A Comparison Of The Use Of The Public Policy Defence By Different Countries To Resist The Enforcement Of International Arbitral Awards – A Rising Star Or Setting Sun?

A Comparison Of The Use Of The Public Policy Defence By Different Countries To Resist The Enforcement Of International Arbitral Awards – A Rising Star Or Setting Sun?

It would seem that in India, the public policy defence to enforcement proceedings is a ‘rising star’. The case of Saw Pipes has been criticised by many distinguished commentators. It has been extensively condemned for its wide interpretation of the public policy defence. The 1996 Indian Arbitration Act does not include error of law as a ground for setting aside arbitral awards and it has been widely accepted in India that an arbitrator’s decision cannot be reviewed on such grounds . By clearly stating that the public policy ground includes errors of law by the arbitral tribunal, the Saw Pipes case went beyond the scope of the Indian Arbitration Act and created a new ground for setting aside arbitral awards. By bringing errors of law within the ambit of public policy, the Indian courts have created a backdoor to review the merits of an arbitrator’s decision, which is in clear contravention of arbitration law and practice. Also, as a result of the Saw Pipes case, more parties will now be able to challenge arbitral awards on grounds of public policy before the Indian courts. The case of Saw Pipes is particularly worrying since the Indian Supreme Court did not expressly exclude foreign awards from its reasoning. Moreover, in Bhatia International v Bulk Trading, (2002) AIR SC 1432 the Supreme Court held that provisions of Part 1 of the Indian Arbitration Act (which applies to domestic arbitrations only) would also apply to foreign awards under Part 2 of the Indian Arbitration Act, unless specifically excluded by the parties. The case of Bhatia generated much debate since it reversed the accepted position that Part 1 of the Indian Arbitration Act would not apply to international arbitration. This meant that parties, relying on Bhatia, could use the ‘patently illegal’ ground of public policy added by Saw Pipes to resist enforcement of foreign arbitral awards. Indian case law understands the term, ‘patent illegality’ to denote an error of law apparent on the face of the record . In 2008, the Indian Supreme Court in the case of Venture Global Engineering v Satyam Computer Services , extending its earlier decision in the Bhatia case, held that a foreign arbitral award could be set aside on grounds of public policy as formulated in the Saw Pipes case. The case of Satyam concerned a joint venture dispute which ended up in an international arbitration seated in London. An arbitral award was rendered in favour of Satyam which Satyam sought to enforce in the US. In the meantime, Venture Global filed an application to set aside the foreign award before the Indian courts on grounds of public policy. The matter went all the way before the Indian Supreme Court which held that even though there were no provisions in Part 2 of the Indian Arbitration Act providing for challenge to a foreign arbitral award, a petition to set aside the same could lie under Part 1 of the Indian Arbitration Act. The Indian Supreme Court held that the losing party could bring an independent action in India to set aside a foreign arbitral award on the expanded grounds of public policy as set out in the case of Saw Pipes. The Satyam case has severely hampered India’s progress towards establishing itself as an arbitration friendly jurisdiction. Cases like Saw Pipes and Satyam demonstrate the Indian court’s approach on the issue of public policy and arbitral awards. It seems that the Indian courts have consistently interpreted the provisions of the Indian Arbitration Act in a manner contrary to the pro-enforcement spirit of the New York Convention. These decisions have caused a great deal of anxiety for the international community dealing in transactions with an Indian flavour, who generally prefer the quick disposal of their disputes through arbitration rather than engaging in lengthy litigation before the Indian courts.

Funke Adekoya

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