Sunday, 23 December 2018

Critically evaluate the incorporation into the New York Convention of the restriction that only the courts of the seat of an arbitration can annul an award. Are the policies of the Convention served by this limitation, and what would be the consequences if no such limitation existed?

Article V of the New York Convention states that one ground for an award not being recognised is that “The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”. Therefore, an annulment by a court not of the seat of arbitration would, under this ground, still be valid. 

The aim of the New York Convention is to promote the enforcement of arbitration awards in different countries to where the arbitration award was made. This is necessary for international arbitration to work. I will now consider the aforementioned restriction in Article V in the light of this aim of the Convention.
Positive aspects to the restriction:
1.     The role of foreign courts is to enforce not to annul:
In order for international arbitration to work, foreign courts must uphold the arbitration awards made in other jurisdictions. If they didn’t then the arbitration award would be undermined. However, a foreign court annulling an arbitration award goes far beyond this and actually results in foreign arbitration awards being undermined, which is the opposite of what is intended.
2.     It prevents ‘annulment shopping’:
If the restriction was not in place, a party could apply to different foreign courts for annulment until they found one willing to annul the award. This would undermine the finality of arbitration awards and thus international arbitration itself.
3.     It respects the parties’ intentions:
It is arguable that the parties impliedly chose to subject themselves to the law of the country where the arbitration took place, as this is the law which conferred power on the arbitrators. Thus, the only law which can annul the award is that law which was chosen.

Negative aspects to the restriction:
1.     A denationalised view of awards:
Some are of the view that the law of the country in which the arbitration award was made has no special claim to the arbitration agreement, and it is free for other legal systems to give recognition to such agreements, and confirm of annul them in their laws as they see fit. It is true that they can do this, but this is not an argument against why they should be restricted from doing this by the New York Convention.
2.     Fairness:

One could argue that a foreign court should be able to annul the award if it is manifestly unfair. However, this is a separate issue from the one at hand, and should be dealt with elsewhere. It should simply be the case that such annulments are ineffective from the start, and so the question of subsequent annulment does not even arise.

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