Enforcement of awards against State entities

Video | April 2018 | 4:34

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Enforcement of awards against State entities

When it comes to arbitration, the three feted advantages frequently quoted over litigation are savings in time, savings in cost and the ability to rely upon an experienced tribunal. Whilst the latter still holds good, savings in time and savings in cost no longer really stand up to scrutiny. As a consequence most people turn to the comparative ease of enforcement of arbitral awards as the main reason for giving it priority over litigation as a choice of dispute resolution method.

The New York Convention [on the Recognition and Enforcement of Foreign Arbitral Awards], which has its 60th birthday this year, has been instrumental in putting in place a procedure to allow efficient and effective enforcement of foreign arbitral awards – both in terms of recognition and enforcement.

But that convention is not a panacea to all ills and what I wanted to talk about very briefly is the problems that one encounters when trying to recognise or enforce an arbitral award against a State or a State entity. In those circumstances, although the convention itself says States should try to honour the purpose of the convention and set in place domestic procedures to allow an award to be enforced, that isn’t always the case. And it is the involvement of the domestic process and the courts setting out their own local procedural mechanisms that causes the problems.

Let’s look at three simple examples:

The first is "competence competence”. That is the principle in arbitration that allows a tribunal to set its own jurisdiction and to answer and solve its own jurisdictional problems. However, when it comes to recognition and enforcement, a domestic court under the convention is allowed to re-examine that jurisdiction and basis for the arbitral award. So that could be done at the seat of the court where there’s a challenge to simple jurisdiction or there is a challenge to the basis of the award. Or it could be done at an enforcement stage, where the courts in the country where you seek to enforce seek to re-examine the jurisdiction that the tribunal applied. For a State that gives you the opportunity to perhaps challenge the basis upon which the arbitration was formed, or even to say that the entity, if it was a State entity that entered into the arbitration agreement, did not go through the correct procedures or due process to allow it to actually agree and arbitral award. Thereby the State is able to challenge or delay the enforcement.

The second is due process. A State has the opportunity to challenge any procedural irregularity that may have occurred during the arbitration itself. So it might challenge the formation of the tribunal or it might seek to point to any issue. Perhaps the length of time it was given to argue its case or procedures that were followed to allow it to again delay or stop in some way the enforcement or recognition of the award.

The third and final point is actual procedural requirements of the courts themselves. So, service of process outside of the jurisdiction, if it isn’t followed exactly or doesn’t comply with the way the State has to be served, can present a great opportunity for a court itself to say “well you haven’t followed the right process, so therefore we are not going to allow the State to be brought into this procedure until you serve it properly.”. That, coupled with State immunity, again gives the State an opportunity to intervene in the process and delay enforcement.

So, those are three simple reasons as to why although the New York Convention has done a lot to improve and benefit everybody in terms of recognition and enforcement of arbitral awards, you have to choose your jurisdiction very carefully when setting your contract in place. Or alternatively you have to think long and hard about the tactics used by State parties.

At the end of the day an arbitral award is just a piece of paper, and without recognition and enforcement you are not going to be able to take it much further.

Neil Q. Miller, a Partner in our London office, discusses enforcement of awards against State entities, common issues that can arise, and what to consider at the outset in order to best avoid later issues with enforcement.