In the pursuit of righting a contractual wrong, a party may be tempted to launch headfirst into arbitration, without adequate consideration of how successful award would be encashed. The biggest hurdle to getting paid arises from challenges to the arbitration award, either in the form of a setting aside in the seat of the arbitration or a challenge to its enforcement in the foreign countries where the defendant’s assets are located. Failing to plan in this regard is planning to fail.
Planning ahead does not start at the time of commencing the arbitration. It starts well before, even at the stage of agreeing the arbitration clause during contract negotiations. Being alive to the various potholes in the path to enforcing an award can make the difference in getting the payment.
International arbitration awards are typically final and binding, meaning there are limited grounds on which they can be set-aside or their enforcement challenged. Awards are often contested on grounds (among others) of the award (i) breaching natural justice (e.g., where a party is not given a fair chance to present its case); (ii) extending to matters beyond what the parties submitted to arbitration; (iii) not complying with the agreed procedure or (iv) otherwise being contrary to public policy. Each country has different legislation specifying grounds on which awards can be challenged/set-aside but the themes above cover most of the key grounds for doing so in Singapore. The practical tips we cover below are against the backdrop of Singapore cases on setting aside and enforcing awards.
Pre-arbitration: drafting the arbitration agreement
The first step towards facilitating enforcement is drafting an effective arbitration agreement. A key consideration in this regard is opting for an arbitration-friendly seat in the arbitration agreement, which is a party to the New York Convention on Enforcement of Foreign Arbitral Awards (“NY Convention”) and whose courts have demonstrated willingness to support arbitrations, e.g., Singapore, London, Hong Kong. The NY Convention facilitates the recognition and enforcement of international awards in over 150 signatory states; and an arbitration friendly seat is important as the laws of the seat determine the availability of interim remedies (e.g., freezing injunctions or disclosure orders), which may aid enforcement in some cases.
It is highly recommended to use a standard arbitration clause from one of the leading institutions (like the SIAC, LCIA, HKIAC) without modification to avoid potentially costly ambiguities in the arbitration agreement on matters such as the choice of rules, arbitral institution and scope of disputes covered by the arbitration. Parties should very carefully consider stipulating any deadlines for the issuance of an award in their arbitration clause. Such deadlines can complicate matters because an arbitration that spills over can create a ground for challenge to the award.
Encashing your award effectively may mean claiming indemnity or contribution from a third party, a scenario which frequently arises in international trade contracts. Third party involvement can be secured by consolidating various arbitrations into one (consolidation), or adding one or more third parties to a particular arbitration (joinder). In order to facilitate consolidation, parties can (i) ensure that the various relevant arbitration agreements are consistent and compatible (e.g., as to the seat, institutional rules, the number of arbitrators, language and law etc), and (ii) at the time of entering into the arbitration agreement (when parties are likely be more more agreeable), reach an express agreement on consolidation of arbitrations under the relevant contracts. It would also be useful at the stage of agreeing the arbitration agreement to secure the consent of the contracting parties and the relevant third parties to a potential joinder under an arbitration agreement.
Pre-arbitration: alternative dispute resolution
Where parties agree to attempt alternative dispute resolution (“ADR”) mechanisms (e.g., mediation or negotiation) before resorting to arbitration, the timelines and procedure for ADR should be clearly spelt out. Loose drafting may lead to arguments about the admissibility of the dispute for arbitration, which the tribunal will have to decide likely before considering the substantive merits of the case, with added time and costs.
Pre-arbitration due diligence on assets and jurisdictions
Clarity on the respondent’s asset position is crucial before launching an arbitration. The NY Convention provides a framework for enforcing awards but realities of local courts enforcing foreign arbitration awards may be different. Due diligence should therefore be conducted with local counsel on the attitude of the courts to enforcement of awards, and the time and costs of enforcing awards.
During the arbitration: the procedure and fair hearing
Any requirements as to the composition of the tribunal (e.g., the number of arbitrators and their qualifications) and the arbitration procedure (e.g., dispensing with an oral hearing only with the consent of all parties) should be strictly observed. Policing the procedure and giving parties an opportunity to present are predominantly matters for the tribunal, but it is useful for parties to be aware of facts which can subject awards to challenges on such grounds, to minimise these occurrences. We highlight illustrative examples from Singapore cases in 2021 and 2022 of awards being set aside for procedure and the fair hearing requirement being flouted:
- An award was set aside where the chosen rules only allowed for dispensation of an oral hearing with the consent of all parties, but the tribunal declined to hear oral evidence despite a party’s objections.
- An award was set aside where the tribunal issued an order requiring the respondent (without giving it the opportunity to provide input on procedural timetables) to file its defence by a specified time failing which it would be barred from advancing any positive case by way of defence or counterclaim and from adducing any positive evidence in the matter; and the respondent was in fact barred from raising a positive case and adducing evidence due to a purported failure to comply with the directed deadline.
- An award was set aside where it was found to have been based on the tribunal’s finding on an unpleaded issue, where the claimant in the arbitration was found to have been prejudiced by not having been given the opportunity to address its objections to the introduction of the issue.
- An award was partially set aside where the tribunal adopted a “flexible approach” and awarded 25% of the amounts claimed to a party that had failed to produce supporting documents or substantiation.
During the arbitration: asset preservation
Most leading institutional rules empower tribunals to grant interim injunctions, and worldwide freezing injunctions can be a useful tool for securing enforcement of an award where there is a risk of dissipation by the respondent. However, enforceability of the injunction in relevant jurisdictions may be a challenge as there is no uniformity on the enforceability of interim decisions of arbitral tribunal (as distinguished from final awards). Appointment of receivers to preserve assets or evidence pending the final outcome of an arbitration is another asset preservation measure which can be leveraged. There have been reported decisions in Hong Kong and England where courts have appointed receivers to this end.
