The enforcement of awards following a decision at the seat remains a controversial issue in international arbitration. Should an enforcement court follow the decision of the seat court, or can the enforcement court reach a different conclusion? US courts and French courts continue to take different approaches to this issue.
US courts will defer to a decision at the seat of arbitration unless the decision ‘violates basic notions of justice’. Accordingly, if an award is set aside at the seat of arbitration, a US court will refuse enforcement of the award under Article V(1)(e) of the New York Convention, absent a showing of serious impropriety by the seat court. For example, in the recent case of Thai-Lao, the Southern District of New York refused to enforce an award that had been set aside by the Malaysian High Court. The Court found nothing to suggest that the Malaysian court had ‘violated basic notions of justice’, and therefore deferred to the Malaysian court’s decision. This lies in contrast to the case of Pemex last year, where the same court enforced an award that had been set aside by the Mexican courts. The Court held that the Mexican court did ‘violate basic notions of justice’ because (among other things) it retrospectively applied a prohibition on arbitrability in favour of a Mexican party. Outside an exceptional case like Pemex, however, US courts are unlikely to enforce awards that have been set aside at the seat of arbitration.
In contrast to the deferential approach of the US courts, French courts disregard the decisions of seat courts altogether. In a series of cases, French courts have enforced awards that have been set aside or suspended at the seat of arbitration. The French courts have provided two justifications for their approach. First, French domestic law does not recognise the setting aside or suspension of the award as a ground for refusing enforcement. Second, French courts consider that an international arbitral award is not ‘anchored’ or ‘integrated’ in the seat of arbitration. Therefore, the views of seat courts on the validity of the award simply have no bearing on whether the award should be enforced in France.
Some commentators (especially Professor Emmanuel Gaillard) favour the French approach. In Gaillard’s view, international arbitration is a transnational legal order in which no state should have the final say on the validity of the award. Accordingly, each enforcement court should be entitled to form its own view on the validity of the award, regardless of what the courts at the seat of arbitration may think.
However, disregarding the views of seat courts is undesirable from a policy perspective. First, ignoring decisions at the seat is likely to lead to re-litigation of the same or similar issues across multiple jurisdictions. This undermines the perceived efficiency of international arbitration. Second, in some cases the clear intention of the parties is for the courts at the seat to have the primary say on the validity of the award. If such an intention is found to exist, then the views of the seat court should arguably be respected. Third, as has been well documented, the French approach of disregarding decisions at the seat increases the risk of conflicting awards. If an award is set aside at the seat and the tribunal proceeds to render a second award, should not only the second award be enforceable? Under the French approach, both awards are enforceable.
In light of these difficulties with the French approach, the approach of the US courts is preferable. That is, enforcement courts should defer to the decisions of seat courts, save in exceptional cases where the seat court is shown to have violated basic notions of justice. Courts in other jurisdictions appear to be warming to this approach. In the recent Australian case of Gujarat, for example, the award debtor challenged an award in the English courts on the ground of procedural unfairness. The English courts rejected the challenge and upheld the award. Undeterred, the award debtor sought to resist enforcement in Australia on the same procedural grounds. The Australian Court found that there was no procedural unfairness, but held that, in any event, it would generally be inappropriate to depart from the decision of the English court. Australian courts are therefore taking a similar approach to the US courts, deferring to decisions at the seat in all but exceptional cases.
The inconsistent approaches taken by enforcement courts to decisions at the seat is not ideal. It creates uncertainty for the parties about the effects of a decision at the seat and undermines the efficiency of international arbitration. In the search for a solution to this issue, several commentators, including Albert van den Berg, have proposed a ‘new’ convention that would take the review of arbitral awards out of the hands of national courts. This proposal, loosely based on the ICSID Convention, would give an international body exclusive jurisdiction to review arbitral awards. Once an award received confirmation from this body, it would be automatically enforceable in contracting states. An international consensus in favour of such reform, however, is not guaranteed and would take considerable time to emerge. Meanwhile, enforcement courts should follow the approach of the US courts. A policy of deference to the seat of arbitration, save in exceptional cases, makes the most sense.
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There is a simple logic to the universal status of an Award. It exists. The moving finger writes and, having writ, moves on. Nor all your piety nor wit can lure it back to cancel half a line, nor all your tears wash out one word of it.
As I see it, it’s not a legal document, its a document having legal effect. An important distinction.
A Court has a right to annul it if it sees fit but that has effect only within its own boundaries. No Court is able to destroy it (unless it’s invalid – see Article V, New York Convention 1958. It may not be an Arbitral Award. See also Article IV(1)(b) for authenticity.).
I suggest that whether or not a foreign Court follows the Court of the seat simply is a matter for that foreign Court.
But that isn’t the view of a lawyer!
I believe that party autonomy being one of the cornerstones of arbitration, the decision of a Court of the seat must be given international effect. The logic is that the parties (in most cases) expressly chose the seat, which implies that they agreed to the laws of the seat for procedure. The laws of the seat would provide that it has the power to annul awards. In effect, parties have agreed to this power of the Courts of the seat. In such a situation, it would not be apt to allow a foreign Court to undermine this choice made by the parties under its own laws, especially when the parties had not chosen the laws of that foreign Court for any part of their arbitration.
I would argue that party autonomy is a principle and that the Court’s control over it is limited to that Courts jurisdiction. The arbitrator’s decision is not itself a matter of law, it is a fact that exists. A Court may gainsay it within its own jurisdiction but it cannot expunge the decision itself. “A man convinced against his will is of the same opinion still.”
Also, the Court of the seat may be influenced by local policy or politics not objectively fair or just.
The whole purpose of International Arbitration is lost, I suggest, if Awards are to be controlled in a single jurisdiction.
I agree with you that instances where local Courts set aside an award for political reasons cannot be justified. In my opinion, however, that is not always the case. So, as a general rule, I would say that the annulment decision of the Court of the seat must be given international effect. Of course, exceptional circumstances may be identified (such as the Dubai Court decision in Bechtel or the Mexican Court decision in Pemex) wherein enforcement of annulled awards can be justified. But, these should remain as exceptional, and not a general rule. Moreover, justifying the award in every jurisdiction, as the author of this piece stated, would lead to unnecessary delays and hardship, defeating the very purpose of arbitration.
When an enforcing Court is faced with an annulled award, it may be a fact (thought I would say this is also open to debate). In any event, the annulment decision of the seat therein would also be a factor shaping the nature of this “fact” i.e., the award. It is then just a question of how the enforcing Court would look at the award. In my opinion, the enforcing Court should give effect to the annulment decision of the seat (as a matter of fact affecting the award) as a general rule, while deviating from this in exceptional circumstances.
Au fond, this is a philosophical difference that turns upon whether or nor persons have any right to make private promises without involving a State. By and large, lawyers see it one way and laymen, I think, take the other view. I suppose the issue is freedom!
With respect, an Award is a ‘done deed’ it exists, the words are written, the arbitrators don’t exist as arbitrators now – functus officio. Of course any Court in any place where that Award is taken has the jus and imperium to do as it please. As you say, the decision of the Court of the seat will be persuasive – but not final and imperatively binding on other Courts. Lawyers may disagree, of course.
The seat of arbitration court decision to set aside an arbitral award should be limited in effect to its jurisdiction. Thus if the prevailing party is to seek enforcement in a different jurisdiction the award is enforceable unless set aside by the competent court in this very jurisdiction. The decision by the court of the seat should however be valued in terms of the comity doctrine and no more.
Bearing in mind that French Courts decisions are based on Article VII of the NYC and not on Article V (1) e allowing the more favorable french law to be applicable although the award is annuled at the seat.
While this may be considered as generating legal uncertainty, it is also my opinion to consider that the law of the place of enforcement should have as much, if not more, of legitimacy to determine whether an award is to be enforced or not especially when there are little or no links with the seat.
I am currently concerned with a decision on exactly this point. The seat of enforcement happens to be in Canada. Their system is based primarily on British principles, as shared with the USA, however they obviously have a strong French influence as well. Therefore, I am wondering if any of you have experience or knowledge of how the Canadian system would view such enforcement actions.