The New York Arbitration Convention, formally known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, is regarded as one of the fundamental legal documents in international arbitration. The Convention applies to recognition and enforcement of strictly foreign arbitral awards, which are those promulgated in a contracting State different from the one in which recognition and enforcement are sought.[1] Article V(2)(b) of the Convention states:
“2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: … (b) The recognition or enforcement of the award would be contrary to the public policy of that country.”[2]
Simply put, the provision allows the court of a contracting State in which recognition and enforcement are sought to deny recognition and enforcement of a foreign arbitral award that is contrary to the public policy of said contracting State, with the aim to protect the values, morals and cohesion of that legal system.[3] Since the Convention itself does not impose a definition of public policy, the case law observes that different countries may have different interpretations and ways of defining public policy in this regard. However, there is an evident similarity in their reasoning and awards are rarely denied based on strictly domestic standards.[4]
1. Comparative analysis: Interpretation of the public policy exception under Article V(2)(b) in various jurisdictions
The definition of public policy tends to differ from country to country and each State has the right to outline its own set of circumstances when recognizing and enforcing foreign arbitral awards that stand against the values of the legal system of said State.[5] Nevertheless, there is a similar pattern across the globe, with countries mostly accepting a pro-enforcement, narrow reading of the public policy clause, thus making it rather unusual for enforcement to be denied. However, jumping to conclusions is not advised as most countries still have to provide information on how exactly they consider the public policy exception.[6]
In the famous decision of the US Court of Appeals, Second Circuit in the case of Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier (RAKTA), the court adopted a narrow definition of public policy.[7] Consequently, the enforcement of foreign arbitral awards can only be denied if it violates basic morals and basic concepts of justice.[8] Similarly to the US, the Federal Court of Australia also adopted a pro-enforcement point of view when defining public policy, arguing that only “fundamental, core questions of morality and justice” could trigger an exemption from enforcement.[9] Many other countries advocated for a very high and vague standard in order to grant refusal of enforcement of foreign arbitral awards.[10] The German court argued that enforcement under Article V(2)(b) could be denied only when it goes against economic policies and the foundations of the state.[11] The Swiss Federal Tribunal went further and stated that enforcement cannot be granted when a foreign arbitral award “disregards essential and widely recognized values which, according to the conceptions prevailing in Switzerland, should form the basis of any legal order.”[12] A foreign decision must, thus, be compatible with the Swiss legal framework in both substantive and procedural aspects.[13] Similarly to Switzerland, the Court of Appeal of Paris argued that international public policy represents a set of principles whose violation will not be tolerated by the French legal system.[14]
Some countries, such as Brazil and India emphasized the special connection between public policy and national interest/sovereignty.[15] The Indian courts depicted a framework in which enforcement of foreign arbitral awards will be denied if it is against: “(i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.”[16] In parallel, the Brazilian Superior Court of Justice connected the concept of public policy with national sovereignty.[17] Article V(2)(b) is incorporated in Brazilian national law through Article 39 of the Brazilian Arbitration Act: “Recognition or enforcement of a foreign arbitral award will also be refused if the Superior Court of Justice finds that: According to Brazilian law, the object of the dispute cannot be settled by arbitration; The decision violates national public policy.”[18] The Brazilian Superior Court of Justice has a tradition of adopting a narrow reading of what constitutes the grounds for refusal of enforcement of foreign arbitral awards.[19] Consequently, for an issue to be interpreted as a violation of public policy it must relate to the concept of national sovereignty, the two terms are considered to be interchangeable.[20]
2. International and transnational public policy
Since the public policy exception under article V(2)(b) refers to “the recognition or enforcement of the award would be contrary to the public policy of that country”, the international and transnational public policy is viewed in terms of how a particular forum State interprets the international or transnational character of public policy.[21]
When questioning the existence of a general international or transnational public policy, the opinions of different national courts tend to vary. While the Italian courts consider the international public policy as “a body of universal principles shared by nations of the same civilization, aiming at the protection of fundamental human rights, often embodied in international declarations or conventions”,[22] the Indian courts tend to disagree. The Supreme Court of India argues, indeed, that the existence of an international or transnational definition of public policy is not sustainable, and public policy is defined by the contracting state that is enforcing the award.[23] In this sense, the international and transnational public policy does not have a truly international character, as it is determined by the contracting state on a domestic level.[24]
3. Mandatory rules as public policy
The term “public policy” refers to the mandatory rules of a State where recognition and enforcement of an award are sought. Thus, a question arises as to whether the forum’s mandatory rules should be considered part of its public policy and, consequently, a potential exception to the recognition and enforcement of an award under the New York Convention.[25] Mandatory rules are imperative provisions of law that must be applied to an international relationship irrespective of the specific laws that govern that relationship. They tend to share most of the characteristics of ‘public law’ and they are typically expressed in statutory form. They are mostly regulatory rather than elective, and they frequently vary from State to State.[26] However, for there to be a failure to apply mandatory rules to form part of public policy, there must be some connection between the concepts of public policy and the mandatory rules of a State.[27] For example, the Court of Justice of the European Union (CJEU) in Eco Swiss China Time Ltd. v. Benetton International NV, held that Article 101 of the Treaty on the Functioning of the European Union (TFEU), which renders automatically void certain anti-competitive agreements or decisions, constitutes “a fundamental provision which is essential for the accomplishment of the tasks entrusted to the [Union] and, in particular, for the functioning of the internal market”. The CJEU held that, for this reason, it should be regarded as a matter of public policy within the meaning of Article V (2) (b) of the New York Convention.[28] Thus, the CJEU affirmed the obligation to refuse recognition and enforcement to all awards which conflict with Article 101 TFEU.[29] Moreover, in Marketing Displays International Inc v. VR Van Raalte Reclame B.V. the court upheld a lower court’s refusal to grant an exequatur to three US arbitral awards considered incompatible with Article 101 and in violation of public policy. This was the first time that a foreign arbitral award was refused recognition and enforcement in Europe based on the EU competition principle.[30] Lastly, in Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, the United States Supreme court held that claims arising from the Sherman Antitrust Act are arbitrable. The court stated that “the national courts of the United States will have the opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed”.[31] Furthermore, courts around the world acknowledge that a mere incompatibility of a foreign award with mandatory domestic rules does not always amount to a breach of public policy. However, several courts have refused to recognize and enforce awards, or the part of them, considered contrary to public policy.[32]
In J. J. Agro Industries (P) Ltd. v. Texung International Ltd., the court refused to grant the enforcement of the part of the award concerning the return of the deposits. According to the judge, an award can be enforced both under common law and the New York Convention. The judge reasoned that if an argument renders the enforcement of part of an award contrary to public policy, this does not taint the entire award.[33] Furthermore, courts have refused awards where they considered the awarded interest unreasonably high.[34] In Belaja Rus v. Westintorg Corp., the Supreme Court of Lithuania granted enforcement only to part of the award, applying Article V (2) (b) New York Convention, after noting that an unreasonable and disproportionately high interest rate in the award could amount to a violation of Lithuanian public policy.[35] However, the criteria to form the basis of the determination as to whether mandatory rules constitute public policy are often not specified by national courts. The commentators note that it is rather consistent with the letter and spirit of the New York Convention and that, as a matter of principle, the mandatory rules of the enforcement forum should be considered as part of its public policy when they reflect that forum’s fundamental concepts of morality and justice.[36]
4. Public policy and constitutional principles
According to BCB Holdings Limited and the Belize Bank Limited v. The Attorney General of Belize,constitutional principles can also interact with the public policy exception to the recognition and enforcement of foreign arbitral awards under the New York Convention.[37] The constitutional principles of a State can be sources of public policy since they come from the foundational embodiment of a State. The constitutional principles advise courts on what the public policy is within a State. For example, some courts explicitly refer to constitutional principles in the formulation of whether the action “contravenes the letter or purpose of constitutional, statutory or regulatory provisions”.[38] In BCB Holdings Limited and the Belize Bank Limited v. The Attorney General of Belize,the court detailed the constitutional principle of the separation of powers.[39] The meaning surrounding the separation of powers is that the three branches of government, executive, legislative and judicial, must be separate. The principle of the separation of powers is also known as the system of checks and balances because each branch has its own separate powers, and generally each branch is not allowed to exercise the powers of the other branches.[40] In the case, Justice Saunders mentioned that courts should be concerned with protecting the integrity of its branches and even though public policy amounts to no less than such a constitutional principle, the separation of powers is so sacrosanct it requires courts to maintain and promote it at all costs, which means even refusing the enforcement of an arbitral award if needed. The New York Convention even envisages that a court on its own motion should decline to enforce an award of public policy, when the arbitral award collides with the constitutional principles, despite the notion surrounding public policy that foreign arbitral awards in particular should be enforced.[41]
5. Conclusion
In conclusion, Article V (2) (b) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, allows the court of a contracting State where recognition and enforcement are sought, to refuse recognition and enforcement of a foreign arbitral award, that is contrary to the public policy of that contracting State, with the aim of protecting the values, morals, and cohesion of its legal system. We have learned that there is no definition of public policy and States have the right to interpret their own set of circumstances when recognizing and enforcing foreign arbitral awards. For instance, we have seen in the U.S. enforcement of foreign arbitral awards can only be denied if it violates basic morals and basic concepts of justice and in Australia recognition and enforcement of a foreign arbitral award can only be denied when only “fundamental, core questions of morality and justice” are triggered. We have learned that when questioning the existence of a general international or transnational public policy, the opinions of domestic courts tend to differ. For instance, the Indian courts differ from the Italian courts and argue that the existence of an international or transnational definition of public policy is not sustainable and sticks to the notion that public policy is best when it is left to the contracting States to define. We also learned that the term public policy refers to the mandatory rules of a contracting State where recognition and enforcement if sought. For instance, we have seen in Eco Swiss that the CJEU held that Article 101 TFEU should be regarded as a matter of public policy within the meaning of Article V (2) (b) of the New York Convention, thus, affirming the obligation to refuse recognition and enforcement of arbitral awards that conflict with Article 101 TFEU. Lastly, we have learned that constitutional principles like the principle of separation of powers can interact with the public policy exception to the recognition and enforcement of arbitral awards. Whereby, if the recognition and enforcement of arbitral awards contravenes to the letter or purpose of constitutional, statutory, or regulatory principles of the contracting State, the recognition and enforcement of a foreign arbitral awards may be refused.
[1] Shenoy Nivedita, ‘Public Policy Under Article V (2) (B) of the New York Convention: Is There a Transnational Standard?’ (2018) <http://dx.doi.org/10.2139/ssrn.3226757> accessed 21 April 2022.
[2] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958), Article V(2)(b).
[3] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 <https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1> accessed 21 April 2022.
[4] Margaret Moses, ‘Public Policy: National, International and Transnational’ (Kluwer Arbitration Blog, 12 November 2018) <http://arbitrationblog.kluwerarbitration.com/2018/11/12/public-policy-national-international-and-transnational/> accessed 21 April 2022.
[5] UNCITRAL Secretariat (n 3), 254.
[6] Troy L. Harris, ‘The “Public Policy” Exception to Enforcement of International Arbitration Awards Under the New York Convention’ (2007) 24(1) Journal of International Arbitration 9, 24.
[7] Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier (RAKTA) Court of Appeals, United States of America, 508 F.2d 969, 974 (2nd Cir. 1974).
[8] Troy L. Harris (n 6), 13.
[9] Traxys Europe S.A. v. Balaji Coke Industry Pvt Ltd., Federal Court, Australia, 23 March 2012, [2012] FCA 276.
[10] Troy L. Harris (n 6), 14.
[11] Germany / 28 November 2005 / Germany, Oberlandesgericht München (Higher Regional Court of Munich) / 34 Sch 019/05; Troy L. Harris (n 6), 15.
[12] X S.p.A. v. Y S.r.l., Federal Tribunal, Switzerland, 8 March 2006, Arrêts du Tribunal Fédéral (2006) 132 III 389.
[13] Troy L. Harris (n 6), 15.
[14] Agence pour la sécurité de la navigation aérienne en Afrique et à Madagascar v. M. N’DOYE Issakha, Court of Appeal of Paris, France, 16 October 1997.
[15] UNCITRAL Secretariat (n 3), 257.
[16] Renusagar Power Co. Ltd. v. General Electric Company & anor., Supreme Court, India, 7 October 1993, 1994 AIR 860.
[17] Grain Partners S.p.A. v. Cooperativa dos Produtores Trabalhadores Rurais de Sorriso Ltda., Superior Court of Justice, Brazil, 18 October 2006.
[18] Brazilian Arbitration Act (1996, amended 2015), Article 39.
[19] Albert Jan Van Den Berg, ‘The New York Convention and its Application by Brazilian Courts’ (2013) 36 Revista de Arbitragem e Mediação 15 < https://edisciplinas.usp.br/pluginfile.php/293087/mod_resource/content/0/ALBERT%20JAN%20VAN%20DEN%20BERG%20-%20THE%20NEW%20YORK%20CONVENTION%20AND%20ITS%20APPLICATION%20BY%20BRAZILIAN%20COURTS.pdf > accessed 31 May 2022.; UNCITRAL Secretariat (n 3), 257.
[20] Grain Partners S.p.A. v. Cooperativa dos Produtores Trabalhadores Rurais de Sorriso Ltda. (2006) n (17).
[21] UNCITRAL Secretariat (n 3), 257.
[22] Allsop Automatic Inc. v. Tecnoski snc, Court of Appeal of Milan, Italy, 4 December 1992, XXII Y.B. Com. Arb. 725.
[23] Renusagar Power Co. Ltd. v. General Electric Company & anor. (n 15).
[24] Margaret Moses (n 4).
[25] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 < https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1 > accessed 21 April 2022.
[26] Luke Villiers, ‘Breaking in the “Unruly Horse”: The Status of Mandatory Rules of Law as a Public Policy Basis for the Non-Enforcement of Arbitral Awards’ (2011) 155 Australian International Law Journal < http://www.austlii.edu.au/au/journals/AUIntLawJl/2011/8.pdf > accessed 25 April 2022
[27] Luke Villiers, ‘Breaking in the “Unruly Horse”: The Status of Mandatory Rules of Law as a Public Policy Basis for the Non-Enforcement of Arbitral Awards’ (2011) 155 Australian International Law Journal < http://www.austlii.edu.au/au/journals/AUIntLawJl/2011/8.pdf > accessed 25 April 2022
[28] Eco Swiss China Time Ltd. v. Benetton International NV, Court of Justice of the European Union, 1 June 1999, Case C-126/97, [1999] ECR I-3055, paras. 37-39
[29] Marketing Displays International Inc. v. VR Van Raalte Reclame B.V., Court of Appeal, The Hague, Netherlands, 24 March 2005, XXXI Y.B. COM.
[30] Assimakis Komninos, ‘Dutch Court Refuses to Enforce US Arbitral Awards on Public Policy Grounds for Violation of EU Competition Law’ (Transnational Despite Management, 2006) < https://www.transnational-dispute-management.com/article.asp?key=904 > accessed 25 April 2022
[31] Mitsubishi Motors Corp v. Sober Chrysler-Plymouth, Supreme Court, United States of America, 2 July 1985, 473 United States 614
[32] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 < https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1 > accessed 21 April 2022.
[33] J.J. Agro Industries (P) Ltd. v. Texuna International Ltd., High Court, Hong Kong, 12 August 1992
[34] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 < https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1 > accessed 21 April 2022.
[35] Belaja Rus v. Westintorg Corp., Court of Cassation, Lithuania, 10 November 2008
[36] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 < https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1 > accessed 21 April 2022.
[37] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 < https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1 > accessed 21 April 2022.
[38] Steven J. Mulroy, Amy H. Hoorman, ‘Raising the Floor of Company Conduct: Deriving Public Policy from the Constitution in an Employment-at-Will Area’ (2014) 41 (4) Florida State University Law Review < https://ir.law.fsu.edu/cgi/viewcontent.cgi?article=2498&context=lr > accessed 24 April 2022.
[39] BCB Holdings Limited and The Belize Bank Limited v. The Attorney General of Belize, Caribbean Court of Justice, Appellate Jurisdiction, 26 July 2013, [2013] CCJ 5 (AJ)
[40] Cornell Law School, ‘Separation of powers’ (Cornell Law School) < https://www.law.cornell.edu/wex/separation_of_powers#:~:text=Separation%20of%20powers%20is%20a,and%20balance%20the%20other%20branches. > accessed 24 April 2022.
[41] BCB Holdings Limited and The Belize Bank Limited v. The Attorney General of Belize, Caribbean Court of Justice, Appellate Jurisdiction, 26 July 2013, [2013] CCJ 5 (AJ)
Bibliography
Primary Sources
Treaties
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958), Article V(2)(b).
Cases
Agence pour la sécurité de la navigation aérienne en Afrique et à Madagascar v. M. N’DOYE Issakha, Court of Appeal of Paris, France, 16 October 1997.
Allsop Automatic Inc. v. Tecnoski snc, Court of Appeal of Milan, Italy, 4 December 1992, XXII Y.B. Com. Arb. 725.
BCB Holdings Limited and The Belize Bank Limited v. The Attorney General of Belize, Caribbean Court of Justice, Appellate Jurisdiction, 26 July 2013, [2013] CCJ 5 (AJ)
Belaja Rus v. Westintorg Corp., Court of Cassation, Lithuania, 10 November 2008
Eco Swiss China Time Ltd. v. Benetton International NV, Court of Justice of the European Union, 1 June 1999, Case C-126/97, [1999] ECR I-3055, paras. 37-39
Germany / 28 November 2005 / Germany, Oberlandesgericht München (Higher Regional Court of Munich) / 34 Sch 019/05
Grain Partners S.p.A. v. Cooperativa dos Produtores Trabalhadores Rurais de Sorriso Ltda., Superior Court of Justice, Brazil, 18 October 2006.
J.J. Agro Industries (P) Ltd. v. Texuna International Ltd., High Court, Hong Kong, 12 August 1992
Marketing Displays International Inc. v. VR Van Raalte Reclame B.V., Court of Appeal, The Hague, Netherlands, 24 March 2005, XXXI Y.B. COM.
Mitsubishi Motors Corp v. Sober Chrysler-Plymouth, Supreme Court, United States of America, 2 July 1985, 473 United States 614
Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier (RAKTA) Court of Appeals, United States of America, 508 F.2d 969, 974 (2nd Cir. 1974).
Renusagar Power Co. Ltd. v. General Electric Company & anor., Supreme Court, India, 7 October 1993, 1994 AIR 860.
Traxys Europe S.A. v. Balaji Coke Industry Pvt Ltd., Federal Court, Australia, 23 March 2012, [2012] FCA 276.
X S.p.A. v. Y S.r.l., Federal Tribunal, Switzerland, 8 March 2006, Arrêts du Tribunal Fédéral (2006) 132 III 389.
Legislation
Brazilian Arbitration Act (1996, amended 2015)
Secondary Sources
UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (eds. Emmanuel Gaillard and George A. Bermann) (2017), 253 <https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1> accessed 21 April 2022.
Journal Articles
Harris T. L., ‘The “Public Policy” Exception to Enforcement of International Arbitration Awards Under the New York Convention’ (2007) 24(1) Journal of International Arbitration 9, 24.
Luke Villiers, ‘Breaking in the “Unruly Horse”: The Status of Mandatory Rules of Law as a Public Policy Basis for the Non-Enforcement of Arbitral Awards’ (2011) 155 Australian International Law Journal < http://www.austlii.edu.au/au/journals/AUIntLawJl/2011/8.pdf > accessed 25 April 2022
Moses M., ‘Public Policy: National, International and Transnational’ (Kluwer Arbitration Blog, 12 November 2018) < http://arbitrationblog.kluwerarbitration.com/2018/11/12/public-policy-national-international-and-transnational/ > accessed 21 April 2022.
Nivedita S., ‘Public Policy Under Article V (2) (B) of the New York Convention: Is There a Transnational Standard?’ (2018) < http://dx.doi.org/10.2139/ssrn.3226757 > accessed 21 April 2022.
Steven J. Mulroy, Amy H. Hoorman, ‘Raising the Floor of Company Conduct: Deriving Public Policy from the Constitution in an Employment-at-Will Area’ (2014) 41 (4) Florida State University Law Review < https://ir.law.fsu.edu/cgi/viewcontent.cgi?article=2498&context=lr > accessed 24 April 2022.
Van Den Berg A. J., ‘The New York Convention and its Application by Brazilian Courts’ (2013) 36 Revista de Arbitragem e Mediação 15 < https://edisciplinas.usp.br/pluginfile.php/293087/mod_resource/content/0/ALBERT%20JAN%20VAN%20DEN%20BERG%20-%20THE%20NEW%20YORK%20CONVENTION%20AND%20ITS%20APPLICATION%20BY%20BRAZILIAN%20COURTS.pdf > accessed 31 May 2022.
Websites
Assimakis Komninos, ‘Dutch Court Refuses to Enforce US Arbitral Awards on Public Policy Grounds for Violation of EU Competition Law’ (Transnational Despite Management, 2006) < https://www.transnational-dispute-management.com/article.asp?key=904 > accessed 25 April 2022
Cornell Law School, ‘Separation of powers’ (Cornell Law School) < https://www.law.cornell.edu/wex/separation_of_powers#:~:text=Separation%20of%20powers%20is%20a,and%20balance%20the%20other%20branches. > accessed 24 April 2022.
Authors
Laura Tutek, Research Associate. RCIL & HR (lauratutek@gmail.com)
Kirsten O’Connell, Team Lead & Coordinator, RCIL & HR (kirstenjeanoconnell@gmail.com)