Commercial Court finds NY Convention award 'not binding' under AA 1996, s 103(2)(f) (Diag Human v Czech Republic)

Commercial Court finds NY Convention award 'not binding' under AA 1996, s 103(2)(f) (Diag Human v Czech Republic)

In his judgment dated 22 May 2014, Mr Justice Eder set aside an order of Mr Justice Burton dated 21 July 2011, which gave the claimant (Diag Human) leave to enforce a Czech, New York Convention, arbitral award against the Czech Republic, on the ground that the award was not yet binding pursuant to section 103(2)(f) of the Arbitration Act 1996 (AA 1996). In reaching his conclusions, Eder J considered the meaning and effect of AA 1996, s 103(2)(f), although he declined to define what is meant by ‘binding’, and made a number of informative observations regarding the general scope and effect of AA 1996, s 103.

Judgment details

The Czech Republic's application to set aside Burton J's order was heard by Eder J in the Commercial Court between 12 and 15 May 2014. The judgment of the court was handed down on 22 May 2014. For further details regarding the parties' dispute and the enforcement proceedings before the English court, please see our case digest and the full judgment of the court.

Practical implications

Issue estoppel

The decision provides a key lesson in one of the potential pitfalls of forum shopping when it comes to the enforcement of arbitral awards. Before seeking to enforce a New York Convention award before the English court, it is important to consider whether or not the award has, in previous enforcement proceedings before a court of competent jurisdiction, been found not yet binding. If so, it would be wise to think carefully before applying to the English court for enforcement of the award concerned as enforcement is likely to be precluded by an issue estoppel.

In this case, the Supreme Court of Austria held in 2013 that an award issued in favour of the claimant was not binding due to an ongoing application for review of the award before the Czech court, which review was contemplated by the parties' arbitration agreement and Czech procedural law. Eder J stated that where a foreign court decides that an award is not yet binding he saw no reason why such a decision should not give rise to an issue estoppel provided the following four conditions were satisfied (Carl Zeiss Stiftung):

  1. the judgment was given by a foreign court of competent jurisdiction

  2. the judgment was final and conclusive and on the merits

  3. there was identity of parties (ie the same parties involved)

  4. there was identify of subject matter, which means that the issue decided by the foreign court must be the same as that arising in the English proceedings

All four conditions were present on the facts and, in Eder J's view, the fact that the previous judgment was given in enforcement proceedings rather than other proceedings was irrelevant.

Award not yet binding

Although the judge's conclusion on issue estoppel was determinative of the application in favour of the Czech Republic, Eder J went on to consider anew whether or not the award was binding.

As discussed in greater detail below, Eder J's judgment included a significant amount of background analysis regarding what is meant by 'binding' pursuant to AA 1996, s 103(2)(f). Eder J was clear that whether or not an award is binding falls to be decided by the English court by reference to an 'autonomous' interpretation of the New York Convention (as enshrined in AA 1996, s 100-103). In addition, although the judge approved, in principle, of a distinction between 'ordinary recourse' and 'extraordinary recourse' when determining whether or not an award is binding, and was content to state that an award that is subject to 'ordinary recourse' will not yet be binding for the purposes of AA 1996, s 103(2)(f), there remains an uneasy lack of certainty regarding when an award will be considered binding for the purposes of enforcement. This is unsatisfactory and, as difficult as it may be to define what is meant by 'binding' (a problem recognised by Eder J), parties should be given clearer guidance on this issue in order that they can make informed decisions regarding applications for enforcement.

On the facts, both the parties' arbitration agreement and Czech procedural law provided that the parties could apply for review of the award within a due period, and as the court was satisfied that the Czech Republic had properly applied for the review, this meant that the award issued in favour of the claimant was not yet binding and the order for enforcement should be set aside.

Further key points from the judgment

Preliminary observations regarding the general scope and effect of AA 1996, s 103

Eder J made the following five preliminary observations on AA 1996, s 103:

  1. the New York Convention (for further information, see: The New York Convention) was given domestic effect in the UK first by the Arbitration Act 1975 and then AA 1996, ss 100-103 replaced the relevant statutory provisions in that earlier statute. Although Article V of the New York Convention is reflected in AA 1996, s 103, the latter stands as an independent statutory provision.

  2. the New York Convention comprises an overall scheme for the facilitation of the enforcement of an award that reflects a pro-arbitration bias. A key feature of this was the abolition of the 'double exequatur' requirement under the Geneva Convention (on the Execution of Foreign Arbitral Awards) 1927, ie the need, before a Convention award could be enforced in any other jurisdiction, for it to be shown that it had first been rendered enforceable in the jurisdiction whose law governed the arbitration. Eder J cited, with approval, the explanation of this requirement given by Burton J in Dowans*. Under English law, an award creditor seeking to enforce a Convention award in England pursuant to AA 1996, s 101 has a prima facie right to recognition and enforcement (Dardana v Yukos)

  3. enforcement is mandatory in all but the cases specified in the AA 1996, s 103 and the list of defences is exhaustive (Kanoria v Guinness)

  4. the burden of proof is firmly on the party resisting enforcement (Dallah), and

  5. whether an award is 'binding' on the parties is a question for the English court as the enforcing court (Dowans)

When is an award 'binding'?

Eder J observed that there is no guidance to be found on this issue in either the AA 1996 or the text of the New York Convention, and referred to the analysis of Burton J in Dowans. In particular, Eder J agreed with Burton J that whether or not an award is binding falls to be decided by reference to the 'autonomous' interpretation of the New York Convention by the English court and not by reference to the curial law of the seat of the arbitration where the award was obtained. Nevertheless, insofar as Burton J in Dowans implied that the English court will never have regard to the law of the arbitration agreement or the curial law of the seat of the arbitration, Eder J stated that this was not correct (and he didn't believe that was what Burton J had intended in his judgment).

Eder J proceeded to state that an award that is subject to 'ordinary recourse' (as contrasted with 'extraordinary recourse') will not be 'binding' pursuant to AA 1996, s 103(2)(f). Conversely, an award that is subject to 'extraordinary recourse' will not prevent the award from being binding and enforceable. Professor Albert Jan Van den Berg's seminal work, 'The New York Convention of 1958. Towards a Uniform Judicial Interpretation', was cited by the claimant in support of its interpretation of the distinction between the two terms (pp 342-343 of that document):

'the ordinary means of recourse were used for denoting a genuine appeal on the merits of the arbitral award to a second arbitral instance or to a court. Extraordinary means of recourse were reserved for other irregularities, and especially the procedural ones, tainting a final decision. The latter means of recourse were meant to correspond to setting aside or equivalent proceedings.'

Eder J observed that defining what amounts to ordinary and extraordinary recourse may be problematic and he declined to offer any proposed definition of either category for four reasons:

  1. those responsible for drafting the Convention did not undertake such an exercise

  2. the drafters of the AA 1996 did not provide any definition of binding within the statute

  3. the judge considered it 'unnecessary' to do so in the circumstances of the case

  4. the judge was not persuaded that the term ordinary recourse should be defined so as to include a 'genuine appeal on the merits'

Although he did not propose to offer any definitions, Eder J did refer to the observations of Burton J in paras 17-18 of his judgment in Dowans:

'[17]  The VDB view that there was and should be an autonomous interpretation of binding, is best analysed by differentiating between ordinary recourse and extraordinary recourse. The former, which may not be permitted by the terms of the relevant agreement between the parties or the law governing the arbitration, would ordinarily be subject to a time limit, after which no such ordinary recourse (if otherwise available) would be permitted. Then there is the possibility of extraordinary recourse, which would be some limited challenge to the award, in the courts of its home jurisdiction, by reference to the restrictive terms of the New York Convention. Once ordinary recourse is excluded, the possible availability of extraordinary recourse does not prevent an award from being, or having become, binding. Mr Diwan submits that, although it is clear that there was sufficient discussion before the finalisation of the terms of the New York Convention to prevent any such agreed definition being included in the Convention, art 31 of the Vienna Convention allows for such commonsense and logical interpretation of the Convention notwithstanding.

[18]  Such autonomous interpretation is entirely consistent with the admitted purpose of ending the need for a double exequatur, and is inconsistent with any extension of the idea that an award is “lifeless”, as per para 14 of ONGC, until enforced by its country of origin, except insofar as that can be interpreted as simply referring to enforcement within that country.'

Eder J considered that Burton J was espousing the view expressed by Professor Albert Jan Van den Berg that there was an important distinction between ordinary recourse and extraordinary recourse and recognising that although the possibility of the latter does not prevent an award being binding under the Convention (and 1996 Act, s 103(2)(f)) that is not so (or at least not necessarily so) with regard to the former. As stated above, although a definition of what is meant by binding may not be possible, there remains unhelpful uncertainty regarding whether or not an award will be viewed by the court as binding.

*For further information on that case, LexisPSL customers can see: An arbitral award is binding even if there is a challenge outstanding in the 'home' court (Dowans v Tanzania Electric)

first published on Lexis®PSL ArbitrationClick here for a free trial of Lexis®PSL.

Related Articles:
Latest Articles:
About the author:

Barry specialises in international arbitration and commercial litigation. He trained and practised at Jones Day before joining Pinsent Masons. At LexisNexis, Barry is Head of Arbitration and Head of the Lexis®PSL Dispute Resolution Group.

In practice, Barry’s work included commercial, aviation and technology arbitrations pursuant to international arbitral rules, involving UK and international clients. He also has a background in general commercial, civil fraud and IT litigation, including experience before the High Court. While in private practice, Barry worked with a broad range of clients from the private and public sectors.

At LexisNexis, when not focused on the strategic development and operational requirements of the Dispute Resolution Group, Barry’s content work focuses on the law and practice of international commercial arbitration and investment treaty arbitration. In addition to his work for Lexis®PSL, Barry contributes to the LexisNexis Dispute Resolution Blog and New Law Journal on litigation and arbitration matters