ENFORCEMENT OF ARBITRAL AWARDS UNDER THE NEW YORK CONVENTION: Outline of Cases Refusing to Enforce Arbitral Awards

By R. Doak Bishop King & Spalding 1100 Louisiana Street Suite 3300 Houston, Texas 77002 713/751-3205 (Tel.) 713/751-3290 (Fax) [email protected] (E-mail)

ARTICLE V GROUNDS FOR RESISTING ENFORCEMENT

1.

Article V (1)(a): Incapacity of a Party or Invalidity of the Arbitral Agreement (a)

Analysis of the language

(b)

Legislative history

(c)

Incapacity of a Party

(d)

(1)

Law Applicable (a) different wording than "law to which the agreement is subjected" ` or "law of the place of arbitration" (b) law of the party's nationality

(2)

Situations (a) Bankruptcy (b) Local law does not allow party to arbitrate (govt.) (c) Inadequacy of signatures (Joc Oil) (d) Minor/Insane

(3)

Cases

Invalidity of Agreement (1)

Law to which the Parties Subjected it or Law of the Place of Arbitration

(2)

Cases (a)

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Authority (1)

Areios Pagos [Greek Supreme Court], 14 January 1977, Decision No. 88, Agrimpex SA v. J.F. Braun & Sons, Inc., YB Comm. Arb. IV (1979) p. 269 (Greece No. 5) (enforcement refused because of lack of a written power of attorney to conclude the arbitral agreement)

(2)

Administrative Tribunal, Damascus, 31 March 1988, Fugerolle SA v. Ministry of Defence of the Syrian Arab Republic, YB Comm. Arb. XV (1990), pp. 515-517, (Syria no. 1) (enforcement refused because Committee of the Council of State did not give preliminary advice on the referral to arbitration)

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(b)

(c)

(3)

Buques Centroamericanos, S.A. v. Refinadora Costarricense de Petroleos, S.A., No. 87 Civ. 3256 (DNE), 1989 U.S. Dist. LEXIS 5429 at #1 (S.D.N.Y. May 18, 1989) (enforced although agreement not approved by Costa Rican legislature)

(4)

American Construction Machinery & Equipment Corp. v. Mechanized Construction of Pakistan, Ltd., 659 F.Supp. 426 (S.D.N.Y.), aff'd, 828 F.2d 117 (2d Cir. 1987) (argument failed that award was invalid under Pakistan law because Pakistani law was not validly designated in the agreement)

No Arbitration Agreement (1)

Harry L. Reynolds, Jr. v. International Amateur Athletic Federation, __________ (S.D. Ohio _________), YB Comm. Arb. XXI (1996), pp. 715-719 (US no. 190) (enforcement refused because no written arbitration agreement within the meaning of the Convention)

(2)

Corte di Appello [Court of Appeal], Florence, 27 January 1988, Eastern Mediterranean Maritime Ltd. v. SpA Cerealtoscana, YB Comm. Arb. XV (1990) pp. 496-498 (Italy no. 103) ("eventual arbitration to be performed in London according to English law" ambiguous; enforcement denied)

No Valid Assignment (1)

2.

Moscow District Court (Civil Department), 21 April 1997, IMP Group (Cyprus) Ltd. v. Aeroimp, YB Comm. Arb. XXIII (1998), pp. _____ (Russian Fed. no. 8) (enforcement refused because arbitral agreement not validly assigned to claimant, which belonged to same group of companies)

Article V (1)(b): Due Process (a)

Analysis of the language

(b)

Legislative history

(c)

Cases

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(1)

(2)

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Notice (a)

Corte di Appello [Court of Appeal], Naples (Salerno Section), 18 May 1982, Bauer & Grobmann OHG v. Fratelli Cerrone Alfredo e Raffaele, YB Comm. Arb. X (1985) pp. 461-462 (Italy no. 70) (enforcement refused because one-month notice of arbitration hearing was insufficient because respondent's area was hit by a major earthquake)

(b)

Judgment of 23 August 1991, Supreme Court of Hong Kong, YB Comm. Arb. XVIII (1993) p. 385 (recognition allowed despite late notice because party not prejudiced)

(c)

Sesostris SAE v. Transportes Navales SA, _________ (D.Mass. 1989), YB Comm. Arb. XVI (1991) pp. 640-645 (US no. 108) (enforcement refused because bank, which was a mortgagee in possession of a ship arrested in Boston, and which deposited security for the charterer's claims against the owner, did not receive proper notice of the arbitration proceedings)

(d)

Judgment of 7 October 1986, Tribunal Supremo (Spain), YB Comm. Arb. _____ (1989) p. 708 (enforcement refused because party died before receiving notice of arbitration, and proceedings not conducted against heirs)

Information not available to both parties (a)

Gerechtschof [Court of Appeal], Amsterdam, 16 July 1992, G.W.L. Kersten & Co. BV v. Societe Commerciale Rauol-Duval et Cie, YB Comm. Arb. XIX (1994) pp. 708-709 (Netherlands no. 16) (enforcement denied because Statement of Claim never sent to the respondent)

(b)

Landgericht [Court of First Instance], Bremen, 20 January 1983, Portuguese Company A v. Trustees in bankruptcy of Germany Company X, YB Comm. Arb. XII (1987) pp. 485-487 (Germany no. 28) (enforcement refused because party was not informed of the opposing party's arguments)

(c)

Oberlandesgericht [Court of Appeal], Hamburg, 3 April 1975, US Firm P v. German Firm F, YB Comm. Arb. II (1977) p. 241 (Germany no. 11) (Convention inapplicable because not retroactive, but enforcement denied because claimant submitted a letter to the arbitrator, who failed to submit it to the respondent)

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(3)

(4)

Identity of Expert/Opportunity to Comment on Expert Report (a)

Supreme Court of Hong Kong, High Court, 15 January 1993, Paklito Investment Ltd. v. Klockner East Asia Ltd., YB Comm. Arb. XIX (1994) pp. 654-674 (Hong Kong no. 6) (enforcement refused because CIETAC did not give respondent an opportunity to comment on the Tribunal's expert's report)

(b)

International Standard Electric Corp. v. Bridas Sociedad Anonima Petrolera Industrial y Comercial, 745 F.Supp. 172 (S.D.N.Y. 1990) (argument waived that identity of Tribunal's expert was not disclosed and party had no opportunity to rebut the expert's report)

Identity of Arbitrators (a)

(5)

Hearing Schedule (a)

(6)

Laminoirs-Trefileries-Cableries de Lens, S.A. v. Southwire Co., 484 F.Supp. 1063 (N.D. Ga. 1980) (award recognized although Tribunal refused a tender of evidence)

Arguments not considered (a)

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Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier, 508 F.2d 969, 975 (2d Cir. 1974), YB Comm. Arb. I (1976) p. 205 (US no. 7) (no violation of U.S. due process by Tribunal's refusal to reschedule a hearing because of a witness' speaking schedule)

Refusal to hear evidence (a)

(7)

Oberlandesgericht [Court of Appeal], Cologne, 10 June 1976, Danish Buyer v. German Seller, YB Comm. Arb. IV (1979) pp. 258-260 (Germany no. 14) (violation of due process and refusal to enforce because arbitration rules in the Copenhagen grain trade provided that the identities of the arbitrators would not be made known to the parties)

Judgment of 18 January 1990, Bundesgerichtschof, YB Comm. Arb. XVII (1992) p. 503 (recognition allowed although Tribunal did not consider all of a party's arguments)

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(8)

Tribunal Directions (a)

(9)

Time Limits (a)

(10)

(11)

(a)

Libyan American Oil Co. v. Socialist People's Libyan Arab Jamahirya, 482 F.Supp. 1175 (D.D.C. 1980), vacated without op., 684 F.2d 1032 (D.C. Cir. 1981) (party's refusal to participate in arbitration is no reason to deny recognition)

(b)

Fitzroy Engineering Ltd. v. Flame Engineering Ltd., No. 94-C2029, 1994 U.S. Dist. LEXIS 17781 at *16 (N.D. Ill. December 2, 1994) (award recognized despite party's refusal to participate in arbitration proceedings)

Case not ripe Biotronik Mess-und Therapiegeraete GmbH & Co. v. Medford Medical Instrument Co., 415 F.Supp. 133, 140 (D.N.J. 1976) (argument rejected that party was unable to present its case because its rights and liabilities could not be calculated until agreement expired)

Award's Reasons (a)

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La Societe Nationale Pour La Recherche, La Production, Le Transport, La Transformation et La Commercialisation Des Hydrocarbures v. Shaheen Natural Resources Co., 585 F.Supp. 57 (S.D.N.Y. 1983), aff'd, 733 F.2d 260 (2d Cir.), cert. denied, 469 U.S. 883 (1984) (recognition allowed despite expiration of time limits for rendering an award)

Party's refusal to participate

(a)

(12)

Iran Aircraft Industries v. Avco Corp., 980 F.2d 141 (2d Cir. 1992), YB Comm. Arb. XVIII (1993) pp. 596-605 (US no. 143) (enforcement refused because Iran-U.S. Claims Tribunal misled party as to evidence needed to sustain its case)

Judgment of 3 April 1987, Corte di Cassazione, YB Comm. Arb. XVII (1992) p. 529 (enforcement refused because reasons given were insufficient and illogical) (Italy)

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3.

Article V (1)(c): Award Exceeds the Submission to Arbitration (a)

Analysis of the language

(b)

Legislative History

(c)

Cases (1)

Presumption (a)

(2)

Contract Construction (a)

(3)

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Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier, 508 F.2d 969 (2d Cir. 1974) (Art. V(1)(c) analyzed comprehensively and interpreted narrowly; enforcement allowed for loss of production even though contract provided parties not liable for such loss; courts will not second guess an arbitrator's construction of the parties' agreement)

Non-Signatory to Arbitral Agreement (a)

(4)

Judgment of 7 July 1989, Court of Appeal of Bermuda, YB Comm. Arb. XV (1990) p. 384 (presumption that Tribunal acted within its powers)

Fiat SpA v. Ministry of Finance and Planning of Suriname, 88 Civ. 6639 (SWK), 1989 U.S. Dist. LEXIS 11995 (S.D.N.Y. Oct. 12, 1989) (award against one party vacated because Tribunal exceeded its authority by ruling against a non-signatory not expressly covered by the arbitral agreement)

Limited Arbitral Clause (a)

High Court of Hong Kong, 28 November 1990, and Court of Appeals, 18 January 1991, Tiong Huat Rubber Factory (SDN) BHD v. Wah-Chang International Company Limited, YB Comm. Arb. XVII (1992) pp. 516-524 (Hong Kong no. 1) (enforcement refused by Court of Appeals because limited arbitration clause did not cover a claim for non-payment by failing to open a letter of credit)

(b)

Corte di Appello [Court of Appeal], Trento, 14 January 1981, General Organization of Commerce and Industrialization of Cereals of the Arab Republic of Syria v. SpA Simer (Societe delle Industrie Mercaniele di Rovereio), YB Comm. Arb. VIII (1983) pp. 386-388 (Italy no. 53) (enforcement refused as to decisions on

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"technical" matters because arbitral clause provided for arbitration in Syria of "non-technical" disputes and ICC arbitration of "technical" matters, but Syrian arbitrators decided both) (5)

Equitable Decisions (a)

(6)

Failure to Consider Claim/Defense (a)

(7)

Judgment of 20 November 1991, Federal Court of Appeal, Winnipeg, YB Comm. Arb. XVIII (1993) p. 363 (enforcement allowed despite fact the arbitrators did not take into account a particular defense)

Awareness of Arbitral Clause (a)

4.

International Standard Electric Corp. v. Bridas Sociedad Anonima Petrolera Industrial y Comercial, 745 F.Supp. 172 (S.D.N.Y. 1990) (enforcement allowed despite argument that Panel acted as amiable compositeurs without the parties' consent by basing damages on equitable grounds; manifest disregard of law test does not apply under the Convention)

Comprehensive Accounting Corp. v. Rudell, 760 F.2d 138 (7th Cir. 1985) (enforcement allowed although defendant purportedly did not actually know of the arbitration clause)

Article V(1)(d): Irregularity in the Arbitral Procedure or Composition of the Tribunal (a)

Analysis of the language

(b)

Legislative history

(c)

Cases (1)

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Arbitrator Bias (a)

Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968) (award not enforced because arbitrator did not disclose past business relationship with a party)

(b)

Andros Compania Maritima, S.A. v. Marc Rich & Co. A.G., 579 F.2d 691 (2d Cir. 1978) (award enforced despite fact that one party and arbitrator served together on 19 arbitral panels)

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(c)

(2)

(3)

Composition of the Tribunal (a)

Al Haddad Bros. Enterprises, Inc. v. M/S Agapi, 635 F.Supp. 205 (D. Del. 1986), aff'd without op., (3rd Cir. 1987) (award made by sole arbitrator enforced even though arbitral agreement provided for three arbitrators)

(b)

Corte di Appello [Court of Appeal], Florence, 13 April 1978, Rederi Aktiebolaget Sally v. srl Termarea, YB Comm. Arb. IV (1979) pp. 294-296 (Italy no. 32) (enforcement refused because award made by two arbitrators, but arbitral agreement called for three arbitrators)

Arbitral Procedure (a)

5.

Imperial Ethiopian Government v. Baruch-Foster Corp., 535 F.2d 334 (5th Cir. 1976) (award enforced even though third arbitrator had previously drafted the Civil Code of Ethiopia, the prevailing party)

Appellatiensgericht [Court of Appeal], Basle-Stadt, 6 September 1968, Swiss Corporation X AG, buyer v. German Firm Y, seller, YB Comm. Arb. I (1976) p. 200 (Switzerland no. 4) (enforcement refused because arbitration bifurcated into liability and damage phases, but Hamburg Commodity Association Arbitration Rules did not provide for arbitration in two phases)

Article V(1)(e): Award Not Binding, Set Aside or Suspended (a)

Analysis of language

(b)

Legislative history

(c)

Cases (1)

Award Not Binding (a)

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Tribunal de Premiere Instance [Court of First Instance], Geneva, 13 March 1986, Maritime International Nominees Establishment v. Republic of Guinea, YB Comm. Arb. XII (1987) pp. 514-522 (Switzerland no. 15) (AAA award in U.S. not enforced because MINE filed an ICSID arbitration against same party on same subject matter at conclusion of AAA arbitration, thus acknowledging that the AAA "award had no binding effect")

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(2)

(3)

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(b)

Fertilizer Corp. of India v. IDI Management, Inc., 517 F.Supp. 948 (S.D. Ohio 1981) (award held "binding" even though it was under review by an Indian court for errors of law; enforcement adjourned)

(c)

Spier v. Calzaturificio, SpA, 663 F.Supp. 871 (S.D.N.Y. 1987) (enforcement adjourned; whether award was "binding" depended on which of two types of Italian arbitration it was)

Set Aside (a)

Chromalloy Aeroservices, Inc. v. Arab Republic of Egypt, _________ F.Supp. ________ (D.D.C. 1996), YB Comm. Arb. XXII (1997) pp. 1001-1012 (US no. 230) (U.S. court enforced Egyptian award that had been set aside in Egypt)

(b)

Cour de Cassation [French Supreme Court], 10 June 1997, Omnium de Traitement et de Valorisation v. Hilmarton, YB Comm. Arb. XXII (1997) pp. 696-701 (France no. 45) (French court enforced award that had been set aside in Switzerland)

(c)

Cour d'appel [Court of Appeal], Paris, 20 June 1980, Claude Clair v. Louis Berardi, YB Comm. Arb. VII (1982) p. 319 (France no. 4 sub 2) (Paris court refused to enforce a Swiss award that had been set aside in Geneva as "arbitrary")

Award Suspended (a)

Creighton Ltd. v. Government of Qatar, _________ (D.D.C. 1995), YB Comm. Arb. XXI (1996) pp. 751-758 (US no. 197) (U.S. court refused to enforce French award that was subject to an application for annulment in a French court because filing an application for annulment automatically suspends the enforcement of an award under French law)

(b)

Tribunal de Premiere Instance [Court of First Instance], Geneva, 25 April 1985, Cour de Justice [Court of Appeals], Geneva, 10 October 1985, Continaf BV v. Polycoton SA, YB Comm. Arb. XII (1987) pp. 505-509 (Switzerland no. 12) (Geneva court refused to enforce a French award because an application to set aside was filed in France, and French law suspends by operation of law the enforcement of the award in France)

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6.

Article V(2)(a): Arbitrability (a)

Analysis of the language

(b)

Legislative history

(c)

Cases (1)

(2)

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Statutory Basis (a)

Tribunal de Commerce [Commercial Court], Brussels, 13 September 1979, SA Agima v. Smith Industries, YB Comm. Arb. VIII (1983) pp. 360-361 (Belgium no. 4) (enforcement refused because compensation for termination of an exclusive distributor is non-arbitrable)

(b)

Cour de Cassation (1st Chamber), 28 June 1979, Audi-NSU Auto Union AG v. S.A. Adelin Petit & Cie, affirming Cour d'Appel Liege, 12 May 1977 (Belgian Supreme Court refused enforcement because compensation for termination of an exclusive distributor of cars is not arbitrable)

(c)

Corte di Cassazione (Sez. Un.), 12 May 1977, no. 3989, Scherk Enterprises A.G. v. Societe des Grandes Marques, (Italian court refused enforcement because validity of trademarks is not arbitrable)

(d)

Corcoran v. Ardra Ins. Co. Ltd., _________ (N.Y. Sup. Ct., App. Div., 1990), YB Comm. Arb. XVI (1991), pp. 663-668 (US no. 111) (enforcement refused because dispute with an insolvent insurer's liquidator is non-arbitrable)

Foreign Relations (a)

Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier, 508 F.2d 969 (2d Cir. 1974) (award enforced because no special national interest in judicial resolution of a contract dispute just because the U.S. had severed diplomatic relations with Egypt)

(b)

Libyan American Oil Co. v. Socialist Peoples' Libyan Arab Jamahirya, 482 F.Supp. 1175 (D.D.C. 1980), vacated without op., 684 F.2d 1032 (D.C. Cir. 1981) (enforcement refused because Libyan nationalization was an act of state)

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7.

Article V(2)(b): Public Policy (a)

General Principle (1)

(b)

(c)

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Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier, 508 F.2d 969 (2d Cir. 1974) (enforcement allowed; public policy defense should be narrowly construed and applied only when enforcement would violate the forum's most basic notions of morality & justice; U.S. national policy in severing relations with Egypt is not the same as U.S. public policy)

Domestic vs. International Public Policy (l)

Oberster Gerichtshof [Austrian Supreme Court], 11 May 1983, Dutch Appellant v. Austrian Appellee, YB Comm. Arb. X (1985) pp. 421-423 (Austria no. 7) (enforcement refused because Dutch award violated Austrian public policy; no distinction between domestic and international public policy)

(2)

High Court, Delhi, 12 July 1985, COSID Inc. v. Steel Authority of India Ltd., YB Comm. Arb. XI (1986) pp. 502-507 (India no. 11) (enforcement refused on public policy grounds because of Tribunal's rejection of Indian party's defense of force majeure based on Indian export prohibitions, rejecting distinction between domestic and international public policy)

(3)

Bundesgerichtshof, Judgment of 18 January 1990, YB Comm. Arb. XVII (1992) p. 503 (Germany) (Art. V(2)(b) requires violation of international public policy)

(4)

High Court of Bombay, Judgment of 21 October 1988, YB Comm. Arb. XV (1990) pp. 465-487 (discussing distinction between domestic and international public policy as recognized in Mexico, Switzerland and England)

Notice (1)

Oberlandesgericht [Court of Appeal], Hamburg, 3 April 1975, U.S. Firm P v. German Firm F., YB Comm. Arb. II (1977) p. 241 (Germany no. 11) (failure of arbitrators to communicate a letter to the respondent that was received from the claimant violated public policy)

(2)

Oberlandesgericht [Court of Appeal], Cologne, 10 June 1976, Danish Buyer v. German Seller, YB Comm. Arb. IV (1979) pp. 258-260 (Germany no. 14) (violation of public policy that names of arbitrators were not made known to parties)

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(3)

(d)

Interest (1)

(e)

(f)

(1)

La Societe Nationale v. Shaheen Natural Resources Co., 585 F.Supp. 57 (S.D.N.Y. 1983), aff'd, 733 F.2d 260 (2d Cir.), cert. denied, 469 U.S. 883 (1984) (alleged restrictive trade clause in contract does not violate U.S. public policy)

(2)

Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207 (S.D.N.Y. 1976), aff'd mem., 553 F.2d 93 (2d Cir. 1977) (alleged restrictive trade clause in contract does not violate U.S. public policy)

Evidence

Bundesgerichtshof, 18 January 1990, YB Comm. Arb. XVII (1992) p. 503 (award without reasons does not violate public policy)

Salvage of Warship (1)

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Fitzroy Engineering Ltd. v. Flame Engineering Ltd., 1994 U.S. Dist. LEXIS 17781 (N.D. Ill. Dec. 2, 1994) (party's claim that its New Zealand counsel had a conflict of interest did not rise to a violation of public policy)

Unreasoned Award (1)

(i)

Waterside Ocean Navigation Co. v. International Navigation Ltd., 737 F.2d 150 (2d Cir. 1984) (inconsistent sworn testimony by witnesses does not violate public policy)

Attorney Conflict of Interest (1)

(h)

Laminoirs-Trefileries - Cableries de Lens S.A. v. Southwire Co., 484 F.Supp. 1063 (N.D. Ga. 1980) (enforcement refused to extent of excessive interest when Tribunal adopted a penal interest rate that violates public policy)

Contract Clauses that Restrict Trade

(1)

(g)

Bundesgerichtshof, 14 April 1988, YB Comm. Arb. XV (1990) p. 450 (extension of time granted by Tribunal without consulting with a party does not violate public policy)

B.V. Bureau Wijsmuller v. United States, 1976 A.M.C. 2514 (violation of public policy to submit dispute over the salvage of a U.S. warship to arbitration in London)

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