The Enforcement of International Commercial Arbitral Awards

The Enforcement of International Commercial Arbitral Awards How to enforce international arbitral awards and annul them? Yassin Abdalla Foreword: Taking the judicial way has been recently no longer considered the only approach for disputes settlement – especially commercial ones. Commercial arbitration has proven strongly its effectiveness in this regard. Due to its speed, flexibility, and professionalism, the majority of commercial disputes prefer this method to contain and settle any dispute or legal matter of any kind arouses from their trade. Likewise, the same approach is taken between international trade parties, regardless of their identity, either they are states or corporations, and even private persons. This way of dispute settlements has its historic roots. In ancient history, the Greeks managed to use arbitration as a method to settle disputes between the City-States, preventing wars among them. "The first evidence of an outlined plan for the arbitration of international disputes dates from the early fourteenth century, about I3O6, when Pierre Dubois, a royal advocate of Normandy, wrote a pamphlet in which was developed an elaborate plan for the recovery of the Holy Land. As the success of a Crusade depended on a general peace in Europe, Dubois advocated arbitration to settle outstanding quarrels" Sketch of the History of International Arbitration, Henry S Fraser, Cornell Law Review, Feb 1926. In the book entitled "Le Nouveau Cynge", published in 1623, Émeric Crucé, put the first modern expression of a genuine plan for international arbitration. Hugo Grotuis, the father of international law, in 1625 mentioned in his third book the international arbitration. And he wrote in this book in some length about the value of arbitration and its benefits and some applications of it – exempli gratia Christians and Jews in Europe used in their disputes to appoint arbitrators to avoid any trial by judges from another religion De Jure Belli et Pacis, Hugo Grotius, 1625. In 1638, concurrently with The Thirty Years War in Europe, Sully, the former minister of Henry IV of France, set a political plan for peace which included sanctions on the Imperial House of Austria. During the 1700s, the philosophers all over Europe committed their words on peacemaking; this was reasoned by the political crisis which stormed the continent then. Hence, many of them presented theories for securing international peace pro bono publico. Jeremy Bentham, as well as Rousseau, recognized the desirability of a common court of judicature in Europe for the maintenance of peace. Likewise, Immanuel Kant confirmed in his book Sketch of the History of International Arbitration, Henry S Fraser.. At the end of this very century, a major development of international arbitration had occurred; It was manifested in the Jay Treaty (1794) between Great Britain and the United States, which established three arbitral commissions to settle questions and claims arising out of the American Revolution International commercial arbitration, Martin Domke, Encyclopedia Britannica. This notion continued through the 19th century among philosophers and professors that Dr. Johann K. Bluntschli in 1878 set forth a thoughtful plan for the organization and functions of a European Union containing an arbitral court. Getting into the 20th century UNCTAD, Dispute Settlement: International Commercial Arbitration, 2005, it was in 1923 when the Geneva Protocol on Arbitration Clauses adopted by the League of Nations, its essential provision was “Each of the Contracting States recognizes the validity of an agreement whether relating to existing or future differences between parties subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or any other matter capable of settlement by arbitration, whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject.” Consequently, in 1922 the International Chamber of Commerce (ICC) adopted its first rules of arbitration and in 1923 established the Court of Arbitration. Afterward, in 1958 the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) was adopted, emphasizing that the arbitral award accompanied by parties' agreement must be considered as prima facie worthy of credit. The latter convention stated that this award must be enforced upon the parties and, in the meanwhile, the exception of its enforcement. In 1961, three years after the adoption of the New York Convention, the European Convention on International Commercial Arbitration was adopted. The Convention is noteworthy as being the first international instrument to have the words “international commercial arbitration” in its title. Then, in 1966, the Arbitration Rules for ad hoc arbitrations were adopted by both the United Nations Economic Commission for Europe (ECE) and the United Nations Economic Commission for Asia and the Far East (ECAFE). The same year the European Convention Providing a Uniform Law on Arbitration was adopted by the Council of Europe. In April 1976, UNCITRAL Arbitration Rules were adopted and which were specifically designed for use in ad hoc common law/civil law arbitrations. Those rules were followed in 1985 with the Model Law which permitted the parties to conduct the arbitration themselves, improving the flexibility theme of the whole arbitration process. Despite this, this Model Law is yet incomplete. As a result, most states supplemented it with more provisions and UNCITRAL is currently considering several measures that are expected to enhance its effectiveness Report of the Working Group on Arbitration and Conciliation on the work of its forty-second session (New York, 10-14 January 2005), A/CN.9/573. It can be concluded from the previous historic overview that the greatest motivation behind seeking after developing international arbitration to be the main approach for international dispute settlement is the flexible nature of arbitration, which prompted it in philosophers' eyes to be the best way for peacemaking among nations. The aforementioned flexibility is reasoned by the way the arbitration process is done. First, the parties put the conditions and rules of the process in their trade agreement, drawing all the procedures related to initiating the arbitration, driving it to the final award. Second, the parties choose the shape of the arbitral chamber or tribunal with all its board. They, third, choose the award annulment ad hoc authority. So, arbitration is apparently a very flexible way to settle commercial disputes. It satisfies de facto, in the majority of cases, both parties. Yet, as the awards of any arbitration chamber or tribunal may be issued from a foreign entity, the important question here is: How to execute the arbitral award? What is the mechanism of doing so? How to set aside the award? And how to enforce it on the dispute parties both? In the following words, we shall discuss the enforcement of international commercial arbitration awards on contradicted parties. The Enforcement of Arbitral Award: “The ultimate test of any arbitration proceeding is its ability to render an award which, if necessary, will be recognized and enforced in relevant national courts International Commercial Arbitration: Commentary and Materials, Born, G.B, 2001 " After the arbitral award is issued by the ad hoc chamber or tribunal it becomes res judicata upon the concerned parties. Yet, as parties to international arbitration become increasingly experienced and sophisticated, the enforcement of international arbitral awards may no longer be quite as straightforward and does not seem to be easily executed in reality. Execution of the award is more difficult and complex in fact than winning it. In 2008, Queen Mary International Arbitration Survey concluded that in 76% of the arbitral proceedings the non-prevailing party voluntarily complied with the arbitral award Enforcing international commercial arbitral award, Nathalie Allen Prince and David Turner, The Financier Worldwide, 2018 . In other words, as shown through the survey, this enforcement depends to a great extent on the voluntary behavior of the losing party which must show bona fide in this regard. The 1958 New York Convention represents, in this regard, the culmination of efforts by many international organizations to secure a multilateral treaty providing businesspersons with a unified, efficient, and trustworthy method of ensuring that the manner they have chosen to resolve their transnational disputes will be effective. Commenting on the latter Convention, the United States Supreme Court stated in a case involving the enforcement of an international arbitration agreement: "The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries" Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 (1974). . The 1958 Convention in Article 1 establishes the limitations of the treaty's scope. The treaty applies only to international commercial agreements to arbitrate. Article 1 also permits States to limit their obligation to enforce awards to only those made in reciprocating nations and provides that the arbitration clause must be in writing and requires the subject matter to be capable of arbitration. Article 3 includes the fundamental obligation of a contracting State to recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied on and under the conditions outlined in the Convention. The New York Convention thus remits the parties to domestic laws already in place concerning enforcing awards. In fact, the Convention lacks a system of procedural rules to enforce the arbitral awards on concerned parties, letting the states in full authority to legalize their recognition and enforcement rules independently. The enforcement proceedings are entirely based on the domestic law of the state in which the winning party seeks enforcement. In this field, Nathalie Allen Prince and David Turner decide that two ways of seeking enforcement of an arbitral award: through informal channels or the relevant local courts Enforcing international commercial arbitral award, Nathalie Allen Prince and David Turner. The informal methods often consist of applying commercial, diplomatic or reputational pressure, and it is advisable to explore them first. If failed, the winning party must locate one or more jurisdictions, preferably arbitration-friendly ones, in which the losing party holds assets against which the award may be enforced. Due to the shorten above-mentioned in 1958 Convention in this regard, a divergence appeared clearly in countries approaches. Exmpli gratia the courts in England have generally refused to enforce an award that has been set aside at the seat In the 2017 case of Nikolay Viktorovich Maximov v. Open Joint Stock Company, the English Commercial Court declined to enforce an award set aside at its seat in Russia. In France, in contrary, the courts have taken the opposite view, allowing ‘zombie’ awards to be enforced, notwithstanding that they have previously been set aside at the seat In Société Hilmarton Ltd v. Société Omnium de traitement et de valorisation (OTV), the French Court of Cassation (Cour de Cassation) decided to enforce an award previously set aside at the arbitral seat in Switzerland, holding that the award was an international award that was not integrated into the legal order of the Swiss state and which, therefore, continued to exist even though it had been set aside . In Egypt, which is considered a promising market for investment nowadays, the Law No 27/1994 organizes all related cases to the foreign arbitral awards enforcement in Egypt in the light of 1958 New York Convention. According to Article 55, these awards become res judicata as well as any domestic court award. This means, consequently, the binding value of these awards and the enforceable execution of the mentioned awards. Likewise, the Egyptian Court of Cassation confirmed the authority of these awards in all cases seen before Egyptian courts Annul No 76, 13/3/2007, Egyptian Court of Cassation.. And thus, confirmed the same concept in later awards. Article 56 determines the procedures of arbitral award execution. It states that to execute the foreign arbitral award the winning party should submit an application of execution accompanied with the hereafter documents: The origin award document, or authentic copy of it. Authentic copy of the arbitration agreement. Accredited translation of the award into Arabic. Copy of the award filing record. The above-mentioned application must be submitted to Cairo Court of Appeal if the dispute is commercial and international. The execution of the noted awards passes through the following steps: Registering the award in court office. Expiring annulment deadline (90 days after declaration of the award to the parties) Issuing execution order by the court. Moreover, there are approximately fifty states which are not parties in 1958 Convention. In casu, the usual approach of enforcement is the bilateral or multilateral treaties for the recognition and enforcement of arbitral awards, which guarantee to an extent this enforcement and legal rights and positions generated from the arbitration awards. But if the noted treaties do not exist, a third-party state may interfere demanding the execution and making pressure – politically or economically- for the sake of it. Regarding ICSID awards, it is established that they are binding on the parties. The parties are under a legal obligation to comply with awards. Voluntary compliance is the norm. If it is not forthcoming, the Convention provides for enforcement. Enforcement takes place through the appropriate authorities of the States parties to the Convention. All States parties to the Convention are under an obligation to recognize and enforce ICSID awards as if they were final judgments of local courts. This binding force implies that the parties are under an obligation to comply with it. This obligation is independent of any procedural obstacles that may arise in the course of enforcement. In particular, even if State immunity is available to thwart enforcement, this does not affect the obligation to comply with the award. The duty to comply is suspended while a stay of enforcement is in force. A stay of enforcement may be granted under Arts. 50(2), 51(4) and 52(5) while proceedings for interpretation, revision or annulment are pending. A stay of enforcement is not possible in connection with a request for supplementation or rectification in accordance with Art. 49(2). The Convention provides for its own a self-contained system of review of awards. The exclusion of any external remedy, as expressed in Art. 53(1), also bars any review by domestic courts. A party to ICSID proceedings may not initiate action before a domestic court to seek the annulment or another form of review of an ICSID award. A court of a State that is a party to the ICSID Convention would be under an obligation to dismiss such an action. This independence from national procedures for review of arbitral awards means that the place of arbitration in ICSID proceedings is irrelevant for the award’s validity and enforcement. In the same vein, national courts charged with the enforcement of an ICSID award, have no power to review that award for substantive correctness or procedural irregularities. The awards also are not subject to any review by the International Court of Justice. In addition, the principle "ne bis in idem" precludes resort to any national or international judicial remedy. State Immunity versus Enforcement of Foreign Arbitral Awards: One factor that stands as an obstacle in front of executing international arbitration awards is state immunity, which is an essential element of the independence of any state. State immunity divides into two categories: immunity from jurisdiction, which implies that a state is immune from proceedings in foreign national courts, because of the independent status and the principle of equality between states. As a result, states are immune from any legal proceedings before the courts of another state, and consequently, no claim can be brought against them. It is, however, a common practice in many states that if a state has signed an arbitration agreement and participated in arbitration proceedings, that the state is considered to have waived its immunity from jurisdiction in respect of the proceedings related to that arbitration. This is often implicit and derives from the principle of good faith. The principle, however, can also be explicitly included in the arbitration agreement or the institutional rules. Such a provision, for instance, can be found in Article 1.3 of the newly adopted Investment Arbitration Rules of the Singapore International Arbitration Center. This implies that a state cannot invoke its immunity from jurisdiction to hinder recognition or enforcement of an arbitral award before the national courts of another state. Besides, there is the state immunity from execution, which is often a barrier to the enforcement of arbitral awards. Immunity from execution is a rule of international law, which implies that enforcement measures against the state cannot be carried out with regard to property belonging to that foreign state. As a result, one state cannot seize property or such assets in another one. This fact motivated many states to incorporate this firmly established customary norm in their domestic laws. There is, however, one notable exception to this, which is accepted in many, but definitely not all states. A difference is made, indeed, between property a state owns and uses for public or sovereign purposes, what is called acta jure imperii, and property owned and used for private purposes, acta jure gestionis International Law in Action: The Arbitration of International Disputes, MOOC by Lieden University, Netherlands.. The former category includes, for instance, embassies, consulate, embassy bank accounts, ministerial buildings, military equipment and ships, and so on. The latter category may include, for example, a building that is rented to private parties. Several states accept that the latter category of the property may nonetheless be subject to enforcement measures, such as seizure or attachment. Such property, however, is in practice not always easy to find, especially in the territory of a state other than the state against which you seek enforcement. The implicit or explicit waiver of immunity from jurisdiction does not apply here. In fact, most institutional rules, and some domestic laws, contain provisions that explicitly confirm the continued validity of a state's immunity from execution, even if it participates in an arbitration. This is the case, for example, in the mentioned Article 1.3 of the Investment Arbitration Rules of the Singapore International Arbitration Center. It is also mentioned in Article 55 of the ICSID Convention. A waiver of immunity from execution would only exist if the state has expressly consented to waive such immunity, for instance in the arbitration agreement, which never happens de facto. A waiver of immunity from execution is possible, in principle, but may be subject to specific conditions or limitations under the law of the country where execution is sought. The possibility to waive immunity is not necessarily unlimited. Certain waivers may have to be explicit while others may be given implicitly. Certain forms of waiver of immunity may be invalid even if agreed upon by the parties. State immunity, also, has an important effect in regard to the annulment of interstate arbitration awards; It deprives, in practice, the national courts of annulling these awards Though in Chagos Marine Protected Area (Mauritius v. United Kingdom), UK invoked state immunity to counter Mauritius’s claim that the award could be annulled by Dutch courts. See https://pca-cpa.org/en/cases/11/ . . Annulment of Arbitration Awards: Once the award is issued by the proper and ad hoc authority, it becomes res judicata, which stamps it be the theme of finality and effectiveness before all concerned parties, giving it all the needed power to restore the balance between its parties. It is stated that the arbitral award is “final and binding” The Annulment of Interstate Arbitral Awards, Peter Tzeng, 2017. But this finality does not mean infinity; Both parties can seek after the annulment of the award rendered in their dispute, which in practice is done by the losing party. So, this finality cannot be secured in different ways. In regard to interstate arbitration awards, Peter Tzeng referred to the distinction between two regimes in arbitration awards annulment: Lex Lata and Lex Ferenda. In the former, it is obvious that interstate arbitral awards are not subject to a compulsory control mechanism, especially that it is very rare for a given state to seek after such annulment. On the contrary, in the latter, interstate arbitral awards are not subject to a compulsory control mechanism. "The policy debate concerning the propriety of annulment centers around the reconciliation of two principles: finality and fairness. On the one hand, arbitral awards should be final, such that a dissatisfied party cannot relitigate the dispute simply because it disagrees with the outcome. On the other hand, arbitral awards should be fair, such that a dissatisfied party can relitigate the dispute if there are legitimate reasons for doing so" The Annulment of Interstate Arbitral Awards, Peter Tzeng, 2017 . In regard to ICSID awards, this issue appeared on the surface in two cases: Klockner v. Cameroon" and Amco Asia Corporation v. Indonesia, in which both the awards were annulled by an ad hoc committee. The latter committee concluded in both cases that the arbitrators had exceeded their power and failed to apply the proper law. As a result, they failed to state sufficient reasoning of their legal conclusion in both cases The Annulment Proceedings and the Finality of ICSID Arbitral Awards, Mark B Feldman . Hence, it can be determined that there is no appeal from the decision of an ad hoc committee annulling an award under the ICSID system. Therefore, the only way here is to resubmit the case for arbitration de novo by a new tribunal. Despite, Article 52 of the ICSID Convention provides that either party may request annulment of the award within 120 days after the date on which the award was rendered. This request shall be submitted to an ad hoc committee that may not include the arbitrators who issued the concerned award or who belongs to the nationality of the parties. This ad hoc committee can annul the award if based on the grounds mentioned in the mentioned article. UNCITRAL has adopted a Model Law on international commercial arbitration which provides for very limited recourse against the arbitral award. Under Art 34 of this law, a party may request the competent court of the country where the arbitration takes place to set aside an award if one of the grounds noted in Arts V.1 (a-d) and V.2 (a-b) of the 1958 New York Convention. The various states all over the globe have considered such annulment as an approach to set aside international arbitral awards. For instance, Belgium annulled partially an arbitral award if the ad hoc arbitral tribunal refused to hear the witness. This was reasoned by the fact that A party requested the suspension of the proceedings, especially because criminal proceedings had been commenced in connection with the contract. The same party requested that the other party be ordered to produce their witness statements given in the criminal investigation and that the current proceedings be suspended until the other party produced the requested documents. The Court held that the relevance of the requested documents was not specified in the present proceedings and denied the requests. The Court noted that judges have the possibility, and not the obligation, to grant such a request i.e. a request to order the production of witness statements given in criminal proceedings Liege Court of Appeal, 14th Chamber, 22 November 2010(2009/RG/725): Company S. and Mr. T v. M. L and Company A, unpublished . Besides, the award shall be annulled if it failed to answer all the parties' arguments because it is held that the reasoning of the award shall meet the same quality standards as those required for the judgments Court of First Instance of Liege, on 6th March 1984, Published in Jurisprudence de Liege, 1984, pp 197 - 200. In the same place, Brazil manages to annul the award in the case of refusing to allow additional written submissions as the arbitral tribunal shall give both parties the whole opportunity to submit all their defense and produce necessary evidence Jimmie Earl Carliesle v. Luciano Silva Pereira, Court of Appeals of Rio de Janeiro, Rio de Janeiro Circuit, April 4, 2007, Agravo de Instrumento No 2006.002.27583, Reporting Justice Leila Mariano. . And also, when refusing to hear witnesses. The disagreement of the parties upon rendering an award without hearing is a situation in which China manages to annul such an award. The Chinese courts decide that this is a clear violation of arbitration rules Beijing No.2 Intermediary People`s Court, 2002, Taiwan Huaching Plastic Industry Ltd. v. Yantai Economic & Technological Development Zone Plastic Ltd, (2002) Er Zhong Min Te Ding No. 06244, application for annulment of the arbitration award [2002] No. 0039 rendered by CIETAC in Beijing. . United States approach differs in such matter according to the conditions of each case per se; In Balberdi v. Fedex Ground Package System, Inc. case (2016) Balberdi v. Fedex Ground Package System, Inc., 209 F.Supp.3d 1160 (D.Hawai'i 2016) Published in Westlaw it did not annul the arbitral award on ground of Refusing to consider evidence pertinent and material to the controversy and in the case Johnson v. Directory Assistants Inc. as well Johnson v. Directory Assistants Inc., 797 F.3d 1294 (11th Cir. 2015) Published in Westlaw . Though, it, previously, had annulled the award rendered in the case Gulf Coast Indus. Workers Union v. Exxon Co (1995). The annulment was based on the mentioned ground herein Gulf Coast Indus. Workers Union v. Exxon Co., 70 F.3d 847 (5th Cir. 1995) Published in Westlaw. In Bonar v. Dean Witter Reynolds, Inc case (1988) the American Court annulled an arbitral award because of allowing the testimony of an improper expert who had – as exposed later – falsified his qualifications, leading the tribunal to admit his testimony and rely on it, eventually, in its award Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378 (11th Cir. 1988) Published in Westlaw . Conclusion: Through the previous view of the enforcement of the arbitral award, we can get a grasp on the corners of this topic. Arbitration indeed provides disputes settlement with flexibility, enhancing the settling litigations methods. Despite this, the different concerning entities manage to enforce the arbitral awards or oppositely set them aside via the annulment methods, which stamps in practice international arbitration with a wealth of legal principles and theories, promoting eventually the global legal culture.