Enforcing arbitral awards as yet another advantage of arbitral proceedings

Enforcement of arbitral awards is more predictable and efficient than enforcement of foreign court decisions. The main reasons why companies vote for international arbitration when resolving their cross-border disputes do not only include flexibility or confidentiality, but also a predictable and efficient enforcement of arbitral awards abroad. In other words – should you win the dispute, enforcing an arbitral award in another country may be easier and faster than enforcing a court judgment. Why? Mostly because of a unified international legal framework, defined and rather narrow grounds for refusal of enforcement, and limited court review of arbitral awards.

Unified legal framework and global reach

Arbitration benefits from one major advantage – enforcement of arbitral awards has a unified, almost global legal basis, the 1958 New York Convention, which was acceded by a vast majority of countries worldwide. All these countries agreed to recognize foreign arbitral awards and enforce them in accordance to the same rules.

This system is further supported by the fact that a number of countries adopted so-call UNCITRAL Model Law on International Commercial Arbitration. This means that the rules for recognition and enforcement of arbitral awards in many countries are very similar, and parties thus enjoy higher legal certainty, knowing what to expect in case of enforcement of their award.

On the other hand, there is no actually universal convention that would provide a unified enforcement of court decisions globally in a similar manner.

Limited and defined grounds for enforcement refusal

The New York Convention has a great advantage: it clearly states the grounds for which a court may refuse to recognize or enforce an award. The Convention provides a full list of these grounds as a list of essential procedural defects, which may not be expanded by the courts. These include, for example, invalid or non-existent arbitration contract, preventing a party from participating in the proceedings, deciding on matters beyond the scope of the arbitral clause, or conflict with public policy.

Also, the courts are expected to apply these grounds narrowly and with restraint. In practice, this increases the predictability and reliability of arbitral awards' enforcement.

For court decisions, each state may apply their own rules for the recognition of foreign decisions, international treaties (if any) often provide wider range of grounds for refusing recognition, and leave more space for courts' discretion.

Limited court review and efficiency of proceedings

What a court in the country of enforcement may "afford" to do when reviewing an arbitral award constitutes another key difference.

In the case of arbitral awards, the courts may not review the award on merits. This means that the court would not assess whether the arbitrators interpreted a contract or the law correctly, and the court may not reopen the case and rewrite the arbitrators' conclusions. The only role of the court is to verify whether any of the limited grounds for refusing enforcement exists.

This has two practical effects. The dispute is not heard twice – once before the arbitrators, and once before a court in the country of enforcement. The proceedings on the recognition and enforcement of arbitral awards also tends to be faster and procedurally simpler.

On the other hand, in the case of court decisions, the courts may often review whether the decision was made in accordance with the local law and procedure, and the grounds for refusing enforcement thus more depend on municipal law.

Statistics and practical experience

The above distinctions are confirmed by statistics. Research shows that over 70% of arbitral awards are complied with voluntarily. Where the successful party must enforce the claim before courts, the main obstacle does not consist of the rules or differences in legal systems. Most frequently, the problem lies in insufficient assets of the obliged party, who has no means to pay.

Case law in individual countries further also shows that the recognition or enforcement of foreign arbitral awards is being refused rarely, and the courts adopt a forthcoming approach to the enforcement of foreign decisions.

So, if you have a valid arbitral award issued in duly conducted arbitral proceedings, and you are able to locate assets of the obliged party, the likelihood of a successful enforcement of the claim is very high.

Conclusion

International enforcement of arbitral awards is usually a rather predictable and efficient process, in particular when compared to the enforcement of foreign court decisions. That is why parties in international trade often choose arbitral proceedings. However, it is always advisable to consult various aspects with an expert. And the strategic decision as to where to seek enforcement is also crucial.