The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards – known as the “New York Convention” – has been described as the most important and successful United Nations treaty in the area of international trade law, and “the cornerstone of the international arbitration system”1.
As of November 2014, 153 States have adopted the New York Convention, with the result that States who have failed or refused to adopt it are now the exception, rather than the norm.
This article outlines how the New York Convention works, considers some of its key limitations, and reflects on whether, after 56 years of operation, it is still an effective instrument.
The procedural advantages of international commercial arbitration over cross-border litigation are well understood, offering the parties the ability to choose a neutral forum and preferred legal system, the availability of specialist decision makers, comparative absence of bureaucratic and costly procedures, and confidentiality.
The New York Convention creates a uniform international framework, which enables parties to international commercial arbitration agreements to enforce foreign arbitral awards with relative ease. It achieves this by:
- Requiring the courts of a signatory State (referred to as a “Contracting State”) to recognise and enforce an award rendered in another Contracting State.
- Limiting the grounds upon which the courts in Contracting States may refuse recognition and enforcement of foreign arbitral awards.
By contrast, the registration and enforcement of foreign court judgments is only available where individual States have enacted legislation by which reciprocal enforcement of foreign judgments is permitted. The process is therefore less certain and less consistent.
The New York Convention applies to arbitral awards made in the territory of a Contracting State other than the Contracting State in which the recognition and enforcement of such an award is sought, and to awards that are not considered to be domestic awards in the Contracting State where enforcement is sought2(referred to in this article as “Foreign Awards”).
Contracting States are required to recognise Foreign Awards as binding and enforce them in accordance with the rules of procedure of the Contracting State, subject to the terms of the New York Convention.3
The enforcement procedure is designed to be free from onerous conditions and charges. It involves submission to a competent court in the Contracting State where enforcement is sought (referred to in this article as “Local Court”) of the following:
- An authenticated Foreign Award or certified copy and, if necessary, translations.
- The originals or a copy of the arbitration agreement and, if necessary, translations.4
Article V of the New York Convention prescribes the grounds on which the Local Court can refuse to enforce a Foreign Award5. The grounds in Article V are mirrored in the UNCITRAL Model Law (as amended in 2006). The grounds for refusal of enforcement under Article V are:
- Incapacity of the parties to the arbitration agreement.
- Invalidity of the arbitration agreement.
- Failure to give proper notice of the appointment of an arbitrator to the party against whom the award is invoked.
- Natural justice grounds - where the party against whom the award is invoked is not able to present its case.
- The Foreign Award is outside the scope of the terms of submission to arbitration.
- The arbitral authority or procedure was not in accordance with the agreement of the parties.
- The Foreign Award is not yet binding on the parties or has been set aside or suspended.
- The subject matter of the arbitration is not capable of being referred to arbitration under the law of the enforcing country.
- The recognition or enforcement of the Foreign Award is contrary to public policy of the enforcing country.
On any view, the New York Convention is one of the most successful international conventions in terms of its widespread and continuing adoption.
The efficacy of the New York Convention is a significant factor in the continuing popularity of international commercial arbitration as a means of dispute resolution in international commerce. However, it has a number of limitations:
1. Public policy
The principal limitation that has arisen over the years – causing considerable controversy – is the inconsistent approach taken by Local Courts in applying the public policy ground under Article V, resulting in many Foreign Awards being found to be unenforceable.
The New York Convention does not define or provide guidelines on what ought to be considered “public policy”. As a consequence, Local Courts have a significant degree of discretion in interpreting what constitutes “public policy” in their own jurisdictions.
United World v. Krasny Yakor is perhaps the best known example of this: a Russian federal arbitration court refused recognition and enforcement of an ICC award rendered in Paris against a significant Russian entity, because it considered that the effect of the award would be to force the Russian entity into bankruptcy. Given the size of the entity, it was considered that its bankruptcy would adversely affect regional and national economic stability, a matter which the court considered to constitute public policy.
Another example is the approach taken by the Indian Supreme Court, which has held that the phrase “contrary to public policy” means contrary to, the fundamental policy of Indian Law, the interests of India, justice or morality, or where the award is patently illegal6 or is inconsistent with Indian domestic law 7.
2. Interim or final awards
The New York Convention makes no distinction between interim and final awards. In certain circumstances, it may be necessary to enforce an interim or partial award, for instance where the tribunal makes interlocutory awards. This has caused confusion in some jurisdictions.
For example, in Queensland, Australia, the position was that a Foreign Award must determine finally at least some of the matters in dispute between the parties, in order to be enforceable.8 This led to some uncertainty until in 2010, the International Arbitration Act 1974 (Cth)9 was amended to remove this uncertainty by clarifying that the only grounds for refusing to enforce a foreign award in Australia are those grounds that are set out in Article V of the New York Convention.
3. Limitation periods
The New York Convention does not provide for any limitation period for enforcing awards or setting them aside. These are normally determined by the law of the seat of the arbitration, by the terms of the arbitration agreement, or the jurisdiction where enforcement occurs.
4. State immunity
The New York Convention does not deal with the question of whether a party may rely on any applicable doctrines of state immunity in defending any application for enforcement of a Foreign Award.
The New York Convention remains the preferred framework for providing an enforceable outcome in the context of cross border commercial disputes.
Although limited in application, an alternative process might be the use of investment treaty arbitrations under the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which created the International Centre For Settlement Of Investment Disputes (ICSID). These arbitrations have significant enforcement advantages in that ICSID awards are not subject to any review process by a Local Court and may be automatically enforced against assets as if they are final judgments of the Local Court. However, investment treaty arbitrations are only available for investment disputes where one party is a State and it is asserted that either an investment has been expropriated or an investor treated unfairly.
It is difficult to envisage how the New York Convention may be effectively amended to overcome the limitations identified above, as they are a product of the way in which the courts of Contracting States have applied it. An obvious solution is to encourage Contracting States to accept a more uniform approach to the application of the Convention through legislative reform.