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

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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

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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 1st opportunity for the losing party to resist payment: by challenging

the award 2nd 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

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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

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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

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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

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c. Grounds for challenge under general international practice (cont’d) 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 state’s 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

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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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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

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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 Tajikistan’s 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.

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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)

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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”) (cont’d) 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.

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

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e. Requirements to be fulfilled by petitioner 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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e. Requirements to be fulfilled by petitioner

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

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f. Grounds for refusal 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.

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f. Grounds for refusal 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 (cont’d) 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

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f. Grounds for refusal (cont’d) 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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f. Grounds for refusal (cont’d) 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 one’s 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

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f. Grounds for refusal (cont’d) 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.

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f. Grounds for refusal (cont’d) 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.

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f. Grounds for refusal (cont’d) 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

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f. Grounds for refusal (cont’d) 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)

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f. Grounds for refusal (cont’d) 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)

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f. Grounds for refusal

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

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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

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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 Tajikistan’s Future Ratification of the New York Convention, 11, 2007.

Welcoming large-scale investments

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a. Pros (cont’d) 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.

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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

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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: WASN’T 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)

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Final Thoughts “This landmark instrument has many virtues. It has nourished respect for binding

commitments…It 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 [email protected]

Maria L. Rubert Cramer-Salamian LLP PO Box 186549 Dubai, United Arab Emirates Tel: +971 4 227 74 27 Email:[email protected]

Leyou Tameru Legal consultant Tel: +251911737251 [email protected]

session 3 -- challenge & recognition and enforcement

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