In a recent ruling, the Supreme Court clarified the conditions for recognition and enforcement of foreign arbitral awards in Denmark. In this context, 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 resolving disputes in the ordinary courts. Arbitration awards are characterized, among other things, by the fact that there is no possibility of appealing 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 bailiff's court, if enforcement is to take place in Denmark.
Section 38(1) of the Arbitration Act establishes the fundamental principle for arbitral awards, namely that they are, as a starting point, binding in Denmark, regardless of whether they are made in Denmark or abroad.
Section 39 of the Arbitration Act contains a description of the circumstances which, in exceptional cases, may 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 has been unable to present its case for other reasons.
The purpose of these exceptions is to safeguard fundamental principles of legal certainty for the respondent, so that the respondent has the opportunity to consider the material in the arbitration case and to respond to 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 settlement would be settled by arbitration at the Shanghai Arbitration Commission (SHAC).
B chose to initiate arbitration proceedings against A at SHAC, claiming that the investment agreement should be annulled and the investment amount repaid by A to B. In its request for arbitration to SHAC, B stated that A had been living in Denmark since 2017.
After the arbitration case was filed, SHAC sent information about the arbitration case to A at two Chinese postal addresses. One was A's former residence, which A had moved out of in 1997, and the other was an inactive business owned by A but unrelated to the parties' agreement.
A did not participate in the arbitration proceedings. In 2020, the arbitral tribunal issued a ruling in which B's claims were upheld, including that A should repay the investment amount. After receiving the arbitration award, B contacted A about this by email.
The Supreme Court had to decide whether the arbitration award could be enforced in Denmark.
The Supreme Court's ruling
The Supreme Court initially ruled that it is a fundamental principle that a party must be notified of the initiation of arbitration proceedings and thus have the opportunity to present its case.
According to the Supreme Court, the decisive factor in this connection was whether the party received such notification and not the form of the notification. The Supreme Court also stated that the party opposing enforcement has the burden of proving that such notification was not received. At the same time, however, the Supreme Court indicated a relaxation of the burden of proof, stating explicitly that, in assessing the evidence, weight must be given to the fact that it can be difficult to document something that has not happened.
In this specific case, the Supreme Court found that it had been proven that A had not received proper notification and had therefore been prevented from presenting his case. In this connection, it was not considered significant that, according to SHAC's rules, formal service had been effected on A. Since A had not received proper 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 underscores the central importance of the adversarial principle in arbitration cases, including in connection with foreign arbitral awards. If you want to be sure that an arbitration award can be enforced, it is therefore also crucial to ensure that the respondent is demonstrably 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.
