Tuesday, July 1, 2014

Guest Post: Balance Between Conformity and Uniformity

Below is a guest post from Devansh Mohta. Devansh is a lawyer practicing in the Supreme Court of India. This piece was was first published in the journal Chartered Accountant Practice Journal 44 issue.

The first step towards formulation of NYC[1] was taken when ICC prepared the ‘Draft Convention on Enforcement of International Arbitral Awards on 13th March, 1953.[2]. Upon its presentation to the ECOSOC[3], it was changed to “Draft Convention on the Recognition and Enforcement of Foreign Arbitral Awards”.[4] The “widespread interest” in advancing international commercial arbitration led to “UN Conference”[5] which was held on 20th May, 1958 and NYC was signed and adopted on 10th June, 1958.[6]

NYC sought to guarantee uniform recognition and easy enforcement of an arbitral award obtained through the autonomous system of arbitration. NYC and UNCITRAL Model Law (MAL) alongwith Rules, constitute a fine framework for international commercial arbitration. Therefore, significance of NYC to International Commercial Arbitration will be considered with reference to MAL.

 Its relevance and application

NYC established an “international regime”[7] to facilitate ‘recognition and enforcement’ of both the arbitration agreement as well as arbitral award. Both are discussed hereinafter under separate heading.

 Arbitration Agreement

It was afforded recognition, by Article II, upon fulfilment of two conditions - of being written and of subject matter being arbitrable. And unless found “null and void, inoperative or incapable of being performed” Courts must enforce it upon request of one of the parties by referring them- sometimes even third parties[8]- to arbitration.[9] Failure of this obligation is breach of treaty.

An agreement is in writing if it satisfied the stated maximum standard.[10] An invalid arbitration agreement would render an arbitral award unenforceable.[11] This ‘maximum standard’ with passage of time became outdated. Therefore, MAL was used to widened its range by including modern means of communication that could constitute a written “arbitration agreement”.[12] Recent amendment to MAL has diluted this requirement.[13]

Arbitrability, which is usually the courts’ domain[14], except in some countries which have statutory provisions;[15] affects the validity of both the agreement as well as the award.[16]
           
Arbitral Award

 NYC applies, in relation to the place of enforcement, to the following: (i) foreign award: those made in a different territory; (ii) non-domestic award: those are not considered domestic. (NYC awards)

Category (ii) broadened the scope of NYC. The following awards fall under this category: (i) those made under arbitration law of another state; (ii) those involving foreign element;(iii) a-national award (rare)

According to the Guide[17] this provision conferred freedom to decide which award would be considered “domestic”. For instance, an award made in India will be considered “domestic”.[18] However, the oft-cited case of Bergesen v. Muller[19] dealt with the provisions of US Law which prescribed conditions rendering it non domestic.

Arbitral awards under NYC could be final, partial or preliminary and also of arbitral bodies, excluding procedural orders.[20] MAL specifies the ‘form and content’ of an award[21], and new Article 17H renders “interim measures” by the arbitral tribunal binding.[22] It is a reflection of changing trends.

It is pertinent to note that while NYC deals with the distinction between “foreign” and “domestic” awards, MAL is concerned with “international” and “non-international” arbitration.[23] However, an “interim measure” is distinguishable from “arbitral award” to which NYC apply.

Recognition and/or Enforcement

Both concepts are different. Recognition means respecting the binding nature of the award and res judicata, notwithstanding its “enforcement”, which is seeking judicial assistance to carry out the award, in which “recognition” is implicit.[24] Significantly, unlike Article V NYC; Article 36 MAL uses “or” instead of “and” differentiating recognition from enforcement

Article III NYC mandates recognition to an arbitral award as “binding”, however, this obligation arises when the arbitral award is brought to states territory and is limited to “NYC awards” only, whereas Article 35 MAL affords such recognition to any “arbitral award” irrespective of the place it is made. Article VI readwith Article V(1) (e) specify the effect of setting aside or suspension of award by competent authority of the country in which or under the law of which that award was made. Article 34 provides grounds for setting aside.

In BALCO v. Kaiser[25] the Court held that the underlined provision did not confer concurrent jurisdiction as arbitral award could be annulled only by one court.

Some debate exist about Courts’ discretion, under Article V NYC, to refuse enforcement because of the expression “may be refused”. There are two points:

(i) expression “or” in Article V(1) that the grounds for refusal are disjunctive; 
(ii) expression “may be” appearing both in Article V(i) and (2) must carry the same meaning and the yardstick applicable to refusal on the ground of public policy and arbitrability.

Thus, while Courts adopt a “pro-enforcement approach”, however, upon proof refusal must follow.[26]

Under MAL enforcement provisions are provided Article 36.which retains with slight modification, the disjunctive grounds of NYC for refusing enforcement. Thus, Article 35 and 36 preserves the essence of NYC.

A balance between conformity and uniformity

NYC permits two reservations: Reciprocity and Commercial[27]- these reservations limit the applicability of NYC and can be adopted by the Contracting State in their own way. With the list of countries ratifying the NYC increasing, “reciprocity” reservation is gradually becoming redundant.

The “commercial reservation” in NYC indicates its area of operation and was included to distinguish, for civil law countries, commercial transactions from the non-commercial.[28] The commercial character of the subject matter is retained both in MAL and NYC.

MAL was conceived to establish uniform arbitral procedure to better serve the interest of International Commercial Arbitration. However, MAL had to confirm with NYC. So a balance was struck. By removing the limitation of applicability NYC. Firstly by elaborating the concept of “commercial”[29], MAL brought it out of the confines of national laws as it existed owing to the commercial reservation of NYC.[30] Secondly, MAL was made applicable to all awards irrespective of the place it was made and therefore removing the difficulties posed by “reciprocity reservation”. MAL complemented NYC by making place relevant for conduct of arbitration and irrelevant for recognition and enforcement of award. Thus, meting out uniform recognition to all arbitral awards, without distinguishing between “foreign” and “domestic” awards.



[1] Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (NYC)
[2] Report and Preliminary Draft Convention adopted by the ICC Committee on International Commercial Arbitration.
[3] United Nations Economic and Social Council
[4] Report of the Committee on Enforcement of International Arbitral Awards E/2704 (28th March, 1955).
[5] United Nation Conference on International Commercial Arbitration
[6] Recognition and Enforcement of Foreign Arbitral Awards Memorandum by the Secretary General E/2840 (22nd March, 1956).
[7] Julian D. M. Lew , Loukas A. Mistelis , et al., Comparative International Commercial Arbitration, (Kluwer Law International 2003) pp. 17 – 30 (para 2.18)
[8] Chloro Control v. Severn Trent (2013)1 SCC 641
[9] Article II (3) of NYC “…The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” .The text of Article II was adopted much later on 6th June 1958 (E/CONF. 26/L/59).
[10] Ibid Article II(2)-“The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”
[11] Article V (1) (a): “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:(i) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”
[12] Article 7 of MAL (1985 version) Definition and Form of the Agreement
[13] Ibid [option 1] Article 7(3) “….(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.” (As adopted by the Commission at its thirty-ninth session, in 2006) and [option II] “….is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”
[14] Booz Allen & Hamilton v. SBI (2011)5 SCC 532
[15] Section 1030 German Arbitration Law 1998 (1) Any claim involving an economic interest ("verm√∂gensrechtlicher Anspruch") can be the subject of an arbitration agreement. An arbitration agreement concerning claims not involving an economic interest shall have legal effect to the extent that the parties are entitled to conclude a settlement on the issue in dispute.  (2) An arbitration agreement relating to disputes on the existence of a lease of residential accommodation within Germany shall be null and void. This does not apply to residential accommodation as specified in section 549 subs. 1 to 32  of the Civil Code. (3) Statutory provisions outside this Book by virtue of which certain disputes may not be submitted to arbitration, or may be submitted to arbitration only under certain conditions, remain unaffected.
[16] Article of II (2) and V(2) (a) NYC and Article 1(5) and Article 34 MAL
[17] ICCA’s Guide to Interpretation of the 1958 New York Convention (2012)
[18] Section 2(7) of the [Indian] Arbitration and Conciliation Act, 1996: “(7) An arbitral award made under this Part shall be considered as a domestic award.”
[19] 710 F2d 928
[20] Resort Condominiums v. Bolwel (1993)118 ALR 655. But see section 27 (i) of [Singapore] International Arbitration Act. (amended in 2012)
[21] Article 31 of MAL
[22] MAL Artice 17H (i): “An interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued, subject to the provisions of article 17 I.” (As adopted by the Commission at its thirty-ninth session, in 2006).
[23] ibid Article 1 (3).
[24] Redfern and Hunter International Arbitration (OUP 2009) para 11.22 to 11.24
[25] (2012)9 SCC 552 para 144 to 154 (5Judges) Supreme Court of India.
[26] Dallah Real Estate v. Ministry of Religious Affairs (2010) UKSC 46.
[27] MAL Article I (3).
[28] Herbert Kronke ,Patricia Nacimiento , et al. (eds), Recognition and Enforcement of Foreign Arbitral Awards:A Global Commentary on the New York Convention, (KluwerLaw International 2010) page 32.
[29] Footnote to Article 1 MAL.
[30] UN DOC CA/CN.9/168, para 11]
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