Public policy and arbitration

Public Policy and Arbitration

Dr. Anton G. Maurer, LL.M.

CMS Hasche Sigle

Schoettlestr. 8

D 70597 Stuttgart

[email protected]

Tel. +49 172 7333 696

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Public Policy

International Public Policy

Transnational Public Policy

What is the appropriate standard?

National definitions

International differences?

Dr. Anton G. Maurer, LL.M. Public Policy and Arbitration 11.05.2015 2

Three categories of "Public Policy"

Arbitration agreement

Setting aside an arbitral award

National legislation: Domestic or international public policy?

domestic public policy in one country may be broader than

international public policy in another country

Recognizing and enforcing a foreign arbitral award

Art. V (2) (b) New York Convention

National legislation: domestic or international public policy?


Three areas for public policy in arbitration

House of Lords (1853) – Egerton v. Brownlow:

is "the principle of law which holds that no subject can lawfully

do that which has a tendency to be injurious to the public, or

against public good"

The Indian Supreme Court gave in a judgment of March 26, 1959 on

13 pages a broad overview of the meaning of public policy as applied

in England and India:

"It is an illusive concept … it should only be invoked in clear

and incontestable cases of harm to the public".


Public Policy – What is it?

Lord Davey in Janson v. Driefontein Consolidated Gold Mines Ltd.

(1902):

"Public policy is always an unsafe and treacherous ground for

legal decision"

Burrough, J. in Richardson v. Mellish (1824):

Public policy as "a very unruly horse, and when once you get

astride you never know where it will carry you"

Lord Denning in Enderby Town Football Club v. Football Assoc.(1971):

"with a good man in the saddle, the unruly horse can be kept in

control. It can jump over obstacles"


Public Policy – some judicial observations

Each country will define its (domestic) public policy,

and its (domestic) international public policy.

The definitions are not static.

Generally: the forum's most basic concerns


Public policy and arbitration

Arbitration agreements generally do not violate public

policy

Exceptions:

The clause would prevent one of the parties to pursuing her

statutory rights

The clause names an arbitrator who is complicit in a money

laundring conspiracy


Public policy and arbitration agreement

A court at the place of arbitration may set aside an

award issued in this state

– see for example: Art. 34 of the UNCITRAL Model Law:

Art. 34 mirrors Art. V of the NYC,

An award may be set aside if it "is in conflict with the

public policy of this State"


Public policy and setting aside an award

Which standard is applicable?

No restriction by a convention

Each country determines her own standard.

Most countries: public policy

Some countries: internantional public policy


Public policy and setting aside

Art. III of the NY Convention:

"Each Contracting State shall recognize arbitral awards

as binding and enforce them in accordance with the rules

of procedure of the territory where the award is relied

upon, under the conditions laid down in the following

articles. …"

Duty to recognize and enforce foreign awards


Duty to enforce and recognize foreign

awards

Art. V of the NY Convention:

"1. Recognition and enforcement of the award may be refused,

at the request of the party against whom it is invoked, only

if that party furnishes … proof that:

(a) – (e)

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:

(a) [subject matter is not arbitrable]

(b) The recognition or enforcement … would be

contrary to the public policy of that country."


Exceptions to the duty to enforce

What does it mean?

"Contrary to the public policy of that country"

(Domestic) international public policy?

(Domestic ) public policy?


Exception to the duty to enforce

The public policy exception was discussed

controversely and extensively during the drafting of

the New York Convention, especially between the civil

law country and the common law country

representatives.

How is the public policy exception to be interpreted?

Is it "international public policy"?


Art. V (2) (b) NYC

Report by Mr. de Sydow for Working Party No. 3:

As regards Art. V (2) (b) "the Working Party felt that the

provision allowing refusal of enforcement on grounds

of public policy should not be given a broad scope of

application.

It therefore agreed to recommend the deletion of

references to the subject matter of the award and to

fundamental principles of law."(Summary Record of the 17th Meeting, U.N. DOC E/CONF. 26/SR. 17 at 3;

Anton G. Maurer, The Public Policy Exception under the New York Convention, p. 45)


Art. V (2) (b) NYC

Final result:

It must be interpreted narrowly!

This was unanimously approved by the Working Party

No. 3 which drafted the final wording of Art. V.

It is not "international public policy", but a narrow

interpretation of domestic public policy!

However, some countries apply an even narrower

international public policy standard!


Art. V (2) (b) NYC

U.S. Court of Appeals for the Second Circuit:

"The general pro-enforcement bias in forming the

Convention … points toward a narrow reading of the

public policy defense. …

We conclude, therefore, that the Convention's public policy

defense should be construed narrowly. Enforcement of

foreign awards may be denied on this basis only where

enforcement would violate the forum's State's most

basic notion of morality and justice."


International Standard:

Parsons & Whittemore Overseas Inc. v. Societe

Generale de L'Industrie du Papier

(508 F.2d 969 et seqq. (December 23, 1974)

Germany: "Ordre Public International"

Not every violation of mandatory law (ius cogens) will violate

German public policy.

"Only severe defects in the arbitral proceeding or the

award could violate German public policy. The defects

must violate fundamental principles of state and

economic life."

Recognition of a foreign award can only be refused if the

proceeding or the award suffered a grave defect which is

intolerably at odds with the fundamental principles of

state and economic life.

Possible erroneous awards must be accepted.

Dr. Anton G. Maurer, LL.M. Public Policy and Arbitration 11.05.201517

Germany

France: International Public Policy

An arbitral award shall be recognized if it is "not

manifestly contrary to international public policy."

The violation must be blatant, actual, and concrete.

When all of the parties, the members of the arbitral tribunal,

and even the members of the ICC Court of Arbitration have

failed to see the alleged violation, French courts did hold that

the alleged violation was not blatant, real, and concrete.


France

China: Chinese Public Policy

is violated when an award may be deemed to violate the social

and public interest

o When the award violates the basic principles reflected/regulated

in the Constitution or the Four Fundamental Principles of

China;

o Will damage the sovereignty or State security of China;

o Is in violation of the fundamental rules of Chinese law;

o Is against China's obligations under international treaties;

o Is against the principles of fairness and justice in

international law.

The Four Fundamental Principles are:

Adhere to (a) the socialist road, (b) the people's democratic dictatorship, (c) the

leadership of the Communist Party, and (d) to Marxism-Leninism and Mao's thought.


China

Result:

Every country is free to define her "public policy"

standard

But it must be interpreted narrowly in recognition

cases

More narrowly than regular domestic public policy

Every member state is free to define it more

narrowly


Conclusion

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