Summary LLM International Dispute Resolution - Investment Treaty Arbitration II - Module 8 (Recognition & Enforcement I)
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Course
LLM
Institution
Queen Mary, University Of London (QMUL)
• New York Convention
o Key Features
o Scope of Application
• Article V – Fundamental Principles of Interpretation
• Preventing Parties Resisting Enforcement
• Article V(1)(a) – Invalidity of the Arbitration Agreement
o Choice of law
o Kompetenz-Kompetenz
o Burden of proof
•...
What are the key features of the New York Convention?
Obtaining recognition (Articles III and IV)
Article III commands signatory States to ensure that their courts enforce awards, which
establishes a presumption that the award is enforceable. ‘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 laid down 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.’
Article IV applies such presumption subject to the applicant submitting (i) the award; (ii) the
arbitration agreement; and (iii) translations thereof. The court looks at the evidence prima
facie.
Reservations (Article I(3))
Article I(3) allows Contracting States to restrict the application of the Convention only to the
recognition and enforcement of awards made in the territory of another Contracting State.
Approximately two-thirds of the Contracting States have made this reservation. A court in a
State which has made the reservation of reciprocity will apply the Convention only if the
award has been made in the territory of another Contracting State, or if the award is non-
domestic and shows links to another Contracting State. As more countries become
Convention countries, the reciprocity reservation becomes less significant1. The Model Law
requires the recognition and enforcement of an arbitral award ‘irrespective of the country in
which it was made’2.
Contracting States may restrict the application of the Convention only to differences arising
out of legal relationships, whether contractual or not, which are deemed commercial under
the national law of the State making such declaration. Approximately one-third of the
Contracting States have made this reservation. The commercial reservation has led to
difficulties of interpretation even within the same state, as is shown by Indian Organic3 where
the agreement was not considered commercial, as ‘It must also be established that it is
commercial by virtue of a provision of law or an operative legal principle in force in India’.
Whereas in Union of India4, the Court ruled that ‘commerce’ is ‘a word of the largest import
and takes in its sweep all the business and trade transactions in any of their forms, including
the transportation, purchase, sale and exchange of commodities between the citizens of
different countries’. Ultimately, each national state may decide for itself under the
Convention what relationships it considers to be ‘commercial’ for the purposes of the
commercial reservation5.
Relationship with domestic law and other treaties
1
Redfern & Hunter, International Arbitration (OUP, 2015), Chapter 11, para 11.45.
2
UNCITRAL Model Law, Articles 35 and 36.
3
Indian Organic Chemical Ltd v Subsidiary 1 (US), Subsidiary 2 (US), and Chemtex Fibres Inc (Parent Co.)
(US) (1979) IV YBCA 271.
4
Union of India and ors v Lief Hoegh Co. (Norway) (1984) IX YBCA 405.
5
Redfern & Hunter, International Arbitration (OUP, 2015), Chapter 11, para 11.50.
,The Convention only prescribes rules regarding the documents to be submitted and the party
bearing burden of proof. Otherwise, it does not set out a procedural regime for enforcing
awards.
Article III provides that Contracting States shall recognise and enforce arbitral awards in
accordance with the rules of procedure of the State where the award is relied upon. Thus,
apart from the New York Convention’s limited provisions on documents to be submitted and
on the burden of proof, the procedure for recognition and enforcement of foreign awards is
governed by national law. The following are examples of procedural matters governed by
national law:
The time limit for filing a request for recognition or enforcement.
The authority competent to recognise or enforce awards.
The form of the request.
The manner in which the proceedings are conducted.
The remedies against a decision granting or refusing exequatur6.
The availability of a set-off defence or counterclaim against an award.
More-favourable-right provision (Article VII)
Article VII(1) addresses the relationship between the Convention and the forum’s national
laws and other international treaties binding upon the State where enforcement is sought.
‘The provisions of the present Convention shall not affect the validity of multilateral or
bilateral agreements concerning the recognition and enforcement of arbitral awards entered
into by the 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 basically allows a
party seeking recognition and enforcement to rely on rules more favourable than Convention.
Consequences of failure to apply Convention
The Convention creates obligations for Contracting States under international law, even
though it has no dispute resolution clause. These obligations require (i) Contracting States to
implement the Convention properly in their national law; and (ii) those States’ courts to
apply the Convention accordingly.
If a State breaches its obligation to recognise and enforce arbitration agreements and awards,
it could lead to breach of investment treaty. This offers foreign investors various protections
such as fair and equitable treatment or most favoured nation treatment. For example, in
Saipem SpA v Bangladesh7, the Bangladeshi courts of the seat (i) issued an anti-arbitration
injunction purporting to revoke the authority of an ICC tribunal to determine a dispute, and
(ii) declared the ICC award ‘non-existent’ and ‘devoid of any legal foundation’. The investor
argued that this ‘amounted purely and simply to a flouting of the arbitration agreement in
violation of Bangladesh’s obligation under Article II of the New York Convention’ (ie
Article II being the obligation on Contracting State courts to recognise arbitration
agreements). The ICSID tribunal agreed with this, holding that: ‘[I]t is the Tribunal’s opinion
6
An official recognition by a government of a consul or other representative of a foreign state, authorizing them
to exercise office.
7
ICSID Case No. ARB/05/07 paras. 167-173
, that a decision to revoke the arbitrators’ authority can amount to a violation of Article II of
the New York Convention whenever it de facto “prevents or immobilizes the arbitration that
seeks to implement that [arbitration] agreement” thus completely frustrating if not the
wording at least the spirit of the Convention. This is indeed what happened here. In the light
of these developments, the Tribunal concludes that the revocation of the arbitrators’ authority
was contrary to international law, in particular to the principle of abuse of rights and the New
York Convention. [T]he New York Convention is binding upon Bangladesh as a State and
Bangladesh would be responsible for any breach of that treaty… As a matter of common
sense, the Tribunal cannot but agree with Saipem that the Supreme Court's decision declaring
the ICC Award “non-existent” constituted the “coup de grâce” given to the arbitral process,
thus removing any doubt that might have remained about the effect of the courts'
intervention. Ultimately, the tribunal considered that the actions of the Bangladeshi courts
substantially deprived the investor of the benefit of the ICC award that had been made in its
favour. The Bangladeshi courts’ purported nullification of the ICC award was ‘tantamount to
a taking of the residual contractual rights arising from the investments as crystallised in the
ICC Award’, and this amounted to an expropriation within the meaning of underlying
Bangladesh-Italy BIT.
What is the scope of application of the Convention?
Territorial scope (Article I(1))
‘This Convention shall apply to the recognition and enforcement of arbitral awards made in
the territory of a State other than the State where the recognition and enforcement of such
awards are sought, and arising out of differences between persons, whether physical or legal.
It shall also apply to arbitral awards not considered as domestic awards in the State where
their recognition and enforcement are sought.’ Thus it only applies to foreign and non-
domestic arbitral awards.
Foreign awards
Foreign awards are ‘[A]rbitral awards made in the territory of a State other than the State
where the recognition and enforcement of such awards are sought’. Thus the parties’
nationality, domicile or residence are irrelevant. Also, it is not necessary that such State was
party to the Convention (unless the enforcing State has made the reciprocity reservation).
Non-domestic awards
Non-domestic awards are ‘[A]rbitral awards not considered as domestic awards in the State
where their recognition and enforcement are sought’. Thus the Convention does not define
non-domestic awards, but they typically refer to awards in a dispute involving a foreign
dimension. This can include the parties’ nationality or domicile, or the place of
performance of the contract giving rise to the dispute. The States’ national laws usually
establish the criteria for determining awards as non-domestic.
What are the fundamental principles towards the interpretation of Article V of the New York
Convention?
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