Alternative dispute resolution via arbitration is nearly always the best initiative when resolving a dispute, as opposed to litigation, enabling a swifter, confidential and generally more cost-effective method of resolution. Once a party obtains an award they are then faced with the prospect of enforcement. With the right legal advisors, it may prove to be less challenging than expected.

International arbitration has a comprehensive enforcement framework that facilitates the recognition and enforcement of awards made in a foreign seat. In fact, under the New York Convention, a signatory state can recognise and enforce in its territory arbitral awards issued by another contracting state.

The UK, together with over 170 other countries, has ratified the New York Convention enabling the enforcement of foreign arbitral awards (see sections 100 to 104 of the Arbitration Act 1996) It is a reasonable conclusion to make that the arbitration route and subsequent enforcement under the New York Convention is likely to be a far better course of action in consideration of the fact that the UK has far fewer agreements involving the mutual recognition and enforcement of foreign judgments.

Khizar Arif, a partner, commented "nevertheless, even the enforcement of international arbitral awards through the New York Convention is not always so straightforward and may sometimes entail practical problems. When embarking on arbitration there are a number of important aspects that should be considered and a number of steps that can be taken to increase the chances of the successful enforcement of an international award should enforcement issues arise"

The location of the assets should be carefully considered

The chances of successful enforcement of the foreign award should significantly increase if the award is issued in a state that has ratified the New York Convention and if the assets of the losing party are also present in the territory of the same state. In this situation, enforcement should theoretically be a straightforward process. Therefore, when negotiating an arbitration agreement prior to doing business and throughout the arbitration, it is of the utmost importance to consider the location of your counterparties' assets. If the assets are not located in a state that is a signatory to the New York Convention, enforcement may be more challenging.

Insolvency of the respondent

It is obviously harder to enforce a foreign award against an insolvent respondent. The claimant will not have priority over secured creditors and preferential payments, such as costs associated with winding up the business, and will also rank among other unsecured creditors. If such conditions exist, an award becomes de facto unenforceable since it is improbable that the claimant will obtain the value of the entire award. In reality, they could get nothing at all. Therefore, determining early on whether the respondent will have the financial means to comply with any award in the event that the claim is successful is essential and can prevent a waste of time and money.

The appointment of receivers may be of help

Section 44 of the Arbitration Act 1996 gives the courts in English & Wales the authority to order the appointment of receivers. This has the potential to be very useful in preventing the dissipation of available assets and therefore helping the enforcement of an award.

Seeking freezing injunctions to facilitate the enforcement may also assist

A party who wants to ensure that the losing party has enough assets to comply with an award and who wants to stop those assets from being dissipated or spent, should consider getting a freezing injunction early on in the litigation. It is important to note that although a freezing injunction application is frequently brought before the issuing of the award, the court also grant a freezing order after the issuing of the award to facilitate enforcement.

Being aware of the public policy defence under the New York Convention may be crucial

Usually, the court will proceed to enforce a valid, final, and binding award unless the losing party decides to challenge it invoking one of the defences that are available against enforcement.

Under the New York Convention, public policy is one of the bases on which the losing party may be able to resist the enforcement of an award and it is also the most typical ground on which the enforcement can be refused. Trying to define public policy is difficult as this concept is vague and not defined in the New York Convention. Moreover, what constitutes public policy differs from state to state. Therefore, before starting arbitration proceedings, it is vital to be aware of any potential public policy issues and also to get local guidance on the stance of the courts in the jurisdiction where the assets are located.

Despite the existence of the New York Convention's regime making the enforcement of awards issued in a foreign seat more effective, practical issues may always arise during the enforcement of the arbitral award. In particular, converting an arbitration award into actual recovery may be challenging or even not possible in cases where the losing party is insolvent or when their assets are located in a state that is not part of the New York Convention. Hence it is imperative for the parties to consider the points mentioned above before embarking on a business transaction or beginning arbitration in the event of outstanding debt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.