Introduction
The 1958 New York Convention for the recognition and enforcement of arbitral awards is frequently celebrated for what it has achieved in terms of facilitation of international trade and harmonization of arbitration law and practice. It is somehow interesting that such a successful international instrument contains no description about the subject matters the recognition and circulation of which it is intended to facilitate. During the negotiation of the Convention, several attempts were made with a view to providing some kind of definition. However, fears of unnecessary qualification and the wish to secure the broadest possible application resulted in any such attempts being eventually abandoned.
It must be underlined that the New York Convention is not the only major instrument dealing with arbitration lacking any such definition. The UNCITRAL Model Law, for example, refrains from describing what constitutes an arbitral award even though the adoption of a definition was considered and discussed throughout its negotiation and drafting.
What are the decisions falling within the scope of the New York Convention? The analysis that we are highlighting here is not connected to the issue of whether an award is a foreign one or should be considered as such pursuant to Article I of the Convention. The issue here is two-fold and is concerned with (a) the definition of what is arbitration (for the purpose of identifying the means of dispute resolution that may produce a decision enforceable under the Convention) and, having settled that, (b) the orders issued in an arbitration that can be validly enforced under the Convention.
The alternativity test and the finality test
There seems to be general agreement that the Convention is only intended to cover dispute resolution processes which can be regarded as a truly definitive alternative to the jurisdiction of domestic courts and whose awards have the same legal force as a court judgment. This apparently easy path of analysis may be quite complicated to follow in practice. Not least because the terminology employed in practice can be confusing at times. However, it must be remembered in this last respect that, as leading commentators and court decisions have explained, the identification of the actual nature of a means of dispute resolution is not affected by the name or title employed to describe it.
The identification of what is arbitration for the purpose of applying the Convention is only the first part of the two-fold analysis. Indeed, not all orders rendered in arbitration are covered by the Convention. As is well known, arbitral tribunals employ a great variety of orders to direct the development of the arbitral process. It is clear that directions issued by a tribunal to allocate tasks and deadlines in the proceedings are unlikely to qualify as awards covered by the Convention. However, in some cases, tribunals’ orders can give rise to a considerable amount of uncertainty as to their actual nature and therefore as to their enforceability under the Convention. It is advocated that only orders which finally settle one or more of the issues which have validly come within the jurisdiction of the arbitral tribunal should qualify for recognition and enforcement under the Convention. Such awards are not necessarily those that exhaust the tribunal’s mandate. The awards that should qualify for recognition and enforcement under the Convention are all the awards which finally adjudicate one or more of the several differences which have been submitted to the jurisdiction of an arbitral tribunal. The word final implies that once the issue has been adjudicated it would be no longer possible, not even if the tribunal wished, to reopen the issue.
Applying the tests: interpretation
Two clear examples of borderlines situations that may or may not follow within the scope of application of the Convention are described below. Before doing so, however, it may be appropriate clarifying what standard of interpretation should be applied with a view to establishing whether those two instances should follow within the scope of the Convention.
It has been discussed whether the analysis aimed at establishing the nature of both a given dispute resolution process and the decisions taken therewith should be carried out with reference to the relevant domestic law(s) or whether an analysis centered on the international nature as well as the harmonization goals of the Convention should be preferred. More precisely, on one hand, it has been argued that the nature of a dispute resolution process should be identified and assessed with reference to the provisions of the law which creates and regulates such process. This law may clarify, for example, either expressly or implicitly, whether the process undertaken by the parties should be considered as a true alternative to the jurisdiction of national courts and therefore whether such process is capable of producing decisions which may be enforced abroad under the Convention. On the other hand, other authors believe that the analysis should be carried out with predominant focus on the scope and purpose of the Convention rather than the provisions of the relevant domestic law. [1] This latter point of view is certainly appealing and does not seem to be inconsistent with the approach advocated in a considerable number of cases, according to which the Convention should be interpreted and enforced having in mind its ‘international’ character. The solution to this question is perhaps found in between the two mentioned views. It seems possible to agree with the opinion that the Convention, as an international legal instrument, should be interpreted having in mind its peculiar nature and scope in accordance with the rules for the interpretation of international conventions provided by the 1969 Vienna Convention on the Law of Treaties. This view, however, should not automatically rule out any reference to the relevant domestic law(s). It is here suggested that – in assessing the nature of a dispute resolution process and the nature of orders issued therewith – domestic courts should form an independent view on the nature of both the process and the relevant award, irrespective of the definitions or categorizations employed in the jurisdictions where the award was made. The domestic courts may, however, also look at the provisions of the relevant domestic law and use them as ‘facts’. Such facts would obviously provide a strong indication as to the actual nature of the means of dispute resolution under analysis. However, they should bear neither binding force nor a definitive answer to the problem.
Adjudication
The recent development of ADR has brought about sophisticated forms of dispute resolution that both from a linguistic and a substantive point of view seem to be germane to genuine arbitration. As we have seen above, where the ADR process does not make its outcome final and binding upon the parties, similarly to court judgments, then the Convention should not be applied.
However, some forms of dispute resolution – which at first sight should be outside the scope of application of the Convention – depending on the circumstances, may, in principle, fall within its scope. This is the case, for example, of adjudication in the United Kingdom. In 1996 a new means of dispute resolution called adjudication was introduced in the United Kingdom through the Housing Grants, Construction and Regeneration Act (the ‘Act’). Adjudication is aimed at providing a fast mechanism for settling on an interim basis disputes arising out of construction contracts. The Act requires the decisions of adjudicators to be enforced pending the final determination of disputes by arbitration or litigation, depending on the choice made by the parties in the relevant contract. Therefore, the adjudicator’s decisions are immediately binding and domestic courts would assist with their enforcement until the dispute is finally settled before the chosen forum. However, it is not clear whether adjudication decisions should be enforced abroad under the Convention. Many would, on first reaction, say no. However, certain provisions of the Act may tip the balance towards the opposite answer. Section 108(3) of the Act provides that ‘the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement’. It follows that the decisions of adjudicators are only temporarily binding and cannot therefore be regarded as final decisions on the dispute between the parties. Indeed, adjudication is not a genuine alternative to litigation as any proceedings commenced after adjudication are not an appeal to the decision taken by the adjudicator but completely autonomous and fresh proceedings in which the decision of the adjudicator would carry no weight.
There are however circumstances in the presence of which the nature of the decision of the adjudicator is not as clear-cut. Indeed, the Act provides the parties with the option to agree that the decision of the adjudicator would finally settle the dispute. It seems at least possible to argue that, in such circumstances, the agreement of the parties might have the effect of transforming adjudication into some form of arbitration, the outcome of which could be enforced abroad under the Convention. The fact that adjudication is a much less procedurally-structured process than arbitration should not be enough, at least on its own, to dismiss the view favoring the enforceability of adjudications abroad. While it is true that adjudication can be regarded as a bare bones process in which the parties are not always able to make their case as fully as they desire, it is also true that the principle of party autonomy allows the parties to structure their dispute resolution mechanism as they please, provided that the relevant mechanism is carried out and puts the parties on an equal footing.
Consent Awards
Not infrequently, parties are fortunate enough to settle their differences at the outset of or during arbitration proceedings. The options available to the parties in such circumstances are to either formalize their agreement in a contract and terminate the arbitral proceedings or, where the lex arbitri and the relevant arbitration rules so permit, to have their settlement agreement embodied by the arbitral tribunal in an award. The arbitral award which is the result of this option is often referred to as a ‘consent’ award.
The majority of arbitration laws and arbitration rules expressly permit consent awards. Article 30 of the UNCITRAL Model Law, for example, states that: “If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. An award on agreed terms shall be made in accordance with the provisions of article 31 and shall state that it is an award. Such an award has the same status and effect as any other award on the merits of the case.”
The main reason for agreeing to a consent award is that the parties may, where necessary, benefit from the application of the Convention. It is not clear, however, whether the application of the Convention to consent awards should be taken for granted. Even though – as we have seen above – the wording used in the Model Law (‘Such an award has the same status and effect as any other award on the merits of the case’) provides for a strong indication as to the nature of consent awards and therefore as to their enforceability under the Convention, it has been observed that consent awards lack the fundamental characteristics of arbitral awards and therefore should be outside the scope of the Convention.
The main three arguments against the enforcement of consent awards under the Convention are the following:
(a) the activity carried out by the arbitral tribunal with consent award is totally deprived of any
jurisdictional character and content. As there is no actual judicial activity there cannot be a genuine arbitral award;
(b) in order for an arbitral tribunal to exist and carry out its duties there must be an actual dispute between the parties. According to this argument, as soon as the parties enter into a settlement agreement the tribunal should be considered as functus officio;
c) the consent award may serve a purpose the in inconsistent with mandatory provisions of law or be altogether illegal.
The arguments are certainly fascinating but, perhaps, not entirely convincing. With regard to argument (a) it is possible to observe that judicial activity can be carried out in many different ways and in accordance with many different rules. The role of arbitrators, as well as that of court judges, is to preside over a process aimed at resolving a dispute. Whether the dispute is settled through a decision of the tribunal or an agreement of the parties should not make much difference. Furthermore, it should also be considered that, while the role of arbitral tribunals may be limited by the agreement of the parties to settle their dispute, arbitral tribunals retain powers of a fundamental importance. Indeed, tribunals are under no obligation to sanction the agreement if the agreement is illegal or aimed at circumventing the application of public policy provisions.
Argument (b) is somewhat formalistic and in any event unconvincing. As we have seen above, the fact that parties enter into settlement agreements during arbitral proceedings does not automatically deprive arbitral tribunals of their judicial authority. Arbitral tribunals are indeed required to perform further judicial activity before they can be considered functus officio.
If one were to espouse such formalistic method of analysis, then, it would be possible to observe, by the same token, that arbitral tribunals become functus officio only after a final award has been issued or where the proceedings are formally declared closed. Until that moment tribunals are still in function.
Finally, and with the same formalistic approach, it would be possible to argue that the settlement agreement may be implicitly entered into on condition that it is going to be validly incorporated into an award. As the settlement agreement implies the participation of the tribunal in the settlement process, the signing of the settlement agreement by the parties cannot by itself have the effect of making the arbitral tribunal functus officio.
Argument (c) does not seem to pose any insuperable problem. Legality and general compliance with public policy of the award would be in any event scrutinised ex officio by the court of the territory where enforcement is sought under Article V(2) of the Convention. This would be the case irrespective of whether the arbitral tribunal had an opportunity to ascertain the legality of the subject matter of the dispute or it has ignored the issue altogether.
Conclusion
The combined application of the two above-mentioned tests should help identify the decisions which fall within the scope of the Convention. Admittedly the two tests are not infallible. The ever developing practice of alternative dispute resolution may indeed create hybrid means of dispute resolution which could be difficult to classify.
Any analysis as to the applicability of the Convention should be carried out bearing in mind the Convention’s scope and purpose as well as the rules of interpretation provided under international law. It is advocated that no predominant role should be given in such task to the relevant provisions of domestic law. Such provisions should certainly be taken into account but should rather be used as facts which, as such, may provide for a non-binding indication as to the nature of the means of dispute resolution and the decisions under analysis.
Domenico Di Pietro
Lecturer, International Arbitration, University or Rome, “Roma Tre” and Fellow, Center for Transnational Litigation and Commercial Law, New York University School of Law. The present paper is a reviewed, edited and abridged version, for student discussion purposes, of the author’s article “What Constitutes an Arbitral Award Under the New York Convention?” in Enforcement of Arbitration Agreements and International Arbitral Awards – The New York Convention in Practice, (E. Gaillard and D. Di Pietro eds., 2008).
[1] See Emmanuel Gaillard and John Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration 735–80, Kluwer (1999) 7 Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 49, Kluwer (1981); Gino Lörcher, ‘Enforceability of Agreed Awards in Foreign Jurisdictions’, 17(3) Arb. Int’l 275, 280 (2001).