Ercüment Erdem Att. Melissa Balikci

60 Years of the New York Convention

June 2018

Introduction

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention” or “Convention”) was concluded on 10 June 1958. This year, the New York Convention celebrates its 60th anniversary. The Convention has immensely influenced the field of international arbitration, and is accepted as one of the most successful treaties in the area of commercial law. The Convention has also influenced many international texts, and has served as a model. Notable examples include the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), and the UNCITRAL Arbitration Rules. It should be noted that the International Arbitration Act numbered 4686 is based on the Model Law, as well.

There are currently 157 States adhered to the Convention, which corresponds to approximately 80.5% of the entire World[1]. This article gives a brief account of the historical background of the New York Convention, a synopsis of what it deals with and, finally, discusses whether there is need to revise the Convention.

Historical Background

Previous to this Convention, the validity and enforcement of arbitration agreements and foreign arbitral awards was subject to the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. The Geneva treaties, and the regime they provided, were burdensome and, thus, led to the start of the work on the draft of the Convention[2]. The International Chamber of Commerce (“ICC”) was the first to commence this work, and established a ‘Preliminary Draft Convention’ in 1953. In the following year, the United Nations Economic and Social Council established the Committee on the Enforcement of International Arbitral Awards, and replaced the ICC. The Committee produced a draft on 18 March 1955. This draft formed the basis of the New York Convention and the text of the Convention was provisionally approved on 9 June 1958 following discussions and comments received from different countries. The New York Convention is accepted as a ‘substantial improvement, since it provides for a simpler and more effective method of obtaining recognition and enforcement of foreign awards’ and that ‘it gives much wider effect to the validity of arbitration agreements than that given under the Protocols’[3].

The Scope of the Convention

The Convention deals with two main issues: the recognition and enforcement of (i) arbitration agreements and (ii) foreign arbitral awards; namely, those awards made in other jurisdictions, and sets out the requirements for the same.

Recognition and Enforcement of Arbitration Agreements

Article II of the Convention is the relevant article that deals with the enforcement of arbitration agreements, and sets out the maximum requirements for a valid arbitration agreement. This means that arbitration agreements cannot be submitted to stricter requirements under national laws. Therefore, any arbitration agreement which fulfills the form requirement of Article II (2) of the Convention must be enforced by the courts of a contracting state, regardless of any stricter form requirement of national arbitration laws. A similar restriction has been provided for arbitral awards in Article III of the Convention which states as follows: “… There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition and enforcement of arbitral awards to which this Convention applies than are imposed on the recognition and enforcement of domestic arbitral awards.”

According to Article II of the Convention, arbitration agreements need to be in writing. The said article provides a narrow definition of writing, and contains two alternatives: an arbitral clause in a contract, or an arbitration agreement. The second paragraph of this article covers agreements “signed by parties, or contained in an exchange of letters or telegrams”.

This provision has been criticized as there is a view arguing that a liberal approach should be taken and, if not, the article needs to be interpreted in accordance with modern necessities. Thus, some advocate that the requirement should be relaxed, if not abolished. However, it should be added that the Model Law has reduced the importance of writing, and does not require signatures. Furthermore, national courts have widely interpreted the writing requirement of the New York Convention, as it can be seen in the Sphere Drake Insurance PLC v Martine Towing, Inc.[4] case where the US courts gave priority to intent over form, and stated that arbitration clauses do not have to be signed, provided they constitute a part of the contract. Therefore, the court held that the phrase after the comma did not apply to both of the antecedent clauses, but only to the latter one. Similarly, in Compagnie de Navigation et Transport SA v Mediterranean Shipping, the Swiss Supreme Court held that arbitration clauses do not have to be signed[5]. By contrast, there are other courts where this requirement has been interpreted very strictly[6].

It is argued that importance should be given to the parties’ intent to arbitrate which is the key requirement of an arbitration agreement. Where the parties’ consent to arbitration is clear, despite the non-fulfillment of the formal requirement, the courts have resorted to considerations of good faith and estoppel to uphold the validity of the arbitration agreement.

Recognition and Enforcement of Foreign Arbitral Awards

The second issue the New York Convention deals with is the recognition and enforcement of foreign arbitral awards. The party seeking enforcement of an award only needs to submit (i) the duly authenticated original award, or a duly certified copied thereof, and (ii) the original arbitration agreement referred to in Article II, or a duly certified copy thereof[7] and, if necessary, the translation of these documents.

Articles V(1) and (2) of the Convention are of crucial importance, and set out the grounds for national courts to resist enforcement. These include:

  • The invalidity of the arbitration agreement, or that the parties to the agreement did not possess the capacity to sign the agreement;
  • Lack of notice where the party against whom the award is invoked was not given proper notice regarding the proceedings, including the appointment of the arbitrator, and violations of due process (i.e a party being unable to present its case before the tribunal);
  • The lack of jurisdiction of the tribunal that includes cases where the tribunal deals with a difference not contemplated by, or not falling within, the terms of the submission to arbitration;
  • Irregularities in the composition of the arbitral authority or the arbitral procedure, as it was not made in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
  • The award is not yet binding on the parties, as it may have been set aside or suspended;
  • Where the subject matter of the difference is not arbitrable; and
  • Public policy considerations.

The Convention provides national courts’ discretion to reject an application for the recognition and enforcement of arbitration awards. Therefore, this discretion has led to different approaches.

The Convention also gives priority to domestic regimes that are more favorable to recognition and enforcement that again leads to differences between the contracting states (Article VII(1)).

Should the New York Convention be revised?

One of the issues that has been subject to debate in the past century relates to whether it is necessary to revise or amend the Convention. One group argues that the New York Convention should be left alone as it has been in force for so long and has established case law and, just simply, because it works. Emmanuel Gaillard, who supports this view, states that the New York Convention should not be revised, and summarizes his position as what he calls the “three NOs”: there is no need, no hope, and no danger[8].

However, on the other hand, there are others who criticize the Convention and its application, and claim that there is room for update. They argue that the different interpretations of national courts have resulted in unsatisfactory decisions, and the Convention should be revised. Linda Silberman states the deficiencies of the New York Convention, and asserts that there are areas in which the Convention has failed to create harmony, including the treatment of awards that have been set aside by the arbitral seat[9], and this imbalance in the application is an acknowledged fact.

It is important to realize that even if a revision is made, there is great risk that contracting states will not be willing to sign a new convention. There is even a greater risk if some states sign the new draft and some reject to, as adaption of a new treaty is not an easy task. The credibility of the Convention, which has been recognized as a tool promoting international arbitration is at stake. A good analysis needs to be made, and there should be justifiable grounds to compel such revision. The work is ongoing and there are many proposals that need to be meticulously considered.

Many events and conferences will take place this year that will discuss the impact of the Convention, and also consider future challenges that may be faced with an aim to tackle the current issues. As Paulsson puts it, “possibilities are countless when mapping the future.” Let us see what the future brings.

[1] For the full list of signatories please see: http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html

[2] Article VII(2) of the New York Convention expressly states that the Geneva treaties shall cease to have effect between the Contracting States on their becoming bound and, to the extent that they become bound, by this Convention.

[3] Chapter 11. Recognition and Enforcement of Arbitral Awards', in Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration 6th edition (© Kluwer Law International; Oxford University Press 2015) pp. 605 – 662.

[4] 16 F.3d 666, 669 (5th Cir. 1993).

[5] The Court has stated “the need for a signature inevitably diminishes, especially in international commerce, and the different treatment reserved to signed and unsigned documents is under discussion.

[6] Examples include Robobar v Finncold SAS, a decision of the Italian Supreme Court, and Kahn Lucas Lancaster Inc. v Lark International Ltd. (186 F.3d 210 (2d Cir. 1999), a decision of the US Court of Appeal.

[7] Please see Article IV of the New York Convention.

[8] Emmanuel Gaillard, The Urgency of Not Revising the New York Convention in 50 Years of the New York Convention, ICCA Congress Series No. 14, Dublin, A.J. van den berg ed., Kluwer Law International, 689 (2009).

[9] Linda Silberman, The New York Convention After Fifty Years: Some Reflections on the Role of National Law GA. J. INT’L & COMP. L. Vol 38:255 2009 pp. 26-46.