Article II of NYC requires Contracting States to recognize the material terms of arbitration agreements, establishes a rule of presumptive validity, specializes international rules of formal validity, and also prescribes international rules that mandatorily allocate the burden of proof of invalidity of international arbitration agreements to the party resisting enforcement. It also requires the application of generally-applicable, non-discriminatory rules of contract law to issues of substantive validity. These uniform international rules apply regardless of the national law chosen by the parties or a court to govern their international arbitration agreement.
Article II contemplates application of a validation principle, pursuant to which an international arbitration agreement is valid and enforceable if any national law potentially applicable to the agreement would uphold its validity. This validation principle gives effects to both the parties’ intentions in concluding a valid arbitration agreement and the Convention’s rule of presumptive validity, and is mandated by the Convention’s pro-enforcement objectives.
Article V(1)(a) provides that an award may be denied recognition if the arbitration agreement was “not valid under the law to which the parties have (expressly or impliedly) subjected it or, failing any indication thereon, under the law law of the place where the award will be made, i.e., the the seat or place of arbitration. This rule must be supplemented by additional principles, including international non-discrimination and validation principles.
Article V(1)(a)’s default choice-of-law rule gives rise to uncertainties in the context of enforcement of an arbitration agreement as distinguished from enforcement of an arbitral award. It is not self-evident how to apply the law of the place the ward “was” made in an action to enforce an arbitration agreement, which by definition occurs well before any award is rendered. Even though parties often either select the seat of the arbitration in their arbitration agreement or agree to institutional rules providing a mechanism for selecting the arbitral seat early in the arbitral process, thus one could try to predict where a future award will be made. However, instances where it be impossible to identify the place where the arbitral award will be made exist and parties or tribunal also sometimes change the seat of the arbitration in the course of the arbitral proceedings.
The NYC does not expressly address the relationship between Article II’s substantive international standards for the validity of arbitration agreements and Article V(1)(a)’s choice-of-law rules. It is clear however, that the purpose of these specialized choice-of-law provisions of Article II and V was to enhance the validity and enforceability of international commercial arbitration agreements.
A few authorities have held that Article V(1)(a)’s choice-of-law rule applies only in the proceedings to recognize and enforce arbitral awards; they reason that the absence of any choice-of-law rule for the arbitration agreement in Article II(1) leaves courts and arbitral tribunals free to ignore Article V1(a), and to apply different standards when deciding whether to recognize an arbitration agreement. And at the stage of decding whether to recognize an arbitration agreement under Article II of the Convention, national courts should apply their own substantive law, typically on the ground that the issue is whether their own jurisdiction was excluded.
This analysis is unsatisfactory and wrong. Applying two different substantive laws of contractual validity to the same arbitration agreement on different time points produces the highly undesirable result that an arbitration agreement may be found valid (or invalid) at one stage of a dispute, and then treated in the opposite manner at a later stage. It will inevitably result in delays and wasted expense, as well as the possibilities of inconsistent decisions about the validity of the same arbitration agreement.
The same choice-of-law rules should apply under the NYC to selecting the law governing an arbitration agreement’s formation and substantive validity at both the stage of enforcing the agreement and the stage of enforcing an arbitral award, in order to avoid application of different legal rules at different stages of the arbitral process and by a systematic interpretation of the Convention. Therefore, the choice-of-law rules contained in Article V(1)(a), giving effect to an express or implied choice of law by the parties or, absent such choice, selecting the law of the arbitral seat, equally applies in proceedings under Article II to recognize and enforce international arbitration agreements. That ensures consistent treatment of international arbitration agreement throughout the parties’ dispute and advances the goals of enforcement and uniformity of the Convention. Since the international arbitral process aspires towards a maximally uniform approach by national courts presented with disputes about the substantive validity of a particular international arbitration agreement. A lack of uniformity on this issue would result in some courts referring parties to arbitration, and others refusing to do so, under the same arbitration agreement, resulting in unnecessary litigation, forum shopping and uncertainty.