The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, established in New York on June 10th, 1958 (the New York Convention), is considered the most successful treaty applied in private international law. Currently, more than one hundred and sixty nations adhere to the convention. The objective of the New York Convention is to facilitate the enforcement of foreign arbitral awards by means of establishing a limited number of conditions to which the enforcement applies. Notably, the two primary actions contemplated by the New York Convention (NYC 1958) include the recognition and enforcement of foreign arbitral awards and the referral to arbitration by a court. This assessment aims to discuss, with reference to relevant provisions and national legislations, as well as case law, the grounds on which courts may refuse the recognition or enforcement of the NYC 1958 award.
Background on Limitations of Recognition and Enforcement
The main goal of the Convention’s drafters was to provide an overhaul of the existing rules set by the Convention on the Execution of Foreign Arbitral Awards set in Geneva in 1927. The newer version was expected to eliminate unnecessary and outdated barriers to recognition and enforcement while maximising foreign arbitral awards’ circulation. To reach this goal, NYC 1958 drafters established a presumption related to the awards’ binding nature, repealed the requirement of the double exequatur, overturned the burden to prove the recognition and enforcement conditions, and allowed the contracting states’ courts to use their discretion to refuse recognition or enforcement of foreign arbitral awards when based on the grounds enumerated on Article V.
The key to the successful implementation of NYC 1958 is linked to its drafters’ foresight in providing rigid conditions applied for the recognition and enforcement of foreign arbitral awards while giving contracting states some freedom to use more liberal rules for recognition and enforcement. Therefore, NYC 1958 should be seen as a forward-looking instrument that has been capable of evolving with time and thus providing both structure and flexibility in the matters regarding recognition and enforcement of foreign arbitral awards.
Difference Between the Grounds Set in Art V (1) and (2)
Article V of the New York Convention discusses the rigid but comprehensive grounds on which the recognition and enforcement of arbitral awards may not be allowed by a competent authority in the contracting state where one may seek the recognition and enforcement of an award. In Art V (1), the grounds include a party’s absence of capacity or the arbitration agreements absence of validity, the presence of due process violations, the exceeding of authority by the arbitral tribunal, the incorrect makeup of the arbitral tribunal or the presence of procedural irregularities, and cases when an award has not gained its binding characteristics or has been set aside or suspended. Generally, courts have developed the grounds for refusal under Article V quite narrowly, with parties resisting enforcement having to overall unsuccessful in giving grounds for refusal.
There has been some consistency in courts’ finding that the Convention has limitations in refusing an award’s recognition and enforcement on circumstances other than those mentioned in Art V (1). Specifically, the grounds do not include an erroneous decision of law or fact by an arbitral tribunal, and courts rarely review the merits of the decisions made by the arbitral tribunals. Referring to the introductory sentence of Art V (1), an award’s recognition and enforcement ‘may be refused’ if one or more conditions for non-recognition and non-enforcement listed in the Article’s subparagraphs. Therefore, NYC 1958 grants contracting states’ courts the discretion for refusing recognition and enforcement of an award based on the measures of Art V, without a requirement of them to do so.
Following the underpinnings of Art V’s discretionary language, several national courts have taken the stance that they are not under the requirement to refuse recognition or enforcement of an award even in cases when one of the grounds under the Article has been established. For example, the Supreme Court of Hong Kong has noted that ‘it is clear […] that the only grounds upon which the enforcement can be refused are those specified in [Art V] and that the burden of proving ground is upon the Defendant. Further, it is clear that even though the ground has been proved, the court retains residual discretion.’ Therefore, the conclusions drawn from Art V (1) of NYC 1958 align with the pro-enforcement bias of the document and the pro-enforcement attitude of the majority of courts in states around the world.
The difference between Art (1) and (2) is that the latter lays out the grounds on which courts could refuse enforcement of their own motions. Under the section’s provision, recognition and enforcement may be not be granted if the competent authority in the country where it is sought that the subject of the difference is not capable of settlement by arbitration under a country’s law and that the recognition or enforcement would contradict the public policy of that country. Importantly, neither arbitrability nor public policy are concepts that are unique to the New York Convention as they are included in the list of a broader range of tools allowing courts to safeguard the integrity of the legal order to which they ascribe.
It is worth mentioning that despite the fact that Art V (2) does not specify the burden of proof as a responsibility of either party, contracting states have generally considered that the party in opposition of recognition and enforcement has the final burden of proving the grounds. Besides, NYC 1958 does not provide specifications for subject matters capable of settlement by arbitration in Art V (2) (a), nor does it offer a definition of public policy in Art V (2) (b), thus leaving national courts for exercising discretion for interpreting provisions.
For example, in the French Code of Civil Procedure 2011, Art. 1520 (5), awards may only be set aside in cases when the recognition and enforcement do not align with international public policies. Based on this provision, in SA Compagnie Commerciale Andre v SA Tradigrain France, the Paris Court of Appeals stated that global public policy must be viewed from the perspective of the French concept of public policy, which means that the framework of rules within the country’s legal system would not tolerate being violated.
In the case, the losing party did not raise the argument pertaining to public policy with the arbitral tribunal, thus preventing the court from taking it into account, which resulted in the refusal of enforcement altogether.
Complaints Regarding the Arbitration or Award not Covered by Art V
As shown in the case above, complaints associated with public policy that parties may have about award or arbitration are not covered by Article V of the New York Convention. The narrow and broad concepts of public policy were defined in World Duty Free Company Limited v Republic of Kenya, in which it was stated that the narrow concept is ‘in fact no more than domestic public policy applied to foreign awards, and its content and application remain subjective to each state. [The wide concept of public policy signifies] ‘international consensus as to universal standards and accepted norms of conduct that must be applied to all.’ In the wider concept definition, subject areas such as corruption prohibition, bribery, terrorism, and other subjects on which the UN has passed prohibitions are not covered.
The reason as to why public policy is not covered by Article V lies in the fact that it is an ever-evolving concept that cannot be rigidly defined. In civil law jurisdictions, the majority of references are made to the legal system’s foundations when it comes to interpreting the concept of public policy. In common law jurisdictions, the preference is given to referencing explicit fundamental values, such as natural justice.
Matters related to both international and transnational public policy are not covered by Article V. Even though section (2) (b) refers to the public policy of the Convention’s Member States, in practice, such courts tend to use notions pertinent to international and transnational public policy. In the majority of jurisdictions, domestic law violations will not be considered as grounds for refusing an award’s recognition and enforcement. The exception made for international public policy in Article V may lead to issues invoking a foreign law, judgment, or award.
Such an exception tends to be approached more narrowly in its interpretation compared to the national public policy exception. Besides, there is a tolerant standard for facilitating recognition and enforcement of foreign awards in place among the Convention States. When it comes to transnational policy, it includes cross-border matters, with the standards abiding by the rules generally accepted among the Convention’s Member States. Such policy is stricter in its interpretation compared to both domestic and international public policy.
An example of public policies preventing recognition and enforcement is the 1999 Soleimany v Soleimany case, in which the English Court of Appeal reversed the decision of the High Court to enforce an arbitral award due to the underlying illegality of a contract that entailed importing rugs from Iran. While the import aligned with the principles of the substantive law of the contract, when the time came to enforcing an arbitration award, it was found that the illegality of the import and export of the contract was apparent under both English and Iranian law.
Therefore, a conclusion was made that it was contrary to public policy considerations to enforce the award. The applicability of Article V in cases relevant to awards’ recognition and environment is ultimately limited by the nature of public policies in the Member State where the case is being handled.
Following the decision made in Soleimany v Soleimany, the Court of Appeal revisited a similar issue in Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd, in which, in contrast to the former, the Swiss arbitral tribunal did not find any evidence of either contract’s illegality or public policy breaches despite the involvement of corrupt payments made to officials. The tribunal made the decision that there had been neither influence peddling nor corruption, which led to the opinion that there was no reason to refuse an award’s enforcement. In the decision, the court stated that only such concepts as terrorism, fraud, corruption, drug trafficking, as well as paedophilia and prostitution would come within the public policy ground in Article V (2) (b).
Summary
To summarise, courts have established very few limitations on the types of disputes that can be settled by arbitration as related to Article V, with most of the courts interpreting public policy narrowly. Even though courts may have different definitions of public policy, case law shows that they generally refuse to recognise awards based on public policy only in instances where there are deviations from the legal system’s core values. Recognition and enforcement may not be granted in cases when the competent authorities if the country in question finds that the subject matter of the difference is not capable of being settled by arbitration under the law of that specific country.
Therefore, because most national courts are given the freedom to make their definitions of public policy, it means that any issues concerning it are not covered by Article V of the New York Convention. For instance, the Swiss Federal Tribunal deems awards as contravening to public policy if they disregard essential and widely-accepted values, which should form the grounds for any legal order. A similar approach was taken by French courts, which recognised that international policy should never come in violation of the French legal order, even in issues of an international character.
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