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Enforcement of foreign arbitral awards

  1. Prepared by : Dechen Gurung Bikash Singh B.A.LLB 4th Year ,2018 Kathmandu School of Law
  2.  Arbitration is a form of alternative dispute resolution in which parties refer disputes between them to be resolved by one or more arbitrators, which render a legally binding decision.  Arbitration has become the principal way of resolving disputes in international commerce.  It provides an efficient, confidential and impartial process driven by the power of party autonomy.
  3.  It is in international business sometimes referred to as the “only truly neutral method” and as “the only viable option”.  One prime reasons parties seek arbitration for the international commercial dispute is the relative certain enforceability of award.
  4.  The overall success of arbitration is largely owed to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the Convention”) 1958.  The Convention was adopted by the United Nations on June 10 1958 and establishes rules which are aimed at granting recognition and enforcement of arbitral awards.  To this effect, the Convention binds the Member States to ensure that arbitration agreements and arbitral awards are recognized and enforced within their territories. As prescribed in Article III, the Contracting States “shall recognize arbitral awards as binding and enforce them”.
  5.  The Convention’s principal aim is that foreign and non-domestic arbitral awards will not be discriminated against and it  obliges Parties to ensure such awards are recognized and generally capable of enforcement in their jurisdiction in the same way as domestic awards.  An ancillary aim of the Convention is to require courts of Parties to give full effect to arbitration agreements by requiring courts to deny the parties access to court in contravention of their agreement to refer the matter to an arbitral tribunal.
  6.  The convention has 159 Member States as of April 2018. The wide recognition and acceptance means that arbitral awards are enforceable almost anywhere in the world.
  7.  The New York Convention was established as a result of dissatisfaction with  the Geneva Protocol on Arbitration Clauses of 1923  the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927.
  8.  The initiative to replace the Geneva treaties came from the International Chamber of Commerce (ICC), which issued a preliminary draft convention in 1953.  The ICC's initiative was taken over by the United Nations Economic and Social Council ("ECOSOC"), which produced an amended draft convention in 1955.  That draft was discussed during a conference at the United Nations Headquarters in May-June 1958, which led to the establishment of the New York Convention
  9. A. Principles governing recognition and enforcement Article III Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. Although the terms “recognition”and“enforcement” tend to be said together, they mean different things
  10.  When a court “recognizes” an award, it acknowledges that the award is valid and binding, and thereby gives it an effect similar to that of a court judgment. The award has an official legal status, so that issues determined by the award usually cannot be relitigated or rearbitrated.  For example: Suppose, for example, the party that prevailed in the arbitration was the respondent, and the award simply said the respondent had no liability. The respondent might want to have the award recognized in order to defeat claims on the same facts that might be brought against it in other proceedings, either before a court or another arbitral tribunal.
  11.  Enforcement, on the other hand, means using whatever official means are available in the enforcing jurisdiction to collect the amount owed or to otherwise carry out any mandate provided in the award.  For example : When an award has provided that the respondent is liable to the claimant for money damages, and the respondent appears in no hurry to pay the amount awarded, then the claimant – the award creditor – may seek recognition and enforcement of the award in a jurisdiction where assets of the respondent – the award debtor – are located.
  12. Scope Article 1.1 The convention is applied to foreign awards as opposed to domestic awards defines foreign awards as:  The arbitral awards made in the territory of a State other than the requested State  The awards not considered as domestic awards in the requested State.
  13.  First it is not the nationality of the parties, but the place where the award is made, which must be a state different from the one which is requested to enforce it.  The scope of the New York Convention is not limited by reference to the nationality of the parties to the arbitration agreement or the award.
  14. In France (1984), the Rouen Court of Appeals had no hesitation in applying the New York Convention to an award made in Switzerland, in the context of an application for enforcement, as both Switzerland and France had ratified the Convention.
  15.  Second criterion, it also permits enforcement, however, of awards considered “nondomestic” by the enforcing jurisdiction.  Because “domestic” is not defined in the Convention, that determination must be made by each of the Contracting States.
  16. In United States the federal arbitration act provides an award is nondomestic even if between citizens of US “relationship involves property located abroad, envisages performance of enforcement abroad, or has some other reasonable relation with one or more foreign states.”
  17.  Article 1.2. The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted ( for example Permanent court of arbitration)
  18. Contracting parties can make two reservations to the scope of applicability  Reciprocity Contracting State can provide that it will only apply the Convention to awards that are made in the territory of another Contracting State. Thus, if an enforcement action was brought in a Contracting State that had made a reservation as to reciprocity, and the award had been made in a non-Contracting State, the Convention would not apply.
  19.  This would be true even if both parties had places of business located in a Contracting State.  It is important to understand that neither citizenship nor location of the parties is a key determinant of the Convention’s applicability.  Rather, the significant consideration is the place where the arbitration occurred.
  20.  a Contracting State may “declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial . . .”
  21. Signatory state courts must recognize an agreement to arbitrate a dispute, if:  Agreement is in writing  The parties have agreed to settle their disputes by arbitration in respect of a defined legal relationship.  The matter is capable of settlement by arbitration. The courts may only entertain an action where the arbitration clause is found to be:  null and void,  inoperative or  incapable of being performed
  22. Procedures for enforcing an award will be in accordance to the rule of practice of the enforcing state.  It cannot, however, impose any higher fees or any more onerous conditions on the process than would be applicable in enforcing a domestic award.
  23.  The only specific requirements imposed by the Convention are that the party applying for recognition and enforcement must provide the court with the authenticated original award or a certified copy, and the original arbitration agreement or a certified copy.  If the award or the agreement is not in the same language used in the enforcing jurisdiction, the party must provide a certified translation of the documents.
  24. The convention sets out two classes of grounds for refusal  Those which must be raised and proved by the opposite party  Those which may be raised of its own motion by the state court, requested for enforcement.
  25.  Incapacity and invalidity- NYC Article V (1) (a):  Breach of Due Process (Lack of notice or fairness)- NYC Article V (1) (b)  Arbitrator acted in access of authority Art. V(1)(c)  Procedure or composition of the arbitral tribunal contrary to the agreement of the parties or the law of the place of arbitration.- NYC V (1) (d)  The award was yet not binding and set aside or suspended- NYC Article (1) (e)
  26. The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made Incapacity :  The incapacity issue could involve issues such as sovereign immunity, or perhaps a question of whether the arbitration agreement was signed by someone who did not have authority to act for the corporate party.
  27.  The invalidity question that must be resolved under the parties’ chosen law or the law of the seat of the arbitration may simply be a question of meeting the form requirements of the law in question, or it may involve the proper formation of a contract to arbitrate.  Generally, consent to arbitrate must be clear, and most laws require that it be demonstrated by a writing.
  28.  The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.  Unable to present his case i.e. party denied fair hearing, denial of due process
  29.  The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced.  An arbitrator’s power comes from the consent of the parties, and if she exceeds the authority specifically given to her under the parties’ arbitration agreement, then the resulting award is not enforceable under the Convention.
  30.  The tribunal or the procedure was not in accordance with the parties’ agreement  The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.
  31.  The award has not yet become binding on the parties, or 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.  Binding award: Although no definition of “binding” is provided in the Convention, most courts consider that an award is binding if there is no way of bringing an appeal on the merits.
  32.  Subject matter of dispute not arbitrable  Award contrary to public policy
  33.  The subject matter of the difference is not capable of settlement by arbitration under the law of that country.  A country’s laws may provide that certain types of disputes are not arbitrable. For example, child custody disputes, criminal matters, bankruptcy, the validity of trademarks or patents, and other kinds of disputes that will have an impact on third parties or have some kind of consequences in the public domain will usually have to be decided in a court of law. The arbitrability of various matters may vary widely from jurisdiction to jurisdiction.
  34.  The recognition or enforcement of the award would be contrary to the public policy of that country.  Public policy is not defined in the Convention, and thus presents the possibility of another broad loophole for refusing enforcement.  On the whole, however, most courts have viewed this defense narrowly, in keeping with the Convention’s pro-enforcement purpose.
  35.  In case of Parsons&WhittemoreOverseasCo., Inc. v. Socie´te´Ge´ne´rale de l’Industrie du Papier, where the U.S. Second Circuit Court of Appeals, in affirming the enforcement of an arbitral award against an American company, stated that  “the Convention’s public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state’s most basic notions of morality and justice”
  36.  But there is room for it to be used parochially to protect national political interests.  For example Chinese supreme people’s court refused to enforce a CIETAC award for monies owed to a heavy metal band. The Chinese ministry of culture had failed to pay for its performance, the court found that the performance of heavy metal music was against the “national sentiments” and accordingly, contrary to the social and public interests.
  37.  If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V (1) (e), the authority if it considers it proper, may adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security
  38.  The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail (favour) 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.
  39.  This rule, which is also contained in Article 5 of the 1927 Geneva Convention, is referred to by one commentator as the “more-favourable-right provision.”  It ensures that whenever the New York Convention proves to be less favorable to the recognition and enforcement of a foreign award than the treatment provided for in another treaty, or in the law of the host country, the more favorable treatment shall prevail over the rules of the New York Convention. This "more-favourable- right provision" provides an innovative solution to two kinds of conflicts.
  40.  The Convention is closed for signature. It is subject to ratification, and is open to accession by any Member State of the United Nations, any other State which is a member of any specialized agency of the United Nations, or is a Party to the Statute of the International Court of Justice (articles VIII and IX)
  41.  Any Party may denounce this Convention by a written notification to the Secretary-General of the United Nations. Denunciation shall take effect one year after the date of the receipt of the notification by the Secretary-General (article XIII).
  42.  Nepal acceded New York Convention on 4 March, 1998 with two reservations to the applicability of the convention.  The two reservations made were on the basis of reciprocity and the other related with differences arising out of commercial relationships
  43. Section 34. Implementation of award Taken in a Foreign Country: (1) A party which willing to implement an award made in foreign country in Nepal shall submit an application to the Appellate Court along with the following documents:  (a) The original or certified copy of the arbitrator’s award.  (b) The original or certified copy of the agreement.  (c) In case the arbitrators award is not in the Nepali Language, an official translation thereof in Nepali language.
  44. (2) In case Nepal is a party to any treaty which provides for recognition and implementation of decisions taken by arbitrators in foreign countries, any decision taken by an arbitrator after the commencement of this act within the area of the foreign country which is a party to that treaty shall be recognized and implemented in Nepal in the following circumstances subject to the provisions of that treaty and the conditions mentioned at the time of entering into the treaty: (a) In case the arbitrator has been appointed and award made according to the laws and procedure mentioned in the agreement. (b) In case the parties had been notified about the arbitration proceedings in time. (c) In case the decision has been taken according to the conditions mentioned in the agreement or upon confining only to the subject matters referred to the arbitrator.
  45. (d) In case the decision has become final and binding on the parties according to the laws of the country where the decision has been taken. (e) In case the laws of the country of the petitioner or the laws of the country where arbitration proceedings have been conducted, do not contain provision under which arbitration award taken in Nepal cannot be implemented. (f) In case the application has been filed for the implementation of the award within 90 days from the date of award.
  46. (3) In case the Appellate Court is satisfied that the conditions mentioned in Sub-section (2) have been fulfilled in the an application filed pursuant to Sub- section (1) it shall forward the award to the District court for its implementations. (4) Notwithstanding anything contained in this Section, no award made by an arbitrator in a foreign country shall be implemented in the following circumstances: (a) In case the awarded settled dispute cannot be settled through arbitration under the laws of Nepal. (b) In case the implementation of the award is detrimental to the public policy.