The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has historically, excluded the enforcement of interim and other provisional awards from its purview. However, recent developments, such as the amendment of the UNCITRAL Model Law to recognize interim awards as binding, has created a lot of uncertainty in this area, with some member states allowing for such amendments, with others taking the traditional route. The blog explores these contrasting judgments, and stresses on the need for the harmonization of law in this regard.
Interim awards, provisional measures, enforceability, New York Convention
Article I New York of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("Convention"), defines the scope of application of the Convention as limited to the recognition and enforcement of "arbitral awards...". While not explicitly defined in the Convention, one of the requirements that has been evolved by national courts for an award to be recognized and enforced under the Convention is that the award must be final. "Final" here has been held to mean that an award once made on certain disputed points would render those points res judicata, unless they were successfully challenged. Thus, while final partial awards are covered under the scope of the Convention, since they decide at least a part of the dispute in a final manner, provisional measures like mareva injunctions, and awards given by emergency arbitrators have generally been held to be unenforceable, because they remain temporary until the final award is rendered. Further, these measures are considered to be "orders" and not "awards" within the definition of Article I, even when expressly labelled as awardsi.
The idea behind not including interim and other provisional awards within the scope of the Convention was that historically, arbitral tribunals were barred from making interim awards under the domestic laws of various countries, with only domestic courts capable of granting this remedy. However, this is no longer the case, since the UNCITRAL Arbitration Rules under Article 26 provide for interim measures to be made by arbitral tribunals, in addition to the final awards, and also allow for these interim measures to be established as interim awards. While the jurisdiction of arbitral tribunals to grant interim measures might still be ousted by national procedural law, these measures have become quite common in recent times. Another reason that has been put forward is that practically speaking, parties usually carry out interim awards, not wanting to displease the arbitral tribunal, which might draw adverse inferences from the conduct of the defaulting party, such as in not following an order to preserve certain evidence; this is however not always true.
In such a scenario, the non-applicability of the Convention to provisional measures no longer makes for good law. It is in this light that the UNCITRAL Model Law was amended to include Article 17H, which recognizes interim measures issued by arbitral tribunals as binding, thus opening up the possibility of the States recognizing interim measures as enforceable under the Convention. However, what this has done is make the law regarding the enforcement of interim measures highly state-specific; less than half of the approximately 100 jurisdictions that have based their domestic arbitration laws on the UNCITRAL Model Law have adopted the amendment. This has created uncertainty in the scope of the Convention, with different domestic courts giving contrasting judgments.
Recent Case Law dealing with the Enforceability of Interim Awards and Provisional Measures
One of the first cases to directly deal with the enforceability of an interim award under the New York Convention was Resort Condominiums International Inc. v. Ray Balwell and Resort Condominiums, Pty Ltd. ii The arbitration related to an agreement for reciprocal rights to use timeshare properties between a US claimant and an Australian respondent. The arbitral tribunal in Indiana issued an interim arbitration order, under which the respondent was enjoined to continue to carry out its obligations under the agreement during the pendency of the arbitration, and to not enter into a similar contract with any other party. This interim award was sought to be enforced in Queensland, the home jurisdiction of the respondent. However, the Queensland Court, distinguishing between partial awards and interim measures held that while the former could be enforced under the Convention, since they were binding in that they determine all, or at least some of the matters referred to the tribunal, the same could not be said for the latter, since it was possible to rescind, suspend, vary or reopen them by the same tribunal which had granted the measure.
The US Courts have however shown a willingness to enforce even interim awards under the Convention, as in the case of Polydef kis Corp v. Transcontinental Fertiliser Coiii., which involved a dispute between a Greek shipowner and a US trader under a charter party contract. The award given by an arbitral tribunal in London, provisionally directing the respondent to transfer funds into an escrow account, accessible by both parties, as compensation, was upheld by the Federal Court in Pennsylvania.
As far as mareva injunctions or provisional freezing orders are concerned, the Canadian courts in recent times have enforced such awards under the Convention. In CE International Resources Holdings LLC v. Yeap, S.A. Minerals Ltd. Partnership, and Tantalum Technology Inc. , the dispute involved the breach of contract for the sale of precious metals and was arbitrated in New York. A worldwide mareva injunction granted by the arbitrator to prevent the dissipation of the respondent's assets, and sought to be enforced by the claimant in British Columbia, owing to the presence of certain assets there, was upheld by the court in British Columbia.
In recent times, the concept of emergency arbitration has also become popular, with various arbitral institutions revising their rules to allow for pre-arbitral relief from an emergency arbitrator, who renders a decision pending the constitution of an arbitral award. Given that the awards made by these arbitrators are capable of revision or revocation by the subsequent arbitral tribunal, these awards have been held to be not enforceable under the Convention. The Indian Supreme Court has upheld the enforceability of domestic emergency arbitration awards obtained under the Arbitration Rules of the Singapore International Arbitration Centre; there is however, no such ruling for foreign-seated emergency arbitration awards. Similarly, while in Yahoo Inc. v. Microsoft Corp., the US District Court for the Southern District of New York, confirmed an emergency award issued under the 1999 AAA Optional Rules for Emergency Measures of Protection, since the award given by the emergency arbitrator was final, and hence, capable of enforcement under the Convention. The US position regarding the enforcement of interim emergency awards then seems to be the same as the prevailing academic view on the subject, that the awards by emergency arbitrators not being final awards, were incapable of enforcement under the Convention. This was confirmed by the US District Court for the Northern District of Georgia in Al Raha Grp. for Tech. Servs. v. PKL Servs. Inc. , where it refused to enforce an emergency injunctive relief obtained by a Saudi corporation, to prevent the US corporation from terminating the sub-contract, pending the institution of the three-member arbitral tribunal. The justification given by the Court was that since the award did not involve the determination of any issues on their merits, and was merely aimed at preserving the status quo, it was not final, and the Court lacked subject-matter jurisdiction over it. Further worsening the situation, the actual arbitration was delayed by almost a year, while the District Court considered the issue of enforcement of the emergency award, completely destroying the original purpose of emergency arbitration.
This inconsistency in case law across States to the Convention highlights the need for an amendment to the Convention to settle the law in this regard.
Need for Harmonization of the Law
The absence of enforcement of interim measures under the Convention actually undermines the effect of arbitral awards, as the renowned arbitrator Mr. V V Veeder opined, “without such measures, it is sometimes possible for a recalcitrant party to thwart the arbitration procedure completely and finally.” This would arise, for example, where the dispute involved assets, which could be dissipated out of the jurisdiction of a particular court before the final award was made, or where such assets were perishable, and so an order was necessary to safeguard such goods.
Thus, an urgent need to amend the New York Convention emerges, to allow for the enforcement of interim measures. The author recognizes that the Convention does not technically contain a requirement for the award to be "final", and that is a requirement that has been evolved by national courts. The only problem that might stand in the way of interim measures being recognized under the explicit text of the Convention is the requirement for an "arbitral award", since interim measures are technically classified as "orders" and not "awards". However, the author believes that it might be desirable to deal with the issue of interim awards specifically under the Convention, rather than leaving this issue to be dealt with under the Model Law and consequently under the national laws of the states, creating uncertainty and rewarding respondents with assets in states where interim measures are not recognized and penalizing those with assets in states that do recognize such measures. Further, the author believes that the non-enforcement of such measures directly goes against the pro-enforcement stance of the Convention, since by not providing for the enforcement of interim measures, the enforcement of the final award becomes meaningless in a lot of situations.
Factors to be Considered for an Amendment to the Convention
However, there are some factors that would need to be considered for an amendment to the Convention to provide for the enforcement of interim awards. The first of these is that interim measures, given their very nature, are usually granted ex-parte. Therefore, the issue to be considered is whether during the enforcement of the award, the respondent should be given a fair chance of hearing, or whether given the urgency of implementing interim measures, the fact finding undertaken by the arbitral tribunal should be taken as conclusive. The author believes that providing a chance to the respondent to present their case might run contrary to the urgency of implementing interim awards and thus the decision of the arbitral tribunals should be taken at face value.
Another factor that would need consideration is the type of interim measures that are enforced under the Convention. The Secretary General of UNCITRAL has classified interim measures as falling under three heads- measures aimed at facilitating the conduct of arbitral proceedings, or procedural measures, those which aim to prevent loss or damage to a party, pending the final arbitral proceedings, by preserving a certain state of affairs, and those which facilitate the later enforcement of the award. It is important to consider whether all kinds of interim measures deserve protection under the Convention, or there are those that should be left out. The author is of the opinion that the second and third type of measures deserve special protection under the Convention, because it is in those instances where enforcement outside the seat of arbitration may be required since assets may be located in foreign jurisdictions. However, the enforcement of procedural interim measures, since they have an impact on the conduct of the arbitral proceedings, would be better dealt with by the arbitral tribunal itself, by way of imposition of costs or fines on the erring party.
A third issue to consider would be whether a challenge would be possible to the enforcement of interim awards under Article V(1)(e) of the Convention, which states that the recognition and enforcement of an award might be set aside under the Convention on the ground that the "award has not yet become binding on the parties." However, the "binding" part has generally been read in the context of whether an action to set aside the award is pending in the award's country of origin, and not as to the nature of the award itself. Further, Prof. AJ van den Berg has written in favor of allowing the enforcement of interim awards, holding that there would be no challenge to such an enforcement under Article V(1)(e),as not being "binding", since "if the order is valid for a limited period of time, the enforcement would correspondingly cover that period of time and that if it is subsequently rescinded, or varied by the arbitral tribunal, that would be laid down through a subsequent award, which again can be enforced." iv However, it would be best to clarify that the exception would not apply to interim measures, so as to avoid inconsistency in decisions.
The author would like to propose the following amendments to the Convention:
Article I(1): "This Convention shall apply to the recognition of enforcement of arbitral awards" and interim orders and awards made in the course of such arbitral proceedings, including those made by emergency arbitrators, whether final or not, to be collectively referred to as "arbitral awards" under this Convention, "made in the..."
Article V(1)(e): "The award has not yet become binding on the parties... that award was made." The reference to "binding" cannot be used to exclude the enforcement of interim awards and orders, including those made by emergency arbitrators, whether final or not.
i Christian Borris, Reinmar Wolff, Bernd Ehle, Tod J Fox, Rudolf Hennecke, Angela Kölbol, Christoph Liebscher, David Quinke, Maxi Scherer, Stephanie Wilske, New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958: Article-by-Article Commentary (2nd ed., Hart Publishing 2019).
ii Resort Condominiums International Inc. v Ray Balwell and Resort Condominiums, Pty Ltd. (1993) 118 ALR 655.
iii Polydef kis Corp v. Transcontinental Fertiliser Co. 1996 WL 683629 (ED Pa.).
iv Albert Jan van den Berg, The 1958 New York Arbitration Convention Revisited, in ARBITRAL TRIBUNALS OR STATE COURTS: WHO MUST DEFER TO WHOM? 125, (2001).