REUTERS | Brendan McDermid

How to react to annulled arbitral awards

International arbitration has been gaining popularity as an alternative to litigation. Despite its popularity, there are still some grey areas of international arbitration which are highly debated amongst the courts and scholars. Despite being one of the most fundamental issues of international arbitration, the enforcement of annulled arbitral awards is one of those grey areas.

The New York Convention aims to bring uniform legislative standards for the recognition and enforcement of international arbitration agreements and awards across contracting states. Article V(I)(e) provides that the recognition and enforcement of an award may be refused if the award is annulled by a competent authority of the country in which, or under the law of which, that award was made.

The enforcement of annulled arbitral awards is still highly controversial due to the different interpretations of this Article. Some argue that despite being annulled in the jurisdiction where they were rendered, international arbitral awards can still be enforced in jurisdictions other than the jurisdiction of the annulling court. This is because the language of the New York Convention is permissive and gives the discretion to allow or not to allow the enforcement of an annulled award to the contracting states. Others argue that the New York Convention prohibits the enforcement of arbitral awards that are annulled by the place of arbitration; with the annulment of the decision, the award ceases to exist and there is nothing to enforce.

Consequently, there is significant disagreement between courts as to how to treat annulled awards. In some jurisdictions, such as France, annulment of an arbitral award in the seat of arbitration has no effect in terms of enforceability, as the award rendered abroad is an international award that does not belong to the legal order of the country where it had been rendered; it therefore remains in existence if its enforcement and recognition in France would not be contrary to international public policy (see Pabalk Ticaret Ltd Sirketi (Turkey) v Norsolor S.A.; Hilmarton Ltd v Omnium de traitement et de valorisation (OTV); The Arab Republic of Egypt v Chromalloy Aeroservices; Société PT Putrabali Adyamulia v Société Rena Holding et Société Moguntia Est Epices; Bechtel v DAC; SNF v Cytec). However, in some jurisdictions, enforcement of awards that were annulled at the seat is strictly denied as it is understood (or rather, interpreted) that an award is no longer binding when it has been set aside by a competent court.

The courts in the United States have taken a different approach in recent cases. They have examined whether the judgment setting aside the award would violate the fundamental notions of morality and justice, and ignored the effects of the annulment in certain circumstances (TermoRio S.A.E.S.P.(Colombia), LeaseCo Group and others v Electranta S.P. (Columbia) et al.; Getma International v Republic of Guinea; Corporación Mexicana de Mantenimiento Integral v Pemex-Exploración Y Producción). Unless the foreign judgment annulling the award violates US public policy to the extent that it is repugnant to the fundamental notions of what is decent and just in the United States, US courts will accept or abide by annulment judgments and refuse the enforcement of an annulled arbitral award.

In Science Applications International Corporation v The Hellenic Republic, a very recent US court case dated 24 April 2019, the effect of the possibility of an annulment of an award on its enforcement was discussed. The District Court in New York held that the possibility that an award may be annulled at the seat of arbitration does not prevent the enforcement of the award in the US automatically. While the annulment proceedings were still ongoing in the Greek courts, the prevailing party obtained a judgment from the New York District Court confirming the award and requested the attachment of the state’s assets to satisfy the judgment. When making a decision on the request, the court emphasised that:

“… [a]lthough the Greek Supreme Court’s temporary suspension of the Award occurred after the D.C. Court entered the Judgment, the D.C. Court considered essentially the same issue — the possibility that the Greek courts could vacate the Award — and declined to stay proceedings. This Court will not disturb that decision.”

As can be seen, despite the wording of the New York Convention, which has led to different approaches taken in different jurisdictions, some jurisdictions have adopted approaches that allow the enforcement of annulled arbitral awards. Apart from the established practice of allowing the enforcement of annulled arbitral awards in France, US decisions clearly indicate that the annulment or possibility of annulment at the seat does not prevent the enforcement of an award automatically.

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