The recent news has been buzzing with information about Cairn Energy, a British oil and gas exploration company, taking up legal action against India. This move comes as an attempt to enforce a colossal arbitration award of USD 1.2 billion that the company won over a troubling tax dispute.
The Backdrop: The New York Convention
Understanding the entirety of the situation requires us to take a step back and understand the New York Convention, otherwise known as the “New York Arbitration Convention”. It is one of the crucial instruments in international arbitration.
Arbitration is essentially a process where, upon agreement, a dispute is submitted to one or more arbitrators. These arbitrators are independent individuals or bodies whose decision on the dispute holds a binding effect. The convention specifically applies to the recognition and enforcement of foreign arbitral awards and any referral by a court to arbitration.
The convention was birthed at the United Nations (UN) Headquarters, after a diplomatic conference held in May and June 1958 in New York. Officially entering into force on 7th June, 1959, this convention now boasts of 166 state parties (Countries), of which India is also a member.
The Objective: Equality for Foreign Arbitral Awards
The primary goal of this convention lies in the equal treatment of foreign and non-domestic arbitral awards. This eliminates any scope for discrimination by courts who may be asked to enforce them. In essence, the convention compels the Contracting States to recognize foreign awards and ensure their enforcement in their jurisdiction in the same manner as domestic awards.
Another key objective is to require courts of Contracting States to uphold valid arbitration agreements. This extends to staying court proceedings concerning matters that the parties have mutually agreed to resolve by arbitration.
The Agreement: Respect and Enforce Arbitration
With a signature on the convention, a state agrees that its courts will respect and enforce agreements to arbitrate made by parties involved in a dispute. Furthermore, it commits to recognizing and enforcing any resulting arbitral award given within its jurisdiction. The only exception being in cases with very limited grounds for refusal.
The Case at Hand: Cairn Energy’s Dispute with India
Cairn Energy’s case has been brought forth in accordance with the New York Convention. It is important to note here that India, having signed up for the agreement under this convention, is obliged to recognize and enforce the arbitration award won by Cairn Energy.
In light of the above, this unfolding saga of tax disputes, international arbitration, and potential billion-dollar settlements, serves as a prime example of the significance and global acceptance of the New York Convention. As the case proceeds in the USA district court, the world watches closely, bearing witness to the convention’s real-world implications and its crucial role in shaping international business law and practices.
