Game, set, match, American Investor, December 2010
Arbitration is not a court. It is private dispute resolution mechanism. It offers parties flexibility, efficiency, cost control and a business approach. But, one may ask, does it also offer what parties in dispute need the most—an enforceable ruling? The answer is yes. Although it is private, the product of an arbitration, the award, may be enforced and recognized as having the effects of a court judgment.
State court reviews
Before this may happen, the arbitration award, as a private document, is subject to review by the state court. In Poland such review is limited to the validity of the arbitration agreement, basic rules of procedural fairness, and the most important principles of public policy. The court does not review the merits of the ruling.
In case of domestic awards, the review is two-fold. First, either party may file a petition to set aside the award, if it was issued in Poland. Such action may be filed within a strictly limited period and may be based on the limited grounds enumerated in the Civil Procedure Code. If the court finds any of the grounds justified, it should set aside the award, which means that it will cease to have any effects.
Notwithstanding an action to set aside the award, in order for the award, whether issued in Poland or abroad, to be treated as if it were a court judgment, an order of the state court on recognition or enforcement is needed. This requires initiation of a proceeding before the state court, which will also perform limited review of the award. As a result of recognition or enforcement, the award obtains legal force equal to that of a judgment of a state court. Awards capable of enforcement by way of execution, for example ordering payment, become writs of enforcement, allowing the bailiff to commence execution. Other awards (typically, nonmonetary awards) are subject to “recognition.”
Types of awards
From the point of view of recognition and enforcement, it is essential to distinguish between domestic awards and foreign awards. This is essentially determined by the place where the award is issued.
If the award was issued in Poland, the Polish Civil Procedure Code provides only two grounds for refusal of recognition or enforcement: the dispute was not arbitrable, or the award is contrary to Polish public policy. This is a short list, but a party that believes a domestic award is erroneous may also seek review by filing a petition to set aside the award.
With respect to foreign awards, the review conducted by state courts before recognition or enforcement in Poland is somewhat broader. This is tied to the fact that foreign awards are not subject to an action in Poland to set aside the award.
Recognition and enforcement of the vast majority of foreign awards is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which was adopted at the United Nations in New York in 1958. During the 50 years in which the New York Convention has been in force, it has become the most important legal act in the area of international arbitration. Currently there are 145 countries that are parties to the New York Convention. This means that an arbitration award issued almost anywhere in the world may be enforced or recognized on a uniform basis worldwide. The same certainly cannot be said for court judgments.
The New York Convention generally applies to foreign arbitration awards regardless of where they were issued—not necessarily in another country that is a party to the convention. The New York Convention does, however, authorize a state joining the convention to assert two types of reservations: a reciprocity reservation, under which the state may apply the convention only to awards issued in another convention state, and a commercial reservation, under which the convention will apply only to disputes regarded as “commercial” under that country’s national law. Poland has adopted the New York Convention with both of these reservations. This means that the convention is applicable in Poland only to awards that were issued in commercial matters in another state that is also a party to the convention. Other foreign awards are subject to recognition or enforcement in Poland under the rules set forth in the Civil Procedure Code.
New York convention implications
Given the significant number of countries that are parties to the New York Convention, as well as the liberalization of domestic rules for recognition and enforcement of foreign awards, the reciprocity reservation is now practically moot, and some states that had previously declared the reciprocity reservation have since withdrawn the reservation. Nonetheless, if parties select arbitration in one of the few states that have not joined the convention, they should be aware that the award will not be subject to recognition or enforcement under the New York Convention in about 70 of the contracting states.
The New York Convention provides for a general obligation on the part of contracting states to recognize or enforce awards that are covered by the convention. The grounds for refusal of recognition or enforcement of an arbitral award are exhaustively set forth in the convention, and in this respect it sets a maximum standard. Contracting states may not establish additional or stricter grounds for refusing recognition or enforcement, but they may establish conditions that are less strict.
The New York Convention does not affect other multilateral or bilateral treaties concerning recognition or enforcement of arbitration awards entered into by contracting states, or deprive a party of the right to exercise more favorable rules for recognition and enforcement under domestic law or other treaties. This is relevant, because in addition to the New York Convention, Poland is also party to a number of bilateral treaties covering recognition and enforcement of arbitration awards. However, given the universal sweep of the New York Convention and accession to the convention by more and more countries, the significance of these treaties is steadily declining.
Arbitration true spirit
It is not the main purpose of arbitration to produce awards that must be enforced or carried out using state compulsion. On the contrary, the conception of arbitration as a private means of dispute resolution assumes that the parties, by submitting their dispute to be resolved by arbitration, at the same time undertake to comply with the award and perform it voluntarily. The authority of the state is available if a party believes the award is erroneous, or if a party refuses to comply with the award voluntarily.
Published in: American Investor, December 2010