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Paweł Marcisz

International Recognition of Judgments:
Lessons from the Past and Predictions for the Future

Recognising ideas: the idea of recognition

While it is sometimes hard to recognise people, especially when they come from abroad, it is even more difficult with some judgments. However, before we simply decide to ignore them, it may be worth thinking why we should recognise them at all.

After all, recognising foreign judgments is against the very idea of a legal system. The system is there to decide issues, not to let others decide for it and then accept their ruling. Strictly speaking, it decides issues according to the preferences of the sovereign. Consequently, the admission of recognition is a sign that our national sovereign prefers values such as facilitating international trade, effectiveness of legal protection and international consistency of adjudication over the possibility of deciding a case according to its own taste. This meta-preference is far from being absolute, however. Sometimes the sovereign may decide that a given decision is unacceptable. This is so when the values preferred in the national law are considered more important that the values standing behind recognition. The grounds for refusal enable denial of recognition of types of judgments (and awards) which are always unacceptable for a legal system. A good example is the type of judgments which decide on issues with the status of res judicata in the country of recognition.

Something idiosyncratic yet public

However, there is one exceptional ground for refusal, present in the vast majority of systems of recognition. This is public policy. The first reason why public policy is exceptional is that—at least theoretically—it does not preclude any type of judgments, but enables an evaluation of each judgment separately as to whether it infringes public policy as a whole.

The second outstanding issue about public policy is connected with contemporary international regimes of recognition. A public policy exception is included in most of these regimes (the New York Convention,1 the Lugano Convention2 and the Brussels I Regulation,3 the proposed Convention on Choice of Court Agreements, and numerous bilateral treaties; notably, it is absent from the Washington Convention4). Nevertheless, including this clause in a treaty governing recognition of judgments (or awards) creates an exception from the treaty. A state which is a party to such a treaty may define its own public policy, thus moulding the scope of the duty vis-à-vis other parties. This is especially visible in investment arbitration,5 where a state is at the same time a high contracting party to the treaty and a future party to arbitration. This is exactly the reason why the public policy exception was not included in the Washington Convention.

The liberty of states in defining their public policy is twofold: first, they establish their regimes, basic laws, fundamental rights and the like. Second, state courts have the final say on which of these rules constitute a part of public policy for purposes of recognition of judgments. The main purpose of the public policy exception is to preserve states’ legal identity, to sustain what is unique and differs from solutions in the judgment’s country of origin. Yet, in the process of defining public policy, courts not only preserve national legal identity, but also reinforce it, by determination and reiteration of what was previously dubious and fuzzy. Like it or not, it is really hard to say whether a particular rule constitutes a public policy or not. A ruling by a nation’s supreme court is most often not only the final proof of the public policy, but its sole decider. This liberty of the states is to a certain extent limited in the European Union, due to the competences of the European Court of Justice.

Do the EU states need their own public policy?

It seems that the public policy exception may disappear from the Brussels I Regulation altogether. It was absent in the initial proposal lodged by the European Commission, and after being restored in the course of legislation it remains only a sign of mutual distrust. Currently, it is employed mainly when a foreign court did not observe the defendant’s right to be heard, or when there was fraud by the plaintiff. Both these situations may be dealt with without any recourse to public policy. Both the right to be heard and the right to a fair trial are universal, and they do not represent any unique trait a member state would like to protect against the others. Quite to the contrary, these values are universal in the European Union and as such they may easily be included in the Brussels I Regulation as separate grounds for refusal, replacing the vague public policy clause.

The notion of moving public policy from the state’s identity towards fundamental rights of the European Union is visible in the case law of the European Court of Justice. Its famous judgment given on 28 March 2000 in C-7/98 Krombach is an example of evaluating the civil procedure of a member state (in this case France) according to the pan-European standards of human rights protection. What the Court said effectively was that a judgment is contrary to public policy when the procedure under which it was issued infringes the common constitutional tradition of the member states or the European Convention on Human Rights.6 This in fact introduces a common European public policy.

Removing the public policy exception from the Brussels I Regulation would not amount to abolishing it in the recognition of judgments within the European Union, as the regulation concerns only civil and commercial matters, and makes some important exceptions from this scope (family law, bankruptcy law, social security and arbitration). It does not seem that the public policy exception may be abolished in the instruments regulating issues excepted from the Brussels I Regulation. These are topics of special sensitivity, and the level of mutual trust among the member states is insufficient to let the others decide on them.

Awarding effects to awards

From the position of intra-Union judgments, arbitral awards seem to be on the other side of the spectrum: given not by a court of a trusted state but by some unknown individuals. There is a common opinion that states have not only the right to review awards prior to recognition or enforcement, but also a duty to their citizens to protect them from particularly unlawful awards. This is the way to secure their access to court, as arbitration is otherwise a private process, outside the control of the state. Still, I would argue that the situation with arbitral awards and ‘untrusted’ foreign judgments is roughly the same. The state equally cannot blindly accept both. There is no more sense in trusting an alien legal culture than trusting some private individuals, and there is perhaps even more sense in trusting a reputed arbitration institution than in trusting a dictatorship country.

Nevertheless, there is commonly two-stage review of an arbitration award, compared to one-stage review of a foreign judgment: the award may be set aside (vacated), at least in the country of origin. If I am to predict the future of arbitration, I reckon that this action to set aside an award will be abolished.

Why we set awards aside

The main explanations why we need a separate action for setting aside an award are the following:

1. An award has some legal effect even prior to its recognition (in countries where there is a separate action for it) or enforcement. These effects may be annulled by the action to set aside an award.

2. Setting aside an award is a way to eliminate legal uncertainty whether the award is defective or not, and consequently, whether it is possible that it has an effect comparable to that of a judgment.

3. The grounds for setting aside an award, which is always a constitutive decision, are broader than the grounds for refusal of recognition or enforcement.

In my opinion all these reasons are insufficient to support the existence of an action to set aside an award. An unrecognised and unenforced award is a merely private act. As such, private acts are subject to legal control much sooner than they are subject to review by any court. An obvious example of this is that a contract contrary to law is usually void. Consequently, it is at least possible to treat as void—in a given country—all awards that do not satisfy the country’s requirements for recognition and enforcement. This is possible both in systems where recognition is automatic (but conditional) and where recognition is made by a court decision.7 Consequently, eliminating legal uncertainty may be done through a usual declaratory judgment of the court.

As to the narrower grounds for refusal, it is always possible to broaden them.

Retaining a separate action for setting aside an award is superfluous. It seems that establishing criteria for enforcement and recognition is perfectly sufficient, irrespective of whether the award is recognised by operation of law or by the judgment of a court. Abolishing a separate action for setting aside an award would introduce equal treatment between ‘national’ and foreign awards (the latter are impossible to vacate outside the country of origin), as well as between awards and foreign judgments. 

Why we should set aside the action to set aside awards

The main problems with setting aside an award are all too well known. We have an award vacated in the country of origin and in some other countries they then treat it as non-existent. At the same time the award may be recognised in yet other countries. However, this petty complication does not tell the story of our award. Inspired by the example of the Hilmarton saga, for the benefit of our client we may obtain another award, adjudicating on the same issue to the contrary, as the former has ceased to exist. Then we begin the race. In each and every country we attempt to recognise or enforce the second award, while the other party attempts to recognise or enforce the first one. The award8 that is first recognised should have the authority of res judicata and prevent the second from being accepted.

Such a perspective is far from being satisfactory, nevertheless it is a lesson from the Cour de Cassation rulings in Hilmarton. And these decisions were a necessary result of applying the French rules on recognition and enforcement, which do not treat vacating an award in the country of origin as grounds for refusal. Such a stance­—more liberal than prescribed by the New York Convention—is permitted by the Convention itself.

Currently, under the Geneva Convention,9 European courts should recognise awards governed by the Convention and vacated in the country of origin. Indeed, there is an example from the Austrian Supreme Court with its decision of 20 October 1993 in Radenska.

Apart from this European experience, there is the decision of 31 July 1996 by the US District Court for the District of Columbia in Chromalloy, also enforcing an award vacated in the country of origin (which was Egypt). The legal reasoning behind the decision is somewhat obscure and may be disputed. The court ruled that the waiver of any recourse against the award, done by the parties in their arbitration agreement, was effective before the US courts, despite such a waiver being ineffective under Egyptian law.

In view of the limited effectiveness of vacating an award, I consider this institution needless. Abolishing it would resolve problems with competing awards given on the same issue. However, as long as the action for setting aside awards exists, there is a persistent need to determine its effects internationally. A convention dealing with this issue is urgently required.

Whether ‘tis nobler in the world to vacate…

One of the favourite and most celebrated topics of discussion in arbitration literature in recent years has been whether it is legally possible and desirable to recognise and enforce vacated judgments, such as those described in the previous section.

The main argument against recognising them is that a vacated award does not exist anymore, exactly like a foreign judgment reversed by a superior court. The opponents of this idea say that a national judgment stems from the national legal system and thus its existence fully depends on the further proceedings before national courts. The opposite is true when dealing with arbitral awards with their binding power rooted in the agreement of the parties.10

In my opinion the latter argumentation is fallacious. One must distinguish between moral and legal binding power. While in terms of morality promises generally bind those who made them (except for such extraordinary situations as fraud or duress), not all promises bind legally. Legal systems may require additional elements, such as a special form, causa or consideration for any promise to have legal effects. Consequently, we cannot say that an arbitration agreement makes the subsequent award independent from the legal order of the country of origin.

Moreover, any subsequent recognition of an award set aside in the country of origin goes against the implicit will of the parties. By choosing a place of arbitration, the parties opt for its law for assistance and supervision by national courts. Their legitimate expectations are that the award may (or may not) be examined to the extent prescribed by the national law. By recognising an award set aside in the country of origin, the recognising court deprives the party opposing it access to court, as the lawful judgment obtained by the party against the award is being ignored.

The renowned cases of recognising a vacated award due to supposed harshness and unfairness of the original review are cases of ignoring the autonomy of parties, not of respecting it. The initial decision of the parties to the arbitration agreement was to select a jurisdiction with a given public policy and reputation. Such a choice reflected the common will of the parties and constituted a part—economically integral—of the broader bargain. Probably the parties were fully aware of national biases and idiosyncrasies. They might well have exchanged the place of arbitration with a legal system favourable for one party for some provisions favourable for the other. Or maybe this choice reflected the disparity in their bargain power.11 Whatever the reason was, by ignoring the judgment setting aside the award, the court recognising the award effectively changes the original agreement between the parties.

These reservations are of course not unfamiliar to the proponents of recognising such awards. Lasetenouse12 argues that there are no legitimate expectations as it is often the case that an arbitration institution—and not the parties themselves—chooses the place of arbitration. Parties are sometimes unaware of the consequences of choosing a given place of arbitration. His further argument is that the stronger party may force the place on the other and that the law of the place of arbitration may change—so a party may not expect anything. In my opinion these arguments are weak. The institution has its own legitimate expectations; the parties may be unaware of numerous legal consequences of their contract, but ignorance of the law is no excuse; all provisions of the contract may be forced upon the weaker party and all laws may change, including the New York Convention.

Still, there are some procedural arguments for recognising vacated judgments. Firstly, there is a question of awards recognised before they were set aside in the country of origin. It is hard to say that the recognised judgments automatically cease to exist. Any sum paid by the debtor in enforcement of such an award could then amount to—let’s stick to the civil law terminology—unjustified enrichment and all others results of recognition should be undone.

Secondly, one must address the question whether it is possible to recognise (in a judgment or by operation of law) a judgment setting aside an award. The answer would probably be: no.13 However, making this assumption it is hard to explain why the judgment should have any legal effect in a foreign country, especially an effect of annulling the award. But as soon as we agree on the recognition of such a judgment, there is a possibility of denying recognition. Consider a judgment setting aside an arbitral award for violation of public policy because women were allowed to serve as arbitrators. The chances of recognising such judgment in any Western country are nonexistent. Therefore, the award set aside must stay.

In my opinion awards vacated in the country of origin may be freely recognised and enforced elsewhere for another reason mentioned but somewhat ignored by Lasetenouse. This reason is the sovereignty of the state. Each state has every right to recognise the legal effects of whatever it pleases, including vacated awards. Those who consider vacated awards unrecognisable must believe in a-national awards whose legal status may be ascertained once for the whole world, irrespective of the will of the state of recognition. And, ironically, this is an accusation often made against the other party, i.e. proponents of recognising vacated awards.

Conclusion

From among contemporary problems of international recognition of judgments, I find public policy, recognising vacated awards and the action to set aside awards the most urgent. All three are interconnected: recognition of vacated awards usually takes place where they have been vacated due to public policy. However, in my opinion these problems must be dealt with separately. Public policy will remain an exception when recognising foreign awards, but it may be abolished for the purposes of recognising judgments from the trusted states. This does only not apply to the European Union, but also to other regional organisations—and single countries (by bilateral treaties). As to the awards, recognition of vacated ones is currently justified. The problems that it causes would disappear after abolishing an action to set aside awards and thus eliminating the opportunity to have a subsequent award on the same issue. As long as there is a possibility of vacating awards, a convention regulating effects thereof should be adopted.

 


1           Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).

2           Convention of 16 September 1988 on jurisdiction and the enforcement of judgments in civil and commercial matters.

3           Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

4           Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1966).

5           See W. Sadowski, ‘Sądowa kontrola wyroków arbitrażowych w sporach inwestycyjnych’ (‘Judicial Review of Arbitral Awards in Investment Disputes’), ADR 2009 No 2(6), esp. pp. 40-41.

6           Convention for the Protection of Human Rights and Fundamental Freedoms (1950).

7           See: M. Łaszczuk & J. Szpara [in:] A. Szumański (ed.), ‘System prawa handlowego’ (‘System of Commercial Law’), Vol. 8, Warsaw 2010, pp. 641-642

8           or a decision by the court recognising or enforcing the award

9           European Convention on International Commercial Arbitration (1961).

10          See P. Lasetenouse, ‘Why Setting Aside an Arbitral Award is not Enough to Remove it from the International Scene,’ Journal of International Arbitration (Kluwer Law International 1999), Vol. 16 Issue 2, p. 25.

11          On the contractual risk of vacating an award, see E.A. Schwartz, ‘A Comment on Chromalloy Hilmarton, a l’americaine,’ Journal of International Arbitration (Kluwer Law International) 1997 Vol. 14 Issue 2, p. 134.

12          P. Lasetenouse, supra note 11, pp. 43-44.

13          In Poland this was decided by the Polish Supreme Court in the order 6 November 2009 in case I CSK 159/09. See also B. Jarco, ‘Uchylenie zagranicznego wyroku sądu polubownego a jego uznanie na terytorium Polski’ (‘Setting aside a Foreign Award and Recognising It in Poland’), Przegląd Prawa Handlowego 2008 No 2, who advocates for the opposite solution.

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