In a recent decision, the Danish Supreme Court has clarified the conditions for recognition and enforcement of foreign arbitral awards in Denmark. In this connection, it is a crucial parameter that the respondent has received notice of the arbitration proceedings.
Recognition and enforcement of foreign arbitral awards
Arbitration is a practical alternative to litigation in the ordinary courts. One of the characteristics of arbitration awards is that there is no possibility to appeal the decision to a higher court.
In relation to both judgments and arbitral awards rendered abroad, it is subsequently an important practical question whether the judgment or arbitral award can be enforced, i.e. enforced according to its content by the enforcement court, if the enforcement is to take place in Denmark.
Section 38(1) of the Arbitration Act establishes the basic principle for arbitral awards that they generally have binding effect in Denmark - regardless of whether they are made in Denmark or abroad.
Section 39 of the Arbitration Act describes the circumstances that may exceptionally lead to an arbitral award not being enforceable in Denmark. This may be the case, for example, if the respondent has not been duly notified of the arbitration proceedings or for other reasons has been unable to present its case.
The purpose of these exceptions is to safeguard fundamental principles of legal certainty for the respondent party, so that it has the opportunity to consider the material in the arbitration proceedings and to respond in the case.
The circumstances of the case
The case concerned a dispute between A and B, who had entered into an investment agreement which, according to B, was subsequently breached by A.
A and B had agreed that any dispute between the parties that could not be resolved by conciliation should be settled by arbitration before the Shanghai Arbitration Commission (SHAC).
B chose to initiate arbitration proceedings against A before the SHAC claiming that the investment agreement should be annulled and the investment amount repaid by A to B. In its request for arbitration to the SHAC, B stated that A had lived in Denmark since 2017.
After the commencement of the arbitration proceedings, SHAC sent notices of the arbitration proceedings to A at two Chinese postal addresses. One was A's former residence, which A had vacated in 1997, and the other was an inactive business that A owned but which was not related to the parties' agreement.
A did not participate in the arbitration. In 2020, the arbitral tribunal issued an award in which B's claims were upheld, including that A had to repay the investment amount. After receiving the arbitration award, B contacted A by email.
The Supreme Court had to decide whether the arbitral award could be enforced in Denmark.
The Supreme Court's result
The Supreme Court initially stated that it is a fundamental principle that a party must be notified of the commencement of arbitration proceedings and thus have the opportunity to present its case.
According to the Supreme Court, the decisive factor was whether the party receives such notice and not the form of the notice. The Supreme Court also stated that it is the party opposing enforcement that has the burden of proof that such notice has not been received. At the same time, however, the Supreme Court suggested a relaxation of the burden of proof, as the Supreme Court expressly stated that when assessing the evidence, it must be emphasized that it can be difficult to document something that has not happened.
In the specific case, the Supreme Court found it established that A had not received proper notice and had thus been prevented from presenting his case. In this connection, it was not considered significant that A had been formally served in accordance with the SHAC rules. As A had not received due notice of the arbitration proceedings and had therefore not had the opportunity to present his case, the arbitral award could not be enforced in Denmark.
The Supreme Court's ruling highlights the crucial importance of the adversarial principle in arbitration cases - also in connection with foreign arbitral awards. If you want to ensure that you can enforce an arbitration award, it is therefore also crucial that you ensure that the respondent is documented to have been informed about the arbitration process.
If you need advice or have any questions regarding litigation and arbitration, you are always welcome to contact CLEMENS' litigation and arbitration experts.
