There are two main agreements which relate to an arbitration, namely, the substantive contract and the arbitration agreement. This is reinforced by the principle of separability of the arbitration agreement, be it in the form of an arbitration clause within the substantive contract or a full blown arbitration agreement.
These underlying agreements which are the bane of an arbitration determine the relevant laws impacting on an international arbitration. These may be categorised as follows:
This is during the pendency of the arbitration
✔ The governing law of the contract
✔ The law of the seat of the arbitration.
At this point the tribunal has become functus officio, following publication of the Award
✔ The law relating to the setting aside of an award (which is again the lex arbitri)
✔ Enforcement- The law of relevant New York Convention state.
- Governing law of the contract
This is also known as the substantive law. It determines the contractual relations of the parties and is used to interpret their rights and obligations under the main contract, which invariably has given rise to the dispute.
- Law of the seat of the arbitration
This is also referred to as the lex arbitri which provides the procedural law of the arbitration. It determines the jurisdiction of the courts which provide support to the arbitration as defined by the laws of that seat. The law of the seat is also known as the law of the place of the arbitration but must not be confused with the venue of an arbitration, which relates to the physical sitting of the arbitration and may or may not necessarily be the same as the seat of the arbitration, if not stipulated as such in the arbitration agreement.
- Challenging an Award
The lex arbitri or law of the seat is again the law that governs challenges to an arbitral award. Once the grounds for such challenge have been established under the law of the seat, the award cannot be said to be final. Grounds for challenging or setting aside an award can be found in Article 5 of the New York Convention, the terms of which have been incorporated into the domestic laws of the state parties to the said Convention.
- Law relating to Enforcement
The law governing the enforcement of an award which is final and binding, as required by the provisions of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards also known as the New York Convention (NYC), is the NYC state/states other than the lex arbitri, which holds assets belonging to the losing party. Article 3 of NYC provides:
“Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the. Rules of procedure of the territory where the award is relied upon…”
The NYC is one of the most formidable international treaties as it is far-reaching. It currently has 168 signatory states, with Iraq being the latest to ratify on March 4, 2021. Consequently, a winning party can enforce a final and binding arbitral award in any of the 168 countries, (also referred to as NYC states) except the country of the lex arbitri. In this regard, Article 1 of NYC provides:
“1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and. enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and. enforcement are sought. “
Article 5 also states:
“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 decisions on matters submitted to 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.
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.”
It is therefore worth noting that the courts of NYC enforcement countries may refuse to recognise and enforce awards on grounds of public policy. Therefore, in choosing jurisdictions for recognition and enforcement of an award, one needs to be guided not only by whether or not a particular country is a signatory to NYC but also what the public policy considerations might be, which may hinder recognition and enforcement. For instance, under sharia law, awarding interest is considered as repugnant to public policy. Therefore, seeking to enforce an award in a sharia jurisdiction would mean foregoing the interest component of the award. Though one could seek to enforce that component in another NYC jurisdiction, it would invariably make the enforcement process long and tedious. It is however pertinent to note that the Qatari courts though in a Sharia jurisdiction, might be inclined to award interest on the basis of compensation, following the judgment of the Court of Cassation Number 24 of 2018.Therefore research on a case by case basis on the status of the law in the relevant NYC state, should inform the choice of an enforcing NYC state.
In short, one needs to be conversant with all the relevant laws relating to an international arbitration process, in order to ensure the rights of parties are fully protected.
© 14/11/2021 Ellen Bannerman-Quist FCIArb
This Blog is for general information only and not intended for the use of readers as legal advice. Therefore, readers with specific issues relating to the subject matter are advised to contact Bannerman-Quist Legal Consult& Notary directly for any relevant legal advice.