my contract law project

8/8/2019 My Contract Law Project

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INTRODUCTION

In todays world of shrinking boundaries free trade and international commerce have become

global necessities. Increasing competitiveness often leads to conflicts between entrepreneurs,

resulting in commercial disputes.

In the sphere of international business contracts, the most notable feature of this phenomenon is

the very rapid evolution of legal rules, practices and institutional arrangements for resolution of

international business disputes by arbitration. This obviously is compelled by the need for a

faster and more efficient process of resolving international commercial conflicts in consonance

with the new and changing socio-economic dynamics in international trading relationships. As

the number and volume of trade have undergone a manifold increase, so have the character, form

and structure of such trade, which today defy all previous notions.

With the expansion of international trade in recent years, the business world has been

increasingly reluctant to litigate in courts of law, the differences arising from international

commercial transactions. Ability to communicate and commute with distant places with the

utmost speed enables a merchant today, in a few minutes or hours, to conclude a contract abroad

which a generation ago would have taken weeks or months. To obtain and enforce a judgment in

another country is still a complicated, time-consuming, and expensive operation. It is notsurprising, therefore, that businessmen have been turning with increasing frequency to arbitration

as a quicker and simpler means of settling international commercial disputes.

Since the Second World War, many nations large and small have striven to maximize growth,

productivity and beneficial exchange for their people. World markets have become considerably

more open and trade and investment opportunities have broadened substantially. In this

environment, it is apparent that the trade and investment transactions of today frequently

transcend national boundaries and class lines. Many more international alliances, connections

and relationships, which were unimaginable before, are now being structured with greater ease.

Participants in international trade and business transactions are stressing the virtues of optimal

specialization, extensive trade and factor mobility which in turn demand increased contract

liberalization, investment openness and a greater willingness to submit to international


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arbitration. In Western developed countries the flurry of activity in this division, in so far as

international arbitration is concerned, has been expressed by amendments to existing laws to

bring them in line with the growing body of generally accepted provisions on arbitration coupled

with liberal practices and modification of rules for the enforceability of agreements to arbitrate.

The more the opportunities for business, the more contracts, the more alleged breaches of

contract and disputes, the more claims and calls for litigation or arbitration.

Arbitration, a form ofalternative dispute resolution(ADR) is a legal technique for the resolution

ofdisputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the

"arbitrators" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound.

Arbitration is most commonly used for the resolution ofcommercial disputes, particularly in the

context ofinternational commercial transactions.

International Arbitration has become the established method of determining international

commercial disputes. International Arbitration is a system of dispute resolution selected by many

of the world's leading international companies. By inserting an arbitration clause into their

agreements with trading partners, they opt to have disputes arising out of or in connection with

the contract decided by private tribunals ('arbitral tribunals') rather than litigating them in

national courts. Arbitration is particularly common in the insurance, construction andengineering, oil, gas and shipping industries and increasingly so, in banking and financial

services.

For international commercial transactions, parties may face many different choices when it

comes to including a mechanism for resolving disputes arising under their contract. If they are

silent, they will be subject to the courts of wherever a disaffected party decides to initiate legal

proceedings and believes it can obtain jurisdiction over the other party. This may not sit well

with parties that need to know at the time of entering into their contract that their contractual

rights will be enforced. The alternative to silence is to specify a method of binding dispute

resolution, which can be either litigation before the domestic tribunal of one of the parties or

arbitration. If the parties choose to resolve their disputes in the courts, they may encounter

difficulties. The first is that they may be confined to choosing one or the others' courts, as the
http://en.wikipedia.org/wiki/Alternative_dispute_resolutionhttp://en.wikipedia.org/wiki/Alternative_dispute_resolutionhttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Disputehttp://en.wikipedia.org/wiki/Courthttp://en.wikipedia.org/wiki/Arbitral_tribunalhttp://en.wikipedia.org/wiki/Arbitral_awardhttp://en.wikipedia.org/wiki/Commercial_lawhttp://en.wikipedia.org/wiki/International_commercehttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Disputehttp://en.wikipedia.org/wiki/Courthttp://en.wikipedia.org/wiki/Arbitral_tribunalhttp://en.wikipedia.org/wiki/Arbitral_awardhttp://en.wikipedia.org/wiki/Commercial_lawhttp://en.wikipedia.org/wiki/International_commercehttp://en.wikipedia.org/wiki/Alternative_dispute_resolution


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courts of a third country may decline the invitation to devote their resources to deciding a dispute

that does not involve any of that country's national interests. The second, and perhaps more

significant difficulty, is that judicial decisions are not very "portable", in the sense it is difficult

and sometimes impossible to enforce a court decision in a country other than the one in which it

was rendered.

The non-judicial nature of arbitration makes it both attractive and effective for several reasons.

The most common reason for opting for arbitration is that arbitration awards (broadly equivalent

to a court judgment) are easier to enforce internationally and cannot so easily be dragged through

appeal courts for years. International arbitration enables them to have their disputes decided by a

neutral tribunal, which can be made up of legal and/or industry experts of the parties' own

choosing, using procedures which they can influence.

The Arbitration process is administered by a panel of arbitrators who are agreed upon by both

parties, these arbitrators may have specialized competence in the relevant field, the

confidentiality of the arbitration process may appeal to those who do not wish the terms of a

settlement to be known. The arbitral awards have a great degree of international recognition. For

example, more than 140 countries have agreed to abide by the terms of the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards of 1958.

The ability to resolve disputes in a neutral forum and the enforceability of binding decisions are

often cited as the main advantages of international arbitration over the resolution of disputes in

domestic courts. And there is solid legal support for this view. An international award originating

in a country that is a party to theNew York Convention of 1958may be enforced in any other

country that is also a signatory, as if they were rendered by domestic courts.

Thus, parties to international contracts can decide to site their disputes in a third, neutral country,

knowing that the eventual award can be easily enforced in any country that is a signatory to the

New York Convention, which has been ratified by a significant majority of commercial nations,

with notable exceptions like Qatar, which not having ratified the New York Convention cannot

be assumed to give effect to arbitration decisions rendered in other countries. An international

award therefore has substantially greater executory (legal) force than a domestic court decision.
http://en.wikipedia.org/wiki/Arbitration_awardhttp://en.wikipedia.org/wiki/Convention_on_the_Recognition_and_Enforcement_of_Foreign_Arbitral_Awardshttp://en.wikipedia.org/wiki/Convention_on_the_Recognition_and_Enforcement_of_Foreign_Arbitral_Awardshttp://en.wikipedia.org/wiki/Convention_on_the_Recognition_and_Enforcement_of_Foreign_Arbitral_Awardshttp://en.wikipedia.org/wiki/Qatarhttp://en.wikipedia.org/wiki/Qatarhttp://en.wikipedia.org/wiki/Arbitration_awardhttp://en.wikipedia.org/wiki/Convention_on_the_Recognition_and_Enforcement_of_Foreign_Arbitral_Awardshttp://en.wikipedia.org/wiki/Qatar


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Enforcement of foreign arbitral award is the subject-matter of study for this paper. The author

has tried to look at the various aspects of Enforcement of Foreign Arbitral Award.

The paper begins by trying to understand the meaning of the terms arbitration, international

commercial arbitration and meaning of arbitral award and foreign arbitral award. It then deals

with the arbitration clauses in contracts between parties and submission agreement and also the

autonomy of the Arbitral Agreement. Next, it moves on to the Conventions i.e. Geneva

Convention and New York Convention which provide for the enforcement of foreign arbitral

award and comparison between the two conventions. Then the paper analyzes Enforcement of

foreign award in India wherein the researcher tries to examine the evolution of law of Arbitration

in India and the concept of Public Policy as a new ground for challenge to enforcement of

foreign award. Researcher further in the project paper critically analyzes the latest Supreme

Court decision on setting aside Foreign Arbitral Awards. Lastly, the researcher explains how the

leading arbitration jurisdictions tend to limit judicial review of Arbitral Awards and concludes

the paper with some suggestions.


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RESEARCH METHODOLOGY

Aims and Objectives

The project aims at studying the various aspects related to enforcement of foreign arbitral awardin India. It begins by defining the concept of Arbitration and International Commercial

Arbitration and then proceeds to the necessity of an Arbitration Clause in a contract. The

ultimate objective is to understand the difficulties faced in the enforcement of a foreign arbitral

award in a country and ways to mitigate those difficulties thereby providing an effective

mechanism for the enforcement of foreign award in a country.

Scope and Limitations

The scope of the project has been restricted to the broad topics within Enforcement of Foreign

Arbitration Award in India and the related issues. Nevertheless, the Researcher has endeavored

to cover basic relevant topics related to the Project topic i.e. concepts such as Arbitration and

International Commercial Arbitration and the Arbitral Award, the origin of arbitration i.e.

Arbitration clause in a contract and certain International Conventions related to the Enforcement

of Foreign Arbitration Award, which form the basis of enforcement of foreign arbitral award.

Method of Writing

The researcher has endeavored to use a combination of descriptive as well as critical styles of

writing throughout this project. More emphasis has been placed on the critical style of writing.

Sources of Date

The main sources have been books, and articles written by reputed jurists on the subject. The

Researcher has also done extensive web-research and referred to various web-sites.

Research Questions

The questions which the researcher has sought to answer in this project are as follows:

1. What is Arbitration, International Commercial Arbitration and Foreign Arbitral Award?


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2. What led to the origin and development of Arbitration?

3. Necessity of arbitration clauses in contracts between parties.

4. What is submission agreement and the autonomy of the Arbitral Agreement?

5. What are the various conventions and the provisions that deal with the enforcement of foreign

arbitral award?

6. What are the issues related to Enforcement of foreign award in India?

7. What is the concept of Public Policy?

8. Why should there be a limitation on judicial review of Arbitral Awards?


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WHAT IS ARBITRATION?

Arbitration plays a crucial juridical role in the new international merchant law (a law which is

elaborated and established by its own participants). Arbitration grants a true opino juris to thepractices regularly used in the business world.

Among the devices developed to help parties maintain contractual obligations is the adjudicatory

system of arbitration. Such systems are replacing the courts, since their reliance on custom

permits greater flexibility in decision making and they are considered to be more private,

economic, rapid, certain, and conducive to business relationships.1 Arbitration has changed the

conditions of contract in modern society by allowing custom, rather than law, to be used in

situations where contractual relationships break down. Thus, arbitration works to insure

cooperation in modern society.

Meaning of Arbitration

Arbitration has been in existence for centuries as a method for settling disputes between

merchants. But in recent years, accompanying a great expansion of international tradeboth in

volume and geographicallyinternational commercial arbitration is used extensively as an

alternative to litigation, and arbitration clauses are common in international business agreements.

Arbitration is a binding, non-judicial, and private means of settling disputes based on an explicit

agreement by the parties involved in a transaction. Such an agreement is typically embodied in

the terms of a contract between the parties. Alternatively, if the contract is silent about the

dispute-resolution method, the parties can select the method when the dispute arises.2 Arbitration

entrusts the settlement of a question to one or more persons who derive their powers from the

private agreement.3 Unlike judges in public courts, who must follow fixed rules of procedure and

1Robert L. Bonn, ArbitrationAn Alternative way for Handling Contract-related Disputes,Administrative Science Quarterly,17(2), 254-264, at p.255, sourced fromhttp://links.jstor.org/sici?sici=0001-8392%28197206%2917%3A2%3C254%3AAAASFH%3E2.0.CO%3B2-B2Even if the parties have contractually agreed to use one method, they may switch to another if they feel that the latter is moreappropriate for a given dispute.3Lord Mustill, Stewart C Boyd, Commercial Arbitration, (2nd Edition, London: Butterworths, 2001)
http://links.jstor.org/sici?sici=0001-8392(197206)17%3A2%3C254%3AAAASFH%3E2.0.CO%3B2-Bhttp://links.jstor.org/sici?sici=0001-8392(197206)17%3A2%3C254%3AAAASFH%3E2.0.CO%3B2-Bhttp://links.jstor.org/sici?sici=0001-8392(197206)17%3A2%3C254%3AAAASFH%3E2.0.CO%3B2-Bhttp://links.jstor.org/sici?sici=0001-8392(197206)17%3A2%3C254%3AAAASFH%3E2.0.CO%3B2-Bhttp://links.jstor.org/sici?sici=0001-8392(197206)17%3A2%3C254%3AAAASFH%3E2.0.CO%3B2-B


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apply the laws of the land, arbitrators can dispense with legal formalities and may apply

whatever procedural rules and substantive law best fit a case.4

It is important to note that commercial arbitration is an extrajudicial procedure. It is adopted by

the parties to settle, upon their merits and through a tribunal selected, by the parties themselves,

commercial disputes arising between them out of a contractual relationship. It differs from

litigation, in that it is not conducted under the direction of courts of law, but by a tribunal of the

parties own choosing, bound to conduct an impartial hearing. It is less formal, less costly, and

speedier in its results than litigation. It differs from both mediation and conciliation, in that it

decides the issue on its merits and does not attempt to effect a compromise.

Origin of Arbitration

The use of contracts and contract law may vary a great deal depending upon their social and

economic contexts. Clearly, the society is moving from Status to contract, as Sir Henry Maine

aptly pointed out. The law which gives corporations the same rights as individuals has led to a

system in which each may enter into contractual obligations with one another. This has led to a

number of contracts which otherwise would not have been formed, while creating a host of

problems ranging from the power inequity present in the bargaining situation where individuals

and corporations are involved (as evidenced in the contract of adhesion) to the lack of realbargaining in standardized contracts, between the parties The use of contracts in modern society

has also been influenced by the increasingly complex relationships among various organizations

of society.5 Accompanying these changes in the contract law, have been several important

developments within and outside the legal system. Legislatures began to dispense equity and

justice on an ad hoc basis through the system of private laws.

Arbitration vis--vis the Legal System

4 Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, (4th edn., South Asian edn.,London: Sweet & Maxwell, 2004), at p.15See: John R. Abersold, Commercial ArbitrationA Practical Plan, Annals of the American Academy of Political and SocialScience, 148(Part 1: Real Estate Problems), 247-282, sourced fromhttp://links.jstor.org/sici?sici=0002-7162%28193003%29148%3C247%3ACAAPP%3E2.0.CO%3B2-T.
http://links.jstor.org/sici?sici=0002-7162(193003)148%3C247%3ACAAPP%3E2.0.CO%3B2-Thttp://links.jstor.org/sici?sici=0002-7162(193003)148%3C247%3ACAAPP%3E2.0.CO%3B2-Thttp://links.jstor.org/sici?sici=0002-7162(193003)148%3C247%3ACAAPP%3E2.0.CO%3B2-Thttp://links.jstor.org/sici?sici=0002-7162(193003)148%3C247%3ACAAPP%3E2.0.CO%3B2-Thttp://links.jstor.org/sici?sici=0002-7162(193003)148%3C247%3ACAAPP%3E2.0.CO%3B2-T


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Although the private system of arbitration developed outside the public legal system and is often

used as a device to avoid formal court action, it depends on the public legal system for its

effectiveness. The courts as well as the national and local laws have guaranteed the integrity of

the arbitration process by recognizing the contract to settle a dispute by arbitration as a valid

contract in its own right6. The provision allowing for the arbitration of future disputes leaves the

courts in the paradoxical position of recognizing the legality of a contract not to use the courts to

resolve disputes.

Nevertheless, the courts have accepted the concept of arbitration and even reinforced it through

the legal doctrine of severability. This doctrine provides for the arbitration clause in a contract to

be treated as a contract in its own right, one which is separate and antecedent to the particular

contract which exists between the parties.

7

In practice, this has come to mean that arbitrators canmake decisions not only on factual matters, but also on matters previously regarded as within the

sole province of law-for example, the fraudulent inducement of a contract. Perhaps the real key

to the effectiveness of arbitration lies in the fact that the provisions of an arbitrator's award can

be enforced judicially under common or statutory law.8 Thus, in those cases where neither

voluntary compliance nor possible trade sanctions are sufficient to compel the losing party to

comply with the terms of an award, the winner can resort to legal action. While the details of this

procedure vary according to state or local jurisdiction, compliance is relatively easy to obtain and

often is achieved simply by having the court place its seal on the arbitral award, thereby giving it

the status of a court decree.9 Moreover, courts guarantee the effectiveness of the arbitration

process by making it virtually impossible for the loser to appeal an arbitration award, especially

on the grounds that its substantive merits are defective.10

In any event, the court is in the paradoxical position of supporting arbitral awards which may not

necessarily take legal precedent, legal considerations, or even equity into account.

6For example, Section 7 of the Arbitration and Conciliation Act, 19967 Section 16(1) of Arbitration and Conciliation Act, 1996 for instance. This particular provision captures the doctrine ofkompetenz-kompetenz, i.e., the power of the arbitral tribunal to rule on its own jurisdiction.8Sections 35 and 36 of the Arbitration and Conciliation Act, 1996.9Section 36 of the Arbitration and Conciliation Act, 1996 which states that Where the time for making an application to set asidethe arbitral award under award shall be endorsed under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if

it were a decree of the Court.10Section 34 of the Arbitration and Conciliation Act, 1996.


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Advantages and Disadvantages of Arbitration

The increasingly widespread use of arbitration to handle contract related disputes can be

explained by the advantages the system enjoys in comparison to court litigation. Its chief

advantage is the use of decision makers who are experts in the subject matter in dispute. An

arbitration hearing is more flexible than a court of law where expert testimony can only be

introduced through the somewhat cumbersome system of expert witnesses. When this expertise

is combined with the relative absence of restraints on the arbitratorespecially in the area of

evidence admitted to the forum, the manner in which he conducts the hearings, and the lack of

binding precedentsthe system of arbitration shows a flexibility which the public legal system

does not enjoy.11 The principles guiding the dispute resolution process can thus rest on custom

rather than on law whether it be trade custom, as in commercial arbitration, or custom of theshop, as in labor arbitration Other advantages of arbitration over law frequently cited by

commentators on the arbitration process are economy, speed, secrecy, certainty, and maintenance

of business relationships.

Arbitration is economical because it can dispense with lawyers and expert witness fees, and its

speed means that less time need be spent on particular cases. It is faster because crowded court

dockets often result in delay. It provides secrecy, since it is not a public forum and, unless

specifically requested by the parties themselves. Neither records nor transcripts of hearings are

maintained. It affords more certainty because of the absence of the possibility of legal appeal.

Finally, many argue that due to its speed, economy, and flexibility, parties are able to maintain a

business relationship, while they settle a dispute that has a risk between them.12

There are, of course, disadvantages of arbitration too. The main one is that awards may ignore

important rules of substantive or procedural law and yet the parties may have no recourse to

court action.13

It should be noted, that arbitration is not used in all disputes, especially those in which the public

interest in manifestly involved, such as in antitrust or restraint of trade cases. Nor is it used to

11Supra., note 4, at p. 24.12Supra., note 4, at pp. 25-28.13Supra., note 1.


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create agreements between parties. It is rather used to restore equilibrium when contractual

agreements have broken down for one reason or another. Thus, arbitration appears to be

gradually, but effectively, subsuming the work of the courts and, for this reason, it can

appropriately be regarded as an important institution of dispute resolution.14

Uses of Arbitration

In modern society, there are a number of situations in which arbitration has been used in lieu of

court action. In the important area of labor relations, arbitration has been used with considerable

success to handle grievance procedures. Arbitration has also been used in such diverse contexts

as landlord-tenant disputes, motor accident claims, divorce proceedings, and the liquidation of

partnerships or employment contracts that executives make with their employer firms. In

addition to this is the widespread use of arbitration in the business community.

Thus, Arbitration as an important device for handling contract related disputes. It is thought to be

more flexible than the law. It allows custom to play a large role in decision making and gives

decision makers wide latitude in conducting case hearings. It is considered to be and is, to some

extent, cheaper, faster, more private, more certain, and more conducive to future business

relationships than court litigation. Arbitration is a device for handling contract related disputes in

a society that is increasingly organized and which is increasingly in need of more effectiveagencies of social control.

14Supra., note 5


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MEANING OF INTERNATIONAL COMMERCIAL ARBITRATION

The ever-increasing trade across national frontiers in the 20th Century has inexorably led to the

growth of a new lex mercatoria which is neither public nor private international law. It is lawsuigeneris.15International Commercial Arbitration is an important segment of this law.

In the domestic context parties who seek a binding method of resolving disputes through third-

party intervention have the choice between a national public court and private arbitration. In the

international context such a choice does not exist because there are no international public courts

that handle international commercial disputes involving only private parties. Therefore, the

choice for international private parties is between recourse to a national court (that is, litigation)

and recourse to private international dispute resolution, namely international commercial

arbitration or so-called alternative dispute resolution (ADR) techniques, such as conciliation and

mediation.16 Arbitration becomes international when the parties to a dispute reside or conduct

their main business in different countries. The term commercial in international commercial

arbitration is broadly conceived and covers activities such as sale of goods, distribution

agreements, commercial representation of agency, leasing, consulting, transportation,

construction work, joint ventures, and other forms of industrial or business cooperation.17

International Commercial Arbitration - What is it?

Whereas the domestic arbitrations are regulated by national law, the international commercial

arbitration (hereinafter referred to as "ICA") is governed by a variety of laws: national law,

comparative law, international conventions, and even usages of international trade. The term

international is used to mark the difference between arbitrations which are purely national or

domestic and those which in some way transcend national boundaries and so are international, or

in the terminology adopted by Judge Jessup, transnational.18

15 Hussain M. Al-Baharna, International Commercial Arbitration in Perspective, Arab Law Quarterly, 3(1), 3-18, at p. 17,sourced fromhttp://links.jstor.org/sici?sici=0268-0556%28198802%293%3A1%3C3%3AICAIP%3E2.0.CO%3B2-I16Id.17RM Investment and Trading Co. Pvt. Ltd. v.Boeing Co., AIR 1994 SC 113618Supra., note 4, at p. 12.
http://links.jstor.org/sici?sici=0268-0556(198802)3%3A1%3C3%3AICAIP%3E2.0.CO%3B2-Ihttp://links.jstor.org/sici?sici=0268-0556(198802)3%3A1%3C3%3AICAIP%3E2.0.CO%3B2-Ihttp://links.jstor.org/sici?sici=0268-0556(198802)3%3A1%3C3%3AICAIP%3E2.0.CO%3B2-I


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The expression ICA is really a compound of commercial and international arbitration.

Accordingly, the ICA can best be defined by defining the twin elements: commercial and

international arbitration. This is how the UNCITRAL Model Law on International Commercial

Arbitration (Model Law) appears to define the ICA too.

The concept of a commercial contract is of importance in the civil law as regards arbitration,

since in some countries only disputes arising out of commercial contracts may be submitted to

arbitration.19 The fact that in some countries arbitration is only permissible in respect of

commercial contracts, while in others there is no such limitation, was given international

recognition many years ago in the Geneva Protocol of 1923.20 The commercial reservation,

i.e., the stipulation in the Protocol that each contracting state may limit its obligations to

contracts that are considered as commercial under its national law, appears in the New YorkConvention too.21 The term commercial has, under the Model Law, been assigned a wide

meaning so as to include its ambit trade, financial, engineering and other transactions.22

Similarly, the term international arbitration has also been given an extended meaning so as to

include within its range a variety of different situations. Two main criteriathe international

nature of disputes and the nationality of partiesare used to define the term international in

the context of ICA.23 The Court of Arbitration of the International Chamber of Commerce has

adopted the first criterion for deciding whether or not arbitration was an international

arbitration under its rules. The present Rules define the function of the International Court of

Arbitration of the ICC as being to provide for the settlement by arbitration of business disputes

of an international character.24 The second criterion involves reviewing the nationality, place of

residence, or place of business of the parties to the arbitration agreement. It is an approach that

was adopted in the European Convention of 1961.25 Switzerland is an example of a country in

19Supra., note 5, at p.250.20Supra., note 4, at p.17. Article 1 of the Geneva Protocol of 1923. The Geneva Protocol obliged each contracting state torecognize the validity of an arbitration agreement concerning disputes that might arise from a contract relating to commercialmatters or to any other matter capable of settlement by arbitration.21Article 1.3 of the New York Convention.22Supra., note 4, at p. 18. The definition appears as a footnote to Article 1(1), which states that the Model Law applies to ICA.23Supra., note 4, at p. 16.24Article 1(1) of the ICC Arbitration Rules.25Supra., note 4, at p.15.


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which the nationality of the parties determines whether or not arbitration is international. 26The

nationality test is also used by the United States for the purposes of the New York Convention,

but arbitration agreements between US citizens or corporations are excluded from the scope of

the Convention.27 Under the Model Law, if the parties have their places of business in different

States, or if the place of arbitration is situated outside the places of business of the parties, or if

the subject-matter of the arbitration agreement is related to more than one State, the arbitration in

that case would be international.28 Thus, the Model Law combines the two aforementioned

criteria.

In the light of the Model Law, we can define the ICA as an arbitration of commercial, financial

and engineering disputes of parties belonging to different States who consider it expedient to

choose a venue of arbitration different from their place of business, or the contract or agreementin question relates to more than one State. In other words, the elements that render arbitration

international are the parties, place of arbitration and nature of the business transaction. It

goes without saying that there is a strong transnational element in the ICA. It is the presence of

this element that induces the parties to a contract or agreement to opt for the ICA.

Indeed, the exigencies of international trade and development which are predicated upon the

mutual confidence of the parties to a contract or agreement oblige them to accept the ICA.

Parties which are reluctant to accept the ICA might run the risk of forfeiting business, investment

or development, as the case may be.

Significant features of International Commercial Arbitration

The significant features of ICA may be enumerated as follows

1. The agreement by the parties.

26

Id.27Supra., note 4, at p.16.28The definition adopted in Article 1(3) of the Model Law is as follows:1(3) An arbitration is international of

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business indifferent States; or

(b) one of the following places is situated outside the State in which the parties have their places of business:(i) the place of arbitration is determined in, or pursuant to, the arbitration agreement;(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place

with which the subject-matter of the dispute is most closely connected; or(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.


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2. The Choice of arbitrators.

3. Specialized knowledge and experience.

4. Enforcement of the Arbitral award.

Agreement by the PartiesArbitration requires the agreement of the parties, and cannot exist

without it. This agreement is frequently incorporated in a basic international contract covering

the transaction, and this means that a choice of the mode of dispute settlement may be agreed

upon at the time when a deal is made and before there has been any dispute.

Choice of ArbitratorsIn arbitration the parties can choose their own person or persons to

adjudicate the dispute between them. The fact that in arbitration, the parties are free to choose

their own tribunal distinguishes arbitration from litigation.29

Specialized Knowledge and ExperienceAn international business dispute may turn

substantially (or perhaps entirely) on the facts, and also it may very well be concerned with the

interpretation and effect of specialized documents and the customs and practices of particular

kinds of business. Arbitration allows the parties to choose an arbitrator who has had experience

of international commercial arbitrations and has specialized knowledge of relevant areas of

commercial law, or experience in the kind of business involved in the dispute. Examples might

include marine insurance, engineering, construction and advanced technology.

Enforcement of the Arbitral AwardA major advantage of international commercial arbitration

as compared with national litigation is in regard to enforcement. International conventions, and

in particular the New York Convention, together with legislation based on the Convention, have

provided facilities for the enforcement of foreign awards, having greater range and flexibility

than exist so far in regard to court judgments. This is, of course, an important consideration

where the assets of parties may be situated in different countries and transnational enforcement is

desired. There are long-standing problems and limitations in the transnational enforcement of

court judgments, possibly related mainly to feelings about national sovereignty.

29Supra., note 3, at p.9.


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Thus, we see that ICA begins as a private agreement between the parties. It continues by way of

private proceedings, in which the wishes of the parties are of great importance. Yet, it ends with

an award that has binding legal force and effect which on appropriate conditions, the courts of

most countries of the world will recognize and enforce. The private process has a public effect,

implemented with the support of the public authorities of each State and expressed through its

national law.


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ARBITRAL AWARD

What is an arbitral award?

The question is an old one that, in recent years has gained increasing attention as UNCITRAL

and others have considered the issues relating to interim measures and their enforcement.

Nevertheless, neither the New York Convention nor most arbitration rules or statutes, including

the UNCITRAL Model Law, contain a definition of an "award", and there is no international

consensus on this subject. Obviously, the final award of an arbitral tribunal in an arbitration can

easily be recognized as an award, but what about all of the other decisions that arbitrators may be

required to make during the course of an arbitration, from decisions on jurisdiction (there has

been a debate about negative decisions on jurisdiction, in particular) to decisions on the

governing law or other preliminary issues?

As an illustration of the difficulties that may be encountered, when at the ICC, in the case that

became a proceeding before the French courts called Cubic Defense Systems, Inc. v.

International Chamber of Commerce, an ICC arbitral tribunal sitting in Zurich rejected the time

bar defenses of Cubic in the arbitration by means of a procedural order. The question was

whether the arbitral tribunal should have done so by rendering a partial award on that subject.

Cubic, thus, complained to the ICC that the Tribunal's decision should have taken the form of an

award and, thus, been scrutinized and approved by the ICC Court, in accordance with the ICC

Rules. The arbitral tribunal, however, took the view that under Swiss law their decision was not

actually an award because it did not finally dispose of any claim. Cubic subsequently sued the

ICC for, among other things, refusing to require the arbitrators to convert their order into an

award. The French courts, however, found that the ICC had no such duty.

In contrast to the Swiss position, the French courts have embraced a broader definition of an

award. Decisions that finally settle litigious issues between the parties may, thus, be regarded as

awards, and in one well-known case (Braspetro), the French courts requalified as an award a

procedural order of an ICC tribunal refusing to reconsider an arbitration award where it was

alleged that it had been fraudulently procured.


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Obviously, the view that a court takes with respect to whether a particular decision is to be

considered as an award will affect the question of whether any judicial recourse is available

against it.

Foreign award defined

In order to be considered as a foreign award, (for the purposes of the Act) the same must fulfil

two requirements. First it must deal with differences arising out of a legal relationship (whether

contractual or not) considered as commercial under the laws in force in India. The expression

"commercial relationship" has been very widely interpreted by Indian courts. The Supreme Court

in the case ofR.M. Investments Trading Co. Pvt. Ltd. v. Boeing Co. & Another30 while

construing the expression "commercial relationship" held:

"The term "commercial" should be given a wide interpretation so as to cover matters arising

from all relationships of a commercial nature, whether contractual or not..."

The second requirement is more significant and that is that the country where the award has been

issued must be a country notified by the Indian Government to be a country to which the New

York Convention applies. Only a few countries have been notified so far and only awards

rendered therein are recognized as foreign awards and enforceable as such in India.

Effect on award in case of disintegration of a country into separate political entities

In a case, an interesting issue came up before the Supreme Court of India as to what would

happen in a case where a Country has been notified but subsequently it divides or disintegrated

into separate political entities. This came up for consideration in the case of Transocean

Shipping Agency Pvt. Ltd. v. Black Sea Shipping & Ors.31 Here the venue of arbitration was

Ukraine which was then a part of the USSR a Country recognized and notified by the

Government of India as one to which the New York Convention would apply. However by the

time disputes arose between the parties the USSR had disintegrated and the dispute came to be

30(1994) 4 SCC 54131(1998) 2 SCC 281


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arbitrated in Ukraine (which was not notified). The question arose whether an award rendered in

Ukraine would be enforceable in India notwithstanding the fact it was not a notified country.

Both the High Court of Bombay (where the matter came up initially) and the Supreme Court of

India in appeal, held that the creation of a new political entity would not make any difference to

the enforceability of the award rendered in a territory which was initially a part of a notified

territory. On this basis the Court recognized and upheld the award. This decision is of

considerable significance as it expands the lists of countries notified by the Government by

bringing in a host of new political entities and giving them recognition in their new avtar also. At

another level the judgment demonstrates the willingness of Indian courts to overcome

technicalities and lean in favour of enforcement.


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ARBITRATION CLAUSE IN A CONTRACT & SUBMISSION AGREEMENT

The arbitration clause in contract32is the key factor to the existence of every arbitration. It would

not be possible for the parties to undergo the arbitration process in the absence of any validcontract to settle their disputes before an arbitral tribunal.

The contract records the consent of the parties to submit to arbitration, a consent which is

indispensable to any process of dispute resolution outside national courts. The Arbitration

process and other methods of Alternate Dispute Resolution (ADR) depend for their very

existence upon the agreements of the parties. Compulsory arbitration does exist. Nevertheless,

the consent of the parties remains the essential basis of a voluntary system of ICA.

The UNCITRAL Model Law defines an Arbitration Agreement

Arbitration Agreement is an agreement by the parties to submit to arbitration all or certain

disputes which have arisen or which may arise between them in respect of a defined legal

relationship, whether contractual or not. An arbitration agreement may be in the form of an

arbitration clause in a contract or in the form of a separate agreement. 33

There are two basic types of arbitration agreements - the arbitration clause and the submission

agreement. An arbitration clause looks to the future, whereas a submission agreement looks to

the past.34 The first, which is most common, is usually contained in the principle agreement

between the parties and is an agreement to submit future disputes to arbitration. The submission

agreement, on the other hand, is an agreement to submit existing disputes to arbitration.

Reference to Arbitration by the Parties

Voluntary arbitration is the process in which two parties to a dispute agree to submit their

differences to one or more impartial persons for a decision which both parties agree to accept as

binding upon them. In the field of international trade, it is customary for those sellers and buyers

32 Here Contract and Agreement are interchangeable33Article 7(1) of the UNCITRAL Model Law34Supra., note 4, at p.133.


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who wish to use arbitration as a method of settling their disagreements to include a clause in the

contract of sale and purchase which provides for arbitration. It is therefore important that

merchants know about the laws of the countries with which they trade pertaining to the validity

of arbitration clauses. An arbitration clause in the contract is without value if, when a dispute

arises, either party to the contract can refuse to arbitrate and be able in that way to avoid an

obligation which he has undertaken at the time that he has made a purchase or sale. 35 When a

dispute arises, there is the danger that the party with a weak case may refuse to abide by the

agreement to arbitrate. He may prefer to go to court where he call drag out the case and perhaps

even obtain a favorable decision on a legal technicality quite remote from the merits of the case.

The laws of the different countries of the world pertaining to arbitration are not uniform in most

of the important fundamentals.

36

Different countries have different laws pertaining to the validityof and to the methods of enforcing the arbitration clause. There are some international

agreements whereby groups of countries recognize the validity of arbitration clauses in

commercial contracts between their nationals. The merchant should know something of this so

that when he enters into a contract of purchase or sale which includes an arbitration clause he has

some understanding, first as to how the clause should be worded in order to comply with the

laws of the countries of sale and purchase and, secondly, whether or not the laws of these two

countries will recognize the validity of the clause if a dispute afterwards arises and either party

seeks to avoid arbitration as the method of settlement.37

A statement can fairly be made that the laws of most of the important international trading

countries recognize the validity of an agreement relating to the arbitration of either existing or

future disputes, and that if a businessman signs a contract which includes an arbitration clause

and afterwards tries to take the case to court instead of submitting it to arbitration, the courts of

most of these countries will refuse to allow a court trial.

35Supra., note 15.36 William W Park, The Lex Loci Arbitri and International Commercial Arbitration, The International and Comparative Law

Quarterly, 32(1), pp.21-52, (January 1983), sourced from

37Supra note 15


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Arbitration Agreement

An arbitration agreement confers a mandate upon the arbitration tribunal to decide any and all ofthe disputes that come within the ambit of that agreement. It is important that an arbitrator should

not go beyond this mandate.

In addition to having an understanding of just how the laws will affect them, it is important for

the businessmen to understand how to word the arbitration clause that they use in their contracts.

It is important to ensure that the wording adopted in an arbitration agreement is adequate to

fulfill the intention of the parties.38Careless or improper wording might cause the courts of some

countries to declare the clause invalid despite the general provisions of the law upholding the

validity of such clauses. And the highly important question whether jurisdiction can be obtained

over a non-resident of the state or country in which the arbitration is to be held may frequently

hinge on the wording of the arbitration clause.

Arbitration clauses are usually drawn in wide terms to ensure that all disputes which arise out of

or in connection with a particular contract or contractual relationship are referred to arbitration.

Accordingly, the arbitration agreement should be drafted in broad, inclusionary terms, rather

than referring only certain categories of dispute to arbitration and leaving others to the

jurisdiction of national courts. Linking words such as in connection with, in relation to, in

respect of, with regard to, under and arising out of, are very important in any dispute as

to the scope of an arbitration agreement. These words come to rescue in deciding whether a

particular dispute falls within the mandate granted to the arbitrators. It is important since an

award passed by the arbitrator or an arbitration tribunal may be set aside by a competent court if

it deals with a dispute not contemplated by or not falling within the terms of the submission to

arbitration or contains decisions on matters beyond the scope of the submission to arbitration.39

38Supra., note 4, at p.15339Article 34(2)(iii) and Article 36(i)(a)(iii) of the UNCITRAL Model Law.


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Moreover, there are certain disputes which cannot be resolved by arbitration, since for public

policy reasons, national laws will regard certain matters as more suitable for settlement by

Courts than by a private system of dispute resolution such as ICA.40

Where parties agree to put an arbitration clause into their contract, they usually select a standard

form or model clause, either from one of the arbitral institutions or from an internationally

recognized authority such as UNCITRAL. These model clauses are widely drawn.

For example, the Model UNCITRAL Arbitration clause reads as follows:

Any dispute, controversy or claim arising out of or relating to this contract, or the breach,

termination or invalidity thereof, shall be settled by arbitration in accordance with the

UNCITRAL Arbitration Rules as at present in force.

In an accompanying note it is further provided as follows:

Parties may wish to consider adding:

(a) The appointing authority shall be ... . . ... . . (name of institution or person);

(b) The number of arbitrators shall be ......... (one or three);

(c) The place of arbitration shall be ...........(town or country);

(d) The language(s) to be used in the proceedings shall be ........................

Similar language is used in the ICC41and other model forms too. Where such arbitration clauses

are adopted, most national courts will recognize and give effect to the parties wishes to arbitrate

any arbitrable dispute between them.42 These model clauses bring with them a set of rules that

40Supra., note 4, at p. 19. For example, a dispute over matrimonial status may be regarded by the law of a particular state as notbeing capable of settlement by arbitration.41ICC model clause reads thus: All disputes arising in connection with the present contract shall be finally settled under therules of conciliation and arbitration of the International Chamber of Commerce by one or more arbitrators appointed in

accordance with the rules.42Supra., note 4, at p.165.


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are self-sufficient, and which should be enough to guide the arbitral tribunal and the parties from

the beginning to the end of the arbitral process.

The appointment of arbitrators, the law governing the process of arbitration, the choice between

ad hoc and institutional arbitration, the procedures to be followed, and other related matters may

be put in the arbitration agreement.

In some jurisdiction it is important that the arbitration clauses specifically provide for the extent

of the powers of the arbiters. Some laws limit the arbiters to decisions based strictly on the

commercial laws of the country in which the arbitration is held. Other arbitration laws allow the

arbiters to decide cases on the merits without regard to the law. It is also well to include the

clause in each contract of sale and purchase. It is unwise to attempt to provide for arbitration by

general reference to some other written understanding between the parties or by reference to the

contract being subject to the rules of a trade association which has arbitration rules and acts as an

arbitral tribunal.


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AUTONOMY OF THE ARBITRAL AGREEMENT

Separability of the Arbitration Clause

The doctrine of separability recognizes that the arbitration clause is separate, independent and

distinct from the main contract. The essence of the doctrine is that the validity of the arbitration

clause is not dependent upon the main contract and vice versa. Hence, the invalidity of the main

contract does not automatically result in the invalidity of the arbitration agreement.

The main practical advantage of the separability principle is that it constitutes a serious bar, for a

party who desires delay or wishes to repudiate his arbitration agreement, to subvert the

arbitration clause by questioning in court the existence or validity of the arbitration agreement,by questioning the validity of the main contract.43 Separability ensures that if one party claims

that there has been a total breach of contract, the contract is not destroyed for all purposes, but

instead survives for the purpose of measuring the claims arising out of the breach, and the

arbitration clause survives for determining the mode of their settlement.44

The doctrine of separability is endorsed by institutional and international Rules of Arbitration

too. For example, Para 2 of Article 21 of the UNCITRAL Arbitration Rules states:

For the purposes of Article 21, an arbitration clause which forms the part of the contract and

which provides for arbitration under these Rules shall be treated as an agreement independent of

the other terms of the contract.

The question of separability has given rise to many court decisions in several countries. These

decisions and arbitral awards dealing with the question tend towards recognition of the

separability doctrine.45 It is submitted that the main purpose of the doctrine is to prevent

frustration of ICA by simply contesting the validity of the main contract. The broad wording of

the UNCITRAL Model clause also endorses the separability doctrine.

43Supra., note 4, at p.162.44Heyman v. Darwins Ltd., [1942] A.C. 356.45 Prima Paint Co. Ltd. v Flood and Conklin Manufacturing Corp., 388 U.S. 395 (1967).


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An independent arbitration clause give the arbitral tribunal a basis to decide its own jurisdiction,

even if it is alleged that the main contract has been terminated by performance or by some

intervening event.

Relevant Case Law

The applicability of the doctrine of separability is illustrated in the case ofPIATCO v. The

Government of the Philippines. The dispute between the parties arose from a project involving

the construction of the third terminal building of the Ninoy Aquino International Airport. The

dealings between the parties resulted in the conclusion of various concession agreements,

including a 1997 concession contract, an amended and restated concession agreements (ARCA).

Section 10.2 of the ARCA contains the arbitration agreement wherein it provides that alldisputes, claim or controversies arising from or relating to the construction of the said project

shall be settled by arbitration under the Rules of Arbitration in the Singapore-based International

Chamber of Commerce. Yet when the terminal was practically ready to start operations, the

Philippine Government advised PIATCO that the award of the project and the concession

contracts to the latter were null and void. In response, PIATCO filed its request for arbitration

before the International Chamber of Commerce (ICC). However, during the pendency of the

arbitration before the ICC, the Supreme Court of the Philippines, in the case of Agan v.

PIATCO,46 declared the ARCA which contained the arbitration agreement null and void for

being violative of public policy. The Philippine Government anchored its argument on the

nullification of the ARCA in its objection of the ICCs jurisdiction over the case. In the main, it

is asserted that the Courts nullification of the ARCA necessarily nullified the parties reference

to the ICC arbitration contained in that agreement. In a decision penned by Singapore High Court

Judge Judith Prakash in a motion to set aside the partial award of the Arbitral Tribunal regarding

the law governing the arbitration agreement, it rejected the argument, applying the principle

of severability or separability. It held that the arbitration agreement survived despite the Supreme

Courts nullification of the main contract.47

46Agan et al. v. PIATCO et. al., 402 SCRA 62 (2003).47Government of the Philippines v. PIATCO, SGHC 206 (2006), http://lwb.lawnet. com.sg/legal/lgl/rss/supremecourt/51718.html
http://lwb.lawnet/http://lwb.lawnet/


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ENFORCEMENT OF FOREIGN ARBITRAL AWARD GLOBAL VIEW

It is very important to note that, however successful the arbitration is, the failure of a party to

enforce the award in foreign country really takes away the fruits of arbitration. Only when a

successful party can have recourse to its award without any hindrance in a foreign court to

enforce the same arbitration will have real advantage over the litigation. The movement toward

multilateral and specialized treaties on commercial arbitration can be traced back to the decade

preceding the First World War. The question appeared on the agendas of International Congress

of chambers of commerce in 1904 (Milan) and 1914 (Paris) and its was discussed in 1912

(Boston) meeting of the International Federation of Cotton Industries. Immediately after the war

the League of Nations became interested in commercial arbitration through its Economic

Committee, whose English member, Sir Herbert Llewellyn Smith seems to have taken theinitiative. At the same time the newly founded International Chamber of Commerce (ICC) in

connection with its plan for international Court of Arbitration, keenly sponsored the promotion

of commercial arbitration through the League. The Geneva Conference specifically requested the

League to include the enforcement of foreign judgements in its program but the Committee

wisely decided to steer clear of this thorny topic.48

Two important multinational treaties on arbitration were concluded in 1923 and 1927 under the

auspices of the League of Nations. As early as 1923 the treaty was prepared by the League viz.,

Protocol on Arbitration Clauses, known as the Protocol. Under the Protocol, agreements for

present and future arbitration are valid that is irrevocable. And courts invoked in defiance of such

an agreement are placed under the obligation to stay proceedings and to refer the parties to the

decision of the arbitrators. In 1927 the Geneva Protocol was followed by convention on the

execution of foreign Arbitral Awards. The convention renders arbitral awards enforceable under

certain conditions within the countries of the signatory powers. Both treaties contain a diversity

of citizenship clause in as much as they apply only to differences between parties subject

respectively to the jurisdiction of different contracting states". And also each state is at liberty to

exclude non-commercial matters from the application of the treaties.49

48 Harward Law Review Vol 56 (1952) Pg 22049 45 Yale Law Journal (1935) pg 63


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Looking back to the history of the enforcement of foreign award legislations one can trace the

works of League of Nations in this regard. Multinational treaties in commercial arbitration began

under the patronage of League of Nations. On Sept. 24, 1923, a protocol on Arbitration clause

was opened for signature at Geneva. This agreement, which came into force on July 25 th, 1924,

was ratified by thirteen states:50 and was subsequently acceded by 16 additional states. The

protocol recognized the validity of the submission to the jurisdiction of any of the signatories by

parties to an arbitration agreement. Protocol provided that the will of the parties and the law of

the country in which it takes place govern the arbitration procedure. Each contracting state

undertook "to insure the execution by its authorities and in accordance with the provisions of its

national laws of arbitral awards made in its own territory under the preceding articles. Protocol

stated that reference would not prejudice competence of the judicial tribunals in case the

agreement or the arbitration cannot proceed or becomes inoperative.

Soon after the Protocol, another Convention on Execution of Foreign Arbitral Awards was

concluded under the auspices of League of Nations. International Chamber of Commerce

initiated this treaty. It was entered into force on July 25 th 1929. Legally binding 24 States, it

supplemented the Protocol. Under the Geneva Convention, awards made in the territory and

between persons subject to the jurisdiction of one of the signatories were to be "enforced in

accordance with the rules of procedure of the territory where the award is relied upon." 51 The

award to be valid to be final on the subject matter capable of settlement by arbitration under the

law of the country in which the award is sought to be relied on and not contrary to the public

policy or the principles of law of that country. Article IV provided the burden proof, it was with

the complaining party.

Representing a significant advance in the cause of international commerce, League of Nations

treaties effected important improvement in the lanes pertaining to the Arbitration. In the

international level the Geneva Convention under its Vth Article, absorbed a dozen of existing

bilateral treaties in so far as they provided for the enforcement of foreign awards. On the

municipal levels, some nations such as Switzerland automatically changed other laws when they

50 Belgium, Brazil, British Empire, France, Germany, Greece, Italy, Japan, Lithuania, Morocco, Panama, Romania,Uruguay51 Article I


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ratified, while others like India, enacted implementing legislation. France, Poland, Sweden

incorporated principles of one or both of the treaties into their general law.


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GENEVA PROTOCOL & CONVENTION

Geneva Protocol on Arbitration Clauses 1923, sought to improve upon the chaotic condition by

providing for the compulsory recognition of arbitration agreements as between the contractingstates. No agreement was clear upon the question what law should govern the validity of

agreements for arbitration. The application of protocol is limited to the parties of different

contracting states. It did not include agreements between nationals of one contracting state for

arbitration in some other contracting state. According to the provisions of the Protocol awards

are entitled to compulsory enforcement only in the state where rendered and all other contracting

states are under a duty to stay any action brought in violation of the submission agreement, the

successful party in the arbitration would without any remedy of award could not be satisfied by

execution in the country in which it was rendered, and the award as such was not enforceable in

the state in which it was rendered, and the award as such was not enforceable in the state in

which the defeated party lives or has property. The provisions of the protocol of 1923 made an

International Convention for the Enforcement of foreign awards, therefore an absolute necessity.

As the Geneva Convention for the Enforcement of Foreign Arbitral Awards 1927, was to

supplement the Protocol 1923, the adoption of Protocol was made prerequisite to becoming a

party to the Convention. Adherence to the Convention however constitutes adherence to the

protocol. The Convention extends only to submission agreements falling within the Protocol,

which applies to agreements between parties of different contracting states, but not to submission

agreements between nationals of the same contacting state for arbitration for some other

contracting. The Convention lists the ground on which the party to the award can contest the

enforcement. An award my subject to impeachment in some countries on grounds other than the

specified in Article I and Article II of the Convention; for example because of irregularity of

procedure, perjury, forgery and the like. If the defendant establishes that such a ground exists

under the law applicable to the arbitral proceeding, the judge who may not be prepared to deal

with question closely connected with peculiarities of procedure in a foreign country, is privileged

under the terms of the Convention either to suspend the proceedings for enforcement, giving the

party a reasonable time to have the award set aside in the country in which it was rendered or

else if he is not allowed to suspend the proceedings under this law, to refuse enforcement. The

convention does not authorize the re-examination of the merits of the award, not even for the


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purpose of determining whether the enforcement of the award would be against the public policy

of the forum.

The Geneva Convention 1927 had been put substantially into effect in England by Arbitration

(Foreign Awards) Act of 1930. It was likewise in force in North Ireland, in many continental

countries. So far as USA was concerned, the law of commercial arbitration had not yet then

reached that stage of legal development that adherence to any international Convention however

excellent would be possible.

In 1930s the attempt to deal with the subject of commercial arbitration internationally was

premature. The divergences existing between the different countries as regards legislation,

business practices relating arbitration, and the relation between arbitration and courts were so

great, as to make any general Convention for the enforcement of foreign awards by legal process

impracticable. Because of these differences it was found necessary to restrict the application of

1927 Geneva Convention to awards rendered on the basis of Geneva Protocol of 1923. For

similar reason some of the most important provisions relating to enforcement of foreign awards

were either gone over insolence or left exceedingly vague.

Thus there was nothing in the Convention concerning the vexed problem of the effect of the

exercise of judicial control over awards, for, no formula acceptable to all could be found. Likethe earlier Protocol, the 1927 Convention also failed to state by what law, the validity of the

arbitration agreement is to be determined. The German Government proposed a specific

provision in this regard, but no agreement was possible and the matter was referred to Hague

Conference on Private International Law. Nor could an agreement be had, regarding the question

where an award made by correspondence should be deemed to be made. In view of the great

diversity in laws of different countries with respect to the question when an award has become

definitive no greater precision could be given to this condition, than its formulation in the

Convention. Regarding the question whether the foreign award can be impeached on account of

corruption, bias or misconduct on the part of an arbitrator, or an account of irregularities in

procedure, the Convention contains nothing beyond the general provision that if the award is

subject to impeachment in the state in which it was rendered, a foreign judge may decline to

enforce it, or may give to the defendant a reasonable time in which to have the award vacated in


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foreign state. In the event that the foreign award is not subject to impeachment in state and which

it was made, enforcement may be denied under the Convention, if such enforcement would be

contrary to the public policy of the forum. It was recognized, of course, that an international

Convention was unable to lay down general rules for arbitral proceeding itself which must be

adjusted of necessity to the law of each state, such rules can be provided only, and with

difficulty, by bilateral treaties. No attempt was made either to regulate the procedure by which

the foreign awards are to be enforced. The questions whether it will be enforced by an action an

award, or by a form ofexequatur52, or by summary procedure applicable to local awards continue

to depend therefore upon the law of the state in which the proceeding is pending.53

Appraisal of the Geneva Treaties

After having a look at the Geneva Conventions we can find that the effort of the League of the

Nations was commendable. Still the convention left many points unanswered. It had several

disadvantages in its practice. The following are the main points of criticism:

1. The diversity of citizenship clause;

2. The exclusion in the discretion of each government, of non-commercial matters;

3. Convention provision that the validity of arbitral agreement must be determined under the

law applicable thereto, that is surrender of this question to the local conflict of rules;4. The abandonment of rules on the enforcement of foreign awards.

Among these the first criticism is more important. It was very troublesome clause because the

criterion, "subject respectively to the jurisdiction of different states" was very vague. The Italian

Courts have read their traditional nationality principle into the clause. English and German court

would have probably preferred domicile as the criterion. The whole question however remains

totally controversial.

The handicaps imposed upon the work of the League by the political situation, were the manifest

causes of the evident shortcomings of the treaties. Thus the diversity of citizenship requirement

52 It means an authorization granted by a secular ruler for the publication of papal bulis or other ecclesiasticalenactments to give them binding force. In this context it is the authorization granted by the Court declaring that theaward is final.53 45 Yale Law Journal (1935) pg 65


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apparently resulted from the unwillingness of the Italian, and other governments to recognize the

foreign awards rendered between their own subjects. Certainly he draftsman of the League could

not be blamed for the imperfections resulting from adversities of this type. Moreover, some of

the objectives advanced against the treaties were unwarranted in themselves.

Though the drafting of Convention was an excellent work. The Convention has not been a

success. The formidable amount of highly qualified labour, which went into their preparation,

has not been awarded by any perceptible progress in international commercial arbitration. The

arbitration is not necessarily reflected by court decisions, but experience shows that arbitration

except may be routine arbitration ministered by trade association frequently leads to judicial

incidents. Noteworthy were the discouraging experiences of the Court of Arbitration and

Conciliation founded in 1921 by the International Chamber of Commerce in Paris. This courtenjoyed the prestige and powerful support of the Chamber of Commerce and under its regulation

offered all guarantees of fairness, relative inexpensiveness and facile proceedings. The failure of

the court was very significant.

In USA, the American Arbitration Association (AAA) established a New York and London

Arbitration Service in 1932 and cooperating with the Pan American Union, the Inter American

Commercial Arbitration Commission 1934.Both enterprises were conspicuous failures. There

seems to have been only one award by Inter American Commercial Arbitration Commission

involving a sum of $ 661. Nothing is known of any actual arbitration proceedings of New York

and London Arbitration Service. The failure of the Paris Court reflects more directly the

inefficiency of the Geneva treaties since the aim of the court is similar in genesis and aim. In the

light of all these development it would seem that the men who set the course of League of

Nations in the matter of commercial arbitration misjudged the situation.54

54 (56) Harvard Law Review Pg 234


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THE NEW YORK CONVENTION

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as

the New York Convention, was adopted by a United Nations diplomatic conference on 10 June

1958 and entered into force on 7 June1959. The Convention was the result of a conference of

plenipotentiaries that met at the Head Quarters of the United Nations in New York from May 20

to June 10, 1958. At its last day also a Resolution had been adopted the text of the Convention.

The purpose of the conference was also to consider, if time permits, other possible measures

for increasing the effectiveness of the arbitration in the settlement of private law disputes. At

the conference, a Committee was set up to study these other possible measures. On the basis of

the proposal made by the Committee the above-mentioned Resolution had been adopted.

The New York Convention is described as the most successful treaty in private international law.

It is adhered to by more than 140 nations. More than 1,400 court decisions reported in the

Yearbook: Commercial Arbitration show that enforcement of an arbitral award is granted in

almost 90 per cent of the cases.55

The Convention was established as a result of dissatisfaction with the Geneva Protocol on

Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral

Awards of 1927. The initiative to replace the Geneva treaties came from the InternationalChamber of Commerce (ICC), which issued a preliminary draft convention in 1953. The ICCs

initiative was taken over by the United Nations Economic and Social Council, which produced

an amended draft convention in 1955. That draft was discussed during a conference at the United

Nations Headquarters in May-June 1958, which led to the establishment of the New York

Convention.

Background of the New York Convention

55 Article by Albert Jan van den Berg, Hanotiau & van den Berg, Brussels, Belgium, President, Netherlands

Arbitration Institute, Professor at law, Erasmus University, Rotterdam
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The countries ratifying or acceding to the New York Convention agreed to recognize and enforce

foreign arbitral awards.56 The goal of the New York Convention is to promote the enforcement

of arbitral agreements and thereby facilitate international business transactions on the whole.57

The Geneva Protocol of 1923 on Arbitration Clauses and the Geneva Convention of 1927 on the

Execution of Foreign Arbitral Awards addressed foreign arbitration, but they were ineffective

and the United States was not a party to them.58 In 1953, in response to an international business

need for arbitration, the International Chamber of Commerce (ICC) asked the United Nations

Economic and Social Council to convene a meeting on the subject of international arbitration. 59

At that time, the domestic law of the enforcing country usually governed the enforcement of

foreign arbitral awards.60 Without international standards to govern enforcement, parties neither

had a guarantee that the domestic courts would enforce their awards nor that the courts would

treat foreign and domestic awards equally.61 In addition, the use of arbitration to settle disputes

arising from international commercial transactions had increased, especially since no

international agreement on the enforcement of court judgments existed.62 Thus, enacting the New

York Convention could simplify the requirements for enforcing awards.63 Despite the need for

international agreement on how to enforce foreign arbitral awards, only twenty-four countries

originally signed the New York Convention.64 However, over time, more countries have accepted

the New York Conventions role in international commercial transactions.65

Under article I, the New York Convention applies to awards made in the territory of a State

other than the State where the recognition and enforcement of such awards are sought or to

56 Robert B. von Mehren,Enforcement of Foreign Arbitral Awards in the United States, 771 PLI/COMM 147, 156-57 (1998)57Belship Navigation, Inc. v. Sealift, Inc., No. 1:95-CV-02748, 1995 WL 447656, at *5 (S.D.N.Y. July 28, 1995) (citing DavidL. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 248, 250 (2d Cir. 1991)).58Eloise Henderson Bouzari, Note, The Public Policy Exception to Enforcement of International Arbitral Awards:

Implications for Post-NAFTA Jurisdiction , 30 TEX. INTL L.J. at 209 (1995).59 Richard A. Cole, The Public Policy Exception to the New York Convention on the Recognition and Enforcementof Arbitral Awards, 1 OHIO ST. J. ON DISP. RESOL., 368 (1985)60

Elisabeth M. Senger-Weiss,Enforcing Foreign Arbitration Awards, 53-WTR DISP. RESOL. J. 70, 72 (1998).61Id.62This hypothetical is adapted from Andrew T. Guzman, Arbitrator Liability: Reconciling Arbitration and Mandatory Rules, 49DUKE L.J. 1287 (2000).63supra note 57, at 7264 Daniel Berkowitz, Johannes Moenius & Katharina Pistor, Legal Institutions and International Trade Flows, 26MICH. J. INTL L. 163, 176 & n.46 (2004). The countries included Argentina, Belarus, Belgium, Bulgaria, CostaRica, Ecuador, El Salvador, Finland, France, Germany, India, Israel, Jordan, Luxemburg, Monaco, the Netherlands,Pakistan, the Philippines, Poland, the Russian Federation, Sri Lanka, Sweden, Switzerland, and Ukraine.Id.65supra note 57, at 72


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awards not considered as domestic awards in the State where their recognition and enforcement

are sought.66 Thus, the New York Convention applies to awards rendered in a country other than

the enforcing country, whether the award is deemed domestic or international.67 It also applies to

all non-domestic awards in the enforcement country, whether or not the award may have been

rendered in that country.68 For example, if the award is rendered in England, then the United

States considers it to be a New York Convention award when the winning party attempts to

enforce it in the United States. However, countries interpret whether an award is non-domestic

differently.69 If the award does not fit the definition of a New York Convention award, then the

winning party can try to enforce the award under other treaties governing international

arbitration, such as the Convention on the Settlement of Investment Disputes Between States and

Nationals of Other States (ICSID Convention).70 To enforce a New York Convention award,

the winning party supplies an original or certified copy of the award and the arbitration

agreement to the enforcing court.71 This is significantly different from the League of Nations

Geneva Treaties, which placed the burden of proof on the party seeking to enforce the award.72

In addition, the New York Convention places the burden on the defendant to prove that the

award is invalid under at least one of the seven grounds it enumerates.73

Objectives of the New York Convention

Recognizing the growing importance of international arbitration as a means of settling

international commercial disputes, the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (the Convention) seeks to provide common legislative standards for the

recognition of arbitration agreements and court recognition and enforcement of foreign and non-.

66 Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. I, June 10, 1958, 21 U.S.T. 2517,330 U.N.T.S. 38 [hereinafter New York Convention]67supra note 57, at 7368Id.69

Susan Choi, Note,Judicial Enforcement of Arbitration Awards Under the ICSID and New York Conventions , 28N.Y.U. J. INTL L. & POL. at 190-97 (indicating that U.S. and French courts interpret the term non-domesticbroadly while German courts interpret it narrowly).70 Joseph T. McLaughlin,Enforcement of Arbitral Awards Under the New York Convention: Practice in U.S. Courts,477 PLI/COMM 275, 301 (1988).71 supra note 53, at 158; Choi,supra note 66, at 188-89s72See Bouzari,supra note 55, at 209; Choi,supra note 66, at 188-89.73supra note 53, at 158; Rosseel N.V. v. Oriental Commercial & Shipping Co. (U.K.) Ltd., (1991) 2 Lloyds Rep.625, 628 (Q.B.D. Comm. Ct.) (Eng.) (indicating that the losing party must discharge the burden on a balance ofprobabilities).


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domestic arbitral awards. The term non-domestic appears to embrace awards which, although

made in the state of enforcement, are treated as foreign under its law because of some foreign

element in the proceedings, e.g. another States procedural laws are applied.

The Conventions principal aim is that foreign and non-domestic arbitral awards will not be

discriminated against and it obliges Parties to ensure such awards are recognized and generally

capable of enforcement in their jurisdiction in the same way as domestic awards. An ancillary

aim of the Convention is to require courts of Parties to give full effect to arbitration agreements

by requiring courts to deny the parties access to court in contravention of their agreement to refer

the matter to an arbitral tribunal.

As stated in the decision of US Supreme Court in Fritz Scherk v. Alberto Culver Co.

74

"The goal of the Convention, and the principal purpose underlying American adoption and

implementation of 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 award are enforced in the signatory countries."

Therefore the prime object of New York Convention was to ensure the recognition and

enforcement of the commercial arbitration agreements having international features and theresultant foreign awards arising therefrom.

Basic Actions Contemplated by the New York Convention

The following briefly describes the two basic actions contemplated by the New York

Convention:

The first action is the recognition and enforcement of foreign arbitral awards, i.e., arbitral awards

made in the territory of another State; the general obligation for the Contracting States to

recognize such awards as binding and to enforce them in accordance with their rules of

procedure is laid down in article III. A party seeking enforcement of a foreign award needs to

supply to the court: (a) the arbitral award; and (b) the arbitration agreement. The party against

74 (1974) 417 US 506


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whom enforcement is sought can object to the enforcement by submitting proof of one of the

grounds for refusal of enforcement. The court may on its own motion refuse enforcement for

reasons of public policy. If the award is subject to an action for setting aside in the country in

which, or under the law of which, it is made (the country of origin), the foreign court before

which enforcement of the award is sought may adjourn its decision on enforcement. Finally, if a

party seeking enforcement prefers to base its request for enforcement on the courts domestic law

on enforcement of foreign awards or bilateral or other multilateral treaties in force in the country

where it seeks enforcement, it is allowed to do so by virtue of the so-called more-favourable-

right-provision of article VII, paragraph 1.

The second action contemplated by the New York Convention is the referral by a court to

arbitration. Article I, paragraph 3, provides that a court of a Contracting State, when seized of a

matter in respect of which the parties have made an arbitration agreement, must, at the request of

one of the parties, refer them to arbitration.

In both actions, the arbitration agreement must satisfy the requirements of article II, paragraphs 1

and 2, which include, in particular, that the agreement be in writing.

The influence of the New York Convention on the development of international commercial

arbitration has been phenomenal. The New York Convention solidified two essential pillars of

the legal framework by providing for the obligatory referral by a national court to arbitration in

the event of a valid arbitration agreement and for the enforcement of the arbitral award. The

Convention provided impetus to the hugely successful UNCITRAL Arbitration Rules of 1976

and the UNCITRAL Model Law on International Commercial Arbitration of 1985 (as amended

in 2006). The New York Convention is probably the main reason why arbitration is the

preferred method for the resolution of international business disputes.

Key provisions of New York Convention

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