Introduction

It is often observed that it is easier to obtain enforcement of an arbitral award in a different state to the state in which the award was made than it is to do the same with a court judgment. This is in large part due to the great success of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention"), to which the majority of states in the world belong, which has created a regime for the recognition and enforcement of awards. The parties to an arbitration being held in a state party to the New York Convention have the comfort of knowing that the award will be recognised and enforced almost as of right in any of the 141 other states party. Despite the success of the New York Convention, a party seeking to enforce an arbitral award may still find itself in a situation in which the New York Convention does not apply. This newsletter considers how such an award can be enforced.

When will an award fall outside the New York Convention regime?

There are two main situations in which the New York Convention may not apply to the enforcement of an award.

First, there are still around fifty states that are not party to the New York Convention, including Angola, Iraq, Libya and Tajikistan (see below for a full list). When seeking to enforce an award in such a state, other means will be required instead of or in addition to the New York Convention.

Second, while the state in which enforcement is being sought may be party to the New York Convention, the state in which the award was made may not be a party to the New York Convention. This may not be a problem, because the basic obligation under the New York Convention is to enforce awards regardless of whether or not they were made in a state which is party to the New York Convention. However, many states, including Japan, the United Kingdom and the USA, are subject to a "reciprocity reservation" which means that they will only enforce awards made in other states which are party to the New York Convention. Although the importance of the reciprocity reservation is diminishing as an increasing number of states ratify the New York Convention, it may sometimes still arise.

Enforcement via bilateral enforcement treaties

Where enforcement is sought in a state that is not party to the New York Convention (whether or not the state in which the award was made is a party to the New York Convention), the best solution will be if there is a bilateral treaty or multilateral convention for the recognition and enforcement of arbitral awards to which the two states are party. Several countries have such bilateral treaties, for example, China and Hong Kong (although of course the New York Convention would still apply in any event). An example of a multilateral convention is the Arab Convention on Judicial Cooperation, which covers the enforcement of court judgments and arbitral awards between states of the Arab League.

Enforcement via third party states

Where no bilateral treaty is available it may nevertheless be possible to enforce an arbitral award made in one state ("State A") via a third party state ("State B").

This may work in two different ways depending upon whether or not it is State A or the state in which enforcement is sought ("State C"), that is not party to the New York Convention. Where State C is not party to the New York Convention Where State C is not party to the New York Convention, it may nevertheless be possible for an award made in State A to be enforced there if State A and State B are both states party to the New York Convention and there is a bilateral or multilateral treaty or convention for the recognition and enforcement of court judgments to which each of State B and State C are party. In that case: 

  • The party seeking enforcement should apply to the courts of State B for recognition of the judgment under the New York Convention; and 
  • The resulting court judgment can be exported to State C and enforced under the bilateral or multilateral treaty or convention for the recognition and enforcement of court judgments to which both State B and State C are party.

Where State A is not party to the New York Convention

Where State A is not party to the New York Convention, it may be possible for an award made there to be enforced in State C if there is a bilateral or multilateral treaty or convention for the recognition of arbitral awards to which both State A and State B are party and there is also a bilateral or multilateral treaty or convention for the recognition and enforcement of court judgments to which each of State B and State C are party. In that case:

  • The party seeking enforcement can apply to the courts of State B for recognition of the award under the bilateral or multilateral treaty or convention for the recognition and enforcement of arbitral awards; and 
  • The resulting court judgment can be exported to State C and enforced under the bilateral or multilateral treaty or convention for the recognition and enforcement of court judgments to which both State B and State C are party.

Enforcement via investment treaties

In addition to the above methods of enforcement of an arbitral award itself, where one of the parties to a contract is a state and one is a private investor, the latter should consider whether it will be possible to take a dispute under the contract to arbitration under an investment treaty.

The first option might be to utilise a bilateral investment treaty between the home state of the company and the state which is its counterparty in the contract. However, it should be noted that such treaties only protect investors against certain significant risks such as expropriation, unfair or unequal treatment, war or civil disturbance; they are not designed to provide a dispute resolution mechanism in the case of every difference between an investor and a state, although those investment treaties containing an "umbrella clause" (i.e. a guarantee that the State will honour its contractual obligations) may provide wider protections. The important point is to take advice as to which is the best available investment treaty in relation to any given host state.

In addition, where both the home state of the investor and the state which is its counterparty are subject to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the "ICSID Convention"), this could potentially be utilised to provide dispute resolution by arbitration.

The ICSID Convention is a highly specialised area and more information can be found on Herbert Smith's website.1

Specialist advice

In the case of almost every dispute there will be a method available by which a party can seek enforcement of an award. It is important to take advice from experienced arbitration specialists who can advise upon how to structure the arbitration clause to ensure greatest ease of enforcement.