Global Development

Introduction

The Danish Arbitration Act of 24 June 2005 (Act no. 553 or the ‘Arbitration Act’), including sections 38-39 on the recognition and enforcement of arbitral awards, is modelled on the UNCITRAL Model Law and thus implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the ‘New York Convention’). The Arbitration Act is effectively a translation of the Model Law.

International arbitral awards must therefore be recognised or enforced in accordance with the general Danish legislation, and so they are in practice. In their interpretation practice, the Danish courts ensure effective protection of the obligations under the New York Convention. In recent years, the Supreme Court and the High Courts have confirmed that the scope of refusal on public policy grounds is quite narrow.¹

Refusal on public policy grounds

The Danish courts may refuse to recognise or enforce an international arbitral award if it ‘would be manifestly contrary to the public policy of this country’ (see section 39(1)(ii)(b) of the Arbitration Act).²

Danish courts attach great importance to the explanatory notes to Danish legislation. According to the explanatory notes to the public policy provisions of the Arbitration Act, the provisions will only be applicable in rare situations: ‘In that connection, it should be emphasised in particular that the courts cannot refuse to recognise or enforce an arbitral award on grounds that the arbitral tribunal has applied the law incorrectly or has made an incorrect assessment of the facts of the case. However, the prohibition against judicial review on substantive grounds does not apply in the extraordinary situations where the arbitral tribunal has made an error that is so extremely serious that the recognition or enforcement of the arbitral award would be manifestly contrary to the public policy of this country, see para. (ii)(b)’.³

That highly compelling reasons are required in order for the public policy provisions to apply is clear from the Supreme Court case reported in the Weekly Law Reports for 2016⁴ where the request for refusal on public policy grounds was based on the arbitral tribunal having applied EU law incorrectly. To motivate its decision to refuse the request, the Supreme Court started by making the following indicative statement concerning public policy grounds:

According to the explanatory notes … the provision constitutes a narrow exception from the prohibition against judicial review on substantive grounds, and an arbitral award may only be set aside as invalid under that provision in the extraordinary situations where the arbitral tribunal has made an error which is so extremely serious that the recognition or enforcement of the arbitral award would be manifestly contrary to public policy. In itself, it is not enough that the award is contrary to mandatory legal rules.

This statement is important and only leaves a very narrow scope for refusal on public policy grounds.

As regards public policy grounds for refusal, article 6(c) of the Hague Convention on Choice of Court Agreements of 30 June 2005 (the ‘Convention on Choice of Court Agreements’) refers to ‘fundamental principles’, and article 9(e) uses the same term.⁵

Non-existence of an arbitration agreement and public policy

From a linguistic point of view, it is not obvious that the wording ‘not valid’ used in section 39(1)(i)(a) of the Arbitration Act⁶ also extends to a refusal on grounds that no arbitration agreement exists. However, since the provision is based on article 36(1)(a)(i) of the Model Law and the New York Convention, it must be concluded that the provision also extends to a refusal on grounds that no arbitration agreement exists.

It follows directly from the general rule of section 39(1)(i)(a) of the Arbitration Act, that the decision on whether an arbitration agreement exists must be based on the law of the place of arbitration, unless the parties have agreed otherwise. This means that a Danish court can only be expected to refuse recognition or enforcement of an arbitral award in very rare situations since the court must be convinced that the arbitral tribunal’s decision that no arbitration agreement exists is incorrect according to the law of the place of arbitration.

Therefore, requests for refusal of recognition or enforcement may be based on the public policy provisions. In the High Court case reported in the Weekly Law Reports for 2014⁷ concerning the enforcement of an arbitral award rendered in Bulgaria, the High Court held that enforcement could not be refused on public policy grounds. In the case at hand, the existence of an arbitration agreement was not disputed, but the Danish party disputed that the company was a party to the agreement. The agreement had not been signed by the Danish party stated as the managing shipowner with a c/o address for the company for which ship repairs had been carried out. The companies were consolidated with a Bahamas based parent. The Danish party had been duly informed of the arbitral proceedings, but had made no representations to the arbitral tribunal.

In the High Court case reported in the Weekly Law Reports for 2017,⁸ the Danish party submitted that the arbitral tribunal had made an error by applying English law, as agreed between the parties instead of applying Danish law, the choice following private international law. No arbitration agreement existed under Danish law in contradiction with the result following English law. The choice of law and the arbitration agreement were set out in the English party’s general terms and conditions which were attached to an email to which the Danish party had not replied directly. According to the arbitral award, the Danish party had instead received the service by conduct. The parties had not previously cooperated. The High Court said that the arbitral award had been rendered by a sole arbitrator ‘on the basis of written submissions from both parties, and the award contains – as also stated by the enforcement court – a motivated assessment of the parties’ positions on the choice of law and the existence of an arbitration agreement’ and established that the Danish party had not ‘proved – or even established on a balance of probabilities – that the decisions on the merits of the matters in question are so wrong that it would be manifestly contrary to public policy to recognise or enforce the award’.

As regards refusal on grounds of non-existence of an arbitration agreement, the refusal to recognise or enforce an international arbitral award on public policy grounds must be based on the very fundamental assumption that it is sufficiently clear that no arbitration agreement would exist under the Arbitration Act.

The most important ruling in that regard can be found in the Supreme Court case reported in the Weekly Law Reports for 2014⁹ where a Danish party had carried out ship repairs for an international consortium. Considering that (i) the parties had not previously cooperated, (ii) the international consortium had not previously entered into agreements on ship repairs in Denmark, and (iii) the Danish party would not be justified in expecting the international consortium to know the Danish Maritime’s general terms and conditions or be able to access them without difficulties, the Supreme Court held that the arbitration clause in the Danish Maritime’s general terms had not been agreed by the parties by means of a quotation and a letter including a repair estimate, although the contracting parties were professional parties.

As stated above, refusals on public policy grounds do not only concern the arbitration agreement as is the case in section 39(1)(i)(a) of the Arbitration Act. Most often, an international contract and general terms and conditions will comprise a choice of law clause concerning lex causae in addition to the arbitration clause, and the arbitral tribunal may have decided on the dispute on the basis of the wrong substantive rules as the international arbitral tribunal should not have complied with the choice of law provided for in article 10(2) of the Rome I Regulation of 17 June 2008. Instead, the arbitral tribunal should have followed the main rule of article 4 of the Rome I Regulation. This applies in particular to agreements concluded by digital means and on the basis of general terms and conditions.

In order to decide whether serious errors have been made, it must be considered whether such errors are likely to have resulted in a blatant incorrect arbitral award and whether the award thus risks inflicting damage to the party.

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