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This ‘maximum standard’ with passage of time became outdated.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 ("vermögensrechtlicher
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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