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Reliance on National Rules and the Enforcement Procedure for Foreign Arbitral Awards: The Weakest Link in the

Chain of International Dispute Resolution?


Lawal Oluwaseun Sadiq*

Abstract The article considers the enforcement process under various conventions with particular reference to the New York Convention of 1958 (NYC) which is by far the most successful multilateral convention in the area of international commercial arbitration. Among the issues to be discussed are (a) the arbitration procedure leading to an award by the tribunal (b) the recognition and enforcement of the award by the winning party and (c) Reliance on national court etc.

Introduction
Party X (a state) and Party Y (a foreign investor) entered into a contractual agreement with X granting Y the exclusive right to manufacture chocolates. The agreement was signed under the existing Bilateral Investment Treaty (BIT) between X and Ys state which had provisions for arbitration of any dispute and the seat was agreed to be in state Z. Dispute arose between X and Y, and Y invoked the arbitration clause in the BIT. Arbitration proceedings were commenced under the United Nations Commission on International Trade Law Rules (UNCITRAL Rules). Upon the conclusion of the arbitration proceedings, award was entered against X who refuses to honour the award and thereby filed an application before the court in state Z to set aside the award. Y on the other hand needs to enforce the award in another state where X has assets. The above hypothetical case exemplifies the process through which parties come together to sign a contractual agreement that will govern the contract between them and also opt for arbitrating any dispute that might arise1 or that has arisen2 during the lifespan of the contract. And in most cases, they set out the mode which the proceeding of the arbitration would take namely the seat of arbitration,3 number of arbitrators to participate in the proceedings, time frame of the arbitration etc. The most important stage of the arbitration is that of recognition and enforcement of the award by the winning party. The recognition and enforcement stage is the final stage of arbitration proceeding whenever the award is not performed voluntarily. This brings us to the issues that will be discussed in this article. We shall be considering the enforcement process under various conventions with particular reference to the New York Convention of 1958 (NYC) which is by far the most successful multilateral con1* Course Coordinator, National Open University of Nigeria. * Arbitration Clause which is included in the contract to govern disputes that is yet to occur.

2 Submission Clause to govern disputes that has already occurred. 3 This is the venue which is also known as the juridical seat as the arbitration could be held in any
other place.

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vention in the area of international commercial arbitration. But before we plunge into the ocean of enforcement, it will be necessary to take a short detour to the process of arbitration for a basic understanding. The Process of Arbitration International commercial arbitration has been a mechanism through which commercial disputes have been determined over the years. It is regarded as a private dispute resolution forum which is chosen by the disagreeing parties to resolve any dissension between them without looking to the courts of law. And it is also said to be private in the sense that the parties are allowed the freedom to choose how the session is to be conducted and what it entails, the law that will govern their disputes and so on. Ironically, parties may still need the judges gavel to enforce the outcome of the forum. The arbitration proceedings are governed by various regional and international treaties and also national laws. Due to the fact that each state is supreme and not subject to any other state, therefore laws are bound to vary from jurisdiction to jurisdiction. Accordingly, national courts are enjoined to allow the arbitration autonomy but there is still the need for the parties to make recourse to the national courts for the recognition and enforcement of their award. And the applicable law to apply here is said to be the lex arbitri or curial law which simply means the law of the seat of arbitration. Sir William Searle Holdsworth4 was quoted as saying: The practice of arbitration therefore, comes, so to speak, naturally to primitive bodies of law; and after the courts have been established by the state and a recourse to them has become the natural method of settling disputes, the practice continues because the parties to a dispute want to settle it with less formality and expense than is involved in a recourse to the courts. It is a private method of dispute resolution, chosen by the parties themselves as an effective way of putting an end to disputes between them, without recourse to the courts of law.5 There are four significant features of an arbitration proceeding which are worthy of mentioning. The features are arbitration agreement,6 composition of arbitrators, status of an award rendered by the arbitral tribunal and the method of enforcement of such an award.7 Recognition and enforcement of arbitral award The process of recognition and enforcement of arbitral award has been enshrined in the NYC 1958. It is arguably the most successful multilateral convention which has been

4 AL Goodhart and HG Goodhart (eds), Sir William Searle Holdsworth, History of English Law, (7th rev
ed Sweet and Maxwell, 1964). 5 A Redfern, M Hunter and N Blackaby, Law and Practice of International Commercial Arbitration (4th ed, Sweet and Maxwell, 2004). 6 This is an essential feature because without a valid agreement, the arbitration proceedings would be invalid. 7 This is the final and most important stage of the arbitration proceeding.

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used as a basis for the recognition and enforcing arbitral award.8 In spite of this acclaimed success of the NYC 1958 to integrate the process of enforcement of award, it is still considered to be the weakest link in the entire chain of international dispute resolution.9 The most important weakness of the NYC is the apparent paucity of an efficient ubiquitous enforcement procedure. The NYC 1958 which is also known as the Convention on the Recognition and Enforcement of Foreign Arbitral Award was adopted by the United Nations at the diplomatic conference which was held on the 10th of June 1958 and was ratified about a year later. This landmark instrument has a total number of 144 signatories10 which attest to its importance in the field of international commercial law. Prof. Gillian Triggs noted that one of the intriguing features of the NYC 1958 was that it formed a crossroad for different legal discipline.11 Enforcement Procedure of an award Execution of Award The end result of arbitration proceedings is an award. This could be achieved by an amicable settlement by the parties before the conclusion of the proceedings or the tribunal will rendered an award which is said to be final. The UNCITRAL Rules provides that: If, before the award is made, the parties agree on a settlement of the dispute, the arbitral tribunal shall issue an order for the termination of the arbitral proceedings or, if requested by both parties and accepted by the tribunal, record the settlement in the form of an award on agreed terms. The arbitral tribunal is not obliged to give reasons for such an award.12 Art 28 (6) of the International Chamber of Commerce (ICC) demands that parties who agree to submit their dispute to arbitration under the ICC should endeavour to carry out the award without any delay. But what can the winning party do where the losing party has failed to comply with the requirement under the award. Well, the next step for the winning party is to instruct his lawyer/arbitrator to enforce such award(s) against the other party while the losing party too can instruct his own lawyer to have the award set-aside. This is done by requesting assistance from the national courts to either set-aside the award or enforces it. To set an award aside is to render such a nullity while enforcement of an award gives the award a judicial backing. Recognition and enforcement of foreign award 8 The most significant development to the NYC is the UNCITRAL Model Law. 9 Blessing, Marc, The New York Convention of 1958: The Major Problem Areas. Swiss Arbitration
Association (ASA) Special Series Vol 9 (1996) 20.

10 Available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html (accessed on 3 Mar 11).

11 Prof. Triggs, Triggs declares New York Convention one of the success stories of public and private international law, The Alternative Dispute Resolution (ADR) Reporter (Australia).

12 UNCITRAL Arbitration Rules, Art 34.1 available at http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf (accessed on 3Mar 11).

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Looking at the heading that was given to the NYC, one would notice the word foreign. It simply means that the award is a non-domestic arbitral award. The question what constitutes a non-domestic award within the meaning of the New York Convention is one of the most complicated issues posed by this treaty.13 Art I(1) of the NYC defines the non-domestic award and it states: This Convention applies to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.(Emphasis added) In determining whether an award is domestic or foreign, the provision under the lex arbitri and lex fori is paramount because they apply different laws to award which are domestic and those which are foreign. It should be noted that the most significant law is that of the place or seat of arbitration. Furthermore, an award that was set aside in one jurisdiction can still be granted in another jurisdiction. This is attributed to the disparity in national laws and some scholars14 have suggested that the cure to this problem is to delocalise or detach arbitration from the law of the seat of arbitration. Application of the NYC Art I(3) provides that when signing, ratifying or acceding to this Convention, or notifying extension under Article X hereof, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards only in the territory of another Contracting State. This provision provides a reservation for a State to refuse recognition of an award from a state which has no mutual exchange of privileges and so on. In Hilton v Guyot,15 the United State Supreme Court after detailed analysis of the laws of other nations concluded that the rule of reciprocity has worked itself firmly into the structure of international jurisprudence. In Texaco Panama Inc. v Duke Petroleum Transport Corp (Liberia),16 the United States District Court, Southern District Court of New York held that the NYC that was relied on by the respondent does not apply, since respondent is a Liberian corporation and 13 Alberta Jan Van Den Berg,Non-domestic arbitral awards under the 1958 New York Convention, 3
ARB. INTL 191 (1986) 191. 14 J.Paulsson, Arbitration Unbound: Award Detached from the Law of its Country of Origin (1981) 30 ICLQ 358; Delocalisation of International Commercial Arbitration: When and Why it Matters. (1983) 32 ICLQ 53; W Parks, The Lex Loci Arbitri and International Commercial Arbitration (1983) ICLQ 21.

15158 US at 113.
16 Judgment of 3 September 1996, 95 Civ 37/61 (LMM), excerpts published in YCA, Vol 24 (1999)
1026.

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Liberia is not a signatory to that convention. The effect of this reservation has been cushioned with the ever growing numbers of States that have ratified the NYC. While in Toepher Inc of New York v Edokpolor17 (trading as John Edokpolor & Sons), the Nigerian Supreme Court held that a foreign arbitral award could be enforced in Nigeria by suing upon the award, even where there is no reciprocal treatment in the country where the award was obtained. To succeed in the action, the plaintiff must prove the existence of the arbitration agreement, the proper conduct of the arbitration in accordance with the agreement, and the validity of the award. Commercial reservation is another provision of Art I(3). This affords the State the opportunity to restrict the application of the NYC to matters that are considered to be commercial in nature. This is another potent problem that the application of the NYC faces. States through their national law legislate on matters that are regarded as commercial and this varies from jurisdiction to jurisdiction. In Taieb Haddad and Hans Barett v Socit dInvesstissment Kal,18 the enforcement of an ICC award in Tunisia was denied on the grounds that architectural and urbanization works have reservation upon them in line with the provision of Art I(3) of the NYC. Importance of the arbitration agreement The NYC requires an arbitration agreement to be in writing. Article II (2) of the Convention states: "The term 'agreement in writing' shall include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams." (Emphasis added) The requirement for agreement to be in writing does not conform with international trade practices. It excludes from the definition agreements such as those found in Bills of Lading, certain Brokers Notes, salvage situations and the general concept of tacit acceptance. Agreements that are made orally would not be covered by this provision. It is interesting to note that Professor Sanders had a foresight of this problem and he tried to cure it by proposing the inclusion of confirmation in writing by one of the parties without contestation by the other party to the drafters of the convention. But his view was not accepted. Another deficiency that the provision suffers is that of lack of recognition of the possibility of agreement through technological means such as email and fax. Dr. Richard Hill remarked on the weakness in the authentication of proving agreement in form of telex and said that on the issue of fax he was of the opinion that it cannot be authenticated due to the fax that with the innovation of image editing software.19 Furthermore, the form in which an arbitration clause is couched varies in the sense that it could be contained in a single document that houses the contractual agreement between the parties or it may be contained in a separate document and whenever there is a conflict as to doubt about what matters are covered by the arbitral agreement, the conflict is to be settled in favour of arbitration. 17 Toepher Inc of New York v Edokpolor (trading as John Edokpolor & Sons) [1965] All NLR 307. 18 Judgment of 10 November 1993, excerpts published in YCA, Vol 23 (1998) 770-773. 19 Ibid, 5.
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In Mitsubishi Motors Corporation v Soler Chrysler-Plymouth Inc20 where it was held that: All disputes, controversies or differences which may arise between [Mitsubishi] and [Soler] out of or in relation to Articles I-B through V of this Agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association It could be seen from the decision above the support that arbitration enjoys from the courts of law. Going through the requirement of agreement in writing under the NYC, it was evident that the convention makes no specific mention as to the content of the arbitration agreement. What this means is that the parties are given the freedom to adopt any expression that would portray their common intention to refer their dispute to arbitration. In Bomar Oil NV v Enterprise Tunisienne dActivits Ptrolires ETAP21 the French Cour de cassation held that: It appears there from that the said Convention admits the adoption of an arbitration agreement by reference only to the extent that the agreement to the parties does not involve any ambiguity. An improvement on the accommodation of the electronic means of communication was considered by UNCITRAL in which an alternative method of accommodating the requirement of agreement in writing by the NYC.22 Reliance on the National Courts Where a party to an arbitration agreement decides not to honour the agreement but decides to institute proceedings in the law court, the NYC require the court to refer such a party to arbitration. Art II (3) provides thus: The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. (Emphasis added) Three important points could be noted in the above provision. They are: An agreement within the meaning of this article:

20 Mitsubishi Motors Corporation v Soler Chrysler-Plymouth, Inc., 473 US 614 (1985); See also US
Court of Appeals for the Second Circuit, 1 April 1987; Genesco, Inc v T Kakiuchi & Co, Ltd, YCA, Vol 13 (1988) 567-588; US; Court of Appeals for the Ninth Circuit, 8 July 1987; Management & Technical Consultants SA v Parsons Jurden International Corp, YCA, Vol 13 (1988). 21 YCA, Vol 13 (1988) 466-470.

22 UNCITRAL note A/CN9/WGII/WP118 concerning Preparation of uniform provisions on written


form for arbitration agreements, available at http://www.uncitral.org/enindex.htm> (accessed on 20 Feb 09).

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The only meaning that is provided for by the NYC of an agreement is that it must be in writing. In order to be able to determine which agreement is covered, recourse would have to be made to the national courts. To attempt reference to the NYC for a possible solution would be to base the requirement under Art II i.e. arbitration agreement and matters that are regarded as arbitrable. At the request of one of the parties: Under this heading, referral to arbitration can only occur unless one of the parties applies to the court to compel the other party to honour the terms of arbitration. Another drawback of the provisions of the NYC is the failure to make provision on when a party is required to apply for this. Again recourse has to be made to the law of the place of enforcement. For example, Section 4, the Swedish Arbitration Act of 199923 provides: A party must invoke an arbitration agreement on the first occasion that a party pleads his case on the merits in the court. The invocation of an arbitration agreement raised on a later occasion shall have no effect unless the party had a legal excuse and invoked such as soon as the excuse ceased to exist. Unless it finds that the said agreement is null and void, inoperative or incapable of being performed: Again the NYC fails to define what will render an agreement null and void. And this vacuum is yet again filled by the application of national laws. The view taken by United States courts24 is to apply the lex fori to resolve this problem while German courts25 choose between the lex mecatoria or lex arbitri. Enforcement Procedure The NYC is regarded as the most widely used vehicle of recognition and enforcement of foreign arbitral award.26 The Convention only contains the requirement that the award and arbitration agreement shall be supplied to the court (article IV) and that no more onerous conditions or higher fees should be imposed than when enforcement of a domestic award is sought (article III).27

23 Available at http://www.sccinstitute.com/_upload/shared_files/lagar/lagen_1999_eng.pdf (accessed


on 3 May 09).

24US District Court, Virgin Islands, District of St Thomas and St John, 4 October 1982; affirmed by US
Court of Appeals, Third Circuit, 6 July 1983; Rhne Mditerrane v Achille Lauro, YCA, Vol 9 (1984) 474-482.

25 Oberlandesgericht Karlsruhe, 13 March 1973, Landgericht Heidelberg, 23 October 1972, YCA, Vol
2 (1977) 239-240. 26 Georgios C. Petrochilos, Enforcing Awards Annulled in the State of Origin under the New York Convention available at http://heinonline.org/HOL/Page? handle=hein.journals/incolq48&id=1&size=2&collection=journals&index=journals/incolq (accessed on 17 May 09)

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By considering the provision of Article III, one would understand that there exist two methods of enforcement which are those provided for by the NYC under Article IV and that of the national law. Furthermore, the enforcement procedure under the national law differs for example an award is not enforceable under a common law jurisdiction until judgement has been entered upon it while under the civil law jurisdiction the award is enforceable. Prof. Sanders suggested the harmonization of the Convention's application and interpretation on those issues on which the Convention falls back on national arbitration law.28 He went further to say that the harmonization process had already begun. In particular, harmonization has gained momentum since the inception of the UNCITRAL Model Law which has now been adopted by sixty states.29 Requirement under Article IV Article IV sets out the requirements to be met by the winning party to obtain the recognition and enforcement of a foreign arbitral award before a competent national court where the asset of the losing party is located. It provides that the party must fulfil two formal requirements: he must supply the duly authenticated original or a duly certified copy of the arbitral award, and the original arbitration agreement or a duly certified copy thereof. In Inter-Arab Investment Guarantee Corporation (Kuwait) v Banque Arabe et Internationale dInvestissements (France)30 the court held that, by filing a certified copy of the award, the party seeking recognition and enforcement of the award had duly fulfilled the obligations imposed by Article IV(1)(a) of the New York convention, using the second alternative stipulated by that Article. Van Den Berg31 addressed a situation which was not addressed by the NYC and the situation relates to the question Under which national law should be applied to the authentication of awards or certification of copies. He suggested that the proper law would be the lex validatis. Ground for Refusal Article V contain an exclusive list of grounds for the refusal of recognition and enforcement of award which may be invoked by the parties. The list is exclusive and the courts are not permitted to apply any other grounds. The following grounds are available to the losing party and he must be able to prove one of the grounds to be successful.
1. Incapacity of the parties and formal invalidity: Again the NYC fails to ad-

dress the issue of capacity of the parties; therefore, the lex fori would be relied upon. One notable obstacle is when one of the parties is the State who would 27 Enforcing Arbitration under the New York Convention Experience and Prospect p8 available at
http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/NYCDay-e.pdf (accessed on 3Mar 11).

28 Ibid, 27 29 Available at http://www.uncitral.org/uncitral/en/about/origin.html (accessed on 3 Mar 11). 30 ICCA Yearbook (1997) 643-668. 31 VAN DEN BERG, Albert Jan, The New York Arbitration Convention of 1958, Deventer/Netherlands.

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want to rely upon the defence of state immunity though such a defence is not regarded as a successful one.
2. Violation of due process: The violation of due process could be (a) Lack of no-

tice to the other party (b) denial of presentation of case by a party (c) award is contrary to public policy. In Malden Mills Inc v Hilaturas Lourdes SA,32 it was held that the notice of the appointment of the arbitrator and arbitration proceedings must be adequate and appropriate and does not necessarily have to be a specific form.
3. Excess of authority by the arbitrator: an arbitrator is said to have exceed his

authority where he decides a matter outside the agreement of the parties. Lack of competence is not a ground for refusal.
4. Violation of the composition/proceedings: where the arbitrator fails to honour

the agreement of the parties e.g. number of arbitrators or substantive law to govern the arbitration 5. Award has not yet become binding on the parties or has been set aside or suspended in the country where it was made. Conclusion It is widely accepted that the NYC is a very useful tool in the recognition and enforcement of foreign arbitral award. But I would like to suggest that the following be included in the NYC to make it more efficient. Review of the requirement of an agreement to be in writing Harmonization of the Conventions application and interpretation of grounds of refusal of recognition and enforcement Identification of a specific law that should govern the authentication of award or the certification of copies Provisions for what factors are to be deciding whether an agreement is null and void. The reason for the above suggestion is based on the fact that drafting a new Convention to cure these problems for it would seem rather unrealistic that a consensus may be reached by all the signatories to the NYC.

32 YCA, Vol 4 (1979) 302-304 9 | Page