The Convention on the Recognition and Enforcement of Foreign Arbitral Awards was adopted by the United Nations on June 10, 1958 and was enforced on June 7, 1959. This convention is better known as the New York Convention. The Convention requires courts of contracting states to give effect to private agreements, and to arbitrate, recognize and enforce arbitration awards made in other contracting states.
International arbitration is an effective means of alternative dispute resolution for cross-border commercial transactions. The primary advantage of international arbitration over court litigation is its enforceability. An international arbitration award is enforceable in most countries in the world. Advantages of international arbitration include the ability to select a neutral forum to resolve disputes; their arbitration awards are final and not ordinarily subject to appeal; the ability to choose flexible procedures for the arbitration; and their confidentiality.
Once a dispute is settled, the winning party collects the award or judgment. If the assets of the losing party are not located where the court judgment was rendered, the winning party is required to obtain a court judgment in the jurisdiction where the other party resides or where its assets are located. If there is no treaty on recognition of court judgments between the countries where the judgment is rendered and the country where the winning party seeks to collect, the winning party will be unable to collect through the award or court judgment.
Under the New York Convention, an arbitration award issued in any other state can generally be freely enforced in any other contracting state except in “reciprocity reservation” circumstances where some contracting states may elect to enforce only awards from other contracting states.
Certain defenses arise when a party to the arbitration agreement was under some incapacity, or the arbitration agreement was not valid under its governing law, or where a party was not given proper notice of the appointment of the arbitrator, or of the arbitration proceedings, or was otherwise unable to present its case. The defense applies also when the award deals with an issue not contemplated by or not falling within the terms of the submission to arbitration, or contains matters beyond the scope of the arbitration. Provided that an award which contains decisions on such matters may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those matters not so submitted; or if the composition of the arbitral tribunal was not in accordance with the agreement of the parties or, failing such agreement, with the law of the place where the hearing took place; or if the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority, either in the country where the arbitration took place, or pursuant to the law of the arbitration agreement. A defense also arises where the subject matter of the award was not capable of resolution by arbitration; or if enforcement of the award would be contrary to “public policy”.
Countries which have adopted the New York Convention agree to recognize and enforce international arbitration awards. As of October 1, 2009, there are 144 signatories which have adopted the New York Convention. Of which 142 of them come under the 192 United Nations Member States; the Cook Islands (a New Zealand dependent territory), and the Holy See have also adopted the New York Convention. Only 50 U.N. Member States and Taiwan have not yet adopted the New York Convention. A number of British dependent territories have also not had the Convention extended to them.