Acorollary to the rise in international trade and globalisation of commerce is an increase in cross border trade disputes. The parties to these disputes cannot afford to be tied down by the shackles of differences in geographical locations, legal systems and lengthy complex court procedures. In order to overcome these hurdles, the parties often resort to arbitration as allowed by the 1958 New York Convention.
However, round the world, the “public policy” exception continues to be one of the most popular impediments to enforcement of foreign arbitral awards. Academics still refer to “public policy” as an “unruly horse” resonating Lord Denning in Enderby Town Football Club Ltd v The Football Association Ltd [1970 E. No. 2145] - [1971] Ch. 591] where he quoted Hobart, CJ in describing “public policy”. It has not been possible to arrive at a uniform precise definition for “public policy”.
Under Article V(2)(b) of the Convention, recognition and enforcement of an arbitral award may be refused if the recognition or enforcement of the award would be contrary to the public policy of the country where enforcement is being sought. This ground for challenging enforcement of a foreign arbitral award has been incorporated in national arbitration legislations of Convention member countries; Section 46(1)(b)(ii) of the Arbitration Act 2001 of Bangladesh makes similar provisions. The Convention does not define the notion of public policy and its concrete manifestation varies from country to country.
Critics argue that a wide construction of the meaning of public policy would defeat the purpose of the Convention. The International Law Association in its Final Report on Public Policy (2002) recommended the scope of public policy to be narrowed down to “international public policy”. The sub-committee of the International Bar Association in 2014/2015 conducted a comparative study on “public policy” covering __more than 40 jurisdictions, revealing that in vast majority of the jurisdictions a violation of public policy implies a violation of fundamental or basic principles.
The lack of definition for “public policy” in the Convention and also in the national legislations has left the national courts struggling to define the limits of the public policy exception. In England and Wales, the courts are reluctant to arrive at a specific definition.
Similarly in India, the courts have had a bumpy ride with narrowing the parameters of “public policy” exception [Renusagar Power Co. Ltd. v General Electric Co. (AIR 1994 SC 860)] only to widen it in a couple of subsequent cases. Thereafter, the Supreme Court of India reined in the unruly horse by affirming the above three restrictive criteria in the __more recent case of Shri Lal Mahal Ltd. v Progetto Grano Spa. (2014) 2 SCC. Finally, the recent amendment in 2015 to the Arbitration and Conciliation Act 1996 of India has attempted to provide definite guidelines which largely mirrors the recent Supreme Court decision.
In the US the courts have refused to entertain the “public policy” exception even when the enforcement of the foreign arbitral award would conflict with the US sanctions [National Oil Corp. v Libyan Sun Oil Co., 733 F. Supp. 800, 819-20 (D. Del. 1990).
It is not sufficient to consider only whether there will be a violation of public policy but also assess the severity of such violation. In France, the Court of Appeal of Paris has decided that the violation of public policy must be “flagrant, effective and concrete”. The fact that the “public policy” exception should only be allowed in extremely rare cases is reflected in the UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958): “Invoking the public policy exception is a safety valve to be used in those exceptional circumstances when it would be impossible for a legal system to recognise an award and enforce it without abandoning the very fundaments on which it is based.”
In this regard statutory reform in India is helping to shape the courts' approach. In such context, it is safe to say that the unruly horse is in the process of being tamed.
The writer is a Barrister-at-law, Advocate of the Supreme Court of Bangladesh.