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INAPPLICABILITY OF FOREIGN ARBITRAL AWARDS

SUBMITTED TO:Mr. S.K Sinha


(FACULTY OF ICA)

SUBMITTED BY:PuneetTigga
ROLL NO: - 96, SEM -9, BATCH: X

HIDAYATULLAH

NATIONAL LAW

UNIVERSITY RAIPUR, (C.G.)

ACKNOWLEDGEMENT

I am much indebted to my mentor Mr. S.K. Sinha who gave me a chance to work on the topic
called Inapplicability of Foreign Arbitral Award. I take the opportunity to thank her for her
assistance & comments & remarks on the project before its final draft. Throughout I have been
helped & encouraged by him.

A great debt of gratitude must be acknowledged to the Library & IT department for providing
with the valuable resources required for the making of this project.
Puneet Tigga
Batch X
Sem 9 Roll 96

CONTENTS

INTRODUCTION

01

CHALLENG OF ARBITRAL AWARD

02

PURPOSE AND METHOD OF CHALLENGE

02

GROUNDS FOR CHALLENGE

03

REFUSAL TO RECOGNISE AND ENFORCE THE


ARBITRAL AWARD

05

PARTIAL RECOGNITION AND ENFORCEMENT

04

CONCLUSION

12

BIBLIOGRAPHY

13

ABBREVIATIONS

Art

Article

Co

Company

ed

Edition

Govt

Government

HC

High Court

HK

Hong Kong

Ibid

Ibidieum

ICA

International Commercial Arbitration

ICSID

International Centre for Settlement of Investment Disputes

Inc

Incorporated

Intl Arb. L. Rev

International Arbitration Law Review

Ltd

Limited

Mar

March

NYC

New York Convention

Oct

October

OLG

Oberlandesgericht (German Upper Regional Court)

QB

Queens Bench

UN DOC

United Nations Document

v.

Versus

RESEARCH METHODOLOGY & OBJECTIVE


MODE OF WRITING
The mode of writing in this project is descriptive & analytical.

AIMS AND OBJECTIVES


The aim of this project is to study about the inapplicability of foreign arbitral awards by way of
successful challenge or refusal to recognise and enforce the award.

RESEARCH QUESTIONS
How does foreign arbitral award becomes inapplicable?
What is the purpose of challenge?
What are the methods and grounds of challenge?
When an award can be refused to be recognised and enforced?

SOURCES OF DATA
The sources of data for this project are secondary in nature, including books, articles, law
journals & online resources.

Inapplicability of Foreign Arbitral Awards

INTRODUCTION
The successful party in an international commercial arbitration expects award to be performed
without delay. This is a reasonable expectation. The purpose arbitration, unlike mediation and
mostly other methods of alternative dispute resolution, is to arrive at a binding decision on the
dispute. Once this decision has been made in the form of an award, it is an implied term of every
arbitration agreement that the parties will carry it out.1
The method of recognition and enforcement to be adopted in any particular case depends on the
place where the award was made (that is to say, whether it qualifies, for example, as a NYC
award or not).2According to the NYC, an award made in any state (even if that state was not a
party to the NYC) would be recognised and enforced by any other state that was a party, so long
as the award satisfied the basic conditions set down in convention.3The NYC provides for both
recognition and enforcement of awards to which the convention applies.
A foreign arbitral award becomes inapplicable in two circumstances:
1. When the award has been successfully challenged.
2. When the award is refused to be recognised and enforced.
The project is divided in two parts; first dealing with the challenge of arbitral awards on various
grounds and second dealing with refusal of recognition and enforcement of arbitral awards on
various grounds and refusal under various regional conventions.

MUSTILL & BOYD, COMMERCIAL ARBITRATION 47 (2nd ed.)


Recognition and enforcement is likely to be easiest to obtain under an international convention where the forum
state is bound by such a convention.
3
NYC, Art. 1.1.
2

Inapplicability of Foreign Arbitral Awards

CHALLENGE OF ARBITRAL AWARDS


An arbitral award can be set aside if a successful challenge has been made to it. The effects of a
successful challenge differ depending on the ground of challenge, the relevant law and the
decision of the court that dealt with it. The court may decide:
a. To confirm the award;
b. To refer it back to the arbitral tribunal;
c. To vary the award; or
d. To set it aside, in whole or in part.
When an award is set aside, it is unenforceable in the country in which it was made and it will
usually be unenforceable elsewhere. In this situation, the party who won the arbitration but lost
the challenge is in an unenviable position4.
PURPOSE OF CHALLENGE
The purpose of challenging an award before a national court at the seat, or place, of arbitration is
to have it modified or to have court declare that the award is to be disregarded in whole or in
part. If an award is set aside or annulled by the relevant court, it will usually be treated as invalid
and accordingly unenforceable, not only by the court of the seat of arbitration but also by
national court elsewhere. This is because, under both the NYC and the Model Law, the
competent court may refuse to grant recognition and enforcement of an award that has been set
aside by a court of the seat of arbitration5.
METHODS OF CHALLENGE
There are three ways to challenge an award:
1. Internal Challenge: The rules under which arbitration was conducted may contain
provision for review of the procedure that was followed, or of the award itself. This is
4
5

REDFERN AND HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 429 (4th ed, 2004)
Ibid at 404

Inapplicability of Foreign Arbitral Awards

frequently the case with maritime and commodity arbitrations, and other forms of
arbitration established by trade associations. It is the only method of challenging ICSID
awards since as a part of the special status they enjoy under the Washington Convention,
such awards cannot be challenged in national courts6.
2. Correction and Interpretation of Awards:It is usual for there to be some provision either
in the relevant arbitration rules, or in the law governing the arbitration, for an arbitral
tribunal to correct any clerical or other errors in the award. An arbitral tribunal may be
asked to issue an interpretation of its award.
3. Recourse to the Courts: There are grounds on which an arbitral award may be challenged
before a national court at the place of arbitration.
These grounds are considered in turn, beginning with the one that is most frequently met;
namely, a plea that the arbitral tribunal lacks jurisdiction.
GROUNDS FOR CHALLENGE
Basically two grounds are discussed here. One is the Jurisdictional Issue and the second is the
other grounds which in turn include procedural grounds and substantive grounds which are
further being subdivided.
1. Jurisdictional Issue
It may include:

Whether there is a valid arbitration agreement;

Whether the tribunal is properly constituted;

What matters have been submitted to arbitration in accordance with the arbitration
agreement; and

Whether these matters are arbitrable7.

Two possibilities are open to a party wishing to challenge the jurisdiction of the arbitral tribunal.
The first is to challenge jurisdiction at the outset of arbitration and ask the tribunal to deal with
6
7

Washington Convention, Art 54(2)


Ibid, note 4 at 409

Inapplicability of Foreign Arbitral Awards

the challenge either by interim award or as a part ofits award on merits.The second is to wait
until the award is made and then challenge it, or attempt to resist enforcement on the basis that
the tribunal had no jurisdiction and so its award has no validity. Parties taking part in the
arbitration but fail to raise a jurisdiction issue when they may have been entitled to do so, risk
losing the right to object. If an objection to jurisdiction is to be taken, it should be taken without
delay.
2. Other Grounds
There are two broad grounds on which an arbitral award is likely to be challenged before a
national court at the seat of arbitration. The first is the procedural grounds and the second is the
substantive ground.
a. PROCEDURAL GROUNDS
The procedural grounds for challenge are those that are most likely to be encountered in the
international practice of arbitration like failure to give proper notice, invalid agreement to
arbitrate, lack of due process, against public policy etc. All these issues have been discussed in
the next part of the project, that is, refusal to recognise and enforce awards8.
b. SUBSTANTIVE GROUNDS
This ground is further divided into two parts:
Mistake of Law
The argument in favour of reviewing arbitral decisions in order to guard against mistakes of law
is not difficult to make. There are obvious risks in having a legal system that leaves arbitral
awards free from appeal or judicial review. However, there is no provision in Model Law for
challenging an award on the basis of mistake of fact or law. Some States with a long tradition of
arbitration have taken the view that it should be open to the parties to appeal against an
arbitration award if it contains a serious mistake of law9.

8
9

Ibid at 411
Ibid at 425

Inapplicability of Foreign Arbitral Awards

Mistake of Fact
The principal justification for allowing an appeal from the award of an arbitral tribunal on
questions of law is that it is in the public interest. There can be no such general interest in
findings of fact of a particular case. They may be wrong, even badly wrong, but that is likely to
be of interest only to the parties. Accordingly, almost all states with developed laws of
arbitration refuse to allow appeals from arbitral tribunals on issue of fact10.
Most of the States are broadly content to restrict the challenge of arbitral awards to excess of
jurisdiction and lack of due process.

10

Ibid at 426

Inapplicability of Foreign Arbitral Awards

REFUSAL TO ENFORCE AND RECOGNISE THE ARBITRAL AWARD


As stated earlier, NYC provides for enforcement and recognition of foreign arbitral awards and it
also provides grounds for refusal to recognise and enforce the same under Art V. once a party
seeking recognition and enforcement has complied with Art IV, a court may refuse enforcement
if a party proves one of the Art V grounds11. The grounds in Art V are exclusive12 and national
law cannot be the basis for any additional defense13. In addition, the enforcing court must not reexamine the foreign award on the merits 14 . The control of the enforcing court is limited to
verifying whether a ground under Art V exists.
While the setting aside of the award invalidates the award world-wide, the effects of a refusal of
recognition and enforcement pursuant to Art V remain limited to the country where it
occurs15.Art V sets forth two different kinds of defenses: the defense contained in subsection 1
must be raised by the party defending against enforcement, while the defenses in subsection 2
must be considered by the enforcing court ex officio.
GROUNDS FOR REFUSAL
The grounds under Art V are as follows:
1. Incapacity of a Party [Art V(1)(a)]
Incapacity of either party constitutes a ground for refusal. Incapacity refers to whether the party
may submit to arbitration or whether the party has power to contract, be that party a juridical
person, Govt or public entity. The capacity of a party is determined at the time of conclusion of
the Arbitration Agreement.A partys claim that it was the weaker party and thus at a
disadvantage in entering the contract negotiations also may fall under incapacity 16.

11

Report of the Committee on the Enforcement if International Arbitral Awards, UN DOC E/2704,
E/AC.42/4/Rev.1 (Mar. 28, 1955) at 9
12
Ibid
13
ULRICH HASS, PRACTITIONERS HANDBOOK ON INTERNATIONAL ARBITRATION 401 (Frank-Bernd Weigand ed
2002)
14
OLG Stuttgart (decided Dec 18, 1999) 700 at 704 (Stuttgart Court of Appeal, Germany)
15
Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Das Gas Bumi Negara, 364 F.3d 274 (5th Circuit 2004)
16
HERBERT KRONKE, PATRICIA NACIMIENTO, DIRK OTTO AND NICOLA CHRISTINE PORT, RECOGNITION AND
ENFORCEMENT OF FOREIGN ARBITRAL AWARDS: A GLOBAL COMMENTARY ON NYC 219 (2010)

Inapplicability of Foreign Arbitral Awards

2. Invalidity of Arbitration Agreement [Art V(1)(a)]


A foreign award may not be enforced or recognised if there is no valid arbitration agreement.
The validity under this provision has to be examined separately from the validity of the main
contract. The termination of the main contract does not eo ipso the termination of the arbitration
agreement17.
3. Lack of Proper Notice [Art V(1)(b)]
This is the most important ground for refusal under the NYC. It is directed at ensuring that the
arbitration itself is properly conducted, with proper notice to the parties. Proper may refer to
the content of the notice. The notice should include the names of arbitrators and also the identity
of the defendant should be certain in the notice.18There is no fixed time limit for notice and it has
varied from country to country. The party objecting enforcement has the burden for proving this
ground for refusal exists.
4. Party facing enforcement have had an opportunity to present a case [Art V(1)(b)]
The main thrust of Art V(1)(b) is directed at ensuring that the requirements of due process are
observed and the parties are given a fair hearing. However, the legislative history avoids the
specific mention of the procedures required by this provision. Generally, courts do not review
arbitral tribunals decision as to relevancy of evidence 19 to omit evidence due to failure of a
witness to appear. In general, court rejects claims of due process violations if the defendant has
been given the opportunity to participate in the arbitration.
5. Jurisdictional issues [Art V(1)(c)]
It applies where a valid arbitration exists but the arbitral tribunal has exceeded its authority. It is
founded on the principle that the tribunal derives its authority from the consent of the parties and
is therefore entitled to exercise no more power than the parties agreement allows. To evaluate
this defense, a court must analyse whether the particular issue was within the jurisdiction, or
authority, of the arbitrators.
17

OLG Celle, unpublished decision of Oct 2, 2001 (8 Sch 03/01), www.dis-arb.de


OLG Koln (decided 1976) 258 at 259 (Cologne Court of Appeal, Germany)
19
Phoenix Aktiengesellschaft v. Ecoplas Inc. 391 F.3d 433 (2 nd Circuit 2004)
18

Inapplicability of Foreign Arbitral Awards

6. Improper Composition of Arbitral Tribunal [Art V(1)(d)]


Recognition and enforcement may be refused where the composition of an arbitral tribunal is not
in accordance with the parties agreement or, in the absence of an agreement, the law of the place
of arbitration. However, an irregularity in the composition process does not necessarily lead to a
refusal of enforcement of the award under Art V(1)(d) if a party later consents to the composition
of the tribunal20.
7. Incorrect Procedure [Art V(1)(d)]
The award itself forms a part of the procedure. Error in the course of the proceeding leading to
possible refusal to enforcement under Art V(1)(d) may occur at any stage of the proceedings.
This provision also governs the methods used to perform necessary procedural tasks. For
example, service of an award by e-mail has been deemed proper if provided for by the applicable
local procedural law21.
8. Award is not binding [Art V(1)(e)]
The courts have consistently held that it is the party against whom enforcement is sought that has
to prove that the award has not yet become binding. However, the meaning of the word binding
has generated controversy because it is unclear at which precise point in time an award becomes
binding.
9. Award has been set aside [Art V(1)(e)]
This provision says that the enforcing court may refuse to enforce an award which has been
setaside by a competent authority of the country in which (generally the seat of arbitration), or
under the law of that award was made (the law governing the arbitration or the substantive law).
10. Award has been suspended [Art V(1)(e)]
It is another ground for refusal of recognition and enforcement. The term suspension is not
defined in NYC. However, the phrase generally refers to a suspension resulting from a court
20
21

OLG Naumburg, Intl Arb. L. Rev. 2006, N-61 (Naumburg Court of Appeal)
OLG Celle (decided May 31, 2007) 524 (Celle Court of Appeal, Germany)

Inapplicability of Foreign Arbitral Awards

decision, even if such decision is only provisional. The reason for this is that only a court
decision provides an indication of any doubts that the courts of the country of origin might have
toward an award.
11. Non-arbitrability of dispute[Art V(2)(a)]
The issue of arbitrability touches on the specific national interest of a state in allowing or
disallowing arbitration of certain disputes. The law of place of arbitration is not relevant. If a
certain dispute is not considered to be arbitrable under the law of place of arbitration, the courts
at such place may either set aside the award or refuse to recognise an arbitration agreement under
Art II(3) of the NYC.
12. Violation of Public Policy [Art V(2)(b)]
Public Policy is never argued at all but when other points fail. 22 The provision refers to the
public policy of the country where the enforcement is sought. The public policy of the country
where the arbitration took place is thus not relevant under Art V nor does the public policy of
any other country play a role. If the tribunal itself has considered an allegedly illegal act or facts
giving rise to the public policy defense, this does not preclude a court of enforcement from
deciding the issue itself. The arbitrators award does not prevent a defendant from raising the
public policy defense at the enforcement stage23.
PARTIAL RECOGNITION AND ENFORCEMENT
Where enforcement of only certain elements of a foreign award would violate the enforcing
states public policy, then the remaining part of the award may be enforced, provided that
separating the award into harmful and harmless elements is possible24.

22

Richardson v. Melish, (1824) 2 Bing. 228 (252) (Court of Common Pleas, England)
Soleimany v. Soleimany, (1999) QB 785, at 803 (Court of Appeal, England)
24
J.J. Agro Industries (P) Ltd v. Texuna International Ltd, (1993) 396 (HC, HK)
23

Inapplicability of Foreign Arbitral Awards

CONCLUSION

A foreign award becomes inapplicable when a successful challenge has been made to it or the
award has been refused to be recognised or enforced. There are various grounds as discussed
above to make a foreign award inapplicable.
There are three ways to challenge an award and there are numerous grounds to do so. These
grounds are somewhat similar to the grounds on the basis of a foreign award may refused to be
recognised or enforced.
The grounds are lack of jurisdiction, lack of due process, award being against public policy,
mistake of law, mistake of fact; award violates public policy, lack of proper notice, incapacity of
parties, invalid arbitration agreement, improper composition of arbitral tribunal etc.
An award can be partially recognise, enforce, challenge or set aside. Thus, one can say that
though an arbitral award is final and binding, its finality is limited to the extent of grounds
mentioned. An award can easily be challenged on any ground but the hard part is to prove so and
make the award inapplicable.

10

Inapplicability of Foreign Arbitral Awards

BIBLIOGRAPHY
Books:

DOMENICO DI PIETRO

AND

MARTIN PLATTE, ENFORCEMENT

OF

INTERNATIONAL

ARBITRATION AWARDS: THE NYC OF 1958 (2011)

HERBERT KRONKE, PATRICIA NACIMIENTO, DIRK OTTO


RECOGNITION

AND

ENFORCEMENT

AND

NICOLA CHRISTINE PORT,

FOREIGN ARBITRAL AWARDS: A GLOBAL

OF

COMMENTARY ON NYC 219 (2010)

MUSTILL& BOYD, COMMERCIAL ARBITRATION (2nded.)

REDFERN

AND

HUNTER, LAW

AND

PRACTICE

OF

INTERNATIONAL COMMERCIAL

ARBITRATION (4thed, 2004)

ULRICH HASS, PRACTITIONERS HANDBOOK


Bernd Weiganded 2002)

11

ON INTERNATIONAL

ARBITRATION (Frank-