After alternative dispute resolution was introduced and regulated by certain national legislators, it was recognised at the beginning of the 20th century that in light of expanding international trade, an international dispute resolution process was required. The International Chamber of Commerce (“ICC”) established its International Court of Arbitration in 1923 in Paris, France. The purpose was to arbitrate in business disputes of an international character.
The issue of worldwide enforcement of arbitration agreements and arbitration awards became evident. Since international treaties are the means of resolution of transnational issues, the predecessor of the United Nations, the League of Nations along with the ICC started drawing up an international convention on the enforceability of arbitration agreements. The first such convention was the “Geneva Protocol on Arbitration Clauses” (“Geneva Protocol”) of 1923. The purpose of the Geneva Protocol was to ensure that arbitration clauses can be enforced internationally. According to the Geneva Protocol, the enforceability of arbitration awards however, was limited to the territory of the respective state in which the award has been made.
Only four years later, in 1927, the “Geneva Convention on the Execution of Foreign Arbitral Awards“ (“Geneva Convention”) was created. The reason for the establishment of the Geneva Convention was to expand the enforceability of arbitration awards from the limited approach of the Geneva Protocol. The expansion related to the enforceability of arbitration awards from the country in which the arbitration award originated to the territory of any state that becomes a signatory of the Geneva Convention.
In 1958 the “United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards” (“New York Convention”) was adopted by the United Nations. The New York Convention is substituting the Geneva Convention for countries that are a signatory to both, the Geneva Convention and the New York Convention.
The relevance of the New York Convention is demonstrated by the fact that a majority of countries have adopted it. By 2013, 149 countries have adopted the New York Convention. The broad applicability of the New York Convention to the recognition and enforcement of arbitral awards made in another state makes it the most recognized way of settling international disputes.
Along with the 1965 “Convention on the Settlement of Investment Disputes between States and Nationals of Other States” (“Washington Convention”), that intends to protect investors in a foreign state, the New York Convention is one of the cornerstones of international arbitration.
The legal relevance of the New York Convention is two-fold:
Firstly, Article II (3) of the New York Convention regulates the enforceability of the arbitration agreement. A court of a contracting state is required, if so requested by one party, to refer a dispute to arbitration if there is an arbitration agreement between the disputing parties in place. Therefore, the dispute is taken out of the jurisdiction of the state courts and resolved via arbitration.
Secondly, the legal relevance of the New York Convention can be observed when it comes to the “recognition” and “enforcement” of international arbitration awards. An international arbitration award must be treated as binding in the territory of the state applying the convention. The enforcement of the award will take place in accordance with the rules and procedures of the enforcing state. A review of the “merits” of the award is not permitted.
Under Article 1(3) of the New York Convention, ratifying states have the option to limit the applicability of the New York Convention. The first of the two limitations refer to a reciprocal approach by states declaring to only enforce awards made in a country that is also a contracting state of the New York Convention. Secondly, a contracting state might declare to only apply the New York Convention to “commercial” relationships, whereby “commercial” shall be interpreted in accordance with the laws of such state.
The New York Convention outlines the requirements for (i) the enforceability of an arbitration agreement, (ii) the conditions of recognition and enforcement of an arbitration award and (iii) the grounds for a refusal of the recognition and enforcement of an arbitration award.
Article II of the New York Convention makes it clear that a fundamental requirement for the enforceability of the arbitration agreement is the need for such an agreement to exist in writing. The term “agreement in writing” has its legal definition in Article II (2) of the New York Convention “as to “include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters and telegrams”. It must be noted that the “Model Law on International Commercial Arbitration” (“Model Law”) that has been adopted by many states which are signatories of the New York Convention provides a much broader interpretation of the “writing” requirement taking into account newer modes of communication.
Further conditions outlined in Article II (1) New York Convention are a “defined legal relationship” and the “arbitrability” of the dispute.
The New York Convention further outlines the practical requirements for a recognition and enforcement of the arbitral award in its Article IV. Such requirements are the duty to provide a “duly authenticated original award or a duly certified copy thereof “and the original arbitration agreement or a duly certified copy thereof. Further translation requirements are stated if the award is in a different language from the official language in the country of recognition and enforcement.
Several grounds for refusal of the recognition and enforcement of an arbitration award are listed in Article V of the New York Convention. It should be noted that the grounds outlined in the New York Convention are exhaustive. No other grounds for refusal of recognition and enforcement are permitted. Further, it is important to understand that the grounds for a refusal do not necessarily lead to an automatic refused enforcement. The New York Convention uses the term “may” and provide the enforcing courts with the option to recognize or enforce the award even if the outlined grounds are applicable.
This article was contributed by Jerrold Kippen (MCIArb) and Olaf Duensing (FCIArb).
Jerrold and Olaf are Partners at DUENSING KIPPEN, LTD (duensingkippen.com) an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries.