Arbitral awards are final and binding. In certain circumstances, however, they can be challenged or annulled through judicial proceedings. The annulment of arbitral awards (also known as “setting aside” or “vacatur”) refers to the legal process by which a court sets aside or nullifies an arbitration award that has been issued by an arbitral tribunal.
The process of seeking annulment typically involves filing an application with the relevant court, which then reviews the grounds presented by the appellant and makes a determination as to whether the award should be annulled. This process is distinct from an appeal, which involves a review of the award on its merits.
The grounds for annulment and the procedures for seeking annulment may vary from one jurisdiction to another. Nonetheless, most national arbitration regimes have adopted broadly similar approaches to the available grounds for annulment. In most jurisdictions, the grounds for annulment are limited to the grounds that apply to the non-recognition of awards as set out in Article V of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). This is especially the case in the dozens of national arbitration regimes that are based on the UNCITRAL Model Law on International Commercial Arbitration 1985 (with Amendments as adopted in 2006)(the “UNCITRAL Model Law”).[1]
Presumptive Validity of Arbitral Awards
Article 34 of the UNCITRAL Model Law sets out the “presumptive validity” of international arbitration awards; they have a binding force and preclusive effects from the moment they are made and are subject to immediate recognition before local and foreign courts.[2] This “presumptive validity” is subject to a limited number of exceptions that are set out in the UNCITRAL Model Law, Chapter VII (Recourse against Award), Article 34, and Chapter VIII (Recognition and Enforcement of Awards), Article 36.
Annulment of Arbitral Awards Pursuant to Article 34 of the UNCITRAL Model Law
Article 34 of the UNCITRAL Model Law regulates the annulment or setting aside of arbitral awards. It provides a comprehensive list of limited and narrowly defined grounds for setting aside, which aligns with the underlying pro-arbitration rationale of the UNCITRAL Model Law. The drafters of the UNCITRAL Model Law used Article V of the New York Convention for inspiration and merely replicated the same grounds that may be invoked to resist the recognition and enforcement of an award, irrespective of the country in which it was made.
Article 34 of the UNCITRAL Model Law reads in full as follows:
CHAPTER VII. RECOURSE AGAINST AWARD
Article 34. Application for setting aside as exclusive recourse against arbitral award
(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.
(2) An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes proof that:
(i) a party to the arbitration agreement referred to in article 7 was 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 this State; or
(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or 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, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or
(b) the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii) the award is in conflict with the public policy of this State.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request had been made under article 33, from the date on which that request had been disposed of by the arbitral tribunal.
(4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.
Article 34, therefore, deals with the admissibility of actions to set aside an award and the applicable standards. The UNCITRAL Model Law does not, however, provide guidance on procedural matters (such as the required form of applications or their content). This is normally regulated in national procedural or arbitration laws.
Exclusive Nature of the Annulment of Arbitral Awards
The first paragraph of Article 34 of the UNCITRAL Model Law emphasizes that the setting-aside or annulment procedure is, formally speaking, the only remedy that unsuccessful parties can have against an arbitral award. Even though the recourse in Article 34 is named as “exclusive”, in practice, the losing party has another choice – it can also resist recognition and enforcement of the arbitral award pursuant to Article 36. This means that, in practice, the same grounds can be invoked before the courts at the seat of arbitration for setting aside and resisting recognition and enforcement.[3]
The grounds provided in Article 34 are explicitly enumerated, so they exclude any other grounds. There is little doubt that the intention of the drafters was for the list to be exhaustive, as the provision states that an award may be annulled “only if” the party challenging the award establishes one of the six grounds listed in Article 34. This also means that national courts in Model Law jurisdictions are not only prevented from conducting a de novo revision of the merits of a case but also cannot refer to the grounds for appeal that are available against court judgments by analogy.[4] Courts have stressed numerous times that the UNCITRAL Model Law does not permit review of the merits of the award, which the Singapore courts have held to be “trite law”.[5]
The setting aside proceedings are also not appeal proceedings in which evidence is re-evaluated and the “correctness” of the tribunal’s decision on the merits is examined, as many court decisions confirm.[6] As a result, the rules related to an extension of time limits or possible remedies in national appeal proceedings do not apply. National courts have continuously emphasized the exceptional character of this remedy. As held by the Singapore court in CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK, for instance, the reason for such “minimal curial intervention” is to acknowledge “the primacy which ought to be given to the dispute resolution mechanism that the parties have expressly chosen”. [7]
The Grounds for Annulment of Arbitral Awards under the UNCITRAL Model Law
Determining the grounds for annulment of arbitral awards was one of the most difficult tasks for the drafters of the UNCITRAL Model Law. Despite different proposals, the Working Group eventually decided to limit the scope to the grounds of Article V of the New York Convention.[8] This was the safest solution in order to facilitate international practice and avoid obstacles that may arise due to different procedures and distinct rules and time limits in different jurisdictions.
The grounds for seeking setting aside of arbitral awards are divided into two categories:
Article 34(2)(a):
- Lack of capacity of a party to conclude an arbitration agreement;
- Lack of a valid arbitration agreement;
- Lack of notice of appointment of an arbitrator or of the arbitral proceedings or inability of a party to present its case;
- The award deals with matters not covered by the submission to arbitration;
- The composition of the tribunal or the conduct of the arbitral proceedings was contrary to the effective agreement of the parties or, failing such an agreement, to the UNCITRAL Model Law.
Article 34(2)(b):
- Non-arbitrability of the subject matter of the dispute;
- Violation of public policy (understood as serious departures from “fundamental notions of procedural injustice”).
This division reflects the difference between purely procedural grounds (listed under (a) above) and grounds with potentially substantive significance (grounds listed under (b)).
It reflects another distinction: in the case of the grounds listed under (a) above, an arbitral award will be set aside only if the party making an application provides evidence that one of the grounds as set out in Article 34 has been fulfilled. In case of the grounds listed under (b), the court may also do so ex officio, meaning it can set aside an award if it finds that the subject matter is not arbitrable or the award is contrary to public policy.
Article 34 (2)(a)(i) of the UNCITRAL Model Law
Under almost all national legal systems, an international arbitral award may be annulled if it was based on a non-existent or invalid arbitration agreement or if one of the parties lacked the capacity to conclude such an agreement. This ground stems from the basic principle that arbitration is based on the consent of the parties and, in the absence of such consent, an arbitral award is invalid and ineffective.[9]
Incapacity of One of the Parties to the Agreement
The rationale underlying this rule is that an agreement to arbitrate should not have any effect if the parties to it lack the capacity to conclude it. The parties’ capacity (or lack thereof) must be assessed with reference to the moment in time when the agreement was concluded. If the party possessed capacity at the time when the agreement was concluded, the agreement will remain valid, even if that party subsequently enters into liquidation or loses the ability to conclude agreements to arbitrate according to the applicable law.[10]
The UNCITRAL Model Law does not clarify which law determines the parties’ capacity to conclude an agreement to arbitrate. This provides tribunals and national courts with significant discretion to determine the applicable law to the parties’ capacity to conclude the arbitration agreement. This can also create problems as there is a risk that the national court reviewing the award may conduct a conflict of laws analysis different from the analysis performed by the arbitral tribunal.[11]
Invalidity of the Agreement
The second part of Article 34(2)(a)(i) concerns the invalidity of the arbitration agreement. In case of invalidity, unlike in the first limb, the drafters have specified that the validity of the agreement should be assessed in accordance with the law to which the parties have subjected it or, in the absence of any indication, the law of the seat where the setting-aside proceedings are taking place.
Commentators on the UNCITRAL Model Law suggest that Article 34(2)(a)(i) should be read in light of the principle of separability, meaning that the invalidity of the main contract does not automatically extend to the agreement to arbitrate.[12]
Interestingly, this provision does not apply in a scenario where arbitrators have declined jurisdiction to hear the case because of a lack of an effective or valid arbitration agreement. The reason is simple – the decision by which the tribunal declines jurisdiction does not qualify as an “arbitral award” for the purposes of the UNCITRAL Model Law (i.e., there is no “consent” to arbitrate in the first place). The legislative history of the UNCITRAL Model Law confirms such a view. Indeed, the drafters discussed the possibility to allow a challenge against a negative jurisdictional decision, but ultimately decided not to include it in Article 34.[13]
Article 34 (2)(a)(ii) of the UNCITRAL Model Law
In most developed jurisdictions, an arbitral tribunal’s failure to provide the losing party with an equal and adequate opportunity to present its case is a ground for annulment. Article 34(2)(a)(ii) of the UNCITRAL Model Law incorporates several procedural guarantees, including (1) the right to equal treatment, (2) an adequate opportunity to present the case, and (3) a defence against arbitrary procedures. This also reflects the requirements of Article V(1)(b) of the New York Convention.
Article 34 (2)(a)(ii) encompasses two situations, both of which relate to the challenging party’s right to be heard and present its case:
- First, a case where the challenging party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings;
- Second, all other hypotheses in which the party making the application was “otherwise unable to present the case”, despite having been given notice of the proceedings and of the appointment of the arbitrators.
In this first limb, the party was not informed about some crucial aspects of the arbitration and, in the most extreme cases, may not have been made aware of the existence of the arbitral proceedings at all. In practice, this rarely happens, especially in institutional arbitrations, as both arbitral institutions and arbitrators are reasonably careful in ensuring that all the parties are informed of the developments concerning the constitution of the tribunal and arbitration proceedings. Nevertheless, cases may arise in which a party is not provided proper notice of the arbitration or of an essential step in the arbitral proceedings and where the tribunal’s award may subsequently be annulled.
The UNCITRAL Model Law does not specify any time limits for such notifications. It also does not specify what type of “notice” qualifies as “proper notice” for the purposes of this article, although guidance may be found in Article 3 of the UNCITRAL Model Law.[14] As Gary Born explains, there is little doubt, however, that “proper notice” does not mean the same type and form of notice as that required in national court proceedings. Instead, it refers to a notice that is appropriate given the parties’ contractual dispute resolution mechanism, including the provisions of their arbitration agreement and any applicable institutional arbitration rules.[15]
The second scenario occurs more frequently in practice. The purpose of this provision is to ensure that the parties’ due process and fundamental rights are protected and that they are adequately informed about the existence of the proceedings. All parties must be given an equal opportunity to present their case. Such an opportunity also must be effective – they must effectively be enabled to present their defences without unreasonable restrictions. Setting aside should not permitted for simple errors or debatable procedural choices that the tribunal may have made during the course of the proceedings.[16]
Article 34(2)(a)(iii) of the UNCITRAL Model Law: Excess of Mandate
An award may also be set aside in most legal systems if the arbitral tribunal has “exceeded its authority” or acted ultra petita, i.e., in cases where the award deals with matters that were not encompassed within the terms of the agreement to arbitrate or the parties’ submissions. This provision, however, does not apply to the infra petita scenario, where the award contains rulings on less than what was requested by the parties.[17]
For the purposes of Article 34(2)(a)(iii), the notion of excess of mandate is potentially applicable to two similar but not identical situations:[18]
- First, the award may deal with a dispute that does not fall within the scope of the arbitration agreement. In this case, the basic prerequisite for the jurisdiction of the tribunal (the parties’ mutual consent to arbitrate) is lacking;
- Second, it is possible that a certain dispute is, in principle, covered by a valid agreement to arbitrate, but none of the parties submitted it to the tribunal. In this case, the parties have consented to arbitrate, but none of them has “activated” the agreement by putting forth a specific claim.
In other words, for the arbitrators not to exceed the limits of their mandate, two requirements must be fulfilled: (1) the dispute must be covered by a valid agreement to arbitrate, and (2) at least one of the parties must have formulated a claim, asking the tribunal to resolve that specific dispute.[19]
In practice, an award may be set aside only in part when the tribunal adjudicated different claims, but only some of them were encompassed within the scope of the arbitration agreement. As Gary Born notes, Article 34(2)(a)(iii) does not expressly impose a materiality requirement, but there is generally no justification for annulling an award based on immaterial excesses of authority. In his opinion, the better view is that a tribunal’s excess of authority should warrant annulment only where it causes material prejudice to the award-debtor.[20]
Article 34(2)(a)(iv) of the UNCITRAL Model Law: The Composition of the Arbitral Tribunal and Arbitral Procedure
The parties are free to shape the arbitral procedure in accordance with their needs and preferences, even though, in practice, agreements on procedure are more frequently reached with the incorporation by reference of a set of arbitration rules. Article 34 acknowledges this basic notion by allowing the competent court at the seat to set an award aside if the parties’ agreement was not respected in one of two crucial respects: the composition of the tribunal and the arbitral procedure.
There is, however, an exception to this general rule, which is also explicitly set out in Article 34(2)(a)(iv) and applies in cases where the parties’ agreement was in conflict with a mandatory provision from which the parties cannot derogate. The final parts of this provision also consider the hypothesis where the parties did not reach an agreement concerning the composition of the tribunal or the arbitral procedure, in which case they fall back to the provisions of the UNCITRAL Model Law.
Article 34 (2)(b)(i) of the UNCITRAL Model Law: Subject Matter of the Dispute Not Capable of Settlement by Arbitration
Article 34 (2)(b)(i) is also modelled upon Article V(2)(a) of the New York Convention. It was slightly amended to expressly confirm that the non-arbitrability standards of the annulment forum apply. The court of the seat of arbitration is, therefore, empowered to assess (also on its own motion) whether the case that the arbitrators have decided was capable of settlement by arbitration.
Even though the UNCITRAL Model Law recognizes the importance of arbitrability as a limit to party autonomy, it does not introduce a harmonized regime in this respect. It is up to each enacting State to determine what categories of disputes cannot be submitted to arbitration and are non-arbitrable. Ultimately, as commentators note, the notion of arbitrability to which Article 34(2)(b)(ii) refers is an “empty box”, which must be filled with contents determined by the law of the State where the arbitral proceedings are seated.[21]
Article 2(b)(ii) of the UNCITRAL Model Law: Award in Conflict with Public Policy
Under Article 2(b)(ii) of the UNCITRAL Model Law, an award may be set aside if it is in conflict with the public policy of the seat of arbitration. Most jurisdictions provide that an arbitral award may be annulled if it violates a limited number of fundamental public policies or mandatory laws. The public policy exception is frequently invoked as a basis for annulling arbitral awards. However, this ground also gives rise to a number of complexities. The problems that arise are the same that arise in connection with the application of the public policy doctrine in other contexts, in particular, the recognition and enforcement of arbitral awards.
The Working Group clarified that the notion of “public policy” covers fundamental principles of law and justice in substantive as well as procedural aspects.[22] The notion must be interpreted strictly, however, and invoked only in exceptional circumstances if an award is in conflict with some of the most basic and fundamental principles of the State where the arbitration is seated.[23] A number of court decisions have also confirmed the narrow scope of this provision and that it should be applied only in cases of the most serious procedural or substantive injustice and in exceptional circumstances.[24]
Time Limit for Applications for Annulment
Most national arbitration legislation imposes different time limits on applications to annul and recognize arbitral awards (both domestic and foreign). The interaction of these time limits and the consequences of failing to comply with them gives rise to problems in practice.
The UNCITRAL Model Law, in turn, only allows setting-aside applications within the time limit of three months (Article 34(3)). After this period of time has elapsed, an award can no longer be set aside but only denied recognition and enforcement in line with Article 36 of the UNCITRAL Model Law.
A relatively short time frame for annulment applications is justified by the need to protect legal certainty. The three months are calculated from the moment when the challenging party “received the award”. If the award is not immediately communicated to the parties upon its making, the time limit does not immediately start to run.
Suspension of Annulment Proceedings and Remission of the Award to the Tribunal
Finally, Article 34(4) explicitly sets out the possibility for the court at the seat of arbitration to suspend the annulment proceedings and remit the award to the tribunal so that the arbitrators can resume the arbitral proceedings or take other action that will eliminate the grounds for setting aside. This solution equally arises from the pro-arbitration rationale that underpins the entire UNCITRAL Model Law. By giving the arbitrators the possibility to modify the award, the UNCITRAL Model Law attempts to diminish the chances that the arbitral awards will be annulled. In order for the award to be remitted to the tribunal, three conditions must be met:
- The competent court at the seat of arbitration must have received the setting-aside application;
- One of the parties must have requested the remission; and
- The court must consider the remission “appropriate”.
[1] The grounds for setting aside provided in Article 34 of the 1985 UNCITRAL Model Law were not amended in 2006.
[2] G. Born, International Commercial Arbitration (Third Edition, Kluwer Law International, Updated August 2022), Section 25.03 [A].
[3] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 862, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898.
[4] Id. para. 865.
[5] UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, Case Law on Article 34, para. 25; see PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation, High Court, 20 July 2010, [2010] SGHC 202 (SA), affirmed in CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK, Court of Appeal [2011] SGCA 3.
[6] UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, Case Law on Article 34, para. 3.
[7] CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK, Court of Appeal, 13 July 2011, [2011] SGCA 3, at [25].
[8] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 860, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898; see also Report of the Working Group on International Contract Practices on the Work of Its Fifth Session, UN Doc. A/CN.9/233 (28 March 1983), para. 187.
[9] G. Born, International Commercial Arbitration (Third Edition, Kluwer Law International, Updated August 2022), Section 25.04 [A].
[10] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 867, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898.
[11] Id. para. 868.
[12] Id. para. 870.
[13] Report of the United Nations Commission on International Trade Law on the Work of Its Eighteenth Session, UN Doc. A/40/17 (21 August 1985), 58, para. 163.
[14] Article 3 of the UNCITRAL Model Law (Receipt of written communication) provides “(a) any written communication is deemed to have been received if it is delivered to the addressee personally or if it is delivered at his place of business, habitual residence or mailing address; if none of these can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last-known place of business, habitual residence or mailing address by registered letter or any other means which provides a record of the attempt to deliver it; (b) the communication is deemed to have been received on the day it is so delivered.”
[15] G. Born, International Commercial Arbitration (Third Edition, Kluwer Law International, Updated August 2022) Section 25.02 [B](6).
[16] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 878, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898.
[17] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 879, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898.
[18] Id., para. 880.
[19] Ibid.
[20] G. Born, International Commercial Arbitration (Third Edition, Kluwer Law International, Updated August 2022) Section 25.04 [F](5).
[21] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 892, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898.
[22] Report of the United Nations Commission on International Trade Law on the Work of Its Eighteenth Session, UN Doc. A/40/17 (21 August 1985), 58, para. 297.
[23] P. Ortolani, Article 34, Application for Setting Aside as Exclusive Recourse against Arbitral Award, p. 893, in I. Bantekas, P. Ortolani, S. Ali, M. Gomez, & M. Polkinghorne, UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020), pp. 858-898.
[24] Digest of UNCITRAL Model Law, Case Law on Article 34, para. 129.
