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International Arbitration Report Madrid Update: Executing Foreign Awards Challenged In Their Country Of Origin – Evidence Of A French Position’s Influence On Spanish Courts

by Calvin A. Hamilton and Luis Capiel

HAMILTON Madrid, Spain

A commentary article reprinted from the September 2009 issue of Mealey’s International Arbitration Report


MEALEY’S International Arbitration Report

Vol. 24, #9 September 2009

Commentary Madrid Update: Executing Foreign Awards Challenged In Their Country Of Origin – Evidence Of A French Position’s Influence On Spanish Courts By Calvin A. Hamilton and Luis Capiel

[Editor’s Note: Calvin A. Hamilton is founding partner with the firm HAMILTON, Madrid, and heads the arbitration department. He is admitted to the New York and the Madrid Bar. Luis Capiel is an associate with the firm and is admitted to the Madrid and the Munich Bar. Copyright 2009 by Calvin A. Hamilton and Luis Capiel. Replies to this commentary are welcome.] This month’s article examines a decision rendered on June 11, 2007, by the Court of first instance No. 3 of Rubí (henceforth “the Court”), in exequatur proceeding No. 584/06.1 Petitioner sought the recognition of an award rendered in France by an arbitral tribunal under the auspices of the International Chamber of Commerce. Respondent opposed recognition alleging a number of exceptions, only one of which is of interest for the purpose of this article: Respondent invoked article V(1)(e) of the New York Convention (henceforth “NYC”), arguing that the award had not yet become binding on the parties, since it had been challenged in an annulment procedure before the Paris Court of Appeal, and that pursuant to article 1506 of the French Code of Civil Procedure the lodging of such annulment procedure against an award automatically suspends its enforceability. Subsidiarily, Respondent requested a stay of proceedings in light of the annulment proceedings pending in France. The Court begins its decision by explaining that the present exequatur proceedings are governed by the

NYC2 and by the European Convention on International Commercial Arbitration of 1961 (henceforth “ECICA”). When examining the exception of article V(1)(e) of the NYC, the Court states that a binding award should not be equated with an enforceable award as such equation would mean a return to the requirement of double-exequatur which the Geneva Convention of 1927 formerly established and which was subsequently superseded by the NYC. Neither can a “binding award” be understood as an award which has not been challenged in annulment proceedings, and continues by distinguishing two situations: 1. the award has been set aside in its country of origin, and 2. the decision regarding the sought annulment is pending. Even though the Court states that the situation at bar deals with the latter issue, it proceeds to consider the former. It explains that an award having been set aside in its country of origin is contemplated in article V(1) (e) NYC as a ground for refusal of recognition and enforcement, while under the ECICA the set aside only constitutes a ground for refusal of recognition and enforcement where the same is based on one of the reasons listed in article IX(1) ECICA.3 The Courts explains: “Furthermore, this is not surprising if we bear in mind two circumstances: 1. That it is possible that the annulment in the State of origin is due, for example, to grounds of 1


Vol. 24, #9 September 2009

public policy which are not only not considered as such in another state but are even considered contrary to fundamental rights recognized in that state (for instance, in Saudi Arabia article 929 CCP allows for voiding an award rendered by non-Muslim arbitrators). 2. The different nature of an arbitral award and a judicial judgment. In fact, the judgment is issued by a judicial authority of a certain state, so that if it is set aside by a superior judicial authority, it vanished from the legal world. Instead, an arbitral award derives from a private agreement and is issued by private persons, and is not linked to the jurisdiction of the country of origin (which usually is a neutral third country, alien to the nationality or seat of the parties). This is evidenced by the decisions of the Cour D’Appel de Paris from January 10, 1997, case Arab Republic of Egypt v Chromalloy AeroServices [. . .] which states that ‘an international arbitral award is, by definition, not integrated in the legal order of the country of the seat of the arbitration.’The afore-stated explains that we have already experienced cases wherein awards have been recognized and enforced notwithstanding their annulment in a foreign country. (case Hilmarton v OTV Omnium de Traitment et Valorisation, French Cour de Cassation, from March 23, 1994 and June 10, 1997).”4 With regard to the situation of the case at bar, i.e. the motion to set aside not having yet been ruled on, the Court explains that the only consequence contemplated by NYC is the court of exequatur’s discretion to grant a stay of proceedings pursuant to article VI, from which one can infer that there is no ground for refusing recognition. The Court concludes the discussion by defining a “binding award” as that which puts an end to the arbitral proceedings, and finding such a binding award in the present case. After rejecting all of Respondent’s exceptions the Court goes on to assess the subsidiary request for a stay of the proceedings. It explains that Spanish case law is not uniform on the question of whether the dis2

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cretion to adjourn refers only to the enforcement proceedings or also to recognition, and that it is inclined towards the position adopted by some courts and by most of the legal commentators which maintain that article VI NYC refers only to enforcement. The Court explains that it is nonetheless bound by the precedent set by the Spanish Supreme Court5 that holds the opposite view, and that article VI NYC is therefore applicable to the exequatur proceedings at bar. The Court explains that in order “to assess the admissibility of the stay of the exequatur proceedings, the judge has to ponder whether the challenge of the award is outwardly well-grounded and is not merely a dilatory maneuver” and also mentions that the “prospects of success” of the set aside motion are to be taken into account.6 In the case at bar it observes that it has no knowledge of the grounds on which Respondent based its motion to set aside in France, but it nonetheless concludes that, assuming those are the same as the ones examined here, they are not sufficiently well-founded to motivate a stay of the exequatur proceedings. Even though rendered by a lower court, the decision is remarkable for two reasons. The first reason is that it gives some practical guidance on the interpretation of article VI NYC. Spanish case law regarding the application of said article is scarce and there are no internationally accepted standards for the exercise of discretion by courts to stay enforcement of an award.7 According to the Court, the stay is to be denied not only in cases of manifestly frivolous motions to set aside, but also in cases where the challenge of the award is not “outwardly well-grounded” and has poor “prospects of success.” The second reason is the Court’s obiter dicta regarding the recognition and enforcement of an award that has been set aside in the country of origin. The Court did not need to address this issue, and, even if it had, the Court could simply have relied on the applicable ECICA whose article IX(1) explicitly limits the set-aside-ground for refusal of recognition and enforcement to awards set aside for one of the listed grounds. However, the Court goes further in that it generally states that “an arbitral award derives from a private agreement and is issued by private persons, and is not linked to the jurisdiction of the country of origin”


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and refers to the French Chromalloy and Hilmarton cases, which are not article IV(2) ECICA but article V(1)(e) NYC cases, thus indicating a strong proclivity towards the French position, according to which arbitration is “delocalized” and an annulment decision is limited to the territorial borders of the rendering state and thus no bar to enforcement.8

Vol. 24, #9 September 2009

3.

Which mirror exactly the grounds in article V(1) (a)-(d) NYC.

4.

Translation by the authors.

5.

Auto del Tribunal Supremo de 16 de abril de 1998 [RJ 1998\2919].

6.

Translation by the authors.

7.

Dana Freyer “The Enforcement of Awards Affected by Judicial Orders of Annulment at the Place of Arbitration” in Emmanuel Gaillard and Domenico Di Pietro (eds) Enforcement of Arbitration Agreements and International arbitral Awards, the New York Convention in Practice (2008,Cameron May, London) p. 766.

8.

See also the later Societé PT Putrabali Adyamulia v Societé Rena Holding et Societé Mnogutia Est Epices, French Cour de Cassation, June 29, 2007. n

Endnotes 1.

Auto del Juzgado de Primera Instancia nº 3 de Rubí, de 11 de junio de 2007, procedimiento exequátur 584/06.

2.

Aplicable pursuant to article 46 of the Spanish Arbitration Act (Ley 60/2003, de 23 de diciembre, de Arbitraje).

3


Š Copyright 2001 Mealey Publications. All rights reserved. Reproduction strictly prohibited without written permission.


Arbitration and the Fisc: NAFTA’s ‘Tax Veto’ by William W. (Rusty) Park Professor of Law at Boston University Vice President, London Court of International Arbitration Arbitrator, Claims Resolution Tribunal for Dormant Accounts in Switzerland

A case of note reprinted from the May 2001 issue of Mealey's International Arbitration Report.

© Copyright 2001 Mealey Publications. All rights reserved. Reproduction strictly prohibited without written permission.


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