The Enforcement of Arbitral Awards and Changing Policy

Public policy is still today of significance to any national court that seeks to process arbitral awards. The differences in public policy across international courts is why we see different corporations under contractual agreements seeking mutually beneficial courts to settle arbitrary disputes, and why no universal guidelines have been fully explored, this leads to a lack of precision and uncertainty in reaching outcomes. It is evident that more international legal initiatives need to be in place in order to give clarity to public policy defences that hold up loose-ended defences in arbitration cases[1]. As well as clarity of public policy use in arbitration cases we should also be aware of being unjust, and the penalties that these interferences have on parties’ development either financially or otherwise[2]. It has been argued that due to the differences in public policy across borders as well as its changing nature within any particular nation that strict and precise legal guidelines can never be set to benefit each party in reaching an agreement.

The 1958 New York Convention aims to recognise the increasing importance of international arbitration in settling commercial disputes, as well as provide common legal standards for their recognition and enforcement of arbitral awards. Non-domestic awards are seen to be as such even in cases where an award has been granted in a state of enforcement[3], mainly due to the fact of an element which does not adhere to its proceedings or its justice laws, here we can see that the seated decision’s laws are implemented, which do not adhere to their own (enforcement court’s) ideal of justice. One main indication of the convention is not to discriminate against foreign, non-domestic awards highlighting a key contradiction of the capability of enforcement across borders[4]. A further idea of the New York convention is to give each party the ability to action arbitration agreements when either of the agreed is in breach of it, furthermore delivering clarity of the use of public policy as a judicial defence[5]. This paper critically discusses the changing nature of public policy across nations in relation to the enforcement of arbitral awards under the 1958 New York Convention in connection to set aside proceedings at the seat of arbitration.

Understanding the enforcement of arbitral awards requires us to first consider the prominence of public policy, it contributes common opinions to be found between international domains and further to recognise the influences of different interpretations of public policy and contradictions it creates between different legal systems and in this case arbitral awards, allowing national courts to acquit a foreign or non-domestic arbitral award merely by finding a public policy discharge for it[6], without real reason. The changes in public policy interpretation across countries depend on the clarity of the damage of upholding an award, e.g.: proving that awards would damage the public must offer substantiated evidence, however this depends on said country’s required ceiling for what is deemed a violation of public policy, hence leaving a court to decide if a violation to public policy has been committed this “level” of damage is what has led to, legislative enforcement becoming a prominent tool and allows an arbitral award to remain unenforced[7].

Countries that hold a legal system based on civil law on which society’s moral, political and economic order rests Pertain to public policy as its root, whereas in nations which hold common law as the basis of its legal identity public policy is more narrowly defined as an “abstract set of values”[8]. In the united states, for the award to be in violation of public policy it has to be opposed to the legal system’s “most basic concept of morality and justice”[9], whereas in the UK, the clarity of injury has to be absolute in its nature to put the idea forward that not only legal aspects are taken into account.

In the case of public policy, we must also take recommendations from cases that allow its application. There are such cases where a prevailing standard has been substantive in the implementation of public policy in arbitral awards cases. The Court of Appeal in DST v Rakoil[10] applies a public policy exception to various jurisdictions with the use of a generalised approach[11]. Whilst implementing the public policy exception there has been some record that enforcing an award would present the idea of “clearly injurious” appropriation being committed towards public good, hence present illegality in its enforcement[12]. Internationalisation sees the goals of different states converging, meaning that we are also seeing the same effect on public policy, hence the need for international public policy and arbitration regulation under a universal standard as a contesting practice. The rules of a particular ‘public” are based on societal values, political and legal concepts, which depend on many different factors. The vagueness of the public policy concept, which stems from the way it changes in any particular country, has created the need to regulate it internationally.

The New York Convention 1958 encompasses two basic actions, it looks at recognising and enforcing arbitral awards made in a foreign state, or for the purposes of understanding another nation from which the pre-requisite to the award was made, the application of enforcement here depends upon a particular state’s rules and procedures, in that they must enforce the award in accordance with those, and recognise the award as binding, however in many cases grounds for refusal are brought forth to the enforcing court and can be brought to attention by the court itself on the grounds of public policy[13], in other words the decision of approval by the seated court can be adjourned if reasonable grounds for refusal of enforcement are evident in the country of origin’s own law or public policy and that of the enforcing court. The second action is based on the courts referral to arbitration where one or more of the parties has requested it and the arbitrary agreement includes both parties submissions of differences that may arise and have arisen, not only this but both contractual and non-contractual dispute equivalencies (article ii (1)), that not only look at specific contracts, but also claims in tort and also involve the consideration of arbitration clauses that either they must be signed contractual documents or agreements made in writing in exchanged messages, (article ii (2)) of the New York Convention 1958 [14].

When considering the changing nature of public policy and indeed the interpretation of the convention it is important to mention that public policy not only differs from state to state, but also from international to domestic public policy, the grounds for refusal concerns in this case the application of public policy in “audi et alteram partem” or the principles of fair and adverse proceedings. [15] The constricted interpretation of this comes to light when domestic notions of due process are considered above international ones, in this case there can be grounds to refuse the enforcement of an arbitral award as domestic violation of due process that pertains to public policy may not be considered so where the award is foreign.

International disputes in this case usually fall under public policy fewer times than domestic ones due to the enforcement court holding less bias towards any particular party or any specific domestic country’s public policy, but rather a favourable view on international public policy. Here the application of arbitral awards failure could be said to be one negative of the interpretation of domestic v. s. international public policy and should be denied enforcement only when the asserted public policy “would violate the forum State’s most basic notions of morality and justice”[16].  

Other cases where public policy could be taken into account under the convention include; impartiality and non-disclosure of reasons. Being impartial at the seat or arbitration is a basic requirement, this means that under the convention an individual arbitrator shouldn’t have any pre-requisite involvement before the arbitration of a case, if this was to take place the enforcement court could acquit the arbitral award[17]. It must also be made clear that the initial arbitration must contain reasons pertaining to the arbitral decision grounds if not the award simply becomes void, however countries that have a common law system, do not particularly have to state reasons for the granting of an award. Internationally, if the awarding court is under common law it is general practice to assume that the enforcement in a country where reasons are mandatory would grant the award and the seated courts decision would be upheld[18].

Arbitral awards generally refer to an equivalent to a court of law judgement by an arbitration tribunal, and does not necessarily refer to monetary gains by either party, but rather and award of value to the claimant, where we see failure of the claims no fee should be paid by either party. Arbitral awards can be defined as “any decision of the arbitral tribunal on the substance of a dispute, submitted to it including interim, interlocutory, or partial arbitral award” Cal Code Civ Proc § 1297.21 (a)[19]. In this case it must be noted that the court can at any time bring in new material enhancing its construction in concluding an arbitral award [20].

Deference in judiciary systems is currently being gradually weakened by lower courts, in their decision to prioritize domestic public policy in arbitral awards cases, although the awards do not breach any legal regulation or Act, or lead to contractual misconduct by any party, it causes the “lower” enforcement courts in question to engage in judicial activism[21], therefore a substitution of domestic commercial justice is sometimes made, being replaced by the perceived valued justice of the arbitrator. Arbitral awards here have a direct connection to public policy as they can be greatly impacted by public policy usage to grant or deny an arbitral award, depending on the interpretation of public policy at the seated court and enforcement court as well as in a set aside judgments.

The decision making process becomes extremely complex whilst coming to an agreement, the court enforcing the decision should have understanding of their extent of concession to the decision of the seat. As a general rule of thumb it has been considered that it would be inappropriate for the enforcement court to undermine the decision made at the seat[22]. Where there is international arbitration the seat’s role must also be considered, for instance US courts would usually concede to decisions made by the judicial court that holds the seat, whereas the French approach would be to ignore these decisions, which would not be the correct proceeding under the Convention 1958, unless circumstances arise where the decision is made with evidence made only in part by the seat, considered as “exceptional circumstances”, or if the nations principles of justice are undermined, with this in mind the violation of public policy must also be taken into account, with proper use of the word justice[23]. Theories that are relative to the importance of the seat are also in dispute with each other such as duty vs. discretion.

The different interpretations of the role of the seat and its importance in different states causes strain on its relationship with the enforcement court, this happens precisely when the enforcement court is asked to reach an outcome on enforcing an award that has been set aside at the seat. Nikolay Viktorovich Maximov v Open Joint Stock Company [2017] EWHC 1911 (Comm)[24] serves a reminder that the defense of a annulment based on non-disclosures of public policy and therefore the arbitrability of offences raised at the seat can be upheld after an award has been granted and then deferred based on evidence not being raised during the set aside hearing, this was done so under proceedings at the seat set forth by the enforcing court under the New York Convention 1958[25].

Later there is a sought enforcement of an award in three different states, this is why there is need for international legal initiatives to set tangible guidelines for public policy as it will stop larger parties seeking settlement in favourable enforcement courts as this case saw from Paris, their judicial system allows many limitations for the enforcement of an arbitral award, this could also be based on the consent of both parties[26], the Paris court of appeal overruled the defendants claims that there was a failure of disclosures[27] and the setting aside of the arbitration was not an excuse for annulling an award.

Enforcement was also sought from The Amsterdam District court, determining that the annulment decision could only be overturned if there was reasonable grounds to assume that the set aside judgement from the enforcement court would violate their own public policy, as they were not satisfied that there were exceptional circumstances they would uphold the annulled decision, after an appeal was launched, following this experts were then involved to give evidence relative to the fairness of the proceedings that were set aside by the Russian proceedings, the court still decided that the original annulled decision should remain as there was not sufficient evidence to uphold the notion of an unfair trial, not only this but the consequences of the “unfairness” would make the pre-existing arbitral contract moot[28], or that the decision would damage their public policy and the decisions were not partial and dependent and were simply a provision of justice.

Further to the previous sought enforcements another action was brought to London where no conclusion was reached, firstly on the basis of bias in proceedings of the set aside award there was no evidence to suggest that these were unfair or that the manner of delivery was pre-obstinate and the rationality for this being pursued was incoherent, after this the grounds for setting the award aside were examined. The grounds of non-disclosure at the set aside hearing were un-surmountable in that an unsupportable conclusion was made rather than making a rational decision, however the public policy ground was found to be favorable for the defendant as it is arguable by the standards of the seated court. The finding of non-arbitrary nature of the offences was found to be courageous although not unsupported in evidence.

In many cases, claimants looking to have arbitral awards enforced that have already been set aside at the seat can be nullified under the grounds of public policy, due to it’s changing nature and national differences, including sanctioned states of the Convention. In retrospect this could be overturned by commercial courts, however they are likely to come to the same verdict, so not to undermine public policy in particular countries, unless proceedings were shown to be bias in the annulment of the set aside judgement. The approaches of different national courts, as well as the enforcement of awards in different cases were updated. Domestic and international public policy has not been taken into account shows that there is a lack in conforming to its international use, it undermines domestic capabilities of public policy[29] and infers the misappropriation of courts from seated to set aside through to enforced judgements based on domestic principles, yet more reason parties should choose their seat of arbitration carefully[30]. The main objectives of different jurisdictions entirely separate, this would imply that although we can see the generalisation and globalisation of some values in the “world public”, simply different political, economical and societal values differ too much for public policy and arbitral awards to be regulated internationally, although there is a need for it due to the use of this exception to escape making difficult decisions [31].

Overall the significance of the changing nature of public policy in International arbitration has become more relevant, as the changing nature of social values has blended between international borders as well as different jurisdictions within any particular state, and so it’s forthcoming for international regulation of arbitral awards[32]. Under the New York Convention (1958) there have been several national jurisdictions that have tried to adhere to governed mutual international regulation, however under the rule of the convention there have been many instances where corporations have used public policy as an escape route in arbitral award enforcement. There is great reason to believe that due to national court’s bias there can’t be a fair trial and proceedings would be skewed towards a particular party, hence the need for mutual courts where impartiality is sought. The need for clarity of public policy is evident here as precision of definitive legal certainty leads to defences being saturated for no particular reason. The seated party can also set aside the judgement, based on the public policy clause, further to this it merits that in doing this they are avoiding making difficult judgements, and referring them to expert evidences and the final judgement to be made by enforcing courts which in general have some bias based on their own legal system. Simply put we must see the emergence or arbitrary guidelines that deal with the clarity of public policy internationally, in order to gain a more just decision by the seat and by the enforcement court, however it seems that this can not for the time being go ahead due to the nature of individual set societal values, political stances and economic reasons between international borders and the differing and changing nature of public policy.

Bibliography

Books

Bantekas, I. An Introduction to International Arbitration, Cambridge University Press, (2015), 259-260.

Born, G. B. Disclosure and evidence taking in international arbitration in, International Arbitration: Law and Practice, Kluwer Law International, (2015), 177.

Born, G. B. International Commercial Arbitration 5^th edition, (2009) Ch. 3 and 4, N. Blackaby, C. Partasides, A. Redfern M. Hunter, Redfern and Hunter on International Arbitration, 116.

Margaret, L. Moses, The principles and Practice of International Commercial Arbitration, Cambridge University Press, (2008) 18.

Margaret, L. Moses, The Principles and Practice of International Commercial Arbitration, Cambridge University Press, (2008), 234.

Margaret, L. Moses, The Principles and Practice of International Commercial Arbitration 3^rd edition, Cambridge University Press, (2017) 244- 247

Journal Articles

Barry, M. ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32 (3) JIA 289.

Barry, M. ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32 (3) JIA 310.

Bermann, G. A. ‘Recognition and Enforcement of Foreign Arbitral Awards: The Interpretation and Application of the New York Convention by National Courts’ (2017) GSLC 23.

Buchanan, M.A. ‘Public policy And International commercial arbitration’ (1988) ABLJ 26.

Bühring-Uhle, C. Kirchhoff, L. and Scherer, G. ‘Arbitration and mediation in international business’ (2006) Kluwer Law International 26.

Burley, A. M. S. ‘International law and international relations theory: a dual agenda’ (1993) 87(2) AJIL 205.

Das R. and Keyal A. ‘Judicial Intervention in International Arbitration’ 2(4) (2009) NUJS 585.

Donaldson, T. and Dunfee, T. W. ‘Toward a unified conception of business ethics: Integrative social contracts theory’ (1994) 19(2) AMR 252-284.

Edwards H. T. ‘Judicial review of Labour Arbitration Awards: The clash Between the Public Policy Exception and The Duty to Bargain’ (1988) CKLR 64.

Gal R. ‘Enforcing awards that have been set aside at the seat: the English and Dutch courts remind parties of the high hurdle that must be overcome’ (2017) PLAB 10.

Lai H. H. ‘Enforcement of Foreign Arbitral Award: Re An Arbitration Between Hainan Machinery Import and Export Corporation and Donald & McCarthy Pte Ltd’ SJLS (1996) 241.

Lascoumes, P. and Gales, P. L. ‘Understanding Public Policy through Its Instruments: From the Nature of Instruments to the Sociology of Public Policy Instrumentation’ (2007) 20(1) IJPAI 1-21.

Paulsson, J. ‘Arbitration unbound: Award Detached from the Law of its Country of Origin’ (1981) 30(2) ICLQ 358.

Quigley, L. V. ‘Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ (1961) 70 (7) 1049.

Sameer, S. ‘Enforcement of Arbitral Awards and Public Policy Same Concept Different Approach’ (2011) TDM 8.5.

Shtromberg, A, ‘Substantive Public Policy Concept in Enforcement of Foreign Arbitral Awards in Russia’ (2017) HELDA 26

Straus, ‘Arbitration of Disputes Between Multinational Corporations, in New Strategies for Peaceful Resolution of International Business Disputes’ (1971) 109 AAA 114.

Strub, M. ‘Resisting Enforcement of Foreign Arbitral Awards under Article 1(e) and Article VI of the New York Convention: A Proposal for Effective Guidelines’ (1990), 68(5) 1031.

Sunstein, C. R. ‘Standing and the privatization of public law’ (1988) 88(7) CLR 1432.

Van den Berg, A. ‘The New York Arbitration Convention of 1958: towards a uniform judicial interpretation’ (1994) Kluwer. T.M.C .

Case Law

Cal Code Civ Proc § 1297.21 (a), (Definition of Arbitral awards).

Deutsche-und Tiefbohgeseltshaft v.s. Ras Al Khaimah National oil Co. and Shell International Petroleum Co. Ltd (DST v.s. Rakoil), (1987) 3 WLR 1023 UKHL.

CL-2014-337 CL- 2014-658, Nikolay Viktorovich Maximov v Open Joint Stock Company [2017] EWHC 1911 (Comm).

Parsons & Whittemore v. RAKTA, US (USCA) no. 7, reported in Yearbook 1 (205).

Treaties

UN New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)

Ibid: UN New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (1958).

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[1] Pierre Lascoumes, Patrick Le Gales, Understanding Public Policy through Its Instruments: From the Nature of Instruments to the Sociology of Public Policy Instrumentation, (2007) 20(1) IJPAI 1-21.

[2] Margaret L. Moses, The principles and practice of international commercial arbitration 3^rd edition, (2017) 244- 247

[3] UN New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (1958)

[4] Leonard V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (1961), 70 (7) 1049.

[5] M.A. Buchanan Public policy And International commercial arbitration (1988) ABLJ, 26.

[6] Harry T. Edwards, ‘Judicial review of Labour Arbitration Awards: The clash Between the Public Policy Exception and The Duty to Bargain’ (1988) CKLR 64.

[7] Sattar Sameer, ‘Enforcement of Arbitral Awards and Public Policy Same Concept Different Approach’ (2011) 8.5 TDM

[8] Anne-Marie-Slaughter Burley, ‘International law and international relations theory: a dual agenda’ (1993) 87(2) AJIL, 205.

[9] Thomas Donaldson, Thomas W. Dunfee, ‘Toward a unified conception of business ethics: Integrative social contracts theory’ (1994) 19(2) AMR 252-284.

[10] Deutsche-und Tiefbohgeseltshaft v.s. Ras Al Khaimah National oil Co. and Shell International Petroleum Co. Ltd (DST v.s. Rakoil), (1987) 3 WLR 1023 UKHL.

[11] Ho Hock Lai ‘Enforcement of Foreign Arbitral Award: Re An Arbitration Between Hainan Machinery Import and Export Corporation and Donald & McCarthy Pte Ltd’ SJLS (1996) 241.

[12]Cass R. Sunstein, ‘Standing and the privatization of public law’ (1988) 88(7), CLR 1432.

[13] Albert Van den Berg, ‘The New York Arbitration Convention of 1958: towards a uniform judicial interpretation’ (Kluwer 1994) T.M.C.

[14] UN New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)

[15] Parsons & Whittemore v. RAKTA, US (USCA) no. 7, reported in Yearbook 1 (205).

[16] Christian Bühring-Uhle, Lars Kirchhoff and Gabriele Scherer, ‘Arbitration and mediation in international business’ (2006) KLI 26.

[17] Rukmini Das and Anisha Keyal, ‘Judicial Intervention in International Arbitration’ (2009), 2(4) NUJS, 585.

[18] Michael Strub, ‘Resisting Enforcement of Foreign Arbitral Awards under Article 1(e) and Article VI of the New York

Convention: A Proposal for Effective Guidelines’ (1990) 68(5) NYC 1031.

[19] Cal Code Civ Proc § 1297.21 (a), (Definition of Arbitral awards).

[20] Jan Paulsson, ‘Arbitration unbound: Award Detached from the Law of its Country of Origin’ (1981) 30(2) ICLQ 358.

[21] George A. Bermann, ‘Recognition and Enforcement of Foreign Arbitral Awards: The Interpretation and Application of the New York Convention by National Courts’ (2017) GSLC 23.

[22] Matthew Barry, ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32 (3) JIA 289.

[23] Matthew Barry, ‘The Role of the Seat in International Arbitration: Theory, Practice, and Implications for Australian Courts’ (2015) 32 (3) JIA 310.

[24] CL-2014-337 CL- 2014-658, Nikolay Viktorovich Maximov v Open Joint Stock Company [2017] EWHC 1911 (Comm).

[25] Alexandra Shtromberg, ‘Substantive Public Policy Concept in Enforcement of Foreign Arbitral Awards in Russia’ (2017) HELDA 26

[26] Margaret, l. Moses, The principles and practice of International Commercial arbitration, (2008) 18.

[27] Gary B. Born, Disclosure and evidence taking in international arbitration in, International Arbitration: Law and Practice, 177.

[28] Ilias Bantekas, An Introduction to International Arbitration, Cambridge University Press, (2015), 259-260.

[29] Margaret. L. Moses, The Principles and Practice of International Commercial Arbitration, Cambridge University Press, (2008), 234.

[30] Rick Gal, ‘Enforcing awards that have been set aside at the seat: the English and Dutch courts remind parties of the high hurdle that must be overcome’ (2017) PLAB 10.

[31] Straus, ‘Arbitration of Disputes Between Multinational Corporations, in New Strategies for Peaceful Resolution of International Business Disputes’ (1971) 109 AAA 114.

[32]Gary. B. Born, International Commercial Arbitration 5^th edition, (2009) Ch. 3 and 4, Nigel Blackaby, Constantine Partasides, Alan Redfern, Martin Hunter, Redfern and Hunter on International Arbitration, 116.