The Arbitration Award and Finality and Enforcement of the Award - an Introductory Overview
Annette Magnusson, Assistant Secretary General Arbitration Institute of the Stockholm Chamber of Commerce New York Convention
Parties who refer their disputes to arbitration, domestic as well as international, do so in the expectation that the proceedings will end in an award. They also expect that the award shall be final and binding and, if the losing party does not comply with the award voluntarily, that it will be possible to enforce the award against such party.
This article will briefly deal with each of these phases of arbitration in an international context, i.e. (i) the award, (ii) the finality of the award, and (iii) the enforcement of the award, on the basis of the UNCITRAL (United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration (hereinafter “The Model Law), and the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter “The New York Convention”). In addition, Swedish legislation will be referred to in parts, to exemplify how the provisions of the said international instruments may be put into practice by a national jurisdiction in which the tradition of arbitration, international and domestic, is deeply rooted. 1
1 In Sweden, early statutory provisions on arbitration have been traced back to the 14th century. The first comprehensive Arbitration Act was adopted in 1887.
1. Introduction: the Regulatory Framework
(a) The Model Law
The Model Law, which was adopted by UNCITRAL on 21 June 1985, has become an efficient instrument for the creation of an international system of laws governing international commercial arbitration. At the time of its adoption, the use of model laws in international practice did not have much of a track record.2 The Model Law, however, has thereafter turned out a successful exception. Today, the law can be seen to have influenced arbitration legislation in numerous jurisdictions, either by way incorporation by reference, direct adoption or partial adoption.
2 Peter Binder, International Commercial Arbitration in UNCITRAL Model Law Jurisdictions, London, 2000.
(b) The New York Convention
The New York Convention (1958) resulted in arbitration becoming, by far, the most preferred dispute resolution mechanism in international contracts. In short, the convention holds that a signatory state will recognise and enforce an award made in another state,3 subject to the award having met the basic requirements for inter alia due process, as laid down in the convention (see below). The New York conventions has by now been adhered to by 136 states.4 It has been referred to by some authors as perhaps “the most effective instance of international legislation in the entire history of commercial law”5 which gives an idea of its impact and significance. Even if refraining from ascribing such a halo to the New York convention, it is difficult to ignore the fact that the possibility to enforce an arbitration award under the New York convention in a particular jurisdiction will in fact have tangible implications on international business’ willingness to engage in commercial transactions in said jurisdiction.
3 In absence of any reservation from the first state when adhering to the convention, this could mean any state, even a state which is not party to the convention
4 Recent updates on signatory states can be found at http://www.uncitral.org/en-index.htm.
5 CCf. Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration, 3rd ed., London, 1999, p. 455
(c) The Swedish Arbitration Act
On 1 April 1999, a new Arbitration Act entered into force in Sweden.6 The new Act applies equally to international and domestic arbitration. Sweden exemplifies a jurisdiction which conforms closely to the Model Law by means of partial adoption. The New York Convention was ratified by Sweden in 1972.
6 For further reading, see for example (2001) 17 Arbitration International, and Stockholm Arb Rep 1999:1, each cited issue is devoted entirely to arbitration reform in Sweden in 1999.
2. The Arbitration Award
The below represents some of the topics frequently touched upon in discussions focusing on the arbitration award as such.
(a) Rules Applicable to the Substance of the Dispute
The flexible approach offered by arbitration is reflected also in the parties freedom of contract concerning the applicable substantive law. Consequently, the Model Law grants the parties full autonomy in their choice of substantive law, and in providing that the arbitrators shall decide the dispute in accordance with the law as chosen by the parties. If the parties have not chosen an applicable substantive law, the arbitrators will make that decision when necessary.7
7 Article 28 of the Model Law
In an arbitration in Sweden, this means that where the parties have not agreed on which conflict of laws rules that should be applied, the arbitrators may choose to apply Swedish rules in this respect, even if they, under Swedish law, are not bound to do so. The arbitrators may thus apply another conflict of laws system they deem appropriate in the particular case, or they may decide the issue of applicable substantive law without having resort to any specific national conflict of laws rules.8
8 A basic choice of law principle in Sweden is that the law with the closest connection to the contract shall be applied. For further reading cf. Kaj Hober, In Search for the Centre of Gravity – Applicable Law in International Arbitrations in Sweden, Yearbook of the Arbitration Institute of the Stockholm Chamber of Commerce, 1994.
(b) Form and Contents of the Award
Principal provisions relating to the form and content of the award are laid down in Article 31 of the Model Law. The award shall, inter alia, be made in writing and shall be signed by the arbitrator, or arbitrators. It might be noted that the article should be read so as to mean that an award may not, in the absence of an agreement to the contrary between the parties, be signed by, for example, the chairman of a tribunal “on behalf” of the other members.
The award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given.9 In international practice, awards without reasons are not very common, even if there are a number of examples of e.g. institutional arbitration rules which specifically provide for the possibility of rendering an award without reasons.10
9 Article 31(2) of the Model Law
10 This is usually in a context where speed is considered of vital importance, i.e. fast track arbitration in general, or very specialised areas such as commodities or sports.
An arbitration award will result in an order, setting out the practical conclusions of the findings of the tribunal. This part of the award may include a declaration as to the rights of the parties, if requested by the parties in their statements before the tribunal, or contain an order for payment, for interest or for specific performance.
(c) Other
Model Law provisions associated with the arbitration award also include rules on voting, rules governing awards on agreed terms and provisions for the correction and interpretations of an award, to mention a few. In addition, other issues related to the arbitration award have also come to constitute common ground among the actors on the international arbitration scene, be they legislators, arbitrators or parties. Hence, legal doctrine associated with the arbitration award also covers, inter alia, rules on time limits for the rendering of an award, the possibility to make separate awards, and the remuneration to the arbitrators.
Much can be said on each of these issues, however, a description at length would fall outside the scope of this article. Instead I will continue, assuming that an award has been rendered which has resulted, as is often the case, in one successful party seeking performance and enforcement as fast as possible, and in one less successful party, pondering over what went wrong and if there is any way to fix it. I will deal with the second perspective first.
3. The Finality of the Award
The first information which should be given to the unsuccessful party above is that the arbitration award is final and binding on the parties. An arbitration award may not be appealed. In a limited number of cases, however, an award may be set aside on procedural grounds. The law of the seat of arbitration will usually provide the grounds and mechanisms for this procedure.
According to the Model Law,11 an application to set aside an arbitration award, i.e. a challenge, may be made only on any of the following grounds:
1) the arbitration agreement was invalid; or
2) the challenging party was unable to present his case; or
3) the arbitrators have made a decisim over an issue falling outside the scope of the arbitration agreement; or
4) the constitution of the arbitral tribunal did not comply with the parties arbitration agreement.
11 See Article 34
In addition, an award may be challenged if the subject matter was not arbitrable, or if the award would be contrary to public policy.
The possibility to set aside an award on procedural grounds may be said to reflect the public court system’s interest in maintaining a certain level of judicial control of the arbitration procedure, notwithstanding its private nature. This, in turn, is motivated by the role of the public court system in its capacity as the enforcement authority, and as such its unwillingness to contribute in enforcing awards that inter alia are the results of clearly unjust procedures.
In balancing this judicial control of arbitration against the parties’ desire to avoid appeal proceedings, most national legislators will provide very narrow procedural grounds for the challenge of an award. Again - the judicial control exercised only turns on the arbitration procedure, not the substance or merits of the award. A losing party does not «appeal» an award, but rather seeks a review of the procedure by which it was arrived at.
When preparing Article 34 above, the drafting committee noted a major source of difficulty for international arbitration in the way national laws varied greatly regarding the grounds for setting aside an award.12 A clear goal for the Model Law thus became to promote uniformity in this respect, and today, judging from the developments in a large number of jurisdictions world wide, the Model Law has been very successful. A second observation made at the time of drafting was of the clear trend in an international context towards limiting the control functions of courts, an observation also taken into account when drafting the Law.13
12 Binder, supra note 2, p. 207
13 Id.
In Sweden, two groups of grounds for attacking an award are available. The first set of procedural grounds provide the circumstances under which an award is invalid.14 If any of these conditions exists, the award is simply invalid, and the losing party need not take any judicial action to render it so. As a practical matter, however, the declaration of a Swedish court that the award is invalid facilitates defence of enforcement actions in other countries, particularly in countries that are signatories to the New York Convention. There is no time limit on a claim of invalidity - if an award is invalid, it is invalid forever. The second set of procedural grounds may be used to support a claim that an award should be set aside.15 Actions on any such ground may be time barred.16 Furthermore, a party is not entitled to rely on a circumstance for the setting aside of an award which the party may be deemed to have waived, by taking part in the proceedings without any objection relating specifically to that circumstance.
14 Swedish Arbitration Act, Section 33
15 Swedish Arbitration Act, Section 34
16 As also stipulated in the Model Law, see Article 34 (3).
Returning to the losing party above, the advice would thus most likely be that in absence of any procedural irregularities or an unjust procedure the party should comply with the award.The award will stand and may be enforced. Further, matters decided upon by the arbitrators in the award have been decided with res judicata effect.
4. The Enforcement of the Award
In discussing the enforcement of an arbitration award one may distinguish between two situations, viz., (i) enforcement of the award in the country where the arbitration took place,17 and (ii) enforcement of the award in jurisdiction different from such country. The New York Convention will be applied in the second situation, and national law in the first.
17 i.e. locus arbitri.
(a) Enforcement under New York Convention
The overriding principle the New York Convention is that the contracting states recognise arbitration awards as final and binding, and agree to enforce them. The Convention also, in general terms, goes into the rules and conditions for such enforcement.
Article V of the Convention enumerates the grounds upon which enforcement may be refused. These are:
• lack of a valid arbitration agreement;
• lack of an opportunity to present a defence;
• ultra vires acts by the arbitrators;
• procedural irregularities; and
• annulment of the award by the courts of the country in which, or under the law of which, that award was made.
The underlying philosophy of the Convention is reflected in the fact that these grounds must be invoked by the party against whom enforcement is requested, and the burden of proof rests with the party thus opposing enforcement.
In addition, enforcement may be refused if the subject matter was not arbitrable, or if enforcement would be contrary to public policy, both matters open for ex officio review by the enforcement authority, under the Convention.
The enforceability in a foreign state of an award is a matter entirely for that state. A requirement of reciprocity, which is open to the members under the New York Convention, generally should not bar the recognition of an award rendered in a state which has ratified the Convention without reservations.
A general observation to be made in this context is the widespread policy in most jurisdictions today to favour the enforcement of arbitral awards.18 This is an encouraging development, considering the vital role played by the accessibility of enforcement mechanisms in the arbitral process and, in the end, international commerce at large.
18 For recent developments, see for example Carolyn B. Lamm & Frank Spoorenberg, The Enforcement of Foreign Arbitral Awards Under the New York Convention - , Recent Developments, Stockholm Arb Rep 2001:2.
(b) Enforcement under the New York Convention in Sweden
In Sweden, international conventions constitute a secondary source of law and therefore need to be implemented by means of Swedish statutory law to serve as a primary source of law.19 Consequently, the relevant provisions of the New York Conventions have been incorporated in to the Swedish Arbitration Act, in a separate chapter on the enforcement of foreign arbitration awards.20
19 It should be noted, however, that the application of certain legal acts of the European Union constitutes an exception to this rule.
20 Swedish Arbitration Act, Sections 54 – 60.
In ratifying the New York Convention, Sweden did not exercise either the reciprocity reservation or the commercial nature reservation which was available to the signatories. Accordingly, foreign arbitration awards wherever outside Sweden they are rendered, and whether of a commercial character or not, are enforceable in Sweden pursuant to the New York Convention.
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Phases in the Development of Arbitration in Kazakhstan Peter Greshnikov, Igor Greshnikov
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