One of the oft quoted advantages of arbitration is the perceived certainty that the national courts of New York Convention states should enforce an arbitral award unless one of the limited grounds for refusal is met. However, the relationship between national courts and arbitration is far from straightforward. In particular, one notable area where there are differing views amongst a number of supposedly ‘pro-arbitration’ states is whether or not an arbitration award that has been set aside by the national courts at the seat of the arbitration can then be enforced in another jurisdiction. Indeed, despite a number of high-profile cases in various jurisdictions, this issue is far from settled.

This issue has been thrust into the limelight recently by the decision of the Tribunal de Grande Instance in Paris to recognise a Russian arbitral award in favour of Mr Nikolay Maximov. In this case, Mr Maximov sought enforcement of an arbitral award in his favour for almost US$300 million against Novolipetsky Steel Mill (NLMK). The award had been issued by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC) in accordance with a share sale and purchase agreement between Mr Maximov and NLMK. However, the award was subsequently set aside by the Moscow Arbitrazh Court (whose judgment was upheld by the Federal Arbitrazh Court of the Moscow District and the Supreme Arbitrazh Court). The reasons for setting aside the award included a ruling that disputes arising out of an agreement aimed at the transfer of shares cannot be resolved by arbitration because corporate disputes are not arbitrable as a matter of Russian law. In any event, notwithstanding the decision of the Russian courts (which, in itself, has proved to be controversial), Mr Maximov sought enforcement of his award in France. On 16 May 2012, the Tribunal de Grande Instance in Paris concluded that the fact the award had been set aside by the Russian courts was not sufficient to refuse recognition in France. The court said that the ICAC award was a valid arbitration award which had been procured in accordance with the parties’ agreed contractual method and it should therefore be recognised and enforced.

This post seeks to summarise the contrasting positions taken by a number of ‘pro-arbitration’ European jurisdictions in relation to the enforcement of awards that have been set aside by the courts of the seat. The starting point for any debate on such issues is Article v. of the New York Convention, which sets out the circumstances in which recognition and enforcement of an arbitral award ‘may’ be refused. These circumstances include where the award has been set aside or suspended by the competent authority of the country in which the award was made (Article V(1)(e)). On a plain reading of the language of the New York Convention, the word ‘may’ denotes an option and, therefore, there should in theory be no bar to a state recognising and enforcing an arbitral award if it has been set aside at the seat of the arbitration. Indeed, a number of states take such view. However, a significant number of states also take the contrasting view and will not recognise or enforce such awards. The reason for this is that the central issue in this debate does not turn on the language of the New York Convention alone. Rather, it depends on the response to a much more basic (and arguably more controversial) question, namely: what is the role of the seat of the arbitration?

There are two main views. The first view is that the seat of the arbitration is chosen for little more than the sake of convenience. Arbitral tribunals need not operate like the national courts of a particular state simply because they have their seat there. Arbitrators do not derive their powers from the state in which they have their seat, but rather from the sum of all the legal orders that recognise, under certain conditions, the validity of the arbitration agreement and the award. It is for such reasons that it can be said that arbitrators have no forum per se and it follows, therefore, that decisions of the national court at the place of the arbitration should have no (or very little) bearing on the validity of the underlying award.

This first view is dominant in a number of civil law countries, most notably France. In the seminal Hilmarton case, the Court of Cassation ruled that a Swiss arbitral award was of an international nature, meaning that it was not attached to the Swiss legal order and thus continued to exist despite its annulment at the seat of arbitration. In the subsequent (and equally well known) Putrabali case, the Court of Cassation affirmed the Hilmarton principle and stated that an international arbitral award is an international decision grounded in a non-national, arbitral legal order and, therefore, its annulment by a state court has no bearing on its enforcement in another state. There have been a number of other similar decisions, and it is now well established that the French courts will enforce an arbitral award even if it was set aside by the courts at the seat. Indeed, the Maximov decision is the latest example of this ever increasing bank of case law (although the decision may yet be appealed).

The Dutch courts take a similar approach to the French. The best known example is the case of Yukos Capital v. Rosneft, where the Amsterdam Court of Appeal held that the fact that a Russian court had set aside a Russian arbitral award was not sufficient to prevent enforcement in the Netherlands. Moreover, in this particular case, the Court of Appeal noted that there was evidence that the decision of the Russian court was partial and dependent and was clearly influenced by the Russian state’s ‘campaign’ against the claimant. In such circumstances, the Court of Appeal was able to assist the claimant in seeking justice. Interestingly, Mr Maximov sought to enforce his ICAC award in the Netherlands last year, but his application was rejected at first instance. This decision is currently being appealed to the Amsterdam Court of Appeal.

Indeed, for a period of time last summer, it even looked like Russia (not traditionally viewed as a pro-arbitration state) might join France and the Netherlands as being prepared to enforce arbitral awards that have been set aside by the national courts at the seat of the arbitration (Ciments Français v. Sibirskiy Cement). It should be noted, however, that this decision was based on an analysis of Article IX(2) of the Geneva Convention which limits the application of Article V(1)(e) of the New York Convention by providing that the fact an award has been set aside will only be relevant if the reason it was set aside was one of an exhaustive list of reasons set out in Article IX(1) of the Geneva Convention. The Geneva Convention will only apply, however, if the state of the award’s origin, the state of enforcement, and the place of residence of all parties to the arbitration agreement are all signatories to the Geneva Convention. In any event, the decision of the Russian court has since been successfully appealed.

In contrast, the second view is that the seat of the arbitration is almost equivalent to the municipal jurisdiction’s forum. Under this view, the law of the seat governs the arbitration agreement and will govern the formation and composition of the tribunal as well as the procedure and form of the award. The courts at the seat oversee the proper functioning of the procedural aspects of the arbitration and, therefore, at the end of the process have the power to confirm or set aside the award. In other words, under this approach, the seat anchors the arbitration to the legal order of the state in which it takes place.

This second view is similar to the position taken by the English courts. In particular, the English courts have traditionally taken the view that where a foreign arbitral award has been annulled by a court of the seat, the English courts are unable to recognise or enforce that award as the act of annulment creates an issue estoppel (Yukos Capital SARL v. OJSC Rosneft Oil Co). However, it should be noted that following the recent decision in Sulamerica v. Enesa, under English law the law of the arbitration agreement will not automatically be the law of the seat. Rather, the court will look to determine the law of the arbitration agreement by reference to: (i) express choice; (ii) implied choice; and (iii) close connection – which may or may not be the law of the seat.

The German approach accords closely with that of the English courts and prohibits enforcement of such awards, save where the court judgment setting aside the award must be recognised under German procedural law (examples of such situations include where the respondent was not served properly, or where the foreign judgment is irreconcilable with German public policy). Germany is also a signatory to the Geneva Convention, which, as noted above, limits the application of Article V(1)(e) of the New York Convention in certain circumstances.

In conclusion, it appears unlikely that there will be consensus on this issue in Europe (or, indeed, worldwide) any time soon. In the meantime, therefore, litigants like Mr Maximov will have to hope that if their award is set aside by the national courts in the country in which the award was made that their counterparty has assets in a jurisdiction such as France or the Netherlands that may still permit enforcement of the award.

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7 comments

  1. Dear Mike,

    thank you for your very interesting contribution to this issue. Following my response to your earlier post on the “Ciments Français”-case, I would like to briefly make a few points and ask you a question:

    – I maintain and reiterate the view I expressed in response to your first post, namely that the French approach on the one hand and the approach taken by the Court of Appeal in Amsterdam, respectively the Dutch Supreme Court, in the Yukos v Rosneft decisions on the other hand are two different – not similar – approaches:

    In French decisions, the courts apply a domestic law (French Law). This is possible under Article VII(1) New York Convention. Quoting Prof. van den Berg, “[t]he parties seeking enforcement in France, and with them the courts, invoke en masse Article VII(1) of the [New York] Convention, in order subsequently to apply the French national regime concerning the enforcement of awards made outside France.” (Journal of International Arbitration 2010, p. 179, 194). French court practice consequently shows that Article V of the New York Convention is not necessarily “[t]he starting point for any debate on such issues”.

    Prof. van den Berg concludes that “…Article VII(1) of the [New York] Convention as applied in France would be of no avail in the Yukos Capital case. Article 1076 [Dutch Code of Civil Procedure], which contains a regime regarding the enforcement of foreign awards outside the [New York] Convention, provides in the first paragraph under (ae) as ground for refusal of enforcement that an arbitral award has been set aside in the country of origin.” (Journal of International Arbitration 2010, p. 179, 196). Prof. van den Berg explained why he is of the opinion that the Amsterdam Court of Appeal’s reasoning, as well as the Dutch Supreme Court’s reasoning, are at odds with both the New York Convention and Dutch arbitration law (Journal of International Arbitration 2011, p. 617-641 and Journal of International Arbitration 2010, p. 179-198).

    – You stated that “…for a period of time last summer, it even looked like Russia (not traditionally viewed as a pro-arbitration state) might join France and the Netherlands as being prepared to enforce arbitral awards that have been set aside by the national courts at the seat of the arbitration.”

    I maintain my view that the approach of the Arbitrazh Court for the Kemerovo Oblast in Ciments Français is different from the two different other approaches in France and the Netherlands that I described above.

    That being said, the decision of the Federal Arbitrazh Court for the Western Siberian Okrug in Ciments Français contains no discussion of Article IX(2) European Convention (see the post by Elvira Gadelshina on this blog). The decision of the Federal Arbitrazh Court is also not final.

    Therefore, I would like to ask why you believe that the decision of the Federal Arbitrazh Court for the Western Siberian Okrug in Ciments Français leads to a conclusion that Russian courts in general, as after that decision, would not be ready to recognize or enforce an arbitral award set aside at the seat of the arbitration, provided that the requirements for doing so are met.

    Sincerely yours,
    Michael Wietzorek

  2. Dear Mike,
    Many thanks for your interesting contribution. Allow me to make two observations regarding the Dutch and English decisions you cite in illustration of your main point. My comment concludes with an observation on your characterisation of the Dutch approach as illustrated by the recent decision of the Amsterdam district court in Maximov/Novolipetsky to reject an application of a Russian award on the ground of Article V(1)(e) of the New York Convention.

    The Netherlands: Yukos Capital/Rosneft
    This case offers no confirmation that the Dutch courts take a similar approach to the French. Rather the contrary. You note that the Amsterdam Court of Appeal held that the fact that a Russian court had set aside a Russian arbitral award could not prevent enforcement in the Netherlands. However, the court’s actual reason for this was that the Russian annulment judgments could not be recognised in the Netherlands on grounds of public policy, because the court found that those judgments were the product of a partial and dependent judicial process. (As Prof van den Berg explains in Journal of International Arbitration 2010, p.179, 194, the basis for this finding is doubtful.)

    England and Wales: Yukos Capital SARL v OJSC Rosneft Oil Co
    Also this case fails to illustrate your point. Hamblen J held that the aforementioned Amsterdam Court of Appeal judgment could give rise to an estoppel on the issue of partiality and dependence of the Russian judiciary. (In my view this conclusion was mistaken as argued in detail in International and Comparative Law Quarterly 2012, 519). Rosneft was therefore precluded from contesting the fact of partiality and dependence, with the result that the High Court refused to recognise the Russian annulment judgments for offending English principles of substantial justice.

    In both cases then there were no annulment judgments that could trigger application of Article V(1)(e) of the New York Convention. Consequently, in both cases the question never actually arose whether or not the awards could be enforced despite having been set aside by the national courts at the seat of the arbitration.

    Finally, you refer to the recent decision of the Amsterdam district court in Maximov/Novolipetsky (judgment of 17 November 2011, LJN: BV5646) to reject Maximov’s application for the enforcement of a Russian award which had been annulled by the court of the seat of the arbitration as “interesting” in light of your assumption that the Dutch courts take the same approach as French courts. But the decision is not interesting for this reason, because the Dutch court in the case adhered to an approach opposite to the French. Consider the key paragraph of the district court’s judgment:

    “4.8. In the system of the New York Convention the competent authority … decides claims for the annulment of arbitral awards. As a rule, the court of the country where enforcement is sought should not review this decision. The starting point then is that the award has been annulled by the Arbitration Court in Moscow (the competent authority) and thus that it no longer exists. In principle, this decision (confirmed on appeal by the Federal Arbitration Court in Moscow) must be respected in the assessment of the present application. In principle, because the court, unlike NLMK, considers that the fact that an award has been annulled in the country of origin does not imply under all circumstances the rejection of an application for leave to enforce. Unlike NLMK’s contention, the court considers that the court seized of the application—while exercising great restraint—even must at the end of the day even under the system of the New York Convention decide itself whether the judgment annulling the award can be recognised by reference to its own public policy. The Convention also elsewhere enables the court of the country where enforcement is sought to uphold its own public policy (see, eg, Article V(2)(b)). In the view of the court leave to the enforcement of an award annulled by a competent authority destroyed may be granted only in exceptional circumstances, because only then the (in itself undesirable) result can be accepted that the annulled award does not have the same status in all countries. This implies that the court will only refuse to recognise the judgment of the Arbitration Court in Moscow (as confirmed on appeal) if (insofar as currently relevant) the recognition of the annulment judgment would entail a violation of Dutch public policy, for instance, because the annulment judgment was the product of judicial proceedings that by Dutch standards were contrary to the requirements of due process.”

    The same approach can be found in the judgment of the Amsterdam district court in Yukos Capital/Rosneft (judgment of 28 February 2008, LJN: BC8150 [6.5.3.2.]) even though the Court of Appeal on appeal in that case did not express its final view on the matter (see judgment of 28 April 2009, LJN: BI2451 [3.5]).

    To conclude, I respectfully submit that the note misrepresents the relevance of the Dutch case of Yukos Capital/Rosneft and the English case of Yukos Capital SARL v OJSC Rosneft Oil Co. In those cases both courts concluded that for lack of recognition there were no annulment judgments capable of triggering Article V(1)(e) of the New York Convention. Finally, I argue that the characterisation of the Dutch approach as equivalent to the French is inaccurate: a Dutch court should be expected to reject an application for leave to enforce an award under the convention if the annulment judgment of a competent authority can be recognised in the Netherlands.

    All best,
    Jacob van de Velden
    j.b.van.de.velden@rug.nl

  3. Dear Mike (and distinguished colleagues),

    May I respectfully suggest that there is a simple and logical analysis of all seemingly anomalous cases of the kind? It is founded in the nature of arbitration itself as a non-judicial act of the parties to an arbitration agreement.

    They cannot create more than they have, so it follows that the arbitral panel has no powers that the parties themselves do not have and, a fortiori, cannot have the powers of a court, to make decisions erga omnes within a national Jurisdiction.

    The Award, I submit, is no more (and no less) than a fact created, through the proxy of an arbitral panel, on behalf of the parties. Arguably, created by their joint will.

    National courts may recognise the piece of paper that records the Award or not as their inherent discretion may incline them but no one nation’s court need follow another. A court may set aside or annul the Award as it pleases but it does not tear up the paper and it cannot prevent the fact of the Award being carried to climes where another court may be more amenable.

    In the premises, I suggest, there is no point in trying to reconcile one court’s decision with another. Each may do as it pleases (and as its own laws allow).

    But I’m an engineer and no lawyer!

  4. This article provides an excellent framework for analysis of these issues. On the other side of the Atlantic, we can see that the U.S. (or at least the key District of Columbia Federal Circuit Court of Appeals which deals with many important federal issues in the U.S.) falls into the second category of jurisdictions which do ascribe important powers to the seat of arbitration – see TERMORIO S.A. E.S.P. and LeaseCo GROUP, LLC, Appellants
    v.ELECTRANTA S.P., et al., Appellees, No. 06-7058.
    United States Court of Appeals, District of Columbia Circuit, Decided May 25, 2007, 487 F.3d 928 (2007). In that case the U.S. court declined to enforce an ICC arbitration award made in Colombia where the Colombian Consejo del Estado (State Council) had refused to enforce it there. This, even though the reason for non-enforcement in Colombia was somewhat odd — that at the time Colombian law supposedly did not expressly permit the use of ICC Procedural Rules of Arbitration.

  5. Dear Michael, Jacob, Geoffrey, Paul,

    Thank you very much for your comments, which I think demonstrate what an interesting topic this is. Michael and Jacob raised some observations/questions, which I respond to briefly below.

    Michael, I agree with you that the approach taken by the French courts and the Dutch courts are different. Indeed, the approach taken by the Arbitrazh Court for the Kemerovo Oblast in Russia (i.e the first instance decision) in Ciments Français was different again. I highlighted these differences in my post (albeit briefly). As Geoffrey says in his comment, national courts may decide whether or not to recognise an arbitral award as part of their inherent discretion and there is no point trying to reconcile one court’s decision with another. Nonetheless, all three state courts concluded that the fact an arbitration award had been set aside at the seat was not a bar to enforcement in those particular states. In my view, it is interesting that they took this approach, especially given other states have taken a contrasting position (again, for a variety of reasons).

    As to your question, I do not believe that the cassation court’s appeal decision in Ciments Français leads to a conclusion that the Russian courts would not be ready to recognise or enforce an arbitral award set aside at the seat of the arbitration provided the requirements for doing so are met. However, the fact remains that post this decision, there are no examples of the Russian courts enforcing such awards. In addition, it was disappointing that the cassation court did not address a number of points from the original decision, in particular the relationship between Article IX (2) of the Geneva Convention, which limits the applicability of Article V (1) (e) of the New York Convention. Overall, therefore, given the recent developments, the conclusion at the moment must be that Russia will not enforce awards that have been set aside at the seat, although this position may indeed change.

    Jacob, my blog does not make an assumption that the approaches of the Dutch and French courts are “the same”. On the contrary, the underlying rationale behind the approaches taken by the French courts and the Dutch courts are different. However, my blog states that the positions are “similar” in that both the Dutch and French courts have enforced awards that had been set aside at the seat. In my view, the different approaches taken by different courts are indeed interesting, especially when connected to the same underlying arbitration award such as in the Maximov case.

    As to the English high court decision in relation to Yukos, the position has now changed following the Court of Appeal’s decision on 27 June 2012. In particular, the Court of Appeal ruled that the English court should not defer to the Dutch court’s finding that the Russian judiciary was biased when it set aside Yukos’ arbitral awards. This issue is likely to be re-litigated in enforcement proceedings before the English courts. However, again, the fact remains that the English courts are yet to enforce an arbitral award that has been set aside at the seat. It will be interesting to see how this element of the Yukos case develops.

    Any additional comments would be greatly appreciated.

    Kind regards,

    Mike

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