The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides a recognized method for enforcement of international arbitration awards. By treaty, more than 100 nations have agreed to enforce awards rendered in nations that are signatories to the New York Convention. In contrast, no foreign nations have agreed by treaty to enforce judgments of United States courts.

Patricia Casey - Haynes and Boone LLP, Houston

Businesses based in the United States might assume that it would be advantageous to seek a judgment from a United States court in the event that a dispute arises with a company from another country. This assumption might be based on the familiarity of the local courts, the language and the customs. Two significant hurdles must be overcome, however. First, the foreign company may not be subject to jurisdiction before a court in the United States. Second, a judgment from a United States court may not be recognized by a foreign jurisdiction.

An agreement by the parties to submit disputes to arbitration governed by any of a myriad of international arbitration institutions addresses these concerns. The parties may agree to submit their disputes to arbitration in a location that has no relationship with any of the parties and therefore is considered neutral to each party. For example, a United States company and a Russian company could agree to arbitrate disputes in Sweden. The parties can also agree that the sole arbitrator or the chair of a three-member arbitral panel shall be a national from the neutral location of the arbitration.

Significantly, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the “New York Convention”) provides a recognized method for enforcement of international arbitration awards. By treaty, more than a hundred nations have agreed to enforce awards rendered in nations that are signatories to the New York Convention. In contrast, no foreign nations have agreed by treaty to enforce judgments of United States courts.

Available international arbitration authorities

Numerous international institutions administer arbitrations. The following are a sample of some of the institutions available to the parties:

The American Arbitration Association (“AAA”) may be familiar to United States companies who have submitted domestic disputes to the AAA for resolution. The AAA also administers international commercial arbitrations within the United States as well as outside of the United States.1

The International Court of Arbitration (“ICC”) of the International Chamber of Commerce is a widely recognized institution in international transactions. Significantly, all arbitral awards pursuant to the ICC are first submitted in draft form to the International Court of Arbitration for review prior to the final award being signed by the arbitral panel.2

Another common international arbitration institute relied on in international transactions is the London Court of International Arbitration (“LCIA”). While the parties can agree to the location of the arbitration, the default location is London, England. The Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”) also administers international arbitrations. The Permanent Court of Arbitration (“PCA”) at The Hague is a longstanding organization administering international disputes at The Hague, The Netherlands.3

The parties may agree to submit disputes regarding intellectual property such as trademarks, copyrights and patents to an arbitration proceeding administered by the International Bureau of the World Property Intellectual Property Organization (“WIPO”). WIPO arbitration rules specifically provide for experiments by the parties and site visits by the Tribunal.4 WIPO arbitration rules also address treatment of trade secrets and other confidential information and set out procedures for the submission of primers describing technical or scientific information, as well as models, drawings or similar demonstrative materials.5

The agreement to arbitrate

When parties are negotiating and documenting agreements for transnational business deals, they may give only limited consideration to a dispute resolution clause. The dispute resolution clause deserves more than a cursory review in the negotiations. The prudent party will want to agree to a well crafted procedure for resolving disputes at the outset, at a time when the mere possibility of a dispute seems remote and the parties are working towards an agreement.

Arbitration clauses that are not planned can have unintended consequences. For example, contradictory arbitration provisions or the omission of key arbitration terms can result in litigation in courts when one party had intended arbitration to be the only remedy or can result in difficulties in enforcing an arbitral award. Fortunately for many parties who have not focused on the arbitration provisions in the contract, the simple incorporation of a particular international arbitration institute’s rules will help. This is not the only consideration, however.

The thoughtful drafter will give due consideration to the following points, in light of the subject matter of the parties’ contract:

• The scope of the arbitration agreement

The parties may want to submit only particular disputes to arbitration, such as accounting audits, or the parties may want to specifically exclude arbitration of tort, statutory or other non-contractual claims.

• Potential remedies

The parties can limit the potential remedies that the arbitral panel can award. For example, the parties may want to avoid punitive damages or consequential damages such as lost profits and limit the potential recovery of either party to actual damages or a particular calculation of damages. The parties may also agree that the losing party will pay the other party’s attorneys’ fees and all the costs of the arbitration or could agree that the arbitral panel has the discretion to make an award of attorneys’ fees.

• Whether an institution will administer the arbitration or the parties will proceed to “ad hoc arbitration”

The parties may identify a particular international arbitration institute to oversee the arbitration pursuant to that institute’s published rules or the parties may choose to specify other agreed rules tailored to their contract and proceed to arbitration without a formal administering body.

• Mechanics of the arbitration

The parties can predetermine the number of arbitrators, commonly selecting either one or three. Often, the parties choose three arbitrators, with each party choosing one arbitrator and the arbitration institute or the party-selected arbitrators choosing the presiding arbitrator. The parties can specify the nationality of the arbitrators, the language of the proceeding, the location of the arbitration, and the scope of pre-trial proceedings and “discovery.”

In US court systems, litigants often have broad rights of discovery prior to trial, including depositions of parties and non-party witnesses and document production from parties and non-parties. These pretrial discovery procedures can be costly and time-consuming. In other countries, pre-trial discovery may be strictly limited and depositions may be prohibited. For the most part, international arbitration rules follow the non-US model of discovery and are limited in depositions and document production, reducing costs to the parties and speeding the dispute resolution process. The parties are free to alter these rules and specify their own pre-hearing discovery rules.

• Interim relief

The parties should consider whether emergency measures to protect either party might be needed should a dispute arise. A situation may arise where a party may need to seek immediate protection from a court pending the appointment of an arbitral panel. Because US courts may defer to the parties’ agreement to arbitrate, it may be necessary to include a specific statement that emergency disputes can be decided by local courts without impinging on the arbitral panel’s authority.

• Enforcement of the award

The parties should consider agreeing at the outset that any arbitral award shall be final and binding upon the parties and that a judgment can be entered upon the award in any court having jurisdiction. The parties can consider language agreeing to submit to jurisdiction for enforcement of any award.

The arbitration process

The US Federal Arbitration Act (“FAA”) “embodies the national policy favoring arbitration.”6 The FAA provides a mechanism for parties to enforce an agreement to arbitrate an international dispute. The court can stay any court proceeding initiated by one of the parties in the United States if the other party demonstrates that the dispute is referable to arbitration.7 The court can also order that the parties proceed to arbitration.8

In addition, if a party files suit in a United States state court, the other party can immediately “remove” or transfer the suit to a federal court to enforce the arbitration agreement.9 By authority of the FAA, a US court can order the parties to arbitrate in a foreign country if that was their agreement.10

The arbitration hearing will likely proceed with testimony and cross-examination of witnesses and experts, following submission and exchange of detailed witness statements. Witness statements, often drafted by attorneys for signing by the witnesses, will likely be considered by the arbitral panel as direct evidence, unless a witness does not appear at the hearing for cross-examination, in which case the arbitrators may disregard the witness’s statement. Unlike most court proceedings in the United States, the arbitration hearing may be the first time that a party’s lawyer meets or questions the other party’s fact witnesses and experts.

The various arbitration institutions require that the arbitral panel make a “reasoned” award, setting forth in detail the decision of the panel as well as the reasoning for the decision. The parties are free to agree otherwise at the outset, however, a reasoned award helps parties understand the panel’s award and may help avoid challenges to enforcement of an award.

Enforcing an Arbitration Award

The New York Convention provides authority for enforcement of arbitration awards in the approximately 134 nations who have signed and ratified the New York Convention. The United States ratified the New York Convention in 1970. Significant to US companies who engage in oil and gas transactions with foreign countries, many oil producing nations have ratified the New York Convention.

Challenges to Arbitration Awards

The New York Convention specifies only seven narrow and discretionary grounds to avoid enforcement of an international arbitration award.11 Should one court in the United States or another nation decline to recognize or enforce an arbitration award, however, that action does not invalidate the award or preclude recognition or enforcement by another court. Ordinarily, enforcement of an international arbitral award is obtained through a simple summary proceeding under the NY Convention.12

Conclusion

Negotiating parties who include arbitration provisions in their contracts should carefully consider the provisions to ensure that their intent is clear, their options are determined in advance and they are suitably protected should a dispute arise in the future. Provisions should be tailored to meet the parties’ needs and the particular circumstances of the transaction. Arbitrations can be cost saving measures for parties in the event of a dispute. Finally, international arbitrations can provide neutral forums for dispute resolution, benefiting both parties to the contract.

References

1. AAA International Arbitration Rules and AAA Supplementary Procedures for International Commercial Arbitration.
2. ICC Arbitration Rules, Article 21.
3. PCA Arbitration Rules, Article 16.1.
4. WIPO Arbitration and Expedited Arbitration Rules, Articles 49 and 50.
5. WIPO Arbitration and Expedited Arbitration Rules, Articles 51 and 52.
6. Buckeye Check Cashing, Inc. v. Cardegna, 546 US (2006).
7. US Federal Arbitration Act, Chapter 1, Section 3.
8. US Federal Arbitration Act, Chapter 1, Section 4.
9. US Federal Arbitration Act, Chapter 1, Section 4; Chapter 2, Section 205.
10. US Federal Arbitration Act, Chapter 2, Section 206.
11. NY Convention, Article V.
12. NY Convention, Article IV.

About the Author

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Patricia Casey [patricia.casey@haynesboone.com] is a partner in the business litigation and international practice areas for Haynes and Boone LLP, has counseled numerous energy companies on matters of foreign and domestic arbitration. She is a member of the Houston International Arbitration Club and serves on the board of directors for the Houston Association of Women Attorneys.

Special Report: International Arbitration

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