Navigating judgment enforcement in multi-jurisdictional arbitrations
With the trend towards globalization and the increased popularity of international arbitrations as a means of dispute resolution, multi-jurisdictional arbitrations are an accepted fact of life—and both corporates and their counsel must be prepared to face the inherent challenges that arise out of complex cross-border disputes.
International arbitration has long proven to be parties’ preferred method of dispute resolution, and two-thirds (66%) of respondents to Queen Mary University of London’s (QMUL) most recent survey expect its use to increase.[1] The 2018 QMUL research shows that the ICC and LCIA remain the two most preferred institutions, with the SIAC, HKIAC, and the SCC rounding out the five most preferred arbitral institutions. Consistent with this, the leading seats of arbitration reported by the QMUL survey were London, Paris, Singapore, Hong Kong, and Geneva.
Further highlighting the sheer volume of arbitrations—not to mention the increasingly international nature of the proceedings—are the ICC’s record-breaking statistics from 2018, for instance. As explained by the ICC:
“Worldwide, 2,282 parties were involved in ICC Arbitration cases from 135 countries in 2018. Newly registered cases in 2018 represented an aggregate value of US$ 36 billion, with an average amount of US$ 45 million in dispute. The aggregate value of all pending disputes before the Court at the end of the year was US$ 203 billion, with an average value of $131 million and a median value of US$ 10 million.”[2]
Equally impressive, the LCIA reported that in 2018, a significant number of parties again were involved in LCIA arbitrations, with a total of 317 arbitrations referred to the LCIA in 2018, 11% of which claimed damages in excess of 100 million USD.[3] And these are no outliers. In 2018, the SIAC, HKIAC, and SCC also reported all-time highs and significant numbers of new arbitrations filed:
- SIAC: In 2018, SIAC received 402 new cases from parties across 65 jurisdictions, resulting in an increase, as compared with 2017, in the total sum in dispute across all new cases to USD 7.06 billion (SGD 9.65 billion).[4]
- HKIAC: A total of 521 cases were submitted to HKIAC in 2018, making for a total amount in dispute of HK$52.2 billion (approximately US$6.7 billion), a 34% increase from US$5 billion in 2017.[5]
- SCC: A total of 152 cases registered involving parties from 43 countries, with an unprecedented increase in the average dispute value to 13.3 billion EUR.[6]
These figures are not surprising. A number of features of international arbitration continue to make it attractive to parties in ICC, LCIA and other arbitrations. These include: avoiding specific legal systems and national courts, flexibility, ability of parties to select arbitrators, the element of privacy that arbitration affords parties, neutrality, and finality. The most important characteristic, however, is the enforceability of awards. Indeed, in the 2018 QMUL survey, 64% of respondents said that the enforceability of arbitration awards was the single most valuable characteristic of arbitration.
Treaties governing the enforcement of international arbitration awards
There are two main treaties governing the enforcement of international arbitral awards in foreign jurisdictions: The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). These treaties replaced earlier precursors in order to meet the needs of international trade, which was already becoming increasingly common in the middle of the twentieth century.
The New York Convention—which currently has 159 ratifying state parties—requires contracting states to recognize and enforce foreign arbitral awards as if they were domestic awards. A party seeking enforcement must only supply to the court a copy of the arbitration agreement and the arbitral award. With 154 ratifying states, the ICSID Convention is comparable to the New York Convention, but is particularly focused on investor-State disputes. Together, these two treaties helped make it possible to enforce foreign awards almost anywhere in the world.
What is more, it has been reported that to the extent an arbitral institution has a strong profile and broad acceptance amongst arbitration users, it may assist in enforcement under those two treaties. According to the 2010 QMUL survey, “it may have an impact on a decision of a court to only accept, or give preference to, awards made by tribunals administered by certain institutions or it may influence the court’s views about the quality of a particular award”.[7]
Challenges to enforcement in cross-border disputes
Although the New York and ICSID Conventions streamline and facilitate the recognition and enforcement of foreign arbitral awards, widely disparate implementing national laws nevertheless can complicate the process. For instance, some jurisdictions have stricter limitation periods than others (varying from 12 months to 12 years). Enforcing awards in the US requires navigating conflicting laws such as the availability of asset-related discovery in support of foreign arbitrations and differences between Federal and state law on limitation periods. Outside of the US, enforcement in certain jurisdictions remains complicated, despite theoretically having the proper systems in place to simplify the process. As a result, parties seeking to enforce perfectly valid awards are still faced with a lengthy recovery process and unavoidable costs.
There are multifarious considerations for claimants to take into account when undertaking the process of getting a multi-jurisdictional arbitration award recognized. Knowing how and where best to enforce often requires a level of specialist knowledge. And this process is complicated by the general lack of transparency with respect to the payment and satisfaction of arbitration awards. Indeed, in the 2008 QMUL survey of arbitration users, arbitration institutions were asked whether they kept track of their awards after they have been rendered: 42% had no monitoring system in place, 29% did some form of regular monitoring, and 29% said they kept track of awards only when an award is challenged.[8]
Against this background, it is perhaps unsurprising that arbitration award holders regularly avail themselves of arbitration finance to either monetize an award or fund enforcement efforts, relying on the in-house expertise of funders. One need look no further than the 2013 QMUL survey, in which one interviewee familiar with arbitration finance said:
“[H]e had only used third-party funding to obtain enforcement of a favorable award. The interviewee explained he third party funder’s team was, in his opinion, better equipped than his outside counsel to secure enforcement of the award.”[9]
At that time, in 2013, QMUL observed in its survey that third-party funders may come to play a bigger role, particularly at the enforcement stage. Six years on, this trend has only increased, both in terms of the number of award-holding claimants seeking arbitration finance to fund enforcement efforts, as well as those seeking to monetize a portion of their award. Below, we share two case studies demonstrating how Burford’s in-house team navigated these complicated issues in enforcing arbitration awards.
Case study: Enforcing a commercial arbitration award
An Asian client obtained an US arbitration award against a defendant from a third jurisdiction for a payment made for goods not received. Although the award had already been reduced to a local US judgment, it was still to be enforced elsewhere under the NY Convention, with the related time and costs involved in effecting service on the respondents.
The client sought assistance from Burford’s expert in-house asset recovery team. The team expertly identified and obtained a worldwide freezing order over the judgment debtor’s assets and—as the case is still ongoing—are seeking disclosure orders against offshore accounts and third party advisers who have helped them evade compliance with the award. Without the help of Burford’s enforcement team to navigate the complexities for enforcement of cross-border disputes, the client would have faced an even lengthier and difficult road to enforcement.
Case study: Enforcing an investor-state arbitration award
A group of investor claimants initiated arbitration proceedings against a state for a campaign of harassment and wrongfully seizing all of the companies’ assets. The Tribunal ruled in favor of the claimants. Despite multiple attempts by the defendant state to challenge the award in various international appellate courts and multifarious delay tactics—the award has been held to be final.
Burford’s in-house asset recovery team worked in tandem with the claimant’s external counsel to attach assets in jurisdictions across the EU and also—using the teams wealth of experience in matters of enforcement—leveraging the disclosure life available in some jurisdictions to direct and inform proceedings taking place in others where immunity is a particularly effective defense. The matter is still ongoing but we continue to believe that, working with our law firm partner, the debtor state will inevitably be forced to settle at near the value of the original arbitration award.
Conclusion
Although there were indeed scores of new arbitrations filed in 2018 across all of the leading arbitration institutions, claimants may conclude those arbitrations in a year or two with yet another drawn-out battle to enforce any hard-won damages award just beginning. Understanding how and where best to enforce an arbitral award can help ensure scofflaw debtors are not allowed to use cost-draining delay, diversionary and avoidance tactics by squirreling away assets in jurisdictions where enforcement is difficult in order to dodge justice.
[1] Queen Mary University of London, 2018 International Arbitration Survey: The Evolution of International Arbitration.
[2] ICC Dispute Resolution Bulletin, 2019
[3] LCIA 2018 Annual Casework Report
[7] Queen Mary University of London, 2010 International Arbitration Survey: Choices in International Arbitration
[8] Queen Mary University of London, 2008 International Arbitration Survey: Corporate Attitudes and practices
[9] Queen Mary University of London, 2013 International Arbitration Survey: Corporate Choices in International Arbitration
