Monday, December 9, 2019

Enforcement of Arbitral Awards, Part 3: Enforcement of Awards That Have Been Set Aside


As mentioned in a previous article, under certain circumstances if an award has been set aside (denied ratification) by the court where the award was rendered, in very limited instances that award may still be enforced by the courts in another country.  This is a particularly interesting occurrence as it goes against comity (the mutual recognition of legislative, executive, and judicial acts) as well as res judicata (a case in which there has been a final judgment and the matter is no longer subject to appeal).  When this takes place, it is the result of a court setting aside an award on spurious grounds.

As summarised in this article, the enforcement of an award that has been set aside at the seat takes place through the New York Convention (the “NYC”) (or other comparable convention) and is a considerably complex situation.  This is a particularly noteworthy issue as courts in particular in the GCC have had a reputation for occasionally setting aside awards on grounds that are not internationally recognised, notably based on “unique” public policy grounds; this article will demonstrate that it is not the end of the road for those awards set aside.

When an award becomes binding

In order for an award to be enforceable under the NYC, that award needs to be binding.  However, interestingly, the time at which an award becomes binding is not uniform across all countries.

Notably, under Omani law, an award is binding and final after the 90-day period to challenge the award has elapsed (Article 58, Sultani Decree 47/1997, the "Arbitration Law").   In some jurisdictions an award is binding only after the award has been confirmed by a court; in others, it is considered final when it is rendered.  In light of the fact that under the NYC the enforcement of foreign awards must not be given more onerous treatment than domestic awards, there is an argument that those courts must also treat an award that is rendered in Oman as binding and final when rendered despite the fact that the 90-day period under Omani law has not elapsed.  This is a peculiar application of the NYC and international law, in that a foreign court would treat an Omani award as final before an Omani court.  The counterargument to this is an award cannot be enforced until it is binding under the laws where it is made.  Nonetheless, following the above, a foreign court could enforce an award that is binding in accordance with its domestic law and disregard the law of where it is rendered as to whether it is binding and final.

Article V(1)(e) hurdle

Article V of the NYC lists the grounds on which a court may refuse to enforce an award.  Article V(1)(e) provides 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, that award was made.”

This article is noteworthy as it underpins that an award should be considered final or it may be denied enforcement.

Article V(1)

Even though an award is set aside by the courts where it is rendered, there is no obligation on a court in a foreign country to give comity to the decision to set the award aside.

In this respect, Article V(1) of the NYC provides that a court may, but not must, refuse enforcement of an award if it falls under one of the five grounds to set aside an award that are listed under Article V(1).

The wording of Article V(1) is as follows:

“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 ….”

The use of the word “may” is particularly important as it provides courts the discretion as to whether it will refuse enforcement.  The drafters of the NYC intentionally included the word “may” in Article V(1) to provide this discretion to courts.  This is also supported by case law from a number of jurisdictions.

Article V(2)(b)

In addition to the above is the local standards annulment provision:  under the NYC an award may be set aside based on local standards that are unique to a particular jurisdiction; generally, this falls under public policy grounds that are unique to a certain country.  When this takes place, an award that is set aside based on these unique standards may then be enforced in another jurisdiction that does not apply the same grounds for nullifying awards.

For a more in-depth discussion of this topic, see M. Dunmore, Austrian Yearbook of International Arbitration, Chapter III:  The Award and the Courts, Enforcement of Awards Set Aside in their Jurisdiction of Origin, 2014.