Widely regarded as a leading instrument for facilitating international trade, the Convention on the Recognition and Enforcement of Arbitral Award (known as the “New York Convention”) is a critical tool for creditors transacting globally. While earning an arbitration award from a foreign tribunal can be a significant victory, unless the award can be enforced and recognized in a jurisdiction where the losing party maintains assets, it won’t be of much value.
Today, there are 150 signatory nations to the New York Convention, which is good news for arbitration winners seeking to enforce their awards under the pro-enforcement Convention. Given this pro-enforcement bias of the Convention, it’s critical for award winners to properly adhere to the Convention and U.S. law when seeking to have an award confirmed and recognized as a U.S. judgment – below are the basic steps (and potential obstacles) to keep in mind when seeking to have your award recognized in a U.S. court.
Under the New York Convention, contracting states are required to recognize awards from signatory countries as binding and enforce them according to their own procedural rules. As the U.S. Supreme Court has said:
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 awards are enforced in the signatory countries. Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15 (1974).
To confirm an award under the New York Convention, an enforcing party must apply for confirmation (e.g., file its petition or complaint) within three years after the award has been made and provide the court with an original or certified copy of both the arbitration agreement and the award. If not in English, these documents must be translated. After initiating the claim, as the Second Circuit has stated, the trial 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.’” Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15, 19 (2d Cir. 1997) (quoting 9 U.S.C. § 207). Given the Convention’s pro-enforcement predisposition, a party opposing confirmation of an award bears the burden of proving the existence of one of the listed grounds. The seven grounds for a court to refuse recognizing an award are limited and outlined in Article V of the Convention, and include:
– A party is suffering from an incapacity;
– The arbitral agreement is invalid;
– The party seeking non-recognition of an award could not participate in the arbitration because that party was not notified of the appointment of an arbitrator or applicable procedure or was unable to present a defense;
– The decided issue is outside the scope of the arbitral agreement;
– The arbitral tribunal did not follow the parties’ agreement or applicable law;
– The award is not yet binding; or
– The award has been annulled or suspended in the state where the award was made.
In addition to these seven grounds, a court may deny recognition if personal jurisdiction is not present. A recent Fifth Circuit decision affirmed a district court’s dismissal for lack of personal jurisdiction, finding that the dismissal was correct as a matter of constitutional due process. First Inv. Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742 (5th Cir. 2012).
Outside of the above mentioned grounds for a court to refuse recognizing an award, a party opposing confirmation of an award cannot seek to have it vacated merely because it believes the arbitration panel made the wrong decision. See Wallace v. Buttar, 378 F.3d 182, 190 (2d Cir. 2004). However, an award may be vacated if the court determines that the arbitration panel (1) knew of a legal principle yet refused to apply it or ignored it altogether and (2) the ignored law was well defined and clearly applicable to the case. Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255, 263 (2d Cir. 2003). Despite this, due to the significant deference afforded to arbitrators, this is a near herculean task that rarely succeeds.
As the New York Convention is a powerful tool for arbitral award winners in enforcing worldwide awards, prevailing parties must be prepared for non-recognition defenses and arguments when seeking to enforce awards in U.S. courts.
If you have any questions about this posting, or on international arbitration proceedings, please contact M. Zachary Bluestone, firstname.lastname@example.org or Kyle Choi at email@example.com; both can be reached at +1 301.656.0230.