What does the New York Convention require in terms of due process?
In Gol Linhas Aereas S.A v MatlinPatterson Global Opportunities Partners (Cayman) II L.P. and others  UKPC 21, the Judicial Committee of the Privy Council considered important questions concerning the content of article V(1)(b) of the 1958 New York Convention, which permits a party to resist enforcement of a foreign award on certain due process grounds.
The claimant obtained an award against two private equity limited partnerships (the “Funds”) in arbitral proceedings seated in Brazil and decided in accordance with Brazilian law. The dispute concerned sums alleged to be payable under a price adjustment clause in a Brazilian law-governed share purchase agreement to which the Funds were not directly party. The tribunal had found that the Funds were liable for tortious damages under a provision of the Brazilian Civil Code.
Due process and article V(1)(b) 1958 New York Convention
It was the Funds’ case that this legal basis had, in the arbitration, never been advanced by the claimant and that, accordingly, they had no proper opportunity to present their case on it. When, later, the claimant attempted to enforce the award in the Cayman Islands, one of the grounds upon which the Funds resisted enforcement was, therefore, that they were “…unable to present their case” under article V(1)(b) of the 1958 New York Convention (the “Convention”) (as incorporated into Cayman law by the Foreign Arbitral Awards Enforcement Act 1975). On appeal from the Cayman Court of Appeal, this fell for determination by the Judicial Committee of the Privy Council (the “Board”).
The Board looked closely at what constitutes “unable to present their case” under that Article. The first question concerned the system of law and standard by which this is assessed. Having considered practice in other jurisdictions, the Board held that, from the perspective of an English or Cayman court (it being common ground that there was no difference of approach between the two on such matters), although the system of law to be applied to the question was domestic (as the question involved the application of the domestic statute incorporating the Convention), the standard of due process thereunder was not local. Instead, an English or Cayman court should apply a standard capable of application to any international arbitration whatever the procedural law applicable and the nationality of the participants. This involves identifying basic minimum requirements which would generally, even if not universally, be regarded throughout the international legal order as essential to a fair hearing. As such, an infringement of this aspect of article V(1)(b) therefore requires a serious violation of fundamental and generally accepted requirements of due process; an approach consistent with other aspects of the Convention (such as its pro-enforcement objective).
The Board also observed that article V(1)(b) does not require a causal link between a due process violation and the decision of the tribunal (although, conversely, the Board pointed out that the court retains a discretion to permit enforcement if the tribunal’s decision could not have been different irrespective of a violation).
As to the facts of this case, the Board did not attempt to enumerate all the requirements of a fair hearing. It accepted, however, that in principle, a tribunal should not reach its decision on a basis which a party has had no opportunity to address. In the event, the Board held that that there had been no violation of article V(1)(b) because, among other things:
- the Funds had a full and fair opportunity to contest the factual allegations which the tribunal found proved and on which the Funds’ liability was based. The only matter of which the Funds did not have notice was the legal provision imposing liability (article 148 of the Brazilian Civil Code) which the tribunal applied. Furthermore, the central allegation against the Funds was one of fraud so, even if the particular legal reasoning was not anticipated, it could not have come as a complete surprise that some form of liability would arise if the key allegations were proven;
- in contrast to answering factual or evidential findings, legal traditions took different views, in the due process context, as to legal reasoning. Therefore, a tribunal has greater leeway in relation to adopting legal reasoning and applying legal sources different from those invoked by the parties than it does in relation to matters of fact; and
- the procedural law of the arbitration was Brazilian law, and Brazilian lawyers represented the parties; in that context the conduct of the tribunal would reasonably be influenced by Brazilian practice (and in that respect it was therefore significant that the Brazilian courts had found that there was no violation of due process).
Comment and conclusion
Although decisions of the Board are not technically binding in England, they are (generally) of great persuasive value. So, from the perspective of the English courts, the decision will be important in guiding how section 103(2)(c) Arbitration Act 1996 (the provision of English law which incorporates article V(1)(b)) is applied. Likewise for local laws in other common law jurisdictions in which the Board’s rulings are persuasive.
One final, separate, point in the Board’s decision is worth mentioning; the Funds had disputed jurisdiction both before the tribunal and in set-aside proceedings in Brazil. In the later Cayman enforcement proceedings, the Board accepted that the Brazilian court’s ruling at the set-aside stage met the requirements to give rise to an issue estoppel so as to preclude the Funds from resisting enforcement under article V(1)(a) of the Convention. This is a useful illustration to parties contesting an award that there can be potential consequences in the event that issues overlap at the set-aside and enforcement stage.Click here for a copy of the judgment.