Arbitration: Grounds for refusal (Article V) in general

This phase is characterized by the following general principles:

– no review on the merits;
– burden on respondent of proving the exhaustive grounds;
– exhaustive grounds for refusal of recognition and enforcement;
– narrow interpretation of the grounds for refusal;
– limited discretionary power to grant the recognition and enforcement even if one of the grounds applies.

The court does not have the authority to substitute its decision on the merits for the decision of the arbitral tribunal even if the arbitrators have made an erroneous decision of fact or law.

The Convention does not allow for a de facto appeal on procedural issues; rather it provides grounds for refusal of recognition or enforcement only if the relevant authority finds that there has been a violation of one or more of these grounds for refusal, many of which involve a serious Due Process violation.

The respondent has the burden of proof and can only resist the recognition and enforcement of the award on the basis of the grounds set forth in Article V(1). These grounds are limitatively listed in the New York Convention. The court can refuse the recognition and the enforcement on its own motion on the two grounds identified in Article V(2).

In summary, the party opposing recognition and enforcement can rely on and must prove one of the first five grounds:
(1) There was no valid agreement to arbitrate (Article V(1)(a)) by reason of incapacity of the parties or invalidity of the arbitration agreement;

(2) The respondent was not given proper notice, or the respondent was unable to present his case (Article V(1)(b)) by reason of Due Process violations;

(3) The award deals with a dispute not contemplated by, or beyond the scope of the parties’ arbitration agreement (Article V(1)(c));

(4) The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place (Article V(1)(d));

(5) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority in the country in which, or under the laws of which, the award was made (Article V(1)(e)). These are the only grounds on which the respondent can rely. Further, the court may on its own motion refuse the recognition and enforcement on the grounds mentioned below. However, in practice, the respondent invokes these grounds as well:

(6) The subject matter of the arbitration was not arbitrable under the law of the country where enforcement is sought (Article V(2)(a));

(7) Enforcement of the award would be contrary to the public policy of the country where enforcement is sought (Article V(2)(b)).

Bearing in mind the purpose of the Convention, namely to “unify the standards by which … arbitral awards are enforced in the signatory countries” 15, its drafters intended that the grounds for opposing recognition and enforcement of Convention awards should be interpreted and applied narrowly and that refusal should be granted

in serious cases only. Most courts have adopted this restrictive approach to the interpretation of Article V grounds. For example, the United States Court of Appeals for the Third Circuit stated in 2003 in China Minmetals
Materials Import & Export Co., Ltd. v. Chi Mei Corp.:

“Consistent with the policy favoring enforcement of foreign arbitration awards, courts strictly have limited defenses to enforcement to the defenses set forth in Article V of the Convention, and generally have construed those exceptions narrowly.” 1

Similarly, the New Brunswick Court of Queen’s Bench said in 2004: “The grounds for refusal prescribed by Art. V of the New York Convention should be given a narrow and limited construction.” 2

One issue that is not dealt with in the Convention is what happens if a party to an arbitration is aware of a defect in the arbitration procedure but does not object in the course of the arbitration. The same issue arises
in connection with jurisdictional objections that are raised at the enforcement stage for the first time.

The general principle of good faith (also sometimes referred to as waiver or estoppel), that applies to procedural as well as to substantive matters, should prevent parties from keeping points up their sleeves. 3

1. United States: United States Court of Appeals, Third Circuit, 26 June 2003 (China Minmetals Materials Import and Export Co., Ltd. v. Chi Mei Corporation) Yearbook Commercial Arbitration XXIX (2004) pp. 1003-1025 (US no. 459).

2. Canada: New Brunswick Court of Queen’s Bench, Trial Division, Judicial District of Saint John, 28 July 2004 (Adamas Management & Services Inc. v. Aurado Energy Inc.) Yearbook Commercial Arbitration XXX (2005) pp. 479-487 (Canada no. 18).

3. Article 4 of the UNCITRAL Model Law on International commercial arbitration , as amended in 2006, provides:
“A party who knows that any provision of this Law from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time-limit is provided therefor, within such period of time, shall be deemed to have waived his right to object.”

Author: international