Source: https://de.scribd.com/document/48112895/annulment
Timestamp: 2020-07-12 01:32:09
Document Index: 61332224

Matched Legal Cases: ['Art. 1', 'Art. 190', 'Art. 827', 'Art. 34', 'Art. 16', 'Art. 30', 'Art. 15', 'Art. 16', 'Art. 6', 'Art. 34', 'Art. 34', 'Art. 34', 'Art. 36', 'Art. 806', 'Art. 3', 'Art. 1676', 'Art. 177', 'Art. 5', 'Art. 1502', 'Art. 58', 'Art. 48', 'Art. 1704', 'Art. 829', 'Art. 1704', 'Art. 1065', 'Art. 36', 'Art. 1717', 'Art. 192', 'Art. 1505', 'Art. 59', 'Art. 34', 'Art. 191', 'Art. 191', 'Art. 1595', 'Art. 43', 'Art. 1704', 'Art. 1964', 'Art. 57', 'Art. 34', 'Art. 1067', 'Art. 63', 'Art. 37', 'Art. 58', 'Art. 1707', 'Art. 1704']

annulment | Arbitration | Jurisdiction
speichernannulment für später speichern
Amiron Development Corp. Et Al v. Sytner Et Al Doc 24 Filed 29 Oct 12
Corporation Law Title I - FT
Case Digest GONZALES Vs
Once a judge or arbitrator passes a decision in a dispute, parties are likely to have an entirely different position regarding it. If a clear winner emerged from the proceedings, he is likely to put a premium on the efﬁ ciency of the entire process, rather than to be concerned with possible imperfections of the decision. On the other hand, a party which ended up on the losing side would be grateful for the possibility to re-examine the award and sacriﬁ ce speed in order to achieve ‘a better result’. However, the ladders of recourse against decisions are constructed ex ante – a prudent legislator attempts to ﬁ nd a proper balance between ﬁ nality and quality of decision making. When it comes to adjudication, this usually means that the ﬁ rst instance court is in charge of determining facts and applying law, and that one (or possibly two) higher instances may be invoked in order to re-examine the manner in which the law was applied. In the course of this examination, the original decision may be approved, reversed or annulled and referred for another round of ﬁ rst-tier litigation. Once the award manages to clear all these hurdles, it will become ﬁ nal and binding, a res judicata. However, even when it becomes ﬁ nal and binding, legislators usually reserve a limited arsenal of remedies which may still be used against it. This extraordinary recourse is supposed to eliminate decisions which have somehow snuck through, although their very foundations are seriously deﬁ cient (e.g. award has been procured by fraud, or is based on forged evidence). Given such a plethora of hurdles, it is not surprising that the average litigation lasts for quite some time. Not every case turns up as lengthy as
CHRISTINA KNAHR, CHRISTIAN KOLLER, WALTER RECHBERGER AND AUGUST REINISCH (EDS.),
Investment and Commercial Arbitration – Similarities and Divergences, 131-152. © 2010 ELEVEN INTERNATIONAL PUBLISHING. Printed in The Netherlands.
Jarndyce v. Jarndyce 1 – still, the slow pace at which the court judgment matures into ﬁ nality inevitably clogs the judiciary. Arbitration has originally been touted as the answer to many maladies of
litigation. Flexibility, conﬁ dentiality, suitability for international trade – one could hardly look down at those traits. The ability to participate in choosing those who will decide sounded even better. However, the two main selling points were the good prospects of cross-border enforcement and the speed at which the award is rendered. Since arbitration is in principle not subject to appeal, the ﬁ nal award, equal in its standing to a judgment of the court, is not beyond the event horizon. A single stage of deliberation means that there are no expenses associated with appeals. Consequently, despite initial substantial costs, arbitration can turn out to be cheap in the long run. Still, the fact that an arbitration award is equal to a ﬁ nal court judgment is a gift that had to come with a price – control of the judiciary over the awards. The arrangement is a sensible one – although arbitration is a creation of contract and the resulting award comes as a proclamation of ‘private justice’, it is only the state which can elevate it to the standing of a court judgment. Without such
trait, all other advantages of arbitration over litigation would be worthless. Since the state allows its adjudicatory prerogatives to be contracted out, it
only natural that it reserves the right to control the resulting output. Such
control, therefore, represents a sort of a risk management. 2 The question is, therefore, not whether states can and will control arbitration awards – but rather, how that control will be exercised. Given that litigation and arbitration differ so much, it would be very improper to transplant the potentially lengthy and invasive system of control used to ﬁ lter out deﬁ cient court judgments. Also, it is reasonable to assume that those avoiding litigation would prefer court review to be relatively light and that they value ﬁ nality much more than they are interested in having justice done in an absolutely perfect manner.
Converging Designs and Points of Departure
There are, of course, many ways in which a system of state control over arbitration awards may be designed. The world of arbitration is not, however,
Tower of Babel – not only because English has emerged as the leading
language of international commercial arbitration, but also because lawyers who engage in arbitration have developed a sort of converging terminology and helped the creation of a converging legal environment in which arbitration takes place. Three documents paved the way for such harmonization: the ﬁ rst was the 1958 Convention on Recognition and Enforcement of Foreign Arbitral
1 C. Dickens, Bleak House, available at http://www.gutenberg.org/etext/1023.
2 W. W. Park, Arbitration of International Business Disputes 147 (2006).
Awards (New York Convention). It tackled the control of the awards at the point of recognition and enforcement. The second were the 1976 UNCITRAL Arbitration Rules which not only fostered conduct of ad hoc arbitrations, but have also served as a useful guidance for reﬁ nement of institutional rules. Finally came the 1985 UNCITRAL Model Law (revised in 2006), with a very ambitious goal: to help harmonize the existing national arbitration laws and bring parochial particularities to a minimum. 3 Since the modern consensus is that the control over arbitral awards has to be exercised in the country of arbitral situs, the importance of the UNCITRAL Model Law (and the consensus that has been built prior and after its enactment) cannot be underestimated. Two Austrian authors even likened it to a “great ﬂ attener […]. However, not the entire world has been ﬂ attened. There are great plains as well as rocky mountains. The plains exist where the Model Law has been introduced – steep mountains remain where it is not the case.” 4 A closer examination would, however, reveal that the ‘great plains’ occasionally give way to rolling hills, as virtually every Model Law jurisdiction has found it necessary to add some national ‘ﬂ avor’ and peculiarity to the original design. What is more, those ‘rocky mountains’ cannot be disregarded, since the preponderance of major arbitral jurisdictions are not ‘Model Law jurisdictions’: France, Switzerland and the United States are still trailing their own paths. This fact alone threatens to turn any comparative overview of state control over awards into a tedious listing of national particularities. However, there is no need for pessimism. The principles of control over arbitral awards that were built into the Model Law represent a sort of global consensus on proper balance between ﬁ nality and perfectionism. Still, the further one goes from the grounds of annulment, local concerns and speciﬁ cities take an ever more important role. This contribution will try to identify those convergences and speciﬁ cities, and some of the problems lurking behind the prevailing current design.
3. Preliminary Issues – The ‘Award’ and its ‘Nationality’
Generally speaking, a dissatisﬁ ed party may try annulment (other terms used are usually ‘setting aside’ and ‘vacatur’) of the award in the country of its origin. In all other jurisdictions, the losing party may only attempt to resist recognition and enforcement. 5 It is, therefore, important to ascertain
3 According to the ofﬁ cial UNCITRAL count, there were 68 countries which adopted arbitration legislation based on 1985 and 2006 versions of the UNCITRAL Model Law (hereinafter: ‘Model Law’) until December 31, 2008. Full list availiable at http://www.uncitral.
org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html.
4 G. Zeiler & B. Steindl, The New Austrian Arbitration Law 5 (2006).
5 Foreign awards always have to undergo a procedure of recognition and enforcement. As for
the ‘nationality’ of the award in order to set the annulment mechanism into motion. Generally, there have been two criteria by which the origin of an arbitral award has been determined. According to the procedural criterion, the nationality of an award has been determined pursuant to the procedural environment in which it was rendered. Normally, the lex loci arbitri governed the procedural issues as well, but this was not necessarily always the case. The second, territorial, criterion has prevailed, placing importance on the location where the award has been made, i.e. where the tribunal has its legal seat. While the New York Convention does not favor any of the two criteria, the Model Law is based on territorial ‘philosophy’. 6 Conseqently, the spread of the Model Law has contributed to marginalization of the procedural criterion. 7 It is fair to ask whether such importance should be bestowed on the judiciary of the arbitral seat. After all, the seat may well have been chosen on a whim, out of ignorance, inertia or selected by the arbitral institution or arbitrators to substitute for the lack of parties’ choice. There are several plausible answers to such dilemmas, but paraphrasing Churchill one can cut a long story short:
although there may be situations where the seat would represent inadequate forum for control, vesting courts of the seat with the competence to handle the procedure for setting aside is the least bad solution. Any other connection point (nationality of the arbitrators, procedural law chosen, substantive law chosen, or seat of the arbitral institution) would produce a design potentially much more detached from the realities of international commercial arbitration. Objecting to the adequacy of the territorial criterion presupposes that one agrees with the concept of court control, but disagrees with the location where such control should be exercised. However, the world of arbitration has witnessed much more radical attempts to diminish the role of the seat. Those advocating ‘delocalization’ have argued that, in order to be truly international, arbitration has to be freed from parochial constraints of local judiciaries and that the resulting award need not be controlled at its conception, but only eventually in the procedure for recognition and enforcement. 8 Much of the
domestic awards, in some systems they are directly enforceable in the same manner as court decisions are. In other systems, there is a procedure of ‘internal’ or ‘domestic’ recognition.
6 Art. V(1)(e) of the New York Convention, Art. 1(2) of the Model Law.
7 One of the exceptions seems to be Germany. Although a Model Law jurisdiction, the wording of Section 1062(2) of the German ZPO seems to provide that German courts are competent to set the award aside even when it has not been rendered in Germany. In such cases, competence is based on the domicile or assets of the defendant: “If the place of arbitration in the cases referred to in subsection 1, no. 2, ﬁ rst alternative, nos. 3 and 4 is not in Germany, competence lies with the Higher Regional Court (Oberlandesgericht) where the party opposing the application has his place of business or place of habitual residence, or where assets of that party or the property in dispute or affected by the measure is located, failing which the Berlin Higher Regional Court (Kammergericht) shall be competent.”
8 P. Fouchard, La Portée internationale de l’annullation de la Sentence arbitrale dans son pays d’ origine, Rev. Arb. 329, at 351 et seq (1997).
‘delocalization’ drive has been fueled by the mutual distrust of arbitrators and judges, and much of that distrust and tension has been eased through gradual convergence of arbitration laws. The prevalence of the territorial criterion makes it fairly simple to determine whether the award is ‘domestic’ for the purpose of annulment. It is, however, much harder to determine what exactly amounts to an ‘award’, i.e. what can be subject to setting aside at all. During the course of the proceedings, the tribunal may render numerous awards and label them differently. Such labeling may also differ from one tribunal to another and from one legal culture to another. While there is no doubt that the ﬁ nal award, one that disposes of the subject matter of the dispute, is subject to setting aside proceedings, the situation is less clear with other decisions. A partial award should also be subject to setting aside, since it disposes of the subject matter partially – not allowing such a challenge would enable circumvention of the control regime. However, when it comes to decisions which deal with jurisdictional issues, but are labeled as ‘awards’ (e.g. ‘preliminary’, ‘interim’), the proper course of their challenge is not the procedure of setting aside, but rather a special recourse to the courts which is governed by different standards of examination. 9 Other rulings may be challenged only along with the ﬁ nal award. 10
As already observed, an ever increasing number of jurisdictions have adopted the Model Law as the basis for their regulation of arbitration. This brings about global convergence in many aspects, one of which is an almost uniform list of the grounds on which an arbitral award may be challenged. Here, however, it is particularly prudent to underline that the Model Law only served as a blueprint for national legislations and that jurisdictions following such guidance have sometimes added their local ‘ﬂ avor’ to the Model Law ‘recipe’. In addition, some of the most important arbitral jurisdictions are still outside of the Model Law system.
9 See e.g. Swiss Private International Law which, pursuant to Art. 190(3) allows such ‘awards’ to be challenged only on the basis of defects of jurisdiction and composition of the tribunal. For further aspects of the Swiss law see J. Poudret & S. Besson, Comparative Law of International Arbitration 710 et seq. (2007). The German ZPO also distinguishes between various types of awards that dispose of the subject matter (completely or partially) – Sections 1053, 1056 and 1059 and other decisions – reserving setting aside only for ‘awards’. The practice of the French tribunal seems contradictory: sometimes the qualiﬁ cation that the tribunal puts on the decision (‘award’) is held to be important, while on other occasions it was held that falsa nominatio non nocet: see two decisions of Cour d’appel Paris Corrado v. Raimbault, Cahiers de l’arbitrage 2005/1, cf. Otor Participations v. Carlyle holdings, Rev. Arb. 737 (2005).
10 Italian Code of Civil Procedure Art. 827(3).
4.1. Model Law Grounds for Annulment
Model Law drafters were particularly keen to set up a catalogue of grounds for challenge which would mimic the list of possible grounds on which the recognition and enforcement of the award may be resisted under the New York Convention. Therefore, the Model Law contains a ‘4+2’ exhaustive list: four grounds that are examined by the court only if invoked by the plaintiff (invalidity of the arbitration agreement, irregular composition of the arbitration tribunal, violation of due process, deciding beyond the scope of the submission to the tribunal) and two additional grounds which are examined ex ofﬁ cio (arbitrability and public policy). The ﬁ fth ground which is examined if invoked by a resisting party under the New York Convention – that the award has been set aside in a country of origin – was naturally not included in the Model Law. The ‘4 + 2’ list represents a sort of a global consensus on what seems to be the ‘golden middle’ of permissible scope of control over the award. A cardinal principle is that there should be no substantive review of the award. Although there are minor exceptions to this even under the Model Law and New York Convention, and to a degree in some important non-Model Law jurisdictions, limited review of the award is nowadays the norm. This laissez-faire approach has a side effect – the judiciary is denied the opportunity to rule on certain important and even controversial legal issues. 11
4.1.1. Validity of the Arbitration Agreement
The Model Law provides that the award may be set aside if a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid. The validity of the agreement is examined under the law to which the parties have subjected it or, if they failed to exercise such choice, under the law of the lex arbitri (lex fori). 12 This ground for annulment is only one of several which can possibly be used to rectify jurisdictional insufﬁ ciencies. However, the only jurisdictional aspect it deals with is the invalidity of the arbitration agreement – due to the lack of the capacity of the parties or some other reason. Other jurisdictional challenges may still be lodged, but under other appropriate grounds provided for in the Model Law. Although the scope of this ground is limited, its potential impact is signiﬁ cant, as the challenge is naturally directed against the totality of jurisdiction. If there was no valid agreement, nothing can come out of it – ex nihilo nihil ﬁ t. The outer limits of this check are not clear. It would be
11 Park, supra note 2, at 11.
12 Model Law, Art. 34 (2)(a)(i).
logical that the ‘invalidity’ also covers ‘inexistence’, and the situation where the agreement does not bind a person which has been named a party to the arbitration. 13 This ground of examination provides a counterbalance to the Kompetenz- Kompetenz enjoyed by the arbitral tribunal. Even the most far-reaching
variation of Kompetenz-Kompetenz (‘negative Kompetenz-Kompetenz’) only provides that the tribunal will have the right to be the ﬁ rst venue where jurisdiction (including the validity of the arbitration agreement) will be examined. 14 However, tribunals will not necessarily have the last word – it will usually belong to the courts. 15 This is absolutely clear with regard to decisions of tribunals where they ﬁ nd that indeed they have jurisdiction and that the agreement is valid. In the cases where the tribunal has the ‘ﬁ rst shot’ at examining the validity of the arbitration agreement and ﬁ nds that it is invalid, the follow-up differs among various jurisdictions. In some Model Law countries, true to the original blueprint, 16
it is a matter of principle that the negative decision on arbitration cannot be
overturned and that agreement may not be ‘forced upon’ arbitrators. 17 There are, however, examples to the contrary, as the Austrian legislator appears to
have reserved the last say for the courts even in the situations where arbitrators found agreement to be invalid. 18 One also has to have in mind that this ground for challenge may effectively (if not literally) be disposed of in a different procedural lane: if the tribunal renders a preliminary (positive) decision on jurisdiction and proceeds towards
a ﬁ nal award, such preliminary decision may be challenged before the courts
of the seat. The court’s potentially negative decision would ﬁ nally settle the
jurisdictional issues. 19
13 For a contrary view, see Poudret & Besson, supra note 9, at 731.
14 See generally E. Gaillard, The Negative Effect of Competence-Competence, Mealey’s International Arbitration Report 27 (2002).
15 Therefore, there will be no ‘binding Kompetenz-Kompetenz’. Sometimes, however, an even earlier role might be reserved for the judiciary. Pursuant to Sec. 1032(2) of the German ZPO a party may request an early ruling on ‘admissibility’ of the dispute from the courts. This covers jurisdictional issues as well, including the issue of the validity of the arbitration agreement. See S. Kröll & P. Kraft, Ten Years of UNCITRAL Model Law in Germany , 1 World Arbitration and Mediation Review 439, at 453 et seq (2008).
16 Art. 16(3) of the Model Law.
17 Serbian Law on Arbitration Art. 30, Croatian Law on Arbitration Art. 15(3). A similar outcome follows from the interpretation that the Supreme Court of Germany gave to the Sec. 1062 of the German ZPO in its decision on 6 June, 2002, reported in German Arbitration Journal (SchiedsVZ) 39 (2003). The court has noted, however, that a negative decision on jurisdiction is still a ﬁ nal award and is subject to application for setting aside: although it may not be annulled on the basis that arbitrators wrongly declined jurisdiction, it may still be set aside for other reasons (e.g. improper composition of the tribunal, improper conduct of the procedure, etc.).
18 Austrian ZPO Sec. 592 and 611.
19 Art. 16 Model Law.
4.1.2. Due Process
Fair procedure is a cornerstone of any just decision. Although the due process principles enshrined in some of the most important legal instruments do not apply to arbitration, arbitrations nevertheless have to observe certain minimal procedural standards. 20 It is therefore not surprising that the Model Law provides that an award may be annulled if a party was unable to present its case. One potential reason for such inability has been singled out: lack of proper notice of the appointment of the arbitrator or of the proceedings. This is hardly the only reason, but certainly a very important one. The adequateness of notice is checked against the rules that the parties have agreed upon – usually those are the rules of a particular arbitration institution, or some model rules. Failing such choice, notice has to be in compliance against the rules of the lex arbitri. The fact that the notice has been inadequate is not in itself a reason for annulment. Rather, omission is checked against the effects it has produced and becomes relevant only if it prevented a party from presenting the case. If the subsequent notice cures the initially defective communication, a party may not invoke this ground. It is sometimes difﬁ cult to grasp the exact meaning of the term ‘due process’ (ability to present a case, fair hearing, etc.). The basics are not disputed:
beside a proper notice, parties should be allowed to present their arguments and should be given equal treatment. 21 It is more difﬁ cult to agree on what precisely this amounts to in a particular case, especially when the parties and arbitrators come from different legal traditions. 22 The view on other points is even less uniform: American practice insists on the right to an oral hearing, while on the Continent this is not regarded as a part of the ‘right to be heard’. 23 On the other hand, continental systems are more sensitive about preserving the adversarial character of the proceedings. Although violation of due process represents a very important ground for challenge, it will not succeed on every occasion. For instance, an award can be annulled where the tribunal deliberately conceals documents from the party, or fails to disclose evidence it obtained to one or both parties. 24 In order
20 Swiss Federal Tribunal held that Art. 6 of the European Convention of Human Rights (ECHR) does not apply to arbitration since the arbitration tribunal does not represent a ‘tribunal established by law’ within the meaning of Article 6 of the ECHR. However, it concluded that certain fundamentals of due process have to be observed. See BG 11 June 2001, ASA Bull. 566
21 On equal treatment as ‘part of international public policy’ see Dutco case, Cour d’appel Paris 9 September 1997, (Heilmann v. Graziano Trasmissioni) Rev Arb 712 (1998) note by Derains.
22 A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration 490
23 OLG Naumburg 21 February 2002, availiable at www.dis-arb.de; similarly in Switzerland BG 24 March 1997, ASA Bull. 200 (1997).
24 Superior Court of Justice, Canada, 22 September 1999, CLOUT case no 391.
to present its case, a party has to be given a reasonable time to respond to the other party’s submission. 25 However, a party’s request to rehear a certain witness can be refused without giving reasons and such refusal does not constitute a violation of due process. 26 Similarly, there is no violation of due process if a key witness, although summoned twice, does not appear to provide testimony. 27 Finally, if a party refuses to participate in the proceedings, it is considered to have deliberately forfeited its right to be heard. 28
4.1.3. Exceeding Jurisdiction
The second Model Law ground for annulment expressly related to jurisdiction is designed to curb its excess and allows setting aside where:
the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or 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, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside. 29
The Model Law is, therefore, concerned with the situation where the tribunal exceeds its authority. The wording used (‘submission’) is, however, open to
interpretation. Without any doubt, acting beyond ‘terms of the submission to arbitration’ would cover situations where the award goes beyond the requests for relief actually submitted or grants something different (ultra petita or extra petita). Also, it is clear that the excess would exist where the award is within requests for relief, but those requests include matters which were not covered by the arbitration agreement (extra potestatem). An award which does not address all submissions of the parties (infra petita) does not provide reason for annulment in the Model Law system. 30 It is, however, not so clear whether this is the proper ground to invoke where
a party alleges that it never became a party to the agreement whatsoever, i.e. where arbitration was brought against a resisting non-signatory. If one accepts that the ﬁ rst ground related to jurisdiction (Art. 34(2)(a)(i)) covers only ‘invalidity’ of the arbitration agreement, and not its scope ratione personae 31 a non-signatory should be allowed to challenge the award based on the fact that
it has, in effect, never ‘submitted’ to the arbitration in the ﬁ rst place.
25 OLG Dresden 25 October 2000, 11 Sch02/00, availiable at www.dis-arb.de.
26 OLG Frankfurt a.M., 10 July 2003, 26 Sch01/03, availiable at www.dis-arb.de; Bayerisches Oberstes Landesgericht; 4 Z Sch 23/99, CLOUT case 395.
27 Corte di Cassazione, 23 March 1997, decision no 10229.
28 Superior Court of Justice, Canada, 22 November 1999, CLOUT case 391.
29 Art. 34(2)(a)(iii) of the Model Law.
30 However, according to some national legislations, award infra petita is suf ﬁ cient ground for annulment.
31 Poudret & Besson, supra note 9, at 729.
If it is possible to distinguish the part of the award where the tribunal exceeded its jurisdiction from the part of the award which remains within the boundaries of submission, only the excess should be annulled. Although this is the only provision of the Model Law regarding partial annulment, one could argue that partial annulment should be allowed on other grounds as well. 32
4.1.4. Irregular Procedure or Irregular Constitution and Appointment of the Tribunal
Agreement of the parties is the cornerstone of arbitration. Adherence to that agreement is particularly important when it comes to the way in which arbitrators are chosen and the way the procedure is conducted. It is, therefore, logical that the Model Law regards deviations from such a choice as sufﬁ cient ground for annulment of the award. 33 However, there are limits to applying this principle rigorously. Firstly, there may be instances in which the agreement of the parties has been frivolous, or was not frivolous but its non-observance has not affected the case and the ﬁ nal outcome. It would not be prudent to treat such infractions as suf ﬁ cient reason to annul the entire proceedings and wipe out the tribunal’s efforts in reaching the ﬁ nal award. Therefore, the irregularity invoked has to be the one which might have affected the ﬁ nal decision. 34 Secondly, the arbitration does not exist in a legal vacuum and the parties enjoy their freedom precisely because a legal system allowed it. Consequently, their freedom is checked by the mandatory rules of the applicable law, i.e. lex arbitri. When party stipulations are contrary to such rules, arbitrators may safely disregard them and apply rules of the lex arbitri instead. 35 If the parties have forfeited the opportunity to determine in more detail the procedural framework under which the arbitration will proceed, the procedure agreed upon will be checked under the lex arbitri. Non-mandatory rules of the lex arbitri will seldom play a signiﬁcant role, as the parties either choose elaborate rules of arbitral institutions, or ad hoc environment shaped by the 1976 UNCITRAL Rules.
32 This is the argument offered by Poudret & Besson, supra note 9, at 874 when arguing that partial recognition and enforcement should not be limited to Art. V(1)(c) of the New York Convention. Mutatis mutandis, the same reasoning should be applicable to the scope of the annulment as well.
33 Art. 34(2)(a)(ii) reads: “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conﬂ ict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law.”
34 This has expressly been speciﬁ ed in Sec. 1059(2)(1)(d) of the German ZPO and Art. 36(2) (1)(e) of the Croatian Law on Arbitration.
35 Redfern & Hunter, supra note 22, at 496.
When it comes to the composition of the tribunal, this ground attempts to ensure that the tribunal is composed in a manner (and sequence) provided by the agreement of the parties. It is questionable whether this ground can be used to annul a decision based on alleged bias of the arbitrator. 36
4.1.5. Ex Of ﬁ cio Grounds – Arbitrability and Public Policy
While other grounds for review are examined only if raised by the party requesting annulment, a court will ex ofﬁ cio check whether the matter was arbitrable or if the award runs contrary to public policy. Under the Model Law, the scope of the arbitrability check is limited to ‘objective arbitrability’ – ensuring the subject matter of the dispute is capable of being settled by arbitration. 37 Therefore, this ground is not concerned with arbitrability ratione personae (subjective arbitrability), which is mostly relevant with respect to states and public entities. 38 The court which is seized will apply lex fori notions of arbitrability, which nowadays typically cover ‘all matters that parties may freely dispose of’ 39 , ‘all pecuniary matters’ 40 , ‘proprietary claims’ 41 , or a combination thereof. 42 This normally means that arbitrability is not affected by exclusive court jurisdiction (‘formal non- arbitrability’). 43 In practice, the scope of arbitrable matters is ever expanding:
it now includes not only disputes that were traditionally within the ambit of international commercial arbitration, but also disputes which include matters of antitrust, intellectual property rights, and rights in securities. 44 However, arbitration is still allowed only to penetrate predominantly civil aspects of disputes where laws of public importance (‘economic laws’) are applicable.
36 For a negative view, see BGH 4 March 1999, BGHZ 141, 90; NJW 1999, 2370.
37 Article 34(2)(b)(i) of the Model Law.
38 E. Gaillard & J. Savage, Fouchard Gaillard Goldman on International Commercial Arbitration 313(1999). Subjective arbitrability still sometimes affect non-State parties as well:
e.g. two Croatian legal and natural persons may not provide for arbitration with a seat abroad (Article 3(2) of the Croatian Arbitration Law) – this will, however, be relevant only in the process of recognition and enforcement, since the Croatian courts would not be competent to set aside the resulting award.
39 Italian Code of Civil Procedure, Art. 806, Art. 3 of the Croatian Law on Arbitration, Belgian Judicial Code, Art. 1676(1).
40 Art. 177(1) of Swiss Private International Law.
41 Austrian ZPO, Sec. 582(1).
42 Sec. 1030(1) of the German ZPO combines pecuniary claims and non-pecuniary rights one may freely dispose of.
43 For instance, Art. 5 of the Serbian Law on Arbitration provides that arbitrable matters include ‘all proprietary matters parties can freely dispose of’, except for those subject to exclusive jurisdiction of (presumably Serbian) courts.
44 For evolvement of position in these matters see Redfern & Hunter, supra note 22, at 163 et seq.; Poudret & Besson, supra note 9, at 281 et seq.
Arbitration does not remove the state’s right to supervise and punish those who violate e.g. antitrust or securities laws. The scope of arbitrable issues is a matter that touches upon public policy. However, public policy has other aspects as well, and therefore represents a special and distinct check on the validity of the award. Its inclusion is a mixed blessing: on one hand, it reassures the legislator that awards which are contrary to basic foundations of society would not be allowed to exist in the domestic legal system. On the other hand, the public policy ‘wrinkle’ introduces a possibility for a backdoor substantive review of the award and carries an ever present risk of a concept being distorted through parochial lenses of a judge. 45 It is often recommended that public policy should be construed narrowly and applied scrupulously, since “[i]t is a very unruly horse, and when once you get astride it you never know where it will carry you.” 46 Although the concept of public policy is a darling of academic research, its practical impact on annulment is not very signiﬁ cant. According to a recent statistical study of Swiss annulment proceedings, there have been over one hundred challenges invoking public policy, none of which succeeded. Statistics also show that public policy is rarely invoked alone, and is instead used to ‘strengthen’ other grounds for requesting annulment. 47 Coincidentally, the numbers show that the success rate of challenges decreases with the number of grounds invoked simultaneously, and this might indicate that although public policy represents a serious check on awards, it is often invoked out of desperation. Despite the relatively modest practical impact, it has been recognized that conﬂ icting notions of public policy could disturb the harmony of cross- border decision making, as some states would set aside or refuse to recognize awards which would be valid in other jurisdictions. The conceptual response to this was the attempt to further restrict the scope of public policy in international commercial arbitration to “international public policy” (ordre public international). 48 A more practical one has been introduced in the 1961 European Convention on International Commercial Arbitration. Pursuant to its Article IX, courts of the member states are to disregard an award which is set aside in another member state if it was annulled for breach of public policy. At the same time, they are not to disregard annulment corresponding to other grounds contained in the Model Law.
45 Park, supra note 2, at 15-16.
46 Richardson v. Mellish [1824] 2 Bing 229, 252.
47 F. Dasser, International Arbitration and Setting Aside Proceedings in Switzerland: A Statistical Analysis, 25 ASA Bull. 444, at 454 (2007).
48 New French Code of Civil Procedure, Art. 1502(5); See ILA Committee on International Commercial Arbitration Interim Report on Public Policy as a Bar to Enforcement of International Arbitral Awards (London Conference, 2000) and A. Sheppard, Interim ILA Report on Public Policy as a Bar to Enforcement of International Arbitral Awards, 19 Arb. Int’l 217 (2003).
4.2. Additional Grounds
The Model Law is nothing more than a model, and states are free to add or subtract from it in accordance with their legislative preferences. One can view this process as a ‘deviation’ or adding a ‘local ﬂ avor’. The importance of such amendments varies – some are absolutely necessary in order to implant legislation within a particular national legal environment: unless properly ‘connected’ to other pieces of legislation, legislative reform would not work. However, adding additional grounds for annulment represents an intervention of particular importance and legislators have taken different approaches. Since it is impossible to list them all, it is worth noting some strategic choices in adopting the Model Law. For example, the Philippines’ Arbitration Law represents a particularly radical rehaul of Model Law grounds – so much so that its inclusion in the list of Model Law jurisdictions comes as a surprise. Basically none of the grounds provided for in the Model Law are present in the Philippines Act. 49 Instead, it introduces a possibility of ‘modiﬁ cation and correction’ of an award, where some of the grounds for such intervention at least resemble the Model Law grounds for annulment. 50 On the other hand, some countries opted to retain the grounds provided for in the Model Law and add additional points they considered important. For example, Austria explicitly provided that the award may be set aside if there are certain grounds which would have given reason for revision of a court judgment, namely, if the award has been fatally inﬂ uenced by criminal acts of parties or the arbitrators. 51 The Serbian legislator had a similar objective but
49 Section 24 of the Philippines Arbitration Law (R.A. 876) provides that the award may be vacated when: “(a) That award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufﬁ cient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualiﬁ ed to act as such under section nine hereof, and willfully refrained from disclosing such disqualiﬁ cation or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, ﬁ nal and deﬁ nite award upon the subject matter submitted to them was not made.” Given that the most of this provision is a verbatim copy of the US Federal Arbitration Act, sec. 10, it is hard to see how alteration of this magnitude still qualiﬁ es Philippines’ law as a ‘Model Law’ jurisdiction.
50 Sec. 25 of the Philippines Arbitration Law allows modiﬁ cation or correction “(a) Where there was an evident miscalculation of ﬁgures, or an evident mistake in the description of any person, things or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioner’s report, the defect could have been amended or disregarded by the court.”
51 Sec. 611(2)(6) of the Austrian ZPO reads “the preconditions under which a judgment
decided not to introduce it via reference to grounds for revision, and instead, to address them directly: in addition to the Model Law grounds, an award may be set aside if it
was based on a false statement of a witness or expert or on a forged document, or the award results from a criminal act of an arbitrator or a party, if these grounds are proven by a ﬁ nal judgment. 52
The Singapore Arbitration Act also provides that an award ‘induced by fraud or corruption’ will be set aside. 53 It is difﬁ cult to argue that an award based on criminal acts should stand equal to a court judgment – reputation of arbitration awards would quickly deteriorate and potential parties may become wary. Why was this ground for annulment then not included in the Model Law 4 + 2 formula? One way to interpret this is to treat it as a deliberate and true omission. Another would be to view those grounds as sufﬁ cient reasons to set the award aside for violation of public policy. 54 As already noted, some of the most important jurisdictions for international commercial arbitration (France, Switzerland, United Kingdom, and the United States, among others) do not belong to the Model Law camp. Overview of all the particularities under their regimes of annulment exceeds the volume of this study. While some of the grounds they list correspond to those available under the Model Law, quite a few of them do not. Most of those additional grounds are within the basic paradigm of no- substance review: e.g. contradictory dispositive 55 or the fact that reasoning for the award has not been stated. 56 However, some jurisdictions explicitly allow for substantive review of the award. For instance, English law allows for a very limited possibility of challenging an award if it contains a serious mistake of law. The appeal may be lodged only on point of English or Welsh law. Parties may prevent this possibility if they, at any time, exclude the possibility of appeal, or the need to provide reasons, or agree to institutional rules which exclude the possibility of such appeal. In addition, a leave of court is required. It will be granted only if the
of a court of law can be appealed by ﬁ ling an application for revision pursuant to section 530 subsection (1) numbers 1 to 5 are satisﬁ ed”, translation in G. Zeiler & B. Steindl, supra note 3, at 83. Said grounds include, inter alia, the cases where judgment (award) was based on completely or partially forged documents, on false testimony, was given as a result of an act punishable by law – willful misrepresentation, if the judge (arbitrator) was guilty of criminal negligence of his ofﬁ cial duties.
52 Art. 58(1)(5) of the Serbian Law on Arbitration.
53 Singapore Arbitration Act, Art. 48(1)(vi).
54 As explicitly provided by section 34 of the 1996 Indian Arbitration Act. For more on this dilemma, see D. Hiber & V. Pavic, Arbitration and Crime, 25 J. Int’l Arb. 461 (2008).
55 Art. 1704(2)(j) of the Belgian Judicial Code, Art. 829(1) of the Italian Code of the Civil Procedure.
56 Art. 1704(2)(i) of the Belgian Judicial Code, Art. 1065(1)(d) of the Netherlands Code of Civil Procedure, Art. 36(2)(1)(f) of the Croatian Law on Arbitration.
issue is substantively decisive, has already been raised in the proceedings and the court is convinced that it would be ‘just and proper to intervene’. 57 In the United States, the Supreme Court introduced ‘manifest disregard of law’ in Wilco v. Swan dictum. 58 This ground of annulment is not a statutory one, and is conversely open to re-examination in every single case. The result has not pleased everyone: while the courts are sometimes restrained and limit ‘manifest disregard’ to situations where the awards violate fundamental public policy or plain language of the contract, others expand the scope of the review to mistakes of law. 59 Even then, the only relevant mistakes are those that have effectively changed the outcome of the dispute and frustrated parties’ expectations. 60 The recent decision of the Supreme Court in Hall Street v. Mattel 61 threw lower courts into even more confusion: while some have interpreted it to mean that ‘manifest disregard’ is not a ground to annul under the Federal Arbitration Act at all, 62 others found that it is still a valid ground under which the award may be properly challenged. 63
4.3. The Role of Party Autonomy
It has already been noted that the design of control over arbitration is a result of compromise: on the one hand, parties are allowed to forfeit protection of state courts, while on the other hand, the resulting award will have to undergo state scrutiny in order to be effective. This design has two sharply different phases:
while in the ﬁ rst part (arbitration) party autonomy reigns supreme, the second part (court supervision) appears as a mandatory process parties can hardly inﬂ uence. This is still the case in the majority of jurisdictions: the system of control over the award is mandatory in its entirety: it cannot be waived in advance and it cannot be modiﬁ ed by the parties. It has to be accepted ‘as is’. However, in some of the jurisdictions this design is not so rigid. There have been experiments, for quite some time, to further limit the reach of the control of the courts of the seat. Its high water mark came with the Belgian reform of 1986, where the amendments provided that Belgian courts
57 Sec. 69 of the English Arbitration Act.
58 346 US 427 (“interpretations of the law by the arbitrator in contrast to manifest disregard are not subject, in federal courts, to judicial review for error in interpretation”).
59 For more on the standard see N. Rubins, ‘Manifest Disregard of the Law’ and Vacatur of the Arbitral Awards in the United States, 12 Am. Rev. Int’l Arb. 363 (2002); J. Beraudo, Egregious Errors of Law as Grounds of Setting Aside an Arbitral Award, 23 J. Int’l Arb. 351 (2006).
60 J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration 679
61 Hall Street Associates, L.L.C. v. Mattel Inc., 128 S. Ct. 1396 (2008).
62 Citigroup Global Markets, Inc. v. Bacon, 2009 WL 542780.
63 Coffee Beanery, Ltd. v. WW. L.L.C., 2008 WL 4899478; Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008); Comedy Club Inc. v. Improv West Assocs., 2009 WL
205046.
would not have jurisdiction to set aside awards in dispute between foreign parties. This experiment in ‘arbitral anarchy’ failed since it produced more anxiety than comfort. 64 As a consequence, the Belgian legislator ‘retreated’ to the Swiss position – a system of court review is in place, but the parties (at least one of which must be a foreigner) are free to exclude it explicitly. 65 Therefore, in those two countries party autonomy might be relevant even in the post-award stage. There is another side of the coin: in some jurisdictions there has been a lively debate on whether parties may contract for a broader review. If this possibility were accepted, grounds for annulment provided by the law would set a minimal scope of review and the parties would be free to add additional grounds for annulment they deem necessary. Should parties be free to tailor their own compromise between certainty and efﬁ ciency and should courts be bound by such stipulations? In the United States, after much disagreement, the answer is ‘no’. 66 The Supreme Court has ﬁ nally taken up the issue to resolve a split between lower courts and has found that speed, ﬁ nality and uniformity are of greater worth than party autonomy in this matter. 67 In Germany, however, the pendulum has swung the other way, and the German Supreme Court has practically allowed parties to agree on a de novo review by the court. This decision did not win many praises for its reasonableness. 68
5.1. Time Limits
Speed and ﬁ nality is important in the context of international commercial arbitration. Consequently, the right to bring an action for setting aside is
64 Park, supra note 2, at 18.
65 Art. 1717(4) of the Belgian Judicial Code, Art. 192 of the Swiss Private International Law.
66 Hall Street Associates, L.L.C. v. Mattel Inc., 128 S. Ct. 1396 (2008).
67 Some of the lower court decisions favoring expanded review included Puerto Rico Telephone Co. Inc. v. U.S. Phone Mfg. Corp., 427 F.2d 21 (1st Cir. 2005), cert. denied, 126 S.Ct. 1785 (2006); Roadway Package System Inc. v. Kayser, 257 F.3d 287 (3rd Cir. 2001), cert. denied, 534 U.S. 1020 (2001); Syncor Int’l Corp. v. McLeland, 120 F.3d 262 (4th Cir. 1997), cert. denied, 522 U.S. 1110 (1998); Gateway Technologies Inc. v. MCI Telecommunications Corp., 64 F.3d 993 (5th Cir. 1995); Jacada Ltd. v. Int’l Mktg. Strategies, 401 F.3d 701 (6th Cir.), cert. denied, 126 S.Ct. 735 (2005). Other courts disagreed and took a position ultimately supported by the decision of the Supreme Court: Kyocera v. Prudential-Bache Trade Services Inc., 341 F.3d 987 (9th Cir. 2003), Bowen v. Amoco Pipeline Inc., 254 F.3d 925 (10th Cir. 2001).
68 R. Wolff, Party Autonomy to Agree on Non-Final Arbitration?, 26 ASA Bulletin 626, at 641 (2008); S. Elsing, Case note on BGH, Decision of March 1, 2007, III ZB 7/06, Juristische Rundschau 242 et seq. (2008); S. Kröll, Case note on BGH, Decision of March 1, 2007, III ZB 7/06, BGH Report 519 (2007).
almost always time-barred. If the time period elapses, a party is precluded from challenging the award. The running of the period is usually triggered by some objective moment, such as the moment at which the party has received the award or the moment at which the award was deposited. 69 The length of the period varies, from 28 days in the United Kingdom 70 to six months in China. 71 The Model Law and most of the national laws is somewhere in-between, with a period of three months that starts running on the day that the party has been notiﬁ ed of the award. 72 The time limit appears to be preclusive. There are, however, views that the expression “[…] may not be made after […]” (emphasis added) implies a measure of discretion afforded to the court. 73 In the light of the plain reading of the Model Law (and its progeny) this does not appear convincing. However, such interpretation might prove useful if the award has been procured through criminal activities and this is revealed only after the expiration of the time limit. Some legislators realized this possibility and introduced special time limits for certain grounds of annulment. 74 Others have attempted to solve the problem by allowing revision as a special recourse against the award.
5.2. Court Competence
Competence for setting awards aside may be centralized or dispersed within the national judiciary system. There are some very good reasons to opt for concentration of jurisdiction: it allows for specialization of judges and easy determination of the particular court which is competent. If the party is able to easily identify the competent court and the judge is experienced in dealing with arbitration, it is likely that the procedure for setting aside will be carried out efﬁ ciently and without delay. This solution has been accepted in Switzerland, where the entire caseload for setting aside of international arbitrations is concentrated before the Federal Tribunal. 75 Naturally, there is no appeal against its decision.
69 Lew et al., supra note 60, at 671.
70 Sec. 70(3) of the Arbitration Act. Pursuant to Art. 1505 of the French New Code of Civil Procedure, the period is one month from the moment at which the party has been ofﬁ cially notiﬁ ed on the order of execution of the award.
71 Art. 59 of the Chinese Arbitration Law.
72 Model Law, Art. 34(3). Certain national laws used different moments for starting the period:
e.g. in English law it is the moment at which the last signature has been afﬁ xed (England).
73 Lew et al., supra note 60, at 671.
74 Sec. 611(4) of the Austrian ZPO ‘imports’ time limits applicable to cases of revision of court judgments. When introducing similar grounds for annulment (criminal acts), the Serbian legislator omitted to provide special and adequate time limits.
75 Art. 191(1) of the Swiss Private International Law. However, pursuant to Art. 191(2) the parties are allowed to agree that the setting aside will be handled by the judge at the seat of the tribunal in lieu of the Tribunal Federal.
Other models are not so clear-cut. First, it is possible to allow for two steps instead of one. In the ﬁrst instance, setting aside is handled by a higher court of the seat and thereafter before the highest court. 76 A variation is where the initial ﬁ rst-instance jurisdiction is split among commercial courts and
courts of general jurisdiction, with two different courts handling the appeals. 77 Finally, it is possible to opt for decentralization, granting original jurisdiction
to lower courts, with further appeals possible to higher courts. 78
6. Outcome of the Annulment Proceedings and Further Recourse
A competent court seized with the application to set aside an award may
reach different decisions: to reject the challenge and uphold the award, to
annul the award in part or entirely or – in some jurisdictions – to suspend the proceedings and allow arbitrators to reconsider certain issues and take actions which would eliminate the grounds for setting aside. 79 If the challenge is rejected, this means that the award will have no problems at the enforcement stage in the country where the challenge has been attempted.
Its enforcement prospects in other jurisdictions are also promising, especially
if the award overcame a challenge brought in a Model Law jurisdiction. Since the grounds for annulment under the Model Law and grounds for opposing recognition under the New York Convention are practically identical, an award which has cleared the ﬁ rst obstacle looks well set to clear an identical one
abroad. However, although the grounds in the Model Law and the New York Convention appear identical, they are not necessarily assessed on the basis of the same law: e.g. the setting aside court will scrutinize an award according
to its concepts of arbitrability and public policy, while the recognition court
might employ different standards. Even when it comes to the grounds that are supposed to be examined under identical laws (e.g. assessing validity of the contract or the capacity of the parties) there is a risk that the courts will apply the same law in a different manner. In other words, the fact that the award has not been set aside does not in itself guarantee its enforcement abroad.
76 French New Code of Civil Procedure Art. 1595, Sections 1062(1) and 1065 of the German ZPO.
77 Art. 43(1) of the Croatian Law on Arbitration.
78 Belgian Judicial Code Art. 1704, Netherlands Code of Civil Procedure Art. 1964(2), Serbian Law on Arbitration Art. 57. Sec. 615 of the Austrian ZPO grants jurisdiction for setting aside in commercial matters to regional courts (Landesgerichte) and Vienna Commercial Court (Handelsgericht Wien).
79 The last point provided speciﬁ cally by the Model Law, Art. 34(4) and in a somewhat different manner by Sec. 69(7) of the English Arbitration Act and Sec. 1059(4) of the German ZPO (German law allows combining setting aside and remission).
If the award is successfully annulled in its entirety, two issues arise immediately: ﬁ rst – what is the relevance of such annulment outside, in other jurisdictions and second – does annulment restore jurisdiction of courts or does the arbitration get a ‘second shot’ at resolving the dispute?
6.1. The Fate of the Annulled Award
The main advantage of the system whereby an arbitration award can be challenged in the country of its origin (usually country of its seat) is the argument of efﬁ ciency: if the award is annulled, its efﬁ ciency is effectively curbed not only in the country of annulment, but in other jurisdictions as well. This is suggested by the New York Convention as well: its Article V(1)(e) provides that the recognition of an arbitral award “may be refused […] if it 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.” Normally one would expect deference on behalf of the recognition court and an annulment usually proves an efﬁ cient way to prevent enforcement elsewhere. However, the wording of the New York Convention (‘may refuse’ instead of ‘must refuse’) and its pro-enforcement attitude could suggest that the recognition and enforcement court is allowed a measure of discretion. 80 As a result, annulment would not automatically mean that the award will not be enforced in other jurisdictions. If it were otherwise, goes the argument, local annulment standards, no matter how exotic, would become too important. 81 Even if one accepts such interpretation, the practice shows that the annulled award has very slim chances of being enforced anywhere, 82 although there have been some notable cases to the contrary. 83 Besides the reliance on the wording of the Article V(1)(e), enforcement of an annulled decision might also be helped by relying on Article VII of the New York Convention, which allows for application of more favorable provisions of local law or other international treaties. Therefore, if the local law does not view foreign annulment as a sufﬁ cient reason to refuse recognition and enforcement, foreign setting aside will not in itself have adverse consequences (although the award may still be refused recognition and enforcement on some
80 For arguments against such interpretation, see A. van den Berg, Enforcement of annulled awards?, 9 ICC International Court of Arbitration Bulletin 15 (1998).
81 See J. Paulsson, The case for disregarding local standard annulments under the New York Convention, 7 Am. Rev. Int’l Arb. 99 (1997).
82 Redfern & Hunter, supra note 22, at 540. For an overview of the practice and caselaw see G. Petrochilos, Enforcing Awards Annulled in the State of Origin under the New York Convention, 48 International Comparative Law Quarterly 856 (1999) and H. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award (2002).
83 Perhaps the best known are Hilmarton Ltd. v. Omnium de Traitement et de Valorisation (OTV), decision of 23 March 1994, Rev. Arb. 327 (1994) and Chromalloy Aeroservices v. Arab Republic of Egypt, 939 F.Supp. 907 (D.D.C.1996).
other ground). As for the international treaties, besides the web of bilateral treaties which foster recognition and enforcement of arbitration awards, the European Convention on International Commercial Arbitration warrants particular attention. Its Article IX provides that courts of a member state may refuse recognition of an award because the award was set aside in another member state, but only if the award was annulled on the grounds which correspond to the list contained in Article V of the New York Convention, except for the omission of the ground of public policy. 84 Additionally, even an unsuccessful attempt to annul an award might prove to be an important element of the overall strategy to prevent enforcement elsewhere. Namely, while the procedure for setting aside is pending in the country of origin, recognition and enforcement proceedings elsewhere might be suspended. 85
6.2. Remission and New Proceedings
A successful challenge brings about another dilemma: does annulment of the award mean that the case is reverted back to arbitrators, or has their mission been terminated when they rendered the ﬁ rst award? The holding that arbitrators’ mission ends the moment they put their signatures on the award causes some practical problems. Namely, under many laws arbitrators may, ex ofﬁ cio or pursuant to instruction of the court, correct some mistakes in the award or reconsider some of its aspects. The main reason for such intervention is to prevent setting aside and the blow that would be made to procedural efﬁ ciency. If they were functus ofﬁ cio after delivering the award, they would not be able to carry out such corrections and improvements. Therefore, it is probably better to view their mandate as being suspended while the challenge (or the time limit for challenge) is pending. 86 Some national legislations provide that the arbitration actually has only one ‘shot’ at rendering a sound award – if the challenge succeeds, jurisdiction over the dispute is again assumed by the courts. 87 However, in quite a few jurisdictions setting aside does not have such effect. Instead, the case is remitted back to arbitration, unless the award has been annulled because
84 For instance, aa award set aside in Slovenia for violation of public policy was still enforced in Austria by Austrian Supreme Court in Kajo-Erzeugnisse Essenzen Gmbh v. Do Zdravilisce Radenska, reported in XXIV Yearbook of Commercial Arbitration 486 (1999).
85 However, the fact that the party has decided not to challenge the award in its country of origin does not preclude it from resisting its recognition and enforcement elsewhere; BGH 17 April 2008, SchiedsVZ 196 (2008), putting aside prior contrary practice of the lower German courts, e.g. OLG Karlsruhe, 3. July 2006, 9 Sch 1/06, SchiedsVZ 261 (2006); OLG Karlsruhe, 27. March 2006, 9 Sch 2/05, SchiedsVZ 335 (2006).
86 Similarly, Poudret & Besson, supra note 9, at 775, note 415. Conceptually different but practically the same, Sec. 608(3) of the Austrian ZPO.
87 Netherlands Code of Civil Procedure, Art. 1067.
of an invalidity of the arbitration agreement. This is explicitly provided in Serbian and Croatian law – the only exception being the situation where an arbitration agreement also listed the names of the arbitrators, in which case
annulment always reverts the case back to courts. 88 The German ZPO provides that setting aside will, absent indications to the contrary in the court judgment, result in another round of arbitrating. 89 Reverting the case back to arbitrators
also implied in Section 611(5) of the Austrian ZPO, although the exception
an invalid arbitration agreement has not been spelled out. 90 However, if the
third award in a row on the same subject matter is about to be set aside, the court will declare the arbitration agreement invalid with respect to that subject
matter upon the request of one of the parties. 91
6.3. Further Recourse
A court’s decision to set aside (or not to set aside) might not be the end of the
legal struggle over the award. If the legislator decided to vest jurisdiction with
a lower court, there will be at least one more round available on appeals. The
appeal is, of course, lodged against the decision of the lower court, and not against the award itself.
However, the party attempting to set an award aside faces an additional disadvantage. Annulment can usually be lodged only within a certain time limit, which is short and triggered by some objective manifestation such as
a notice of award, for example, rather than one’s subjective awareness that
a ground for annulment exists. This design is rather inappropriate for raising
issues that are not apparent while the deadline for application is running out.
For instance, it might turn out later on that the arbitrator was corrupt or that the tribunal decided on the basis of false evidence (documents and testimony). The Model Law and most of its progeny do not address this problem, probably
in an attempt to further strengthen the goals of ﬁ nality and efﬁ ciency. 92
In some of the jurisdictions which have not opted for the Model Law, this ‘revision’ against the award is possible. For instance, Belgium allows that an extraordinary request for setting aside may be lodged within
88 Serbian Law on Arbitration, Art. 63; Croatian Law on Arbitration, Art. 37.
89 Sec. 1059(5) of the German ZPO; one can naturally expect this not to be the case if the award has been set aside for invalidity of the arbitration agreement. For a similar position in Switzerland, Poudret & Besson, supra note 9, at 776.
90 “The setting aside of the arbitral award does not affect the validity of the underlying arbitration agreement.”
91 Sec. 611(5) of the Austrian ZPO.
92 A notable exception is Sec. 611(4) Austrian ZPO, which has tied objections to criminal background of the award to subjective time limits applicable to revision. Serbian Law on Arbitration Art. 58(1)(5) introduced false testimony, evidence and criminal deeds are a special reason for setting the award aside, provided that they are proven in a ﬁ nal judgment of a criminal court. However, the design is ﬂ awed insofar as the usual 3-month time limit is applicable.
5 years, but not later than 3 months from the moment on which the applicant has discovered them. 93 Revision will succeed if the award has been based on false evidence, obtained through fraud, or has been delivered in absence of crucial evidence withheld by the other party. 94 In Switzerland, there is no express legal mandate to lodge revision, but the right to do so has been granted by the case law of the Swiss Federal Tribunal. 95 The objective time limit is longer than in Belgium (10 years), but the grounds on which it might be based are similar.
This brief overview had a limited ambition – to outline the basics of procedure for setting aside over a range of jurisdictions. Unlike recognition and enforcement, annulment procedure does not have its own multilateral treaty, akin to the New York Convention, which would serve to ‘level the ground’ completely and further the goal of uniﬁ cation. Instead, the UNCITRAL Model Law provides nothing more than a useful guidance to national legislators. Consequently, there are still great differences between jurisdictions as to how the annulment system is designed. Virtually none of the issues that need to be addressed in the context of setting aside has resulted in a global consensus – there is always ‘someone, somewhere’ who happened to have a different idea on how a particular point has to be addressed. Still, it is possible to lay out the lowest common denominator of all those systems: action for annulment remains the only recourse against the arbitral award; an award might be challenged in the country where it was given; there is in principle no substantive review of the award, but rather a scrutiny of its procedural aspects and some issues surrounding the arbitration agreement; and, ﬁ nally, the catalogue of annulment grounds is mandatory – it is particularly difﬁ cult for the parties to extend it further. Despite the still disparate views on effectiveness of an annulled award under the New York Convention, setting aside remains the most cost-effective strategy in resisting enforcement of an arbitral award.
93 Art. 1707(3) of the Belgian Judicial Code.
94 Art. 1704(3) of the Belgian Judicial Code.
95 Decision of 11 March 1992, ATF 118 II 119. This decision has its critics – T. Ruede & R. Hadenfeldt, Schweizerisches Schiedsgerichtsrecht 365-366 (1993) and its supporters – Poudret & Besson, supra note 9, at 788.
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