New York Convention 1958

New York Convention 1958

Under the New York Convention international arbitral proceedings are, in effect, subject to control by the courts of the seat of the arbitration and by the courts of any State in which the recognition or enforcement of the arbitration award might be sought. Is that position satisfactory from the perspective (a) of the parties to the arbitration and (b) to the States concerned? How might the position be improved?

The New York Convention of 1958: Background

The New York Convention (NYC) is the most significant treaty among the international commercial arbitration and plays a vital role in shaping them. It is the genesis of International Chamber of Commerce (ICC), which promoted a proposal in the United Nations Economic and Social Council (ECOSOC) in 1953 and as a result NYC was adopted in 1958.[1] It is a significant upgrading of the Geneva Convention (GC) of 1927 and providing “a much more simple and effective method of obtaining recognition and enforcement of foreign arbitral awards”. It replaces the GC of 1927 and removed the “double exequatur”[2] procedure by shifting the burden of proof to the party seeking resistance the award recognition from the party seeking its enforcement.[3]

By the Art.II.3[4] the NYC adopted the technique of the Geneva Protocol (GP) of 1923 for the enforcement of arbitration agreements. Unlike the GP of 1923, the NYC also intends to apply in international arbitration agreements rather than purely domestic arbitration agreements. The NYC operates with the “recognition and enforcement of foreign arbitral awards”.[5]

Framework:

The NYC deals with both the enforcement of the agreement and the recognition of awards where the loser has possessions. Moreover, the Convention deals with those written agreements which are not subject to “null and void, inoperative or incapable of being performed”. The Convention “recognizes foreign awards as they would domestic ones” and states that awards shall be “in accordance with the rules of procedure of the territory where the awards is relied upon”.[6]

Scope:

(a) Nationality generally irrelevant

(b) Awards

(c) Agreements

(d) Requirement of a writing

(e) Reservations

(f) Defences to recognition and enforcement

Distinction between recognition and enforcement:

Recognition and enforcement of awards is the most important part in terms of the success of the international arbitration. Generally, when an award is enforced it assumes that it is recognised and seems as if they were knotted. However there are examples where “an award is recognised but not enforced”. Generally “recognition is the national court proceedings which amount to a judicial decision, often called an exequatur.” It's likely to be a defensive process which works as shield. Recognition may be helpful to prevent the court proceedings when the unsuccessful party instigates the court proceedings related with awards and it also works as an evidence of a debt or receivables.

On the other hand, enforcement is a judicial process which gives effect to the authorization of the award, as likely to work as a sword. Therefore the successful party can enforce the award against the other party (award debtor) by implementing the power and sanction of the court if the debtor fail or voluntarily refuse to comply with the award. The categories of sanctions differ from country to county, such as seizing the debtor's property, freezing their accounts or may be custodial sentence in serious cases.

As the successful party ask the assistance of the court, the unsuccessful party may also ask for the resistance of the enforcement. Recognition and enforcement of foreign awards become important particularly when the state courts use its compelling power for the performance of the award by the award debtor and if the debtor does not comply there would be no enforcement.

For the reason of recognition and enforcement it should differentiate between domestic awards and foreign awards. While domestic awards are based on national laws, foreign awards are put into effect under the NYC. Particularly there are no big distinctions between the enforcement systems of national and international awards.[7]

Two Basic Actions:

The following two basic actions reflected by the NYC 1958.

The first action of the NYC is in relation to the recognition and enforcement of the foreign awards which made in the territory of another states and the sphere of application is stated in Article I. Article I(2) states that it is applicable to all foreign awards. Article I(3) declare certain reservations that generally the Contracting States are obliged to give recognition of such awards as binding and to enforce them according to their procedural rules of the territory where the award is relied on.[8] Additionally Article III directs “that a foreign award must be enforceable without unnecessary inconvenience or excessive fees, and the conditions[9] must not be more onerous than those for domestic awards”.[10] Several countries have preserved such reservations, as well as US, UK and France.[11] The party seeking recognition and enforcement of the foreign award need to provide (a) the authenticity of the award and (b) the original copy of agreement (Article IV). The award debtor may refuse the enforcement based on the competitive authority of limitedly enlisted grounds in Article V, paragraph 1. The court also may refuse to enforce the foreign award if it is contrary to the public policy as stated in Article V, paragraph 2. If the award has been set aside by the country in which or under the law of which (“the country of origin”), it was made, the court of enforcing country may adjourn the decision of the enforcement (Article VI). Finally, Article VII, paragraph 1 states that, if the Contracting States have agreements with other multilateral or bilateral conventions, then the present Convention should not affect the party's right to seek the more favourable provision.[12]

The second action is if the court of a Contracting State seizes a matter made in that arbitration agreement, then at the request of one of the parties the court should refer the matter to that party provided in Article II, paragraph 3.[13]

In both actions, the arbitration agreement must fulfil the requirements of Article II, paragraph 1 & 2, which contain that the agreement must be in writing.[14]

The judicial nature of international commercial arbitration:

Professor Julian Lew said “the identification of the legal nature of arbitration allegedly holds the key to the identification of the legal and non-legal yardsticks available to arbitrators in international trade disputes”. Hence the legal status of the international arbitrator and the exercise which they operate in their national legal system are being affected by each judicial theory.

The jurisdictional theory focuses on the supremacy and control of the concerned state while regulating any arbitration procedure by its laws and courts within its territory. This theory focuses in the administrative power of the sovereign state over the parties entering into the agreement, the proceedings, the powers of the arbitrator and the award. The theory emphasizes the lex loci arbitri i.e. the law of the seat or the place of arbitration.

The theory thus highlights that without the sovereign state's authorization no international arbitration reference can take place in that territory and it must be identified in a specific state. This ‘authorization' covers the parties' right to choose an arbitral subject matter and procedural system.

The modern practice and systems of laws of international commercial arbitration does not fit flawlessly with this theory and makes it complicated to uphold the fine difference between the procedural rules and tribunal as opted by the parties on one hand and the seat of arbitration, i.e. the lex loci arbitri on the other hand. As the sovereign state will not promote a subject matter which is not in its law, in the same way, it will not recognize or enforce an arbitral award which is not under the law of the state.

Often the arbitrators and the disputing parties are given very wide discretion by most of the modern arbitration laws over the exercise of international arbitration references and thus to protect compulsory requirements of its rules and laws of public policy. The argument for giving the importance to the seat of arbitration is persuasive which is reflected under Articles V (1) (d) and (e) of the NYC. The final award may be set aside from being claiming the same award in other place. Even this is the same if the award debtor does not have any assets in the judicial territory of that sovereign state. Nevertheless, there are some famous cases where the court made decisions giving less importance to the seat of arbitration.[15]

Have to discuss more

The concept of the “Seat” and its Importance:

The ‘seat' or ‘place' of arbitration is that where the jurisdiction will take place and it may be or can be different from the place of the hearing. For example, the seat or place may be in UK, but the hearing may take place outside the UK. The implication of the seat of arbitration is that the selected jurisdiction will administer all the procedural conduct of that arbitration.[16]

According to Article V (1) (e), the sovereign state is not oblige to give effect of an arbitration if that award has been set aside or suspended by its country of origin, i.e. under the country in which or under the law of which.[17] The intention of the draft “under the law of which” was to apply in very rare cases where the parties wishes to arbitrate in Germany but the pursuant law is of Greece and Germany law allows them for that. To do so and the arbitration law to be effective, it needs to allow both states. Therefore, it is clear that “under the law” means under the arbitration law of which country the procedural work will conduct and “not the substantive law of contract that is the subject of the proceedings”: Bridas SAPIC v Government of Turkmenistan.

Misadventures of that conception: the Indian Supreme Court and Pakistani Court in Lahore gave “overriding jurisdiction and control” over the pursuant law of abroad which the parties agreed:

* Oil & Natural Gas Commission v Western Co of North America (Indian Supreme Court,1987)

* National Thermal Power Corp v The Singer Co (Indian Supreme Court, 1993)

* Sumitomo Heavy Industries Ltd v ONGC Ltd et al (Indian Supreme Court, 1998)

* Rupali Polyester Ltd v Bunni (Lahore High Court, 1994 and Pakistani Supreme Court, 1997)

In these cases the court found that the subject-matter of contracts were based on Indian or Pakistani law and therefore, the parties agreed to govern those contracts according to that law.[18]

However, the judgement is not effective under the NYC for such extraterritorial involvement and hence the arbitration is not valid: the Pertamina case (2d Cir 2002-2003). Besides, the arbitrator of that relevant jurisdiction may have to resign for the contempt of court.[19]

The literal meaning of “country in which” is where the award was ‘made' i.e. signed. This is totally incidental and may depend on where the arbitrators live or when the award should be signed. In Hiscox v Outhwaite (No 1) (House of Lords, 1991), the parties agreed to arbitrate in England where all the proceedings took place. But the award was signed and dated “in Paris” where the arbitrator resided and was held that “the award could not be controlled by the English court”. To avoid such hazards the modern practice is that the state will be there where the parties agree to arbitrate. Such as section 2(1) of the Arbitration Act 1996 (England & Wales) states that “The provisions of this Act apply where the seat of the arbitration is in England and Wales or Northern Ireland” and section 3(a) states “[T]he ‘seat of the arbitration' means the juridical seat designated by the parties to the arbitration agreement ….”.

Influence of the seat:

http://www.mallesons.com/publications/International_arbitration/7979553w.htm

The Convention's Enforcement regime:[20]

Two obligations imposed on the signatories of the NYC to give validity of the arbitration agreement:

i. First, according to Article II, the agreement must be in “written” in an exchange of letters or telegrams.

ii. Second, according to Article III, the foreign award must be “binding” in accordance with national rules and procedure.

In terms to the second requirement, Article V (1) states that a party may refuse the recognition and enforcement of an award if the party can proof (a) the agreement was invalid or there was incapacity, or (b) the debtor party was not given proper notice or was unable to present its case; or (c) the award was different than the submission to the arbitration; or (d) there were some imperfection in the arbitral composition or the tribunal; or (e) the award has been set aside or suspended by the country of its origin. Additionally, Article V (2) states that the state court may refuse the recognition and enforcement by its own motion if the subject matter does not match with the law of that country or the award is contrary to “the public policy of that country”.

In spite of that unenforceability under Article V, by virtue of Article VII (1) some national courts have enforced so called more-favourable national arbitration law.[21]

The validity of arbitration agreement:[22]

The validity of an agreement depends on two issues. In one hand, an ordinary court jurisdiction can be excluded by a valid arbitration agreement which has been covered by the arbitration agreement. On the other hand, the validity of an arbitration agreement depends on condition for enforcing the award. In terms of international cases, the place/court where the enforcement of the award has been sought is different than the place where it was made, consequently NYC is enforceable. Article V of the Convention defines under which grounds the enforcement of a foreign arbitral award would be invalid. Among them Article V (1) (a) refers Article II which requires the agreement be in “written” as one of the grounds to refuse the enforcement of a foreign award. Therefore, the validity of the agreement is the precondition of an arbitral tribunal, on top of the enforceability of the award.

Not a perfect document:

i) The Requirement of a “Written” Arbitration Agreement Is Too Strict and Outdated:

The factual meaning of Article V (1) (a) is that the applicable law would be of the place of arbitral tribunal to determine the validity of the arbitration agreement. Therefore, the national laws vary from country to country. Some have very strict laws and some are liberal laws or may not require any form.[23] Such as, Article 807 of the Italian Code of Civil Procedure entails written agreement which is as strict as the Convention. Section 5 of the English Arbitration

Act entails written agreement. Nevertheless, Section 5(3)-5(5) specify other than written agreements as long as they refer the terms in writing or only one party have recorded the agreement in writing. The Swedish Arbitration Act is more flexible where Article 1 does not require any specific form as long as the parties have been agreed for arbitration.

On the other hand, Article II requires that the agreement be in “writing” in an exchange of letters or telegrams. Now the question is whether Article II covers the telecommunication methods. Obviously, at that time in 1958 it was hard to make the draft imagining the electronic technological developments. Now-a-days it becomes a trend to communicate through electronic means. Therefore, it became necessary to interpret Article II to cover the modern technological developments to conclude a valid arbitration agreement. Therefore, several voices started demanding to solve this matter and stop the courts from interpreting NYC in different ways, thus to stop undermining the uniformity of NYC which is its valuable asset.[24] Moreover, this requirement of “writing” is pointlessly stricter for most of domestic laws.[25] However, some domestic courts have solved this problem by indirectly interpreting Article II or relying on domestic laws where it seemed that strict adherence with this requirement of “writing” would be inconsistence to the application of the Convention.

It appears to be common ground that the definition of writing contained in article II (2) does not conform with international trade practices. Excluded from the definition would be Bills of Lading, certain Brokers Notes, salvage situations, the "battle of the forms" and the general concept of tacit acceptance.[26] (need change)

Though Article 7(2) of UNCITRAL Model Law had the opportunity to solve this problem when drafting in 1981, but it also retained the dual requirements of signature or exchange and therefore, failed to deal with this problem.[27]

To define such discrepancy, UNCITRAL has characterized the form requirements in the Model Law on International Commercial Arbitration of 1985. But the UNCITRAL Model Law does not formally incorporate the NYC to interpret; even so the NYC is naturally construed in the light of the UNCITRAL Model Law and explains the row of thoughts as the base of the Convention. However, this interpretation was also not above the controversy and again it required changing to give the validity of an arbitration agreement.[28]

To address this disparity, UNCITRAL adopted a recommendation in July 2006 that Article II(2) be applied “recognizing that the circumstances described therein are not exhaustive.”20 It further recommended that the “more favourable rights” provision of Article VII(1) be interpreted to allow “any interested party to avail itself of rights it may have, under the law or treaties of the country where an arbitration agreement is sought to be relied upon, to seek recognition of the validity of such an arbitration agreement.”21 In doing so, UNCITRAL acknowledged both the “wide use of electronic commerce” and that domestic legislation and case law may be more favourable than the Convention in respect of the form requirement for a valid arbitration agreement.22 Whether the UNCITRAL recommendation will be effective in harmonizing application of Article II(2) remains to be seen.[29] (need change)

Risk of coordination between national law and Article II:[30]

We have seen above, the form of requirements varies from one country to another and because of technological developments the NYC is under some tension.

As discussed above, the validity of an agreement depends on two different segments: first, the proceedings which starts from the arbitral jurisdiction and second, the enforcement of foreign awards. If an arbitration agreement seems invalid according to the national law, consequently it will lose the jurisdiction in first segment and then it will be rendered to the court. In the second segment, if it seems that the foreign award is invalid, then the arbitral award would be unenforceable.

Therefore, the question arise whether the variety of national laws are threat to the validity of an agreement? On the other hand, though the agreement is valid initially, whether the award is unenforceable? This kind of lack of coordination obviously is damaging for the winning party who would not be able to enforce the award nor could he have chance to be tried in the ordinary court.

Award set aside at the place of arbitration:[31]

The intention of the NYC was to make easier of the enforcement of foreign arbitral awards. Therefore, some obligations rendered on the arbitrators of the place of arbitration by the NYC rather than the court at the place of arbitration which is outside the capacity of the NYC. So each country has the power to invalidate an award according to their territorial rules. But indirectly it forms a problem in terms of the appliance of the Convention as Article V (1) (e) gives the power to the courts to refuse a foreign award. This is a weakness of the convention as the enforceability of the award depends on the eccentricity of the place where the award was made. This poses an obvious danger to the harmonization of the legal regime of international transactions.

The idea of annulling the award based on the criteria of the place of the arbitration is undoubtedly contrary to the existing international harmony, such as refusing to review the merits of the award or invalidate awards for not complying with some meaningless formalities (e.g.: parties did not raise at the time of arbitration). Even there are some grounds which would be unbearable in international consensus, such as if the award is invalidated only for the reason that the religion were not similar of the arbitrators or they were not male gender.

Now the question arises, under which situation the judge can avoid the annulment of foreign arbitral award and can enforce though the invalidation by the court of its origin?

There might be three different solutions.

First, to avoid Article V (1) (e) totally and use Article II which facilitates for more favourable regime and this completely dislocate the control of the enforcement jurisdiction/s. If an award satisfies the criterion of the enforcement jurisdiction, then the judge would not be entitled nor certainly be required about what the foreign courts have done which would completely be a matter of that country.

Secondly, some countries are not in the mainstream and cannot rely upon the application of international standards. On the other hand, mainstream trading countries use to follow the international standards. Therefore, if there would be a mini Brussels Convention or a mini Lugano Convention for which there would be specific court decisions relating to arbitrations, then the mutually trusting countries could apply the res judicata effect on their judgments and thus ensured the harmonisation.

Whatever else one might say about this proposal, and disregarding the unappealing spectre of creating clubs of "trustworthy" countries, it would seem unfortunate to bring the international arbitral process, which by its essence contemplates minimal court intervention, back into a regime which focuses on the role of the courts.

I favour a third solution, which goes back to article V and proceeds on the basis that it is discretionary—courts may refuse enforcement (and therefore may also accept it) when an award has been annulled in the place where it was rendered. How should this discretion be exercised?

The enforcement judge should determine whether the basis of the annulment by the judge in the place of arbitration was consonant with international standards. If so, it is an International Standard Annulment, and the award should not be enforced. If the basis of the annulment was one not recognized in international practice, or if it was based on an intolerable criterion, the judge is faced with a Local Standard Annulment. He should disregard it and enforce the award.

One may expect that such an approach would lessen the temptation to issue Local Standard Annulments. It is also to be noted that this solution is entirely consistent with the 1961 Geneva Convention (about which we heard earlier from Ottoarndt Glossner) and so contributes to harmonization in the right direction.

This third proposal could (and should) become part of any supplement or protocol to the Convention, but one of its attractions is that it does not require such a protocol—the solution is already available to individual national systems by virtue of the discretion built into article V.

The Application of National Procedural Rules to Enforcement Proceedings Creates Invisible Barriers to Global Enforcement:

[1] Redfern Alan, “Law and Practice of International Commercial Arbitration”, (4th edn, Sweet & Maxwell 2004) p: 81-82

[2] If an award rendered in Boston, it had to be confirmed by a court in Massachusetts before enforcement in Montreal.

[3] For example, under the GC of 1927 the party relying on the award had to present documentary evidence that the award had not been annulled where rendered. In contrast, the ICC draft treaty required that award annulment be invoked by the party resisting recognition.

Craig W. Laurence, “International Chamber of Commerce Arbitration”, (3rd edn, Oxford University 2000) p: 679-680

[4] The Convention requires the courts of contracting states to refuse to allow a dispute that is subject to an arbitration agreement to be litigated before its courts, if an objection to such litigation is raised by any party to the arbitration agreement.

[5] Redfern Alan, “Law and Practice of International Commercial Arbitration”, (4th edn, Sweet & Maxwell 2004) p: 81-82

[6] Craig W. Laurence, “International Chamber of Commerce Arbitration”, (3rd edn, Oxford University 2000) p: 680-681

[7] Julian D M Lew, “Comparative International Commercial Arbitration”, (1st edn, Kluwer Law International 2003), p: 688-691

[8] Jan Albert van den Berg, United Nations Audiovisual Library of International Law, “Convention on the Recognition and Enforcement of Foreign Arbitral Awards”, p: 1

[9] Set out in Article IV of the New York Convention 1958

[10] Julian D M Lew, “Comparative International Commercial Arbitration”, (1st edn, Kluwer Law International 2003), p: 694

[11] Peter J. Turner and Jan Paulsson, United Nations Commission on International Trade Law, “Experts Group Meeting on Dispute Resolution and Corporate Governance”, p: 4

[12] Jan Albert van den Berg, United Nations Audiovisual Library of International Law, “Convention on the Recognition and Enforcement of Foreign Arbitral Awards”, p: 1-2

[13] ibid

[14] ibid

[15] Onyema Emilia, International Commercial Arbitration and the Arbitrator's Contract, (1st edn, Routledge 2010) p:32-35

[16] International Arbitration Update - July 2005, <http://www.mallesons.com/publications/International_arbitration/7979553w.htm> accessed on 1 May 2010

[17] Peter J. Turner and Jan Paulsson, United Nations Commission on International Trade Law, “Experts Group Meeting on Dispute Resolution and Corporate Governance”, p: 4

[18] ibid

[19] ibid

[20] Cohen Stephanie, “The New York Convention at Age 50: A Primer on the International Regime for Enforcement of Foreign Arbitral Awards”, p: 1

[21] Article VII(1) provides that the Convention's provisions shall not “deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon”.

[22] Giuditta Cordero Moss, “RISK OF CONFLICT BETWEEN THE NEW YORK CONVENTION AND NEWER ARBITRATION-FRIENDLY NATIONAL LEGISLATION?” p: 2-3

[23] Giuditta Cordero Moss, “RISK OF CONFLICT BETWEEN THE NEW YORK CONVENTION AND NEWER ARBITRATION-FRIENDLY NATIONAL LEGISLATION?” p: 3-4

[24] Giuditta Cordero Moss, “RISK OF CONFLICT BETWEEN THE NEW YORK CONVENTION AND NEWER ARBITRATION-FRIENDLY NATIONAL LEGISLATION?” p: 7-9

[25] Neil Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 28, 43 (1996)

[26] Enforcing Arbitration Award under the New York Convention, p: 20

[27] Enforcing Arbitration Award under the New York Convention, p: 20

[28] Giuditta Cordero Moss, “RISK OF CONFLICT BETWEEN THE NEW YORK CONVENTION AND NEWER ARBITRATION-FRIENDLY NATIONAL LEGISLATION?” p: 8-9

[29] Cohen Stephanie, “The New York Convention at Age 50: A Primer on the International Regime for Enforcement of Foreign Arbitral Awards”, p: 2

[30] Giuditta Cordero Moss, “RISK OF CONFLICT BETWEEN THE NEW YORK CONVENTION AND NEWER ARBITRATION-FRIENDLY NATIONAL LEGISLATION?” p: 11

[31] Enforcing Arbitration Award under the New York Convention, p: 27-29

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