Implementation of the annulled foreign arbitral award in accordance with the New York Convention concerning the Recognition and Enforcement of Foreign Arbitral Awards of 1958 Analytical study
First, it is the New York Conventions drafters intention not to impose upon the enforcement court a duty to accept the annulment rendered by court or under the law making the decision to annul the award. Secondly, the New York Convention seeks to distinguish between the jurisdiction of the original court and the enforcement court. The general idea is that if jurisdiction is constrained to the place where the arbitration takes place, coherence within international law would be compromised.
The approach taken by Article V(1)(e) is characteristic of the binding and final nature of arbitration awards. In general arbitration awards are not the subject of judicial review or an appellate process. The question for investigation is whether or not Article V(1)(e) effectively achieves this purpose. It is arguably necessary and important to provide for restraints on domestic court intervention since shared jurisdiction over a dispute can lead to conflict between international and domestic adjudication. Moreover it compromises the effectiveness and intent of international arbitration and can create tensions among adjudicators in the international context.
This research paper will demonstrate the restraints on domestic courts with respect to international arbitration, the necessity for these restraints and the limits of these restraints. These tasks will be undertaken by evaluating the forms of judicial review with respect to arbitral awards, the New York Conventions framework with respect to the annulled arbitral award with the emphasis on Articles V and VII and the judicial approach to annulled arbitral awards in the context of the seat of arbitration.
Forms of Judicial Review over Arbitral Awards Depending on the Type of Error
Arbitral awards are capable of enforcement abroad as a result of multilateral and bilateral conventions and treaties provided refusal grounds are supported by the applicable convention or treaty. Although the arbitral award is accorded validity that corresponds with that of a courts judgment, the arbitral award will typically require the courts assistance for enforcement when the party against whom it is rendered is not entirely cooperative. In general, a party against whom an international arbitral award is issued may seek redress in the domestic courts of the seat of the arbitration or the place where the award can be enforced. The award can be annulled by a domestic court at the behest of either party if the award is inconsistent with due process, or the subject matter of the dispute is not covered by the agreement to arbitrate or it is inconsistent with the States public policy. Annulment or setting aside arbitration awards is calculated to invalidate the award so that it cannot be enforced against the disadvantaged party abroad.
Theoretically, international arbitration should be such that it is carried out in a manner consistent with internationally recognized standards, practices and policies with no connection to national laws and in the absence of interference andor review by national courts. Moreover, the agreement to arbitrate and its attendant agreements should also be accepted by national courts without review or complication. The general idea is that parties to international arbitration agreements and processes are from divergent jurisdictions and deliberately select a neutral national stage for the arbitration process. The general intent is that the arbitration process is free of the national legal and procedural domain. In this regard, national law have no part to play in the control and regulating of the international arbitration proceedings.
Unavoidably, the national courts and the national laws of the seat of arbitration are tied to the arbitration and the arbitration agreement to a certain extent. There are two competing views on the extent to which the seat of arbitration is connected to the arbitration. The first view takes the position that the national laws in the place where the arbitration takes place will govern or at the very least regulate the form and make-up of the arbitration panel as well as the award form and the arbitration procedure. Ultimately, the courts in the place where the arbitration is conducted will have some measure of jurisdiction over the correct operation of the arbitration process and will either confirm or quash the arbitration award. In this regard, the seat of arbitration ties the arbitration to the legal framework of the jurisdiction in which the arbitration is conducted.
There are certain consequences associated with this concept of the link between the seat of arbitration and the actual arbitration. These consequences flow from the influence of national laws and national courts at the seat of arbitration on the arbitration process. One view takes the position that even in those situations where the rules of arbitration provide for wide discretion with respect to the arbitration process, arbitrators are still inclined to apply the lex fori in terms of the arbitration process. Moreover, in determining the applicable laws, arbitrators are likewise inclined to defer to the choice of law rules under the laws of the place where the arbitration is conducted. By taking this approach, arbitrators may also defer to the mandatory rules of the seat of arbitration if they coincide with the rules elected by the parties as the applicable law. In another scenario, where the laws of the seat of arbitration only requires that arbitrators only refer to national laws to determine that there is a legally binding arbitration agreement, they will typically refer to the choice of law rules applicable to the seat of arbitration in choosing the law that should govern the agreement to arbitrate.
In the second concept which is particularly predominant in civil law countries, the seat of arbitration is viewed as nothing more than a mere convenience. This concept is entirely different from the previous concept which recognizes the link between the seat of arbitration and the actual arbitration process and its resulting award. Under this concept, arbitration panels are not bound to function in the same manner as national courts merely because the seat of arbitration is located within that particular jurisdiction. This concept takes the position that arbitrators do not obtain their authority from the seat of arbitration but from the sum of all legal orders that facilitate the feasibility of arbitration and the resulting award to the extent that arbitration is without a forum.
Likewise, there are certain consequences that conceivably flow from this concept of the role of the seat of arbitration. To the extent that arbitration is without a forum, arbitrators are not bound to adhere to the choice of law rules of the seat of arbitration and have wide discretionary powers with respect to ascertaining and applying the applicable substantive law.
The New York Convention set forth three essential standards by which to avoid interference by or recourse by one party to the jurisdiction of the national courts. These three standards are
The arbitration process must comply with the terms and conditions contained in the agreement to arbitrate.
Each of the parties must be accorded fair and equitable treatment.
The contents and subject matter of the arbitral award must respect international public policy.
In general national courts are not inclined to review the arbitral process except in extraordinary circumstances. For example, US courts have demonstrated an increased inclination to review arbitral awards and processes only in instances of grave error such as errors in law, fact or the interpretation of the contract. However, those errors must be of such gravity that they are proper cases for vacating the award.
The New York convention does not provide a regulatory regime for the grounds upon which an international arbitral award may be vacated. Conventional wisdom dictates that while contracting states are bound to ensure that the recognition and enforcement of arbitral awards are subject to a degree of international uniformity they are likewise permitted some flexibility in securing this result. National systems are at liberty to take one of two approaches. They may implement laws that instruct national judges to abide by convention provisions for enforcement and recognition under the umbrella of the self-executing principle. On the other hand national systems may implement laws which are modeled after the convention provisions.
Parties to international arbitration have the right to expect that not only will their arbitration agreement ant its resulting award be recognized by national courts but that they will not be the subject of judicial review. This expectation is facilitated by the operation and interaction of national laws and international laws, customs and practices. For example the French Nouveau Code de Procedure Civile provides the principle law for the regulation of the arbitration process under the jurisdiction of France. By virtue of this code, an order recognizing or granting enforcement of an arbitral award made in France may not be the subject of an appeal. However, an order recognizing and granting enforcement of an arbitral award rendered outside of France may be appealed against on five separate grounds. The five applicable grounds are
The arbitration tribunal made an award where there was no agreement to arbitrate or the agreement to arbitrate was void or time barred.
The arbitration panel was composed contrary to the arbitration agreement or the appointment of an arbitrator was contrary to the agreement to arbitrate.
The arbitration panel did not comply with its mission.
Due process was lacking.
Either recognition or enforcement or both would not comport with international public policy.
The US also provides an example of the limitations set on judicial review of arbitral awards and this would necessarily include the annulled award. By virtue of the Federal Arbitration Act (FAA), an arbitration award may be the subject of vacatur or annulment appeal if the award was obtained by corrupt, fraudulent or undue means the is evidence of bias or corruption on the part of the arbitrators or any one of them the arbitrators committed misconduct in the refusal to postpone the proceedings when it was just to do so, or they refused to admit crucial evidence, or any other material misconduct the arbitrators went beyond their authority or exercised the authority incorrectly compromising a final, definite and mutual award if the award is vacated and the time set for making the award is still running the court is at liberty to order a rehearing.
In addition to Section 10 of the FAA, the US has developed a set of non-statutory grounds for which an arbitration award can be vacated or annulled. The most significant ground is where the arbitrator demonstrated a manifest disregard for the law. Other significant grounds include circumstances where there is a discrepancy between the arbitral award and an unambiguous and firmly established public policy, the award is characterized as arbitrary and capricious or it is entirely irrational and the award does not correspond with the disputants contract.
These examples of French and US national laws and practices demonstrate the limited grounds upon which an international arbitral award can be challenged. Encapsulated within these frameworks is the concept that even if the award has been annulled the court before which the disputants are seeking enforcement are not obliged to accept the annulment. They may examine the award and determine whether or not it offends national laws for the enforcement and recognition of arbitration awards. As seen by the laws in France and the US, convincing the court that the award is a proper one for vacating or annulling is an onerous task.
The US Fourth Circuit in Remmey v PaineWebber, Inc 32F. 3d 143 (4th Cir. 1994) explained that US courts are not at liberty to quash an arbitration decision merely because the court seized of the matter would have arrived at an entirely different conclusion on identical facts. This was manifested by the constraints placed on the courts ability to vacate or annul an arbitration law under the FAA. Those grounds are generally related to misconduct arising during the course of the arbitration process and certainly will not allow annulment or vacating simply on the grounds that there is discord with the arbitrators decision.
Similarly, Ugandas Reciprocal Enforcement of Judgment Act which applies to foreign arbitration awards only permits the nullification of a judgment award in two specific circumstances. First, in order for an application for nullity to succeed there must be evidence that the judgment had been obtained by virtue of fraudulent means. Secondly, the judgment is null for the purposes of registration and enforcement in Uganda if the award emanated from a cause of action which for public policy or similar reasons could not have been litigated in the Ugandan courts.
More specifically, Ugandas Arbitration Act and indorses the Geneva Conventions and together with dual municipal laws of Uganda makes provision for the recognition and enforcement of foreign arbitration awards. Under municipal law, in the event a party attempts to enforce an arbitral award rendered abroad heshe must prove that the award was made in a manner consistent with the parties agreement and that the award is final in the seat of arbitration. Under Cap. 55 which incorporates the Geneva Conventions, there are substantially more grounds upon which Ugandan courts may refuse recognition and enforcement of foreign arbitration awards. The party seeking recognition or enforcement may be refused if there is evidence that the arbitration clause is not valid under the applicable law the agreement did not provide for the arbitration panel used or the panel was comprised in a manner that did not accord with the agreement the award is not consistent with the governing law of the arbitral process the party challenging the award was not provided with notice of the process in sufficient time to prepare a case or suffered from some legal impediment and did not have the benefit of adequate representation the award did not cover each of the relevant issues or the decision covers issues that were not within the contemplation of the arbitration agreement.
In each of the national systems reviewed above, it is obvious that the grounds upon which an international arbitration award may be the subject of judicial review are limited. The limits of judicial review are manifested by the tenuous link between the national courtsnational laws of the seat of arbitration and the arbitration process and its resulting award. Ultimately, restraints on judicial review relate to actions for nullifying or vacating an award. Whether the challenge to enforcement and recognition is conducted in the seat of arbitration or abroad, the action refers some measure of judicial review. Even if one accepts the argument that arbitrators are inclined to favour the law of the seat of arbitration, ultimately the courts are called upon to review the award and determine whether or not the award should be recognized and enforced. The limited grounds upon which national courts are prepared to set aside, vacate or otherwise nullify an arbitration award is a manifestation of the fact that international arbitration awards are loosely connected to a particular national legal regime.
The Position of the New York Convention on the Question of the Implementation of the Annulled Arbitral Award in the Seat of Arbitration
The Approach to the Recognition and Enforcement of Foreign Arbitral Awards
The advantages of arbitration over litigation in respect of disputes with an international character are succinctly documented. These advantages include the opportunity for disputants to avoid the alien environment of a foreign legal process by agreeing among themselves for a neutral or mutually acceptable forum. By virtue of arbitration, parties can choose the applicable law and they may also appoint adjudicators with specific expertise. However, in order to obtain the advantages of arbitration in terms of international dispute resolution processes it is necessary to have some international legal framework for bringing about consensus among the international community with respect to the recognition and enforcement of arbitral awards rendered in one jurisdiction and enforceable in another. This is the purpose and intent of the New York Convention.
Ultimately the effectiveness of any legal regime that intends to secure the recognition and enforcement of an arbitration award overseas will necessarily require that judicial review by national courts is contained. The New York Convention with its large international membership which consists of both capitalist and socialist leading nations, can be regarded as the most effective arbitration Convention and the cornerstone of current international commercial arbitration. Essentially, it has been suggested that the New York Convention has been agreeable to international arbitration and ultimately, it is difficult to escape enforcement of an award subject to the New York Convention.
Ideally the New York Convention laid the ground work for the concept of autonomous arbitration. Autonomous international arbitration takes the position that international arbitration be carried out in a manner consistent with generally agreed upon international practices and undisturbed by national laws and perhaps more importantly, free from review or interference on the part of domestic courts. The arbitration agreements and their resulting awards should also be recognized and enforced with minimal or no difficulties or revision by national courts.
Unfortunately, some national courts reserve some measure of control, albeit minimal, over access to international arbitration and the issues that can be the subject of international arbitration. These kinds of reservations can compromise the facilitation of international arbitration. The New York Convention 1958 seeks to overcome these difficulties by first recognizing that while an arbitration award must necessarily originate from one jurisdiction, it must be capable of enforcement elsewhere. The requirement that arbitration awards be recognized and enforceable in other jurisdictions is subject to one exception and that is that unless the award is null and void, inoperative or incapable of being performed they ought to recognized and enforced abroad. The relevant provision is contained in Article II of the New York Convention 1958.
The New York Convention sets three minimum standards for international arbitration, each of which provide the benchmark by which international arbitration standards and practices are measured. These standards call for the arbitration to comport with the essence of the arbitration agreement. The disputants are also entitled to expect fair and equal treatment under a concept of international due process, and the award itself is required to be consistent with international standards of public policy relative to subject matter and content.
Ultimately, the New York Convention incorporates the concept of autonomous arbitration is founded on two fundamental principles. These two principles are that, first, he arbitration process is free of national laws and secondly, national courts may only intervene in the arbitration process in limited circumstances.
Unfortunately, as delineated in the preceding section of this paper, national laws can and have reserved unto themselves the right to intervene in the sense that they have provided grounds for which national courts may annul or vacate an award. While arguably, the laws are necessary for preventing a grave miscarriage of justice. For instance, Uganda provides for judicial review in the event an award was obtained by virtue of fraud. However, this opens up the application of the national laws of Uganda for interpreting and applying what amounts to fraud and how fraud should be defined. Other national laws permit review on the grounds that the award does not accord with public policy. This necessarily invokes national mandatory laws and may be inconsistent with the concept of party autonomy and autonomous arbitration. This is particularly so in cases where the parties deliberately intended to opt for a different jurisdiction, and did not wish to be bound by the mandatory rules of the seat of arbitration or any other jurisdiction save and except for the jurisdiction they chose to govern the arbitration process.
Article VII of the New York Convention may be partially responsible for the casual link to domestic courts ability to intervene. Article VII contains what has been referred to as more-favourable-right provision and the compatibility-provision. The more-favourable-right provision is reflected in Article VII(1) which provides that shall not compromise the valid application of a multinational or bilateral treaty relative to the recognition and enforcement of an arbitration award to which the member state is a party
nor deprive the any interested party or 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 an award is sought to be relied upon.
The consequences of Article VII (1) as cited above is that disputants may resort to domestic laws for the recognition and enforcement of arbitration award or some other treaty, rather than the New York Convention. Article VII (2) incorporates the compatibility-provision by basically conceding that it does not affect the application and relevance of other treaties relating to arbitration. This is because when read together with Article VII (1), all treaties can be included. So while Article VII (2) refers to earlier treaties, Article VII (1) refers to treaties in general.
The more-favourable provision however, does not intend to provide for a indiscriminate departure from the enforcement and recognition mandate of the convention. It only intends that in the event the conditions of the New York Convention fail to be met, the award is enforceable by virtue of some other means. This was confirmed by Colognes Court of Appeal which stated that the purpose of Article VII (1) intends to ensure that a party seeking recognition is not denied more favourable possibilities under the national law of the State where heshe is attempting to enforce an award. Van den Berg states that the purpose and rationale of Article VII(1) is to ensure that the foreign arbitration award is enforceable under a wide variety of circumstances and situations. However, Van den Berg asserts that such an approach is not conducive to uniformity and certainty in the way the exclusive applicability of the Convention would be. The result is, awards that are not compliant with the New York Convention are exposed to an unidentified status.
Moreover, the party against whom the award applies can also be exposed to unpredictable circumstances. For example, under the national laws of Germany, a party may successfully enforce an arbitration award even if it the arbitration award is not valid. Article V(1)(a) of the New York Convention permits non-enforcement of an award in such circumstances. In the event the defendant is confronted with the prospect of the enforcement of an award in such circumstances and fully anticipates using Article V(1)(a) in Germany, he might be taken by surprise if the other party decides to avoid the application of the New York Convention as provided for in Article VII (1) and instead relies on the domestic law of Germany.
Uniformity under the New York Convention should come with far more certainty within the ambit of Article II. Article II insists that all member states recognize arbitration agreements that are in writing. Article II (2) goes on to define what is meant by writing and this includes not only an arbitration clause contained in a contract signed by the disputants, but an arbitration agreement evidenced by either letters or telegrams. These provisions in Article II of the New York Convention are significant since they have implications for enforcement purposes. For instance Article II(3) which makes provision for enforcing the arbitration agreement refers to an agreement within the meaning of this article. Likewise, Articles IV(1)(b) and V(1)(a) on the enforcement of the actual award refer to the agreement referred to in article II.
Despite the fact that Article II appears to be unambiguous, uniformity of its application has been problematic. Some courts, particularly those in Italy, Germany, the Netherlands and Switzerland have interpreted Article II (2) differently and quite often, unclearly. Whereas national courts have generally ruled that the provision contained in Article II(2) prevails over domestic law with respect to the formal requirements for the arbitration agreement in cases where the agreement is subject to the New York Convention. The truth is, while a vast majority of domestic arbitration laws mandate that the arbitral agreement be evidenced in writing the same is not always provided for in other national laws. For example, the Code of Civil Procedure of Germany does not require merchants to conclude an arbitration agreement in any particular form. Dutch law likewise provides for oral evidence of an arbitration agreement. These kinds of provisions defeat Article II(2)s purpose of requiring that the arbitration agreement be evidenced in writing. That purpose is to make certain that the disputants do in fact agree to arbitration.
National division of laws such as these function to compromise the New York Conventions aim at harmonization which intends to reduce the opportunities for national court intervention in the arbitration process. The United Nations, in a review of the New York Convention in 1999 commented on this aspect of the New York Convention. The United Nations observed that there is no real reason why disputants who freely opt for arbitration should have to contend with the prospects of a party opting out of the arbitration agreements to the extent that the matter eventually ends up being litigated.
In essence the New York Convention attempts to bring together three interacting and overlapping legal factions in international arbitration. These three overlapping factions are national laws, international laws and private dispute resolution. The greatest evidence of how the New York Convention functions to promote harmonization of these three overlapping factions is found in its treatment of annulled arbitration awards. This is because annulment processes determine the extent to which national courts may intervene in the arbitration process and this is where the greatest risk to universality of arbitration exists. In other words, harmonization of international arbitration procedural and substantive laws depends in large part on its detachment from national laws and national courts. If national courts were at liberty to apply national standards and laws for enforcement of arbitration awards, the New York Conventions ability to harmonize international arbitration is compromised by the application of diverse national laws and practices.
Interpretation of the Relevant Provisions of the New York Convention on the Implementation of the Annulled Arbitral Awards in the State Seat of Arbitration
The New York Convention by, virtue of Article I(1) only applies to the recognition and enforcement of awards rendered in the jurisdiction of a State other than the State where recognition and enforcement of the award is sought. The 1958 Convention also applies to an arbitral award that is not characterized as domestic in the jurisdiction where the enforcement and recognition is sought. Traditionally a foreign arbitration award could only be enforced with permission from the court sitting in the jurisdiction where the award was made and subsequently with permission from the court where the enforcement is sought. This process is referred to as double exequatur. By virtue of the New York Convention the double exequatur was abrogated leaving arbitration awards capable of enforcement as of right.
Article V(1)(e) of the New York Convention
Article V(1)(e) of the New York Convention makes provision for the enforcement of an arbitral award in a jurisdiction other than the jurisdiction where the arbitration award has been vacated, has not yet become binding or has suspended in the seat of arbitration. To this end, Article V(1)(e) provides that the recognition and enforcement of an arbitral award may only be denied if the party against whom the award is rendered can provide evidence proving that
The award has not yet become binding on the parties or has been set aside or suspended by a competent authority or the country in which, or under the law of which, that award was made.
Article V(1)(e) is therefore capable of two contrasting interpretations. On the one hand it can be interpreted to mean that the New York Convention permits the court where enforcement is sought to refuse enforcement where the award has been annulled or vacated in the jurisdiction of the seat of arbitration. Therefore it can be assumed that vacated awards are not automatically capable of being enforced in foreign jurisdictions. On the other hand, this assumption can be thwarted by the use of the word may in Article V(1)(e) which makes it entirely possible for the award to be enforced despite its having been vacated in the jurisdiction of the seat of the arbitration. Or that the court where enforcement is sought is not compelled to give effect to the court that annulled the award.
The word may as it appears in Article V(1)(e) of the New York Convention has given rise to entirely different interpretations in French and English. In the English version Article V(1)(e) does not impose upon national courts a compulsory duty to refuse the enforcement of awards that is deficient pursuant to Article V(1). The French interpretation of Article V(1)(e) however does the opposite. In other words, French courts are under a duty to refuse enforcement of an award that has been annulled or is otherwise deficient within the meaning of Article V. Of the five remaining languages that the New York Convention is written in, Russian, Chinese and Spanish interpretations of Article V(1)(e) in terms of whether it is discretionary or mandatory, closely mirror the English interpretation of the text.
The point is, although the New York Convention is available in five different languages and has universal character its provisions are subject to vastly different interpretations. Even so, the perception is that the intent of the New York Convention is to provide a mechanism by which foreign arbitration awards are recognized and enforced unless there are reasons for not doing so. To this end, Article V(1) (e) provides such a reason by stating that an award may not be enforced or recognized if it is vacated or nullified by operation of the laws of the seat of arbitration.
Ultimately, Article V(1)(e) allows that an award that is not yet binding can be unenforceable. This raises the issue of determining what constitutes a binding award. There are those that propose that reference must be made to the New York Convention for determining whether or not an award has not yet become binding. In this case, the award will be characterized as binding if there are no other pending legal remedies associated with it. On the other hand, there are those that have a different opinion on the issue and take the position that in determining whether or not an arbitral award is not yet binding, resort must be had to the procedural laws under which the award was rendered. In other words, the arbitral award would be binding if under the laws of the jurisdiction issuing the award, leave for enforcement is permitted.
Under Article V(1)(e), as previously noted, an ward which has been annulled, vacated or suspended by a court of competent jurisdiction in the seat of arbitration, may be incapable of enforcement. Similarly, courts may enforce the award nonetheless. The wording in Article V(1)(e) makes both approaches possible since it basically states, in so many words, that the court before whom enforcement is sought is not bound by the previous annulment.
Article VII of the New York Convention
Articles V(1)(e) and VII appear to be at cross-purposes. As noted, Article V(1)(e) which permits a country to refuse enforcement of an award previously annulled, vacated or suspended by the court in the seat of arbitration. Article VII is contradictory in that a foreign arbitration award will be capable of availing itself of the full application of the enforcement laws within the jurisdiction where enforcement is pursued. Article VII provides that the Convention shall impact the application of treaties on the enforcement of arbitration to which Member States are parties. Moreover, the Convention will 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 treaties of the country where such award is sought to be relied upon.
The operation of Articles V(1)(e) and VII can create tensions and present adjudicators with difficult questions as to how best to reconcile the residual tensions emanating from the cross-purposes exposed by these two provisions under the New York Convention. Davis illustrates the point by reference to an example. In the example, a Japanese and Colombian company have entered into a contract which contains an arbitration clause. A dispute arises and the parties arbitrate in Japan and the Colombian company obtains an award in its favour. The Japanese company makes an application for setting the award aside in Japan and the application succeeds. The Colombian company, aware of the annulment, seeks enforcement in Colombia anyway. Assuming that Colombian law permits enforcement of the award, the Colombian court now has to ascertain whether or not to uphold the Japanese Judgment and deny enforcement pursuant to Article V(1)(e) or to give full affect to Colombian Law and enforce the award pursuant to Article VII.
Essentially, Article VII is known as the subsidiary clause in that it makes provision for the disputants to pursue the arbitration award to the full extent of the law and the treaties in the jurisdiction where enforcement is sought. The combined effect of Article V and VII means that courts will be at liberty to employ their won interpretive approaches to the discretionary ambit of Article V in a manner which reflects the favourable treatment permitted by Article VII.
Article VII (1) is typically taken to mean that the provisions within the New York Convention should not be used to prevent a more favourable enforcement resolution under domestic law in the place where enforcement is sought. Article VII can therefore be interpreted to mean that if the law of the forum in which enforcement is sought does not include refusal grounds such as that found in Article V, an annulled or vacated award may nonetheless be enforced by that jurisdiction. When Article VII is read together with the discretionary implications of the word may in Article V, Article VII is taken to have a dual purpose. First it provides guidance to the extent that the court seized of the matter may apply the more favourable domestic laws when exercising the discretion contained in Article V. Secondly, domestic laws may in these circumstances reign supreme over the Convention when in ordinary circumstances the Convention would reign supreme.
Criticisms of Articles V(1)(e) and Article VII
One of the most noted problems with Article V(1)(e) is that it provides the authority for the court where enforcement is pursued to either deny or prolong enforcement if the defendant submits that the arbitral award is not yet final or that it has been suspended by the laws of the seat of arbitration. For instance, the Supreme Court of Sweden requested proof of a court mandated suspension before denying enforcement. The obvious consequences of requiring proof of a court-mandated suspension is the time and expense involved in obtaining proof. This will invariably mean obtaining a certified copy of the courts suspension judgment. A denial of enforcement itself compromises the finality of arbitration, one of its more appealing features.
In addition to the possibility of delay and the threat to the finality of arbitration, different approaches to Article V(1)(e) by contracting states can also compromise the universality of international arbitration as envisioned by the New York Convention. For instance, by virtue of the New French Code of Civil Procedure, an award can be suspended without a court order when an action for setting aside is pending. A US District court denied enforcement of an arbitral award made in France which had been suspended by virtue of the fact that a setting aside action had been initiated. The US District Court did not think that the action alone amounted to a suspension of the award within the meaning of Article V (1)(e).
The language of Article V(1)(e) is vague in that it does not specify whether or not domestic laws which made the nullification of the award possible or the international character of arbitration should take priority in an action to enforce an annulled award. Similarly, the drafting history of the New York Convention does not clarify the confusion over what system should prevail.
Evidence emanating from the drafting history of Article V(1)(e) indicates that some of the drafters took the position that in the event an award is vacated by the courts in the seat of arbitration, enforcement would not be right and some of the first Convention drafts also mandated that an annulled foreign award would not be enforced. At the end of the day, the word may was used as a means of accommodating the uneasy co-existence of a dual control system and the intention to put forth a system for the universal recognition and enforcement of foreign arbitral awards.
When read together with Article III of the New York Convention, it is easy to conclude that the Convention did not provide a harmonious legal framework for the enforcement and recognition of international arbitration awards. Article III of the New York Convention provides that Contracting States recognize and enforce international arbitral awards in accordance with the rules of the procedure of the territory where the award is relied upon. Although the Convention goes on to provide guidelines for the recognition and enforcement of arbitration awards so that the practice is uniform, in practice however, international arbitration is entrenched in what might be described as a territorial conception of arbitration.
This territorial conception is made possible by Article V(1)(e) which permits non-recognition and non-enforcement at the courts discretion. The inevitable result is different approaches to enforcement and recognition of annulled awards. For instance the courts in the Netherlands, Belgium and Germany typically deny enforcement of a vacated arbitration award. The French courts routinely enforce vacated awards. In another instance an Austrian curt under the auspices of the European Convention on International Commercial Arbitration 1961 enforced an award which had been vacated by Slovenias Supreme Court. In other Contracting States such as Italy and Switzerland, it is within the courts discretion whether it wishes to enforce an annulled award.
When read together with Article V(1) (a)-(d), Article V(1)(e) appears to be entirely out of sync with the remainder of article V(1). Article V(1)(a)-(d) permit a court denying enforcement on grounds that are directly related to the arbitration agreement and process while Article V(1)(e) permits the court to look outside of the arbitration agreement and process for grounds to refuse recognition and enforcement. For example, Article V(1)(a) permits non-enforcement and non-recognition in the event under the applicable law at least one of the parties to the agreement to arbitrate is somehow incapacitated or the arbitration agreement is not valid under the applicable law or under the law of the seat of the arbitration. Enforcement and recognition can also be denied if the party against whom the award applies was not provided with sufficient notice of the arbitrators appointment or the proceedings or was for some other reason unable to submit hisher case. Recognition and enforcement may also be denied if the award covered matters not covered by the agreement to arbitrate, or the arbitration procedure or the authority of the arbitrator fell outside the arbitration agreement or the law of the seat of arbitration.
Ultimately, the use of the word may in Article V(1)(e) and the use of the word shall in Article VII has created and contributed to much of the current and ongoing controversy associated with the New York Convention. The obvious difficulty is that Article VII makes it a mandatory obligation for an award to be enforced if domestic laws confer more favourable rights and the annulment must therefore be ignored despite the discretionary powers under Article V(1)(e) to refuse enforcement. A great deal of uncertainty and resulting inconsistency naturally follows. This is because while some may interpret Article VII as imposing a mandatory obligation to apply the more favourable domestic laws, others naturally interpret Article V(1)(e) as conferring a discretion not to apply the more favourable domestic laws.
Academic discourse and case law both firmly establish that Article VII(1) of the New York Convention functions to exclude the provisions contained in the Convention and instead invokes domestic laws in its entirety. Even so, others take the position that Article VII does not apply to vacated awards and only to awards that fall under the other provisions of Article V(1). Certainly, under the traditional view which takes the position that an annulled award simply means that there is no award to enforce and therefore cannot arise within the context of Article VII. It therefore follows that Article VII can only apply to grounds which are raised for non-enforcement independent of the issue of annulment.
The difficulty with the New York Convention is that it attempts to strike a fair balance between the traditionalterritorial view and the denationalized view. The former obviously adheres to the concept that anything that happens within a specific territory is governed by that territory. The denationalized view rebuts this position and holds that an award can be enforced anywhere and that validity can be determined by reference to the laws where enforcement is sought. The Conventions strikes a rather tenuous balance between these two views by conferring upon the courts of the seat of arbitration the authority to either confirm or annul an award and at the same times confers upon other countries the authority to enforce unconfirmed or annulled awards. By making a compromise along these lines the provisions contained in Articles V and VII are confusing and contradictory.
In general, the New York Convention attempts to facilitate the recognition and enforcement of arbitration awards across international borders. This is evidenced in the language of a number of the provisions of the Convention. For instance Article III directs that Contracting States shall view arbitration awards binding and shall enforce those awards by reference to the procedural rules in the jurisdiction where the award is relied upon pursuant to the terms and conditions set forth in the Convention. The word shall also appears in Article I which dictates that the Convention shall be applicable to the recognition and enforcement of arbitration awards. Likewise Article II directs that Contracting States shall recognize agreements that are in writing.
Article VII also directs that the provisions in the Convention shall not be applied to deny a party of the favourable application of other treaties and domestic laws with respect to recognition and enforcement of arbitral awards. However, Articles V and VI use the word may in respect of applications for enforcement of a vacated award and applications for stays. This points to a reasonable conclusion that if the Convention intends a provision to be mandatory it will state so in clear terms by inserting the word shall and when it intends that a provision merely confers upon adjudicators a discretionary power, the word may is used to express that intention.
It therefore appears that the New York Convention intends that the authority to refuse enforcement and recognition of an annulled award is merely discretionary and not intended to be compulsory. However, the mandatory language of Article VII contradicts or at the very least limits the exercise of the discretionary power provided for in Article V (1)(e). In the New York Conventions recommendation for interpreting Article VII of the Convention, the Convention maintains that account must be had to the the need to promote recognition and enforcement of arbitral awards. Account is also taken of domestic laws that are more favourable than the provisions contained in the Convention in relation to the formal requirements for arbitration agreements, arbitral proceedings and enforcement.
When one takes these guidelines into account, Article VII still contradicts Article V which confers upon the adjudicator a discretion to refuse enforcement and recognition of a vacated award. If one takes the view that should domestic laws of applicable treaties render a more favourable outcome with respect to enforcement and recognition, then the domestic laws andor other treaties are to prevail over the discretion conferred by Article V(1)(e). This conundrum leads one to question whether or not Article V(1)(e) serves any purpose at all if Article VII prevails. Or is Article V(1)(e) only applicable where the domestic laws andor applicable treaties do not provide a more favourable outcome with respect to enforcement and recognition
Whatever the solution, the New York Convention does not offer any clarification with the result that the effect of Articles V(1)(e) and VII are open to interpretation. Courts seized of an application for the enforcement of an annulled award are therefore left to interpret Articles V(1)(e) and VII as they deem appropriate. The breadth of case law demonstrates that these articles are interpreted in different ways with the result that comity and uniformity in relation to the enforcement and recognition of arbitral awards is compromised contrary to the purported intentions of the New York Convention.
Judicial Applications with Regard to the Implementation of the Annulled Arbitral Awards in the State Seat of Arbitration
The approach taken to the enforcement and recognition of annulled arbitral awards pursuant to Articles V (1)(e) and VII of the New York Convention differs among civil law countries and common law countries. This is because given the context of the New York Convention in terms of its commitment to the universal enforcement and recognition of foreign arbitral awards and the lack of clarification surrounding the interpretation of Articles V(1)(e) and VII both articles are open to interpretation. This section will therefore draw on sample cases from the French judiciary representing civil law countries and the US representing common law countries to demonstrate the different approaches to interpreting and applying Articles V(1)(e) and VII to the enforcement and recognition of the annulled award.
Position of the French Judiciary
France does not apply the New York Convention to the enforcement and recognition of foreign arbitration awards since it takes the position that its domestic laws are more favourable than those contained in the Convention. In this regard, Article 1502 of the New Code of Civil Procedure provides limited grounds for permitting judicial review of foreign arbitration award. Those limited grounds include the arbitral award was issued when there is no arbitration agreement or that if there is one it is not valid or is time barred the arbitratorsarbitrator panel was improperly formed the arbitrator exceeded hisher authority in issuing an award there was a disregard for due process and recognition and enforcement does not accord with international public policy.
French case law has established that since the annulment or the suspension of a foreign arbitration award in the jurisdiction of the seat of arbitration does not appear among the list of grounds for judicial review it is therefore not grounds for denying the enforcement and recognition of a foreign award. The Norsolor case is credited with starting the trend away from the application of the New York Convention to the recognition and enforcement of the annulled foreign arbitration award.
In the Norsolor case a Turkish company claimed damages from a French company in respect of a breach of an agreement between the companies. The arbitrators issued an award by reference to the lex mercatoria and ruled that the French company had violated the duty to act in good faith, a basic standard of the lex mercatoria and was therefore liable to pay the damages. Damages were assessed in equity. The Court of Appeal of Vienna vacated the award ruling that the arbitrators had overstepped its authority by referring to the lex mercatoria as opposed to Article 13 of the ICC Rules of Arbitration as was required at the relevant time. It was also outside of the arbitrators authority to assess damages by virtue of the in equity standard since it was not reflected in the arbitration agreement.
In France, the Turkish companys application for enforcement of the award previously annulled by the Court of Appeal in Vienna was successful. The French company appealed against the enforcement and the Court of Appeal of Paris denied confirmation of the enforcement by virtue of Article V(1)(e) of the New York Convention. However, the French Supreme Court ruled that having regard to Article VII of the New York Convention, the Paris Court of Appeal had not complied with the requirement to look at Article V(1)(e) properly. Essentially, the discretion under Article V(1)(e) could not be exercised properly unless regard was had to the possibility that French laws permitted a more favourable outcome with respect to the enforcement and recognition of the foreign arbitral award.
The Hilmarton case involved the dispute over commission due from a French company to an English company under a contract for public works in Algeria. The agreement between the companies was governed by Swiss law and the seat of arbitration was Switzerland. The arbitrator denied the claim for commission on the grounds that it violated the compulsory rules under Algerian law with respect to public works contract and therefore the contract between the disputants was illegal. In 1989 the Geneva Court of Appeal vacated the award and the Swiss Federal Tribunal confirmed the decision in 1990. In the interim the French company attempted to have the vacated award enforced and recognized in France. The case reached the Paris Court of Appeal which held that although Article V(1)(e) required that a vacated award must be refused where the award was vacated in the seat of arbitration, Article VII required that where domestic law with respect to enforcement and recognition was sought, permitted an order more favourable to the enforcement and recognition of the award, the latter prevailed over Article V(1)(e).
Ultimately, the Paris Court of Appeal ruled that moving forward, all enforcement of foreign arbitral awards cases in France would be governed by French domestic laws rather than Article V(1)(e) of the New York Convention since French domestic law was more favourable to enforcement and recognition than the Convention. It is hardly surprising that the Paris Court of Appeal in Chromalloy Aeroservices v Arab Republic of Egypt 1997 interpreted Articles V(1)(e) and VII as permitting the exclusion of Article V(1)(e) so that the more favorable provisions under French domestic laws applied to the enforcement and recognition of an annulled award.
In the Chromalloy case, Chromalloy Aeroservices, Inc and the Air Force of the Arab Republic of Egypt agreed by virtue of contract that Chromalloy would supply maintenance, parts and repairs to Egypts Air Force helicopters and in 1991 Egypt ended the contract, which was rejected by Chromalloy and initiated arbitration proceedings pursuant to an arbitration agreement between the parties. In 1994 Chromalloy obtained an arbitral award for damages plus interest against Egypt. In October of the same year Chromalloy took out an enforcement process in a District Court in the US and in November Egypt took out an action for the award to be nullified via the Egyptian Court of Appeal and applied to the US District Court for a stay of Chromalloys application. The Egyptian Court of Appeal suspended the arbitral award in April of 1995 and annulled the award in December 1995. On July 31 1996 the US District Court ruled that the award was valid pursuant to US law. In the interim, Chromalloy attempted to secure enforcement in France and the same was agreed to in May 1995 by the Paris Court of First Instance. Egypt appealed this order and the Paris Court of Appeal dismissed the appeal.
The Paris Court of Appeal ruled that the New York Conventions more-favourable-right provision under Article VII permitted French law to be applied. The fact is, the award is international in nature and was therefore not a part of the Egyptian legal framework. Therefore its annulment in Egypt did not erase the arbitral award which continued to exist and could therefore be enforced in France and at the same time not violate international public policy.
The Dubai Aviation Civil (DAC) v Bechtel (2005) is also instructive of the French continuing trend toward internationalization of the foreign arbitration award. In this case, DAC and Bechtel were parties to a contract containing an arbitration agreement. The parties submitting a dispute under the contract to an arbitrator in Dubai under UAE law. The arbitrator handed down an award in 2002 and in 2003, the Paris High Court granted an enforcement order against DAC pursuant to the arbitration award issued in Dubai. In 2004, a Dubai court vacated the award on the grounds that it had procedural defects. DAC then appealed against the enforcement order in Pariss Court of Appeal.
The DAC argued at the appeal that the French-UAE Treaty on reciprocal enforcement meant that the arbitral award should be regarded as a court judgment which essentially means that an arbitral award which cannot be the subject of appeal in the UAE is enforceable in France in the same manner that applies to court judgments. The DAC also argued that similarly, enforcing an awards that was still capable of being challenged in the country that issued it was inconsistent with international public policy and therefore could not be enforced in France by virtue of Article 1502-5 of the French New Code of Civil Procedure. The Paris Court of Appeal did not agree with either or the arguments and ruled that the arbitral awards and judgments are not regarded as one and the same under the enforcement treaty between the UAE and France and any such finding would be inconsistent with the French laws on arbitration which is aimed at ensuring the recognition and enforcement of international arbitration awards.
The French Court of Appeal went on to rule that any arbitration annulment order made by a court in the UAE were only binding on the courts within that jurisdiction and could not bind French courts or any other courts outside of the UAE. Ultimately the French Court of Appeal was not only indorsing the previous decision in the Hilmarton case that an international arbitration order was part of an international legal order and detached from any specific national regime, the French Court of Appeal also indorsed the concept that an annulment by one jurisdiction was not binding on any other jurisdiction.
The Position of the US Judiciary
The US District Court of Colombia in the case of Chromalloy v Arab Republic of Egypt considered enforcement of the arbitration award issued in favour of Chromalloy in Egypt against the Arab Republic of Egypt which was subsequently annulled by the Cairo Court of Appeal on the grounds that the arbitration panel had erroneously subscribed to Egyptian private law instead of administrative law. Nevertheless the District of Colombia court granted the application to enforce the annulled arbitration award. The US District Court ruled that although Article V allows that the award may be refused recognition and enforcement Article VII instructs that no party shall be deprived of a more favourable outcome under the laws of the jurisdiction where enforcement is sought.
The US District Court therefore ruled that while Article V is discretionary, Article VII imposes upon the courts of Contracting states a mandatory duty to resort to the more favourable domestic provisions. However, there were no such provisions in the US for a more favourable enforcement technique of international arbitration awards. The US District court then looked to the applicable law in the US which permitted a look at the grounds upon which the award was annulled under Egyptian law. It came to the conclusion that the annulment process in Egypt as a matter of US law as proper.
The US District Court then looked to the jurisdiction of the Egyptian court and referred to the arbitration agreement between the disputants. The agreement stated that an arbitral award shall be binding and final and shall not be the subject of judicial review. Even so, the US court felt that since the matter had already been ruled on by an Egyptian court it was duty bound to determine whether or not to give effect to the judgment in the US. Taking into account the grounds upon which a foreign judgment could be enforced in the US, the US District court one of those grounds was that the judgment was not inconsistent with US public policy. In this regard, the US public policy adhered to the notion that arbitration should be final and binding. In this regard, the US was not bound to indorse the Egyptian annulment since it was not consistent with US public policy and was issued contrary to the parties agreement that the arbitral award should be final and binding.
In Baker Marine (Nig.) Ltd. v Chevron (Nig.) Ltd. Baker Marine entered into a contract with Danos, Curole and Chevron for the supply of barge facilities for each of the parties oil exploration missions in Nigeria. In a subsequent dispute, Baker Marine secured an arbitral award against Danos and Chevron for specified sums. The arbitration process was conducted in Nigeria and Baker first sought to enforce the awards in Nigeria. The Nigerian court however annulled the awards holding that in the Danos claim the arbitration panels decision was inconsistent with the evidence and in Chevrons case, the panel did not have authority to award punitive damages and had improperly permitted matters outside of the agreement, oral evidence and made inconsistent awards. Nevertheless, Baker sought to have the awards confirmed by virtue of the New York Convention in the US. The District Court of New Yorks Northern division refused Bakers application on the grounds that the New York Conventions intention to promote comity dictated that it would be entirely improper to enforce an award under the New York Convention when the award was already vacated by a Nigerian court. Upon appeal Baker argued that the New York District Court should have and failed to take account of Article VII giving Baker a reasonable expectation that the award could be the subject of more favourable provisions under US Statutory laws. The US Court of Appeals ruled however, that the parties in agreeing to arbitrate did not have US laws in its contemplation and had at all times chose Nigerian laws and chose to be bound by Nigerian laws. The US arbitration laws were aimed at ensuring that there terms and conditions of the arbitration agreement are adhered to.
In Termorio and LeaseCo. Group v Electranta S. P. et al. v Electranta S.P. et al 487 F 3d 928 (D.C. Cir. 2007) the disputants attempted to have an award vacated by the seat of arbitration in Colombia enforced in the US. The US Appellate court ruled that it does not substitute the judgment of a State which is the primary state of jurisdiction when that state acted lawfully in setting the judgment aside.
The French position which is the strict and literal interpretation of Article VII of the New York Convention is problematic since the literal interpretation of Article VII renders the Convention itself counterproductive to its primary goals. Those goals are for the comity of arbitration enforcement regimes worldwide. When courts apply their laws to an annulled arbitration award it undermines the autonomy accorded the arbitration process. The US New York District court touched on this aspect of arbitration in Baker Marine (Nig.) Ltd. v Chevron (Nig.) Ltd. Baker Marine.
If the parties to an arbitration agreement opt for a specific law and specific forum and agree that the resulting arbitration award is binding and final, then unless there is some degree of disrespect for the law of the forum or the arbitration agreement, the award should not be the subject of challenge. Similarly, if the applicable law determines that the award is irregular and vacates it, the matter should rest there unless the annulment is obtained on those limited grounds that permit judicial review of an arbitral award.
Limits to judicial review have to be imposed at some point if arbitration is going to have international character. In this regard, Articles V(1)(e) and VII of the New York Convention are problematic. This is demonstrated by the inconsistent approaches taken by civil law and common law jurisdictions as illustrated by US and French cases. While each jurisdiction have been fairly consistent in their respective approaches to annulled awards, they have not been consistent with one another. France takes the position that its own arbitration laws are more favourable than the New York Convention, and while that might be so, the question is, how can such a contention be proven to the satisfaction of all the parties involved Certainly any Contracting State may be able to make such a ruling with respect to an annulled award, even if their laws are not more favourable. The problem is, there is no metric for ascertaining what amounts to more favourable and unfortunately, Article VII is not only mandatory, it is also inconclusive and lacking in guidance.
On the other hand, the approach taken by the US is not altogether foolproof either. Too much respect for the annulment rendered by the seat of arbitration could lead to endorsement of a corrupt or biased decision that is designed to look after the interest of the forum. In this regard the rulings in the Chromalloy cases certainly raise the question of whether or not the annulled award against the government by its own courts may not be for the purpose of safeguarding the states own interests. For instance it is conceivable that the jurisdiction of the seat of arbitration does not have laws and practices that are compatible with the Conventions aim at internalization of arbitration for the purpose of enforcement and recognition across borders.
Conclusion How Should the Annulled Award be Treated
The current state of the New York Convention, specifically Articles VII and V(1)(e) contradict each other in that one suggests that national courts may decide for themselves whether or not to refuse enforcement of an annulled award and the other takes away that discretion by mandating that national courts apply national laws in the event they are more favourable so that an award may be enforced. This contradiction has made it entirely impossible for a consistent interpretation of the position under the Convention with respect to the treatment of annulled awards. This is evidenced by the discussion of the cases decided in France and the US.
The fact is, it is entirely uncertain how national courts should treat annulled awards. Having researched the subject, the author comes to the conclusion that the answer may exist in the autonomous nature of arbitration and its detachment from legal systems. When parties opt for arbitration, the assumption is that they choose a forum for convenience rather than for the application of the laws. The assumption should always be that, unless specifically provided for, the parties do not automatically intend that the laws of the forum should provide the substantive laws or procedures governing the resolution of their dispute.
A neutral forum however will not be possible unless and until the New York Convention specifies the grounds upon which Contracting States may vacate an award. This would ensure at the very least, that the decision to enforce an annulled award would at least be subject to a central test that is applicable to the national courts of all Contracting States. The current state of the New York Convention permits far too many diverse jurisdictions to determine the grounds upon which an award can be annulled thereby leading to inconsistent treatment of annulled awards. If universality is going to be successful, delineating the grounds for annulment would be an ideal place to start.
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