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Taming the Unruly Horse? The New York Convention’s Public Policy Exception to the Enforcement of Arbitral Awards

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Legal Thoughts between the East and the West in the Multilevel Legal Order

Abstract

Courts worldwide may refuse to enforce arbitral awards if such enforcement would be contrary to the public policy of their countries. This is known as “the public policy exception” to the enforcement of arbitral awards. It is enshrined in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and UNCITRAL Model Law on International Commercial Arbitration 1985, which are two of the most prominent international instruments concerning arbitration. The International Law Association’s Resolution on Public Policy as a Bar to Enforcement of International Arbitral Awards 2002 endorses a narrow approach to the public policy exception, such as non-enforcement only in exceptional circumstances of public policy violation. Such a narrow approach arises from the New York Convention’s pro-enforcement policy of upholding the finality and enforceability of arbitral awards. Yet judicial inconsistency and unpredictability in applying the public policy exception persist. Public policy remains likened to an “unruly horse” which may lead us from sound law (Richardson v Mellish [1824–1834] All ER 258, 266.). This chapter explores some remaining controversies and complexities in applying the public policy exception in selected Western and Eastern countries. By examining the mutual influence between these countries, this chapter makes some recommendations on when and how the courts may swim against the tide by departing from the currently prevailing narrow approach to the public policy exception. For instance, such departure may be appropriate where the arbitral award’s enforcement would cause or condone injustice so as to undermine the integrity of the arbitration system. The unruly horse of public policy and its application can, and must, “come down on the side of justice” (Enderby Town Football Club Ltd v The Football Association Ltd [1971] Ch. 591, 607).

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Notes

  1. 1.

    Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 330 U.N.T.S. 38 [hereinafter New York Convention].

  2. 2.

    See Wolff (ed) (2012), p. 405; Born (2014), p. 3646.

  3. 3.

    Richardson v Mellish [1824–1834] All ER 258, 266.

  4. 4.

    See, e.g. Wolff (ed) (2012), p. 406.

  5. 5.

    Ma (2009), p. 14.

  6. 6.

    For discussions and recommendations on the third stage of applying the public policy exception, see Ma (2009), pp. 25–27.

  7. 7.

    See, e.g. Ma (2005), p. 71 (section 2.3.2, note 183).

  8. 8.

    Wolff (ed) (2012), p. 405.

  9. 9.

    United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration, U.N. Doc. A40/17, Annex 1 (21 June 1985) (UNCITRAL Model Law).

  10. 10.

    See, e.g. Xianfa (Constitution), art. 53 (1994).

  11. 11.

    See, e.g. Article 58 of the PRC Arbitration Law, Article 274 of the PRC Civil Procedure Law, Article 5 of the PRC Law on the Applicable Laws for Foreign-Related Civil Relations (Order of the President No. 36, issued on 28 October 2010 and implemented on 1 April 2011) and the Supreme People’s Court’s Provisions on Approval and Enforcement of Arbitral Awards Made in the Taiwan Region, art. 14, Fa Shi [2015] No. 14, issued on 29 June 2015 and implemented on 1 July 2015.

  12. 12.

    See Helena Hsi-Chia Chen (forthcoming), Predictability of Public Policy in Article V of the New York Convention under Mainland China ’s Judicial Practice. Kluwer Law International, sections 3.1.3 and 3.2.3.

  13. 13.

    See, e.g. Zhao (1998), p. 23. See also Jeffries (2004), p. 327; Song (ed) (2005), p. 293, and Mao (2011), p. 54.

  14. 14.

    See, e.g. Li (2000), p. 161; Song (1999), p. 12, and Blackaby et al. (2009), p. 660.

  15. 15.

    Wan (ed) (2004), p. 54.

  16. 16.

    Zhang (1999), pp. 476–477.

  17. 17.

    Song (1999), p. 12.

  18. 18.

    Du (2005), p. 107.

  19. 19.

    Wu (2005), p. 47.

  20. 20.

    Article 50 item 3 of Taiwan’s Arbitration Act.

  21. 21.

    Article 49 paragraph 2 of Taiwan’s Arbitration Act . Article 47 paragraph 1 of Taiwan’s Arbitration Act defines “foreign arbitral awards” as awards issued “outside the territory of the Republic of China” or “pursuant to foreign laws within the territory of the Republic of China”.

  22. 22.

    Wu (2005), p. 145.

  23. 23.

    Taiwan High Court Civil Ruling 94 Kang-Zi No. 433 (“has never expressly refused” and “flexible theory of reciprocity”); Taiwan Hsinchu District Court Civil Ruling 97 Zhong-Ren-Zi No. 1 (international comity). See also Wu (2005), p. 154.

  24. 24.

    Section 8(4) of Australia’s International Arbitration Act 1974 (Cth) previously prevented the enforcement of arbitral awards made in countries that are not party to the New York Convention. It was recently removed by Civil Law and Justice (Omnibus Amendments) Act (Cth) (Act No. 132 of 2015), Schedule 1 item 57, effective from October 2015.

  25. 25.

    Wu (2005), p. 55.

  26. 26.

    See, e.g. Taiwan High Court Civil Ruling 94 Kang-Zi No. 433; Taiwan Hsinchu District Court Civil Ruling 97 Zhong-Ren-Zi No. 1; Taiwan Taichung District Court Civil Ruling 95 Zhong-Ren-Zi No. 1.

  27. 27.

    Parsons & Wittemore Overseas Co., Inc, v Societe Generale de l”Industrie du Papier, 508 F.2d 969, 974 (2d Cir. 1974); 1 Y.B. Com. Arb. 205 (1976).

  28. 28.

    Otto and Elwan (2010), p. 365.

  29. 29.

    Wolff (ed) (2012), p. 412.

  30. 30.

    Born (2014), p. 3659.

  31. 31.

    Id. at p. 3662.

  32. 32.

    See id. at pp. 3656–3657.

  33. 33.

    Ma (2009), p. 15.

  34. 34.

    Resolution of the ILA on Public Policy as a Bar to Enforcement of International Arbitral Awards, adopted at the International Law Association’s 70th Conference held in New Delhi, India, 2–6 April 2002 [hereinafter ILA Resolution]. Recommendation 1(d) of the ILA Resolution introduces the three categories of international public policy, with examples in Recommendation 1(e). Recommendations 2–4 then provide detailed provisions pertaining to each category.

  35. 35.

    See the examples cited in Born (2014), p. 3669.

  36. 36.

    See, e.g. Recommendation 3(a) of ILA Resolution.

  37. 37.

    See the examples cited in Born (2014), pp. 3667–3668, notes 1375–1387.

  38. 38.

    Wolff (ed) (2012), p. 430.

  39. 39.

    Blackaby et al. (2015), para. 11.56.

  40. 40.

    Born (2014), pp. 3670–3671.

  41. 41.

    Hemofarm DD (Serbia) v. MAG Intertrade Holding DD (Serbia) et al. (2008), Shandong Intermediate People’s Court, 27 June 2008; the Supreme People’s Court Reply Letter Concerning Refusal to Recognize and Enforce an Arbitral Award by the ICC International Court of Arbitration: No. 11 [2008] of the Fourth Civil Tribunal of the Supreme People’s Court (2008 Min-Si-Ta-Zi No. 11), 2 June 2008.

  42. 42.

    Letter of Reply of the Supreme People’s Court to a Request for Instructions on the Non-Recognition and Non-Enforcement of an Arbitration Award of the ICC International Court of Arbitration [2008], Min-Si-Ta-Zi No. 11, 2 June 2008.

  43. 43.

    Article V(1)(c) of the New York Convention stipulates: “The award deals with a difference not contemplated by or not failing within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration…”.

  44. 44.

    Darwazeh and Yeoh (2008), p. 848. For detailed discussions of the Hemofarm case , see Helena Hsi-Chia Chen (forthcoming) Predictability of public policy in Article V of the New York Convention under mainland China’s judicial practice. Kluwer Law International, section 5.2.1 of Chapter 5.

  45. 45.

    O&Y Investments Ltd. v O.J.S.C. Bummash, 12 October 2005, Federal Arbitrazh Court of the Urals Circuit. See further discussions in Nikiforov, pp. 803–804.

  46. 46.

    Blackaby et al. (2015), para 11.118.

  47. 47.

    Changzhou Amec Eastern Tools and Equipment Co., Ltd v. Eastern Tools & Equipment, Inc. et al., US Central District Court of California (30 July 2012) and US Court of Appeals, Ninth Circuit (29 April 2014); reported in Y. B. Com. Arb. XXXIX (2014), pp. 534–539 (US No. 796) [hereinafter Changzhou Amec Eastern Tools and Equipment Co., Ltd v. Eastern Tools & Equipment, Inc. et al.]. See also an earlier US case cited in Otto and Elwan (2010), p. 391. Transmarine Seaways Corp. v. Marc Rich & Co., 480 F. Supp. 352 (at 358) (decided 1979); YCA VI (1981), 244 (US District Court for the Southern District of New York, US).

  48. 48.

    Changzhou Amec Eastern Tools and Equipment Co., Ltd v. Eastern Tools & Equipment, Inc. et al., para. 71.

  49. 49.

    Smart Systems Technologies Inc. v. Domotique Secant Inc. [2008] J.Q. No. 1782, 2008 QCCA 444. See the discussions in Alvarez (2008), pp. 674–677.

  50. 50.

    Tanzania National Boards Agency v Kundan Singh Construction Limited, High Court of Kenya, Miscellaneous Civil Application 171 of 2012, 15 August 2013 in van den Berg (ed) (2014), paras. 49–50.

  51. 51.

    Id. at para. 51.

  52. 52.

    Lito Martinez Asignacion v Rickmers Genoa Schiffahrtsgesellschaft mbH & Cie KG, US Eastern District Court of Louisiana, Civil Action No. 13-0607c/w13-2409 (27 January 2014) and No. 13–2409 (10 February 2014), reported in Yearbook XXXIX (2014), pp. 581–586 (US No. 807), paras. 43 and 52.

  53. 53.

    Id. at para. 49.

  54. 54.

    Id. at para. 44.

  55. 55.

    Id. at para. 49.

  56. 56.

    Id. at paras. 46 and 49.

  57. 57.

    BezG Affoltern am Albis, SJZ 1997, 227 (26 May 1994) = YCA XXIII (1998), 754 (at pp 758–763) (Affoltern am Albis Court of First Instance, Switzerland). Also see the commentary in Otto and Elwan (2010), p. 391; Geisinger (2008), pp. 704–705.

  58. 58.

    See, e.g. Australia’s International Arbitration Act 1974 (Commonwealth) section 19(a) (in the context of the public policy exception in Article 36(2) of the UNCITRAL Model Law on International Commercial Arbitration) and the recently added section 8(7A)(a) (in the context of the public policy exception in Article V(2)(b) of the New York Convention).

  59. 59.

    Robert G. v Johny L., N.J.A. C 45 (2002).

  60. 60.

    Magnusson (2008), p. 689.

  61. 61.

    Born (2014), p. 3662.

  62. 62.

    Laminoirs-Trefileries-Cableries de Lens, SA v Southwire Co., 484 F. Supp. 1063, 1069 (N.D. Ga. 1980).

  63. 63.

    Judgment of 26 January 2005, XXX Y.B. Comm. Arb. 421 (Austrian Supreme Court) (2005).

  64. 64.

    Domotique Secant Inc. v. Smart Systems Technologies Inc., 2005 CanLII 36874 (Quebec Superior Court, Canada).

  65. 65.

    Otto and Elwan (2010), p. 402.

  66. 66.

    See, e.g. cases cited in id. at p. 402, note 280.

  67. 67.

    See, e.g. cases cited in Born (2014), p. 3678, note 1438.

  68. 68.

    Wolff (ed) (2012), p. 432, note 1346.

  69. 69.

    See, e.g. cited in Born (2014), p. 3678, note 1439.

  70. 70.

    See, e.g. cases cited in Otto and Elwan (2010), p. 402, note 281; and Wolff (ed) (2012), p. 432, notes 1348–1349.

  71. 71.

    See, e.g. cases cited in Wolff (ed) (2012), p. 432, note 1350.

  72. 72.

    Taiwan High Court Civil Judgment 97 Shang-Geng-(1)-Zi No. 81.

  73. 73.

    The Supreme Court Civil Judgment 99 Tai-Shang-Zi No. 2193.

  74. 74.

    Taiwan High Court Civil Judgment 97 Shang-Yi-Zi No. 935.

  75. 75.

    Enderby Town Football Club Ltd v The Football Association Ltd [1971] Ch. 591, 607.

  76. 76.

    Mayer and Sheppard (2003), p. 249, para. 29 (“Procedural public policy rules overlap with the requirements of due process , prescribed in Article V(1)(b) of the New York Convention.”) [hereinafter ILA Final Report].

  77. 77.

    Otto and Elwan (2010), p. 347.

  78. 78.

    Born (2014), p. 3684.

  79. 79.

    Otto and Elwan (2010), p. 366. Additionally (and interestingly), the Taiwan Hsinchu District Court in Civil Ruling 97 Zhong-Ren-Zi No. 1 considered the potential public policy violation before the other grounds of non-enforcement.

  80. 80.

    Wolff (ed) (2012), p. 417.

  81. 81.

    Born (2014), p. 3687.

  82. 82.

    Id.

  83. 83.

    Wolff (ed) (2012), pp. 413 and 422.

  84. 84.

    Id. at p. 414.

  85. 85.

    Born (2014), p. 3687, note 1484.

  86. 86.

    Note the slightly different opening phrase: “it is declared, for the avoidance of any doubt, that…”.

  87. 87.

    BezG Affoltern am Albis, SJZ 1997, 227 (26 May 1994), YCA XXIII (1998) 754, 758–763 (Affoltern am Albis Court of First Instance, Switzerland). Also see the commentary in Otto and Elwan (2010), p. 391; Geisinger (2008), pp. 704–705.

  88. 88.

    ILA Final Report, para. 29.

  89. 89.

    Hemofarm DD (Serbia) v. MAG Intertrade Holding DD (Serbia) et al. (2008), Shandong Intermediate People’s Court, 27 June 2008; the Supreme People’s Court Reply Letter Concerning Refusal to Recognize and Enforce an Arbitral Award by the ICC International Court of Arbitration: No. 11 [2008] of the Fourth Civil Tribunal of the Supreme People’s Court (2008 Min-Si-Ta-Zi No. 11), 2 June 2008.

  90. 90.

    O&Y Investments Ltd. V. O.J.S.C. Bummash, 12 October 2005, Federal Arbitrazh Court of the Urals Circuit. See further discussions in Nikiforov (2008), pp. 803–804.

  91. 91.

    ILA Final Report, para. 29.

  92. 92.

    These suggestions are the modified version of Recommendation 5 in Ma (2009), p. 22.

  93. 93.

    See, e.g. Kaplan J in Hong Kong case of Paklito Investment Ltd. v Klockner East Asia Ltd. [1993] H.K.L.R 39. Choice of law issues surrounding the interaction between Article V(2)(b) and (1)(b) is beyond the scope of this chapter but discussed elsewhere: see, e.g. Ma (2009), pp. 22–23, and Ma (2005), pp. 203–213 (section 6.5.1 of Chapter 6).

  94. 94.

    Born (2014), p. 3687, note 1484.

  95. 95.

    For further discussions on waiver of due process and/or public policy violations in various contexts (i.e. before the arbitral proceedings, annulment proceedings and enforcement proceedings), see Ma (2009), pp. 23–25, and Ma (2005), pp. 214–230 (sections 6.5.2–6.5.5 of Chapter 6).

  96. 96.

    Blackaby et al. (2015), para 11.56. (“[N]either the New York Convention nor the Model Law permit any review on the merits of an award to which the Convention applies.”) Born (2014), p. 3707 (“[T]he prohibition against review of the merits of the arbitrator’s decision is one of the most fundamental pillars of national court authority interpreting the [New York] Convention”.).

  97. 97.

    Changzhou Amec Eastern Tools and Equipment Co., Ltd v. Eastern Tools & Equipment, Inc. et al., US Central District Court of California (30 July 2012) and US Court of Appeals, Ninth Circuit (29 April 2014), reported in Yearbook XXXIX (2014) pp. 534–539 (US No. 796), para 10.

  98. 98.

    Otto and Elwan (2010), pp. 364–365.

  99. 99.

    Inter Maritime Mgt SA v Russin & Vecchi, 9 January 1995, XXII Yearbook Comm. Arb. 789, 796.

  100. 100.

    Born (2014), p. 3706.

  101. 101.

    Wolff (ed) (2012), p. 413 (finality “itself is an aspect of public policy”.).

  102. 102.

    Born (2014), pp. 3707–3708.

  103. 103.

    Wolff (ed) (2012), p. 430.

  104. 104.

    L.B. v State Property Fund of the Republic of Lithuania, Supreme Court of Lithuania, Civil Case No. 3 K-3-363/2014, 27 June 2014, XXXIX YCA vol. 39, pp 437–442, para 52 [hereinafter L.B. v. State Property Fund of the Republic of Lithuania].

  105. 105.

    Wu (2005), p. 55.

  106. 106.

    Hanotiau and Caprasse (2008), p. 737, note 99, cites Carbonneau (1986), p. 127. Issues relating to arbitrability are beyond the scope of this chapter. For the interaction between public policy and arbitrability in the context of Article V(2)(a) and (b) of the New York Convention, see Ma (2005), pp. 151–154 (section 5.4.1 of Chapter 5).

  107. 107.

    Born (2014), pp. 3689–3690; Wolff (ed) (2012), p. 414; Hanotiau and Caprasse (2008), p. 738.

  108. 108.

    Wolff (ed) (2012), p. 414; Hanotiau and Caprasse (2008), pp. 738–739.

  109. 109.

    Ma (2009), p. 20.

  110. 110.

    L.B. v State Property Fund of the Republic of Lithuania, para 54.

  111. 111.

    L.B. v State Property Fund of the Republic of Lithuania, para 54.

  112. 112.

    Wolff (ed) (2012), p. 403.

  113. 113.

    Sheppard (2003), pp. 244 and 246.

  114. 114.

    L.B. v State Property Fund of the Republic of Lithuania, para 55.

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Ma, W.JM., Chen, H.HC. (2016). Taming the Unruly Horse? The New York Convention’s Public Policy Exception to the Enforcement of Arbitral Awards. In: Lo, Cf., Li, N., Lin, Ty. (eds) Legal Thoughts between the East and the West in the Multilevel Legal Order. Economics, Law, and Institutions in Asia Pacific. Springer, Singapore. https://doi.org/10.1007/978-981-10-1995-1_33

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