The ex lege suspensive effect of a challenge is no bar to the recognition of the award unless the suspensive effect is confirmed in a judicial decision issued in the state where the award is challenged.
Under certain legal systems, extraordinary means of judicial review of international arbitration awards are deprived of any suspensive effect; this is the case for instance under Swiss law, where a suspensive effect of annulment proceedings is granted upon a party's request and under extremely restricted conditions. In other jurisdictions, in contrast, certain extraordinary means of judicial review can have by law a mandatory suspensive effect, giving rise to some speculations as to the immediate enforceability of awards issued in these jurisdictions.
Putting an end to years of uncertainty, the Swiss Supreme Court has eventually fully endorsed the view taken by the majority of the scholars, that mere the existence, by virtue of the law, of a mandatory suspensive effect to annulment proceedings in the country of origin of an award (the "Source State") would constitute no bar to the recognition and enforcement of said award in Switzerland. An express judicial decision granting or confirming the suspensive effect of the annulment proceeding remains necessary even in such instances, which in turns implies that the annulment proceeding has indeed been filed (i).
Facts
On June 5 2007, an ICC Arbitration Tribunal (the "Tribunal") seated in France had issued a final award (the "Original Award") communicated to the Parties two days later. The exequatur in France was requested and obtained by the winning Party on June 25 2007 (the "Original Award Exequatur Order"). The Original Award Exequatur Order was communicated to succumbing Party on July 13 2007 and a three-month deadline imparted to challenge it before the French Court of Appeal. Meanwhile, rectification proceeding had been filed by the succumbing Party on July 5, 2007, prompting the Tribunal to issue a new document called Addendum on October 17, 2007 (the "Addendum") partly admitting the rectifications requested. No exequatur order was communicated (and presumably sought) with respect to the Addendum. On June 8 2008, the winning Party sought the recognition of the Original Award in Switzerland, without any reference being made to the Addendum. The succumbing Party objected to such recognition on the ground that the Original Award as rectified by the Addendum was not yet binding on the Parties within the meaning of Art. V.1(e) of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). More particularly, it was contented that the three-month deadline imparted to challenge the Original Award Exequatur Order had been deferred with the issuance of the Addendum and would accrue as from the notification of the Addendum Exequatur Order, and that such challenge proceedings had a mandatory suspensive effect in French law. Geneva judicial authorities dismissed the objection and recognized the Original Award.
Decision
The Swiss Supreme Court upheld the lower courts' finding and dismissed the case. In substance, the Court considered, in line with its constant practice (ii), that an award is binding within the purview of Art. V.1(e) of the Convention when it is not or no longer subject to any ordinary means of appeal in the Source State. Extraordinary means of judicial review have no incidence on the binding character of the award, unless the suspensive effect has been granted by an express judicial decision. Such judicial decision is required even if the suspensive effect automatically derives from the applicable law. In the case at hand, the succumbing Party did not invoke any express judicial decision granting the suspensive effect – in fact no appeal had yet been filed at the time of the opposition to the recognition proceeding – but relied instead on the general ex lege suspensive effect of the French recours en annulation (annulment proceeding).
Comments
In an anterior decision issued in the mid 1980s, the Court had admitted without supporting doctrinal references that the ex lege suspensive effect of the French pourvoi en cassation constituted a ground of opposition to the recognition of an award in Switzerland within the purview of Art. V.1(e) of the Convention (iii). The Court initiated a change of practice in a series of unpublished decisions issued in the last five years affirming that the recognition of a foreign award in Switzerland ought to be denied pending an annulment proceeding when the suspensive effect resulted from a judicial decision, but – implicitly not when it proceeded from an application of the law that was not expressly endorsed in a judicial decision (iv). The Court, however, has always remained rather elusive on its reasoning.
With this decision, the Court finally settles the issue, officially revokes it initial practice and consecrates its new practice whereby a mere suspension ex lege not confirmed in a judicial decision constitutes no bar to the recognition of a foreign award under Art. V.1(e) of the Convention (v). The Court considers indeed that such a conclusion is consistent with the literal text (reference to "binding" as opposed to "final"; "A suspension ex lege is manifestly beyond the scope of this provision") and spirit ("the grounds of refusal of the New York Convention are to be construed restrictively to favor the exequatur of the arbitral award") of the Convention. The Court also notes that it would be "delicate, from the point of view of the legal theory, that a mere procedural rule of the state of the seat [of the arbitration proceeding] suspending the execution of a award in that state as long as the award can be challenged through extraordinary means could defeat an international convention purported to ease the recognition of a foreign award."
It is now clearly established under Swiss arbitration law that as such, an ex lege suspensive effect to extraordinary means of judicial review would constitute no bar to the recognition and enforcement of a foreign award in Switzerland. An express judicial decision granting or confirming the suspensive effect of the proceeding remains necessary to that effect.
The meaning of the standard of a "binding" award for the purpose of recognition of foreign awards has long been the center of an acute debate. In fact, there are reports of "confusing" discussions and debates already at the drafting stage of the Convention, with suggestions from representatives of numerous States that the term be substituted for a less controversial one. No consensus on an alternative terminology could eventually be achieved, however, and the "binding" qualification was maintained (vi). The recent decision of the Swiss Supreme Court, whilst it has certainly not resolved all sources of disagreement, has the merit of putting an end to years of uncertainty in the Swiss judicial practice regarding the incidence of the ex lege suspensive effect of extraordinary (mostly annulment) proceedings against international arbitration awards in line with the purpose and spirit of the Convention.
Footnotes
i Decision 4A_403/2008 of the Swiss Supreme Court in the matter Companie X. SA v Fédération Y, issued on December 9 2008, to be published in the Court's Official Reports (ATF/BGE/DTF). The full text of the decision is available in French at http://www.bger.ch/fr/index/juridiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm search entry 4A_438/2008.
ii Unpublished decision 5P.292/2006 of the Swiss Supreme Court, ground 3.2, and references.
iii ATF 110 Ib 91 ground 2c.
iv Unpublished decisions 4P.173/1999 of March 21 2000, excerpts in 20 ASA Bull. (2002) 266, ground 3.1; 4P.173/2003 of December 8 2003, ground 3; and 5P.292/2005 of January 3 2006, ground 3.2.
v Ground 3.3.
vi Gharavi H. G., The International Effectiveness Of The Annulment Of An Arbitral Award, Kluwer Law International, 2002, ¶¶ 143 and 145.
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.
