Following the globalization on the international commercial arbitration, various discussions arise concerning the enforceability of an arbitral award. The most interesting one is the conflict concerning whether it is possible to enforce a foreign arbitral award in one country even though this award was previously annulled according to “lex loci arbitri”.
As far as it is presumed from the Article 5/1/e of the New York Convention (1958), the enforcement of an annulled foreign award shall be refused. However, when this Article is interpreted in consideration of its English version or the role of “lex loci arbitri” and the related court judgements are analysed, it is unavoidable to come to a different understanding.
Interpretation of the Article 5 of the New York Convention
Article 5 of the New York Convention states as follows:
“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 that:
(e) The award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”
As specified above, the circumstances set forth in this article do not bring an obligation to refuse the enforcement of the award. The expression of “may be refused” demonstrates that the decision of enforcement is in discretion of the court judge. Therefore, this article does not reflect that the existence of the mentioned circumstances certainly results to the refusal of the enforcement.
The Role of “lex loci arbitri” in the Enforcement of the Annulled Foreign Award
The people who defend the territoriality of the award give particular importance to “lex loci arbitri” by specifying that the Articles 5/1/a, 5/1/e and 5/2/b of the New York Convention also put emphasis on it. Pursuant to this view, a foreign award annulled by the court in the place of arbitration cannot be enforced in another country.
In the other hand, there is the defenders of the statelessness of the award arguing that these
awards are independent from the place of arbitration basing on the ground that the Article 7 of the New York Convention gives the right to the enforcement states for permitting the enforcement of a foreign award under their domestic law.
Judgments supporting the enforcement of an annulled foreign award
The judgment of the French Supreme Court (1994) triggered the enforcement of an annulled foreign award. The judgment was in the case concerning a drainage project between Omnium de Traitment (OTV) and Hilmarton Ltd., where the relevant agreement was governed by Swiss Law and the place of arbitration was also Switzerland. An award was rendered in Geneva in favour of OTV, but the Geneva Court annulled the award, then the Swiss Federal Tribunal confirmed this annulment. However, OTV applied for the enforcement of the award in France and French Supreme Court ruled that international award rendered in Switzerland is not integrated in the legal system of Switzerland and the award thereby is enforceable in France provided that it does not conflict with the international public policy of France. However, this decision was criticized for being in contrast to Article 5/1 of the New York Convention.
The abovementioned judgment stating that an award that has been annulled by the court in the place of arbitration can still be executed in France was just a start for other cases. The others, especially the United State Courts followed this ruling. For example, in the case of Chromalloy, following the annulment of the award in favour of Chromalloy against the government of Egypt by the Egypt Court, US District Court of DC ruled to enforce the award (1996) basing on the national laws of US (Article 7 of the New York Convention) and enforceability of an annulled foreign award (Article 5 of the New York Convention).
The discussions around the enforcement of annulled foreign awards are still continuing. Today, it is still not possible to enforce, for example, an ICC Award in Cyprus, if one of the parties is formally registered in Turkey. After the losing party of the arbitral award apply for annulment of the decision, announced by the International Chamber of Commerce (ICC), the court of Nicosia decided not to notify any legal document to the party in Turkey by leaning on the absent mutual recognition between Cyprus and Turkey. Therefore, the court decides for the annulment of the award without involvement of one party. The political challenges between countries having no mutual recognition, reflects directly on the rights of the parties.
The Turkish party will now apply for the enforcement of the Arbitral Award in Greece, as place of business of the counterparty. It remains to be seen, how the Greece courts will decide about the recognition and the enforcement of the Arbitral Award.
According to the latter of the Convention Article 5/1, the enforcement of an annulled foreign award is not prevented and in fact, the Article 7 encourages it provided that national law of this state provides the enforcement. Moreover, by embracing the theory on the independency of the international award, the annulment in the place of arbitration should not influence the fate of this award in another country. To conclude, the execution of an annulled foreign award is possible and depends on the discretion of the court judge of the enforcement state.
On the other side, the still living question around the enforcement of annulled Arbitral Awards underlines the need for a regulation of the Arbitration Institutions. While Countries has signed different national and multi-national Agreements, as the New York Convention, well-known Arbitral Institutions should inform the parties about the political challenges for avoiding unlawful
The alternative dispute resolution mechanisms need more time for a smooth progress of recognition and enforcement of arbitral awards.