I. Challenging the award in the place of arbitration
Achieving a favorable arbitral award is sometimes the easy part of the dispute resolution process. Where the successful party is awarded money damages and the unsuccessful party resists payment, the successful party will still need to take further steps to actually obtain the money awarded. Each step will present the unsuccessful party with another opportunity to resist or delay payment.
Even before arriving at enforcement proceedings, there is a threshold opportunity for the award debtor to prevent the award creditor from securing its remedy: by challenging the award, usually in an ‘action to set aside ', before the national courts in the place of arbitration.
Many arbitration agreements and arbitration rules stipulate that the awards resulting from them will be final and/or binding. Whether or not such a stipulation is included, there is almost always the possibility for a party to challenge the award. For example, an application to set aside a foreign-related award rendered in mainland China can be made under Article 70(1)of the PRC Arbitration Law(2)("Arbitration Law").
A successful challenge will usually result in the award being set aside and therefore ceasing to exist, at least within the jurisdiction of the court setting it aside. This effectively means that the positions of the disputing parties are set back to the way they were before the arbitration began.
An action to set aside an award is quite different from an appeal. Even though a country 's local arbitration law will usually allow an action to set an award aside, the grounds on which an award may be challenged are often narrowly drafted and in particular do not usually allow a review of the merits.
There are some exceptions. One of them is section 69(3)of the Arbitration Act 1996 which provides for an appeal to the English courts on a point of law in certain circumstances.
Unlike an appeal on the merits, an ‘action to set side ' is designed to ensure that a state, through its courts, exercises a minimum level of control over the procedural and jurisdictional integrity of international arbitration taking place within its territory.
In the PRC, we have a "one country, two systems" framework whereby the PRC uses two sets of infrastructure to ensure the integrity of international arbitration taking place within its territory.
On the mainland, this is achieved by Article 70 of the PRC Arbitration Law, referred to above. There are only four circumstances in which a foreign-related award can be set aside under the PRC Arbitration Law, as set out in Article 260(1) of the Civil Procedure Law:
- The parties have neither included an arbitration clause in their contract nor subsequently reached a written arbitration agreement;
- The person against whom the application is made was not requested to appoint an arbitrator or take part in the arbitration proceedings or the person was unable to state his opinions due to reasons for which he is not responsible;
- The composition of the arbitration tribunal or the arbitration procedure was not in conformity with the rules of arbitration; or
- Matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration institution."
In Hong Kong, as in other jurisdictions which have adopted the UNCITRAL Model Law（"Model Law"）, Article 34 of the Model Law provides for ‘Application for setting aside as exclusive recourse against arbitral award ' and applies when Hong Kong is the place of the arbitration.
Article 34 lists six grounds on which a court may set an award aside. The list of six grounds is exhaustive. The first group of four grounds appears in Article 34(2)(a) and must be raised and proved by the applicant. The second group of two grounds appears in Article 34(2)(b) and may be raised by the court on its own motion.
The six grounds are:
- the incapacity of a party or invalidity of the arbitration agreement;
- a failure to notify an arbitrator appointment or initiation of proceedings;
- the award was beyond the scope of the arbitration agreement;
- invalid constitution of the arbitral tribunal;
- the subject matter was not arbitratable (not capable of resolution by arbitration); and
- violation of public policy.
Some countries regard even this low level of control as unnecessary and are content to leave matters in the hands of the arbitrators. For example, Belgium, Sweden and Switzerland permit parties in their arbitration agreement to waive their right to set an award aside provided they are not nationals of or incorporated in the country.
It is clear that only the courts of the place of arbitration should have jurisdiction to hear any challenge of an award or action to set aside.
Article 34(2) of the Model Law provides that,
‘An arbitral award may be set aside by the court specified in Article 6... '
In Hong Kong that means the High Court. In Mainland China, Article 70 of the PRC Arbitration Law provides:
‘A people 's court shall…rule to cancel an award…if a party to the case provides evidence proving that the arbitration award involves one of the circumstances prescribed… '
This makes it clear that only the People 's Courts in mainland China may set aside a foreign-related award rendered in mainland China.
However, unlike in Hong Kong where decisions to set aside awards are made by a single, central court(4), Article 70 of the PRC Arbitration Law refers to the ‘People 's Court '. There are many People 's Courts throughout mainland China so decisions to set aside awards are not made centrally by one court.(5)
The situation is the same in the United States where actions to set aside an award are not required to be submitted to one central court.
Some scholars say that where actions to set aside an award are not required to all be submitted to a single central court, this diminishes the quality of case law in that country concerning international arbitration.
However it is interesting to note that in Hong Kong where a central court has been designated, there appears to have been only two recorded cases dealing with an application to set aside an award since the adoption of the Model Law – the Brunswick Bowling case(6)and the Pacific China Holdings case.(7)
In the Brunswick Bowling case, the applicant alleged ten irregularities which (it was said) justified the award being set aside under Article 34(2)(a) of the Model Law. Only one of the allegations was successful.
The judge accepted that the tribunal had applied its own private view of the law when deciding one part of the dispute, without giving the parties an opportunity to address the tribunal on the applicable law. As a result, he held that the Respondent had been unable to present its case on that issue, establishing a ground for setting aside the award under Article 34(2)(a)(ii) of the Model Law.
However, only that part of the award was set aside by the court. This illustrates how difficult it is in practice to establish the grounds for setting aside an award in arbitration-friendly jurisdictions.
In the Pacific China Holdings case, the applicant alleged three discrete matters which (it was said) justified the award being set aside under Article 34(2)(a)(ii) (that the applicant was unable to present its case), and for one matter also under Article 34(2)(a)(iv) of the Model Law (that the arbitral tribunal adopted a procedure which was not in accordance with the agreement of the parties). The court agreed to exercise its discretion to set the award aside on the basis of all three of the matters alleged and for each of the alleged breaches of Article 34(2)(a). Accordingly, the entire award was set aside.
Surprisingly, in some cases courts other than those of the place of arbitration have purported to set aside an international arbitral award. For example, in the Pertamina v Karaha Bodas case in 2003,(8)the District Court in Central Jakarta, Indonesia, set aside an award where the place of arbitration was in Switzerland, even though there was no indication that the parties had agreed on the law of the arbitration being other than that of the Swiss seat. The Indonesian court also took the unusual step of issuing an anti-suit injunction prohibiting the award creditor from enforcing the award abroad.
When the award creditor attempted to enforce the award against Pertamina 's assets in the United States, the US Court of Appeals for the Fifth Circuit disregarded the Indonesian court 's decision and injunction, holding that under the New York Convention, it had discretion to recognize and enforce the award. Also, in 2008, India 's Supreme Court allowed the challenge of an award rendered in London in an LCIA arbitration.(9)
As mentioned above, in certain major jurisdictions there are grounds for setting aside awards that are materially different from those under the UNCITRAL Model Law. The most prominent example is the availability in England of an appeal on a point of law ‘if the decision of the tribunal on the question is obviously wrong, or the question is one of general public importance and the decision of the tribunal is at least open to serious doubt and if despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in the circumstances for the court to determine the question. '(10)
If the award is set aside in part, as mentioned earlier in the Brunswick Bowling case, the result is essentially a modified award, provided that the defect only affects a part of the award that is separable from the others. If the entire award is set aside, as mentioned above in the Pacific China Holdings case, the effect is, in theory, that the entire award ceases to exist and cannot be enforced. This is certainly the effect in practice in the jurisdiction of the court which set the award aside. Suffice to say that certain countries have enforced awards which were set aside in other countries, but the more common position is that an award that has been set aside cannot be enforced anywhere.
II. National laws on the enforcement of arbitral awards
In many countries, the New York Convention is effectively the country 's law on the recognition and enforcement of international arbitral awards. However, a state may also have, alongside the New York Convention and any other relevant treaties to which it is a party, its own domestic laws governing the enforcement of international arbitral awards.
In the Model Law, Articles 35 and 36 reproduce the essence of the New York Convention (its Articles III, IV, V and VI) but make important changes to promote enforcement: for example, Article 35(1) provides that the state enacting the Model Law will apply the provisions of Articles 35 and 36 to all arbitral awards, irrespective of where they are made. So, unlike the Convention, the Model Law contains no optional condition of reciprocity.
Mainland China has not adopted the Model Law but is a party to the New York Convention and to reciprocal enforcement arrangements with Hong Kong and Macao which contain similar restrictions on the grounds for refusal of enforcement to those contained in the New York Convention.
Hong Kong has adopted the Model Law but its enforcement regime departs from Articles 35 and 36. Under the enforcement regime in Hong Kong, separate provisions distinguish between the enforcement of awards under the New York Convention,(11)mainland awards,(12)and non-convention and non-mainland awards.(13)A mainland award cannot be enforced in Hong Kong if an application has been made in mainland China for enforcement of the award.(14)Enforcement of the mainland award can only commence if the award has not been fully satisfied through mainland enforcement proceedings. In Hong Kong, a non-convention, non-mainland award (e.g. an award made in Taiwan region) may also be refused enforcement if the court considers it just to do so.(15)
The arbitration laws in mainland China and Hong Kong are no more favorable towards enforcement than the New York Convention. However, the arbitration laws of certain jurisdictions may be. For example, French law on the enforcement of international awards – found in Article 1502 of the New Code of Civil Procedure – does not contain or reflect the Convention 's provision allowing the suspension of the enforcement proceedings pending an action to set the award aside. Nor does it allow a court to refuse enforcement on the ground that the award has been set aside elsewhere.
There have been several cases where awards set aside in one jurisdiction have been enforced elsewhere. The issue is of substantial importance in practice: the possibility of enforcing an award that has been set aside is especially attractive to parties who consider that they did not receive a fair hearing from the court deciding the action to set aside.
Courts enforcing awards set aside elsewhere rely primarily on Article VII of the New York Convention which is construed as allowing parties to rely on the enforcement provisions of local law if they are more favorable than the rights granted under the Convention.
Certain laws, and notably French law, are more favorable than the Convention as they allow the enforcement of an award made elsewhere even if it has been set aside (or, putting it another way, French law does not include the setting aside of the award as a ground for refusing enforcement).
So, under this approach, if none of the other grounds for refusing enforcement under local law are available to the award debtor, enforcement of an award set aside elsewhere should be permitted. Decisions allowing the enforcement of awards set aside elsewhere have been made by the French courts,(16)the Belgian courts(17)and the US courts.(18)
In the United States, the District Court for the District of Columbia allowed enforcement of an award set aside by a Cairo court in anarbitration with its seat in Egypt. The Cairo court 's grounds for setting aside the award were that the arbitral tribunal had failed to apply the governing law, which is not a ground for validly resisting enforcement under the US Federal Arbitration Act.
The US court based its decision on the discretion of the enforcement court under Article V(1)(e) of the Convention to refuse enforcement, or to allow it where one of the grounds for refusal is present, as well as on US public policy in favor of final and binding arbitration. But in more recent case law, US courts have taken the opposite stance and refused to enforce an award on grounds that it was set aside by the courts at the seat of the arbitration.(19)
To summarise, most jurisdictions around the world are likely to refuse enforcement of an award that has been set aside in another country. However, this is not the universal position: courts in certain countries have been receptive in the past to enforcing awards set aside elsewhere based on local annulment standards, and this trend may grow as international arbitration around the world becomes more transnational in character and less deferential towards the place of arbitration. It is also possible that we will instead see, as in the United States, more deference by enforcing courts to actions to set aside at the place of arbitration.(20)
Originally delivered as a keynote speech by Ariel Ye at a debate hosted by ICDR Young & International entitled "May I Have My Tea Here and My Dim Sum Elsewhere? A Tea House Debate on Whether Awards That Have Been Set Aside Should Be Enforced in a Different Jurisdiction" on 6 April 2011 and updated following legal developments in Hong Kong since the speech was given.