Securing harmonized effects of arbitration agreements under the New York Convention.

• Author: Graffi, Leonardo D.

1. INTRODUCTORY REMARKS A. The Role and the Interpretation of Article H of the New York Convention 1. The Interpretive Concerns Regarding Article H of the New York Convention B. The Importance of a Single Harmonized Interpretation of Article H 1. Diverging National Interpretations 2. Why a Single Harmonized Approach Is Desirable C. Ensuring a Truly International Duty of Referral to Arbitration II. THE DOCTRINAL FRAMEWORK A. The Purpose of a Readily Enforceable International Arbitration Agreement 1. Avoiding Domestic Courts 2. Avoiding Dilatory Tactics 3. The Most Common Dilatory Techniques B. The Effects of the Arbitration Agreement 1. Positive Effects Under the New York Convention 2. Positive Effects Under the UNCITRAL Model Law and the UNCITRAL Arbitration Rules 3. Negative Effects Under the New York Convention 4. Negative Effects Under the Model Law III. COURT REFERRAL TO ARBITRATION A. Is the Duty of Referral a Uniform Mandatory Rule? 1. The Dangers Associated With the Use of Domestic Procedural Devices 2. The Obligation to Refer the Parties to Arbitration B. Court Referral to Arbitration: Conditions of Referral to Arbitration 1. The Law Applicable to the Validity of the Arbitration Agreement 2. The Principle of Autonomy of the Arbitration Agreement 3. Request of a Party C. The Relationship Between Article H and the Applicable Municipal Laws 1. The Importance of Letting the Arbitrators Decide First IV. THE CASE LAW APPROACH A. France 1. The Duty of Referral Under the French Code of Civil Procedure 2. The Relationship Between Article H of the New York Convention and Article 1458 of the French Code of Civil Procedure 3. The Prima Facie Standard of Review B. The French Liberal Approach to the Issue of Substantive Validity 1. The Hecht Decision 2. The Dalico Decision 3. The Bomar Oil Saga C. The United States 1. The U.S. Supreme Court's Pro-Enforcement Bias 2. The Scherk Decision 3. The Mitsubishi Decision 4. The Preconditions for Referral Under the Ledee v. Ceramiche Ragno Doctrine D. The U.S. Judicial Scrutiny on the Validity of International Arbitration Agreements: The Applicable Provisions 1. Federal Law v. State Contract Law 2. The Federalist Approach 3. The State Contract Law Approach: The First Options Standard of Review E. Italy 1. Referral to Arbitration in the Italian Legal System 2. The Strict Standard of Review of Italian Courts: Form Over Substance 3. The Strange Case of Krauss Maffei v. Bristol Myers Squibb V. SECURING THE EFFECTS OF ARBITRATION AGREEMENTS UNDER THE NYC: THE PROPOSED HARMONIZED SOLUTION A. A Comparison of the Different Standards of Enforcement: Advantages and Shortcomings 1. Summary of the U.S. Approach 2. Summary of the French Approach 3. Summary of the Italian Approach B. The French Prima Facie Standard of Review as the Best Harmonized Solution 1. The Obstacles to an Amendment of Article H of the New York Convention 2. The Advantages of the French Interpretive Method C. The Suggested Interpretive Solution: Judicial Review of Arbitration Agreements at the Final Stage Only VI. CONCLUSIONS I. INTRODUCTORY REMARKS

   1. The Role and the Interpretation of Article H of the New York Convention

      There is little doubt that the arbitration agreement is the pillar of international arbitration. (1) The enforcement of an arbitration agreement entails a number of important effects, among which the following are the most relevant:

      * the parties' rights and duties to commence the arbitration proceedings;

      * the competence of the arbitral tribunal to decide the controversy;

      * the national courts' duties to refer the parties to arbitration;

      * the parties' rights to seek enforcement of an arbitral award based on their agreement to arbitrate.

      To produce these effects, the arbitration agreement is enforced under a relevant set of norms, either domestic or international. Presently, it is well known that the greatest majority of the international arbitration agreements concluded throughout the world fall under the sphere of application of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC, New York Convention, or Convention). (2) The NYC is considered the most successful private international law treaty of the twentieth century. (3) Since its adoption, more than 130 countries have entered it into force (hereinafter the Contracting States). (4) The Convention expressly deals with the arbitration agreement under article II, which provides that:

      1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

      2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

      3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. (5)

         The broad wording of this rule shows that the Convention has an immense impact on the effectuation of arbitration agreements in the Contracting States. Article II governs both the enforcement of arbitration clauses and their requirements in every corner of the world. Over time, the interpretation of this provision has become increasingly complicated due to a high number of diverging applications by national courts and arbitral tribunals in several jurisdictions.

         Many of these interpretive discrepancies have been ascribed to the last minute inclusion of article II in the NYC. (6) In fact, the NYC was originally meant to deal only with arbitral awards, not with arbitral clauses. The drafters' initial intention was to address the issue of arbitration agreements in a separate protocol, but, during one of the last New York conference meetings, they decided to include a provision on agreements in the NYC. (7) From the outset, article II suffered from a lack of coordination with other provisions of the Convention.

      1. The Interpretive Concerns Regarding Article H of the New York Convention

         Unfortunately, the last-minute inclusion of article II is only one of the factors that gives rise to interpretive concerns of the NYC. Several of the current shortcomings of this provision are related to the adoption of new arbitration laws in the Contracting States, which often seem better equipped to deal with the enforcement of international arbitration agreements rather than the NYC as a treaty. (8)

         Further, although article II is held to be a uniform provision, which supersedes municipal laws, (9) the interplay between domestic arbitration rules and the NYC is often inevitable and leads to conflicting interpretations.

         The NYC does not govern every step of the enforcement of an international arbitration agreement and leaves many issues under the domain of domestic statutes and rules. (10) At a preliminary stage, Contracting States' courts apply article II together with their domestic arbitration statutes when a party objects to their jurisdiction pursuant to an arbitration agreement. (11) This practice, however, is extremely risky at a later stage, since the Convention sets forth under article V(1)(a) a specific ground for refusing the recognition of an arbitral award rendered pursuant to an invalid arbitral clause. (12) In doing so, article V plainly requires the arbitration agreement to comply with the requirements of article II. For that reason, a preliminary review of the validity of an arbitration agreement by a court pursuant to article II is essential to ensure a successful enforcement of the award at a later stage. This is why article II plays a double role: It is the key provision for the commencement of the arbitration proceedings, and it is also a precondition for the enforcement of the arbitral award. (13)

   2. The Importance of a Single Harmonized Interpretation of Article II

      1. Diverging National Interpretations

         Notwithstanding the importance of article II within the NYC's system and its impact on the practice of international arbitration, little has been done to ensure that national courts achieve a harmonized interpretive standard for this provision. No one can, or should, object to the need to promote arbitration as an invaluable instrument for the resolution of international commercial disputes. Indeed, the arbitration agreements must be given effect because the benefits of arbitration often outweigh its drawbacks. (14) Yet, the need for an ever-increasing effective enforcement of arbitration agreements must lead the parties, the judges, and the arbitrators to strive for a consistent harmonized application of the NYC. From a policy perspective, the ratification of the Convention by virtually all the countries of the world should encourage, rather than discourage, a true international interpretation of this instrument, which should not depend on the domestic interpretations rendered in each jurisdiction. So far, however, municipal courts have expressed very different views on how to apply article II, undermining the predictability of their outcomes. Extremely different interpretive standards can be found, for example, in American, French, or Italian case law on article II of the NYC. (15) There is great uncertainty even on the most basic legal notions underlying article II. Caught by frustration, some legal commentators suggested that this provision be interpreted in the light of more enabling national statutes or even in the light of international business practices. (16)

      2. Why a Single Harmonized Approach Is Desirable

         This Article purports to suggest that a...