This article has been written by Adv. Neelu Mohan and Adv. Shouryendu Ray
“…But in the end you must accept what has been decided. Enough is enough. And the law echoes: res judicata, the matter is adjudged”.
(Lord Simon of Glaisdale)
Introduction
Res judicata:“a thing adjudicated. Once a lawsuit is decided, the same issue or an issue arising from the first issue cannot be contested again.”[1]
The doctrine of res judicata is fundamental to the enforcement of an award. In fact, one may argue that they are two sides to the same coin – such is their level of interdependence. After all, a judgment, award or order is enforceable only against parties bound by res judicata and as such it works as a ‘condition precedent’. Enforcement of an award is worked through the process of ‘exequatur’, which is a court order mandating compliance of said award. The basis of an enforcement order is a plea of res judicata, to uphold the award and not allow future action over that matter – the reasoning being, “Where arbitrators have, pursuant to the submission of a dispute to them, decided an issue, that decision then binds the parties and neither can thereafter dispute that decision.”[2] This paper proposes to be a study on the interplay of the two concepts: Res Judicata and Enforcement in international arbitration.
Modern jurists argue that there exists a certain “core of common agreement” on the doctrine of res judicata[3] – a broad universality in its application. It has been recognised as a ‘general principle of law’ as contemplated byArticle 38(1)(c) of the ICJ Statutes.[4] However, as will be shown in this paper, there are certain attacks on this concept from various jurisdictions and this disturbs the synchrony between the res judicata effect of the award and its enforcement by courts worldwide.
Fundamental to this discussion is the nature of finality of the award – which in turn rests on the res judicata impact of the award. Once res judicata is established, it will significantly limit the scope of judicial review of the award.
The first part of the paper will explore the elements of res judicata; the second part will be an analysis of the judicial treatment of this concept in its application to arbitral awards.
Res Judicata Explained
The doctrine Res judicata dictates that once judgment has been rendered qua a dispute between parties, it shall operate as a bar to further litigation, save an appeal, and as such, it disposes finally and conclusively of the matters in controversy.
The principle of res judicata is a cornerstone of most legal systems. It has found its place in the legal systems of ancient Roman[5], Mohammedan (as “Niza-I-munfasla” and Hindu (as “Purva Nyaya” or former judgment in Hindu scriptures, Mitakshara).[6] Such is its uniformity of application that the ICJ has termed it, ‘a clear example of a general principle of law recognised by civilised nations.’[7] The spirit of the doctrine is succinctly expressed in the maxim “Nemo debet bis vexari pro eadem causa” (no one shall be twice vexed for the same cause – much like the bar on double jeopardy).
Despite the universality of the general concept of res judicata, there is some divergence in the manner in which it is applied in the English Common Law realm as opposed to the Civil Law systems in countries such as Switzerland, Germany, Sweden and to some extent France, Belgium, Holland, and Italy.[8]
The preclusive plea of res judicata in its simplest form operates as a bar for a party from instituting a subsequent action, once the particular cause of action (the existence or non-existence thereof) has been determined in finality by a court of competent jurisdiction in a suit between the same parties.[9] This, ‘cause of action estoppel’ has also been described as the plea of ‘estoppel by judgment’ or ‘estoppel by record’.[10] The Civil Code of France gives this principle statutory recognition by stating: “The authority of the thing adjudged has place only in regard to that which has constituted the object of a judgment. It is necessary that the thing demanded be the same; that the demand be founded upon the same cause; that it be between the same parties and found by and against them in the same capacity.”[11] [12]
Under the English Common Law system, the principle of res judicata receives a more expansive interpretation by building within it ‘issue estoppel’. This principle of conclusiveness of judgments was espoused in the opinion of Chief Justice De Grey in the landmark case of the Duchess of Kingston wherein he declared the rule to be that “the judgment of a court of concurrent jurisdiction, directly upon the point, is, as a plea, a bar, or as evidence, conclusive, between the same parties, upon the same matter, directly in question in another court.”[13] This broader form of res judicata, which goes to the heart of the previous judgment and its rationale and thinking, is followed by much of the Commonwealth. An early example of its adoption in the US context is the verdict of Chief Justice Shaw of the Massachusetts Supreme Court in Sawyer v. Woodbury.[14] He held the rights, evidence and facts established by the previous judgment to operate as bar from future parties qua the same parties.
Constituent Elements of Res Judicata
For the preclusion claim of res judicata to succeed it has to satisfy certain criteria: there must be a final award on the merits pronounced by a tribunal/court of competent jurisdiction. The following section of the essay will study if arbitral tribunals satisfy these criteria.
In his seminal treatise, Henry Campbell Black opines that the validity of a judgment to act as a bar under the principle of res judicata hinges ‘primarily upon the organisation and character of the tribunal from which it professes to emanate’[15]. If such tribunal is validly constituted – i.e., constituted under statute and/or recognised by law, its decisions can operate as a bar/estoppel from succeeding suits of similar nature between the same parties. This protection is denied to adjudicatory panels that do not have the sanction of law. In other words, the verdict creating the estoppel must emanate from a legally constituted court – one known to and recognised by the law.[16]
In the above cited case, a ‘judgment’ was rendered by a group comprising certain members of the English court of Exchequer and some others who were not (and thus not fit to adjudicate); this was held impermissible as it was not by a court not ‘known to the laws of the land as having authority to decide the matter in issue or make the decree in question’.[17] [18] The requirement that the ‘court’ must be one recognised by law, however, yields to a mutual arrangement between parties to have their matter adjudicated through self-appointed tribunals. Of this, Black notes:
“…the courts will in proper cases give effect to decisions made by the ruling bodies of voluntary societies, clubs, or eleemosynary institutions, or by the tribunals appointed within them for the settlement of their own disputes, – not, indeed, on the ground that such bodies are courts known to the law, but because the party has voluntarily bound himself (or herself) to abide by their decision upon matters within their jurisdiction.”[19] [20]
Barnett cites an English case – Doe d Davy v. Haddon[21] involving the decision of a trustee of a school (sitting as an arbitrator) dismissing the schoolmaster as an early example of an arbitral award justifying a plea of cause of action and issue estoppel. In another early case, Cummings v. Heard[22] Justice Lush’s opinion set arbitral awards squarely within the domain of res judicata:
“It was contended that an award is not an estoppel, that the parties are not concluded by an award, and that it is distinguishable from a judgment, which, it is admitted, would have bound the parties. The contention was, that it was so distinguishable, because an award was an adjudication by a tribunal appointed by the parties, and not one constituted by the sovereign power within the realm. It is impossible, to my mind, to suggest any good gound of distinction between these two, when we consider that the reason, why a matter once adjudicated upon is not permitted to be opened again, is because it is expedient that there should be an end to litigation. When once a matter has been decided between parties, the parties ought to be concluded by adjudication, whatever it may be.’
Justice Diplock echoed the same view in Fidelitas Shipping Co. Ltd. v. V/O Exportchleb[23] and held issue estoppel to apply to arbitration in the same manner as it does to regular litigation. Extending the applicability of res judicata to arbitral awards is only logical as the parties have themselves chosen the tribunal to adjudicate their dispute inter se.
What has been laid down through the foregoing jurisprudence is that for res judicata to take effect, the court must be one that has been validly recognised by law. National legislations qua arbitration do provide this recognition and also provide for enforcement of foreign arbitral awards. Since as early as June 1959, nations have committed themselves to upholding such foreign arbitral awards under the aegis of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (colloquially known as the New York Convention). Its universal application is evidenced by the fact that it has 159 signatories as of April 2018.[24]
An interesting issue arose before the Indian High Court of Bombay. In Anuptech Equipments Private Ltd. v. Ganpati Co-op. Housing Society Ltd., Mumbai and Ors.[25]the Court was to decide whether it can entertain a writ petition against a domestic arbitral order. Under the Indian Constitution (Articles 226 & 227) High Courts have superintendence over all “tribunals” within their geographical Therefore, central to this issue was determining whether an arbitral tribunal would be covered as ‘tribunal’ as contemplated by the Indian Constitution. The Bombay High Court held in the affirmative (implying that arbitral tribunals do count as ‘judicial tribunals’), whilst relying on the Supreme Court’s decision in Engineering Mazdoor Sabha v. Hind Cycles Ltd.[26] that as envisaged by the Indian Arbitration and Conciliation Act, 1996, an arbitral tribunal has all the ‘trappings of a body which discharges judicial functions’.
Judicial Treatment of Arbitral Awards
This brings us to the next part of the essay, which will discuss the nature of an appeal from the award of an arbitral tribunal vis-à-vis res judicata, the role of the courts in entertaining such an appeal and the fetters on their power, if any.
For a better appreciation of these issues, one must look to the inherent distinction between courts and tribunals as that will clearly delineate the domain of each. The Indian Supreme Court in Madras Bar Association v. Union of India AND Union of India v. R. Gandhi [27] held as follows: ‘The term `Courts’ refers to places where justice is administered or refers to Judges who exercise judicial functions. Courts are established by the state for administration of justice that is for exercise of the judicial power of the state to maintain and uphold the rights, to punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law.’
Furthermore, in Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunjhunwala[28], Hidayatullah J., succinctly explained the difference between Courts and Tribunals, thus:
“All Tribunals are not courts, though all courts are Tribunals. The word ‘courts’ is used to designate those Tribunals which are set up in an organized state for the administration of justice. By administration of justice is meant the exercise of juridical power of the state to maintain and uphold rights and to punish ‘wrongs’. Whenever there is an infringement of a right or an injury, the courts are there to restore the vinculum juris, which is disturbed…”
From this distinction one can infer that although both tribunals and courts are expected to act in a ‘judicial’ manner in the adjudication of disputes – courts act as restorers of justice whereas, tribunals on the other hand are specialized dispute resolution mechanisms which are to adjudicate only on the special type of dispute brought before them. As such, tribunals are not concerned with maintaining and upholding constitutional rights and punishing wrongs, which fall exclusively in the domain of civil courts. A corollary of this understanding is that in an ‘appeal’ from the award of an arbitral tribunal, what is being sought to be addressed is a matter of rights of the parties. It is narrower than the set of issues present before the tribunal but it is unique as only a civil court is equipped to offer remedy.
It is thus no surprise that arbitral tribunals do not venture into the area of punitive damages – the prosecution of crimes or anything that hinges on the humanitarian rights of the parties is kept outside the domain of arbitration. Arbitration disputes are more focused on commercial aspects – at the heart of which lies an economic dispute and not one which is based on the hallowed principles that govern the relationship between the sovereign and its people or between the people inter se. As a result, when an arbitral award is appealed against, ideally, the court will concern itself only with the injustice created by the award. It will not and should not look to re-evaluate the dispute between the parties as they have chosen a separate forum for the same. Ordinarily, the award should have its preclusive effect in enforcement. But an appeal is different to that limited extent – as it seeks to re-agitate the issue.
What follows from this discussion is that a substantive review of the award by a court, i.e., by re-appreciating the dispute on merits, dislodges the res juidcata effect of the award itself. This flies in the face of the UNCITRAL Model Law but many states have provided for such review through domestic legislation. One must note that such a review is entirely distinct from annulment of an award (as provided for in Article 34 of the Model Law) and non-recognition under Article V of the New York Convention. Professor Gary Born opines thus with regard to the differences: “they (i.e., substantive review) concern the correctness of the arbitrators’ ultimate decision, rather than objections to the arbitral procedure, the arbitrators’ impartiality or jurisdiction, or matters of public policy.”[29]
Prof. Born then goes to list out jurisdictions which have enacted such legislation inimical to the res judicative effect of the award – they include: England, Ireland, China, Australia, Abu Dhabi, Libya, Saudi Arabia, Egypt, and surprisingly, considering its popularity as an arbitral seat, Singapore.[30]
Award: Preclusion & Judicial Review – A comparative analysis
The New York Convention, and in particular Article III thereof, is the touchstone for mandating signatory states to afford preclusive effect to arbitral awards and thus ensure their binding character. It places a strong fetter on domestic courts from denying preclusive effects to such awards.[31]
Article III of the Convention states that “each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles [particularly Article V].” Prof. Born states that this commitment not only requires the Contracting State to “enforce” the award, but also “recognize” the award as “binding”. In any case, as it flows from the discussion above, enforcing an award means establishing the res judicata created by the award, and unless annulled, the opposite holds true as well.
In somewhat less detail, the UNCITRAL Model Law provides thus in Article 35(1): “an arbitral award, irrespective of the country in which it was made, shall be recognised as binding.”[32] Many states that have adopted the Model Law have added more detail to this basic provision qua the preclusive effect of an award. Prof. Born cites the examples of Germany and Japan as states which have done so.[33] Section 1055 of the German ZPO states that “the arbitral award has the same effect between the parties as a final and binding court judgment.” Article 45(1) of Japan’s Arbitration Law states that “an arbitral award (irrespective of the seat of arbitration) shall have the same effect as a final and conclusive judgment (of the courts of Japan).”
The United States
Although not provided for specifically under the US Federal Arbitration Act (FAA), the preclusive effect of arbitral awards has been well established in the US through various judgments. Chapters 2 and 3 of the FAA govern the enforcement of international arbitral awards subject to, respectively, the New York Convention and the Inter-American Convention on International Commercial Arbitration (popularly known as the Panama Convention).
But in order to enforce an award in the US, it must first be “confirmed” through a petition to the Federal Court (for international awards)[34] under Section 9 of the FAA. Only then, after grant of such confirmation will the award stand on the same footing as a judgment of the court.[35] The impediment created by this two-step process however, has been attempted to be remedied through various judgments. In DH Blair & Co. v. Gottfiener[36]it was held that normally, “confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.”In MACTEC Inc. v. Gorelick[37] it was held that “a valid and final award by arbitration generally has the same effect under the rules of res judicata as a judgment of a court.” Also in Greenblatt v. Drexel Burnham Lambert, Inc.[38] the Court held, “When an arbitration proceeding affords basic elements of adjudicatory procedure, such as an opportunity to present evidence, the determination of issues in an arbitration proceeding should generally be treated as conclusive in subsequent proceedings, just as determinations of a court would be treated.” Furthermore, the Restatement (Second) of Judgments provides in section 84 that “a valid and final award by arbitration has the same effects under the rules of res judicata, subject to the same exceptions and qualifications, as a judgment of the court.” In a recent judgment, Weizmann Inst. of Science v. Neschis[39]it was held: “Collateral estoppel applies to issues resolved in arbitration, assuming that there has been a ‘final determination on the merits, notwithstanding a lack of confirmation of the award.’” Thus, it has been adequately established that due to the application of the principle of res judicata, arbitral awards are to be given the same status as court orders.
The confusion over s. 9 of the FAA is compounded by language, which suggests that the parties ought to indicate by agreement, “that a judgment of the court shall be entered upon the award made pursuant to the arbitration.” There is a circuit split on whether this language requires express consent by the parties, i.e., whether an agreement between the parties that the award will be ‘final and binding’ is sufficient to constitute consent to judicial confirmation of the award.” [40] The 8th Circuit in PVI, Inc. v. Ratiopharm GmbH[41] the 8th Cir. Court of Appeals held that such language does not satisfy section9’s consent to judgment provision. Instead, the Court held, it requires a “clear statement by the parties in their arbitration agreement that judgment be entered upon issuance of the arbitration award.”[42] On the other hand, the 2nd, 4th, 5th, 7th, 10th, and 11th Circuits have held that “while some indicia of the parties’ intent to be bound by arbitration is necessary, explicit language providing for judicial confirmation is not mandated by the FAA.”[43]
Some states like the United States although have legislative provisions that seem prima facie to provide for substantive review, have been interpreted otherwise through successive judgments. In the case of the United States, the Federal Arbitration Act’s ‘manifest disregard of the law’ to vacate awards emanating from international arbitration, has been given an extremely narrow window of operation by the US Supreme Court. In the recent case of Hall Street Assocs., LLC v Mattel[44]the Court echoed the pro-arbitration stance of the FAA. The Court opined that the US Courts were not the appropriate forum to seek vacatur of international arbitration awards and instead, such actions must only be sought before the domestic courts of the seat of the arbitration. This position of the US Supreme Court severely restricts the scope of judicial review under the lens of ‘manifest disregard’ – in other words, what this verdict does is that it ties the hands of US courts vis-à-vis international arbitration awards. It flows from this judgment that US Courts can do a policy-based, substantive re-evaluation of the merits of the case only if the arbitration is seated within the US.[45]
But to say that the ‘manifest disregard’ standard has been completely done away with vide the Mattel verdict would be an over simplification. There exists considerable difference of opinion among the various circuits on this issue. While some circuits have toed the line with the US Supreme Court by holding that ‘manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA’[46], some other circuits have devised their own standard – that an arbitral award may be vacated for manifest disregard of the law where ‘the arbitrator knew of the relevant legal principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it’.[47]
It can be said in summary about the US system on arbitral award res judicata that such preclusive effect is granted only to awards that are final and binding (need not necessarily be ‘confirmed’). Such protection however, is not afforded to those awards that have been vacated or those that do not meet the requirements for ‘confirmation’.[48]
The United Kingdom
Within the United Kingdom, England and Wales have had an interventionist approach to arbitration from the very beginning.[49] Echoing this opinion is a 1922 decision of the Court of Appeals held in Czrnikow v. Roth, Schmidt & Co.,[50] that parties could not waive judicial review, as a matter of public policy, through contractual instruments. Of the relationship between the court and arbitral tribunal, a scholar draws an analogy (between the Court and arbitration tribunals) with the tense equation between the Court and Crown, whilst citing Sir Edward Coke[51]: “King James I claimed that his representatives should have the right to adjudicate disputes according to ‘natural reason,’ not according to the ‘artificial… judgment of the law’.” The Lord Chief Justice, Edward Coke held of this relationship, using the words of Bracton: “quod Rex non debet esse sub homine, sed sub Deo et lege”[52] – “Although under no man, the King was subject to God and the law.”
The Arbitration Act of 1979 brought about much greater arbitral autonomy. It provided for an “exclusion agreement” in commercial contracts, which could be employed by the parties to preclude judicial review. Prior to its enactment, the High Court could easily substitute its own opinion in place of the arbitrator’s even on the merits of a case.[53] Therefore, effectively there was hardly any res judicative value to the awards of arbitral tribunals – they had no teeth. Jurists were critical of this approach, especially in light of obligations under the New York Convention.
Under the system in vogue prior to the 1979 legislation, arbitral tribunals could seek the ‘assistance’ of the English courts, through a process called, “statement of case”. The 1979 Act brought about a paradigm shift – it replaced this system with a new right of appeal to the High Court[54], under which judicial determination was allowed on a question of law.[55] But the standard for such an appeal was strict – the appeal would only be granted by consent of opposing party or leave of the court and only if the legal question “could substantially affect the rights of one or more of the parties.”[56]
Detractors however, could say that these measures were too little and too late. After all, an appeal on a question of law was still permitted – this would entirely unsettle the preclusive value of the arbitrator’s award. Furthermore, under the 1979 Act, the High Court could order an arbitral tribunal to state its reasons for an award.[57] And even qua ‘exclusion agreements’, they were enforceable only in the case of ‘international agreements’, where at least one party had to satisfy the international resident test. For purely domestic arbitrations on the other hand, the legislation was not so generous – as in their case, such ‘exclusion agreements’ could be entered in to only after the arbitration had begun.[58] As William Park views it, the English legislature was reluctant to permit ouster of the judiciary’s supervisory role wherein both parties were domestic due to paternalistic reasons (parens patriae) – because the Parliament was concerned that such an agreement may not be entirely voluntary and work to the detriment of the English party who may have been arm twisted.[59] The author believes this position was reflective of the general distrust of the arbitral process. The parties were thought not sophisticated enough so as to reach a balanced bargain. But such an understanding, in the author’s opinion, is completely contrary to the thinking of parties wishing to oust the court process – they do so to get speedier resolution, or maybe the matter is of such specialized nature that it requires adjudication by experts and specialists in the field. There can be countless other reasons such as confidentiality, etc. which may act as considerations for parties seeking to go down the path or arbitration. A judicial revisit on a question of law would all but disturb the res judicata established by the award under such a system.
The new Arbitration Act of 1996 does little to address this concern of limited finality of the award – this although the House of Lords has emphasized that “a major purpose of the new Act was to reduce drastically the extent of intervention of courts in the arbitral process.”[60] Much of the damage in this regard comes from section 69 of the Act. It provides that in a certain category of cases, an award may be subject to appellate review by the courts for ‘substantive errors of law’. It is of a similar paternalistic nature as the old Act of 1979, which makes it applicable only to questions of English law. Highlighting some of its other restrictions, Professor Born writes that it applies only to English law that are of “public significance” or where the award was “obviously wrong”.[61] Further, as per section 69, an annulment will be possible only if the reviewing court is of the opinion that it is “just and proper” to do so.[62] Now, one may argue that this still gives the English courts a lot of wriggle room to wrest power from the arbitral tribunal and upset the res judicative value of its award. It may even seem similar in construct to the ‘manifest error’ standard under the American system, which has since denuded in value through successive judgments.
In defence of the English system however, the courts have placed fetters on the limits of judicial review in annulment proceedings. In the Queen’s Bench ruling in ABB Attorney General v. Hochtief Airport GmbH[63], while quoting the ruling in Zermalt Holdings SA v. Nu-Life Upholstery Repairs Ltd.,[64]it was held that the courts, in annulment action, ought not approach the award “with a meticulous legal eye endeavoring to pick holes, inconsistencies and faults and with the objective of upsetting the process of arbitration. Far from it. The approach is to read an arbitration award in reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it.”
On the core issue of the res judicative value of arbitral awards however, much like the US, English courts have held it at par with orders of domestic courts. In, Fideliatas v. V/O Exportchleb[65] the Court of Appeal held: “Issue estoppel applies to arbitration as it does to litigation. The parties, having chosen the tribunal…are bound by the determination of the tribunal…” Prof. Born notes that in a general sense English courts apply res judicata in the same manner as in the US with a small difference – The English system gives cause of action estoppel a much narrower effect, requiring: same element of proof, same facts, and the same time period.[66]
Recognition of Annulled Awards
There is much debate in academic circles about the recognition and enforcement of awards annulled in the seat of arbitration. The confusion in part stems from Article V(1)(e) of the New York Convention which provides that an annulled award “may” be denied recognition – a corollary of which is that it may not be denied recognition. This is key to the discussion in this paper as recognition of an award has its effects on the res judicative value.
A popular argument in favour of not granting recognition to annulled awards is that the award, not even afforded recognition by the lex arbitri, ceases to exist and thus it is as good as no award at all.[67] And in such a scenario, without an “award”, the dispute between the parties is brought alive again, as if it were never settled.
But one must treat annulment awards with circumspection as to the factors and incentives for the domestic courts at the seat of arbitration. Even if the domestic court in the seat of arbitration were to abide by the grounds for annulment provided under the Model Law, there is still a lot of bandwidth for more nationalistic interests to creep in, especially with regard to the interpretation of “public policy” under Article V(2)(b) which states that violation to the public policy of that country is a valid ground for annulment of an award.
On this issue, there are broadly two schools of thought – the French, and the rest of the world.[68] Flowing from the landmark judgment, Hilmarton v. OTV[69] the French courts have disregarded annulment of an international arbitration award at the seat of arbitration for the purposes of recognition and enforcement of the award in France. The French rationale for such a position is that the NY Convention allows signatory countries to adopt rules that are more favourable to the recognition and enforcement of foreign awards that the NY Convention itself. Further, as noted in the judgment rendered in Pabalk v. Norsolor[70] French courts view international awards as an ‘international judicial decision’, removed from the trappings of any domestic judicial system.[71] Ergo, how a court views an award is irrelevant.
In most other jurisdictions however, the position is that once an award has been annulled in the seat of arbitration, it is denied recognition and consequently, enforcement.[72] That said, one must also note the American jurisprudence on this issue. By and large, the US position has been to deny recognition if an award is invalidated in its seat court. However, two cases strike out as an aberration – In Re Chromalloy Aeroservices and the Arab Republic of Egypt[73] and more recently, Corporación Mexicana de Matenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploración y Producción.[74]
In Chromalloy[75], an award set aside by the seat court, Egypt, was enforced in the US using Article VII of the NY Convention as deciding otherwise would “violate clear U.S. public policy in favor of enforcement of binding arbitration clauses”.[76] This position was reversed in subsequent judgments but resurfaced in Pemex[77] wherein the court held that the award’s nullification vide the order of the Mexican Court must not be allowed as it was fundamentally unfair. This connects with the prior discussion in this paper about treating annulment orders with circumspection as they may be guided with extraneous nationalist agendas.[78] [79]
Conclusion
The issue of res judicata established by an arbitral award has once again taken centre stage with ConocoPhillips’ expropriation claim against Venezuela following nationalisation of the country’s oil sector in 2007. Although an ICC arbitration has resulted in $2.04 billion award in favour of the Claimant, a disgruntled Conoco has chosen to additionally pursue a separate ICSID arbitration – where it hopes to get a higher sum than the 10% of claimed value awarded by the ICC arbitration.[80] It must be understood that arbitral award, and for that matter the arbitration itself, is the result of a bargain between two contracting parties. In light of this, fullest effect ought to be given to such a decision by the courts in recognition and enforcement proceedings, as well as by subsequent (or for that matter, concurrent) tribunals adjudicating over the same dispute. The role of the courts in such proceedings is to be limited to one that is supervisory and not interventionist. In the words of the Indian Supreme Court:
“The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domestic tribunal chosen by the parties, and the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right the decision is binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement.”[81] As noted above, most jurisdictions will baulk at recognising an annulled award. Annulment of an award based on a re-appreciation of the law, i.e., a substantive judicial review, destroys the award’s res judicative value. Alongwith the award, such judicial review also kills the spirit of party autonomy and the independence of the institution of arbitration. That said, the author is of the view that enforcing courts should not take annulment at face value but rather, employ their own judicial mind over such cases annulled by foreign courts as their could be various extraneous factors that lead to an annulment order. Therefore, in the interest of res judicata and party autonomy, courts should discard a straightjacket approach to recognising arbitral awards but do so to give fullest effect to the intention of the contracting parties.
Authors: Shouryendu Ray, Visiting Advisor at Pepper Hamilton LLP and Neelu Mohan, Advocate, Supreme Court of India.
[1] Henry C Black & Bryan A Garner, Black’s law dictionary (9th ed. 2009).
[2] In this regard, the Privy Council held in Assoc. Elec. And Gas Ins. Services Ltd. v. European Reins Co. of Zurich, 21 ASA Bull. 857, 865 (Bermuda Court of Appeals 2003) that an award “conferred upon [the parties] a right which is enforceable by later pleading an issue estoppel. It is a species of the enforcement of rights given by the award just as much would be a cause of action estoppel. It is true that estoppels can be described as rules of evidence or as rules of public policy to stop the abuse of process by relitigation. But that is to look at how estoppels are given effect to, not at what is the nature of the private law right which the estoppel recognizes and protects…”
[3] Silja Schaffstein, The Doctrine of Res Judicata before International Arbitral Tribunal (2018) (PhD dissertation, Queen Mary University of London & Faculty of Law of the University of Geneva. Available at: https://qmro.qmul.ac.uk/xmlui/bitstream/handle/123456789/8665/Schaffstein_S_PhD_Final.pdf?sequence=1 )
[4] Ian Brownlie, Principles of Public International Law 16 (7th Ed., 2008). See also: B. Cheng., General Principles of Law as Applied by International Courts and Tribunals, 1953, p. 336-372.
[5] Under Roman Law, as administered by the Proetors’ Courts, a defendant could repel the plaintiff’s claim by means of “exceptio rei judicata” or plea of former judgment.
[6] Peter R Barnett, Res Judicata, Estoppel, and Foreign Judgments 8-9 (2001). See: Decision ofa Full Bench of the Lahore High Court Mussammat Lachhmi v. Mussammat Bhulli, 1927 ILR (VIII) 384. See also: Sheoparson Singh v. Ramnadan Singh, (1916) LR 43 Ind App 91, 98 for a similar analysis of the genesis of the concept of res judicata.
[7] South West Africa Case (1966) ICJ R 4, 240. (Koretsky J).
[8] See: Nigel Blackaby et al., Redfern and Hunter on International Arbitration 561 (5th Ed.): In France, Belgium, and the Netherlands, recourse can be had to the reasons in order to explain the meaning and scope of the dispotif. See: F. De Ly & A. Sheppard, ILA Interim Report on Res Judicata and Arbitration, 25 Arbitration International 35-66 (2009) at pp. 51, 52 and 65.
[9] Thoday v. Thoday, [1964] P 181. 197, CA (Diplock, LJ).
[10] Ram Naresh Singh v. Ram Pal Singh, Allahabad HC, Second Appeal no. 266 of 1976 (Agarwal, J).
[11] Article 1351 French Code of Civil Procedure. See also: Article 480 therein which highlights the applicability of subject-matter res judicata solely.
[12] Also applicable to Louisiana. Res judicata in Louisiana law is founded on Article 2286 of the Louisiana Civil Code of 1870, which is a literal translation of Article 1351 of the French Civil Code.See: Scurlock Oil Company v. Getty Oil Company, 294 So. 2d 810 (1974) (Summers, J).
[13] 20 How. St. Tr. 355; 2 Smith. Lead. Cas. 424.
[14] 7 Gray (Mass.) 499. As cited in: Black Henry Campbell, A Treatise on the Law of Judgments: Including the Doctrine of Res Judicata Vol. II, 503-504 (1891).
[15] Id. at 613-614.
[16] Rogers v. Wood, 2 B. & Ad. 245 [1831]. As cited in: Everest Lancelot & Strode Edmund, The Law of Estoppel 25 (1884).
[17] Supra note 13, 614.
[18] See also: verdict of Chief Justice Marshall in Rose v. Himely, 4 Cranch, 241: ‘A sentence, professing on its face to be the senstence of a judicial trinubal, if rendered by a aself-constituted body, or by a body not empowered by its government to take cognizance of the subject it had decided, could have no legal effect whatsoever.’
[19] Supra note 13, at 614.
[20] Black further cites Woolsey v. Independent Order, etc., 61 Iowa, 492, 16 N.W. Rep. 576, a decision by the “grand lodge” of a certain society worked as estoppel in a later cause of action brought before a court of law.
[21] (1783) 3 Doug KB 310.
[22] (1869) LR 4 QB 669, 672. As cited in: Barnett Peter, Res Judicata, Estoppel, and Foreign Judgments 11-12 (2001).
[23] [1965] 1 Lloyd’s Rep. 13 (CA).
[24] New York Arbitration Convention, Contracting States (April 21, 2018, 9:30 PM) http://www.newyorkconvention.org/countries
[25] AIR 1999 Bom. 219, Para 17. See also: Saurashtra Chemicals Ltd. and Ors. vs. Hon’ble Mr. Justice K. Ramamoorthy (Retd.) (13.05.2005 – GUJHC) : MANU/GJ/0329/2005
[26] AIR 1976 SC 429 : (1962) IILLJ 760 SC
[27] (2010) 11 SCC 1, Para 12.
[28] (1962) 2 SCR 339.
[29] Gary Born, International Arbitration: Law and Practice 329 (2012).
[30] Id.
[31] Id. at 353.
[32] Born (Supra note 30, at 354) however is more critical of the Model Law. He opines that it is “silent on the subject of the preclusive effects of an award.” The author feels, drawing from the discussion in preceding paragraphs, that res judicata of award and its enforcement share a close relationship and one necessarily implies the other (subject to annulment).
[33] Supra note 30, at 354.
[34] Federal courts have original subject matter jurisdiction over arbitral awards governed by the New York and Panama Conventions pursuant to 9 U.S.C. §§ 203, 302.
[35] Contrast this with the positions in other jurisdictions such as Germany and Japan, which by default make an award equal in status to a court order.
[36] 462 F.3d 95, 110 (2d Cir. 2006)
[37] 427 F.3d 821, 831 (10th Cir. 2005).
[38] 763 F.2d 1352, 1360 (11th Cir. 1985).
[39] 2005 US Dist. LEXIS 32822 (SDNY 2005).
[40] The US District Court for Southern District of Ohio, Eastern Division, while ruling on this issue in the affirmative, summarizes the various Circuit opinions on this point – in Nationwide Mut. Ins. Co. v. Randall & Quilter Reinsurance Co., 2007 U.S. Dist. LEXIS 95953, p. 10 : 2008 WL 207854.
[41] 135 F.3d 1252.
[42] Id. As cited in: Erika Van Ausdall, Confirmation of Arbitral Awards: The Confusion Surrounding Section 9 of the FAA, 49 Drake L. Rev. (2000-2001) 41, 44.
[43] Erika Van Ausdall, Confirmation of Arbitral Awards: The Confusion Surrounding Section 9 of the FAA, 49 Drake L. Rev. (2000-2001) 41, Part III A.
[44] 552 U.S. 576, 588 (2008).
[45] Born (International Arbitration: Law and Practice, p. 330) equates the manifest disregard standard to a public policy analysis of the award, requiring that the tribunal was aware of controlling legal authority to the contrary but chose to ignore it – hence, ‘manifest disregard of the law’. He cites the US 2nd circuit decision in Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 209 which held:
“The two-prong test for ascertaining whether an arbitrator has manifestly disregarded the law has both an objective and a subjective component. We first consider whether the “governing law alleged to have been ignored by the arbitrators [was] well defined, explicit, and clearly applicable.” Merrill Lynch, 808 F.2d at 934. We then look to the knowledge actually possessed by the arbitrator. The arbitrator must “appreciate[] the existence of a clearly governing legal principle but decide[] to ignore or pay no attention to it.” Id. at 933. Both of these prongs must be met before a court may find that there has been a manifest disregard of law.”
[46] Frazier v. Citifinancial, LLC, 604 F.3d 1313, 1323 (11th Cir. 2010), quoting Citigroup Global Mkts. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009).
[47] Stolt-Nielsen SA v. AnimalFeeds Int’l, 548 F.3d 85, 94 (2d Cir. 2008) while agreeing with the decision of the 7th Circuit. As cited in: Claudia Salomon & Samuel de Villiers (Latham & Watkins LLP), The United States Federal Arbitration Act: a powerful tool for enforcing arbitration agreements and arbitral awards, Lexis Nexis, 17/04/2014, https://m.lw.com/thoughtLeadership/the-us-fed-arbitration-act .
[48] Restatement (second) Judgments, s. 13, 84(1) and comment e (1982); Weinberg v. Safeco Ins. Co. of Am., 114 Cal. App.4th 1075 (Cal. App. 2004). As cited in: Supra note 30, at 356.
[49] In Scotland however, the approach has been more arbitration friendly. See the Administration of Justice (Scotland) Act, 1972, c. 59, section 3(i) whereunder parties have been able to contractually rule out a court appeal.
[50] [1922] 2 KB 478 (CA)
[51] Edward Coke Prohibitions del Roy, 12 Coke’s Reports 63, 65, London, 1608. As cited in: William W Park Judicial Supervision of Transnational Commercial Arbitration: The English Arbitration Act of 1979, 21 Harv. Int’l. L. J. 87 (1980).
[52] Id.
[53] William W Park Judicial Supervision of Transnational Commercial Arbitration: The English Arbitration Act of 1979, 21 Harv. Int’l. L. J. 87, 88 (1980).
[54] Section 1(2), Arbitration Act, 1979.
[55] Id. Section 2(1).
[56] Id. Section 1(4).
[57] Id. Section 1(5)-(6).
[58] Id. Section 3(6).
[59] Supra note 43, at 99 Citing: Lord Diplock’s statement in 397 Parl. Deb. at 450; Diplock, The Alexander Lecture, at 112: “A party with limited bargaining power might be compelled to renounce protection of the courts under the duress of losing business, or by a fraudulent inducement to contract. Englishmen who deal with foreigners are, of course, no less in need of such protection but Parliament apparently presumed that they were more sophisticated as to risks inherent in renunciation of the right to judicial review than those who did not deal with foreigners.”
[60] Lesotho Highlands Dev. Auth. V. Impregilo SpA, [2006] 1 AC 221 (House of Lords)
[61] Supra note 33, at 331, citing: Reliance Industries Ltd. v. Enron Oil & Gas India Ltd., [2002] 1 All ER (Comm) 59 (QB).
[62] Id.
[63] [2006] EWHC (Comm.) 388 (QB). As cited in: Supra note 33, at 331.
[64] [1985] 2 EGLR (QB).
[65] Supra note 25
[66] Supra note 30, at 357.
[67] Albert Van den berg, The New York Convention of 1958 334-336 (1981). He notes the debate in the ECOSOC over this issue and what was meant by the award becoming “final and operative” in the seat of arbitration. He notes: “Taking account of these objections, the Dutch proposal to amend the ECOSOC Draft Convention provided that enforcement of the award could be refused if the party against whom the enforcement was sought could prove that: “the award has been annulled in the country in which it was made or has not become final in the sense that it is still open to ordinary means of recourse.” Further: “The Dutch proposal led to a deluge of other amendments regarding the provision in question and was debated extensively at the Conference. Certain delegates, including those from Belgium, the United States, and certain Latin American countries, were squarely opposed to the elimination of the leave for enforcement issued by the court of the country in which the award was made.”
[68] This is a broad classification. As illustrated later in the essay, the US position has wavered – by following the French position in two reported cases.
[69] Cass. Civ 1st, 23 March 1994, n° 92-15137; See also: Putrabali v. Rena Holding, Cass. Civ 1st, 29 June 2007, n° 05-18053.
[70] Pabalk Ticaret Sirketi v. Norsolor, Cass. 1st Civ., 9 October 1984, n° 83-11355.
[71] Thierry Tomasi & Greg Travaini, Enforcing in France a Foreign Award that has been Set Aside at the Seat of Arbitration, Inside Arbitration, Herbert Smith, Issue 5.
[72] Supra note 72. See also: Lawrence Newman, Richard Hill, Leading Arbitrators’ Guide to International Arbitration 917 (2014).
[73] 939 F. Supp. 906 (D.C. Cir. 1996).
[74] No. 10 Civ. 206 (AKH), 2013 WL 4517225 (S.D.N.Y. Aug. 23, 2013).
[75] Supra note 74.
[76] Lorraine Brennan, The Pemex case: the Ghost of Chromalloy Past? Kluwer Arbitration Blog, (April 21, 11 PM) https://bit.ly/2HAj7v8.
[77] Supra note 75.
[78] In the Pemex case, the Mexican Court held that the arbitral tribunal was not competent to hear a matter brought against a sovereign and that the proper forum for such dispute is the Mexican district court for administrative matters.
[79] [Note: Although not within the scope of this paper, one must also see the comparative jurisprudence on anti-suit injunctions as it has a direct bearing on the issue at hand. See the judgment of the Indian Supreme Court in Oil & Natural Gas Commission v. Western Company of North America, (1987) 1 SCC 496, where it was held that as the arbitration agreement was governed by the Indian Arbitration Act, Indian courts had exclusive jurisdiction to affirm or set aside the award – this observation was made when the respondent sought confirmation of the award in the courts of New York.]
[80] Conoco Sues to Enforce $2 Billion Award that Venezuela Scorns, Reuters, April 26, 2018, https://www.reuters.com/article/us-venezuela-conocophillips-reaction/conoco-sues-to-enforce-2-billion-award-that-venezuela-scorns-idUSKBN1HX2LU
[81] Union of India v. AL Rallia Ram, (1964) 3 SCR 164.