How to Enforce an Arbitration Award and Sanctions Law

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  • Profile Image
    Waleed Tahirkheli
    Senior Partner at Eldwick Law ↗
    UK qualified with over 11 years of experience in Sanctions, Commercial Litigation, Arbitration and Civil Fraud.
    wt@eldwicklaw.com
    +447903733137
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    Haike Liu
    Paralegal at Eldwick Law ↗
    hk@eldwicklaw.com
    +442039728469

As those who have gone through the arbitration process can attest, winning an award from the tribunal is often only half the battle in getting what you are owed. By itself, an arbitral award is nothing more than a piece of paper with no guarantee that the winning party will be able to recover any payment. To ensure that payment is secured, the party with the award must go through a process known as recognition and enforcement.

This process involves going to the domestic courts in which the opposing party’s assets are located and requesting that court makes an order to seize their assets in accordance with the award. While seemingly simple, recognition and enforcement are often not a straightforward process. In this article, we will examine the process of and difficulties that may arise during recognition and enforcement. We will also look at a recent decision in the U.S. District Court which might show how the interplay between arbitration enforcement and sanctions law can also complicate obtaining recognition of an award.

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Recognition and Enforcement of an Arbitration Award

The New York Convention (the “Convention”) has been widely adopted by most countries in the world. The Convention sought to ensure that arbitration was a viable international commercial dispute resolution mechanism. Article III of the Convention obligates contracting states to recognise and enforce foreign arbitral awards. This enabled successful parties in an international commercial arbitration to pursue the assets of the other party held in jurisdictions outside of the arbitration seat, thereby ensuring that recovery could occur. For a party to have their award recognised and enforced all they must do is to apply to the relevant court and obtain an order in their favour. For example, in England and Wales, Section 66 of the Arbitration Act 1996 permits an award to be enforced like a judgement or order.

Although the Convention has significantly streamlined the ability to enforce awards in foreign jurisdictions, that still does not mean recognition and enforcement of an award is guaranteed. Article V(1) of the Convention allows domestic courts to refuse recognition and enforcement on various grounds. These includes problems with the original arbitration agreement, due process failures, the tribunal going beyond its mandate, irregular composition of the tribunal or that the award had been set aside by the court of the seat. Additionally, Article V(2) grants a discretion to the enforcing state as awards can be refused if it is not arbitrable within the country or contrary to its public policy. Therefore, even when an award is obtained, winning parties should remain cautious and diligent when proceeding to ensure that recovery can be eventually made.

Enforcement and Sanctions Law: A Case Study

We now turn our attention to the recent U.S. District Court decision by Judge Beryl A. Howell in which she recognised and allowed enforcement of three ICAC arbitral awards totaling almost $14 million. The awards had been made in favour of a sanctioned Russian media company which transferred its interests in the awards to a UAE based consultancy prior to its designation. This was recognised by the court as suspicious because it could have been done in anticipation of the company being sanctioned. Therefore, the primary question put to Judge Howell was whether the award could be set aside on public policy grounds. On this question, the Judge Howell deferred to the US DOJ, which did not take a position, and in those circumstances, the award was recognised. The question of sanctions was deferred to the Office of Foreign Assets Control (OFAC) to determine, at a future date, as to whether there any part of the enforcement would breach US sanctions.

The recognition of the awards by Judge Howell reflects the general pro-enforcement attitude of not just U.S. courts but courts who are subject to Article III of the Convention. The public policy exception to recognising and enforcing awards is often construed narrowly meaning even politically sensitive, sanctions-related cases may not be sufficient in having an award set aside. Parties who have awards but are concerned regarding sanctions-related issues should remain confident regarding their prospects of receiving recognition from courts. However, they must remain vigilant during enforcement stages to ensure that they do not run afoul of sanctions and should seek guidance.

Conclusion

Arbitration can be a long and expensive process, so the final receipt of an award is often a satisfying one. However, recognition and enforcement of the award is not often a straightforward process. While the New York Convention has created a general rule in favour of enforcement, exceptions exist that can allow courts to refuse enforcement. The added dimension of sanctions only serves to further create confusion and uncertainty. Parties should therefore remain attentive and cautious while seeking further advice when enforcing their awards to ensure that recovery can occur.

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