New York Convention Arbitration

New York Convention Arbitration

The New York Arbitration Convention is the leading piece of international law governing the enforcement of arbitral awards internationally.  Every arbitration award that has been granted from one foreign state to another has likely interacted with the New York Convention in some way.  Formally called the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Convention seeks to create a uniform system of arbitration enforcement and encourage the use of arbitration across borders.  Created by nations from around the world and under the umbrella of the United Nations, the Convention has become a widely used and accepted piece of law governing how the world responds to arbitration and is heralded as the foundational instrument of international arbitration. Knowing what the convention is and how it applies to arbitration around the world is key in understanding how international arbitration can work for the parties that use it.  While the analysis necessary to truly apply it is the subject of college and law school classes, the overview of the convention in this article will seek to provide a basic understanding that can be built upon.  

This article seeks to outline the New York Convention, including the purpose behind its creation and the effect that it has on arbitration moving forward.  The article will begin with a brief overview of conventions in international law and how they apply and are enforced around the world.  Next, it will begin a conversation on the New York Convention by delving into the purpose of the convention and the history of its creation and implementation.  Next, it will discuss several of the important elements of the New York Convention, paying special attention to certain requirements for elements of arbitration, such as the agreement to arbitrate and what is required of an arbitral award to ensure enforceability.  After this, it will turn to a discussion of the applicability of the Convention and how it has become the foundation for arbitration that it is, before ending on a discussion of the ways that courts around the world have evaluated and applied the convention, hoping to encourage broader research and discussion of the Convention moving forward.  

Conventions and Their Applicability: 

Before discussing the specifics of the New York Convention, it will likely be helpful to explore what an international convention is and how it is applied. Conventions are a mechanism of the United Nations and several other collaborative government organizations that seek to create guidelines, principles, and laws that can be enforced throughout the world.  Conventions are similar to treaties in that they are only applicable in the countries that agree to be bound by the convention; however, it is different in their creation.  Treaties can be created by any number of international states with as few as two signing the agreement.  Conventions are usually drafted and adopted first by bodies such as the United Nations General Assembly, and then international states can agree to them.  There are several key elements of a Convention that are important to note: 

  • Creation: A convention is most commonly created through a collaboration of international states and is frequently created or adopted first by collaborative governing organizations such as the United Nations General Assembly.  
  • Voluntary: Conventions are voluntary, meaning that they are only applied in nations and states that have agreed to be bound by the convention.  One state cannot force another to use the convention, and the enforcement mechanism of the convention cannot be used in states that have not accepted its jurisdiction.  
  • Binding: Once a state or nation agrees to be bound by the convention, it is binding law on the country.  While this sounds intimidating, the United Nations and other collaborative governments have little enforcement power.  However, the United Nations does have the ability to censure or reprimand violating states within the United Nations’ structure.  

What this means for the New York Convention is that it is a convention adopted by a United Nations diplomatic conference, as will be discussed shortly, and it is adopted by states as they see fit.  It also means that when signatory states violate different aspects of the Convention, they may be reprimanded by different facets of the United Nations.  However, as will be discussed in the court responses, many national courts have taken up the role of enforcing the convention and ensuring that arbitration is carried out within the parameters that the Convention has created.  

History and Purpose of the Convention: 

The New York Convention (the Convention) was adopted in 1958 by an International Conference of the United Nations, but the idea and work on the Convention began much earlier. The inception of the Convention was a dissatisfaction with the Geneva Protocol on Arbitration of 1923 and the Geneva Convention on the Execution of the Foreign Arbitral Awards of 1927.  Until the New York Convention, the Geneva Protocol and Convention were the governing treaties and conventions on the application and use of arbitration, and there was a growing need for change in these laws in the early 1950s.  Understanding this need, the International Chamber of Commerce created and presented to the United Nations Economic and Social Council a preliminary draft of what would come to be the New York Convention in 1953.  

The Economic and Social Council took over the development of the convention and created a committee in 1954 to continue to develop the text.  The Committee drafted the articles and gathered a variety of comments from governments on the drafts until they created and presented the final draft of the Convention in 1958.  It was adopted at a conference at the United Nations in 1958, which was chaired by Willem Schurmann and Oscar Schachter.  Schacter was a leading figure in the development and enforcement of international law.  He would later serve as the President of the American Society of International Law.  

The Convention deals only with international arbitration.  This means that there are parties from different international states that need to enforce an award.  Arbitrations that happen completely within one state are not governed by the Convention but are governed by local laws.  Arbitration is an alternative dispute resolution process where a neutral third party hears the case and issues a decision called an award.  The parties then need to enforce this award to collect on the judgment awarded, which is where many problems with international arbitration surface.  The Convention ensures that international enforcement of arbitral awards is streamlined and honored.  

The Convention has been relatively successful since its creation and enactment.  After its enactment, the United Nations Commission on International Trade Law (UNCITRAL) created a Model Law on International Commercial Arbitration, which is based heavily on the New York Convention and encourages countries to adopt laws that are similar surrounding the recognition and enforcement of arbitral awards.  Many counties around the world have signed the Convention and use the Model Law to create, recognize, and enforce arbitral awards.  Little changes have been made to the text or application of the Convention around the world, and international commercial arbitration still relies heavily on the Convention as their source of law when making decisions regarding arbitral awards.  

A Summary of the New York Convention: 

With the basics of what the Convention is and how it came to be established, it is time to turn to the text of the Convention itself.  The text is relatively short compared to some treaties and international law at only sixteen articles; however, there is a lot of law packed into each article.  This section will go through each article and provide a summary of the law included and its applicability.  

Article I: Application, Definitions, and Reservation

The first article has three distinct sections that outline some of the basics to help enforce the rest of the Convention.  The Convention begins by outlining the application of the law as one that applies to the recognition and enforcement of awards “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.” It further declares that it applies to disputes between physical or legal persons and does not apply when awards are considered domestic in the state in which they are issued.  The Convention then broadens the scope of the definition of arbitral awards by including both arbitrators appointed on cases and decisions made by permanent arbitral bodies. The third portion of this article details how states may make reservations to the Convention.  A reservation to a treaty or convention is a way that a state may agree to be bound by the treaty in general but not by a specific portion or in a specific way.  In this case, there are three: 

  • Conventional: A party may choose to only enforce arbitral awards issued in other states that are member states.  This means that even though a state may have agreed to the Convention, they will not enforce arbitration awards from states that have not.  
  • Reciprocity: This type of reservation is similar to conventional reservations, but it extends further in that a state that has a reciprocity reservation will only enforce an agreement to the same standards as the non-member state where it was made would enforce it.  Member states will be treated as normal.  
  • Commercial: Commercial reservations mean that the member state will only enforce arbitral awards if they are based on commercial transactions.  

Article II: Recognition of Agreements to Arbitrate

The second article is concerned with the recognition of agreements to arbitrate, which is often a point of concern for the parties.  The Convention requires that the parties recognize an agreement in writing to submit their dispute to arbitration, whether the parties agreed before the dispute arose in a contract or other writing or they agreed to use arbitration after the dispute arose.  It also includes language in letters or other communication that agrees to arbitrate.  Finally, this article requires that if a court in a member state finds itself litigating a dispute for which there was a valid arbitration agreement, they must refer the dispute to arbitration unless the agreement is found to be null and void, inoperative, or incapable of being performed.  

Article III: Recognition Basics

Article III is a short article that has the actual charge to the member states to recognize and enforce an arbitral award in their own state as the award would be recognized and enforced in the state where it was issued.  It also bans states from making enforcement of awards falling under the Convention more difficult or expensive than domestic awards.  This provision is included to encourage the states to continue to use arbitration and to ensure that international arbitration is not discouraged by unequal enforcement rights.  

Article IV: Procedure for Recognition

The fourth article creates a bare-bones policy for how an award recipient may have their award recognized and enforced in a member state.  To do so, the party shall apply for recognition and enforcement and send either originals or certified copies of the award and the agreement to arbitrate that was relied on.  It also has provisions for when the documents need to be translated and requires official translations.  

Article V: Refusal

Refusal of an arbitral award is not an easy task, as it is the equivalent of appealing the award based on a very fine point of procedural law.  If an award is successfully refused, the award will not be enforced in the state that enforcement is sought.  This is very limited and is unlikely to be successful unless a portion of the arbitration was unfair.  However, this can happen if the party against whom the award is being enforced presents proof of any of the following reasons.  The fifth article lists seven reasons. The first five, are based on the proof presented by the party hoping to refuse enforcement.  These include:  

  • Agreement: The award may be refused if the agreement to arbitrate was invalid because either one of the parties had an incapacity at the time of the agreement under the laws of their county or if the agreement is invalid under the law of the agreement or the law where the award was made.  
  • Notice: The parties are entitled to notice to prepare for and present their case at arbitration.  If the party against whom the award is being enforced was not provided with proper notice of the appointment of the arbitrator or the arbitration proceedings.  It also includes instances where they were unable to present their case.
  • Scope: If an award covers more than the dispute that was submitted to arbitration, the award can be refused in part if the part that exceeded the scope can be separated or in full if it cannot.  
  • Panel: If the composition of the arbitral panel did not follow the agreement of the parties or, if there was no agreement, was not lawful under the laws of the state where the arbitration took place, it may be refused.  
  • Ripeness: In some instances, a party may attempt to enforce an award when it is not ripe, meaning that it is not yet binding on the parties.  Additionally, it cannot be enforced if the award has been set aside or suspended by the country that issued the award.  

The other two reasons for refusal rely heavily on the competent authority in the country where the award is to be enforced.  The award may be refused if the competent authority finds one of two issues: 

  • Non-arbitrable: If the authority finds that the issue that was arbitrated is not an issue that is arbitrable in the enforcing country, they may refuse recognition and enforcement.  
  • Public Policy: In most treaties, there is an allowance for countries to refrain from enforcement if the enforcement would be contrary to public policy in their country.  This is a somewhat vague term, but it means that enforcement would offend a matter of the public if it happened.  

Refusal is one of the most used sections of the Convention because most people will attempt to get out of an award if they can. Therefore, this section is most frequently studied and applied.  

Article VI: Security

The sixth article outlines the process for determining security if the award has been set aside by the county that issued it.  If a party seeks to enforce an award that has been set aside, the authority in the place where it is intended to be enforced may require that the party seeking to enforce the award pay the appropriate security to the refusing party. 

Article VII: Effect on Other Treaties and Laws

When a new law or treaty goes into effect, it either repeals or exists alongside preexisting laws.  When the New York Convention was signed, it replaced the Geneva Protocol and Convention mentioned earlier to the extent that states ratified the Convention.  This is part of the seventh article.  This article also states that all treaties and laws of the individual states that may ratify the convention are still in effect and not modified by the Convention.   

Articles VIII-XII: Becoming a Member State

This section of articles deals with the procedure of ratifying the convention for the individual states.  Article VIII allows members of the United Nations and all states recognized by the United Nations to sign it before December 31, 1958.  Article IX allows states accession to the Convention at any time by depositing an instrument with the Secretary-General of the United Nations.  Article X outlines the process for states that control other states and territories to extend their accession to their territories.  Article XI outlines the procedure for a federal or non-unitary State to join the Convention.  Finally, Article XII states that the Convention will come into effect on the 19th day after the deposit of an instrument of ratification or accession.  

Article XIII: Denunciation

This article outlines the process for denunciation, or how a state withdraws from the Convention.  They must send a notification to the Secretary-General, which takes effect one year later.  It also allows any awards made during this time to still be protected, recognized, and enforced by the Convention.  

Article XIV: Scope 

This article protects contracting states from using the convention outside of the scope of the convention against other states.  This provision helps ensure that states can become member states without fear that their status may be used against them.  

Articles XV and XVI: Secretary-General and Translation

Article XV outlines the responsibilities of the Secretary-General to the member states, which is mostly a list of notifications that must be made to the member states, including ratifications, accessions, declarations, dates, and denunciations.  Article XVI states that the convention will be translated to Chinese, English, French, Russian, and Spanish and that the Secretary-General will send a copy to each member state.  

With the discussion of the sixteenth article, this article wraps up its summary of the text of the Convention.  The very foundations of international arbitration are found within a small amount of space but have a lasting impact on the way cases are arbitrated around the world. 

Reach of the Convention: 

As of November 30, 2021, there are nearly 170 member states to the New York Convention.  This means that most of the counties around the world accept the recognition and enforcement of arbitral awards from other member states and in some cases, other states as well.  The Convention has had a lasting impact on the world of international arbitration and has informed how we view and interact with arbitration as a valuable means to resolve disputes internationally.  The world seeks to be one where we resolve our dispute with integrity and cooperation and the New York Convention encourages this.  

This does not mean that the Convention does not face criticism.  Aside from the interactions and interpretations that will be discussed in the next section, several criticisms have gained some traction as of late.  

  • Superiority: There have been growing concerns around the superiority of the Convention over national law in the member states.  Superiority means that there is usually a determination on which law is applied if the two laws are at odds.  While the Convention seems to avoid overturning other agreements and treaties around arbitration award enforcement, it does not specifically outline the way it interacts with national law.  This can and has caused problems when enforcement of the Convention would break national law or vice versa.  Critics state that this is a large component that is missing from the Convention that needs to be addressed.  
  • Vague: The main criticism of the Convention is that the sixteen short articles are too vague and short to really flush out the application of the law and how it should apply globally.  With superiority, several other issues have arisen concerning the financial costs and burdens that some member countries have to bear as a result of becoming a member and enforcing awards.  Critics argue that the vague way in which it is written leaves too much up for interpretation.  
  • Public Policy: There is also a large amount of criticism surrounding the inclusion of the provision which allows the authority overseeing a refusal to enforce to refuse to enforce the award based on the public policy of the enforcing state.  Critics argue that this is far too broad of a term to be used and countries often invoke the provision to avoid enforcing awards against their own citizens.  Public policy is vaguely defined and often relative to each state’s laws, therefore making it impossible to predict when an award could offend public policy.

These criticisms are certainly valid critiques of the implementation and enforcement of the Convention, and it is a document that has survived, mostly untouched, for over 60 years.  There may be room to adjust and define portions.  However, there is also an argument that it has survived this long precisely because there is room for interpretation and questions.  A strict law would likely not survive, while a living and shifting law allows the world to shift and use the law as they need to.  

Courts and the Convention: 

Another interesting aspect of the Convention is its ability to be interpreted by the local governments in the member states as they seek to decide if arbitral awards should be enforced within their borders.  While there are interesting interpretations and implementations around the world, this article will focus on the important and interesting cases concerning the New York Convention and the Courts of the United States.  Unites States courts are quick to uphold and enforce arbitration awards, so the courts are also often quick to affirm the role of the Convention in the United States.  There are several decisions and one piece of legislation concerning the use and application of the Convention, and this article will explore several of these decisions. 

The Federal Arbitration Act

Before discussing any court decisions, it is necessary to discuss the Federal Arbitration Act.  This act effectively implements the New York Convention in the United States and gives courts in the United States the ability to issue decisions regarding the enforcement of international and domestic awards.  This piece of legislation governs the way that arbitration is used and enforced in the United States.  

Andros Compania Maritima, S.A. v. Marc Rich & Co. (1978)

This case was an early case in the jurisprudence around the New York Convention.  In this case, the Second Circuit limited the scope of the Convention to only enforcement of arbitral awards that needed to be enforced in the United States.  The case concerned the enforcement of an arbitration award that had been entered into a judgment in another country. The court ruled that the Convention did not permit the United States to enforce foreign judgments that were the result of an arbitration award, only arbitration awards themselves.  

Fertilizer Corp. of India v. IDI Management, Inc., (1981) 

This is one of many cases where the parties attempted to refuse enforcement of an award based on the public policy exception in the New York Convention.  In this case, the party against whom the award was to be enforced stated that one of the arbitrators on a three-person panel had previously served as counsel for the other party and this was not disclosed to the refusing party.  The party argued that the nondisclosure kept the arbitrator from being neutral and gave the appearance of bias; however, the district court found that the nondisclosure had not tainted the award in such as way to justify denying its enforcement.  The court stated that while there was a public policy leaning toward disclosure, there is a stronger public policy in enforcing arbitration awards.  

GE Energy Power Conversion France SAS v. Outokrumpu Stainless USA, LLC (2020)

This is a fairly recent decision of the United States Supreme Court concerning the New York Convention and how it is implemented.  The issue in the case was whether a state law that allowed parties who had not signed the arbitration agreement to compel arbitration was allowed under the Convention.  The Supreme Court ruled unanimously that the New York Convention permits this law to apply.  The Convention is silent on the issue and did not forbid the use of equitable estoppel to do so, so the Court found that the Convention allows member states to draw from national and domestic law in such instances, which permit such a law and encourage arbitration in this case.  Therefore, parties who had not signed the arbitration agreement were permitted to use the doctrine of equitable estoppel to compel arbitration.  

Conclusion: 

The New York Convention has had a lasting legacy in the world of arbitration.  It serves as the foundation for international arbitration and encourages countries around the world to point their citizens toward arbitration.  Understanding the impact of the New York Convention is worthwhile because it influences so much of how countries around the world view arbitration. Within the sixteen short articles of the Convention, there are principles to be applied to encourage free access to justice through arbitration across borders.  The Convention has withstood the test of time and various challenges in the courtroom and out. While there has been criticism, the Convention allows questions and critiques to shape the way it is used and interpreted.  The ability to adapt and remain constant makes the New York Convention an inspirational document now and for years to come.    

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