Enforcement of an Arbitral Award which Has Been Set by gmx42408

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									  Enforcement of an Arbitral
 Award which Has Been Set
Aside at the Seat of Arbitration
                Koji Takahashi
    (Doshisha University Law School, Japan)
                    (Authored in the spring of 2007
                    Updated in the autumn of 2008)
Can an award set aside at the seat
 be enforced in other countries?
• The host country may have influence over its
• The investor may negotiate to avoid litigation and
  choose arbitration.
• The host country may negotiate to nominate itself
  as the seat.
• If the award is unfavourable to the host, the court
  of the seat may set it aside.
• The investor may still wish to enforce it elsewhere.
     Policy Arguments: against
• An award is a creature of the seat.
• The choice of the seat may have been
  made in exchange for reciprocal
  concessions. The attendant risk has
  been assumed by the investor.
• Endless attempts to enforce a vacated
  award in a number of countries should
  not be allowed.
   Policy Arguments: in favour of
• An award is stateless.
• The courts of the seat may set aside
  an award on capricious grounds.
• The country of enforcement, where
  the assets are seized, has a greater
  interest in reviewing the award.
Setting aside awards at the seat
• New York Convention sets forth no
• Model Law, Article 34(2), allows setting
  aside on such grounds as nullity of
  arbitration agreement, procedural
  deficiencies, and public policy.
• Model Law does not allow the review of
  the merits but the laws of some countries
 Enforcement of a vacated award?
• Article V(1) of the New York Convention
  Recognition and enforcement of the award
  may be refused ... only if …:
  e. The award … 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.
• Article 36(1)(a)(v) of the Model Law
  Interpretation of those provisions
• Explanatory Note on the UNCITRAL Model Law
  “[t]he setting aside of an award at the place of
  origin prevents enforcement of that award in all
  other countries by virtue of Article V(1)(e) of the
  1958 New York Convention and Article
  36(1)(a)(v) of the Model Law,”
• The words “may be refused” confer discretion.
• Restrictive reading: limiting to the setting aside
  on internationally recognised grounds, e.g. those
  listed in Article 34 of the Model Law
     1961 European Convention on
  International Commercial Arbitration
  Article IX
• (1) “The setting aside in a Contracting State of an arbitral
  award covered by this Convention shall only constitute a
  ground for the refusal of recognition or enforcement in
  another Contracting State where such setting aside took
  place in a State in which, or under the law of which, the
  award has been made and for one of the following
     [a list replicating Article 34(2) of the Model Law save grounds of
     non-arbitrability and public policy]
• (2) In relations between Contracting States that are also
  parties to the New York Convention …, paragraph 1 of
  this Article limits the application of Article V(1)(e) of the
  New York Convention solely to the cases of setting aside
  set out under paragraph 1 above.
“more-favorable-right” provision
• Article VII(1) of the New York Convention:
  The provisions of the present Convention shall
  not … deprive any interested 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 or the treaties of the country where such
  award is sought to be relied upon.
• e.g. Article 1502 of le Code de procédure
  civile of France does not contain an equivalent
  of Article V(1)(e) of the New York Convention.
  Res judicata effect of the foreign
        annulment decision
• Always give res judicata effect.
• Give res judicata effect only if the foreign decision was
  based on an internationally recognised ground.
• Give res judicata effect only if to do so would not
  contravene the public policy of promoting circulation of
     “The test of public policy cannot be simply whether the courts of
     a secondary State would set aside an arbitration award if the
     award had been made and enforcement had been sought within
     its jurisdiction. … the Convention contemplates that different
     Contracting States may have different grounds for setting aside
     arbitration awards.” TermoRio v. Electranta (D.C.Cir.,2007)
• Never give res judicata effect.
           French case law
• Article VII of the New York Convention and
  Article 1502 of le Code de procédure civile.
• The enforcement of vacated awards is not
  refused, irrespective of the grounds of
  setting aside.
• Possible exception: awards on matters
  purely internal to the seat.
     Société Hilmarton v. OTV
           (23 March 1994, Cass. 1re civ.)

• Arbitration in Geneva between an English
  company and a French company concerning the
  procurement of a government contract in Algeria.
  The Swiss courts set aside the award by
  reviewing the merits.
• The French Cour de cassation: the award in
  question was “an international award which was
  not integrated into the legal order of
  [Switzerland], so that its existence continued
  despite its being set aside ….”
• See also Putrabali (29 June 2007, Cass. 1re
  civile ).
               U.S. case law
      Chromalloy AeroServices v. Egypt
               (939 F. Supp. 907 (D.D.C. 1996))

• Arbitration between a U.S. company and Egypt
  in Cairo. The award unfavourable to Egypt was
  set aside by the Egyptian court on the ground of
  a mistake of the application of Egyptian law.
• The U.S. District Court allowed enforcement.
  – Article V(1)(e) granted discretion.
  – Via Article VII, Chapter 1 of the Federal Arbitration Act
    (9 U.S.C.10), which set forth grounds for setting aside
    domestic awards, does not permit review of merits.
  – Public policy grounds to deny res judicata effect to the
    Egyptian court’s decision.
                     U.S. case law
      Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd.
                 (191 F.3d 194 (2d Cir. 1999))
          Spier v. Calzaturificio Tecnica S.p.A.
              (71 F. Supp. 2d 279 (S.D.N.Y. 1999))

The U.S. Court of Appeals and the District
Court refused to enforce vacated foreign
– Enforcement under Chapter 1 of the FAA was
  not allowed.
– Article V(1)(e). The discretion was exercised
  against enforcing the awards.
– There was “no adequate reason for refusing
  to recognize the judgment of the [foreign]
 When will the U.S. courts enforce
   vacated foreign awards? 1
  When there is a breach of “no recourse”
  clause, i.e. an explicit promise not to
  appeal the award?
• Chromalloy: the party who moved in Egypt for
  the setting aside of the award had “repudiate[d]
  its solemn promise.” cf. Baker Marine and Spier.
• No-recourse clauses are prevalent, e.g. in rules
  of arbitral institutions.
• Its effect is, according to the law of the seat,
  usually restricted to barring an appeal on the
  When will the U.S. courts enforce
    vacated foreign awards? 2
  When the U.S. law is chosen as the law
  governing the procedure?
• cf. Baker Marine “[n]othing suggests that the parties
  intended United States domestic arbitration law to
  govern their disputes” (cited in Spier).
• Then, Chapter 1 of the FAA applicable to set aside the
• In practice, it is unusual for an arbitration agreement to
  choose the U.S. law as the governing law of the
  procedure while specifying another country as the seat.
               Further reading
• Dana H. FREYER “United States Recognition and
  Enforcement of Annulled Foreign Arbitral Awards - The
  Aftermath of the Chromalloy Case” Journal of
  International Arbitration 2000
• David W. Rivkin “The Enforcement of Awards Nullified in
  the Country of Origin: The American Experience” ICCA
  Congress Series1999 Paris (no. 9)
• Emmanuel Gaillard “Enforcement of Awards Set Aside in
  the Country of Origin: The French Experience” ICCA
  Congress Series, 1999 Paris (no. 9)
• Felix Weinacht ”Enforcement of Annulled Foreign Arbitral
  Awards in Germany” Journal of International Arbitration

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