Emmanuel Gaillard and Benjamin Siino, Shearman & Sterling LLP
This is an extract from the first edition of GAR’s The Guide to Challenging and Enforcing Arbitration Awards. The whole publication is available here.
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, or the Convention) was prepared under the auspices of the United Nations and adopted on 10 June 1958 at United Nations Headquarters in New York. The Convention is now hailed as ‘one of the most important and successful United Nations treaties in the area of international trade law, and the cornerstone of the international arbitration system’.
The primary goal of the drafters of the Convention was to overhaul the existing regime under the Convention on the Execution of Foreign Arbitral Awards signed in Geneva in 1927 to remove unnecessary obstacles to recognition and enforcement, and to maximise the circulation of foreign arbitral awards. To achieve this goal, the drafters (1) created a presumption as to the binding nature of awards, (2) repealed the double exequatur requirement, (3) reversed the burden of proving the conditions for recognition and enforcement, and (4) permitted the courts of contracting states to exercise their discretion to refuse recognition or enforcement of foreign arbitral awards based on the grounds listed in Article V.
Key to the success of the Convention is the foresight of its drafters in laying down strict conditions for recognising and enforcing foreign arbitral awards, while leaving contracting states free to apply more liberal rules for recognition and enforcement, as enshrined at Article VII(1). In this respect, the Convention is a forward-looking instrument, which has been able to evolve and keep pace with the tremendous growth of international arbitration since it was adopted.
One of the principal findings of the 2017 UNCITRAL Secretariat Guide on the Convention is that contracting states (159 and counting) have interpreted and applied the Convention in an overwhelmingly consistent manner, with national courts remaining remarkably true to its pro-enforcement spirit.
Scope of application
Article I, like the rest of the Convention, was drafted with the aim of ‘going further than the Geneva Convention in facilitating the enforcement of foreign arbitral awards’. By making the reciprocity requirement optional and doing away with the nationality or residence requirement, Article I ensures that the Convention has a broad scope of application. However, nationality or residence may still play a part in the context of ‘non-domestic awards’. An enforcing court may deem an award rendered in its territory ‘non-domestic’ if one or both parties to arbitration are foreign or reside abroad, in which case nationality is used to enlarge the scope of the Convention, rather than to restrict it.
The first sentence of Article I(1) provides that the Convention applies to awards ‘made in the territory of a State other than the State where the recognition and enforcement of such awards are sought’. Commentators are in broad agreement that ‘recognition’ refers to the process of considering an arbitral award as binding but not necessarily enforceable, while ‘enforcement’ refers to the process of giving effect to an award. Some jurisdictions have held that recognition can be sought separately from enforcement.
Pursuant to the second sentence of Article I(1), the Convention also applies to awards ‘not considered as domestic’ in the state where recognition and enforcement is sought. As the Convention does not define the term ‘domestic’, contracting states have discretion to decide, in accordance with their own law, what constitutes a non-domestic award. This ‘non-domestic’ criterion is in addition to the ‘territorial criterion’ set out in the first sentence of Article I(1).
Article I(2) provides that the term ‘arbitral awards’ shall include not only awards rendered by arbitrators appointed for each case but also those ‘made by permanent arbitral bodies to which the parties have submitted’. Courts have found that the term ‘permanent arbitral bodies’ includes, for example, the Iran-United States Claims Tribunal, the ICC International Court of Arbitration and the Singapore International Arbitral Centre.
Finally, Article I(3) allows each contracting state, when signing, ratifying or acceding to the Convention, to restrict the scope of application of the Convention by making the reservations allowed by it. The first reservation, known as the reciprocity reservation, allows a state to apply the Convention only to awards made in the territory of another contracting state. The second – the commercial reservation – allows a state to apply the Convention only to ‘differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration’. If an award does not arise out of a legal relationship considered as commercial, the award would not benefit from the regime established by the Convention. Enforcement of the award would instead be governed by domestic law.
Regarding the term ‘arbitral award’, which is not defined in the Convention, courts have generally accepted that the determination of whether a decision is an award depends on its nature and content, not on the label given to it by arbitrators. For example, a US court has held that a decision need not be entitled ‘award’ for it to be enforceable under the Convention. Similarly, it would not be enough for arbitrators simply to label a decision ‘award’ to make it an award within the meaning of the Convention.
Moreover, courts have found that only those decisions made by arbitrators that determine all or some aspects of the dispute in a final and binding manner can be considered ‘arbitral awards’ within the meaning of the Convention. Accordingly, courts have found that, for a decision to be considered an ‘arbitral award’ under the New York Convention, it needs to (1) be made by arbitrators, (2) resolve a dispute or part thereof in a final manner, and (3) be binding. As an illustration, a German court has held that an award was binding because it was not subject to appeal either before another arbitral tribunal or a national court. Applying a similar approach, the French Court of Cassation refused to enforce an award on the ground that it was not binding because one of the parties was seeking review of the award before another arbitral tribunal.
An issue that has arisen before courts is whether awards on jurisdiction are enforceable under the Convention. Reported case law on this issue is scarce and concerns the recognition and enforcement of awards that deal with both jurisdiction and the allocation of costs incurred during the jurisdictional phase of the proceedings. Commentators have taken the view that awards on jurisdiction can be considered as genuine awards capable of recognition and enforcement under the Convention.
The obligation to recognise awards and the rules of procedure provided in each contracting state where recognition and enforcement are sought
The first sentence of Article III of the Convention provides that ‘[e]ach Contracting State shall recognize arbitral awards as binding and enforce them’.
The general principle set forth by Article III has been referred to by a number of courts as embodying the Convention’s ‘pro-enforcement bias’. For example, a US court stated that ‘[t]he Convention and its implementing legislation have a pro-enforcement bias’, of which ‘Article III of the Convention is illustrative’. The Court of Appeal of England and Wales also held that, pursuant to this principle, foreign arbitral awards are entitled to a prima facie right to recognition and enforcement. A number of other courts have expressed the same view.
Courts of contracting states have frequently pointed to the mandatory nature of the obligation under Article III, which results from the word ‘shall’. Leading commentators similarly describe Article III as the source of the contracting states’ obligation to recognise and enforce foreign arbitral awards. A number of these commentators also characterise this obligation as a ‘presumptive’ one, or have referred to it as embodying the ‘pro-enforcement bias’ of the Convention.
The first sentence of Article III also provides that the recognition and enforcement of foreign arbitral awards shall be granted ‘in accordance with the rules of procedure of the territory where the award is relied upon’. The Convention does not refer to any specific set of rules, leaving it to each contracting state to define the rules of procedure applicable to the recognition and enforcement of arbitral awards in its territory.
In accordance with the wording of Article III, courts have applied the procedural rules of their national laws to the recognition and enforcement of arbitral awards, and not the laws of the country in which the arbitration took place or any other law.
In the absence of any guidance in the text of the Convention, contracting states are free to determine the rules of procedure applicable to the recognition and enforcement of arbitral awards. In a number of cases, courts have applied national rules that determine the competent authority to hear applications for recognition and enforcement of foreign arbitral awards.
In other reported cases on Article III, courts have held that the limitation period applicable to an application for recognition and enforcement of a foreign arbitral award is a procedural rule governed by national law. For instance, the Supreme Court of Canada, after interpreting the text of the Convention and its travaux préparatoires, held that the Convention ‘was intended to allow Contracting States to impose time limits on the recognition and enforcement of foreign arbitral awards if they so wished’. Commentators confirm that the determination of the court with jurisdiction to hear requests for recognition and enforcement of foreign arbitral awards, or of the limitation periods applicable to recognition and enforcement, constitute procedural issues that should be governed by the contracting states’ national laws.
Reported case law provides other examples in which courts have applied national rules of procedure to the recognition and enforcement of foreign arbitral awards. These include rules concerning the ranking of creditors’ claims, the setting off of claims, the enforcement of a forum selection clause, the doctrine of forum non conveniens and issues of diplomatic protection.
Finally, according to the second sentence of Article III, substantially more onerous conditions, or higher fees or charges, than those imposed on the recognition or enforcement of domestic arbitral awards should not be imposed. Contracting states’ discretion to determine the rules of procedure applicable to the recognition and enforcement of foreign arbitral awards in their territories is thus limited. However, nothing prevents contracting states from imposing less onerous conditions. This view is confirmed by commentators, who consider that Article III does not require that the rules of procedure applicable to the recognition and enforcement of foreign arbitral awards be identical to those applicable to domestic awards.
The conditions laid down by the Convention regarding the recognition and enforcement of arbitral awards
Documents required to recognise and enforce an arbitral award (Article IV)
One of the principal barriers to recognition and enforcement of foreign arbitral awards prior to the adoption of the Convention was the requirement of double exequatur, which meant that an applicant seeking to recognise or enforce an award had first to obtain a declaration of the award’s enforceability from the courts of the country where the award was rendered.
As explained by the representative of the Dutch delegation, Peter Sanders: ‘The main elements of the Dutch proposal were first of all the elimination of the double exequatur. And it seemed logical not to require two exequatur but only in the country where enforcement is sought. Why should you ask it also in the country where the award has been made?’ The abolishment of double exequatur has been acclaimed as a ‘revolution’, and ‘one of the principal achievements of the New York Convention’.
As a result, pursuant to Article IV, an applicant is now required to supply only a limited number of documents to obtain recognition and enforcement of an award: the duly authenticated original award (or a duly certified copy thereof ) and the original arbitration agreement (or a duly certified copy thereof ). Article IV(2) further provides that, if these two documents are not in an official language of the country in which recognition or enforcement is sought, the applicant must produce a translation.
National courts have held that, once the applicant has supplied these documents, it has obtained a prima facie right to recognition and enforcement of the award. For example, the Court of Appeal of England and Wales has held that, once a party seeking recognition or enforcement has, under Section 102(1) of the 1996 Arbitration Act (which gives effect to Article IV of the Convention), produced the duly authenticated award or a duly certified copy and the original arbitration agreement or a duly certified copy, it attains a prima facie right to recognition and enforcement. The Italian Court of Cassation has similarly held that the burden on the party requesting enforcement is limited to the production of the documents required under Article IV, whereupon there is a presumption of enforceability of the award.
Grounds on which the recognition and enforcement of arbitral awards may be refused (Article V)
Article V of the Convention sets forth the limited and exhaustive grounds on which recognition and enforcement of an arbitral award may be refused by a competent authority in the contracting state where recognition and enforcement is sought. These include the incapacity of a party or invalidity of the arbitration agreement (V(1)(a)), the violation of due process (V(1)(b)), the arbitral tribunal exceeding its authority (V(1)(c)), the improper constitution of the arbitral tribunal or procedural irregularities (V(1)(d)), and when an award has not yet become binding or has been set aside or suspended (V(1)(e)). Courts have generally construed the grounds for refusal under Article V narrowly and parties resisting enforcement have been largely unsuccessful in proving grounds for refusal.
Court have consistently found that the Convention does not allow the refusal of recognition and enforcement of an award on grounds other than those listed in Article V. Notably, these grounds do not include an erroneous decision of law or fact by an arbitral tribunal, and courts may not review the merits of the arbitral tribunal’s decision. This principle has been confirmed unanimously by courts and commentators.
Pursuant to the introductory sentence of Article V(1), ‘[r]ecognition and enforcement of the award may be refused’ if one or more of the grounds for non-recognition or enforcement listed in that paragraph is present (subparagraphs (a) to (e)). Thus, the Convention grants courts of contracting states the discretion to refuse recognition and enforcement of an award on the grounds listed in Article V, without requiring them to do so.
In keeping with this discretionary language, a number of national courts have taken the position that they are not required to refuse recognition or enforcement of an award even in instances in which one of the grounds for non-recognition or enforcement has been established. The Supreme Court of Hong Kong has reasoned that ‘[i]t is clear . . . that the only grounds upon which enforcement can be refused are those specified in [Article V] and that the burden of proving a ground is upon the Defendant. Further, it is clear that even though a ground has been proved, the court retains a residual discretion’. On the facts before it, the Court found that this was ‘an obvious case where the court can exercise its discretion to enforce the award notwithstanding a ground of opposition in the New York Convention being made out’, and that this conclusion was ‘consistent with the pro-enforcement bias of the Convention and the pro-enforcement attitude of most enforcing courts around the world’.
Finally, Article V(1) provides that recognition and enforcement may only be refused ‘at the request of the party against whom [the award] is invoked’, and if that party ‘furnishes proof ’ of the grounds listed in that paragraph. In accordance with this wording, courts in the contracting states have consistently recognised that the party opposing recognition and enforcement has the burden of raising and proving the grounds for non-enforcement under Article V(1).
Article V(2) lists the grounds on which a court may refuse enforcement on its own motion. Recognition and enforcement may also be refused if the competent authority in the country where recognition and enforcement is sought finds that ‘the subject matter of the difference is not capable of settlement by arbitration under the law of that country’ (Article V(2)(a)) and ‘the recognition or enforcement of the award would be contrary to the public policy of that country’ (Article V(2)(b)). ‘Arbitrability’ and ‘public policy’ are not concepts unique to the New York Convention. These concepts form ‘part of a wider range of tools, such as the mandatory rules of the forum that override private autonomy, that allow a court to protect the integrity of the legal order to which it belongs’.
Although Article V(2) does not specifically allocate the burden of proof to either party, courts of contracting states have considered that the party opposing recognition and enforcement has the ultimate burden of proving the grounds.
The Convention does not identify the specific subject matter that is capable of settlement by arbitration (Article V(2)(a)), nor does it define public policy (Article V(2)(b)), leaving national courts to exercise their discretion to interpret these provisions.
In general, courts have set very few limits on the types of disputes that are capable of settlement by arbitration pursuant to Article V(2)(a) and most courts have narrowly interpreted public policy. Although courts define public policy differently, the case law shows that they refuse to recognise an award on the basis of public policy only when there has been a deviation from the core values of their legal system. In the words of the Swiss Federal Tribunal, an award contravenes public policy ‘if it disregards essential and widely recognised values which, according to the conceptions prevailing in Switzerland, should form the basis of any legal order’. The French courts have taken a similar approach, by defining international public policy as ‘the body of rules and values whose violation the French legal order cannot tolerate even in situations of international character’.
As a result, applications to refuse recognition and enforcement on these grounds have rarely been successful.
Grounds to adjourn recognition and enforcement proceedings (Article VI)
Article VI of the Convention addresses the situation in which a party seeks to set aside or suspend an award in the country where it was issued, while the other party seeks to enforce it elsewhere. In this context of parallel proceedings, Article VI achieves a compromise between the two equally legitimate concerns of (1) promoting the enforceability of foreign arbitral awards, and (2) preserving judicial oversight over awards, by granting courts of contracting states the freedom to decide whether to adjourn enforcement proceedings.
Under Article VI, a court of a contracting state ‘may, if it considers it proper, adjourn’ proceedings and ‘may also . . . order the other party to give suitable security’. In light of the ‘permissive language’ of Article VI, the courts’ discretionary power applies not only to the decision to adjourn enforcement proceedings, but also to whether a defendant should provide security, and the amount of that security.
The Convention does not provide any standard by which a court should decide whether to stay enforcement proceedings, thereby leaving courts in contracting states to use their discretion. In practice, courts have developed their own criteria and consider a wide variety of factors when deciding whether to grant a request for adjournment. Those factors include, inter alia, (1) the Convention’s goal of facilitating the enforcement of arbitral awards and expediting dispute resolution, (2) the likelihood of the party prevailing in the setting aside proceeding, (3) the expected duration of the proceedings pending in the country where the award was issued, (4) the potential hardship to parties, (5) judicial efficiency, and (6) international comity. Courts that are not prepared to recognise a global effect to the decision to set aside will not stay the enforcement on the basis of a pending setting aside proceeding.
The ‘more favourable right’ provision
The presumption as to the binding nature of awards established under Article III, with the streamlined procedure for recognition and enforcement under Articles IV and V, embody the Convention’s ‘pro-enforcement bias’. This bias is also reflected in Article VII(1), otherwise known as the ‘more favourable right’ provision.
In accordance with Article VII(1), a party seeking recognition and enforcement shall not be deprived of the right to rely, in addition to the Convention, on a more favourable domestic law or treaty. It is clear, therefore, that a contracting state is free to impose a legal regime more liberal than that established under the Convention, and will not be in breach of the Convention by enforcing awards pursuant to such a regime. The corollary of this principle is that a contracting state is not permitted to impose conditions for recognition and enforcement more onerous than those laid down by the Convention. In this respect, Article VII makes it clear that the Convention establishes a ‘ceiling’, or a maximum level of control.
Certain arbitral awards or agreements may fall within the field of application of the Convention as well as the field of application of a multilateral or bilateral treaty. Article VII(1) provides the basic rule that the Convention shall not affect the validity of multilateral or bilateral treaties concerning the recognition and enforcement of arbitral awards entered into by the contracting states to the Convention, and that an interested party may rely on those treaties if they are more favourable to enforcement than the Convention. This is in keeping with the broader objective of the Convention to provide for the recognition and enforcement of arbitral awards and agreements whenever possible, either on the basis of its own provisions or those of another instrument. The conditions for recognition and enforcement under bilateral agreements may be more or less favourable than the Convention, depending on the circumstances surrounding the award.
As an illustration, German courts have applied more favourable provisions of bilateral treaties in accordance with Article VII(1). In a case before the German Federal Court of Justice, an interested party was permitted to rely on the 1958 German–Belgian Treaty concerning the Reciprocal Recognition and Enforcement of Judicial Decisions, Arbitral Awards and Official Documents in Civil and Commercial Matters, which provides that an award rendered in Belgium must be recognised and enforced in Germany when it has been declared enforceable in Belgium and does not violate German public policy.
Article VII(1) also facilitates the recognition and enforcement of foreign arbitral awards pursuant to more favourable provisions found in the domestic laws of the contracting states.
Moreover, Article VII’s ‘more favourable regime’ principle applies to substantive grounds for control listed in Article V, such as Paragraph (1)(e), which provides that recognition and enforcement may be refused if the award ‘has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.’
The Convention does not prohibit a court in a contracting state from recognising or enforcing an award that has been set aside or suspended in the country in which it was made. In this respect, French courts have consistently held that a party opposing enforcement is precluded from relying on grounds for non-enforcement under Article V(1)(e), in light of the more limited grounds under French law.
In the 2007 Putrabali decision, the Court of Cassation ruled that:
an international arbitral award, which is not anchored in any national legal order, is a decision of international justice whose validity must be ascertained with regard to the rules applicable in the country where its recognition and enforcement is sought. Under article VII [the interested party] . . . could invoke the French rules on international arbitration, which do not provide that the annulment of an award in the country of origin is a ground for refusing recognition and enforcement of an award rendered in a foreign country’.
Conversely, the Convention does not require courts to recognise an award that has been set aside or suspended and they will not violate the Convention by refusing to do so.
As contracting states continue to modernise their arbitration laws in an effort to make their jurisdictions more ‘arbitration friendly,’ an increasing reliance by national courts on Article VII’s ‘more favourable regime’ principle is to be expected.
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