One of the key advantages of resolving an international dispute through arbitration, rather than court proceedings, is that it is often easier and quicker to enforce an arbitral award than a court judgment.
In this, the fourth and final part of our mini series on international arbitration, we look at why this is and consider some key points to bear in mind. We look at this from the perspective of a successful claimant wanting to enforce an English award overseas. However, claimants wishing to enforce overseas awards will have similar issues to consider.
Which enforcement regime applies?
Enforcement, whether of a court judgment or arbitral award, is governed by the rules of the jurisdiction in which the target assets are located. Reciprocal conventions apply in some circumstances, which can make the process much easier.
Reciprocal conventions apply to enforcement within the EU and extend to certain other European countries. This is usually a relatively straightforward process (although there are grounds on which enforcement may be refused), but it can be lengthy.
Enforcement against assets located in certain other states (particularly Commonwealth and former Commonwealth states) is governed by other reciprocal arrangements, but the process can be lengthy and complex.
Otherwise, enforcement is governed only by the law of the state in which the target assets are located. This is the case in the US, China and Russia, which have no reciprocal arrangements with the UK. Depending on the jurisdiction, this can make the enforcement process very difficult.
By contrast, most major industrial states (including, for example, the UK, the US, China, France, Germany, India, Japan, Russia and the UAE) have signed up to the United Nations Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the New York Convention). Signatory states have agreed - subject to certain limited exceptions - to recognise and enforce arbitral awards made in other territories. They have also agreed not to impose substantially more onerous conditions for the enforcement of foreign awards than those imposed for domestic awards (such as higher fees or charges).
Enforcement under the New York Convention
A successful claimant should first identify the location of target assets and the jurisdictions involved.
It is also important to consider the nature of the dispute that led to the award, and whether both the states where the award was made and where the target assets are located are signatories to the New York Convention. This is because a signatory state can:
- Limit the applicability of the New York Convention only to awards made in other signatory states (the 'Reciprocity Reservation').
- Limit the applicability of the New York Convention only to awards relating to commercial matters (the 'Commercial Reservation').
The claimant should apply to the court of the state(s) in which the target assets are located. A copy of both the arbitral award and the underlying arbitration agreement should be supplied "in writing". Note that different states may have different interpretations of what "in writing" means.
Under Article V of the New York Convention, the unsuccessful party may apply for recognition or enforcement to be refused on certain specific grounds, such as invalidity or inapplicability of the arbitration agreement, or certain procedural irregularities with the arbitration.
The following summary examples demonstrate the difference in treatment of the New York Convention in some key signatory states:
Click here for table
Making claims pay: important points to bear in mind
Consider likely enforcement options at the stage of drafting dispute resolution provisions. Once a dispute has arisen, it will probably be too late to agree on a dispute resolution mechanism (either that maximises the chances of successful enforcement, or indeed at all).
- Thanks to the New York Convention, it is usually significantly easier to obtain recognition and enforcement of arbitral awards than court judgments, certainly outside of the EU and certain other European countries. This is often a good reason to choose arbitration as the dispute resolution mechanism in an international agreement.
- If arbitration is chosen, it is vital to get the arbitration clause right and ensure that any arbitration proceeds in accordance with its terms. Irregularities or deficiencies in an arbitration agreement or in the arbitration procedure can be a powerful defence to enforcement of an arbitral award.
- When seeking to enforce an award, it is important to identify at the outset all relevant jurisdictions, consider which rules apply for each one, and (where relevant) how each will apply the New York Convention.
- Always seek local advice. Your legal advisers will be able to help you choose advisers in the relevant jurisdiction(s).