[9.01] Parties to transborder transactions who go to the trouble and expense of taking their disputes to international arbitration do so in the expectation that, unless a settlement is reached along the way, the process will lead to an award. They also expect that, subject to any right of appeal or recourse, the award will be final and binding upon them. Both international and institutional rules of arbitration reflect this expectation. Article 34(2) of the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) states simply: ‘All awards shall be made in writing and shall be final and binding on the parties. The parties shall carry out all awards without delay.’ The Rules of the International Chamber of Commerce (ICC), recognising the possibility of some form of challenge to an award at the place of arbitration under the lex arbitri, are more circumspect:
Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.1
[9.02] As the UNCITRAL Rules suggest, there may be more than one award in any given dispute. An arbitral tribunal may be called upon to decide procedural issues, or to make partial awards that decide certain issues between the parties on a partial or final basis.2 For example, the tribunal may make a preliminary decision on its jurisdiction, rather than take the risk of proceeding to the merits of the case and then, perhaps, deciding later that it lacks jurisdiction. Alternatively, it may make a partial award of a sum of money that it considers to be indisputably due and payable by one party to the other.3
[9.03] All ‘awards’ are ‘final’ in the sense that they dispose ‘finally’ of the issues decided in them (subject to any challenge or procedure for correction or interpretation), and they are ‘binding’ on the parties.4 The award that disposes ‘finally’ of all outstanding issues is known as the ‘final award’. A final award, in this sense, is usually the outcome of arbitral proceedings that have been contested throughout. However, it may embody an agreed settlement between the parties, in which case it is generally known as a ‘consent award’, or an ‘award on agreed terms’. Another category is an award in proceedings in which a party has failed or refused to participate, in which case it is usually described as a ‘default award’.
[9.04] Each of these different types of award are considered in this chapter. Since all awards are dispositive of the issues that they determine, it is important that the arbitral tribunal does its best to ensure not only that the award is correct, but also that it is enforceable across international frontiers.5
[9.05] There is no internationally accepted definition of the term ‘award’. Indeed, no definition is to be found in the main international conventions dealing with arbitration, including the Geneva treaties, the New York Convention, and the Model Law. Although the New York Convention is directed to the recognition and enforcement of arbitral awards,6 the nearest that it comes to a definition is in Article I(2): ‘The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.’
[9.06] At one stage, it was proposed that there should be a definition of the term ‘award’ in the Model Law, but ultimately none was adopted. One suggested solution illustrates the difficulty of finding a definition that encompasses not only final awards, but also partial awards, which dispose of only some issues. The proposed definition was as follows:
‘Award’ means a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determines any question of substance or the question of its competence or any other question of procedure but, in the latter case, only if the arbitral tribunal terms its decision an award.7
As this proposed definition shows, the need to distinguish between awards that are final and other decisions of a tribunal that are not is a complicating factor. The possible solution of defining each separately was not adopted. The Model Law also plainly contemplates that there may be more than one award during the course of an arbitration. For example, a plea that the arbitral tribunal does not have jurisdiction may be dealt with either in the final award or as a ‘preliminary question’; thus, in a ‘Model Law country’, if the tribunal takes the second course, its partial award may be challenged in the competent court within thirty days of its notification to the parties.8
[9.07] The time limit for challenge of an award begins to run from the date on which the award was issued. Once the final award has been made, it may be impossible for a party to challenge any element in it that flows from a previously unchallenged partial award. Moreover, only an ‘award’ will qualify for recognition and enforcement under the relevant international conventions, including the New York Convention. Thus important consequences flow from a ruling or decision of the arbitral tribunal that has the status of an award.
[9.08] The term ‘award’ should generally be reserved for decisions that finally determine the substantive issues with which they deal.9 This involves distinguishing between awards, which are concerned with substantive issues, and procedural orders and directions, which are concerned with the conduct of the arbitration. Procedural orders and directions help to move the arbitration forward; they deal with such matters as the exchange of written evidence, the production of documents, and the arrangements for the conduct of the hearing. They do not have the status of awards and they may perhaps be called into question after the final award has been made (for example as evidence of ‘bias’, or ‘lack of due process’).10
[9.09] Distinguishing between an ‘award’ and an ‘order’ may not be as easy as simply reading the title that an arbitral tribunal chooses to give to its ruling. Both the Paris Cour d’Appel and a US Federal Court of Appeals have classified certain arbitral decisions entitled ‘orders’ by tribunals as ‘awards’. This makes them susceptible to annulment and/or recognition and enforcement proceedings in national courts.
[9.10] The Paris Cour d’Appel decision in Brasoil11 arose from an ICC arbitration under a contract whereby Brasoil agreed to drill a number of wells in the Libyan desert for the Management and Implementation Authority of the ‘Great Man-Made River Project’. Brasoil started an ICC arbitration following termination of the contract by the Authority in 1990. In 1995, the arbitral tribunal issued a partial award in which it held Brasoil liable for the malfunctioning of the wells that it had constructed. In 1997, during the damages phase of the proceedings, the Authority submitted certain documents that Brasoil alleged had been fraudulently withheld during the liability phase. Brasoil requested that the tribunal review its partial award on liability. In May 1998, the tribunal denied Brasoil’s request in what it described as an ‘order’. Brasoil sought to have the ‘order’ set aside and the Paris Cour d’Appel granted its request on the grounds that, although described as an ‘order’, the tribunal’s decision was, in fact, an ‘award’, because it purported to make a final determination of a substantive issue between the parties.12 In so finding, the Cour d’Appel reasoned as follows:
The qualification of [a decision as an] award does not depend on the terms used by the arbitrators or by the parties … after a five-month deliberation, the arbitral tribunal rendered the ‘order’ of 14 May 1998, by which, after a lengthy examination of the parties’ positions, it declared that the request could not be granted because Brasoil had not proven that there had been fraud as alleged. This reasoned decision—by which the arbitrators considered the contradictory theories of the parties and examined in detail whether they were founded, and solved, in a final manner, the dispute between the parties concerning the admissibility of Brasoil’s request for a review, by denying it and thereby ending the dispute submitted to them—appears to be an exercise of its jurisdictional power by the arbitral tribunal … Notwithstanding its qualification as an ‘order’, the decision of 14 May 1998 … is thus indeed an award.13
[9.11] Some years later, the French Supreme Court provided a definition of an arbitral award that supported this interpretation. Addressing a challenge to an award on the basis of an alleged professional relationship between the chairman of the arbitral tribunal and the parent company of the guarantor of debts owed by the respondent, the Cour de Cassation held that ‘only proper arbitral awards may be challenged through an action to set aside’ and went on to define awards as:
… decisions made by the arbitrators which resolve in a definitive manner all or part of the dispute that is submitted to them on the merits, jurisdiction or a procedural matter which leads them to put an end to the proceedings.14
[9.12] The decision of the Seventh Circuit Federal Court of Appeal in True North15 addressed similar issues. True North, a US advertising company, and Publicis Communications, an affiliate of the Publicis global communications group, entered into a joint venture in 1989, which eventually led the parties to arbitration in London. As one of its requests for relief in the arbitration, True North requested that Publicis disclose tax records filed with the US Internal Revenue Service and the Securities and Exchange Commission (SEC). In October 1998, the chairman of the arbitral tribunal, ‘for and on behalf of the arbitrators’, signed an unreasoned ‘order’ directing Publicis to disclose the requested tax records to True North. Publicis failed to comply and True North applied to the court to confirm the arbitral decision. Publicis argued that the tribunal’s decision constituted no more than a procedural order and that only finally determinative ‘awards’ are subject to confirmation or enforcement. The issue ultimately came before the Seventh Circuit Federal Court of Appeals, which disagreed, reasoning that the finality of a decision was the key to its recognition or enforcement under the New York Convention. In so doing, it described Publicis’s approach as ‘extreme and untenable formalism’, and observed:
Although Publicis suggests that our ruling will cause the international arbitration earth to quake and mountains to crumble, resolving this case actually requires determining only whether or not this particular order by this particular arbitration tribunal regarding these particular tax records was final. If the arbitration tribunal’s 30 October 1998 decision was final, then [the district court judge] had the authority to confirm it. If the arbitrators’ decision was not final, then the district court jumped the gun.16
[9.13] Referring to an earlier edition of this volume, the Federal Court of Appeals noted that the arbitral tribunal’s decision on the tax records was intended to be final and stated that the fact that the ‘order’ was issued prior to the conclusion of the arbitration was no bar to its enforceability or finality:
The tribunal’s order resolved the dispute, or was supposed to, at any rate. Producing the documents wasn’t just some procedural matter—it was the very issue True North wanted arbitrated … The tribunal explicitly carved out the tax records issue for immediate action from the bulk of the matter still pending, stating that ‘the delivery of the documents should not await final confirmation in the Final Award’. Requiring the unrelated issues to be arbitrated to finality before allowing True North to enforce a decision the tribunal called urgent would defeat the purpose of the tribunal’s order. A ruling on a discreet, time-sensitive issue may be final and ripe for confirmation even though other claims remain to be addressed by arbitrators.17
[9.14] No arbitral tribunal can be expected to guarantee that its award will be enforceable in whatever country the winner chooses to enforce it. However, every arbitral tribunal must do its best. As Article 41 of the ICC Rules provides: ‘In all matters not expressly provided for in the Rules, the Court and the arbitral tribunal shall act in the spirit of these Rules and shall make every effort to make sure that the award is enforceable at law.’18 Phrases such as ‘make every effort’ imply an ‘obligation to perform’, rather than an ‘obligation to achieve a defined result’. Nonetheless, the message is clear: in principle, the eventual outcome of every arbitration is intended to be a final, enforceable, award—as opposed to the outcome of a mediation, which is intended to be an agreement between the parties.
[9.15] For an arbitral tribunal to achieve the standard of performance required to make an internationally enforceable award, it must first ensure that it has jurisdiction to decide all of the issues before it. The arbitral tribunal must also comply with any procedural rules governing the arbitration. Such rules commonly include, for example, allocation of the costs of the arbitration,19 identifying the seat of the arbitration, and having the award formally approved by an arbitral institution (as with an ICC award).20 The arbitral tribunal must also sign and date the award, and arrange for it to be delivered to the parties in the manner laid down in the relevant law or by the rules that apply to the arbitration. If the arbitral tribunal has carried out its work adequately, it should not be called upon to ‘correct’, or ‘interpret, its award, although this does sometimes happen.21
[9.16] Moreover, Article V(2)(b) of the New York Convention provides that, even when these conditions have been met, an award need not be enforced if it violates the public policy of the place of enforcement:
Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that … the recognition or enforcement of the award would be contrary to the public policy of that country.
This provision gives discretion to the judicial authority at the recognition and enforcement stage, highlighting the impossibility of ensuring international enforceability at the time of issuing the award.
[9.17] Given the complexity of the task facing an arbitral tribunal, the arbitrators should be adequately trained and experienced.22 An award may comply meticulously with the agreed rules of procedure and with the law governing the arbitration, but may fail to comply with some special requirement of the law of the place of enforcement, so that the award may be unenforceable in that jurisdiction.
[9.18] All awards are final and binding, subject to any available challenges.23 However, the term ‘final award’ is customarily reserved for an award that completes the mission of the arbitral tribunal. Subject to certain exceptions, the delivery of a final award renders the arbitral tribunal functus officio: it ceases to have any further jurisdiction in respect of the dispute, and the special relationship that exists between the arbitral tribunal and the parties during the currency of the arbitration ends. This has significant consequences. An arbitral tribunal should not issue a final award until it is satisfied that its mission has actually been completed. If there are outstanding matters to be determined, such as questions relating to costs (including the arbitral tribunal’s own costs), the arbitral tribunal should issue an award expressly designated as a partial award.
[9.19] The power to issue a partial award is a useful weapon in the armoury of an arbitral tribunal. A partial award is an effective way of determining matters that are susceptible to determination during the course of the proceedings, and which, once determined, may save considerable time and money for all involved.24 One obvious example that has already been given is where an issue of jurisdiction is involved: a partial award on such an issue may shorten, or at least simplify, the proceedings considerably. An arbitral tribunal that spent months hearing a dispute, only to rule in its final award that it had no jurisdiction, would (to put it mildly) appear inefficient (unless the issue of jurisdiction were inseparably bound up with the merits of the case).
[9.20] The power of an arbitral tribunal to issue partial awards may derive from the arbitration agreement or from the applicable law. Where the arbitration agreement incorporates international or institutional rules of arbitration, these rules generally contain provisions for the making of such awards.25
[9.21] The ICC Rules, for instance, define the term ‘award’ to include ‘an interim, partial, or final award’.26 In practice, partial awards are frequently made in ICC arbitrations, particularly where jurisdiction is challenged or the proper law has to be determined by the arbitral tribunal.27 The Rules of the London Court of International Arbitration (LCIA) follow the same approach: ‘The Arbitral Tribunal may make separate awards on different issues at different times. Such awards shall have the same status and effect as any other award made by the Arbitral Tribunal.’28
[9.22] In an ad hoc arbitration, it is usual to make express provision in the submission agreement for the arbitral tribunal to issue partial awards, if it sees fit to do so. Where the power is not conferred expressly upon the arbitral tribunal by the agreement of the parties, it may nevertheless be conferred by operation of law. For example, section 47 of the English Arbitration Act 1996 provides:
(2) The tribunal may, in particular, make an award relating to:
(a) an issue affecting the whole claim, or
(b) a part only of the claims or cross-claims submitted to it for decision.
(3) If the tribunal does so, it shall specify in its award the issue, or the claim or part of a claim, that is the subject-matter of the award.
[9.23] Other modern arbitration laws contain similar provisions. Although the Model Law itself does not otherwise expressly refer to partial awards, it is clear from the context in which the expression ‘final award’ is used, and from the travaux préparatoires, that the draftsmen intended that the arbitral tribunal should have such a power.29 However, if there is no express or implied provision for an arbitral tribunal to make a partial award—either in the arbitration agreement, the applicable arbitration rules, or the applicable law—it is doubtful that the tribunal has power to do so.30 It is usually apparent from its content that a partial award is not the ‘last’ award; nevertheless, the award should state clearly that it is a partial award. As mentioned earlier,31 the issuance of a final award renders the arbitral tribunal functus officio, except for the purpose of correcting minor or clerical errors. It is important not to allow either party an opportunity to claim that the arbitral tribunal has no further jurisdiction on the grounds that it has issued a final award, when it intended to issue only a partial award.
[9.24] The main disadvantage of a partial award is that a further avenue for judicial review (and consequent delay) is created. Judicial intervention during the course of the arbitration may occur on an application by one of the parties to annul (or set aside) the partial award, or on an application to confirm it.32 The Model Law limits the potential for delay by specifying that an application to review a partial award on jurisdiction must be lodged within thirty days of receipt of notice of the ruling, with no appeal beyond the first level of court in which the decision is made.33 As noted above, the relevant decision need not have the title ‘award’ to be subject to judicial review or confirmation.34
(i) Issues concerning the applicable law
[9.25] An example of a situation in which a partial award is likely to prove useful is where there is a dispute between the parties as to the law(s) applicable to the merits of the case. If this is not resolved at an early stage, the parties must argue their respective cases by reference to different systems of law. They may even need to introduce evidence from lawyers experienced in each of these different systems. In such circumstances, it may be sensible for the arbitral tribunal to issue a preliminary decision on the question of the applicable law.
(ii) Separation of issues (jurisdiction, liability, quantum)
[9.26] A further example of the type of case in which it may be convenient to issue a partial award is where issues of liability may be separated from those of quantum, which is often worth doing if it is possible to disentangle these issues. Most obviously, the determination of a particular issue of liability in favour of the respondent may make it unnecessary for the arbitral tribunal to investigate questions of quantum.35 Even if it is not determinative, a decision by an arbitral tribunal on certain issues of principle in a dispute may well encourage the parties to reach a settlement on quantum. They are usually well aware of the costs likely to be involved if the arbitral tribunal itself has to go into the detailed quantification of a claim—a process that often involves taking evidence from accountants, technical experts, and others.
[9.27] However, there are real dangers in attempting to isolate determinative issues at an early stage of the proceedings. The nature of the dispute and the way in which the parties present their cases may change during the course of the proceedings, and it is not unknown for parties to amend their cases radically in order to take advantage of a preliminary award on liability. Where this happens, savings of time and cost will not be achieved, and the result will be the opposite of that intended. Moreover, the process of rendering a preliminary award can itself be a time-consuming and expensive one. It is suggested that an arbitral tribunal should not normally decide to issue a partial award on its own initiative,36 but should do so only following a request by one of the parties. Where both parties agree that a partial award should be made, the arbitral tribunal must follow the agreement of the parties. Where only one party requests a partial award, a tribunal with the power to make such an award should reach its decision as to whether or not to comply with the request only after receiving the submissions of both parties and giving each party a reasonable opportunity to explain its position.
(iii) Limitation clauses in a contract
[9.28] Major commercial contracts—for example for the supply of a process plant or for a construction project—often contain a clause that limits, or purports to limit, the type or amount of damages payable in the event of breach. A typical example is a clause providing that in no event will loss of profits be payable. There may be occasions on which a partial award on the meaning and effect of such clauses will help to define the amount of the claim, and may make the prospect of settlement more likely.
[9.29] The distinction between foreign and domestic awards is especially significant in the context of challenging and enforcement of awards in national courts, which is addressed in Chapter 10. In India, the Foreign Awards (Recognition & Enforcement) Act 1961 defines a foreign award as an award made in another country on differences between persons arising out of legal relationships, whether contractual or not, considered to be commercial under the law in force in India.37 The Indian Supreme Court considered the expression ‘foreign awards’, and held that a lawsuit could be stayed only upon the Court being satisfied that the relationship of the parties to the arbitration agreement is one that should be considered ‘commercial’ and that this term should be given a broad meaning.38 Conversely, the Indian Supreme Court has held that the term ‘domestic award’ means an award made in India whether or not this is in a purely domestic context; thus the definition will include a ‘domestically rendered’ award in a domestic arbitration or in an international arbitration.
[9.30] Occasionally, international arbitrations are commenced in which one party (usually the respondent) fails or refuses to take part. This failure or refusal may be complete—that is, it occurs from the outset of the proceedings—or it may happen during the proceedings as a result of a change of mind or strategy. The arbitral tribunal is compelled to take a more positive role in these circumstances, making its task more difficult. The task of an arbitral tribunal is not to ‘rubber stamp’ claims that are presented to it; rather, it must make a determination of these claims, so the tribunal must take upon itself the burden of testing the assertions made by the active party, and it must call for such evidence and legal argument as it may require for this purpose.39
[9.31] If the arbitral tribunal makes an award in favour of the active party in the proceedings, it will wish to ensure that the award is effective. To this end, it should ensure, in particular, that the award recites in considerable detail the procedure followed by the arbitral tribunal and the efforts made by the arbitral tribunal to communicate the active party’s case to the defaulting party, so as to give that party every opportunity to present its own arguments and evidence. Further, the motivation, or reasons, given in the award should (without necessarily being lengthy) reflect the fact that the arbitral tribunal has genuinely addressed the merits of the case, in order to show that a reasoned determination has been made.
[9.32] The award should also deal with any questions of jurisdiction that appear to the arbitral tribunal to be relevant, whether or not such issues have been raised by one or other of the parties. In this context, the Arbitration Rules of the International Centre for the Settlement of Investment Disputes (ICSID), which contain detailed provisions for default proceedings, expressly stipulate, at Rule 42(4), that ‘[t]he Tribunal shall examine the jurisdiction of the Centre and its own competence in the dispute and, if it is satisfied, decide whether the submissions made are well-founded in fact and in law’. If the arbitral tribunal follows these guidelines, there is less risk of the money spent by the active party in obtaining the award being wasted as a result of a subsequent decision by national courts that the award is unenforceable.
[9.33] When the tribunal renders an award that does not address all of the issues presented, the parties may, within a limited time frame, request an additional award to remedy this gap. Many arbitration rules expressly provide for additional awards,40 and even where they are not expressly provided for, there is generally a procedural tool by which they can, in essence, be accomplished.41 The ICC Rules are an exception. They provide for the correction of clerical or typographical errors, as well as the interpretation of awards,42 but they do not provide for the rendering of an award based on a party’s objection that the tribunal failed to consider an issue presented. This is no doubt the result of the scrutiny process of the ICC Court.
[9.34] As in litigation in national courts, parties to an international arbitration often arrive at a settlement during the proceedings. Where this occurs, the parties may simply implement the settlement agreement and thus revoke the mandate of the arbitral tribunal. This means that the jurisdiction and powers conferred on the arbitral tribunal by the parties are terminated.43
[9.35] In many cases, however, the parties find it desirable for the terms of settlement to be embodied in an award. There are many reasons for this. The most important is that it is usually easier for a party to enforce performance by the other party of a future obligation if that obligation is contained in an award (in respect of which the assistance of the New York Convention may be available), rather than to take further steps to enforce a settlement agreement. Other reasons for obtaining a consent award include the desirability (particularly where a state or state agency is involved) of having a definite and identifiable ‘result’ of the arbitral proceedings, in the form of an award, which may be passed to the appropriate paying authority for implementation. In this context, the signatures of the arbitrators on the consent award indicate a measure of approval by the arbitral tribunal to the agreement reached by the parties. This may help to meet politically motivated criticism of those responsible for taking the decision to reach a compromise settlement.
[9.36] There should be little or no problem as far as capacity to compromise is concerned. Many countries adopt as their definition of matters that are capable of resolution by arbitration (that is, matters that are ‘arbitrable’) the concept that parties may refer to arbitration any disputes in respect of which they are entitled to reach a compromise. The reverse holds good: if parties are entitled to refer a dispute to arbitration, they are entitled to reach a compromise in respect of that dispute.
[9.37] No restrictions are imposed by national law, or international or institutional rules of arbitration, to the effect that, once arbitral proceedings have been commenced, the parties cannot terminate them by agreement. On the contrary, a settlement is invariably welcomed, and it may be possible to have it recorded in an agreed award. Article 30 of the Model Law provides for such an agreed award; Article 36(1) of the UNCITRAL Rules provides for a settlement to be recorded by an order or by an award:
If, before the award is made, the parties agree on a settlement of the dispute, the arbitral tribunal shall either issue an order for the termination of the arbitral proceedings or, if requested by the parties and accepted by the tribunal, record the settlement in the form of an arbitral award on agreed terms. The arbitral tribunal is not obliged to give reasons for such an award.
The ICC Rules contain a similar provision, at Article 32: if the parties reach a settlement, after the file has been transmitted to the arbitral tribunal in accordance with Article 13, then ‘the settlement shall be recorded in the form of an award made by consent of the parties, if so requested by the parties and if the arbitral tribunal agrees to do so’.44 The word ‘shall’ is mandatory and suggests an obligation to record any settlement in a consent award. However, it is qualified by the requirements that the parties must request such an award and the tribunal must agree to it. This indicates that, under the UNCITRAL and ICC Rules, there is no obligation for either the parties or the tribunal to make a consent award.
[9.38] Under whatever rules the parties are proceeding, however, it would be a normal act of courtesy to inform the arbitral tribunal (and the appropriate arbitral institution, if one is involved) of any settlement agreement reached between the parties, particularly if meetings or hearings have already been held. There may also be sound financial reasons for doing what normal courtesy demands. First, notifying the arbitral tribunal of a settlement will ensure that it does not incur further fees and expenses (other than any cancellation fees that may have been agreed). Secondly, such notification might lead to a refund of advance payments made to cover fees and expenses, since the actual costs incurred may well be less than expected if the case has been settled without a hearing. Thirdly, as already indicated, it is desirable to put the terms of settlement into an enforceable form when there is an element of future performance. Although most settlements involve immediate implementation of the agreed terms, it is nevertheless not unusual for there to be provision for payment by instalments, or for some future transaction between the parties to be carried out.
[9.39] A question occasionally arises as to the role of an arbitral tribunal that is requested by the parties to make a consent award ordering the performance of an unlawful act. Examples might be the manufacture of an internationally banned drug, or the smuggling of contraband or—perhaps more realistically—an agreement that manifestly contravenes relevant competition or antitrust laws. At one time, various sets of rules (including the ICC Rules prior to 1998) seemed to leave the tribunal with no discretion, but modern rules and legislation permit the arbitral tribunal to refuse to make a consent award.45