APPLICATION OF THE NEW YORK CONVENTION BY UNITED STATES COURTS: A TWENTY-YEAR REVIEW - Vol. 2 No. 1 Aria 1991
Gerald Aksen - Partner, Reid & Priest, New York, N.Y.; Member of the Bar, New York; Member, Board of Directors of the American Arbitration Association.
Wendy S. Dorman - Attorney, Office of the Solicitor, U.S. Department of the Interior, Washington, D.C., former Associate, Reid & Priest, New York, N.Y.; Member of the Bar, New York and Illinois.
Originally from American Review of International Arbitration - ARIA
The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”)1 resulted from an international effort to make arbitration a more effective means of resolving transnational business disputes. In 1970, the United States acceded to the Convention and Congress implemented its provisions by enacting chapter 2 of the Federal Arbitration Act (the “FAA” or the “Act”).2 During the last two decades, federal and state courts have been called upon to interpret and apply the Convention to enforce international arbitration agreements and awards in nearly one hundred cases. In a 1974 landmark decision, Scherk v. Alberto-Culver Co.,3 the Supreme Court outlined a federal policy favoring recognition and enforcement of international arbitration agreements and awards, and established guidelines for interpreting the Convention. The Court held that an arbitration clause in a “truly international agreement” must be considered valid, irrevocable, and enforceable:
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.4
This article examines the application of the New York Convention by United States courts, which, with few exceptions,5 have consistently compelled arbitration and confirmed arbitral awards under the Convention. The courts have also respected the integrity of the arbitral process through a narrow construction of the grounds for judicial intervention and review.6
A. Overview of the New York Convention
The Convention imposes two principal requirements on the courts of signatory countries: First, article 11(3) requires courts to defer to the jurisdiction of arbitrators where actions are brought concerning matters covered by arbitration agreements. Second, article V requires courts to enforce foreign awards without reviewing the merits of the arbitrators’ decision. Challenges to enforcement, such as the failure of an arbitrator to give the complaining party an opportunity to present its case, are extremely limited.
The Convention’s coverage is limited to the enforcement of foreign arbitral awards, defined as “awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.” The Convention also applies to “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”8
B. The Federal Arbitration Act
Enforcement of the Convention in the United States stems from three sources of law: the substantive provisions of the Convention; the instrument of accession signed by the President in 1970 adopting the reciprocity and commercial disputes reservations; and the FAA.
Section 202 of the FAA outlines the criteria that an agreement or award must meet to fall under the Convention: it must arise from a legal relationship considered “commercial” under U.S. law; and it must be between a U.S. and a foreign party, or between foreign parties only. If the agreement or award is entirely between U.S. parties, the Convention will apply only if the underlying transaction involves international commerce.10
The FAA establishes a simplified procedure for confirming foreign awards into judgment within three years.