Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Background

In 1953, the International Chamber of Commerce (ICC) produced the first draft Convention on the Recognition and Enforcement of International Arbitral Awards to the United Nations Economic and Social Council. With slight modifications, the Council submitted the convention to the International Conference in the Spring of 1958. The Conference was chaired by Willem Schurmann, the Dutch Permanent Representative to the United Nations and Oscar Schachter, a leading figure in international law who later taught at Columbia Law School and the Columbia School of International and Public Affairs, and served as the President of the American Society of International Law.

International arbitration is an increasingly popular means of alternative dispute resolution for cross-border commercial transactions. The primary advantage of international arbitration over court litigation is enforceability: an international arbitration award is enforceable in most countries in the world. Other advantages of international arbitration include the ability to select a neutral forum to resolve disputes, that arbitration awards are final and not ordinarily subject to appeal, the ability to choose flexible procedures for the arbitration, and confidentiality.

Once a dispute between parties is settled, the winning party needs to collect the award or judgment. If the loser voluntarily pays, no court action is necessary. Otherwise, unless the assets of the losing party are located in the country where the court judgment was rendered, the winning party needs to obtain a court judgment in the jurisdiction where the other party resides or where its assets are located. Unless there is a treaty on recognition of court judgments between the country where the judgment is rendered and the country where the winning party seeks to collect, the winning party will be unable to use the court judgment to collect.

Countries which have adopted the New York Convention have agreed to recognize and enforce international arbitration awards. As of June 2015, there are 156 State parties which have adopted the New York Convention: 153 of the 193 United Nations Member States, the Cook Islands, the Holy See, and the State of Palestine. Forty-five UN Member States have not adopted the New York Convention and a number of British dependent territories have not had the Convention extended to them by Order in Council.

Cases and statistics

Public information on overall and specific arbitration cases is quite limited as there is no need to involve the courts at all unless there is a dispute, and in most cases the loser pays voluntarily. In China, a review of disputed cases in China found that from 2000 to 2011, in 17 cases the Supreme People's Court upheld the refusal to enforce the arbitration agreement due to a provision in Article V; China has an automatic appeal system to the highest court, so this includes all such refusals.

Summary of provisions

Under the Convention, an arbitration award issued in any other state can generally be freely enforced in any other contracting state, only subject to certain, limited defenses. These defenses are:

1. a party to the arbitration agreement was, under the law applicable to him, under some incapacity, or the arbitration agreement was not valid under its governing law;
2. a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case;
3. the award deals with an issue not contemplated by or not falling within the terms of the submission to arbitration, or contains matters beyond the scope of the arbitration (subject to the proviso that an award which contains decisions on such matters may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those matters not so submitted);
4. the composition of the arbitral tribunal was not in accordance with the agreement of the parties or, failing such agreement, with the law of the place where the hearing took place (the "lex loci arbitri");
5. the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority, either in the country where the arbitration took place, or pursuant to the law of the arbitration agreement;
6. the subject matter of the award was not capable of resolution by arbitration; or
7. enforcement would be contrary to "public policy".

Additionally, there are three types of reservations that countries may apply:

1. Conventional Reservation - some countries only enforce arbitration awards issued in a Convention member state
2. Commercial Reservation – some countries only enforce arbitration awards that are related to commercial transactions
3. Reciprocity reservation – some countries may choose not to limit the Convention to only awards from other contracting states, but may however limit application to awards from non-contracting states such that they will only apply it to the extent to which such a non-contracting state grants reciprocal treatment.

States may make any or all of the above reservations. Because there are two similar issues conflated under the term "reciprocity", it is important to determine which such reservation (or both) an enforcing state has made.

Parties to the Convention

As of May 2015, the Convention has 156 state parties, which includes 153 of the 193 United Nations member states plus the Cook Islands, the Holy See, and the State of Palestine. Forty UN member states have not adopted the Convention. In addition, Taiwan has not been permitted to adopt the Convention (but generally enforces foreign arbitration judgments) and a number of British Overseas Territories have not had the Convention extended to them by Order in Council. British Overseas Territories to which the New York Convention has not yet been extended by Order in Council are: Anguilla, Falkland Islands, Turks and Caicos Islands, Montserrat, Saint Helena (including Ascension and Tristan da Cunha).

The Convention has also been extended to a number of British Crown Dependencies, Overseas Territories, Overseas departments, Unincorporated Territories and other subsidiary territories of sovereign states.

United States issues

Under American law, the recognition of foreign arbitral awards is governed by chapter 2 of the Federal Arbitration Act, which incorporates the New York Convention.

Therefore, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention") preempts state law. In Foster v. Neilson, the Supreme Court held “Our constitution declares a treaty to be the law of the land. It is, consequently, to be regarded in courts of justice as equivalent to an act of the Legislature, whenever it operates of itself without the aid of any legislative provision.” Foster v. Neilson, 27 U.S. 253, 314 (1829). See also Valentine v. U.S. ex rel. Neidecker, 57 S.Ct. 100, 103 (1936); Medellin v. Dretke, 125 S.Ct. 2088, 2103 (2005); Sanchez-Llamas v. Oregon, 126 S.Ct. 2669, 2695 (2006). Thus, over a course of 181 years, the United States Supreme Court has repeatedly held that a self-executing treaty is an act of the Legislature (i.e., act of Congress).