Enforcing Arbitral Awards - Can Hurdles Be Overcome?
Legal News & Analysis - Asia Pacific - Dispute Resolution
5 October, 2018
“Before long the principle of arbitration may win such confidence as to justify its extension to a wider field of international differences.” – Henry Campbell- Bannerman
Arbitration has continued to grow globally over the past 20 years, both in number and value of claims. With the increase in international business transactions, individuals, businesses and sovereign states are well accustomed to arbitration’s benefits, with many flocking to established arbitral jurisdictions such as New York, London, Paris, Singapore and Hong Kong.
The power of enforcement
The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards or the New York Convention (NYC) is the key enforcement mechanism in international commercial arbitration.
The NYC provides the power of enforcement, allowing awards made in one jurisdiction to be enforced in co-operating foreign jurisdictions. It is assisted by relevant domestic arbitration laws which are largely based on the UNCITRAL Model Law on International Commercial Arbitration (the Model Law).
Unlike litigation, the successful party must rely on voluntary compliance with the award or apply to the Court of the relevant jurisdiction for enforcement. This may be met with either a formal challenge to enforcement or an informal attempt to dissipate assets in frustration of the award.
Delay caused by application for enforcement to the local Court can present a problem for parties looking to benefit from their arbitral awards. The delay can provide an opportunity to those disgruntled with the outcome, to begin dissipating their assets.
This problem is enhanced for international assets. Parties seeking to enforce their awards in foreign jurisdictions often face slow Court systems and the various administrative – and possibly unfamiliar – hurdles of foreign jurisdictions. If assets are ultimately no longer available, this clearly jeopardises enforcement.
Applicants in this position can nd some support in the form of security and injunctive relief.
However, if the rules under which the arbitration is governed do not make express provision for these reliefs, then the parties must again resort to the Courts in the relevant arbitral jurisdiction.
When time is of the essence, these delays can be costly, not only making enforcement difficult but perhaps pointless if there are no assets left against which to enforce.
A shadow of uncertainty
A further, although less signi cant, barrier to enforcement is the legal challenges that can be brought against enforcement itself. The grounds on which this can be done are contained in Article V of the NYC. This lists seven limbs under which a domestic Court may refuse to recognise or enforce an award. This right to challenge will always threaten the certainty of enforcement.
Cases such as Good Challenger Navegante SA v Metalexportimport SA  EWCA and Diag Human SA v Czech Republic  EWHC 3190 (Comm) remind us of this ever-present hindrance. Both concerned the Secondary Court’s disregard for the arbitral judgements made in the primary jurisdictions in which they were awarded. The potential to successfully challenge enforcement essentially casts a shadow of uncertainty around enforcement in international arbitrations.
It should be noted that, ultimately, it is unusual to see challenges to enforcement based on Article V. There remains a strong common desire among NYC signatories to preserve the doctrine of nality as an intrinsic part of the arbitral regime.
The recent case of RBRG Trading (UK) Limited v Sinocore International Co. Ltd  EWCA Civ 838 helps illustrate this commitment. In this case, the UK Courts reinforced their position that a restrictive approach to interpretation of speci c grounds of appeal under Article V is necessary.
This was echoed in National Iranian Oil Company v Crescent Petroleum Co International Ltd  EWHC 510 (Comm). Awards preventing enforcement will not be awarded lightly in preservation of the pro- arbitration doctrine of finality.
At the very heart of resolving the issue of dissipation of assets is effective and well-timed preparation. As mentioned earlier, agreeing a form of security with the other party in advance can serve to mitigate any future problems with dissipation and enforcement.
In addition, carefully selecting the rules by which the arbitration will be governed is paramount.
The tribunal should have powers to grant interim relief. This will give parties access to methods that can curb attempts at dissipation. Powers should also include the ability to appoint an Emergency Arbitrator for situations where the substantive tribunal has yet to be formed.
This would achieve further certainty regarding enforcement. Institutional arbitral rules such as the ICC, LCIA, ICDR, SIAC and SCC have and are increasingly including powers relating to the appointment of emergency arbitrators to hear interim matters and are increasingly sympathetic to interim orders intended to secure future compliance with any award, but it remains an unusual exercise of jurisdiction.
Where dissipation is a real possibility, clients should ensure they remain ahead of their opponents.
It can often be bene cial to work with private forensic investigatory firms, not only in the proceedings but also in fast, targeted action when it comes to selecting jurisdictions for enforcement.
Further the asset base can be better monitored to identify possible signs of dissipation.
Clients need to understand the opponent’s assets in as wide a context as possible. Historically, identification of assets for enforcement has focussed on homes, vessels and aircraft. These assets are often well obscured through trusts and opaque ownership structures.
Whilst determination of the Ultimate Bene cial Owner is very possible using disclosure orders, this naturally takes time and increases costs. Clients should not be intimidated to consider new world assets such as IP or Crypto Currencies which hold real world value and can be successfully enforced against.
Clients need to consider a proactive approach in preparation. Beginning an asset search post- judgement is likely to take longer and cost more and is often too late. Done properly and at the
right time this can prove an invaluable tool in arbitral proceedings where time and quick action are of the essence.
Effective and early scoping of enforcement and asset recovery is a key part of the due diligence required by litigation funders. It should be at the top of every lawyer’s check-list, whether the claim is funded or not. Prospects of recovery are every bit as important as prospects of success.
Ultimately defending a challenge to enforcement should be unproblematic given that most relevant jurisdictions are keen to preserve finality. Ensuring the correct processes are followed in the jurisdiction of enforcement is however a must, which means local expert advisors must be appointed. Parties could also benefit from third party funding in these scenarios.
Ultimately, arbitration is an excellent and efficient way of resolving disputes. The finality it provides can be very appealing to clients looking for quick resolutions. There are some challenges around enforcement, but solutions are available.
By James Ramsden QC, Barrister, 39 Essex Chambers and Nick Connon, CEO, Quintel Intelligence Ltd
For further information, please contact:
Ruth Stackpool-Moore, Director of Litigation Funding / Head of Harbour Asia