Enforcement of foreign arbitral awards in The Netherlands
A great advantage of arbitration compared to court litigation is that arbitral awards are relatively easy enforceable abroad. Under Dutch law a foreign arbitral decision will in principle be recognised and can be enforced after obtaining leave from the court. In a recent case the Dutch Supreme Court had to consider whether a Russian arbitral award was enforceable in The Netherlands, while the award was no longer enforceable in Russia itself, as the period within which the award was to be enforced had lapsed. Onno Hennis elaborates on the decision of the Supreme Court.
Arbitration proceedings in Russia
What was the case about? In 1997 two Russian parties had entered into a purchase agreement for a ship. Because the ship showed defects the buyer started arbitration proceedings in Russia in 2001 for reimbursement of lost profits on the basis of the contractual arbitration clause. The Russian arbitral tribunal decided in favour of the buyer and ordered the seller to pay approx. USD 1 million.
Refusal to pay the contractual amount
The seller, however, refused to pay this amount. Consequently, the buyer was granted leave by the Russian court to enforce the award in Russia. This leave was ultimately reversed by the Russian court on request of the seller. Reason for the court to overturn the decision was the submission of a falsified document by the buyer. As a result of this decision, the buyer was no longer able to enforce the award in Russia. However, as no annulment proceedings were initiated on the side of the seller, the arbitral award itself stayed intact.
Enforcement arbitral award in The Netherlands
Ten years later the buyer tries to enforce the arbitral award and recover the damages from the seller in The Netherlands. Thus, the buyer requests the competent Dutch court to grant him leave for enforcement of the arbitral decision. In its defense, the seller claims that the arbitral decision cannot be enforced in The Netherlands, as the power to enforce the award in Russia had already lapsed a long time before. In fact, the Russian court had decided that the award was no longer enforceable.
Supreme Court: national rules on statute of limitation are not relevant
The Supreme Court does not agree with the seller. It considers that enforcement of a foreign arbitral award is in principle allowed, except as provided for by law. National rules on statute of limitation or the prescription of the power to execute the decision in the country where the award was rendered, are not included in the exceptions provided for by law. So these factors do not stand in the way of enforcement in the Netherlands. The Supreme Court concludes that the prescription in Russia does not undermine the authority of the judgement in the arbitral award. The buyer was therefore still allowed to recover his claim of USD 1 million from the assets of the seller located in the Netherlands.
1958 New York Convention
While in the case of the Russian arbitral award national rules of enforcement were applicable, leave for enforcement of foreign arbitral awards in the Netherlands is usually granted on the basis on the New York Convention, which was ratified by the Netherlands in 1964.
The New York Convention stipulates that a foreign arbitral award is in principle enforceable, unless the opposing party furnishes proof that one of the following grounds exists:
– There is no valid arbitration agreement between parties or one of the parties is under some incapacity;
– The party to whom award is invoked is not properly informed about the appointment of the arbitral tribunal or procedure, or was unable to present his case;
– The decision of the arbitral award falls outside the scope of the arbitration agreement;
– The arbitral tribunal has been constituted against the rules or against the will of parties;
– The arbitral decision is not (yet) binding between parties or is annulled or suspended in the country where the award was made.
‘Ex officio’ scrutiny by the court
Furthermore the enforcement of an arbitral award can be refused on its own motion by a Dutch court, when the subject of the dispute is not arbitrable (or in other words: suitable for arbitration), or in case the enforcement would be incompatible with Dutch public policy.
Arbitration useful in international business
Currently, more than 156 states are party to the New York Convention. An arbitral decision rendered in one of these states is relatively easily enforceable in any of these states and thus the opportunities for recovery internationally are greater than in case of court proceedings. If you are often conducting business with foreign parties it could for this reason be beneficial to agree on arbitration.
AMS Advocaten: arbitration lawyers
If you want to enforce an arbitral award in the Netherlands, AMS Advocaten can start a procedure to obtain a leave for enforcement from the Dutch court. Also in the event another party is trying to enforce an arbitral award against you or your company, we are happy to offer our assistance. We regularly assist international client in litigation and arbitration as well with the drafting of contracts, including the drafting of dispute settlement clauses, such as arbitration clauses. Feel free to contact us to discuss should you wish to engage our legal assistance.