W12: Recourse Against Arbitral Awards

Question 1

Intro: How to Appeal

Answer 1

Depends on whether the relevant rules of arbitration establish any internal appeal procedure (e.g. Maritime and Commodity Arbitration Systems)
*most rules do not provide for such appeal - “an award is final and binding”

ADVANTAGE of Arb.:

1. Intended result is the final determination of the dispute.
2. Parties CHOOSE finality.
   * Compromise Solution: Mediation
   * Fight (Appeals): Litigation

“Pro-Enforcement Bias” - US Federal Courts: while possible to challenge an arb. award, available options are likely to be ltd. - intentionally so.

This ‘advantage’ may be a disadvantage for the losing party.

Question 2

Challenge: Law of the Seat

Answer 2

Contains ltd. provisions for challenging award.

Principally focused on:

1. Ensuring conduct of arb. w basic rules of Due Process
2. Respecting parties’ equal rights to be heard, before an independent and impartial tribunal
3. Within the boundaries of their arb. agreement

Rarely concerned w the merits of the decision, thus distinguishing CHALLENGE from an APPEAL.

Question 3

Challenge/Set-Aside v Opposing Enforcement

Answer 3

Challenge:

1. Courts of Seat
2. Attempt by losing party to invalidate award on basis of STATUTORY grounds available u/law of Seat

Opposing Enforcement:

1. Any Jurisdiction (where winning party seeks to enforce) Signatory to NYC
2. Losing party has opportunity to rely on ltd. exceptions in Art. V to block such enforcement

• Two Available Methods:
  a) Affirmatively CHALLENGE the validity @ Courts of Seat
  b) Attempt to thwart party seeking enforcement u/NYC
• the former almost always ensures success in the latter

Question 4

Purpose of Challenge

Answer 4

To have that court declare all, or part, of the award NULL and VOID.

If set-aside/annulled - treated as INVALID, and UNENFORCEABLE - not only by Courts @ Seat, but also national courts elsewhere.

NYC & Model Law: a competent court may refuse R&E of an award set-aside by Court @ Seat.

Following Complete Annulment, claimant can commence proceedings because award simple does not exist - i.e. status quo ante restored.

Reviewing Court: cannot alter terms of an award, nor can it decide the dispute based on its own vision of the merits.
- Unless it has power to REMIT the fault to the original tribunal, any new submission of the dispute to arb. AFTER annulment has to be undertaken by commencement of a NEW arb. w/NEW tribunal

Question 5

Preconditions to Challenge

Answer 5

Necessary to consider other available remedies:

1. Any available process of APPEAL/REVIEW u/applicable rules of law; and
2. Any available provision for the CORRECTION/ADDITIONAL award.

Question 6

Appeal/Review and Correction/Additional

Answer 6

1. Appeal/Review:
   Certain arb. rules and agreements provide for APPEALS to ‘second-tier’ tribunals.
   - Sub: applicable rules, Award of Superior Tribunal (not earlier award) = Final and Binding
2. Correction/Additional:
   Rules of Arb. and National Legislation: provide for some mechanism for correction of award by the (original) tribunal itself.

ICC Rules Art.35:

(1) At request/suo motu: CORRECT - clerical, computational or typographical errors, or those of a similar nature
(2) At request: INTERPRETATION

UNCITRAL Arb. Rules:

1. Interpretation Rule
2. ‘Slip Rule’
3. ADDITIONAL Award - ‘claims presented in the arb. proceedings but committed from the award’…
   - Tribunal may do this when claim is justified, and ‘considers that the omission can be rectified w/out further hearings or evidence’.

Question 7

Time Limits for Challenge

Answer 7

Likely to be short and strictly enforced - depend on the relevant rules/legislator:

1. UNCITRAL Arb. Rules: Requests for interpretation/correction, or additional award - w/in 30 days after receipt of award
2. Model Law:-
   a) Challenge: w/in 3 months of receiving award
   b) Interpretation/Correction/Additional: w/in 3 months for disposal of that request by tribunal

Question 8

Methods of Challenge

Answer 8

1. Internal Challenge
2. Correction and Interpretation; Additional; Remission
3. Recourse to Courts

Question 9

Internal Challenge

Answer 9

Review (e.g. Maritime, Commodity, Trade Assn. Arbitrations)

• ICSID Arbitration Rules:
  Dissatisfied party - apply for interpretation, revision, or annulment

Grounds:

1. Tribunal not properly constituted
2. Tribunal manifestly exceeded its powers
3. Serious departure from fundamental rule of procedure
4. Award failed to state reasons
   * v. similar to grounds u/national arb. systems for judicial challenge of awards.
   * ICSID is a self-contained system - does NOT permit judicial challenge of awards.
   - Internal Review mechanism effectively replaces the system of judicial challenge

Question 10

ICSID: Annulment

Answer 10

Art. 52, ICSID Convention

1. Ad Hoc Committee (3 members)
2. Upon Annulment, either party may ask for dispute to be submitted to a NEW tribunal, hears dispute again - delivers NEW award

Historically rare, but growing in frequency since:
*Fraport v Phillipines (ICSID)

Question 11

Correction and Interpretation of Awards; Additional Awards; Remission of Awards

Answer 11

1. Correction: Clerical Slips
   e. g., ICC Rules, Art. 35
2. Interpretation: Resolve uncertainty as to precise meaning, method of performance. (No Review of Merits)
3. Additional: Claims presented during proceedings, but omitted from award.

• Revision: Evidence produced later, of Fraud, Forgery, or Concealment of Evidence.
  e. g., Fraud - French & Swiss Law

4. Remission: Send back disputes requiring Tribunal to revisit some/all of its findings; in context of party’s application to the courts @ Seat, e.g. Challenge

• Powers derived form National Arb. Statutes (vary widely):
  EAA 1996 S. 68(3) - ‘the court shall not exercise power to set-aside/declare award of no effect (wholly or partly), unless it s satisfied that it would be inappropriate to REMIT matters to tribunal for reconsideration’.
• Powers derived from Case Law: US
• Powers derived from int’l statutes: ICC Rules

Question 12

Recourse to the Courts

Answer 12

Two Preliminary Issues:

1. Place of Challenge
2. Exclusion and Waiver of Challenge

Question 13

Recourse to the Courts: Place of Challenge

Answer 13

Addressed to the designated competent court @ Seat

1. Switzerland: Swiss Federal Tribunal (BUT parties may agree to Court of the Canton in which arb. took place)
2. France: Paris Cour d’Appel
3. England: Commercial Court of the QB Div. in the HC of Justice
4. US: District Court (Federal First-Instance Court) of the Seat

Theoretical EXCEPTION:
NYC: R&E of an award may be refused - ‘set aside/suspended by competent authority of the country in which, OR U/THE LAW OF WHICH, award was made’
*also interpreted as ‘the country u/whose law the award was made (substantive law governing award) as a licence to set-aside award NOT made in their own country.

Case Law:
India:-
1. 1980 and 1990 - Set aside awards rendered in other states on the basis that the SUBSTANCE of the dispute was governed by Indian law.
2. 2002 - Bhatia International v Bulk Trading SA
3. 2008 - Venture Global v Satyam Trading (English Award)

[[BUT]]

4. 2012 - Bharat Aluminum Co. (Balco) v Kaiser Aluminium Techncial Services: OVERTURNED Venture Global case - CONFIRMED int’l practice that ‘the power to set aside is ltd. to courts @ Seat’

Question 14

Exclusion and Waiver of Challenge

Answer 14

In some jurisdictions: Parties can expressly WAIVE rights to challenge award
- General waivers by incorporation (ICC Rules) will not suffice
ICC Secretariat: ICC Rules Art. 34(6) - unlikely to de deemed sufficient to constitute a waiver, even in such jurisdictions where such waiver is possible.

1. Switzerland and Belgium: If all parties are foreign
2. France: 2011 French Arbitration Law - Any party

Failure to Challenge Award on Jurisdiction DURING proceedings = Waiver

• England, France, US
• UNCITRAL Rules, Model Law

Failure to Challenge Award w/Sufficient Force and Clarity
- Swiss SC: Rejecting challenge to ICC Arb., held: challenging party had not made a ‘sufficiently clear complaint’ during the original arbitration, thus WAIVING right to challenge.

Question 15

Grounds for Challenge

Answer 15

Each State- diff. concepts of measures of control over arbitral processes in its territory; and whether it wishes to distinguish b/w ‘domestic’ and ‘international’ arb.

Three Broad Areas:

1. Jurisdictional Grounds: non-existence of valid and binding arb. agreement/admissibility of claim
2. Procedural Grounds: Failure to give Equal Opportunity to be heard
3. Substantive Grounds (RARE): Mistake of Law

THEREFORE:

1. Under Model Law
2. Adjudicability (incapacity, invalidity, excess of powers, arbitrability)
3. Procedural (composition)
4. Substantive (mistakes of law/fact, public policy)

Question 16

Grounds: Under Model Law

Answer 16

SYMMETRICAL:

• NYC Art. V: Grounds for Refusal for R&E of Int’l Awards
• Model Law Art. 34: Grounds for Setting-Aside

GROUNDS:

1. Lack of Capacity/Valid Arb. Agreement
2. Lack of Proper Notice (to the aggrieved party) of Appointment of Tribunal/Arbitral Proceedings/Otherwise Unable to Present Case
3. Matters Not Contemplated by/Out of Scope of the Arb. Agreement
4. Composition NOT in accordance w Agreement/Mandatory Provisions of Model Law
5. Subject-Matter NOT Arbitrable u/Law of Seat
6. Award (incl. any decision w/in it) Conflicts w/Public Policy of the State of Seat.

LIMITATION:
W/in 3 months from receipt of award (aggrieved party) sub: extended time where corrections, interpretations, or additional awards issued u/Ar. 33

PROCEDURE:

• Designated court will est. its own procedure for application to be made; or
• Remit back to original tribunal for reconsideration

Question 17

Grounds: Adjudicability

Answer 17

Interim Award on Jurisdiction - MAY BE referred to the Competent Court w/in 30 days - such decision = FINAL

1. Incapacity/Invalidity
2. Excess of Powers
3. Arbitrability

Question 18

Adjudicability: Incapacity/Invalidity

Answer 18

Model Law Art. 34(2)(a)(i): ‘a party to the arbitration agreement … was 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 this State’

Question 19

Adjudicability: Excess of Powers

Answer 19

Model Law Art. 34(2)(a)(iii):
‘the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside’

FRANCE:
*Paris Lapeyre v Sauvage [2001]: Paris Cour d’Appel found that a tribunal exceeded its mission by awarding a party damages in an amount that significantly exceeded the damages claimed

US:

1. Republic of Argentina v BG Group PLC: US Appellete Court held that “an arbitrator’s decision on whether a condition precedent for arbitrability needed to be fulfilled was beyond the scope of the arbitrators’ powers”
2. BG Group PLC v Republic of Argentina: “the arbitrators’ jurisdictional determinations [we]re lawful” — i.e., the arbitral panel had the authority to determine the issue of whether the local litigation requirement had been fulfilled (or was required to be fulfilled).

Question 20

Adjudicability: Arbitrability

Answer 20

Matters Related to Public Policy:

1. Insolvency
2. Personal Status
3. Certain IPR Disputes (e.g., validity of patents)
4. Anti-Trust Disputes - NOW PERMITTED (US)

Model Law: Award can be challenged if “the subject matter of the dispute is not capable of settlement by arbitration.

US: Issue confused by two concepts -

1. Procedural Arbitrability: Issues of Admissibility of a Claim
2. Substantive Arbitrability: Subject Matter NOT Arbitrable (ref: law of Seat of arbitration)

Question 21

Grounds: Procedural

Answer 21

1. Lack of Due Process - Procedural Irregularity

2. Further Issues

Question 22

Procedural: Lack of Due Process (Irregularity)

Answer 22

Due Process:
1. Ensure proper constitution of arbitration
2. Procedure in accordance w parties’ agreement (sub: mandatory provisions of applicable law)
3. Parties given proper notice of the proceedings, hearings, and awards
AIM: ensure parties are treated w equality, and given a fair hearing, w proper opportunity to present their respective cases

Exact procedure varies from State to State

Civil Law: Right of the parties to have a full opportunity to present their case — ‘droit de la defense’ — often incorporates the ‘principe du contradictoire’ - requires no evidence/argument should serve as a basis for a decision unless it has been subject to the possibility of comment and contradiction by the other parties.

*Mousaka v Golden Seagull Maritime (England)

Question 23

Procedural: Further Issues

Answer 23

1. Failure to comply w the agreement of parties wrt Appointment - Arbitrator does not meet the particular qualifications specified in the agreement
2. Failure to comply w required procedure - Rendering award w/out reasons where such requirement is legally imposed

NO COMPLAINT IF NO AGREEMENT - may be disregarded even when in conflict w mandatory provision of the law @ Seat
- Tribunal should communicate and explain thus conflict to the parties to also them to comment before discarding any aspect of agreement

*Chantiers de l’Atlantique SA v Gaztransport & Technigaz SAS: Commercial Court in London HELD - even fraud in the arbitral proceedings would not necessarily justify setting the award aside because ‘even if the true position had been disclosed to the tribunal, that would, in all probability, not have affected the result of the arbitration’

Some Courts: Consider SERIOUS procedural irregularities = Violations of Public Policy; e.g. Japan (Tokyo District Court: treatment of disputed fact as undisputed = violation of Japanese Public Policy)

Question 24

Grounds: Substantive

Answer 24

Few jurisdictions permit any form of appeal on law/facts from an award. If Tribunal has jurisdiction, due process is follows, correct formalities observed - good, bad, indifferent - final and binding on parties.

1. Mistake of Law
2. Mistake of Fact
3. Public Policy

Question 25

Substantive: Mistake of Law

Answer 25

PRINCIPAL JUSTIFICATION:

1. It is in the public interest that the law should be certain, and
2. There should not be different findings by different tribunals as to the meaning and effect of the same words in different contracts

RISKS:

1. Inconsistent decisions as the same or similar points come before different tribunals, each one of which is independent of the other
2. Tribunal may not do its work as competently or as professionally as it should if its awards are not subject to substantive scrutiny, either by an arbitral institution or by a competent court

SERIOUS DISADVANTAGES TO:

1. CONSENT: Decisions of national judges may be substituted for the decisions of an arbitral tribunal specifically selected by, or on behalf of, the parties
2. PRIVACY: A party that agreed to arbitration as a private method of resolving disputes may find itself brought unwillingly before national courts that hold their hearings in public.
3. SPEEDY RESOLUTION: The appeal process may be used simply to postpone the day on which payment is due, so that one of the main purposes of international arbitration — the speedy resolution of disputes — is defeated

Internationally, balance in favour of finality, and against judicial review, except in very ltd. circumstances.
- Model Law Art. 5: “in matters governed by this Law, no court shall intervene except where so provided in this Law”

Question 26

Substantive: Mistake of Fact

Answer 26

Almost all states with developed laws of arbitration refuse to allow appeals from arbitral tribunals on issues of fact.

What if the parties wish to expand, by contract, the scope of the reviewing courts powers?
US Cases:
1. *LaPine Technology Corporation v Kyocera Corporation - Yes
2. *LaPine II - No
3. *Hall Street Associates v Mattel - No

Question 27

Substantive: Public Policy

Answer 27

Award may usually be set aside if a national court of the place of arbitration finds (suo motu) that the award is in conflict with the public policy of its own country; esp. in Model Law countries.

RISK: One state may set aside an award that other states would regard as valid. Even though many states take a restrictive approach to the application of public policy, the nebulous nature of the concept may be used by courts in some jurisdictions as a licence to review the merits of a dispute inappropriately.

THEREFORE:
Concept of ‘Int’l Public Policy’ (Ordre Public International) - embodied in French Code of Civil Procedure

National PP: Affected by purely domestic considerations (matters of form, etc.)
In’tl PP: Less restrictive in its approach (honesty and fair dealing)
Transnational PP: Universal application - comprising fundamental rules of natural law, principles of universal justice, ‘jus cogent’ in PIL, and general principles of morality - accepted by ‘civilised nations’.
*EU PP: imp. for arb. w Seat in EU (e.g., competition and consumer protection contexts) when reviewing awards

An int’l award would not be set aside simply if it were to fail to conform to a domestic requirements, i.e., the absence of reasons, which might lead to an award being annulled in a domestic arbitration, has been held not to vitiate an international award.

“[Public policy is] a very unruly horse, and when once you get astride it you never know where it will carry you. It may lead you from sound law. It is never argued at all, but when other points fail.” - English Judge, 200 yrs ago.

Question 28

Effects of Challenge

Answer 28

Effects of Successful Challenge depend on:

1. Grounds of Challenge
2. Relevant Law
3. Decision of Court that dealt w it: Confirm, Remit, Vary, Set-Aside (wholly/partly)

• Complete Set-Aside on basis of Null and Void Agreement, THEN further resort to arb. (on basis of void agreement) is OUT of Q. Even Lit. sub: time limits.
• Procedural Set-Aside: Resubmit dispute to Arb. and restart process

Arbitrators advised:

1. Obtain clear statement on the record upon conclusion of the last oral hearing - that the parties are satisfied with the conduct of the hearing - to protect the eventual award.
2. If a party then declares a concern, there is still time for the tribunal to address it before issuing the final award.

Question 29

State Responsibility for Wrongful Setting Aside

Answer 29

As a matter of int’l law, some cases suggest: States may be help responsible for certain egregious actions by courts in setting-aside process.
e.g., Claimants have secured awards in ICTs, granting them the full amount (payable by interfering courts) of their previously annulled commercial arb. awards.

SCENARIOS:

1. A decision to set aside may breach a state’s obligations u/bilateral or multilateral treaty, which may afford the frustrated award-creditor a forum for securing relief via investment arb. (if party satisfied criteria of ‘investor’ u/that treaty)
   * Saipem v Bangladesh
   * White Industries v India (unlike Balco, 2012)
2. Certain inappropriate judicial actions in setting-aside proceedings/orders of set-aside - may breach a state’s obligations u/Int’l Human Rights Treaties
   - ECHR affords individuals a means of suing the signatory states directly before ECtHR for violation of their Convention Rights
   - Several cases indicate that a frustrated award-creditor may find relief on the grounds of:
   a) ECHR Art. 6: Right to a Fair Trial
   b) ECHR Protocol 1 Art. 1: Right to Property