Recognition Of Foreign Awards01.docx

PROJECT REPORT

Private International Law Title “Recognition of Awards”

SUBMITTED TO: Prof. David Paul School of Law, Alliance University, Bangalore

SUBMITTED BY: Siddharth Sanhgoi BBA.LLB(Hons) Section B 1

14040142092 TABLE OF CONTENTS

1. Introduction 2. Foreign Arbitral Awards in Indian Law 3. Foreign Award Defined 4. Development of Foreign Awards a. The ‘Old’ Law b. The Geneva Convention c. The New York Convention 5. Foreign arbitral award in India 6. Non Domestic Award 7. Courts’ definitions of public policy as a ground for refusal of enforcement of foreign awards 8. Conclusion

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Recognition of Foreign Awards Introduction: Arbitration is understood as a method of alternate dispute resolution across the world and recognized as the most effective method of solving commercial disputes, especially those of an international dimension. The parties in the international commerce and businesses prefer arbitration as an amicable measure for resolving disputes alternate to the litigation process which is considered as a lengthy process. The rights evolved pursuant to the arbitral award can be of various natures and may be required to be enforced in other countries as the case may where the right accrued by the Arbitral Award lies. Arbitration, as a form of alternative dispute resolution, is now serving an indispensable instrument for modern merchants to solve their disputes in the commercial transaction. Especially, in the cross-border transaction, arbitration is frequently used as a neutral mechanism to defeat the potential local protectionism by the national court. However, a favorable award is not the end of the story; the winning party may encounter unexpected difficulties in the country where the recognition and enforcement of the award is sought due to the discrepant implementations in different contracting member states of the New York Convention. Recognition usually refers to the court where the recognition is sought to give a binding legal force to an already made arbitral award. Contravention of public policy is thus one of the few grounds for refusing the recognition or enforcement of a foreign award. But the notion of public policy was not defined in the Convention and its concrete manifestations may substantially vary from one jurisdiction to another.

Foreign Arbitral Awards in Indian Law With the expansion of international trade in recent years, the business world has been increasingly reluctant to litigate in courts of law for differences arising from international commercial transactions. Ability to communicate and commute with distant places with the utmost speed enables a merchant today, in a few minutes or hours, to conclude a contract abroad which a generation ago would have taken weeks or months. When, however, it becomes necessary to resort to the machinery of justice to settle a dispute connected with that contract, to enforce a judgment in another country is still a complicated, time-consuming and expensive operation. It is not surprising, therefore, that businessmen have been turning with increasing 3

frequency to arbitration as a quicker and simpler means of settling international commercial disputes. There has been a noticeable movement in favor of arbitration. Arbitration facilities and institutions have increased. The favorable trend towards arbitration has been reflected also in legislative enactments, international treaties, and other measures by which arbitration has gradually acquired a more solid legal standing. A foreign judgment may be enforced in India by (i) proceedings in execution and (ii) by a suit upon it, CPC, 1908. An arbitral award is a determination on the merits by an arbitration tribunal in arbitration, and is analogous to a judgment in a court of law. Arbitration is particularly popular as a means of dispute resolution in the commercial sphere. One of the reasons for doing so is that, in international trade, it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court. The enforcement of foreign arbitration awards is governed by the Arbitration and Conciliation Act, 1996 through New York Convention and Geneva Convention and a Non-conventional award will be enforceable in India under the common law grounds of justice, equity and good conscience.

Foreign Award Defined For an foreign award to be considered for the purpose of the act it must fulfill two requirements: 1] It must deal with differences arising out of a legal relationship (whether contractual or not) considered as commercial under the laws in force in India. The expression ‘commercial relationship’ has been very widely interpreted by Indian courts. The Supreme Court in the case of RM Investments Trading Co Pvt. Ltd v Boeing Co & Anor 1, while construing the expression ‘commercial relationship’, held: “The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. The second requirement is more significant and that is that the country where the award has been issued must be a country notified by the Indian government to be a country to which the New York Convention applies.” 2] It is more significant and that is that the country where the award has been issued must be a country notified by the Indian government to be a country to which the New York Convention applies. Only a few countries have been notified so far and only awards rendered therein are recognized as foreign awards and enforceable as such in India. 1

(1994) 4 SCC 541

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An interesting issue came up before the Supreme Court as to what would happen in a case where a country has been notified but subsequently it divides or disintegrates into separate political entities. In the case of Transocean Shipping Agency Pvt. Ltd v Black Sea Shipping & Ors 2, the venue of arbitration was Ukraine which was then a part of the USSR — a country recognized and notified by the Government of India as one to which the New York Convention would apply. However, by the time disputes arose between the parties the USSR had disintegrated and the dispute came to be arbitrated in Ukraine (which was not notified). The question arose whether an award rendered in Ukraine would be enforceable in India notwithstanding the fact that it was not a notified country. Both the High Court of Bombay (where the matter came up initially) and the Supreme Court of India in appeal, held that the creation of a new political entity would not make any difference to the enforceability of the award rendered in a territory which was initially a part of a notified territory. On this basis the court recognized and upheld the award. This decision is of considerable significance as it expands the lists of countries notified by the government by bringing in a host of new political entities and giving them recognition in their new avatar also. At another level the judgment demonstrates the willingness of Indian courts to overcome technicalities and lean in favor of enforcement.

Development of Foreign Awards The ‘Old’ Law Prior to January 1996, the law of enforcement of arbitration awards in India was spread between three enactments. Enforcement of domestic awards was dealt with under a 1940 Act. Enforcement of foreign awards was divided between two statutes — a 1937 Act to give effect to the Geneva Convention awards and a 1961 Act to give effect to the New York Convention awards. The Geneva Convention On the international level, there are numerous bilateral treaties including provisions for the enforcement of arbitral awards. As to multilateral treaties, the most significant developments since the First World War have been the Geneva Protocol on Arbitration Clauses of 1923, the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. 2

(1998) 2 SCC 281

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The application of both treaties is limited to persons who are subject to the jurisdiction of different contracting states. Under the Protocol, an arbitration agreement relating to existing or future differences is recognized as valid, that is, irrevocable. The agreement may relate to any matter capable of settlement by arbitration, but the contracting states may limit their obligations to commercial contracts. If a suit is brought despite the arbitration agreement, courts are required to refer the parties to the arbitrators, except where the agreement or the arbitration cannot proceed or has become inoperative. The Convention is supplementary to the Protocol in that it applies to awards made pursuant to arbitration agreements covered by the Protocol. Only states parties to the Protocol may become parties to the Convention. Each contracting state is required to recognize as binding and to enforce, in accordance with the procedure of the forum, awards rendered in the territory of another contracting state, on the following conditions: ● The award was rendered pursuant to arbitration agreement valid under the law applicable to the agreement; ● The object of the award is capable of settlement by arbitration under the law of the country of the forum; ● The award was rendered by the arbitral tribunal provided in the arbitration agreement or constituted as agreed by the parties and in conformity with the law governing the arbitration procedure; ● The award has become final and no proceedings are pending for the purpose of contesting the validity of the award. An award still subject to opposition or appeal or the equivalent is not regarded as final; ● The recognition or enforcement of the award would not be contrary to public policy or the "principle of the law" of the forum. Even where these conditions have been met, recognition and enforcement of the award must still be refused, if the court finds the following (a) The award has been annulled in the country where it was rendered; or (b) The party against whom the award has been invoked did not have sufficient notice, or being under a legal incapacity, was not properly represented; or (c) The award deals with a dispute not included under the terms of the agreement, or the award 6

goes beyond the scope of the agreement. Furthermore, a court may refuse enforcement or give the losing party reasonable time to seek annulment if that party proves that under the law of the country where the arbitration took place, there is a ground (other than those specified in the Convention) to contest the validity of the award in a court of law. Criticism of The Geneva treaties a) There is some ambiguity in the expression “subject to the jurisdiction of different Contracting States,” which defines the scope of application of the treaties. It is not clear whether it means subject to the sovereignty of a state in the sense of nationality, or subject to the jurisdiction of the courts of a state by reason of residence, domicile, or other criteria. b) It has also been observed that a plaintiff seeking enforcement in one country would find it particularly difficult to prove that the arbitral tribunal was constituted in conformity with the law of another country and that the award has become final in that country. c) Finally, the possibility of contesting the validity of an award on grounds other than those listed in the Convention has been regarded as making it too easy for a recalcitrant defendant to avoid the enforcement of an award by resorting to obstructionist tactics.

THE NEW YORK CONVENTION The New York Convention now has 154 contracting parties. It is the most successful international instrument with regard to international commercial arbitration, the New York Convention provides the winning party with a more straightforward and uniform way to recognize and enforce foreign arbitral awards in other countries by imposing the burden of proof on the party against whom recognition and enforcement was invoked, instead of conforming with national laws of the country where is to be relied upon in the past. The New York Convention adopted the territorial criterion for the application of the Convention purposed in the 1955 UN draft, Article I also inserted a ‘non-domestic’ award due to the legislation divergence in some civil law countries, such as France and Germany, where under French and Germany law, an arbitration rendered in accordance with a foreign law would be deemed as a foreign award. Foreign arbitral award is ‘foreign’ in two scenarios which were defined in Article I of the New York Convention: 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 7

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. Apart from the traditional territorial criterion and non-domestic award, the ambit of application is limited by two reservations stipulated in Article I (3) of New York Convention. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards aims to facilitate the recognition and enforcement of arbitral awards generally between private parties. It succeeds the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards and the 1923 Geneva Protocol on Arbitration Clauses (which also provided for reciprocal recognition and enforcement abroad of certain arbitration agreements and awards, but had serious shortcomings). It is described as the most successful treaty in private international law and is adhered to by more than 140 nations. The Convention was established as a result of dissatisfaction with the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. These conventions suffered from certain shortcomings. For example, they excluded from their application awards rendered in a state not a party to the Geneva Convention, and required orders enforcing the award in the country where the award was rendered as well as the enforcing country. They also placed the burden of proof on the party seeking to enforce the award, while at the same time making it all too easy for a recalcitrant defendant to avoid enforcement by resorting to delaying tactics. The New York Convention sought to remedy these problems. There was an initiative from ICC to replace Geneva Convention treaty and issued a a preliminary draft convention in 1953. The ICC’s initiative was taken over by the United Nations Economic and Social Council, which produced an amended draft convention in 1955. That draft was discussed during a conference at the United Nations Headquarters in May-June 1958, which led to the establishment of the New York Convention. Objectives The following briefly describes the two basic actions contemplated by the New York Convention: a) The recognition and enforcement of foreign arbitral awards, i.e., arbitral awards made in the territory of another State: This field of application is defined in article I. The general obligation for the Contracting States to recognize such awards as binding and to enforce them in accordance with their rules of procedure is laid down in article III. A party seeking enforcement of a foreign award needs to supply to the court: (a) the arbitral award; and (b) the arbitration agreement 8

(article IV). The party against whom enforcement is sought can object to the enforcement by submitting proof of one of the grounds for refusal of enforcement which are imitatively listed in article V, paragraph 1. The court may on its own motion refuse enforcement for reasons of public policy as provided in article V, paragraph 2. If the award is subject to an action for setting aside in the country in which, or under the law of which, it is made (“the country of origin”), the foreign court before which enforcement of the award is sought may adjourn its decision on enforcement (article VI). Finally, if a party seeking enforcement prefers to base its request for enforcement on the court’s domestic law on enforcement of foreign awards or bilateral or other multilateral treaties in force in the country where it seeks enforcement, it is allowed to do so by virtue of the so called more-favorable-right-provision of article VII, paragraph 1. b) The referral by a court to arbitration: Article II, paragraph 3, provides that a court of a Contracting State, when seized of a matter in respect of which the parties have made an arbitration agreement, must, at the request of one of the parties, refer them to arbitration. The New York Convention solidified two essential pillars of the legal framework by providing for the obligatory referral by a national court to arbitration in the event of a valid arbitration agreement and for the enforcement of the arbitral award. The New York Convention is probably the main reason why arbitration is the preferred method for the resolution of international business disputes. Applicability: The New York Convention applies to all arbitral awards rendered pursuant to a written arbitration agreement in a country other than the state of enforcement. The New York Convention also applies to arbitral awards not considered as domestic awards by the enforcing state. The term ‘arbitral award’ is not defined, but includes awards made by ad hoc tribunals as well as permanent arbitral tribunals. The nationality of the parties is irrelevant for purposes of the convention. Under Article I (3), contracting states can choose to limit the application of the convention to arbitral awards rendered in another contracting state or to awards relating to commercial disputes. In order to obtain recognition and enforcement of an arbitral award under the New York Convention, a party has only to supply the enforcing court with a certified copy of the arbitral award and the arbitration agreement. If an arbitral award is encompassed by the New York Convention, contracting states must recognize the award as binding and enforce it in accordance with local rules of procedure. If a party objects to enforcement, it has the burden of proving that the award should not be enforced. The objecting party must argue from Article V (1) which provides a list of grounds for refusing enforcement: a) Invalidity of the arbitration agreement; b) Violation of due process; 9

c) Excess by arbitrator of his authority; d) Irregularity in the composition of the arbitral tribunal or in the arbitral procedure; and e) Award not binding, suspended or set aside in the country of origin. Additionally, the court can refuse to enforce the award under Article V (2) if its subject matter is incapable of settlement by arbitration under the enforcing country's laws or if recognition or enforcement of the award would violate the enforcing country's public policy. THE NEW REGIME In January 1996, India enacted a new Arbitration Act. This Act repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). The new Act has two significant parts. Part I provides for any arbitration conducted in India and enforcement of awards there under. Part II provides for enforcement of foreign awards. FOREIGN ARBITRAL AWARDS IN INDIAN LAW: An Overview of the Provisions in the Arbitration and Conciliation Act This is covered by Part II of the 1996 Act, though due to a recent Supreme Court decision, the distinction between the grounds and procedures in Part I and Part II has got blurred. The provisions of Part II of the Act give effect to the New York Convention and the Geneva Convention.

Conditions for Enforcement The conditions for enforcement of a foreign award are as per the New York Convention. The only addition being an ‘Explanation’ to the ground of public policy which states that an award shall be deemed to be in conflict with the public policy of India if it was induced or affected by fraud or corruption. Indian courts have narrowly construed the ground of public policy in relation to foreign awards. In Renu Sagar Power Co v General Electrical Corp3, the Supreme Court construed the expression ‘public policy’ in relation to foreign awards as follows: “This would mean that ‘public policy’ in s 7(1)(b)(ii) has been used in narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public 3

(1994) Supp (1) SCC 644

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policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.” Procedural Requirements The procedure for enforcement of arbitral awards is pretty much the same in the new Act as under the Foreign Awards (Recognition and Enforcement) Act, 1961 and the Arbitration (Protocol and Convention), Act 1937. The reason that there are no qualitative differences is because the New York Convention and the Geneva Convention themselves provide for the procedure for enforcement which are merely given statutory recognition by way of an enabling legislation and the same continues under the new Act. 1. Enforceable awards There are several requirements for a foreign arbitral award to be enforceable under the AC Act. (i) Commercial transaction: The award must be given in a convention country to resolve commercial disputes arising out of a legal relationship. In the case of RM Investment & Trading vs. Boeing, the Supreme Court observed that the term "commercial" should be liberally construed as having regard to manifold activities which are an integral part of international trade. (ii) Written agreement: The Geneva Convention and the New York Convention provide that a foreign arbitral agreement must be made in writing, although it need not be worded formally or be in accordance with a particular format. (iii) Agreement must be valid: The foreign award must be valid and arise from an enforceable commercial agreement. In the case of Khardah Company vs. Raymon & Co (India) 4, the Supreme Court held that an arbitration clause cannot be enforceable when the agreement of which it forms an integral part is declared illegal. (iv) Award must be unambiguous: In the case of Koch Navigation vs. Hindustan Petroleum Corp, the Supreme Court held that courts must give effect to an award that is clear, unambiguous and capable of resolution under Indian law. A person who intends to enforce a foreign arbitral award should apply to the court and produce the following documents: (a) Original award or copy thereof, duly authenticated in the manner required by the law of the country in which it was made. (b) Original agreement for arbitration or a duly certified copy thereof, (c) Such evidence as may be necessary to prove that the award is a foreign award. 4

AIR 1962 SC 1810

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(d) Translations, if necessary shall also be furnished. 2. Relevant Court The Indian Supreme Court has accepted the principle that enforcement proceedings can be brought wherever the property of the losing party may be situated. This was in the case of Brace Transport Corp of Monrovia v Orient Middle East Lines Ltd. The court here quoted a passage from Redfern and Hunter on Law and Practice of International Commercial Arbitration, inter alia, as follows: “A party seeking to enforce an award in an international commercial arbitration may have a choice of country in which to do so; as it is sometimes expressed, the party may be able to go forum shopping. This depends upon the location of the assets of the losing party. Since the purpose of enforcement proceedings is to try to ensure compliance with an award by the legal attachment or seizure of the defaulting party’s assets, legal proceedings of some kind are necessary to obtain title to the assets seized or their proceeds of sale. These legal proceedings must be taken in the state or states in which the property or other assets of the losing party are located.” 3. Time Limit The 1996 Act does not prescribe any time limit within which a foreign award must be applied to be enforced. However, various High Courts have held that the period of limitation would be governed by the residual provision under the Limitation Act 1963 (No 36 of 1963), i.e. the period would be three years from the date when the right to apply for enforcement accrues. The High Court of Bombay has held that the right to apply would accrue when the award is received by the applicant.

4. Grounds for Refusal of Enforcement Section 48 for New York convention and Section 57 for Geneva convention of the Act of 1996 lays down the grounds where the enforcement may be refused it the objector can prove one of the following grounds: i) Incapacity: that a party to the arbitration agreement was, under the law applicable to him, under some incapacity, ii) Invalid Arbitration Agreement: that the ‘arbitration agreement’ was invalid under the law to which the parties subjected it, or, failing any indication thereon, under the law of the country 12

where the award was made, iii) Due process: that a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case, iv) Jurisdictional defect: that the award deals with a difference not contemplated by the terms of arbitration agreement. v) That the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or failing such agreement, with the law of the country where the arbitration took place. vi) That the award has not yet becomes 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, it was made. 5. Ex officio Court Jurisdiction The section further lays down the grounds where the court may also refuse to enforce a foreign award if it finds: a. Non-arbitrability - That the award is in respect of a matter which is not capable of settlement by arbitration under the laws of India. In the case of Fuerst Day Lawson ltd. V/s Jindal Export ltd, Supreme Court held that once the court determines that a foreign award is enforceable it can straightaway be executed as a decree. In other words, no other application is required to convert the judgment into a decree. b. Contrary to Public Policy - That the enforcement of the foreign award would be contrary to public policy of India. The violation of rules of public policy is a ground for refusal of enforcement or a ground for setting aside. Indian law does not restrict (or extend) this ground to violation of International Public Policy even where the arbitration is an international commercial arbitration. Where enforcement of a foreign award is sought in any Court in India, the rules of public policy applicable will only be the “Public Policy of India”. In Renu sagar’s case, whilst construing the provisions of Sect. 7(1)(b)(ii) of the Foreign Awards Act (which reproduced Art. V (2) (b) of the New York Convention), the Supreme Court of India held that in order to attract the bar of public policy the enforcement of the award must involve something more than violation of Indian law; the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement was contrary “to the 13

fundamental policy of Indian law or justice or morality”. It was held that any violation of the Foreign Exchange Regulation Act, which was enacted for the national economic interest, would be contrary to the public policy of India. The enforceability of a foreign award could not be resisted as violating the public policy of India where an award, however, directed payment of compound interest, or directed payment of compensatory damages or where the arbitral tribunal had awarded an amount higher than should have been awarded or where costs awarded by the arbitral tribunal were excessive. In Supreme Court case of Oil& Natural Gas Corporation Ltd. vs. Saw Pipes Ltd., the definition of “public policy” in section 34 of the Act was controversially expanded such that anything which is against any Indian law is deemed to be opposed to Indian public policy. This means that any foreign awards that are subject to the application of section 34 can be challenged under wider grounds than would usually be permitted under the New York Convention alone. 6. Enforcement of Non Convention Awards In the case of Badat & Co. Bombay V/s East India Trading Co. the Supreme Court has ruled that “such a Non-conventional award will be enforceable in India under the common law on grounds of justice, equity and good conscience.” In case of Bhatia International V/s Bulk Trading S.A. & Anr., The Supreme Court held that “The 1996 Act nowhere provides that its provisions are not to apply to international commercial arbitrations which take place in a non-convention country.” Conclusion Viewed in its totality India does not come across as a jurisdiction which carries antiarbitration bias. The immediate purpose of the new Act was to comprehensively cover international commercial arbitrations and conciliation as well as domestic arbitration and conciliation; to minimize the supervisory role of courts in the arbitral process and to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court and this seems to have been achieved by the express provisions of the new Act and the interpretative jurisprudence generated by the Supreme Court. Where absolute arbitral finality is inimical to a rational system of ‘public policy’ as recognized by the Indian Supreme Court in several judgments and on the other hand, it is necessary for an effective international arbitral system. Balancing the conflicting claims of public policy and arbitral finality is difficult. A globally compatible definition of ‘public policy’ should be adopted or the court should abdicate the public policy to some extent so as to ensure the edifice of International Commercial Arbitration – an arbitral award might run contrary to the public policy of India but it might not be against the public policy at the International level and might be beneficial too to that party. 14

Parties Must Specifically Exclude Application of Part I of the Act Some authors have opined that until the Venture Global decision is reversed or overruled by a larger bench of the Supreme Court, parties doing business in India or elsewhere with Indian parties should include in their arbitration provision a clause specifically excluding the applicability of Part I of the 1996 Act. This should make Section 34 inapplicable to the award. Further, it is best to make this exclusion express and not rely on the Court's statement that the exclusion can be implied because it is not clear as to what the court would find to be an acceptable implied exclusion. For example, in INDTEL Technical Services Pvt. Ltd. v. W.S. Atkins PLC, the parties’ memorandum of understanding indicated that the construction, validity and performance of the agreement would be governed by and construed in accordance with laws of England and Wales. However, it was held that Indian courts had jurisdiction to appoint the arbitrator under Section 11(9) because the parties had not chosen the seat of arbitration. The Court did not consider the choice of foreign law as an implied exclusion of Part I by the parties. This results in uncertainty about the enforcement of foreign awards. It is essential to remedy this situation. The Legislature Must Take Steps to Preserve the Sanctity of the ADR movement Some other suggestions have called for India's Legislature ought to take steps to curtail unnecessary judicial legislation and derailment of arbitration proceedings in the garb of filling lacunae in the 1996 Act. The international network of reciprocal enforcement treaties of universal disposition should be adopted by India to foster the respect for the International Arbitration. Judiciary Must Respect and Support Globally Accepted Dispute Resolution Mechanisms It has been said that India's judiciary should adopt an internationally acceptable approach to the enforcement of a foreign award under the New York Convention and create an arbitration friendly environment. Its courts should not hesitate to appoint amicus curiae or experts whenever faced with issues relating to interpretation of New York Convention provisions. In fact, since most judges sitting on the lower courts have little or no experience dealing with issues arising out of the New York Convention, the Indian Bar should hold conferences, seminars and training programs to bring these issues to the bench and discuss issues of concern. If a legal system does not hold the promise of speed or certainty, a stigma of certain “risk premium” is added to the cost of the transaction which, if excessive, may make the transaction commercially unviable. Foreign investors have typically preferred arbitration and shied away from Indian courts due to curse of prolonged delays in litigation system coupled with backlog of cases. Case Law: Renusagar Power Co Ltd entered into a contract General Electric Company, which provided for 15

arbitration under the auspices of the International Chamber of Commerce (“ICC”) in Paris. A dispute arose and General Electric referred the matter to arbitration. Renusagar applied to the Bombay High Court seeking a declaration that the dispute referred to arbitration was beyond the scope of the arbitration agreement, as well as injunctions to prevent General Electric and the ICC from proceeding with the arbitration. General Electric filed an application to a Single Judge requesting that the judicial proceeding initiated by Renusagar be stayed pursuant to Section 3 of the Foreign Awards (Recognition and Enforcement) Act 1961 (the “1961 Act”) (mirroring Article II(3) NYC) and that the ex parte interim injunctions be vacated. The Single Judge found in favour of General Electric and, following Renusagar’s appeal, so did the Court of Appeal. Renusagar appealed the decision of the Court of Appeal to the Supreme Court, arguing that the suit it filed was for a declaration that the dispute fell beyond the scope of the arbitration agreement and, consequently, Renusagar’s application did not address the merits of the dispute but only the scope of the arbitration agreement itself. The Supreme Court dismissed the appeal, ordering that the proceedings before the Bombay High Court be stayed and the interim injunctions be vacated. The Supreme Court noted that the 1961 Act was enacted to give effect to the NYC and therefore the provisions of the 1961 Act had to be construed liberally in order to achieve the overarching purpose of the speedy settlement of disputes. Further to that, the Supreme Court noted that Section 2 of the 1961 Act “closely follows” Article II NYC, which the Court held provides for recognition of agreements by which parties undertake to submit all of their disputes to arbitration. The Supreme Court considered that all of the requirements for the application of Section 3 of the 1961 Act were satisfied, holding that the scheme of Sections 3 and 7 of the 1961 Act (mirroring Articles II(3) and V NYC, respectively) suggests that questions of validity, effect and scope of the arbitration agreement are to be decided by the arbitral tribunal. With respect to Section 3, the Supreme Court took note of two changes from the legislative framework of the Arbitration Act 1940 (the “1940 Act”): (i) that Section 3 of the 1961 Act is expressed to apply “notwithstanding” any provisions of the 1940 Act; and, (ii) that a stay is mandatory under Section 3, provided the requirements for its application were satisfied. In reaching its decision, the Supreme Court stressed that, under the scheme of the 1961 Act, a decision of the arbitral tribunal on its own jurisdiction would be regarded as “provisional or tentative, subject to final determination of that question by the Court.”

Non-domestic award It is provided in the second paragraph of Article I (1): The Convention shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. 16

The Convention did not provide a specific definition of the non-domestic award. If looking back to the historical background of this Article, it will not be difficult to find that the non-domestic award was inserted because some civil law countries intended to widen the application of the New York Convention. For example, suppose an arbitral award was made in France under the arbitration law of China, and you want to enforce this award in France. However, under the French law, this award would be considered as a foreign award, and in the mean time such an award would not recognized as the ‘foreign arbitral award’ in the context of the New York Convention because this award was not made in the territory of another State. Hence in this sense, the non-domestic criterion somehow enlarges the application of the Convention. Non-domestic award may cover three categories: (a) An award made in the enforcement State under the arbitration law of another State. (b) An award made in the enforcement State under the arbitration law of that State involving a foreign (or international) element. (c) An award that is regarded as „a-national‟ in that it is not governed by any arbitration law5. In (b), it was brought to the public view by the US leading decision in Bergesen v. Muller. The US court of Appeals for the Second Circuit enforced an arbitral award made in New York under the New York Law between a Norwegian shipowner and a Swiss company, by relying on the non-domestic award criterion in Article I (3) of the New York Convention. The Court held that since the Convention did not define the nondomestic awards, then the Enforcement State was permitted to define its own understanding of the non-domestic award in accordance with its national law. Most importantly, the court adopted the view that awards „not considered as domestic‟ denotes awards which are subject to the Convention made within the legal framework of another country, e.g., pronounced in accordance with foreign law or involving parties domiciled or having their principal place of business outside the enforcing jurisdiction. In (c), it is still controversial that whether, “Non-domestic” award criterion could offer the possibility to embrace the recognition and enforcement of arbitral awards made without any reference to the application of any national arbitration law. Courts’ definitions of public policy as a ground for refusal of enforcement of foreign 5

Albert Jan van den Berg, The New York Convention of 1958: An Overview

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awards In the absence of a definition of public policy in most arbitration laws, domestic courts seem, in general, to have difficulty in precisely defining the meaning and the scope of the notion. In the vast majority of jurisdictions covered by this report, a violation of public policy implies a violation of fundamental or basic principles. These principles seem, however, to be differently expressed by courts (and scholars) depending on whether they are in civil law or common law jurisdictions. In the first group, the definitions of public policy generally refer to the basic principles or values upon which the foundation of society rests, without precisely naming them. In the second group, on the other hand, the definition often refers to more precisely identified, yet very broad, values, such as justice, fairness or morality. Hereafter follows a non-exhaustive and illustrative list of definitions from civil law jurisdictions, referring to public policy as the foundation of the legal system, on which society’s moral, political or economic order rests.  Argentina: “Fundamental principles upon which the Argentinian legal system is based.”  Belgium: “What touches upon the essential interests of the State or of the community or sets, in private law, the legal basis on which rests the society’s economic or moral order.”  Brazil: “The fundamental principles of its jurisdiction. It is worth mentioning that public policy includes the political, legal, moral and economical aspects of the constituted State.”  China: “The principle of the law, fundamental interests of the society, safety of the country, sovereignty and good social customs.”  Egypt: “Rules aiming to achieve a public interest, whether political, social or economic, pertaining to the society’s high order and which prevails over the individual interest.”  Germany: “The very fundamentals of public and economic life” or “the fundamental principles of the German legal order.”  Italy: “Those fundamental norms and values of ethical, social, political and economic 18

nature that lie at the heart of the Italian legal order. ”  Japan: “The basic principles or basic ideas of the legal system of our country. ”  Switzerland: “Fundamental values of the Swiss legal order.”  Australia: “Fundamental norms of justice and fairness.”  England: Courts are reluctant to precisely define public policy: “considerations of public policy can never be exhaustively defined, but they should be approached with extreme caution. It has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised.”  Singapore: “The most basic notions of morality and justice.”  USA: “Most basic notions of morality and justice” and “[f]undamental notions of what is just in the United States”. Finally, in a minority of jurisdictions, public policy seems to be given a much broader content. Examples can be found in the following jurisdictions:  India: The enforcement of a foreign arbitral award may be refused by an Indian court on the ground of public policy if such enforcement would be contrary to: (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.  Kenya: An award is deemed contrary to public policy if it is either (i) inconsistent with the Constitution or other laws of Kenya, whether written or unwritten; (ii) inimical to the national interests of Kenya, or (iii) contrary to justice or morality. Finally, it is important to note that, whatever the definition adopted, many courts stress that public policy is an ever-evolving concept.

Conclusion: An arbitral award is a determination on the merits by an arbitration tribunal in arbitration, and is 19

analogous to a judgment in a court of law. Arbitration is particularly popular as a means of dispute resolution in the commercial sphere. One of the reasons for doing so is that, in international trade, it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court. Recognition refers to the court where the recognition is sought to give a binding legal force to an already made arbitral award. Contravention of public policy is thus one of the few grounds for refusing the recognition or enforcement of a foreign award.

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