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ENFORCEMENT OF ARBITRAL AWARDS ARISING FROM INTERNATIONAL TREATY AGREEMENTS

Bobby Banson Esq. FCIArb and Enyimnyam Paintsil Esq.

 

1.   INTRODUCTION

It is trite that Arbitration Clauses could be included in contracts between non-State entities and also in treaties executed between States. This paper is however only focused on the enforcement of arbitral awards arising from arbitration which is occasioned by an International Investment Treaty (IIT). An IIT could be Bilateral or Multilateral. 

 

1.1 Brief Historical Account of Arbitration

The earliest mention of arbitration as a means of settling international disputes dates back from the early fourteenth century. Pierre Dubois, a French publicist, wrote a pamphlet for the recovery of Holy Lands in which he advocated that arbitration was essential to the success of each Crusade.[1]  Since then the World has made significant progress on international arbitration as evinced by the establishment of the Permanent Court of Arbitration in 1899, the International Court of Arbitration after World War I in 1923 and the International Centre for Settlement of Investment Disputes (ICSID) in 1966.[2]

 

2.   ENFORCEMENT OF ARBITRAL AWARDS ARISING FROM IITs.

2.1 Recognition and Enforcement

These two words are often used together when it comes to this subject. Foreign Arbitral Awards must first be recognised by a Country, before same can be enforced in that Country.  An Award-Creditor, may choose to only seek the recognition of the award without seeking to enforce same. Indeed, some awards may be merely declaratory in nature with no executable/enforceable orders.  An Award Creditor who is merely seeking to have the award recognised, without proceeding to enforce same, may choose this path as a means of using the award as a Shield against any attempt by the Award Debtor (or related party) to re-litigate the matter before domestic courts. 

 

Where an Award Creditor however proceeds to enforce an award, that Award Creditor is deemed to have taken steps not only to have the award recognised but also to execute the award by using the procedures of the domestic court to attach the assets of the Award Debtor and liquidate same in satisfaction of the Award debt. That way, the Award becomes a sword in the hands of the Award Creditor.

An Award cannot be enforced in a Country unless the Country has first recognised same. However, an application can be made to have an award recognised without necessarily steps being taken to have same enforced.

 

Again, where a Party voluntarily submits to an Award by obliging the orders contained in the award and making payments of the amounts awarded in favor of the Award Creditor, there will be no need for an Award to be enforced through the court system. 

 

2.2 Regimes for Recognition and Enforcement of Arbitral Awards

There are two main legal regimes which regulate the recognition and enforcement of international arbitral awards. Enforcement could be done under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards or under the International Center for Settlement of Investment Disputes (ICSID) Convention. However, some Countries have enacted domestic legislations to govern the recognition and enforcement of foreign arbitral awards in those countries.

 

 

3.   THE NEW YORK CONVENTION

In 1958 the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was signed by Member States of the United Nations. The Convention states in its objectives that it seeks to provide common legislative standards for the recognition of arbitration agreements as well as court recognition and enforcement of foreign and non-domestic arbitral awards such that discrimination against such awards is severely limited.   As at April 2018, the Convention had been signed by 159 countries.

Under Article II of the New York Convention of 1958, all Member States are to give recognition to written arbitration agreements, where the term “agreement” includes arbitration clauses. Article II reads,

Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration…The term “agreement in writing” shall include an arbitral clause in a contract…

 

Additionally, under the Convention, all arbitral awards have binding effect on the parties to the arbitration agreement[3]. Member States are thus mandated to recognise the binding nature of such awards and are to take measures for the recognition and enforcement of arbitral awards, subject to the rules and procedure of the country where the successful party will seek to enforce the award. Furthermore, Member States are to refrain from imposing harsh and arduous conditions that may undermine the enforcement of the award.

 

To successfully get a Member State to recognise and enforce of a foreign arbitral award, the Applicant must obtain a duly authenticated original award or in the alternative a duly certified copy of it. Where the award is in a language alien to the country where the application for enforcement and recognition is made, the award must be accompanied by a translation in a language understood and spoken in the said country.  

Though the general rule is that all arbitral awards are legally binding, Member States may refuse to recognize and enforce arbitral awards on the request of the party against whom the award is invoked, on the following grounds:[4]

    1. The parties to the arbitration agreement under their respective laws lack capacity.
    2. The arbitration agreement or arbitral award is invalid under the law which the parties subjected it to.
    3. The party against whom the award is invoked was not given proper notice of neither the appointment of the Arbitrator nor the arbitration proceedings.
    4. The party against whom the award is invoked was unable to present his case.
    5. The award deals with or contains decisions on matters and issues beyond the scope of the term of the submission to arbitration or on matters not contemplated by the terms of the submission to arbitration.
    6. The composition of the arbitral authority or the arbitral procedure was contrary to the arbitration agreement of the parties or the law of the country where the arbitration took place
    7. The award has not yet become binding on the parties
    8. 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.
    9. The subject matter of the difference is not capable of settlement by arbitration under the law of that country;
    10. The recognition or enforcement of the award would be contrary to the public policy of that country

 

4.  THE ICSID CONVENTION

The enforcement of foreign awards under the ICSID Convention is governed by Articles 53 to 55 of the Convention.

 

Under Article 53, all arbitral awards by the ICSID are binding. These awards are enforceable under Article 54, which reads,

Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.”

A party that seeks to enforce a foreign award must furnish the Court with a copy of the award certified by the Secretary-General of the ICSID.

The ground for the refusal for recognizing and enforcing an award under the ICSID Convention is when the State, if same is the Award Debtor, is immune from such execution by law.

 

5.   DIFFERENCE BETWEEN ENFORCEMENT AND RECOGNITION UNDER NEW YORK CONVENTION AND UNDER ICSID.

Firstly, the ICSID Convention is made to apply to disputes arising out of investment treaties unlike the New York Convention which is not limited to any particular area of law. Thus while awards of any nature may be recognised and enforced under the New York Convention, only awards arising out of investment treaties may be recognised and enforced. Article 1 of the ICSID Convention stipulates that, the ICSID was established to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of the Convention. This provision is complemented by Article 25 of the ICSID Convention which states that the jurisdiction of the ICSID shall only be in respect of legal disputes arising out of an investment.  This is contrasted with Article 1 of the New York Convention which states that the Convention applies to all arbitral awards arising out of disputes or differences between persons, rather than limit the scope of the dispute to which the award originates from.

 

Secondly, under the ICSCID Convention only pecuniary awards may be given. Article 54 of the ICSID Convention enjoins Member States to enforce the pecuniary obligations imposed by arbitral awards given by the ICSID.  The New York Convention on the other hand, is applicable to all awards, pecuniary or not, and does not limit enforcement to pecuniary obligations only as seen under Article III of the New York Convention which reads as follows:

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…

 

Thirdly, arbitral awards need not be formally recognized before enforcement under the ICSID regime. ICSID Awards are “automatically” enforceable in any ratifying State as a final judgment of the national courts. An applicant under the ICSID Convention need only present a copy of the award duly signed by the ICSID Secretary-General to the courts of the contracting party to have the award enforced and executed[5]. This is unlike the regime under the New York Convention which requires that all awards be formally recognised by the courts of the country where the award is relied on before being enforced. Under the New York Convention, enforcement of awards must be in accordance with the domestic laws of the contracting party, as such the award must first be recognised as enforceable under the domestic laws before it can be enforced.[6]

 

ICSID Awards may not be challenged at the enforcement stage under the Convention; the awards may be stayed pending interpretation, annulled or revised under Articles 51 to 53 of the Convention. At the enforcement stage, grounds for resisting enforcement are exceptionally limited to those available for resisting enforcement of final judgment of a court of that State, and therefore can vary from State to State according to domestic law. Under the New York Convention however, an applicant may challenge the recognition and enforcement of the award so given under Article V of the New York Convention. The provisions of Article V provide 10 grounds on which an award may be challenged or denied recognition and enforcement as mentioned in earlier paragraphs. 

 

Last but not least, the ICSID acknowledges the supremacy of the Sovereign Immunity from execution as provided for by the domestic laws of the country where they seek to do the execution.[7] According to paragraph VI[8] of the Report of the Executive Directors on the Convention, the doctrine of sovereign immunity may prevent forced execution of awards under the ICSID. Unlike the ICSID Convention, the New York Convention does not make provisions for immunity from execution as provided by the domestic laws of the contracting State. The Convention thus leaves room for forced execution of awards that have been rightly recognized and enforced.

 

6.   ENFORCEMENT UNDER LOCAL REGIMES. 

Countries who are signatories to international Treaties and Conventions may be dualist states or Monism States in terms of the local recognition of an international treaty which the country is a signatory to.

Where the country is a Dualism State, the Country must pass local laws to adopt the international treaty as part of its local laws before same will be enforced locally.

If the Country has a Monism System, the international treaty becomes enforceable in the country the moment the country executes the treaty.

We will now proceed to study how the laws of some countries have approached this subject.

 

United States of America

The attitude of the US courts towards arbitral awards may be described as friendly at best. In B.L HARBERT INTERNATIONAL LLC V. HERCULES STEEL COMPANY 441 F.3d 905 (11Th CIR. 2006), the Court criticised parties who were sore losers in arbitration mentioning that, to permit the losing parties to freely re-litigate or challenge arbitral awards, then the arbitration would be in vain. The Court suggested that a “realistic threat” of sanctions could do well to discourage needless litigation over arbitration awards and help fulfill the purposes of the pro-arbitration policies of the country.

Under the United States Federal Arbitration Act, foreign arbitral awards are enforceable anywhere in the country. Any person who wishes to enforce a non-domestic award must provide either original award or a certified copy of it with an official translation where necessary and within three years from the date of the award. The United States District Courts have original jurisdiction to hear applications to confirm or challenge arbitral awards, in which case the challenge is in the form of a motion without a jury trial. Where the award is challenged, the Court may require a security deposit.

 

Ghana

The Alternative Dispute Resolution Act 2010, Act 798, Section 59, empowers Ghanaian courts to recognise and enforce foreign arbitral awards subject to certain conditions. The Ghanaian High Court is mandated to enforce foreign arbitral awards in so far as the award was made by a competent authority, or a reciprocal arrangement exists between Ghana and the country in which the award was made or the award was made under the New York Convention or any other international convention on arbitration. The Applicant must produce to the court the original award or a certified copy of the award and a translation where necessary. Additionally, the award must a final award; there should not be any appeal pending against the award in any court under the law applicable to the arbitration.

 

However, per the stipulations in Section 1 of the Ghana ADR certain matters are excluded from recognition and enforcement. Section 1 of the Act states the scope of application of the Act reads as thus:

This Act applies to matters other than those that relate to (a) the national or public interest; (b) the environment; (c) the enforcement and interpretation of the Constitution; or (d) any other matter that by law cannot be settled by an alternative dispute resolution method.”

Public interest is defined in Article 295(1) of 1992 Constitution of Ghana as any right or advantage which inures to the benefit generally of the whole of the people of Ghana. National interest on the other hand has been defined in Section 98 of the Public Procurement Act, 2003 (Act 663) as a condition where the nation attaches high value, returns, benefit and consideration to the matter in question. Concerning constitutional interpretation and enforcement, the Supreme Court of Ghana is the only body vested with authority to handle matters relating to constitutional interpretation and enforcement.[9] Such matters cannot therefore be the subject of an arbitration award capable of recognition and enforcement. Other matters that cannot be settled by arbitration under the ADR Act of Ghana can be found in Section 73 of the Courts Act of Ghana 1993, which excludes felonies and offences of aggravated degree.

 

India

The enforcement of foreign arbitral awards is governed by the Arbitration & Conciliation Act, 1996. Under Part II of the Arbitration and Conciliation Act 1996, Indian Courts are permitted to enforce foreign awards. To enforce an award, the party seeking to enforce the award must apply to the court for enforcement under Section 47 of the Act above mentioned. The Applicant is required to furnish the Court with the original award or a certified copy as stated under the New York Convention. Besides a party challenging the enforcement of an arbitral award, the Court, on its own may refuse enforcement if need be on two grounds.[10]

Firstly, that the subject matter of the dispute is not capable of settlement by arbitration under the law of India and secondly, that the award is against public policy. An award under the explanation to Section 48(2)(b) in the Act above referred is against public policy if the making of the award was induced or affected by fraud or corruption.

Additionally, the award need not be registered as a decree before taking effect; the provisions of Section 58 of the Arbitration and Conciliation Act 1996 state that when a foreign award is recognized as enforceable, it shall be deemed to be a decree of the Court.

 

Kenya

A foreign arbitral award is recognized and enforced in Kenya, per the stipulations in Section 36(2) of the Kenyan Arbitration Act No. 4 of 1995 which stipulates that,

An international arbitration award shall be recognised as binding and enforced in accordance to the provisions of the New York Convention or any other convention to which Kenya is signatory and relating to arbitral awards.

The Foreign Judgments (Reciprocal Enforcement) (Revised Edition 2012) Act of 1985, Cap 43 also stipulates that, a person in whose favor such an award has been given may apply to the court for recognition and subsequent enforcement of the award but within a specified time limit[11] after which the Court will then order that the arbitral award be registered, unless it appears to the court that the award is contrary to public policy; or that it could not be enforced by execution in the country of the Arbitration tribunal[12] as illustrated in the case of CHRIST FOR ALL NATIONS V. APPOLLO INSURANCE (2002) EA 366. The facts of the case are as follows, the Plaintiff/Respondent was insured with the Defendant/Applicant in respect of a motor vehicle. In July 1997, the insurance policy was endorsed to inter alia, geographically cover Tanzania and Zambia till October 1997. During this period, the Plaintiff/Respondent’s insured vehicle was involved in an accident in Zambia. The Defendant/Applicant refused to compensate the Plaintiff/Respondent who then brought an action against the Defendant/Applicant. The trial court referred the matter to arbitration according to the insurance policy and stayed the action. The arbitrator held in favor of the Plaintiff/Respondent and the Defendant/Applicant sought to set aside the award on grounds of public policy. Justice Ringera, held inter alia that, an award could be set aside under Section 35 (2) (b) of the Arbitration Act as being inconsistent with public policy of Kenya if it was shown that it was either (a) inconsistent with the Constitution of Kenya, (b) inimical to the national interests of Kenya or (c) contrary to Justice or morality.

 

England

England is a monist country and as such international treaties and conventions need not be ratified before taking effect. In this way, all foreign arbitral awards are enforceable in England since the country is a signatory to the New York Convention. This is complemented by Section 99 and 101 of the Arbitration Act 1996 which gives the English Courts the mandate to recognise and enforce foreign arbitral awards.

 

7.   PRACTICAL GUIDE TO ENFORCEMENT OF AWARDS

7.1 Stages in an enforcement action

  1. Choosing the State where the award is to be enforced
  2. Designation of enforcement authority according to Article 54(2) of the ICSID Convention
  3. Consideration of local laws on practical steps required
  4. Execution of the Award– refer to sovereign immunity, drawing a distinction between immunity from suit and immunity from execution. Request waiver of sovereign immunity from execution.[13] Commercial Assets vs. Diplomatic/Public Assets.
  5. Identification of assets before award is obtained
  6. Request for monetary alternatives of non-pecuniary remedies
  7. Political leverage, through World Bank or otherwise
  8. Application for security for costs
  9. Interim or conservatory measures
  10. Pursuit of enforcement in multiple jurisdictions

7.2 Strategies to be employed in resisting enforcement

Technically, there are no defences

  1. Consider annulment
  2. Rely on immunity from execution

8.   CONCLUSION

Before drafting the arbitration clause or start the arbitration process, think of how the award would be enforced.

 

Footnotes

[1] De Recuperatione Terre Sancte:  traité de politique Générale, published 1981 by Paris A. Picard

[2] https://icsid.worldbank.org/en/Pages/about/default.aspx visited on 3rd September 2018

[3] Article III, New York Convention 1958

[4] Article V, New York Convention 1958

[5] Article 54(3) of the ICSID Convention

[6] Article III of the New York Convention, “Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon…There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.

[7] See AIG v KAZAKHTAN ICSID CASE NUMBER ARB/01/6 (Oct 7 2003) where the UK High Court refused to exercise its jurisdiction to attach the assets of the Award Debtor because the assets were not of commercial nature.

See also Article 55 of the ICSID Convention

[8] Article 55 of the ICSID Convention, “Nothing in Article 54 (on enforcement of awards) shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.”

 

[9] Article 130 of the 1992 Constitution of Ghana, Assembly Press

10 Section 48(2), Arbitration and Conciliation Act 1996, India

See also http://www.wipo.int/edocs/lexdocs/laws/en/in/in063en.pdf last visited on 6TH September 2018

[11] Section 5 of The Foreign Judgments (Reciprocal Enforcement) (Revised Edition 2012) Act of 1985, Cap 43, Kenya, National Council for Law Reporting,  “Where the international arbitration award has been given in a designated court, the successful party may apply to the High Court to have that award registered within six years of the date of the award or, where there have been proceedings by way of appeal against the award, of the date of the last judgment in the proceedings”

[12] Section 35 of The Arbitration Act No. 4 of 1995, Kenya Revised Edition 2012 [2010], National Council for Law Reporting

 

[13] The UN Convention on Jurisdictional Immunities of States and their Properties.

 

Photo Credit:  Michael Descharles on Unsplash

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