Recognition and Enforcement of First Foreign Arbitral Award Under New York Convention 1958
Further to my previous article titled “Foreign Arbitration Laws – An Appellate Adventure of Pakistani Courts”, in a dramatic turn of events recently, the Lahore High Court conclusively recognised and enforced the first foreign arbitral award in Pakistan by correctly interpreting the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 and implementing the true spirit of the New York Convention, 1958. This is a fresh start by the country’s judiciary that will establish trust with foreign investors. Pakistan’s economy needs a larger share in international commerce and its judiciary must now be complemented for taking an important step in achieving the purpose.
Louis Dreyfus Commodities Suisse S.A. (the Applicant), a Fortune 500 company, had executed six purchase contracts with Acro Textile Mills Limited (the Respondent, a Pakistani company) for the purchase of Pakistan Raw Cotton. In this transaction, a ‘battle of forms’ ensued and the parties shared their version of the contracts proposing certain terms which were finalised by both parties. In particular, it was agreed that any disputes would be resolve by the International Cotton Association (ICA) in Liverpool, England.
The Respondent failed to supply the goods and was thus held to be in breach of contracts. The parties initially attempted to resolve the matter amicably, which was not conclusive and following which the Applicant initiated arbitration before the ICA in December 2010. The Applicant filed a reference and also appointed an arbitrator in the matter. On receipt of the reference, ICA issued notices to the Respondent and requested it to appoint an arbitrator. The Respondent, through its email, appointed an arbitrator. Thereafter, ICA completed its procedural requirements (including the appointment of a third arbitrator) and commenced proceedings in accordance with its rules.
The Respondent did not participate in the proceedings before the ICA after an arbitrator had been appointed. On the contrary, ICA, while complying with its rules, served proper notices to the Respondent at each stage of the proceedings. Consequently, the ICA, after due deliberation, passed the Arbitration Award dated 18 March 2011 in favour of the Applicant for an amount of US$ 3.784 million with 3.5% interest and costs.
The Applicant filed an appeal against the Award before the Technical Appeals Committee of the ICA. On receipt of the appeal, the Committee notified the Respondent of the proceedings by requesting it to join and defend its position. The Respondent did not join these proceedings. Accordingly, the Committee passed an Appeal Award dated 30 September 2011 in favour of the Applicant for an amount of US$ 4.232 million with 3.5% interest and costs.
In October 2012, I filed an application on behalf of the Applicant before the Court for the recognition and enforcement of the Appeal Award under Section 6 of the 2011 Act. On 8 May 2018, the Court passed a judgment and allowed the application, materially for the following reasons:
Summary of the Ratio Decidendi
- Section 7 of the 2011 Act requires that the recognition and enforcement of an award shall not be refused except in terms of Article V of the Convention. This is the intention of the legislature and the underlying theme of the Convention which can be said to have a pro-enforcement bias and a strong case can be made out that the grounds under Article V are to be applied restrictively and construed narrowly.
- The purpose of the law is to give recognition and enforcement to an award expeditiously and with all deliberate speed.
- The 2011 Act has been enacted to give effect to the Convention – which is a binding agreement between contracting states – and any awards issued by international arbitral forums ought to be enforced and recognized so as to curtail the time taken by contracting parties in the enforcement of their financial obligations.
- The general pro-enforcement bias, which permeates the 2011 Act, is the policy of the law and must be the underlying thrust to liberalise procedures for enforcing the awards. The courts must, based on a proper objective analysis, give effect to the intention of the legislature and the purpose of the Convention, in the enforcement of awards. The centrality of the statutory enterprise consists of shunning a tendency to view the application with skepticism and considering an award to have a sound legal and foundational element. This presumption is for the Respondent to rebut it based on the proof being furnished. More importantly, the policy of the 2011 Act requires the court to dispose of issues by the usual test for summary judgment and not by a regular trial.
- From time to time, public authorities have stood against the policy of an Act and have either declined to implement it or have otherwise attempted to frustrate it – this is an unlawful motive.
- The judgment of the Court of Appeal of Germany in Case No.8 Sch 11-2, 4 September 2003, Oberlandesgericht [OLG] Celley is not a preferable approach on the basis of the aspect of severability of an arbitration agreement.
- The term “agreement in writing” has to be seen in the context of Article II which specifies that the arbitral clause in a contract or an arbitration agreement may either be signed by the parties or alternatively be teased out of an exchange of letters or telegrams. With the passage of time and the onset of innovative technology, emails and other forms of modern information systems can justifiably be included in the term “exchange of letters or telegrams” so as to enlarge and broaden the scope and give effect to the Convention in present times, otherwise the Convention will be rendered unworkable and pedantic and, therefore, unsuitable for changing times. Thus, in essence, the Applicant has to merely supply a copy of the agreement, whether signed or unsigned, or based on “exchange of letters or telegrams”, which constitutes sufficient compliance with Article IV.
- The only requirement of Article II read with Article IV of the Convention is that an original copy of the agreement or its certified copy is produced by the Applicant at the time of making the request for recognition and enforcement of the award. This requirement cannot be considered within the narrow confines of a strict agreement in writing, it has to be seen in the context of the concept of an agreement in writing given in Article II of the Convention.
- The objection to the arbitration agreement may only be raised within the periphery of Article V and not under Article II of the Convention. The 2011 Act and the Convention do not countenance a two-tier adjudicative process. The policy and purpose of law will suffer grievously if such an interpretation was allowed to be weighed by the courts.
- While dealing with the objection of an invalid arbitration agreement under Article V (1)(a), the court concluded that the Applicant merely had to prove prima facie existence of the arbitration agreement (which it had in the case at hand), while the Respondent had the onus to prove its invalidity (which it hadn’t done so).
- The framing of issues and holding a regular trial by taking down evidence, pro and contra, cannot be automatically resorted to in a case and as a matter of course. This procedure has to be adopted as an exception and not as a rule. The primary purpose of the law is to compel the court to proceed to enforce and recognize the award without adverting to a regular trial or on the basis of documents produced by the parties.
- Correspondence between the Applicant, Respondent and ICA had taken place through email in the case at hand, which had been relied upon by the Applicant. All such emails relied upon by the Applicant will be deemed to be primary evidence under Sections 2, 3, 4 and 13 of the Electronic Transaction Ordinance, 2002 read with Article 73, Explanation 3 of the Qanun-e-Shahdat Order, 1984 (Pakistan’s primary law of evidence).
- Denial by the Respondent as to its signatures on contracts can summarily be checked by the court though a comparison of signatures, which is permissible under Article 84 of the Qanun-e-Shahadat Order, 1984. In the given case, the court compared the signatures on contracts with the admitted signatures of the Respondent’s official on his affidavit and held that the two signatures were similar and made by the same person.
- Finally, in what is extremely rare in Pakistan, the court awarded costs to the Applicant in the given case.
Effect of the Judgment
With regard to award creditors in other cases, it appears that all pending cases before the Lahore High Court (and possibly other High Courts) in respect of recognition and enforcement of foreign arbitral awards may be settled on the basis of precedent established in the above judgment. In other words, the judgment will provide a basis for prudent legal reasoning for the award creditors to recognise and enforce the respective foreign arbitral awards. Moreover, as the criteria of evaluation has now been established, it is expected that the courts will evaluate all pending and future foreign arbitral awards in a speedy manner.
With regard to domestic award debtors, it is important to note the following:
- Legal Effect The High Court has set a considerably high standard of proof for refusing the recognition and enforcement of a foreign arbitral award. The award debtor can only challenge an award in terms of the grounds mentioned in Article V of the Convention which, according to the court, must also be construed narrowly. In other words, while defending its position, the award debtor has to prima facie establish through concrete proof (which must be documentary and not evasive) that the award is not in accordance with law and invokes the grounds enumerated in Article V of the Convention.
- General Effect
It is important for Pakistani vendors to understand the importance of ‘responsibility’ when doing business in the international market. Put simply, when dealing with foreign investors, Pakistani vendors must comply with their contractual commitments, failing which will result in legal consequences. The recent judgment has attempted to ensure Pakistan’s business reliability for foreign investors and minimize the exploitation of laxities (such as frustration of arbitration agreements and delays) present in the judicial system by local vendors. This is the only way Pakistan can create a better and more reliable name in the international markets and expand its share in international commerce.
The Lahore High Court has taken an important step in the right direction by departing from customary dilemmas. In doing so, the court has now clearly outlined the policy of the 2011 Act, the theme of the Convention and criteria for reviewing a foreign arbitral award in terms of Article V of the Convention. Moving forward, with this precedent we are hopeful that in future, foreign arbitral awards will be speedily and effectively enforced in Pakistan.
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.