Montserrat Manzano[1]
Rafael Francisco Alves[2]
In June 2018, the international community celebrated the 60th anniversary of the adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, known universally as the ‘New York Convention’. At the time of writing, the New York Convention has 159 state parties[3], including each of the developed and developing economies of Latin America. The drafters of the New York Convention intended for such regime to provide for the prima facie recognition and enforcement of foreign arbitral awards, and for the exclusive grounds that rebut this presumption, found in Article V of the Convention, to be construed narrowly by national courts.
New York University’s professor Franco Ferrari posed an interesting question from which we have started this paper: How international should international arbitration be? Should it be as international as possible, subject only to the recognition of the applicable law chosen by the parties? While it is true that Article III of the Convention provides that courts are to enforce awards in accordance with their own rules of procedure, is it imperative that the standards of procedure applied to such an exercise are international, and not domestic? Following Professor Ferrari’s premise and the New York Convention’s purpose, it would be reasonable to expect that procedure would be interpreted autonomously in relation to domestic standards in order to achieve a uniform application of the New York Convention among its signatories.[4]
This text is prepared with our reflections after the Conference on the Application of the New York Convention in Latin America held at New York University School of Law on September 13, 2018. In it, we examine examples of recent Latin American case law and analyze the extent to which those courts apply the Article V(1) New York Convention grounds for refusal of recognition/enforcement in alignment to such autonomous international standards. Our focus in this paper is directed towards the grounds enshrined in Articles V(1)(b) of the Convention, which provides in general terms for the opposition to recognition/enforcement of foreign awards on the grounds of denial of due process.
In undertaking this task, we extracted case law materials from two primary sources: the New York Convention Guide (www.newyorkconvention1958.org) and the ICCA Yearbooks on Commercial Arbitration. A cursory glance at each of these sources will reveal the limited nature of the published case law emanating from Latin America. While there are 20 Latin American signatories of the New York Convention, only 12 have had a decision regarding the application of the New York Convention published in either of the aforementioned sources; and of those 12 states, 7 have had less than five decisions published since ratifying the Convention. Unsurprisingly, the states with the most published decisions are among the most developed economies in Latin America, with the Brazilian courts the most documented by far. With that in mind, we wish to stress that this text does not purport to (i) analyze all of such decisions exhaustively or even (ii) identify definitive trends throughout Latin America as a whole. This text is merely designed to draw tentative conclusions based on what presently exists in the public sources referred to in this paper.
I. The Relationship between Domestic law and the New York Convention
Most international conventions create rights and obligations that primarily benefit and oblige sovereign states directly. The New York Convention, however, has the uncommon characteristic of being designed to apply in domestic fora. National courts apply the Convention and it is for the benefit of private entities that have been subject to a foreign arbitral award. Accordingly, while most international conventions may carry out their effect while being left solely in the realm of international law, it is essential that the New York Convention has some means of translating into the domestic arenas of its signatories.
The implementation of treaties into domestic law is not a uniform exercise across the globe. Commentators commonly dichotomize the various legal systems into ‘monists’ and ‘dualists’. For a legal system to be ‘monist’ means that not all treaties need be implemented into domestic law by a separate piece of domestic legislation for a national court to be able to apply them, they must simply be approved by the state. Such legal systems include, inter alia, those in Mexico, Chile, Colombia, China, France, Germany, the Netherlands and Switzerland. In such states national courts can be expected to apply directly those international conventions that do not require implementation, unless the legislature decides to enact an implementing law in any event. In a ‘dualist’ system, conversely, international law must be positively ‘internalized’ into the domestic system in order for the treaty to have any normative effects in the jurisdiction. Such systems include, inter alia, those in the United Kingdom and nearly all other British Commonwealth states, in addition to most Nordic states. Courts in dualist systems do not apply the treaty directly – they apply the accompanying piece of domestic law that implements it and will only ever use the treaty at most to guide the interpretation of that domestic instrument. The position in Brazil is the subject of substantial debate, as its ratification process of international treaties requires approval by both the Brazilian legislative body and then the President. Recent case law would seem to suggest, however, that Brazil is at least a moderate monist system, if not dualist.[5]
UNCITRAL research reported in 2008 found that the clear majority of signatories viewed the New York Convention as self-executing and therefore directly applicable in their national courts, however for other states implementing legislation was deemed necessary for the Convention to gain force in their jurisdictions.[6] The attitude of Latin American signatories has concurred with the majority, however in accordance with international attitudes reinforced by UNCITRAL, many have nevertheless given effect to the New York Convention by way of enacting domestic legislation. In monist Mexico, for instance, the provisions of the New York Convention are incorporated into the Mexican Commerce Code and accordingly Mexican enforcing courts regularly apply the Commerce Code in lieu of the Convention. In Brazil, the New York Convention was adopted in 2002 by a Legislative Decree[7] followed by a Presidential Decree[8] promulgating the text of the Convention within the Brazilian territory. However, Brazilian judges (particularly the Superior Court of Justice – STJ, the competent court for the exequatur of foreign arbitral awards) continues to apply, in general, Brazilian domestic law on arbitration (Law 9,307/96 – the so-called Brazilian Arbitration Act), which provides for similar grounds for the refusal of exequatur of arbitral awards[9]. Accordingly, even if the STJ still applies the Brazilian Arbitration Act in most cases, it usually follows international standards when granting exequatur to foreign arbitral awards, as will be detailed in this article.
Naturally, in monist and dualist systems there exists differing degrees of attention to the substantive provisions of the New York Convention. However, it should not be forgotten that even in the most dualist systems there remains an irreducible minimum applicability of the New York Convention, and similarly even in the most monist systems domestic norms will be required to supplement the New York Convention’s application. There will always exist lacunae in each law that the other is required to fill. Where implementing legislation is unclear, in accordance with Articles 31-33 of the Vienna Convention on the Law of Treaties (to which all 12 of the aforementioned Latin American states are party, save for Venezuela), courts are to look to the context of the New York Convention and its text as a whole in forming an interpretation. Similarly, where a court applies the New York Convention directly (as the Colombian courts regularly do), we shall see below that ambiguities in the Convention may be resolved by reference to the enforcing court’s most fundamental domestic standards. As Professor Strong summarizes, the Convention does not “operate in isolation” – but it is buttressed by “national arbitration laws, institutional rules, soft law, and persuasive authority”.[10]
II. The Enduring Prevalence of Party Autonomy
Article V(1)(b) of the New York Convention, which like all the Article V(1) grounds may only be submitted by the party opposing recognition/enforcement, provides that the court may refuse to recognize and enforce the award if:
“(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”.
The question of whether ‘proper notice’ has been given to the parties under Article V(1)(b) was elucidated in the historic 1977 Mexican enforcement decision in Presse Office S.A. v Centro Editorial Hoy S.A.[11] In that case, an award was issued in favor of Presse Office in an ICC arbitration seated in Paris against Hoy, and Presse Office subsequently sought enforcement before the Mexican courts (Eighteenth Civil Court of First Instance for The Federal District of Mexico). Hoy opposed enforcement under Mexican Public Policy and Article V(1)(b) of the New York Convention, as it submitted that as a principle of Mexican public policy the first notice of summons should be served personally upon a respondent – whereas Hoy served it by mail (postal service) pursuant to the ICC Arbitration Rules. The Court held that the arbitral procedure did not violate the formal requirements detailed in Article 619 of the Code of Civil Procedure and Articles 14 and 16 of the Mexican Constitution. By inserting the arbitral clause into the contract the parties were considered to have autonomously waived the formalities established by Mexican procedural legislation in order to instead be governed by the ICC Arbitration Rules and to French law.
A near identical decision was reached later that same year by the Mexican courts (Tribunal Superior de Justicia, Court of Appeals -fifth chamber- for the Federal District of Mexico), in Malden Mills Inc v Hilaturas Lourdes S.A (1977).[12] In that case the Court overturned the Civil Court of First Instance, who denied enforcement of the award on the grounds that all notices had been served by mail, in violation of Mexican public policy. Just as in Presse Office, the Court held that the parties had waived Mexican procedural formalities when agreeing to arbitrate (in this case under the rules of the AAA).[13]
The more recent Keytrade (2013)[14] case decided by the Brazilian Superior Court of Justice confirms a party-autonomy-centric approach. In this case the complainant submitted that it had not been duly notified of the arbitration, however the Court held that, under Brazilian law, a party to a foreign arbitration residing or domiciled in Brazil may be notified of the appointment of the arbitrator or the arbitration proceeding in the manner prescribed by the procedural law of the place of arbitration (in this case, England). It held that because the English Arbitration Act does not set requirements for notification other than “by effective means”, the complainant was duly notified[LOB1] , as it appeared from the file that it had in fact received the e-mails sent to it for this purpose. The enforcing court looked to the autonomous will of the parties exercised in the arbitration agreement to determine the rules that govern the arbitral process, just as in the aforementioned Mexican cases.
This party-autonomy-centric approach is consistent with doctrine applied by enforcing courts across the globe, as occurred, for instance, in Egyptian Concrete Company et al. v. STC Finance et al. (1996),[15] and in Kammergericht (2008).[16] It has the benefit of restricting the application of domestic standards to only those that the parties have autonomously selected when agreeing to arbitrate, and it accordingly engenders a uniform approach to the recognition and enforcement of awards globally – as the drafters of the New York Convention intended. Ultimately, the goal of the Convention is to ensure that one court enforcing a certain award follows the same process as another court enforcing that same award – and the approach described above does precisely that.
III. The Application of International Standards of Due Process
In addition to the above, Article V(1)(b) has a separate sub-ground for the opposition of recognition/enforcement:
“(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”.
In effect, this objection is that there was a violation of due process. It was considered by the Supreme Court of Colombia in the Petrotesting (2011) case.[17]
Petrotesting and Ross Energy were members of a consortium working together under an oil exploration and production contract with Empresa Colombia de Petróleos. As part of their relationship, the consortium members entered various agreements to regulate their respective rights and obligations to each other in the performance of the contract. Each of these agreements contained arbitration clauses providing for settlement by the ICDR. These agreements also provided for those disputes to be conducted in English, and seated in Colombia, and that any translation costs would be incurred individually by the parties. Ross Energy defaulted under the agreements due to its financial impecuniosity, and Petrotesting filed a request for arbitration before the ICDR, as per the agreements.
The day before the preliminary hearing, Ross Energy’s representative stated that it would only participate in it if the hearing was held in Spanish, despite the arbitration clause stating that proceedings would be held in English. The parties and tribunal declined, and Ross Energy informed the tribunal and the Claimants that it declined to participate in the hearing because its impecuniosity meant that it was unable to pay for the hearings to be translated. Ross Energy’s representative stated that by insisting on the use of English, Ross Energy’s right to defend itself was denied. Months later, Ross Energy also declined to participate in the hearing on the merits.
By an award of 19 June 2006, a sole arbitrator found in favor of Petrotesting, holding that Ross Energy breached its obligations under the agreements. Petrotesting sought enforcement of the award before the Colombian Supreme Court.
Ross Energy resisted enforcement on several grounds, including “forgery”, “litispendence”, “arbitrability”, “public policy”, “excess of authority”, and in particular, “due process”. Under Article V(1)(b), Ross Energy submitted that because the proceeding had been held in English and because it did not have the financial means to pay for a translation and hire a lawyer to represent it in arbitration in the US, due process had been violated.
The Court explained that as Ross Energy’s impecuniosity and language-barrier complaints are not specifically provided for in Article V(1) of the New York Convention as grounds for refusing enforcement, enforcing courts often decide the question of due process under their legal system’s principles regarding procedure. It should be stressed that the Court considered that the application of its own legal system is strictly limited only to the system’s most “fundamental procedural guarantees”—which includes the notification to the defendant so that he can appropriately present his defense—, and not to its specific rules.[18]
Thus, in determining the standard of due process the court applied the Colombian principle of “the protection of fundamental rights”, which is derived from Article 29 of its Political Constitution. This provides that the minimum guarantees to be protected are, inter alia:
- the right to access the administration of justice before a natural judge;
- the right to be informed of the acts that lead to the creation, modification or extinction of a right or to the imposition of an obligation or sanction;
- the right to express freely and openly one’s opinions;
- the right to contradict or discuss claims or objections raised;
- the right to the conclusion of the proceeding within a reasonable time and without unjustified delays; and, of course,
- the right to submit evidence and discuss the evidence supplied [by the other party].
The Court held that as Ross Energy was duly informed of the commencement of the proceeding, and it was both able to and did present its case (since it both submitted a statement of reply and supplied evidence), Ross Energy was afforded the right to defend itself in the proceeding. It simply did not attend the hearings.
Also, it was held that the language difficulty faced by Ross Energy could not be deemed a violation of due process, because in the exercise of its autonomy the parties agreed in the arbitration agreement that the language to be used would be English and this was the language used to draw up the contracts between the parties. Thus, the Court held that Ross Energy could not claim to have been “surprised by a strange language”.
The Court also held that Ross Energy’s argument that it was economically impossible for it to hire a US lawyer could not be taken into account by the Court, as it was not raised in the arbitration proceeding and that the “cost of an arbitration” has not been deemed “a valid ground not to participate therein”. Ross Energy’s refusal to participate in the proceeding was based at the time solely on the language barrier – it did not mention any issue in hiring a lawyer. Moreover, the court considered that the fact that the parties agreed in their contracts that disputes would be decided by “such a specialised and reputed centre as the ICDR” meant that it could not possibly be accepted that Ross Energy was surprised by the costs of the proceedings. To do so would run contrary to the principles of pacta sunt servanda and of good faith expected between contracting parties.
Following similar reasoning, the Colombian Supreme Court laid down its judgment in the Drummond (2011) enforcement case.[19] In this case the party opposing enforcement of an ICC award rendered in Paris submitted that because it was in liquidation at the time of the arbitration the proceedings should not have been allowed to continue – as the party was unable to present its case. Just as in Petrotesting, the Court stated that the application of Article V(1) of the New York Convention to this question is not specifically provided for, and that the standards of the New York Convention are “imprecise” – so the Court once again applied the “fundamental procedural guarantees” of Colombian law to determine whether there had been a breach of due process. The Court found that the opposing party participated in the arbitration through two representatives, raised defenses and communicated to the tribunal that it was in liquidation; and that therefore “the minimum guarantees that constitute the hard core of due process were complied with”[20] in the arbitration. Further, the Court held that being represented by a liquidator is not a violation of due process.
When reading each of these cases, it is clear that the Colombian court was determined to apply the Article V(1) grounds of the New York Convention exhaustively. In Petrotesting, for instance, the Court explicitly rejected Ross Energy’s opposition on the ground of ‘res judicata’ by stating that “[t]he defence relied on is not included in the exhaustive list of Article V of the Convention. This is sufficient reason not to take it into consideration”. When the Court does consider the application of Article V(1)(b) to a case, since there is no defined “international standard”, this article was analyzed in light of the ‘fundamental procedural guarantees’ of the Colombian legal system. In doing so, it might seem that the Colombian Supreme Court has in Petrotesting and Drummond applied a domestic standard, derived from the Colombian constitution, to its application of the New York Convention grounds for refusal. As we stated earlier, however, while Article V is critical in identifying and safeguarding general principles of procedural law, it does not “operate in isolation”,[21] but rather in order to create a dispute resolution regime that prioritizes justice and consistency. As can be seen from the referred cases, Article V is applied “in tandem with national arbitration laws, institutional rules, soft law, and persuasive authority”.[22] Further, and fundamentally, research conducted by Peter Rutledge has found that the fundamental procedural rules of national constitutions and international due process norms are not mutually exclusive, but rather that the latter norms are derived from the former.[23] Thus, the Colombian Supreme Court’s limitation of its supplementation of the New York Convention to “fundamental procedural guarantees” enshrined in the Colombian constitution means that it, in reality, limited the supplementation to international standards of due process despite technically applying domestic law.
The Argentine Supreme Court of Justice decision in Milantic (2016)[24] approached the interpretation of Article V(1)(b) similarly but cast the interpretation as being supplemented by the “the Argentine international public order” rather than specifically by “fundamental procedural guarantees”. These phrases are evidently not wholly dissimilar, however, as the court stated:
“the validity and application of international conventions is carried out in our country if the resolution being executed (in this case, the award) has been the result of a process where the principles, guarantees, guidelines or canons that are established expressly in our national constitution or that may be undoubtedly derived from its provisions have been complied with”.[25]
Thus, the principle of due process given effect to in Article V(1)(b) of the New York Convention was applied in Milantic by reference to “the Argentine international public order”, which the court defines as consisting of the principles and guarantees enshrined in the Argentine Constitution. Though the Argentine court did not qualify the reference to only Argentina’s most “fundamental” constitutional norms, as the Colombian courts did in Petrotesting and Drummond, the fact that such norms must be derived from the Argentine constitution means that a largely similar approach was followed.
IV. Final reflections
The New York Convention has as its main objective the establishment of a uniform and pro-recognition enforcement regime, which Professor Ferrari asserts requires that arbitration be “as international as possible”, meaning that a nationalistic approach when interpreting the Convention shall generally be avoided, even in respect of those national provisions that transpose the New York Convention into domestic law. This, he notes, is essential so that the different interpreters of the Convention do not reach irreconcilably inconsistent conclusions. Accordingly, under his interpretation countries have a duty to analyze international arbitration by referring to “international standards” rather than domestic ones.
Crucially, however, the New York Convention cannot operate in isolation. Where ambiguities exist in the wording of the Convention, it is right that enforcing courts find solutions in light of not only Articles 31-33 of the Vienna Convention, but also in light of that jurisdiction’s most fundamental procedural guarantees enshrined in its constitution. This is so by virtue of the reality elucidated by Professor Rutledge – that international norms of due process are derived from those same fundamental principles.[26]The cases we have examined specifically regarding ground V(1)(b), the Petrotesting (2011) and Drummond (2011) cases, elucidate this reality. The Colombian Supreme Court contemporarily applied the Convention’s grounds restrictively and exhaustively – and supplemented ambiguities or lacunae in them with the most fundamental procedural principles enshrined in the Colombian Constitution, rather than any specific domestic rules. While Colombian national law was indeed applied by the court to buttress the New York Convention, those fundamental principles that it applied are considered to be the very source from which “international standards” are derived.
So
how international should international law be? In our view, Professor Ferrari’s
position that international law should be as international as possible holds
true, but to resolve ambiguities in the Convention by resorting to domestic
fundamental procedural guarantees does not frustrate that ideal. Nor, as we
have explained, does applying the law autonomously chosen by the parties.
[1] Partner of Von Wobeser y Sierra, S.C. The author wishes to acknowledge the assistance of Ana Toimil and Alex Barnes in the preparation of this article.
[2] Partner of L.O. Baptista Advogados Associados. LL.M. New York University (NYU), Class of 2010, Arthur T. Vanderbilt Scholar.
[3] Information available at https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-1&chapter=22&lang=en.
[4] Franco Ferrari, ‘How International should International Arbitration be? A Plea in Favour of a Realistic Answer’, 853.
[5] Rafael Alves: https://blogs.law.nyu.edu/transnational/2014/11/the-cisg-has-definitely-entered-into-force-in-brazil/
[6] UNCITRAL Report, 2008 – A/CN.9/656.
[7] Legislative Decree nº 52, 25 April 2002.
[8] Decree nº 4.311, 23 July 2002, available at http://www.planalto.gov.br/ccivil_03/decreto/2002/D4311.htm
[9] Rafael Alves, Jura Novit Arbiter under Brazilian law, in: Iura Novit Curia in International Arbitration, NYU Center for Transnational Litigation, Arbitration and Commercial Law, JurisNet, 2018, p. 50-53.
[10] S. I. Strong, ‘General Principles of Procedural Law and Jus Cogens’, Penn State Law Review (2018), 382-83.
[11] Reported in ICCA as Mexico No. 1 (Yearbook Commercial Arbitration 1979, Volume IV, pp. 301-302), Presse Office S.A. v Centro Editorial Hoy S.A., Tribunal Superior De Justicia, Eighteenth Civil Court of First Instance for The Federal District of Mexico, 24 February 1977.
[12] Reported in ICCA as Mexico No. 2 (Yearbook Commercial Arbitration 1979, Volume IV, pp.302-304), Malden Mills v. Hilaturas Lourdes SA, Tribunal Superior, Court of Appeals (5th Ch.) for the Federal District of Mexico, 1 August 1979.
[13] id. at page 303. The Mexican court stated that: “Even though it is clear that in this case the summons was not made with the formalities established in Arts. 116 and 117 of the Code of Civil Procedure, it is also clear that the parties agreed that any controversy arising from the purchase and sale agreement […] should be resolved through arbitration in the city of New York or Boston, […] in accordance with the existing Rules of the American Arbitration Association or the Arbitration Council […] It should be taken into consideration that, as in this case, if an express contract exists which provides for submission to the Rules of the American Arbitration Association, it results that the summons was made in correct form since the parties waived the formalities established by the Mexican procedural legislation regarding notices, and submitted themselves to the Rules of the American Arbitration Association, which permit notices by mail, and the lower court judge was not just in considering that the defendant should have been summoned in a different manner.”
[14] Reported in ICCA as Brazil No. 34, (Yearbook Commercial Arbitration 2014, Volume XXXIX, .364-366) Keytrade AG v. Ferticitrus Indústria e Comércio de Fertilizantes Ltda) Superior Tribunal de Justiça, 7 August 2013, SEC no. 4024.
[15] Egyptian Concrete Company & Hashem Ali Maher v. STC Finance & Ismail Ibrahim Mahmoud Thabet & Sabishi Trading and Contracting Company, Court of Cassation, Egypt, 27 March 1996, 2660/59.
[16] Kammergericht [KG], Berlin, Germany, 17 April 2008, 20 Sch 02/08.
[17] Reported in ICCA as Colombia No. 7 (Yearbook Commercial Arbitration 2012, Volume XXXVII, p.200-204) Petrotesting Colombia S.A. et al. v. Ross Energy S.A., Supreme Court of Justice of Colombia, 11001-0203-000-2007-01956-00, 27 July 2011.
[18] Petrotesting Colombia S.A., Southeast Investment Corporation v. Ross Energy S.A.S. / 11001-02-03-000-2012-02952-00, page 54. The Court stated: “As the standards of the New York Convention are vague and imprecise in respect of these issues, courts seized with an exequatur procedure have opted in several cases, when deciding on the recognition or enforcement of awards, for carrying out this scrutiny in the light of the procedural principles of their country, without applying specific rules but rather fundamental procedural guarantees. In the United States of North America, for example, this question was highlighted in the famous case ‘Parsons & Whittemore v. Rakta, US no. 7”.
[19] Reported in ICCA as Colombia No. 8 (Yearbook Commercial Arbitration 2012, Volume XXXVII, p.205-209), Drummond Ltd. v. Instituto Nacional de Concesiones – INCO et al., Corte Suprema de Justicia, Civil Cassation Chamber, 19 December 2011.
[20] Empresa Colombiana de Vias Ferreas Ferrovias (Colombia) v Drummond Ltd (US) / 11001-03-26-000-2003-00034-01(25261), page 42.
[21] see supra note 6.
[22] S. I. Strong, ‘General Principles of Procedural Law and Jus Cogens’, Penn State Law Review (2018), 382-83
[23] Peter B. Rutledge, Arbitration and the Constitution, 145-59 (2013).
[24] Corte Suprema de Justicia, 30 March 2016, causa A. 69.572 (Milantic Trans S.A. v. Ministerio de la Producción (Astilleros Río Santiago y otro)); not in the ICCA yearbook but full judgment accessible at: http://public.diariojudicial.com/documentos/000/067/912/000067912.pdf.
[25] id. at page 43
[26] see supra note 10.