The limitations of tradition: how modern choice of law doctrine can help courts resolve conflicts within the New York Convention and the federal Arbitration Act.

Author:Bedrosyan, Alexander Sevan
 
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INTRODUCTION I. BACKGROUND, PURPOSE, AND PROVISIONS OF THE NEW YORK CONVENTION II. THE NEW YORK CONVENTION AND THE FEDERAL ARBITRATION ACT EACH CONTAIN WITHIN THEM A CHOICE OF LAW PROBLEM III. TRADITIONAL APPROACH A. Summary of Approach B. Application of the Traditional Approach to the New York Convention and the Federal Arbitration Act IV. MODERN APPROACHES A. Interest Analysis 1. Summary of Approach 2. Application of Interest Analysis to the New York Convention and the Federal Arbitration Act B. Erie Analysis C. Reverse-Erie Analysis CONCLUSION INTRODUCTION

Imagine that you manage an Australian pharmaceutical company. Because your patent permitting the sale of diabetes medication in Australia will expire in one year, you look to sell your product in Japan. Unfamiliar with the Japanese market, you enter into a co-promotion agreement with Beta, a Belgian pharmaceutical company with extensive experience in Japan. Wary of litigating in a foreign, civil law jurisdiction, your counsel recommends that you include an arbitration clause in your co-promotion agreement, which you adopt.

Six months after the conclusion of the agreement, you suspect that Beta has not lived up to its promotional obligations, as Japanese doctors are not prescribing your medication. Pursuant to the agreement, you commence arbitration in London. Fortunately, the arbitration produces an award requiring Beta to pay you hundreds of millions of dollars. Seeking the money you are due under the award, you bring an action to enforce the award before a Belgian court. To your surprise, the Belgian court, rather than summarily enforcing the award, agrees to hear a counterclaim that Beta raises against you. This counterclaim protracts the litigation, and by the time you defeat the counterclaim and prevail in the action, Beta has transferred its assets out of Belgium.

After an exhaustive search, you find enough of Beta's assets in the United States to satisfy the award against Beta. Moreover, your counsel indicates that American courts will refuse to hear any counterclaims that Beta might raise in any enforcement proceedings. You therefore bring an enforcement action in U.S. federal court. To your dismay, the court dismisses your claim as time-barred by the Federal Arbitration Act's three-year statute of limitations. Your foray into international commerce decisively stymied, you resign yourself to developing a new drug to distribute in Australia.

The difficulties faced by the fictional Australian pharmaceutical company above mirror the obstacles that real parties encounter when trying to enforce rights secured through international arbitration. These difficulties stem from the fact that countries have enacted different barriers to the enforcement of international arbitral awards. (1) These cross-national differences in barriers persist today, despite the fact that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 ("New York Convention" or "Convention") attempted to eliminate such differences. (2) Through the New York Convention, the international community sought to limit and standardize the grounds on which countries could refuse to enforce arbitral awards. (3)

The lack of international uniformity does not arise because countries that have ratified the New York Convention are intentionally violating the treaty; rather, the problem lies within the treaty itself--the New York Convention contains a choice of law problem. It establishes that two sets of laws will govern actions to enforce international arbitration awards: its own provisions and the national laws of state-parties. (4) National courts have adopted traditional choice of law methods in order to choose whether they will use their own national laws or the treaty provisions to decide a particular issue. However, this divergence has brought to enforcement actions the same two problems it has brought to other more conventional civil litigations--absurd and nonuniform outcomes. The lack of uniformity is particularly vexing, as the New York Convention's very purpose was to ensure the uniform treatment of a given arbitration award across countries.

This Comment proposes that just as courts have abandoned the traditional choice of law approach in conventional litigation, they should also abandon it in arbitral enforcement litigation. Courts should instead use modern choice of law doctrine. Employing modern choice of law doctrine to enforcement actions would produce sensible results and bring uniformity to the enforcement of international arbitral awards. This Comment focuses on the United States and the Federal Arbitration Act as a case study. (5) It suggests that applying modern American choice of law doctrine to the Federal Arbitration Act, mainly by limiting the application of the statute of limitations contained in section 207 of the Act, would help the United States better implement the New York Convention.

Part I of this Comment sets out the background, purpose, and provisions of the New York Convention. Part II uncovers the choice of law problem embedded in the treaty, and in the Federal Arbitration Act that implements the treaty in the United States. Part III describes the traditional choice of law approach and demonstrates that the adoption of this approach in implementing the New York Convention has brought about absurd and nonuniform consequences. Part IV suggests moving to a modern choice of law approach. Focusing on the United States and the Federal Arbitration Act, it offers three variants of modern American choice of law doctrine: interest analysis, Erie analysis, and Reverse-fine analysis. These variants all call for either restricting the scope of the statute of limitations found in the Federal Arbitration Act, or subordinating it in favor of the statute of limitations found in the New York Convention itself. The use of a modern choice of law approach would allow the United States in particular, and state-parties in general, to effectuate the purpose of the Convention, and restore uniformity to the enforcement of international arbitral awards worldwide.

  1. BACKGROUND, PURPOSE, AND PROVISIONS OF THE NEW YORK CONVENTION

    A successor to the Geneva Convention on the Execution of Foreign Arbitral Awards, (6) the New York Convention has been described as "the most effective instance of international legislation in the entire history of commercial law." (7) The treaty's success is further substantiated by the representative worldwide participation in it: 149 nations have ratified it, (8) including "all parts of the world [with] many different levels of commerce and development[, and a]lmost all the major international trading nations." (9) This near-universal participation is made all the more remarkable when one considers that the Convention undertakes the controversial endeavor of limiting countries' judicial sovereignty. For example, no treaty regarding the enforcement of foreign court judgments has achieved comparable participation. (10) Yet, the vast majority of states have decided to sacrifice some degree of judicial sovereignty in the enforcement of foreign arbitral awards.

    States sacrifice such sovereignty in return for the economic and reputational benefits conferred by accession to the New York Convention. A state that joins the treaty signals to the international business community that it is a hospitable forum where businesses may resolve their disputes, (11) particularly since the Convention allows state-parties to limit their enforcement of awards only to those awards made in the territory of other state-parties. (12) Even putative states accede to the Convention, (13) suggesting that membership in the treaty legitimizes a state's claim to a place not just in the international business community, but also in the community of states more broadly.

    The Convention's purpose is to bring uniformity and efficiency to the enforcement of international arbitration awards. (14) For example, the U.S. Supreme Court has stated that the Convention seeks 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." (15) The Convention looks to national courts to achieve its purpose. It "mobilises national courts as enforcement agencies while simultaneously restricting their scope of national judicial supervision over international arbitration awards." (16)

    There are three key provisions that collectively achieve this simultaneous "mobilization and restriction," or in other words, that simultaneously create and limit the authority of national courts to enforce awards.

    First, Article III mobilizes (creates authority for) national courts to enforce international arbitration awards by requiring them to enforce such awards: "Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles." (17) The next two articles then restrict national courts' scope of "supervision over international arbitration awards" by respectively limiting the evidence and substantive defenses national courts may consider in enforcement proceedings. (18) Article IV sets out the evidentiary requirements of enforcement proceedings. The requirements are minimal: a party seeking enforcement need only provide (a) the authenticated original or certified copy of the award, and (b) the original arbitration agreement pursuant to which the award was made. (19)

    Article V then lays out the seven exhaustive defenses that permit, but do not require, a court to refuse to enforce an award:

    1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the...

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