrators’ findings on the merits generally cannot be
challenged, unless they violate Swiss public policy. Also, an arbitral tribunal’s
findings of fact are generally binding on the Swiss Supreme Court.
The only grounds for setting aside an international arbitral award in the context of
international arbitration proceedings are:
Improper appointment or constitution of arbitrators (Article 190(2)(a), Private International
Law Act 1989 (PILA)).
Wrongful acceptance or denial of jurisdiction by the arbitral tribunal (Article 190(2)(b),
PILA).
An infra petita decision (that is, the tribunal did not answer all questions presented to it),
ultra petita decision (that is, the tribunal ruled beyond issues presented to it by the
parties) or
extra petita decision (that is, the tribunal decided on claims that were not put
forward by the parties at all) (Article 190(2)(c), PILA).
Violation of the right to equal treatment or the right to be heard (Article 190(2)(d), PILA).
Incompatibility with public policy (Article 190(2)(e), PILA).
31
Challenges to awards in Germany
An application can only be made to the German courts to set aside an award if the
award was rendered in Germany (section 1059, Code of Civil Procedure
(Zivilprozessordnung) (ZPO)).
An award may be set aside where the applicant can show sufficient cause that:
A party to the arbitration agreement was under some incapacity according to the law
applicable to it (section 1059(2)1(a), ZPO).
The arbitration agreement is not valid under the law to which the parties have subjected it
or, failing any indication of this, under German law (section 1059(2)1(a), ZPO).
A party was not given proper notice of the appointment of an arbitrator or of the arbitral
proceedings, or was otherwise unable to present its case (section 1059(2)1(b), ZPO).
The award deals with a dispute not contemplated by, or not falling within, the terms of the
submission to arbitration, or contains decisions on matters beyond the scope of the
submission to arbitration (if the decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of the award containing decisions
on matters not submitted to arbitration can be set aside) (section 1059(2)1(c), ZPO).
The composition of the arbitral tribunal or the arbitral procedure was in breach of German
arbitration law or of an admissible agreement of the parties, and it can be presumed that
this affected the award (section 1059(2)1(d), ZPO).
32
Enforcement of arbitral awards
There is a fundamental difference between the terms “recognition” and
“enforcement”.
“Recognition” means the acceptance of a foreign award as having the same effects as a domestic
award. The award may accordingly be relied on by way of defence, set-off or otherwise in any legal
proceedings (section 101(1), Arbitration Act 1996).
“Enforcement” means giving an award the same effect as a domestic court judgment. The court is not
ordering execution measures, but merely issuing a declaration of enforceability, which then serves as
the official basis of further execution.
An award may be recognised without being enforced, but if the award is enforced,
it must necessarily first be recognised by the court ordering the enforcement.
In ASM Shipping Ltd of India v TTMI Ltd of England [2007] EWHC 927 (Comm),
the court affirmed the further distinction between permission to enforce (sections
66(1) and 101(2), Arbitration Act 1996) and entering judgment in terms of the
award (sections 66(2) and 101(3)). A failure to honour the award may be
contempt of court in the latter case, but not the former.
33
(cont.)
Signatory states to the New York Convention agree that they will recognise and
enforce arbitral awards made in the territory of a state other than the state where
the recognition and enforcement of the award is sought. The UK has enacted the
New York Convention into domestic legislation (sections 100 to 104 of the
Arbitration Act 1996).
Signatory states are permitted to make certain reservations (see Article I.3, New
York Convention), in particular:
Reciprocity reservation. States may limit the applicability of the New York Convention
to awards made in other contracting states. Therefore, it is necessary to check whether
both the state where enforcement is desired and the state where the award was made
are contracting states. (The UK has made this reservation).
Commercial reservation. States may limit the applicability of the New York Convention
to awards relating to commercial matters.
34
How to maximize the chance of enforcement?
There are a number of steps that parties can take to maximise the chances of
enforcement:
Seat of arbitration: parties should give careful consideration to the seat of the
arbitration, as this will affect the enforceability of the award. If the award is made in a
New York Convention state and the assets are also located in a New York Convention
state, then it should be straightforward to enforce.
Location of assets: if you are trying to enforce an award made in a New York
Convention state against a respondent’s assets located in a New York Convention state,
enforcement is theoretically a simple and easy process. If the assets are not located in a
New York Convention state, it may be more difficult.
Freezing injunctions: though it does not provide any security over the assets, a freezing
injunction obtained at an early stage may be particularly useful in cases where a party
wishes to make sure that the respondent has sufficient assets to comply with the award,
or as a method of securing assets for the enforcement of an award.
Appointment of receivers: as well as freezing injunctions, the court has power under
section 44 of the Arbitration Act 1996 to order the appointment of receivers.
Insolvency: enforcing an award against an insolvent respondent will be problematic. The
claimant will rank alongside other unsecured creditors, behind preferential payments
such as the expenses of winding up and secured creditors (see sections 107 and 148 of
the Insolvency Act 1986 and rules 4.181 and 4.182 of the Insolvency Rules 1986)
35
Defences to enforcement
An award which is, on its face, valid will be enforced by the court, unless the
respondent raises a defence to enforcement. Article V of the New York Convention
lists 7 grounds for refusal to enforce an arbitral award:
The award was rendered under an arbitration agreement that was invalid or where the parties
lacked capacity to make the agreement.
The losing party was not given proper notice of the appointment of the arbitrator or of the
arbitration proceedings, or was otherwise unable to present its case.
The award deals with a difference not yet contemplated by or falling within the terms of the
arbitration agreement.
The composition of the arbitral tribunal or arbitral procedure violated the parties’ agreement or
(absent any such agreement) the law of the arbitral seat.
The award is either not yet binding or has been set aside or suspended by a competent
authority of the country in which, or under the law of which, the award was made.
The subject matter of the parties’ dispute is not capable of settlement by arbitration (i.e., is
“non-arbitrable”) under the law of the enforcing state.
Recognition or enforcement of the arbitral award would be contrary to the public policy of the
enforcing state.
Article VI of the New York Convention permits a court to suspend or stay a recognition
decision where an annulment (or vacatur) application has been made to a court or
other competent authority of the “country in which, or under the law of which, that
award was made.”
36
(cont.)
The New York Convention grounds are enacted in English law in section 103 of
the Arbitration Act 1996. In resisting enforcement, the award debtor must produce
the award and the arbitration agreement to the court. The burden then shifts to the
respondent to raise a defence to enforcement, failing which judgment will be
entered in terms of the award.
The courts have discretion to enforce an award even if one of the grounds set out
in sections 103(2) and (3) has been established. In
China Agribusiness
Development Corporation v Balli Trading
[1998] 2 Lloyd’s Rep 76, Longmore J
held that: “
It is clear from the terms of the statute that refusal to enforce a
convention award is a matter for the discretion of the court. In that context it must
be relevant to assess the degree of prejudice to Balli by the arbitration being
conducted under the current, rather than the provisional, rules
”.
Where a party has good grounds for challenging the recognition and enforcement
of the award, the discretion of the court may be limited:
Yukos Oil Co v Dardana
Ltd
[2002] EWCA Civ 543.
37
Q&A
Any Questions?
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