Public Policy And Enforcement Of International Arbitration Awards

However, one of the most invoked ground for challenging the Recognition and Enforcement of an International Arbitration Award globally is the ground that the Arbitration Award violates the Public Policy of the country where the Award is sought to be enforced.

Thus, in other words, in the field of Private International law, courts refuse to apply a rule of foreign law or recognize a foreign judgment or a Foreign Arbitral Award if it is found that the same is contrary to the Public Policy of the country where it is sought to be enforced.

Now what is meant by Public Policy whose violation renders an International Arbitration Award inoperative has been extensively debated not only in India but also in the United States, England, France, and other major jurisdictions.

This debate has been ongoing for a very long time. In fact, in 1853 the House of Lords in England in the case of Egerton vs. Brownlow, identified Public Policy as that principle of law which holds that no subject can lawfully do which tends to be injurious to the public or public good.

Thereafter, the Court of Appeal in Deutsche Schachtbau-und vs. Ras Al Khaimah National Oil Co., acknowledged the difficulty in explaining Public Policy and held that consideration of Public Policy can never be exhaustively defined, but they should be approached with extreme caution.

Referring to Richardson v. Mellish, the Court of Appeal further, held that to upheld a challenge on the ground of Public Policy, it has to be demonstrated that there is some element of illegality or that the enforcement of the Award would be clearly injurious to the public good or, possibly, that 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.

Thus, in England, the English Courts do not enforce or recognize a right conferred or a duty imposed by a Foreign Award where, if, on the facts of a particular case, Enforcement or, as the case may be, Recognition, would be contrary to a fundamental policy of English law. The English Courts have, refused to enforce an Award when according to the English Courts the same would be/or is contrary to interests of England or contrary to justice or morality.

The need for applying the touchstone of public policy has been thus explained by Sir William Holdsworth "In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of Public Policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them."

Since the doctrine of public policy is somewhat open-textured and flexible, Judges in England have shown certain degree of reluctance to invoke it in domestic law. There are two conflicting positions which are referred as the 'narrow view' and the 'broad view'. According to the narrow view courts cannot create new heads of public policy whereas the broad view countenances judicial law making in this area.

The approach of the American courts to the doctrine of Public Policy in enforcement of Foreign Arbitral Awards is reflected in the decision of Parsons & Whittemore Overseas Co. Inc. v. Societe Generale De L'Industrie wherein it was held that the general pro-enforcement bias of the New York convention explained the supersession of the Geneva Convention; and it points towards a narrow reading of the Public Policy defense.

It was further, held that an expansive construction of this defense would vitiate the Convention's basic effort to remove pre-existing obstacles to enforcement. Enforcement of Foreign Arbitral Awards may be denied on the basis of Public Policy only where enforcement would violate the forum State's most basic notions of morality and justice.

Similarly, in Louchs vs. Standard Oil Co., the courts have held that the Courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. The Courts cannot close their doors unless enforcement would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the commonwealth.

In France, a distinction has been made between international Public Policy i.e "Order Public International" and the national Public Policy. Under the new French Code of Civil Procedure, an International Arbitral Award can be set aside if the recognition or execution of the award is contrary to international Public Policy. In doing so it recognizes the existence of two levels of Public Policy, the national level, which may be concerned with purely domestic considerations, and the international level, which is less restrictive in its approach.

Similarly, a Brazilian court in Atecs Mannesmann GmbH v. Rodrimar S/A Transportes Equipamentos Industriais, held that questions that pertain to the merits of the Arbitral Award cannot be challenged on merits, based on precedents from the Federal Supreme Court and Superior Court of Justice, since recognition and enforcement of a foreign award is limited to an analysis of the formal requirements of enforcement of the Award.

In Singapore, the Court of Appeal similarly, in CRW Joint Operation v. PT Perusahaan Gas Negara held that the Court's power to set aside an Arbitral Award is limited to setting the Award aside based on the grounds provided under Article 34 of the Model Law and Section 24 of the IAA.

Further, referring to the case Soh Beng Tee & Co. (Pte) Ltd. v. Fairmount Development (Pte) Ltd., the Court held that the current legal framework of Singapore prescribed that the Courts should not without good reason interfere in the Arbitral process. This policy of minimal curial intervention by respecting finality in the Arbitral process acknowledges the primacy which ought to be given to the dispute resolution mechanism that the parties have expressly chosen.

Further, the Singapore Court of Appeal in PT Asuransi Jasa held that the consensus of judicial and expert opinion is that Public Policy under the Act encompasses a narrow scope and should only operate in instances where the upholding of an Arbitral Award would "shock the conscience".

According to Redfern and Hunter, "if a workable definition of 'International Public Policy' could be found, it would be an effective way of preventing an award in an International Arbitration from being set aside for purely domestic policy considerations". But in the absence of such a definition "there are bound to be practices which some States will regard as contrary to international public interest and other States will not".

Redfern and Hunter, further, referring to the judgment in Iran Aircraft Industries v. Avco Corpn, opined, that the national Court at the place of enforcement thus has a limited role. Its function is not to decide whether the award is correct, as a matter of fact and law. Its function is simply to decide whether there has been a fair hearing.

Even in India what is meant by Public Policy has not been defined in the Indian Arbitration Act, and therefore, what is Public Policy has been the issue of many a debate in many seminars and conferences and different views have been enunciated in different judgements.

In one of the earliest cases on arbitration, the Supreme Court in Central Inland Water Transport Corpn. Ltd.vs. Brojo Nath Ganguly, held that Public Policy is not capable of being defined in a precise manner. However, the court explained that Public Policy connotes some matter which concerns the Public good and Public Interest.

Thereafter, in Renusagar Power Co. Ltd. v.General Electric Co., a landmark decision of the Supreme Court, the Apex Court extensively discussed the concept of Public Policy. In construing the expression "Public Policy" in the context of a Foreign Award, the court held that an award contrary to the fundamental policy of Indian law, the interest of India and Justice or Morality, could be set aside on the ground that it was contrary to the Public Policy of India.

In Shri Lal Mahal Ltd. v Progetto Grano SPA, the Supreme Court held that the expression "Public Policy of India" must be given narrow meaning and the enforcement of foreign award could be refused on the ground that it is contrary to Public Policy of India if it is covered by one of the three categories enumerated in Renusagar.

Similar, was the view of the Supreme Court in Ssanyong Engineering & Construction Co.Ltd. vs. National Highways Authority of India, wherein the Supreme Court while interpreting Public Policy held that the expression "Public Policy of India," whether contained in Section 34 or in Section 48, would now mean the "Fundamental Policy of Indian law" i.e., the fundamental policy of Indian law as was understood and explained in Renusagar Power Co.

In Associate Builders, the Supreme Court held that the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of Morality or Justice". It was held that such an interference was to be limited to only such arbitral awards that 'shock the conscience' of the court.

Similarly, recently in Union of India v. Vedanta Ltd., after referring to Parsons and Renusagar, the Supreme Court held that that enforcement may be refused only if it violates the enforcement State's most basic notions of morality and justice, which has been interpreted to mean that there should be great hesitation in refusing enforcement, unless it is obtained through "corruption or fraud, or undue means".

Therefore, now it is well settled that the term 'Public Policy" is meant to be understood as not equivalent to the political stance or international policies of a State but comprised the fundamental notions and principles of justice. It covered fundamental principles of law and justice in substantive as well as procedural respects. Thus, instances such as corruption, bribery or fraud and similar serious cases would constitute a ground for setting aside an award.

In view of the foregoing, it is now widely accepted that Awards in International Commercial Arbitration are to be respected and enforced except in exceptional circumstances. That is when the enforcement of the Award is contrary to the fundamental principles of a country, is against the basic notions of Justice and Morality and against the essential political, social or economic interests of the Country.

Therefore, it can be stated that Public Policy has by its very nature, a very dynamic character, and still there is no strait jacket formula to define what is Public Policy; and any classification may crystallize Public Policy only at a certain point of time and it would vary according to the changing times and changing notions of morality of the Public of a Nation.

However, there can be no doubt that the finality of awards is of paramount importance in International Commercial Arbitration. There is a recognized international policy in favour of enforcing awards as it ensures a certain degree of certainty and predictability in the International Arbitration process as it provides stability to international trade.

Inspite of that, it would clearly be wrong to expect all awards to be enforced just because it has been rendered by an International Tribunal, even, if it violates or by passes the fundamental and mandatory laws of the enforcing state or jurisdiction. Further, to expect Court enforcement of International Awards without any encroachment of domestic peculiarities and moralities would be a logical impossibility, like both having and eating the proverbial cake.

The author is a  Senior Advocate at the Supreme Court of India. Views are personal.