Tag Archives: New York Convention

Ensuring ISDS rule-of-law outcome

AnullmentBlogAs a matter of principle, the outcome of ISDS proceeding, which is the arbitral award, is final and binding. This very feature has made international arbitration a success since it provides a speedy and efficient outcome for both states and foreign investors. International rules such as the ICSID Convention and the New York Convention provide mechanisms to ensure respect for the rule of law outcome in the proceedings. Where a breach of the conventions has occurred, this could result in an annulment or refusal of enforcement of the award.

The ICSID Convention has 153 state parties and most ISDS proceedings are conducted under this convention. The convention provides that both the state and foreign investor can request the award to be annulled for limited procedural reasons. Annulment is fundamentally different from appeal, as it only targets the legitimacy of the decision-making by the tribunal, and not the substantive correctness of the award.

Under the ICSID Convention, an award can be annulled for reasons of flaws on the part of the tribunal, among others, if it has manifestly exceeded its powers or if there was corruption by a member of the tribunal. Further, a serious departure from a fundamental rule of procedures is also a ground for annulment. The Chairman of the ICSID Administrative Council will assign an annulment committee to decide on a particular annulment proceeding.

In Enron v. Argentina, the committee found that the tribunal erred by too simply and quickly drawing legal conclusions from economists’ expert reports. By evaluating Argentina‘s defences in a manner that was so incomplete, according to the committee, it amounted to a failure to apply the applicable law. The award was therefore annulled.

The annulment committee also sided with the state in Klöckner v. Cameroon, where it held that the tribunal assumed that certain principles applied to the case, such as principles of loyalty and openness, rather than actually demonstrated that these principles existed. Therefore, the annulment committee found that the tribunal had manifestly exceeded its powers.

Outside the scope of the ICSID system, the New York Convention serves as an enforcement and recognition tool for arbitral awards. It provides that a domestic court may refuse to enforce an arbitral award on grounds, among others, that a party to the dispute was not given opportunity to present its case or if the award contains matters on issues beyond the scope of the arbitration agreement.

The New York Convention – a success from 1958 serving ISDS

Central Park with Manhattan skyline in New York CityISDS is established and ruled by international agreements. 159 states have submitted to the World Bank’s ICSID system, which is designed specifically for disputes between foreign investors and states. Many ISDS proceedings are conducted outside the ICSID system and for those proceedings, other instruments are in control. The most important of these is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

The New York Convention began to be discussed in the mid-50s because it was necessary to support the emerging international trade. The system at that time simply lacked an effective way to enforce arbitral awards across borders. A judgment of a national court was then, as now, difficult to enforce outside the court’s home jurisdiction, which meant that it was fairly easy for the losing parties to international disputes to avoid paying (it has become somewhat easier since the 1950s particularly in the EU, but it is still difficult to get, for example, a Swedish court judgment executed abroad and vice versa).

Arbitration is an important piece of the puzzle for international trade to function, it is by far the most common way to resolve international disputes. The New York Convention guarantees that whoever wins the dispute has not only the right but also gets the right in practice. By signing the Convention, states agree to enforce arbitral awards rendered in another state that is party of the Convention. The Convention has provisions to ensure the rule of law, for example, enforcement of an arbitration award can be rejected if it was rendered with a procedural deficiency.

Most of the states in the world have signed the New York Convention. It is the UN Commission of International Trade Law secretariat in Vienna (UNCITRAL), which takes care of the practical issues when new states accede. According to the UNCITRAL, Andorra is the latest country to ratify the Convention, and this means that the Convention is an applicable law in 156 countries.

The Convention is widely considered to be the most successful international convention ever. Although there are international agreements that have been signed by more states, they rarely contain any direct commitments. The New York Convention requires courts of the state parties to effectively apply the provisions of the Convention, and such strong support from the world’s countries is a major success story for international law and international trade.