"Is there a need to reform the New York Convention of 10 June 1958?

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Introduction

Efforts to facilitate the resolution of disputes through arbitration can be traced back

to the Geneva Protocol of 1923 on “Arbitration Clauses” and the Geneva Convention of

1927 on the “Execution of Foreign Arbitral Awards”. The New York Convention was born

out of the Draft Convention of the International Chamber of Commerce of 1953 (ICC) and

the Draft Convention of the United Nations Economic and Social Council of 1955

(ECOSOC). It was drafted to facilitate and determine uniform legislative principles and

standards for the recognition of arbitration agreements and court recognition and

enforcement of foreign arbitral awards. The main aim of this convention was the

establishment of robust trade and commercial interactions in the international sphere and

dispute resolution through arbitration.

Beginning with 24 signatories in 1958, the New York convention now boasts of 159

Contracting Parties which have signed, ratified or joined the Convention. It is indubitable

that this convention has provided immense guidance to the global trade and commerce

market in a way that no international instrument has been able to. On its sixtieth anniversary,

the question facing the global commerce, trade and investment market is whether it managed

to achieve the purpose it was drafted for.

However, it must be noted that the global market is constantly evolving and so are

national laws. In this time and age, does the convention really uphold the purpose it was

drafted for after the Geneva treaties. To this end, seasoned practitioners and renowned

scholars have published a plethora of material. A Draft Convention on the International

hypothetical convention has been drafted which carefully examines every provision of the

New York convention and proposes to fix the gaps found in the modern-day arbitration

practice.

This paper discusses the debated provisions of the convention whilst examining their

impact on the functioning of the convention and is concluded with suggestions to solve the

situation at hand.

I. New York Convention: Cornerstone of the International Arbitration System

The words of Renaud Sorieul, Secretary of UNCITRAL in 2013 hold true that the

New York Convention is one of the most important and successful United Nations treaties

in the area of international trade law, and the cornerstone of the international arbitration

system. The success of the New York convention since its adoption is renowned worldwide.

However, there are issues faced by different actors in an arbitration proceeding despite of

the convention being in place. The gravest problem which is faced by the parties is the losing

state’s abusive resistance to enforcement of an arbitral award. This is issue rises from the

state’s ability to invoke its immunity from execution to resist enforcement and cannot be

directly held to be a deficiency in the convention.

It seems rather idealistic that 159 contracting parties would be genuinely and readily

willing to adopt another convention for better facilitation enforcement of foreign arbitral

awards and a greater degree of liberalism will be attained. The most beneficial outcome to

address the issue of revising the convention would be for all contracting parties to make their
national laws compatible with the convention, avoiding differences in interpretation,

recognition and enforcement arising in the current practice.

II. New York Convention: An Outdated Instrument in times of Globalization and

Privatization

In spite of the heights of success the New York convention has achieved and the ease of

enforcement it has provided to the world, we must not ignore the imperfections being

debated time and again for the need of a reform. It is prima facie evident that the convention

has certain loopholes and hasn’t been able to accommodate the evolution and developments

in the legal needs specifically with respect to enforcement of foreign arbitral awards.

The following are some of the deficiencies which make it pertinent for this instrument

to be reformed:

1. The New York Convention does not contain a definition as to which arbitration

agreements fall under the referral provisions of its article II (3).

2. Unnecessarily wide discretion to national courts: Even though it’s true that

international arbitration, specifically in investor state disputes curtails the administrative

sovereignty of a state, it must be understood that it is only after a state signs and ratifies a

convention that it applies on them. Hence, it would be unfair to not revise the convention

and achieve its purpose only to provide contracting parties wide discretionary powers.

3. Ambiguity in the text of various provisions like-

national courts concerned to interpret the word “may” in accord with their desires and

preferences. Accordingly, the problem changes to determining the conditions in which the

discretionary power to refuse or enforce should be exercised. Thus, the enforcing court need

not refuse enforcement if it is convinced or has found that enforcement would be proper

even if the award has been set aside at the place where it was made. But if enforcement is

refused in one jurisdiction, the winning party need not give up and can seek the enforcement

in another jurisdiction, because denial of enforcement in one country does not deprive the

award of its legal effect in another jurisdiction. This ambiguity, in addition to the absence of

any annulment grounds, has led among academics to different views or interpretations of the

enforcing of annulled foreign arbitral awards.

The landmark Chromalloy and Baker Marine in the U.S courts, and Hilmarton cases

demonstrate how differently national enforcement courts deal with foreign arbitral awards

annulled in their country of origin.

b. the expression “duly authenticated original award” in article IV(1)(a): In practice, most

parties submit either the original award or a certified copy of the award, it is wasteful usage

of the words “duly authenticated” and may lead to confusion at some stage of the arbitral

proceeding.

c. the notion of a “suspended” award in article V(1)(e);

d. reference to “any interested party” in article VII(1)) has not been specified to mean only

the parties to the dispute or a third party having significant interests on it’s economic

interests.
A conflict lies between Articles V (1), III and VII (1). Article V (1), by using the word

“may”, grants the courts the discretion to enforce or refuse enforcement of an award which

is rendered in the country of origin if the refusal ground (1) (e) is found. However, Articles

III and VII (1), by using the word “shall”, oblige the courts where enforcement is sought to

recognize and enforce the arbitral awards. It should not be ignored that although the

provisions of Articles III and VII (1) of the Convention expressly compel the recognition

and enforcement of arbitral awards, the enforcement courts certainly “have the last word” in

determining whether to enforce the awards or not, relying on their discretionary power,

particularly if one of the refusal grounds is found.

e. “The manifest disregard of the law” ground puts no end to judicial review and thus affects

the stability and finality of the arbitration awards.

In First Options of Chicago v. Kaplan, The U.S. court held that it is clear that manifest

disregard means more than error or misunderstanding with respect to the law”. By such a

statement, it is clear again that the “manifest disregard” of the law is not legally defined and

thus taken into consideration by all courts.

4. The ‘public policy’ ground for refusal under article V (2) must be aligned with the existing

judicial interpretation of it to give it a more universal applicability instead of being used as

a loophole by national courts for resisting enforcement. For instance, the proceedings in the

courts of France, Switzerland and the United Kingdom in the well-known Hilmarton case

highlighted the problem that can result from the enforcement of an arbitral award that has

been set aside in its country of origin, as well as the lack of consistency in interpreting and

applying the same language ("public policy") of the New York Convention. Paulsson and
other commentators say that “not all countries are safe havens for international arbitration.

Some cling to wide powers of judicial review. Others have unclear legislation. Yet others

have apparently adequate legislation but their courts seem to misapply the law - for example

by adopting an over-elastic interpretation of ‘violation of public policy’ as grounds for

setting aside awards”

5. It must be mentioned clearly in the convention that the party against whom the award is

invoked cannot rely on refusal grounds if that party has not raised them in the arbitration

without undue delay after the moment when the existence of the ground became known to

that party.

The above shortcomings in the New York Convention cannot be remedied by the

UNCITRAL Model Law on International Commercial Arbitration of 1985 (the

“UNCITRAL Model Law”), as revised in 2006. The reason is that the provisions relating to

enforcement of an arbitral award as set forth in the UNCITRAL Model Law are almost the

same as those contained in articles III and VI of the New York Convention (article 35),

because of the policy decision taken in 1985 to follow as closely as possible the New York

Convention.

III. The Way Forward: Harmonization of National laws with the purpose of the

New York Convention

Will it ever be possible to draft a provision prohibiting the inherent bias state courts have

for state owned enterprises? No, because state sovereignty is a major barrier to the
development of any universal rule of law. There is, however, a possibility of a harmonious

construction of national laws with respect to the New York Convention to get rid of the

discretionary interpretations by different courts. Harmonization of the application and

interpretation of the Convention can also be furthered by the publication of court decisions

on the Convention. As the Convention became more widely adhered to and court decisions

started to appear, it became apparent that a compilation of national court decisions on the

Convention would be useful. Such a publication would reveal different interpretations and,

by making them public, might lead to harmonization.

Even though the solution to harmonize might put rest to the urgency in need for revising

the convention for now, some suggestions are being put forth through this paper to introduce

reform in due course of time.

The internationally mandated written form of arbitration agreements could be done away

with whilst requiring the applicable law for question concerning the validity of the arbitration

agreement.

In order to cater to the time lapse issue between the law at the time of making of an award

and recognition or enforcement of the award, the convention must clearly answer it.

It must also be clearly mentioned that the court must examine the validity of the arbitration

agreement on a prima facie basis only in the context of dealing with a request to refer the

dispute to arbitration. The reasons for such a limited examination are that the referral should

be decided expeditiously by the court, and that that arbitral tribunal is the first instance to

conduct a full review of an objection to the validity of the arbitration agreement, subject to
eventual subsequent court control in an action for setting aside or enforcement of the arbitral

award.

The public policy is limited to the narrower category of international public policy

as developed by courts in many countries in relation to public policy, including arbitrability,

under the New York Convention.

The convention must also make it mandatory (“enforcement shall be refused”)

instead of leaving a wide discretion to the enforcing courts under article V(1) of the New

York Convention.

The suggestion by UNCITRAL in its “Recommendation regarding the

interpretation” of 2006 that article VII(1) “should be applied to allow any interested party to

avail itself of the rights it may have, under the law or treaties of the country where an

arbitration agreement is sought to be relied upon, to seek recognition of the validity of such

an arbitration agreement” must be adopted in the revised convention.

As international business continues to retain its position as a central part of the

economy, international commercial arbitration will flourish. It is up to us practitioners to

implement changes to propel arbitration as a modern, essential tool to resolve current

international commercial differences.