Switzerland: When Foreign Arbitral Awards Are Late ... Should U.S. Courts Enforce Them??

[Rz 1] There are many reasons why international commercial disputes are submitted to arbitration, one of them being its expected speed. International business partners utilize arbitration to avoid the delay of extended court proceedings [Fn 1]. But reality shows that busy arbitrators and other factors can lead to arbitration being a lengthy process, lasting for months or even years.

[Rz 2] To prevent this from happening, societies as early as the ancient Greeks imposed time limits on arbitrators to complete their mission [Fn 2]. Today, arbitration agreements sometimes contain time limits providing that the arbitrators must render awards within a certain period. Also, institutional rules like those of the International Chamber of Commerce (ICC) provide a reference for time limits [See Article 24 of the 1998 ICC Rules].

[Rz 3] Most of the time, arbitrators will comply with the applicable rules or with the agreement reached by the parties. But there are instances where arbitrators render a tardy award and thus violate a procedural provision of the agreement. The question arises whether this procedural irregularity represents grounds for denying recognition and enforcement of the entire award.

[Rz 4] This article will tackle the question faced by U.S. courts in respect to international arbitration matters: Can tardy award issuance affect the enforcement of a foreign arbitral award in the United States under the regime of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention")[Fn 3]?

Time Limits

[Rz 5] Arbitration agreements sometimes provide that arbitral awards have to be rendered within a specified time. To give an example, in a French case discussed below, the following provision was at issue: "The tribunal shall have to render the award within a period of three months from the date of its constitution [Fn 4]."

[Rz 6] Apart from the parties setting time limits for rendering of an award, there are also rules of arbitration institutions and statutory provisions of different jurisdictions providing for such time limits. Consider, for example, provisions of the 1998 ICC Rules and the statutes of England and Thailand.

[Rz 7] The time limit set by Article 24 of the ICC Rules to render the final award is six months. It starts to run from the date of the last signature of the so-called Terms of Reference. The ICC court may extend this time limit on its own initiative or pursuant to a reasoned request from the arbitral tribunal [Fn 5]. This provision can help avoid the issue of tardy awards and their enforceability.

[Rz 8] If the ICC court should, for whatever reason, deny extension of the time limit, then we face, however, the problem at stake again: What happens if the arbitrators fail to render the award within the time set by Article 24(1)?

[Rz 9] Reference to arbitration rules like those of the ICC embeds the respective rules into the arbitration agreement of the parties. As a consequence, any procedural violation of the arbitration rules also violates "the agreement of the parties"as provided by Article V(1)(d) of the New York Convention [Fn 6]. The arbitrator’s violation of time limits set by arbitration rules has, therefore, the same effect as time limits contained in the arbitration agreement itself.

England and Thailand - examples of national legislation

[Rz 10] Under Article 50 of England’s Arbitration Act [36 I.L.M. 155, 176 (1997)], the court may, by order, extend a time limit. The possibility to extend the time is subject to some limitations [Fn 7]. But the court has discretion in determining the extension time and it "may do so whether or not the time previously fixed (by or under the agreement or by previous order) has expired [Article 50(4)]."

[Rz 11] This statute goes further than the ICC Rules in trying to avoid the dilemma of enforcing tardy awards. The court can extend the time, notwithstanding the time limit agreed upon by the parties themselves. But in reality there still remain instances where the court may not extend the time limit and the arbitrators issue a tardy award.

[Rz 12] Section 21 of Thailand’s Arbitration Act [BE 2530 (1987)] provides that the award must be rendered within a period of 180 days from the date of appointment of the arbitrators [Fn 8]. This time limit may be extended by mutual consent of the parties on the one hand or by the competent court on the other hand. The court may extend the limit as appropriate [Section 21 paragraph 2].

[Rz 13] According to this statute there are no good reasons for extension required. In addition, paragraph 3 of section 21 provides that the parties are not allowed to raise the arbitrator’s failure to render an award within the time limit "as a ground to challenge the enforceability of the award, unless the challenge is made in writing to the arbitrator" within 15 days of the expiration of the time limit and before the award is delivered to the parties.

[Rz 14] This statute is explicitly concerned with the enforceability of tardy awards. In an attempt to avoid the challenge of an award based solely on its tardiness, the statute requires the challenge to be stated before the issuance of the award. Such statutes help prevent losing parties from abusing tardiness as grounds to challenge enforcement before a reviewing court.

[Rz 15] Most of the time awards are challenged in the enforcement stage simply because the losing party cannot accept its defeat. It is exactly this kind of challenge that should be banned. Lacking such a ban in the United States, we have to refer to the New York Convention for an answer.

[Rz 16] In summary, the statutes discussed above try to make the time limits imposed on arbitrators less rigid by giving some opportunities to extend or even to disregard the deadlines [Fn 9].

French Court Decision

[Rz 17] The stance of U.S. courts regarding the enforcement of tardy foreign awards-- as opposed to tardy awards in domestic arbitration matters--is not apparent. In view of this, a French court decision regarding a tardy foreign award is worth examining before considering U.S. court decisions in the context of domestic arbitration matters.

[Rz 18] In the Case of Dubois et Vanderwalle v. Boots Frites BV [1996 Revue de l’arbitrage, 100], the arbitration agreement provided for a time limit of three months, starting from the constitution of the arbitral tribunal, in which the award had to be rendered. The tribunal, notwithstanding this provision, rendered the award a few weeks after the deadline had passed.

[Rz 19] The losing party in the arbitration opposed the recognition of the Dutch award before the court in Paris. Boots Frites, the party requesting recognition, argued that the time limit provision was a mere instruction and did not carry any sanction in case of noncompliance. In addition, Boots Frites asserted that none of the provisions of the New York Convention provided for refusal of enforcement of the tardy award at issue [1996 Revue de l’arbitrage, at 102].

[Rz 20] Based on precedent [Fn 10], the French court held that the observance of a time limit set by the parties themselves could not be changed by the arbitrators. Rather it was, given the contractual nature of arbitration, a matter of public policy.

[Rz 21] The court determined that the contractual time limit belonged not only to national but rather to international public policy. The arbitrators, therefore, using a power they did not have (disrespect of the time limit) violated the international public policy. Recognition and enforcement were denied [1996 Revue de l’arbitrage, at 102].

[Rz 22] Professor Emmanuel Gaillard commenting on this decision considered Dubois et Vanderwalle an illustration of the rigor of French law in respect to strict compliance with contractual time limits [Fn 11]. He pointed out that French public policy requires compliance with time limits, regardless of whether they were set by the arbitration agreement or by reference to institutional rules.

[Rz 23] Conversely, the expansion of time limits does not violate public policy if it is done by an institutional arbitration court, provided the rules confer this power, or if the competent judge extends the time limit in accord with the lex arbitri [Fn 12].

[Rz 24] In Dubois et Vanderwalle the fear that a reviewing court might not enforce a tardy foreign award is unfortunately realized. The nonenforcement of the award based solely on the arbitrators rendering the award a few weeks after the contractual deadline seems an inappropriate consequence since none of the parties had suffered a material damage.

U.S. Court Decisions

[Rz 25] Unlike cases of foreign awards, U.S. court decisions regarding time limitations in domestic arbitrations occur frequently [Fn 13]. Although the principles developed in the context of domestic arbitration do not apply to international arbitration matters, these principles will be considered in developing a proper standard under the New York Convention.

[Rz 26] Originally it was a well-established common law doctrine that heeding the time limitation specified in an arbitration agreement, rule of court, or statute, was mandatory. The expiration of such time limitations terminated the authority of the arbitrators, thus rendering a tardy award null and void [Fn 14].

[Rz 27] Recently, however, courts have more and more often deviated from this doctrine and enforced awards even though they were rendered late. Over the course of time the courts have drawn different distinctions with respect to the enforceability of late awards.

[Rz 28] One distinction being made is between time limitations contained in the agreement of the parties itself and those imposed by a rule of court or statute. The latter are observed less strictly, since they are subject to interpretation by courts and thus not considered mandatory [Fn 15].

[Rz 29] The courts have also applied distinct standards to different subject matters. For instance, many courts have exempted labor dispute arbitration from the general rule of setting aside late awards. Primarily driven by public policy considerations, late awards, in the interest of settling labor disputes peacefully, will often be enforced [Fn 16].

[Rz 30] Moreover, late awards are regularly enforced if the objecting party to the enforcement of the award has waived the time limitation.

[Rz 31] This waiver doctrine has long softened the harshness of the general rule of setting aside late awards. Waiver was regularly found where the parties participated in the arbitration proceedings without protest after expiration of the time limit. This is the case especially if the objecting party failed to protest until after a tardy award had been rendered and after it had learned the result [Fn 17].

[Rz 32] This jurisprudence can be summarized in the words of Korpela: "Thus, the courts have shown a readiness to uphold late awards where no prejudice*45 was shown because of delay and there was at least some basis for a finding of waiver [Fn 18]."

[Rz 33] This development of jurisprudence regarding time limits in domestic arbitration shows the growing concern that the setting aside of arbitral awards on the mere grounds of untimeliness encouraged a losing party to object to enforcement in order to avoid an adverse arbitration decision [Fn 19]. The same concerns are valid in respect to foreign awards challenged under the regime of the New York Convention.

New York Convention

[Rz 34] Section 207 of the United States Federal Arbitration Act of 1925 [9 U.S.C. § 201-208], as amended, implementing the New York Convention, authorizes the parties to a foreign arbitration to bring an action in federal court seeking confirmation of an award. The same provision directs the reviewing court to "confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said convention."

[Rz 35] The New York Convention was adopted in 1958 by the majority of countries participating in the conference. The United States, however, did not accede to the Convention until 1970.

[Rz 36] The Convention’s major purpose was to ensure the efficacy of foreign arbitral awards by limiting the grounds on which a national court could refuse recognition and enforcement [Fn 20]. In fact, the New York Convention limited a party to seven defenses, as set forth in Article V. This limitation reflects the general pro-enforcement bias of the Convention [Fn 21]. Subsequently, the particular defenses provided in Article V (1) and (2) are narrowly construed [Fn 22].

Grounds for Refusing Enforcement

[Rz 37] The grounds for refusing to enforce an arbitral award are generally specified in Article V of the Convention. The seven grounds can be reduced to three fundamental bases for nonenforcement: Lack of due process [Article V(1)(a-e)], non-arbitrability, [Article V(2)(a)] and public policy [Article V(2)(b)]. The issue of arbitrators not complying with a time limit falls mainly under Article V(1)(d). Alternately, it can be discussed under the ground of public policy as the French case Dubois et Vanderwalle illustrates.

[Rz 38] Article V(1)(d) of the New York Convention provides that recognition and enforcement of an award can be refused only if the party asserting such refusal furnishes proof that: "The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties" (emphasis added).

[Rz 39] The arbitrators’ disrespect of a contractual time limit constitutes such a procedural irregularity covered by Article V(1)(d). Hence, whenever the tardiness of an award is proven, the ground for refusal under Article V(1)(d) is technically met.

[Rz 40] However, the court retains a residual discretion in determining whether to refuse recognition and enforcement of the award [Fn 23]. The question remains whether the courts should exercise their discretion in favor of enforceability of tardy awards. To answer this question the policy concerns and considerations discussed above will be taken into account.

[Rz 41] The implementation of the New York Convention by Congress was driven by the intention to remove obstacles to enforcement. The landmark decision of Parsons and Whittemore Overseas [Fn 24] proved that the courts in the United States take this goal of the New York Convention very seriously. Also, the later Supreme Court decision in Mitsubishi Motors Corp.v. Soler Chrysler- Plymouth, Inc. [ 473 U.S. 614, 625 (1985)] showed that U.S. courts are very liberal in their interpretation of the New York Convention.

[Rz 42] Given that background, it cannot be the intention of Article V(1)(d) to permit reviewing courts to police every procedural ruling made by arbitrators. "Such an interpretation would directly conflict with the ’pro-enforcement’ bias of the Convention and its intention to remove obstacles to confirmation of arbitral awards [Fn 25]."

[Rz 43] Rather, it is the task of the courts to apply a more appropriate standard of review regarding public policy concerns. While a court may reach the conclusion that a tardy award constitutes a technical violation of Article V(1)(d), it can still enforce the technically defective award based on its discretion.

[Rz 44] As mentioned earlier, late awards for labor disputes are often enforced for public policy considerations. Arguments in favor of enforcement are based on the notion that a losing party should not be encouraged to challenge the enforcement of an award for the purpose of avoiding an adverse arbitration decision. Thus, courts do not apply a consistent standard.

[Rz 45] The application of the waiver doctrine is often the back door used to enforce late awards. But the tardiness of an award can still lead to an extensive discussion as to whether an award should be enforced.

[Rz 46] The appropriate standard under the New York Convention should be that only material defects in an award could be grounds to refuse its enforcement. In other words, when delays in rendering the award show no prejudice, the award should be enforced [Fn 26].

[Rz 47] The Hammermills court in its discussion of Article V(1)(d) also favored this approach in an obiter dictum: An award should be set aside "based on a procedural violation only if such violation worked substantial prejudice to the complaining party [Fn 27]."

[Rz 48] Looking outside U.S. borders will show that current legislation abroad supports this view. The Commission Report on the new German law on arbitration underscores as one of the principal features of the new law "that procedural deficiencies that contradict the parties’ agreement must have had an impact upon the award in order to be effective as a ground for setting aside the award. A mere formal deficiency without more is not enough [Fn 28]."

[Rz 49] The Hong Kong High Court in a 1994 ruling concluded similarly by implementing Article V(1)(d) in its Arbitration Ordinance. The court concluded that although the defendant successfully displayed a ground for nonenforcement--that the arbitral tribunal was not constituted according to the parties’ agreement--the award should nevertheless be enforced [Fn 29].

[Rz 50] In summary, an arbitrator’s noncompliance with a contractual time limit is technically a violation of Article V(1)(d) of the New York Convention. Given that it is up to the discretion of the reviewing court to enforce the award, enforcement should only be denied if procedural irregularity prejudiced the objecting party.

[Rz 51] This conclusion is consistent with the narrow construction of the due process grounds for refusal and the pro-enforcement bias of the New York Convention, and the corresponding attitude of most enforcing courts around the world.

Public Policy

[Rz 52] Going back to the French court in Dubois et Vanderwalle, it held that the contractual time limit was a matter of international public policy. Consequently, the court denied recognition and enforcement of the tardy Dutch award.

[Rz 53] This decision is inconsistent with the result of our discussion above. Unlike the due process grounds of Article V(1), the public policy ground of Article V(2)(b)--together with non-arbitrability of Article V(2)(a)--is a sua sponte defense that does not give a court the discretion to enforce the award although a violation is found. Yet, the public policy defense is very narrow and is only applicable when enforcement "would violate the forum state’s most basic notions of morality and justice [Fn 30]."

[Rz 54] Given the background of the pro-enforcement bias of the United States, the nonobservance of a contractual time limit should not be considered a part of U.S. public policy. A time limit violation that does not prejudice the objecting party is not a ground for nonenforcement under the due process grounds of Article V(1). It has even less of a ground under the public policy defense covering only violations of the most basic notions of morality and justice.

[Rz 55] Hence, it can be said that, presumably, a U.S. court would not come up with a result such as Dubois et Vanderwalle. In any event, a contractual time limit is not considered to be part of U.S. public policy. Rather, if the complaining party is prejudiced due to a violation of a time limit, New York Convention Article V(1)(d) is the proper ground to challenge enforcement.

Conclusion

[Rz 56] The question asked at the outset was: Does the United States recognize and enforce tardy foreign awards? Under the applicable New York Convention, the U.S. has established a strong pro-enforcement bias and it interprets grounds for refusing enforcement of New York Convention Article V very narrowly.

[Rz 57] Having said this, it is apparent that the non-compliance of arbitrators with contractual time limits technically falls under the due process grounds of Article V(1)(d) providing for refusal if "the arbitral procedure was not in accordance with the agreement of the parties." But considering the discretion given to the reviewing court, the tardiness of an award itself should not prevent its enforcement. Only if the tardiness of the award prejudices the objecting party should recognition and enforcement be denied.

[Rz 58] This principle is inconsistent with the only decision, thus far, rendered on tardy awards in the context of international arbitration. The French court in Dubois et Vanderwalle found non-compliance with the contractual time limit a violation of international public policy.

[Rz 59] Given the understanding that member states of the New York Convention have developed different notions of public policy and different standards of enforcement, a different outcome to basically the same question is not surprising.

[Rz 60] The conclusion reached in favor of enforcing non-prejudicial tardy awards in the United States is consistent with the general goals of the New York Convention and its specific interpretation in the United States.

[Fn 1] Parsons and Whittemore Overseas Co. v. Socit Generale de l’Industrie du Papier (Rakta), 508 F.2d 969, 977 (2d Cir. 1974), citing Saxis Steamship Co., 375 F.2d 577 at 582: "Extensive judicial review frustrates the basic purpose of arbitration, which is to dispose of disputes quickly and avoid the expense and delay of extended court proceedings."
[Fn 2] See Tibor Varady/John J. Barcelo, III/Arthur T. von Mehren, International Commercial Arbitration, 493-94, 497 (Ed. 1999).
[Fn 3] 330 U.N. Treaty Ser. 38.-9 U.S.C. § § 201-08 implement the New York Convention in U.S. law.
[Fn 4] Société Dubois et Vanderwalle v. société Boots Frites BV, decision of the Paris Cour d’appel (1995), 1996 Revue de l’arbitrage 100. Translation of clause as provided by Varady/Barcelo/von Mehren, supra, note 2, 497.
[Fn 5] Article 24 of the 1998 ICC Rules reads:
1. The time limit within which the arbitral tribunal must render its final award is six months. Such time limit shall start to run from the date of the last signature by the arbitral tribunal or of the parties of the Terms of Reference, or, in the case of application of Article 18(3), the date of the notification to the arbitral tribunal by the Secretariat of the approval of the Terms of Reference by the Court.
2. The court may extend this time limit, pursuant to a reasoned request from the arbitral tribunal or on its own initiative, if it decides it is necessary to do so.
[Fn 6] Cf. Compagnie des Bauxites de Guinee v. Hammermills, Inc., 1992 WL 122712 (D.D.C. 1992) ["Hammermills"].
[Fn 7] Article 50 of the Arbitration Act reads:
1. Where the time for making an award is limited by or in pursuance of the arbitration agreement, then, unless otherwise agreed by the parties, the court may in accordance with the following provisions by order extend that time.
2. An application for an order under this section may be made (a) by the tribunal (upon notice to the parties), or (b) by any party to the proceedings (upon notice to the tribunal and the other parties), but only after exhausting any available arbitral process for obtaining an extension of time.
3. The court shall only make an order if satisfied that a substantial injustice would otherwise be done.
4. The court may extend the time for such period and on such terms as it thinks fit, and may do so whether or not the time previously fixed (by or under the agreement or by a previous order) has expired.
[Fn 8] Section 21 reads:
The award must be rendered within a period of 180 days from the date of the rightful appointment of the last arbitrator or umpire, unless otherwise agreed by the parties. The time limit of 180 days or the time limit agreed on by the parties pursuant to paragraph 1 may be extended subject to the mutual consent of all parties. If the parties are unable to agree on the extension, any party, arbitrator or umpire may apply to the competent court which is empowered to extend the time limit as appropriate. The parties are not allowed to raise the arbitrator’s or umpire’s failure to render an award within the time limit under paragraph 1 and 2 as a ground to challenge the enforceability of the award, unless the challenge is made in writing to the arbitrator or umpire within 15 days of the expiration of the time limit and before a copy of the award is delivered to each respective party.
[Fn 9] Varady/Barcelo/von Mehren, supra, note 2, 498.
[Fn 10] See reference in comment of Emmanuel Gaillard to Dubois et Vanderwalle, 1996 Revue de l’arbitrage at 106.
[Fn 11] Comment of Emmanuel Gaillard to Dubois et Vanderwalle, 1996 Revue de l’arbitrage at 106.
[Fn 12] Id.
[Fn 13] See the comprehensive article of Allan E. Korpela, "Construction and Effect of Contractual or Statutory Provisions Fixing Time Within Which Arbitration Award Must Be Made," 56 A.L.R. 3d 815.
[Fn 14] Id. at § 2[a].
[Fn 15] Id.
[Fn 16] Id.
[Fn 17] Id.
[Fn 18] Id.
[Fn 19] See Machinists West Rock Lodge 2120 v. Geometric Tool Co. Div., 406 F.2d 284, 286-87 (2d Cir. 1968) in the context of the Labor-Management Relations Act: In adopting a uniform federal standard, we ought not to accept an arbitration rule which encourages post-award technical objections by a losing party as a means of avoiding an adverse arbitration decision. Rather, we believe it to be a better rule that any limitation upon the time in which an arbitrator can render his award be a directory limitation, not a mandatory one, and that it should always be within a court’s discretion to uphold a late award if no objection to the delay has been made prior to the rendition of the award or there is no showing that actual harm to the losing party was caused by the delay.
[Fn 20] The principal purpose of the Convention and its implementation by Congress was to "remove pre-existing obstacles to enforcement" of foreign arbitration awards. See Parsons and Whittemore Overseas Co. v. Socit Generale de l’Industrie du Papier (Rakta), 508 F.2d 969, 973 (2d Cir. 1974).
[Fn 21] Parsons and Whittemore Overseas, 508 F.2d at 973.
[Fn 22] Hammermills, 1992 WL 122712 at 3. Parsons and Whittemore Overseas, 508 F.2d at 976, with respect to Article V(1)(c).
[Fn 23] See the language of the preamble of Article V(1): "Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof ..." (emphasis added). See also China Nanhai Oil Joint Service Corporation, Shenzhen Branch v. Gee Tai Holdings, Supreme Court of Hong Kong, High Court, 20 Yearbk. Comm. Arb’n 671 (1995).
[Fn 24] Supra, note 20.
[Fn 25] Hammermills, 1992 WL 122712 at 5.
[Fn 26] Cf. in the field of domestic arbitration: Korpela, supra, note 13, at § 2[a].
[Fn 27] Hammermills, 1992 WL 122712 at 5.
[Fn 28] Kommission zur Neuordnung des Schiedsverfahrensrechts, Bericht mit einem Diskussionsentwurf zur Neufassung des Zehnten Buches der ZPO, 9 Arb. & Mediation Report 45 (1998).
[Fn 29] China Nanbai Oil Joint Service, 20 Yearbk. Comm. Arb’n 671.
[Fn 30] Parsons and Whittemore Overseas, 508 F.2d at 976.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.