Enforcing Arbitration Awards: update

The third post in our “new term catch up” series looks at the law concerning the enforcement of arbitration awards.  This is often neglected by parties and their legal representatives alike. This is ironic as it is arguably the most commercially critical stage of the entire arbitral process. Many a party has spent much blood, sweat, and money to achieve a positive result, only to find it an essentially pyrrhic victory.

It is with the crucial importance of this area of law in mind that in this post, the third in our new legal term series, two recent Commercial Court decisions concerning the circumstances in which recognition or enforcement of a New York Convention award may be refused are summarised.  The cases are Zavod Ekran v Magneco and Anatolie Stati v The Republic of Kazakhstan.

(1) “Proper notice”: Zavod Ekran OAO v Magneco Metrel UK Ltd [2017] EWHC 2208 (Comm), Blair J

This case concerned an application by the Defendant (Magneco) to set aside an order of Males J giving leave to the Claimant (Zavod Ekran) to enforce an award (the “Award”) published by a tribunal of the International Commercial Arbitration Court (the “ICAC”) at the Chamber of Commerce and Industry of the Russian Federation. The Award was made in the Russian Federation, and so was a New York Convention award for the purpose of s.100(1) of the Arbitration Act 1996 (the “1996 Act”).

The question for the Court was whether the Defendant had been given “proper notice” of the arbitration proceedings within the meaning of s.103(2)(c) of the 1996 Act, one of the grounds for the refusal or recognition/enforcement of a Convention award. The Defendant contended that it had not been given proper notice of the appointment of the tribunal, or the arbitration proceedings themselves, and was otherwise unable to present its case in the arbitration.

Blair J noted that there is relatively little English authority as to the meaning of “proper notice”. However, in recounting the authority that did exist, the Judge outlined the following principles:

  • It is an aspect of the wider notion that the party to whom notice is alleged not to have been given, is unable to present its case in the arbitration.
  • A lack of proper notice suggests unfairness in the arbitral procedure.
  • Compliance with the requirement necessitates the giving of such notice as is likely to bring the relevant information to the attention of the person notified, taking into account the parties’ contractual dispute resolution mechanism, including any institutional arbitration rules.
  • The party alleging a failure of “proper notice” (i.e. the party resisting enforcement) bears the burden of proof.
  • Whether “proper notice” was given or not is a question of fact.

The Defendant’s application was rejected. It had alleged that a bundle of claim documents sent to it (and received by it) from the ICAC seeking, amongst other things, the appointment of the Defendant’s arbitrator, was insufficient to properly notify it of the arbitration because the bulk of the documents were in Russian. The Court rejected this submission. The heading of the covering letter to the bundle of documents had read “THE INTERNATIONAL COMMERCIAL ARBITRATION COURT AT THE CHAMBER OF COMMERCE AND INDUSTRY OF THE RUSSIAN FEDERATION”. This should have made it abundantly to the recipient of the documents that the documents concerned an arbitration, especially against the background of the parties having contracted for ICAC arbitration in the Russian language. The Defendant had, therefore, had “proper notice”, and had been able (in principle) to present its case in the arbitration.

(2) Public policy: Anatolie Stati and Ors v The Republic of Kazakhstan [2017] EWHC 1348 (Comm), Knowles J

In this case the Defendant State (Kazakhstan) sought refusal of an application for recognition/enforcement of a New York Convention award made in Sweden (the “Award”) on the basis that it had been obtained by the Claimant’s latterly discovered fraud. It therefore relied upon the ground in sections 103(1) and (3) of the 1996 Act, which provide that a Convention award may be refused recognition or enforcement in England where to do so would be contrary to public policy.

The facts of the case, which involved post-Award proceedings in both Sweden and the United States, are complex. By way of brief summary only, the Defendant had originally applied to the English Court for an order refusing the recognition/ enforcement of the Award on a number of bases, but not by reason of fraud/public policy. However, the Defendant (on its case) later became aware of the alleged fraud of the Claimant, and sought by way of the application presently before the Court to amend the bases of its refusal application to include fraud, and for such issues to be sent for trial.

Knowles J provided a helpful summary of the key principles in his judgment:

  • Refusing to enforce or recognise an award on public policy grounds is an issue to be approached with “extreme caution”. Section 103 of the 1996 Act is predisposed to favour the enforcement of Convention awards.
  • The relevant public policy referred to in s.103(3) of the 1996 Act is that of England, and such that is necessary for the maintenance of the fair and orderly administration of justice.
  • Where it is alleged that an award has been obtained by fraud, or otherwise in such a way that is contrary to public policy, the Court will determine whether “some form of reprehensible or unconscionable conduct has contributed in a substantial way to the obtaining of the award”. That phrase has been explained previously to mean “conduct which we would be comfortable in describing as fraud, conduct dishonestly intended to mislead”.
  • The test is apt to be satisfied if it can be shown that a party has deliberately and dishonestly failed to disclose material in an arbitration, and made submissions or called evidence which deliberately and dishonestly continued that concealment and misled the tribunal, and that such material would have had “an important influence on or would probably have affected the result of the arbitration”.
  • Where it is alleged by a party that a Convention award has been obtained by fraud, the party seeking the refusal of enforcement/recognition must show that:
  • The evidence to establish fraud was not available to it at the time of the hearing before the arbitrators, and
  • There is a prima facie case of fraud which is sufficient to overcome the extreme caution of the court when invited to set aside an award on the grounds of public policy.
  • Where perjury is the manner of fraud alleged, the evidence must be so strong that it would reasonably be expected to be decisive at a hearing, and if unanswered must have that result.

Knowles J granted the Defendant’s application. Powerfully, the Judge rejected the submission from the Claimant that the Defendant should have, or could have, made itself aware of the facts said to demonstrate the fraud at the time of the arbitration. He approved the previous sentiment of Burton J in JH Heinz Co Ltd v EFL Inc [2010] 2 Lloyd’s Rep 727 to the effect that where concealed fraud is concerned, a dishonest party ought not to be able to escape the repercussions simply because the right stone was not turned over by the innocent party at the time. It seems (from §69 and §79 of the judgment) that the Judge considered that only if an innocent party could have discovered evidence of an alleged fraud by the exercise of reasonable diligence, which in the event it failed to exercise, might a plea such as that made by the Claimant have some merit.

The Defendant was therefore allowed to amend its grounds for refusal of recognition/enforcement to include fraud, the matter was sent for trial.