The progressive development of globalization on international commercial arbitration, brought with it strong debates among the member states of bilateral and multilateral agreements on arbitration concerning national laws and its role in enforcement of awards.

The most vigorous of those is the debate concerning whether it is possible or desirable to enforce an arbitral award in one country even though the award was previously annulled in another country?

 The force to the heated debate came after an impressive ruling by the French Supreme Court (Court de Cassation) handed down that an award that has been annulled by the court in the country of origin (country in which the award was rendered) or under the law of country of origin (Law upon which award was rendered), can still be executed in France, provided that it satisfies the French Arbitration Law requirements. That decision was in clear contrast to Article V.1.e of the New York Convention 1958, where it stipulates that annulment of an award such annulment represents grounds for refusal of recognition or enforcement of this award, thus the cause of the heated debate.

 The judgement was in Ominimum de Traitment (OTV) v. Hilmarton Ltd.[1], where (H) was engaged by OTV to obtain a drainage project in Algeria. The agreement was governed by Swiss Law and provided for arbitration also in Switzerland.

An award was rendered in Geneva in favour of OTV which consequently, upon an appeal by H, the Geneva Court of Justice annulled the award.[2]

This annulment was later confirmed on April 17th 1990 by the Swiss Federal Tribunal, the highest court in Switzerland.

Notwithstanding the annulment, OTV sought enforcement of the award in Paris. The enforcement of the award was granted in February 1990, and then the Paris Court of Appeal upheld the decision on Dec. 19th 1991.

Finally on 23rd March 1994, The French Supreme Court affirmed the decision and held that the award rendered in Switzerland is an international award which is not integrated in the legal system of that state (Switzerland) whereby it remains in existence even if annulled by a national court of that state and its recognition in France does not conflict with France’s international public policy.[3] In June 27 1997, the award became enforceable, not only in Switzerland but also in England where The High Court of Justice, Queen’s Division held that an application by OTV to set aside the enforcement of the French Supreme Court, would be dismissed as there were no public policy grounds on which the enforcement of the award could be refused.[4]

Hilamarton was but a start (others argue that it is an establishment) for other cases to follow where in the United States District Court of District of Columbia granted an enforcement of an award that had been annulled by national courts in Egypt.

The rise of the dispute came out of a rule in the New York Convention that if a dispute cannot be settled by arbitration under the domestic law of the enforcing nation, a court in the nation of the appellant may refuse enforcement of an award granted through a foreign arbitration panel and that may have been annulled in a later stage in the enforcing nation for national policy reasons.[5]

 To be successful with this defense, a party must prove that the enforcing nation attaches a special national interest to the dispute that makes it incapable of being settled by arbitration. The special national interest must be more than “incidentally” involved in the dispute for the court to find the matter non-arbitral.[6]

 In the case of Chromalloy, a contract between US aerospace manufacturer Chromalloy Aeroservices Inc. (CAS) and the Air Forces of Egypt with an arbitration clause providing for arbitration with the seat in Cairo subject to Egyptian Law. [7]

Initially (CAS) was rendered an award in its favour obliging Egypt to pay approx US$18mn based on Egyptian Private Law. CAS sought enforcement in US while Egypt’s Ministry of Defence challenged the award in front of Cairo Court of Appeal which decided to annul the award upon the consideration that the underlying contract is an “Administrative Contract” which is “non-arbitral” due to the Egyptian State being party to the Agreement.

During which the US District Court of DC including in its decision Article VII of the New York Convention so as not to deprive CAS of its rights, ascertained by the national laws of US, it decided that “…under the convention, CAS maintains the rights to enforcement of this award that it would have in the absence of the Convention. Accordingly the Court finds that if the NYC did not exist, the Federal Arbitration Act would provide Chromalloy with a legitimate claim to enforcement of this award”.[8]

The Court justified its denial of enforcement on the apparent mistake by the Egyptian Courts, for admitting to have applied the Egyptian Private Law instead of the Egyptian Administrative Law and that constitutes a mistake of law rather than a ‘manifest disregard’ and that “as a matter of US Law, the award is proper”.[9]

Another case that came as another surprise was the case of Dubai Civil Aviation v. Bechtel where the Paris Court of Appeal rendered a decision confirming, again, the readiness of French courts to accept enforcement of awards that were set aside at country of origin.[10]

One may ask how an award set aside by a court of appropriate jurisdiction in the place of arbitration could possibly be enforced by another court in another state. The award has no longer any legal effect in the country of origin and is not supposed to have any in another country.

It seems from the above that there are a few exceptions within the separate characters of each individual award that are subject to the potential implementation of the open language of Article VII of the NYC 1985 where it says: “The provision of the present convention shall not … deprive any interested party of any right they may have to avail themselves of an arbitral award in the manner and to the extent allowed by the law… of the treaties of the country where such award is sought to be relied upon.”

The arbitration agreement and any proceedings under that agreement might be subject to the law of the place of arbitration, nevertheless the award once rendered, has an independent international character of its own.[11]

Article V of the NYC makes it clear that setting aside an award allows another court to decline enforcement.

It does not however mandate such option “Recognition and enforcement may be refused under the contracted grounds in ss. (a) through to ss. (e).

 As such, a court outside the state where the award was rendered may choose not to give effect to the setting aside decision of the court of the country of arbitration.[12]

The approach that was employed by both US and French courts may be looked at in this view, as consistent with international agreements and enforceable under applicable national laws.

Opposing views have been expressed around the world by Arbitration experts as well as businesses and multinational trade corporations. Some question the solution adopted by the French Supreme Court and see it as a threat to the harmony and development of international relations and threatens a return of absolute territorialism.[13]

Other views expressed less anxiety assuming that this issue is of limited relevance as it will probably occur less frequently.

 Conclusion:

National courts vested with the right to hear actions over awards annulled in other countries may, through artificial reasoning or national biasness towards their citizens, consider that the local law applied initially to annul the award does not apply to the substance of the dispute and decide on enforcing an annulled award.

In our view we believe that it is important to recognise the right of a court in the place where the arbitration award was rendered.

Failing so may arguably pose some disorder to current attempts for international coordination for the enforcement of arbitral awards and fundamentally alter the characterisation and practice of arbitration with detrimental effect on the parties.[14]

 

Composed and Posted by Mohamed Raffa- LLM, FCIARB, ICCA


 

 

[1] Ominimum de Traitment et de Valorisation S.A. v. Hilmarton Ltd., QBD Com. Ct. (1999) 2 Lloyd’s Rep. 222

[2] Swiss Arbitration Law A36(f) allows an action for annulment where ‘the award was based upon on findings which were manifestly contrary to the facts appearing in the file, or that it constitutes a clear violation of law.’ The Swiss Code on Conflict of Laws and Related Legislations 196, 212 (Pierre Karrer & Karl Arnold 1989 Translation).

[3] Cour de Cassation, 23 Mars 1994 Soc. Hilmarton v. OTV YB Com Arb vol. XX (1995)

[4] High Court of Justice, Queen’s Division, 1998 Folio n1003 Ominimum de Traitment v. Hilmarton Ltd.

[5] Ramona Martinez, Recognition and Enforcement of International Arbitral Awards under the United Nations Convention1958: Refusal Provisions, Intl. Law Journal, vol.24 487-506 (1990).

[6] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (The New York Convention ), Article V(2)(a)

[7] Chromalloy Aeroservices Inc. v. Arab Republic of Egypt (District Court of District of Columbia, 31st July 1996) YB Comm. Arb. Vol. xxii (1997) 1001

[8] District Court of Columbia, 13th July 1996, 939 F. Supp. 907 in XXII Y.B. Com. Arb. (1997), 1001-1012

[9] Claudia Alfons, Recognition and Enforcement of Annulled Foreign Arbitral Awards, Peter Lang GmbH, Frankfurt (2010) p.93-95

[10] Direction Generale de lAviation Civile de La Principaute’ de Dubai v. Societe International Bechtel (Cour d’Appel de Paris 1C, 29 Septembre 2005).

[11] Cf. Mitsubishi v. Soler Chrysler-Plymouth Inc., 473 US 614 (1985)

[12] J. Morrissey & J. Graves, International Sales Law and Arbitration: Problems, Cases and Commentary, Kluwer Law International (2008). p.470

[13] Hamid Gharavi, The International Effectiveness of the Annulment of an Arbitral Award, Kluwer Law International, The Hague (2002)pp.123

[14] See. H. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award, Kluwer Law (2002)p.125; “The enforcement of annulled awards facilitates the creation of what is called “Floating Awards” which will expose the losing party to potential enforcement actions worldwide which cannot be blocked with certainty.

 

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