Out-Law News 3 min. read

High Court upholds recognition of US arbitral award, but delays enforcement to give losing party opportunity to challenge


The losing party in an arbitration case decided in the US has been prevented from setting aside recognition of the award in England, but can delay enforcement by the winning party until it has had a chance to challenge the award in the US, the High Court in England has said.

Alongside his judgment, High Court judge Mr Justice Blair granted security over the full amount of the award to Travis Coal Restructured Holdings, the party seeking to enforce it. This meant that the winning party would not suffer any prejudice in the event that it became more difficult to enforce the award in the future, he said.

International arbitration expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com, said that the case highlighted the "finely balanced exercise" that courts had to carry out when one party to an arbitration sought to enforce an award which was being challenged in another jurisdiction.

"One of the attractions of arbitration as a method of dispute resolution is the relative ease of enforcement of arbitral awards," he said. "This is because almost 150 countries are signatories to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides very limited grounds on which a court in a country where an award is sought to be enforced to refuse enforcement. Even then, refusal of enforcement is at the discretion of the enforcing court, so even where the award has been set aside by the courts of the 'seat' the enforcing court could still enforce the award, as happened in the recent Rosneft case."

In this case a Cayman company, Essar Global Fund Ltd, which was the losing party in the original US arbitration, tried unsuccessfully to overturn the English High Court's earlier recognition of the US award. Alternatively, Essar asked to have enforcement adjourned until a decision was made on a challenge it was making in the New York. Both the New York Convention and the Arbitration Act 1996, which regulates the procedural aspects of arbitration in the UK, state that the enforcing court in these circumstances may adjourn the enforcement decision and may also order suitable security to be provided by the losing party.

"In making the decision, there is a finely balanced exercise to be carried out by the court in assessing the likely success of the challenge of the award, the risk of conflicting decisions or the risk of prejudice to the winning party. The result in this case gave the losing party the opportunity to challenge the award in New York, even though the English court thought the prospects of success were very low, while protecting the winning party from prejudice in the event that delay made it more difficult to recover the sums awarded to it by ordering security in the full amount of the award. This reaffirms the presumption in favour of enforcement of awards and preventing procedural manoeuvres from prejudicing the other party," Dickman said.

Stating the English courts' position in his judgment, Mr Justice Blair said that where it was "plain that a challenge to an award [was] being properly dealt with in the courts of the seat of the arbitration, common sense may indicate that an adjournment is preferable to a decision by the enforcing court dealing with the same issues".

"In such a case, the power to order security may be particularly important to prevent the inevitable delay prejudicing the recovery prospects of the party in whose favour the award was made," he said.

Based on the award and other material before the court, the judge said that Essar did not have a "realistic prospect" of success in its US challenge of the arbitral tribunal's decision and that its English proceedings could "properly be described as delaying tactics in the face of what is likely to be held to be an unimpeachable award".

Whether to grant the adjournment in favour of Essar was "not an altogether easy question to decide", he said.

"Ultimately it is necessary to recognise that whilst this court is required to and has expressed its view as to the prospects of [Essar's] challenge succeeding, it is the New York court that will decide the matter," he said. "If possible the court should avoid the risk of conflicting decisions, which would occur if the English court enforced the award and the New York court subsequently decides to set it aside."

In this case, given that the challenge would likely be determined "relatively soon", the judge said that he was willing to grant the adjournment if Essar provided security to Travis for the value of the full award.

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