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Enforceability really matters in cross-border disputes, and arbitration offers the best solution
Last month the French Supreme Court refused enforcement of a $284m (£186m) judgment obtained in New York by ‘vulture fund’ NML Capital against the government of Argentina. The New York judgment awarded NML the face value of distressed Argentinian government bonds it had acquired at a discount. NML’s claim tried to attach and divert tax and social security payments owed to Argentina by French companies operating in Argentina.
The case offers a window into the often drawn-out and complex process of enforcement of judgments in foreign jurisdictions.
If the judgment state and the state of enforcement have no reciprocal recognition or enforcement arrangements, the judgment creditor must issue fresh proceedings to enforce its judgment. In addition to the time and cost this incurs, the process invariably involves the risk of re-litigating the claimant’s entitlement to recover.
By contrast, one frequently cited advantage of arbitration as a dispute resolution process is the relative ease of enforcement of an arbitral award in other jurisdictions. The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards limits the scope of substantive review of awards at the point of enforcement in 148 countries. Further support for enforcement is provided by international arbitration rules that state both that the award is binding and that the parties waive non-mandatory rights to appeal. They also state that parties will implement awards without delay.
In NML’s case the judgment has been the subject of enforcement proceedings in the US, the UK, France and Ghana. As part of this process NML has attempted to seize the Argentine president’s plane and arrested a vessel in port in Ghana. In each jurisdiction the parties have had to argue afresh about Argentina’s immunity from enforcement. While that issue is exclusive to claims involving state entities, the fact that states’ courts have reached different decisions on immunity - the UK and US finding against Argentina and France in its favour - shows the risk inherent in proceedings of this kind.
Enforcement of arbitration awards can also be a drawn-out process. The Yukos-Rosneft saga, for example, involves a battle in the Dutch and English courts over the enforcement of a 2006 Russian multimillion-dollar interest award. However, the fact that the grounds on which enforcement can be refused are limited by the New York Convention may reduce the risk of refusal compared to an equivalent court judgment.
Few commercial parties like to contemplate future litigation. However, NML’s situation shows the benefit of giving upfront consideration to enforcement by choosing a method and venue for dispute resolution geared towards making the successful party whole as quickly as possible. Enforceability is a key factor in the effectiveness of a dispute resolution strategy and, on the whole, arbitration offers a more streamlined process in the cross-border disputes arena.