Annulled arbitral award: can it be enforced in the Netherlands?

A Dutch court will in principle refuse to enforce a foreign arbitral award that has been annulled in the country where it was made. Enforcement remains possible only in special cases: when the annulment rests on grounds the New York Convention does not recognise, or when the foreign annulment judgment itself cannot be recognised in the Netherlands.

The Dutch Supreme Court (Hoge Raad) set out this rule on 24 November 2017, in a dispute between a Russian businessman and the steel producer NLMK. Below we explain the legal framework, the judgment, and what it means if you want to enforce, or resist, an annulled award in the Netherlands.

This article covers arbitral awards under the New York Convention. For court judgments, see our article on recognition and enforcement of foreign judgments in the Netherlands.

How is a foreign arbitral award enforced in the Netherlands?

A foreign arbitral award is not directly enforceable in the Netherlands. You first need leave for enforcement (exequatur); since 1 January 2015, you request this from the Court of Appeal (gerechtshof), under Article 1075(2) of the Dutch Code of Civil Procedure (Rv).

If the losing party does not pay voluntarily, the winning party must ask a court in the country where the assets are located to recognise the award and allow enforcement. Only then can a bailiff attach bank accounts, shares or other assets.

For awards made in another contracting state, the Netherlands applies the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted in New York on 10 June 1958. The New York Convention now has 172 contracting states. Under Article 1075 Rv, an award covered by such a treaty is recognised and enforced in accordance with that treaty. Article 1076 Rv contains a comparable set of rules for awards from states that are not party to a treaty.

The court deciding on the exequatur does not review the dispute again. It does not check whether the arbitrators assessed the facts or the law correctly. It only examines whether one of the limited grounds for refusal in article V of the Convention applies.

When may a court refuse recognition under the New York Convention?

Article V(1) of the Convention lists five grounds that the party resisting enforcement must prove. Article V(2) adds two grounds that the court applies on its own motion.

Under article V(1), the court may refuse recognition if the resisting party proves that:

• (a) the arbitration agreement was invalid, or a party lacked capacity;
• (b) that party did not receive proper notice, or was otherwise unable to present its case;
• (c) the award deals with matters outside the scope of the arbitration agreement;
• (d) the composition of the tribunal or the procedure did not follow the parties’ agreement or, failing that, the law of the seat;
• (e) the award has not yet become binding, or has been set aside or suspended by a competent authority in the country where, or under the law of which, it was made.

Under article V(2), the court may also refuse recognition if the subject matter cannot be settled by arbitration under Dutch law, or if recognition would conflict with Dutch public policy.

Ground (e) is the subject of this article: the award has been set aside by the courts of the seat of arbitration, and the question is whether a Dutch court must then automatically refuse enforcement.

Does the court have discretion when an award has been annulled?

Yes, but it is limited. The Supreme Court held that the Convention gives the Dutch court a certain margin of discretion to recognise an annulled award, but only in special cases.

The question arose because the Convention’s authentic language versions differ. The English text says recognition “may be refused” only if a ground applies, which suggests discretion. The French text reads “ne seront refusées que si”, which leaves less room. The Supreme Court resolved this difference under article 33(4) of the Vienna Convention on the Law of Treaties, which requires the meaning that best reconciles the texts in light of the treaty’s object and purpose. It concluded that the English wording best reflects that purpose.

What are the special cases?

According to the Supreme Court, a Dutch court may recognise and enforce an annulled award in two situations. The first is when the annulment is based on grounds that do not correspond to the grounds for refusal in article V(1)(a) to (d) of the Convention. The second is when the foreign annulment judgment does not qualify for recognition in the Netherlands.

The first situation concerns so-called local standard annulments: the court of the seat set the award aside on a ground specific to its own law, not internationally accepted. The second refers to the general Dutch conditions for recognising foreign judgments, which the Supreme Court set out in 2014 (ECLI:NL:HR:2014:2838). Among other things, the foreign court must have had jurisdiction on an internationally accepted basis, the proceedings must have met the requirements of a fair trial, and recognition must not conflict with Dutch public policy.

The party seeking enforcement despite the annulment bears the burden of stating and proving the facts that make its case special. The court will not investigate this on its own initiative.

What happened in the case before the Supreme Court?

The dispute arose from the sale of shares in the Russian steel producer NLMK by its majority shareholder to NLMK itself. The purchase agreement contained an arbitration clause, and a dispute arose over the purchase price and its payment.

The seller started arbitration before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, claiming payment of the purchase price. NLMK argued that an advance payment had already been made and that a lower price was owed. The arbitral tribunal rejected both parties’ calculations, set the price itself, and ordered NLMK to pay the remaining amount.

The Dutch proceedings

NLMK applied to the Arbitrazh Court of the City of Moscow to have the award set aside. That court annulled the award in June 2011, and the higher Russian courts upheld the annulment. The Russian courts based it on, among other things, a defect in the composition of the tribunal linked to undisclosed relationships between experts and arbitrators, the lack of arbitrability of part of the dispute, and a breach of mandatory Russian law.

The seller then wanted to enforce the award against shares NLMK held in a Dutch subsidiary in Amsterdam, and applied in 2011 for leave for enforcement to the preliminary relief judge of the Amsterdam District Court, which was competent under the law at that time. The judge refused the request. The judge held that an award that has been set aside no longer exists and therefore cannot be enforced.

The seller appealed to the Amsterdam Court of Appeal, which held that an annulled award is in principle not eligible for recognition, unless there are strong indications that the foreign annulment proceedings did not meet the requirements of a fair trial. It found no such indications and refused enforcement in its final decision of 27 September 2016.

In cassation, the seller argued that the Court of Appeal had not recognised the discretion article V(1)(e) gives the enforcement court. The Supreme Court accepted that this discretion exists, but held that it did not help the seller: the Russian annulment grounds corresponded to the grounds in article V(1)(a) to (d) of the Convention, including the ground relating to the composition of the tribunal. The case was therefore not special, and the Supreme Court dismissed the appeal (ECLI:NL:HR:2017:2992).

What does this mean in practice?

If you hold an annulled award, enforcement in the Netherlands is possible only in exceptional circumstances. You must show either that the annulment rests on grounds that are not internationally accepted, or that the annulment judgment cannot be recognised under Dutch law.

If you are resisting enforcement, the judgment offers a strong position. Where the award has been set aside at the seat on grounds that correspond to the Convention, the Dutch court will in principle refuse enforcement. You must still prove the annulment and its grounds.

Timing and preservation of assets

Proceedings to set aside an award at the seat and enforcement proceedings in the Netherlands can run at the same time. Under article VI of the Convention, the Dutch court may adjourn its decision on enforcement if an application to set aside the award is pending, and may order the other party to provide security.

You can also ask the Dutch court for leave to levy a prejudgment attachment (conservatoir beslag) to prevent assets from disappearing while proceedings are pending. Such an attachment must be followed by proceedings on the merits or an exequatur request within the period the court sets.

You can read the full judgment of the Supreme Court and the text of the New York Convention online.

What should you check if you want to enforce an annulled award?

Your request succeeds only if you can show that the case is special, so the analysis of the foreign judgment comes first.

• Obtain the annulment judgments of all instances, with certified translations.
• Compare each annulment ground with Article V(1)(a) to (d) of the Convention.
• Check whether the foreign court had jurisdiction on an internationally accepted basis.
• Check whether the annulment proceedings met the requirements of a fair trial.
• Locate the debtor’s assets in the Netherlands and consider a prejudgment attachment.

What should you check if you are resisting enforcement?

The NLMK judgment gives you a strong position, but you must prove the annulment and its grounds.

• Submit the foreign annulment judgments with certified translations.
• Show that the annulment grounds correspond to Article V(1)(a) to (d) of the Convention.
• If annulment proceedings are still pending, ask the court to adjourn under Article VI of the Convention.
• Check whether a prejudgment attachment was followed by proceedings within the period set by the court.

What can we do for you with an annulled arbitral award?

Our corporate lawyers act for parties enforcing and resisting foreign arbitral awards in the Netherlands:

• We analyse the foreign annulment judgment against the grounds of the New York Convention.
• We draft and file the request for leave for enforcement (exequatur) with the Court of Appeal.
• We request leave for a prejudgment attachment on the debtor’s Dutch assets.
• We draft the defence against enforcement, including a request for adjournment and security.
• We coordinate with lawyers at the seat of arbitration on the annulment proceedings.

Summary

• A foreign arbitral award needs leave for enforcement (exequatur) from the Dutch Court of Appeal before it can be enforced in the Netherlands.
• Under article V(1)(e) of the New York Convention, an award set aside at the seat will in principle not be enforced.
• The Dutch court has limited discretion: it may still enforce the award if the annulment rests on grounds outside article V(1)(a) to (d), or if the annulment judgment cannot be recognised in the Netherlands.
• You must state and prove those special circumstances yourself; the court will not investigate this on its own initiative.
• In the NLMK case, the Russian annulment grounds matched the Convention grounds, so enforcement was refused.

Frequently asked questions