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The world has come to experience many changes in the way legal systems are evolving. The conventional methods of dispensing justice are being abandoned in favour of faster and more efficient methods of dispute resolution such as arbitration and mediation.
The concept of arbitration has risen to prominence as a widely accepted form of dispute resolution between jurisdictions due to its many advantages and wide ranging applicability from commercial transactions to even the most simple of disputes and this can be seen in the fact that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 has a total of 144 signatories.
Mainly due to the cumbersome and lengthy process of litigation, many parties have opted for arbitration as a means of settling disputes due to its many advantages.
This thinking behind this research is to critically evaluate the nature of arbitration and attempt to look at it as a veritable and efficient means of alternative dispute resolution. It seeks to analyse arbitration in an introductory sense and attempt a differentiation between the recognition of an arbitral award and the enforcement of the award. It will attempt to look at the requirements under the various conventions for enforcement to be possible and then critically examine the grounds for non-enforcements under the conventions especially the New York convention of 1958.
The methodology to be adopted by this research will be of a critical and comparative nature. Reviews of diverse literatures on the subject of this essay from one chapter to another will be carried out and in achieving the aim of this essay; diverse sources will be made reference to, including, international human rights instruments, legislations, case laws, books, journal articles, internet articles, general opinions and personal ideas. Particular emphasis will be placed on the New York convention of 1958 as a benchmark for comparism with other existing treaties and conventions on the subject.
Chapter One will adopt an introductory approach and try to define the important issues raised in this essay especially the subject of arbitration and the essential nature of an award. It will define the term arbitration and attempt to enumerate the advantages or arbitration and why it has become so popular in regards to settlements of disputes viz a viz other methods of settlement of disputes. It will also differentiate between recognition of an award and the enforceability of an award which is very crucial to the very nature of an award.
Chapter two will attempt to look at the requirements for enforcement and the available procedure in the New York convention and also attempt to do a comparative analysis between different jurisdictions to see the existing requirements for enforcement.
Chapter three will focus on the major part of this work which will be the grounds for non-enforcement and recognition of an award under the New York convention of 1958 under Article 5(1) and Article 5(2) and other treaties. This will be considered in detail and a comparative analysis will be attempted to ascertain if this defences are strictly adhered to in certain jurisdictions.
Chapter four will continue to assess the defences available especially under the loopholes available in Article 5(1)(e) and also non-enforcement under grounds of public policy under which the local courts have room to vacate an award.
Chapter five will attempt to recommend solutions to the issue of non-enforcement and how the courts, national governments and international bodies can assist in ensuring that enforcement if awards against defaulting party is possible and does not render the arbitral proceedings a nullity. Finally , the essay will conclude taking note of key aspects of the essay.
1.1 WHAT IS ARBITRATION AND IT'S ADVANTAGES?
The term arbitration refers to a private process of dispute resolution does not involve any form of litigation. Parties consent to take their grievances to an arbitrator, usually two or three of them, chosen by the parties for resolution of the dispute subject to certain conventions and treaties guiding the process. These arbitrators therefore deliberate over the issue for settlement and proceed to awarding in favour of either party against the backdrop of available evidence and the basis for most arbitration proceedings is the existence of a contractual arbitration clause inserted in the initial agreement.
Most conventions on the subject still require the agreement to strictly be in writing before it can be enforced . Article 2 of the New York convention of 1958 requires any agreement to be in writing. It states:
“the term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement signed by parties or contained in an exchange of letters or telegrams” .
Arbitration has many advantages which make it a more favourable alternative to the settlement of disputes. In a survey of the reasons that have made arbitration a more favourable method of dispute resolution, two most significant reasons were advocated as
(1) the neutrality of the forum and the possibility of avoidance of the home jurisdictions of one of the parties and
(2) the ability to obtain enforcement due to treaties like the New York convention guaranteeing almost certain enforcement of the award .
Respondents presumed these two advantages to be highly relevant to the issue.Other advantages included the confidentiality of the procedure, the expertise of the tribunals, limited appeals available to parties and the limited discovery available to parties in international commercial arbitrations .
Other advantages include voluntary compliance with the awards which is very connected to the enforcement of arbitral awards. In an article by Thieffry titled The Finality of Awards in International Arbitration , the author contended that 92% of arbitral awards are complied with voluntarily.
A major advantage of arbitration is the existence of a final and binding award after the close of proceedings and the enforcement of this award. Once a tribunal makes a decision, it has fulfilled its function and its existence is at an end . The award will be a binding decision on the dispute between the parties and if not carried out voluntarily, may be enforced by legal proceedings both locally and internationally. Article 3 of the Convention states that:
“each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules and procedure of the territory where the award is relied upon, under the conditions laid down in the following articles”
It therefore seems to follow that enforcement shall be a key aspect of arbitration agreements.
1.2 RECOGNITION AND ENFORCEMENT OF AWARDS
The two terms are often used inextricably in the world of arbitration. Article 3 of the Convention states:
“ Each contracting state shall recognize arbitral awards as binding and enforce them in accordance with e the rules of procedure of the territory.....”
From first glance, it would seem to mean they both mean the same thing in reference to an award but they are actually dissimilar. When a court proceeds to recognize an award, it means that the court has acknowledged that the award is binding and legal and grants it a status similar to that of a court judgement. The effect of this is that the award can be relied upon as set-off or defense in relation to concurrent legislation or litigation on the subject matter similar to giving the award an official legal status.
There is always a distinction between local enforcement of an award which can be the enforcement of an award in the state that is the seat of arbitration, on one hand and enforcement of an international award made outside the territory of that state where enforcement is sought after.
The Geneva Convention of 1927 attempts to use the terms interchangeably by using the word “or” and the English Arbitration Act of 1996 also makes deference to the use of the word “or “ in attempting to differentiate between the two terms. S.101 of the English Act also attempts to distinguish between the two terms which states:
“(1) A New York Convention award shall be recognised as binding on the persons as between whom it was made, and may accordingly be relied on by those persons by way of defence, set-off or otherwise in any legal proceedings in England and Wales or Northern Ireland.
(2) A New York Convention award may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.
The need for recognition usually arises where an issue that was the subject matter of previous arbitral proceedings has come up again for litigation. Usually, the party in whose favour the award has been made will seek to prove to the court that the issue has already been determined by an arbitral tribunal. To do this , he will seek to produce a valid and binding award that has disposed of all the issues in the instant case and ask for a declaration of res judicata i.e all the issues being re-litigated have been decided upon and cannot be brought up again.
In the US case of Batlle V. Associates for Women's Medicine(AWM) PLLC , Associates for Women's Medicine (AWM) and Battle entered into an agreement whereby Battle would work as an independent primary care physician for AWM. The agreement contained an arbitration clause.
In consonance with the agreement, the defendant obtained a $100,000 bank loan with plantiff acting as guarantorand then after a year, AWM terminated its relationship with Batlle and informed him that he would be responsible for repaying the loan. Batlle denied liability for the loan.
Pursuant to the agreement, AWM and Batlle submitted the loan dispute to an arbitration panel which decided that Batlle was liable for the loan and awarded judgement in favour of the defendant. A New York court confirmed the award thereafter confirmed the award.
In another action three months later, Battle commenced an action contending that AWM had engaged in fraud to extort payment for the bank loans. Court HELD that the claims of battle were res judicata since the issues raised in its claim were already the subject matter of a previous claim and could not be re-litigated upon.
The major distinction that can be deduced between recognition and enforcement is that while recognition can be taken as more of a defence to any future actions on the subject matter, enforcement on the other hand seeks performance of that order.
Several authors have argued that enforcement goes beyond mere recognition of an award but also to endure that the award is carried out by the use of legal sanctions where available.
The convention was made to apply to international awards and it expressly states that it covers awards made in a state other than which enforcement is sought. Article 1
(1) of the convention states:
“This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought ”.
A major point to note here is that domestic is not defined in the convention and this had tended to be a sore point for courts to determine in resolving issues relating to scope of the convention. In the US, S.202 of the Federal Arbitration Act of 1925 seems to indicate that where an award is non-domestic, even if between citizens of the United States, there must seems to be the requirement of an international element before such award can be deemed covered by the convention and enforced by American courts.
“........an agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.......” .
In the US case of Yusuf Ahmed Alghanim and Sons v. Toys “R” Us Incoporated , where in refusing the respondents' cross-motion to vacate or modify an arbitration award and granting the petition to confirm the award. The court held that while the petition for confirmation was brought under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, respondents' cross-motion to vacate or modify the award was properly brought under the Federal Arbitration Act and hence the claims of the respondent fell under the Federal Arbitration Acts grounds for vacating an award.
The court in relying on Bergsen v. Joseph Muller Corporation stated that awards 'not considered as domestic' denotes awards which are subject to the Convention not because made abroad, but because made within the legal framework of another country, e.g., pronounced in accordance with foreign law or involving parties domiciled or having their principal place of business outside the enforcing jurisdiction.
The court further went ahead to define the applicability in this instance to the fact that the dispute giving rise to this appeal involved two nondomestic parties and one United States corporation, and principally involved conduct and contract performance in the Middle East. Thus, we consider the arbitral award leading to this action a non-domestic award and thus within the scope of the Convention.
Article 1 (3) of the Convention permits states to make reservations as to the applicability of the convention. The first part of the reservation states can make according to the convention deals with reciprocity; a state can declare that it will only apply the convention to awards that are made in the territory of another contracting state.
“.......any state may on the basis of reciprocity declare that it will apply the convention to the recognition and enforcement of awards made only in the territory of another contracting state..................”
It is important to note that this aforementioned reservation has been adopted by almost all the countries that are signatories to the convention but what is important to note is the most important factor regarding the applicability of the award is the location where the arbitration occurred. For example, where an award has been made in a non-contracting state and the parties are domiciled in contracting states, this qualification will not apply. It is usually the practice to choose a contracting state as the place of arbitration in drafting an arbitration agreement.
The second reservation deals with the second part of Article 1(3) of the convention which states that:
“.......... may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.”
What determines what is essentially commercial in these circumstances will depend on the law of the enforcing jurisdiction due to the fact that commercial is not defined in the Convention.