Reaping the Awards – Avoiding the Pitfalls of Enforcing Arbitral Awards

By Charlyn Cruz

As with litigation, a successful arbitral award is a hollow victory if the responding party refuses to honour it, and enforcement proceedings are necessary. Given the international nature of arbitration, a number of things could go wrong at this stage and put a downer on a successful award. There are matters that ought to be considered strategically at the outset at contract stage and beyond to be ready to deal with a reluctant party after the award. It is therefore crucial to take certain steps at various stages to ensure you cross the finish line and reap those awards.

Before we go into our top tips, it is important to understand and be aware of the conventions by which enforcement is governed. We will only tangentially touch upon these in this blog. The most significant and widely recognised regime is the New York Convention. Signatories to this Convention (of which there are 160 countries) agree to recognise and enforce awards in other seats where the award is being sought. Therefore, obtaining an award in Singapore and then seeking to enforce it in England is much more straightforward (although still not always the complete answer).

However, despite its broad application, a handful of countries are not signatories to the New York Convention. Other regimes and conventions may apply, such as the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 and International Centre for Settlement of Investment Disputes Convention 1966. Whilst not impossible to enforce, different conditions apply to these regimes so it is crucial to know how these lesser-used rules will affect your ability to enforce.

With the foundations out of the way, what is the best way to maximise chances of enforcing the award?

  1. When entering into the arbitration agreement, agree with your counterparty to have the seat be a signatory of the New York Convention. Think about this in the context of where the award may need to be enforced, or supportive Court action may be needed (as you will also want that jurisdiction to be subject to same convention). This will make enforcement much more straightforward. If you decide to go with a seat that is not a signatory to this convention, ensure you understand how the rules of that regime will affect your ability to enforce should you need to arbitrate. It may also be worth having a discussion with your counterparty as to why they prefer or insist upon a specific seat.
  2. Check that you are taking action against the correct entity. You cannot enforce against third parties. This includes close affiliates and parent companies. Consideration should be given as to whether separate proceedings are required against other affiliates, or if an agreement can be reached to join other parties to an arbitration to avoid multiple referrals to arbitration.
  3. Ensure that you adhere to all procedural formalities (including proper service) throughout the arbitration process. If proper notice is not given (especially in a foreign context), this could be grounds for resisting enforcement. Be mindful to not allow opportunities for complaints of unfairness or bias to be raised.
  4. Consider issues of public policy. This is crucial to consider as it is the most common ground for refusal of enforcement. The definition of public policy is construed quite narrowly in England and Wales, but public policy can be a headache in foreign jurisdictions. It is therefore recommended to consult with local counsel if matters of public policy may affect your ability to enforce.
  5. Take into account the location of the other side’s assets – if they are in a territory that is not a signatory to the NY Convention, enforcement will be much more difficult.
  6. Verify the financial health of the counterparty. If they are insolvent (or close to it), you may be ranked as an unsecure creditor and enforcing the award may be a pointless exercise. The solvency of your counterparty should factor into your decision to arbitrate in the first place as well as all throughout the proceedings.
  7. Consider freezing injunctions if you are concerned the assets will be dissipated. In England and Wales, they are available pre- and post-award in support of enforcement, but you may wish to enquire with local counsel as to whether these measures are available in the relevant jurisdiction.

Even when arbitration is coming to an end and you are at the proverbial finish line, you should bear various considerations in mind throughout the proceedings. This will maximise your chances for enforcement. Otherwise, failure to so may result in the award not being worth the paper it is written on.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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