Model answer to Question 18: Case Study

Assumed factual and legal position

For the purposes of this case study, contributors were asked to proceed on the basis of the following assumptions:

1. There is a written commercial agreement between the parties containing:
   1. a choice of court clause in favour of a specified court; and
   2. a separate arbitration clause addressing non-payment of certain contractual obligations.
2. A final judgment for payment of a monetary sum has been obtained in the parties’ chosen court (the “Judgment”).
3. The Judgment is final and binding in the foreign court of origin (which is the same as the seat of the arbitration) and is no longer subject to appeal.
4. The Judgment remains unpaid after the contractually specified period (for example, 28 days).
5. The agreement provides that, upon non-payment of the Judgment, a contractual obligation arises to pay an amount equivalent to the Judgment debt.
6. The agreement further provides that any dispute concerning non-payment of that contractual obligation shall be referred exclusively and irrevocably to arbitration with the arbitrator given the specific and limited mandate set out below.
7. The seat of the arbitration is in the same foreign jurisdiction in which the court Judgment is made.
8. The law governing the arbitration agreement and the law of the seat recognise non-payment of the contractual obligation as giving rise to a dispute capable of arbitration.
9. The arbitral tribunal’s mandate is expressly limited to:
   1. confirming that the Judgment is final and unpaid after 28 days; and
   2. ordering payment of the contractual sum and interest, without investigating or re-litigating the underlying merits of the original court dispute.
10. The arbitral tribunal has issued a final award ordering payment of the contractual sum and interest.
11. Recognition and enforcement of that award are sought domestically under the New York Convention, the award having been made at a foreign seat.
12. The arbitration clause also confers on the arbitral tribunal the power to order security for the award in final form. This element is included to demonstrate that the arbitral process is autonomous and not merely a mechanical replication of the court judgment. Contributors are not asked to address the security aspect for the purposes of this question.
13. Likewise, there are provisions in the arbitration clause providing against double recovery for the Judgment and the award.

Case study question for model answer (English law)

Proceeding on the above assumptions, would an English court recognise and enforce the arbitral award under the New York Convention?

In particular:

1. Does the award fall within the scope of Article V(1) of the Convention, or would any of the grounds in Article V(1) justify refusal on the assumed facts?
2. Is the subject matter of the dispute capable of settlement by arbitration under English law for the purposes of Article V(2)(a)?
3. Would recognition or enforcement of the award be contrary to public policy within the meaning of Article V(2)(b)?

Model answer

Proceeding on the stated assumptions, an English court, acting as the enforcing court under the New York Convention, would in principle recognise and enforce the arbitral award.

Article V(1) – Scope and validity

Article V(1)(a) (see Appendix below) concerns the validity of the arbitration agreement under the law governing that agreement or the law of the seat. On the assumed facts, the governing law and seat recognise non-payment of the contractual obligation as giving rise to a dispute capable of arbitration and the arbitration agreement is valid. An English enforcing court would not refuse enforcement on this basis.

Article V(1)(c) permits refusal if the award deals with matters beyond the scope of the submission to arbitration. Here, the tribunal’s mandate was expressly limited to confirming that the Judgment was final and unpaid and to ordering the agreed contractual consequences of non-payment. It was not empowered to review or re-litigate the merits of the underlying court judgment. The award therefore falls within the scope of the arbitration agreement.

It might be argued that the arbitration is, in substance, an attempt to enforce or review a court judgment. On the assumed facts that argument would fail. The tribunal does not purport to enforce the Judgment as a judgment or to sit in appeal from it. It enforces a separate contractual obligation which the parties agreed would arise upon non-payment. The distinction between enforcing a judgment and enforcing the contractual consequences of non-payment is legally material.

Article V(1)(e) concerns whether the award has become binding or has been set aside or suspended at the seat. It is assumed that the award is final and binding and has not been set aside or suspended. Accordingly, no ground of refusal arises under this limb. There is likewise no suggestion on the assumed facts of procedural unfairness under Article V(1)(b) or irregular composition under Article V(1)(d).

Article V(2)(a) – Arbitrability under English law

Article V(2)(a) requires the English court to consider whether the subject matter of the difference is capable of settlement by arbitration under English law.

Under English law, non-payment of a sum said to be due is capable of constituting a dispute referable to arbitration, even where liability and quantum are not substantively contested. The courts adopt an inclusive and commercially realistic concept of dispute and do not require an express denial of liability. As confirmed in Exfin Shipping (India) Ltd v. Tolani Shipping Co Ltd [2006] EWHC 1090 (Comm) and reaffirmed in Helice Leasing S A S v. PT Garuda Indonesia (Persero) TBK [2021] EWHC 99 (Comm), a refusal or failure to pay an amount asserted to be due is sufficient to found arbitral jurisdiction. Russell on Arbitration (24th ed, para 5-004) reflects the same principle. On the assumed facts, the non-payment of the contractual obligation therefore constitutes a dispute capable of arbitration.

The subject matter here is a contractual monetary obligation and interest arising upon non-payment. Such disputes are plainly arbitrable under English law. The fact that the contractual trigger is the existence of a final court judgment does not alter the essential character of the dispute, which concerns the contractual consequences of non-payment. The tribunal’s mandate is confined to verifying objective conditions and applying agreed contractual consequences, without reopening the merits of the court decision. The arbitration therefore does not encroach upon matters reserved exclusively to the courts.

Article V(2)(b) – Public policy

Public policy under Article V(2)(b) is construed narrowly in England and is engaged only where enforcement would violate fundamental principles of justice or morality.

Enforcement of the award would not offend English public policy. The award gives effect to party autonomy, a foundational principle of English arbitration law, as emphasised in Fiona Trust v. Privalov [2007] UKHL 40. The mechanism may be innovative in linking contractual consequences to non-payment of a judgment, but novelty does not engage public policy. The tribunal does not undermine or contradict the foreign judgment; it applies the parties’ agreed contractual framework. There is no element of abuse of process, procedural unfairness or circumvention of mandatory rules of English law.

Conclusion

On the assumed facts, and taking into account the English law approach that non-payment may itself constitute a dispute capable of arbitration, an English court would recognise and enforce the award under the New York Convention. None of the grounds in Article V(1) or Article V(2) would justify refusal.

Additional observations on enforcement coherence and public policy

It may also be noted that the mechanism is consistent with an established feature of common law reasoning, namely that a judgment may itself give rise to a separate enforceable debt obligation. Under English law, a foreign judgment may be enforced by an action on the judgment debt, and the common law’s recognition of a separate enforceable debt obligation arising from a judgment was referred to by Robin Knowles J in Marex Financial Ltd v. Sevilleja [2017] EWHC 918 (Comm) at [20] and following. The law is therefore already conceptually familiar with the proposition that an adjudicated liability may generate a new enforceable obligation in another legal setting. In that respect, the clause does not introduce an alien concept into the law of enforcement, but gives contractual form to a structure which the law already recognises in another way.

It is also important to distinguish the present mechanism from a mere mirror or mechanical duplication of the underlying judgment. On the assumed facts, the tribunal does not re-open or re-litigate the merits of the dispute determined by the court. Nor is it simply rubber stamping the judgment. The tribunal must determine whether the judgment is final and no longer subject to appeal, whether payment has not been made within the contractually specified period, and what contractual consequences follow from that non-payment, including interest and, where appropriate, security. The arbitral process is therefore autonomous in operation, even though it is triggered by the existence and non-payment of the judgment. That is materially different from a purely formal exercise of repeating what the court has already ordered.

Nor is there anything inherently objectionable, as a matter of public policy, in one underlying obligation being reflected in more than one enforceable instrument across jurisdictions. Court judgments are routinely recognised and enforced by other courts, thereby producing local enforcement orders or judgments in the enforcing forum. Likewise, arbitral awards are commonly enforced through court judgments across multiple jurisdictions. Subject always to the obvious prohibition on double recovery, that is a familiar and accepted feature of cross-border enforcement. Against that background, it is difficult to identify any genuine public policy objection to a contractually agreed mechanism which operates in a comparable way.

The real objection would therefore need to be framed more narrowly. It would have to rest on the proposition that it is impermissible, as a matter of public policy, for parties to agree that non-payment of a final court judgment should give rise to a distinct contractual obligation, the consequences of which are then to be determined through arbitration. It is difficult to see why that should be so. The mechanism does not displace the court judgment, undermine its authority, or permit re-litigation of the merits. It operates alongside the judgment and seeks to strengthen the prospects of recovery by making available an award that benefits from the enforcement architecture of the New York Convention.

These considerations reinforce the conclusion that the clause should not be understood as an attempt to bypass orthodox enforcement rules, but rather as a structured contractual mechanism operating consistently with principles already recognised in cross-border enforcement.

APPENDIX: Article V of the New York Convention

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
   1. The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
   2. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
   3. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it 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, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or
   4. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
   5. The award has not yet become binding on the parties, or 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.
2. 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:
   1. The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
   2. The recognition or enforcement of the award would be contrary to the public policy of that country.