THE ENFORCEMENT DILEMMA: NAVIGATING LEGAL BARRIERS IN FOREIGN AWARD EXECUTION

ABSTRACT

In international commercial arbitration, arbitral awards must be properly enforced as it ensures that the parties rights related to settled disputes will be respected across borders. However, there are many challenges with the effective enforcement of these awards, thereby causing uncertainty and prolonged disputes between parties. The major problem regarding enforcement issue is that domestic courts does not give proper recognition to foreign awards. Reason being, conflicting local laws and public policy concerns. In addition, the enforcement process is at times not clear, involving differences in procedural requirements across different jurisdictions, leading to vague results.

On top of that corruption and political intervention in some regions add further complications to the process of enforcement, especially in those situations where domestic parties with strong political background manipulate the system to shelter themselves from complying with the award. Another reason is cultural and legal factors. Furthermore, award enforcement against a sovereign state is especially difficult as sovereign states often enjoy immunity, making the enforcement difficult or impossible. Regardless of what is stated, treaties like the New York Convention also have loopholes that do not address all these concerns. For strengthening the enforcement process, there is a requirement for better international frameworks, strong coordination between national courts & legal procedure transparency.

KEY WORDS: ARBITRAL AWARD, CORRUPTION, CULTURAL BARRIERS, INTERNATIONAL FRAMEWORKS, JURISDICTION, LOCAL LAWS, PUBLIC POLICY, PROCEDURAL GAPS.

INTRODUCTION

International commercial arbitration is a mechanism for solving commercial disputes between parties of different nations. It is the best alternative to litigation due to its efficiency. Arbitration is often considered by many individuals as a quick and flexible alternative to litigation, as parties find this an easier way of solving their disputes. But it can only serve its purpose when arbitral awards are enforced. There are many conventions and treaties that states the procedure for foreign award enforcement. Such as, the convention on Recognition and Enforcement of Foreign Awards (New York) 1958, is an international framework that states, awards that are made in another jurisdiction are recognized and honored across jurisdictions. Despite widespread ratification, several challenges continue to jeopardise the execution of arbitral awards. Many legal barriers originate from a failure to comply with due process, cultural differences, public policy objections, or procedural irregularities, resulting in a refusal to enforce.

There are challenges, including the lack of judicial support, and systemic inefficiencies in national judicial system due to sovereign states, which contribute to the enforcement dilemma. These difficulties have consequences for parties in arbitration dispute. Furthermore, in some countries, arbitrators’ biases and inconsistent legal standards hamper enforcement attempts, leaving parties with little to no options. The consequences are especially severe for mostly foreign enterprises as they rely on arbitration as a mechanism for resolving dispute related to investment and cross-border trade conflicts.

If these hurdles are eliminated, arbitration would then be able to offer a credible alternative to litigation and inspire great faith in those choosing this method of conflict resolution. As arbitration comes to be more used for international trade, it is crucial to ensure the awards are enforceable to keep arbitration’s image as a trustworthy method of conflict resolution. There is a limited focus on the practical challenges in enforcement across different jurisdictions. Such as, the inconsistency in the interpretation of the 1958 Convention by different jurisdictions and the role of public policy in resisting enforcement.

CHALLENGES IN THE FOREIGN AWARD ENFORCEMENT

NEW YORK CONVENTION, 1958

There are some loopholes in New York Convention, 1958. Such as,

• Inconsistent Interpretation of the Convention

The Convention of (1958) is a major framework for the enforcement of international arbitral awards, but its inconsistent interpretations by member states make it difficult for its uniform application. The main area of inconsistent interpretations is with respect to public policy exception (Article V(2)(b)), where the scope is understood narrowly in France and the Netherlands but broadly in other countries influenced by their cultural or religious practices.

 The attitude of the courts in relation to the enforcement also varies, with some strictly adhering to the limited grounds of refusal mentioned in the Convention while any other courts try to investigate the case. Furthermore, its silence on sovereign immunity has created different ways for enforcement against state-owned enterprises, thus complicating its application.^[1]

• Silent on sovereign immunity

The 1958 convention does not mention how the sovereign immunity issues should be solved at the time of enforcement. Which in result allows state parties to avoid enforcement by stating that they are immune from the jurisdiction of the foreign courts.

Sovereign immunity is a principle of international law that allows states and state-run entities to escape actions against them or their assets without their consent. The 1958 convention does not provide any direction on how to deal with sovereign immunity claims in arbitral award enforcement against states or state-controlled enterprises.^[2]

For Example: In some instances, a finding of fact in favor of any party by a tribunal does not allow for its enforcement because a particular state party argues that its assets are protected by immunity.

• Failure to harmonize procedural standards

The convention offers the general framework but it remains silent on the enforcement procedure, leaving member states the authority to enforce the awards according to their domestic procedural law.

The absence of adequate procedural standards delays the enforcement process, combined with inefficiencies which adds to the cost of an already lengthy dispute resolution process.

• Modern Developments in Arbitration

The Convention (New York) was adopted in 1958, way before many modern developments in arbitration practices and in technology. There is no involvement of innovations in virtual hearings, electronic submissions, and so on. The outdated provisions of convention fail in recognizing the realities of modern arbitration, which creates uncertainty concerning the legality of practices, such as entirely remote arbitration proceedings.

For Example: Virtual arbitration proceedings, most arbitral tribunals and courts now operate through online platforms, but this raises interesting questions as to whether, in a virtual context, some of the procedural requirements, such as document authentication or witness presentation, can be complied with. These gaps in the Convention hamper its effectiveness in attending to modern challenges and cause delays from uncertainty in determining compliance with procedural requirements.^[3]

• Costs and Delays

The Convention of 1958 talks about the enforcement and recognition of award in some extent, but it offers no remedy against the costs and delays related to the effective enforcement of arbitration. Arbitration is an already-expensive process and any kind of delay in the enforcement phase adds on considerable monetary and time burdens on the parties, especially those with limited resources.

The Convention does not lay out any timeline for enforcement nor any penalties for improper delay in the process, nor does it provide mechanisms for the reduction of procedural shortcomings in enforcement.^[4]

STATUS OF INDIA IN FOREIGN AWARD ENFORCEMENT

India has taken great measures in strengthening its arbitration and foreign awards enforcement specifically through the Act of 1996. The Act recognizes arbitral awards made in a foreign country and makes them enforceable, primarily in accordance with the Convention of 1958 and the Geneva Convention of 1927. These conventions put India in the status of being a supportive jurisdiction towards foreign awards with the intention of taking into cognizance the international requirements. However, there remain several practical difficulties in implementing foreign awards in India.

INDIA’S STATUS IN FOREIGN AWARD ENFORCEMENT

India’s participation in international treaties such as 1958 Convention, which basically allow the foreign awards enforcement and recognition, showcases the country’s commitment towards being a reliable forum for arbitration. The Act of 1996, part 2 provide the standards for the implementation of awards under the bounds of such conventions. According to section 48, foreign award can be set aside only when either one or more specific circumstances apply to refuse enforcement. This gives the courts little space to assure that, award does not offend public policy of India, violates principles of natural justice, or runs counter to the laws in force in India.

CHALLENGES FACED IN ENFORCEMENT OF FOREIGN AWARDS IN INDIA

• Public Policy Exception (Section 48)

The most significant challenges arise from the interpretation by the judiciary of the exception on public policy under Section 48, which allows foreign award enforcement to be refused because it violates Indian public policy^[5]. The Supreme Court has narrowly construed this exception, yet its application can still cause uncertainty. Courts may still refuse enforcement on the premise that it contravenes main norms of Indian law, justice, or morality.

In case of Ssangyong Engineering v. National Highways Authority of India, AIR 2019^[6]; the court allowed for the invocation of this exception if the award is contrary to the India’s public law but still this area is open to subjective judicial scrutiny.

• Judicial Delays and Interference

Continuing concern is that of delays and interference from the court. The Indian judiciary often goes back and forth into procedural aspects of whole process of arbitration in dealing with foreign award enforcement, and such attempts leads to delayed enforcement. Even though the law states there should be very limited intervention, local courts often interfere by reviewing the award’s merit in detail to ensure that it is fair.

Some cases, like Shri Lal Mahal Ltd. v. Progetto Grano Spa, AIR 2013; have seen the courts assuming that there is a scope to scrutinize the enforcement process, which, on its part, is in contradiction with the international principle that awards must be enforced quickly^[7].

• Sovereign immunity and enforcement against state entities

Another massive hurdle in enforcing foreign awards against state or state-owned entities proves to be what one may refer to as sovereign immunity. Sometimes sovereign immunity protects public sector enterprises or government bodies against enforcement applications, thus making enforcement process complicated.

 The case of Vedanta Ltd v. Government of India, AIR 2020^[8]; laid down the guidelines that disallow sovereign entities from invoking sovereign immunity against an enforcement application, that too, most especially when indulging in a commercial transaction.

However, the issue of sovereign immunity is contentious and has continued to present obstacles to enforcing awards against state-controlled entities.

• Absence of reciprocity with non-reciprocating states

While indeed, the 1958 Convention applies to states that forms the reciprocity arrangement, India does face the challenge here in enforcing awards from the states which do not repay any reciprocity. For these states, enforcement is viable only via a civil suit according to the law in India, extremely cumbersome and time-taking. In case of Yukos Universal Limited v. Russian Foundation, AIR 2005^[9]; the claimants are of view that Russia has unlawfully expropriated Yukos through assets seizures and forced bankruptcy. This case took over a decade to conclude and reach to a solution because of its complex nature, multiple legal objections, and jurisdictional questions. The permanent court of arbitration in Hague ruled in 2014 that Russia violated the Energy Charter Treaty’s provision and awarded dollar 50 billion in damages, which is the largest arbitration award in history.

SUGGESTIONS

To address these critical concerns, the paper proposes actionable recommendations. An important proposal is to enhance the international cooperation and networking of the states to align legal systems and enforcement mechanisms. Build up bilateral and multilateral agreements allowing international cooperation in clearer guidelines for the recognition of arbitral awards and their enforcement could develop a predictable legal framework for cross-border business transactions.

Second, a review of domestic laws to ensure consistencies with international treaties, especially with the New York Convention. All contradictions with international treaties must be eliminated. Countries should scrutinize and amend their arbitration laws according to the best global practices, hence dismantling barriers stalling enforcement.

Third, there is great importance attached to the training of legal practitioners on international arbitration principles and 1958 Convention obligations. Investing in training and human development will provide critical stakeholders with necessary skills to execute the awards fairly and uniformly. There is a dire need for enhancing the transparency and efficiency of national judicial systems in handling arbitration enforcement and to align them with international standards by speeding up the enforcement process, thus reducing delays, which will ultimately optimize to fairly enforce arbitral awards.

These challenges should also be addressed by international and arbitration bodies to spread best practices and providing states with assistance to strengthen their legal frameworks. Model laws or guidelines may be regarded as valuable tools for countries with goals to harmonize their arbitration laws with international standards.

CONCLUSION

Adherence to international arbitral awards is quite difficult in the sphere of international commercial arbitration and presents a dual threat to trade and redress in cross-border agreements. Further this research will help to lay down the necessities related to proper machinery for enforcement that will give a conducive legal environment for the international business domain. Even after the New York Convention and other endeavors are readily accepted, certain hurdles still affect the enforcement of arbitral awards in various jurisdictions.

These include competing local legislation and different interpretations of international treaties, and the policy considerations which vary in each of the states. These conflicts in practice lead national courts to refuse and enforce awards, which may undermine the success of international arbitration. Procedural irregularities might, in addition, make things complex and really slow down the enforcement process, thus causing trouble for the parties and deterring investment in international markets.

This research suggests enhancing enforcement of foreign award by fostering international cooperation and harmonization of legal systems through better guidelines and bilateral agreements.

International commercial arbitration remains a valuable mode of settling commercial disputes, its effectiveness is dependent on the effectiveness of enforcement. But careful steps must be taken to harmonize this process, reform domestic laws, and train the local judges. Sorting out these problems may see the international community build more faith in arbitration, thus permitting more expeditious dispute resolution and improved relations in trade across borders.

 

 

REFERENCES

^[1] O. Kayode Akinsola, Ethics and Professional Conduct in the Enforcement of an Arbitral Award on International Arbitration, 2023

^[2] Makarenkov O. & Mesquita LV, Challenges of Legal Guarantee for the Enforcement of Arbitral Awards in International Commercial Cases (2024)

^[3] Cosmas Gabagambi, Critical Analysis on the Challenges Facing Legal and Institutional Frameworks on Recognition and Enforcement of Foreign Arbitral Awards in Tanzania (2015)

^[4] O. Kayode Akinsola, Ethics and Professional Conduct in the Enforcement of an Arbitral Award on International Arbitration (2023)

^[5] Divya Suwasini & Shreya Bose, Arbitration in India Not for the Faint-Hearted: Enforcing Foreign Arbitral Awards (2011)

^[6] Indian Kanoon, [Ssangyong Engineering v. National Highways Authority of India, AIR 2019], https://indiankanoon.org/doc/95111828/

^[7] The Arbitration and Conciliation Act, 1996, No. 26 of 1996, India Code, https://www.indiacode.nic.in/handle/123456789/1978?view_type=search

^[8] Indian Kanoon, [Vedanta Ltd v. Government of India, AIR 2020], https://indiankanoon.org/doc/177552381/

^[9] Yukos Universal Ltd. (Isle of Man) v. Russian Federation, [2021] EWHC 894