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?

In Germany also, the courts have repeatedly held that in the case of a foreign award, not every infringement of the mandatory provisions of German law constitutes a violation of public policy; what is required is an infringement of international public policy. In one such case , it was insufficient that one of the parties had appointed the arbitrator, rather than the appointment being jointly agreed to. The respondent had not shown any violation of the arbitrator’s duty of neutrality, nor that the arbitrator had a relationship with the party that appointed him, which would have raised any concerns.

The Austrian courts also attribute a narrow interpretation to the public policy defence in line with the pro-enforcement bias towards the New York Convention. An exception to this is a 1983 decision of the Austrian Supreme Court, which refused enforcement of a Dutch award because it violated Austrian public policy prohibiting purchases on a margin basis . The court held that Article V(2)(b) of the New York Convention did not envisage a distinction between domestic and international public policy as ‘Article V(2)(b) of the above-mentioned Convention refers clearly to cases where an award is contrary to the public policy of the country where it shall be enforced’.

It would seem that those countries whose economies can be classified as free market and economically buoyant have tended to take a restrictive and therefore pro- enforcement approach to the meaning of public policy. As would be seen below however, the courts of countries that may be classified as capital importing countries have taken a more protectionist and expansionist definition of public policy whenever the point has been raised as a defence to recognition and enforcement proceedings.

By way of example, Russian courts have tended to give the public policy defence a very wide interpretation. Some examples of what the Russian courts have considered to be contrary to public policy when considering applications for the recognition and enforcement of foreign arbitral awards are:

i. In the case of United World v Krasny Yakor the court refused recognition of a foreign arbitral award on public policy grounds as it held that the enforcement of the relevant foreign arbitral award would lead to the bankruptcy of Krasny Yakor (a state-owned entity), and as a result, it would have a negative effect on the social and economic stability of the city of Nizhny Novgorod and, consequently, on Russia as a whole, since Krasny Yakor manufactured products of strategic value for security and national safety of the country.

ii. In another case the court held that it could not allow the recognition and enforcement of a foreign arbitral award because it was unclear whether the respondent operated using the funds of its parent company (a state-owned entity) and, since such funds belonged to the Russian state, enforcement of the award would indirectly damage national property and would be against the public policy of Russia.

Funke Adekoya

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