You’ve lost the arbitration…now what? Most arbitration awards are voluntarily complied with, and (according to the latest QMUL international arbitration survey) enforceability of awards is the most valued aspect of arbitration. Nevertheless, the law reports are littered with decisions on enforcement (or non-enforcement) of arbitration awards, and enforcement sagas such as those in the Sedelmayer, Yukos and Micula cases provide vivid illustrations of the fact that the issue of the award isn’t necessarily the final bell.
Much of the discussion in this space proceeds on the implicit assumption that any attempt to resist enforcement represents an illegitimate tactical evasion of a valid arbitration award, founded upon a wrongful refusal to pay up. Of course, that will sometimes be true. However, as always, real life is generally more nuanced than the stereotype. Many award debtors have genuine, or at least arguable, grounds for seeking to resist enforcement. What options are open to such a party? How can it make life difficult for the award creditor, maximise the chances of a decent settlement and pay as little as possible? In this blog, I will set out a few thoughts on points that an award debtor may wish to consider.
The location of assets and security
The first thing to say is that the location of assets or security will be key. If the award creditor has managed to secure the claim, or obtain a freezing injunction or similar order, the game may well be up. It will be interesting to see how the increasing availability of interim relief from emergency arbitrators affects the enforcement landscape, particularly given the ongoing concerns about the enforceability of emergency arbitrator relief. However, if an award debtor has supplied security for claims in response to an emergency arbitrator ruling, then that will significantly affect the enforcement stage.
Assuming there is no immediately available security in place, what options are open to the award debtor? The preferred strategy will often involve making enforcement as difficult and expensive as possible, while at the same time seeking to negotiate a settlement. I’ll assume that we are concerned with a commercial arbitration seated in England. One tactic often employed by award debtors, frequently with a view to “setting up” a subsequent challenge, is to apply to court under section 57 of the Arbitration Act 1996 (or equivalent contractual provisions) for clarification or amendment of errors, omissions or ambiguities. There are tight time limits for such applications, and they can be risky because the tribunal may seize the opportunity to make its award bomb-proof. Remember, though, that the tribunal’s amendments (made pursuant to section 57) can themselves be challenged under section 68.
Challenging the award
Once section 57 is exhausted, the next logical option is challenging the award under one or more of sections 67-69 of the Act. Success rates are not particularly high, and the default remedy in many cases is remission (which, anecdotal evidence suggests, may frequently result in the tribunal reaching the same result but by a different route). And even if set aside, some jurisdictions (notably France) may still choose to enforce the award. Nevertheless, a key benefit of set-aside proceedings is that they provide a basis, under article VI of the New York Convention, for the enforcing court to adjourn the enforcement proceedings. And such adjournments can be lengthy: in the IPCO case, the English court was eventually persuaded to lift an adjournment in November 2015. The award had been made eleven years earlier, in 2004. Bear in mind, too, the inconvenience represented by the cost and time of the challenge proceedings themselves. Jurisdictional challenges and section 68 challenges based on serious irregularity will generally involve consideration of evidence as well as legal submissions. So mounting a challenge of this kind will certainly add to the overall pain factor for the enforcing party.
The enforcement proceedings
Moving on, if challenging the award itself is unsuccessful, what about the enforcement proceedings themselves? Defences to enforcement are, of course, available under the New York Convention, and for state parties the doctrine of state immunity may also provide a shield. Particularly difficult problems may arise where (as is often the case) an award creditor seeks to enforce an award in multiple jurisdictions. The example that is generally cited here is Dallah: in that case, an eminent arbitral tribunal in a Paris-seated ICC arbitration ruled that it had jurisdiction, and issued an award in favour of the claimants. At the enforcement stage, the UK Supreme Court held that the award was not enforceable because the respondent was not, as a matter of French law, party to the arbitration agreement. A few months later, the French Court of Appeal reached the opposite conclusion.
Dallah is, of course, an extreme case and has been described as “pathological”. However, from the point of view of a reluctant award debtor, it illustrates graphically that losing in one jurisdiction is not necessarily the end of the game. Award debtors may also note that national courts may not be amenable to accepting jurisdiction over enforcement actions where there are no assets against which to enforce. This was illustrated, for example, in the Irish High Court’s decision in the Yukos saga.
Where enforcement proceeds in multiple jurisdictions, award debtors may need to grapple with the doctrine of issue estoppel. Although the law in this area is not completely settled, and the issue is a controversial one, the English courts have shown themselves to be willing, in principle, to recognise issue estoppel arising from a foreign court’s decision on enforceability. This is, of course, subject to any considerations of English public policy. In most cases, an award debtor will be the respondent to any such proceedings, but one point that is perhaps not considered as fully as it might be is whether an award debtor should itself commence proceedings in a friendly foreign court with a view to obtaining a declaration (or similar remedy) that the award is not enforceable, thereby setting up an issue estoppel that will bind other enforcing courts.
Of course, careful co-ordination of proceedings in different jurisdictions will be required, and a strategy that involves increasing cost and delays can be risky and double-edged. Nevertheless, there are always options worth considering before giving up the fight and paying up.