In a recent case before the Limassol District Court,(1) the applicants applied for the recognition and enforcement of an arbitral award that had been issued by the Vienna International Arbitral Centre Chamber of Commerce and Industry Arbitration. The dispute concerned whether termination of an investment management agreement between the applicants and the respondents after the respondent had failed to make the agreed payments as they fell due was valid.
The respondents raised two main arguments against the recognition of the arbitral award:
- the applicants had failed to present the court with the original arbitration agreement or a duly certified copy thereof pursuant to Article IV(1)(b) of the New York Convention; and
- the respondents had allegedly already satisfied the executable part of the arbitral award and therefore the recognition of the arbitral award was contrary to the public policy of Cyprus and Austria pursuant to Article V of the New York Convention.
In assessing the respondents' first argument, the court concluded that according to Article IV(1)(b) of the New York Convention, it is sufficient for an applicant to produce the original arbitration agreement or a duly certified copy thereof. Specifically, the court reasoned that according to the counterparts clause of the investment management agreement, which contained the arbitration agreement, two documents could constitute the original agreement as long as the signatures of both parties were affixed to each. Consequently, the court decided that producing the emails with the signatures of each party on the documents fulfilled the requirement set out by Article IV (1)(b) of the New York Convention.
The court subsequently considered the second ground of objection and adopted the analysis of the Supreme Court in Attorney General of the Republic of Kenya v Bank Fur Arbeit Und Wirtschaft AG,(2) in which it was explained that:
The term "public policy" comprises of the fundamental values that a society, at a given point in time, recognises as governing transactions and the various manifestations of the life of its members, which are infused in its legal system.
Further, the court cited with approval the passage from International Commercial Disputes - Commercial Conflict of Law in English Courts (Hill and Chong, 4th Volume, p475), which states that:
the public policy defence ought to operate only in exceptional cases… The Court of Justice has confirmed that the public policy defence must be narrowly construed. In Krombach v. Bamberski case C-7/98 (2000) ECR1-1935 the Court of Justice considered that recourse to the public policy defence can be envisaged only when recognition or enforcement of the foreign judgment would be at variance to an unacceptable degree with the legal order of the state in which enforcement is sought inasmuch as it infringes a fundamental principle.
Applying the above principles, the court observed that the respondents had not adequately explained why the recognition of an arbitral award with a declaratory element was contrary to Cyprus public policy and further stated that the recognition could not, under any circumstances, be considered to infringe Cyprus's fundamental public policy principles.
Further, the court criticised the fact that the respondents had unjustifiably argued that the recognition of the award was contrary to Austrian law and public policy, which were not relevant factors to be weighed by the court when recognition was sought. Similarly, the court dismissed the respondent's contention that it should examine whether the arbitral award had been satisfied and opined that this ground for refusing recognition was not included in Article V of the New York Convention, which is exhaustive. On the contrary, the court observed that this assertion could be raised at the execution stage of the award, but not during the recognition stage.
This case serves as a useful reminder that the courts will rarely resort to public policy grounds for refusing the recognition of arbitral awards unless presented with cogent evidence. In addition, the courts are prepared to demonstrate the necessary flexibility dictated by modern commercial practices in examining the imperative requirements of Article IV of the New York Convention in a manner which will not hamper the convention's underlying objectives.
For further information on this topic please contact Constantinos Pashiardis at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (email@example.com). The George Z Georgiou & Associates website can be accessed at www.gzg.com.cy.
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