Cross-border disputes relating to a range of disagreements from outstanding invoices to shareholder disputes can be lengthy, time consuming and costly when pursued through the courts in most jurisdictions.
International arbitration is frequently regarded as the best method for resolving international disputes because, unlike foreign court judgments, international arbitration awards can be enforced with relative ease in several countries as a result of the widespread adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention.
Khizar Arif, a partner, points out "the option of arbitration allows the parties to retain control of their dispute and additionally allows the dispute to remain private, unlike in a public court of law." Khizar further mentions,"in international arbitrations, the parties (businesses or individuals from different countries) agree to have their dispute resolved by an arbitrator rather than a court of law. This option is usually expressed in an arbitration clause included in the parties' contract."
Once the dispute is resolved and a party has obtained a favourable arbitral award, it is crucial for the party receiving the award, the award creditor, to consider the most appropriate steps to enforce the award. As the parties are likely to prefer their dispute to be settled in a neutral forum, it is unlikely that the award debtor's assets will be located at the seat of arbitration. It is likely that the award creditor will seek enforcement of its award in a court in another state.
Informal channels of enforcement
Before starting formal enforcement proceedings, it is important for the award creditor to consider whether the award debtor can be persuaded to comply with the binding award by informal means. This may avoid the frequently significant cost and time involved in enforcement proceedings. In some cases, it may be sensible to negotiate a reduction in the amount of the awarded sum in order to save money on the costs of enforcement. Additionally, an award creditor might think about whether exerting reputational pressure to enforce compliance would be beneficial or not.
The New York Convention
Adopted in New York in 1958, the New York Convention is commonly recognised as a foundational instrument of international arbitration.
This convention assures that the courts of the contracting states recognise as binding and enforce arbitral awards made in the territories of other signatory states (Article III). As 169 countries have ratified the New York Convention to date, it could be said that an arbitral award that falls under its ambit may be enforced in all the major jurisdictions.
The United Kingdom is a signatory to the New York Convention, which has been incorporated into English domestic law in The Arbitration Act 1996. This means that the UK has consented to enforce an arbitration award from another country signatory to the New York Convention in its jurisdiction as if it were a domestic award. The contracting states may make some reservations (Article I.3 of the New York Convention). The most common choice is a reservation based on reciprocity, that has been made by the UK. This reservation entails that a state can restrict the New York Convention's applicability to awards only issued in the territory of another contracting State.
Enforcement of a New York Convention award in England and Wales
It may happen that the award creditor wants to enforce it in England and Wales despite the award being issued in another jurisdiction. This may be because the unsuccessful party has assets in England and Wales. Provided that the award has been made in a New York Convention state and the unsuccessful party's assets are also located in a New York Convention state (in this case, England and Wales), the process of recognition and enforcement should be straightforward.
Recognition and Enforcement
Although they are sometimes used synonymously, the notions of recognition and enforcement are conceptually and practically different. In fact, an award may be recognised by a court without being enforced, but if it has been enforced, it must have been recognised first. The distinction between the recognition and enforcement of arbitral awards is specified in both the New York Convention and the Arbitration Act of 1996. The Arbitration Act 1996 states that an arbitration award issued in the territory of a state (other than the United Kingdom) that is a signatory to the New York Convention shall be recognised as binding on the parties to the arbitration. Put simply, it means treating a foreign award as if it were a domestic award. On its own, recognition tends to be sought by way of defence, set-off, or in any other way during any judicial proceedings in England and Wales. Regarding enforcement, the court may authorise for judgment to be issued in terms of the award. Once this is done, the award can be enforced just like an English court judgment. Basically, enforcement entails that a foreign award is treated no differently from a domestic judgment.
The enforcement procedure in England and Wales
As mentioned previously, the enforcement of arbitral awards in England & Wales is generally governed by the Arbitration Act 1996. In particular, sections 100 to 103 of the Act provide for enforcement of arbitral awards under the New York Convention. However, in practice, the procedure for the enforcement of both English and foreign awards in England is the same as outlined in the Civil Procedure Rules part 62 (CPR 62)
The application for permission to enforce an award is typically made on paper without giving the respondent any notice. Since the application is made without notice, the claimant is required to fully disclose all relevant facts because otherwise the enforcement order issued by the English court may be revoked. A claim form must be filed in the English Court and it must include a witness statement with the following documents:
- a duly authenticated award or a duly certified copy of it (s 102(1)(a) of the Arbitration Act 1996) and
- the original arbitration agreement or a certified copy of it (s 102(1)(b) of the Arbitration Act 1996).
If any of the award or the arbitration agreement is in a foreign language, it is necessary to obtain an official, sworn translation of them or one approved by a diplomatic or consular agent.
The respondent must be served with the recognition order and given a chance to object before the judgement may be enforced. Objections can only be made on the limited grounds listed in the New York Convention. If the order is not set aside, it can be enforced as a judgement of the English court. The judgement will then be immediately enforceable by the claimant.
In conclusion, international arbitral awards are enforceable in several nations, including the UK, because of the New York Convention's broad ratification. Giambrone's commercial litigators point out that It is important to take into account the type and value of the award debtor's assets, their location and to seek legal advice on the laws and procedures of the territory where the award is going to be enforced before beginning enforcement proceedings before the courts of one or more states.
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.