Constitutional Court requires Supreme Court to abide by 1958 New York Convention on Arbitration

Azerbaijan’s Constitutional Court (“CC”) invalidated decision of the Supreme Court on refusal to recognize and enforce an arbitral award.  The arbitral award was issued by the Korean Arbitration Council.  The decision is an important step in enforcement of foreign arbitral awards in Azerbaijan.

Facts and Supreme Court Refusal

The South Korean corporation, POSCO Daewoo, signed the contract with Azerbaijani company, Grand Motors LLC, on the supply of certain construction related equipment.  In the contract, parties agreed to resolve their disputes via arbitration based on the arbitration rules of the Korean Arbitration Council.  The local company breached the contract and POSCO Daewoo ultimately took the matter to arbitration and obtained an award its own favor.  The award, in particular, required Grand Motors LLC to pay money damage to POSCO Daewoo.

POSCO Daewoo submitted the award to the Azerbaijani Supreme Court (“SC”) seeking to enforce it.  Azerbaijan’s Supreme Court is the authority in charge of recognition and enforcement of foreign arbitral awards.  The Supreme Court refused enforcement on the grounds that the defendant (Grand Motors LLC) was not given due notice of the arbitration proceedings.  It can be inferred from the CC’s decision that the SC did not give POSCO Daewoo an opportunity to rebut Grand Motor LLC’s argument.   According to the CC, the Supreme Court made its decision solely based on Grand Motor LLC’s contention it did not receive the notice of arbitration proceedings.

CC Decision and Significance

The Constitutional Court overturned decision of the Supreme Court on refusal to enforce the award issued by the Korean Arbitration Council.  The Constitutional Court noted that the SC failed to comply with the 1958 New York Convention on enforcement of arbitration awards and local laws, which contain rules substantially similar to those in the Convention.  In particular, under the Convention and Azerbaijan’s Civil Procedure Court, it is the obligation of the party against whom enforcement is sought to prove that any of the grounds for refusing the enforcement exists.  This implies that the any such contention must be duly considered and investigated by the court based on, among other things, the principle of equality of arms.

In essence, the decision is the message to the Supreme Court that enforcement of foreign arbitral awards must be taken seriously and enforced, subject to the Convention and the local regulations.