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International Law
Reference:

Legal Regulation of Cross-Border Movement of Arbitral Awards

Kurochkina Ekaterina Mikhailovna

ORCID: 0000-0003-2641-3818

PhD student, Chair of International Law, St. Petersburg State University

199034, Russia, Saint Petersburg, Universitetskaya Nab., 7-9

kurochkina.e.m@yandex.ru
Other publications by this author
 

 

DOI:

10.25136/2644-5514.2022.4.39337

EDN:

QXBUHE

Received:

07-12-2022


Published:

30-12-2022


Abstract: Enforcement of arbitral awards in foreign countries is carried out on the basis of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (the 1958 New York Convention). Provisions of the New-York Convention of 1958 are rather laconic and some of them cause difficulties in enforcement. Such a provision is subparagraph (e) of Article 1 of the 1958 New York Convention. «е» of paragraph 1 of article V, which provides for the possibility to execute an arbitral award annulled at the place where it was rendered. Similar norms are provided for in the Russian legislation. Using general scientific methods of knowledge (analysis and synthesis, induction and deduction, generalization) and special scientific methods (formal-logical, formal-legal and method of legal forecasting) the analysis of execution of annulled arbitral awards in foreign countries was carried out. Scientific novelty of the present research consists in substantiation of the fact that the arbitral award and the acts adopted in respect of this award form a single totality, each element of which should be taken into account in the enforcement of the arbitral award. It is found that the enforcement of the annulled arbitral awards is contrary to the purpose of the 1958 New York Convention and the logic of its provisions. The enforcement of such decisions also violates the rights and interests of the parties to the arbitral proceedings. It is proposed to amend the current legal regulation and to provide for a clear provision prescribing the refusal to recognize and enforce a foreign arbitral award that has been set aside by a State court in the place where it was made.


Keywords:

international commercial arbitration, arbitral award, annulment of arbitral award, enforcement of arbitral award, international treaty, interpretation, legal effect, protection of rights, parties to cross-border relationships, legal regulation

This article is automatically translated. You can find original text of the article here.

Participants in cross–border relations often choose international commercial arbitration (hereinafter referred to as ICA) to protect their rights and interests. The protection of rights in arbitration also includes the ability to enforce an arbitration award. The affiliation of the participants in the arbitration process to different legal systems quite obviously creates difficulties with the recognition and enforcement of the decision. To do this, international legal and national regulation should be aimed at the unhindered cross-border movement of arbitration awards.

The legal regime for the recognition and enforcement of arbitral awards in foreign countries is created, first of all, by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (hereinafter – the New York Convention of 1958) [1]. The 1958 New York Convention is one of the most successful international legal instruments in the field of private international law, it has been applied for more than half a century. Its main purpose is to ensure the enforcement of foreign arbitral awards in the legal systems of the participating States in the same way as their domestic decisions. This international agreement essentially provides an opportunity for foreign persons to obtain and execute the desired arbitration award.

The 1958 New York Convention regulates the mechanism of recognition and enforcement of arbitral awards in foreign countries. However, its provisions do not contain a clear settlement of some issues. For example, such issues include the recognition and enforcement of arbitral awards annulled at the place of their issuance.

Recognition and enforcement of cancelled arbitral awards in a foreign State is carried out on the basis of subclause "e" of clause 1 of art. V of the 1958 New York Convention The said provision establishes that the enforcement of an arbitration award may be refused if it "has been canceled or suspended by the competent authority of the country where it was made or the country whose law is applied."

The phrase "may be" used in the 1958 New York Convention to refuse recognition and enforcement of an annulled arbitral award leads to an arbitrary interpretation of this provision. So, Swedish Professor Ya. Paulsson believes that this norm has a conditional character (since the word "can" implies the opposite option – "can't") [12]. In turn, the German specialist K. Sachs is of the opinion that the phrase "may be refused" actually means "must be refused" [13].

In the judicial practice of States, there is also no unified approach to the interpretation and application of subclause "e" of paragraph 1 of art. V of the 1958 New York Convention In some cases, State courts have refused to recognize and enforce an arbitration award annulled at the place of its issuance. Thus, in the case of TermoRio S.A. E.S.P. v. Electranta S. P., the American court refused to recognize and enforce the arbitration award annulled by the Colombian court, with reference to sub-clause "e" of paragraph 1 of art. V of the 1958 New York Convention [8]. In the case of Pemex v Commisa, the Luxembourg court also refused to enforce the annulled arbitration award [10].

There are also known opposite cases when State courts recognized and enforced foreign arbitral awards that were annulled at the place of their issuance. The US State Court has enforced the arbitration award in the case of Chromalloy Aeroservices v. Arab Republic of Egypt, despite its cancellation. At the same time , the State Court referred to the discretionary provisions of art . V of the New York Convention of 1958, allowing both to refuse to execute cancelled arbitral awards and to execute similar decisions [7]. A similar decision was made in Yukos Capital SARL v. OJSC Rosneft Oil Co. The arbitration award annulled by the Russian court was submitted for execution in the Netherlands. The State Court recognized and enforced this decision [9].

Such a situation violates the principle of legal certainty and adversely affects the free cross-border movement of arbitral awards.

In addition, the execution of cancelled arbitral awards by itself leads to the following negative consequences. One of the consequences of the cancellation of the arbitral award is the possibility to re-apply to arbitration [14, p. 809]. The arbitration will have to re-examine the dispute and make a new decision on the case, and this decision may be the opposite. At this point, the original award may be enforced in one or more States. The party in whose favor the second arbitration award was made will certainly want to recognize it and enforce it. Thus, when executing the second arbitral award on the same dispute (between the same parties, on the same subject and on the same grounds), two directly opposite arbitral awards will be valid.

 This happened in the case of Soci?t? OTV v. Soci?t? Hilmarton. In the dispute between Soci?t? OTV v. Soci?t? Hilmarton, the Arbitration Institute of the Swiss Chambers (Swiss Chambers Arbitration Institution, SCAI) made an arbitration decision. It was later overturned by the Swiss State Court. However, the annulled award was submitted for execution in France. The French court recognized and enforced this decision [5]. Meanwhile, the parties again decided to resolve the dispute and appealed to arbitration. As a result, the arbitration court adopted a new arbitration decision, but in favor of the opposite party. The second arbitration award was recognized and enforced in the UK [6]. Thus, there was a situation in which in one State there was an arbitration award made in favor of one party, in another – an arbitration award made in favor of the opposite party. This situation leads to the fact that the legitimate rights and interests of one of the participants in the arbitration proceedings are not guaranteed equally in all States. The initial award, enforced, will violate the rights of the party in whose favor the second award was made.

At the same time, the arbitration award should have the same legal consequences for the parties as the court decision, since the ICA is called an alternative way of resolving the dispute (the state court does not have the right to consider the dispute and make a decision on the case if the parties have concluded an arbitration agreement), and the arbitration award is a complete substitute for the court decision. In this regard, the arbitration award should entail for the parties the same protection of their rights as the court decision guarantees.

Moreover, the execution of the cancelled award violates the legal logic of recognition and enforcement of arbitral awards, which follows from the meaning of the 1958 New York Convention. We dare to assume that the ICA decision and the acts adopted in relation to this decision form the following structure:

– arbitration clause,

– ICA decision,

– the decision of the state court on the cancellation of the arbitration award or the decision of the state court on the refusal to cancel the arbitration award (if any); taking into account the decisions of higher state courts (if any),

– a decision on recognition and enforcement of an arbitration award or a decision on refusal to recognize and enforce an arbitration award; taking into account decisions of higher state courts (if any),

– a decision on recognition and enforcement of a foreign arbitral award or a decision on refusal to recognize and enforce a foreign arbitral award; taking into account the decisions of higher state courts (if any).

The intent of the 1958 New York Convention assumes that all elements of the above structure should be recognized in aggregate and taken into account by the State court when considering an application for the enforcement of an arbitration award. Meanwhile, the enforcement of the annulled decision actually means that the decision of the state court to annul the arbitration award is simply ignored.

It seems that in the process of drafting and adopting the 1958 New York Convention, no significant importance was attached to the text of the rule providing for the refusal to recognize and enforce an arbitral award. The refusal to execute an arbitration award annulled by a State court at the place of its issuance was quite obvious, and therefore was not specifically stipulated. However, the practice of State courts has shown the possibility of a different interpretation of subclause "e" of clause 1 of art. V of the 1958 New York Convention

Unfortunately, contradictory rulings regarding the refusal to recognize and enforce an arbitration award have been introduced into Russian legislation.

Firstly, in the national legal provisions (Part 1 of Article 417 of the Civil Procedure Code of the Russian Federation [2], paragraphs 1, 3 of Article 36 of the Law of the Russian Federation "On International Commercial Arbitration" dated 07.07.1993 No. 5338-1 (hereinafter referred to as the 1993 Law) [4] it is established that in recognition and enforcement of the cancelled arbitration award "it may be "refused, i.e. the discretion of the state court is allowed in the execution of an arbitration award annulled at the place of its issuance.

Secondly, Part 3 of Article 244 of the APC of the Russian Federation [3] provides grounds for refusal to recognize and enforce a foreign arbitration award. The grounds for refusal are not listed in this article, but it contains a reference to the norm of the 1993 Law, which does not refer to the refusal to execute the ICA decision, but to the refusal to issue a writ of execution for the enforcement of the arbitration decision. The grounds for refusing to issue a writ of execution (paragraph 3 of Article 36 of the 1993 Law of the Russian Federation) only partially coincide with the grounds for refusing to execute a foreign arbitration award (paragraph 1 of paragraph 1 of Article 36 of the 1993 Law of the Russian Federation). In this case, it seems that we are talking about an inaccuracy made by the legislator, as a result which mixes the grounds for refusal to execute an arbitration award and the grounds for refusal to issue a writ of execution.

In this regard, it is proposed to make the following changes to Russian legislation:

– Part 3 of Article 244 of the APC of the Russian Federation should be worded as follows: "The arbitration court refuses to recognize and enforce a foreign arbitration award in whole or in part on the grounds provided for by the law on international Commercial arbitration for refusing to recognize or enforce an international commercial arbitration award, unless otherwise provided by an international agreement of the Russian Federation";

– in Part 1 of Article 417 of the Civil Procedure Code of the Russian Federation, the words "may be refused" should be replaced with the words "must be refused";

– in paragraph 1 of Article 36 of the Law of the Russian Federation of 1993, the words "may be refused" should be replaced with the words "must be refused";

– in paragraph 3 of Article 36 of the Law of the Russian Federation of 1993, the words "may be refused" should be replaced with the words "must be refused".

The introduction of such amendments to Russian legislation will contribute to the observance of the legitimate rights and interests of the parties to cross-border disputes on the territory of the Russian Federation. However, the settlement of the issue of cancelled arbitral awards may take a long time. As a temporary way to prevent a possible violation of the rights of one of the parties to the arbitration agreement, it is proposed that the parties themselves establish in the contract a ban on the execution of the canceled arbitration award. This provision can be formulated as follows: "The decision of an international commercial arbitration, annulled by a State court at the place of its issuance, must not be enforced either in the State where it was issued, or in any foreign State in which its enforcement will be sought."

 Clarification of the status of cancelled arbitral awards should also be carried out at the international legal level. Experts in the field of arbitration of disputes have repeatedly expressed ideas about reforming the New York Convention of 1958 [11]. It seems that it will be quite difficult to change the legal regime for the recognition and enforcement of arbitral awards established by the 1958 New York Convention, since the 1958 New York Convention is a successfully operating international treaty. However, taking into account that the enforcement of cancelled arbitral awards complicates the cross-border movement of arbitral awards and, as a consequence, leads to violation of the rights of participants in arbitration proceedings, we believe that an adjustment in the international legal regulation of the status of cancelled arbitral awards is still necessary.  

 

References
1. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, June 10, 1958) [Electronic resource].-URL: https://www.uncitral.org/pdf/russian/texts/arbitration/NY-conv/New-York-Convention-R.pdf (accessed: 11.10.2022).
2. Civil Procedure Code of the Russian Federation of November 04, 2002, No 138-FZ (ed. of July 26, 2019, No 213-FZ) // Sobranie zakonodatelstva RF. November 18, 2002. no 46. Art. 4532.
3. Arbitration Procedural Code of the Russian Federation of July 24, 2002 No 95-FZ (in the edition of December 25, 2018 No 485-FZ) // Sobranie zakonodatel'stva RF. July 29, 2002, No 30. Art 3012.
4. Law of the Russian Federation "On International Commercial Arbitration" of July 07, 1993, No 5338-1 (ed. December 25, 2018) // Vedomosti SND and VS RF. August 12, 1993, No 32. Art. 1240.
5. Hilmarton Ltd. v. Omnium de traitement et de valorisation ‒ OTV, Cour de Cassation [Supreme Court], Not Indicated, 23 March 1994 // Yearbook Commercial Arbitration. 1995. Vol. 20. P. 663‒665.
6. Omnium de Traitement et de Valorisation v. Hillmarton Ltd. // Lloyd’s Law Reports. 1999. Vol. 2. P. 222–226.
7. Chromalloy Aeroservices Inc. v. The Arab Republic of Egypt, United States District Court, District of Columbia, Civil No. 942339 (JLG), 31 July 1996 // Yearbook Commercial Arbitration. 1997. Volume XXII. P. 1007–1012.
8. TermoRio S.A. E.S.P. (Colombia) v. Electranta S.P. (Colombia), United States, U.S. Court of Appeals, District of Columbia Circuit № 06-7058, 25 May 2007 [Electronic resource]. – URL: http://newyorkconvention1958.org/index.php?lvl=notice_display&id=652 (accessed: 11.10.2022).
9. Yukos Capital S.à r.L v. OJSC Oil Company Rosneft, United Kingdom, England and Wales, High Court № 2010 Folio: 315 & 316, 03 July 2014 [Electronic resource]. – URL: http://newyorkconvention1958.org/doc_num_data.php?explnum_id=2955 (accessed: 11.10.2022).
10. PEMEX – Exploracion y Produccion v. Corporacion Mexicana de Mantenimiento Integral, S. de R.L. de C.V., Court of Appeal of Luxembourg, Case No. 59/17, 27 April 2017 // Yearbook Commercial Arbitration. 2017. Volume XLII. P. 8.
11. Bédard, J. (2008). A New New York Convention? Interview with Albert Jan van den Berg / Mealeay’s Executive Summary: The New York Convention: 50 Years of Experience [Electronic resource]. – URL: https://www.hvdb.com/wp-content/uploads/2008-AJvdB-A-New-New-York-Convention.pdf (accessed: 11.10.2022).
12. Paulsson, J. (1998). Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment (LSA) // The ICC International Court of Arbitration Bulletin, 9 (1), 14–31.
13. Sachs K. The Enforcement of Awards Nullified in the Country of Origin: The German Perspective // Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention / Ed. by A.J. van den Berg. The Hague; Boston: Kluwer Law International, 552–556.
14. International Commercial Arbitration: textbook / Ed. Skvortsov O.Y., Savranskiy M.Y., Sevastyanov G.V. 2nd ed. revised and enlarged. St. Petersburg: Arbitration Court Journal Editorial Board (NPO); Moscow: Publishing House Statute, 2018. 965 с.

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The subject of the study. The reviewed article "Legal regulation of the cross-border movement of arbitral awards" is devoted to the problems of legal regulation of the execution of foreign arbitral awards and decisions of International Commercial Arbitration (ICA) in national legal systems, in particular, issues of recognition and enforcement of arbitral awards annulled at the place of their issuance. Research methodology. The methodological apparatus consists of modern dialectical techniques and methods of scientific cognition (abstraction, induction, deduction, hypothesis, analogy, synthesis), as well as traditional scientific methods (historical, theoretical-prognostic, formal-legal, systemic-structural legal modeling, as well as the use of typology, classification, systematization and generalization). The use of various scientific methods (techniques and methods) made it possible to study established approaches, views on the subject of research (articles), develop an author's position and argue it. It should be noted that the work used a combination of theoretical and empirical information. The relevance of research. The topic of the article is very relevant at the present stage, since indeed the problems of the movement (execution) of foreign arbitral awards and decisions of International Commercial Arbitration (ICA) are primarily due to the lack of a proper regulatory framework. Scientific novelty. Both Russian and foreign procedural scientists have addressed the issues of enforcement of foreign arbitral awards and decisions of International Commercial Arbitration (ICA) in their works. However, the author's chosen aspect of the study of this topic has elements of novelty. The author's conclusions deserve attention that "As a temporary way to prevent a possible violation of the rights of one of the parties to the arbitration agreement, it is proposed that the parties themselves establish in the contract a ban on the execution of the cancelled arbitral award. This provision can be formulated as follows: "An international commercial arbitration award annulled by a State court at the place of its issuance should not be enforced either in the State where it was rendered or in any foreign State in which its enforcement will be sought." And also, other results presented in the article are of scientific interest and may have practical significance. Style, structure, content. The article is written in a scientific style, using special legal terminology. The material is presented consistently, competently and clearly. Although the article does not divide it into parts, the article is logically structured (introduction, main part, conclusion). In the introduction, the author not only identified the problem, but also presented possible ways to solve it. In the substantive part of the article, the author supports his thoughts on the designated problem with the opinions of other scientists (although very little) and provides examples from law enforcement practice as an illustration of theoretical provisions. The content of the article reveals the topic. The title of the article corresponds to its content. Bibliography. The author did not use enough scientific sources. We believe that the study of other works on the topic of the article will be necessary. In addition, regulatory legal acts should be excluded from the bibliographic list. Appeal to opponents. There are references to other authors in the work, but not enough. Conclusions, the interest of the readership. In general, the article "Legal regulation of the cross-border movement of arbitral awards" meets the requirements for scientific articles, is relevant, practically significant and has elements of scientific novelty. As a comment, I would like to point out the need to study the works of other scientists and include references to them in the text of the article and in the bibliography list. The article "Legal regulation of the cross-border movement of arbitral awards" may be of scientific interest to legal readers, both scientists and practitioners.
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