Vol. X No.5
May 2005


Enforcement of Foreign Arbitral Awards

Enforcement of Foreign Arbitral Awards
Back in the early ‘90’s it was not the easiest thing to convince a Romanian contracting party to agree arbitration as an alternative means of dispute resolution. Romanians were reticent with respect to arbitration probably due to the more than 50 years of isolation which Romania endured during the communist regime when Romanian companies – all of which were state owned – were rarely involved in international arbitral disputes. Not only were businesses uneducated in the benefits of alternative dispute resolution, but the curriculum of the law schools dealt with the whole subject in only a few phrases. Nevertheless, over the past several years, as the Romanian business environment evolved in its sophistication, so did its understanding of the importance of arbitration. With a largely privatized economy, Romanian businesses enter into increasingly sophisticated transactions with multinational companies which expect their disputes to be settled by international arbitration. Arbitrators are usually experienced commercial attorneys and experts who are better trained to handle complex cases than most judges – and this probably holds true in other countries as well. Apart from the fact that foreign businesses have an inclination towards arbitration stemming from their business culture, their increased appetite for arbitration on matters related to Romania undeniably arises from the perception that Romanian justice is corrupt. Indeed, Romania’s judge’s last year reported to the Ministry of Justice that, in their view, one out of five cases in the Romanian court system was infected by corruption. International arbitration is seen by many as a neutral venue, which is why it is widely perceived as a good alternative to Romanian courts. This is especially true in cases against the Romanian State, where judges – and even Romanian arbitrators -- are sometimes perceived as subject to influence and, therefore, biased. Consequently, international companies dealing with Romanian entities or the Romanian State stubbornly insist that their Romanian counterparts agree to international arbitration outside the borders of Romania.

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Enforcing an Award
With the significant increase in the number of international contracts entered into by Romanian companies, arbitration is no longer seen as an “exotic” or “foreign” means to settle disputes. As a result, the number of cases where parties seek the enforcement of foreign arbitral awards has increased substantially.

Of course, a foreign arbitral award has no effect in Romania, unless it is recognized by the Romanian courts. According to the applicable provisions of the Romanian Civil Procedure Code (“the Code”), foreign arbitral awards which are not complied with can be enforced in Romania by applying the relevant provisions of Law 105/1992 regarding international private relationships (“Law 105”). Under the terms of the Code, an arbitral award is to be qualified as “foreign” when it is either rendered on the territory of a foreign state or, although rendered on Romanian territory, it cannot be considered to be a national award because the “foreign” elements prevail in the case at hand (e.g., both of the parties are of foreign nationality and the award was rendered by applying foreign law).

Law 105 provides for the procedure to be followed for the recognition and enforcement of foreign court decisions in Romania. The same procedure applies to the enforcement of foreign arbitral awards. Arbitral awards may be enforced both when they are rendered by ad-hoc arbitrators appointed for each case or by an institutionalized arbitral tribunal. Although the practical difference between the concepts of “recognition” and “enforcement” is rather narrow, the Supreme Court of Justice of Romania has decided that, in order to obtain the enforcement of an award, one must also seek its recognition. Recognition means that Romanian judges consider the award to be final and binding, while enforcement refers to the ability to actually implement the award.

In order to grant recognition and enforcement to a foreign arbitral award, Romanian judges must examine its compliance with a number of conditions of regularity provided for either by Law 105 or, as the case may be, by the applicable international convention to which Romania is a party. It must be noted that in doing so, the courts do not have the authority to either reconsider the case or modify the arbitral award in any way.

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International Conventions
Law 105 states that its provisions are applicable to the extent that the international conventions to which Romania is a party do not provide for different rules. Should this be the case, the provisions of an international convention regarding the regularity conditions to be fulfilled by the arbitral award prevail.

The most significant international convention to which Romania is a party is the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards – New York, 1958 - (“the New York Convention”), which has been ratified by 135 nations. The New York Convention was ratified by Romania with the reservation of applying it solely to arbitral awards rendered on the territory of Signatory States with regard to commercial matters.

As concerns the applicability of the international conventions, in a 1998 decision the Supreme Court of Justice of Romania ignored the express provisions of Law 105 according to which the provisions of international conventions take precedence, and refused to apply the New York Convention, instead, applied the conditions provided for by Law 105 . As a result, for practical reasons, lawyers tend to motivate their requests for enforcement of foreign awards by using mainly the provisions of Law 105 even in those cases where the New York Convention applies. For example, in one case, the Bucharest Municipal Court has granted the enforcement of a foreign arbitral award rendered by the ICC International Court of Arbitration in Paris, stating that “the award complied with the conditions provided for by Law 105”. Although the award was rendered in France, which is a Signatory State to the New York Convention -meaning the Convention was applicable to the case - both the Court of Appeal and the Supreme Court of Justice preferred to stick to the conditions provided for by Law 105.

The consequences of the courts’ refusal to apply the prevailing provisions of the international conventions are quite significant. On one hand, Law 105 provides for a larger number of regularity conditions to be fulfilled by the arbitral award in order to be enforced than the New York Convention. On the other hand, the latter has reversed the burden of proof of regularity conditions, as under the terms of the New York Convention, the arbitral award benefits from a presumption of regularity. Subsequently, the applicant does not have the obligation to prove the regularity of the arbitral award, but merely the obligation to provide the court with the arbitral award and the arbitral agreement. Thus, based on the New York Convention, the enforcement of the arbitral award can be denied at the defendant’s request, only if he manages to prove that the regularity conditions provided by the New York Convention were not fulfilled.

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The procedure by which judges examine the international regularity of foreign awards in order to grant them recognition and enforcement is commonly known as exequatur. In some cases, judges have construed the legal provisions in favor of the enforcement of foreign awards by making use of questionable arguments. For example, in one case, the defendant argued -- based on art. 167 b) of Law 105 which provides that the award must have been issued by a court having jurisdiction to hear the case -- that the court which rendered the award had no jurisdiction to hear the matter. The Bucharest Municipal Court rejected the defendant’s arguments and stated that, “since the Vienna Commercial Tribunal considered that it was competent to judge the case, the defendant’s argument regarding the alleged foreign court’s lack of jurisdiction cannot be examined by the court of exequatur” . The Court of Appeal did not hesitate to validate the reasoning of the Municipal Court . Such an argument should not be accepted, as the conditions provided by Law 105, i.e., among others, that the foreign award must be rendered by a competent court, would become void of any substance. Indeed, the Romanian courts should have instead verified the competence of the Austrian court rather than just assume that the court had jurisdiction to hear the case.

As concerns the costs of the exequatur procedure, the New York Convention states that “there shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” Indeed, the stamp duty payable in Romania for the recognition of a foreign award is similar to that payable for the recognition of a domestic award.

Once the Romanian court issues the exequatur, the award becomes enforceable in Romania. The exequatur judgment obliges the defendant to comply with the foreign arbitral award. In the event that the award is not complied with, the creditor must file an additional Motion for Forced Execution. The effective enforcement of foreign awards in Romania is accomplished by court-appointed officers, who are private persons duly authorized by the Romanian State.

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There is nothing unusual or problematic in Romanian law regarding the enforcement of foreign arbitral awards, which is why, in principle, one may expect Romanian courts to grant recognition and enforcement of such an award in Romania, provided that all of the legal requirements have been fulfilled. Romanian courts routinely enforce foreign judgments with respect to civil and family matters, (e.g., divorce), as well as foreign money judgments and are increasingly willing to grant similar recognition and enforcement to foreign arbitral awards. This is most likely due to the increasing number of international contracts containing arbitration clauses signed by Romanian companies so that claims for recognition and enforcement have gradually become a rather routine matter in Romania.

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A. Law 105/1992 B. New York Convention
1. The foreign award must be final and
    enforceable in compliance with the laws
    of the country where it was rendered.
 One may note that this condition is more
    restrictive than its equivalent in the New York
    Convention, which solely requires the award to
    be binding on the parties. The aptitude of the
    foreign arbitral award to be final and
    enforceable may be proven by the submission
    of a certificate issued by the arbitral court.
1. The award must have become binding on
    the parties.

2. The award must have not 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. The foreign award must be issued by an
    arbitral tribunal having jurisdiction to
    hear the case.
This condition is not fulfilled
    under the following circumstances:

    - the arbitral agreement is not valid; or
    - the award was rendered by an arbitral
      court which was not validly formed; or
    - the award deals with matters not falling
      within or beyond the scope of submission of
3. The arbitral agreement is valid under the
    law to which the parties have subjected it or,
    failing an indication thereon, under the law of
    the country where the award was made.

4. The parties to the arbitral agreement
    were not incapacitated.

5. The composition of the arbitral authority
    must have been 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.

6. The award must not deal with matters not
    contemplated by, not falling within or
    beyond the scope of the submission of
However, 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
    recognized and enforced.

3. The foreign award must not violate the
    principles of Romanian International
    Law public order.
For example, the foreign
    award must not infringe upon the exclusive
    competence of Romanian courts to deal with
    the matter and the subject matter of the award
    must be capable of settlement by arbitration.
7. The recognition or enforcement of the
    award must not be contrary to the public
under the law of the country where
    recognition and enforcement is sought.

8. The subject matter of the award must be
    capable of settlement by arbitration
 under the law of the country where recognition
    and enforcement is sought

4. In the event that the arbitral award was
    rendered in the absence of the non-
    prevailing party, it is mandatory that due
    service of process related to the hearing
    on the merits is assessed, and that such
    non-prevailing party has been granted
    the possibility to defend itself and to
    exercise any and all due remedies
    against such award.

5. The foreign award must not have been
    obtained fraudulently.

6. There must be reciprocity regarding the
    effects of foreign arbitral awards
    between Romania and the country of the
    arbitral tribunal which rendered the
    foreign award.
Such reciprocity implies that
    each country’s judiciary will, upon fulfillment of
    the various national procedures and the
    submission of appropriate documentation,
    recognize the adjudications issued by the
    arbitral courts located in the other country.

7. The case has not been decided upon by a
    Romanian court or was not pending
    before a Romanian court at the date
    when the case was filed with the foreign
    arbitral tribunal.

8. A foreign award can be enforced in
    Romania within statute of limitations,
 which is 3 years, unless the statute of
    limitations provided for by the law of the
    country where it was rendered is shorter.
9. The party against whom the award is
    invoked was given proper notice of the
    appointment of the arbitrator or of the
    arbitrator proceedings. Such party must
    have not been otherwise unable to
    present his case.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2005 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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