Session 3 - Challenge & Recognition and Enforcement

May 25, 2013
Session 3

After the Issuance of the Award:
- Challenge
- Recognition and Enforcement of the
Award
- Pros and Cons of Ratifying the New York
Convention

Maria L. Rubert
Solomon Ebere
Leyou Tameru
Addis Ababa, June 18, 2013
1
Outline

I. Introduction
II. Challenge to the award
III. Recognition and Enforcement of the award
IV. Pros & Cons of Ethiopia ratifying the 1958 New York
Convention
2
I. Introduction

This presentation examines the situation following the rendering of an
award: 2 possibilities
In a majority of cases, the rendering of an award is promptly
followed either by voluntary payment or by a negotiation
process between winner and loser.
In a minority of cases, the loser will resist payment
1
st
opportunity for the losing party to resist payment: by challenging
the award
2
nd
opportunity for the losing party to resist payment: by resisting
enforcement & recognition of the award
However, easier to enforce an award than a foreign court judgment
This is due in large part to the 1958 New York Convention, to which
Ethiopia is not (yet) party

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II. Challenge to the Award

a. Effect of a successful challenge
The clock goes back to before the arbitration began
b. Types of challenges (2)
Action to set aside / Annulment
Appeal
Both are recognized under Ethiopian law
c. Grounds for challenge
Under the general international practice
Under Ethiopian law

4

a. Effect of a successful challenge
The clock goes back to before the arbitration began
Awards are final and/or binding: Many arbitration agreements
and most arbitration rules stipulate that the arbitral awards that result
from arbitration under those agreements or rules are final and/or
binding
However, always possibility for a party to challenge the award
A successful challenge will usually result in the award being set
aside, vacated, or annulled, and therefore cease to exist, at least
within the jurisdiction of the court setting it aside

5

b. Types of challenges (2)

Actions to set aside Appeal
By far the most important type of
challenge of an arbitral award
A dissatisfied party may challenge the
award only on limited grounds that
preclude a review of the merits, and only
in the courts of the place of arbitration
Designed to ensure that a state, through
its courts, exercises a minimum level of
control over the procedural and
jurisdictional integrity of international
arbitration taking place on its territory
Requirements (2):
Time limit within which the action must
be brought
Court in which action should be filed
Party may appeal the award before the
court on the merits.
This type of challenge is highly criticized
by the arbitration community: this type
of challenge has no place in a modern
transnational environment where the
parties objective in agreeing to
arbitration is to get away from the courts
of whatever country and entrust the
resolution of their disputes, especially of
the merits of their disputes to
international arbitrators.
Type of challenge exists only in countries
with tradition of court interference in
arbitration
6

c. Grounds for challenge under general international practice (6)
Public policy (further discussed in the next slide)
Subject matter was not arbitrable
Invalid constitution of the arbitral tribunal
The award was beyond the scope of the arbitration agreement
A failure to notify an arbitrator appointment of ignition of
proceedings
The incapacity of a party or invalidity of the arbitration
agreement

7

c. Grounds for challenge under general international practice (contd)
Public policy
Most troublesome of the six grounds: no accepted definition
Concept interpreted very differently by courts around the world
Some courts construe the public policy of their jurisdiction so broadly
that it becomes virtually indistinguishable from the laws of that
jurisdiction, so that any conflict of the award with the law of the place of
arbitration will lead the court to set the award aside
Broad view of public policy is prevalent in countries with tradition of
court interference in arbitration
By contrast, courts of countries with developed arbitration laws and
practice will construe public policy more narrowly, deeming it to mean
international public policy = a states most basic notions of morality
and justice

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c. Grounds for challenge under Ethiopian Law:
Action to set aside: Art. 356 CPC
Award was made according on a matter which was NOT
submitted for arbitration
Award was made on an application which time had lapsed or is
invalid
Where there were two or more arbitrators, they did not act
together
The arbitrator delegated a part of her authority to a co-
arbitrator/one of the parties/ a stranger

May 25, 2013

c. Grounds for challenge under Ethiopian Law:
Appeal: Art. 351 CPC
the award is inconsistent, uncertain or ambiguous or is on its face wrong in
matter of law or fact
the arbitrator omitted to decide matters referred to her
irregularities have occurred in the proceedings:
failed to inform the parties or one of them of the time or place of the
hearing or to comply with the terms of the submission regarding
admissibility of evidence
refused to bear the evidence of material witness or took evidence in the
absence of the parties or of one of them
the arbitrator bas been guilty of misconduct:
She heard one of the parties and not the other
She was unduly influenced by one party, whether by bribes or otherwise
She acquired an interest in the subject-matter of dispute referred to her

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10
III. Recognition & Enforcement

a. Situations where there is no need to enforce
b. Common practice to negotiate a settlement to avoid enforcement
c. Recognition v. Enforcement
d. Overview of the 1958 New York Convention (NYC)
e. Requirements to be fulfilled by petitioner
Under the NYC
Under Ethiopian Law
f. Grounds for refusal
Under the NYC
Under Ethiopian Law

11

a. Situations where there is no need to enforce (2)
Voluntary enforcement
Over 90% of International Chamber of Commerce Arbitration Court
awards are voluntarily complied with. USAID Analysis of the Effect of Tajikistans Future Ratification of
the New York Convention, July 2007.
From 1976- 1988, courts voluntarily enforced foreign arbitral awards in
approximately 90% of arbitral awards issued under the New York
Convention. Eds. Christopher R. Drahozal, Richard W. Naimark, Towards a Science of International Arbitration, Collected
Empirical Research, 263, 2005.
Tribunal Dismisses Claims
If a party is the respondent in the arbitration and the tribunal dismisses
all claims (but does not award it costs), there is nothing to enforce

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b. Common practice to negotiate a settlement to avoid enforcement
A negotiation between the disputing parties will turn on time,
cost, predictability of enforcement measures, as well as the
financial ability of the debtor to satisfy the amount awarded.
Steps that can be taken to bring an award debtor to the table
Seize assets
Threaten to seize assets
Settlement discounts
Not uncommon
Allows the creditor to collect at least a portion of the amount
awarded and to avoid the cost, effort, and uncertainty of enforcement
proceedings.

13

The offensive sword of enforcement
The defensive shield of recognition
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c. Recognition v. Enforcement of Awards
If the award debtor does not voluntarily comply with the award, the
creditor will need to take out enforcement proceedings in the
relevant courts if it wishes to secure the remedies afterward.
Recognition (defensive action)
Allows the applicant party to rely on the binding force of the award
in the jurisdiction at issue, and thereby to defend against actions
over the claims resolved in the award in the jurisdiction at issue.
Enforcement (offensive action)
Allows the applicant to go one step further than recognition and
seek an affirmative remedy in the enforcement jurisdiction (such as
the payment of a monetary sum)

15

d. Overview of the 1958 New York Convention (NYC)
Primary international convention on international arbitration
Rendered awards easier to enforce than court judgments: no
worldwide treaty on recognition & enforcement of court judgments
No review on the merits
Standardized and simplified regime
Nearly universal application of the NYC: 149 signatories, including most
African states
The engine of international arbitration
Innovations
Shift of the Burden of Proof from party seeking enforcement (the
winning party) to party against whom is sought (the losing party)
Elimination of the Double Exequatur requirement

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d. Overview of the 1958 New York Convention (NYC) (contd)
Scope: applies to all foreign awards
Sole Criterion: place of enforcement and sometimes place of
arbitration if enforcement country has made reciprocity reservation.
Nationality of the parties is irrelevant.
Thus, the NYC is very relevant to Ethiopian parties, although Ethiopia is
not party to it, because Ethiopian parties trying to enforce award in a
state party to the NYC will benefit from the NYC regime.
NYC & National Law
Some countries implement the NYC by reference
In others, the NYC is directly applicable (e.g., Switzerland)
Where the national law is more favorable to enforcement of award
than the NYC (e.g., France), the more favorable law prevails, according to
art. VII NYC.

17
Signatories to the New York Convention
(149, as of June 2013)

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Under the NYC: Article IV
1. To obtain the recognition and enforcement mentioned in the
preceding article, the party applying for recognition and enforcement
shall, at the time of the application, supply:
(a) The duly authenticated original award or a duly certified copy thereof;
(b) The original agreement referred to in article II or a duly certified copy
thereof.
2. If the said award or agreement is not made in an official language of
the country in which the award is relied upon, the party applying for
recognition and enforcement of the award shall produce a translation of
these documents into such language. The translation shall be certified by
an official or sworn translator or by a diplomatic or consular agent.

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According to article 457 of CPC when an application of a
foreign award is sought, the petitioner shall:

Present a written petition
Present a certified copy of the award
Present a certificate signed proving that the award is
final and enforceable

20

Under the NYC: Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against
whom it is invoked, only if that party furnishes to the competent authority where the recognition and
enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under
some incapacity, or the said agreement is not valid under the law to which the parties have subjected it
or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the submission to
arbitration, provided that, if the decision matters submitted to the arbitration can be separated from
those not so submitted, that part of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement, was not in accordance with the law of the country
where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a
competent authority of the country in which, or under the law of which, that award was made.

21

Under the NYC: Article V

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in
the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that
country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

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f. Grounds for refusal (contd)
7 Grounds: First five grounds under Art. V(1) must be raised and proved
by the applicant; last two under Art. V(2) may be raised by the court on
its own motion
No review on the merits: the court cannot substitute its decision on
the merits for the decision of the arbitral tribunal, even if the arbitral
tribunal has made an erroneous decision of fact or law.
Court discretion in refusing to enforce (may must): a court may
enforce an award even if one of the seven grounds for refusing
enforcement is satisfied.
Exhaustive grounds for refusal: only grounds on which R may rely
Narrow interpretation of the grounds for refusal: restrictive approach

23

Ground 1: Incapacity of Party and Invalidity of Arbitration Agreement
Incapacity of a Party:
mental or physical incapacity;
lack of authority to act in the name of a corporate entity or a contracting
party being too young to sign;
lacking the power to contract
Invalidity of Arbitration Agreement:
not in writing;
no agreement to arbitrate at all within the meaning of the NYC;
illegality, duress, or fraud in the inducement of the agreement
oDallah case

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Ground 2: Lack of Proper Notice, Due Process Violations, Fair Hearing
Lack of Proper Notice:
A proper notice should be in writing, contain the names of the arbitrators
and the identity of the defendant.
Parties may be notified in accordance with contractual provisions
No specific time limits for notice
Inability to present ones case:
Party must have opportunity to reply to allegations/evidence other side
No need not consider all evidence a Party wishes to Present
Language of the proceedings need not be that of the Parties
Party must have been prejudiced by lack of opportunity to present case
Active participation in the arbitration waives Due Process Objection

25

Ground 3: Outside or beyond the scope of the arbitration agreement
Under this defense, the applicant argues that the award is about issues
not covered by the arbitration agreement.
Drafting of the arbitration agreement is key: should give the arbitral
tribunal very broad jurisdiction to determine all disputes arising out of or
in connection with the parties substantive agreement.
Use Model Clauses published by arbitral institutions
In practice, this defense typically fails because the enforcing courts do
not want to second-guess arbitral tribunals determinations of their own
jurisdictions.

26

Ground 4: Irregularities in the composition of the arbitral tribunal or
the arbitration procedure
Composition of the arbitral tribunal: where a party is deprived of its
right to appoint an arbitrator or to have its case decided by an arbitral
tribunal whose composition reflects the parties agreement. Not every
deviation from agreed-upon procedure leads to refusal.
The arbitral procedure: fundamental deviations from the agreed-upon
procedure
Examples: the parties agreed to use the rules of one institution but the
arbitration is conducted under the rules of another, or even where the
parties have agreed that no institutional rules would apply.

27

Ground 5: Award not binding, set aside, or suspended
Award is not yet binding on the parties:
What does binding mean? Courts differ. Some courts consider that
this moment is to be determined under the law of the country where the
award was made. Other courts hold that an award is binding when
ordinary means of recourse are no longer available against them.
Award has been set aside or suspended:
the country in which the award was made: the place of arbitration
Under the law of which the award was made: the applicable
arbitration law.
The effect of an annulled Award on its enforcement varies from
country to country

28

Ground 6: not arbitrable (i.e., where the dispute involves a subject
matter reserved for the courts)
Whether a subject matter of an arbitration is non-arbitrable is a
question to be determined under the law of the country where the
application for recognition and enforcement is being made
Ground to be raised by the court. However, typically raised by the party
resisting recognition /enforcement when believed to be relevant
Non-arbitrable matters: divorce, custody, property settlements, wills,
bankruptcy, winding up of companies
oBG Group v. Argentina (D.C. Cir, 2002)

29

Ground 7: contrary to public policy
No definition of public policy: depends on enforcing State
Pro-arbitration countries: narrow interpretation of public policy, thus
courts rarely refuse enforcement on this ground
Non-friendly arbitration countries: broader interpretation, thus courts
more frequently refuse enforcement on public policy grounds
Distinction: domestic v. international public policy
International public policy: (i) fundamental principles pertaining to
justice or morality; (ii) rules designed to serve the essential political,
social or economic interests of the State (public policy rules or lois de
police); (iii) the duty of the State to respect its obligations towards other
States or international organizations (ILA Recommendations)

30

Under Ethiopian Law: Art. 461 CPC
Reciprocity
Regular arbitration agreement
Parties had equal rights in appointing arbitrators
Arbitration tribunal was regularly constituted
Arbitrability of subject matter
Enforceability of award
Award not contrary to public order or morals

May 25, 2013

Grounds for refusal under Ethiopian Law
The issue of
RECIPROCITY (Art. 458(a) CPC)
How is reciprocity established in court?
Treaty of Judicial assistance
Paulos Papassinous case
Goh-Tsibah Menkreselassie vs Dr. Bereket Habetselassie
ARBITRABILITY
What is arbitrable under Ethiopian law? CC 3326(2)
Water Resource Ministry v. Siyoum & Ambaye General
Contractors

31
32
IV. Pros & Cons of Ethiopia Ratifying the NYC

a. Pros
Improving the Business Environment
Non-Contracting States are at a competitive disadvantage: a foreign investor
may decide not to invest in a non-NYC country, or if it does, it will negotiate
contractual terms to compensate for the increased risk, i.e., less advantageous
for its contracting party.
Prior to Ratification, Brazil was seen as the black sheep of Latin America in its
approach to arbitration and foreign investors voiced concern about lack of
protection for their investments. Leonardo Daldegan Lima, The Enforcement of Foreign Arbitral Awards
in Brazil before and after the Ratification of the New York Convention, Section A.2., Young ICCA Blog 2013 (quoting Nigel
Blackaby, Arbitration and Brazil: A Foreign Perspective, Arbitration International, vol. 17, n. 2 (London: LCIA, 2001)).
Ratification is estimated to benefit the economy of Tajikistan by $155 million
per year. USAID Analysis of the Effect of Tajikistans Future Ratification of the New York Convention, 11, 2007.
Welcoming large-scale investments

33

a. Pros (contd)
Complementing the National Courts
Promotion of International Arbitration is conducive to an improved
administration of justice in that it eases courts caseloads and enables them to
better address non-commercial disputes
Integration in the Global Legal Community
Legal Practitioners in non-Contracting States are less likely to be nominated as
arbitrators and the parties choice of seat is less likely to be in a non-Contracting
State
In 1997, while less than 60% of parties to ICC arbitrations were from Western
Europe/North America, more than 85% of arbitrators nominated were domiciled
in Western Europe/North America
In nearly 90% of the above cases, the seat of the arbitration was also in
Western Europe/North America. Enforcing Arbitration Awards under the New York Convention, 9, 19
Paper from New York Convention Day, 1998.

34

b. Cons
No additional benefit to ratification?
Investors, Counsel, and Arbitrators from Contracting States are hesitant to
transact with Non-Contracting States and related entities/individuals, due to
higher risk of being subject to idiosyncratic national courts at the
recognition/enforcement stage
Ethiopia may benefit from a number of small-scale foreign investments, but
large-scale investments depend on an efficient and reliable International
Arbitration mechanism
Potential Conflicts between New York Convention and Domestic Law?
Ethiopia codified domestic arbitration law in the Civil Code of 1965 and the
Civil Code of Procedure of 1965; the New York Convention does not conflict,
but rather encourages the clarification and further development of domestic
law

35

c. Case Studies
UAE: the Road ahead after the Accession to the NYC
Member since 2006: Why?
Initial Applications:
International Bechtel v. Department of Civil Aviation of the
Government of Dubai, Dubai Court of Cassation, petition No.
503/2003, judgment dated 15 May 2005 Annulment; ED: WASNT
IT A SET ASIDE, NOT NYC, DECISION?
Pros-Cons: UAE- US/France.
Latest Applications:
Fujairah Federal Court of First Instance No. 35/2010: court
recognized and ratified foreign arbitral awards issued in London.
Dubai Appeal Court in Civil Case No. 531/2011: court recognized
and enforced an award issued in Singapore.
Maxtel International FZE v. Airmec Dubai LLC (Court of First
Instance Commercial Action No. 268/2010, dated 12 January 2011)

36

Final Thoughts
This landmark instrument has many virtues. It has nourished respect for binding
commitmentsIt has inspired confidence in the rule of law. And it has helped ensure
fair treatment when disputes arise over contractual
rights and obligations.
. . . Still, a number of States are yet to become parties
to the Convention. As a result, entities investing or
doing business in those States lack legal certainty
afforded by the Convention, and businesses cannot be confident that commercial
obligations can be enforced. This increases the level of risk, meaning that additional
security may be required, that negotiations are likely to be more complex and protracted,
and that transaction costs will rise.
Such risks can adversely affect international trade. Kofi Annan, Secretary General of the UN, 1998.

Contact Information
Solomon Ebere
Schellenberg Wittmer
15 bis, rue des Alpes
P.O. Box 2088
1211 Geneva 1, Switzerland
Tel: +41227078000
Solomon.Ebere@swlegal.ch

Maria L. Rubert
Cramer-Salamian LLP
PO Box 186549
Dubai, United Arab Emirates
Tel: +971 4 227 74 27
Email:rubert@cramer-salamian.com
Leyou Tameru
Legal consultant
Tel: +251911737251
Leyou.tameru@gmail.com

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May 25, 2013

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