Enforcement of foreign arbitral awards

Prepared by : Dechen Gurung
Bikash Singh
B.A.LLB 4th Year ,2018
Kathmandu School of Law

 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.

 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.

 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”.

 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.

 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.

 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.

 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

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

 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.

 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.

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.

 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.

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.

 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.

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.”

 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)

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.

 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.

 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 . . .”

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

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.

 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.

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.

 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)

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.

 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.

 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

 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.

 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.

 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.

 Subject matter of dispute not arbitrable
 Award contrary to public policy

 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.

 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.

 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”

 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.

 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

 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.

 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.

 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)

 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).

 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

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.

(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.

(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.

(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.

Enforcement of foreign arbitral awards

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