Author

Ms Denise Jansen

Associate - Houthoff

Editors
See all

New York Convention: Public Policy Exception

I. New York Convention: definition of public policy exception

1.

Under the New York Convention, an arbitral award shall not be recognized and enforced if the competent authority in the country were recognition and enforcement is sought finds that "the recognition or enforcement of the award would be contrary to the public policy of that country."1 If only because of this wording, the public policy exception can be raised ex officio by the recognition court.2 The New York Convention does not define the term "public policy".3 Consequently, the Convention Member States have the freedom to individually define this term.4

2.

None of the Convention Members States have statutorily defined "public policy", except for Australia and the United Arab Emirates.5

3.

In civil law jurisdictions, reference is mostly made to the foundation of the legal system when it comes to the interpretation of the concept of public policy.6 Common law jurisdictions tend to refer to more explicit fundamental values, for example to natural justice.7 Accordingly, the definition of public policy is an ever-evolving concept.8

II. New York Convention: International and transnational public policy exception

4.

Although Article V(2)(b) of the New York Convention refers to the public policy of a Convention Member State, in practice State courts have also used notions of international and transnational public policy.9 In fact, in most jurisdictions, a violation of domestic law will not be deemed a ground to refuse the recognition and enforcement of an award.10

5.

The international public policy exception may lead to the prevention of invoking a foreign law, foreign judgment or foreign award.11 This exception is usually interpreted more narrowly than the national public policy exception.12 In fact, there is a tolerant standard for the recognition and enforcement of foreign awards in place among the Convention States.13

6.

Transnational public policy involves cross-border public policy rather than national public policy.14 The standards of Transnational public policy relate to rules that are generally recognized and accepted in Convention Member States.15 Transnational public policy is interpreted even more restrictively than both domestic and international public policy.16

7.

It should be noted that the enforcement of domestic awards is not governed by Article V(2)(b) of the New York Convention.17

III. Procedural public policy

8.

In most jurisdictions, procedural grounds relating to public policy may be raised as a ground for inconsistency with public policy under Article V(2)(b) of the New York Convention. Such procedural grounds relate to the arbitration process.18

9.

It appears that raising a plea for an inconsistency of procedural public policy is slightly more likely to be successful than a plea for an inconsistency of substantive public policy.19 The following inconsistencies appear to be almost universally accepted inconsistencies of procedural public policy:

  • Violation of the right to be heard or of due process;20
  • Violation of equal opportunity to present one’s case;21
  • The Award is obtained by fraud or is based on falsified documents;22 and
  • The Award is obtained following bribery of or threats to an arbitrator.23

10.

In addition, the violation of res judicata and the lack of independence and impartiality of the arbitrators are also generally, but not universally, accepted to be contrary to public policy.24

IV. Substantive public policy

11.

Substantive public policy pertains to the contents of the award.25 Contrary to procedural public policy, identifying different general categories of substantive public policy tends to be more difficult. Categories in various jurisdictions include:

  • (EU) antitrust and competition law;26
  • Pacta sunt servanda;27
  • Equality of creditors in insolvency situations;28
  • State immunity;29
  • Prohibition of punitive damages;30
  • Prohibition of excessive interest;31
  • In some jurisdictions, the non-Arbitrability of a dispute appears to be considered as belonging to public policy (see also Arbitrability).32
12.

Finally, in some jurisdictions, courts have issued their own more or less extensive catalogue of substantive public policy manifestations.33

V. Role of the national courts

13.

The refusal of recognition and enforcement of an arbitral award is only possible in the event that a certain degree of inconsistency with public policy is met. Different degrees of required inconsistency with public policy have been applied worldwide. Examples include that the violation must be “clear”, “concrete”, “evident” or “patent”, “blatant”, “manifest”, “obvious and manifest”, “flagrant”, “particularly offensive”, “severe”, “intolerable”, “unbearable”, “repugnant to the legal order”, etc.34

14.

Because of the far-reaching impact of the public policy exception, State courts may also raise this issue at their own motion.35 Since in most arbitral jurisdictions, there tends to be a pro-enforcement attitude, State courts interpret the concept of public policy narrowly.36 As a result, applications made under Article V(2)(b) have hardly been granted.37 38

Bibliography

Articles

Paray, N.B, Dabee, S. and Maxime, S., The Supreme Court of Mauritius sets aside award on grounds of breach of domestic public policy, Lexology, 2019.

Books

Wolff, R. (ed.), New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 19 June 1958 – Commentary, C.H. Beck - Hart - Nomos, 2012, pp. 489-490 and 494.

Kessedjian, C., Transnational Public Policy, in Van den Berg, A.J. (ed.), International Arbitration 2006: Back to Basics? ICCA International Arbitration Congress, Kluwer Law International, N° 13, 2008, pp. 859-862.

Maurer, A.G., The Public Policy Exception under the New York Convention, pp. 57-58 and 64-66.

Born, G.B., International Arbitration: Law and Practice, 2nd ed., 2015, p. 408-409.

Born, G.B., International Commercial Arbitration, Kluwer Law International, 2nd ed., 2014, pp. 3422, 3652, 3655.

Reports

IBA Subcommittee on Recognition and Enforcement of Arbitral Awards, Report on the Public Policy Exception in the New York Convention, October 2015.

ILA Committee on International Commercial Arbitration, New Delhi Conference Report, 2002, p. 3.

UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958), 2016.

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