Hands-off Policy of English Courts Toward Foreign Arbitral Awards
English Courts Policies
The English law takes a “hands-off and supportive approach to international arbitration”. Each legislation or litigation takes its side to reach a decision on this point. The function of the courts, as mentioned in Channel Tunnel v Balfour Beatty Construction, is not just to support arbitration but to find remedies to enforce foreign arbitral awards. Specific methods, that will be discussed shortly, will highlight a significant strategy which confirms that there is a limited ground for resistance against the enforcement of a foreign arbitral award.
In contrast with the domestic awards which are presumed to be “Final and Binding”, the foreign arbitral awards are binding. Accordingly, it is assumed that the foreign awards are absolutely final without any further questions on finality. So, it is natural that the right of an aggrieved party to challenge the finality of domestic awards, recognised in s66-69 of the Act, is manifestly excluded from the foreign awards under s66 (4). The sole actual right of an award-loser under the Act, according to s103(2), is to resist against the enforcement of the award in England, which fails to target the merits of the award in total.
The legislation offers the most favourable regime to support the enforcement of foreign arbitral awards. Under s104 of the Act, the enforcing party has a wide choice of remedies that allow him to stay under the provisions of Part III, which deal with the recognition and enforcement of certain foreign awards in parallel with s66 or common law. As a result, the legislation takes a pro-arbitration policy to ensure that the courts enforce a foreign award through either the most favourable domestic or international regulations. This policy echoes the most favourable regime stated in Art VII of the New York Convention, by which the award winner in the enforcement stage has a broad discretion to enforce the award in any member state through its domestic laws. Contrary to domestic regulations, which cannot affect the enforcement of foreign awards by virtue of s66(4), the foreign award winner can seek enforcement of the award in reliance upon domestic laws, if favourable.
The Act has restricted the grounds by which an English court can refuse enforcement of foreign awards. This means that there is a presumption of enforcement unless the aggrieved party invokes and proves the existence of one or some grounds of resistance under the Act’s s103(2). The judgment of LJ Mance in Yukos Oil Company v Dardana Ltd made it clear that there is an explicit citation to the scheme of the act, “…a successful party to a New York Convention award, as defined in s.100(1) has a prima facie right to recognition and enforcement. …recognition or enforcement may be refused at the second stage only if the other party proves that the situation falls within one of the heads set out in s103(2).”
The resisting party cannot merely prove that one instance of s103(2) exists, but should prove that he had duly brought related claims in the arbitration proceeding, and challenged the award afterwards in the competent court of the seat with good-faith. Otherwise, such a claim would be dismissed. The English courts put a line between a bona fide party that duly brought a dispute in the course of arbitration and then to the competent court of the seat with someone who did not apply his right willingly to abuse his right in the enforcement stage. It is often addressed as the principle of waiver or estoppel, which should not adjourn the enforcement.
In Minmetals Germany Gmbh v Ferco Steel, the court left for enforcement while there was a valid procedural issue. The ratio was the fact that the defendant had the opportunity to rely on his claim in the course of arbitration, but estopped and tried to invalidate the award in the enforcement stage. The resisting party, hence, should not merely bring his claim in the course of arbitration but should later try to invalidate the award in the competent court of the seat. Henderson v Henderson is an instance in which the court dealt with a situation that the resisting party had not challenged the award in the court of the seat. The court did not let the resisting party rely on his fault to nullify the award in the seat and left the award enforced.
The resisting party shall satisfy the court that the existing infringement incurs him material damages, as any immaterial violation of the agreement or de minimis errors should not preclude enforcement. Even if it has prevailed that there was a substantive or procedural irregularity, there is still room for the court’s discretion to consider whether the current issues damage the award. In China Agribusiness Development Corp v Bali Trading, the application of FETAC rules instead of CIETAC by the tribunal, was not assessed as a noticeably significant degree of prejudice to the award-loser.
This test, which was called, “the causation-based method”, determines whether an alleged deficit could affect the final award. In return, it might have been concluded in favour of the award-debtor in the lack of such an issue. Thus, in a narrow interpretation, it is not only sufficient for the defendant in the enforcement stage to prove the existence of irregularity, but he must go further and prove that this irregularity has given rise to prejudice, and has altered the final results of the process.
The lack of jurisdiction is more sensitive for English courts rather than other procedural grounds. The contractual nature of arbitration precludes any unwanted interference of non-appointed people in the private relationship of parties. Therefore, the approach of English courts, in lack of jurisdiction, is strict and severe as is highlighted in Sumukan Ltd v Commonwealth Secretariat.
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Thank you Sima
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