Share
International arbitration of transborder commercial disputes is futile if it cannot provide award that is recognized, enforced

International arbitration of transborder commercial disputes is futile if it cannot provide award that is recognized, enforced

Dear Editor,

I read with great interest Guyana’s pursuit, through the office of the Attorney General and Minister of Legal Affairs, to be recognized as an arbitration hub in the Caribbean and Latin America. This would, at first thought, seem an ambitious project. But, Guyana is at the cusp of achieving greatness, be it at the economic or legal front.

International arbitration of transborder commercial disputes is futile if it cannot provide an award that is recognized and enforced. Article 3 of The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) states “Each Contracting State shall recognize arbitral awards as binding and enforce them under the rules of procedure of the territory where the award is relied upon…”. However, the word “award” is not defined in this Convention or the other international Conventions or the United Nations Commission on International Trade Law (UNCITRAL) rules dealing with arbitration.

The arbitrators may make many rulings. There may be rulings on procedural, jurisdictional or competence issues, and the making of partial, interim or final awards. The status of each ruling has significant consequences. If it is an award, then it connotes finality. It must be recognized and enforced unless challenged in the competent court.

Although awards are binding, they are not always carried out voluntarily by the losing parties. The losing party may apply to a court in the jurisdiction of the seat of the arbitration to have the recognition of the award refused. The New York Convention in Article V(1) spells out the  grounds for the competent authority to refuse recognition. These grounds include procedural matters, such as the party applying for refusal being under some incapacity or not given proper notice, and the composition of the arbitral authority or the arbitral procedure not being under the agreement of the parties. Should the losing party succeed in having the award set aside, this will prevent the winning party from enforcing the award in other countries. For example, the U.S. District Court refused to enforce an award that was made by an arbitral tribunal in Nigeria and set aside by the Nigerian court.

Even if the losing party fails to have the award set aside, there is no guarantee that the award will be enforced in another country. The most effective way of enforcing the award against the losing party is to obtain an enforceable judgment in the court of a country where the losing party resides, conducts its business or has assets that may be seized.

Article V(2) of the New York Convention lists two grounds by which international enforcement may be refused. These are: where the subject matter of the dispute is not capable of settlement by arbitration under the laws of that country, or an award would be contrary to the public policy of that country.

The more problematic ground is that of public policy, owing to its indeterminate and evolving nature, primarily when it is expressed widely or in a localized parochial manner of public policy. In 2016, a Chinese court refused to recognize and enforce an International Chamber of Commerce (ICC) award on the ground that it was contrary to the public interest. The public interest rationale was based on the fact that a prior ad hoc arbitration award between the parties was rejected since China at that time did not recognize ad hoc arbitration.

A careful examination of the facts of the case suggests that the rejection was one of technicality rather than public policy.

Difficulties may arise in enforcing awards against State and State agencies where they rely on sovereign immunity. Although the International Centre for Settlement of International Disputes (ICSID) Convention provides that ICSID award should be treated as the final judgment of the court of the contracting State, courts will only exceptionally enforce against state assets, such as diplomatic buildings and property, central bank assets and military property.

Two positive trends are supporting international enforcement. Firstly, countries are recognizing that their non-compliance with awards can harm their commercial reputation and negatively impact inward foreign direct investment. Secondly, major trading countries, such as China and India, are now interpreting public policy exception more narrowly in line with the spirit of the Convention.

Ultimately, the key to a successful award is a well-drafted arbitration agreement that considers the law and procedures of the seat of arbitration and the trading countries of the parties. Guyana would therefore have to ensure that its laws and procedures will provide the competencies necessary for a recognizable and enforceable arbitration agreement and award.

Yours faithfully,

Tameshwar N Lilmohan

Leave a Comment