Introduction
Cost-effectiveness, increased control and confidentiality are just a few of the reasons that some parties opt for arbitration as opposed to litigation. With the award being final and binding, a monetary award made against one party (known as the debtor) in favour of another party (known as the creditor), is often enough to facilitate recovery of monies for the creditor.
However, in some cases where the debtor fails to make payment in accordance with the award, the creditor may need to consider commencing enforcement action.
Difficulty arises where the debtor resides outside of the jurisdiction of the arbitration seat, though creditors should consider the prospect of cross-jurisdictional enforcement in cases where the debtor’s financial or asset position is strong. We have recently assisted clients in navigating these challenging circumstances with arbitration awards secured in both New York and Singapore, where the debtors both resided in England and Wales. This is possible as a result of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the “Convention”).
Enforcement in England and Wales
The Convention is an established framework for reciprocal recognition and enforcement of arbitral awards between signatory states. With over 160 signatory states, it facilitates cross-border enforcement in most jurisdictions.
In England and Wales, the Convention alongside domestic statutory provisions can enable creditors to take enforcement action against an individual or entity debtor despite the fact that the award was not made in England and Wales, provided that the jurisdiction of the arbitration seat is a signatory to the Convention.
Recognition
To commence the process, the creditor can initiate proceedings in the courts of England and Wales, seeking to obtain an Order for recognition of the award and to enter judgment against the debtor in the jurisdiction for the sums awarded, plus an account of interest and costs.
The proceedings may be made either by giving notice to the debtor or without notice. Circumstances where it may be preferable to commence the proceedings without notice will include situations where the creditor is concerned about the prospect of the dissipation of assets or funds by the debtor. Proceedings commenced without notice attract a higher burden on the creditor to provide information and evidence pertaining to the case, whether beneficial to it or detrimental. Proceedings commenced on notice can be helpful where the creditor seeks to entice the debtor into engaging in settlement discussions, which is usually the most preferable outcome for all parties.
It is important that creditors keep hold of original documentation including the arbitration agreement and the arbitration award, to ensure that this can be referred to in any domestic proceedings.
Once proceedings are issued, a debtor may seek to object to recognition and enforcement, for reasons such as the validity of the arbitration agreement, procedural deficiencies within the arbitration process itself, or defects relating to service of the arbitration proceedings.
Enforcement
Once recognition is granted and judgment obtained, the court will permit enforcement of the judgment within the jurisdiction as if it were a domestic judgment.
The most effective method of enforcement of the judgment will depend upon the nature and value of the debtor’s assets, as well as their financial position. Options available to creditors can include:
The more information known about the debtor’s circumstances allows the creditor to make informed and targeted decisions in relation to enforcement. The creditor should take steps to undertake preliminary investigations to form a view on the prospective enforcement options and proportionality at an early stage.
Ideally, a creditor should already have considered the most suitable enforcement method before domestic proceedings are commenced.
Take-aways: important considerations for creditors
Asset position
It is often beneficial to gather information about the debtor prior to issuing any application for recognition of an arbitration award. This will allow the creditor to form a view on the prospective enforcement options and proportionality at an early stage. If the debtor has a poor asset position and/or is unlikely to have funds to facilitate a full and final settlement, then it may not be in the creditor’s interests to initiate domestic proceedings.
That doesn’t mean to say that the creditor should write off the debt entirely. Instead, the creditor may find that it would be more appropriate to place the matter on hold for a period of time and re-assess the debtor’s circumstances to ascertain whether the debtor’s circumstances have improved or are likely to improve.
Grounds for refusal
Any objection is likely to increase costs and time to resolution. As such, any creditor considering enforcement of an arbitration award should carefully consider whether the domestic proceedings are likely to be disputed and/or ultimately successful. This can be done by assessing the circumstances surrounding entry of the arbitration agreement, ensuring that the arbitration process was adhered to in accordance with any policies and procedures, and pro-actively considering service requirements.
Risk of asset dissipation
If the creditor is aware of assets owned by the debtor and is concerned as to the possibility of dissipation of the same prior to any anticipated domestic judgment, then the creditor may wish to seek advice on the prospect of obtaining an injunction, seeking to prevent the debtor disposing of assets.
Limitation
Any action to enforce an award in England and Wales usually must be brought within six years from which the cause of action accrued, although this is less straightforward where the award does not specify a compliance date. If a creditor is unsure as to when the cause of action accrued, then it should seek independent advice.
If an award may impacted by limitation in another jurisdiction, this will not affect its enforceability in England and Wales (Good Challenger v Navegante SA v Metalexportimport SA [2003] EWCA Civ 1668).
Summary
Before initiating enforcement action, creditors must carefully evaluate all of the circumstances of the matter, including:
(1) the debtor’s asset/financial position;
(2) potential challenges, such as the prospect of an objection being lodged;
(3) proportionality; and
(4) timing of the application.
Effective due diligence and legal advice are crucial to navigating the complexities of cross-border enforcement.
The Insolvency and Recoveries team here at Weightmans have extensive experience in registering foreign arbitration awards within England and Wales and have been facilitating the recovery of money by enforcement of domestic judgments for 30 years.
If you wish to discuss the prospect of obtaining an award in England and Wales, carrying out preliminary due diligence, or suitable enforcement methods, then please do feel free to reach out to the relevant contacts below:
Charles Boyne – Partner
E: Charles.Boyne@weightmans.com
T: +44 (0)207 822 1948
Shauna-Leigh Thompson – Associate
E: Shauna-Leigh.Thompson@weightmans.com
T: +44 (0)0113 213 4058