Enforcement of Foreign Arbitral Awards

These are the reciprocity reservation and the commercial reservation, and India made both. The consequence for an Indian practitioner is precise: an award is enforceable in India under Part II of the Arbitration and Conciliation Act 1996 only if it was made in the territory of a State the Central Government has notified as one to which the Convention applies, and only if the relationship is commercial under Indian law.

Recognising the agreement: article II

Article II(1). Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

Article II(2). An agreement in writing includes an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

Article II(2) is the Convention's age showing. Letters and telegrams were the modern means in 1958. The provision has since been read to accommodate later technology, and the 2006 revision of article 7 of the Model Law, in [UNCITRAL and International Commercial Arbitration], took the more direct course of requiring only that the content be recorded in any form. The Convention itself cannot be amended without reopening a treaty with very wide participation, so the interpretation carries the load.

Article II(3), referral. 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.

Those three phrases are the source of article 8(1) of the Model Law. Null and void means invalid from the outset; inoperative means once valid and now spent, for instance by waiver or by a prior award; incapable of being performed means an agreement that cannot be carried out, for instance because the named arbitrator is dead and the clause admits no substitute.

The obligation to enforce: articles III and IV

Article III. Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.

The second sentence is a national treatment rule for awards, and it should be set beside article III of GATT in [General Principles of International Trade Law]: the same technique, forbidding less favourable treatment of the foreign thing, applied to awards instead of goods.

Article IV(1), all the winner must produce. At the time of the application, the party applying shall supply:

(a) the duly authenticated original award or a duly certified copy; and

(b) the original agreement referred to in article II or a duly certified copy.

Article IV(2). If the award or agreement is not in an official language of the country where it is relied upon, a translation certified by an official or sworn translator or by a diplomatic or consular agent.

Two documents and, if needed, a translation. That is the whole of the applicant's burden, and it is the Convention's central achievement. Everything else is for the party resisting.

The grounds of refusal: article V

Article V(1), proved by the resisting party. Recognition and enforcement may be refused, at the request of the party against whom it is invoked, only if that party furnishes proof to the competent authority that:

(a) the parties to the agreement were, under the law applicable to them, under some incapacity, or the agreement is not valid under the law to which the parties subjected it or, failing indication, under the law of the country where the award was made;

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission, with the express saving that if the decisions on matters submitted can be separated from those not so submitted, that part which contains decisions on matters submitted may be recognized and enforced;

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;

(e) the award 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 of which, that award was made.

Article V(2), which the court may find of its own motion. Recognition and enforcement may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) the recognition or enforcement of the award would be contrary to the public policy of that country.

Six things to take from article V, and each of them is examinable.

The list is exhaustive. The word is only. There is no residual discretion, and no ground of error of law or of fact. An award that is plainly wrong on the merits is enforceable.

The burden is on the resister for the five grounds in V(1). That reverses the position under the 1927 Geneva Convention and is the reform the whole treaty was made for.

May, not shall. The article says recognition may be refused, and it is generally accepted that a court retains a discretion to enforce even where a ground is established, though how far that goes differs between jurisdictions.

Article V(1)(a) states its own choice of law. Validity of the agreement is judged by the law the parties chose and, failing that, by the law of the seat, so the enforcing court does not apply its own contract law to that question.

Article V(1)(b) is procedural fairness, and it is the counterpart of article 18 of the Model Law.

Article V(1)(e) links the two chapters. An award set aside at the seat may be refused enforcement everywhere, which is why setting aside under article 34 of the Model Law matters so much, and why the seat is chosen with care.

Article V(2)(b), public policy, is the ground that is litigated most and the one the Convention leaves undefined. It is the point at which the enforcing State's own fundamental values enter, and the settled approach in most jurisdictions is that it is confined to the State's most basic notions of morality and justice and is not a route to reviewing the merits. India narrowed the ground by amendment in 2015 after a period in which it had been read widely enough to permit review for patent illegality.

Article VI, the adjournment power. If an application for setting aside or suspension has been made at the seat, the enforcing authority may, if it considers it proper, adjourn the decision on enforcement, and may on the application of the party claiming enforcement order the other party to give suitable security.

Article VI is the practical answer to a losing party that files a challenge at the seat to delay enforcement. The enforcing court need not wait, and if it does wait it may require security.

The more-favourable-right rule: article VII

Article VII(1). The Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by Contracting States, nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.

This is the more-favourable-right provision and it is easy to miss. The Convention sets a floor, not a ceiling. If the enforcing State's own law, or another treaty, is more generous, the winner may rely on that instead. So a party whose agreement fails the article II(2) writing requirement may still enforce if the enforcing State's law recognises the agreement.

Article VII(2). The Geneva Protocol of 1923 and the Geneva Convention of 1927 cease to have effect between Contracting States on and to the extent that they become bound by this Convention.

Final clauses

Article VIII opened the Convention for signature until 31 December 1958 to any Member of the United Nations and to any other State that is or becomes a member of a specialized agency or a party to the Statute of the International Court, or is invited by the General Assembly; article IX, accession; article X, territorial extension; article XI, the federal State clause; article XII, entry into force on the ninetieth day after the third instrument, and for each later State on the ninetieth day after its own; article XIII, denunciation on one year's written notice; article XIV, a reciprocity rule under which a State shall not be entitled to avail itself of the Convention against other Contracting States except to the extent that it is itself bound to apply it; article XV, notifications by the Secretary-General; article XVI, authentic texts in Chinese, English, French, Russian and Spanish, deposited in the archives of the United Nations.

Article XIV deserves a line. It prevents a State that has entered the reciprocity reservation from claiming the benefit of the Convention more widely than it grants it.

India

India is a party and entered both reservations under article I(3). The Convention is given effect by Part II, Chapter I of the Arbitration and Conciliation Act 1996, which defines a foreign award, sets out grounds for refusing enforcement following article V, and provides that where the court is satisfied the award is enforceable it shall be deemed to be a decree of that court.

The consequence of the reciprocity reservation is that enforcement is available only in respect of awards made in a territory the Central Government has, by notification, declared to be a territory to which the Convention applies. A student should state that as the operative Indian rule rather than saying simply that India enforces New York Convention awards.

A worked example

An award is made in State AA against a company in State BB, which has assets in India. The company resists enforcement in India, saying the arbitrator was appointed without notice to it, that the tribunal decided a counterclaim nobody had submitted, that the award is being challenged in State AA's courts, and that Indian law does not permit arbitration of the subject matter. State AA has not been notified by the Central Government.

Can the Convention be used at all? Not unless State AA is a notified territory, because India entered the reciprocity reservation under article I(3), so the Convention applies only to awards made in the territory of another Contracting State as notified. If it is not, enforcement must be sought under whatever other route Indian law allows.

Assume State AA is notified. What must the applicant produce? Article IV: the duly authenticated original award or a certified copy, and the original agreement or a certified copy, with a certified translation if not in an official language.

The want of notice. Article V(1)(b), and the company must prove it. If proved, enforcement may be refused.

The counterclaim nobody submitted. Article V(1)(c): the award contains decisions on matters beyond the scope of the submission. But the saving applies: if those decisions can be separated, the part dealing with matters actually submitted may be recognized and enforced, so the whole award does not fall.

The pending challenge in State AA. Article V(1)(e) applies only if the award has been set aside or suspended, and a pending application is neither. Article VI then lets the Indian court adjourn the decision if it thinks proper, and order security on the applicant's request.

The arbitrability objection. Article V(2)(a): the court may find of its own motion that the subject matter is not capable of settlement by arbitration under the law of that country, and it need not be pleaded.

Change one fact: the agreement was concluded by conduct and there is no exchange of letters. Article II(2) speaks of an arbitral clause or agreement signed by the parties or contained in an exchange of letters or telegrams, so the agreement may fail the Convention's form test. Article VII(1) may still save the applicant, since the Convention does not deprive a party of any right to rely on the award to the extent allowed by the law of the country where it is relied upon.

Distinctions table

What it does NOT mean

The Convention does not permit review of the merits. Error of law or fact is not a ground.

The applicant does not have to prove the award is good. Article IV requires two documents; article V puts the burden on the resister.

There is no double exequatur. The winner need not obtain a judgment at the seat first.

A pending challenge is not a bar. Article V(1)(e) requires the award to have been set aside or suspended; article VI gives a discretion to adjourn.

Article V is exhaustive. The word is only.

The Convention is a floor, not a ceiling. Article VII preserves any more favourable right under national law or another treaty.

India does not enforce every foreign award under it. Both reservations were entered, so the seat must be a notified Convention territory and the relationship must be commercial under Indian law.

Limits and criticism

Public policy is undefined and is applied differently everywhere. The Convention gives a single text and produces a different answer in each enforcing State, and the ground has been used in some jurisdictions to reopen the merits, which is exactly what article V was designed to prevent.

Article V(1)(e) makes the seat decisive. An award set aside at the seat may be refused enforcement everywhere, which puts great weight on the courts of a single country, and the question whether an enforcing court may nevertheless enforce an award annulled at the seat has divided national courts for decades.

The article II(2) form requirement is obsolete on its face. Letters and telegrams are what the text names, and the practice of contracting has moved entirely past it, so uniformity now depends on each court's willingness to read the provision generously or on article VII.

Reservations fragment the regime. The reciprocity and commercial reservations mean that the Convention's coverage differs from State to State, and a party must check the enforcing State's declarations and, in India, the list of notified territories before relying on it.

Quick revision

New York, 10 June 1958. Replaced the Geneva Protocol 1923 and Geneva Convention 1927 between parties, and abolished the double exequatur.

Article I: applies to awards made in another State, and to awards not considered domestic in the enforcing State; covers ad hoc and institutional awards; two reservations, reciprocity and commercial, both entered by India.

Article II: recognise an agreement in writing to submit existing or future differences on a defined legal relationship, whether contractual or not, on a subject matter capable of settlement by arbitration; writing includes a clause or agreement signed or in an exchange of letters or telegrams; the court shall refer unless the agreement is null and void, inoperative or incapable of being performed.

Article III: recognise as binding and enforce, under local procedure, with no substantially more onerous conditions or higher fees than for domestic awards. Article IV: produce the authenticated award and the agreement, plus a certified translation.

Article V(1), proved by the resister: (a) incapacity or invalid agreement; (b) no proper notice or unable to present his case; (c) beyond the submission, severable part enforceable; (d) composition or procedure contrary to the agreement or to the law of the seat; (e) not yet binding, set aside or suspended at the seat. Article V(2), found by the court: (a) non-arbitrability; (b) public policy.

Article VI: the court may adjourn where setting aside is pending and order security. Article VII: the Convention does not deprive a party of any more favourable right under the law or treaties of the enforcing State.

India: Part II of the Arbitration and Conciliation Act 1996; both reservations; enforcement only for awards from a notified territory; an enforceable award is deemed a decree of the court.

Test yourself

1. Why was the New York Convention necessary?

Because an award is worthless where the losing party's assets lie outside the country in which the award was made, and the earlier regime made enforcement across borders very difficult. Under the Geneva Protocol of 1923 and the Geneva Convention of 1927 the party seeking enforcement had to prove that the award had become final in the country where it was made, which in practice required obtaining a judgment there first and then a second judgment in the enforcing State, the double exequatur. The New York Convention abolished that. Under article IV the applicant supplies only the duly authenticated award and the agreement, with a certified translation if needed, and under article V the burden shifts to the party resisting enforcement to prove one of five listed grounds. The consequence is that a foreign arbitral award is easier to enforce than a foreign court judgment, which is the principal practical reason parties choose arbitration for cross-border contracts.

2. State the grounds on which enforcement may be refused.

Article V(1) permits refusal, at the request of the party against whom the award is invoked and only if that party furnishes proof, on five grounds: that the parties to the agreement were under some incapacity or the agreement is not valid under the law to which they subjected it or, failing indication, under the law of the country where the award was made; that the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the proceedings or was otherwise unable to present his case; that the award deals with a difference not contemplated by or falling outside the terms of the submission, or contains decisions beyond its scope, subject to severance of the part properly submitted; that the composition of the arbitral authority or the procedure was not in accordance with the parties' agreement or, failing agreement, with the law of the country where the arbitration took place; and that the award has not yet become binding, or has been set aside or suspended by a competent authority of the country in which or under the law of which it was made. Article V(2) permits the enforcing court, of its own motion, to refuse on two further grounds: that the subject matter is not capable of settlement by arbitration under its own law, and that recognition or enforcement would be contrary to its public policy.

3. What is the significance of the word "only" in article V?

It makes the list exhaustive. A court of a Contracting State may refuse recognition and enforcement only on the grounds stated, so there is no residual discretion to refuse for other reasons and, in particular, no ground of error of law or of fact. An award that is plainly wrong on the merits must be enforced. That is what gives the Convention its value, since a system in which the enforcing court could review the substance would simply relocate the dispute. The word also has a converse effect: because the article says enforcement may be refused, rather than shall, a court is generally taken to retain a discretion to enforce even where a ground is made out, though the extent of that discretion differs between jurisdictions.

4. What reservations did India make and what follows?

Both of those permitted by article I(3). The reciprocity reservation, by which a State declares that it will apply the Convention only to awards made in the territory of another Contracting State; and the commercial reservation, by which it declares that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered commercial under its own law. The consequences in India are practical and precise. Enforcement under Part II of the Arbitration and Conciliation Act 1996 is available only for an award made in a territory which the Central Government has notified as one to which the Convention applies, so the notification must be checked; and only where the relationship is commercial under Indian law. Article XIV separately provides that a State is not entitled to avail itself of the Convention against other Contracting States except to the extent that it is itself bound to apply it.

5. What happens if the award is challenged at the seat?

Article V(1)(e) is a ground of refusal only where the award 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 of which, it was made. A pending application to set aside is neither a setting aside nor a suspension, so it is not by itself a ground. Article VI then supplies the discretion: where an application for setting aside or suspension has been made to the authority referred to in article V(1)(e), the authority before which the award is relied upon may, if it considers it proper, adjourn its decision on enforcement, and may, on the application of the party claiming enforcement, order the other party to give suitable security. That combination prevents a losing party from stalling enforcement by filing a challenge at the seat, since the enforcing court need not wait and may exact security if it does.

6. Explain article VII and give an example of its use.

Article VII(1) provides that the Convention shall not affect the validity of other multilateral or bilateral agreements on the recognition and enforcement of arbitral awards, nor deprive any interested party of any right he may have to avail himself of an award in the manner and to the extent allowed by the law or the treaties of the country where the award is relied upon. It therefore sets a minimum and not a maximum: a party may always fall back on a more favourable national law or treaty. The clearest use is the form requirement. Article II(2) defines an agreement in writing as an arbitral clause or agreement signed by the parties or contained in an exchange of letters or telegrams, which is a rule written for the technology of 1958. Where an agreement fails that test but satisfies the more relaxed requirement of the enforcing State's own law, for instance a law enacting the 2006 version of article 7 of the Model Law, article VII allows the party to rely on that law instead.