Enforcement and setting aside of arbitral awards in Asia

September 2018 | SPOTLIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

September 2018 Issue

The enforcement and setting aside of arbitral awards are important and integral aspects of the arbitral process. There are now 80 states which have adopted the UNCITRAL Model Law on International Commercial Arbitration, and 159 state parties to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC). Article 34 of the Model Law sets out the grounds on which an arbitral award may be set aside, while Article 36 of the Model Law and Article V of the NYC (which are substantially similar) set out the grounds on which an arbitral award may be refused enforcement.

Notwithstanding the ubiquity of these instruments, differences nevertheless exist as to how their provisions, as they relate to enforcement or setting aside of arbitral awards, have been interpreted and applied by national courts, as well as the procedure for enforcement or setting aside.

In this article, the authors will explore some of these differences and notable features of the regime for the enforcement and setting aside of arbitral awards in various Asian jurisdictions.

Singapore

Singapore is party to both the Model Law and the NYC. In addition to Article 34 of the Model Law, an arbitral award may also be set aside under section 24 of the Singapore International Arbitration Act (IAA) if the making of the award was induced or affected by fraud or corruption, or if a breach of the rules of natural justice has occurred in connection with the making of the award by which the rights of any party have been prejudiced. Enforcement of arbitral awards made in Singapore or in international arbitrations seated in Singapore may be refused under section 19 of the IAA (which the Singapore Courts have held to be on the grounds set out in Article 35 of the Model Law), while section 29 of the IAA (which mirrors Article V of the NYC) sets out the grounds on which foreign arbitral awards may be refused enforcement.

Two aspects of the regime in Singapore are noteworthy. The first is in respect of preliminary rulings by an arbitral tribunal on its jurisdiction under Article 16 of the Model Law. In this regard, the Singapore Courts have held that a party dissatisfied with such a ruling has a “choice of remedies”. It can either choose to challenge the preliminary ruling in accordance with and within the timeframe stipulated under Article 16(3) of the Model Law, or it can wait till the other party seeks to enforce the final arbitral award and then resist enforcement on the basis that it objects to the tribunal’s preliminary ruling on its jurisdiction. That the party has not earlier challenged the tribunal’s preliminary ruling under Article 16(3) of the Model Law does not preclude it subsequently from resisting enforcement on the basis that it objects to the preliminary ruling. It should be noted that this only applies to preliminary rulings made in Singapore or international arbitrations seated in Singapore, and does not apply to such rulings made in foreign arbitral proceedings.

The second noteworthy aspect is section 31(2)(f) of the IAA, which provides that where enforcement of a foreign arbitral award is sought and the foreign arbitral award is subject to setting aside proceedings at the seat of arbitration, the Singapore court may adjourn its decision on enforcement until such time as the setting aside proceedings are resolved and further, may grant appropriate security for any sums awarded under the foreign arbitral award.

While it remains an open question whether a foreign arbitral award that has been set aside at the seat of arbitration will be refused enforcement, the Singapore courts have expressed doubt as to the approach of the French courts in this regard (that such an arbitral award can still be granted enforcement), and have indicated a preference for the position of the English courts (that enforcement will only be permitted if the decision of the setting aside court was so perverse that it could not have been in good faith and was biased).

Hong Kong

Enforcement of arbitral awards in Hong Kong is governed by the Hong Kong Arbitration Ordinance, which recognises four kinds of arbitral awards: (i) awards rendered in states that are party to the NYC; (ii) Chinese awards made in any part of China than Hong Kong, Macau or Taiwan; (iii) Macau awards; and (iv) other arbitral awards, including those made in Hong Kong.

The grounds on which a category one arbitral award may be refused enforcement mirror those in Article V of the NYC, whereas arbitral awards falling within categories two to four may additionally be refused enforcement for any other reason which the court considers just.

The Hong Kong courts, like the Singapore courts, have a strong reputation for being pro-arbitration and having a policy of minimal curial intervention in arbitral awards. That being said, one key aspect of the regime in Hong Kong stands out.

Since the return of Hong Kong to China in 1997, the Hong Kong courts have pronounced that Hong Kong now follows the Chinese judicial policy of absolute sovereign immunity. What this means is that arbitrations involving states or state organs, notwithstanding that they may be seated in Hong Kong, are not subject to the supervisory jurisdiction of the Hong Kong courts. In the specific context of the enforcement and setting aside of arbitral awards, the Hong Kong courts will neither set aside nor enforce arbitral awards against states or state organs.

India

Section 34 of the Indian Arbitration and Conciliation Act (A&C Act) governs the setting aside of arbitral awards, whereas section 48 of the A&C Act governs the enforcement of foreign arbitral awards. The grounds on which enforcement of foreign arbitral awards may be refused under section 48 of the A&C Act reflect those in Article V of the NYC.

Prior to the 2015 amendments to the A&C Act, the predominant interpretation of the ‘public policy’ ground by the Indian courts was that enforcement of a foreign arbitral award could be refused if the arbitral tribunal’s decision on a point of Indian law was manifestly wrong, as such a decision would be patently illegal and contrary to the public policy of India. This was a serious deviation from the prevailing views and practice of a vast majority of the state parties to the NYC that the ‘public policy’ ground should not be construed as a reference to the domestic public policy of the enforcement court, and effectively presented a back door by which the merits of the arbitral award could be reviewed and appealed against.

However, vide the recent 2015 amendments, it is now clarified that the ‘public policy’ ground cannot entail a review of the merits, and can only be invoked if the making of the arbitral award was induced by fraud or corruption, or contravenes a fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice. While much comfort may be had from the clarification that the ‘public policy’ ground can no longer serve as a back door appeal against the merits of an arbitral award, it remains to be seen what Indian courts consider as falling within the fundamental policy of Indian law, or basic notions of morality and justice, and whether this may be open to abuse by opportunistic parties seeking to resist enforcement of foreign arbitral awards in India on grounds that would not normally justify refusal of enforcement under Article V of the NYC.

The Supreme Court of India has also clarified in a seminal judgment in 2012 that section 34 of the A&C Act does not apply to foreign arbitral awards, but only to arbitrations seated in India. This is significant, as prior to this ruling, the Indian courts had, on various occasions, applied the setting aside provisions under section 34 of the A&C Act to refuse the enforcement of foreign arbitral awards. In this regard, the scope of curial intervention permitted under section 34 of the A&C Act is more extensive than under section 48. For example, section 34 of the A&C Act gives the Indian courts the power to remit the arbitral award and proceedings back to the tribunal “to eliminate grounds for setting aside the award”.

Indonesia

Indonesian Law No.30 of 1999, regarding Arbitration and Alternative Dispute Resolutions (Arbitration Law), governs the enforcement of awards in Indonesia.

Indonesia is a party to the NYC; it has neither adopted, nor is its Arbitration Law based on, the Model Law. In addition to Article V of the NYC, the Arbitration Law provides that enforcement may be refused if the award is rendered by an arbitrator or arbitral tribunal in a country with which Indonesia does not have a bilateral or multilateral treaty on the recognition and enforcement of international award, or the subject-matter of the arbitral award does not, according to Indonesian law, fall within the scope of commercial law, or the arbitral award contravenes public order.

To enforce an award, it first has to be registered by the arbitral tribunal at the Central Jakarta District Court, following which, an application can then be made to the Central Jakarta District Court for the recognition and enforcement of the award, known as ‘exequatur’.

The feedback from parties seeking to enforce arbitral awards in Indonesia has consistently been that the process lacks clarity, transparency and consistency. For instance, there are no clear laws or procedure as to how challenges to the enforcement of the award are to be dealt with. In one instance, this was during the issuance of exequatur, in another, this was after exequatur had been issued. It is also not clear what would constitute a contravention of public order. In at least one known instance, the Indonesian courts held that an arbitration agreement precluding parties from submitting their disputes to the Indonesian courts interfered with the Indonesian judicial process, violated the sovereignty of Indonesia and was against public order. Further, the enforcement process is also often plagued by multiplicity of proceedings. In a number of cases, the party dissatisfied with the award sought to re-litigate the underlying dispute before the Indonesian courts while the issuance of exequatur was ongoing or had already been issued, and exequatur was ultimately denied or worse, withdrawn. Coupled with the significant backlog of cases in the Indonesian courts, enforcement often takes months if not years.

Conclusion

The enforcement and setting aside of arbitral awards are important aspects of the arbitral process, but are often overlooked. Parties are well-advised to bear in mind any difficulties or notable features of the regime for enforcement and setting aside in the jurisdictions where these are likely to be sought.

For example, the seat of arbitration is not only significant in that it determines the court which exercises supervisory jurisdiction over the arbitral proceedings; it is also decisive as to the forum in which the arbitral award may be set aside. Careful consideration should be given to, among other things, the attitude of the seat court toward the setting aside of arbitral awards, and if there are any additional or exceptional grounds for setting aside under the laws of the seat. Likewise for the enforcement of arbitral awards, quite apart from whether the party against whom the award is being enforced has substantial assets within the jurisdiction, the procedural ease with which the award may be enforced and whether there are any peculiar substantive hurdles to enforcement in the jurisdiction where enforcement is sought are also important considerations.

For a party seeking to realise the fruits of the arbitration, no matter how favourable the outcome or how sizeable the sums awarded may be, all of this means little if the arbitral award cannot be enforced or worse, is set aside.

Koh Swee Yen and Teck Wee Tiong are partners at WongPartnership LLP. Ms Koh can be contacted on +65 64 16 68 76 or by e-mail: sweeyen.koh@wongpartnership.com. Mr Tiong can be contacted on +65 64 16 81 12 or by email: teckwee.tiong@wongpartnership.com.

Koh Swee Yen and Teck Wee Tiong

WongPartnership LLP