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( Source of the document: ICC Digital Library )
In 2014 and 2015, the International Bar Association (IBA) Subcommittee on Recognition and Enforcement of Awards undertook the ambitious task of analysing the meaning of 'public policy' as set forth by international arbitrators and national courts, with a view to promoting a harmonious and consistent understanding of the various facets of this key notion in international arbitration. The success of the project exceeded all expectations and culminated in the release on 6 October 2015, at the IBA's annual conference held that year in Vienna, of a report covering the law and practice in no fewer than forty jurisdictions.
After that exercise, some questions nevertheless remained unanswered. In particular, the fact that the overwhelming majority of commercial arbitral awards are not publicly available meant that the actual practice of arbitral tribunals was difficult to assess other than through the assuredly impressive but, statistically, necessarily limited experience of the handful of practitioners who had participated in the project. The IBA Subcommittee accordingly turned to various arbitral institutions, and was glad that the Secretariat of the ICC Court consented to make its database of awards available, at its Paris headquarters, to confidentiality-sworn researchers.1
Public policy is a multi-faceted and important concept in international arbitration. Its violation is one of the grounds on which the enforcement of an award may be refused under the 1958 New York Convention, even if the laws of the state of enforcement were never part of the arbitration proceedings. Public policy is, in that regard, a means whereby domestic courts verify that an international arbitral award is compatible with the fundamental rules and values of the legal system in which the enforcement is sought. While domestic courts have a duty towards their state to make sure that arbitral awards submitted to them are not inconsistent with that state's public policy, international arbitrators, in principle, have no such duty. As observed by the US Supreme Court in the landmark Mitsubishi case, an international arbitrator, being a non-state institution, owes 'no allegiance' to any sovereign and is simply bound by the duty to 'effectuate the intentions of the parties'.2
These basic premises led the IBA Subcommittee to select, among the various aspects of public policy, the focus of its exercise, namely: how often do arbitral tribunals consider the public policy of a state where the award is likely to be enforced? This question resonates all the more in light of the ultimate goal of an arbitral tribunal to render an enforceable award.3 While the ICC Rules do not express this goal as a positive duty weighing on ICC tribunals, it is reflected in the recent editions of the Rules as follows:
In all matters not expressly provided for in the Rules, the Court and the arbitral tribunal shall act in the spirit of the Rules and shall make every effort to make sure that the award is enforceable at law.4
The purpose of the research and of this article is, therefore, to analyse arbitral awards rendered under the ICC Rules to determine in what circumstances and to what extent ICC arbitral tribunals consider public policy/mandatory rules5 of the state(s) of prospective enforcement.
Overview of the research
Extensive research was conducted in the ICC database between September and November 2015, with the permission and assistance of the Documentation and Research Centre at ICC headquarters in Paris.
The researchers used the following key words and variations thereof, in different combinations, to preselect relevant arbitral awards: 'public policy', 'enforce', 'mandatory' and 'New York Convention'. A search was also undertaken in French using the terms 'ordre public', 'lois de police', 'exécution' and 'exequatur'. A total of 563 ICC awards were preselected and reviewed in relevant parts to produce a subset of potentially relevant awards. This subset was further reviewed and boiled down to a mere ten awards that have specifically dealt with this issue (listed in the table at the end of this article).6
Based on the exercise that led to identifying these awards, and on the content of the awards, this article presents three propositions to illustrate the approach of ICC tribunals towards the application of public policy/mandatory rules in connection with the future enforcement of the arbitral award.
Proposition 1: Arbitral tribunals do not consider sua sponte the public policy of a state of potential enforcement of an award, and parties seldom raise the issue.
The very limited number of responsive awards is in itself telling. Tribunals understandably do not consider sua sponte the public policy/mandatory rules of a state of possible enforcement of the award, even though they may have an inherent power to do so,7 and parties seldom bring up the issue in their arguments.
One likely reason why parties rarely raise such arguments is that in many cases the potential inconsistency with the public policy of the state(s) of prospective enforcement is also found in the public policy or mandatory rules of the lex arbitri and/or the lex contractus, making it entirely unnecessary to develop an argument based on the public policy of the state(s) of prospective enforcement.
Nevertheless, we would also venture to speculate that, when in the midst of an arbitration, parties and their counsel do not always turn their minds to the enforcement phase and to the hurdles that may arise at that stage.
Proposition 2: Arbitral tribunals will not look into the public policy/mandatory rules of every jurisdiction where the award is likely to be enforced.
While the ultimate purpose of any arbitration is to produce an enforceable award, a tribunal does not have a legal duty to render an award that is enforceable in every jurisdiction. At the most, the obligation on arbitral tribunals is to make their best efforts to render an enforceable award.8
As a preliminary matter, it may be noted that in discharging this 'best efforts' obligation, arbitrators ensure that any concerns arising under a law applicable to the arbitration are adequately addressed. For instance, in ICC Case 16247 (Final Award),9 the sole arbitrator had to decide which law governed the potential time limit upon the claim - the law applicable to the contract (law of an African State) or the law of the seat of arbitration (France). In deciding to apply the former, the arbitrator looked into the public policy and mandatory rules of both jurisdictions so as to ensure that the enforceability of the award was [Page59:] not threatened. After careful consideration, the arbitrator observed that 'French courts exercise a light control over arbitral awards', in line with international public policy standards, and hence would not interfere with the application of the law governing the merits to the issue of time limitation. The arbitrator thus ensured that the award would not contravene public policy under the law of the seat or the law governing the merits of the dispute. Similarly, in ICC Case 15913 (Final Award),10 the respondent objected to a tribunal seated in Paris ordering payments to be made in US dollars and alleged that Algerian law, which governed the merits of the dispute, required payments in US dollars to be authorized by the Algerian National Bank. The tribunal examined public policy considerations of both France and Algeria and found that ordering payments in US dollars would contradict those of neither country.
The 'best efforts' obligation does not appear to extend, however, to looking into the public policy of the state(s) of prospective enforcement when the laws of such state(s) are not applicable to the arbitration. To take the example of ICC Case 15977 (Partial Award),11 the sole arbitrator was confronted with the question of whether an arbitration agreement providing for proceedings seated in Germany and the application of German substantive law was compatible with UAE public policy. The UAE was the place of performance of the contract and the likely place of enforcement of the award.12 The respondent argued that the arbitration agreement was void under mandatory rules of UAE law. The sole arbitrator found that UAE law was not applicable but noted that in any event the arbitration agreement did not violate UAE law. When retaining jurisdiction, the arbitrator analysed the wording of Article V of the New York Convention, noting that enforcement of an award may be refused on public policy grounds, and ruled that the duty to render an enforceable award does not 'import into each and every arbitration all public policy provisions of the different countries in which an arbitral award may be presented for recognition and enforcement'. As an arbitral award may be enforced in any country that is a party to the New York Convention, an obligation to look into public policy grounds in every such country would result in an 'international public policy standard on the least permissive level'.
Similarly, in ICC Case 14266 (Final Award),13 a tribunal seated in Switzerland was faced with an alleged clash between the contract in question and Belgian tax regulations. Belgium was the place of performance of the contract and, the respondent argued, a possible place of enforcement of the award. The tribunal ensured that the award complied with Swiss law and public policy and held that Belgian law was not applicable to the case. While acknowledging the duty to render an enforceable award, the tribunal refused to apply the alleged mandatory provisions of Belgian law and recognized that the outcome of the proceedings might be inconsistent with the Belgian legal order and, specifically, with Belgian public policy, but considered that to be an inevitable consequence of the right of the parties to choose the law(s) applicable to the arbitration. The tribunal also found that an arbitrator does not have a duty to consider the public policy of all jurisdictions where enforcement of the award might be sought.
These cases reflect the essence of Proposition 2 - an arbitral tribunal simply cannot look into the public policy considerations of every jurisdiction where the award might be enforced. An international arbitral award might be enforced in any state, whether under the New York Convention (if the state is a party to the same) or under the state's procedural laws. Consequently, it would be impractical for an arbitrator to ensure that the award complies with the laws of all these jurisdictions, and could lead to the absurd result of the award being tailored to the laws of a given jurisdiction, to the detriment of a party's rights elsewhere. Arbitral tribunals may nonetheless justify looking into the public policy/mandatory rules of the foreign state(s) of prospective enforcement on the basis of their 'best efforts' obligation to render an enforceable award. For instance, in ICC Case 11761 (Final Award),14 the tribunal ensured that the award did not contravene public policy in Guatemala, which was where the respondent was domiciled, even though Guatemalan law did not govern any aspect of the arbitration.15
Proposition 3: An arbitral tribunal may give effect to public policy/mandatory rules of the enforcing state, if they are of fundamental importance.
In ICC Case 10888 (Decision on Application for Correction of Award),16 one of the parties argued that the tribunal should apply the statutory interest rate under New York law (governing the merits of the dispute) in an arbitration seated in Paris. The tribunal observed that, although Article 15(1) of the 1998 ICC Rules allowed tribunals to disregard the rules of procedure of a national law, the tribunal may nevertheless 'take into account the mandatory procedural rules of a country where enforcement of their award is likely to be sought, irrespective of the possible grounds for setting it aside at the place of arbitration'. The tribunal in this case did not find the relevant procedural rules of New York to be of such a mandatory nature that they should be taken into account by an arbitral tribunal seated in France.17
In ICC Case 15972 (Final Award),18 the tribunal chose to assess the arbitrability of the dispute under the law of the seat only, despite the possible risk of non-enforcement by the courts of the state of prospective enforcement. In this case, the arbitration was governed by Swiss law and was seated in Switzerland. One of the parties argued that the dispute was not arbitrable under Nigerian law, which was the place of performance of the contract and the likely state of enforcement of the award. The tribunal held that it was required to look at the issue of arbitrability only in light of Swiss law. It further observed that 'effect may be given to "foreign" mandatory rules with which the case has a close connection only if those rules are of such fundamental importance that they must also be observed by an arbitral tribunal with its seat in Switzerland'. In this case, the relevant Nigerian law served only to enforce Nigerian economic interests and hence was disregarded by the tribunal.19
Similarly, in ICC Case 16981 (Final Award),20 the tribunal was requested to apply Greek public policy - Greece being the place of performance of the contract and the likely place of enforcement of the award - to an arbitration seated in Helsinki and governed by Finnish law. The tribunal noted the importance of public policy in international arbitration, given that a violation of public policy can result in the refusal to enforce an award, and found that the public policy of the state of prospective enforcement could 'provide a basis to limit the parties' choice of law', so as to avoid the threat of unenforceability 'in the jurisdiction of enforcement by virtue of the application of the law chosen by the parties'.21 In this case, however, the tribunal did not find any evidence that the relevant Greek public policy amounted to international public policy and, hence, disregarded it.
These cases underpin Proposition 3, which suggests that an arbitral tribunal will give effect to the public policy/mandatory rules of the state(s) of prospective enforcement only when such rules reflect an international standard.22 In other words, an arbitral tribunal must always ensure that the award is compatible with international standards of public policy, even if such standards are not reflected in the laws applicable to the arbitration.
However, contrary to our Proposition 3, there have been situations in which arbitral tribunals have chosen to take account of the local public policy of a state of prospective enforcement even when it did not reflect an international standard of public policy. For example, in ICC Case 11038 (Final Award)23 the arbitration was seated in Switzerland and governed by Swiss law. The award was to be enforced in the East European country where the contract was performed. In deciding to apply an interest rate lower than that provided in the parties' contract - which the tribunal was entitled to do under Swiss law - the tribunal noted its 'best efforts' obligation to render an enforceable award and gave weight to the fact that 'application of an exorbitant interest rate for delays in USD payments in an emerging country and in face of deterioration of value of its currency in relation to USD could lead to the refusal of enforcement' of the award in that [Page61:] country. Similarly, in ICC Case 11761 (Final Award),24 discussed above, the arbitral tribunal was cautious and considered the compliance of its award with Guatemalan law, which was the law of the state of prospective enforcement, without specifying whether the relevant Guatemalan public policy reflected an international standard.
The standards to be considered by an arbitral tribunal in this regard should not be influenced by national courts. For instance, in ICC Case 15912 (Final Award)25 one of the parties referred to the concerns of German public policy raised by a German court during proceedings to enforce a partial award that had been rendered earlier in the same case. The arbitration was seated in Switzerland and governed by Swiss law. The arbitral tribunal did not revisit the public policy concerns and held that it 'has made everything in its power to ensure that the Partial Award will also be enforceable abroad' by ensuring compliance with Swiss international public policy, which was 'in accordance with international standards'.26
The public policy of the state(s) of prospective enforcement is of considerable importance in ensuring the enforceability of an arbitral award. Yet, it would seem that in most cases arbitral tribunals do not deal with issues pertaining to the public policy/mandatory rules of the state of enforcement unless one of the parties raises such a concern. This cautious approach of arbitral tribunals is justified, given that an award may be presented for enforcement in numerous jurisdictions and the parties are better placed than the tribunal to determine where the award might be enforced and whether the laws of such enforcement state(s) raise any issues of public policy that should be considered.
The propositions presented above indicate that arbitral tribunals are generally reluctant to adapt or change their findings due to public policy concerns in the state(s) of prospective enforcement. At the same time, the cases discussed suggest that, out of an abundance of caution and by way of additional or alternative reasoning, arbitral tribunals may ensure that there is no violation of public policy concerns in the state(s) of prospective enforcement even after finding that the public policy/mandatory rules of such state(s) are not applicable to the arbitration. As a general rule, however, when the laws of the state(s) of prospective enforcement are neither the lex contractus nor the lex arbitri, arbitral tribunals tend to consider the public policy of such state(s) only if it echoes a concern of such fundamental importance that it reflects an international standard of public policy.
This general approach is entirely consistent with the position and role of international arbitral tribunals, which are not linked to the domestic legal system of any given state. It is important, therefore, to consider the need for tribunals to use their best efforts to render an enforceable award in the light of the undeniably primary role of the national courts of a state of enforcement to ensure that the arbitral award is compatible with the public policy of that state.
Overview of cited ICC Cases
Note: Eight of the cited cases are published in this issue. ICC Case 14266 was published in the ICC International Court of Arbitration Bulletin, Vol. 24/Special Supplement (2013) and ICC Case 15913 in the Journal du Droit International (Clunet) 2015/1.
As a joint research project of ICC and the IBA Subcommittee on Recognition and Enforcement of Awards, this initiative owes much to the support of Andrea Carlevaris, Secretary General of the ICC International Court of Arbitration and Director of ICC Dispute Resolution Services, to Pascal Hollander, Chair of the IBA Subcommittee, who originally conceived the project, and to the cooperation of Sylvie Picard Renaut, Manager of the ICC Court Documentation & Research Centre, to all of whom the authors express their gratitude. The authors also thank Anna Chuwen Dai and Ekaterina Plokhenko for their help with research in the ICC awards database.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 at 636-637 (1985): 'the international arbitral tribunal owes no prior allegiance to the legal norms of particular states; hence, it has no direct obligation to vindicate their statutory dictates. The tribunal, however, is bound to effectuate the intentions of the parties.'
See e.g. J.D.M. Lew, 'The Law Applicable to the Form and Substance of the Arbitration Clause' in A.J. van den Berg, ed., Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, ICCA Congress Series, 1998 Paris Volume 9 (Kluwer Law International, 1999) 114; see also C. Seraglini & J. Ortscheidt, Droit de l'arbitrage interne et international (LGDJ, 2013), § 916: 'un arbitre, qui doit se soucier de l'efficacité de la sentence, devra multiplier les examens pour garantir cette efficacité : se conformer aux exigences du siège, mais aussi des lieux d'exécution prévisibles de la sentence'.
ICC Rules of Arbitration (2012), Article 41. The 1998 ICC Rules of Arbitration contained the same language in Article 35. This Article can be misunderstood as creating a duty for arbitral tribunals to render an enforceable award, while in reality it only requires arbitrators to ensure that the enforceability of an award is not compromised when filling the gaps in the Rules (J. Fry, S. Greenberg, F. Mazza, The Secretariat's Guide to ICC Arbitration (ICC, 2012) at 422-423); see also Y. Derains & E.A. Schwartz, A Guide to the ICC Rules of Arbitration (Kluwer Law International, 2005) at 384-385.
Although 'public policy' and 'mandatory rules' may not cover exactly the same concept, both of them serve to protect certain fundamental values. Therefore, in this article, the terms 'public policy' and 'mandatory rules' are used interchangeably.
It is in the nature of a database research that some responsive documents may not appear in the output of the database search due to issues in the electronic transcription of the document, idiosyncrasies in the drafting of the document, etc.
See e.g. G. Horvath, 'The Duty of Tribunals to Render an Enforceable Award' (2001) 18:2 J. Int'l Arb. 135); see also, International Law Association Washington Conference Report For The Biennial Conference, Report on Inherent And Implied Powers (2014): '[Inherent powers] are those required to decide a legal dispute fairly and in a manner consistent with at least the minimal requisites of due process and public policy.'
See e.g. M. Moses, The Principles and Practice of International Commercial Arbitration (CUP, 2012) at 83, 145; M. Platte, 'An Arbitrator's Duty to Render Enforceable Awards' (2003) 20:3 J. Int'l Arb. 3, 307; C. Boog & B. Moss, 'The Lazy Myth of the Arbitral Tribunal's Duty to Render an Enforceable Award' (Kluwer Arbitration Blog, January 2013) available at <http://kluwerarbitrationblog.com/2013/01/28/the-lazy-myth-of-the-arbitral-tribunals-duty-to-render-an-enforceable-award/>; see also G. Born, International Commercial Arbitration (Kluwer, 2014) at 1993; R. Merkin, Arbitration Law (Informa, 2013), 10.53 ('long-established common law duty of an arbitrator to make an enforceable award'); Y. Derains & E.A. Schwartz, supra note 4 at 383; A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration (Sweet & Maxwell, 1999) at 363.
See hereinafter, p. 102.
Excerpts published in the Journal du Droit International (Clunet) 2015/1, 216.
See hereinafter, p. 95.
The claimant disputed the respondent's termination of the contract, which was to be performed in the UAE.
Excerpts published in the ICC International Court of Arbitration Bulletin, Vol. 24/Special Supplement (2013), 83.
See hereinafter, p. 71.
In ICC Case 15977, the tribunal refused to apply UAE public policy/mandatory rules even though this was where the respondent operated, but it did apply similar caution when it nevertheless noted that the arbitration agreement in any event did not violate UAE law.
See hereinafter, p. 63.
Displaying the same sense of caution as has already been observed in other cases, the tribunal in ICC Case 10888 also noted that since neither of the parties was headquartered in New York, it was highly implausible that enforcement of the award would be sought in New York.
See hereinafter, p. 86.
Showing similar caution to that observed in other cases, the tribunal also noted that, even if Nigerian law were to be applicable to the question, it would not have any bearing on the outcome of the dispute.
See hereinafter, p. 111.
This premise contradicts ICC Case 14266, where the tribunal held that divergence from the public policy of the enforcing state is an inevitable consequence of party autonomy in arbitration.
Discussing the definition and contents of such international standard far exceeds the scope of this article.
See hereinafter, p. 68.
See hereinafter, p. 71.
See hereinafter, p. 84.
The tribunal also observed that these public policy concerns had been disposed of in the partial award.