Winning The Battle And Losing The War: Enforcement Of Awards Set Aside In The Seat

Summer 2014

Let's set the scene. It occasionally happens that:

(a) an arbitration award is made in country A;

(b) a judgment is then given in country A which purports to 'annul' or 'set aside' or 'vacate' that arbitral award; and

(c) enforcement of the award is then sought in country B.

In such a scenario, there are three possibilities:

(a) the courts of country B are obligated to recognise the judgment invalidating the award;

(b) the courts of country B are obligated to recognise the award; or

(c) there is scope for the courts of country B to recognise either the judgment or the award, depending on the circumstances.

In any case where these questions arise, they will be questions for the law of country B, and (naturally) much will depend on what (if any) international agreements there are between A and B with respect to the mutual enforcement and recognition of judgments and awards.

The New York Convention

It will often be the case that both A and B will be parties to the New York Convention on the Recognition and Enforcement of Awards. The vast majority of countries are parties.

Article V(1) of the New York Convention provides:

"Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: ..."

It proceeds to list grounds on which enforcement can be refused. For present purposes, the ground which is of interest is (e):

"(e) 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."

Other grounds include:

"(c) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made"

Article VI of the New York Convention Provides:

"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 before which the award is sought to be relied upon may, if it considers it proper, 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."

Article VII of the New York Convention, provides:

"The provisions of the present Convention shall not ... deprive any party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law ... of the country where such award is sought to be relied upon."

The Arbitration Act 1996

The UK is a party to the New York Convention. The provisions from the New York Convention set out above are given effect in England, Wales and Northern Ireland by sections 100, 103 and 104 of the Arbitration Act 1996, which provide:

"100 New York Convention awards.

(1) In this Part a "New York Convention award" means an award made, in pursuance of an arbitration agreement, in the territory of a state (other than the United Kingdom) which is a party to the New York Convention."

"103 Refusal of recognition or enforcement

(1) Recognition or enforcement of a New York Convention award shall not be refused except in the following cases.

(2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves -

...

(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made;

...

(f) that 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, it was made"

"(5) Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in subsection (2)(f), the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition or enforcement of the award.

It may also on the application of the party claiming recognition or enforcement of the award order the other party to give suitable security."

"104 Saving for other bases of recognition or enforcement.

Nothing in the preceding provisions of this Part affects any right to rely upon or enforce a New York Convention award at common law or under section 66."

The word 'may' in section 103(2) implies that the court has a discretion whether to enforce an award even if the respondent proves that "the arbitration agreement was not valid" or that 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, it was made".

Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan [2010] 1 Lloyd's Law Rep 119

In this case, Dallah sought to enforce in England an award which had been made in its favour against Pakistan. The award was made in Paris.

Pakistan's case before the arbitrators was that it was not a party to the arbitration agreement. The tribunal held that Pakistan was a party. Pakistan sought to resist enforcement of the award in England on the ground that "the arbitration agreement was not valid ... under the law of the country where the award was made" (i.e. French law). At first instance, the English court accepted Pakistan's argument, and refused to enforce the award. This was upheld by the Court of Appeal and by the House of Lords.

Dallah argued that, even if the arbitration agreement was not valid under the law of the country where the law was made, the English court still had a discretion to enforce the award anyway.

Lord Mance said:

"In Dardana Ltd v Yukos Oil Company [2002] 1 All ER (Comm) 819 I suggested that the word "may" could not have a purely discretionary force and must in this context have been designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have enforcement or recognition refused (paras 8 and 18). I also suggested as possible examples of such circumstances another agreement or estoppel."

Lord Collins said:

"... there is no arbitrary discretion: the use of the word "may" was designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have an award set aside arising in the cases listed in section 103(2). ... [a] possible example would be where there has been no prejudice to the party resisting enforcement: ... But it is not easy to see how that could apply to a case where a party had not acceded to an arbitration agreement.

There may, of course, in theory be cases where the English court would...

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