Notes on the finality of arbitral awards under the New York Convention

Although arbitral awards are critical documents in international commercial arbitration, there are crucial questions about them that remain unanswered.


Where do arbitral awards derive their legitimacy and binding force? Should courts recognise awards under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ('New York Convention') that have been set aside at the arbitration seat?


Answers boil down to the general outlook one has towards international arbitration and to what extent it is detached from the state where the arbitral seat is. Assuming that international arbitration is legitimate because of the sovereign state it operates in, the arbitral award is limited to that state's sovereignty. However, this approach fails to consider the ultimate purpose of international commercial arbitration to eliminate transaction cost for business actors by introducing a streamlined alternative dispute resolution route. In contrast, approaching international arbitration as a separate dispute resolution mechanism, disconnected from all states but legitimised by their normative action, fulfils that purpose.


The first part of this article will give reasons why the New York Convention is leaning towards a transnational approach of arbitration and consequently, views awards as global documents. The second part will be an analysis of significant case law where the transnationality of arbitral awards was at issue.





Indications in the New York Convention


Article III of the New York Convention imposes an affirmative duty on state judges to recognise the binding nature of the award on parties. Article V of the New York Convention sets the criteria for an award to become binding. The above, combined, necessarily mean that their satisfaction is an affirmative duty of the contracting states to recognise and enforce the award.


Although the New York Convention does not explicitly state it, elimination of the double exequatur (the need to verify the validity of the award at the courts of the arbitral seat) indirectly points out the finality and 'non-nationality' of the award. The award becomes enforceable until proven otherwise when the enforcing party provides evidence that Article V requirements are satisfied to a national court outside the seat of arbitration. The resisting party must prove that the Article V (1) grounds were breached for the award to be set aside. Effectively, it is not the seat of arbitration that legitimises the award as final and binding but its nature. Examining further Article V(1), the Convention states that recognition 'may be refused.' Some have supported that the word 'may' allows discretion to national courts to enforce awards irrespectively of the outcome of setting aside proceedings at the law of the seat. Consequently, the proposition that awards set aside by the courts of the seat cannot be enforceable anywhere else becomes irrelevant.


Article VII of the Convention, permits national courts to apply their domestic arbitration laws when recognising an award if the national criteria are narrower than those of the Convention. Therefore, under Article VII, national courts are expressly permitted to disregard setting aside proceedings of the seat if, under their national law, the ground for setting the award aside does not exist.


Examples from practice


In the French decision of Société Norsolor v. Société Pabalk Ticaret Limited Sirketi, the Cour de Cassation famously reversed a decision to not recognise an award on the basis of Article V(1)(e) because, under Article VIII, the French court should have considered French national law, which prescribed narrower grounds of non-recognition. Disregarding the fact that the award had been set aside at the seat, the Cour de Cassation favoured a delocalised approach to arbitration. The Cour de Cassation has since produced numerous rulings that disregard the setting aside proceedings of awards at their seat.

In Société Hilmarton Ltd v. Société Omnium de traitement et de valorisation (O.T.V.), the Cour de Cassation not only enforced the set-aside award but also described the award as 'international' and 'not integrated in the legal order of the state' of the arbitral seat, clearly rejecting the localised theory. The ruling was confirmed in a series of French cases, most notably in Chromalloy Aeroservices v. Arab Republic of Egypt. In Chromalloy, upon further enforcement proceedings, the U.S. Federal Court of Columbia disregarded that the award had been set aside in Egypt. Although the U.S. later changed their direction towards a localised approach, the Chromalloy ruling was a definite step towards a delocalised approach to international arbitration. Along a similar line, in Direction Générale de l'Aviation Civile de l’Émirat de Dubai v International Bechtel, the set-aside award was deemed an exercise of domestic authority. In PT Putrabali Adyamulia v Rena Holding, the Cour de Cassation opined that the award is not relegated in any national legal order, and the award is rooted in international justice.

France has not been the sole supporter of a delocalised approach in recognition and enforcement of awards. In the Austrian case of Radenska v Kajo the Austrian Supreme Court upheld the decision of the court of the first instance, which had been reversed, to recognise a set-aside award by the Slovenian Supreme Court, at the seat of arbitration. . In Société Nationale pour la Recherche, le Transport et la Commercialisation des Hydrocarbures (Sonatrach) v. Ford, Bacon and Davis Inc., the Belgian tribunal found that the Convention was not applicable in the circumstances. Still, it enforced an award that had been annulled by the Court of Algiers. According to commentators, the result would have been the same under Article VII(1) of the Convention.


Several states have made steps towards emancipated awards, however more reservedly than the Frech courts. For instance, Maximov v O.J.S.C. Novolipetsky Metallurgichesky Kombinat, followed the Malicorp Limited v. Arab Republic of Egypt ruling, confirming the award does not derive its binding force from the legal order of the arbitration seat. The same case indicated that enforcing courts have the power to recognise a set-aside award. In Yukos Capital v O.J.S.C. Oil Co [2014] EWHC 2188 (Comm), the threshold of holding an arbitral award unenforceable in England was set by Mr Justice Simon to be an award 'offending against the basic principles of honesty, natural justice and domestic concepts of public policy' (at 22). It is a logical deduction that should an award not breach the above; the English Courts are prepared to recognise it.


Many states have other mechanisms in place that are active steps towards abolishing the idea of awards attached to the seat. Notably, U.K. courts recognise the common law doctrine of issue estoppel to apply to international arbitration. In Fidelitas Shipping v V/O Exportchleb [1965] 2 All E.R. 4, the court held that parties are bound by the decision of the tribunal they contracted to adjudicate their dispute, recognising arbitration as a legitimate autonomous dispute resolution mechanism, independent of litigation in court. Under Swiss law, in certain circumstances, the parties are allowed to waive their right to setting aside proceedings, pre-contractually, thus rendering their award purely transnational. Commentators have noted similar to Switzerland approaches in Tunisia, Belgium, Sweden, and Peru. In Germany, if an award is enforced, its subsequent annulment at the seat does not affect its enforceability.


In conclusion... Although the New York Convention does not explicitly deal with the attitude of national courts towards set-aside foreign awards, it flows from its transnational approach that they are not bound by annulment decisions and are entitled to rule on their own. Accordingly, arbitral awards are international or even transnational in nature. Awards are also free-standing and binding on the parties; they will acquire a judicial quality only when a party will seek it through the enforcement or setting aside proceedings. Although the current threshold for recognising a set-aside award is high, the dicta mentioned above show deference to a transnational mindset.

Bibliography

Instruments

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)


Books

Julian David Matthew Lew, Loukas A. Mistelis, Stefan Michael Kroll, Comparative International Commercial Arbitration (1st edn, Kluwer Law International 2003)

Gary B. Born, International Commercial Arbitration (2nd edn, Kluwer Law International 2014)

Emmanuel Gaillard, Legal Theory of International Arbitration (1st edn, BRILL 2010)

Philippe Fouchard, Emmanuel Gaillard edn, John Savage edn., Fouchard, Gaillard, Goldman on International Commercial Arbitration (1st edn, Kluwer Law International 1999)


Articles

Giulia Carbone, 'The Interference of the Court of the Seat with International Arbitration' (2012) 2012 J Disp Resol 217

Hakeem Seriki,’ Enforcing annulled arbitral awards: can the unruly horse be tamed?’ (2018) Vol 8 J.B.L. 679-701


Other materials

Matthew Barry, ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (Legal Studies Research Paper No 15/19, University of Sydney 2915)

UNCITRAL, ‘Case Law on UNCITRAL Texts: Cases relating to the United Nations Convention on the Recognition and Enforcement of Foreign Awards’ (UNCITRAL General Assembly, A/CN.9/SER.C/ABSTRACTS/194, 2018)

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