This chapter addresses the recognition and enforcement of international arbitral awards. First, the chapter discusses the presumptive obligation of national courts, under the New York Convention and most other international instruments and national arbitration statutes, to recognize international arbitral awards. Second, the chapter discusses the various exceptions under international and national authorities to the presumptive enforceability of awards, which permit non-recognition of such awards. The chapter considers these issues in international commercial arbitration, as well as in investment and inter-state arbitrations.
A. PRESUMPTIVE OBLIGATION TO RECOGNIZE INTERNATIONAL ARBITRAL AWARDS
Most international arbitration regimes impose a presumptive obligation to recognize arbitral awards. That is true of the New York Convention and the Inter-American Convention, as well as of the ICSID Convention and other international arbitration instruments. Likewise, most national arbitration statutes presumptively require the recognition of international arbitral awards, subject only to a limited number of specifically-identified exceptions.1
1. Presumptive Obligations to Recognize International Commercial Arbitral Awards
As detailed above, the New York Convention was designed principally to facilitate the recognition and enforcement of foreign arbitral awards.2 Article III of the Convention imposes a general obligation on Contracting States to recognize awards made in other countries, subject to procedural requirements no more onerous than those for domestic awards. Article III provides:
Each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which the Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.
Several aspects of the Convention give special force to the obligation imposed by Article III and underscore its drafters’ goal of facilitating transnational enforcement of arbitral awards.3 Most importantly, the Convention presumes the validity of awards and places the burden of proving invalidity on the party opposing enforcement.4 Moreover, as noted above, awards are not subject to “double exequatur” and need not be confirmed in the arbitral seat before recognition can be sought abroad.5 In addition, as Article III provides, Contracting States may not impose procedural requirements that are more onerous than those applicable to domestic awards.6
The Inter-American Convention contains provisions that are substantially similar to the New York Convention.7 Article 4 imposes a presumptive obligation to recognize arbitral awards that are subject to the Convention, while Article 5 sets forth an exclusive list of exceptions to this general requirement.
The ICSID Convention imposes even stricter requirements to recognize ICSID awards. Articles 53 and 54 of the Convention provide that ICSID awards are “binding” and require that “each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by the award within its territories as if it were a final judgment of a court of that State.”8 The Convention provides no grounds for denying recognition and enforcement of an ICSID award.
2. Presumptive Obligation to Recognize International Arbitral Awards Under National Arbitration Legislation
Most national arbitration statutes also treat international arbitral awards as presumptively valid. Articles 35 and 36 of the UNCITRAL Model Law provide that international awards shall be recognized, save where specified exceptions apply.9 Articles 190 and 194 of the SLPIL adopt the same approach.10 Other national arbitration statutes are similar.11
In the United States, §207 of the FAA restates the obligation imposed by Article III to enforce Convention awards, and then incorporates Article V’s exceptions by reference: “The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.”12 Thus, where an award made outside the United States is covered by the Convention, U.S. courts have generally concluded that they must recognize the award, subject only to Article V’s exceptions; other grounds for resisting awards, whether under §10 of the FAA or at common law, may not be relied upon.13
3. Proof of Foreign Awards
a. Proof of Award Under New York and Inter-American Conventions
The New York Convention sets forth, in Article IV, requirements of formal proof that must be satisfied in order to obtain the advantage of the Convention’s provisions concerning recognition of awards. The party seeking enforcement must provide: (a) the original award or a certified copy; and (b) the original arbitration agreement or a certified copy. Additionally, if the award and/or agreement are not in the official language of the state where enforcement is sought, an official or sworn translation must be provided. These documents must be filed, together with an application for recognition of the award, with a “competent authority” in a Contracting State. If the foregoing materials are properly filed, and if it is shown that the award is subject to the Convention, then a prima facie case has been established for recognition of the award: the burden of proof then shifts to the party resisting enforcement to show that the award falls within one of Article V’s exceptions.14
b. Proof of Award Under National Arbitration Legislation
Like the Convention, most national arbitration statutes contain provisions regarding proof of an award. Article 35(2) of the UNCITRAL Model Law requires parties seeking to enforce an award to provide the original award and arbitration agreement, or “duly certified” copies thereof.15 Somewhat less simply, §13 of the FAA requires a party seeking to confirm an award to file (a) the arbitration agreement; (b) any selection or appointment of any “additional arbitrator”; (c) each “written extension of the time … within which to make the award”; (d) the award; and (e) notices, affidavits, and other papers “used upon an application to confirm, modify, or correct the award,” plus each court order upon such application.16 Other national arbitration statutes adopt broadly similar approaches.17
4. Selected Materials on Presumptive Obligation to Recognize International Arbitral Awards
Excerpted below are materials on the presumptive obligation, imposed by most international arbitration instruments and national arbitration statutes, to recognize arbitral awards.
PARSONS & WHITTEMORE OVERSEAS CO. v. SOCIÉTÉ GENERALE DE L’INDUSTRIE DU PAPIER
J. JOSEPH SMITH, Circuit Judge. Parsons & Whittemore Overseas Co., Inc., (“Overseas”), an American corporation, appeals from the entry of summary judgment … on the counter-claim by Societe Generale de l’Industrie du Papier (“RAKTA”), an Egyptian corporation, to confirm a foreign arbitral award holding Overseas liable to RAKTA for breach of contract…. We affirm the district court’s confirmation of the foreign award.
In November 1962, Overseas consented by written agreement with RAKTA to construct, start up and … supervise a paperboard mill in Alexandria, Egypt. The Agency for International Development (“AID”), a branch of the U.S. State Department, would finance the project by supplying RAKTA with funds.… Among the contract’s terms was an arbitration clause which provided a means to settle differences arising in the course of performance, and a “force majeure” clause, which excused delay in performance due to causes beyond Overseas’ reasonable capacity to control.
Work proceeded as planned until May 1967. Then, with the Arab-Israeli Six Day War on the horizon, recurrent expressions of Egyptian hostility to Americans—nationals of the principal ally of the Israeli enemy—caused the majority of the Overseas work crew to leave Egypt. On June 6, the Egyptian government broke diplomatic ties with the United States and ordered all Americans expelled from Egypt except those who would apply and qualify for a special visa. Having abandoned the project for the present with the construction phase near completion, Overseas notified RAKTA that it regarded this postponement as excused by the force majeure clause. RAKTA disagreed and sought damages for breach of contract. Overseas refused to settle and RAKTA, already at work on completing the performance promised by Overseas, invoked the arbitration clause. Overseas responded by calling into play the clause’s option to bring a dispute directly to a three-man arbitral board governed by the [ICC Rules]. [The tribunal issued a preliminary award, which recognized Overseas’ force majeure defense only during the period from May 28 to June 30, 1967, and a final award in March, 1973: Overseas was held liable to RAKTA for $312,507 in damages and $30,000 for RAKTA’s costs.]
Subsequent to the final award, Overseas in the action here under review sought a declaratory judgment to prevent RAKTA from collecting the award out of a letter of credit issued in RAKTA’s favor … at Overseas’ request…. RAKTA … counter-claimed to confirm and enter judgment upon the foreign arbitral award. Overseas’ defenses to this counterclaim, all rejected by the district court, form the principal issues for review on this appeal.…
Both the legislative history of Article V, and the statute enacted to implement the United States’ accession to the Convention are strong authority for treating as exclusive the bases set forth in the Convention for vacating an award. On the other hand, the [FAA], specifically 9 U.S.C. §10, has been read to include an implied defense to enforcement where the award is in “manifest disregard” of the law. Wilko, 346 U.S. at 436 (1953). This case does not require us to decide, however, whether this defense stemming from dictum in Wilko … obtains in the international arbitration context. For even assuming that the “manifest disregard” defense applies under the Convention, we would have no difficulty rejecting the appellant’s contention that such “manifest disregard” is in evidence here. Overseas in effect asks this court to read this defense as a license to review the record of arbitral proceedings for errors of fact or law—a role which we have emphatically declined to assume in the past and reject once again. “[E]xtensive judicial review frustrates the basic purpose of arbitration, which is to dispose of disputes quickly and avoid the expense and delay of extended court proceedings.” Saxis Steamship Co. [v. Multifacs Int’l Traders, 375 F.2d 577, 582 (2d Cir. 1967).] Insofar as this defense to enforcement of awards in “manifest disregard” of law may be cognizable under the Convention, it, like the other defenses raised by the appellant, fails to provide a sound basis for vacating the foreign arbitral award.…
DALLAH REAL ESTATE & TOURISM HOLDING CO. v. MINISTRY OF RELIGIOUS AFFAIRS, GOVERNMENT OF PAKISTAN
 UKSC 46 (U.K. S.Ct.)
JUDGMENT OF 20 AUGUST 1984, NAVIGATION MARITIME BULGARE v. P.T. NIZWAR
XI Y.B. Comm. Arb. 508 (1986) (Indonesian S.Ct.)
[A sole arbitrator awarded Navigation Maritime Bulgare of Bulgaria (“NMB”) $72,576.39 plus interest … and arbitration costs in an arbitration seated in London against P.T. Nizwar of Indonesia. When Nizwar refused to pay the award, NMB applied to the Central Jakarta District Court to enforce the award. The District Court ordered Nizwar to pay the award. Nizwar appealed to the Indonesian Supreme Court.]
The Court began its analysis by stating that, as a general rule, foreign judgments and foreign arbitral awards cannot be enforced in Indonesia unless a treaty requires enforcement. It then took up the question of whether Indonesia was bound by the [1927 Geneva Convention], and concluded that it was not. The Court reasoned that although the Dutch Government acceded to the 1927 Convention on behalf of the Netherlands Indies in 1931, and although Art. 5 of the Agreement on Transitional Measures of 1949 (containing the terms upon which Indonesia obtained independence) provides that Indonesia will be bound by all international agreements entered into by the Dutch Government on behalf of the Netherlands Indies, nevertheless new principles of international law respecting State succession have emerged since World War II with the result that Indonesia is no longer bound by treaties acceded to during the colonial times.
The Court then addressed the question of whether Indonesia is bound by the New York Convention, and concluded that it was not. While acknowledging that Indonesia ratified the New York Convention in 1981, the Court stated that in accordance with Indonesian practice it is still necessary for the Government to promulgate implementing regulations concerning whether a request to enforce a foreign award should be made to a District Court (and if so, which District Court) or whether such request should be made directly to the Supreme Court for a determination as to whether the award is contrary to the Indonesian legal order. Pending promulgation of such implementing regulations, Indonesian courts cannot enforce foreign arbitral awards.
1. Basis under New York Convention for presumptive obligation to recognize Convention awards. What is the textual basis under the New York Convention for concluding that foreign awards must presumptively be recognized? Consider Article III, excerpted at p. 1 of the Documentary Supplement. Does it require that awards must be recognized, subject to Article V exceptions? Or does Article III only impose a “national treatment” standard, requiring that foreign awards be treated no less favorably than domestic awards? What if domestic awards are subject to searching judicial review in a state? Does Article III permit similar judicial review of foreign awards?
Consider Article V of the Convention. Does it impose a presumptive obligation to recognize foreign awards, subject to Article V’s exceptions? Where exactly does the text of Article V impose such a requirement?
Compare Article IX of the European Convention, excerpted at p. 33 of the Documentary Supplement. What approach does it take to the presumptive enforceability of foreign awards?
2. Basis under Inter-American Convention for presumptive obligation to recognize Convention awards. What is the textual basis for the presumptive obligation imposed by the Inter-American Convention to recognize awards? Consider the text of Articles 4 and 5, excerpted at pp. 9–10 of the Documentary Supplement. Does Article 5 require the recognition of Convention awards, subject only to its enumerated exceptions? Compare Article 5 with Article V of the New York Convention.
3. Basis under ICSID Convention for presumptive obligation to recognize ICSID awards. What is the textual basis for the presumptive obligation on Contracting States to recognize ICSID awards? Consider Article 54, excerpted at p. 25 of the Documentary Supplement. Does the ICSID Convention impose a presumptive obligation to recognize ICSID awards or a conclusive obligation? Are there any grounds on which a Contracting State may refuse to recognize an ICSID award? How are potential challenges to an ICSID award dealt with?
4. Basis under national arbitration legislation for presumptive validity of foreign awards. Consider how the UNCITRAL Model Law, the SLPIL, the English Arbitration Act and the FAA treat international arbitral awards in actions to recognize foreign awards. What do each of these statutes require with respect to the recognition of international arbitral awards? Are these statutory regimes all consistent with the Convention’s requirements?
5. National arbitration legislation denying foreign awards presumptive validity. Not all arbitration legislation recognizes the presumptive validity of foreign awards, including awards governed by the New York Convention. Consider the possibilities for enforcing foreign awards in Indonesia, as detailed in Navigation Maritime Bulgare v. P.T. Nizwar. Note that, absent a treaty obligation, no foreign award was enforceable in Indonesia. Is Indonesia in breach of its treaty obligations under the Convention?
6. Differing standards under some national arbitration statutes for actions to annul domestic awards and actions to enforce foreign awards. Recall that the New York Convention imposes limits on the judicial forums in which actions to annul Convention awards may be bought. See supra pp. 1099–112. Specifically, an action to annul, on either Article V or non-Article V grounds, can be brought only in the country where the award was “made” or “under the laws” of which the award was made. See supra pp. 1106–10.
As discussed above, some arbitration legislation provides differing standards of judicial review for actions to annul domestic awards and actions to recognize foreign or nondomestic awards. See supra pp. 1156–57, 1159–61. Compare, in this regard, Articles 34-36 of the UNCITRAL Model Law, excerpted at pp. 94–96 of the Documentary Supplement. Is there any difference in the grounds that are available under Article 34 and Article 36? Why are there two separate provisions in the Model Law?
Also compare §§69 and 103 of the English Arbitration Act, 1996, excerpted at pp. 132–33 & 140-41 of the Documentary Supplement. What are the differences in the treatment of foreign and domestic arbitral awards? Compare §§10 and 207 of the FAA. What are the differences in how domestic and Convention awards are treated?
Why, under these arbitration statutes, are foreign awards entitled to more favorable treatment in national courts than domestic awards? Wouldn’t it be more logical that domestic awards be accorded more favorable, or at least equally favorable, treatment? Domestic awards are presumably made in accordance with more familiar and acceptable standards and subject to greater possibilities of local judicial intervention—given that, why grant foreign awards preferential treatment? What policies does this serve?
7. Exclusivity of grounds for non-recognition enumerated in New York Convention. The Parsons court raises, but does not decide, the question whether the Convention’s enumerated defenses are the exclusive grounds for resisting recognition of a foreign award outside the arbitral seat. How should that question be resolved?
Consider the text of Article V(1) and its statement that recognition of an award may be refused “only” if certain showings are made. Compare Article III and its statement that “there shall not be imposed substantially more onerous conditions … on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” Does Article III mean that the Convention only requires Contracting States to accord Convention awards the same treatment that they afford to domestic awards? Does Article V more clearly provide that the Article V grounds for non-recognition are exclusive? Consider the U.K. Supreme Court’s analysis in Dallah.
8. Exclusivity of grounds for non-recognition under national arbitration legislation. Are the grounds for non-recognition of an award enumerated in Article V of the Convention exclusive under the terms of leading national arbitration statutes? Consider Article 36 of the UNCITRAL Model Law, §207 of the FAA and §103 of the English Arbitration Act, 1996.
Should national courts recognize additional defenses to recognition under the Convention that are sometimes available in domestic annulment actions—such as substantive review of the arbitrators’ decision, formal defects in the award, or an inconvenient arbitral forum? See supra pp. 1163–68. Could any of these defenses be fit within any of the Convention’s enumerated exceptions?
9. Burden of proof with respect to Convention’s presumption of enforceability of award. One of the central purposes of the New York Convention was to shift the burden of proof to parties resisting enforcement of an award:
“While the Geneva Convention [of 1927] placed the burden of proof on the party seeking enforcement of a foreign arbitral award and did not circumscribe the range of available defenses to those enumerated in the Convention, the 1958 Convention clearly shifted the burden of proof to the party defending against enforcement and limited his defenses to seven set forth in Article V.”Parsons, 508 F.2d at 973.
Consider also the U.K. Supreme Court’s analysis in Dallah. Is this shifting of the burden of proof appropriate? Why?
Consider Article V(1)(a) of the Convention, dealing with invalid arbitration agreements; is it appropriate that a party who denies it ever agreed to arbitrate be required to prove the nonexistence or invalidity of an arbitration agreement? Why? Consider the other exceptions under Article V(1). Are there any such provisions as to which the award creditor should bear the burden of proof?
10. Non-recognition permitted, but not required, where an Article V exception applies. Suppose one of Article V(1) or V(2)’s exceptions applies. Is non-recognition permitted or is it required? For example, suppose the court where recognition is sought holds that a party was denied its opportunity to present its case within the meaning of Article V(1)(b), or that the arbitral procedures did not comport with the parties’ agreement within the meaning of Article V(1)(d)? Must the court then deny recognition of the resulting award? What might justify recognition of the award? See also supra p. 1156. Consider also the U.K. Supreme Court’s analysis in Dallah.
Consider again the arbitration legislation excerpted above. Do any of these regimes go beyond the Convention (providing for recognition of foreign awards in circumstances where the Convention does not require such recognition)? Consider the French Code of Civil Procedure. Does the Convention permit Contracting States to recognize awards in circumstances where one of Article V’s exceptions is applicable? See supra pp. 1174–87 & infra pp. 1212–13, 1238–40.
11. No double exequatur requirement under New York Convention. Under international arbitration conventions that preceded the New York Convention, enforcement of foreign awards was required only if those awards were “final.” That was true, for example, under the Geneva Convention of 1927, which only mandated enforcement of “final” arbitral awards. Geneva Convention, Art. 1(2)(d); G. Born, International Commercial Arbitration 3424-25 (2d ed. 2014). Moreover, the burden of establishing “finality” was on the party seeking enforcement. As a consequence, parties seeking to enforce foreign awards were effectively required to follow a so-called “double exequatur” process. This entailed obtaining confirmation of the awards in the local courts in the arbitral seat (to prove their “finality”), and thereafter seeking judicial enforcement abroad. G. Born, International Commercial Arbitration 3410-11 (2d ed. 2014).
As discussed above, one of the principal (and deliberate) innovations of the New York Convention was abandonment of the “double exequatur” procedure, which was widely perceived as cumbersome and ineffective. To accomplish this, Article III of the Convention treated awards as presumptively valid and shifted the burden of proof of a basis for non-recognition under Article V to the award-debtor. In addition, the Convention abandoned the “finality” requirement. Instead, Article III of the Convention requires that “binding” awards be enforced, while Article V(1)(e) permits non-recognition of an award if it is not “binding” or if it has been set aside where it was made. Under these provisions, once an award becomes “binding,” it must presumptively be recognized in every Contracting State—notwithstanding the fact that the award has not been confirmed in the courts of the state where it was made. See supra pp. 1120–23. Was it wise to abandon the double exequatur requirement? What purposes were served by requiring that an award be confirmed in the arbitral seat, before it could be recognized abroad? What costs were imposed by this system?
12. No limits under New York Convention on permissible judicial forums for seeking recognition of foreign awards. A fundamental objective of the New York Convention was ensuring the widest possible enforceability of international awards. See supra pp. 33–39, 1189–90. Consistent with this objective, nothing in Articles III, IV, or V of the Convention limits the places in which a party may seek to recognize an award in its favor. The same is true of the Inter-American Convention and the ICSID Convention. Is this appropriate? Should the Convention impose limits on the jurisdictions in which recognition may be sought? What limits could you imagine?
Does anything in the Convention prevent an award-creditor from seeking recognition and enforcement of an award in multiple jurisdictions?
13. Forum non conveniens defense to recognition of foreign award subject to New York Convention. Some countries may impose jurisdictional, forum non conveniens, or other limits on actions to confirm foreign awards. For example, a U.S. appellate court dismissed on forum non conveniens grounds an action in the United States to enforce a Finnish award against a Finnish company. Melton v. Oy Nautor AB, 161 F.3d 13 (9th Cir. 1998). See also Monegasque de Reassurances SAM v. Nak Naftogaz of Ukraine, 158 F.Supp.2d 377, 383 (S.D.N.Y. 2001), aff’d, 311 F.3d 488, 499 (2d Cir. 2002); G. Born, International Commercial Arbitration 2984-87, 3409 (2d ed. 2014). Other nations can require significant jurisdictional contacts between the award-debtor and the enforcement forum, can impose time limits on actions to confirm, or otherwise restrict enforcement actions.
Does the New York Convention permit a state to deny recognition of a Convention award based on the forum non conveniens doctrine? Is that one of the bases set forth in Article V of the Convention? Consider:
“The signatory nations simply are free to apply differing procedural rules consistent with the requirement that the rules in Convention cases not be more burdensome than those in domestic cases. If that requirement is met, whatever rules of procedure for enforcement are applied by the enforcing state must be considered acceptable, without reference to any other provision of the Convention. The doctrine of forum non conveniens, a procedural rule, may be applied in domestic arbitration cases brought under the provisions of the [FAA], and it therefore may be applied under the provisions of the Convention.” Monegasque de Reassurances SAM v. Nak Naftogaz of Ukraine, 311 F.3d 488, 496 (2d Cir. 2002).
Is that rationale persuasive? Does anything in the Convention allow non-recognition of awards because recognition in other forums might be more convenient? See Restatement (Third) U.S. Law on International Commercial Arbitration §4-29(a) (Tent. Draft No. 3 2013) (“An action to enforce a U.S. Convention award or enforce a foreign Convention award is not subject to a stay or dismissal in favor of a foreign court on forum non conveniens grounds.”).
14. Proof of foreign award under New York Convention. What is required to prove the existence of an award under the New York Convention? Consider Article IV. What does Article IV mean when it refers to “the original agreement referred to in article II”? Does this mean that the party seeking recognition of an award must prove the existence of a valid, written arbitration agreement under Article II? How would that requirement be reconciled with Article V(1)(a)? What does Article IV mean when it requires that the party seeking recognition of an award “supply” “the original agreement referred to in article II or a duly certified copy thereof”? See infra pp. 1211–12.
15. Applicability of New York Convention’s enforcement regime in national courts. Consider again the Indonesian decision in Navigation Maritime. Why was the Convention’s enforcement regime not applicable to the award? Why isn’t the Convention automatically applicable (in U.S. terms, “self-executing”)? Or is it? What result would have been reached in Navigation Maritime if the Convention were regarded as self-executing?
Consider the practical importance of the question whether or not the New York Convention’s enforcement regime was applicable in Navigation Maritime. What rules of enforceability applied to the award in question if the Convention was applicable? If it was not?
16. No provision under New York Convention for non-recognition of foreign award based on judicial review of merits of arbitrator’s decision. Consider the bases for refusing to recognize foreign or nondomestic awards set forth in Article V of the New York Convention. Do any of the exceptions set forth in Article V expressly permit non-recognition of an award based on an error in an arbitrator’s decision? For example, does the Article provide for non-recognition of an award because the arbitral tribunal misread the parties’ contract, misjudged critical testimony, or misunderstood applicable law? Consider also Article 5 of the Inter-American Convention and Article IX of the European Convention, excerpted at pp. 9–10 & 33 of the Documentary Supplement. Do they permit non-recognition of an award based on a court’s review of the arbitrator’s substantive decisions?
17. Judicial review of merits of arbitrator’s decision in action to recognize foreign award under national arbitration legislation. Consider Articles 34 and 36 of the UNCITRAL Model Law and Articles 190 and 194 of the SLPIL, excerpted at pp. 94–96 & 160 of the Documentary Supplement. Do they permit denying recognition based upon an erroneous decision by the arbitrators on the merits of the parties’ dispute?
Courts in most states have underscored that foreign awards are not subject to substantive review in recognition proceedings under the Convention. See Judgment of 24 November 1993, XXI Y.B. Comm. Arb. 617 (1996) (Luxembourg Cour Supérieure de Justice) (“The New York Convention does not provide for any control on the manner in which the arbitrators decide the merits, with as the only reservation, the respect of international public policy. Even if blatant, a mistake of fact or law, if made by the arbitral tribunal is not a ground for refusal of enforcement of the tribunal’s award”); Shenzhen Nan Da Indus. & Trade United Co. Ltd v. FM Int ‘lLtd, XVIII Y.B. Comm. Arb. 377 (1993) (H.K. Ct. First Inst. 1991) (“what Mr. Chan is effectively attempting to do is to appeal on the merits.… In my judgment, unless Mr. Chan can establish one of the New York Convention grounds … his ground of opposition must fail”). What is the rationale for this approach? Is it wise?
What is the rationale for excluding substantive errors in an award as a potential basis for non-recognition of a Convention award? What are the costs and benefits of such an approach? If you were drafting the New York Convention, would you include errors in the arbitrators’ decision as a ground for non-recognition? Why?
18. Award does not “merge” into judgment confirming award in arbitral seat. Suppose that the award creditor successfully resists an effort by the award-debtor to annul the award in the arbitral seat, and the award is then confirmed (or granted exequatur) in the arbitral seat. Alternatively, suppose that the award-creditor affirmatively seeks and obtains confirmation of the award in the arbitral seat. In either case, may recognition of the award still be sought? Or, alternatively, has the award disappeared, by being “merged” into the judgment confirming it? In the latter case, can the “award” only then be recognized and enforced by seeking recognition and enforcement of the resulting national court judgment?
What answers do the policies of the New York Convention and UNCITRAL Model Law suggest to the foregoing questions? See also COSID, Inc. v. Steel Auth. of India, Ltd, XI Y.B. Comm. Arb. 502 (1986) (Delhi High Ct. 1985) (rejecting argument that award made in England merged into English judgment confirming award); Victrix SS Co. v. Salen Dry Cargo AB, 825 F.2d 709, 713-14 (2d Cir. 1987) (award made and confirmed abroad can be enforced as either award or judgment); Waterside Ocean Navigation Co. v. Int’l Navigation Ltd, 737 F.2d 150, 154 (2d Cir. 1984) (same); Oriental Commercial & Shipping Co. v. Rosseel, NV, 769 F.Supp. 514, 517 (S.D.N.Y. 1991) (“even after an award had been confirmed in the foreign jurisdiction—making it enforceable as a foreign judgment—it was still enforceable as a foreign award under the Convention; the foreign confirmation had simply increased the options available to the enforcing party.”). Is any other result conceivable? What if the law of the arbitral seat provides that the award merges into, and is no longer a separate instrument from the local court judgment when the award is confirmed? Does that affect Articles III and V of the New York Convention?
B. GROUNDS FOR REFUSAL TO RECOGNIZE INTERNATIONAL ARBITRAL AWARDS
Although the New York Convention and many national arbitration statutes establish a general presumption that international arbitral awards must be recognized, these sources also contemplate non-recognition of awards in specified circumstances. In general, the Convention and national arbitration statutes provide for non-recognition on the same, fairly-limited substantive grounds.18 These grounds are: (a) no valid arbitration agreement;19 (b) denial of an opportunity to be heard;20 (c) excess of jurisdiction;21 (d) violation of the parties’ agreed procedures or the laws of the arbitral seat;22 (e) the award is not binding or has been annulled in the arbitral seat;23 (f) violation of public policy;24 or (g) nonarbitrability.25 In addition, albeit improperly, some nations permit other grounds for resisting recognition of awards, including substantive errors by the arbitral tribunal. The materials excerpted below explore each of these various grounds for non-recognition.
1. No Valid Arbitration Agreement or Excess of Authority
International commercial arbitration is ordinarily consensual. As we have seen, a party cannot ordinarily be required to arbitrate unless an agreement to do so exists.26 This principle is embodied in all leading national arbitration statutes and is universally accepted in commentary.27 Unless the parties have agreed to arbitrate a dispute, the arbitrators lack authority to resolve it.
A corollary of the consensual nature of arbitration is the principle that awards which are not based on a valid arbitration agreement, applicable to the parties’ dispute, may be subject to non-recognition. The New York Convention contains two provisions relating to the requirement for a valid agreement to arbitrate. First, Article V(1)(a) of the New York Convention (and Article 5(1)(a) of the Inter-American Convention) permits non-recognition of an award if:
“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.”
Second, awards need not be recognized under the New York Convention if the award went beyond the scope of the parties’ submissions to the arbitrators. Under Article V(1)(c) of the New York Convention (and Article 5(1)(c) of the Inter-American Convention), a party resisting recognition of an arbitral award may prevail by showing that: “The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.”
National arbitration legislation also permits an award to be denied recognition if it is not supported by a valid arbitration agreement. The UNCITRAL Model Law and the SLPIL are representative, containing exceptions applicable where there was no valid agreement to arbitrate or the arbitrators exceeded their authority under the arbitration agreement. 28 The materials below explore the application of these exceptions.
FIRST OPTIONS OF CHICAGO, INC. v. KAPLAN 514
U.S. 938 (1995)
CHINA MINMETALS MATERIALS IMP. & EXP. CO. v. CHI MEI CORP.
334 F.3d 274 (3d Cir. 2003)
GREENBERG, Circuit Judge. This matter comes on before this court on an appeal by the Chi Mei Corporation (“Chi Mei”) from the district court’s order entered June 11, 2002, granting the motion of China Minmetals Import & Export Co. (“Minmetals”) to confirm and enforce a foreign arbitration award and from the judgment entered on August 26, 2002, in favor of Minmetals and against Chi Mei in the amount of $4,040,850.41…. [We] vacate the district court’s order and judgment and … remand the case for further proceedings.
Chi Mei is a New Jersey corporation and Minmetals is a corporation formed … under the laws of the People’s Republic of China (“PRC”). Production Goods and Materials Trading Corp. of Shantou S.E.Z. (“Shantou”), which also is implicated in this action, likewise is a corporation formed … under the laws of the PRC.
This dispute arises out of a transaction involving Chi Mei, Minmetals, and Shantou. The parties dispute almost every detail of the transaction…. Chi Mei refers to it as a “currency conversation transaction”29 while Minmetals calls it a contract for purchase by Minmetals of electrolytic nickel cathode.… Chi Mei argues that it never intended nor agreed to sell anything to Minmetals and alleges that the contracts on which Minmetals relies were forged. On the other hand, Minmetals argues that Chi Mei failed to deliver the goods it promised to sell after receiving payment by drawing on a line of credit of several million dollars.
According to Chi Mei, … Shantou sought out Chi Mei to discount a certain sum of US dollars. Chi Mei orally agreed to provide discounting services for a 0.7% commission of the amount of US dollars before discount. Minmetals was to obtain the funds by way of a letter of credit obtained from the Bank of China, as the PRC apparently authorized Minmetals to engage in currency conversation transactions. Chi Mei asserts, however, that Shantou did not disclose its relationship with Minmetals to it and that it was unaware of Minmetals’ role in the transaction until after the delivery of the proceeds of the letter of credit to Shantou. Chi Mei subsequently was to transfer the funds to accounts Shantou designated, and Chi Mei did so. By contrast, Minmetals asserts that the transaction involved an agreement to purchase electrolytic nickel cathode alloy, it issued letters of credit worth several million dollars to Chi Mei, and Chi Mei knowingly submitted to a New York bank numerous false documents evidencing the sale, including an invoice, weight packing list, quality certificate, and bill of lading, in order to collect funds under the letters of credit. Minmetals contends that Chi Mei did not deliver the goods described in the contracts.
Two contracts submitted to a bank in the PRC that purport to the contracts for the sale of nickel by Chi Mei to Minmetals for a sum equal to the amount of the letters of credit (the “Sale of Goods Contracts”) are central to this dispute. Chi Mei alleges that the two contracts were entirely fraudulent, containing a forged signature of a nonexistent Chi Mei employee as well as a forged corporate stamp. Chi Mei further alleges that it was unaware of the existence of these contracts until it appeared at the arbitration that is the subject of this dispute. The contracts provide for binding arbitration of any disputes in connection with the contracts before the China International Economic and Trade Arbitration Commission (“CIETAC”).
According to Chi Mei, it performed its duties under the oral agreement governing the currency discounting transaction and delivered the funds to Shantou after collecting its 0.7% commission. Shantou then allegedly misappropriated the funds, refusing to remit any of them to Minmetals.…
Minmetals initiated an arbitration proceeding before CIETAC against Chi Mei pursuant to the arbitration clauses contained in the Sale of Goods contracts. Chi Mei repeatedly objected to CIETAC’s jurisdiction but, nevertheless, appeared before it, submitting evidence that the contracts which contained the arbitration clause on which Minmetals relied were forged. Chi Mei also argued that Minmetals’ flouting of Chinese law should prevent its recovery in the arbitration. The arbitration tribunal held that Chi Mei failed to meet its burden of showing that the contracts at issue were forged, and that even if Chi Mei’s signature and stamp had been forged, its actions, such as providing documents to the New York bank and drawing on the letters of credit, constituted “confirmation of the validity of the contracts.” On August 30, 2000, the CIETAC panel awarded Minmetals an amount in excess of $4 million….
Minmetals moved in the district court for an order confirming and enforcing the arbitration award. Chi Mei opposed the motion … submitting numerous documents and affidavits, including the affidavit of Jiaxiang Luo, the Chi Mei president. Minmetals did not submit any contrary affidavits. The district court heard oral argument on the motions and, without conducting an evidentiary hearing … entered an order granting Minmetals’ motion to confirm and enforce the award.… [T]he district court entered judgment in favor of Minmetals in the amount of $4,040,850.41. This appeal followed….
The primary issue in this case is whether the district court properly enforced the foreign arbitration panel’s award where that panel, in finding that it had jurisdiction, rejected Chi Mei’s argument that the documents providing for arbitration were forged so that there was no any valid writing exhibiting an intent to arbitrate. This issue actually involves two distinct questions. First, we must consider whether a foreign arbitration award might be enforceable regardless of the validity of the arbitration clause on which the foreign body rested its jurisdiction. In this regard, Minmetals points out that the [New York] Convention differs somewhat from the general provisions of the FAA, and particularly argues that Article V of the Convention requires enforcement of foreign awards in all but a handful of very limited circumstances, one of which is not the necessity for there to be a valid written agreement providing for arbitration. If we conclude, however, that only those awards based on a valid agreement to arbitrate are enforceable, we also must consider who makes the ultimate determination of the validity of the clause at issue….
[The Court quoted Articles II, IV and V of the Convention.] Minmetals argues that each article of the Convention governs a different aspect of arbitration procedure—Article II sets forth the grounds for compelling arbitration, Article IV describes the procedure required for seeking enforcement of an award, and Article V provides that once an award is made, the courts of a contracting state must enforce the award unless one of the narrow grounds for nonenforcement is proven. This case, according to Minmetals, therefore involves only Article V, under which in its view “the requirement of a valid written agreement is not necessary for enforcement.” Chi Mei, on the other hand, argues that the Convention must be read as a whole and that Article V both explicitly and implicitly incorporates Article II’s valid written agreement requirement. In addition, Minmetals argues that the arbitration panel’s decision as to the validity of the arbitration agreement is conclusive unless an Article V exception applies, which, it argues, is not the case here. Chi Mei, for its part, argues that the district court had an obligation to determine independently the validity of the agreement.
Because the domestic FAA (chapter 1 of the FAA) is applicable to actions brought under the Convention (Chapter 2 of the FAA) to the extent they are not in conflict, 9 U.S.C. §208, Chi Mei relies heavily on the Supreme Court’s decision in First Options of Chicago, Inc. v. Kaplan. First Options involved the domestic FAA, not the Convention, but involved facts similar to those in this case. In First Options, as here, the district court confirmed an arbitration award where the parties against whom the award was enforced had argued both in the arbitration proceedings and before the district court that they had not signed the document containing the arbitration clause. In that case, the Court held that the district court and not the arbitration panel must decide the question of arbitrability—that is, the question whether a certain dispute is subject to arbitration under the terms of a given agreement—unless the parties clearly and unmistakably have agreed that the arbitrator should decide arbitrability. In other words, the Court, relying on the principle that “a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration,” [514 U.S. at 945,] held that, unless the district court found that there was clear and unmistakable evidence that the parties agreed to arbitrate arbitrability, the district court independently must determine whether the parties agreed to arbitrate the merits of the dispute.
Chi Mei … argues that, under First Options, the district court should have concluded that the parties did not agree to arbitrate arbitrability and … that the dispute was not arbitrable because the contract had been forged.… [Chi Mei alternatively argued that the district court] at least should have conducted a hearing to resolve that issue. If this case had arisen under the domestic FAA, First Options clearly would have settled in Chi Mei’s favor both the question of the need for a valid agreement to arbitrate and the question of the district court’s role in reviewing an arbitrator’s determination of arbitrability when an award is sought to be enforced. We, therefore, must determine whether First Options provides the rule of decision in a case involving enforcement of a foreign arbitration award under the Convention.
Our cases involving enforcement under the Convention largely have arisen under Article II, with one party seeking an order compelling another party to arbitrate a dispute. Under those cases, it is clear that if Minmetals had initiated proceedings in the district court to compel arbitration, the court would have been obligated to consider Chi Mei’s allegations that the arbitration clause was void because the underlying contract was forged. See Sandvik v. Advent Int ‘l Corp., 220 F.3d 99, 104-07 (3d Cir. 2000). It is, of course, true that the FAA, of which the Convention is a part, establishes a strong federal policy in favor of arbitration and that the presumption in favor of arbitration carries “‘special force’” when international commerce is involved. Id. at 104 (quoting Mitsubishi Motors). Nonetheless, we have stated that the “‘liberal federal policy favoring arbitration agreements … is at bottom a policy guaranteeing the enforcement of private contractual arrangements,’” id. at 105 (quoting Mitsubishi Motors), and that because “arbitration is a matter of contract, … no arbitration may be compelled in the absence of an agreement to arbitrate,” id. at 107-08.
In Sandvik, we affirmed the district court’s denial of a motion to compel arbitration where the district court had concluded that it had to determine whether the parties in fact had entered into a binding agreement to arbitrate before it could compel arbitration. In that case, there was a dispute as to whether the agreement containing the arbitration agreement was binding on the defendant corporation where it alleged that its attorney signed the contract without proper authorization. We relied on our decision on Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51 (3d Cir. 1980), in which we stated:
“Before a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court, there should be an express, unequivocal agreement to that effect. If there is doubt as to whether such an agreement exists, the matter, upon a proper and timely demand, should be submitted to a jury. Only when there is no genuine issue of fact concerning the formation of the agreement should the court decide as a matter of law that the parties did or did not enter into such an agreement.” Id. at 106 (quoting Par-Knit Mills, 636 F.2d at 54).
In Sandvik, we drew a distinction between contracts asserted to be void or nonexistent, as was the case there and is the case here, and contracts alleged to be voidable, in which case arbitration, including arbitration of the fraud question, may be appropriate under Prima Paint Corp. v. Flood & Conklin Mfg. Co. We concluded that “because under both the [Convention] and the FAA a court must decide whether an agreement to arbitrate exists before it may order arbitration, the District Court was correct in determining that it must decide whether [the attorney’s] signature bound Advent before it could order arbitration.” Id. at 107. Notably, although we supported our conclusion with reference to the “null and void” language in Article II of the Convention, we based our decision on straightforward notions of contract law rather than on any technical interpretation of the language of the treaty.
In this case, however, an arbitral tribunal already has rendered a decision, and has made explicit findings concerning the alleged forgery of the contract, including the arbitration clause. “The goal of the Convention, and the principal purpose underlying American adoption and implementation if it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.” Scherk, 417 U.S. at 520 n.15. In an oft-cited opinion concerning enforcement of a foreign arbitration award, the … Second Circuit noted the “general pro-enforcement bias informing the Convention,” explaining that the Convention’s “basic thrust was to liberalize procedures for enforcing foreign arbitral awards.” Parsons & Whittemore, 508 F.2d at 973. Consistently 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. As the Court of Appeals for the Second Circuit has noted, “there is now considerable caselaw holding that, in an action to confirm an award rendered in, or under the law of, a foreign jurisdiction, the grounds for relief enumerated in Article V of the Convention are the only grounds available for setting aside an arbitral award.” Toys ‘R’ Us, 126 F.3d at 20 (emphasis added).
This narrow interpretation of the Convention is in keeping with 9 U.S.C. §207 which unequivocally provides that a court in which enforcement of a foreign arbitration award is sought “shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” (Emphasis added.) The absence of a written agreement is not articulated specifically as a ground for refusal to enforce an award under Article V of the Convention. In fact, the Convention only refers to an “agreement in writing” in Article II, which requires a court of a contracting state to order arbitration when presented with an agreement in writing to arbitrate, unless it finds that agreement to be void, inoperative, or incapable of being performed. This distinction, according to Minmetals, is enough to differentiate this case from cases like First Options, which arose under the FAA,30 as well as from cases like Sandvik …, which arose under Article II. On the other hand, the crucial principles common to all of these decision—that arbitration is a matter of contract and that a party can be forced to arbitrate only those issues it specifically agrees to submit to arbitration—suggest that the district court here had an obligation to determine independently the existence of an agreement to arbitrate even though an arbitration panel in a foreign state already had rendered an award, unless Minmetals’ argument concerning the exclusive nature of Article V or some other principle provides a meaningful reason to distinguish the cases we have cited.…
We … find that the absence of any reference to a valid written agreement to arbitrate in Article V does not foreclose a defense to enforcement on the grounds that there never was a valid agreement to arbitrate. Minmetals cannot point to any case interpreting Article V of the Convention so narrowly as to preclude that defense and we are aware of none. Nor do the text and structure of the Convention compel such an interpretation. Indeed, although only Article II contains an “agreement in writing” requirement, Article IV requires a party seeking to enforce an award under Article V to supply “the” original agreement referred to in Article II” along with its application for enforcement. Furthermore, Article V expressly provides that the party opposing enforcement may furnish “to the competent authority where the recognition and enforcement is sought proof that … the said agreement is not valid….” Read as a whole, therefore, the Convention contemplates that a court should enforce only valid agreements to arbitrate and only awards based on those agreements. Thus, the concern we expressed in our decisions in Article II cases like Sandvik…—that parties only be required to arbitrate those disputes they intended to arbitrate—is likewise present in this case. We therefore hold that a district court should refuse to enforce an arbitration award under the Convention where the parties did not reach a valid agreement to arbitrate, at least in the absence of a waiver of the objection to arbitration by the party opposing enforcement.31
We therefore are left with the question whether the international nature of this case distinguishes it from First Options. Stated more precisely, we must ask whether the international context of the arbitration at issue affects the principle that the district court should decide whether there was a valid agreement to arbitrate. As already noted, First Options held that, in a case arising under the domestic FAA, the district court independently should make that decision, even after the arbitrators have decided that they did have jurisdiction, absent clear and unmistakable evidence that the parties intended to leave that determination to the arbitrators.…
[W]e previously had applied First Options in the international context, albeit in a case seeking to compel arbitration rather than to confirm an award. See Deutz, 270 F.3d at 155 (“We recognize that First Options is a domestic arbitration case, but the international nature of the present litigation does not affect the application of First Options’ principles.”)…. There nonetheless may be reason to think that the international posture of this case removes it from the scope of First Options. For example, international arbitration rules tend to favor the rule of competence-competence (sometimes known as Kompetenz-kompetenz)—the principle that gives arbitrators the power to decide their own jurisdiction—more than American arbitration rules. The contracts in this case, for example, incorporate the rules of CIETAC. Those rules do indeed allow the arbitrators the power to determine their own jurisdiction.  CIETAC Arbitration Rules Ch. I, §1. Art. 4 (“The Arbitration Commission has the power to decide on the existence and validity of an arbitration agreement and on Jurisdiction over an arbitration case.”). Nonetheless, incorporation of this rule into the contract is relevant only if the parties actually agreed to its incorporation. After all, a contract cannot give an arbitral body any power, much less the power to determine its own jurisdiction, if the parties never entered in it.
Although incorporation of CIETAC rules in an allegedly forged contract is not enough in itself to require that Chi Mei be bound by the arbitration clause in this case, Minmetals nonetheless suggests that the international nature of this dispute is sufficient to distinguish this case from First Options. Thus, it could be argued that international norms favoring competence-competence, as well as American policy favoring arbitration particularly strongly in international cases, are sufficient to render First Options inapplicable in the international context. Competence-competence is applied in slightly different ways around the world. The one element common to all nations is the conferral of the power to decide jurisdiction on the arbitrators themselves. It is important to note, however, that this principle says nothing about the role of judicial review.
In its simplest form, competence-competence simply means that the arbitrators can examine their own jurisdiction without waiting for a court to do so; if one side says the arbitration clause is invalid, there is no need to adjourn arbitration proceedings to refer the matter to a judge. Under this brand of competence-competence, however, the arbitrators’ jurisdictional decision is subject to judicial review at any time before, after, or during arbitration proceedings, as was traditionally the case under English law. The French form of competence-competence goes somewhat further. A court only can decide arbitrability before an arbitral panel has been constituted if the alleged arbitration agreement is clearly void; otherwise, courts must decline to hear the case until after an arbitral award is rendered. Finally, the strictest form of competence-competence is the traditional German kompetenz-kompetenz, under which an arbitral panel’s jurisdictional decision in a case where the parties agreed to kompetenz-kompetenz clause essentially was insulated from any form of judicial review.
Despite these different formulations, however, and despite the principle’s presumption in favor of allowing arbitrators to decide their own jurisdiction, it appears that every country adhering to the competence-competence principle allows some form of judicial review of the arbitrator’s jurisdictional decision where the party seeking to avoid enforcement of an award argues that no valid arbitration agreement ever existed.… Furthermore, [the UNCITRAL Model Law] … allows substantial opportunity for judicial review of that ruling. UNCITRAL Model Law Art. 16.… It therefore seems clear that international law overwhelmingly favors some form of judicial review of an arbitral tribunal’s decision that it has jurisdiction over a dispute, at least where the challenging party claims that the contract on which the tribunal rested its jurisdiction was invalid. International norms of competence-competence are therefore not inconsistent with the Supreme Court’s holding in First Options, at least insofar as the holding is applied in a case where, as here, the party resisting enforcement alleges that the contract on which arbitral jurisdiction was founded is and always has been void.
In sum, First Options holds that a court asked to enforce an arbitration award, at the request of a party opposing enforcement, may determine independently the arbitrability of the dispute. Although First Options arose under the FAA, the Court’s reasoning in the case is based on the principle that “arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.” First Options, 514 U.S. at 943. This rationale is not specific to the FAA. It is a crucial principle of arbitration generally, including in the international context. Indeed, even international laws and rules of arbitration that traditionally grant arbitrators more leeway to decide their own jurisdiction have allowed a party objecting to the validity of the agreement to arbitrate to seek judicial review of an arbitral panel’s decision that it has jurisdiction under the alleged agreement. For these reasons, we hold that, under the rule of First Options, a party that opposes enforcement of a foreign arbitration award under the Convention on the grounds that the alleged agreement containing the arbitration clause on which the arbitral panel rested its jurisdiction was void ab initio is entitled to present evidence of such invalidity to the district court, which must make an independent determination of the agreement’s validity and therefore of the arbitrability of the dispute, at least in the absence of a waiver precluding the defense.
In this case, the district court confirmed and enforced the arbitral award without opinion. Chi Mei asks us to reverse the district court’s judgment and remand with instructions to enter judgment in its favor denying Minmetals’ motion to confirm and enforce and granting its motion to dismiss. On this record, we cannot grant this relief. Although Chi Mei proffered evidence suggesting that the contracts providing for arbitration were forged, Minmetals presented the Sale of Goods contracts and other documents evidencing the existence of valid contracts to the district court. In the alternative, Chi Mei asks that we remand the case to the district court for further proceedings to ascertain the validity of the contracts. Given the apparent dispute of facts, we agree that a remand is appropriate….
Minmetals also argues that Chi Mei has waived the forgery/jurisdiction argument by participating voluntarily in the arbitration proceedings rather than seeking a stay of arbitration in the district court. Chi Mei counters by arguing that it did not participate on the merits of the arbitration, but rather appeared only to object to jurisdiction and that, regardless of its participation on the merits, it preserved its right to challenge jurisdiction by properly objecting to jurisdiction.…
We repeatedly have held under the FAA, including in our opinion in First Options in which the Supreme Court affirmed our judgment, that a party does not waive its objection to arbitrability where it raises that objection in arbitration: “A party does not have to try to enjoin or stay an arbitration proceeding in order to preserve its objection to jurisdiction.… A jurisdictional objection, once stated, remains preserved for judicial review absent a clear and unequivocal waiver.… Therefore, where a party objects to arbitrability but nevertheless participates in the arbitration proceedings, waiver of the challenge to arbitral jurisdiction will not be inferred.” Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1510 (3d Cir. 1994), aff’d, 514 U.S. 938 [(1995)]….
The record in this case makes clear that Chi Mei’s participation in the CIETAC proceedings largely was limited to arguing the forgery issue. Although it appears to have presented at least one alternative argument, it consistently objected to the arbitral panel’s jurisdiction both in the arbitration proceedings and before the district court. Furthermore, its decision to proceed with the arbitration despite its jurisdictional objection was likely necessary to prevent an award being entered against it in its absence.… Thus, … Chi Mei did not waive its objection to CIETAC’s jurisdiction inasmuch as it participated in the arbitration primarily to argue the forgery/jurisdiction issue and consistently objected to CIETAC’s jurisdiction throughout the proceedings.
For the foregoing reasons, we will vacate … the judgment of the district court … and remand … for further proceedings.…
ALITO, Circuit Judge, Concurring. I join the Court’s opinion but write separately to elaborate on the importance of Article IV(1)(b) of the Convention in this case. As the Court notes, “the crucial principles … that arbitration is a matter of contract and that a party can be forced to arbitrate only those issues it specifically agrees to submit to arbitration … suggest that the district court held had an obligation to determine independently the existence of an agreement to arbitrate.” These principles find expression in Article IV(1)(b), which provides that a party seeking to enforce an arbitral award must, “at the time of the application, supply … the original agreement referred to in Article II or a duly certified copy thereof.” Because a party seeking to enforce an arbitral award cannot satisfy this obligation by proffering a forged or fraudulent agreement, this provision required the District Court to hold a hearing and make factual findings on the genuineness of the agreement at issue here.
Article IV(1)(b), as noted, requires a party seeking enforcement to supply the court with “the” original agreement referred to in Article II,” and it is apparent that this means that the party seeking enforcement must provide the court with either a duly signed written contract containing an arbitration clause or an agreement to arbitrate that is evidenced by an exchange of letters or telegrams.… Article II … thus refers to an “agreement” on three occasions: (1) when discussing the obligation of each “Contracting State” to “recognize an agreement in writing”; (2) in defining an “agreement in writing”; and (3) in requiring the court in which enforcement is sought to compel arbitration when the parties “have made an agreement within the meaning of” Article II. Both the first and second references concern an “agreement in writing,” and the third reference merely directs the reader to a definition of “agreement” set forth elsewhere in Article II. Since an “agreement in writing” is the only type of “agreement referred to in Article II” means an “agreement in writing” as defined in that Article. Thus, a party seeking enforcement of an arbitral award under Article IV must supply the court with an “agreement in writing” within the meaning of Article II.
An “agreement in writing,” Article II tells us, means “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” [Convention,] Art. II(2). To enforce the award granted by the arbitral tribunal, Minmetals was therefore required to demonstrate to the District Court that it and Chi Mei had agreed to arbitrate any dispute arising out of the purported nickel contracts and that they had done some by means of either (1) a written contract signed by both parties or (2) an exchange of letters or telegrams between them. Since Minmetals does not contend that Chi Mei agreed to arbitrate disputes relating to the purported nickel contracts by way of an exchange of letters or telegrams, it follows that Minmetals was required to prove to the District Court that Chi Mei signed a written agreement to arbitrate the dispute adjudicated by the arbitral tribunal. Chi Mei specifically disputes the issue, claiming that the signatures of its officers on the purported nickel contracts were forged. As a result, the Convention required the District Court to inquire into whether Chi Mei’s officers signed the purported nickel contracts.
Minmetals contends, however, that where an arbitral tribunal has already determined that the parties entered into a written agreement to arbitrate their dispute, the Convention requires the District Court to assume that the tribunal’s determination was correct. Minmetal’s reading of the Convention, however, would render the prerequisites to enforcement of an award set forth in Article IV superfluous.… If Minmetal’s reading were correct, there would be no purpose for Article IV(1)(b)’s requirement that a party “applying for recognition and enforcement” of an arbitral award supply the court with the parties’ signed, written agreement or exchange of letters or telegrams. On Minmetal’s view, the existence of a valid agreement would be conclusively established once the party seeking enforcement pointed out the portion of the arbitral tribunal’s decision in which it found that the parties had entered into a written agreement to arbitrate, and therefore Minmetal’s position would make the Convention’s requirement that the party seeking enforcement submit the original agreement a meaningless formality.
The better reading of Article IV—which comports with fundamental principles of arbitration—requires that the party seeking enforcement both (1) supply a document purporting to be the agreement to arbitrate the parties’ dispute and (2) prove to the court where enforcement is sought that such document is in fact an “agreement in writing” within the meaning of Article II(2). In the present case, accordingly, Minmetals was required to demonstrate to the District Court that an officer of Chi Mei signed the purported nickel contracts.…
DALLAH REAL ESTATE & TOURISM HOLDING CO. v. MINISTRY OF RELIGIOUS AFFAIRS, GOVERNMENT OF PAKISTAN
 UKSC 46 (U.K. S.Ct.)
JUDGMENT OF 19 JULY 2000
XXVI Y.B. Comm. Arb. 827 (2001) (Almelo Arrondissementsrechtbank)
[Société d’Etudes et de Commerce SA (“SEC”) concluded a charter party with Weyl Beef Products BV (“Weyl”). The charter party was signed on Weyl’s behalf by Husson Huijsman Reefer BV (“HHR”). The charter party contained a clause for arbitration in London. Following a dispute, a sole arbitrator rendered two awards in favour of SEC: a Final Award on October 19, 1999, and an Award of Costs on February 7, 2000, both made in London.]
SEC sought enforcement of the awards in the Netherlands. Weyl objected that the arbitrator lacked jurisdiction as HHR had no authority to enter into the charter party on behalf of Weyl and, therefore, there was no valid arbitration agreement between the parties. The President of the Court of First Instance in Almelo dismissed Weyl’s objection and granted enforcement, holding that the enforcement court may not review whether there was a valid arbitration agreement between SEC and Weyl and that, under the applicable English law, “a party which has not exhausted all the possibilities at his disposal against an arbitrator’ s finding that he has jurisdiction may not … rely later on the arbitrator’s lack of jurisdiction.”
The request [for enforcement] is based on [the New York Convention]…. The grounds on which recognition and enforcement may be denied are limitatively listed in Art. V of the Convention and also in [the Netherlands’ implementing legislation]. Although it applies in principle, the Convention allows SEC to rely on a law which is more favorable to it. SEC does rely on such law.
Recognition and enforcement of arbitral awards is denied inter alia if 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. Since the voyage charter party, which contains the arbitral clause (clause 22), does not indicate the applicable law, and the arbitration took place in England, English law applies in the present case.
The [English] Arbitration Act 1996 provides in §67 that “a party to arbitral proceedings may apply to the court (a) challenging any award of the arbitral tribunal as to its substantive jurisdiction’ on the conditions in §70….” [In addition,] §73(2) provides that:
“(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling—(a) by any available arbitral process of appeal or review, or (b) by challenging the award, does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal’s substantive jurisdiction on any ground which was the subject of that ruling.”
Weyl objected to the lack of jurisdiction of the arbitrator during the arbitration proceedings. It alleged that HHR was not authorized to enter into the voyage charter party containing the arbitral clause on Weyl’s behalf, so that Weyl is a party neither to the voyage charter party not to the arbitration agreement. However, the arbitrator held that he had jurisdiction by an Order of 30 August 1999…:
“I am satisfied from the evidence of Mr. Gerard Pors of Husson Huijsman Reefer BV that he was authorized to act on behalf of the Respondent when negotiating of the said Charter Party. Pursuant to that authority, I am satisfied that Mr. Pors agreed that clause 22 would be incorporated in the Charter. Having found that clause 22 was incorporated in the Charter Party, I am satisfied that the provisions of the Arbitration Act 1996 apply to the reference.”
Weyl’s main means of defence in the arbitration was its objection [to the arbitrators’ jurisdiction]; it did not commence appellate arbitral proceedings or file an appeal with the arbitrator who rendered the award. A party which has not exhausted all the possibilities at his disposal against an arbitrator’s finding that he has jurisdiction may not, according to §73(2) of the Arbitration Act 1996, rely later on the arbitrator’s lack of jurisdiction.
The arbitration agreement is thus valid and has become final according to English law. The Dutch court may not, in the context of the present proceedings, review whether there was a valid arbitration agreement between SEC and Weyl. The English arbitrator already held that there was, and the law no longer allows Weyl to rely on the lack of jurisdiction of the arbitrator. The more so as the English arbitrator dealt explicitly with Weyl’s objection that HHR was not authorized to enter into the charter party on behalf of Weyl.
PARSONS & WHITTEMORE OVERSEAS CO. v. SOCIÉTÉ GENERALE DE L’INDUSTRIE DU PAPIER
508 F.2d 969 (2d Cir. 1974)
J. JOSEPH SMITH, Circuit Judge. [The facts of the case are excerpted above at p. 1192.] … Both [Article V(1)(c) and FAA §10(d)] basically allow a party to attack an award predicated upon arbitration of a subject matter not within the agreement to submit to arbitration. This defense to enforcement of a foreign award, like the others already discussed, should be construed narrowly. [A] narrow construction would comport with the enforcement-facilitating thrust of the Convention. In addition, the case law under the similar provision of the [FAA] strongly supports a strict reading. See, e.g., Coenen v. R. W. Press-prich & Co., 453 F.2d 1209 (2d Cir.).
In making this defense … Overseas must therefore overcome a powerful presumption that the arbitral body acted within its powers. Overseas principally directs its challenge at … $185,000 awarded for loss of production. Its jurisdictional claim focuses on the provision of the contract reciting that “[n]either party shall have any liability for loss of production.” The tribunal cannot properly be charged, however, with simply ignoring this alleged limitation on the subject matter over which its decision-making powers extended. Rather, the arbitration court interpreted the provision not to preclude jurisdiction on this matter. As in United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 598 (1960), the court may be satisfied that the arbitrator premised the award on a construction of the contract and that it is “not apparent,” that the scope of the submission to arbitration has been exceeded.
The appellant’s attack on … $60,000 awarded for start-up expenses … cannot withstand the most cursory scrutiny. In characterizing the $60,000 as “consequential damages” (and thus proscribed by the arbitration agreement), Overseas is again attempting to secure a reconstruction in this court of the contract—an activity wholly inconsistent with the deference due arbitral decisions on law and fact.… Although the Convention recognizes that an award may not be enforced where predicated on a subject matter outside the arbitrator’s jurisdiction, it does not sanction second-guessing the arbitrator’s construction of the parties’ agreement. The appellant’s attempt to invoke this defense, however, calls upon the court to ignore this limitation on its decision-making powers and usurp the arbitrator’s role.…
1. Relationship between Article IV and Articles V(1)(a) and V(1)(c) of New York Convention. What is the relationship between Article IV of the New York Convention and Articles V(1)(a) and V(1)(c) of the Convention? Consider Judge Alito’s concurring opinion in Minmetals. What would Judge Alito require the award creditor to prove under Article IV of the Convention? Compare the majority opinion in Minmetals and the U.K. Supreme Court’s decision in Dallah.
Explain why Judge Alito’s view of Articles IV and V(1) is wrong. How should Article IV(1)(b) be interpreted? See Judgment of 28 November 2000, XXXII Y.B. Comm. Arb. 540 (2007) (Spanish Tribunal Supremo) (refusing to consider formal validity of arbitration agreement under Article IV in recognition action: only issue is parties’ “real intention” to arbitrate); Dardana Ltd v. Yukos Oil Co.  EWCA Civ. 543, 327 (English Ct. App.) (Article IV merely requires proof of what appears to be an arbitration clause in document, not of substantive validity, which is dealt with by Article V(1)(a)); Aloe Vera of Am., Inc. v. Asianic Food (S) Pte Ltd, XXXII Y.B. Comm. Arb. 489 (2007) (Singapore High Ct. 2006) (no requirement for award-creditor to demonstrate existence of arbitration agreement concluded with award-debtor under Articles II, III and IV, where arbitration agreement was valid and award-debtor was found to be party to it based on alter ego theory and had signed it, albeit in different capacity). What does the word “supply” mean? If Judge Alito’s view of Article IV were accepted, what would be the purpose of Article V(1)(a)? Why is it important to determine correctly whether Article IV or Article V(1)(a) applies to challenges to the existence of a valid arbitration agreement? Who has the burden of proof under Article IV? Under Article V(1)(a)?
2. Choice of law governing validity of arbitration agreement under Article V(1)(a). Article V(1)(a) of the Convention contains conflict of laws rules for selecting the law governing the validity of the arbitration agreement. Under Article V(1)(a), an award need not be enforced if 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.” Some commentators have called this choice-of-law provision the crowning achievement of the Convention. See A. van den Berg, The New York Arbitration Convention of 1958 (1981).
What is the conflict of laws rule set forth in Article V(1)(a) with regard to the validity of the arbitration agreement? What law did the English court apply to the arbitration agreement in Dallah? Why?
What law governed the arbitration agreement in Minmetals, for Article V(1)(a) purposes? Suppose the alleged contracts in Minmetals contained a choice-of-law clause providing that the contracts were governed by New York law. Applying Article V(1)(a), would the putative agreements to arbitrate be governed by New York law? Is that the law chosen by the parties to govern their arbitration agreement? If not, what law would apply to the agreements to arbitrate under Article V(1)(a)? What is the relevance of Chi Mei’s claim that it had never concluded any agreement—whether an underlying contract, an arbitration agreement, or a choice-of-law agreement—with Minmetals? What law governed the arbitration agreement in the Judgment of 19 July 2000 for Article V(1)(a) purposes?
Suppose the agreement in Minmetals did not contain a choice-of-law clause. Under Article V(1)(a), Chinese law would then have been applicable to the validity of the agreement to arbitrate, right? Why? Suppose that, under Chinese law, the arbitration agreement would have been invalid. Suppose also that, under both the FAA and New Jersey law, the arbitration agreement would have been valid. In these circumstances, does Article V(1)(a) require non-recognition of the award? Why not? What might justify applying New Jersey law to uphold recognition of the award? Compare the application of French law in Dallah.
Consider how the U.K. Supreme Court describes and applies French law in Dallah. Does it do so in the same manner a French court would? Recall the application of French law by the Paris Cour d’appel in Dallah. See supra pp. 570–73.
3. Lack of capacity under Article V(1)(a). Article V(1)(a) also permits non-recognition of an award because one of the parties lacked the capacity to enter into the arbitration agreement. Article V(1)(a) provides a specialized choice-of-law rule applicable to issues of capacity, specifying the “law applicable to them.” As discussed above, this appears to refer to the “personal law” of each of the parties, but does not define how that law is selected. See supra p. 470.
Suppose that, in the Judgment of 19 July 2000, the award had been made against a 19-year-old Dutch national, and that, under Dutch law, only adults (aged 21 or older) may validly conclude commercial agreements, but that, under English law (being the law of the arbitral seat), anyone older than 16 may validly conclude a contract. What law would apply, under Article V(1)(a), to the validity of the agreement to arbitrate?
4. Applicability of Article II(2)’s writing requirement in actions to recognize award. As discussed above, see supra pp. 375–92, and in Minmetals, Article II of the Convention requires that arbitration agreements be in “writing.” Must Article II’s “writing” requirement also be satisfied in recognition actions under Article V of the New York Convention? What answer does the Minmetals majority provide? Is there any reason that Article II’s requirement for the written form should not apply in recognition actions? If Article II’s uniform maximum form requirement was not applicable, would Contracting States be free to require more onerous formal requirements than those prescribed by Article II? Would any other provision of the Convention prevent this?
Suppose a Contracting State has adopted the 2006 Revisions to the UNCITRAL Model Law and wishes to apply the minimal (or nonexistent) form requirements of Article 7, supra p. 391, in a recognition action. Does the Convention prevent the Contracting State from doing so? Recall that Article V is permissive. Recall also Article VII.
How would Article II’s form requirement have been satisfied in Dallah?
5. Application of separability presumption under Article V(1)(a). Consider Chi Mei’s challenges to the putative arbitration agreements in Minmetals and Pakistan’s challenge in Dallah. Are those challenges directed towards the agreements to arbitrate or the underlying contracts? Recall the discussion above of the separability presumption. See supra pp. 190–218.
Suppose Chi Mei’s jurisdictional challenge in Minmetals was based on the fact that the underlying contracts, although not forgeries, were contrary to Chinese currency regulations and, therefore, invalid. Would that constitute a basis for challenging the validity of the agreements to arbitrate? Why not? Suppose the arbitrators had concluded that the underlying contracts were invalid under Chinese law, but nonetheless awarded Minmetals damages on a non-contractual basis. Would this provide Chi Mei a basis for challenging the award, on the basis that the arbitration agreements were void? Why not? What is the justification for treating claims that the underlying contracts were forged differently? See supra pp. 355–75, 415–20.
Suppose a party challenges the validity of the underlying contract, but does not specifically challenge the arbitration agreement—for example, as in Fiona Trust, supra pp. 205–11, where the underlying contracts were fraudulently induced. Assume that the challenge to the validity of the underlying contract is referred to the arbitrators (consistent with Fiona Trust, Buckeye and similar holdings, supra pp. 218–87), and that the arbitrators uphold the validity of the contract (and the contract’s arbitration clause); in these circumstances, can a jurisdictional objection be raised in subsequent recognition proceedings, claiming that the arbitration clause was fraudulently induced?
6. Judicial deference to arbitrators’ jurisdictional ruling in recognition action. Suppose an arbitral tribunal expressly or impliedly makes a jurisdictional ruling (that upholds its jurisdiction over disputed issues or claims). If an award is subsequently made dealing with the disputed issues, and the award is challenged under Article V(1)(a) (or Article V(1)(c)), what relevance (if any) does the tribunal’s jurisdiction ruling have? Specifically, is the tribunal’s jurisdictional ruling either binding or entitled to substantial deference in judicial enforcement proceedings?
How did the Court in Minmetals decide the foregoing issue? What deference did it accord the CIETAC arbitrators’ jurisdictional decision? What question is the U.S. trial court to decide upon remand? Is the Court’s approach wise? Compare the approach taken in Judgment of 19 July2000. What deference did the Dutch court accord to the arbitrators’ award? Consider the final paragraph of the decision.
Compare also the U.K. Supreme Court’s deference to the arbitrators’ jurisdictional ruling in Dallah. Is the Court’s tennis analogy useful? Correct? What weight is given the two arbitrators’ lack of certainty as to their jurisdictional ruling?
What degree of deference should a recognition court accord to an arbitral tribunal’s jurisdictional decision? Consider the alternatives: (a) never according any deference to the arbitrators’ jurisdictional decisions; (b) always deferring to the arbitrators’ jurisdictional decisions; or (c) affording limited deference to aspects of the arbitrators’ jurisdictional decisions, for example, for factual findings. Compare Judgment of 14 December 2006, XXXII Y.B. Comm. Arb. 372 (2007) (Oberlandesgericht Celle) (“it is irrelevant that the English arbitrator discussed the issue of the coming into existence of an arbitration agreement.… When examining the requirements under the Convention, the German state court is bound neither by the legal judgment nor by the factual determinations of the arbitral tribunal”) with Rintin Corp., SA v. Domar Ltd, 416 F.3d 1254, 1259 (11th Cir. 2007) (“Here the issue of validity was litigated before the Arbitrators, and they found that the Shareholders’ Agreement was duly adopted and valid, contrary to Rintin’s contentions, and also that the arbitration clause itself was valid and enforceable. We therefore have no authority to set aside the award on this basis”) and with Am. Constr. Mach. & Equip. Corp. v. Mechanised Constr. of Pakistan Ltd, 659 F.Supp. 426 (S.D.N.Y. 1987) (“to accept [the award-debtor’s] Article V(1)(a) defense would require this Court to reverse one of the Arbitrator’s express finding of law. This can only be done if the findings were made in ‘manifest disregard’ of the law. The scope of the Court’s review in this regard is extremely limited. An examination of the Arbitrator’s findings shows he carefully considered the applicable Pakistani law in ruling that the Supplementary Agreement was invalid. Because his result is certainly a ‘colorable justification for the outcome reached,’… [the] Article V(1)(a) defense is rejected.”). What is wrong with each of these approaches? Is there a sensible alternative?
7. Scope of U.S. judicial review of jurisdictional award in recognition action depends on arbitration agreement. As we have seen, in First Options, the U.S. Supreme Court held that the standard of judicial review applicable to an arbitrator’s jurisdictional award depended upon the parties’ arbitration agreement. See supra pp. 278–83. According to First Options, where the parties agreed to submit questions of “arbitrability” to the arbitrators, the FAA’s generally deferential standards of review would apply; where the parties had not agreed to arbitrate jurisdictional issues, however, judicial review of the arbitral award on these issues would be de novo. Recall the application of these rules in BG Group. See supra pp. 233–47. In the words of the First Options Court:
“Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question ‘who has the primary power to decide arbitrability’ turns upon what the parties agree about that matter. Did the parties agree to submit the arbitrability question itself to arbitration? If so, then the court’s standard to reviewing the arbitator’s decision about that matter should not differ from the standard courts apply when they review any other matter that parties have agreed to arbitrate. That is to say, the court should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circumstances. See, e.g., 9 U.S.C. §10. If, on the other hand, the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely independently. These two answers flow inexorably from the fact that arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.”
Minmetals holds that these standards are applicable to recognition proceedings under Article V(1)(a). Is this conclusion appropriate? Why should First Options, which dealt with actions to annul domestic awards under the FAA, apply to recognition proceedings under Article V(1)(a) of the Convention? What do you think of Minmetals’ argument that international principles of competence-competence require complete deference to the arbitrators’ jurisdictional decisions in all cases? What about an argument that, in international cases, de novo judicial review of the existence of an agreement to arbitrate should be exercised in all cases?
Note the U.K. Supreme Court’s apparent endorsement of the First Options analysis in Dallah. Is that wise?
If First Options does apply in recognition proceedings, and assuming that the parties have not unmistakably agreed to arbitrate jurisdictional issues, should the arbitrators’ jurisdictional ruling be entitled to no deference at all? Suppose that, as in Minmetals, the arbitrators’ jurisdictional decision was based upon a ruling concerning the parties’ underlying contract (e.g., it never came into existence because one party’s signature was forged; it never came into existence because it was never signed and the parties never agreed to it). Should the arbitrators’ decision be entitled to no deference at all? What if the arbitral tribunal made choice-of-law determinations or determinations of foreign law, in which it was qualified (as in Judgment of 19 July 2000); should these decisions be afforded no deference at all?
Again assuming that First Options applies in recognition proceedings, what standard of review is applicable to arbitrators’ jurisdictional rulings where the parties’ arbitration agreement extends to questions of jurisdiction? What does Minmetals hold?
Identify cases where one could say that the parties had unmistakably agreed to arbitrate jurisdictional issues. Why wasn’t that the case in Minmetals? Suppose that, in Minmetals, there was no dispute that the underlying contracts had been validly concluded, and that they contained valid arbitration clauses, but Chi Mei argued that the scope of the clauses did not extend to the parties’ disputes in the arbitration.
8. Institutional rules’ provisions regarding arbitrators’ jurisdictional rulings. Recall the discussion above regarding provisions in institutional rules granting arbitrators competence to decide jurisdictional issues. See supra pp. 538–39; 2010 UNCITRAL Rules, Art. 23(1); 2012 ICC Rules, Art. 6(3). If the putative arbitration agreement incorporates such rules, does this satisfy First Options’ requirement for a clear and unmistakable agreement submitting jurisdictional issues to the arbitrators’ decision? Suppose the award-debtor denies concluding any arbitration agreement, including any agreement incorporating the allegedly-applicable institutional rules. Recall the comment in Minmetals: “After all, a contract cannot give an arbitral body any power, much less the power to determine its own jurisdiction, if the parties never entered into it.” Conversely, suppose again there is no dispute that a valid arbitration agreement was concluded, and the award-debtor only challenges the scope of that agreement.
9. Practical context of arbitrators’ jurisdictional ruling. As discussed above, arbitrators are usually private lawyers who are compensated by the parties for their services. There can be vigorous business development efforts by arbitrators to develop their case-loads. See supra p. 285, infra pp. 1242–50. If an arbitrator holds that he or she lacks jurisdiction, the case will go away, and his or her fees may be substantially reduced. Does this affect the deference that courts should afford to an arbitrator’s jurisdictional rulings, even where an arbitration agreement extends to issues of arbitrability? Compare Ottley v. Sheepshead Nursing Home, 688 F.2d 883, 898 (2d Cir. 1982) (Newman, J., dissenting) (“Our deference to arbitrators had gone beyond the bounds of common sense. I cannot understand the process of reasoning by which any court can leave to the unfettered discretion of an arbitrator the determination of whether there is any duty to arbitrate. I am even more mystified that a court could permit such unrestrained power to be exercised by the very person who will profit by deciding that an obligation to arbitrate survives, thus ensuring his own business. It is too much to expect even the most fair-minded arbitrator to be impartial when it comes to determining the extent of his own profit. We do not let judges make decisions which fix the extent of their fees, see Tumey v. Ohio, 273 U.S. 510, (1927). How, then, can we shut our eyes to the obvious self-interest of an arbitrator?”). See supra p. 285.
10. Waiver of jurisdictional challenges by failure to seek to annul award in arbitral seat. Consider the decision in Judgment of 19 July 2000. Does the Almelo court rely solely on the arbitrators’ jurisdictional ruling? Suppose English law did not require an immediate challenge to the arbitrators’ positive jurisdictional decision; would the Almelo court have still concluded that it did not need to address the merits of the award-debtor’s jurisdictional objection?
Is the Almelo court’s reasoning in Judgment of 19 July 2000 persuasive? Note that the award-debtor is denied any opportunity to argue in recognition proceedings that it never entered into any agreement to arbitrate. What justifies that conclusion? Suppose English law provided a possibility to challenge jurisdictional awards by arbitral tribunals, but did not provide that failure to do so waived jurisdictional objections? Could the award-debtor raise jurisdictional objections in a recognition action?
11. Waiver of jurisdictional challenges by conduct in arbitration. As discussed above, a party can waive its right to raise challenges to the validity of an asserted arbitration agreement, including by participating in the arbitral proceedings without objection. See supra pp. 367–68. As Minmetals, Judgment of 19 July 2000 and Dallah illustrate, a party’s waiver of jurisdictional objections can also be raised in subsequent recognition proceedings. Recall Article IV of the Convention. How does an award-creditor supply a copy of the parties’ written arbitration agreement if the arbitral tribunal’s jurisdiction was based upon the award-debtor’s waiver?
What conduct will constitute a waiver in a recognition action under Article V(1)(a) of the Convention? What law governs this issue? What law was applied in Judgment of 19 July 2000?
In First Options, the Kaplans were argued to have waived by contesting the arbitrators’ jurisdiction over them, without separately denying his power to render a jurisdictional award. That claim of waiver was rejected by the U.S. Supreme Court. Shouldn’t a party’s attempt to obtain a negative jurisdictional decision from the arbitrators constitute a waiver?
Suppose that, in addition to seeking a negative jurisdictional award from the arbitrators, but being unsuccessful, a party then goes on to present arguments and evidence on the merits of the parties’ dispute. Does that constitute a waiver of jurisdictional objections? How does Minmetals address this issue? What law applied? Compare the law applied in Judgment of 19 July 2000.
12. Institutional arbitration rules’ provisions concerning waiver of jurisdictional objections. Many institutional rules contain provisions requiring that jurisdictional objections be raised promptly, failing which they are waived. 2010 UNCITRAL Rules, Art. 23(2); 2012 ICC Rules, Art. 39; 2014 LCIA Rules, Arts. 23(3), 32(1). What relevance do these rules have in recognition actions? Under the analysis in Judgment of 19 July 2000?
13. Excess of authority under Article V(1)(c). What is the relationship between Articles V(1)(a) and V(1)(c) of the Convention? What types of cases does Article V(1)(c) apply to? Is it clear that Article V(1)(c) applies to claims that the arbitrators exceeded the scope of the arbitration agreement? Or does Article V(1)(c) apply only to the scope of the specific dispute submitted during the arbitral proceedings to the arbitrators? What does the text of Article V(1)(c) suggest?
Consider the “jurisdictional” challenge to the arbitrators’ award of consequential damages in Parsons & Whittemore. Did the Court of Appeals regard this as a potential excess of authority under Article V(1)(c)? Or did the Court hold that the award-debtor was trying to relitigate its substantive defense in the arbitration? Suppose the arbitrators had awarded damages for breach of a different contract between the parties, which did not contain an arbitration clause and which was unrelated to the contract that did contain an arbitration clause. Would this provide the basis for resisting recognition under Article V(1)(c)?
Why did Minmetals and Dallah involve Article V(1)(a), and not Article V(1)(c)?
What degree of deference is appropriate to the arbitrators’ interpretation of the scope of their authority under Article V(1)(c)? Compare Mgt & Tech. Consultants v. Parsons-Jurden Int’l Corp., 820 F.2d 1531, 1534 (9th Cir. 1987) (“we construe arbitral authority broadly to comport with the enforcement facilitating thrust of the Convention”) and Fertilizer Corp. of India v. IDI Mgt, 517 F.Supp. 948, 958-60 (S.D. Ohio 1981) (Article V(1)(c) not applicable to award of consequential damages even though “the contract between these parties clearly excluded consequential damages”; “this court, acting under the narrow judicial review of arbitral awards granted to American courts, may not substitute its judgment for that of the arbitrators”) with Judgment of 14 January 1981, VIII Y.B. Comm. Arb. 386 (1983) (Trento Corte di Appello) (“an Italian judge deciding on the enforcement of a foreign award is not allowed to examine the merits of the decision. However, this principle does not apply to the examination as to whether the foreign arbitrator has exceeded the limits of the merits to be decided by him, and in particular not to the examination of questions pertaining to the arbitrator’s competence which have to be examined by the Italian judge in an autonomous and independent manner.”). Which approach is best?
14. Excess of jurisdiction under ICSID Convention. Consider Article 52(1)(b) of the ICSID Convention, excerpted at p. 24 of the Documentary Supplement. Note the standard formulated for an excess of jurisdiction: “the Tribunal has manifestly exceeded its powers.” How does the standard compare to that under Article V(1)(c) of the New York Convention? What does Article 52(1)(b)’s standard encompass? Consider: Amco Asia v. Indonesia, Judgment of the Ad Hoc Committee of 16 May 1986 on the Application for Annulment Submitted by the Republic of Indonesia Against the Arbitral Award in ICSID Case No. ARB/81/1 Rendered on 20 November 1984, 1 ICSID Rep. 509, 515 (1993) (“The law applied by the Tribunal will be examined by the Ad Hoc Committee, not for the purpose of scrutinizing whether the Tribunal committed errors in the interpretation of the requirements of the applicable law or in the ascertainment or evaluation of the relevant facts to which such law has been applied. Such scrutiny is properly the task of a court of appeals, which the ad hoc Committee is not.”) (emphasis added).
2. Denial of Opportunity to Present Party’s Case and Irregular Procedural Conduct of Arbitration
Under all developed legal regimes, the recognition of international arbitral awards may be resisted on the grounds of procedural unfairness or irregularity.32 This exception to the presumptive enforceability of an award includes the related topics of serious procedural irregularity or unfairness (e.g., denial of an opportunity to present a party’s case or a violation of due process) and of failure to comply with the procedural requirements of the parties’ arbitration agreement or the procedural law governing the arbitration.
a. Denial of Opportunity to Present Party’s Case
The New York Convention’s grounds for refusal of recognition of a Convention award include cases where the “party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.”33 Most national arbitration legislation contains parallel grounds for resisting recognition of foreign awards.34 Broadly speaking, this exception permits resisting recognition of awards based on grave procedural unfairness in the arbitral proceedings. This is variously termed a denial of procedural fairness, equality of treatment, natural justice, or due process.35
b. Irregular Procedural Conduct of Arbitration
The New York Convention and most national arbitration legislation also provide a related ground for challenging the procedural regularity of an arbitration. Under these instruments, a foreign award need not be recognized if the arbitral procedures deviated significantly from the parties’ arbitration agreement or, in the absence of an agreement, the procedural law applicable to the arbitration. Thus, Article V(1)(d) of the Convention provides for non-enforcement of an award “where the composition of the arbitral authority 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.”36 This provision is given effect by Article 36(1)(a)(iv) of the UNCITRAL Model Law and comparable provisions of other national arbitration statutes.
The materials excerpted below explore these exceptions to the recognition of international awards. In considering these materials, distinguish between claims that the arbitrators acted in a fundamentally unfair manner and claims that the arbitrators failed to comply with the parties’ agreed arbitral procedures or the law of the arbitral seat.
PARSONS & WHITTEMORE OVERSEAS CO. v. SOCIÉTÉ GENERALE DE L’INDUSTRIE DU PAPIER
508 F.2d 969 (2d Cir. 1974)
J. JOSEPH SMITH, Circuit Judge. [The facts of the case are excerpted above at p. 1192.] Under Article V(I)(b) of the Convention, enforcement of a foreign arbitral award may be denied if the defendant can prove that he was “not given proper notice … or was otherwise unable to present his case.” This provision essentially sanctions the application of the forum state’s standards of due process.
Overseas seeks relief under this provision for the arbitration court’s refusal to delay proceedings in order to accommodate the speaking schedule of one of Overseas’ witnesses, David Nes, the United States Charge d’Affaires in Egypt at the time of the Six Day War.
This attempt to state a due process claim fails for several reasons. First, inability to produce one’s witnesses before an arbitral tribunal is a risk inherent in an agreement to submit to arbitration. By agreeing to submit disputes to arbitration, a party relinquishes his courtroom rights—including that to subpoena witnesses—in favor of arbitration “with all of its well known advantages and drawbacks.” Washington-Baltimore Newspaper Guild v. The Washington Post Co., 442 F.2d 1234, 1288 ([D.C. Cir.] 1971).
Secondly, the logistical problems of scheduling hearing dates convenient to parties, counsel and arbitrators scattered about the globe argues against deviating from an initially mutually agreeable time plan unless a scheduling change is truly unavoidable. In this instance, Overseas’ allegedly key witness was kept from attending the hearing due to a prior commitment to lecture at an American university—hardly the type of obstacle to his presence which would require the arbitral tribunal to postpone the hearing as a matter of fundamental fairness to Overseas. Finally, Overseas cannot complain that the tribunal decided the case without considering evidence critical to its defense and within only Mr. Nes’ ability to produce. In fact, the tribunal did have before it an affidavit by Mr. Nes in which he furnished, by his own account, “a good deal of the information to which I would have testified.” … The arbitration tribunal acted within its discretion in declining to reschedule a hearing for the convenience of an Overseas witness. Overseas’ due process rights under American law, rights entitled to full force under the Convention as a defense to enforcement, were in no way infringed by the tribunal’s decision.…
JUDGMENT OF 3 APRIL 1987
XVII Y.B. Comm. Arb. 529 (1992) (Italian Corte di Cassazione)
[An award was made in Vienna in favor of Haupl and against Abati. Haupl sought recognition of the award against Abati in Italy. The Milan Court of Appeal granted recognition, and Abati appealed to the Italian Supreme Court.]
As to [the claim] that the [Milan] Court of Appeal violated Article V(1)(b) [of the New York Convention]…, we hold that [Abati] correctly contends that the reasons given by the [Milan Court of Appeal] were insufficient and illogical.… Abati was summoned on 11 August 1981 to appear before the Vienna arbitral tribunal. The date scheduled for Abati’s appearance was 8 September 1981. The Court of Appeal held that this notice period was sufficient and reasoned inter alia that commercial activities cannot be unilaterally suspended because one of the two States involved habitually concentrates vacations in the month of August. The Supreme Court accepted the Court of Appeal’s reasoning but noted that there are legal provisions concerning this issue. Particularly, the Supreme Court noted that the Italian legal notice period is ninety days and that all time limits for proceedings before Italian courts are suspended between 1 August and 15 September, with certain exceptions (Law No. 742 of 7 October 1969). The Supreme Court held that this provisions leads to a “thinning out” of all juridical activities, so that Abati’s opportunity of defending itself may have been affected. Hence, the Supreme Court remanded the case to the [Milan] Court of Appeal, requesting that it determine whether Abati’s opportunity of defending itself had been affected.
LAMINOIRS-TREFILERIES-CABLERIES DE LENS, SA v. SOUTHWIRE CO.
484 F.Supp. 1063 (N.D. Ga. 1980)
JUDGMENT OF 23 APRIL 2004
XXX Y.B. Comm. Arb. 557 (2005) (Oberlandesgericht Köln)
By four contracts concluded in 2000, the German company bought viscose fibers from the Israeli trading company. The contracts contained an agreement for arbitration of disputes at the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (“ICAC”). A dispute arose between the parties when the German buyer failed to pay under the contracts. The Israeli company commenced proceedings before the justice of the peace in Tel Aviv. The German defendant relied on the arbitration clause in the contracts to object to the jurisdiction of the Israeli court, and the dispute was referred to arbitration. The parties filed a joint request for arbitration at ICAC, commencing three … arbitral proceedings…. [T]he arbitrators rendered three awards in favor of the Israeli trading company. The Israeli company sought enforcement of one of these awards in Germany. The German defendant opposed enforcement.… [The German court granted enforcement in an opinion excerpted below.]…
There is no violation of arbitral procedural law or procedural public policy. Pursuant to Art. V(1)(d) and (2)(b) [of the New York] Convention, enforcement can be refused when the decision so deviates from the basic principles of German procedural law that it cannot be deemed, according to the German legal system to have been rendered in proper legal proceedings. Not all procedural defects are relevant; rather, there must be a violation of minimum standards of procedural justice, and the award must be based on that violation. There are no such defects in the arbitration [in the present case].
Arbitral tribunals must essentially give [the parties] a fair hearing according to the same principles as state courts. Fair hearing is not merely giving the parties an opportunity to express themselves. Rather, the [arbitral] tribunal must also take note of and consider their respective statements. This was the case here. The arguments of the defendant, which was represented by counsel, were heard and evaluated by the arbitral tribunal. It does not appear that the arbitral proceedings were conducted in great haste in violation of the procedural rights and means of defense of the defendant. According to the arbitral award, the statement of claim was filed on 28 June 2001.… The defendant’s reply is dated 5 September 2001. The defendant also took advantage of the opportunity to file a further statement. The oral hearing before the arbitral tribunal took place on 19 December 2001 and the arbitral award was rendered on 27 February 2002. It is not argued that the defendant’s opportunity to express itself was restricted. It appears from the course of the events before the arbitral tribunal, as set out in the arbitral award, that the objections of the defendant were discussed. The arbitral tribunal stated the subject matter of the dispute in detail and considered the individual arguments of the parties in making its decision. There is no violation of the principle of due process even if the arbitral tribunal denies a request to supply evidence on formal or substantive law grounds. This is true even if this decision is erroneous, as long as it is not merely an excuse, for instance, to conceal the arbitral tribunal’s failure to deal with that submission.…
JUDGMENT OF 21 MAY 1976
III Y.B. Comm. Arb. 277 (1978) (Venice Corte di Appello)
In 1972 the Panamanian shipping company Pando concluded with the Italian company a charter-party [for] transportation of fertilizers from Tampa to Porto Marghera. The arbitration clause in the charter-party read…: “If any controversy may arise between the owners and the charterers, such a dispute must be referred to three persons in London, one to be appointed by each party, and the third by the two thus appointed. Their decision, or the decision of any of the two of them, shall be final, and for the purpose of rendering any decision enforceable, this agreement shall be made a rule of Court….”
When Filmo defaulted in its payments in 1973, Pando initiated arbitration. It informed Filmo that it had appointed an arbitrator and requested Filmo to do the same. Filmo did not comply with this request. Thereupon Pando appointed its arbitrator as sole arbitrator, relying on §7 of the English Arbitration Act 1950. The thus appointed sole arbitrator rendered an award in favor of Pando in London. Pando then sought enforcement of the award in Italy on the basis of the New York Convention. Filmo opposed the enforcement of the award on the grounds that the appointment of a party-appointed arbitrator as sole arbitrator was not in accordance with the agreement of the parties as provided for by Art. V(1)(d) of the New York Convention nor in accordance with the English Arbitration Act, and, moreover, violated the Italian public policy as the sole arbitrator could not be deemed to be impartial.…
Referring to [Article V(1)(d)] of the Convention, the Court considered the appointment of the party-appointed arbitrator as sole arbitrator valid under English law. Although §7 of the English Arbitration Act only concerns a reference to two arbitrators, the Court interpreted by analogy with the other relevant sections of the Act (§§8 and 9) as permitting also in the case of a reference to three arbitrators the appointment by a party of his arbitrator as sole arbitrator where the other party fails to appoint his arbitrator.37 Distinguishing between domestic public policy (according to which such an appointment would be invalid, Art. 829 Italian CCP) and international public policy, the Court did not regard the appointment as violation of fundamental principles of the Italian public order. Moreover, the English Arbitration Act safeguards the impartiality in several ways, as, for example, §7 declares at the end: “provided that the High Court or a judge thereof may set aside any appointment made in pursuance of this section.” Consequently, there was no violation of Art. V of the Convention..
ENCYCLOPAEDIA UNIVERSALIS SA v. ENCYCLOPAEDIA BRITANNICA, INC.
403 F.3d 85 (2d Cir. 2005)
B.D. PARKER, Circuit Judge. Encyclopaedia Universalis S.A. (“EUSA”) appeals from a judgment of the U.S. District Court for the Southern District of New York denying its motion to confirm an arbitration award under the [New York] Convention. EUSA brought a suit against Encyclopaedia Britannica, Inc. (“EB”) to enforce the award of an arbitral board in Luxembourg. For the reasons that follow, we affirm as to the District Court’s holding under Article V of the New York Convention, reverse as to the ruling that the arbitrators “exceeded their powers,” and vacate with respect to the District Court’s order of a supplemental remedy.
The relevant facts are undisputed. EUSA is a societe anonyme (analogous to a corporation) organized under the laws of Luxembourg. EB is a Delaware corporation, with its principal place of business in Illinois.Ȇ In 1966, EUSA and EB entered into a Literary Property License Agreement (“License Agreement”), granting EB the right to translate, produce, distribute, and license in any language other than French the contents of a French reference work, Encyclopaedia Universalis. In exchange, EB agreed to pay royalties to EUSA based on sales of the non-French editions. On the same date, EB entered into a “Two Party Agreement” with Club Français du Livre (“CFL”), a French corporation. They agreed to form a new entity, Encyclopaedia Universalis France, which would have certain rights to the French-language version of the encyclopedia. The License Agreement required arbitration of all disputes between the parties and explicitly incorporated the arbitration procedures set out in the Two Party Agreement.38 In October 1995, EB stopped making royalty payments to EUSA under the License Agreement. The parties disagreed about EB’s obligation to continue such payments and were unable to resolve the matter. After an initial dispute over who would serve as EUSA’s arbitrator, in May 1998, EUSA sent a letter to EB describing its claim and naming as its arbitrator Raymond Danziger, an accountant residing in Paris.
In July 1998, EB appointed Robert Layton, a New York attorney, to serve as its arbitrator. Layton and Danziger communicated by fax and telephone between September 1998 and December 1998. During this period, they discussed the scope of the arbitration and the arbitral procedures to be followed, but not the merits of the underlying claim or the identity of the third arbitrator. In March 1999, Danziger wrote to the President of the Tribunal of Commerce of Luxembourg (“Tribunal”) asking the Tribunal to name a third arbitrator. He stated that he and Layton had been unable to agree on a third arbitrator and requested that the Tribunal appoint one pursuant to the License Agreement. Danziger also informed the Tribunal that the parties had agreed for the third arbitrator to be drawn from a list maintained by the British Chamber of Commerce (“Chamber”); he noted, however, that he had recently learned that the Chamber no longer maintained such a list.
Two weeks later, Danziger made Layton aware of his letter to the Tribunal, and Layton immediately had counsel in Luxembourg inform the Tribunal that he intended to object to Danziger’s request for a third arbitrator. Before receiving Layton’s letter of objection, however, Maryse Welter, the Presiding Judge of the Tribunal, appointed Nicolas Decker, a Luxembourg attorney, as the third arbitrator. Shortly thereafter, Layton wrote to the Tribunal, objecting that “a major step in the course to be followed under the applicable arbitration clause has been overlooked.” According to Layton, he and Danziger “never had [an] opportunity to confer” regarding the choice of a third arbitrator, as required by the Two Party Agreement. The letter went on to suggest that, because the parties’ agreement was to be interpreted under the laws of New York, it would be appropriate for the third arbitrator to be a New York lawyer or a London resident familiar with New York law. Layton recommended consulting the London Court of International Arbitration for a list of arbitrators.
In early May 1999, Judge Welter suspended all arbitration proceedings led by Decker. On May 27, 1999, Danziger responded to Layton’s letter to the Tribunal, stating that he did not agree that the arbitrator should necessarily be a New York or London lawyer, and “therefore, there is no doubt that we failed to reach an agreement upon the choice of the third Arbitrator.” In December 1999, Judge Welter held a hearing regarding Decker’s appointment, which both EB and EUSA attended, and, in February 2000, issued an order that Decker proceed with the arbitration. Decker then scheduled a meeting between the arbitrators, which Layton refused to attend. In July 2000, Decker informed counsel for both parties that the Board of Arbitration, composed of Danziger and Decker, would commence proceedings. In January 2002, the Board of Arbitration, without the participation of EB or Layton, found that EUSA was entitled to terminate the License Agreement and ordered EB to pay EUSA 3.1 million Euros, plus interest and certain costs.
In June 2003, EUSA sued in the Southern District of New York seeking recognition and enforcement of the arbitration award pursuant to the New York Convention…. Plaintiff … later moved for summary judgment and to confirm the arbitral award. The District Court denied enforcement on two grounds. First, the court concluded that Danziger’s request to the Tribunal to appoint a third arbitrator was premature and thus the arbitral board was improperly composed under Article V(1)(d) of the Convention. The court reasoned that whereas the arbitration agreement required the parties to discuss the identity of a third arbitrator before asking the Tribunal to appoint one, there was no evidence that they had done so before Danziger petitioned the Tribunal. Second, the District Court found that the two-person Board of Arbitration exceeded its powers in issuing the award. The court reasoned that “because the arbitral tribunal was improperly composed, it had no power to bind the parties; any assertion of such power, by definition, exceeded its mandate.” EUSA appeals both rulings.…
When a party applies to confirm an arbitral award under the New York Convention, “the court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” 9 U.S.C. §207. Article V of the Convention specifies seven exclusive grounds upon which courts may refuse to recognize an award. These grounds include when “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties.”…
The party opposing enforcement of an arbitral award has the burden to prove that one of the seven defenses under the Convention applies. The burden is a heavy one, as “the showing required to avoid summary conformance is high.” [Toys “R” Us], 126 F.3d 15, 23 (quoting Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987)). Given the strong public policy in favor of international arbitration, Compagnie Noga d’Importation et d’Exp. SA v. Russian Fed’n, 361 F.3d 676, 683 (2d Cir. 2004), review of arbitral awards under the Convention is “very limited … in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.” [Toys “R” Us], 126 F.3d at 23. We find that EB has carried this substantial burden.
The License Agreement, which incorporates by reference the arbitration procedures set forth in the Two Party Agreement, provides that disputes between the parties are to be resolved by arbitration, and that the Board of Arbitration is initially to be composed of two arbitrators, one chosen by EUSA and one by EB. The Two Party Agreement further provides that “in the event of disagreement between these two arbitrators, they shall choose a third arbitrator.… Upon the failure of the two arbitrators to reach agreement upon the choice of a third arbitrator,” the third arbitrator is to be selected by the President of the Tribunal from a list maintained by the British Chamber of Commerce. As previously noted, the Chamber ceased maintaining such a list prior to this dispute.
We agree with the District Court that the parties’ agreement contains three requirements: (1) the arbitrators must “disagree” before appointing a third arbitrator; (2) the two party-appointed arbitrators must attempt to choose a third arbitrator; and (3) upon the failure of the two party-appointed arbitrators to agree on a third, the Tribunal must appoint one from the Chamber’s list. Here, the first requirement was met because the arbitrators disagreed about the procedural rules to be applied to the proceedings. We reject EB’s contention that Layton and Danziger were required to disagree as to the merits of the case. Nothing in the language of the Two Party Agreement limits the subject of qualifying disagreements.
Fatally for EUSA, the second requirement was not met. There is no evidence that the parties attempted to agree upon a third arbitrator before Danziger asked the Tribunal to appoint one. EUSA points to Danziger’s May 27, 1999 letter to Layton, in which Danziger stated that he disagreed with Layton that the third arbitrator should be a New York or London lawyer. Layton had originally expressed this preference in his April 28, 1999 letter to the Tribunal. Danziger concluded in his May 27 letter to Layton that, “therefore, there is no doubt that we failed to reach an agreement upon the choice of the third Arbitrator.” In relying on Danziger’s letter, EUSA fails to appreciate that the arbitration clause required the two party-appointed arbitrators to disagree on a third arbitrator before asking the Tribunal to appoint one. However, Danziger’s letter was written after Layton’s letter, which was written after Danziger petitioned the Tribunal. Thus, it cannot serve as evidence that they disagreed before he approached the Tribunal. We agree with the District Court that the letter was merely an “ingenious but disingenuous” attempt to “construct a process of deliberation and deadlock after the fact.”
That the Tribunal ultimately stayed Decker’s appointment for approximately nine months did not remedy EUSA’s failure to comply with the agreement. We agree, for the reasons expressed by the District Court, that “the Tribunal’s premature appointment of Decker irremediably spoiled the arbitration process.” Once it was clear that the Tribunal would likely reappoint Decker if Danziger and Layton failed to agree on a third arbitrator, there was no incentive for Danziger to negotiate in good faith. The nine-month hiatus had no remedial effect.
Furthermore, contrary to EUSA’s assertion, the District Court did not improperly elevate “form over substance” in requiring that the two arbitrators disagree before Danziger petitioned the Tribunal. While we acknowledge that there is a strong public policy in favor of international arbitration, we have never held that courts must overlook agreed-upon arbitral procedures in deference to that policy. Indeed, as the Supreme Court has said in the related context of compelling arbitration under the FAA, “the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate.” Volt Info., 489 U.S. at 476 (emphasis added). Moreover, the issue of how the third arbitrator was to be appointed is more than a trivial matter of form. Article V(1)(d) … itself suggests the importance of arbitral composition, as failure to comport with an agreement’s requirements for how arbitrators are selected is one of only seven grounds for refusing to enforce an arbitral award. As to the complaint that this result exalts form over substance, … we are left with the fact that the parties explicitly settled on a form and the Convention requires that their commitment be respected. We thus conclude that the District Court properly refused to confirm Plaintiff’s arbitral award on the grounds that the appointment of a third arbitrator was premature, and, therefore, the composition of the arbitral authority was not in accordance with the parties’ agreement.
The District Court also held that the award could not be enforced on the separate ground that the arbitrators “exceeded their powers.” This conclusion was incorrect. The phrase “exceeded their powers” comes from the FAA, 9 U.S.C. §10(a)(4). Under the FAA, an award issued by arbitrators who are not appointed in accordance with agreed-upon procedures may be vacated because the arbitrators “exceeded their powers.” That an arbitration panel exceeded its powers is not, however, one of the seven exclusive grounds for denying enforcement under the New York Convention. See Art. V.
While it is true that the FAA and the New York Convention provide “overlapping coverage” to the extent they do not conflict, we have held that a district court is strictly limited to the seven defenses under the New York Convention when considering whether to confirm a foreign award. [Toys “R” Us], 126 F.3d at 20 (“in an action to confirm an award rendered in, or under the law of, a foreign jurisdiction, the grounds for relief enumerated in Article V of the Convention are the only grounds available for setting aside an arbitral award”). Thus, we have explicitly declined to read into the Convention additional FAA defenses. For this reason, the District Court erred in refusing to confirm the arbitral award on the ground that the arbitrators “exceeded their powers.”
After denying enforcement of the award, the District Court held that Decker and Dan-ziger were disqualified from any future arbitration between EB and EUSA, that EB could reappoint Layton as its arbitrator, and that if the party-appointed arbitrators fail to agree on a third arbitrator, they should select one from a list maintained by the [LCIA]…. [T]he District Court erred in specifying these procedures. “The confirmation of an arbitration award is a summary proceeding,” [Toys “R” Us], 126 F.3d at 23, and the role of a district court in reviewing an award under the New York Convention is “strictly limited,”39 Com-pagnie Noga, 361 F.3d at 683. Here, the District Court lacked authority to go beyond refusing confirmation of the award by dictating how the parties should proceed after enforcement was denied. Consequently, we vacate the portion of the District Court’s judgment that purports to regulate a subsequent arbitration.…
FOOD SERVICES OF AMERICA INC. v. PAN PACIFIC SPECIALTIES LTD
(1997) 32 B.C.L.R.(3d) 225 (B.C. Sup. Ct.)
DROSSOS J. The petitioner (“Amerifresh”) seeks an order pursuant to the International Commercial Arbitration Act, S.B.C. 1986, c. 14, s. 35 [(“the Act”), which is based upon the UNCITRAL Model Law] and the Foreign Arbitral Awards Act, S.B.C. 1985, c. 74, s. 4 to enforce [an] Arbitration Award (the “Award”) … of the [AAA]. The Award required the respondent, (“Pan Pacific”), to pay to the petitioner the sum of U.S. $126,438.75 plus interest.…
The petitioner is a Delaware corporation with offices in Seattle, Washington. The respondent has its registered office in Vancouver, B.C. The arbitration was a result of an Agreement to Arbitrate signed March 12, 1996 by the parties. The agreement stated, in part, as follows: “The parties agree that all controversies and claims … shall be determined by arbitration in accordance with the International Arbitration Rules of the [AAA] and judgment on the award rendered by the Arbitrators may be entered in any Court having jurisdiction thereof.”
[The first issue addressed by the court was whether the respondent waived its right to oppose enforcement of the award.] Under §36 of the Act, a number of grounds are set out upon which a party may rely to oppose enforcement of an award.
In the Agreement to Arbitrate, the parties waived the benefit of §36 in the following words:
“11. Waiver of §36 of the International Commercial Arbitration Act of British Columbia. The parties intend that any award entered by the arbitrators in this case be final and binding, subject to enforcement either in Canada and/or the United States. In this regard, both parties hereby expressly waive any entitlement they have or may have to rely upon the provisions of §36 of the International Commercial Arbitration Act of British Columbia (SBC 1986) c. 14) and any similar provision in any comparable legislation in any other jurisdiction, to seek to avoid recognition or enforcement of an arbitration award made pursuant to this Agreement.”
On the basis of this waiver, the petitioner argues that the respondent waived its right to oppose enforcement under §36.
The respondent argues the waiver only applies to an arbitration award made “pursuant to this agreement” and that the award in question was not made pursuant to the agreement. The respondent argues the agreement incorporated the [AAA] International Rules and those Rules make a number of requirements that were not met in this case. Those are: that the arbitrators provide written reasons; that the arbitrators apply the applicable law to the dispute; and that the protocol for challenging arbitrators be followed during this arbitration.
Essentially, the respondent submits the waiver only applies where the arbitration was conducted in strict accord with the Rules. If that were the case, there would be no need to make use of §36 and the waiver would be meaningless. Section 36 allows for opposition to enforcement where there has been some jurisdictional or procedural breach by the arbitrators. If a waiver of §36 only applied where there were no jurisdictional or procedural breaches, it would be meaningless. That could not have been the intention of the parties or the meaning of the waiver under their agreement.
The Court of Appeal of British Columbia set out the standard with respect to the degree of deference to be accorded the decision of international arbitrators in Quintette Coal Ltd. v. Nippon Steel Corp.,  1 W.W.R. 219, 229 (B.C. C.A.):
“It is meet therefore, as a matter of policy, to adopt a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention when reviewing international commercial arbitral awards in British Columbia. That is the standard to be followed in this case.”
This narrow scope of court intervention with respect to international arbitral awards can equally be applied to an agreement between the parties with respect to such an arbitration. It would not be appropriate for a court to go beyond the clear meaning of the words in an arbitration agreement and interpret them in such a way as to render the clause meaningless. Accordingly, the only possible conclusion is that the parties waived their right to oppose enforcement of the award under §36 and the respondent’s grounds for opposing enforcement cannot be supported as they clearly fall under that waiver. In any event, I will go on to address those further arguments of the respondent [contending that the Award should not be recognized].
The respondent argues that the arbitrators made 3 separate errors with respect to the arbitration and that on the basis of those errors the enforcement should be denied as they render the arbitral procedure “not in accordance with the agreement of the parties” (§36(1)(a)(v) of the Act). The agreement of the parties incorporated the [AAA International Rules] and the respondent submits these errors violate those Rules and, therefore, the agreement of the parties. The errors in question are: a) the arbitrators failed to deliver reasons for their award; b) the arbitrators failed to decide the dispute in accordance with the law; c) the arbitrators failed to follow the correct procedure following a challenge to their impartiality.…
Article 28(2) of the [AAA International Rules] requires the arbitrators to state the reasons upon which the award is based. In this matter, written reasons were not issued. The respondent alleges this to be an error which renders the arbitral procedure not in accordance with the agreement of the parties and, therefore, a reason to refuse enforcement of the award under §36.
The award was made on December 6, 1996, and was to be paid no later than December 31, 1996. This petition was filed on January 27, 1997…. The respondent wrote to request reasons for the arbitral award on February 12, 1997. The petitioner submits that the respondent should have requested reasons within 30 days under Article 31 and by not doing so, waived the right to object to the failure to give reasons. Alternatively, the petitioner argues that the failure to give reasons is an irregularity only and does not render the award defective such as to preclude enforcement.
Article 31 [of the AAA Rules] states that: “1. Within 30 days after receipt of an award, any party, with notice to the other parties, may request the tribunal to interpret the award…” The petitioner submits that since the respondent, Pan Pacific, failed to request, within 30 days, written reasons under this Article as an interpretation of the award, the respondent cannot now raise the lack of written reasons as an issue. Whether this Article would apply to such a request is for the tribunal or the administrator of the AAA to determine under the provisions of Article 37 which read: “The tribunal shall interpret and apply these rules insofar as they relate to its powers and duties. All other rules shall be interpreted and applied by the administrator.”
Although it may have been open to the respondent to so request under Article 31, it is not clear that a failure to make such a request bars the respondent from objecting after the 30 day period. The issue then is whether the failure to give reasons is sufficiently serious to render the arbitral procedure to have not been in accordance with the agreement of the parties such as a warrant denying enforcement of the award. In Schreter v. Gasmac Inc. (1992) 7 O.R.(3d) 608 (Gen. Div.), the court held that the failure of international arbitrators to give reasons did not amount to a ground upon which the court should exercise its discretion to refuse enforcement of the award and the respondent did not satisfy the onus to rely on §36. In coming to this conclusion, the court assessed the issues before the arbitrators and the extent to which the basis of the award could be unclear in the absence of reasons. It was found that only a small portion of the award was based on an issue upon which, in the absence of reasons, it was unclear whether the arbitrators took jurisdiction over that issue.…
The respondent asserts the failure to give reasons falls under §36(1)(a)(v) as the “arbitral procedure was not in accordance with the agreement of the parties” as that agreement stipulated that the claims were to be “determined by arbitration in accordance with the [AAA Rules].” A large degree of deference is required by this court in exercising its discretion to refuse enforcement of an award: Quintette Coal. On that basis, a strict interpretation should be taken of §36.
The respondent[’s Article §36(1)(a)(v) argument] relies on the agreement of the parties to have their claims determined by an arbitration which is in accordance with the [parties’ agreement and the AAA Rules]. The plain meaning of this is that the arbitration itself, that is the hearing and the process of deciding the matter, be in accord with the Rules. The issuing of reasons after the fact is not part of the arbitration itself…. Even if the failure to give reasons were considered part of the arbitral procedure, the failure does not bring into question the fairness of the hearing or of the decision making process and is, therefore, not sufficiently serious to violate the parties’ agreement to have an arbitration in accord with the Rules. The respondent has failed to bring itself under §36 to warrant the court existing its discretion to refuse enforcement on this basis.
The agreement of the parties required the arbitrators to apply the applicable law to the dispute. The respondent submits the arbitrators failed to do this and, rather, decided the dispute in accordance with “equity and good conscience.” The respondent submits that in the absence of reasons from the arbitrators, there is no evidence before the court to indicate that their decision was based on law.… Following … Quintette Coal, this court should defer to the award of international arbitrators unless there is a clear reason their award should not be enforced. The respondent wishes the court to draw an inference that the arbitrators decided this matter on the basis of their conscience rather than based on the applicable law. To do that, the arbitrators would have been in direct contravention of their instructions. The respondent has offered no evidence to support this serious allegation. In the absence of any evidence, it is not open to this court to suggest that the arbitrators decided the matter in an improper manner.…
During the arbitration hearing, the petitioner put on record that it was giving notice of its intention to challenge the impartiality of the arbitrators under Article 8. Article 8 of the [AAA International Rules] requires a written challenge to be submitted within 15 days of the circumstances giving rise to the challenge. After discussion, the arbitration proceeded on the basis that the petitioner had preserved its right to challenge the arbitrators. The respondent argues this was an error by the arbitrators in allowing the arbitration to proceed under the threat of a challenge to their impartiality.
The petitioner never did comply with Article 8 as there was never any written complaint filed. A concern was raised, discussed and the petitioner apparently chose not to pursue it. In the absence of a formal written complaint, there was no obligation on the arbitrators to withdraw or take any other action. While it could be said that they continued to act under the threat of a challenge, this is no different from the situation as it would have been absent the oral notice by the petitioner. Arbitrators can be challenged under Article 8 within 15 days of the circumstances which give rise to that challenge. For that reason, an arbitrator is always acting under the threat of a challenge and could be making special efforts to be impartial as the respondent alleges in this situation. As no formal complaint was ever made, there was no onus on the arbitrators to act in any different manner.…
It is also significant that the respondent did not take issue with this alleged error during the arbitration. Article 26 of the Rules provides as follows:
“A party who knows that any provision of the rules or requirement under the rules has not been complied with, but proceeds with the arbitration without promptly stating an objection in writing thereto, shall be deemed to have waived the right to object.”
On the basis of Article 26, even if the arbitrators had committed an error in the handling of this issue, the respondent’s failure to object at the time means that they are deemed to have waived the right to object and cannot properly bring an objection at this time.…
KARAHA BODAS CO., LLC v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
364 F.3d 274 (5th Cir. 2004)
JUDGMENT OF 24 FEBRUARY 1994