Archive for September, 2012

Enforcing an Arbitration Award

Monday, September 17th, 2012

As business becomes more international, thoughts start to turn to arbitration to resolve dispute from that international trade.  This is neither surprising nor unreasonable.  However, the thought process usually only goes as far as deciding (a) whether disputes will be resolved by arbitration and (b) if so, whether it will be “institutional” arbitration (using an organization such as the International Chamber of Commerce or the American Arbitration Association) or a “non-institutional” arbitration (not using a particular organization but specifying what set of rules will be applied for any arbitration).  What is often not thought about, though, is how to enforce the arbitral “award” (that is, the decision of the arbitrator).

I often say to my clients that a judgment from a court is a lovely and fancy piece of paper but if the other side does not have the money to pay the judgment or the ability to comply with the judgment, then the judgment is not much more than a lovely and fancy (and expensive!) piece of paper.  With arbitral awards, the matter takes an extra step.  For a judgment, the only issue is whether it can be collected upon, so to speak.  For arbitral awards, the first step after the award is made is to have the award recognized by the local courts so that the award can be enforced with the power of the court backing up the enforcement.  Once that support is obtained, then you get to the next, and regular, step of trying to get the other side to actually pay or comply with the award.

It is in this context that I read an interesting article in Canadian Lawyer magazine’s latest issue on difficulties in enforcing arbitral awards in China.  I have not yet had the pleasure of dealing with a commercial arbitration involving a party from China.  However, after reading this article, it makes me question whether I want my clients agreeing to arbitration in China if there are significant difficulties in enforcing the arbitral award there.  Given the increase in business with China, it may be wiser for businesses to ensure that they are in situations where they do not have to go to China to enforce their rights – either through arbitration or litigation.  For example, let the Chinese be the supplier so that if problems arise you can look at the option of withholding payment.  Or if you are supplying goods or services to the Chinese firm, always ensure that you have sufficient deposits against goods or services so that you will not be caught short if they terminate the agreement or refuse to pay anything more.  (I know, easier said than done sometimes.)

But if you are conducting business with the Chinese, the article is a very interesting read and something you will want to consider before your next contract so that you can decide how much risk you have for the transaction. 

Something to think about.