Edited by Jürgen Basedow, Giesela Rühl, Franco Ferrari and Pedro de Miguel Asensio
Chapter A.16: Arbitration, recognition of awards
Achieving quick, easy and broad satisfaction of the awarded claim is presumably the ‘overarching goal’ of parties entering into an arbitration agreement (→Arbitration, international commercial). By obtaining an award, the parties may arrive at a binding decision on a dispute. However, this does not necessarily mean that the decision is voluntarily complied with. The unsuccessful party may challenge the award by attacking it at its source, in the hope of having it modified or set aside in whole or in part, or it may simply not comply with the award, ie ignore its effects. Statistics may suggest that the majority of arbitral awards are satisfied through the voluntary compliance of the participating parties. However, given that it is hardly possible to keep track of arbitral awards obtained outside institutional arbitration and that arbitration institutions do not necessarily keep records of arbitral awards after the proceedings are over, these statistics appear to be of very limited reliability (Nigel Blackaby and others, Redfern and Hunter on International Arbitration (5th edn, OUP 2009) 622 para 11.02). What is certain is that there are cases in which arbitral awards are not voluntarily complied with, may these be the exception or not. In such a scenario the party which wants to rely on the arbitrator’s decision must invoke external authority in order to confirm that the award has resolved the dispute as a matter of res iudicata or enforce a payment or performance adjudicated in an award of →damages. Such external authority to recognize and enforce an arbitral award in the case p. 118of a commercial arbitration award resides in the national courts. As will be shown below, to the extent national courts follow their own conviction as to aligning the maintenance of arbitration as an independent private dispute resolution mechanism with the coexisting need of ensuring its legitimacy, a fully harmonized approach as to recognition of arbitral awards is not yet available and likely not feasible.
1. Interplay of recognition and enforcement
Recognition is concerned with giving effect to an arbitral award. However, the mere recognition of an award on its own is solely a defensive measure, typically invoked in order to prevent an attempt to bring new proceedings raising the same issues as those dealt with in the award. In such a scenario, the prevailing party can be entitled to object that the dispute has already been determined and request the court to identify the award as valid and binding upon the parties. By contrast, enforcement is an offensive action which goes a step further than recognition, since it does not merely provide for recognition of the legal force and effect of the award, but also ensures its performance. This is commonly illustrated by referring to recognition as a ‘shield’ and enforcement as a ‘sword’ (Nigel Blackaby and others, Redfern and Hunter on International Arbitration (5th edn, OUP 2009) 624 para 11.24). A court which is prepared to grant enforcement of an arbitral award will do so because it recognizes the award as valid and binding upon the parties. Accordingly, the concepts of recognition and enforcement interact as mutual parts, recognition being a necessary precondition to enforcement.
It has been remarked that the United Nations New York Convention (New York Convention of 10 June 1958 on the recognition and enforcement of foreign arbitral awards, 330 UNTS 3) lacks precision by speaking of ‘recognition and enforcement’ instead of ‘recognition or enforcement’ of awards, since the terms are not always inextricably linked (Nigel Blackaby and others, Redfern and Hunter on International Arbitration (5th edn, OUP 2009) 620 para 11.20). While it is true that an award may be recognized without being enforced, it is also correct that only recognition and enforcement together provide the full range of weapons to achieve satisfaction through the award. Thus, it is fair to say that the question of whether a court will recognize an award obtains its full significance in the context of enforcement proceedings since the ultimate sanction for non-compliance with an award is enforcement by proceedings in the national courts.
The foregoing is accentuated by the fact that certain national legal systems provide for specific procedures for the enforcement of arbitral awards, while not providing for ‘stand-alone’ recognition proceedings. In →Germany, for example, specific procedures are required for enforcement only of arbitral awards to be approved by a national court (so-called exequatur proceedings). This judicial confirmation also implies that the award is nationally recognized as binding and therefore automatically has the authority of res iudicata in subsequent proceedings. However, since there are no dedicated procedures to confirm the recognition of an arbitral award directly, without an exequatur procedure the binding effects of the award can be challenged whenever it may become relevant, this being an obvious source for legal uncertainty. In order to establish legal certainty, national courts in Germany apply the rules of exequatur proceedings even in unenforceable matters. As a result, the specific procedure for the enforcement of arbitral awards may also be utilized for the recognition alone of the arbitral award. At the same time, this means that even if no enforcement is sought, exequatur proceedings are necessary in order to bring about a binding decision regarding the recognition of the award, thus firmly intertwining both aspects of law.
While the reason for the absence of ‘stand-alone’ recognition proceedings may well be that in practice many arbitral awards will include an enforceable decision and thus will already be subject to an exequatur procedure, compliance with an enforceable award must not naturally be achieved through enforcement of the award itself. It is also possible that a party seeks only recognition of an enforceable award in a country where the award debtor does not have any assets. Such a recognition action may be brought with the view to obtain a judgment from the competent court confirming the validity of the award and then having this judgment instead of the award be enforced in a country where the party has assets. This option available under the general accepted ‘parallel entitlement’ rule may be advantageous in cases where different national courts would approach particular issues relating to non-recognition in different ways (Gary B Born, International p. 119Commercial Arbitration, vol 3 (2nd edn, Wolters Kluwer 2014) 2911 ff) and where rules governing the enforcement of judgments may be more beneficial than those governing the enforcement of arbitral awards. However, in a scenario where a recognition action is brought in a country where no assets of the unsuccessful party are located, it is well conceivable that no nexus exists between the forum in which the court which is asked to recognize the award sits and the parties over whom that court would exercise compulsory authority (→Jurisdiction, foundations). Should parties seeking to confirm foreign arbitral awards through recognition be required to establish a basis of personal jurisdiction? National courts from different jurisdictions have answered this question differently. While French courts (→France) have considered applications to recognize an award irrespective of the presence of assets in France and the prospects of an eventual execution of the award (Tomskneft v Société Yukos Capital, cour d’appel de Paris, 1e ch., 15 January 2013), courts in the United States (→USA) (see James E Berger and Charlene Sun, ‘Personal Jurisdiction and the New York Convention’ (2012) 28 Int’l Litg. no 2; most recently US Court of Appeals, 2nd Circuit, 25 April 2014, Sonera Holding BV v Cukurova Holdings AS, 12-428-cv(L)) and Germany (Kammergericht Berlin, 10 August 2006, 20 Sch 07/04,  Schieds VZ 108) have refused to do so. The latter is criticized under the consideration that a party’s consent to arbitrate a dispute under the scope of the New York Convention constitutes general consent to jurisdiction of any contracting state of the New York Convention for recognition purposes (James E Berger and Charlene Sun, ‘Personal Jurisdiction and the New York Convention’ (2012) 28 Int’l Litg. no 2). What at least is settled is that the presence of assets in the country where recognition is sought establishes a basis for personal jurisdiction asked for by certain national courts. Assuming that the presence of assets is necessary to provide a solid basis for jurisdiction, again recognition and enforcement appear to go hand in hand.
2. Need for standardized recognition and enforcement procedure to ensure effectiveness of international commercial arbitration
One of the most important potential advantages of arbitration as compared with litigation is that the prevailing party in an arbitration can with a high degree of certainty enforce the award in most countries of the world. The New York Convention – as one of the most successful international treaties with nearly 150 ratifying states – provides for this certainty by establishing a common international legal framework of grounds for recognition and enforcement of foreign arbitral awards. Such a unified standard does not exist in the field of court judgments, making the recognition of a foreign court judgment an uncertain and often lengthy procedure depending on the jurisdiction.
Without the widely recognized standards set forth in the New York Convention, commercial arbitration would likely have been less successful on an international level as a means of dispute resolution. The less harmonized and contested recognition conditions are across borders, the less inclined participants in international business will be to resort to arbitration. Since state court proceedings are not always suitable in international commerce, international merchants would often be left without effective legal protection absent the vehicle of international arbitration. A uniform set of international legal standards may be the best remedy to that situation.
The New York Convention is complemented by the UNCITRAL Arbitration Model Law (United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration as adopted on 21 June 1985, and as amended on 7 July 2006, UN Doc A/40/17 and A/61/17; →Arbitration, (UNCITRAL) Model Law), which largely adopted the Convention’s provisions and which has been implemented in many jurisdictions. The UNCITRAL Arbitration Model Law also led various countries to revise their national arbitration laws and to adapt them to modern business needs. As discussed below, the grounds which may be relied upon in an action to set aside an award are not limited by the grounds for non-recognition and enforcement imposed by the New York Convention, but can include any basis available under domestic law for annulling awards. Nonetheless, under the UNCITRAL Arbitration Model Law and under many national arbitration regimes which adopted similar approaches, the grounds for annulment of a foreign arbitral award are limited to bases paralleling those to non-recognition under the New York Convention. As a result, parties to an arbitration can be confident to receive an award which – if there are no recognition and enforceability obstacles under the p. 120New York Convention – can be executed fairly readily in most countries.
II. Grounds for refusing recognition and enforcement
1. The historical requirements for recognition and enforcement
The New York Convention was preceded by the 1923 Geneva Protocol on Arbitration Clauses (Protocol on Arbitration Clauses of 24 September 1923, 27 LNTS 157) and the League of Nations (Geneva) Convention on the Execution of Foreign Arbitral Awards, 1927 (Geneva Convention of 26 September 1927 on the Execution of Foreign Arbitral Awards, 92 LNTS 301 (also available at <http://interarb.com/vl/g_co1927>)), both of which aimed at creating a legal system governing international arbitration and were established under the auspices of the League of Nations on the initiative of the International Chamber of Commerce (ICC).
Thus the 1923 Geneva Protocol on Arbitration Clauses already provided for the enforcement of arbitral awards in the territory of the states in which they were made. However, it did not refer to foreign awards and did not establish a legal framework for enforcement, instead leaving it to the contracting states to adopt appropriate laws. Not all of these states enacted such implementing provisions, however, and if they did, they varied significantly.
Thus, the League of Nations (Geneva) Convention on the Execution of Foreign Arbitral Awards, 1927 was conceived with the objective to foster recognition and enforcement of awards made in other contracting states, and thereby was the first international treaty referring to foreign arbitral awards. Its primary aim was to revise the territorial restrictions of the 1923 Geneva Protocol on Arbitration Clauses and enable enforcement in all states affiliated with the Convention. Pursuant to the League of Nations (Geneva) Convention on the Execution of Foreign Arbitral Awards, 1927, the party seeking recognition and enforcement is obliged to prove finality of the award in the state where the award was made. This is perceived as leave for enforcement to be granted by the forum state as an additional requirement before obtaining permission of the court of the country where enforcement is sought. This procedure which became known as double-exequatur proved to be burdensome for parties seeking enforcement, and was considered a major shortcoming of the League of Nations (Geneva) Convention on the Execution of Foreign Arbitral Awards, 1927 (Christoph Liebscher, ‘Prelims para 46’ in Reinmar Wolff (ed), New York Convention (CH Beck 2012)). Despite the limited range of the Protocol and the Convention, they proved to be central in the establishment of international arbitration, particularly with respect to recognition and enforcement, which previously had been available only after protracted proceedings in national courts under applicable domestic laws.
2. The modern approach: achievements of the New York Convention
The New York Convention advances the 1923 Geneva Protocol’s and the League of Nations (Geneva) Convention’s treatment of international arbitral awards in significant respects, thereby considerably enhancing the legal framework of international commercial arbitration.
Perhaps the most important effect of the New York Convention is the elimination of the double-exequatur requirement of the 1923 Geneva Protocol and League of Nations (Geneva) Convention, which effectively necessitated the confirmation of an award at the arbitral seat (the first exequatur) before it could be recognized abroad (the second exequatur). This is achieved by requiring awards merely to be ‘binding’ in the country of origin, and not ‘final’ as under the League of Nations (Geneva) Convention. Accordingly, no leave for enforcement in the country of origin is required under the New York Convention.
While the New York Convention clearly governs the ‘direct’ enforcement of foreign arbitral awards, this is not as apparent with respect to ‘indirect’ enforcement of foreign arbitral awards by means of recognition of a foreign enforcement judgment. As a consequence, for example, despite ratification of the New York Convention by Germany, German law long retained a certain form of double-exequatur via application of the so-called ‘doctrine of merger’. Under this doctrine, a foreign enforcement judgment merges an award into a state court judgment, which then, in a second step, could be enforced pursuant to the German law rules governing enforcement of judgments, which significantly deviate from the New York Convention (German Federal Court of Justice (BGH), 27 March 1984, IX ZR 24/83,  NJW 2765 ff). However, in a relatively recent decision, the German Federal Court of Justice wisely put an end to such practice, considering p. 121that the recognition of a foreign enforcement judgment would undermine the application of the New York Convention, by disregarding the criteria for the recognition of foreign arbitral awards under art V and replacing them with German law rules governing enforcement of foreign judgments (German Federal Court of Justice (BGH), 2 July 2009, IX ZR 152/06,  Schieds VZ 285).
Article V(1) of the New York Convention, which relates to defects of the arbitration concerning the parties, and art V(2) of the New York Convention, which relates to grounds relevant to national interests that national courts may assert on their own motion, contain an exclusive list of exceptions to the general obligation to recognize awards. Additional provisions of the recognition and enforcement procedure itself are contained in arts III and IV of the New York Convention. While art III of the New York Convention imposes a general obligation on contracting states to recognize arbitral awards made in other countries, art IV of the New York Convention foresees simplification of the formal enforcement proceedings by providing a minimum standard of documentary proof by the party seeking recognition and enforcement. The party seeking enforcement needs only present the award and the arbitration agreement, without any affirmative showing by the award creditor as to the underlying legal validity of either the award or the arbitration agreement. Once these preconditions are fulfilled, they constitute prima facie evidence in favour of granting recognition and enforcement. Hence, the New York Convention does not oblige the party pursuing enforcement, but rather the opposing party, to prove any applicable grounds for refusal of enforcement. In addition, in case of conflicting provisions on recognition and enforcement, the ‘more favourable law’ clause of art VII(1) complements the pro-enforcement bias of the New York Convention by permitting application of those provisions most favourable to enforcement of the award.
As a result of the foregoing, the New York Convention has not undeservedly been praised as ‘the single most important pillar on which the edifice of international arbitration rests’ (J Gillis Wetter, ‘The Present Status of the International Court of Arbitration of the ICC: An Appraisal’ (1990) 1 Am.Rev.Int’l Arb. 91) and as a convention which ‘perhaps could lay claim being the most effective instance of international legislation in the entire history of commercial law’ (Michael Mustill, ‘Arbitration History and Background’ (1989) 6 J.Int’l Arb. 43). Therefore, the pivotal element of any discussion about recognition and enforcement of foreign arbitral awards must be the New York Convention. While there are other regional instruments such as the European Arbitration Convention (European Convention of 21 April 1961 on international commercial arbitration, 484 UNTS 349) or the Inter-American Arbitration Convention (Inter-American Convention of 30 January 1975 on International Commercial Arbitration, OAS, Treaty Series, No 42, 1438 UNTS 249), none has the importance and weight of the New York Convention.
It is well settled that by implementing the pro-enforcement regime described above, the New York Convention promotes reliability and certainty in international commercial arbitration. At the same time, its implementation and application inevitably face practical difficulties. These difficulties stem partly from the fact that while arbitral awards are made not by state courts vested with sovereign jurisdictional powers but by private arbitrators, whether or to what extent a party can rely on an award as res iudicata and/or as an enforceable title before state courts depends on the →lex fori of the court seized in an enforcement action. It has been correctly noted that ‘in an ideal world, the provisions of the New York Convention and of the Model Law would be interpreted in the same way by courts everywhere’ (Nigel Blackaby and others, Redfern and Hunter on International Arbitration (5th edn, OUP 2009) 642 para 11.65). The enactment of the New York Convention and the UNCITRAL Arbitration Model Law, combined with a better understanding of the importance of international commercial arbitration as an effective and independent means of dispute resolution, has significantly contributed to harmonizing the legal framework for the recognition of awards. Yet there is no absolute uniformity. Inadequacies and disparities between different jurisdictions in particular with respect to the role and standard of judicial review at the stage of recognition and enforcement remain, as far as states make use of their prerogative to apply their own laws and particularly →public policy (ordre public). Below, this will be illustrated by giving an overview p. 122of different interpretations by national courts of two particular grounds for refusal of recognition and enforcement under the New York Convention. These differences serve to shed light on the ultimate policy choices respecting the role and standard of judicial review in international commercial arbitration.
1. Recognition and enforcements of awards set aside abroad
Article V(1)(e) of the New York Convention allows the enforcing court to postpone or decline enforcement of an award which has been invalidated in its country of origin. It has been criticized as making awards too dependent on the law of the seat of arbitration and the vagaries of its own potential grounds for setting aside an award, since the grounds which may be relied upon in an annulment action can include any basis available under domestic law for annulling awards. While art V(1)(e) creates a presumption that annulled awards are not enforceable abroad, national courts of certain leading arbitral jurisdictions, notably →France and the United States, have shown themselves prepared to recognize and enforce awards vacated at its place of origin by relying on the permissive language of art V(1)(e) and on art VII of the New York Convention in connection with more favourable national laws. However, the importance accorded to the place of arbitration and therefore to the annulment decision of the supervisory court varies from one jurisdiction to another.
This follows from diverging concepts of the nature of international arbitration either as a dispute resolution mechanism, which is part of a national legal system, or as a coexisting autonomous process. According to the ‘delocalized approach’, arbitrators do not derive their powers from the state in which they have their seat but rather from the sum of all legal orders that recognize the validity of the arbitration agreement and the award. Under this view, the law of the place of the arbitration has no precedence over the law of the place of recognition and enforcement, and an international award is (by definition) not integrated into the legal order of the country of the seat simply by virtue of the geographic location of the seat. Hence, foreign awards set aside at the seat of the arbitration can still be enforced elsewhere.
The idea of delocalized awards is particularly supported by certain case-law and commentary in France. An annulment abroad is not relevant to French courts, purportedly ‘since an international arbitral award, not attached to any national legal system, is a decision of international justice, whose irregularities are reviewed on the basis of the applicable national rules of the country where recognition and enforcement are requested’ (Jan Kleinheisterkamp, ‘Recognition and Enforcement of Arbitral Awards’ in Jürgen Basedow and others (eds), The Max Planck Encyclopedia of European Private Law, vol 2 (OUP 2012) 1420, 1423). This assumes particular importance in the case of two competing awards, since recognition in France of an award set aside in the country where it was rendered is an obstacle to recognition of a subsequent award rendered following the annulment of the first award, on the grounds of violation of the principle of res iudicata. Critics remark that by giving preference to the original, set aside award over the second valid award, as exercised in the Hilmarton and Putrabali decisions (Cour de Cassation France, 23 March 1994, Hilmarton Ltd v Omnium de Traitement et de Valorisation (OTV) XX YBCA 663 (1995); Cour de Cassation France, 29 June 2007, PT Putrabali Adyamulia v Sté Rena Holding), French courts may encourage a type of ‘chase for exequatur’, whereby a party seeks to obtain the enforcement of a favourable award as soon as it realizes that the award is in danger of imminent annulment.
In contrast, certain US courts, which previously seemed to favour an approach comparable to the French one reflected by Hilmarton and Putrabali, in recent decisions have tended to take a ‘territorial approach’ by according substantial importance to the jurisdiction of the courts of the arbitral seat. The notable decision adopting a ‘delocalized approach’ (Chromalloy Aeroservices v Arab Republic of Egypt, 939 F.Supp. 907, 909 (DDC 1996)) has not been followed in subsequent US court decisions. In TermoRio (TermoRio SA ESP v Electranta SP, 487 F.3d 928 (DC Cir 2007)), a US court of second instance endorsed the interpretation that views international arbitration as rooted and entirely integrated in the legal system of the seat of arbitration. In TermoRio (TermoRio SA ESP v Electranta SP, 487 F.3d 928 (DC Cir 2007)), the court showed considerable deference to the decision by the courts of the country of origin when it held that the New York Convention ‘does not endorse a regime’ in which enforcement courts ‘routinely p. 123second-guess the judgment’ of the supervisory courts. However, it also noted that in certain circumstances an annulment decision could be ignored, for instance when it was ‘repugnant to fundamental notions of what is decent and just in the State where enforcement is sought’. Accordingly, this approach would appear to create a presumption of refusal of enforcement of an award which has been set aside by the courts of the seat, absent exceptional circumstances.
Certain courts have relied on art IX(1) of the European Arbitration Convention, which restricts the grounds for refusal of recognition and enforcement to those cases where annulment abroad was based on the grounds equivalent to those contained in art V(1)(a)–(d) of the New York Convention, and denied recognition and enforcement of annulled awards in other cases (German Federal Court of Justice (BGH), 21 May 2007, III ZB 14/07; Gerechtshof Amsterdam, 28 April 2009, AZ 200.005.269/01). Beyond the confined European Arbitration Convention regime, German courts, for example, have consistently recognized foreign annulment decisions as a bar to recognition and enforcement. Most recently, the Higher Regional Court of Munich held that a foreign judgment of a Ukrainian court (→Ukraine) annulling an arbitral award rendered in Ukraine must be recognized by German courts, subject to verification that the annulment was based on one of the grounds under art IX(1) of the European Arbitration Convention and that the judgment was issued by a foreign court competent in this respect (Higher Regional Court (OLG) of Munich, 2 July 2009, 34 Sch 18/10). This conforms with the view that recognition and enforcement of an annulled award is possible only if a treaty offers a legal basis for it (Albert Jan van den Berg, ‘Enforcement of Arbitral Awards Annulled in Russia, Case Comment of Court of Appeal of Amsterdam April 28, 2009’ (2010) 27 J.Int’l Arb. 1198). However, in its decision the Higher Regional Court of Munich also maintains that the public policy ground, which had constituted an additional ground for annulment by the Ukrainian court, also had the effect of violating German public policy, and that enforcement would be refused in Germany on that basis alone independent of the fact that it had been annulled at the place of origin. It is submitted that this contention is more reasonable than simply deferring to the foreign courts with respect to whether the foreign award may be recognized in Germany (Joachim Kuckenburg, ‘Germany: Refusal to Allow Enforcement of an Annulled Award – How Long Can it Go On? – A Fresh Look at Article V(1)(e) of the New York Convention’ (2012) b-Arbitra 182). With some justification, it has been concluded that untested deference to the foreign annulment decision would ‘run against the very sensible policy consideration’ of the 2009 decision of the German Federal Court referred to above, since it seems inconsistent to disallow a foreign exequatur decision as a matter of public international law (→Public international law and private international law) from serving as a prejudgment of German judges while an annulment decision may do so (Joachim Kuckenburg, ‘Germany: Refusal to Allow Enforcement of an Annulled Award – How Long Can it Go On? – A Fresh Look at Article V(1)(e) of the New York Convention’ (2012) b-Arbitra 182).
2. Standard of review with respect to public policy issues
Article V(2)(b) of the New York Convention and art 36 of the UNCITRAL Arbitration Model Law enshrine the public policy of the forum where enforcement is sought as grounds upon which arbitral awards may be refused enforcement by the courts. The court asked to recognize and enforce the foreign award has discretion to determine the nature of forum →public policy (ordre public) violation which warrants interference with the award. In the exercise of this discretion, there is a tension between respecting the finality of arbitral awards on the one hand, and policing the forum’s other public policy concerns on the other. The competent national courts are called on to balance the competing mandates of public policy and finality of arbitral awards.
Article V(2)(b) of the New York Convention might have functioned as a loophole and opened the floodgates to second-guessing of arbitral tribunals’ findings by national courts. This is because the scope of the meaning of public policy is by definition open-ended. As a general rule, public policy ‘gives expression to certain fundamental principles underpinning a civilization and its legal system’ (Christopher S Gibson, ‘Arbitration, Civilization and Public Policy: Seeking Counterpoise between Arbitral Autonomy and the Public Policy Defense in View of Foreign Mandatory Public Law’ (2009) 113 PSLR 1227, 1233). Therefore, at first p. 124glance, public policy ‘appears to open an exception broad enough to swallow the Convention itself’ (Catherine Rogers, ‘The Arrival of the “Have-Nots” in International Arbitration’ (2007) 8 Nev.L.J. 341, 370). This becomes even more crucial considering that the traditional restrictions on arbitrability on the subject matter have to a large extent been abandoned. In Mitsubishi the US Supreme Court in essence justified the arbitrability of competition law on the premise that courts retain the possibility to take a ‘second look’ at the award at the setting aside and enforcement stages, when it held that ‘[w]hile the efficacy of the arbitral process requires that substantive review at the award-enforcement stage remain minimal, it would not require intrusive inquiry to ascertain that the tribunal took cognizance of the antitrust claims and actually decided them’ (Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638 (1985)). Some commentators argue that the far-reaching liberalization of arbitrability under art V(2)(a) of the New York Convention constitutes an ‘important change to the original balance struck in the two points of [a]rt V(2)’, which would necessarily come at the price of enhanced substantive scrutiny by national courts at the stage of recognition and enforcement in order to safeguard national interests (Jan Kleinheisterkamp, ‘Recognition and Enforcement of Arbitral Awards’ in Jürgen Basedow and others (eds), The Max Planck Encyclopedia of European Private Law, vol 2 (OUP 2012) 1420, 1424).
However, if not treated with caution an expansion of court review may undermine the goal of international arbitration to provide an efficient mechanism of dispute resolution. On the other hand, to strike a balance between the two important considerations of finality and fairness, a certain degree of judicial scrutiny seems to be necessary. Article V(2)(b) of the New York Convention clearly acknowledges that a national judge can hardly be expected to recognize an award that endangers public policy under that national law. The question is how far courts should be entitled to go when scrutinizing arbitral awards for violations of public policy. While there is a trend towards circumscribed intervention through a narrow interpretation of public policy in the context of international arbitration, what remains unsettled is the permissible extent of court review of a tribunal’s findings when assessing whether this narrowly defined public policy is violated. Should courts re-examine the award’s findings of fact and/or law when a party alleges a breach of international public policy or should courts refuse recognition and enforcement of an award only when it violates international public policy considerations in such an obvious manner that a re-examination of facts and law becomes superfluous?
Where an international arbitral award is at issue, courts in most major jurisdictions apply a more restrictive concept of public policy as in the case of domestic awards (Richard Kreindler, Competence-Competence in the Face of Illegality in Contracts and Arbitration Agreements (Kluwer Academic Publishers 2013) 232–3). Pursuant to the concept of international public policy, only matters which are essential to the forum state’s legal system and which are regarded as being mandatory even in international or transnational settings may constitute relevant public policy grounds. In other words, only those national public policies which mandatorily demand an application to international matters may constitute public policy for purposes of art V(2)(b) of the New York Convention. The International Law Association’s Committee on International Commercial Arbitration defined international public policy ‘as that part of the public policy of a state which, if violated, would prevent a party from invoking a foreign law or foreign judgment or foreign award’ (International Law Association Committee on International Commercial Arbitration, ‘Final Report on Public Policy as a Bar to Enforcement of International Arbitration Awards’ (2009) 1 TDM Issue 1). Accordingly, courts are asked to take into account a broader scope when addressing international awards than when dealing with a mere national award. More specifically, they have to take into account the fact that the need for finality of awards fulfils the more general goal of facilitating international commercial relations and that the pro-enforcement bias of the New York Convention itself is considered a matter of public policy.
In most jurisdictions, national courts principally accept that they may not apply their national public policy to international awards in the same way as it would be applied to purely domestic awards. In Westacre, for instance, the English court (→United Kingdom) referred to the distinction between international public policy – ‘rules of public policy which if infringed will lead to non-enforcement by the p. 125English court whatever their proper law and wherever their place of performance’ – and ‘English domestic public policy’, and held that only violation of the former can justify interference with an award (Court of Appeal, Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd and Others, 12 May 1999, (1999) XXIV Yearbook Commercial Arbitration 570 ff). Also French courts review an award only with respect to its compatibility with the restrictive concept of international public policy. French courts have defined the concept of international public policy as the ensemble of rules and values whose misconception the French legal order cannot tolerate even in an international context (see SA Renosol France et autre v Société Coverall North America, Cour d’appel Paris, 1e ch., 15 February 1996; Société Cargill France v SA Tradigrain France, Cour d’appel, Paris, 1e ch., 14 June 2001).
However, although most national courts generally agree to employ a concept of international public policy when asked to recognize and enforce international awards, when assessing whether certain rules have to be regarded as part of their international public policy, they come to different conclusions. A case illustrating this is the different reasonings with respect to whether a violation of competition law constitutes a breach of international public policy. The European Court of Justice ties EU competition law (→European Union and private international law) to the public policy of the Member States of the European Community and deems it to be a provision of →public policy (ordre public) within the meaning of the New York Convention qualifying it as a ‘fundamental provision, indispensable to carry out the missions entrusted to the Community and, particularly, the smooth functioning of the internal market’ (Judgment of 1 June 1999 in Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV  ECR I-3055, paras 36, 38). By contrast, the Swiss Federal Tribunal has consistently affirmed that ‘there can no longer be any doubt: the provisions of competition law, whichever they are, are not part of the essential and largely recognized values which, according to the predominant conceptions in Switzerland, should constitute the foundation of any legal order’ (see especially Tribunal fédéral, Judgment of 8 March 2006, 4P.278/2005, Tensacciai v Terra Armata, 3.2).
How far may the inquiry of courts go towards assessing whether international public policy is violated? There is a remarkable degree of variation, not only between jurisdictions, but also between different courts within certain jurisdictions, regarding the permissible extent of court review of a tribunal’s findings. At one end of the spectrum is the approach of maximal judicial review which involves unlimited scrutiny of the award both as a matter of fact and of law. On the other end of the spectrum lies the restrictive approach followed in France. In the SA Thalès Air Defence v GIE Euromissile (18 November 2004, Paris Court of Appeal, Case No 2002/60932) the Paris Court of Appeal refused to annul an award for →damages for breach of contract, which had not examined a competition law issue and which in turn was raised for the first time in the annulment proceeding. It stated that a violation of public policy must be ‘flagrant, effective and concrete’ and it is not for the court to decide the merits of a very complex dispute relating to the mere allegation of illegality of certain contractual provisions that had been neither pleaded nor decided before the arbitrators. The court stated that ‘[t]he task of a reviewing court is to take the award as it is [and] not to rewrite it’. In other words, the court ‘will only determine whether the award . . . in light of the factual and legal elements that were adopted by the arbitrator violates public policy’.
In conclusion, overall there is no general consensus with regard to the permissible or desirable extent of a court’s public policy control. What can be observed is a welcome trend, with only few exceptions, towards a narrow concept of international public policy. However, the extent of the court’s authority to control compliance with public policy remains a debatable matter. It is important to note that total elimination of judicial scrutiny may not be a solution. Nevertheless, it is not a given that courts should be involved in a privately agreed and conducted dispute resolution mechanism. When opting for arbitration rather than state court proceedings, the parties generally gain the possibility to decide all aspects of their dispute as they wish. Notwithstanding, arbitration is not entirely detached from state influence. Not only does the state naturally maintain an interest in safeguarding its fundamental values, but also the involvement of courts can foster societal recognition and acceptance of arbitration. For this reason alone, the proposition that the public policy in favour of the finality of arbitral awards outweighs the public interest p. 126in preventing enforcement of an award violating public policy is not deserving of blanket endorsement. While there must be compelling reasons to overcome the primacy of finality and mere allegations of a violation of public policy may not suffice, not all allegations may be classified automatically as being of secondary importance (Richard Kreindler, Competence-Competence in the Face of Illegality in Contracts and Arbitration Agreements (Kluwer Academic Publishers 2013) 472). Depending upon the severity of the allegations and the overall circumstances, a full-scale inquiry by national courts may indeed be called for. Certainly, finality is a goal but not a means to an end on its own, and should not be aspired or adhered to at the expense of violating international norms. The balancing act which has to be undertaken by national courts naturally comes at the price that it is not reasonable to expect full conceptual harmony anytime soon.
National courts follow their own conviction as to aligning the maintenance of arbitration as an independent private dispute resolution mechanism with the coexisting need of ensuring its legitimacy. This is possible since the New York Convention leaves much room for national discretion on criteria for review of arbitral awards and refusal of their recognition and enforcement. In order to make another step towards predictability and conformity of outcomes, the applicable recognition and enforcement standards would need to be more fully harmonized, a task which is not yet accomplished and whose desirability remains to be explored further.
Hossein Abedian, ‘Judical Review of Arbitral Awards in International Arbitration: A Case for an Efficient System of Judical Review’ (2011) 28 J.Int’l Arb. 553;
Claudia Alfons, Recognition and Enforcement of Annulled Foreign Arbitral Awards: An Analysis of the Legal Framework and its Interpretation in Case Law and Literature (Peter Lang 2010);
Albert Jan van den Berg, ‘Enforcement of Arbitral Awards Annulled in Russia: Case Comment of Court of Appeal of Amsterdam April 28, 2009’ (2010) 27 J.Int’l Arb. 1198;
James E Berger and Charlene Sun, ‘Personal Jurisdiction and the New York Convention’ (2012) 28 Int’l Litg. no 2;
Gary B Born, International Commercial Arbitration, vol 3 (2nd edn, Wolters Kluwer 2014);
Emmanuel Gaillard, ‘Extent of Court Review of Public Policy’ (2007) 237 NYLJ No 65;
Bernard Hanotiau and Olivier Caprasse, ‘Public Policy in International Commercial Arbitration’ in Emmanuel Gaillard and Domenico di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice (Cameron May 2008);
Jan Kleinheisterkamp, ‘Recognition and Enforcement of Arbitral Awards’ in Jürgen Basedow and others (eds), The Max Planck Encyclopedia of European Private Law, vol 2 (OUP 2012) 1420;
Richard Kreindler, Competence-Competence in the Face of Illegality in Contracts and Arbitration Agreements (Kluwer Academic Publishers 2013);
Joachim Kuckenburg, ‘Germany: Refusal to Allow Enforcement of an Annulled Award – How Long Can it Go On? – A Fresh Look at Article V(1)(e) of the New York Convention’ (2012) b-Arbitra 182;
Pierre Lalive, ‘Transnational (or Truly International) Public Policy and International Arbitration’ in Pieter Sanders (ed), Comparative Arbitration Practice and Public Policy in Arbitration, ICCA Congress Series No. 3 (Kluwer Law International1987) 257;
Julian D M Lew, ‘Proof of the Applicable Law in International Commercial Arbitration’ in Klaus Peter Berger and others (eds), Festschrift für Otto Sandrock zum 70. Geburtstag (Recht und Wirtschaft 2000) 585;
Jan Paulsson, ‘Enforcing Arbitral Awards Notwithstanding Local Standard Annulments (LSA)’ (1998) 6 APLR 1.