After arguing that States Should Not Ratify, and Should Instead Denounce, the Hague Choice-Of-Court Agreements Convention, Gary Born received a series of serious criticisms by Trevor Hartley, Andreas Bucher and the Hague Conference of Private International Law.
Mr Born has responded to some of these criticisms in two further posts at the Kluwer Arbitration Blog.
At the invitation of the Editors of the EAPIL Blog, Trevor Hartley, Professor emeritus at the London School of Economics, offers the following rejoinder.
I assume we can all agree on two things: first, corrupt and biased judges exist; secondly, corrupt and biased arbitrators exist. Since the parties to an arbitration agreement choose the arbitrators and the parties to a choice-of-court agreement choose the court, this ought not to be a problem. However, for one reason or another, a party to an arbitration agreement may find himself before an arbitrator whom he believes to be corrupt and biased; likewise, a party to a choice-of-court agreement may find himself before a judge whom he believes to be corrupt and biased. If we can agree on all this, the matter comes down to the safeguards against the enforcement of a corrupt award under the New York Convention and the safeguards against the enforcement of a corrupt judgment under the Hague Convention. I want to examine this in order to see how the two instruments compare.
The grounds for refusing to recognize or enforce an award are set out in Article V of the New York Convention. The equivalent grounds under the Hague Convention are in Article 9. We will consider them one by one.
Arbitration Agreement Invalid
Under New York, an award will not be recognized or enforced if the arbitration agreement was invalid: Article V(1)(a). This covers incapacity of the parties and other grounds of invalidity. The capacity of the parties is governed by ‘the law applicable to them’; other grounds of validity are governed by the law to which the parties have subjected the agreement or, failing any indication thereon, the law of the country where the award was made. Under Hague, a judgment under a choice-of-court agreement will also be refused recognition if the agreement is null and void: Article 9(a). The applicable law is stated to be the law of the State of the chosen court; but if the chosen court has already held the agreement to be valid, this is conclusive.
However, under Article 9(b) of Hague, recognition and enforcement may also be refused if a party lacked capacity to conclude the agreement under the law of the requested State (the State asked to recognize the judgment). Thus, New York is slightly stronger in general, in that it gives the parties the right to subject the validity of the agreement to some law other than that of the country where the award is made. However, Hague is slightly stronger as regards capacity, in that it requires capacity to exist under both the law of the chosen court and the law of the country asked to recognize the judgment.
Insufficient Notice
Under New York, another ground for non-recognition is that 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: Article V(1)(b). Under Hague, there are two grounds for non-recognition. Under Article 9(c)(i), recognition may be refused if the document which instituted the proceedings (or an equivalent document, including the essential elements of the claim) was not notified to the defendant in sufficient time and in such a way as to enable him to arrange for his defence. However, the defendant loses this right if he entered an appearance and presented his case without contesting notification in the court of origin (provided that the law of the State of origin permitted notification to be contested). This has the same effect as the ground under New York, though Hague is more fleshed out. The second ground under Hague is that the document was notified to the defendant in the requested State in a manner that was incompatible with fundamental principles of the requested State concerning service of documents: Article 9(c)(ii). This has no equivalent under New York.
New York is slightly wider in that it also permits non-recognition where the party is ‘otherwise unable to present his case’. There is no exact equivalent to this under Hague, though if his inability to present his case is due to chicanery by the other party, Article 9(d) would come into play. This gives another ground for non-recognition, namely that the judgment was obtained by fraud in connection with a matter of procedure.
Outside the Scope of the Submission
Under New York, recognition of an award can be challenged on the ground that the award deals with a difference outside the scope of the submission to arbitration: New York, Article V(1)(c). At first sight, there appears to be no equivalent to this in Hague. However, the duty to recognize and enforce a judgment applies only to a judgment given by a court of a Contracting State ‘designated in an exclusive choice of court agreement’: Hague, Article 8(1). The term ‘exclusive choice of court agreement’ is defined in Article 3(a) as an agreement that designates a court (or several courts) ‘for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship’ (italics added). If the designated court decided a matter that did not concern the legal relationship specified in the choice-of-court agreement, it could be argued that the court was no longer designated in the choice-of-court agreement. Then the judgment would not be subject to recognition and enforcement under the Convention. If this is right—and it surely must be—the Hague Convention produces the same result.
Composition of the Arbitral Authority
Another ground for non-recognition under New York is that the composition of the arbitral authority 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): New York, Article V(1)(d). For obvious reasons, there is no equivalent to this under Hague. However, if the court which gave the judgment was not designated in the choice-of-court agreement, the judgment would not, for the reasons explained in the previous paragraph, be subject to recognition and enforcement under the Convention.
Award Not Binding on the Parties
Under New York, recognition and enforcement of an award may be refused if it has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made: Article V(1)(e). This is supported by Article VI, which makes provision for the adjournment of enforcement proceedings where an application is made for the setting aside or suspension of the award. Under Hague, there are two provisions, which together have the same effect. The first is Article 8(3), which provides that a judgment will be recognized only if it has effect in the State of origin and will be enforced only if it is enforceable in the State of origin. If has been set aside or suspended in the State of origin, it will not be recognized or enforced. The second is Article 8(4), which provides that recognition or enforcement may be postponed or refused if the judgment is the subject of review in the State of origin or if the time limit for seeking ordinary review has not expired. (It goes on to say that a refusal does not prevent a subsequent application for recognition or enforcement of the judgment.) Taken together, these provisions give protection that is at least as good as that under New York.
Subject Matter Not Capable of Settlement by Arbitration
Another ground for non-recognition under New York is that the subject matter of the difference is not capable of settlement by arbitration under the law of the country in which enforcement is sought. There is no equivalent to this under Hague since there are few matters within the subject-matter scope of the Convention that are not capable of settlement by a court. However, if the judgment did concern such a matter, public policy could be invoked.
Public Policy
In both New York and Hague, the most important safeguard is the provision which allows recognition and enforcement to be refused on the ground of public policy. The relevant provision in New York is Article V(2)(b) and in Hague it is Article 9(e). The provision in New York simply says that recognition and enforcement may be refused if it would be contrary to the public policy of the country concerned. Hague, however, is a little more detailed. After saying that recognition or enforcement may be refused if it would be manifestly incompatible with the public policy of the requested State, it adds ‘including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State’.
A Problem
This all seems clear; however, there is a problem. Article 8(2) of Hague provides that the court asked to recognize and enforce the judgment is bound by the findings of fact on which the court of origin based its jurisdiction (unless the judgment was given by default). Does this mean that if the court of origin ruled that its members were not corrupt, the court asked to recognize and enforce the judgment cannot question this? If this were true, it would be a serious defect. However, the answer is given in the Explanatory Report, which was approved by all the States that participated in the Conference which drew up the Convention. The relevant paragraphs are 166–169. The first point made is that the court addressed will not have to accept the legal evaluation of the facts adopted by the court of origin. For example, if the court of origin found that the choice-of-court agreement was concluded by electronic means that satisfied the requirements of the Convention, the court addressed would be bound by the finding that the agreement was concluded by electronic means, but not by the finding that it satisfied the requirements of the Convention.
The second point is that the court asked to recognize and enforce the judgment is only bound by the findings of fact of the court of origin with regard to the grounds of non-recognition specified in Article 9(a) and (b). The rule does not apply to the grounds in the other sub-paragraphs of Article 9, that is sub-paragraphs (c), (d) and (e). This is because these latter provisions do not concern jurisdiction. The Report states in paragraph 167:
The position is different with regard to the grounds of non-recognition laid down in sub-paragraphs c), d) and e) of Article 9. These are not concerned with jurisdiction under the Convention, but with public policy and procedural fairness. Thus, the court addressed must be able to decide for itself, in accordance with these sub-paragraphs, whether the defendant was notified; whether there was fraud; or whether there was a fair trial: a finding by the judge of origin that he did not take a bribe, for example, cannot be binding on the court addressed.
A footnote adds that this also applies to a finding by an appeal court that the first instance judge was not guilty of corruption.
Paragraph 168 of the Report continues:
The same is true with regard to procedural fairness under sub-paragraph e). Assume that the defendant resists recognition and enforcement on the ground that the proceedings were incompatible with the fundamental principles of procedural fairness of the requested State. He claims that he was not able to go to the State of origin to defend the case because he would have been in danger of imprisonment on political grounds. A finding by the court of origin that this was not true cannot be binding on the court addressed. Where matters of procedural fairness are concerned, the court addressed must be able to decide for itself.
In view of this, we can conclude that rule that findings of fact are binding does not seriously compromise the safeguards.
Conclusions
As this short discussion has shown, the safeguards in the two instruments have almost the same effect. One cannot say that one is better than the other. In any event, where the judgment is tainted by corruption or bias, public policy would always ensure that it was not recognized or enforced. Of course, there is the question of proof, but this is just as much a problem in the case of an award as in the case of a judgment.
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After arguing that States Should Not Ratify, and Should Instead Denounce, the Hague Choice-Of-Court Agreements Convention, Gary Born received a series of serious criticisms by Trevor Hartley, Andreas Bucher and the Hague Conference of Private International Law.
Mr Born has responded to some of these criticisms in two further posts at the Kluwer Arbitration Blog.
At the invitation of the Editors of the EAPIL Blog, Trevor Hartley, Professor emeritus at the London School of Economics, offers the following rejoinder.
I assume we can all agree on two things: first, corrupt and biased judges exist; secondly, corrupt and biased arbitrators exist. Since the parties to an arbitration agreement choose the arbitrators and the parties to a choice-of-court agreement choose the court, this ought not to be a problem. However, for one reason or another, a party to an arbitration agreement may find himself before an arbitrator whom he believes to be corrupt and biased; likewise, a party to a choice-of-court agreement may find himself before a judge whom he believes to be corrupt and biased. If we can agree on all this, the matter comes down to the safeguards against the enforcement of a corrupt award under the New York Convention and the safeguards against the enforcement of a corrupt judgment under the Hague Convention. I want to examine this in order to see how the two instruments compare.
The grounds for refusing to recognize or enforce an award are set out in Article V of the New York Convention. The equivalent grounds under the Hague Convention are in Article 9. We will consider them one by one.
Arbitration Agreement Invalid
Under New York, an award will not be recognized or enforced if the arbitration agreement was invalid: Article V(1)(a). This covers incapacity of the parties and other grounds of invalidity. The capacity of the parties is governed by ‘the law applicable to them’; other grounds of validity are governed by the law to which the parties have subjected the agreement or, failing any indication thereon, the law of the country where the award was made. Under Hague, a judgment under a choice-of-court agreement will also be refused recognition if the agreement is null and void: Article 9(a). The applicable law is stated to be the law of the State of the chosen court; but if the chosen court has already held the agreement to be valid, this is conclusive.
However, under Article 9(b) of Hague, recognition and enforcement may also be refused if a party lacked capacity to conclude the agreement under the law of the requested State (the State asked to recognize the judgment). Thus, New York is slightly stronger in general, in that it gives the parties the right to subject the validity of the agreement to some law other than that of the country where the award is made. However, Hague is slightly stronger as regards capacity, in that it requires capacity to exist under both the law of the chosen court and the law of the country asked to recognize the judgment.
Insufficient Notice
Under New York, another ground for non-recognition is that 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: Article V(1)(b). Under Hague, there are two grounds for non-recognition. Under Article 9(c)(i), recognition may be refused if the document which instituted the proceedings (or an equivalent document, including the essential elements of the claim) was not notified to the defendant in sufficient time and in such a way as to enable him to arrange for his defence. However, the defendant loses this right if he entered an appearance and presented his case without contesting notification in the court of origin (provided that the law of the State of origin permitted notification to be contested). This has the same effect as the ground under New York, though Hague is more fleshed out. The second ground under Hague is that the document was notified to the defendant in the requested State in a manner that was incompatible with fundamental principles of the requested State concerning service of documents: Article 9(c)(ii). This has no equivalent under New York.
New York is slightly wider in that it also permits non-recognition where the party is ‘otherwise unable to present his case’. There is no exact equivalent to this under Hague, though if his inability to present his case is due to chicanery by the other party, Article 9(d) would come into play. This gives another ground for non-recognition, namely that the judgment was obtained by fraud in connection with a matter of procedure.
Outside the Scope of the Submission
Under New York, recognition of an award can be challenged on the ground that the award deals with a difference outside the scope of the submission to arbitration: New York, Article V(1)(c). At first sight, there appears to be no equivalent to this in Hague. However, the duty to recognize and enforce a judgment applies only to a judgment given by a court of a Contracting State ‘designated in an exclusive choice of court agreement’: Hague, Article 8(1). The term ‘exclusive choice of court agreement’ is defined in Article 3(a) as an agreement that designates a court (or several courts) ‘for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship’ (italics added). If the designated court decided a matter that did not concern the legal relationship specified in the choice-of-court agreement, it could be argued that the court was no longer designated in the choice-of-court agreement. Then the judgment would not be subject to recognition and enforcement under the Convention. If this is right—and it surely must be—the Hague Convention produces the same result.
Composition of the Arbitral Authority
Another ground for non-recognition under New York is that the composition of the arbitral authority 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): New York, Article V(1)(d). For obvious reasons, there is no equivalent to this under Hague. However, if the court which gave the judgment was not designated in the choice-of-court agreement, the judgment would not, for the reasons explained in the previous paragraph, be subject to recognition and enforcement under the Convention.
Award Not Binding on the Parties
Under New York, recognition and enforcement of an award may be refused if it has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made: Article V(1)(e). This is supported by Article VI, which makes provision for the adjournment of enforcement proceedings where an application is made for the setting aside or suspension of the award. Under Hague, there are two provisions, which together have the same effect. The first is Article 8(3), which provides that a judgment will be recognized only if it has effect in the State of origin and will be enforced only if it is enforceable in the State of origin. If has been set aside or suspended in the State of origin, it will not be recognized or enforced. The second is Article 8(4), which provides that recognition or enforcement may be postponed or refused if the judgment is the subject of review in the State of origin or if the time limit for seeking ordinary review has not expired. (It goes on to say that a refusal does not prevent a subsequent application for recognition or enforcement of the judgment.) Taken together, these provisions give protection that is at least as good as that under New York.
Subject Matter Not Capable of Settlement by Arbitration
Another ground for non-recognition under New York is that the subject matter of the difference is not capable of settlement by arbitration under the law of the country in which enforcement is sought. There is no equivalent to this under Hague since there are few matters within the subject-matter scope of the Convention that are not capable of settlement by a court. However, if the judgment did concern such a matter, public policy could be invoked.
Public Policy
In both New York and Hague, the most important safeguard is the provision which allows recognition and enforcement to be refused on the ground of public policy. The relevant provision in New York is Article V(2)(b) and in Hague it is Article 9(e). The provision in New York simply says that recognition and enforcement may be refused if it would be contrary to the public policy of the country concerned. Hague, however, is a little more detailed. After saying that recognition or enforcement may be refused if it would be manifestly incompatible with the public policy of the requested State, it adds ‘including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State’.
A Problem
This all seems clear; however, there is a problem. Article 8(2) of Hague provides that the court asked to recognize and enforce the judgment is bound by the findings of fact on which the court of origin based its jurisdiction (unless the judgment was given by default). Does this mean that if the court of origin ruled that its members were not corrupt, the court asked to recognize and enforce the judgment cannot question this? If this were true, it would be a serious defect. However, the answer is given in the Explanatory Report, which was approved by all the States that participated in the Conference which drew up the Convention. The relevant paragraphs are 166–169. The first point made is that the court addressed will not have to accept the legal evaluation of the facts adopted by the court of origin. For example, if the court of origin found that the choice-of-court agreement was concluded by electronic means that satisfied the requirements of the Convention, the court addressed would be bound by the finding that the agreement was concluded by electronic means, but not by the finding that it satisfied the requirements of the Convention.
The second point is that the court asked to recognize and enforce the judgment is only bound by the findings of fact of the court of origin with regard to the grounds of non-recognition specified in Article 9(a) and (b). The rule does not apply to the grounds in the other sub-paragraphs of Article 9, that is sub-paragraphs (c), (d) and (e). This is because these latter provisions do not concern jurisdiction. The Report states in paragraph 167:
The position is different with regard to the grounds of non-recognition laid down in sub-paragraphs c), d) and e) of Article 9. These are not concerned with jurisdiction under the Convention, but with public policy and procedural fairness. Thus, the court addressed must be able to decide for itself, in accordance with these sub-paragraphs, whether the defendant was notified; whether there was fraud; or whether there was a fair trial: a finding by the judge of origin that he did not take a bribe, for example, cannot be binding on the court addressed.
A footnote adds that this also applies to a finding by an appeal court that the first instance judge was not guilty of corruption.
Paragraph 168 of the Report continues:
The same is true with regard to procedural fairness under sub-paragraph e). Assume that the defendant resists recognition and enforcement on the ground that the proceedings were incompatible with the fundamental principles of procedural fairness of the requested State. He claims that he was not able to go to the State of origin to defend the case because he would have been in danger of imprisonment on political grounds. A finding by the court of origin that this was not true cannot be binding on the court addressed. Where matters of procedural fairness are concerned, the court addressed must be able to decide for itself.
In view of this, we can conclude that rule that findings of fact are binding does not seriously compromise the safeguards.
Conclusions
As this short discussion has shown, the safeguards in the two instruments have almost the same effect. One cannot say that one is better than the other. In any event, where the judgment is tainted by corruption or bias, public policy would always ensure that it was not recognized or enforced. Of course, there is the question of proof, but this is just as much a problem in the case of an award as in the case of a judgment.
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