KEY PROBLEMS ON RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

The recognition and enforcement of foreign arbitral awards are regulated with the New York Convention in 1958. The contracting countries are obliged to rule for the enforcement of the award provided that there are no circumstances stated in the article 5 of the Convention. Besides, pursuant to the convention, the awards shall not be examined in the substance of the dispute. The substantive judgment of the court is thereby prevented.

The regulations of the abovementioned Convention have the purpose of securing the recognition and enforcement of the awards and eliminating the possible obstacles. Approximately 144 countries became a party to this agreement and transposed the provisions of the agreement into their national law. Additionally, The International Chamber of Commerce (“ICC”) having its centre in Paris provides the arbitration service in scope of its own rules. Despite of the progressions in the arbitration, the various problems on the recognition and enforcement of the awards may appear.

In the article herein, the issues such as the inadequacy of the notice, the responsibilities of ICC, the anti-arbitration attitude of the countries and the possible solutions of these issues will be discussed.

  1. INADEQUACY OF THE NOTICE

The disputing parties have the right to file an annulment action and demand for interim measure before the district court of the place of arbitration. However, the district court does not have jurisdiction   on   the   substance   of   the   dispute   in   accordance   with   the   principle   of

“competence-competence”.

In case of the action for annulment, it is very important that all judgments, petitions and its annexes are notified to the parties in full in order to protect their right to a fair trail. However, in practice, the notifications constitute a problem. The procedure of notification is to notify through official authority or representation office. If the parties are both contracting states of the 1965 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matter (“the Hague Convention”), the notification must be accomplished in accordance with the rules of the Hague Convention.

The problem on the notification arises out of the diplomatic relations between the countries of the arbitration place and the disputing parties. If these countries do not recognise each other, the way of notification becomes uncertain. To illustrate, the Southern Cyprus and Turkey do not recognise each other and there is no diplomatic, political, legal or economic relation between them. Despite the fact that they are contracting states of the Hague Convention, the notification cannot be made in the way of Convention due to the nonrecognition between the countries. In such case, the district court shall rule for a legal method of notification. This problem can be resolved by means of court’s demanding the notification from the Ministry of Justice of the other deputing party.

After all official methods are endeavoured, transfer of the documents via courier may be considered as a last resort for information purposes. However, this transfer shall be executed only by the court because the transfer by the opposing parties is not a safe way which constitutes some risks such as purposeful late delivery or delivery of inexact documents. The inadequacy of notice may lead to late delivery, absence in the hearing and therefore violation of the right of defence. In the event that these results demonstrate that the right of a fair trial is violated, the action of annulment shall be dismissed.

  1. RESPONSABILITY OF ICC TO PROTECT THE RIGHTS OF THE PARTIES

The states enter into the international agreements on foreign arbitration and also adopt foreign arbitration organizations. In this context, the countries having confidence in ICC recognise its decisions and may agree on the settlement of disputes with ICC Rules. These rules are structured in order to provide the opportunity to make a choice in many stages of arbitration and transparency, effectiveness and justice during the process of settlement  of  disputes. Considering that the ICC is certainly a reliable arbitration centre, it should also provide necessary measures and regulations to the parties in order to prevent the following problems, which appear on the recognition and enforcement of foreign awards:

  1. Disobedience of the award

The purpose of the arbitration is to reach a binding decision contrary to the mediation and other alternative dispute resolution methods. The article 34/6 of the ICC Rules states as follows: “Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.”

ICC should take necessary measures to prevent the failure to obey the arbitration award. The disobedience of the award shall have the decent sanctions to protect the parties applying to the ICC in good faith. In practice, ICC sends a dunning letter to the disobeying party. This letter   only warns the parties without intimidating and therefore some other effective sanctions are needed.

  1. Wrongful determination of the place of arbitration

The article 18/1 of the ICC Rules states as follows: “The place of arbitration shall be fixed by the Court, unless agreed upon by the parties.”

As is also understood from the statement above, the opportunity to choose the place  of  arbitration is offered to the parties. However, if the preferred place of arbitration constitutes a problem, for example if there is a diplomatic issue between the parties, ICC should warn the parties in this respect and guide them to choose a more suitable place.

Firstly, the impartiality of the place of the arbitration is important at least as much as the impartiality of the arbitrator. Considering that the decisions will be rendered in the place of arbitration, there should be no prejudice against the parties. In the event that there is an animosity with one of the disputing countries, the execution of the award may be effected from these circumstances. In the other hand, the country where the arbitration takes place may not recognise the deputing countries. In such case, a problem may appear especially on the notification. To illustrate, in the arbitration where Pakistan is a party, the place of arbitration shall not be determined as Armenia due to no recognition or as India due to their negative relations.

To conclude, it is clear that the relations between the countries affect the future of the award. For this reason, ICC should advise on the place of arbitration to the parties and determine the most impartial and favourable place.

  1. ANTI-ARBITRATION ATTUTIDE

In some countries, the arbitration is not common and the necessary steps in the area of institutional arbitration are not taken. Moreover, some of the states despite of being party of the New York Convention and making legal regulations in this matter, takes a stand against arbitration and prevent the execution of the award.

There is the problem that the public order principle being a foundation to prevent the recognition and enforcement of the award is unduly applied and its scope is enlarged in some countries. The criteria to be considered in order to determine the violation of the public order is not specified in the New York Convention and a large power of discretion is given to the state judge.

To conclude, making regulations in national law is not an exact solution, changing the countries’ point of view about the foreign arbitration awards is actually needed. In this context, the arbitration should be improved and become widespread, since therefore anti-arbitration countries can take a positive stand in the matter of recognition and enforcement of the foreign arbitral awards.

RESOLUTION

The purpose of the arbitration is to reach a binding decision. In the international arbitration, the beneficiary party expects the award to be executed as soon as possible. However, the issues mentioned in this article prevent the enforcement of the foreign arbitral awards. In consequence of these obstacles, the interests of the parties, which prefer the arbitration among the methods of settlement of disputes, are influenced in a very negative way.

The countries’ being a party of the New York Convention or regulating the laws in accordance with the provisions of this agreement, do not guarantee the recognition and enforcement of the awards. In order to remove all major problems the arbitration institutions and the relevant authorities should fulfil their duties in this matter.

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