«ICCA’S GUIDE TO THE INTERPRETATION OF THE 1958 NEW YORK CONVENTION: A HANDBOOK FOR JUDGES INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION ICCA’S ...»
In summary, the party opposing recognition and enforcement can rely on
and must prove one of the first five grounds:
(1) There was no valid agreement to arbitrate (Article V(1)(a)) by reason of incapacity of the parties or invalidity of the arbitration agreement;
(2) The respondent was not given proper notice, or the respondent was unable to present his case (Article V(1)(b)) by reason of due process violations;
(3) The award deals with a dispute not contemplated by, or beyond the scope of the parties’ arbitration agreement (Article V(1)(c));
(4) The composition of the arbitral tribunal 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 (Article V(1)(d));
(5) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority in the country in which, or under the laws of which, the award was made (Article V(1)(e)).
These are the only grounds on which the respondent can rely.
Further, the court may on its own motion refuse the recognition and enforcement on the grounds mentioned below. However, in practice, the
respondent invokes these grounds as well:
(6) The subject matter of the arbitration was not arbitrable under the law of the country where enforcement is sought (Article V(2)(a));
(7) Enforcement of the award would be contrary to the public policy of the country where enforcement is sought (Article V(2)(b)).
III.4. NARROW INTERPRETATION OF THE GROUNDS FOR REFUSALBearing in mind the purpose of the Convention, namely to “unify the standards by which... arbitral awards are enforced in the signatory countries”15 (see Chapter I at I.2), its drafters intended that the grounds for opposing recognition and enforcement of Convention awards should be interpreted and applied narrowly and that refusal should be granted in serious cases only.
Most courts have adopted this restrictive approach to the interpretation of Article V grounds. For example, the United States Court of Appeals for the Third Circuit stated in 2003 in China Minmetals
Materials Import & Export Co., Ltd. v. Chi Mei Corp.:
15. United States: Supreme Court of the United States, 17 June 1974 (Fritz Scherk v.
Alberto-Culver Co.) Yearbook Commercial Arbitration I (1976) pp. 203-204 (US no. 4).
“Consistent with the policy favoring enforcement of foreign arbitration awards, courts strictly have limited defenses to enforcement to the defenses set forth in Article V of the Convention, and generally have construed those exceptions narrowly.”16
Similarly, the New Brunswick Court of Queen’s Bench said in 2004:
“The grounds for refusal prescribed by Art. V of the New York Convention should be given a narrow and limited construction.”17 One issue that is not dealt with in the Convention is what happens if a party to an arbitration is aware of a defect in the arbitration procedure but does not object in the course of the arbitration. The same issue arises in connection with jurisdictional objections that are raised at the enforcement stage for the first time.
The general principle of good faith (also sometimes referred to as waiver or estoppel), that applies to procedural as well as to substantive matters, should prevent parties from keeping points up their sleeves.18
16. United States: United States Court of Appeals, Third Circuit, 26 June 2003 (China Minmetals Materials Import and Export Co., Ltd. v. Chi Mei Corporation) Yearbook Commercial Arbitration XXIX (2004) pp. 1003-1025 (US no. 459).
17. Canada: New Brunswick Court of Queen’s Bench, Trial Division, Judicial District of Saint John, 28 July 2004 (Adamas Management & Services Inc. v. Aurado Energy Inc.) Yearbook Commercial Arbitration XXX (2005) pp. 479-487 (Canada no. 18).
18. Article 4 of the UNCITRAL Model Law on International Commercial Arbitration,
as amended in 2006, provides:
“A party who knows that any provision of this Law from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time-limit is provided therefor, within such period of time, shall be deemed to have waived his right to object.” ICCA Guide to the NYC
– The Federal Arbitrazh (Commercial) Court for the Northwestern District in the Russian Federation considered that an objection of lack of arbitral jurisdiction that had not been raised in the arbitration could not be raised for the first time in the enforcement proceedings;19 – The Spanish Supreme Court said that it could not understand that the respondent “now rejects the arbitration agreement on grounds it could have raised in the arbitration”.20 This principle is also applied by some courts if a party fails to raise the
ground in setting-aside proceedings:
– The Berlin Court of Appeal found that the German respondent was estopped from relying on grounds for denying enforcement under the New York Convention since it had failed to raise them in annulment proceedings in Ukraine within the time limit of three months set by Ukrainian law. The court reasoned that although the Convention does not provide for estoppel, the preclusion (Präklusion) provision established in respect of domestic awards in German law also applies to the enforcement of foreign awards.21 (Emphasis added)
19. Russian Federation: Federal Arbitrazh (Commercial) Court, Northwestern District, 9 December 2004 (Dana Feed A/S v. OOO Arctic Salmon) Yearbook Commercial Arbitration XXXIII (2008) pp. 658-665 (Russian Federation no. 16).
20. Spain: Tribunal Supremo, Civil Chamber, 11 April 2000 (Union Générale de Cinéma, SA v. X Y Z Desarrollos, SA) Yearbook Commercial Arbitration XXXII (2007) pp.
525-531 (Spain no. 50).
21. Germany: Kammergericht, Berlin, 17 April 2008 (Buyer v. Supplier) Yearbook Commercial Arbitration XXXIV (2009) pp. 510-515 (Germany no. 119).
III.5. LIMITED DISCRETIONARY POWER TO ENFORCE IN THE PRESENCE OF
GROUNDS FOR REFUSALCourts generally refuse enforcement when they find that there is a ground for refusal under the New York Convention.
Some courts, however, hold that they have the power to grant enforcement even where the existence of a ground for refusal of enforcement under the Convention has been proved. They generally do so where the ground for refusal concerns a minor violation of the procedural rules applicable to the arbitration – a de minimis case – or the respondent neglected to raise that ground for refusal in the arbitration.22 (See also the cases described in this Chapter above at III.4.) These courts rely on the wording in the English version of Article V(1), which opens with the words “Recognition and enforcement of the award may be refused...”. This wording also appears in three of the five official texts of the Convention, namely the Chinese, Russian and Spanish text. The French text, however, does not contain a similar expression and only provides that recognition and enforcement “seront refusées”, i.e., shall be refused.
22. Hong Kong: Supreme Court of Hong Kong, High Court, 15 January 1993 (Paklito Investment Ltd. v. Klockner East Asia Ltd.) Yearbook Commercial Arbitration XIX (1994) pp. 664-674 (Hong Kong no. 6) and Supreme Court of Hong Kong, High Court, 16 December 1994 (Nanjing Cereals, Oils and Foodstuffs Import & Export Corporation v. Luckmate Commodities Trading Ltd) Yearbook Commercial Arbitration XXI (1996) pp. 542-545 (Hong Kong no. 9);
British Virgin Islands: Court of Appeal, 18 June 2008 (IPOC International Growth Fund Limited v. LV Finance Group Limited) Yearbook Commercial Arbitration XXXIII (2008) pp. 408-432 (British Virgin Islands no. 1);
United Kingdom: High Court, Queen’s Bench Division (Commercial Court), 20 January 1997 (China Agribusiness Development Corporation v. Balli Trading) Yearbook Commercial Arbitration XXIV (1999) pp. 732-738 (UK no. 52).
ICCA Guide to the NYC
“The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.” IV.1.1. Incapacity of Party The types of issues arising under this ground include the “incapacity” defences, such as mental incompetence, physical incapacity, lack of authority to act in the name of a corporate entity or a contracting party being too young to sign (minority).
In addition, the term “incapacity” in the context of Article V(1)(a) is interpreted in the sense of “lacking the power to contract”. For example, this may arise where the applicable law prohibits a party, such as a Stateowned enterprise, from entering into an arbitration agreement for certain types of potential disputes: e.g., in some jurisdictions, a State-owned enterprise may be prohibited by law from entering into an arbitration agreement in a contact relating to defence contracts (see, however, Chapter II at IV.6.2, quoting as an example the Swiss Private International Law Act). 23
23. The Swiss Private International Law Act, Article 177(2) provides:
“If one party to an arbitration agreement is a State or an enterprise dominated by
It must be noted that States, State-owned entities and other public bodies are not excluded from the scope of the Convention purely by reason of their status. The expression “persons, whether physical or legal” in Article I(1) of the Convention is generally deemed to include public law entities entering into commercial contracts with private parties. Courts virtually always deny the defence of sovereign immunity raised by a State against enforcement of an arbitration agreement and recognition and enforcement of an arbitral award by relying on the theory of restrictive immunity and waiver of immunity. They also frequently invoke the distinction between acta de jure gestionis and acta de jure imperii, or rely on pacta sunt servanda and the creation of an ordre public réellement international. This distinction is also made in some cases with respect to execution.
One example is the 2010 Hong Kong case of FG Hemisphere, requesting the recognition and enforcement of two foreign arbitral awards against the assets of a Chinese State-owned enterprise (CSOE), namely entry fees due by CSOE to the Democratic Republic of the Congo in consideration of certain mineral rights (the CSOE Assets).24 The Chinese Government argued that it currently applies, and has consistently applied in the past, the doctrine of absolute sovereign immunity, and thus the CSOE Assets were immune from enforcement.
However, the Court of Appeal held that Hong Kong courts apply the doctrine of restrictive immunity and as a consequence the portion of or an organization controlled by a State, it may not invoke its own law to contest the arbitrability of a dispute or its capacity to be subject to an arbitration.”
24. Hong Kong: Court of Appeal, 10 February 2010 and 5 May 2010 (FG Hemisphere Associates LLC v. Democratic Republic of the Congo, et al.), CACV 373/2008 & CACV 43/2009 (10 February 2010); Yearbook Commercial Arbitration XXXV (2010) pp.
392-397 (Hong Kong no. 24). At the time of writing, appeal from this decision was pending before the Hong Kong Court of Final Appeal.
ICCA Guide to the NYC
CHAPTER IIICSOE Assets that were not intended for sovereign purposes were not immune from execution.
The Convention does not indicate how to determine the law applicable to the capacity of a party (“the law applicable to them”). This law must therefore be determined by applying the conflict-of-laws rules of the court where recognition and enforcement are sought, usually the law of the domicile of a physical person and the law of the place of incorporation of a company.
IV.1.2. Invalidity of Arbitration Agreement
Article V(1)(a) also provides a ground for refusal where the arbitration agreement “referred to in article II” is “not valid under the law to which the parties have subjected it, or failing any indication thereon, under the law of the country where the award was made”. This ground for refusal is commonly invoked in practice.
Respondents frequently argue under this ground that the arbitration agreement is not formally valid because it is not “in writing” as required by Article II(2) (see Chapter II at IV.2). A related ground for refusal of enforcement that may be raised is that there was no agreement to arbitrate at all within the meaning of the Convention. Other common examples of the defences that may be raised under this ground include claims of illegality, duress or fraud in the inducement of the agreement.
From time to time a respondent may rely on this ground where it disputes that it was party to the relevant arbitration agreement. This issue is decided by the court by re-assessing the facts of the case, independent of the decision reached by the arbitrators. For example, in the Sarhank Group case, the respondent argued that there was no signed 86 ICCA Guide to the NYC