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Transnational Public Policy

(This Wiki Note focuses on the notion of transnational public policy in investment arbitration but will not address the implications of transnational public policy in commercial arbitration.)

I. Definition


Several national arbitration statutes1 as well as international instruments2 contain references to “international (or transnational) public policy” without however providing any definition or guidance thereon. Transnational public policy can be defined as “a reflection of global consensus- deriving from the convergence of national laws, international conventions, arbitral case law and scholarly commentary- on fundamental economic, legal, moral, political, and social values”,3 while domestic public policy can be defined as a set of economic, legal, moral, political, and social values considered fundamental by a national jurisdiction. The content of transnational public policy is not static and adapts to society's changing attitudes and beliefs. 


Many investment arbitral tribunals recognized the existence of transnational public policy and defined it as “an international consensus as to universal standards and accepted norms of conduct that must be applied in all fora4 or as a “a series of fundamental principles that constitute the very essence of the State, with the essential function […] to preserve the values of the international legal system against actions contrary to it.5

II. Components


One can distinguish6 between procedural transnational public policy which encompasses the due process components7 (i.e. a “bundle of rights”, such as the right to an impartial and independent tribunal, the right to fully present its case, and equality of treatment between the parties) and substantive transnational public policy which notably comprises piracy, terrorism, genocide, slavery, smuggling, drug trafficking, trading of stolen property, trafficking of human organs,8 fraud,9 and more specifically corruption,10 to which a particular attention should be drawn. 


Actually, it has been ruled that prevention of corruption is one of the “fundamental principles of international public policy, insofar as most national laws and international conventions condemn bribery”.11 In World Duty Free v. Kenya an ICSID tribunal concluded that bribery is contrary to the international public policy of most, if not all, States. Similarly, in Wena Hotels Ltd. v. Arab Republic of Egypt, an ICSID tribunal held that bribery and corruption is contrary to “international bones mores”.


Nevertheless, the exact scope of what is considered of international public policy may be interpreted by domestic courts.12

III. Breach of transnational public policy in investment arbitration


The breach of transnational public policy can lead the arbitral tribunal to deny its jurisdiction or to declare the claim inadmissible (A) or inarbitrable (B). Such breach can also constitute grounds for setting aside the award (C) or to denying its recognition and enforcement (D).

A. Lack of jurisdiction or inadmissibility of the claim


When examining a claim arising out of an investment tainted by illegality, the arbitral tribunal may either decide that it lacks jurisdiction thereon13 or declare the claim inadmissible14 on the basis of a breach of transnational public policy (or both)15 or the “clean hands” doctrine.16 


Several treaties require, under the formula “in accordance with host State law”, that in order to qualify as an investment, the operation must comply with the host State’s regulations. Therefore, an investment that is not in compliance with host State law is not covered by the definition of “investment” and will not benefit from the treaty’s provisions, notably from the arbitration clause. When the investment treaty contains an “in accordance with host State law” clause, arbitral tribunals consider that there is a jurisdiction issue.17 For instance, in Inceysa v. El Salvador,18 an ICSID tribunal held that fraudulent misrepresentation in a bidding process for a government contract was a violation of a principle of international public policy, and that the existence of an “in accordance with the law” provision demonstrates the clear intent of the signatory States to exclude from protection investments made in violation of their internal laws. See further Legality of investment.


When an investment treaty does not contain an “in accordance with host State law” clause, arbitral tribunals consider that there is an admissibility issue. On this basis, arbitral tribunals have ruled that an investment claim was inadmissible when the contract was obtained by fraudulent misrepresentation19 or by corruption.20


The burden of proving the breach of transnational public policy lies on the respondent State.21

B. Arbitrability of the dispute

C. Challenge of the award


The breach of transnational public policy constitutes ground for setting aside the award under most modern arbitration laws that follow Article 34(2) of the UNCITRAL Model Law, which provides an exhaustive list of grounds, among which, the breach of transnational public policy. This is not the case under the ICSID Convention where annulment is limited to an exhaustive list of grounds in Article 52(1) of the said Convention.23

1. Challenge of non-ICSID awards


As regards to non-ICSID awards (made under UNCITRAL, ICC or other rules of procedure), it has been ruled that a wrong evaluation of evidence, a wrong factual determination, or even a manifestly erroneous determination of the applicable law does not amount to a violation of public policy.24 In the same vein, it has been ruled that when the tribunal’s findings with respect to jurisdictional questions are not “patently unreasonable”, “clearly irrational”, “totally lacking in reality”, or “a flagrant denial of justice25 there is no violation of public policy


However, the Paris Court of Appeal annulled a UNCITRAL arbitral award26 on the ground that its enforcement in France would result in allowing the investor to benefit from money laundering activities.27 The Paris Court of appeal also considered,28 that the domestic overriding mandatory rules (lois de police) regarding foreign investments in the State’s natural resources are of international public policy and annulled the award that has validated a transaction concluded in breach of such rules.29

2. Challenge of ICSID awards


If the arbitration's seat is in a jurisdiction with a broad interpretation of public policy, the odds of setting aside the award would be significantly high. However, in an ICSID arbitration, the seat is of secondary importance insofar as the ICSID Convention provides for an “internal” setting aside procedure before an ad hoc Committee (and not before the jurisdiction of the seat). According to Article 52 of the said Convention,30 the award can notably be annulled in case of corruption on the part of a member of the Tribunal (but not in case of corruption related to the subject matter of the dispute) or in case of a serious departure from a fundamental rule of procedure, which amounts to a breach of the procedural transnational public policy. For example, the motion to set aside an ICSID award has been rejected “when the award does not fundamentally offends the most basic and explicit principles of justice and fairness, or evidences intolerable ignorance or corruption on the part of the arbitral Tribunal31 and when “the Tribunal’s conduct was not marked by corruption, bribery or fraud or contrary to the essential morality”.32

D. Recognition and enforcement

1. Recognition and enforcement of non-ICSID awards


On one hand, Article V(2)(b) of the New York Convention, which applies to non-ICSID awards, provides that recognition and enforcement of an arbitral award may be refused if the competent authority in the country where recognition and enforcement is sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country. 


The exact scope of the public policy exception of Article V(2)(b) of the New York Convention is not clearly established. It is however widely admitted that the exception is restrained to transnational (and not domestic) public policy of the jurisdiction where recognition and enforcement are sought (it is therefore not possible to invoke the public policy of the host State of the investor) and each legal system decides on its own the meaning it wishes to give to this notion transnational public policy.33 The examples listed above as regards the challenge of the award on the grounds of breach of transnational public policy apply mutatis mutandis to denying its enforcement and recognition on the same grounds.

2. Recognition and enforcement of ICSID awards


On the other hand, Article 54(1) of the ICSID Convention34 states that “each contracting state shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State”.


It results from this article that an ICSID award will be recognized35 without any condition precedent, while the enforcement36 of the pecuniary obligations (such as the obligation to pay damages or to reimburse a certain amount with interest thereon) resulting from the award will be subject to the conditions applicable to the enforcement of a final judgment of a court in the State where enforcement is sought. The compliance to domestic public policy (which is more strictly construed than transnational public policy) is usually part of such conditions.


As to the enforcement of the non-pecuniary obligations (such as a non-compete obligation, or a non-disclosure obligation), scholars37 are of the opinion that it is subject to the conditions set forth in the New York Convention, among which the compliance with the transnational public policy of the State where enforcement is sought. 

IV. Conclusion


To sum up, a breach of transnational public policy could preclude investors from presenting their case on the merits before an arbitral tribunal and could lead to the setting aside of the award as well as denying its recognition and enforcement. Therefore, in order not to hinder access to arbitral justice as well as the efficiency of the award, some authors suggest that the notion of transnational public policy should be narrowly construed by “adopting a ‘manifest’ or ‘obvious’ criterion, as have done, for example, the courts in France and Germany, even in the absence of an express statutory basis for such qualitative thresholds”.38


Baizeau, D. and Hayes, T., The Arbitral Tribunal’s Duty and Power to Address Corruption Sua Sponte, in Menaker, A. (ed.), International Arbitration and the Rule of Law: Contribution and Conformity, ICCA Congress Series, Vol. 19, ICCA & Kluwer Law International, 2017, pp. 225-265

Bollée, S. and Audit, M., La lutte contre le blanchiment, nouvel avatar d’un contrôle renforcé du respect de l’ordre public international, note sous Paris, Pôle 1 – Ch. 1, 21 février 2017, Revue de l'Arbitrage, Vol. 2017, Issue 3, pp. 929-941.

Bondar, K., Annulment of ICSID and Non-ICSID Investment Awards: Differences in the Extent of Review, Journal of International Arbitration, Kluwer Law International, 2015, Vol. 32 Issue 6, pp. 621-676.

Cosar, U., Claims of Corruption in Investment Treaty Arbitration: Proof, Legal Consequences and Sanctions, in Van den Berg, A.J. (ed.), Legitimacy: Myths, Realities, Challenges, ICCA Congress Series, Vol. 18, ICCA & Kluwer Law International, 2015, pp. 531-556.

Euler, D. and Bianco, G., Breaking the Bond: Vulture Funds and Investment Arbitration, ASA Bulletin, Kluwer Law International, 2013, Vol. 31, Issue 3, pp. 558-582.

Hwang, M. and Lim, K., Corruption in Arbitration - Law and Reality, Asian International Arbitration Journal, Singapore International Arbitration Centre (in co-operation with Kluwer Law International), Kluwer Law International, 2012, Vol. 8, Issue 1, pp. 1-119.

Koepp, J. and Ason, A., An Anti- Enforcement Bias? The Application of the Substantive Public Policy Exception in Polish Annulment Proceedings, in Scherer, M. (ed.), Journal of International Arbitration, 2018, Volume, 35 Issue 2, pp. 157-172.

Lamm, C.B., Pham, H.T. et al., Fraud and Corruption in International Arbitration, in Fernandez-Ballester, M.A. and Lozano, D.A. (eds.), Liber Amicorum Bernardo Cremades, Wolters Kluwer España, La Ley, 2010, pp. 699 -731.

Lemaire, S. and Laazouzi, M., Chronique de jurisprudence arbitrale en droit des investissements, Revue de l'Arbitrage, Comité Français de l'Arbitrage, 2019, Vol. 2019, Issue 2, pp. 552-617. 

Lemaire, S., L’intégration de la loi de police laotienne sur les investissements étrangers dans l’ordre public international de contrôle de la sentence, note sous Paris, Pôle 1 – Ch 1, 16 janvier 2018, Revue de l'Arbitrage, Vol. 2018, Issue 2, pp. 409-421.

Lemaire, S., L’arbitrage d’investissement et la restructuration de dettes souveraines (de l’expérience argentine au cas grec), Revue de l’Arbitrage, Vol. 2014, Issue 1, pp. 53-73.

Llamzon, A. and Sinclair, A.C., Investor Wrongdoing in Investment Arbitration: Standards Governing Issues of Corruption, Fraud, Misrepresentation and Other Investor Misconduct, in Van den Berg, A.J. (ed.), Legitimacy: Myths, Realities, Challenges, ICCA Congress Series, Vol. 18, ICCA & Kluwer Law International, 2015, pp. 451-530.

Meshel, T., The Use and Misuse of the Corruption Defence in International Investment Arbitration, Journal of International Arbitration, Kluwer Law International, 2013, Vol. 30 Issue 3, pp. 267-281

Matipe, J.A.P and Olokotor, P.N.C., Chapter 4: Judicial Attitudes Towards the Enforcement of Annulled Awards, in Onyema, E. (ed.), Rethinking the Role of African National Courts in Arbitration, Kluwer Law International, 2018, pp. 97-116.

Spaccaquerche Barbosa, F., The Enforcement of International Investment Arbitral Awards: is There a Better Way?, Revista Brasileira de Arbitragem; Comitê Brasileiro de Arbitragem CBAr & IOB, 2009, Vol. VI, Issue 21, pp. 7-34.

Teynier, E., L’office de l’arbitre d’investissement: le cas particulier de l’investissement illicite, Revue de l'Arbitrage, Vol. 2019, Issue 1, pp. 117-172.

Chapter 3: The Protection of Arbitral Awards in the Global Context of Investment Treaty Interpretation, in Clasmeier, M., Arbitral Awards as Investments: Treaty Interpretation and the Dynamics of International Investment Law, International Arbitration Law Library, Vol. 39, Kluwer Law International, 2016, pp. 53-142.

Chapter 6: Dispute Resolution and Enforcement of Investment Awards, in Rajput, A., Protection of Foreign Investment in India and Investment Treaty Arbitration, Kluwer Law International, 2017, pp. 127-146.

Chapter 8: Third-Party Funding in Investment Arbitration, ICCA Reports No. 4: Report of the ICCA Queen Mary Task Force on Third-Party Funding in International Arbitration, ICCA Reports Series, Vol. 4, ICCA & Kluwer Law International, 2018, pp.199-227.

Chapter 10: Challenge of Arbitral Awards, in Nigel, B., Partasides, C. et al., Redfern and Hunter on International Arbitration, 6th edition, Kluwer Law International; Oxford University Press, 2015, pp. 569-604.

Chapter 16: Recognition and Enforcement of International Arbitral Awards, in Born, G.B., International Arbitration: Cases and Materials, 2nd edition; Kluwer Law International, 2015, pp. 1189-1266.

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