Derains on 'Chromalloy' and transnational arbitration - News - Arbitrati... Page 1 of 4 Derains on 'Chromalloy' and transnational arbitration oo Soild + Fd, 12 iy 2018 Ina lene ns wekin Panis, French ative Yves Drains conser the tancus case of Crema ¥ yp. men th Feench and US eaune were ey “on he sve wawengn im sheoing 18 eno bral awa inat wa a a he at of bien. Derains said the case represented "an ephemeral moment” of convergence between two very different conceptions of international arbitration: a US model that favours deference to foreign judgments and a French model that examines the nature of the award Itself He said the French and US courts’ decisions in ciromsteyreflected his own beliof that internationat arbitration awards should be independent from the law of a particular state. But US case law has since moved away rom this position, so that ‘enforcement of awards annulled in the seat of arbitration is now the exception rather than the rule, ‘ackorouna tone case The case arose after a US company, Chromalloy, entered into a contract wit the Egyptian Air Force in 1988 to maintain and support a fleet of helicopters with a three-year tenm for most services. In 1981, the Egyptian Air Force sought to terminate the contract after the three-year term expired. Chromalioy did not ‘accept the termination and brought a claim under the contract's arbitration clause, in which the parties agreed to seat the tribunal in Cairo and apply Egyptian law. ‘An arbitral tribunal awarded Chromalley over US$17 milion plus interest in 1994. Jn 1998, the Egyptian Court of Appeal vacated the award because it believed the arbitral panel had improperly applied the Egyptian Civil Code to the exclusion of Egyptian administrative law. In response, Chromalloy sought to enforce the award In the US and France and succeeded in both jurisdictions, although for different reasons. Both the US and French courts had to weigh the relative importance of articles V (1)(@) and Vil of the New York Convention. Article V(1)(e) provides that courts http://globalarbitrationreview.com/news/article/3 1738/derains-chromall... 13/07/2013Derains on 'Chromalloy’ and transnational arbitration - News - Arbitrati.... Page 2 of 4 may’ refuse to enforce an award ifit has been set aside by @ competent authority of the country in which, or under whose law, that award was made. Article Vil provides that the convention does not divest interested parties (0 the arbitration of any rights they have with respect to enforcement of arbitral awards under the laws of the countries where enforcement Is sought. The French approzeh ‘The Paris Court of Appeal enforced the cromay award in 1997, holding that an ‘award set aside at the arbitral seat can nevertheless be enforced in France ifthe award satisfies the French standard for enforcement, thus giving greater effect to attice VII of the convention. The court ruled that an international arbitral award is, by definition, international and therefore not integrated in the legal order of the country ofthe arbitral seat, so it continues to exist despite being annulled in that jurisdiction, This was not the firs case in which the French courts reached this conclusion, Derain noted. The French Court of Cassation similarly ruled in Pabiat «Norte in 1984 and Foren Ocesn Line voaryin 1993 that an award annulled at the seat could be upheld via article Vi But he said the Court of Cassation took a leap forward with its decision in amenen vorvin 1994, a case in which Derains himself acted. In Himanan the court framed the debate in terms of "integration", ne exptained. The court ruled that an ICC ‘award rendered by a tribunal seated in Geneva was an international award that was not integrated into the law of Switzerland. Even though the award had been sol aside in Switzerland, its existence in France could be recognised provided that it did not violate French public policy DDerains said that the French cours decision in ctromatoy was “a copy’ of the decision in ramaton —“one in a tong series of cases" in France to have reached the same res ‘The US approach In a 1996 decision, the US District Court for the District of Columbia also upheld the cirematoy award but did so on the basis of @ provision in the contract's arbitration clause that the award was not subject "to any appeal or other recourse". The US court ruled that, in applying to vacate the award in Cairo, the government of Egypt had violated that undertaking But subsequent US case law has distanced ilsef from chromatey, Derain said. In tartan v Chewon in 1289, the US Court of Appeals for the Second Circuit refused ta enforce two awards that had been annulled in Nigeria, where the arbitrations were seated. Baker Marine argued that article Vil of the New York Convention applied but the ‘Second Circuit rejected this, The court found that there was no reference to US law in the governing agreements and nothing to suggest that the parties intended US domestic arbitration law to govern their disputes — thus distinguishing the facts of the case from those in chematoy http://globalarbitrationreview.com/news/article/31738/derains-chromall... 13/07/2013Derains on 'Chromalloy' and transnational arbitration - News - Arbitrati... Page 3 of 4 Later US cases further distinguished chrometcy. Inthe suer, Pama u and Temedo cases, US courts developed a distinction between the “primary jurisdiction", which is the place where the award was rendered, and “secondary jurisdictions" where parties may try to enforce the award. The courts in these cases deferred the power of annulment to the primary jurisdiction and emphasised that it was not the job of secondary jurisdictions to review the decision of a court in a primary jurisdiction when it had lawfully set aside an award, The role of courts in secondary jurisdictions Is limited to deciding ‘whether the award may be enforced in that particular jurisdiction on the basis of the New York Convention Although these decisions have limited the scope of the US court's decision in ‘chrmatoy, Derain observed they have “kept open the possibilty of enforcing [annulled] awards in some exceptional cases.” Vive ta itéronco Derains concluded that the divergence between the US and French approaches was not surprising, given the language of the New York Convention, but illuminates a larger debate about the nature of an intemational arbitration award ‘The argument that the New York Convention is a vessel for uniformity among, contracting states with respect to enforcement of awards is wrong, he argued. The conditions for enforcement in article VII provide the “origins of civersity” among states, because the arbitrabilty of a dispute is "seen through the lens of national law.” As such, interested partes ae free to rely on domestic law for relief in the country where they seek fo enforce an award ‘The European Convention on Commercial Arbitration of 1961. which has been ratified by 31 European countries, has also played a role in increasing divergence of approaches to enforcement, he noted, as article IX ofthat instrument limits the scope of article V(1)(e) of the New York Convention. ‘As such, divergence is not a matter of importance, he suggested. More important are the questions raised by the case law about the powers of one jurisdiction to determine the enforceability of an award in another jurisdiction and whether an award is international in nature or is associated withthe law of one state. ‘The cases present a serious practical problern, Derains sald, because they give primary jurisdictions the power to prevent secondary jurisdictions from giving effect to awards, "Why should an award be donied an existence because it was annulled in a specific country?" Derain asked. "Why should one particular state have the power to decide the future of an award? Derains, a founding partner of ean 100 firm Derains & Gharaw in Paris, was delivering the third annual Berthold Goldman lecture at the International Academy for Arbitration Law in Paris. The lecture series, which focuses on milestone cases in the field of international arbitration, is part of the academy's programme of advanced summer courses for students and young practitioners interasted in international arbitration, http://globalarbitrationreview.com/news/article/3 1738/derains-chromall... 13/07/2013