Basic Theory of Recognition and Enforcement of F...
2.1 Distinction between Recognition and Enforcement
For the purposes of recognition and enforcement,one has to distinguish recognition from enforcement.In most cases,the two terms are used as if they are always inextricably linked.For example,the New York Convention speaks of “recognition and enforcement” of foreign awards.Generally,when an award is enforced it is also recognized.The terms are distinct,however.An award may be recognized,without being enforced; but if it is enforced,then it is necessarily recognized by the court which orders its enforcement.As a consequence a distinction may be made between recognition and enforcement.
Recognition is on its own a defensive process.It arises when a court is asked to grant a remedy in respect of a dispute which has been the subject of previous arbitral proceedings.The party in whose favor the award was made will claim that the dispute has already been determined,and to prove this will seek to produce the award to the court and ask the court to recognize it as valid and binding upon the parties in respect of the issues with which it dealt.The award may have disposed of all of the issues raised in the new court proceedings,and so put an end to these new proceedings as res judicata; that is to say,as matters in issue between the parties which have already been decided.If it does not dispose of all of the issues raised in the new proceedings,but only of some of them,it will need to be recognized for the purpose of issue estoppel,so as to prevent the issues with which the award deals from being raised again.11
The use of recognition on its own may be illustrated by taking the example of a Chinese company which is sued by a foreign supplier for goods sold and delivered,but allegedly not paid for.Suppose that the dispute between the Chinese company and the foreign supplier has already been submitted to arbitration; and that an award has been made,in which the foreign supplier’s claim was dismissed.In those circumstances,the Chinese company would ask the foreign court to recognize the award as valid defence to the foreign supplier’s claim.If the court is prepared to do this,the claim will be dismissed.In this example,the legal force and the effect of the foreign award have been recognized,but the award itself will not be enforced.
By contrast,where a court is asked to enforce an award,it is asked not merely to recognize the legal force and the effect of the award,but also to ensure that the award is implemented by using such legal sanctions as are available.Enforcement,therefore,goes a step further than recognition.A court which is prepared to grant enforcement of an award will do so because it recognizes the award as validly made and bringing upon the parties to it and,therefore,suitable for enforcement.In this context,the terms “recognition” and “enforcement” do run together,one is a necessary part of the other.
As the example illustrated above,the purpose of recognition on its own is to act as a shield.Recognition is used to block any attempt,in fresh proceedings,to raise the issues which have been decided in the arbitration granting the award.In contrast,enforcement is normally a judicial process which either follows or simultaneously recognizes and gives effect to the mandate of the award.Enforcement,thus,functions as a sword in that the successful party requests the assistance of the court to enforce the award by exercising its power and applying legal sanctions should the other party fail or refuse to comply voluntarily.The type of sanctions available will vary from country to country and may include seizure of the award debtor’s property,freezing of bank accounts or even custodial sentences in extreme cases.12
2.2 Place of Recognition and Enforcement
An application for recognition or enforcement of an award is always made outside the arbitral process.In other words,it is made to a court in the place or places in which recognition and enforcement is sought.Once it has given its award,the task of an arbitral tribunal is usually concluded.Neither the arbitral tribunal nor any arbitral institution under whose auspices it may be operating,is directly concerned to ensure recognition and enforcement of its award.[4]
The recognition and enforcement of awards is a matter for the courts which,cloaked with the judicial authority of the state,possess considerable powers of coercion.The extent of these powers,and the extent to which the courts are prepared to use them,varies from country to country.However,because of the effect of international conventions,the New York Convention in particular,there is considerable uniformity of national laws governing the recognition and enforcement of foreign awards.
2.2.1 Forum Shopping(https://www.daowen.com)
Enforcement of an award is usually directed at the defaulting party’s assets.If these assets are situated in more than one country,the party seeking enforcement of the award may have a choice of country in which to proceed; as it sometimes expressed,the party may be able to go “forum shopping.”13
Legal proceedings of some kind are necessary to obtain title to a defaulting party’s assets or their proceeds of sale.Such legal proceedings must usually be taken in the state or states in which the property or other assets of the losing party are located.It would not be useful,for instance,to obtain an order in the Chinese courts for seizure and sale of the defaulting party’s goods and chattels in China if no such property exists.Nor would it be useful to secure an order for the attachment of the defaulting party’s bank accounts in China,if these accounts turn out to be overthrown.
The need to locate the place or places in which a defaulting party has assets is not unique to international commercial arbitration.In purely domestic proceedings,it may also be necessary to locate the defaulting party’s assets in order to enforce a court’s judgment or an arbitral tribunal’s award.However,in a domestic dispute,the assets of the losing party are generally situated within the country in which the proceedings take place,since this is normally the country of that party’s habitual residence or the place of business.In international commercial arbitration,the contrary is likely to be the case.The place of arbitration will often have been chosen by the parties,just because,inter alia,it is a place with which they have no connection.That is to say,the place of arbitration will have been chosen as a neutral forum.Within such a setting,it would be a matter of chance if the defaulting party happens to have assets situated in this neutral country.This is why it is so important that international awards should be recognizable and enforceable internationally,and not merely in the country in which they are made; moreover,unlike the place of arbitration,the place of recognition and enforcement will usually not be chosen by the parties.It will depend on the country or countries in which the defaulting party’s assets are located.Only on the occasion that the defaulting party’s assets are situated in more than one country,can the other party choose a place among these countries in which the award is sought to be recognized and enforced.
2.2.2 Choice of Place of Recognition and Enforcement
When the successful party in an arbitration is seeking to enforce the award,the first step is to determine in which country or countries enforcement is to be sought.To reach this decision,it will be necessary,as stated above,to locate the country or countries where the losing party has assets available to meet the award.This may require some investigative work.If inquiries suggest that assets are only likely to be available in one country,the party seeking enforcement of the award will have no choice.For better or worse,he will have to seek enforcement in that state.Where there is a choice,the party seeking enforcement will be able to proceed in one or more places as seems appropriate.
One of the factors to be taken into consideration in selecting a forum for the enforcement of an award is the extent to which the prospective forum is linked to the place in which the award was made—whether by the New York Convention or by some other relevant international conventions.Another factor is the attitude of the local courts to requests for recognition and enforcement of foreign awards—and,notably,whether their outlook is likely to be internationalist or parochial.An additional factor,relevant if enforcement is being sought against a country or a government agency,is the attitude which the prospective forum adopts on the question of state immunity.[5]
2.3 Consequences of Refusal of Recognition and Enforcement
Although the enforceability of awards worldwide is considered one of the primary advantages of arbitration compared with litigation,it does happen that foreign awards are refused to be recognized and enforced.The immediate consequence of a refusal to enforce an award is the winning party fails to obtain what he has expected; i.e.,seizure of the loser’s assets in the place where enforcement was sought.This will be a discouraging result for the party seeking enforcement,but the award survives.14 To lose an enforcement action is much less damaging than to have the award challenged successfully in the courts of the country where the arbitration took place.
The party seeking enforcement is free to try elsewhere.He still has a valid award who may be able to seek enforcement in another country where the losing party has assets.As a matter of fact,much depends on the reason for which enforcement was refused.If,for instance,enforcement was refused for ordre public reasons in one country,it may be possible to find another country where the same considerations do not apply; as previously discussed,considerations of ordre public tend to differ from one country to another.However,if the enforcement was refused because of failure by the arbitral tribunal to give the losing party an opportunity to present his case,it would be impossible to enforce the award anywhere,insofar as such misconduct of the arbitration will probably not be countenanced by the courts of any enforcement state.15 Under such a circumstance,the party seeking enforcement will probably have no option but to start a new arbitration,assuming that there is no problem of time limit or other bars to preclude this.