International Arbitration Awards: Recognition and Enforcement

Parties enter into arbitration agreements with the expectation that the ruling of the arbitral tribunal will be enforceable as against the other party, regardless of whether or not the decision is made in their home jurisdiction. This article discusses the enforcement of foreign arbitration awards rendered outside of the United States, with an emphasis on English law and a recent English Court of Appeal decision upholding an anti-suit injunction that prevented a challenge to a London arbitration award.

Arbitration Generally

Arbitration is a consensual process by which parties agree to have their disputes resolved by a third-party tribunal consisting of one or more arbitrators. The practice of international arbitration has developed in order to resolve commercial disputes between parties from different legal and cultural backgrounds, generally circumventing the formalities of their own legal systems. The parties typically enter into these agreements with the intention that the tribunal's award will be binding on all parties.

One advantage to choosing arbitration over traditional litigation is that it offers the parties a level of confidentiality that may not be available in the state or federal court setting. Parties can also agree to abbreviated or limited discovery, which can assist in cost reduction efforts. Parties to arbitration can agree in advance on the composition of the arbitration panel as well as on the jurisdiction's laws that will apply to the proceedings. Arbitration also allows parties to choose an arbitration location which may be unrelated to the underlying contract and the location of any of the parties.

International Conventions

As arbitration is accepted as an effective means of commercial dispute resolution the world over, a number of international institutions have developed arbitration rules that may be voluntarily integrated into arbitration agreements.

The United Nations UNCITRAL Model Law (“Model Law”) has been adopted by many jurisdictions throughout the world. The London Maritime Arbitrators Association serves predominantly the shipping and maritime industries, while other institutions such as the International Chamber of Commerce have rules that may be incorporated into arbitration agreements by several industries. The legal framework for English arbitration law is contained in the Arbitration Act 1996.

Since most national arbitration laws champion the finality of arbitration awards, they tend to require that challenges to awards be filed promptly. The time limits to bring a challenge to an award range from 28 days (England and France) to three months (Belgium, Brazil, the Netherlands) and six months (China). The Model Law provides that the parties have a period of three months from the date of the panel's decision to challenge it.

The New York Convention

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958) (“New York Convention”) facilitates the recognition and enforcement of awards in signatory states. Article III of the Convention states that “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.”

To qualify as a New York Convention award, the agreement to arbitrate must be in writing, and the award must have been made in one of the 135 countries that are signatories to the Convention. The country where enforcement is sought also needs to have adopted the New York Convention for its procedures to apply to an arbitration award. An award subject to the New York Convention is recognized as binding between the parties and, with a court's permission, can be enforced in any signatory country in the same manner as a judgment or court order.

Failure to Comply with an Award

In the unusual circumstance in which a party against whom an award is made fails to voluntarily comply with the award, the successful party can typically apply to the relevant court system for permission to enforce the award summarily. If permission is granted, the successful party may enforce the award as if it were a court judgment.

Under the New York Convention, a foreign award will be recognized and enforced in any signatory state unless the defendant proves the existence of the specific grounds set forth in Article V of the New York Convention. The issues that can invalidate an arbitration award are:

• A party to the arbitration agreement was under some incapacity;
• The arbitration agreement was not valid;
• The party was not given sufficient notice of the appointment of an arbitrator or the proceedings, or was otherwise unable to present its case;
• The award falls outside the scope of issues submitted to arbitration;
• The composition of the arbitral tribunal or its procedure was not in accordance with the agreement between the parties;
• The award has not yet become binding on the parties, or has been set aside or suspended, and
• The matter is not capable of resolution by arbitration ( e.g., a criminal matter).

Most other nations incorporate verbatim the language of the New York Convention in their local arbitration rules as they relate to objections to the enforcement or recognition of an arbitration award.

Due to the strong public policy considerations in support of the recognition and enforcement of arbitration awards, courts tend to interpret the grounds to set aside an award narrowly, and actively strive to enforce New York Convention awards.

C. v. D. ' English Court of Appeal's Interpretation of the Bermuda Form

In December 2007, the English Court of Appeal for the first time had the chance to consider a Bermuda Form arbitration agreement which requires the parties to arbitrate in London but provides that the law governing the interpretation of the insurance contract will be that of New York.

In C. v. D. [2007] EWCA Civ 1282, the claimant (the party seeking the anti-suit injunction) originally initiated arbitration against the defendant insurer in London. The arbitration tribunal issued a ruling in the claimant's favor on its claim under the policy and declared that it was entitled to recover against the defendant insurer.

The defendant sought a correction of the ruling from the tribunal, claiming, inter alia, that the panel's ruling amounted to a “manifest disregard of New York law,” that the award fell outside the scope of the New York Convention, and thus was reviewable for error by any U.S. District Court having jurisdiction over the parties. The defendant also indicated that it intended to seek that the U.S. courts apply U.S. federal arbitration law, which it asserted would permit a setting aside or annulment of the award.

In response to this notice of intention, the claimant applied for and was granted an interim anti-suit injunction, effectively obstructing the defendant's ability to seek redress in the United States. The claimant argued that the proposed challenge to the award in the United States was prohibited, as the arbitration agreement selected London as the seat of the arbitration and, by implication, the Arbitration Act, 1996 as the governing law of the arbitration proceeding. As a result, the claimant argued that as the defendant had no grounds to appeal under the Arbitration Act, 1996 or under the New York Convention, it had no grounds to seek a setting aside of the award in the United States.

In its opposition, the defendant argued that New York law governed the interpretation of the insurance policy. It maintained that, under New York law, the defendant was entitled to a minimum standard of review of arbitration awards, and therefore the defendant should not be precluded from exercising its right to such a review.

The Commercial Court held that the choice of England as the seat of the arbitration was the determining factor in the analysis into which law governed the arbitration proceedings and any efforts to set aside the result of those proceedings. In granting a final injunction, the Commercial Court also rejected arguments to the effect that the choice of New York as the governing law of the contract amounted to an agreement that the law of England should not apply to post-award proceedings.

In the appeal from the Commercial Court, Lord Justice Longmore held that:

[B]y choosing London as the seat of the arbitration, the parties must be taken to have agreed that proceedings on the award should be only those permitted by English law. In my view they must be taken to have so agreed for the reasons given by the judge. The whole purpose of the balance achieved by the Bermuda Form (English arbitration but applying New York law to issues arising under the policy) is that judicial remedies in respect of the award should be those permitted by English law and only those so permitted.

The Court of Appeal followed a decision earlier in 2007 in A. v B. [2007] 1 Lloyds Rep 237 in which the court held that:

[A]n agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy going to the existence or scope of the arbitrator's jurisdiction or as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of the arbitration.

Longmore LJ also asserted that arbitration agreements are severable from the rest of the contract and, if there is no express law of the arbitration agreement, the law with the closest and most real connection to the arbitration is more likely to be the law of the seat of arbitration rather than the law of the underlying contract.

In dismissing the application to the Court of Appeal, Longmore LJ discussed the manner in which the underlying court granted the final injunction:

[I]t nevertheless seems to me that the judge was right not only to grant a final injunction but to frame it in the way in which he did. It is only by doing so that the parties' legitimate expectations in relation to the Bermuda Form can be respected and enforced. I have already said that the form constitutes a balancing of the opposing interests of the insured and their insurers. If either party was permitted to challenge an award in a manner intended to be excluded by the form, that balance would be fatally compromised. This is just as much in the interest of insurers as well as of the insured.

The choice of the arbitration's seat is consequently more than a decision based merely on convenience. The venue will be the determining factor in the analysis into which law governs the arbitration proceedings, irrespective of the law governing the underlying contract.

Conclusion

The decision in C. v. D., in conjunction with the broad application of the New York Convention and the narrow interpretation of its set-aside provisions, all help to provide parties to arbitration with a sense of uniformity in the approach to the recognition and enforcement of arbitration awards, further strengthening the effectiveness of arbitration as a preferred method of international commercial dispute resolution.

Odran Hickey is an assistant vice president with ACE Group Claims. He is admitted as an attorney in New York and as a solicitor in England and Wales. He has a law degree from the University of Wales and a diploma in International Arbitration Law from the College of Law of England and Wales. Prior to moving into the insurance industry, Hickey practiced law with firms in New York and Philadelphia.

Parties enter into arbitration agreements with the expectation that the ruling of the arbitral tribunal will be enforceable as against the other party, regardless of whether or not the decision is made in their home jurisdiction. This article discusses the enforcement of foreign arbitration awards rendered outside of the United States, with an emphasis on English law and a recent English Court of Appeal decision upholding an anti-suit injunction that prevented a challenge to a London arbitration award.

Arbitration Generally

Arbitration is a consensual process by which parties agree to have their disputes resolved by a third-party tribunal consisting of one or more arbitrators. The practice of international arbitration has developed in order to resolve commercial disputes between parties from different legal and cultural backgrounds, generally circumventing the formalities of their own legal systems. The parties typically enter into these agreements with the intention that the tribunal's award will be binding on all parties.

One advantage to choosing arbitration over traditional litigation is that it offers the parties a level of confidentiality that may not be available in the state or federal court setting. Parties can also agree to abbreviated or limited discovery, which can assist in cost reduction efforts. Parties to arbitration can agree in advance on the composition of the arbitration panel as well as on the jurisdiction's laws that will apply to the proceedings. Arbitration also allows parties to choose an arbitration location which may be unrelated to the underlying contract and the location of any of the parties.

International Conventions

As arbitration is accepted as an effective means of commercial dispute resolution the world over, a number of international institutions have developed arbitration rules that may be voluntarily integrated into arbitration agreements.

The United Nations UNCITRAL Model Law (“Model Law”) has been adopted by many jurisdictions throughout the world. The London Maritime Arbitrators Association serves predominantly the shipping and maritime industries, while other institutions such as the International Chamber of Commerce have rules that may be incorporated into arbitration agreements by several industries. The legal framework for English arbitration law is contained in the Arbitration Act 1996.

Since most national arbitration laws champion the finality of arbitration awards, they tend to require that challenges to awards be filed promptly. The time limits to bring a challenge to an award range from 28 days (England and France) to three months (Belgium, Brazil, the Netherlands) and six months (China). The Model Law provides that the parties have a period of three months from the date of the panel's decision to challenge it.

The New York Convention

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958) (“New York Convention”) facilitates the recognition and enforcement of awards in signatory states. Article III of the Convention states that “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.”

To qualify as a New York Convention award, the agreement to arbitrate must be in writing, and the award must have been made in one of the 135 countries that are signatories to the Convention. The country where enforcement is sought also needs to have adopted the New York Convention for its procedures to apply to an arbitration award. An award subject to the New York Convention is recognized as binding between the parties and, with a court's permission, can be enforced in any signatory country in the same manner as a judgment or court order.

Failure to Comply with an Award

In the unusual circumstance in which a party against whom an award is made fails to voluntarily comply with the award, the successful party can typically apply to the relevant court system for permission to enforce the award summarily. If permission is granted, the successful party may enforce the award as if it were a court judgment.

Under the New York Convention, a foreign award will be recognized and enforced in any signatory state unless the defendant proves the existence of the specific grounds set forth in Article V of the New York Convention. The issues that can invalidate an arbitration award are:

• A party to the arbitration agreement was under some incapacity;
• The arbitration agreement was not valid;
• The party was not given sufficient notice of the appointment of an arbitrator or the proceedings, or was otherwise unable to present its case;
• The award falls outside the scope of issues submitted to arbitration;
• The composition of the arbitral tribunal or its procedure was not in accordance with the agreement between the parties;
• The award has not yet become binding on the parties, or has been set aside or suspended, and
• The matter is not capable of resolution by arbitration ( e.g., a criminal matter).

Most other nations incorporate verbatim the language of the New York Convention in their local arbitration rules as they relate to objections to the enforcement or recognition of an arbitration award.

Due to the strong public policy considerations in support of the recognition and enforcement of arbitration awards, courts tend to interpret the grounds to set aside an award narrowly, and actively strive to enforce New York Convention awards.

C. v. D. ' English Court of Appeal's Interpretation of the Bermuda Form

In December 2007, the English Court of Appeal for the first time had the chance to consider a Bermuda Form arbitration agreement which requires the parties to arbitrate in London but provides that the law governing the interpretation of the insurance contract will be that of New York.

In C. v. D. [2007] EWCA Civ 1282, the claimant (the party seeking the anti-suit injunction) originally initiated arbitration against the defendant insurer in London. The arbitration tribunal issued a ruling in the claimant's favor on its claim under the policy and declared that it was entitled to recover against the defendant insurer.

The defendant sought a correction of the ruling from the tribunal, claiming, inter alia, that the panel's ruling amounted to a “manifest disregard of New York law,” that the award fell outside the scope of the New York Convention, and thus was reviewable for error by any U.S. District Court having jurisdiction over the parties. The defendant also indicated that it intended to seek that the U.S. courts apply U.S. federal arbitration law, which it asserted would permit a setting aside or annulment of the award.

In response to this notice of intention, the claimant applied for and was granted an interim anti-suit injunction, effectively obstructing the defendant's ability to seek redress in the United States. The claimant argued that the proposed challenge to the award in the United States was prohibited, as the arbitration agreement selected London as the seat of the arbitration and, by implication, the Arbitration Act, 1996 as the governing law of the arbitration proceeding. As a result, the claimant argued that as the defendant had no grounds to appeal under the Arbitration Act, 1996 or under the New York Convention, it had no grounds to seek a setting aside of the award in the United States.

In its opposition, the defendant argued that New York law governed the interpretation of the insurance policy. It maintained that, under New York law, the defendant was entitled to a minimum standard of review of arbitration awards, and therefore the defendant should not be precluded from exercising its right to such a review.

The Commercial Court held that the choice of England as the seat of the arbitration was the determining factor in the analysis into which law governed the arbitration proceedings and any efforts to set aside the result of those proceedings. In granting a final injunction, the Commercial Court also rejected arguments to the effect that the choice of New York as the governing law of the contract amounted to an agreement that the law of England should not apply to post-award proceedings.

In the appeal from the Commercial Court, Lord Justice Longmore held that:

[B]y choosing London as the seat of the arbitration, the parties must be taken to have agreed that proceedings on the award should be only those permitted by English law. In my view they must be taken to have so agreed for the reasons given by the judge. The whole purpose of the balance achieved by the Bermuda Form (English arbitration but applying New York law to issues arising under the policy) is that judicial remedies in respect of the award should be those permitted by English law and only those so permitted.

The Court of Appeal followed a decision earlier in 2007 in A. v B. [2007] 1 Lloyds Rep 237 in which the court held that:

[A]n agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy going to the existence or scope of the arbitrator's jurisdiction or as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of the arbitration.

Longmore LJ also asserted that arbitration agreements are severable from the rest of the contract and, if there is no express law of the arbitration agreement, the law with the closest and most real connection to the arbitration is more likely to be the law of the seat of arbitration rather than the law of the underlying contract.

In dismissing the application to the Court of Appeal, Longmore LJ discussed the manner in which the underlying court granted the final injunction:

[I]t nevertheless seems to me that the judge was right not only to grant a final injunction but to frame it in the way in which he did. It is only by doing so that the parties' legitimate expectations in relation to the Bermuda Form can be respected and enforced. I have already said that the form constitutes a balancing of the opposing interests of the insured and their insurers. If either party was permitted to challenge an award in a manner intended to be excluded by the form, that balance would be fatally compromised. This is just as much in the interest of insurers as well as of the insured.

The choice of the arbitration's seat is consequently more than a decision based merely on convenience. The venue will be the determining factor in the analysis into which law governs the arbitration proceedings, irrespective of the law governing the underlying contract.

Conclusion

The decision in C. v. D., in conjunction with the broad application of the New York Convention and the narrow interpretation of its set-aside provisions, all help to provide parties to arbitration with a sense of uniformity in the approach to the recognition and enforcement of arbitration awards, further strengthening the effectiveness of arbitration as a preferred method of international commercial dispute resolution.

Odran Hickey is an assistant vice president with ACE Group Claims. He is admitted as an attorney in New York and as a solicitor in England and Wales. He has a law degree from the University of Wales and a diploma in International Arbitration Law from the College of Law of England and Wales. Prior to moving into the insurance industry, Hickey practiced law with firms in New York and Philadelphia.