Revisiting the Debate on Reform of the New York Convention 1958…the Musings of an Enthusiast

Introduction

The New York Convention (NYC), despite its many successes, has endured a great number of criticisms and call for reform. This article revisits the debate on the reform of the NYC. The first objective of the article is to analyze the doubts around the NYC, necessitating the calls for reform and to provide response to each doubt. This author argues that what is needed is not a transplant of the Convention texts, but measures aimed at achieving consistency in their application. Another objective of this article is to examine how the holes in the Convention can be plugged, should reform become imperative. 

This article is bifurcated into two main parts. The first part highlights arguments against the current texts of the NYC and responds by throwing a monkey wrench into the pro-reform arguments like the Japanese game of Go. The second part provides a snapshot of the likely provisions in the NYC that may be improved while noting that replacement of texts is not so imminently crucial. 

PART ONE

Reform of the NYC: Criticisms and Responses

Criticism:

The first argument against the NYC is that it is too short and deficient for a modern treaty. This is predicated on the point that the operative part of the Convention is about 1075 words long, with only 7 widely used articles out of 16. The pro-reform advocates urge for a comprehensive Treaty that treats issues like electronic commerce, enforcement of decisions by emergency arbitrators, enforcement of interim measures made by arbitral tribunals and the burgeoning concerns on enforcement of funded arbitral awards.  

Response:

Despite the line-drawing exercise shaping the contours of the pro-reform arguments, there is no plausible justification for drawing that line. This is so because the brevity of a treaty is not definitive of its functionality. There are many treaties that are longer in text and character yet have not achieved the level of successes the Convention has recorded. For example, the Energy Charter Treaty 1994 with its substantive provisions and annexures are about 108 pages long, while the United Nations Convention on the Law of the Sea 1982 and the Vienna Convention on Consular Relations of 1963, have 320 and 79 Articles respectively. I can multiply these examples, but the bottom line is that none of these treaties have made the mark on cross-border basis like the NYC. As rightly noted by Mr. V.V. Veeder: “the New York Convention affects directly the lives of billions of people around the world, every minute of every day, in both seen and still more unseen ways. It is therefore a secular, sacred text of the greatest practical significance to every inhabitant of the 21st Century’s global village”[1] 

Mr. Veeder added “one English law lord is said to have said, extra judicially, that the New York Convention is both the Best Thing since sliced bread and also whatever was the Best Thing before sliced bread replaced it as the Best Thing.” 

The NYC, now ratified by 164 state parties, represents a significant achievement in transnational dispute settlement and has facilitated the expansion of global trade in the last sixty years. The Convention’s success is further demonstrated by the point that from more than a thousand decisions published in the ICCA Yearbook Commercial Arbitration, circa 90 percent of the awards covered by the decisions, were enforced. 

Criticism:

Another criticism against the NYC is the usefulness of its travaux préparatoires. The point being made is that as far as the legislative history of the Convention is concerned, it is difficult to ascertain what the consensus was, at the New York Conference of 1958. The implicit assumption in this argument is that uniformity in the judicial application of the NYC texts may be difficult to achieve in the absence of coherent travaux préparatoires. 

Response:

At first blush, it may appear plausible to argue that travaux préparatoires are important guides to the underpinnings of a treaty formation and are clear pointers to the intendment of contracting parties during treaty negotiations. This is bolstered by the provisions of Article 32 of the Vienna Convention on the Law of Treaties 1969 (Vienna Convention) which permits recourse to supplementary means of interpretation, including preparatory works of a treaty, when the ordinary meaning of the treaty texts, leaves the texts ambiguous or leads to a result which is manifestly absurd or unreasonable. It is Article 32 of the Vienna Convention that reinforces the importance of travaux préparatoires in treaty interpretation under international law. 

The foregoing said, pro-reform advocates should not trumpet the importance of travaux préparatoires as the basis for reforming the NYC, as it seems almost quixotic to conclude that a Convention that has achieved such significant impact on global trade and commerce should be reformed due to the uncertainty around its historical documents. More so, travaux préparatoires plays a secondary role in interpretive process and the interpreter is authorized not to consider them when there is no ambiguity in the treaty texts. As is clear to see, the NYC was written with elegant simplicity and clarity of language. Also, given that the NYC is applied in 164 countries with different legal systems and concepts, greater focus ought to be placed on measures and initiatives to achieve consistency in the application of the Convention.

Interestingly, the United Nations Commission on International Trade Law (UNCITRAL) has given its stamp of approval to an Interpretive Guide on the Convention, edited by Professor Emmanuel Gaillard and Professor George Bermann. This Guide provides a detailed analysis of the judicial interpretation and application of the NYC by reference to case law from 45 Contracting States.

PART TWO

Plugging the holes…

As noted in the first part of this article, what requires imminent attention is how to achieve global uniformity in the application of the NYC, and not textual amendments. However, I will bracket my central argument on uniformity for now and set out observations on some texts in the NYC that may be improved, should reform be considered. I have focused on (a) Article II(3), (b) Article V(1)(e), and (c) Article V(2)(b), due to the concerns implicated by their application.

Improvement on Article II(3)

Article II(3) has generated one of the vexed issues on the Convention. While Article II(1) provides that each Contracting State shall recognize an arbitration agreement in writing in so far as the subject matter is capable of settlement by arbitration, Article II(3) mandates a Contracting State, at the request of one of the parties, to refer the parties to arbitration, unless it finds that the agreement is null and void, inoperative or incapable of being performed. The concern with Article II(3) is that there is no reference to the choice of law for determining the validity of the arbitration agreement – whether the law of the forum, the law of the seat of arbitration or law of the place of enforcement of the award? This creates a gap for interpretive purposes. 

A cue may be taken from Article V(1)(a) of the Convention, which permits the court of a Contracting State where enforcement is sought (hereinafter CSX, acronym to denote Contracting State of enforcement), to refuse enforcement where the arbitration 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 (hereinafter CSY, acronym to denote Contracting State where the award was made). One would have expected the same clarity shown in Article V(1)(a) to be demonstrated in Article II(3), on the choice of law to determine validity of the arbitration agreement. 

The gap in Article II(3) has triggered CSX v. CSY conflicting decisions. For example, the US Court in Rhone Mgditerran & Compagnia Francese di Assicurazioni e Riassicurazioni v. Achille Lauro[2] applied the law in CSX, while the English court in Sonatrach Petroleum Corp. (BVI) v. Ferrell Int'l Ltd.[3], applied the law in CSY. This author agrees with the decision in Sonatrach because using CSX as the choice of law reference will imply leaving the award vulnerable to being set aside for not meeting the requirements of the law of the seat, and may result in an unenforceable award under Article V(1)(e) of the NYC.

Improvement on Article II (3) to provide clarity on the choice of law for determining the validity of the arbitration agreement, is at least, desired.

Improvement on Article V(1)(e)

Another concern arising from the NYC can be found in Article V(1)(e), which allows the competent authority in CSX to refuse recognition and enforcement of an award that has been set aside by a competent authority in CSY. The use of the word “may” in the opening paragraph of Article V(1) indicates permissiveness, with the effect that there is no mandatory obligation for the competent authority in CSX to refuse recognition and enforcement of awards set aside in CSY. 

The concern, which has arisen from this permissiveness, is the local bias typically shown by the courts in CSX for enforcement of awards that have been set aside in CSY. Also, some laws including the French law do not implement the provisions of Article V(1)(e), thereby allowing forum shopping by persons whose awards have been set aside in CSY. The French court’s approach to awards set aside in CSY, was demonstrated in Hilmarton Ltd. v. Omnium de Traitement et de Valorisation[4] and PT Putrabali Adyamulia v. Rena Holding, Ltd.[5] The Cour de Cassation in Putrabali held that: ‘an international arbitral award, which is not anchored in any national legal order, is a decision of international justice whose validity must be ascertained with regard to the rules applicable in the country where its recognition and enforcement are sought.’ This approach has triggered inconsistency in the application of the Article V(1)(e). 

Professor Pieter Sanders suggests that the court should refuse enforcement of an award that has been set aside at the seat, “as there does no longer exist an arbitral award and enforcing a non-existing arbitral award would be an impossibility or even go against the public policy of the country of enforcement.”[6]

Improvement on Article V(2)(b)

Article V(2)(b) relates to the public policy ground, by which CSX may refuse recognition or enforcement of an award if it would be contrary to its public policy. Notably, much ink has been spilled on the difficulty created by Article V(2)(b), particularly on the definition of public policy. 

While one may appreciate the difficulty in having a uniform application of public policy by the Contracting States to the NYC, it has become clear with time that most national courts refuse enforcement on this ground to sidestep the provisions of the NYC and not truly on public policy ground. Therefore, a redraft of Article V(2)(b) may achieve nothing in practice, except a change in the disposition of national courts, is first attained.  

Conclusion

Despite the author’s reflections on some provisions of the NYC that may be improved, the author believes that reform is not so imminently critical as most of the problems attributed to the NYC arose from the inconsistency in its interpretation and the lack of clear methodology for its application. A consistent and methodical model for the interpretation contemplated by the author can be found in the decision of the Supreme Court of Canada in the Yugraneft case[7].

In Yugraneft, the Supreme Court was careful to interpret the New York Convention with a view to promoting its uniform interpretation. In arriving at its decision that time limitations should be characterized as procedural rules for the purposes of the NYC (instead of substantive rules under the Canadian common law), the Court considered the fact that at the time of drafting the NYC, time limitations were characterized as procedural rules in many countries.[8] The Court considered the state practice in not less than 53 member states, as evidenced by a study conducted by the International Chamber of Commerce.[9]

The ideal closing point is that you don’t fix what is not broken or as Mr. V.V. Veeder QC noted, “…even if the New York Convention were broken, which it isn’t, the likely “cure” would be far worse than any imagined malady. It would turn a healthy workhorse into a lame old nag, if not actual catfood…”

[1]   V.V. Veeder, Is There a Need to Revise the New York Convention - Keynote speech, in: ‘The Review of International Arbitration Awards – IAI Forum’, International Arbitration Institute, 2008, p. 183 et sqq., p. 186.

[2]    712 F.2d 50, 53 (3d Cir. 1983).

[3]     [2001] 1 All E.R. (Comm.) 627 (Q.B.D.) (Eng.) The English Court concluded that in the absence of express choice of law clause and where venue of arbitration is identified, the law of the place of arbitration would govern the arbitration agreement.

[4]      Cour de Cassation [Cass. le civ.] Mar. 23, 1994.

[5]   Cour de Cassation [Cass. le civ.] June 29, 2007. The Cour de Cassation in Hilmarton and Putrabali enforced the awards that had been set-aside at the place of arbitration and gave no weight to the decision setting aside the awards.

[6]    Pieter Sanders, ‘The New York Convention’ in Pieter Sanders (ed), Arbitrage International Commercial - International Commercial Arbitration, vol. 3 (Martinus Nijhoff 1960) 293, 321.

[7]      Yugraneft Corp. v. Rexx Mgmt. Corp., 2010 SCC 19 (S. Ct. of Canada).

[8]    Frederic Bachand, Court Intervention in International Arbitration: The Case for Compulsory Judicial Internationalism Symposium (2012 J. Disp. Resolution)

[9]     Ibid