Chapter 1

The Engine of the New York Convention

Benjamin I Malek[1]

The New York Convention is one of the most influential and ambiguous treaties submitted by United Nations Economic and Social Council (“ECOSOC”) and adapted by the International Law Commission of the United Nations.[2]  Article V(1)(e) might be one of the most interpretable Articles, covering more than half of the cases mentioned in the New York Convention Guide.[3]

There are many ways of interpreting The New York Convention and at least equally as many ways of interpreting Article V(1)(e).[4]  In this article, I will discuss the importance of distinguishing local standards of annulment from international standards of annulment with regards to Article V(1)(e), and why it is necessary to take action either in setting official guidelines for the usage of this convention, or sanctioning non-application or misapplication of the Convention.

ARTICLE V

1. “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

…

• 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.

In essence, Article V(1)(e) sets the grounds for refusal.[5]  The first ground talks about an award which has not yetbecome binding.[6]  It is interesting to observe, that there is no strict definition of “binding”.[7]  Courts put emphasis on the abandonment of the double exequatur obligation under the New York Convention,[8] but what does “binding” mean?  Do all means of recourses, ordinary and extraordinary, need to be exhausted?[9]  Or should a simple court decision be sufficient?[10]  There needs to be a strict distinction between the judicial assessment of an interim award,[11] under Article V(1)(e)[12], and an award which should be binding to the parties.

The second ground of refusal talks about awards that have been suspended.[13]  One can see a continuous approach of pro enforcement by which courts focused consistently on pragmatism.[14]  The majority of courts refer to a suspension to a former court decision, thus being aware of the spirit of the New York Convention.[15]  There is no automatic suspension.[16]  If there is an initiation of a setting aside in the country of the seat, courts have generally not stopped the enforcement.[17]  However, if there is a former court decision of the suspension of an award, then it is the discretion of the enforcement court to decide what is to be done.[18]  Taking into account that only a judicial suspension might cause a court to refuse the enforcement of an award,[19] I believe the question which might need to be answered is whom we are giving commodity to?

The third ground of refusal mentioned in the convention is an award which has been set aside.[20]  Article V(1)(e) explicitly gives competence to the authority of the seat of the arbitration and to the authority of the law under which the award was rendered to set aside the award.[21]  This means that an award confirmed at the seat, in country X, under the lex arbitri of another country Y, that country Y, in disregard of being excluded from the actual process, can set aside that award.[22]  Does this not also mean that the party resisting arbitration has two courts in which it can request the setting aside of an award?  Is this not the same as having an appeal system, before even recognizing and enforcing an award?

Taking the latter ground of refusal into account, it might be interesting to address an even bigger question: Is the scope of the New York Convention the enforcement of awards or the enforcement of court decisions regarding awards?[23]  In the end, even an annulled award may be enforced in another country, different to that of the seat.[24]

There are several theories with regards to the enforcement of annulled awards.[25]  One theory expresses the impossibility of enforcing an award which has been set aside, as it legally ceases to exist.[26]  Should the public policy at the seat prevent the confirmation, it should thus set aside that award?[27]  In this regard, it is important to note that the seat of the arbitration and the lex arbitri are chosen to accommodate all parties entering an agreement, even from different countries, languages, laws, and jurisdictions.[28]  Choosing a neutral ground for arbitration should not result in the setting aside of an award, which can then not be recognized and enforced, or should it?[29]

Another theory states that there needs to be a balance between an award set aside on the basis of local standards of annulment versus international standard of annulment.[30]  There are several issues with this application,[31] but overall the balance, for the recognition and enforcement of awards, seems to have been a good one so far.[32]  As the court at the primary jurisdiction should determine an award only prima facie, and a court at the secondary jurisdiction is required to do the same,[33] why should the court at the seat be able to set aside an award, and thus cease its existence, if the enforcement court would come to the same conclusion, of not enforcing the award, if indeed due process was an issue?

One of the doctrines in this sense is the Pemex case.[34]  In Pemex, the District Court of Southern New York held that, the Mexican Court decision of setting aside the award violated “the US’s basic notion of justice,” and hence the Court would have full discretion to disregard the annulment of the primary jurisdiction.[35]  The court further held, that the wording in Article V(1)(e) “may be refused” was intended by the drafters of the Convention to allocate discretion of enforcing even annulled awards.[36]

Giving courts the possibility of setting aside awards and thus ensuring those awards’ unenforceability, would, in comparison to the theory of ex nihilo nihil fit,[37] give a lot of discretion to the courts.  The idea behind confirming or setting aside an award should be that of analyzing due process.[38]  Judges need to be the guardians of international due process but mindful of their duty of prima facie review.[39]  This mechanism also serves as a measure to ensure arbitrators do not overstep their competence-competence.[40]  Judges, likewise, cannot overstep the prima facie review.[41]

In order to reinforce the court’s obligation to a prima facie review of an award,[42] in accordance with an international standard of due process,[43] and to avoid it from ruling de novo on the merits of a case,[44] guidelines on how to review an award[45] need to be implemented, and international regulations need to be applied.  This might otherwise lead to legal uncertainty.[46]  This would also address the issue of many countries and courts not having been properly introduced to the intended way of reviewing arbitral awards.[47]  Once these guidelines[48] and international regulations are introduced, an instrumentality would guard the due process of the courts with regards to reviewing arbitral awards.[49]

It is important to emphasis the need of such mechanism, as an award which is set aside on the basis of international public policy[50] and not on the ambiguity of local public policy with regards to the matter at stake,[51] will ultimately decide the award’s possibility of enforcement.[52]  The mere possibility of never and nowhere being able to enforce an annulled award, will change arbitration as a whole,[53] which would ultimately favor only some lex arbitri and procedural laws to govern the arbitration,[54] thus limiting party autonomy.[55]  This is not the idea of arbitration.[56]  The beauty of the New York Convention is that the parties to an arbitration can choose the seat to be in any country in the world,[57] signee to the New York Convention,[58] and use any law, in order to solve a possible disagreement between the parties arising from that agreement.[59]

Thus far, a set-aside award only gives indication to the enforcement court that the award needs to be examined more carefully[60] as it might have not been in conformity with local standards.[61]  If however, an award has been set aside on the basis of international standards of annulment, then the enforcement court may not enforce it.[62]

In conclusion, the setting aside of an award should be merely used as a mechanism of drawing attention to other courts that there is an issue of some nature with the award at hand.[63]  It is further the discretion of any enforcement court to enforce that award or refrain from doing so.[64]  If courts use the may option in excess of discretion, the engine of the New York Convention[65] is stopped, and the scope of the New York Convention was surely for this engine to continue.

[1] Benjamin I Malek is an International Arbitration Advisor and Arbitrator at Forte Law LLC. [2] See J. William Rowley, “Remarks on Pieter Sanders at 95: Reflections on the New York Convention”, 2 Disp. Resol. Int’l 13, 16 (2008);  See also “The Making Of The Convention”, in United Nations, Enforcing Arbitration Awards Under The New York Convention: Experience And Prospects 3, 3 (1999), See also United Nations Commission on International Trade Law, Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”), http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html (last accessed September 21, 2021). [3] See New York Convention Guide, Case Law Analysis, http://newyorkconvention1958.org/?opac_view=2&menu=491 (last accessed September 21, 2021); See alsoInternational Council For Commercial Arbitration, ICCA Yearbook Commercial Arbitration, https://www.arbitration-icca.org/publications/yearbook_table_of_contents.html(last accessed September 21, 2021). ^[4] See Ibid. [5] See New York Arbitration Convention, In Brief, http://www.newyorkconvention.org/in+brief (last accessed September 21, 2021). [6] See New York Convention supra note 2;  See also Fouchard Gaillard Goldman on International Commercial Arbitration 974-75, paras. 1681-83 (E. Gaillard, J. Savage eds., 1999);  See also Nadia Darwazeh, Article V (1)(e), in Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention 301, 312-13. (H. Kronke, P. Nacimiento et al. eds., 2010). [7] See Travaux préparatoires, Comments on Draft Convention on the Recognition and Enforcement of Foreign Arbitral Awards, E/CONF.26/SR.11-14, SR17;  See also Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards A Uniform Judicial Interpretation p. 334-36 (T.M.C. Asser Institute, The Hague 1981). [8] See Darwazeh supra note 6, p.306-07;  See also International Council For Commercial Arbitration, ICCA’s Guide to the Interpretation of the 1958 New York Convention: A Handbook for Judges 110 (The Hague, P. Sanders ed., 2011). [9] See van den Berg supra note 7 at p. 334-335;  See also Société Nationale D’Operations Petrolieres de la Cote d’Ivoire-Holding v Keen Lloyd Resources Ltd, Hight Court of Hong Kong, First Instance, 14 March 2016, [2004] 3 HKC 452;  See also Diag Human S.E. v. The Czech Republic, High Court of Justice, QB (Comm), 22 May 2014, [2014] EWHC 1639 (Comm) (“… [there] should be an autonomous interpretation of binding, [which] is best analysed by differentiating between ordinary recourse and extraordinary recourse. The former, […] Once ordinary recourse is excluded, the possible availability of extraordinary recourse does not prevent an award from being, or having become, binding.”) [10] See Ibid. [11] See Société Nationale supra note 9;  See also Merck & Co. Inc. v. Merck Frosst Canada Inc., Frosst Laboratories Inc. v. Tecnoquímicas S.A., Supreme Court of Justice, Colombia, 24 March 1999, XXVI Y.B. Com. Arb. (2001); See also Living Consulting Group AB (Sweden) v. OOO Sokotel (Russian Federation), Presidium of the Highest Arbitrazh Court, Russian Federation, 5 October 2010, A56-63115/2009;  See also Hall Steel Co. v. Metalloyd Ltd., 492 F. Supp. 2d 715 (E.D. Mich. 2007), 05-70743, XXXIII Y.B. Com. Arb. (2008). [12] See New York Convention supra note 2, at Article V(1)(e) (“…The award has not yet become binding on the parties,…”). [13] See New York Convention supra note 2. [14] See Darwazeh supra note 6, at p.307-09;  See also Société Nationale supra note 9;  See also Christoph Liebscher, Article V (1)(e), in New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958—Commentary 356, 356, paras. 353-56 (R. Wolff ed., 2012);  See also Philippe Fouchard, “La portée internationale de l’annulation de la sentence arbitrale dans son pays d’origine”, 1997 Rev Arb 344;  See also Jan Paulsson, Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment (LSA), ICC Bulletin, May 1998, Vol.9, No.1. [15] See Société Bargues Agro Industrie SA v. Société Young Pecan Company, Court of Appeal of Paris, France, 10 June 2004, 2003/09894;  See also Matter of Arbitration Between Chromalloy Aeroservices, a Div. of Chromalloy Gas Turbine Corp. & Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C. 1996);  See also Nigerian National Petroleum Corporation v. IPCO (Nigeria) Ltd., Court of Appeal, England and Wales, 21 October 2008, A3/2008/1037.PTA+(A);  See also Buyer (Poland) v. Seller (Poland), Hanseatisches Oberlandesgericht [OLG] Hamburg, Germany, 24 January 2003, 11 Sch 06/01. [16] See AB Götaverken v. General National Maritime Transport Company (GMTC), Libya and others, Supreme Court, Sweden, 13 August 1979, SO 1462;  See also The Republic of Gabon v. Swiss Oil Corporation, Grand Court, Cayman Islands, 17 June 1988, XIV Y.B. Com. Arb. (1989);  See also S.A. Recam Sonofadex v. S.N.C. Cantieri Rizzardi de Gianfranco Rizzardi, Court of Appeal of Orleans, France, 5 October 2000. [17] See Ibid. [18] See van den Berg supra note 7;  See also Darwazeh supra note 6, at p.341-42; See also Liebscher supra note 14, at p. 395-96;  See also Fouchard supra note 6, at 980-81. [19] See Id. ^[20] See New York Convention supra note 2. [21] See M&C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 847-49 (6th Cir. 1996) (“… such a motion to vacate may be heard only in the courts of the country where the arbitration occurred or in the courts of any country whose procedural law was specifically invoked in the contract calling for arbitration of contractual disputes.”). [22] See Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 309–10 (5th Cir. 2004) (“… both […] criteria for the country with primary jurisdiction point to Switzerland—and only to Switzerland. …in the absence of any express statement making another country’s procedural law applicable.”). [23] See Seetransport Wiking Trader Schiffarhtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 573 (2d Cir. 1993), as amended (May 25, 1993). [24] See van den Berg supra note 7, p.332;  See also Société National supra note 9;  See also Société Pabalk Ticaret Sirketi v. Société Anonyme Norsolor, Court of Cassation, France, 83-11.355, 9 October 1984, 1985 Rev. Arb. 431, (English translation in 24 ILM 360 (1985));  See also Bargues supra note 15, 2006 Rev. Arb.; See also Société PT Putrabali Adyamulia v. Société Rena Holding et Société Moguntia Est Epices, Court of Appeal of Paris, France, 31 March 2005, 2006 Rev. Arb.665, affirmed by Société PT Putrabali Adyamulia v. Rena Holding Société Moguntia Est Epices, Court of Cassation, France, 05-18053, 29 June 2007, 2007 Rev. Arb.;  See also Direction Générale de l’Aviation Civile de l’Emirat de Dubaï v. Société International Bechtel Co., Court of Appeal of Paris, France, 29 September 2005, 2006 Rev. Arb.;  See also Société S.A. Lesbats et Fils v. Volker le Docteur Grub, Court of Appeal of Paris, France, 18 January 2007, 05/10887. [25] See Marike R. P. Paulsson, “Enforcement of Annulled Awards: A Restatement for the New York Convention?”, Kluwer Arbitration Blog, December 21, 2017, http://arbitrationblog.kluwerarbitration.com/2017/12/21/enforcement-annulled-awards-restatement-new-york-convention/ (last accessed September 21, 2021). [26] See Albert Jan van den Berg, “Enforcement of Annulled Awards?”, ICC Int’l Ct. Arb Bull 15, 16, 9(2), 1998. [27] See Matter of Arbitration of Certain Controversies Between Getma Int’l & Republic of Guinea, 191 F. Supp. 3d 43 (D.D.C. 2016), aff’d sub nom. Getma Int’l v. Republic of Guinea, 862 F.3d 45 (D.C. Cir. 2017). [28] See Jan Paulsson, “International Arbitration is not Arbitration”, Stockholm International Arbitration Review 2008;2, p. 1-20 (The Arbitration Institute of the Stockholm Chamber of Commerce and JurisNet, LLC., 2008), https://www.arbitration-icca.org/media/4/38838389608773/media012331138275470siar_2008-2_paulsson.pdf (last accessed September 21, 2021). [29] See Société Hilmarton Ltd v. Société Omnium de traitement et de valorisation (OTV), 92-15.137, Cour de cassation, France;  See also Chromalloy supra note 15;  See also Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F.3d 194 (2d Cir. 1999);  See also TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007);  See also Nikolai Viktorovich Maximov v OJSC Novolipetsky Metallurgichesky, ECLI:NL:HR:2017:2992, Netherlands Supreme Court 24 November 2017;  See also Yukos Capital S.A.R.L. v. OAO Samaraneftegaz, 963 F. Supp. 2d 289 (S.D.N.Y. 2013), aff’d sub nom. Yukos Capital S.A.R.L. v. Samaraneftegaz, 592 F. App’x 8 (2d Cir. 2014). [30] See Jan Paulsson, “The Case For Disregarding LSAS (Local Standard Annulments) Under The New York Convention”, The American Review of International Arbitration (ARIA), Vol.7, No.2, August 1996, https://arbitrationlaw.com/pdf/case-disregarding-lsas-local-standard-annulments-under-new-york-convention-vol-7-no-2-aria-1996 (last accessed September 21, 2021). [31] See Ibid. [32] See Sherina Petit and Ben Grant, “Awards set aside or annulled at the seat – Zombies, ghosts and buried treasure”, International Arbitration Report, Norton Rose Fulbright, Issue 10, May 2018, https://www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/imported/20180416—pdf-file—interntional-arbitration-report—issue-10.pdf?la=en&revision=958b9eac-61b9-416d-8111-350583176022 (last accessed September 21, 2021). [33] See John Fellas, “Enforcing New York Convention Awards In the United States: Getting It Right”, New York Law Journal, Volume 259, No.66, April 6, 2018, https://www.hugheshubbard.com/index.php?p=actions/vmgHhrUtils/download/asset&id=75259 (last accessed September 21, 2021). [34] See Corporacion Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploracion y Produccion, 962 F. Supp. 2d 642 (S.D.N.Y. 2013), aff’d, 832 F.3d 92 (2d Cir. 2016). [35] See Ibid. [36] See Id.;  See also Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. PEMEX – Exploración y Producción (Southern District for New York 2013), in Yearbook Commercial Arbitration XXXVIII (2013), at 537-541. [37] See van den Berg supra note 26. [38]See 9 U.S.C. §2 (1994);  See also J. Paulsson supra note 30. [39]See George A. Bermann, “The Role of National Courts at the Threshold of Arbitration”, Kluwer Law International, 2017, https://www.worldcat.org/title/role-of-national-courts-at-the-threshold-of-arbitration/oclc/1022217161 (last accessed September 21, 2021);  See also George A. Bermann, “Recognition and Enforcement of Foreign Arbitral Awards: The Application of The New York Convention by National Courts”, https://www.iacl2014congress.com/fileadmin/user_upload/k_iacl2014congress/General_reports/Bermann_-_General_Report_Recognition__Enforcement_of_Foreign_Awards_July_2_2014__2_.pdf  (last accessed September 21, 2021);  See also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006);   See also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967);  See also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995);  See also Sarhank Grp. v. Oracle Corp., 404 F.3d 657 (2d Cir. 2005) [40] See Emmanuel Gaillard, “L’effet négatif de la compétence-compétence”, in Etudes de procédure et d’arbitrage en l’honneur de Jean- François Poudret 387, Univ. Lausanne (1999);  See also Emmanuel Gaillard & Yas Banifatemi, “Negative Effect of Competence-Competence: The Rule of Priority in Favour of the Arbitrators”, in Enforcement of Arbitration Agreements and International Arbitral Awards – The New York Convention Practice, E. Gaillard and D. Di Pietro eds., Cameron May, 257 (2008). [41] See Buckeye case supra note 39. [42] See Bermann and Bermann supra note 39. [43] See J. Paulsson supra note 14. [44] See Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008);  See also Citizen Potawatomi Nation v. Oklahoma, 881 F.3d 1226 (10th Cir.), cert. denied, 139 S. Ct. 375, 202 L. Ed. 2d 286 (2018). [45] See ICCA supra note 8;  See also Marike R. P. Paulsson, The 1958 New York Convention in Action (Kluwer Law International, 2016). [46] See van den Berg supra note 7;  See also Marike R. P. Paulsson, “The Future of The New York Convention in Its Most Extreme Sense: A Dual Convention That Disposes of National Setting Aside Regimes”, Kluwer Arbitration Blog, August 15, 2018, http://arbitrationblog.kluwerarbitration.com/2018/08/15/the-future-of-the-new-york-convention/ (last accessed September 21, 2021). [47] See supra note 45. [48] See Ibid. [49] See M. Paulsson supra note 25;  A possible solution to avoid cases to be reversed on the basis of wrongful interpretation of e.g. forum non conveniens: See also Figueiredo Ferraz Consultoria E Engenharia De Projeto Ltda. v. Republic of Peru, 655 F. Supp. 2d 361 (S.D.N.Y. 2009), rev’d and remanded sub nom. Figueiredo Ferraz E Engenharia de Projeto Ltda. v. Republic of Peru, 665 F.3d 384 (2d Cir. 2011). [50] See J. Paulsson supra note 28. [51] See Pemex case supra note 34; See also Figueiredo Ferraz E Engenharia de Projeto Ltda. v. Republic of Peru, 665 F.3d 384, 386 (2d Cir. 2011). [52] See J. Paulsson supra note 14. [53] See Maximov case supra note 29;  See also Albert Jan Van den Berg, “Should the Setting Aside of the Arbitral Award be Abolished?”, ICSID Review, 2014, p. 1–26, https://www.arbitration-icca.org/media/4/92247683911386/media213982548067270van_den_berg_setting_aside_icsid_review_2014.pdf (last accessed September 21, 2021). [54] See van den Berg supra note 7; See also Robert C. Bird, “Enforcement of Annulled Arbitration Awards: A Company Perspective and an Evaluation of A ‘New’ New York Convention”, 37 N.C. J. Int’l L. & Com. Reg. 1013 (2012). [55] See Bird supra note 54. [56] See van den Berg supra note 7; See also J. Paulsson supra note 28;  See also Emmanuel Gaillard, “L’incidence des representations de l’arbitrage sur le pouvoir de juger des arbitres”, Aspects philosophiques du droit de l’arbitrage international, Ch. II (Académie de droit international de La Haye, 2008). [57] See J. Paulsson supra note 28;  See also Jan Paulsson, “Arbitration in Three Dimensions”, LSE Law, Society and Economy Working Papers 2/2010, London School of Economics and Political Science Law Department, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1536093 (last accessed September 21, 2021). [58] See New York Convention supra note 2, Art. I. [59] See Ibid. supra note 49. [60] See Fouchard supra note 14;  See also J. Paulsson supra note 24;  See Stavros Brekoulakis “Enforcement of Foreign Arbitral Awards: Observations on the Efficiency of the Current System and the Gradual Development of Alternative Means of Enforcement” in 19 Am. Rev. Int’l Arb. 415, 2008. [61] See J. Paulsson supra note 10;  See also J. Paulsson supra note 24. [62] See Id;  See also New York Convention supra note 2;  See also New York Arbitration Convention supra note 5;  See also Bird supra note 54;  See also J. Paulsson supra note 57. [63] See Fouchard & J. Paulsson supra note 14;  See also Bermann, “The Role of National Courts…” supra note 39;  See also Gaillard & Yas Banifatemi supra note 409. [64] See Chromalloy supra note 15;  See also Hilmarton, Chevron, TermoRio, Maximov, and Yukos supra note 29;  See also Buckeye supra note 39. [65]See John M. Markett, Frank Cruz-Alvarez, Sergio Pagliery, and Marike R.P. Paulsson “Perspectives on the New York Convention under the Laws of the United States Forum Non Conveniens as a Stopper to Enforcement”, Kluwer Arbitration Blog, August 17, 2016, http://arbitrationblog.kluwerarbitration.com/2016/08/17/perspectives-new-york-convention-laws-united-states-forum-non-conveniens-stopper-enforcement/ (last accessed September 21, 2021).