VLADIMIR PAVIC

Annulment of Arbitral Awards in

International Commercial Arbitration

1. Introduction
Once a judge or arbitrator passes a decision in a dispute, parties are likely
to have an entirely different position regarding it. If a clear winner emerged
from the proceedings, he is likely to put a premium on the efficiency of the
entire process, rather than to be concerned with possible imperfections of the
decision. On the other hand, a party which ended up on the losing side would
be grateful for the possibility to re-examine the award and sacrifice speed in
order to achieve ‘a better result’.
However, the ladders of recourse against decisions are constructed ex ante
– a prudent legislator attempts to find a proper balance between finality and
quality of decision making. When it comes to adjudication, this usually means
that the first instance court is in charge of determining facts and applying law,
and that one (or possibly two) higher instances may be invoked in order to
re-examine the manner in which the law was applied. In the course of this
examination, the original decision may be approved, reversed or annulled and
referred for another round of first-tier litigation. Once the award manages to
clear all these hurdles, it will become final and binding, a res judicata. However,
even when it becomes final and binding, legislators usually reserve a limited
arsenal of remedies which may still be used against it. This extraordinary
recourse is supposed to eliminate decisions which have somehow snuck
through, although their very foundations are seriously deficient (e.g. award
has been procured by fraud, or is based on forged evidence).
Given such a plethora of hurdles, it is not surprising that the average
litigation lasts for quite some time. Not every case turns up as lengthy as

CHRISTINA KNAHR, CHRISTIAN KOLLER, WALTER RECHBERGER AND AUGUST REINISCH (EDS.),
Investment and Commercial Arbitration – Similarities and Divergences, 131-152.
© 2010 ELEVEN INTERNATIONAL PUBLISHING. Printed in The Netherlands.
132 VLADIMIR PAVIC

Jarndyce v. Jarndyce1 – still, the slow pace at which the court judgment
matures into finality inevitably clogs the judiciary.
Arbitration has originally been touted as the answer to many maladies of
litigation. Flexibility, confidentiality, suitability for international trade – one
could hardly look down at those traits. The ability to participate in choosing
those who will decide sounded even better. However, the two main selling
points were the good prospects of cross-border enforcement and the speed at
which the award is rendered. Since arbitration is in principle not subject to
appeal, the final award, equal in its standing to a judgment of the court, is not
beyond the event horizon. A single stage of deliberation means that there are
no expenses associated with appeals. Consequently, despite initial substantial
costs, arbitration can turn out to be cheap in the long run.
Still, the fact that an arbitration award is equal to a final court judgment is a
gift that had to come with a price – control of the judiciary over the awards. The
arrangement is a sensible one – although arbitration is a creation of contract
and the resulting award comes as a proclamation of ‘private justice’, it is only
the state which can elevate it to the standing of a court judgment. Without such
a trait, all other advantages of arbitration over litigation would be worthless.
Since the state allows its adjudicatory prerogatives to be contracted out, it
is only natural that it reserves the right to control the resulting output. Such
control, therefore, represents a sort of a risk management.2
The question is, therefore, not whether states can and will control arbitration
awards – but rather, how that control will be exercised. Given that litigation
and arbitration differ so much, it would be very improper to transplant the
potentially lengthy and invasive system of control used to filter out deficient
court judgments. Also, it is reasonable to assume that those avoiding litigation
would prefer court review to be relatively light and that they value finality
much more than they are interested in having justice done in an absolutely
perfect manner.

2. Converging Designs and Points of Departure

There are, of course, many ways in which a system of state control over
arbitration awards may be designed. The world of arbitration is not, however,
a Tower of Babel – not only because English has emerged as the leading
language of international commercial arbitration, but also because lawyers
who engage in arbitration have developed a sort of converging terminology
and helped the creation of a converging legal environment in which arbitration
takes place. Three documents paved the way for such harmonization: the first
was the 1958 Convention on Recognition and Enforcement of Foreign Arbitral
1
C. Dickens, Bleak House, available at http://www.gutenberg.org/etext/1023.
2
W. W. Park, Arbitration of International Business Disputes 147 (2006).
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 133

Awards (New York Convention). It tackled the control of the awards at the
point of recognition and enforcement. The second were the 1976 UNCITRAL
Arbitration Rules which not only fostered conduct of ad hoc arbitrations, but
have also served as a useful guidance for refinement of institutional rules.
Finally came the 1985 UNCITRAL Model Law (revised in 2006), with a very
ambitious goal: to help harmonize the existing national arbitration laws and
bring parochial particularities to a minimum.3
Since the modern consensus is that the control over arbitral awards
has to be exercised in the country of arbitral situs, the importance of the
UNCITRAL Model Law (and the consensus that has been built prior and after
its enactment) cannot be underestimated. Two Austrian authors even likened
it to a “great flattener […]. However, not the entire world has been flattened.
There are great plains as well as rocky mountains. The plains exist where the
Model Law has been introduced – steep mountains remain where it is not the
case.”4 A closer examination would, however, reveal that the ‘great plains’
occasionally give way to rolling hills, as virtually every Model Law jurisdiction
has found it necessary to add some national ‘flavor’ and peculiarity to the
original design. What is more, those ‘rocky mountains’ cannot be disregarded,
since the preponderance of major arbitral jurisdictions are not ‘Model Law
jurisdictions’: France, Switzerland and the United States are still trailing their
own paths. This fact alone threatens to turn any comparative overview of state
control over awards into a tedious listing of national particularities.
However, there is no need for pessimism. The principles of control over
arbitral awards that were built into the Model Law represent a sort of global
consensus on proper balance between finality and perfectionism. Still, the
further one goes from the grounds of annulment, local concerns and specificities
take an ever more important role. This contribution will try to identify those
convergences and specificities, and some of the problems lurking behind the
prevailing current design.

3. Preliminary Issues – The ‘Award’ and its ‘Nationality’

Generally speaking, a dissatisfied party may try annulment (other terms
used are usually ‘setting aside’ and ‘vacatur’) of the award in the country
of its origin. In all other jurisdictions, the losing party may only attempt to
resist recognition and enforcement.5 It is, therefore, important to ascertain

3
According to the official UNCITRAL count, there were 68 countries which adopted
arbitration legislation based on 1985 and 2006 versions of the UNCITRAL Model Law
(hereinafter: ‘Model Law’) until December 31, 2008. Full list availiable at http://www.uncitral.
org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html.
4
G. Zeiler & B. Steindl, The New Austrian Arbitration Law 5 (2006).
5
Foreign awards always have to undergo a procedure of recognition and enforcement. As for
134 VLADIMIR PAVIC

the ‘nationality’ of the award in order to set the annulment mechanism into
motion.
Generally, there have been two criteria by which the origin of an arbitral award
has been determined. According to the procedural criterion, the nationality
of an award has been determined pursuant to the procedural environment in
which it was rendered. Normally, the lex loci arbitri governed the procedural
issues as well, but this was not necessarily always the case. The second,
territorial, criterion has prevailed, placing importance on the location where
the award has been made, i.e. where the tribunal has its legal seat. While the
New York Convention does not favor any of the two criteria, the Model Law is
based on territorial ‘philosophy’.6 Conseqently, the spread of the Model Law
has contributed to marginalization of the procedural criterion.7
It is fair to ask whether such importance should be bestowed on the judiciary
of the arbitral seat. After all, the seat may well have been chosen on a whim,
out of ignorance, inertia or selected by the arbitral institution or arbitrators to
substitute for the lack of parties’ choice. There are several plausible answers
to such dilemmas, but paraphrasing Churchill one can cut a long story short:
although there may be situations where the seat would represent inadequate
forum for control, vesting courts of the seat with the competence to handle
the procedure for setting aside is the least bad solution. Any other connection
point (nationality of the arbitrators, procedural law chosen, substantive law
chosen, or seat of the arbitral institution) would produce a design potentially
much more detached from the realities of international commercial arbitration.
Objecting to the adequacy of the territorial criterion presupposes that
one agrees with the concept of court control, but disagrees with the location
where such control should be exercised. However, the world of arbitration has
witnessed much more radical attempts to diminish the role of the seat. Those
advocating ‘delocalization’ have argued that, in order to be truly international,
arbitration has to be freed from parochial constraints of local judiciaries and
that the resulting award need not be controlled at its conception, but only
eventually in the procedure for recognition and enforcement.8 Much of the
domestic awards, in some systems they are directly enforceable in the same manner as court
decisions are. In other systems, there is a procedure of ‘internal’ or ‘domestic’ recognition.
6
Art. V(1)(e) of the New York Convention, Art. 1(2) of the Model Law.
7
One of the exceptions seems to be Germany. Although a Model Law jurisdiction, the
wording of Section 1062(2) of the German ZPO seems to provide that German courts are
competent to set the award aside even when it has not been rendered in Germany. In such cases,
competence is based on the domicile or assets of the defendant: “If the place of arbitration in
the cases referred to in subsection 1, no. 2, first alternative, nos. 3 and 4 is not in Germany,
competence lies with the Higher Regional Court (Oberlandesgericht) where the party opposing
the application has his place of business or place of habitual residence, or where assets of that
party or the property in dispute or affected by the measure is located, failing which the Berlin
Higher Regional Court (Kammergericht) shall be competent.”
8
P. Fouchard, La Portée internationale de l’annullation de la Sentence arbitrale dans son
pays d’ origine, Rev. Arb. 329, at 351 et seq (1997).
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 135

‘delocalization’ drive has been fueled by the mutual distrust of arbitrators and
judges, and much of that distrust and tension has been eased through gradual
convergence of arbitration laws.
The prevalence of the territorial criterion makes it fairly simple to determine
whether the award is ‘domestic’ for the purpose of annulment. It is, however,
much harder to determine what exactly amounts to an ‘award’, i.e. what can be
subject to setting aside at all. During the course of the proceedings, the tribunal
may render numerous awards and label them differently. Such labeling may
also differ from one tribunal to another and from one legal culture to another.
While there is no doubt that the final award, one that disposes of the subject
matter of the dispute, is subject to setting aside proceedings, the situation is
less clear with other decisions. A partial award should also be subject to setting
aside, since it disposes of the subject matter partially – not allowing such a
challenge would enable circumvention of the control regime. However, when
it comes to decisions which deal with jurisdictional issues, but are labeled as
‘awards’ (e.g. ‘preliminary’, ‘interim’), the proper course of their challenge is
not the procedure of setting aside, but rather a special recourse to the courts
which is governed by different standards of examination.9 Other rulings may
be challenged only along with the final award.10

4. Grounds for Annulment

As already observed, an ever increasing number of jurisdictions have adopted
the Model Law as the basis for their regulation of arbitration. This brings
about global convergence in many aspects, one of which is an almost uniform
list of the grounds on which an arbitral award may be challenged. Here,
however, it is particularly prudent to underline that the Model Law only
served as a blueprint for national legislations and that jurisdictions following
such guidance have sometimes added their local ‘flavor’ to the Model Law
‘recipe’. In addition, some of the most important arbitral jurisdictions are still
outside of the Model Law system.

9
See e.g. Swiss Private International Law which, pursuant to Art. 190(3) allows such ‘awards’
to be challenged only on the basis of defects of jurisdiction and composition of the tribunal. For
further aspects of the Swiss law see J. Poudret & S. Besson, Comparative Law of International
Arbitration 710 et seq. (2007). The German ZPO also distinguishes between various types of
awards that dispose of the subject matter (completely or partially) – Sections 1053, 1056 and
1059 and other decisions – reserving setting aside only for ‘awards’. The practice of the French
tribunal seems contradictory: sometimes the qualification that the tribunal puts on the decision
(‘award’) is held to be important, while on other occasions it was held that falsa nominatio non
nocet: see two decisions of Cour d’appel Paris Corrado v. Raimbault, Cahiers de l’arbitrage
2005/1, cf. Otor Participations v. Carlyle holdings, Rev. Arb. 737 (2005).
10
Italian Code of Civil Procedure Art. 827(3).
136 VLADIMIR PAVIC

4.1. Model Law Grounds for Annulment

Model Law drafters were particularly keen to set up a catalogue of grounds
for challenge which would mimic the list of possible grounds on which the
recognition and enforcement of the award may be resisted under the New
York Convention. Therefore, the Model Law contains a ‘4+2’ exhaustive
list: four grounds that are examined by the court only if invoked by the
plaintiff (invalidity of the arbitration agreement, irregular composition of the
arbitration tribunal, violation of due process, deciding beyond the scope of the
submission to the tribunal) and two additional grounds which are examined ex
officio (arbitrability and public policy). The fifth ground which is examined if
invoked by a resisting party under the New York Convention – that the award
has been set aside in a country of origin – was naturally not included in the
Model Law.
The ‘4 + 2’ list represents a sort of a global consensus on what seems to be
the ‘golden middle’ of permissible scope of control over the award. A cardinal
principle is that there should be no substantive review of the award. Although
there are minor exceptions to this even under the Model Law and New York
Convention, and to a degree in some important non-Model Law jurisdictions,
limited review of the award is nowadays the norm. This laissez-faire approach
has a side effect – the judiciary is denied the opportunity to rule on certain
important and even controversial legal issues.11

4.1.1. Validity of the Arbitration Agreement

The Model Law provides that the award may be set aside if a party to the
arbitration agreement was under some incapacity, or the arbitration agreement
is not valid. The validity of the agreement is examined under the law to which
the parties have subjected it or, if they failed to exercise such choice, under the
law of the lex arbitri (lex fori).12
This ground for annulment is only one of several which can possibly be
used to rectify jurisdictional insufficiencies. However, the only jurisdictional
aspect it deals with is the invalidity of the arbitration agreement – due to the
lack of the capacity of the parties or some other reason. Other jurisdictional
challenges may still be lodged, but under other appropriate grounds provided
for in the Model Law. Although the scope of this ground is limited, its potential
impact is significant, as the challenge is naturally directed against the totality
of jurisdiction. If there was no valid agreement, nothing can come out of it
– ex nihilo nihil fit. The outer limits of this check are not clear. It would be

11
Park, supra note 2, at 11.
12
Model Law, Art. 34 (2)(a)(i).
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 137

logical that the ‘invalidity’ also covers ‘inexistence’, and the situation where
the agreement does not bind a person which has been named a party to the
arbitration.13
This ground of examination provides a counterbalance to the Kompetenz-
Kompetenz enjoyed by the arbitral tribunal. Even the most far-reaching
variation of Kompetenz-Kompetenz (‘negative Kompetenz-Kompetenz’)
only provides that the tribunal will have the right to be the first venue where
jurisdiction (including the validity of the arbitration agreement) will be
examined.14 However, tribunals will not necessarily have the last word – it
will usually belong to the courts.15
This is absolutely clear with regard to decisions of tribunals where they find
that indeed they have jurisdiction and that the agreement is valid. In the cases
where the tribunal has the ‘first shot’ at examining the validity of the arbitration
agreement and finds that it is invalid, the follow-up differs among various
jurisdictions. In some Model Law countries, true to the original blueprint,16
it is a matter of principle that the negative decision on arbitration cannot be
overturned and that agreement may not be ‘forced upon’ arbitrators.17 There
are, however, examples to the contrary, as the Austrian legislator appears to
have reserved the last say for the courts even in the situations where arbitrators
found agreement to be invalid.18
One also has to have in mind that this ground for challenge may effectively
(if not literally) be disposed of in a different procedural lane: if the tribunal
renders a preliminary (positive) decision on jurisdiction and proceeds towards
a final award, such preliminary decision may be challenged before the courts
of the seat. The court’s potentially negative decision would finally settle the
jurisdictional issues.19

13
For a contrary view, see Poudret & Besson, supra note 9, at 731.
14
See generally E. Gaillard, The Negative Effect of Competence-Competence, Mealey’s
International Arbitration Report 27 (2002).
15
Therefore, there will be no ‘binding Kompetenz-Kompetenz’. Sometimes, however, an
even earlier role might be reserved for the judiciary. Pursuant to Sec. 1032(2) of the German
ZPO a party may request an early ruling on ‘admissibility’ of the dispute from the courts.
This covers jurisdictional issues as well, including the issue of the validity of the arbitration
agreement. See S. Kröll & P. Kraft, Ten Years of UNCITRAL Model Law in Germany, 1 World
Arbitration and Mediation Review 439, at 453 et seq (2008).
16
Art. 16(3) of the Model Law.
17
Serbian Law on Arbitration Art. 30, Croatian Law on Arbitration Art. 15(3). A similar
outcome follows from the interpretation that the Supreme Court of Germany gave to the Sec.
1062 of the German ZPO in its decision on 6 June, 2002, reported in German Arbitration Journal
(SchiedsVZ) 39 (2003). The court has noted, however, that a negative decision on jurisdiction is
still a final award and is subject to application for setting aside: although it may not be annulled
on the basis that arbitrators wrongly declined jurisdiction, it may still be set aside for other
reasons (e.g. improper composition of the tribunal, improper conduct of the procedure, etc.).
18
Austrian ZPO Sec. 592 and 611.
19
Art. 16 Model Law.
138 VLADIMIR PAVIC

4.1.2. Due Process

Fair procedure is a cornerstone of any just decision. Although the due process
principles enshrined in some of the most important legal instruments do not
apply to arbitration, arbitrations nevertheless have to observe certain minimal
procedural standards.20 It is therefore not surprising that the Model Law
provides that an award may be annulled if a party was unable to present its case.
One potential reason for such inability has been singled out: lack of proper
notice of the appointment of the arbitrator or of the proceedings. This is hardly
the only reason, but certainly a very important one. The adequateness of
notice is checked against the rules that the parties have agreed upon – usually
those are the rules of a particular arbitration institution, or some model rules.
Failing such choice, notice has to be in compliance against the rules of the lex
arbitri. The fact that the notice has been inadequate is not in itself a reason
for annulment. Rather, omission is checked against the effects it has produced
and becomes relevant only if it prevented a party from presenting the case. If
the subsequent notice cures the initially defective communication, a party may
not invoke this ground.
It is sometimes difficult to grasp the exact meaning of the term ‘due process’
(ability to present a case, fair hearing, etc.). The basics are not disputed:
beside a proper notice, parties should be allowed to present their arguments
and should be given equal treatment.21 It is more difficult to agree on what
precisely this amounts to in a particular case, especially when the parties and
arbitrators come from different legal traditions.22 The view on other points is
even less uniform: American practice insists on the right to an oral hearing,
while on the Continent this is not regarded as a part of the ‘right to be heard’.23
On the other hand, continental systems are more sensitive about preserving
the adversarial character of the proceedings.
Although violation of due process represents a very important ground
for challenge, it will not succeed on every occasion. For instance, an award
can be annulled where the tribunal deliberately conceals documents from the
party, or fails to disclose evidence it obtained to one or both parties.24 In order
20
Swiss Federal Tribunal held that Art. 6 of the European Convention of Human Rights
(ECHR) does not apply to arbitration since the arbitration tribunal does not represent a ‘tribunal
established by law’ within the meaning of Article 6 of the ECHR. However, it concluded that
certain fundamentals of due process have to be observed. See BG 11 June 2001, ASA Bull. 566
(2001).
21
On equal treatment as ‘part of international public policy’ see Dutco case, Cour d’appel
Paris 9 September 1997, (Heilmann v. Graziano Trasmissioni) Rev Arb 712 (1998) note by
Derains.
22
A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration 490
(2004).
23
OLG Naumburg 21 February 2002, availiable at www.dis-arb.de; similarly in Switzerland
BG 24 March 1997, ASA Bull. 200 (1997).
24
Superior Court of Justice, Canada, 22 September 1999, CLOUT case no 391.
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 139

to present its case, a party has to be given a reasonable time to respond to

the other party’s submission.25 However, a party’s request to rehear a certain
witness can be refused without giving reasons and such refusal does not
constitute a violation of due process.26 Similarly, there is no violation of due
process if a key witness, although summoned twice, does not appear to provide
testimony.27 Finally, if a party refuses to participate in the proceedings, it is
considered to have deliberately forfeited its right to be heard.28

4.1.3. Exceeding Jurisdiction

The second Model Law ground for annulment expressly related to jurisdiction
is designed to curb its excess and allows setting aside where:
the award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitration, or contains decisions on matters beyond
the scope of the submission to arbitration, provided that, if the decisions on
matters submitted to arbitration can be separated from those not so submitted,
only that part of the award which contains decisions on matters not submitted
to arbitration may be set aside.29
The Model Law is, therefore, concerned with the situation where the tribunal
exceeds its authority. The wording used (‘submission’) is, however, open to
interpretation. Without any doubt, acting beyond ‘terms of the submission to
arbitration’ would cover situations where the award goes beyond the requests
for relief actually submitted or grants something different (ultra petita or extra
petita). Also, it is clear that the excess would exist where the award is within
requests for relief, but those requests include matters which were not covered
by the arbitration agreement (extra potestatem). An award which does not
address all submissions of the parties (infra petita) does not provide reason for
annulment in the Model Law system.30
It is, however, not so clear whether this is the proper ground to invoke where
a party alleges that it never became a party to the agreement whatsoever, i.e.
where arbitration was brought against a resisting non-signatory. If one accepts
that the first ground related to jurisdiction (Art. 34(2)(a)(i)) covers only
‘invalidity’ of the arbitration agreement, and not its scope ratione personae31 a
non-signatory should be allowed to challenge the award based on the fact that
it has, in effect, never ‘submitted’ to the arbitration in the first place.
25
OLG Dresden 25 October 2000, 11 Sch02/00, availiable at www.dis-arb.de.
26
OLG Frankfurt a.M., 10 July 2003, 26 Sch01/03, availiable at www.dis-arb.de; Bayerisches
Oberstes Landesgericht; 4 Z Sch 23/99, CLOUT case 395.
27
Corte di Cassazione, 23 March 1997, decision no 10229.
28
Superior Court of Justice, Canada, 22 November 1999, CLOUT case 391.
29
Art. 34(2)(a)(iii) of the Model Law.
30
However, according to some national legislations, award infra petita is sufficient ground for
annulment.
31
Poudret & Besson, supra note 9, at 729.
140 VLADIMIR PAVIC

If it is possible to distinguish the part of the award where the tribunal

exceeded its jurisdiction from the part of the award which remains within the
boundaries of submission, only the excess should be annulled. Although this
is the only provision of the Model Law regarding partial annulment, one could
argue that partial annulment should be allowed on other grounds as well.32

4.1.4. Irregular Procedure or Irregular Constitution and Appointment of the

Tribunal
Agreement of the parties is the cornerstone of arbitration. Adherence to
that agreement is particularly important when it comes to the way in which
arbitrators are chosen and the way the procedure is conducted. It is, therefore,
logical that the Model Law regards deviations from such a choice as sufficient
ground for annulment of the award.33 However, there are limits to applying
this principle rigorously.
Firstly, there may be instances in which the agreement of the parties has
been frivolous, or was not frivolous but its non-observance has not affected
the case and the final outcome. It would not be prudent to treat such infractions
as sufficient reason to annul the entire proceedings and wipe out the tribunal’s
efforts in reaching the final award. Therefore, the irregularity invoked has to
be the one which might have affected the final decision.34
Secondly, the arbitration does not exist in a legal vacuum and the parties
enjoy their freedom precisely because a legal system allowed it. Consequently,
their freedom is checked by the mandatory rules of the applicable law, i.e. lex
arbitri. When party stipulations are contrary to such rules, arbitrators may
safely disregard them and apply rules of the lex arbitri instead.35
If the parties have forfeited the opportunity to determine in more detail the
procedural framework under which the arbitration will proceed, the procedure
agreed upon will be checked under the lex arbitri. Non-mandatory rules of
the lex arbitri will seldom play a significant role, as the parties either choose
elaborate rules of arbitral institutions, or ad hoc environment shaped by the
1976 UNCITRAL Rules.

32
This is the argument offered by Poudret & Besson, supra note 9, at 874 when arguing that
partial recognition and enforcement should not be limited to Art. V(1)(c) of the New York
Convention. Mutatis mutandis, the same reasoning should be applicable to the scope of the
annulment as well.
33
Art. 34(2)(a)(ii) reads: “the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless such agreement was in conflict
with a provision of this Law from which the parties cannot derogate, or, failing such agreement,
was not in accordance with this Law.”
34
This has expressly been specified in Sec. 1059(2)(1)(d) of the German ZPO and Art. 36(2)
(1)(e) of the Croatian Law on Arbitration.
35
Redfern & Hunter, supra note 22, at 496.
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 141

When it comes to the composition of the tribunal, this ground attempts

to ensure that the tribunal is composed in a manner (and sequence) provided
by the agreement of the parties. It is questionable whether this ground can be
used to annul a decision based on alleged bias of the arbitrator.36

4.1.5. Ex Officio Grounds – Arbitrability and Public Policy

While other grounds for review are examined only if raised by the party
requesting annulment, a court will ex officio check whether the matter was
arbitrable or if the award runs contrary to public policy.
Under the Model Law, the scope of the arbitrability check is limited to
‘objective arbitrability’ – ensuring the subject matter of the dispute is capable
of being settled by arbitration.37 Therefore, this ground is not concerned
with arbitrability ratione personae (subjective arbitrability), which is mostly
relevant with respect to states and public entities.38 The court which is seized
will apply lex fori notions of arbitrability, which nowadays typically cover
‘all matters that parties may freely dispose of’39, ‘all pecuniary matters’40,
‘proprietary claims’41, or a combination thereof.42 This normally means that
arbitrability is not affected by exclusive court jurisdiction (‘formal non-
arbitrability’).43 In practice, the scope of arbitrable matters is ever expanding:
it now includes not only disputes that were traditionally within the ambit of
international commercial arbitration, but also disputes which include matters
of antitrust, intellectual property rights, and rights in securities.44 However,
arbitration is still allowed only to penetrate predominantly civil aspects of
disputes where laws of public importance (‘economic laws’) are applicable.

36
For a negative view, see BGH 4 March 1999, BGHZ 141, 90; NJW 1999, 2370.
37
Article 34(2)(b)(i) of the Model Law.
38
E. Gaillard & J. Savage, Fouchard Gaillard Goldman on International Commercial
Arbitration 313(1999). Subjective arbitrability still sometimes affect non-State parties as well:
e.g. two Croatian legal and natural persons may not provide for arbitration with a seat abroad
(Article 3(2) of the Croatian Arbitration Law) – this will, however, be relevant only in the
process of recognition and enforcement, since the Croatian courts would not be competent to
set aside the resulting award.
39
Italian Code of Civil Procedure, Art. 806, Art. 3 of the Croatian Law on Arbitration, Belgian
Judicial Code, Art. 1676(1).
40
Art. 177(1) of Swiss Private International Law.
41
Austrian ZPO, Sec. 582(1).
42
Sec. 1030(1) of the German ZPO combines pecuniary claims and non-pecuniary rights one
may freely dispose of.
43
For instance, Art. 5 of the Serbian Law on Arbitration provides that arbitrable matters
include ‘all proprietary matters parties can freely dispose of’, except for those subject to
exclusive jurisdiction of (presumably Serbian) courts.
44
For evolvement of position in these matters see Redfern & Hunter, supra note 22, at 163 et
seq.; Poudret & Besson, supra note 9, at 281 et seq.
142 VLADIMIR PAVIC

Arbitration does not remove the state’s right to supervise and punish those
who violate e.g. antitrust or securities laws.
The scope of arbitrable issues is a matter that touches upon public policy.
However, public policy has other aspects as well, and therefore represents a
special and distinct check on the validity of the award. Its inclusion is a mixed
blessing: on one hand, it reassures the legislator that awards which are contrary
to basic foundations of society would not be allowed to exist in the domestic
legal system. On the other hand, the public policy ‘wrinkle’ introduces a
possibility for a backdoor substantive review of the award and carries an ever
present risk of a concept being distorted through parochial lenses of a judge.45
It is often recommended that public policy should be construed narrowly and
applied scrupulously, since “[i]t is a very unruly horse, and when once you get
astride it you never know where it will carry you.”46
Although the concept of public policy is a darling of academic research,
its practical impact on annulment is not very significant. According to a recent
statistical study of Swiss annulment proceedings, there have been over one
hundred challenges invoking public policy, none of which succeeded. Statistics
also show that public policy is rarely invoked alone, and is instead used to
‘strengthen’ other grounds for requesting annulment.47 Coincidentally, the
numbers show that the success rate of challenges decreases with the number
of grounds invoked simultaneously, and this might indicate that although
public policy represents a serious check on awards, it is often invoked out of
desperation.
Despite the relatively modest practical impact, it has been recognized
that conflicting notions of public policy could disturb the harmony of cross-
border decision making, as some states would set aside or refuse to recognize
awards which would be valid in other jurisdictions. The conceptual response
to this was the attempt to further restrict the scope of public policy in
international commercial arbitration to “international public policy” (ordre
public international).48 A more practical one has been introduced in the 1961
European Convention on International Commercial Arbitration. Pursuant to
its Article IX, courts of the member states are to disregard an award which is
set aside in another member state if it was annulled for breach of public policy.
At the same time, they are not to disregard annulment corresponding to other
grounds contained in the Model Law.

45
Park, supra note 2, at 15-16.
46
Richardson v. Mellish [1824] 2 Bing 229, 252.
47
F. Dasser, International Arbitration and Setting Aside Proceedings in Switzerland: A
Statistical Analysis, 25 ASA Bull. 444, at 454 (2007).
48
New French Code of Civil Procedure, Art. 1502(5); See ILA Committee on International
Commercial Arbitration Interim Report on Public Policy as a Bar to Enforcement of International
Arbitral Awards (London Conference, 2000) and A. Sheppard, Interim ILA Report on Public
Policy as a Bar to Enforcement of International Arbitral Awards, 19 Arb. Int’l 217 (2003).
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 143

4.2. Additional Grounds

The Model Law is nothing more than a model, and states are free to add or
subtract from it in accordance with their legislative preferences. One can view
this process as a ‘deviation’ or adding a ‘local flavor’. The importance of
such amendments varies – some are absolutely necessary in order to implant
legislation within a particular national legal environment: unless properly
‘connected’ to other pieces of legislation, legislative reform would not work.
However, adding additional grounds for annulment represents an intervention
of particular importance and legislators have taken different approaches.
Since it is impossible to list them all, it is worth noting some strategic choices
in adopting the Model Law.
For example, the Philippines’ Arbitration Law represents a particularly
radical rehaul of Model Law grounds – so much so that its inclusion in the list
of Model Law jurisdictions comes as a surprise. Basically none of the grounds
provided for in the Model Law are present in the Philippines Act.49 Instead, it
introduces a possibility of ‘modification and correction’ of an award, where
some of the grounds for such intervention at least resemble the Model Law
grounds for annulment.50
On the other hand, some countries opted to retain the grounds provided for
in the Model Law and add additional points they considered important. For
example, Austria explicitly provided that the award may be set aside if there
are certain grounds which would have given reason for revision of a court
judgment, namely, if the award has been fatally influenced by criminal acts of
parties or the arbitrators.51 The Serbian legislator had a similar objective but

49
Section 24 of the Philippines Arbitration Law (R.A. 876) provides that the award may be
vacated when: “(a) That award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That
the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient
cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one
or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully
refrained from disclosing such disqualification or of any other misbehavior by which the rights
of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers,
or so imperfectly executed them, that a mutual, final and definite award upon the subject matter
submitted to them was not made.” Given that the most of this provision is a verbatim copy of
the US Federal Arbitration Act, sec. 10, it is hard to see how alteration of this magnitude still
qualifies Philippines’ law as a ‘Model Law’ jurisdiction.
50
Sec. 25 of the Philippines Arbitration Law allows modification or correction “(a) Where
there was an evident miscalculation of figures, or an evident mistake in the description of any
person, things or property referred to in the award; or (b) Where the arbitrators have awarded
upon a matter not submitted to them, not affecting the merits of the decision upon the matter
submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of
the controversy, and if it had been a commissioner’s report, the defect could have been amended
or disregarded by the court.”
51
Sec. 611(2)(6) of the Austrian ZPO reads “the preconditions under which a judgment
144 VLADIMIR PAVIC

decided not to introduce it via reference to grounds for revision, and instead,
to address them directly: in addition to the Model Law grounds, an award may
be set aside if it
was based on a false statement of a witness or expert or on a forged document,
or the award results from a criminal act of an arbitrator or a party, if these
grounds are proven by a final judgment.52
The Singapore Arbitration Act also provides that an award ‘induced by fraud
or corruption’ will be set aside.53 It is difficult to argue that an award based on
criminal acts should stand equal to a court judgment – reputation of arbitration
awards would quickly deteriorate and potential parties may become wary.
Why was this ground for annulment then not included in the Model Law
4 + 2 formula? One way to interpret this is to treat it as a deliberate and true
omission. Another would be to view those grounds as sufficient reasons to set
the award aside for violation of public policy.54
As already noted, some of the most important jurisdictions for international
commercial arbitration (France, Switzerland, United Kingdom, and the United
States, among others) do not belong to the Model Law camp. Overview of all
the particularities under their regimes of annulment exceeds the volume of this
study. While some of the grounds they list correspond to those available under
the Model Law, quite a few of them do not.
Most of those additional grounds are within the basic paradigm of no-
substance review: e.g. contradictory dispositive55 or the fact that reasoning for
the award has not been stated.56 However, some jurisdictions explicitly allow
for substantive review of the award.
For instance, English law allows for a very limited possibility of challenging
an award if it contains a serious mistake of law. The appeal may be lodged
only on point of English or Welsh law. Parties may prevent this possibility
if they, at any time, exclude the possibility of appeal, or the need to provide
reasons, or agree to institutional rules which exclude the possibility of such
appeal. In addition, a leave of court is required. It will be granted only if the

of a court of law can be appealed by filing an application for revision pursuant to section
530 subsection (1) numbers 1 to 5 are satisfied”, translation in G. Zeiler & B. Steindl, supra
note 3, at 83. Said grounds include, inter alia, the cases where judgment (award) was based on
completely or partially forged documents, on false testimony, was given as a result of an act
punishable by law – willful misrepresentation, if the judge (arbitrator) was guilty of criminal
negligence of his official duties.
52
Art. 58(1)(5) of the Serbian Law on Arbitration.
53
Singapore Arbitration Act, Art. 48(1)(vi).
54
As explicitly provided by section 34 of the 1996 Indian Arbitration Act. For more on this
dilemma, see D. Hiber & V. Pavic, Arbitration and Crime, 25 J. Int’l Arb. 461 (2008).
55
Art. 1704(2)(j) of the Belgian Judicial Code, Art. 829(1) of the Italian Code of the Civil
Procedure.
56
Art. 1704(2)(i) of the Belgian Judicial Code, Art. 1065(1)(d) of the Netherlands Code of
Civil Procedure, Art. 36(2)(1)(f) of the Croatian Law on Arbitration.
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 145

issue is substantively decisive, has already been raised in the proceedings and
the court is convinced that it would be ‘just and proper to intervene’.57
In the United States, the Supreme Court introduced ‘manifest disregard of
law’ in Wilco v. Swan dictum.58 This ground of annulment is not a statutory
one, and is conversely open to re-examination in every single case. The result
has not pleased everyone: while the courts are sometimes restrained and
limit ‘manifest disregard’ to situations where the awards violate fundamental
public policy or plain language of the contract, others expand the scope of
the review to mistakes of law.59 Even then, the only relevant mistakes are
those that have effectively changed the outcome of the dispute and frustrated
parties’ expectations.60 The recent decision of the Supreme Court in Hall
Street v. Mattel61 threw lower courts into even more confusion: while some
have interpreted it to mean that ‘manifest disregard’ is not a ground to annul
under the Federal Arbitration Act at all,62 others found that it is still a valid
ground under which the award may be properly challenged.63

4.3. The Role of Party Autonomy

It has already been noted that the design of control over arbitration is a result of
compromise: on the one hand, parties are allowed to forfeit protection of state
courts, while on the other hand, the resulting award will have to undergo state
scrutiny in order to be effective. This design has two sharply different phases:
while in the first part (arbitration) party autonomy reigns supreme, the second
part (court supervision) appears as a mandatory process parties can hardly
influence. This is still the case in the majority of jurisdictions: the system of
control over the award is mandatory in its entirety: it cannot be waived in
advance and it cannot be modified by the parties. It has to be accepted ‘as is’.
However, in some of the jurisdictions this design is not so rigid.
There have been experiments, for quite some time, to further limit the
reach of the control of the courts of the seat. Its high water mark came with the
Belgian reform of 1986, where the amendments provided that Belgian courts
57
Sec. 69 of the English Arbitration Act.
58
346 US 427 (“interpretations of the law by the arbitrator in contrast to manifest disregard
are not subject, in federal courts, to judicial review for error in interpretation”).
59
For more on the standard see N. Rubins, ‘Manifest Disregard of the Law’ and Vacatur of the
Arbitral Awards in the United States, 12 Am. Rev. Int’l Arb. 363 (2002); J. Beraudo, Egregious
Errors of Law as Grounds of Setting Aside an Arbitral Award, 23 J. Int’l Arb. 351 (2006).
60
J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration 679
(2003).
61
Hall Street Associates, L.L.C. v. Mattel Inc., 128 S. Ct. 1396 (2008).
62
Citigroup Global Markets, Inc. v. Bacon, 2009 WL 542780.
63
Coffee Beanery, Ltd. v. WW. L.L.C., 2008 WL 4899478; Stolt-Nielsen SA v. AnimalFeeds
Int’l Corp., 548 F.3d 85 (2d Cir. 2008); Comedy Club Inc. v. Improv West Assocs., 2009 WL
205046.
146 VLADIMIR PAVIC

would not have jurisdiction to set aside awards in dispute between foreign
parties. This experiment in ‘arbitral anarchy’ failed since it produced more
anxiety than comfort.64 As a consequence, the Belgian legislator ‘retreated’
to the Swiss position – a system of court review is in place, but the parties
(at least one of which must be a foreigner) are free to exclude it explicitly.65
Therefore, in those two countries party autonomy might be relevant even in
the post-award stage.
There is another side of the coin: in some jurisdictions there has been a
lively debate on whether parties may contract for a broader review. If this
possibility were accepted, grounds for annulment provided by the law would
set a minimal scope of review and the parties would be free to add additional
grounds for annulment they deem necessary. Should parties be free to tailor
their own compromise between certainty and efficiency and should courts be
bound by such stipulations?
In the United States, after much disagreement, the answer is ‘no’.66 The
Supreme Court has finally taken up the issue to resolve a split between lower
courts and has found that speed, finality and uniformity are of greater worth
than party autonomy in this matter.67 In Germany, however, the pendulum has
swung the other way, and the German Supreme Court has practically allowed
parties to agree on a de novo review by the court. This decision did not win
many praises for its reasonableness.68

5. Procedural Aspects
5.1. Time Limits
Speed and finality is important in the context of international commercial
arbitration. Consequently, the right to bring an action for setting aside is
64
Park, supra note 2, at 18.
65
Art. 1717(4) of the Belgian Judicial Code, Art. 192 of the Swiss Private International Law.
66
Hall Street Associates, L.L.C. v. Mattel Inc., 128 S. Ct. 1396 (2008).
67
Some of the lower court decisions favoring expanded review included Puerto Rico
Telephone Co. Inc. v. U.S. Phone Mfg. Corp., 427 F.2d 21 (1st Cir. 2005), cert. denied, 126
S.Ct. 1785 (2006); Roadway Package System Inc. v. Kayser, 257 F.3d 287 (3rd Cir. 2001), cert.
denied, 534 U.S. 1020 (2001); Syncor Int’l Corp. v. McLeland, 120 F.3d 262 (4th Cir. 1997),
cert. denied, 522 U.S. 1110 (1998); Gateway Technologies Inc. v. MCI Telecommunications
Corp., 64 F.3d 993 (5th Cir. 1995); Jacada Ltd. v. Int’l Mktg. Strategies, 401 F.3d 701 (6th
Cir.), cert. denied, 126 S.Ct. 735 (2005). Other courts disagreed and took a position ultimately
supported by the decision of the Supreme Court: Kyocera v. Prudential-Bache Trade Services
Inc., 341 F.3d 987 (9th Cir. 2003), Bowen v. Amoco Pipeline Inc., 254 F.3d 925 (10th Cir. 2001).
68
R. Wolff, Party Autonomy to Agree on Non-Final Arbitration?, 26 ASA Bulletin 626, at
641 (2008); S. Elsing, Case note on BGH, Decision of March 1, 2007, III ZB 7/06, Juristische
Rundschau 242 et seq. (2008); S. Kröll, Case note on BGH, Decision of March 1, 2007, III ZB
7/06, BGH Report 519 (2007).
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 147

almost always time-barred. If the time period elapses, a party is precluded

from challenging the award. The running of the period is usually triggered by
some objective moment, such as the moment at which the party has received
the award or the moment at which the award was deposited.69
The length of the period varies, from 28 days in the United Kingdom70
to six months in China.71 The Model Law and most of the national laws is
somewhere in-between, with a period of three months that starts running on
the day that the party has been notified of the award.72 The time limit appears
to be preclusive. There are, however, views that the expression “[…] may
not be made after […]” (emphasis added) implies a measure of discretion
afforded to the court.73 In the light of the plain reading of the Model Law (and
its progeny) this does not appear convincing. However, such interpretation
might prove useful if the award has been procured through criminal activities
and this is revealed only after the expiration of the time limit. Some legislators
realized this possibility and introduced special time limits for certain grounds
of annulment.74 Others have attempted to solve the problem by allowing
revision as a special recourse against the award.

5.2. Court Competence

Competence for setting awards aside may be centralized or dispersed within
the national judiciary system. There are some very good reasons to opt for
concentration of jurisdiction: it allows for specialization of judges and easy
determination of the particular court which is competent. If the party is
able to easily identify the competent court and the judge is experienced in
dealing with arbitration, it is likely that the procedure for setting aside will
be carried out efficiently and without delay. This solution has been accepted
in Switzerland, where the entire caseload for setting aside of international
arbitrations is concentrated before the Federal Tribunal.75 Naturally, there is
no appeal against its decision.
69
Lew et al., supra note 60, at 671.
70
Sec. 70(3) of the Arbitration Act. Pursuant to Art. 1505 of the French New Code of Civil
Procedure, the period is one month from the moment at which the party has been officially
notified on the order of execution of the award.
71
Art. 59 of the Chinese Arbitration Law.
72
Model Law, Art. 34(3). Certain national laws used different moments for starting the period:
e.g. in English law it is the moment at which the last signature has been affixed (England).
73
Lew et al., supra note 60, at 671.
74
Sec. 611(4) of the Austrian ZPO ‘imports’ time limits applicable to cases of revision of
court judgments. When introducing similar grounds for annulment (criminal acts), the Serbian
legislator omitted to provide special and adequate time limits.
75
Art. 191(1) of the Swiss Private International Law. However, pursuant to Art. 191(2) the
parties are allowed to agree that the setting aside will be handled by the judge at the seat of the
tribunal in lieu of the Tribunal Federal.
148 VLADIMIR PAVIC

Other models are not so clear-cut. First, it is possible to allow for two
steps instead of one. In the first instance, setting aside is handled by a higher
court of the seat and thereafter before the highest court.76 A variation is where
the initial first-instance jurisdiction is split among commercial courts and
courts of general jurisdiction, with two different courts handling the appeals.77
Finally, it is possible to opt for decentralization, granting original jurisdiction
to lower courts, with further appeals possible to higher courts.78

6. Outcome of the Annulment Proceedings and Further

Recourse
A competent court seized with the application to set aside an award may
reach different decisions: to reject the challenge and uphold the award, to
annul the award in part or entirely or – in some jurisdictions – to suspend the
proceedings and allow arbitrators to reconsider certain issues and take actions
which would eliminate the grounds for setting aside.79
If the challenge is rejected, this means that the award will have no problems
at the enforcement stage in the country where the challenge has been attempted.
Its enforcement prospects in other jurisdictions are also promising, especially
if the award overcame a challenge brought in a Model Law jurisdiction. Since
the grounds for annulment under the Model Law and grounds for opposing
recognition under the New York Convention are practically identical, an award
which has cleared the first obstacle looks well set to clear an identical one
abroad. However, although the grounds in the Model Law and the New York
Convention appear identical, they are not necessarily assessed on the basis of
the same law: e.g. the setting aside court will scrutinize an award according
to its concepts of arbitrability and public policy, while the recognition court
might employ different standards. Even when it comes to the grounds that are
supposed to be examined under identical laws (e.g. assessing validity of the
contract or the capacity of the parties) there is a risk that the courts will apply
the same law in a different manner. In other words, the fact that the award has
not been set aside does not in itself guarantee its enforcement abroad.

76
French New Code of Civil Procedure Art. 1595, Sections 1062(1) and 1065 of the German
ZPO.
77
Art. 43(1) of the Croatian Law on Arbitration.
78
Belgian Judicial Code Art. 1704, Netherlands Code of Civil Procedure Art. 1964(2),
Serbian Law on Arbitration Art. 57. Sec. 615 of the Austrian ZPO grants jurisdiction for setting
aside in commercial matters to regional courts (Landesgerichte) and Vienna Commercial Court
(Handelsgericht Wien).
79
The last point provided specifically by the Model Law, Art. 34(4) and in a somewhat
different manner by Sec. 69(7) of the English Arbitration Act and Sec. 1059(4) of the German
ZPO (German law allows combining setting aside and remission).
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 149

If the award is successfully annulled in its entirety, two issues arise

immediately: first – what is the relevance of such annulment outside, in other
jurisdictions and second – does annulment restore jurisdiction of courts or
does the arbitration get a ‘second shot’ at resolving the dispute?

6.1. The Fate of the Annulled Award

The main advantage of the system whereby an arbitration award can be
challenged in the country of its origin (usually country of its seat) is the
argument of efficiency: if the award is annulled, its efficiency is effectively
curbed not only in the country of annulment, but in other jurisdictions as well.
This is suggested by the New York Convention as well: its Article V(1)(e)
provides that the recognition of an arbitral award “may be refused […] if it has
been set aside or suspended by a competent authority of the country in which,
or under the law of which, that award was made.”
Normally one would expect deference on behalf of the recognition court
and an annulment usually proves an efficient way to prevent enforcement
elsewhere. However, the wording of the New York Convention (‘may refuse’
instead of ‘must refuse’) and its pro-enforcement attitude could suggest that
the recognition and enforcement court is allowed a measure of discretion.80 As
a result, annulment would not automatically mean that the award will not be
enforced in other jurisdictions. If it were otherwise, goes the argument, local
annulment standards, no matter how exotic, would become too important.81
Even if one accepts such interpretation, the practice shows that the annulled
award has very slim chances of being enforced anywhere,82 although there
have been some notable cases to the contrary.83
Besides the reliance on the wording of the Article V(1)(e), enforcement of
an annulled decision might also be helped by relying on Article VII of the New
York Convention, which allows for application of more favorable provisions
of local law or other international treaties. Therefore, if the local law does
not view foreign annulment as a sufficient reason to refuse recognition and
enforcement, foreign setting aside will not in itself have adverse consequences
(although the award may still be refused recognition and enforcement on some
80
For arguments against such interpretation, see A. van den Berg, Enforcement of annulled
awards?, 9 ICC International Court of Arbitration Bulletin 15 (1998).
81
See J. Paulsson, The case for disregarding local standard annulments under the New York
Convention, 7 Am. Rev. Int’l Arb. 99 (1997).
82
Redfern & Hunter, supra note 22, at 540. For an overview of the practice and caselaw
see G. Petrochilos, Enforcing Awards Annulled in the State of Origin under the New York
Convention, 48 International Comparative Law Quarterly 856 (1999) and H. Gharavi, The
International Effectiveness of the Annulment of an Arbitral Award (2002).
83
Perhaps the best known are Hilmarton Ltd. v. Omnium de Traitement et de Valorisation
(OTV), decision of 23 March 1994, Rev. Arb. 327 (1994) and Chromalloy Aeroservices v. Arab
Republic of Egypt, 939 F.Supp. 907 (D.D.C.1996).
150 VLADIMIR PAVIC

other ground). As for the international treaties, besides the web of bilateral
treaties which foster recognition and enforcement of arbitration awards, the
European Convention on International Commercial Arbitration warrants
particular attention. Its Article IX provides that courts of a member state may
refuse recognition of an award because the award was set aside in another
member state, but only if the award was annulled on the grounds which
correspond to the list contained in Article V of the New York Convention,
except for the omission of the ground of public policy.84
Additionally, even an unsuccessful attempt to annul an award might prove
to be an important element of the overall strategy to prevent enforcement
elsewhere. Namely, while the procedure for setting aside is pending in the
country of origin, recognition and enforcement proceedings elsewhere might
be suspended.85

6.2. Remission and New Proceedings

A successful challenge brings about another dilemma: does annulment of the
award mean that the case is reverted back to arbitrators, or has their mission
been terminated when they rendered the first award?
The holding that arbitrators’ mission ends the moment they put their
signatures on the award causes some practical problems. Namely, under
many laws arbitrators may, ex officio or pursuant to instruction of the court,
correct some mistakes in the award or reconsider some of its aspects. The
main reason for such intervention is to prevent setting aside and the blow
that would be made to procedural efficiency. If they were functus officio after
delivering the award, they would not be able to carry out such corrections and
improvements. Therefore, it is probably better to view their mandate as being
suspended while the challenge (or the time limit for challenge) is pending.86
Some national legislations provide that the arbitration actually has only
one ‘shot’ at rendering a sound award – if the challenge succeeds, jurisdiction
over the dispute is again assumed by the courts.87 However, in quite a few
jurisdictions setting aside does not have such effect. Instead, the case is
remitted back to arbitration, unless the award has been annulled because
84
For instance, aa award set aside in Slovenia for violation of public policy was still enforced
in Austria by Austrian Supreme Court in Kajo-Erzeugnisse Essenzen Gmbh v. Do Zdravilisce
Radenska, reported in XXIV Yearbook of Commercial Arbitration 486 (1999).
85
However, the fact that the party has decided not to challenge the award in its country of
origin does not preclude it from resisting its recognition and enforcement elsewhere; BGH 17
April 2008, SchiedsVZ 196 (2008), putting aside prior contrary practice of the lower German
courts, e.g. OLG Karlsruhe, 3. July 2006, 9 Sch 1/06, SchiedsVZ 261 (2006); OLG Karlsruhe,
27. March 2006, 9 Sch 2/05, SchiedsVZ 335 (2006).
86
Similarly, Poudret & Besson, supra note 9, at 775, note 415. Conceptually different but
practically the same, Sec. 608(3) of the Austrian ZPO.
87
Netherlands Code of Civil Procedure, Art. 1067.
 ANNULMENT OF ARBITRAL AWARDS IN INTERNATIONAL COMMERCIAL ARBITRATION 151

of an invalidity of the arbitration agreement. This is explicitly provided in

Serbian and Croatian law – the only exception being the situation where an
arbitration agreement also listed the names of the arbitrators, in which case
annulment always reverts the case back to courts.88 The German ZPO provides
that setting aside will, absent indications to the contrary in the court judgment,
result in another round of arbitrating.89 Reverting the case back to arbitrators
is also implied in Section 611(5) of the Austrian ZPO, although the exception
of an invalid arbitration agreement has not been spelled out.90 However, if the
third award in a row on the same subject matter is about to be set aside, the
court will declare the arbitration agreement invalid with respect to that subject
matter upon the request of one of the parties.91

6.3. Further Recourse

A court’s decision to set aside (or not to set aside) might not be the end of the
legal struggle over the award. If the legislator decided to vest jurisdiction with
a lower court, there will be at least one more round available on appeals. The
appeal is, of course, lodged against the decision of the lower court, and not
against the award itself.
However, the party attempting to set an award aside faces an additional
disadvantage. Annulment can usually be lodged only within a certain time
limit, which is short and triggered by some objective manifestation such as
a notice of award, for example, rather than one’s subjective awareness that
a ground for annulment exists. This design is rather inappropriate for raising
issues that are not apparent while the deadline for application is running out.
For instance, it might turn out later on that the arbitrator was corrupt or that
the tribunal decided on the basis of false evidence (documents and testimony).
The Model Law and most of its progeny do not address this problem, probably
in an attempt to further strengthen the goals of finality and efficiency.92
In some of the jurisdictions which have not opted for the Model Law,
this ‘revision’ against the award is possible. For instance, Belgium allows
that an extraordinary request for setting aside may be lodged within
88
Serbian Law on Arbitration, Art. 63; Croatian Law on Arbitration, Art. 37.
89
Sec. 1059(5) of the German ZPO; one can naturally expect this not to be the case if the
award has been set aside for invalidity of the arbitration agreement. For a similar position in
Switzerland, Poudret & Besson, supra note 9, at 776.
90
“The setting aside of the arbitral award does not affect the validity of the underlying
arbitration agreement.”
91
Sec. 611(5) of the Austrian ZPO.
92
A notable exception is Sec. 611(4) Austrian ZPO, which has tied objections to criminal
background of the award to subjective time limits applicable to revision. Serbian Law on
Arbitration Art. 58(1)(5) introduced false testimony, evidence and criminal deeds are a special
reason for setting the award aside, provided that they are proven in a final judgment of a criminal
court. However, the design is flawed insofar as the usual 3-month time limit is applicable.
152 VLADIMIR PAVIC

5 years, but not later than 3 months from the moment on which the applicant
has discovered them.93 Revision will succeed if the award has been based
on false evidence, obtained through fraud, or has been delivered in absence
of crucial evidence withheld by the other party.94 In Switzerland, there is no
express legal mandate to lodge revision, but the right to do so has been granted
by the case law of the Swiss Federal Tribunal.95 The objective time limit is
longer than in Belgium (10 years), but the grounds on which it might be based
are similar.

7. Concluding Remarks
This brief overview had a limited ambition – to outline the basics of procedure
for setting aside over a range of jurisdictions. Unlike recognition and
enforcement, annulment procedure does not have its own multilateral treaty,
akin to the New York Convention, which would serve to ‘level the ground’
completely and further the goal of unification. Instead, the UNCITRAL Model
Law provides nothing more than a useful guidance to national legislators.
Consequently, there are still great differences between jurisdictions as to how
the annulment system is designed. Virtually none of the issues that need to be
addressed in the context of setting aside has resulted in a global consensus –
there is always ‘someone, somewhere’ who happened to have a different idea
on how a particular point has to be addressed.
Still, it is possible to lay out the lowest common denominator of all those
systems: action for annulment remains the only recourse against the arbitral
award; an award might be challenged in the country where it was given; there
is in principle no substantive review of the award, but rather a scrutiny of its
procedural aspects and some issues surrounding the arbitration agreement; and,
finally, the catalogue of annulment grounds is mandatory – it is particularly
difficult for the parties to extend it further. Despite the still disparate views on
effectiveness of an annulled award under the New York Convention, setting
aside remains the most cost-effective strategy in resisting enforcement of an
arbitral award.

93
Art. 1707(3) of the Belgian Judicial Code.
94
Art. 1704(3) of the Belgian Judicial Code.
95
Decision of 11 March 1992, ATF 118 II 119. This decision has its critics – T. Ruede & R.
Hadenfeldt, Schweizerisches Schiedsgerichtsrecht 365-366 (1993) and its supporters – Poudret
& Besson, supra note 9, at 788.