Arbitrability and Public Policy Challenges

Introduction

Party autonomy is at the core of international arbitration. However, it is not without its limits. Two of the most notable limitations to party autonomy are on grounds of arbitrability and public policy.

Arbitrability and public policy defences are often raised by parties to an arbitration either during proceedings brought to challenge an award or to resist its recognition or enforcement (subject to the applicable procedural rules). Challenges on arbitrability and public policy grounds are generally made in accordance with the provisions of the applicable domestic arbitration legislation[2] or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention) (or both).[3]

A different regime applies to the annulment, recognition and enforcement of awards rendered pursuant to the International Centre for Settlement of Investment Disputes (ICSID) Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 (the ICSID Convention), pursuant to which awards (1) can be challenged in accordance with specific and limited grounds provided in the ICSID Convention itself,[4] and (2) must be recognised as if they were final judgments of the courts of ICSID Convention contracting States.[5]

For awards issued outside the ICSID Convention context, such as those pursuant to the rules of other international arbitral institutions or those by ad hoc arbitral tribunals, set-aside, recognition and enforcement will generally be governed by the law of the arbitral seat, law of the recognition or enforcement forum, and the rules under the New York Convention, where applicable.[6]

Definitions and concepts[7]

Arbitrability

A dispute is arbitrable if it can be submitted to arbitration[8] (i.e., if it is not a type of dispute that has been specifically reserved for resolution by domestic courts notwithstanding an arbitration agreement between the parties). National laws usually restrict access to arbitration for specific types of disputes on account of either the wider public interest involved in the consideration of the dispute, or because the dispute involves the rights of specific individuals that require additional protection by the state.

The question of arbitrability may be raised during an arbitration or after an award has been issued.

Arbitral tribunals are empowered to determine the arbitrability of a dispute should the issue be raised during an arbitration. The silence of international arbitration conventions and national laws as to the law applicable to such a determination has resulted in conflicting views. It is generally accepted that arbitrators should assess arbitrability pursuant to the law applicable to the merits of the dispute. However, arbitrators have also considered the question from the perspective of the law of the seat, on the basis that arbitrators derive their powers from that law,[9] and it is even argued that the law of the personal jurisdiction of the parties ought to apply.[10]

As regards the issue of arbitrability raised during any post-award challenge, or recognition or enforcement stage, that issue is considered by the competent domestic courts, and the New York Convention is clear that arbitrability is to be assessed under ‘the law of that country’ where recognition or enforcement is sought.[11] Thus, any non-arbitrability question will be resolved based on the laws of the jurisdiction where the award is sought to be recognised or enforced. Similarly, the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985 (as amended in 2006) (the Model Law), which has been adopted by more than 80 countries as the applicable arbitration law,[12] provides that the applicable law is the law of the state where the award is challenged or where recognition or enforcement is sought.[13]

Most contracting parties to the New York Convention have set out in their national laws the matters that are arbitrable and the matters that fall under the exclusive jurisdiction of the national courts, while also providing for general standards to assist with determining which matters are arbitrable.[14] In the case of common law jurisdictions, ‘the standards for arbitrability appear to be established by the courts through precedent’.[15] As such, each country has its own approach to arbitrability and domestic courts have assisted with creating and developing standards that are specific to each jurisdiction.

In general, commercial disputes are deemed arbitrable in the vast majority of countries,[16] whereas criminal matters[17] and matters dealing with ‘the authority to commence and administer bankruptcy proceedings’[18] are considered to be non-arbitrable. Disputes relating to competition, succession, employment and insolvency, however, are considered as non-arbitrable in some jurisdictions but deemed arbitrable in others.[19]

On the whole, challenges to awards based on inarbitrability are rather infrequent. Indeed, there has been a ‘relatively small number of cases’ dealing with challenges to an award based on arbitrability, and national courts have refused recognition and enforcement of an award in ‘only a handful of instances’ on the basis of the arbitrability exception.[20]

That is because in applying laws and precedents on arbitrability, where they exist, national courts have adopted a narrow interpretation of the exception, favouring a pro-arbitration and pro-enforcement approach championed by the New York Convention itself.[21] That said, it is still important that parties ‘anticipate problems by attempting to envisage which types of disputes may arise out of their agreement, and subsequently verify whether such disputes could give rise to issues of arbitrability under the law of the contract, the law of the seat and (if known) the law of (likely) enforcement’.[22]

Public policy

Neither the Model Law (on which many jurisdictions have based their domestic arbitration laws)[23] nor the New York Convention provide a definition of public policy. Article V(2)(b) of the New York Convention refers to ‘the public policy of that country’ indicating a determination on the meaning of ‘public policy’ to be made from the perspective of the jurisdiction where recognition or enforcement is sought.[24] The Model Law offers the same formulation in Articles 34(2)(b)(ii) and 36(1)(b)(ii), both referring to the public policy of the state in which a set-aside application has been lodged and where recognition or enforcement is sought.[25]

Accordingly, states have adopted and developed their own formulations of public policy, in legislation or through jurisprudence. Unsurprisingly, it appears that each state’s fundamental economic, religious, social and political standards that define its legal system inform its definition of public policy. Courts the world over review awards by referring to ‘the core values of [their] legal system or [their] own local domestic standards of morality, justice, and the public interest’.[26] In exercising their control over the post-award process, they therefore attempt to strike a balance between the parties’ ‘right to autonomy . . . [and] the state’s own interest in the preservation and safeguard of those fundamental values that fall under the scope of public policy’.[27] Inevitably, this renders public policy a rather flexible concept, which will have to be assessed based on the specific facts of each case.

For example, the Supreme Court of England and Wales once described it as ‘that principle of the law which holds that no subject can lawfully do that which has a tendency to be injurious to the public, or against public good’.[28] Likewise, in the well-known Parsons case, the US courts defined public policy to encompass the ‘forum state’s most basic notions of morality and justice’.[29] According to the International Law Association, ‘[i]nfringements of mandatory rules/lois de police; breaches of fundamental principles of law; actions contrary to good morals; and actions contrary to national interests/foreign relations’[30] are integral to the public policy exception – but this is not an exhaustive list. In other words, it is impossible to provide a uniform and universally accepted definition of what constitutes ‘public policy’.[31]

One word of caution here. Given that public policy is understood to encompass these most fundamental norms from which no court can depart, public policy also goes beyond the ‘mandatory laws’ concept.[32] By way of context, although they are not uniformly agreed and applied around the world, rules on competition law, bankruptcy,[33] consumer protection,[34] offshore future transactions,[35] foreign exchange[36] and export prohibitions[37] can often be regarded as ‘mandatory’ by states.[38] Hence, they need to be considered when reviewing, recognising or enforcing an arbitral award to the extent that the dispute triggers, or the parties involved invoke the application of these ‘mandatory’ laws.

However, despite their ‘mandatory’ character regulating matters that may overlap with the public policy exception, not all mandatory rules of a state fall within the scope of the ‘public policy’ exception.[39] As is widely accepted, only very clear and serious violations of a mandatory law resulting in a conflict with ‘fundamental notions of what is decent and just’[40] do so.

Domestic, international and transnational public policy and transnational public perspective

As noted above, given the lack of definition in the New York Convention and the Model Law as to what needs to be understood from ‘public policy’ exactly, different concepts have emerged under national laws and in national courts’ practice around the world. For example, depending on the jurisdiction, it is possible to encounter the following variations of the concept applied by national courts or adopted in national legislation:

(i) domestic public policy, which is comprised of ‘the fundamental rules and values which are of utmost importance for [the] state’s society’;[41]
(ii) international public policy, which is ‘a subset’[42] of domestic public policy that invites courts to approach the challenge to an award from an international standpoint, but still however ‘through the lens of the state’s own laws or standards’[43] of public policy;
(iii) transnational public policy or ‘truly international’ public policy, which was described by the International Law Association as a ‘public policy—which it found to be of ‘universal application—comprising fundamental rules of natural law, principles of universal justice, jus cogens in public international law, and the general principles of morality accepted by what are referred to as civilised nations’’.[44] In that respect, it is thought to represent values that transcend the rules of any national system and are so essential that no state or party can contract out of them. It is said that the existence of a rule of this nature may be identified through international conventions, comparative law, and arbitral awards. Examples of transnational public policy include conducts such as ‘slavery, bribery, piracy, murder, terrorism, and corruption’,[45] among others;
(iv) ‘a transnational perspective’ to public policy, which differs from transnational public policy as it is not a set of universally accepted principles but an approach taken by states and their courts to widen the scope of their international public policy by adopting a transnational perspective and taking into account the standards that are basic to most just and decent societies when reviewing foreign awards.[46]

Some jurisdictions, such as India and Hong Kong, favour the domestic public policy concept in recognition and enforcement cases. Indeed, the Supreme Court of India held that public policy should be considered from the enforcement forum’s perspective and not through a transnational definition of the concept, as the latter was unworkable.[47] The Hong Kong courts, which have shared similar views,[48] have defined an award that violates public policy as an award that is ‘so fundamentally offensive to [the enforcement jurisdiction]’s notions of justice that, despite it being a party to the Convention, it cannot reasonably be expected to overlook the objection’.[49]

Other jurisdictions clearly distinguish between domestic public policy and inter­national public policy. For instance, Portuguese law reviews foreign awards only from an international public policy perspective.[50] In certain civil law countries, such as France and Italy, the concept of international public policy (ordre public international in French) has been specifically incorporated into the practice of the national courts and legislation. Indeed, Article 1514 of the revised French Code of Civil Procedure explicitly refers to ‘international public policy’ for the recognition or enforcement of foreign awards.[51] The Court of Appeal of Paris has defined international public policy as ‘the body of rules and values whose violation the French legal order cannot tolerate even in situations of international character’.[52] In the famous Lautour case, the French Court of Cassation also referred to ordre public (international) as the ‘principles of universal justice regarded in France as having an absolute international value’.[53] Italian courts have also considered that public policy refers to ‘a body of universal principles shared by nations of the same civilisation, aiming at the protection of fundamental human rights, often embodied in international declarations or conventions’,[54] essentially leaning more towards a ‘transnational public policy’.

Likewise, in Parsons, the US Second Circuit Court of Appeals not only adopted a narrow construction of ‘public policy’ with the view that ‘[e]nforcement of foreign arbitral awards may be denied . . . only where enforcement would violate the forum state’s most basic notions of morality and justice’, but also adopted ‘international public policy’ as the applicable public policy concept by refusing to equate the national policy of the United States with that referenced in the New York Convention.[55] The Court stated that ‘[t]o read the public policy defence as a parochial device protective of national political interests would seriously undermine the Convention’s utility. This provision was not meant to enshrine the vagaries of international politics under the rubric of “public policy”’.[56]

In contrast, because some national courts, such as those of Norway and Sweden, ‘consistently view public policy quite narrowly, and construe it restrictively across the board, it may [therefore] not matter whether the decision is based on domestic public policy or inter­national public policy’.[57] Although refraining from strict classifications, English courts, on occasion, have similarly approached the issue more holistically, holding that enforcement can be denied if ‘the enforcement of the award would be clearly injurious to the public good or, possibly, enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised’.[58]

EU public policy and arbitrability under EU law

In addition to their domestic laws, the Court of Justice of the European Union (CJEU) has taken the firm position that EU Member States must take EU law into account in determining what constitutes public policy within their legal orders. The CJEU has further proclaimed that EU Member States must, on their own accord, review arbitral awards from an EU public policy perspective.[59] Although the exact contours of EU public policy remain undefined, the CJEU’s jurisprudence to date suggests that depending on whether the public interest underlying an EU law norm has ‘the nature and importance’ sufficient to justify its violation being treated as necessarily a violation of EU public policy, EU public policy might be engaged.[60] So far, the CJEU has held that EU competition policy, practically as an entire field, is entitled to public policy treatment in the context of annulment and enforcement of arbitral awards at the national level.[61] This is because the Court regards the protections under EU law against anticompetitive conduct to be ‘fundamental’ and ‘essential for the accomplishment of the tasks entrusted to the [EU] and, in particular, for the functioning of the internal market’.[62] Likewise, it has also invoked EU public policy for arbitration agreements contravening the provisions of Council Directive 93/13/EEC on unfair clauses in consumer contracts.[63]

In recent years, the issue on EU public policy was revived in the context of setting aside and enforcement of investment arbitration awards. Various EU Member States have faced the possibility of contravening EU competition law – in particular its rules on state aid – with the payment of investment incentives to investors or compensation awarded by arbitral tribunals reinstating the value of those incentives in favour of foreign investors.[64] It remains to be seen whether an enforcement or a set-aside court in an EU Member State will be able to uphold an arbitral award that is determined to have violated EU state aid rules by the European Commission and the CJEU; thus EU public policy.

In the same vein, with its decision in Achmea in 2018, the CJEU denied arbitrability of investment disputes between EU Member States and investors from EU States ‘which may concern the application or interpretation of EU law’.[65] The CJEU reasoned that submitting those disputes to a body that is not part of the judicial system of the European Union would ‘have an adverse effect on the autonomy of EU law’,[66] adopting the policy views expressed by the European Commission in recent years. Thus, any intra-EU investment arbitration award, especially when rendered outside the ICSID Convention context, will face serious obstacles for recognition and enforcement before courts in EU Member States in light of the CJEU’s ruling in Achmea,[67] although not all EU Member States are on board with the CJEU’s approach to date. Indeed, the exact scope of the CJEU’s ruling on non-arbitrability is yet to be clarified.[68]

Previously, non-arbitrability emanating solely from EU law has precluded courts in Austria, Belgium, Germany and England from upholding arbitration agreements. These courts have denied arbitrability of disputes regarding contracts of commercial agency because ‘EU agency law is deemed to be necessary for the achievement of the internal market’.[69]

A word on Brexit

In light of these developments with respect to the CJEU’s approach to arbitrability and public policy under EU law, it remains to be seen whether or not the English courts’ interpretation of arbitrability will change after January 2021, when the United Kingdom officially left the European Union. We wait with interest to learn to what extent the CJEU’s strict interpretation of EU public policy will continue to be upheld by the English courts in set-aside, recognition and enforcement proceedings in the United Kingdom. The Supreme Court’s ruling in 2020, in Micula and others v. Romania,[70] commenting that the EU treaties did not displace the United Kingdom’s obligations under the ICSID Convention (pursuant to which the United Kingdom had a prior (pre-EU-accession) obligation to enforce ICSID awards), is certainly significant. It appears that England may now be perceived as an even more favourable jurisdiction as a seat of arbitration and for enforcement of arbitral awards.

Arbitrability versus public policy

The concepts of arbitrability and public policy often go hand in hand.[71] For example, the arbitration laws of countries such as Tunisia, Zambia and Zimbabwe expressly incorporate public policy as a criterion for non-arbitrability.[72] Similarly, in Finland and Lebanon, non-arbitrable disputes must be simultaneously contrary to public policy to constitute a ground to deny recognition and enforcement of arbitral awards.[73]

During the drafting of the New York Convention, the French delegation proposed that Article V(2)(a) – dealing with non-arbitrability as a ground for refusing recognition and enforcement – be deleted ‘on the grounds that it unduly attributed international importance to domestic rules and that “(international) public policy” would be sufficient a ground for resisting recognition and enforcement’. This proposal was not adopted by the majority.[74]

Although there may be instances when the non-arbitrability of a dispute would emanate from public policy concerns, it is perfectly conceivable for disputes to be deemed non-arbitrable, hence reserved for national courts’ jurisdiction, even if the subject matter is not ‘so sacrosanct’ relating to a state’s most basic notions of morality and justice considered to be part of its public policy. Consistent with this view and in line with the objective of the New York Convention for swift and uniform enforcement of arbitral awards, most national courts ‘have consistently addressed the grounds in Articles V(2)(a) and V(2)(b) separately, without questioning whether they refer to the same concept’.[75]

Examples of challenges based on public policy

Public policy objections can be raised in relation to the procedure leading to the award, or with respect to the substance of the award.

Procedural public policy

Procedural public policy is concerned with fundamental rules of procedure, including for instance, due process,[76] the right to be heard,[77] res judicata,[78] independence of arbitrators,[79] the absence of procedural fraud or corruption in the arbitral process.[80] A causal link between the procedural violation and the arbitral tribunal’s decision-making in the award is essential.[81]

Substantive public policy

Substantive public policy relates to the subject matter of the award and whether it violates the fundamental laws and principles of the state where it is challenged or is sought to be recognised and enforced, as discussed above. Substantive public policy challenges are the only defences that allow national courts to conduct a substantive, albeit, limited review of the award depending on the applicable national arbitration regime.[82] Despite some exceptions, most national courts do take a limited view of the public policy exception.

Examples of cases in which a substantive public policy challenge was upheld involved the following: grant of unlawful relief, punitive damages[83] or excessive interests by the arbitral tribunal;[84] criminal offences such as bribery and corruption;[85] breaches of competition laws;[86] violations of rules on consumer protection, foreign exchange regulation or bans on exports;[87] violations of ‘core constitutional values such as the separation of powers and sovereignty of Parliament’;[88] or when the award was regarded as ‘contrary to the national interest of the forum State’.[89]

Burden of proof and standard of proof

Under both the New York Convention and the Model Law regimes, national courts can consider non-arbitrability and public policy defences ex officio in set-aside, recognition or enforcement proceedings. Yet, the burden of proof lies with the award debtor.[90]

The standard of proof[91] to succeed in raising a public policy defence is ‘extremely high’,[92] which is justified by the ‘exceptional nature’ of public policy.[93]

Some countries require ‘compelling evidence’ (Canada);[94] that the violations are ‘manifestly contrary’ to public policy (e.g., France and Lebanon);[95] that the award entails ‘flagrant, effective and concrete’ (France) or ‘evident’ violations (Mexico);[96] or ‘clearly injurious’ and ‘wholly offensive’ violations that ‘shock the conscience’ (Singapore).[97] Others require evidence that the award would result in ‘real practical injustice or real unfairness’ (Australia) or in an ‘intolerable breach’ of fundamental values (Austria) or that it ‘offends in an “unbearable manner” the concept of justice’ (Switzerland).[98]

Estoppel and waiver

There can also be issues of waiver and estoppel when a party fails to raise an arbitrability or public policy issue that exists during the course of the arbitration proceedings.[99] This is especially the case in circumstances where a party clearly had the opportunity to raise the defence during the proceedings and, as a result, that party will often be estopped from relying on a non-arbitrability or public policy defence in set-aside, recognition or enforcement proceedings or may be considered to have waived its right once the award has been issued.[100] Courts in countries such as England, Switzerland, Germany and the United States have mostly allowed estoppel or waiver of rights arguments to succeed,[101] with French courts only allowing the defence if it had been raised before the arbitral tribunal and the relevant party had reserved its rights.[102] In one known case, however, the German courts considered that neither estoppel nor waiver applies to complaints raised under Article V(2)(b) of the New York Convention.[103]

Conclusion

It is clear that the law on arbitrability and public policy is evolving and there has been significant development in the interpretation of these two concepts in the arbitral practice of domestic courts around the world. Fortunately, and in line with the objectives of the New York Convention championing a pro-arbitration, pro-enforcement stance, there is a growing trend of national courts moving towards a narrow interpretation of public policy and non-arbitrability.

Nevertheless, uncertainties still remain as to the contours of these concepts and how they are understood within the context of individual disputes and jurisdictions. Thus, parties would be well-advised to remain cautious when drafting their arbitration agreements and contemplating arbitration proceedings; and to consider the implications of these two concepts from the perspectives of the governing law of the dispute, the law of the seat and the laws of countries for potential recognition and enforcement. Additional consideration must be given if EU public policy could also be triggered. Arbitrators themselves also have a role during the proceedings in seeking to ensure as far as is possible that their awards cannot be deemed non-arbitrable or to violate public policy.


Notes

[1] Penny Madden QC is a partner and Ceyda Knoebel and Besma Grifat-Spackman are senior associates at Gibson, Dunn & Crutcher UK LLP.

[2] To date, around 80 countries have adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985 (as amended in 2006) [the Model Law], aimed at bringing arbitration laws of different jurisdictions on set aside and recognition and enforcement closer. That said, some of the leading arbitral jurisdictions, such as England and Wales, France and the United States have not adopted the Model Law and have their own arbitration legislation. For an updated status, see https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration/status (last accessed 3 March 2021).

[3] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted on 10 June 1958 and entered into force on 7 June 1959), which has about 160 signatory states at the time of writing. For an updated status, see >https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2 (last accessed 3 March 2021).

[4] See ICSID Convention, Article 52 and ICSID Arbitration Rules, Rule 50. The limited grounds for annulment in the Convention do not include arbitrability and public policy as such, but those grounds for challenges may come into play with respect to the specific grounds for annulment under Article 52 of the ICSID Convention.

[5] See ICSID Convention, Article 54(1). However, in accordance with Article 54(3): ‘Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.’ Article 55 of the ICSID Convention further provides that applicable laws on state immunity may not be derogated from.

[6] Some regional investment agreements that provide for arbitration of investor-states disputes have also opted for specific enforcement mechanisms, similar to the ICSID Convention; for instance, the Agreement on Promotion, Protection and Guarantee of Investments amongst Member States of the Organisation of the Islamic Conference, 1981 [OIC Agreement], Article 17,1.2(d), and the Unified Agreement for the Investment of Arab Capital in the Arab States, 1980 [Arab League Investment Agreement], Article 34; see also Nigel Blackaby et al., ‘Recognition and Enforcement of Arbitral Awards’ (Chapter 11) in Nigel Blackaby et al., Redfern and Hunter on International Arbitration (6th ed.) (Kluwer, OUP 2015) [Redfern and Hunter], ¶ 11.139.

[7] In this chapter, we consider arbitrability and public policy challenges in set-aside and recognition and enforcement contexts simultaneously, despite it being ‘unclear’ whether the concepts and application of ‘arbitrability’ and ‘public policy’ are the same in both contexts. Indeed, some courts have considered that the concept of public policy is identical in the context of set-aside or recognition and enforcement proceedings, whereas others have taken the view that public policy in the context of recognition and enforcement under the New York Convention ‘should be even more circumscribed’ than in set-aside. See also Gary Born, ‘Annulment of International Arbitral Awards’ (Chapter 25) in International Commercial Arbitration (3rd ed.) (Kluwer, 2021) [Born, Chapter 25], p. 57.

[8] New York Convention, Article V(2)(a); and Model Law, Article 34(2)(b)(i) and Article 36(1)(b)(i).

[9] A Barraclough and J Waincymer, ‘Mandatory Rules of Law in International Commercial Arbitration’, 6(2), Melbourne Journal of International Law, 205, 223, (2005).

[10] L Boo and A Ong, ‘Mandatory Law: Getting the Right Law in the Right Place’ in N Kaplan et al. (eds), Jurisdiction, Admissibility and Choice of Law in International Arbitration (Wolter Kluwer, 2018), p. 209.

[11] New York Convention, Article V(2)(a).

[12] See footnote 2, above.

[13] Model Law, Articles 34(2)(b)(i) and 36(1)(b)(i).

[14] Pascal Hollander, ‘Report on the concept of ‘Arbitrability’ under the New York Convention’, International Bar Association, Subcommittee on Recognition and Enforcement of Arbitral Awards (September 2016) [IBA Report], ¶¶ 50 to 61. See also UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958) (ed. 2016) [New York Convention Guide], p. 231, ¶ 15.

[15] IBA Report, op. cit., ¶ 52.

[16] New York Convention Guide, op. cit., p. 232, ¶ 20.

[17] IBA Report , op. cit., ¶ 59.

[18] New York Convention Guide, op. cit., p. 235, ¶ 28.

[19] id., pp. 234 to 236, ¶¶ 26 to 29.

[20] id., p. 228, ¶ 5.

[21] id., p. 230, ¶ 12, and p. 232, ¶ 18. See also IBA Report, op. cit., ¶ 63.

[22] IBA Report, op. cit., ¶ 66.

[23] See footnote 2, above.

[24] New York Convention, Article V(2)(b). Public policy issues may also arise within the context of the specific grounds listed as barring recognition and enforcement under Article V(1) of the New York Convention. Although some jurisdictions, such as Hong Kong, allow the public policy defence to be raised under both Paragraph (1) and Paragraph (2) of Article V; others, such as Switzerland, consider that the public policy exception in Article V(2)(b) cannot apply when more specific grounds exist under other articles of the Convention: see Margaret L Moses, ‘Public Policy under the New York Convention: National, International, and Transnational’ (Chapter 11) in Katia Fach Gomez et al. (eds), 60 Years of the New York Convention: Key Issues and Future Challenges (Kluwer, 2019) ‘Moses’, p. 177; and New York Convention Guide, op. cit., pp. 254 to 256, ¶¶ 42 to 46.

[25] Model Law, Articles 34(2)(b)(ii) and 36(1)(b)(ii).

[26] Moses, op. cit., pp. 173 to 174.

[27] Zena Prodromou, ‘The Public Policy Exception in International Commercial Arbitration’ (Chapter 6) in The Public Order Exception in International Trade, Investment, Human Rights and Commercial Disputes, International Arbitration Law Library, Vol. 56 (Kluwer, 2020) [Prodromou, Chapter 6], p. 169.

[28] Egerton v. Brownlow [1853] 4 HLC 1, [1843 to 1860] All ER Rep 970 at 995 (England and Wales).

[29] Parsons & Whittemore Overseas v. Société Générale de L’Industrie du Papier (RAKTA), 508 F.2d 969, 974 (1974) (U.S.) [Parsons], in New York Convention Guide, op. cit., p. 240, ¶ 5.

[30] Prodromou, Chapter 6, op. cit., pp. 153 to 154.

[31] See Deutsche Schachtbau-und Tiefbohrgesellschaft m.b.H. v. Shell International Petroleum Co. Ltd [1990] 1 AC 295 [Deutsche Schachtbau v. Shell] (‘[c]onsiderations of public policy can never be exhaustively defined’) in New York Convention Guide, op. cit., p. 242, ¶ 10.

[32] Moses, op. cit., pp. 178 to 179. See also New York Convention Guide, op. cit., p. 244, ¶ 18 and pp. 246 to 247, ¶ 26.

[33] New York Convention Guide, op. cit., p. 246, ¶ 23.

[34] id., pp. 248 to 249, ¶ 32.

[35] id., p. 246, ¶ 25.

[36] id.

[37] id.

[38] For example, insolvency rules are not regarded as mandatory rules in Germany; see New York Convention Guide, op. cit., p. 246, ¶ 23.

[39] Moses, op. cit., pp. 178 to 179.

[40] Born, Chapter 25, op. cit., pp. 55 to 56, quoting Tahan v. Hodgson, 662 F.2d 862, 864 (D.C. Cir. 1981).

[41] Moses, op. cit., pp. 173 to 174.

[42] id.

[43] id.

[44] Redfern and Hunter, Chapter 10, op. cit., p. 600, ¶ 10.87, referring to International Law Association, ‘Interim Report on Public Policy as a Bar to Enforcement of International Arbitral Awards’ (2000).

[45] Moses, op. cit., p. 180. See further, Gary Born, ‘Recognition and Enforcement of International Arbitral Awards’ (Chapter 26) in International Commercial Arbitration (3rd ed.) (Kluwer, 2021) [Born, Chapter 26], pp. 104 to 106; Zena Prodromou, ‘Revisiting the Debate on Transnational Public Policy’ (Chapter 8) in The Public Order Exception in International Trade, Investment, Human Rights and Commercial Disputes, International Arbitration Law Library, Vol. 56 (Kluwer, 2020), pp. 215 to 220.

[46] Moses, op. cit., pp. 179 to 182. In Tampico Beverages Inc. v. Productos Naturales de la Sabans S.Z. Alqueria, SC9909-2017, Case No. 11001-02-03-000-2014-01927-00 (Colombia), in Moses, op. cit., p. 175, the Supreme Court of Colombia, when reviewing an award in enforcement proceedings, considered the transnational context for determining the proper application of international public policy, referring to international authorities and practices.

[47] Renusagar Power Co. Ltd. v. General Electric Company & anor., Supreme Court, 7 October 1993, 1994 AIR 860 (India), in New York Convention Guide, op. cit., pp. 243 to 244, ¶ 14.

[48] Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd. [1999] 2 HKC 205 (Hong Kong), in New York Convention Guide, op. cit., pp. 243 to 244, ¶ 14.

[49] id., in New York Convention Guide, op. cit., p. 241, ¶ 6.

[50] See Moses, op. cit., pp. 173 to 175, at p. 175, and fn. 20, citing Portuguese Law on Voluntary Arbitration, DR I (14 December 2011) 5726 et seq.

[51] See Revised French Code of Civil Procedure, Article 1514 referring to ordre public international, available at >https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000023450551 (last accessed 3 March 2021).

[52] New York Convention Guide, op. cit., p. 241, ¶ 8, quoting Agence pour la sécurité de la navigation aérienne en Afrique et à Madagascar v. M. N’DOYE Issakha, Court of Appeal of Paris, 16 October 1997 (France).

[53] French in the original, ‘principes de justice universelle considérés dans l’opinion française comme doués de valeur internationale absolue’, Court of Cassation, Civ. 1, 25 May 1948, Bull. civ. 1948, I, No. 163, RCDIP, p. 89 (France).

[54] New York Convention Guide, op. cit., pp. 243 to 244, ¶ 14, quoting Allsop Automatic Inc. v. Tecnoski snc, Court of Appeal of Milan, 4 December 1992, XXII Yearbook Commercial Arbitration 725 (Italy).

[55] Moses, op. cit., pp. 173 to 176, at p. 175.

[56] New York Convention Guide, op. cit., p. 240, ¶ 5, fn. 1053.

[57] Moses, op. cit., pp. 173 to 176, at p. 175.

[58] New York Convention Guide, op. cit., p. 242, ¶ 10, quoting Deutsche Schachtbau v. Shell.

[59] Eco Swiss China Time Ltd. v. Benetton Int’l NV, Case C-126/97, EU:C:1999:269, [1999] E.C.R. I-03055, ¶¶ 36 to 41 (CJEU) [Eco Swiss]; see also Redfern and Hunter, Chapter 10, ¶ 10.86.

[60] Mostaza Claro v. Centro M6vil Milenium SL, Case C-168/05, EU:C:2006:675, [2006] E.C.R. I-10421, ¶ 38 (CJEU) [Mostaza].

[61] T-Mobile Netherlands BV et al. v. Raad van bestuur van de Nederlandse Mededingingsautoriteit, Case C-8/08, EU:C:2009:343, [2009] E.C.R. I-4529, ¶ 49 (CJEU); Manfredi et al. v. Lloyd Adriatico Assicurazioni SpA et al., Joined Cases C-295-98/04, EU:C:2006:461, [2006] ECR I-06619, ¶¶ 31, 39 (CJEU).

[62] Eco Swiss, op. cit., ¶ 36; see also New York Convention Guide, op. cit., p. 245, ¶ 19.

[63] Mostaza, op. cit., ¶ 38.

[64] See, for example, Micula v. Romania, Joined Cases T-624/15,T-694/15 and T-704/15, EU:T:2019:423 (CJEU) [Micula], in which ICSID arbitration proceedings were commenced against Romania for its withdrawal of certain investment incentives in the lead-up to its accession to the European Union, which were viewed as contrary to EU state aid rules. Despite the European Commission determining that satisfaction of the award by Romania would constitute illegal state aid under EU law, the General Court at the Court of Justice of the European Union [CJEU] found that EU state aid law could not apply retroactively in respect of events predating Romania’s accession to the European Union. Since then, other EU Member States, such as Spain, have been tackling the same issue on state aid with respect to multiple awards issued against it.

[65] Slovak Republic v. Achmea BV, Case C-284/16, EU:C:2018:158 (CJEU) [Achmea], ¶ 55.

[66] Achmea, op. cit., ¶ 59.

[67] See, for example, although not rendered in the context of recognition and enforcement, the decision, on 11 February 2021, of the Higher Regional Court of Frankfurt am Main, which upheld an argument that the investor-state arbitration clause in the Austria–Croatia bilateral investment treaty was incompatible with EU law according to the legal principles laid down by the CJEU in Achmea, and ruled that the dispute could not be arbitrated: see press release at >https://ordentliche-gerichtsbarkeit.hessen.de/pressemitteilungen/schiedsklausel (last accessed 3 March 2021).

[68] To that effect, Belgium submitted a request to the CJEU for an opinion on the compatibility of the intra-European application of the arbitration provisions of the future modernised Energy Charter Treaty in December 2020: >https://diplomatie.belgium.be/en/newsroom/news/2020/belgium_requests_opinion_intra_european_application_arbitration_provisions (last accessed 3 March 2021). The CJEU was also called by the European Commission and a number of other Member States in November 2020 to rule on whether the Achmea decision bars intra-EU investment arbitration under the Energy Charter Treaty – even though the dispute giving rise to the proceedings itself is between non-EU parties in a set-aside proceeding before the Paris Court of Appeal in Komstroy/Energoalians v. Moldova: >https://globalarbitrationreview.com/achmea/ecj-urged-rule-ect-and-achmea (last accessed 3 March 2021).

[69] Giuditta Cordero-Moss, ‘Court Control on Arbitral Awards: Public Policy, Uniform Application of EU Law and Arbitrability’ (Chapter 12) in Axel Calissendorff et al. (eds), Stockholm Arbitration Yearbook 2020, Stockholm Arbitration Yearbook Series, Vol. 2 (Kluwer, 2020), at p. 205.

[70] Micula and others v. Romania [2020] UKSC 5 (England and Wales), ¶ 89.

[71] New York Convention Guide, op. cit., p. 229, ¶ 10.

[72] Joseph Mante, ‘Arbitrability and public policy: an African perspective’, in William W Park (ed.), Arbitration International (Oxford University Press, 2017), Vol. 33 Issue 2, pp. 289 to 290.

[73] IBA Report, op. cit., ¶ 25.

[74] New York Convention Guide, op. cit., p. 229, ¶ 9.

[75] id., p. 230, ¶ 11.

[76] Judgment 200/2011 (Spanish High Court of Madrid), in Beverly Timmins, ‘Minimising the Risk of Annulment or Refusal of Recognition of a Commercial Arbitration Award on the Grounds of Public Policy’, in Carlos González-Bueno (ed. 2018), 40 under 40 International Arbitration, pp. 425 to 440 [Timmins], p. 434 (violation of public policy in circumstances where an arbitrator was excluded from deliberations on the final ruling).

[77] See Louis Dreyfus S.A.S. v. Holding Tusculum B.V., Superior Court of Quebec, 12 December 2008, 2008 QCCS 5903 (Canada), in New York Convention Guide, op. cit., p. 253, ¶ 36, fn. 1129 (where the court refused to recognise and enforce an award, in which the arbitral tribunal granted a remedy not requested by the parties).

[78] Timmins, op. cit., p. 434.

[79] Soc. Excelsior Film TV v. Soc. UGC-PH, Court of Cassation, 24 March 1998, Rev. Arb. 1999, p. 225 et seq. (France), in New York Convention Guide, op. cit., p. 253, ¶ 38, fn. 1131 (where an arbitrator provided false information to another arbitrator in a parallel proceeding on which he was also sitting, which affected that second tribunal’s decision).

[80] See also a decision for set-aside in France, Siemens A.G. v. BKMI Industrienlagen GmbH, Court of Cassation, 7 January 1992, XVIII Yearbook Commercial Arbitration, 140 (1993) (France) [Siemens], in New York Convention Guide, op. cit., p. 254, ¶ 40, fn. 1134. See further on procedural public policy, Prodromou, Chapter 6, op. cit., pp. 154 to 158.

[81] Prodromou, Chapter 6, op. cit., p. 154.

[82] Moses, op. cit., p. 177.

[83] Prodromou, Chapter 6, op. cit., pp. 159 to 160.

[84] See Supreme Court, Case 3Ob221/04b, 26 January 2005, XXX Yearbook Commercial Arbitration 421 (2005) (Austria); Ahmed Mostapha Shawky v. Andersen Worldwide & Wahid El Din Abdel Ghaffar Megahed & Emad Hafez Raghed & Nabil Istanboly Akram Instanboly, Court of Appeal of Cairo, 23 May 2001 (Egypt); Harbottle Co. Ltd. v. Egypt for Foreign Trade Co., Court of Cassation, 21 May 1990, 815/52 (Egypt); Belaja Rus v. Westintorg Corp., Court of Cassation, 10 November 2008, 3K-3-562/2008 (Lithuania), in New York Convention Guide, op. cit., pp. 248 to 249, ¶ 32, fn. 1097. See also New York Convention Guide, p. 246, op. cit., ¶ 24. See also for additional examples on interest: Prodromou, Chapter 6, op. cit., pp. 159 to 160.

[85] Prodromou, Chapter 6, op. cit., p. 161.

[86] id., p. 161.

[87] See SNF SAS v. Cytec Industries B.V., Court of Appeal of Paris, 23 March 2006, XXXII Yearbook Commercial Arbitration 282 (2008) (France); Mostaza, op. cit., and Eco Swiss, op. cit., in New York Convention Guide, op. cit., pp. 248 to 249, ¶ 32, fn. 1099; see also, Prodromou, Chapter 6, op. cit., p. 161.

[88] New York Convention Guide, op. cit., pp. 248 to 249, ¶ 32, referring at fn. 1100 to 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).

[89] New York Convention Guide, op. cit., pp. 248 to 249, ¶ 32, referring at fn. 1101 to United World v. Krasny Yakor, Federal Arbitrazh Court of the Volgo-Vyatsky Region, Case No. A43-10716/02-27-10, 17 February 2003 (Russian Federation) (where the courts held that an award that could result in the respondent’s bankruptcy would affect the forum’s regional economy and, therefore, was contrary to the forum’s substantive public policy).

[90] Prodromou, Chapter 6, op. cit., pp. 162 to 163.

[91] ‘There is limited authority on the standard of proof that must be satisfied in order to demonstrate that an arbitration agreement is invalid.’ It is therefore suggested that a ‘balance of probabilities’ or a ‘more likely than not’ approach should be applied when reviewing the award. See Born, Chapter 25, op. cit., p. 13.

[92] id., pp. 163 to 164. See also Born, Chapter 25, op. cit., p. 58: ‘courts uniformly hold that a violation of public policy must be “blatant, effective and concrete”, is available “only in extreme cases” and “must be clearly shown if an award is not to be enforced”’, quoting respectively Court of Cassation, Civ. 1, 21 March 2000, 2001 Rev. Arb. 805 (France); Bayerisches Oberstes Landesgericht, 25 August 2004, 2004 SchiedsVZ 319 (Germany); and United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 43 (U.S. S.Ct. 1987) (US).

[93] New York Convention Guide, op. cit., p. 259, ¶ 58.

[94] id., p. 259, ¶ 58, referring at fn. 1158 to Karaha Bodas Company, L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara and P.T. PLN (Persero), 24 October 2007, 2007 ABQB 616 (Canada).

[95] Prodromou, Chapter 6, op. cit., pp. 163 to 164.

[96] id.

[97] id.

[98] id., pp. 163 to 164. See also Timmins, op. cit., p. 436: ‘[T]he violation of public order must be either “clear” (Portugal), “concrete” (Nigeria), “evident” or “patent” (Mexico), “blatant” (Lebanon), “manifest” (China), “obvious and manifest” (Poland), “flagrant” (Turkey), “particularly offensive” (Sweden), “severe” (Germany), “intolerable” (Austria, Switzerland), “unbearable” (Switzerland), or “repugnant to the legal order” (Italy).’

[99] Note that a party who fails to raise the issue before a tribunal will not always be barred absolutely from raising it at the enforcement stage. In England and Wales, for example, the courts require that a party explain fully why it was not able to run the argument before the tribunal. For further details, see Alexander Brothers Ltd (Hong Kong SAR) v. Alstom Transport SA and another [2020] EWHC 1584 (Comm) (England and Wales).

[100] New York Convention Guide, op. cit., pp. 256 to 257, ¶¶ 47 to 52.

[101] See, e.g., Soinco SACI & anor. v. Novokuznetsk Aluminium Plant & Ors [1998] CLC 730 (England and Wales); Oberlandesgericht Saarbrücken, 4 Sch 03/10, 30 May 2011 (Germany), in New York Convention Guide, op. cit., p. 256, ¶ 49, fn. 1146; see further New York Convention Guide, p. 257, ¶ 50. See also Born, Chapter 25, op. cit., p. 54, fn. 959.

[102] Siemens, op. cit., in New York Convention Guide, op. cit., p. 257, ¶ 51, fn. 1151. See further New York Convention Guide, p. 257, ¶ 52.

[103] Bayerisches Oberstes Landesgericht, 4 Z Sch 17/03, 20 November 2003 (Germany), in New York Convention Guide, op. cit., p. 256, ¶ 48, fn. 1145.

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