Keywords: Arbitral Award, New York Convention, Double exequatur, Geneva Convention
The objective behind enacting the New York Convention, 1958 (‘NY Convention’) was to enhance the efficiency and effectiveness of resolving international disputes through arbitration. As Stewart, J of the US Supreme Court[i] notes “The goal of the convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.” According to Article V(I)(e), the recognition and enforcement of the award may be refused, if the party proves before the competent authority where the recognition and enforcement is sought that the awards has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law which, that awards were made.
The NY Convention replaced the earlier Geneva Convention, Under the Geneva Convention, a party seeking the enforcement or recognition of the award had to prove that the award had attained “finality” i.e. the award was not open to any opposition or appeal and had been rendered enforceable in the jurisdiction in which it was made before it can be enforced in any other jurisdiction. Thus, a party seeking the enforcement of the award had to obtain two decisions of exequatur: one at the seat of arbitration (Lex arbitri) i.e. the country where the award has been made and, another at the place of enforcement i.e. the country where the awards has to be enforced. The intention behind streamlining the language of Article V(1)(e) in a concise manner was to put an end to this mechanism of double exequatur required by Article 4 of the Geneva Convention. The NY Convention strived to remove the impediment of the doubleexequatur in two ways, first, by replacing the word ‘final’ with ‘binding’ and second, by shifting the burden of proof.
Replacement of the word ‘final’ with ‘binding’
The intention behind bringing in this change was to ensure that while the principle of double exequatur is put an end to, the awards still comply with the standards of formal requirements of the states.[ii] Thus, despite the omittance of the word ‘final’, the non-binding characteristic of the award still constituted a valid ground for refusing the enforcement. The courts across various jurisdictions acknowledged the innovation of the NY Convention by eradicating the requirement of double exequatur. For instance, in Dowans Holding S.A. v. Tanzania Electric Supply Co. Ltd[iii], the English High Court held that “It is common ground that the intention of the New York Convention was to make enforcement of a Convention award more straightforward, and in particular to remove the previous necessity for a double exequatur—i.e., the need, before a Convention award could be enforced in any other jurisdiction, for it to be shown that it has first been rendered enforceable in the jurisdiction whose law governs the arbitration….”.
Shift in the Burden of proof
Unlike the Geneva Convention where the onus lied upon the party winning party to prove that the award was final, under the NY Convention the onus lies upon the losing party to prove that the award is not binding or it has been set aside or suspended. Thus, the adoption of the NY Convention has seen a shift in the standard of burden of proof from the party seeking the enforcement of the award to the party challenging the enforcement of such award. For instance, in the case of Italian Party v. Swiss Company[iv], the Swiss court of the first instance held that “it is [...] the party opposing enforcement that must prove, pursuant to Article V(l)(e) of the Convention, that the arbitral award is not yet binding or has been set aside.” .
Effectiveness of the Article V (1)(E)
One of the main aims behind enacting the NY Convention and incorporating Article V (1)(e) was to seek uniformity in the international practice of recognizing and enforcing the awards.[v] However, now almost 60 years down the lane, the question arises whether the convention has been able to achieve the desired results. A deep analysis of the language of the article and the consequent instances would answer the question in negative. Although the condition precedent given for the refusal of enforcing the award under Article V (I)(e) seems mandatory, the language of the article is rather permissive. The usage of the phrase “enforcement of foreign award may ….” stipulates that a large amount of discretionary power has been rested with the national courts to either refuse or sustain the enforcement of the award. Such discretion is exercised by the courts on a case to case basis and the Article is not treated as a blanket provision for all the cases.
Next, the Article requires that the national courts while refusing the recognition and enforcement of the award shall analyze the award as per the laws of the country in which such enforcement has been sought. This gives a room for another ambiguous situation because the laws/conditions to determine whether the award is binding or has been set aside or suspended differ from one jurisdiction to another, For instance, an award in one jurisdiction may be refused enforcement because it has been set aside whereas the same award in some other jurisdiction may be recognized and enforced.
Next, it is to be noted that the Article only refuses the recognition and enforcement to those awards, which are non-binding or have been suspended or set-aside at the place of enforcement. Thus, it does not preclude the courts from recognizing and enforcing those awards which are non-binding or have been set aside or suspended at the seat of arbitration. For instance, if the winning party files for the enforcement of the award before the losing party challenges its validity before the court of the seat then, the award, which might have otherwise been annulled at the court of the seat would be recognized and enforced by the national court. It is to be noted that while the courts generally refuse the enforcement of such awards, this may not always be the case.[vi]
Further, the inconsistent results achieved by the national courts due to the changing laws from one country to another; large discretionary powers given to the courts and; the enforcement of the award irrespective of whether it has been set aside at the seat of arbitration or not, has in certain cases resulted in forum shopping. The party to the dispute has tended to benefit by seeking the enforcement of the award under the most favorable jurisdiction. For instance, in the case of Hilmarton Ltd vs. Omnium, the award rendered by the tribunal in Switzerland was annulled by the Geneva court of appeal, while the same award found recognition and was not considered contrary to the international public policy by the French Cour de Cassation.[vii]
Conclusion
It is clear that the Article was drafted to put an end to the mechanism of double exequatur so that a uniform international practice is established for the recognition and enforcement of the award in all the signatory countries and the party seeking the enforcement of the award does not have to go through an unnecessary hurdle of proving that the award is final while seeking its enforcement. Though it seems that the article has been able to do this job effectively, however, it has given rise to other concerns that have proven to run counter to the objectives that the convention strives to achieve. The convention no doubt has proven indispensable in the current times; however, some of the challenges that have been posed by it may point towards the need for fixing the convention. Thus, it would be interesting to note some of these reforms in the future if there are any.
*Anjali Chawla is a licensed attorney from India, currently pursuing her masters in International Commercial Arbitration Law (ICAL) at Stockholm University. Previously, she worked as a Law Clerk in the Delhi High Court and as a Law Extern at US State Supreme Court, Hawaii. She can be contacted via email at chawla.anjali94@gmail.com or on LinkedIn.
[i]Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974). [ii]"The Guide, Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), http://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=625&opac_view=-1, accessed 4 July 2020." [iii]Dowans Holding S.A. v. Tanzania Electric Supply Co. Ltd [2011] EWHC 1957 (Comm), [iv] Italian Party v. Swiss Company, Switzerland, 14 February 2003, XXIX Y.B. Com. Arb. (2004). [v]The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 7 June 1959. [vi]Corporación Mexicana de Matenimiento Integral, S De RL De CV v. Pemex-Exploración y Producción, No 13-4022 (2d Cir Aug 2, 2016) [vii] Nigel Blackaby et. al., International Arbitration 637, Oxford University Press, 6th ed (2015). This article was coedited by Bodhisattwa Majumder (Co-founder and Managing Editor), Deeksha Sahni (Managing Editor), and Yagnesh Sharma (Associate Editor).
Preferred Citation: Anjali Chawla, “New York Convention: An effective mechanism for the Recognition and Enforcement of Foreign Awards?”, Arbitration & Corporate Law Review, Published on 9th July, 2020.
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