If the arbitration of disputes arising from an international contract or other legal relationship has ended with the rendering of an award, and the party against which the award is made refuses to honour the award, then the question arises as to which law governs the recognition and enforcement of this award. Ultimately, the law governing enforcement is that of the state in which enforcement is sought, which will be a state where the losing party has assets. If the state has implemented the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the Convention), recognition and enforcement will be according to the terms of this Convention.
In practice, the Convention – as adopted into municipal law – is the main vehicle for the recognition and enforcement of international arbitration awards. The Convention has been ratified by more than 130 countries, including all of the major trading nations.
The recognition and enforcement regime provided for in the Convention aims to provide straightforward and effective procedures for the enforcement of international arbitral awards. It aims to promote uniformity in the principles and processes applying to enforcement, irrespective of the country in which enforcement is sought. The place of enforcement will be chosen according to the location of recoverable assets, rather than the legal system of this state. It is therefore important that the award be readily transportable from state to state without legal or other complications. The Convention intends that the arbitral award be final and not subject to review by the courts in the country of recognition and enforcement. This, after all, is what the parties are to be taken to have intended in subscribing to an arbitral agreement. Accordingly, the Convention limits the grounds (or defences) that a party resisting enforcement can plead, although it does not entirely preclude judicial review. The list of grounds for refusing recognition and enforcement is an exhaustive one. There is no provision in the Convention for a general review of the award on the merits, by a court in the country where enforcement is sought.
The courts have manifested a pro-enforcement bias in hearing challenges to recognition and enforcement, having regard to the parties’ agreement to arbitration and to the objectives of the Convention. Even where a court finds a defence to be established, it has discretion to reject the challenge and to order enforcement.
The Convention deals with the recognition and enforcement of awards. If a court enforces an award, necessarily, it will have recognised it. Infrequently, recognition alone will be sought. This might happen, for example, where an award has been made pursuant to the arbitral agreement, and is final and binding. Notwithstanding this, a party seeks to litigate afresh issues settled in the arbitration and embodied in the resulting award. The other party could plead the res judicata principle, that is, that the issue has been conclusively and finally resolved between them by the agreed tribunal, and that it is not open to a subsequent court or other tribunal to rehear the matter.
The statutes implementing the Convention in each state, by and large, reproduce the terms of the Convention. They must, however, make provision for additional matters. One of these is the precise procedure for enforcement of the award through the vehicle of the state’s legal system. The chosen models vary:
provision may be made for application to the court for an order of enforcement, or for the entering of a judgment mirroring the terms of the award;
provision may be made for the range of enforceable remedies which an arbitrator can grant; or provision may be made for suing on the award as if it was a debt, or suing for a breach of its terms as a breach of contract.
The implementing statute may need to deal with the meaning of the term commercial. This will be where the state in question has, at the time of ratification, declared that it will apply the Convention only to differences arising out of legal relationships which are considered as commercial under the state’s law, pursuant to Article 1(3). The statute may deal with the circumstances in which an award is not to be considered as a domestic award, for the purposes of Article 1(1). The statute may deal with the situation when some other legal regime, such as the UNICTRAL1 Model Law on Commercial Arbitration applies to recognition and enforcement of international commercial awards, instead of the Convention.2
Other arbitration conventions or instruments may also be relevant. The International Centre for the Settlement of Investment Disputes (ICSID) was established by the Washington Convention. The ICSID provides for the arbitration of disputes between a state and a national of another state. It is not commonly invoked.
The UNCITRAL Model Law on Commercial Arbitration – which was adopted by UNICTRAL in 1985 - has a wider scope than the New York Convention, although its provisions dealing with recognition and enforcement more or less mirror those of the Model Law. It will be for the state that ratifies and implements the Model Law along with the New York Convention to stipulate in statute law when each regime is to apply. Where recognition and enforcement is concerned, little will depend upon which regime applies, given that the defences to recognition and enforcement are uniform across both regimes.
The terms of the New York Convention will now be examined.
Reservations- Reciprocity; commercial in nature
Article 1(3) of the New York Convention provides that a signatory state may declare stipulated reservations when acceding to the Convention. First, it may declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another contracting state. Secondly, it may declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the state making such a declaration.
As to the first point, it has been held by a US court that this principle of reciprocity is concerned with the state in which the arbitration will occur and whether that state is a signatory to the Convention – not whether both parties are nationals of signatory states.3
Where the commercial reservation is concerned, the Convention does not define the meaning of the term commercial. Where a state has declared this reservation, the implementing statute may define the scope of commercial4. It has been held in a US case, in reliance upon the implementation statute, that seafarers’ contracts of employment are excluded from the scope of a commercial dispute for the purposes of the Convention (the US having declared the commercial reservation).5 In another American case, it was held that, for the purposes of the Convention, a dispute between corporate shareholders regarding the proceedings of a stock transaction was one arising from a commercial relationship.