Arbitration: Examples of Recognition and Enforcement
In a German case before the Court of Appeal of Celle, the seller sought to enforce an award of the International commercial arbitration Court of the Chamber of Commerce and Industry of the Russian Federation (ICAC). 49 The buyer contended that permitting enforcement would violate public policy either because there were procedural irregularities in the arbitration proceedings or because the arbitral award gave effect to a disproportionately high contractual penalty. The court rejected the buyer’s arguments holding:
“In the specific case of foreign arbitral awards, the departure in the foreign arbitration from mandatory rules of domestic procedure is not [automatically] a violation of public policy. Rather, there must be a violation of international public policy. Hence, the recognition of foreign arbitral awards is as a rule subject to a less strict regime than [the recognition of] domestic arbitral decisions. The issue is not whether a German judge would have reached a different result based on mandatory German law. Rather, there is a violation of international public policy only when the consequences of the application of Foreign Law in a concrete case is so at odds with German provisions as to be unacceptable according to German principles. This is not the case here.”
In the French case SNF v. Cytec, SNF contracted to purchase a chemical compound from Cytec under two separate contracts. 1
The second provided for Cytec to be the exclusive supplier. The arbitral tribunal held that the second contract violated EC Competition Law. It then rendered an award in favour of Cytec. Before the Cour de Cassation, SNF argued in effect that the Court should not permit enforcement of an award which was based on an agreement in restraint of competition and hence was contrary to EC law and public policy. The Court held that where (as in this case) the matter in issue was international public policy, the courts would only intervene to prevent enforcement in the case of a “flagrant, effective and concrete” violation of international public policy. That the legal reasoning underlying an award or the conduct of the arbitral tribunal is in some way flawed does not breach public policy as long as this flaw does not affect the fundamental conceptions of morality and justice of the legal system where enforcement is sought, i.e., does not violate international public policy. For example, the Hong Kong SAR Court of Final Appeal held that the holding of an inspection in the absence of the respondent was not a ground for refusing enforcement because the respondent was informed that it had taken place and did not ask for a re-inspection in the presence of its representatives. 2
Other examples of recognition and enforcement notwithstanding an alleged violation of public policy are:
– Lack of financial means: the Portuguese Supreme Court of Justice rejected the argument that there was a violation of public policy because the Portuguese respondent did not participate in the arbitration in The Netherlands because of a lack of financial means; 3
– Lack of impartiality by arbitrators: courts hold that “appearance of bias” is insufficient; there must have been “actual bias” , i.e., the arbitrator must have acted in a partial manner; 4
– Lack of reasons in award: courts of countries where reasons in awards are mandatory generally accept to enforce awards that contain no reasons but have been made in countries where such awards are valid. 5
1. France: Cour de Cassation, First Civil Chamber, 4 June 2008 (SNF sas v. Cytec Industries BV) Yearbook Commercial Arbitration XXXIII (2008) pp. 489-494 (France no. 47).
2. Hong Kong: Court of Final Appeal of the Hong Kong Special Administrative Region, 9 February 1999 (Hebei Import and Export Corporation v. Polytek Engineering Company Limited) Yearbook Commercial Arbitration XXIV (1999) pp. 652-677 (Hong Kong no. 15).
3. Portugal: Supremo Tribunal de JustiÃ§a, 9 October 2003 (A v. B. & Cia. Ltda., et al.) Yearbook Commercial Arbitration XXXII (2007) pp. 474-479 (Portugal no. 1).
4. See, e.g., Germany: Oberlandesgericht, Stuttgart, 18 October 1999 and Bundesgerichtshof, 1 February 2001 (Dutch Shipowner v. German Cattle and Meat Dealer) Yearbook Commercial Arbitration XXIX (2004) pp. 700-714 (Germany no.60); United States: United States District Court, Southern District of New York, 27 June 2003 and United States Court of Appeals, Second Circuit, 3 August 2004 (Lucent Technologies Inc., et al. v. Tatung Co.) Yearbook Commercial Arbitration XXX (2005) pp. 747-761 (US no. 483).
5. See, e.g., Germany: Oberlandesgericht DÃ¼sseldorf, 15 December 2009 (Seller v. German Buyer) Yearbook Commercial Arbitration XXXV (2010) pp. 386-388 (Germany no. 135).
Source: ICCA’S Guide to the interpretation of the 1958 New York convention. Not changes allowed.
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