Procedural Grounds under the Convention for refusing enforcement and recognition

a. These grounds are listed in Art. V 1 & 2.

b. Art. V2: → De novo review. → The enforcing court is to apply its own law on these questions – regardless of the law the arbitrators applied in rendering their award – one might conclude that the enforcing court will be forced to consider these issues de novo, w.o. deference to the arbitrator’s decision.

c. Art. V1: No de novo review. → But question what standard of review should be applied. How much deference should be given to the arbitrator’s decision?

d. Basic change btw Geneva Convention 1927 & NY Convention 1958:

While the Geneva Convention placed the burden of proof on the party seeking enforcement of a foreign arbitral award & did not circumscribe the range of available defenses to those enumerated in the Convention, the 1958 Convention clearly shifts the burden of proof to the party defending against enforcement & limited his defenses to 7 set forth in article V.

e. American Construction Machinery v. Mechanized Construction of Pakistan, US District Court, 1987

i. FACTS: Motion to confirm a foreign arbitration award. → Party challenging the award raised several grounds for refusal of recognition or enforcement of the award.

ii. ISSUE: What degree of weight does the court assign to the arbitrator’s determination for purposes of the action to refuse recognition and enforcement? What standard of review does the court apply (arbitrators will not be reviewed at all, arbitrators will be upheld unless manifestly wrong, deferential to the arbitrators, First Options case: de novo with no weight assigned to the decision)?

iii. HOLDING: Court chooses to use a deferential standard → It confirms the award.

iv. ANALYSIS: Is the court justified in using a deferential standard with respect to the issue of the applicability of the effects of the agreement on the authority of the tribunal? Should there be judicial de novo review of this issue, or is this the type of issue that should be left to the arbitrators? Basically, it’s a jurisdictional issue (our opinion). Is the arbitrator passing on the tribunal’s authority to deal with the issues? Should the court determine this issue, or should the arbitrator be able to speak with considerable weight? This is really a jurisdictional issue.

v. NOTE: “Manifest disregard” goes to issue of validity of arbitration agreement and not to a q of substantive law (as it did in PArsosn’s case). Highly deferential standard in substantive law issues BUT less deferential when q whether parties agreed to arbitration. If it is established that the parties did agree to arbitration, then courts should defer more to arbitrators (since u know that parties wanted their issue to be decided by arbitration).

f. Southern Pacific Properties v. Egypt, District Court of Amsterdam, 1984 i. Court of Appeals of Paris had set aside the award in question on the

basis that there was no arbitration agreement binding the Egyptian State (the minister’s signature was not binding on the Egyptian State). ≠ Dutch Court found that there was an arbitration agreement binding the Egyptian State.

ii. Egypt has asked for refusal to enforce. → Question whether Egypt is justified in invoking the grounds for refusal mentioned in art. V of NY Convention.

1. Egypt claims that there is no valid agreement, so refusal on basis of V,1,a → Court holds that such a contention is not proven but the contrary seems to be proven by the use of the 3 verbs.

2. Egypt claims that the award is not yet binding & that it’s enforcement is suspended within the meaning of art. V,1,e of the Convention because an action for setting aside the award was intitiated before French courts → Court answers that the mere initiation of an action for setting aside doesn’t have as a consequence that the award be considered as not binding.

iii. An example of the middle ground approach by the court towards the tribunal.

iv. Dutch court takes a halfway / middle-way position: They don’t say that the burden of persuasion falls on the party that wants to establish that the authority of the tribunal included authority over the Egyptian government, but they don’t say that it is de novo review either. They consider a middle range whether it’s a plausible case for saying there wasn’t jurisdiction.

v. If the court is involved in setting aside an award, does that affect the standard of review? To the extent that the standard is derived from the NY Convention- even thought he NY Convention does not apply to setting aside except perhaps by analogy- it’s more difficult to challenge a de novo review in the setting aside. It’s a matter for national law of the court. If the national law is more permissive than the NY Convention, then so it goes, you cannot challenge it.

g. NOTE: On jurisdictional cases, the court has a higher standard of review (i.e. de novo)

h. NOTE: The French CA clearly had a de novo determination of the issue.

Did not defer at all to the arbitrators. → French court shows little deference to the arbitrators. ⇒ Matters that depend from one system to another. Scale of different degrees of control.

3. Scope of Parties’ Submissions to Arbitration

a. Management & Technical Consultants SA v. Parsons-Jurden Int’l, US Court of Appeals, 1987

i. FACTS: Petition to enforce a foreign arbitral award. Defendant contends that the arbitrators lacked authority to make the award in that they decided subject matter not within the scope of the agreement to arbitrate. → Parties agree that the arbitrators had authority to determine whether the gross billings exceeded $350 million BUT they disagree on whether the arbitrators had the further authority to determine the amount of additional compensation due.

ii. District Court : Enforced the foreign award.

iii. UC Court of Appeals: Affirms & enforces the award. → Court finds that by agreeing to arbitrate the dec. of whether there had been $350 million in sales & by using such broad language (“any dispute”) in the letter agreement, the parties had conferred arbitral authority to determine the amount of additional compensation.

iv. NOTE: Here court doesn’t defer to the arbitrators? → Court stated that they reviewed de novo the contention that the subject matter of the arbitration lies outside the scope of the contract. But they announce that they construe arbitral authority broadly to comport with the enforcement facilitating thrust of the Convention and the policy favoring arbitration.

b. First Options v. Kaplan, US Supreme Court, 1995

i. ISSUE 1: How should a district court review an arbitrator’s decision that the parties agreed to arbitrate a dispute.

ii. HOLDING 1:

1. Who has the primary power to determine arbitrability depends on what the parties decided.

a. If the parties submitted the arbitrability questions to arbitration, then the court should give considerable leeway to the arbitrator.

b. If the parties did not agree to submit the arbitration question itself to arbitration, then the court should decide the question just as it would decide any other question that the parties did not submit to arbitration, i.e. independently

c. Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.

2. In this case, because the Kaplans did not clearly agree to submit the question of arbitrability to arbitration, the Court of Appeals was correct in finding that the arbitrability of the dispute was subject to independent review by the courts.

iii. ISSUE 2: How a court of appeal should review a district court’s decision confirming or refusing to vacate an arbitration award.

iv. HOLDING 2: Courts of appeal should apply ordinary standards when reviewing district court decisions upholding arbitration awards. (There’s no review to the facts, but a de novo review on the law).

1. One of the circuits wanted the appellate court to apply a looser standard when the district court upheld the arbitration because of the pro-arbitration stance of the law. But all the other circuits rejected this idea.

c. Von Mehren likes this case- clear and makes sense.

d. NOTE: Arbitrators tend to want to decide the issue & tend to look to ways to do this. Therefore, less deference to the arbitrators & standard of review should be de novo w/ regards to the q of arbitrability. → Court makes fundamental distinction btw jurisdictional issue & substantive law issue.

e. NOTE: Need to strike balance btw i) integrity of the arbitration process &

ii) assure that they do their job. → Stimulates arbitrators to think about this problem.

4. An award set aside in “the Country in Which, or Under the Law of Which, That Award was Made”

a. Party might prefer to have the award set aside rather than to ask for recognition and enforcement (see p. 787). Van den Berg argues that setting aside has the advantage of erasing the award completely. But this is not the case.

b. Company A v. Company b (Slovenia), Supreme Court of Austria 1993 i. Award rendered in Belgrade. → Award was set aside by the

Supreme Court of Slovenia. → However, A requested enforcement

of the award in Austria. → B, relying on the decision of the Slovene Supreme Court, requested the Court to refuse enforcement.

ii. Austrian court of 1^st instance granted enforcement → CA refused enforcement → Supreme Court granted enforcement, even though award had been set aside in Slovenia.

iii. If you can get a setting aside, you will have the advantage of not being vulnerable to the enforcement acts. → NY Convention only allows (and doesn’t require) a Convention country to refuse to enforce an award that has been set aside BUT doesn’t allow a Convention country to refuse to enforce an award on the basis that another Convention country has refused to enforce it. → So, more chances to avoid enforcement if award is set aside. → But no guarantee.

iv. BUT for ex. France has found a way to bypass the NY Convention, Article V-1-e so that it doesn’t operate as a separate ground for refusing to enforce a foreign arbitral award. → The French statute on enforcement of foreign awards does not include the award’s having been set aside in a foreign court as a ground for non-enforcement.

v. The advantage may also be that the award will be set aside on grounds that are not recognized by Art. V of the NY Convention (if you had taken the recognition and enforcement route). The award can only be set aside if it is a domestic case. If it is a domestic case, it can apply national law and go beyond the laws of the convention.

c. One of the objections of setting aside procedures in Art. V is that they import grounds that are not recognized by the NY Convention but that comes from the recognition and enforcement language in Art. V.2 & from the fact that NY Convention has chosen not to regulate the setting aside grounds (but to defer to national law).

d. The 1961 Geneva European Convention endeavors to identify & limit the grounds on which an award can be set aside (since no unified grounds for setting aside in a treaty). It says that if another state has set aside an award, the second state can only accept the setting aside if it was done under Art.

V.1.a-d. It requires that a state limits its setting aside procedures to grounds that are recognized in Art. V.1 of the NY Convention. This allows control of the setting aside procedures.

i. The complexity of applying the setting aside provisions when there are political and territorial changes such as those that have occurred in Eastern Europe at the end of the last century. What is the law under which the award is rendered? If it is one law when the parties entered into the contract but subsequently changes, what should happen?

e. Note (p. 798): Another approach through the national arbitration clauses (ie French clause)

Nov. 20 & 21, 2003

5. Relevance of enforcing State’s national arbitration law a. Chromalloy v. Egypt, US District Court, 1996

i. FACTS: Ct btw Air Force of Egypt & Chromalloy (US Corporation). → Egypt terminated the ct & CAS rejected the cancellation of the contract → Arbitration → Award in favor of CAS → CAS petitioned the court to recognize & enforce an arbitral award.

ii. Holding : Court granted the petition. → The NY Convention requires recognition and enforcement unless there it is proven that a ground for denying recognition & enforcement under the Convention is met.

Finally, the denial of recognition and enforcement is a matter of the discretion of the court (“recognition & enforcement may be refused”). → Here, award was nullified in Egypt, so US Court may deny recognition & enforcement. But under art. 7 of the Convention, CAS maintains all rights to the enforcement of the award that it would have in the absence of the NY Convention → If Convention didn’t exist, the FAA would provide CAS w/ a legitimate claim to enforcement of the award. → Plus, a decision to recognize the decision of the Egyptian court would violate the clear US policy in favor of final & binding arbitration of disputes. ⇒ Award valid.

iii. NOTE : Arbitration clause provided that the award is final & binding

& cannot be made subject to any appeal or other recourse → Q if the parties have the right to waive this right. Q what law should decide this q.

iv. NOTE : Fce & Netherlands interpret art. 7 of the NY Convention the same way. But, in Italy & Switzerland, art. V is incorporated in substance into their national laws, so this interpretation of art. 7 can no longer stand.

v. NOTE : Court cites US public policy in favor of final & binding arbitration of commercial disputes as one of its justifications for refusing to recognize & give res judicata effect to the Egyptian set aside judgment. But on this test, it may never be possible to give res judiciata effect to a foreign court judgment setting aside an award.

vi. NOTE : Could the party with the award bring an enforcement action either under the FAA OR under the NY Convention? NY Convention has 3 year statute of limitations; FAA has a 4 year statute of limitations. It’s likely that you could bring an action under either one, so if one is time-barred, you could still bring the other.

b. P. 814, #9 Baker Marine

i. This court refused to follow the Chromalloy approach. The court refused recognition and enforcement of an award because the award had been set aside where it had been made (in Nigeria).

ii. Court agreed with van den Berg’s argument that the setting aside process protects the loser from the risk of enforcement in some court

→ The loosing party must be afforded the right to have the validity of the award finally adjudicated in one jurisdiction → So, FOR keeping art. V, 1, e in the NY Convention.

iii. 2 objections to Van der Berg’s argument: i) BUT art. V, 1, e undermines the limited character of the grounds for refusal of art. V (cause as an award can be set aside in the country of origin on all grounds contained in the arbitration law of that country, including the public policy of that country, the grounds for refusal of enforcement under the Convention may indirectly be extended to include all kinds of particularities of the arbitration law of the country of origin). ii) But does the setting aside process actually put an end to the risk of enforcement of the award against the losing party? No because the Convention provides that enforcement could still be made in some countries (see V(e), “may be”) & several cases prove that discretion of the courts. → So, Van den Berg’s argument of convenience for the loser to have one final dec. on the award isn’t persuasive.

iv. Geneva Convention – Art. 9: Makes setting aside limited to grounds V, 1, a-d of the NY Convention.

v. NY Convention: Doesn’t regulate grounds for setting aside. At the stade of discussion this issue arose, it was too late to negotiate. Plus, already, art. V, 1, e is a compromise. Plus, at the time very much under the influence of the jurisdictional theory.

vi. Another solution to the problem: French system → 1981 legislative reform: same -standards of non enforcement for domestic awards as in NY Convention for non domestic awards. → French treat national

& int’l awards under the same standards.

vii. Court says that in the present case Baker Marine is not a US citizen and that therefore US court has less interest in refusing to enforce the award.

6. Review of the merits under the Convention Art. V.1 Standards

a. Fertilizer Corp of India v. IDI, US District Court, 1981, p. 821

i. FACTS : Action brought under the NY Convention for recognition and enforcement of arbitral award rendered in India.

ii. ISSUE : Whether the arbitral tribunal exceeds its authority in awarding consequential damages? The parties’ ct expressly excluded from damages any amount for loss profits BUT the Q of consequential damages was included in the Terms of Reference. → Is the award awarding consequential damages, therefore, unenforceable under Art. V.1.c?

iii. HOLDING :

1. On the theory of common law breach, it is as if the whole contract was annulled, so the arbitrator could decide on the

damages according to what happened. Doctrine of fundamental breach: it’s as though the contract has disappeared so the limitation of damages clause (to those other than consequential) no longer applied.

2. Is this within the interpretation of the arbitrator?

3. The standard of review is extremely narrow. So long as the theory that the arbitrators chose was reasonable, then the court cannot review it. → The Court found that the arbitrators did not exceed their authority in granting consequential damages.

4. The arbitrators were supposed to interpret the contract. The court cannot second-guess that. In this case the arbitrators interpreted the contract in a certain way (fundamental breach, contract was dissolved, so consequential damages should be applied).

5. What if the arbitral tribunal simply said that it was appropriate to give consequential damages (without explaining that the contract has been dissolved)?

a. If their reasoning is plausible, then the court should give deference to the arbitrators.

b. But they haven’t given a reasonable explanation then maybe they are acting outside the arbitration agreement and the court wouldn’t give them deference.

6. The court suspended the proceedings until the Indian court reached its decision. → Court concluded that Indian law applied to the arbitration so, if under Indian law, the theory of fundamental breach is erroneous, & Indian court sets aside the award, US Court will defer to the Indian court. → Von Mehren: Court decides to defer to the Indian Court and await to see if they will not defer as much to the arbitrators.

→ So this shows that although we have been talking of a strong deferral policy to the arbitrators for issues of substantive law (and NY Convention provides very limited grounds for the courts to examine substantive issues), here court seems to accept that the Indian Court might not defer as much.

7. Question here is of substantive law, i.e. how one interprets the contract. →BUT under the NY Convention courts can not examine substantive law issues.→ If parties wanted to exclude from arbitration the issue of consequential damages, they should have inserted the following in the arbitration

7. Question here is of substantive law, i.e. how one interprets the contract. →BUT under the NY Convention courts can not examine substantive law issues.→ If parties wanted to exclude from arbitration the issue of consequential damages, they should have inserted the following in the arbitration