Arbitral Awards – How Final Are They?

The finality of arbitral awards is often considered a primary benefit of arbitration compared to resolution before national courts. Arbitration agreements and institutional rules may well contain express wording that the award is final and binding. In this article we consider how final an award actually is, and the circumstances in which an award can be appealed or challenged. We will see that even when arbitral awards are said to be final they are, in fact, rarely absolutely so with the possibility of some form of challenge always being open, which is both sensible and desirable.

The Benefits of Finality

There are many reasons why parties may opt for arbitration to resolve their disputes, including the flexibility and degree of control that the arbitral process offers to parties in selecting their arbitral tribunal. Parties can choose an arbitral tribunal who have the requisite qualifications and experience for their particular dispute. Having done so they will not want the tribunal’s decision to be subject to appeal and possibly overturned by a judge they have not chosen.

The finality of an arbitral award also ensures a swift and efficient resolution to the dispute without the time and expense usually experienced in national courts where a first instance decision may be subject to at least one and possible two levels of appeal. This is so particularly in jurisdictions such as France and Italy where there is an automatic and almost sacred right to appeal and the appeal proceedings are effectively a re-trial of the merits of the case, rather than confined to specific points of law.

Justice v Finality

Despite the parties’ desire for an award to finally resolve a dispute, there are some circumstances in which being able to challenge an award is desirable or even necessary. These challenges predominantly fall into four groups:

Substantive grounds

Where an arbitral tribunal has made an error of fact or law (or both) in reaching its decision on the merits of the dispute. This could also include rare situations where a party obtains a favourable award through fraud (such as using forged documents), or further evidence is discovered after the award has been rendered which would have impacted on the arbitral tribunal’s decision.

Jurisdictional grounds

Where the arbitral tribunal did not have proper jurisdiction to hear the arbitration and render the award (either because there was no jurisdiction to begin with or because there was jurisdiction, but the tribunal exceeded that jurisdiction by determining issues that the parties had not agreed should go to arbitration).

Procedural grounds

Where due processes were not followed and respected by the arbitral tribunal or some other procedural irregularity took place.

Public policy grounds

Where the award violates the public policy of the jurisdiction in which the winning party is seeking to enforce it. There is no agreed list of what might violate the public policy as this is dependent on the norms and culture of each jurisdiction.

In terms of how to appeal or challenge an award, this will be dependent on any appeal procedure in the arbitration agreement (which is rare), the laws of the seat of the arbitration, and the rules of the arbitral institution under which the arbitration is conducted.

Appealing an Arbitral Award

It can happen that the parties do not in fact want the arbitral award to be final and instead set out an appeal process in their agreement to arbitrate, although this is very rare. It can also be problematic and there have been instances where national courts have declared that appeal rights are statutory and cannot be provided by agreement. There have also been instances where it has been held that because the law of the seat sets out exclusive grounds for setting aside an arbitral award (of which more below), it is not open to parties to grant national courts a more expansive jurisdiction.

Parties may appeal an arbitral award if they are granted the right to do so by national law, but again this is rare. The English Arbitration Act 1996 provides perhaps the most well-known statutory right to appeal, although it is restricted to points of law and parties may elect to exclude it (and usually do). Other jurisdictions such as Hong Kong require parties to opt-in to the possibility of appealing arbitral awards. However most jurisdictions (including those who adopt UNCITRAL’s Model Law such as Germany, Singapore and Denmark) do not permit any appeal on the merits.

Lastly, some arbitral institutions have introduced appeal mechanisms within the arbitral process itself. For example, JAMS, AAA and ICDR all offer appeal procedures within the arbitration, but it remains optional for parties. It is important to note, however, that the appeal tribunal would be appointed for the appeal and would be different from the first level arbitral tribunal.

Challenging an Arbitral Award

Even where the parties decide that the award is final or where the arbitral institution excludes appeal, the national law of the seat of arbitration may allow a certain forms of challenge. The right to have an arbitral award annulled or set aside is widespread and it is arguably a necessity to avoid awards being enforced that have been issued on the basis of some procedural or jurisdictional irregularity, thereby maintaining the integrity of the arbitration process.

The UNCITRAL Model Law (which forms the basis for many national arbitration laws) and the New York Convention (which has been adopted by many countries to govern how they enforce foreign arbitral awards) set out an exhaustive but narrow list of procedural grounds on which parties can challenge an arbitral award and have it annulled or set aside, including:

• • The invalidity of the arbitration agreement;
  • A lack of due process and procedural fairness;
  • The arbitral tribunal exceeding its jurisdiction when rendering the award;
  • The arbitral tribunal being constituted in a way that is not in accordance with the arbitral agreement;
  • The subject matter of the dispute cannot be arbitrated (for example, a criminal allegation);
  • The award violates the seat state’s public policy.

The exact grounds of each national law vary. For example, in the United States a court may set aside and annul an arbitral award if (amongst other things) it was procured by corruption, fraud or undue means, or there was arbitral bias or corruption. France’s Code of Civil Procedure prescribes grounds that are more limited than the grounds set out in the Model Law. Even though the grounds to set aside an award are generally limited by the national law of the seat of arbitration, the mere existence of such right to apply for annulment affects the finality of the award.

Tension can be caused where the courts of the seat annul an arbitral award, but the winning party nonetheless seeks to enforce the award in a secondary jurisdiction. The courts of that secondary jurisdiction are required to choose between recognising and enforcing the award (and thus upholding its finality) or following international comity and upholding the seat-court’s annulment. Which decision a secondary jurisdiction’s court takes might depend on their attitude to international arbitration and whether they wish to take a pro-arbitration approach or not.

A recent decision by the English High Court has demonstrated the importance of the right of the losing party to challenge a final award. In Nigeria v P&ID [2023] the English Court set aside a USD11 billion arbitration award against Nigeria on the grounds that P&ID had provided knowingly false information to the tribunal to cover up the fact that it had paid bribes to secure the underlying contract with Nigeria, and that P&ID had also made corrupt payments to a witness to ensure she did not inform the tribunal of the bribes. This evidence of this corruption was only discovered by Nigeria after the final award had been issued, and so could not have been taken into account by the tribunal when determining the merits of the case. Had the award been truly ‘final’ and beyond challenge, Nigeria would have been unjustly compelled to pay USD11 billion of public money to fraudsters.

Opposing Enforcement

In addition to actively seeking to annul or set aside an award, the losing party may wait until the winning party takes action to enforce the award and then oppose enforcement. Unless it is the court of the seat, the court’s power usually only extends to determining whether or not to recognise and enforce the arbitral award in its own jurisdiction, and not whether or not the arbitral award should be set aside. The grounds on which an award may be refused enforcement are usually the same narrow procedural grounds that apply when seeking to challenge an award (this is certainly the case under the UNCITAL Model Law).

There is no limit on where the winning party may seek to enforce the award, so it is possible for multiple enforcement actions to be commenced simultaneously numerous jurisdictions. The process of opposing enforcement applications in each of the relevant jurisdictions can be a costly, lengthy and laborious one, and may prompt the losing party to seek annulment at the seat in the hope that if successful most foreign courts will likewise refuse enforcement.

Conclusion

The above discussion shows that arbitral awards are not completely final, and nor should they be. The losing party may have good reasons for challenging an arbitral award, and a national court may determine that the award is against public policy or relates to an issue which is not capable of being arbitrated in the first place.

However it remains the case that, when compared to a court judgment, arbitral awards are generally less susceptible to appeals and challenges. Arbitration therefore remains an attractive option for parties wishing to minimise the likely time (and by extension the cost) involved in resolving a dispute.

Author: Frédéric Jeannin, James Colautti