Potential Issues with Enforcing International Arbitration Awards

By Arjun Ghosh

Arbitration is a useful way to settle commercial disputes because arbitration proceedings are usually faster and cheaper than traditional court proceedings. Parties can choose the governing law they wish to apply in advance as well as prescribe other features in the agreement, rather than be bound by the governing law in the jurisdiction where the proceeding is taking place. Traditional court proceedings are still preferred by some parties because when a court issues a judgment the winning party can rest assured that the government will enforce the award, even by force if necessary. In the United States, for example, if you were to win a judgment against another party in a court proceeding, and that party refused to pay the award, the court could send law enforcement officers to collect the payment.

When utilizing one country’s court system to settle an international dispute, however, enforcing an award in a country other than where the settlement was issued may become a problem. If an American company sues a Chinese company in an American court and wins, for example, the Chinese government is not required to dispatch their law enforcement officers to enforce an award issued by an American court. So while in domestic disputes, a court ruling is more enforceable than an arbitration award, in international disputes, arbitration awards are often more enforceable, and are therefore the preferred dispute resolution process. Arbitration awards can be easier to enforce than court awards because of international treaties; most notably, the New York Convention (NY Convention), which is ratified by 157 countries.

The NY Convention was first adopted by the United Nations in 1958. It stipulates two primary requirements for its members. First, members’ courts must recognize agreements between parties to arbitrate agreements (by for example, enforcing a mandatory arbitration agreement), and second, members must recognize and enforce any arbitration awards won in any other member state, with certain narrow exception.

While the NY Convention requires counties to honor these arbitration agreements, parties still have to go to court in the country where they seek to have their award enforced and have the court agree to enforce it. The NY Convention simply prescribes the court’s action in such an event. The NY Convention accomplishes this by requiring its members to pass laws which direct its courts to honor and enforce international arbitration awards. For example, in the United States the Federal Arbitration Act (FAA) requires courts to enforce foreign awards.

Like in domestic court proceedings, there are certain circumstances which might lead to a situation where an award is justifiably unenforceable. The NY Convention, like domestic laws, describes several situations in which a country may refuse to enforce an international arbitration award. For example, if a party to the arbitration was under some incapacity, or was coerced, or the victim of fraud, or several other situations described in the convention, then a court may be justified in not enforcing the award. In addition to the more general defenses a country may use to justify not enforcing an award, there are some specific reservations that counties may apply. For example, a country may choose to only recognize and enforce awards issued by other member countries, or only awards that are related to commercial disputes.

Currently, 157 countries have signed onto the NY Convention. Forty United Nations member nations, however, have not signed on. While most commercial transactions are occurring in countries that are signatories, there are some notable countries missing, Belize and Taiwan for example.

It is essential when entering into an international arbitration proceeding to select a signatory country as a forum, so that parties may have confidence in their ability to resolve a dispute and have the award enforced. Many international disputes have involved companies based in Taiwan and Belize or other non-signatory countries where foreign parties are unable to collect the awards they have won because those governments refuse to enforce awards. In a current case pending before the Supreme Court of Belize, Belize Bank Limited v. Government of Belize, the Bank seeks to force the government of Belize to enforce an award it won through an international arbitration. The ruling was struck down by the Caribbean Court of Justice (CCJ) as unenforceable in Belize as a matter of public policy. Belize Bank is now in the process of trying to have the award enforced in the U.S. The Supreme Court of the United States has ruled on the case and upheld the arbitration award in favor of Belize Bank, but the government of Belize rejected that judgment. They claimed first that they were not bound by decisions of US courts, and also that Belize Bank had no right to seek enforcement in U.S. courts because the CCJ is the highest regional judicial tribunal and therefore their decisions not subject to appeal.

Even given these limitations, enforcing an international arbitration award in a non-signatory country is possible, though it often requires a strategic application of local law. The U.S. has a policy on enforcement of international arbitration awards which provides guidance for addressing this increasingly common issue. The main strategy that the party seeking enforcement must use in such situations is employing economic leverage, and we can look back to Taiwan for an example.

Even though Taiwan is not a signatory to the NY Convention, it is a sophisticated player in international commerce and needs a viable mechanism in place for successful and complete commercial dispute resolution, or commercial activity would be greatly hampered. A party seeking to enforce an arbitration award in Taiwan will try to have a local Taiwanese court recognize the award, even though the NY Convention will not require them to. Instead, Taiwan has its own version of the FAA, the Taiwan Arbitration Act (TAA) which guides its arbitration proceedings. One of these guidelines is that the enforcement of arbitral awards be guided by the reciprocity principle, meaning that Taiwan will enforce arbitral awards rendered in countries that recognize and enforce arbitral awards rendered in Taiwan. Since Taiwan relies on trade with many other NY Convention signatory countries, they have essentially, with the TAA, bound their courts to enforce arbitral awards rendered in NY Convention countries, or fear economic retaliation in the form of loss of business or trade sanctions.

To mitigate these concerns, corporations should aim to engage in large-scale commercial transactions only with NY Convention signatory countries or with companies with substantial assets in signatory countries. Even in non-signatory countries, because of the increasing interdependence of national economies and growing trade, alternative strategies may be used to influence governments to encourage their courts to enforce international arbitration agreements. When large-scale international commercial disputes occur the stakes are usually quite high and the party seeking relief will want some assurance of justice. International treaties have increased the amount of certainty that parties can have when entering into these cross-border transactions, but because not all countries have signed onto the NY convention, there is still some uncertainty inherent in these transactions.

This Day in International Law: November 4th

By Maribeth Lock

Apartheid was a system of racial segregation and discrimination in South Africa that began in the 1940s and persisted until the 1990s. On this day in 1977, the United Nations Security Council responded to the South African National Party’s continued imposition of apartheid by unanimously passing Resolution 418, a mandatory arms embargo against South Africa. This resolution followed the Security Council’s Resolution 282 (1970), which urged member states to participate in a voluntary arms embargo. The Security Council had also recently passed Resolution 392 (1975), which condemned the South African Government for its use of violence to enforce apartheid.

The impact to South Africa of the arms embargo was mixed. South Africa experienced immediate order cancellations of military goods from abroad, including submarines, fighter aircrafts, a missile boat, and enriched uranium. This had a direct impact on its ability to fight the South African Border War and to maintain its SAFARI-1 research nuclear reactor. However, the embargo prompted South Africa to further develop its domestic arms industry into what is today a multi-billion dollar industry. South Africa was also able to circumvent the embargo by smuggling and by hiring foreign technicians.

Ultimately, apartheid did not officially end until 1994. The country’s economic recession, combined with the continued protests and violence, made it clear to the South African Government and its observers that apartheid was not producing desirable socio-economic results. In 1989, F.W. de Klerk took control of the National Party and began to broker the end of apartheid. De Klerk’s administration repealed most of the legislation on which apartheid was based, and in 1994 it passed a new constitution that provided for democratic elections and enfranchised non-whites. The Security Council responded by repealing the 1977 arms embargo and all other restrictions against South Africa with its passing of Resolution 919.

False Sanctuary: Australia, Ferrovial, and the Abuse of Refugees

By Lauren Kelly-Jones

Clifton Gardens, Sydney, Australia looking out towards the Heads
Clifton Gardens, Sydney, Australia looking out towards the Heads

On October 5, footage from Australia’s offshore refugee detention camps was projected onto the Australian High Commission building in London. Images of sexual abuse and self harm flickered against its walls. Chasing Asylum, the guerilla investigative documentary, joined a chorus of protests calling for action to close and remedy Australia’s offshore detention centers. But who is responsible for the human rights abuses committed there, under international law?

 

Australia’s Pacific Solution

The Pacific Solution – Australia’s policy of transporting asylum-seekers to Australian-run detention centers on island nations in the Pacific Ocean – has been met with widespread public criticism since its 2001-2007 implementation. Though the policy was suspended by the government in 2008, it has effectively been reinstated on the islands of Manus (in Papau New Guinea) and Nauru since 2012, with the support of both major political parties. Australia has a notorious “zero tolerance” approach to those seeking illegal entry to its territory, and this policy is no different: at its heart, it is a strategy of deterrence to those willing to make the dangerous journey to Australia by boat.

 

 

Under the 1951 UN Convention and 1967 Protocol Relating to the Status of Refugees, Australia has a responsibility to offer protection to asylum seekers. However, the U.N. Human Rights Council has repeatedly criticized the Australian government’s treatment of refugees. The Office of the UN High Commissioner for Human Rights (OHCHR) called for the end of Australia’s offshore detention policy in Nauru, given alleged human rights violations against the migrants detained by it. A leak of 2,000 incident reports from the offshore processing centers on Nauru reveal serious allegations of violence, sexual assault, degrading treatment and self-harm, often concerning children. Those detained have even set themselves on fire, in desperate protest. In April, Papua New Guinea’s Supreme Court ruled that restricting the movement of asylum seekers who have committed no crime was inconsistent with their Constitution. This month, the UN Committee on the Rights of the Child (CRC) issued a report expressing deep concern with the allegations of mistreatment, abuse and sexual assault against refugee and asylum-seeker children held on Nauru. But there is not enough information – journalist and international organizations do not have regular access to the offshore processing centers. The footage for the Chasing Asylum documentary was obtained illegally.

 

International Standards

Australia, as a party to the Rome Statute of the International Criminal Court (Rome Statute) – which establishes the International Criminal Court (ICC) that can prosecute crimes against humanity – is ostensibly committed to its objectives. However, the “Pacific Solution” stands directly in contravention to Article 9 of the UN Universal Declaration of Human Rights, whereby “no one shall be subjected to arbitrary arrest, detention or exile.” Australia is also ignoring the human rights standards laid out in the Convention against Torture, and the Convention on the Rights of the Child, by detaining children in offshore processing centers, and holding asylum-seekers in dangerous and violent conditions. Under the Rome Statute, individuals are not immune to prosecution, as the ICC operates according to the principle of individual criminal accountability. Australia’s governmental heads may find themselves at risk of ICC prosecution for crimes against humanity – the deportation and forcible transfer of asylum-seekers, severe deprivation of physical liberty through detention, and systemic sexual abuse can be considered as such.

Ferrovial

An added complication lies in the potential international criminal liability of Ferrovial. The large Spanish infrastructure group (a major investor in Heathrow Airport, and a toll road operator in North America) entirely owns Broadspectrum, the Australian government’s lead detention center contractor. In a damning report titled Association with Abuse, the human rights group No Business In Abuse (NBIA) spoke to the material legal, financial and reputational risks associated with Ferrovial’s complicity in human rights abuses in Manus Island and Nauru, via their acquisition of Broadspectrum in 2016 – Broadspectrum makes decisions about detainee conditions, including welfare, food and movement, and can use force against detainees.

 

The UN Guiding Principles on Business and Human Rights state that all

companies (regardless of size) are expected to respect internationally recognized human rights, and the OECD Guidelines for Multinational Enterprises (Spain is a member) give recommendations for responsible business conduct. NBIA contends that Ferrovial’s failure to conduct adequate human rights due diligence when acquiring Broadspectrum, its provision of material support to the offshore detention centers, and its failure to remedy the “adverse impact” on human rights that they have contributed to, render Ferrovial responsible for corporate involvement in the human rights abuses in Nauru and Manus Island. NBIA also holds a large number of North American and European companies responsible for financially backing Ferrovial: entities such as J.P.Morgan, Deutche Bank, Goldman Sachs, Societe Generale and HSBC are named, among others.

 

Concerns regarding Ferrovial’s liability for crimes against humanity by Stanford Law’s International Human Rights and Conflict Resolution Clinic have strengthened human-rights activists’ cries for Ferrovial to withdraw from the Manus Island and Nauru contracts. They have also added to the resounding call for Australia to halt their abusive imprisonment of refugees, and to close their offshore detention centers in the Pacific Ocean. Although the Australia stated in August that the Manus Island center will be closed, it is still running.

 

In an attempt to seek justice and protection for those detained by the Australian government on Manus and Nauru, the ICC must take inspiration from the Manus Island asylum-seekers who have begun a proceeding against the Commonwealth of Australia, G4S (the management and security contractor at Manus from 2013-2014) and Broadspectrum in the Supreme Court of Victoria. The class action is based upon on the problematic conditions under which the asylum-seekers were held, and the illegality of their detention. Holding individuals in the Australian government responsible for the Pacific Solution and all those it has harmed, on the international stage, should be the next step.