Enforceability of Foreign Arbitral Awards.

Introduction.

“ It is often said that the parties to a contract make their own law, and it is, of course,
true that, subject to the rules of public policy and orde public, the parties are free to
agree upon such terms as they may choose. Nevertheless, agreements that are intended to
have legal operation (as opposed to a merely social operation) create legal rights and
duties, and legal rights and duties cannot exist in a vacuum but must have a place within
a legal system.”

Lord McNair (Former President of the International Court of Justice), (1957).

An arbitration award (or arbitral award) is a determination on the merits by an arbitration

tribunal in an arbitration, and is analogous to a judgment in a court of law. It is referred to
as an 'award' even where all of the claimant's claims fail (and thus no money needs to be
paid by either party), or the award is of a non-monetary nature. Arbitration is particularly
popular as a means of dispute resolution in the commercial sphere (for a summary of the
various arenas in which arbitration is usually generally, see the specific article on
"arbitration"). One of the reasons for doing so is that, in international trade, it is often
easier to enforce an arbitration award in a foreign country than it is to enforce a judgment
of the court.

Under the New York Convention 1958, an award issued a contracting state can generally
be freely enforced in any other contracting state. Virtually every significant commercial
country in the world is a party to the Convention. Hence in many countries, particularly
in emerging markets, a foreign arbitration award is much easier to enforce than an award
of the court. The other characteristic of cross-border enforcement of arbitration awards
that makes them appealing to commercial parties is that they are not limited to awards of
damages. Whereas in most countries only monetary judgments are enforceable in the
cross-border context, no such restrictions are imposed on arbitration awards and so it is
theoretically possible (although unusual in practice) to obtain an injunction or an order
for specific performance in an arbitration proceeding which could then be enforced in
another New York Convention contracting state.

The New York Convention is not actually the only treaty dealing with cross-border
enforcement of arbitration awards. The earlier Geneva Convention on the Execution of
Foreign Arbitral Awards 1927 remains in force, but the success of the New York
Convention means that the Geneva Convention is rarely utilised in practice.

The Arbitration and Conciliation Act, 1996 of India recognizes and provides for statutory
enforcement mechanisms and shall form the base for my project study in the following
pages.
 Problems of recognition and enforcement.

A. Why even recognize an Arbitration Award?

For either judicial proceedings or arbitral proceedings, their crucial points are the same:
justice and efficiency. As to efficiency, arbitral proceedings are superior to and more
preferable than judicial proceeding because the disputed parties can receive a final
resolution after only one instance in the arbitral proceedings. However, if the final award
can not be timely recognized and enforced by the competent court, the superiority of
arbitration in respect of efficiency will certainly be weakened or even thoroughly
frustrated. Therefore, the issue of enforcement of arbitral awards in a foreign country is
one of the key issues for discussion in international arbitration circles.
Most arbitral awards are voluntarily complied with and do not require judicial
enforcement. It is only if an arbitral award can be adequately enforced, however, that a
successful claimant can ensure that it will actually recover the damages awarded it.

Indian law favours arbitration (both domestic and international) as an established method
of resolving disputes. Under the Indian Contract Act, 1872 (S. 28) every agreement,
which restricts any party thereto absolutely from enforcing its rights under, or in respect
of, any contract “by the usual legal proceedings in the ordinary tribunals” is declared
void. The statutory exception is the referral to arbitration of questions and disputes that
have already arisen, or may arise in the future. Resolution of international disputes by
arbitration is a constitutional imperative—Article 51 of the Constitution of India (1950)
provides that “the State shall endeavor to encourage settlement of international disputes
by arbitration”.

From 1937 to November 1961 arbitral awards rendered in a foreign State which was a
party to the Geneva Protocol of 1923 and the Geneva Convention of 1927, were enforced
under the provisions of the Arbitration (Protocol and Convention) Act, 1937. This was
enacted when India was still a British dominion and continued after the Constitution of
India came into force (26 January 1950). India was a signatory to the Geneva Protocol on
Arbitration Clauses (1923) and to the Geneva Convention on the Execution of Foreign
Arbitral Awards (1927): the provisions of the Protocol and Convention were given
statutory effect in British India by the 1937 Act.

Encouraging settlement of international disputes by arbitration being one of the directive

principles of State policy in India 's Constitution, the Government of India signed the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention 1958) on 10 June 1958.

In the following year, the Foreign Awards (Recognition and Enforcement) Act, 1961 was
enacted by Parliament to give statutory effect to India 's ratification of the New York
Convention. Following the provisions of Article VII, clause (2), of the New York
Convention, S.10 of the Act provides that the Arbitration Protocol and Convention Act,
1937 will cease to have effect for foreign awards to which the 1961 Act applies.
To answer the questions, Why the Model Law was made and why did we adopt it, and
Why the New York Convention was made and why should it be adopted? The U.S.
Supreme Court had observed that, "The goal of the New York Convention, and the
principal purpose underlying adoption and implementation of it, was to encourage the
recognition and enforcement of commercial arbitration agreements in international
contracts and to unify the standards by which agreements to arbitrate are observed and
arbitral awards are enforced in the signatory countries". But there still exist problems.

A. Recognition

Generally, recognition simplicities is more relevant in 'international commercial

arbitrations', where it is important that international awards should be accepted as truly
'international' in their validity and effect. A party seeking 'recognition' alone of an award,
can only rely on the award for the purposes of defence or set-off or in some other way in
subsequent court proceedings. He has; therefore, to apply to the relevant court to
recognise the award as final and binding on the parties between whom it was made.
However, the situation is different where the successful party seeks to enforce an award.
For obtaining title to the defaulting party's assets or the sale proceeds of such assets, it is
usually necessary to initiate court proceedings. Such proceedings are initiated in the state
or the states where the properties or other assets of the defaulting party are located.

Recognition is a defensive process. It shields any attempt to raise, in a fresh proceeding,

issues that have already been decided in an earlier arbitration resulting in the award
sought to be recognized. It usually arises where a court is asked to protect a party with
respect to a dispute that has already been the subject matter of an earlier arbitral
proceeding. The party who got a favourable award in arbitration is entitled to object to
the subsequent arbitration with respect to the dispute, which was the subject matter of the
earlier arbitration. The subsequent arbitration will be barred by the rule of res judicata .
The court is bound to recognise the earlier award as valid and binding upon the parties
with respect to the issues, which it earlier dealt with. If the earlier award has disposed of
all the issues raised in the subsequent proceedings, it will put an end to the subsequent
proceedings because the matters in issue between the parties have already been decided
and disposed of.

However, if the earlier award did not dispose of all the issues raised, and some issues had
remained undecided, it will need to be recognised, for the purposes of issues decided, so
as to prevent estoppel of the issues, it had not dealt with, from being raised later.
Nevertheless, the issues, which were not raised and determined, though could have been
raised and determined, will too be barred by the rule of constructive res judicata. Suppose
that the dispute between the company and the foreign supplier has already been submitted
to arbitration; and that an award has been made, in which the foreign supplier's claim was
dismissed. In these circumstances, the company would ask the court to recognise the
award as a valid defence to the foreign supplier's claim. If the court is prepared to do this,
the claim is dismissed. The legal force and effect of the foreign award will have been
recognised, but the award itself has not been enforced.
B. What is Enforcement

In contradistinction to 'recognition, 'enforcement' is a weapon of attack. It involves

aggression and coercion. It is used to ask the court not only to recognise the legal force
and effect of an arbitral award, which has become final and binding, but also to enforce
it, by using such legal sanctions as are available. In this sense, enforcement is a more
comprehensive concept. The concepts 'recognition and 'enforcement' go hand in hand.
One is a necessary part of the other because a court that is prepared to grant enforcement
of an award will do so because it recognises the award as valid and binding upon the
parties to it, suitable for enforcement.

The enforcement of a 'foreign award' is a three-phase process. First, the party seeking to
enforce the award has to make an application under s 47 to the court along with the
evidence, as required in it. Secondly, the party against whom the award is invoked,
desiring to resist the enforcement, is required to furnish proof to the court of the existence
of one or more of the defences set forth in s 48. Finally, if on the basis of the evidence
before it, the court is satisfied that the award is enforceable, it may enforce the award as a
decree of the court under s 49.

Enforcement is the process to compel the party to perform an arbitral award, against
which it is made, by applying all available legal sanctions. There are a variety of legal
sanctions. In a case, where a party who fails or refuses to perform the award, is an
individual, his property and other assets, may be seized and attached, his bank accounts
may be frozen and forfeited. In extreme cases, even penal proceedings may be invoked
against him. In a case, where the party is a corporate body, apart from seizing and
attaching moveable and immovable property and other assets such as real estate, bank
accounts, trading assets, stock and trade, sanctions may also be directed against their
directors personally or on guarantee they may be held personally liable.

C. Distinction between Enforcement and Recognition.

The compound phrase 'recognition and enforcement' is rather confusing, as it is apt to

give the impression that the terms 'recognition' and 'enforcement' are synonymous. The
New York Convention 1958 itself uses this phrase with respect to 'foreign awards'.
Articles IV and V use the phrase 'recognition and enforcement' while art III uses the
expression 'recognition or enforcement of foreign award'. Article 31 of the UNCITRAL
Model Law also uses the expression 'recognition and enforcement'. The English Act also
uses the phrase 'recognition and enforcement' of awards. The Geneva Convention of 1927
was more precise in using the disjunctive phrase 'recognition or enforcement'. This phrase
has been adopted in art 1 to the Second Schedule to the Arbitration (Protocol and
Convention) Act 1937. The Foreign Awards (Recognition and Enforcement) Act 1961
used the compound phrase 'recognition and enforcement'. However, in its long title, the
Act of 1996 uses the expression 'enforcement' only and omits the word 'recognition. This
may be on the presumption that recognition is a necessary step along the way to its
enforcement and implicit in it.
In Brace Transport Corpn of Monrovia , Bermuda v Orient Middle East Lines Ltd,
Saudia Arabia2,the Supreme Court said:

An award may be recognised, without being enforced; but if it is enforced, then it is

necessarily recognised. Recognition alone may be asked for as a shield against re-
agitation of issues with which the award deals. Where a court is asked to enforce an
award, it must recognise not only the legal effect of the award but must use legal
sanctions to ensure that it is carried out. However, mere 'recognition' does not involve all
that. Therefore, it is evident that the two terms are distinct because an award may be
'recognised' without being 'enforced', though when it is 'enforced' it is necessarily
'recognised' by the court that orders its enforcement. Further, even though a theoretical
distinction exists between the concepts of recognition and enforcement, as per s 46 of the
Act that any foreign award that would be enforceable can be relied on and shall be treated
as binding. There is hence no distinction between enforceability (ie the conditions
precedent for enforcement) and the conditions precedent for the recognition of awards.

Other problems and suggestions.

A. Problems of Local-Protectionism.

The recognition and enforcement of foreign awards in some cases have occasionally been
confronted with the obstacles from “local-protectionism”. As mentioned above, the tasks
of recognition and enforcement of foreign awards are authorized to the local competent
courts. On some occasions, the local competent courts could be impacted by the
“pressure” from the officials of the local governments, to partially protect the local
parties who are subject to enforcement of the foreign awards. In brief, the recognition and
enforcement of foreign award may be delayed and/or frustrated by the impacts of “local-
protectionism”. Nevertheless, in a survey of trends in national enactments of other
countries, a kind of phenomenon is worthy of note: in order to more strongly prevent the
reverse and negative effect of “local protectionism” imposed on the recognition and
enforcement of a foreign award, and also in order to more effectively prevent the possible
mistakes made by some judges of local courts in judicial examination and supervision
over a foreign arbitral award (probably due to their lower professional proficiency), some
advanced experience in the practice of international arbitration enactments should be
taken for reference. That is, the supervision power to conduct both procedural and
substantive examination over domestic and foreign arbitral awards is authorized without
exception to some high level courts, which would have judges of a higher caliber, so as to
show prudence and to guarantee both justice and efficiency. For example, such
supervision power is granted to the High Court in the United Kingdom . Similarly, the
supervision and examination power over domestic and foreign arbitral awards is
authorized to the Supreme Court in Indonesia and in Australia . Swiss law provides that
such supervision power shall be exercised in principle by the Federal Supreme Court,
with the exception that both parties may agree that this power shall be exercised by the
specific state court where the arbitration tribunal is located, instead of the Federal S.C.
In Min-metals Germany GmbH v Ferro Steel Ltd 3 ,it was observed that, "in 'international
commerce', a party who contracts into an agreement to arbitrate in a foreign jurisdiction
is bound not only by the local arbitration procedure but also by the supervisory
jurisdiction of the courts at the seat of the arbitration". Commenting on this observation,
JE Adams says, "That imposes an obligation to invoke local supervisory jurisdiction— 'a
cardinal policy consideration'. If such an application leaves the award undisturbed, that
will also weigh heavily with the English courts, so as to sustain the finality of supervisory
decisions on procedural matters.

However, the possibility of exceptional cases is still accepted \ He therefore, suggested

the following criteria relevant for the court to consider:

• the nature of the procedural injustice;

• whether the enforcee has invoked the supervisory jurisdiction of the seat of the
arbitration;
• whether a remedy was available under that jurisdiction;
• whether the courts of that jurisdiction have conclusively determined the enforcee's
complain in favour of upholding the award; and if the enforcee has failed to invoke that
remedied jurisdiction, to what reason, and in particular whether he was acting
unreasonably in so failing."

B. Public Policy.

The violation of rules of public policy is a ground for refusal of enforcement or a ground
for setting aside. Indian law does not restrict (or extend) this ground to violation of
International Public Policy even where the arbitration is an international commercial
arbitration. Where enforcement of a foreign award is sought in any Court in India , the
rules of public policy applicable will only be the “Public Policy of India”.

In Renusagar's case4 whilst construing the provisions of Sect. 7(1)(b)(ii) of the Foreign
Awards Act (which reproduced Art. V (2)(b) of the New York Convention), the Supreme
Court of India held that in order to attract the bar of public policy the enforcement of the
award must involve something more than violation of Indian law; the enforcement of a
foreign award would be refused on the ground that it is contrary to public policy if such
enforcement was contrary “to the fundamental policy of Indian law or justice or
morality”. It was held that any violation of the Foreign Exchange Regulation Act, which
was enacted for the national economic interest, would be contrary to the public policy of
India . The enforceability of a foreign award could not be resisted as violating the public
policy of India where an award, however, directed payment of compound interest, or
directed payment of compensatory damages or where the arbitral tribunal had awarded an
amount higher than should have been awarded or where costs awarded by the arbitral
tribunal were excessive.

In respect of a party requesting that the award is contrary to public policy, the benchmark
for this purpose is the law of India . An explanation, similar to the one appended to S. 34,
that seeks to amplify the meaning of public policy in this context is also attached to this
Section. The enforcement of a foreign award takes place in India when the court before
which it is filed is satisfied that it is enforceable under Chapter I. The consequence of this
satisfaction, according to S. 49, is that the award shall be deemed to be a decree of that
court. This necessarily implies that there is no need for the court to render a judgment in
terms of the award, and the court's satisfaction is sufficient for enforcement. How this
satisfaction is to be expressed appears unclear and the procedure that it must adopt to
signal it having been satisfied in this regard appears as yet unavailable.

C. Double and Multiple Exequatur.

While going for enforcement of a foreign arbitral award, the possibility of different courts
arriving at different findings on questions of fact and different conclusions on questions
of law cannot also be ruled out. The result will be that an award annulled in a convention
country will have to travel around the world, begging for enforcement in other
convention countries. The courts of various countries may also have divergent and
inconsistent opinions on the application and interpretation of the Model Law as applied in
India . This divergence and inconsistency will defeat the basic object of the New York
Convention and the uniformity of the arbitration law among all Convention Countries.

In India, so far there is no direct judicial authority on the question whether the enforcing
court should reinvestigate 'procedural defects' contained in clauses similar to (a) to (d) of
s 48(1) which have already been investigated by the courts of the seat of arbitration while
affirming the award. Particularly, the Indian Supreme Court so far has not pronounced
any decision on this question. In any event, it will be a difficult situation for the court. If
it rules that, with a view to avoid double or multiple exequatur of the award, there is no
need for reinvestigation, the statute will not permit so. Contrarily, if it rules that, in view
of the mandatory provisions of the Act, reinvestigation is inevitable, it will open up a lot
of scope for double and multiple exequaturs, resulting in diverse decisions on the same
questions of fact and law. This will rob the trading community in the convention
countries of uniform and harmonious international commercial arbitration.

Legislative reform by the Parliament only of one country, too, will not solve the problem.
All the convention countries implementing the Model Law have adopted this provision.
The possibility of uniform legislative reform is not free from doubt, because views of
various countries are bound to vary. This may not be helpful in solving the problem.
Perhaps discussion of the topic by an international arbitration conference with
participation of representatives, particularly from the convention countries with
experience on the subject, may be helpful. This may provide necessary information and
material to the legislators for eventual legislative follow-up for candidly obviating the
possibility of double or multiple exequaturs in enforcement proceedings, while enforcing
the foreign awards.

D. Biased Enforcement Decisions (esp. with regard to annulled awards)

There have already been a few cases and there is also further scope for biasness in
enforcing foreign arbitral awards, an award, for example, rendered in State A ordering
State B to pay a certain amount to State C can be legitimately annulled in State A, but
nevertheless enforced in State C. Such biased enforcement decisions lead to greater
injustice than biased annulment decisions. This is because no preventive measures exist
against biased enforcement decisions, whereas biased annulment decisions may often be
prevented through diligence in the designation of the arbitral seat.

E. Distrust towards Arbitration.

What these problems or actually, loopholes will ultimately lead to is mistrust towards
International Commercial Arbitration by International Business Operators and States, and
will thus defeat the very purpose of Arbitration in the arena of international trade and
commerce. They will, if not countered by adequate measures before they mature, deal a
serious blow to the reputation and development of this international dispute settlement
mechanism. Only the right legislative therapy with regard these issues can help maintain
the trust and reputation of this mechanism.

Conclusion.

The New Law makes it clear that notwithstanding anything contained in any other law for
the time being in force, in matters relating to all kinds of arbitration in India , no judicial
authority shall intervene except as provided in the Law itself (S. 5). This principle of
limiting the judicial intervention in the arbitral process is not a mere replication of Article
5 of the Model Law that deals with the extent of court intervention. The New Law goes
even further. When Article 5 of the Model Law was drafted there was a controversy as to
the import of the proposal that the Law would oust the authority of a court in matters
governed by it. Apprehension was expressed in some quarters that such a phrase could
lead to a situation in which no court could intervene in any aspect of arbitration, unless
there was specific provision for intervention in the legislation adopted by the state in
question. Subsequently the discussions on the Law as evidenced through the travaux
préparatoires have made it clear that Article 5 is a limitation on court intervention
relating only to specific topics covered in the Model Law and not to the general powers
of the courts. However, the New Law, in India , by employing the expression
“notwithstanding any law for the time being in force”, intends to revert to a situation that
was contemplated when the Model Law was being drafted, in which no court could
intervene but for a provision made in the Law itself. The effect of S. 5 therefore, is to
ensure that the New Law is a complete code as far as matters relating to arbitration are
concerned and, accordingly, all Indian courts can act on a matter pertaining to arbitration
conducted in India only on the lines prescribed in the New Law. The intervention of the
Indian courts in the arbitral process is no longer permissible unless there is a specific
provision for this purpose in the Law.

The position of judicial intervention in India with regard to enforcement of foreign

awards has been through a lot of debate and change. The current position that does not
allow judicial intervention unless a specific provision is present in that regard brings back
all the arguments in favour of more judicial intervention. The concept of public policy
that was discussed earlier also comes into focus for it is only Indian courts that can decide
upon the public policy prevalent and whether the foreign award is in compatibility with
it. The requirement of an agreement reduces greatly, the say that Indian courts will have
in enforcing foreign arbitral awards. A decent balance needs to be struck between
intervention of domestic courts and finality of the award made in outside India . Proper
legislative provisions, instead of only Supreme Court decisions in this regard will provide
more authority and give a final position with regard to judicial intervention with regard to
enforcement of foreign awards.

Bibliography.

• “ The Predicament of Arbitral awards ”, Legslserviceindia.com/article.html as visited

on 17/3/09.

• Cheshire and North. Cheshire and North's Private International Law, by Peter North
(Author), J. J. Fawcett (Author). Butterworth. U.K. 2000.

• Can an Arbitration Award Obtained from a Foreign Country be Enforced Against a

Party in India ? Madaan & Co. Attorneys at law , USA .

• Enforcement of Foreign Arbitration Agreements and Awards in Insurance Coverage

Disputes , By Richard R. Ryan.

• Enforcement of Foreign Arbitral Award, H. L. Ho , National University of Singapore

(NUS) – Faculty of Law, Singapore Journal of Legal Studies, pp. 241-250, 1996

Web sites.

• www.kslaw.com/library/pdf/bishop6.pdf As visited on 12/10/2009

• www.uncitral.org/uncitral/.../ arbitration /NYConvention.html As visited on

12/10/2009

• en.wikipedia.org/.../Convention_on_the_Recognition_and_ Enforcement_of_Foreign
_ Arbitral _ Awards . As visited on 12/10/2009 .

----------------

1. Written by Anas M. Riyaz and Mukesh Chouhan, 5 th Year Student of National Law
Institute University at Bhopal.

2. AIR 1994 Supreme Court 1715.

3. [2004] V.R. 82.

4. National Thermal Power Corporation Vs. Renusagar . (October 1993),