Public Policy Defense In International Commercial Law

The disputes arising under International Commercial Contracts are often resolved by means of International Commercial Arbitration. In most contracts, the contracting parties mention a clause that any dispute arising under the contract is going to be handled through arbitration instead of any litigation. The contracting parties can specify the forum and governing law at the time of the contract.

Conventions and Treaties

Geneva Convention & NY Convention

Since the public policy criterion is of fundamental significance, it is not a surprise that the Geneva Convention1 contained a restriction for the popularity and enforcement of foreign arbitral awards on public policy grounds. However, pursuant to Article 7(2) of the NY Convention2, Geneva Convention ceases to possess effect among contracting states of the NY Convention. Therefore, the foremost target of this text is on the NY Convention and particularly on its article number V (2) (b), where the “public policy” exception on the enforcement of awards finds its place. Such article of the NY Convention is “probably the foremost misused ground of non-enforcement of all,” since it states the following: Recognition and enforcement of an arbitral award can also be refused if the competent authority within the country where recognition and enforcement are sought finds that: the recognition or enforcement of the award would be contrary to the general public policy of that country. Obviously, the Contracting States’ freedom to define their own national public policy standard inevitably impedes the predictability and consistency of the enforcement decisions. Therefore, while discussing the article V (2) (b) of the NY Convention, one should explore on the respective public policy standard of the contracting state where the award’s recognition and enforcement are sought. Purpose and Relevance of the general public Policy Defense Public policy serve the aim of providing the contracting states with a “safety- valve” allowing them to stop the enforcement of awards which they consider irreconcilable into their system which finds its legal source in article V(2)(b) of the Convention for the contracting states. By defining public policy broadly, contracting states could effectively deny any undesired award recognition and enforcement. The Convention’s enforcement-friendly approach could thus be circumvented through the rear door of public policy. For an arbitration agreement to be enforceable, the topic matter must be arbitrable. That is, it must be a topic that a state considers it appropriate to be arbitrated. In most jurisdictions, as an example, issues like criminal matters and child custody are not arbitrable. To arbitrate the cases in these areas of law would be against the law or the public policy of the local jurisdiction. So, what is the difference between these two terms? Arbitrability and public policy are bundled in Article V (2) since both serve to a consistent purpose.

While both instruments are interchangeable on their functions, their effects are different. Lack of arbitrability invalidates arbitration agreements. However, public policy replaces arbitrability’s absolute prohibition with the unpredictability immanent to public policy. Therefore, it reduces the attractiveness of arbitration. Public policy has different definitions in several jurisdictions, mostly it is concluded that a gift could be vacated if it is not according to the essential principles of justice, honesty, and fairness. Thus, corruption, fraud, or lack of integrity within the tactic is probably going to be considered a violation of public policy, requiring the award to be annulled. thanks to the States’ sovereignty over defining public policy, the concept of public policy evades a general precise definition. In most Model Law jurisdictions, fraud or corruption would probably be considered an accurate ground for challenging a gift as a violation of public policy.

The U.S Federal Arbitration Act (“FAA”) is quite explicit during this respect. It provides specifically that grounds for vacating a gift containing subsequent facts: (1) the award was procured via corruption, fraud or undue means, (2) there was evident partiality or corruption within the arbitrators, (3) the arbitrators were guilty of misconduct…or…other misbehavior by which the rights of any party are prejudiced. Similarly, English Arbitration Act provides that a celebration may challenge a gift supported “serious irregularity affecting the tribunal, the proceedings or the award.”

Under the Convention, recognition or enforcement of an arbitral award could even be rejected if a court deems that the award would be contrary to the policy of that country. However, public policy is not defined within the Convention, and thus presents the likelihood of another broad ground for the court to reject the enforcement. On the opposite hand, however, most of the courts view such a defense narrowly, by sticking to the Convention’s pro-enforcement purpose. albeit kind of nations take a narrow approach in interpreting the public policy defense, there’s room for it to be used parochially to guard national political interests. European Convention, 1961: this convention applies in European countries where the enforcement of the arbitral award made within the community between the parties of the region.

The ECU Convention is that the advancement of the NY Convention regarding the grounds on which the award is often forgot. Enforcement under UNCITRAL Arbitration Rules, 1976: it deals with the arbitral award and its enforcement which is canopy under the article 31 to 37 of UNCITRAL rules. it had been preferred to need care of majority rules instead of giving award by the arbitrator alone if no majority might be reached which is followed in Arbitration Rules of International Chamber of Commerce (article 19 rules. UNCITRAL rules have the facility to acknowledge and provides effect to a special system of jurisdiction. Other conventions and treaties are “I.B.R.D. Convention, 1996, Moscow Convention 1972, Montevideo Treaty (1889), ESCAP Arbitration Rules, 1996, Arbitration Rules of Un/EC, 1996, The UNCITRAL Model Law on International Commercial Arbitration, 1985 etc.”

The unmistakable job of national courts in international arbitration has been perceived in just about every nation, some quite the others. this is often on the grounds that arbitration is controlled compliant with national laws and, in like manner, have a comfy association with the national courts. Once the award has been rendered the role of the national court becomes more important within the arbitration process. this is often true at the enforcement stage when arbitral award requires statutory conditions for it to be successfully enforced. The national court may refuse to enforce the arbitral award on the grounds specified under Article V of the Convention of the popularity and Enforcement of the Arbitral Award 1958 also mentioned as NY convention. The NY Convention does not provide any guidance to the national courts on how the public policy defense should be interpreted.

As a result, national courts interpret the public policy provision as per their own understanding. so on seek out the answer of this problem law of nations Association (ILA)tried to formulate a universally accepted concept of International Public Policy but didn’t do so because of failure to realize consensus on what should constitute a world public policy. Thus, it is difficult to know how the public policy is defined in several states. aside from that, despite the enforcement of commonality among different public policies, the seriousness on enforcing those is hardly seen.

Conclusion

 After the above discussion, it is true that the public policy is an unruly horse which may lead you astray, it is not impossible to tame this unruly horse. There is various method which may be implemented for the right use of public policy. First, more initiative like ILA must be formulated and enforced it during an accurate manner. so as that more countries can close and have a consensus on the parameters of the public policy. Second, the institutions just like the Institute of Chamber of Commerce and everyone other organizations must provide education to the arbitrator regarding arbitration. Only through this matter, one can understand the concept and intricacies of the arbitration. Last, both the parties and thus the arbitrators must know the repercussions of using public policy during a case as in some cases it is seen quite seriously and, in some cases, it is not.

FAQs

What is the Purpose and Relevance of the Public Policy Defense?

Ans: Public policy serves the purpose of providing the contracting states with a “safety- valve” allowing them to prevent the enforcement of awards which they consider irreconcilable into their legal system which finds its legal source in article V(2)(b) of the Convention for the contracting states. By defining public policy broadly, contracting states could effectively deny any undesired award recognition and enforcement. The Convention’s enforcement-friendly approach could thus be circumvented through the back door of public policy.

What Were the Result of European Convention, 1961 On International Commercial Law as Public Policy Defense?

Ans: The enforcement of the arbitral award made within the community between the parties of the region. The European Convention is the advancement of the New York Convention regarding the grounds on which the award can be set aside.

Define Public Policy in Relevance to The Article.

Ans: Public policy has different definitions in different jurisdictions, mostly it is concluded that an award could be vacated if it is not consistent with the fundamental principles of justice, honesty, and fairness. Thus, corruption, fraud, or lack of integrity in the process is likely to be considered a violation of public policy, requiring the award to be annulled. Because of the States’ sovereignty over defining public policy, the concept of public policy evades a general precise definition.

What Is Various Method Which Can Be Implemented for The Proper Use of Public Policy?

Ans: First, more initiative like ILA needs to be formulated and enforced it in a proper manner. So that more countries can come together and have a consensus on the parameters of the public policy. Second, the institutions like Institute of Chamber of Commerce and all other organizations must provide education to the arbitrator regarding arbitration. Only through this matter, one can understand the concept and intricacies of the arbitration. Last, both the parties and the arbitrators must know the repercussions of using public policy in a case.

Mention the Enforcement Under UNCITRAL Arbitration Rules, 1976.

Ans:  It deals with the arbitral award and its enforcement which is cover under the article 31 to 37 of UNCITRAL rules. It was preferred to maintain majority rules rather than giving award by the arbitrator alone if no majority could be reached which is followed in Arbitration Rules of International Chamber of Commerce (Article 19 rules. UNCITRAL rules have the power to recognize and give effect to a different system of jurisdiction.

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