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Arbitral Awards – How Final Are They?
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:
Author: Frédéric Jeannin, James Colautti
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- 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.
Author: Frédéric Jeannin, James Colautti