«ICCA’S GUIDE TO THE INTERPRETATION OF THE 1958 NEW YORK CONVENTION: A HANDBOOK FOR JUDGES INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION ICCA’S ...»
(ii) Consequences of being set aside Notwithstanding that an award has been set aside in the country in which, or under the law of which, the award was made, a court in another country may still grant recognition and enforcement outside the New York Convention regime. France is the best-known example of a jurisdiction that has declared an award enforceable notwithstanding the fact that it had been set aside in the country of origin. France does so, not on the basis of the New York Convention, but on the basis of French law, by opting out of the New York Convention through Article VII(1), the more-favourable-right provision. This provision allows courts to apply an enforcement regime that is more favourable to enforcement than the New York Convention, that is, that can lead to recognition and enforcement when the Convention would not (see Chapter I at V.1).
(iii) Award “suspended” Article V(1)(e) also provides that enforcement of an award can be refused if the party against whom the award is invoked proves that the award has been “suspended” by a court in the country where, or under the law of which, the award was made. As seen above in this paragraph IV.5.2 at (i), Article VI of the Convention provides that a court may adjourn its decision on enforcement if the respondent has applied for suspension of the award in the country of origin.
The “suspension” of an award is not defined in the Convention.
Courts have generally construed this term to refer to suspension of the enforceability of the award by a court (thus not by operation of the law, for example pending an action to set aside) in the country of origin.
Article V(2) of the Convention provides:
“Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition
and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country.” The grounds in Article V(2) protect the public interests of the State in which enforcement is sought and, accordingly, the court can rely upon them ex officio, following an application that has been made for recognition and enforcement of an award. Typically, the party resisting recognition and enforcement will also invoke these grounds when it believes that they are relevant.
V.1. GROUND 6: NOT ARBITRABLE (Article V(2)(a)) In summary, the “not arbitrable” ground for refusal under Article V(2)(a) is available where the dispute involves a subject matter reserved for the courts.
For example, clearly criminal cases are non-arbitrable; similarly, cases reserved exclusively for the courts of a jurisdiction are non-arbitrable,
– custody of children;
– property settlements;
– bankruptcy; and – winding up of companies.
The modern trend is towards a smaller category of disputes being reserved solely to the jurisdiction of courts, as the result of a number of factors, including the trend toward containing costs, a greater openness of many courts to accept that the parties’ agreement to arbitrate should be respected and the support of international arbitration by national legislation. In this respect it should also be noted that “not arbitrable” has a different meaning in an international as opposed to a domestic context (see this Chapter below at V.2 for the distinction between international and domestic public policy). (See also Chapter II at IV.6.1 on subject matters “capable of settlement by arbitration”.) Whether a subject matter of an arbitration is non-arbitrable is a question to be determined under the law of the country where the application for recognition and enforcement is being made. The nonarbitrability should concern the material part of the claim and not merely an incidental part.
Few cases of refusal of enforcement under Article V(2)(a) have been
reported. These include:
– A decision by the Belgian Supreme Court that refused enforcement of an award on the ground that the subject matter concerning the
termination of an exclusive distributorship agreement was not capable of settlement by arbitration under Belgian law as the Belgian courts were given exclusive jurisdiction under a specific law relating to distributors;46 – A decision by the Federal Arbitrazh (Commercial) Court for the Moscow District that found that a Slovak award was unenforceable because it had been rendered after the Russian respondent had been declared bankrupt by an arbitrazh court. Under the bankruptcy law of the Russian Federation, arbitrazh courts have exclusive jurisdiction over the determination of the amount and nature of a bankrupt’s claims against a debtor. The court actually framed its decision under Article V(2)(b) of the Convention as arbitrability may be considered as belonging to public policy.47
V.2. GROUND 7: CONTRARY TO PUBLIC POLICY (Article V(2)(b))
Article V(2)(b) permits a court in which recognition or enforcement is sought to refuse to do so if it would be “contrary to the public policy of that country”.
However, Article V(2)(b) does not define what is meant by “public policy”. Nor does it state whether domestic principles of public policy, or public policy principles based on the international concept of public policy, should apply to an application for recognition and enforcement under the New York Convention. The international concept of public
46. Belgium: Cour de Cassation, First Chamber, 28 June 1979 (Audi-NSU Union AG v.
SA Adelin Petit & Cie) Yearbook Commercial Arbitration V (1980) pp. 257-259 (Belgium no. 2).
47. Russian Federation: Federal Arbitrazh (Commercial) Court, Moscow District, 1 November 2004 (AO Slovenska Konsolidachna, A.S. v. KB SR Yakimanka) Yearbook Commercial Arbitration XXXIII (2008) pp. 654-657 (Russian Federation no. 15).
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REQUEST FOR THE RECOGNITION AND ENFORCEMENT OF AN ARBITRAL AWARDpolicy is generally narrower than the domestic public policy concept. As seen in this Chapter above at V.1, this distinction also applies to arbitrability.
Most national courts have adopted the narrower standard of international public policy, applying substantive norms from international sources.
The recommendations of the International Law Association issued in 2002 (the “ILA Recommendations”) as to “Public Policy” are increasingly being regarded as reflective of best international practice.48 Among the general recommendations of the ILA Recommendations are that the finality of awards in “international commercial arbitration should be respected save in exceptional circumstances” (Clause 1(a) of the General Section) and that such exceptional circumstances “may in particular be found to exist if recognition or enforcement of the international arbitral award would be against international public policy” (Clause 1(b) of the General Section).
Clause 1(d) of the ILA Recommendations states that the expression “international public policy” is used in them to designate the body of principles and rules recognized by a State, which, by their nature, may bar the recognition or enforcement of an arbitral award rendered in the context of international commercial arbitration when recognition or enforcement of said award would entail their violation on account either of the procedure pursuant to which it was rendered (procedural international public policy) or of its contents (substantive international public policy).
The ILA Recommendations state (per Clause 1(d)) that the
international public policy of any State includes:
48. Available at www.ila-hq.org/download.cfm/docid/032880D5-46CE-4CB0-912 A0B91832E11AF.
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CHAPTER III(i) fundamental principles, pertaining to justice or morality, that the State wishes to protect even when it is not directly concerned;
(ii) rules designed to serve the essential political, social or economic interests of the State, these being known as “lois de police” or “public policy rules”; and (iii) the duty of the State to respect its obligations towards other States or international organizations.
V.2.1. Examples of Recognition and Enforcement
In a German case before the Court of Appeal of Celle, the seller sought to enforce an award of the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation (ICAC).49 The buyer contended that permitting enforcement would violate public policy either because there were procedural irregularities in the arbitration proceedings or because the arbitral award gave effect to a disproportionately high contractual penalty. The court rejected the
buyer’s arguments holding:
“In the specific case of foreign arbitral awards, the departure in the foreign arbitration from mandatory rules of domestic procedure is not [automatically] a violation of public policy. Rather, there must be a violation of international public policy. Hence, the recognition of foreign arbitral awards is as a rule subject to a less strict regime than [the recognition of] domestic arbitral decisions. The issue is not whether a German judge would have reached a different result based on mandatory German law. Rather, there is a violation of international public policy only when the consequences of the
49. Germany: Oberlandesgericht, Celle, 6 October 2005 (Seller v. Buyer) Yearbook Commercial Arbitration XXXII (2007) pp. 322-327 (Germany no. 99).
application of foreign law in a concrete case is so at odds with German provisions as to be unacceptable according to German principles. This is not the case here.” In the French case SNF v. Cytec, SNF contracted to purchase a chemical compound from Cytec under two separate contracts.50 The second provided for Cytec to be the exclusive supplier. The arbitral tribunal held that the second contract violated EC Competition Law. It then rendered an award in favour of Cytec. Before the Cour de Cassation, SNF argued in effect that the Court should not permit enforcement of an award which was based on an agreement in restraint of competition and hence was contrary to EC law and public policy. The Court held that where (as in this case) the matter in issue was international public policy, the courts would only intervene to prevent enforcement in the case of a “flagrant, effective and concrete” violation of international public policy.
That the legal reasoning underlying an award or the conduct of the arbitral tribunal is in some way flawed does not breach public policy as long as this flaw does not affect the fundamental conceptions of morality and justice of the legal system where enforcement is sought, i.e., does not violate international public policy. For example, the Hong Kong SAR Court of Final Appeal held that the holding of an inspection in the absence of the respondent was not a ground for refusing enforcement because the respondent was informed that it had taken place and did not ask for a re-inspection in the presence of its representatives.51
50. France: Cour de Cassation, First Civil Chamber, 4 June 2008 (SNF sas v. Cytec Industries BV) Yearbook Commercial Arbitration XXXIII (2008) pp. 489-494 (France no. 47).
51. Hong Kong: Court of Final Appeal of the Hong Kong Special Administrative Region, 9 February 1999 (Hebei Import and Export Corporation v. Polytek Engineering Company Limited) Yearbook Commercial Arbitration XXIV (1999) pp. 652-677 ICCA Guide to the NYC
CHAPTER IIIOther examples of recognition and enforcement notwithstanding an
alleged violation of public policy are:
– Lack of financial means: the Portuguese Supreme Court of Justice rejected the argument that there was a violation of public policy because the Portuguese respondent did not participate in the arbitration in The Netherlands because of a lack of financial means;52 – Lack of impartiality by arbitrators: courts hold that “appearance of bias” is insufficient; there must have been “actual bias”, i.e., the arbitrator must have acted in a partial manner;53 – Lack of reasons in award: courts of countries where reasons in awards are mandatory generally accept to enforce awards that contain no reasons but have been made in countries where such awards are valid.54 (Hong Kong no. 15).
52. Portugal: Supremo Tribunal de Justiça, 9 October 2003 (A v. B. & Cia. Ltda., et al.) Yearbook Commercial Arbitration XXXII (2007) pp. 474-479 (Portugal no. 1).
53. See, e.g., Germany: Oberlandesgericht, Stuttgart, 18 October 1999 and Bundesgerichtshof, 1 February 2001 (Dutch Shipowner v. German Cattle and Meat Dealer) Yearbook Commercial Arbitration XXIX (2004) pp. 700-714 (Germany no.
United States: United States District Court, Southern District of New York, 27 June 2003 and United States Court of Appeals, Second Circuit, 3 August 2004 (Lucent Technologies Inc., et al. v. Tatung Co.) Yearbook Commercial Arbitration XXX (2005) pp. 747-761 (US no. 483).
54. See, e.g., Germany: Oberlandesgericht Düsseldorf, 15 December 2009 (Seller v.
German Buyer) Yearbook Commercial Arbitration XXXV (2010) pp. 386-388 (Germany no. 135).
V.2.2. Examples of Refusal of Recognition and Enforcement Examples of refusal of recognition and enforcement under Article V(2)(b)
– The Court of Appeal of Bavaria refused recognition and enforcement of a Russian award on the ground of public policy because the award had been made after the parties had reached a settlement, which had been concealed from the arbitrators;55 – The Federal Arbitrazh (Commercial) Court for the District of Tomsk, in the Russian Federation, denied enforcement of an ICC award rendered in France, finding that the loan agreements in respect of which the award had been rendered were an illegal arrangement between companies of the same group and that the dispute was simulated.56