Transnational Construction Arbitration

Renato Nazzini

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CHAPTER 12 Remedies at the seat and enforcement of international arbitral awards: res judicata, issue estoppel and abuse of process in English law

Introduction

12.1 An often unexplored problem in international commercial arbitration is the relationship between the remedies against the award at the seat of the arbitration and enforcement proceedings. This relationship is governed by Article V(1)(e) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention), which provides that recognition and enforcement of a foreign arbitral award may be refused if the party against whom the award is invoked proves that the award has been suspended or set aside by a competent authority in the country in which, or under the law of which, the award was made.1 Plainly, this provision only deals with the case in which the unsuccessful party in the arbitration obtains, at the seat of the arbitration, a favourable judgment by a court of supervisory jurisdiction.2 There is nothing, in Article V

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or in the New York Convention more generally, which applies to the case in which a challenge to the arbitral award was dismissed or no challenge was made at all at the seat of the arbitration and the unsuccessful party raises a defence that it had raised, or could have raised, before the courts of the seat.3 And yet, this situation arises very frequently, indeed probably much more often than the setting aside of the award in the jurisdiction of the seat being pleaded as a defence to enforcement. 12.2 The received wisdom, pretty much unchallenged so far, is that a judgment rejecting a challenge against the award at the seat of arbitration does not bind the court of the place of enforcement.4 A fortiori, the unsuccessful party in the arbitration who does not challenge the award at the seat can plead, under article V of the New York Convention, issues that it could have raised before the courts of the seat.5 The consequence is that, in enforcement proceedings, the unsuccessful party can re-argue issues already litigated at the seat and litigate for the first time any issue that it did not raise before the courts of the seat either because the challenge was of a more limited scope or because there was no challenge at all. However, the New York Convention allows for a different solution, which is left to the law of the enforcement State. Focusing on English law, this chapter will argue that, in certain circumstances, a party cannot re-litigate issues that have already been litigated, or could have been litigated, in proceedings that have actually been brought before the courts of the country of the arbitral seat.6 Furthermore, the failure to challenge the award at the seat of the arbitration can be taken into account by the court when determining whether it is appropriate for the court to exercise its discretion to enforce the award. This discretion can be exercised even if one of the grounds

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for refusing enforcement under article V of the New York Convention is established, including, possibly, on the basis that is an abuse of process for the unsuccessful party to resist enforcement of the award in England. 12.3 This chapter is structured as follows. Firstly, it examines the traditional approach to the relationship between the remedies at the seat and enforcement proceedings and demonstrates that such an approach is neither required under the New York Convention nor necessarily desirable as a matter of policy. Secondly, it identifies the English law doctrines of res judicata 7 and abuse of process8 as possible constraints on the unsuccessful party’s ability to raise, under article V of the New York Convention, any grounds that it raised or could have raised in a challenge against the award at the seat of the arbitration. Thirdly, it discusses the relevance and potential application in enforcement proceedings of two strands of the doctrine of res judicata: cause of action estoppel9 and issue estoppel.10 Fourthly, it focuses on the rule in Henderson v Henderson, which is an application of the more general doctrine of abuse of process.11 Fifthly, it attempts to answer the question as to whether the abuse of process doctrine has any role to play when the party resisting enforcement has not sought to avail itself of the remedies against the award available at the seat of the arbitration or has not reasonably pursued those remedies. Finally, conclusions will be drawn.

The traditional approach to the relationship between the remedies at the seat and enforcement proceedings and its criticism

12.4 In international arbitration, it is well established that the courts of the State of the seat of the arbitration have supervisory jurisdiction over the award. This supervisory jurisdiction concerns, in particular, the remedies against the award available under national arbitration legislation. These remedies generally comprise an application for setting aside the award on grounds that include, but not necessarily limited to, the grounds for refusing recognition and enforcement of the award under article V(1)(a)–(c) and (2) of the New York Convention.

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12.5 A perfect match between the grounds for refusing recognition and enforcement under the New York Convention and the grounds for setting aside the award is achieved under the UNCITRAL Model Law on International Commercial Arbitration (Model Law). The grounds on which a court may set aside an award under article 34(2) of the Model Law correspond to the grounds on which a court may refuse to recognise and enforce an award under article 36(1)(a)(i)–(iv) and (b)(i)–(ii). The only additional ground for refusing to recognise and enforce an award is the suspension or setting aside of the award in the country of origin under article 36(1)(a)(v), which clearly does not apply in proceedings for setting aside an award at the seat. In other legal systems, this correspondence is not complete but still remedies against the award at the seat generally include the grounds on which enforcement may be refused under article V of the New York Convention. This is the case, for instance, in article 190(2) of the Swiss Federal Private International Law Act of 18 December 1987,12 sections 67, 68 and 69 of the English Arbitration Act 199613 and sections 10 and 11(b) of the US Federal Arbitration Act.14 12.6 Given this general framework, if the view is taken that failure to challenge the award or a judgment dismissing a challenge in the State of the seat has no effect in enforcement proceedings, the unsuccessful party in the arbitration will have a choice as to the forum in which to challenge the award. The unsuccessful party can challenge the award at the seat or it can wait until the successful party seeks enforcement abroad. Furthermore, the unsuccessful party has two or more opportunities to challenge in award: it can challenge the award at the seat and, if unsuccessful, it can raise the same issue in enforcement proceedings in any State in which enforcement is sought without being bound by the outcome of the setting aside application. 12.7 This position is not fully satisfactory. Finality is an important value in international arbitration and to give the unsuccessful party the opportunity to litigate the same issue time and again around the world does not appear to be in line with this fundamental objective. Furthermore, there seems to be no principled reason to allow a party to do so, or at least

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not without qualification. If the unsuccessful party had a full opportunity to litigate an issue in a fair trial before an impartial court of competent jurisdiction, re-litigating or re-opening the issue does not serve the ends of justice. Justice has been done, or could have been done already, and finality ought to prevail in the interest of the other party and in the public interest. 12.8 Two objections can be raised against this reasoning. The first is purely doctrinal. The New York Convention allows the unsuccessful party to re-litigate, under article V, issues that have already been litigated at the seat of the arbitration. This objection, however, would not be well founded. Article V of the New York Convention is a maximum rule not a minimum rule.15 This means that article V sets out the only grounds on which recognition and enforcement of a foreign arbitral award may be refused but does not compel the courts of a contracting State to refuse recognition and enforcement of a foreign award if one of the grounds in article V is established. The language of article V(1) and (2) is clear in providing that recognition and enforcement ‘may’ be refused. The verb ‘may’ expresses a power or permission but not a duty. Therefore, if one of the grounds under article V of the New York Convention is established, the court has the power, or is permitted, to refuse recognition and enforcement but is not required to do so.16 Thus, the court may, in its discretion, decide not to enforce the award if one of the grounds under article V is established. Furthermore, article VII of the New York Convention stipulates that the provisions of the Convention do not deprive any interested party of the right to avail itself of an arbitral award in the manner and to the extent allowed by the law of the country in which recognition and enforcement are sought. Therefore, rules of national law that are more favourable to the recognition and enforcement of the award remain fully applicable, which means that the court in enforcement proceedings may still recognise and enforce a foreign arbitral award even if a ground under article V is established, provided that national law allows the court to do so.17

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12.9 This interpretation of the New York Convention has been endorsed by the English courts, albeit with some hesitation. In Yukos Oil Co v Dardana Ltd, Mance LJ, as he then was, commented that ‘The use of the word “may” must have been intended to cater for the possibility that, despite the original existence of one or more of the listed circumstances, the right to rely on them had been lost, by for example another agreement or estoppel.’18 Lord Mance JSC in Dallah Estate confirmed this approach and explained that the use of the word ‘may’ must have been intended ‘to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have enforcement or recognition refused’.19 His Lordship went on to comment that article V of the New York Convention

covers a wide spectrum of potential objections to enforcement or recognition, in relation to some of which it might be easier to invoke such discretion as the word ‘may’ contains than it could be in any case where the objection is that there was never any applicable arbitration agreement between the parties to the award.20

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