14 Dec 2016

Arbitration Award Enforced After Being Set Aside

Authored by: Michael Dunmore

Arbitration Award Enforced After Being Set Aside

In Brief:

  • Considering the differences between the enforcement of domestic and foreign arbitral awards in the UAE
  • Discusses the potential impact in the UAE of the Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. (Commisa) v. Pemex case
  • Looks at the scope for reinvigorating actions that have been previously set aside in the countries in which the award was originally rendered.
  1. Introduction

This article will begin by providing an introduction to how domestic and foreign arbitral awards are enforced in the UAE. The article will then go on to discuss, in light of a recent case, under what circumstances a court may, in its discretion, enforce an arbitral award after that award has been denied enforcement by the courts in the jurisdiction where the award was rendered. Lastly, the article will discuss future considerations related to enforcement in light of the recent case law.

  1. Enforcement of domestic awards

Once an arbitral tribunal renders an award in the UAE, the parties will voluntarily comply with the award or in the absence of voluntary compliance; either or both parties may have to approach a court to “ratify” the award in order to render it executable.[1]

A party, usually the loser, may wish to challenge an award. The successful challenge of an award results in the award being “set aside.” It is important to stress that ratification proceedings and/or a challenge to the validity of an award is not an appeal in the traditional sense. Unlike an appeal, a party cannot challenge an award based on any issue related to the merits of the award; rather, a challenge will be successful only if the arbitral award was delivered in violation of one of the limited grounds listed in Article 216 of of the Federal Law No. 11/1992 Concerning the Civil Procedures Law (as amended) (“the CPC”).

  1. Enforcement of foreign awards

There are a number of conventions that facilitate the recognition and enforcement of foreign awards. The most notable is the New York Convention (“NYC”), to which the UAE is a signatory. In order for a party to enforce a foreign award in the UAE, a foreign award must be rendered in a country that is also a signatory to the NYC (or other convention that the UAE is also signatory to). The UAE became a signatory to and ratified the NYC in 2006;[2] there are currently 156 signatory countries to the NYC. Article 235 of the CPC provides for the enforcement of foreign awards in the UAE.

Some foreign practitioners have had the perception that UAE courts are reluctant to recognize and enforce awards in general, and in particular, foreign awards under the NYC. However, just as the courts in other signatories to the NYC, the UAE courts are willing to enforce foreign awards.

  1. Setting aside and subsequent enforcement

If an award has been set aside on grounds that are not listed under the NYC, a court in a subsequent country may in its discretion enforce that award. One such case where this occurred is International Bechtel Co. Ltd. V. Department of Civil Aviation of the Government of Dubai.[3] In this case (which was decided before the UAE became a signatory to the NYC), the Dubai Court of Cassation set aside an award on the grounds that the arbitrator did not swear in a witness in accordance with Article 41(2) of the CPC, which outlines the procedure for the swearing in of witnesses in court hearings. Bechtel then subsequently enforced the award in France[4] and took steps to enforce the award in the US as well,[5] both of which are signatories to the NYC.

Recently, the US Court of Appeal upheld a decision by the District Court for the Southern District of New York to enforce an award that was set aside in Mexico between Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. (Commisa) v. Pemex.[6]

Commisa is a Mexican subsidiary of KBR, a US corporation, and Pemex is a subsidiary of a Mexican state owned oil company. In this case, just prior to the arbitral tribunal issuing a $USD 300 million award in favor of Commisa, the Mexican government passed two laws that directly affected the dispute. The first law provided Mexico’s tax court with the exclusive jurisdiction over claims relating to public contracts (which the dispute in the arbitration arose under) and moreover, retroactively changed the statute of limitations to make a claim under public contracts from 10 years to 45 days. The second law provided that a state-owned entity’s decision to exercise the right of “administrative rescission,” which was at issue in the arbitration, was no longer subject to arbitration. As a result of these amendments, the award was set aside by the courts in Mexico. Commisa subsequently commenced proceedings to enforce the award in New York while simultaneously appealing the Mexican court’s judgment to set aside the award. The New York court enforced the award and its decision to enforce the award was then upheld by the Court of Appeal. In this case, the award was enforced under the Inter-American Convention on International Commercial Arbitration 1975, however the grounds relied on for enforcement are analogous to those contained in the NYC.

  1. Future Considerations

In addition to the US Court of Appeals decision in Commisa, courts in a handful of countries have previously come to the conclusion that courts may in limited circumstances, exercise their discretion to enforce an award, despite the award being set aside in the country where the award was rendered.[7] Taking this into account, Commisa has the potential to breathe life into numerous decisions which may have been set aside due to unique local laws that fall outside the grounds listed in the NYC.

One case where an award was reportedly set aside for a violation of unique local law is Abnaa Al-Khalaf Co. et al. v Sayed Aghajaved Raza.[8] In this case it was reported that the Supreme Qatari Court upheld a decision to set aside an arbitral award on grounds other than those listed in the NYC. It was reported that, the award was set aside as a result of the application of a law that stipulated that domestic court judgements be rendered in the name of His Highness the Emir of Qatar, which the arbitral award did not satisfy.[9] Subsequent to the reporting of this judgment, this author is not aware of any reported attempts to enforce the award elsewhere.

In summary, it can be said that the Commisa judgment presents a possible avenue for the enforcement of certain awards that have been set aside under unique circumstances outside the grounds contained in the NYC.

 


*This article is an update to an earlier publication. For a more detailed analysis of this topic, see Michael Dunmore, “Enforcement of Awards Set Aside in their Jurisdiction of Origin” in Klausegger, Klein , et al. (eds), Austrian Yearbook on International Arbitration 2014, pp. 285 – 315.

[1] Article 215 of the UAE Civil Procedure Code, Federal Law No. (11) of 1992 (the “CPC”) stipulates that the ratification of domestic awards by the courts is necessary before the award may be enforced.

[2] Federal Decree No. 23 of 2006.

[3] Dubai Court of Cassation, Petition no 503/2003 (judgment dated 15 May 2005).

[4] Bechtel enforcement proceedings in France (Paris Court of Appeal, Chamber 1C, September 27, 2005).

[5] Bechtel enforcement proceedings in the US (300 F.Supp.2d 112 (2004) and 360 F.Supp.2d 136 (DDC 2005).

[6] Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex, Docket No. 13‐4022 (2nd Cir. August 2, 2016).

[7] Bechtel enforcement proceedings in France (Paris Court of Appeal, Chamber 1C, September 27, 2005);  Bechtel enforcement proceedings in the US (300 F.Supp.2d 112 (2004) and 360 F.Supp.2d 136 (DDC 2005); Judgment of December 19, 1991, XIX Y.B. Comm. Arb. 655 (Paris Court of Appeal) (1994); TermoRio S.A.E.S.P. & Leaseco Group, L.L.C. v. Electranta S.P. et al., 487 F.3d 928 (D.C. Cir. 2007); Baker Marine Ltd. v. Chevron Ltd., 191 F.3d 194, 197 n.3 (2d Cir. 1999).

[8] Challenge No. 64, Qatari Court of Cassation (2012).

[9] Minas Khatchadourian, Abnaa El Khalaf Company et al. v. Sayed Aga Jawwed Raza, Court of Cassation of Qatar, 12 June 2012, ITA Board of Reporters.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.