Disputes That Raise Public Policy Issues: Special Problems in International Disputes

By Worthy, Mica Nguyen | Defense Counsel Journal, April 2019 | Go to article overview

Disputes That Raise Public Policy Issues: Special Problems in International Disputes


Worthy, Mica Nguyen, Defense Counsel Journal


ONE of the primary benefits of international arbitration is that many countries have ratified treaties that allow for the enforcement of arbitral awards, whereas there are hardly any similar treaties allowing for reciprocal enforcement of civil judgments. The most recognized treaty allowing for arbitral awards to be enforced is the 1958 "Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Convention." Due to the wide acceptance globally of the enforcement of international arbitral awards, a great majority of awards are voluntarily accepted and paid.

However, Article V of the New York Convention outlines specific grounds for vacatur of an arbitral award, including most notably the "public policy" exception. This article argues that by looking to the "end" of the dispute at the beginning of the contractual relationship, parties can often address and avoid "public policy" issues that can subsequently affect enforceability of the award. Thus, counsel should consider public policy issues at the onset of the international business relationship as a risk mitigation and cost-savings measure.

I. Background and the Public Policy exception

Arbitrators do not enforce their own awards. Rather, a successful party must resort to a court, usually in a foreign country, to recognize and enforce the arbitral award. 1 Domestic courts decide which arbitral awards they will enforce and which they will reject; the ones that are enforceable enjoy the full protections and resources (and police powers) of the country. In the United States, that would mean the full enforcement powers of the state in which the award is confirmed would be applied, allowing the sheriff to levy on assets and potentially garnish funds from local financial institutions to satisfy the arbitral award.

Recognition of foreign awards are mandated under the New York Convention. They are treated much like a judgment under the Full Faith and Credit Clause of the U.S. Constitution. 2 However, there are exceptions to the New York Convention's mandate. The public policy exception recognizes that each country (or "State" as it is often referred to the international arbitration context) reserves the right for its courts to exercise ultimate control over both the procedure of an arbitration held within its borders and to the arbitral award being enforced within its borders often against its own citizens. In this regard, scholars agree that "public policy" considerations are less about the question of the "arbitrability" of the disputes, and more about the "compulsory jurisdiction of national courts prompted by public policy." 3

While there are other treaties between states that may apply to various international agreements and disputes in addition to the New York Convention, the discussion of public policy considerations in international disputes will have more practical implications when viewed in the context of the New York Convention.

a.Public Policy exception: New York Convention Article V(2)(b) 4

As of July 2018, there were 159 parties to the New York Convention including the United States, which ratified the treaty with certain reservations, and for which the treaty became effective on December 29, 1970. Under the Supremacy Clause of the U.S. Constitution (Article VI, Clause 2), treaties made under its authority, constitute the "supreme law of the land," applicable to all 50 U.S. states without further adoption requirements by each state. Accordingly, the New York Convention and its "public policy" exception to enforcement is relevant to every state.

The relevant language of Article V states:

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) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country. …

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