In a prior article, we referred to the limited, exclusive grounds under the New York Convention whereby courts may refuse to enforce a foreign arbitral award. In this article, we discuss what those limited grounds are and how they serve to facilitate the international enforcement of arbitral awards and, thereby, promote the use of international arbitration to resolve cross-border disputes.
1．Overview of Foreign Arbitral Award Enforcement Under the New York Convention
Say that a Japanese party and a Malaysian party have completed an arbitration seated in Singapore, and the tribunal has issued an award of damages in favor of the Japanese party. Say also that the next step of the Malaysian party is to do nothing: neither voluntarily comply with the award and pay the Japanese party nor seek to set aside (or annul) the award in Singapore. What can the Japanese party do?
As discussed previously (see Dispute Resolution Clauses in English-Language Contracts: Common Questions about International Arbitration), the New York Convention provides the framework for enforcement of foreign arbitral awards, that is, for the enforcement of an award made in a country other than the country where the enforcement is sought. Here, for example, because Singapore was the arbitration seat, as a legal matter the award is deemed to have been made in Singapore. Singapore is a signatory to the New York Convention, as is Malaysia (and Japan).1 Like other New York Convention signatory countries, Malaysia has incorporated in its national arbitration legislation the limited, exclusive grounds specified in the Convention upon which Malaysian courts may refuse to enforce an arbitral award.
Given the above, the Japanese party could (and should) seek enforcement in Malaysian court of the foreign arbitral award that was made in Singapore (Malaysia presumably is the location of the Malaysian party’s corporate headquarters and at least some of its assets out of which the damages award could be paid). In other words, the Japanese party could seek assistance from the Malaysian court to recover the damages awarded to the Japanese party in the arbitration. Moreover, if the Malaysian party has assets in another country that is a New York Convention signatory, the Japanese party potentially could seek to enforce the arbitral award in that other country as well.
What, then, does the New York Convention say about enforcement of foreign arbitral awards? Article III of the Convention provides that signatories’ courts “shall recognize arbitral awards as binding and enforce them . . . subject to the conditions laid down” in the remainder of the Convention. Article V further provides that, if a party seeks to enforce a foreign arbitral award: (i) the other party (i.e., the party that lost the arbitration and opposes enforcement, sometimes called the award-debtor) has the burden of proving that the award should not be enforced; and (ii) the court may refuse to enforce the award “only” on the basis of the following grounds specified in the Convention:
(a) if a party to the arbitration agreement was under some incapacity or the agreement was not valid; or
(b) if the award-debtor was not given proper notice of the arbitration proceedings or of the appointment of the arbitrator(s), or was otherwise unable to present its case; or
(c) if the arbitral award deals with a dispute that is beyond the scope of the arbitration agreement; or
(d) if the constitution of the arbitral tribunal or the arbitral proceedings were not in accordance with the parties’ agreement (or the law of the seat of arbitration); or
(e) if the award has not yet become binding on the parties, or has been set aside or suspended by a court in the seat of arbitration; or
(f) if the subject matter of the dispute is not capable of resolution by arbitration under the law of the country where enforcement is sought; or
(g) if enforcement of the award would be contrary to the public policy of the country where enforcement is sought.2
Most of these grounds relate to assuring that the award in question resulted from arbitral proceedings that respect basic principles of international commercial arbitration and fundamental requirements of due process, such as ensuring that all parties have proper notice about the arbitration and appointment of arbitrator(s) and have an equally sufficient opportunity to present their case (item (b) above). Likewise, incapacity has been understood to mean that a person or entity is not legally or physically able to participate in an arbitration, such as a minor or someone who suffers from a mental disability or, for instance, a non-existent company (item (a)). Further, because party consent is a core element of international arbitration (see Dispute Resolution Clauses in English-Language Contracts), there also must be a valid arbitration agreement pursuant to which the arbitral proceedings are held and the award is made (also item (a)). Similarly, the conduct of the proceedings and the method of selecting arbitrator(s) must be in compliance with the arbitration agreement (item (d)), and the nature of the dispute must be within the scope of that agreement (item (c)).
Conversely, certain kinds of disputes (e.g., criminal cases, family matters, patent disputes, antitrust cases) are or may be considered not capable of resolution by arbitration in many countries (item (f) above; of course, this leaves a wide body of cross-border commercial disputes that are capable of being resolved by arbitration). As to item (e), while set-aside of an arbitral award by courts in the arbitration seat historically meant that enforcement of the award also would be refused, more recently the courts in some countries have occasionally been willing to enforce awards even though these awards had been set aside in the seat.
Generally, the grounds above are relatively uncontroversial and straightforward bases for courts to consider whether to refuse enforcement of arbitral awards. Further, because these grounds mostly concern fundamental requirements of international arbitration and due process the absence of which often would halt arbitral proceedings well before the award enforcement stage, the award-debtor typically has a heavy burden to prove that any of the grounds applies such that enforcement of an award should be denied. In short, while award-debtors sometimes try to resist foreign arbitral awards on the grounds above, usually they lose and the awards are enforced.
The last ground above, item (g), provides that a court may refuse enforcement of a foreign arbitral award if the award is contrary to the public policy of the country where enforcement is sought. “Public policy” is not defined in the New York Convention, which instead provides that it is to be determined on a country-by-country basis. While this lack of definition would appear to create the possibility of unpredictable and perhaps inconsistent variation in standards across the world, a comprehensive report by the International Bar Association’s Subcommittee on Recognition and Enforcement of Arbitral Awards found that “[i]n the vast majority of jurisdictions . . . a violation of public policy implies a violation of fundamental or basic principles . . . . such as justice, fairness or morality.”3 Further, according to the report, “public policy as a ground for refusing the recognition or enforcement of foreign awards under . . . the Convention is overwhelmingly considered to include only a very limited number of fundamental rules or values,” and, therefore, “recognition and enforcement of a foreign award are rarely refused” based on public policy objections.4
In sum, even as to the grounds of potential violation of public policy, an award-debtor faces a decidedly uphill battle in persuading a court that grounds exist to refuse enforcement of a foreign arbitral award. Overall, as noted, the burden on an award-debtor to prove grounds for denying enforcement is substantial. For this reason, explains one leading practitioner, “a wide range of authorities have concluded that the [New York] Convention establishes a ‘pro-enforcement’ approach towards foreign awards.”5
2．Application of the New York Convention’s Principles in Court Decisions
As mentioned above, award-debtors do sometimes try to resist enforcement of foreign arbitral awards, but typically they lose. Court decisions from England and the United States discussed below are illustrative in their approach and outcome.
In the English case Honeywell International Middle East Ltd. v. Meydan Group LLC, Honeywell sought to enforce a Dubai International Arbitration Centre (DIAC) award against Meydan.6 Meydan had refused to participate in the arbitration despite having had notice of all the proceedings. After the tribunal issued a default award in Honeywell’s favor, Honeywell sought enforcement in England. Meydan challenged Honeywell’s effort on various grounds, including that: (i) the composition of the arbitral tribunal was not in accordance with the parties’ agreement, (ii) the award dealt with a dispute beyond the scope of the arbitration agreement; (iii) the award was not yet binding in the arbitral seat (i.e., Dubai, United Arab Emirates); and (iv) enforcement of the award would be contrary to English public policy because the underlying contract in the parties’ transaction allegedly had been procured by bribery.
Before addressing each of these individual points, the English court noted generally that it “must order enforcement unless the grounds [of challenge] are made out” by Meydan.7 Further, the court explained, “English law recognises an important public policy in the enforcement of arbitral awards and the courts will only refuse to do so . . . in a clear case . . . . ‘the intention of the New York Convention . . . is that the grounds for refusing recognition and enforcement of arbitral awards should be applied restrictively.’”8
The English court then addressed Meydan’s individual grounds of challenge to enforcing the award. As to the first (composition of the arbitral tribunal was not in accordance with the parties’ agreement), Meydan contended that the arbitration had been administered under a more recent version of DIAC’s arbitration rules than provided in the parties’ contract and that Meydan had been deprived of the opportunity to nominate an arbitrator under the rules. The court rejected Meydan’s contentions, observing that Meydan’s argument about the different rules “was a late afterthought” made shortly before the court hearing,9 and, in any event, that Meydan had not been deprived of, but rather had refused to take, the opportunity to nominate an arbitrator despite having been able to do so.10
Regarding the second ground (award dealt with a dispute beyond the scope of the arbitration agreement), Meydan complained that the tribunal had ordered relief to certain claims that had been made by Honeywell only after Honeywell’s first submission (called the request for arbitration). Given, however, that DIAC’s rules expressly authorized the tribunal to allow parties to add new claims subsequent to the request for arbitration, the court rejected this ground as well.11
With respect to the third ground (award not yet binding in the arbitral seat, Dubai), the English court noted that a Dubai court of first instance had ratified the arbitral award and a Dubai appeals court was reviewing this decision. The court explained further, however, that under DIAC’s rules the award became “final and binding” on the parties after it was issued by the tribunal and there was no additional requirement, under either DIAC’s rules or the New York Convention, that Dubai courts do anything further.12 Given that there also was no allegation the award had been set aside or suspended in Dubai, the court denied Meydan’s challenge on this ground.
As to the last ground of Meydan’s challenge (enforcement of the award would be contrary to English public policy), Meydan asserted, among other things, that the underlying contract at issue in the arbitration had been procured by bribery, and to enforce the award would result in transferring funds obtained through bribery by way of damages in violation of English public policy. The English court began by observing that “the doctrine of public policy ‘should only be invoked in clear cases in which the harm to the public is substantial and incontestable’ . . . . It is therefore necessary to be cautious about applying public policy in areas where there is no established principle of public policy which applies.”13 The court then explained that, although English law would not permit enforcement of a contract between parties to commit bribery or other fraud, contracts that had been procured by bribery were not unenforceable.14 The court therefore rejected Meydan’s contention that enforcing the arbitral award would be contrary to English public policy.
In short, the English court rejected all of Meydan’s grounds to resist enforcement and therefore enforced Honeywell’s foreign arbitral award. In so doing, the court adhered to the principle that it should adopt a “pro-enforcement” approach and any grounds for denying enforcement of foreign arbitral awards “should be applied restrictively.”
The US decision in Anatolie Stati et al. v. Republic of Kazakhstan had a similar posture and outcome.15 There the Stati parties sought enforcement of an arbitral award issued in their favor against Kazakhstan by a Stockholm Chamber of Commerce (SCC) tribunal in Sweden. In response, Kazakhstan challenged enforcement principally on grounds that: (i) Kazakhstan was not given adequate notice to appoint an arbitrator; (ii) the arbitral procedure was not in accordance with the parties’ agreement and/or Swedish law; and (iii) enforcement of the award would be contrary to US public policy.
Before addressing Kazakhstan’s specific arguments, the US court noted “the ‘emphatic federal policy in favor of arbitral dispute resolution’” in the United States, and stated that US courts may refuse to enforce an award “‘only on the grounds explicitly set forth in Article V of the [New York] Convention.’”16 Thus, “[t]he party resisting confirmation bears the heavy burden of establishing that one of the grounds for denying confirmation in Article V applies.”17
As to Kazakhstan’s first argument that it was not given adequate notice to appoint an arbitrator, the US court discussed the relevant evidence, which showed that the SCC had repeatedly notified Kazakhstan about the commencement of the arbitration and the Stati parties’ appointment of an arbitrator, and had requested that Kazakhstan also appoint an arbitrator. Absent any timely response from Kazakhstan, the SCC appointed an arbitrator on Kazakhstan’s behalf and the two party-appointed arbitrators selected the third arbitrator, pursuant to the SCC’s rules. Several months later, Kazakhstan finally replied to the SCC. Reviewing this evidence, the US court concluded that Kazakhstan’s “inability to appoint its arbitrator was not due to a lack of notice but rather a lack of timely participation on its part.”18
Kazakhstan’s second challenge – that the arbitral procedure was not in accordance with the parties’ agreement and/or Swedish law – was based on several contentions, including that the SCC had failed to enforce a three-month “cooling-off period” under the parties’ contract whereby a party was supposed to wait three months after giving notice of a dispute before commencing arbitration. According to Kazakhstan, this alleged failure by the SCC meant that the arbitral tribunal lacked jurisdiction over the arbitration. The US court, however, found that Kazakhstan had given its “unconditional consent” to arbitrate under the parties’ contract, and that adherence to the three-month cooling-off period was a procedural issue for the arbitral tribunal to decide, not a prerequisite to establishing the tribunal’s jurisdiction.19 Here, because the tribunal previously had determined that the cooling-off period had been satisfied as a procedural matter, the US court deferred to the tribunal’s determination. Kazakhstan also claimed that the tribunal had committed various procedural errors concerning the admission and weight of evidence during the arbitration. The US court summarily rejected this assertion, stating that “[i]t is not for this Court . . . to second-guess the tribunal’s weighing of evidence. [Kazakhstan’s] invitation to re-try the merits of the arbitration undermines the very purpose of the New York Convention.”20
In addition, Kazakhstan argued that enforcement of the arbitral award would be contrary to US public policy because the tribunal had relied on allegedly fraudulent evidence in making the arbitral award. While the US court acknowledged that an arbitral award obtained through fraud would be contrary to US public policy, the US court noted further that “the public policy defense is ‘construed narrowly,’ and it requires a [party] to meet the ‘heavy burden’ of proving that the arbitral award ‘tends clearly to undermine the public interest, the public confidence in the administration of law, or security of individual rights of personal liberty or of private property.’”21 Here, the US court determined that Kazakhstan was unable to show any connection between the alleged fraud and the decision in the arbitral award, and thus rejected this contention as well and enforced the Stati parties’ award.22
In each of the cases discussed above, the courts’ restrictive application of the New York Convention’s grounds to refuse enforcement and their decisions to enforce the foreign arbitral awards in question were both appropriate and conventional. While award-debtors sometimes try to challenge enforcement of foreign arbitral awards, it is relatively rare that their grounds are convincing (indeed, these grounds often may be weak as in the cases above), and usually they fail. This circumstance should not be surprising. International arbitration is an established method to resolve cross-border disputes, and if there are fundamental flaws in an arbitral proceeding that may affect the validity of the award, it is likely that these will come to light and be addressed before the tribunal issues its award.
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1 Currently a total of 164 countries have signed the New York Convention. While this constitutes most of the world’s nations, when Japanese companies enter into agreements with non-Japanese counterparties it is prudent to confirm that the counterparty is based and/or has assets in a New York Convention signatory.
2 Article V of the New York Convention also provides that enforcement of an arbitral award may be refused if the court sua sponte determines that the subject matter of the dispute is not capable of resolution by arbitration under the law of the country where enforcement is sought, or if enforcement of the award would be contrary to the public policy of that country.
3 IBA Subcommittee on Recognition and Enforcement of Arbitral Awards, Report on the Public Policy Exception in the New York Convention (October 2015), p. 6. This IBA report covered more than 40 jurisdictions. One universally accepted violation of public policy is if an arbitral award is obtained by fraud. Another, relevant to Japan, is if the award ordered a party to pay punitive damages. As Japanese courts do not allow punitive damages, they would not enforce an order of punitive damages in arbitral awards.
4 Id., at pp. 6, 12, and 18.
5 G. Born, International Arbitration: Law and Practice (2012), p. 378.
6 Honeywell International Middle East Ltd. v. Meydan Group LLC,  EWHC 1344 (TCC).
7 Id., para. 66.
8 Id., para. 67 (citation omitted).
9 Id., para. 111.
10 Id., paras. 126-27.
11 Id., paras. 131, 141-42.
12 Id., para. 152.
13 Id., paras. 181-82 (citation omitted).
14 Id., paras. 183-85. The court noted that the innocent party in such circumstances could rely on the contract to recover any actual damages it sustained entering into the transaction due to the other party’s bribery or fraud. In addition, Meydan made several other challenges based on public policy, but these were very weak and were rejected by the court.
15 Anatolie Stati et al. v. Republic of Kazakhstan, Memorandum Opinion, CA No. 14-1638 (ABJ), D.D.C., 23 March 2018. Included in this decision was the court’s ruling denying Kazakhstan’s request to reconsider an earlier judgment by the court.
16 Id., p. 19 (citations omitted).
18 Id., p. 28.
19 Id., pp. 21, 29-30.
20 Id., p. 30.
21 Id., p. 15.
22 Kazakhstan also asserted that the arbitral award was contrary to US policy because Kazakhstan was not given notice of its opportunity to appoint an arbitrator. Having already concluded that Kazakhstan was given adequate notice elsewhere in its opinion (as discussed above), the US court summarily rejected this assertion.
The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.