World Arbitration Update 2024
THE AUTHOR:
Fernando Ayala, Georgetown University Law Center Graduate, Attorney at Law (Argentina)
THE EDITOR:
Munia El Harti Alonso, Independent Practitioner, Universidad Complutense de Madrid
The Fourth Edition of the World Arbitration Update (WAU) took place from May 15 and 16, 2024 for WAU India, Middle East & Africa, and Central and Eastern Europe whilst the Americas panels were held May 20 through 23, 2024. This post highlights the panel of May 20, 2024, titled ‘International Commercial Arbitration- The Limits of The Public Policy Ground for Setting Aside Or Non-Enforcement Of Arbitration Awards By National Courts’.
Stavros Michalopoulos (DLA Piper Middle East) introduced the panel by reaffirming that Public Policy is one of the most popular and discussed subjects in international arbitration, being one of the most commonly invoked grounds for setting aside an award or refuse its enforcement under the New York Convention art. V (2)(b) and national legislation (e.g. Clorox v. Venezuela, Decision of the Swiss Federal Tribunal 4A_486/2023, 26 April 2024).
Focusing on the different trends of the topic at hand (i.e. extensive or restrictive approach), Mr. Michalopoulos was joined by panelists Stella Leptourgou (Counsel at the International Court of Arbitration of the International Chamber of Commerce (ICC)), Ilias Bantekas (Professor at Hamad Bin Khalifa University and Adjunct Professor at Georgetown University), Konstantin Christie (Peter & Kim Attorneys at Law) and Reza Eftekhar (Senior Legal Advisor at Iran-United States Claims Tribunal).
The Evolution and Sophistication of Legal Systems Leading to Fewer Public Policy Issues
Mr. Ilias Bantekas provided a historical review of the concept of Public Policy. In the 1900s, there were numerous cases in national courts involving Public Policy concerns. However, from 2000 onwards, fewer cases have addressed this matter. He attributed this trend to the sophistication of the legal system, counsels, and judges, in addition to the definition of Public Policy becoming clearer (i.e. what represents a risk for Public Policy).
Additionally, he addressed Public Policy within the meaning of Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). From his point of view, enforcing States cannot “escape” from their obligations under public international law by using Article V because of three main reasons:
- Public Policy rules are required to be transparent as a principle of general international law;
- the laws are required to be proportionate;
- judgments of national courts are acts of the State (referring to the ICJ case Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening) and as such, pertain to State responsibility (forbidding States from invoking national law to evade public international law obligations).
Specificities of Public Policy in the Middle East, Switzerland, and Russia of a Favorable Environment
Middle East
According to Dr.Reza Eftekhar, out of 15 Middle Eastern Muslim countries, 14 have now joined the New York Convention (Iraq being the latest in 2021), and 9 have adopted the UNCITRAL Model Law on International Commercial Arbitration (Qatar being the latest in 2017). As such, key instruments of international commercial arbitration have garnered significant appreciation in the Middle East. The approach taken by national courts in the region towards setting-aside and enforcement proceedings under the New York Convention reveals the overall pro-arbitration approach of these municipal adjudicatory bodies. More specifically, various Middle Eastern jurisdictions demonstrate that the ground of Public Policy has been interpreted narrowly in post-arbitral award proceedings in the last decade. For instance:
- In a 2016 Judgment issued by a Court in Tehran, the Judge made a distinction between domestic and international Public Policy for the purpose of the application of the New York Convention and referred to various international guides on the New York Convention in order to interpret the notion of Public Policy. The Court also urged Judiciary officials to translate the Judgment and send it to ICCA in order to promote global harmonisation in the application of the Convention.
- In December 2020, a court in Cairo upheld an ICC award requiring an Egyptian State authority to pay about US$500 million to a Kuwaiti-led consortium. The court dismissed arguments that the award against the Egyptian State entity contravened Public Policy.
- In 2023, departing from previous jurisprudence, the Abu Dhabi Court of Cassation dismissed the argument that the absence of a signature on all pages of an award was a violation of procedural Public Policy.
- According to the Saudi Justice Minister in 2024, out of the 88 annulment applications received in 2022, only five resulted in annulment in part or in full, with none of those annulment decisions being based on violations of Sharia law or Public Policy.
In Dr. Eftekhar’s opinion, there are 4 reasons for this more expansive approach regarding the interpretation of the ground of Public Policy in post-award proceedings in most Middle Eastern jurisdictions:
- The historical judicial understanding of the notion of Public Policy in the domestic law settings: the notion had ample time to make a history of its own before countries became members of the New York Convention or adopted the UNCITRAL Model Law. Hence when they are adopted or ratified, there is already a deep-seated jurisprudence and understanding of Public Policy applicable in domestic settings, which, so far, has had a more substantial impact on judges than any non-binding international harmonisation endeavour. Consequently, a common theme observed in post-award proceedings has been to set aside or refuse the enforcement of arbitral awards on Public Policy grounds where,
- there is a failure by the arbitral tribunal to abide by procedural formalities
- there is a lack of territorial or subject-matter jurisdiction of the national court with regard to the parties.
- The socio-political context of Public Policy: the public sector being larger in the Middle East compared to other regions creates a larger domain for Public Policy. For instance, in the last decade, many awards have been annulled or denied enforcement on the grounds of Public Policy because domestically applicable conditions for referring disputes involving state entities to arbitration were not observed.
- The role of Shariah law: Sharia is a crucial factor in legislation in the region. It affects arbitral matters and is thus pertinent to Public Policy in post-award proceedings. In various arbitration regimes in the region, Shariah law has been mentioned alongside Public Policy. One of the application of the notion of Shariah in post-award proceedings entails that awards attributing compound interest or even simple interest have been partially annulled or their enforcement partially refused on its basis due to the fact that the concept of interest is prohibited in Shariah law.
- The past experiences of international arbitration disputes: Awards rendered between the 1950s and 1980s against various countries in the Middle East sometimes contain unfortunate bitter languages (e.g., Petroleum Development Ltd v. The Sheikh of Abu Dhabi & Ruler of Qatar v. International Maritime Oil Company). It historically contributed to a more conservative and sometimes cynical view towards international arbitration and, as a result, broader use of Public Policy as a last resort against the perceived vagaries of international arbitration, especially in cases involving state entities.
Limits of Public Policy – Updates from the Swiss and Russian Perspective
Switzerland
Providing a general overview of the Swiss Private International Law Act (SPILA), Mr. Konstantin Christie detailed the interaction between Article V of the New York Convention and SPILA as well as the general pro-arbitration position in terms of review and setting aside awards.
He further developed the specificities of Article 176(2) which gives the option to opt out of Chapter 12 of SPILA and subsequently agree to the application of Part 3 of the Swiss Civil Code of Procedure which focuses on arbitration.
In order to illustrate the definition and use of Public Policy in Switzerland, he went over previous cases dealing with Public Policy allegations. For instance:
- The Federal Supreme Tribunal recognized that Public Policy has both a substantive and procedural component (SFT 144 III 120, cons. 5.1):
- On substantive Public Policy, the Tribunal came to the conclusion that it is a violation of Public Policy if an arbitral award obliges a party to pay bribes (i.e. corruption), contrary to the burden of proof (not considered a Public Policy issue) or Force Majeure (the question is, as of now, left open).
- On procedural Public Policy, the Tribunal came to the conclusion that it is a violation of Public Policy if an arbitral tribunal makes its decision without taking into consideration the res judicata effect of an earlier decision.
- The Federal Supreme Tribunal decided to set aside an arbitration award because it violated Public Policy not only in its reasoning, but also in its results (SFT 138 III 322, cons. 4.1).
Russia
Focusing on Russia’s take on Public Policy, Mr. Christie went over the recent PESA vs. UralTransMash, Decision of the Russian Supreme Court, 9 December 2021 which involved the Russian Anti-suit injunction regulation (Article 248.1-2 of the Russian Commercial Procedural Code) as a ground for a Public Policy challenge. This case is a new development, as there is no longer a need for Russian entities seeking an Anti-suit injunction to prove that they have been sanctioned. It is enough to broadly suggest that they have experienced some sort of restrictive measure (i.e. that they have merely been impacted by Visa or Master Card’s withdrawal from the country and cannot make payments). The difficulty at hand arises from the recognition and enforcement of awards issued despite an anti-suit injunction, as they will likely be denied on Public Policy grounds. It is a concern since Russian state-owned entities and other parties have been relatively successful in using this provision in order to seek the injunction (the most recent example being the ruling of the Commercial Court of the City of Moscow, Case. No. A40-116183/2023, dated September 14, 2023).
The 2021 ICC Rules’ Handling of Public Policy Issues
Mrs. Stella Leptourgou, explained that one of the objectives of the ICC International Court of Arbitration (ICC Court) is to guarantee that the entirety of the awards rendered are valid and enforceable (Article 42 of the ICC Rules). In that regard, the ICC has published rules and practices in order to protect the integrity of the arbitral process in accordance with Public Policy.
Mrs. Leptourgou further touched upon the practices that the ICC has put into place to guarantee due process and equal treatment of the parties during the constitution of the arbitral tribunal or when the award is rendered (when the ICC is the most active). For instance, the scrutiny process of draft awards by the Court (composed of arbitration practitioners) also prevents Public Policy violations or the possibility to appoint arbitrators in lieu of the parties in case of a failure to come to an agreement in order for the parties to be treated equally.
To illustrate the above, she presented a case involving a corporate dispute between the minority shareholders (Claimant), the liquidator of the company (Respondent 1) and the controlling shareholder of the company (Respondent 2). The Respondents failed to come to an agreement to jointly appoint an arbitrator because their interests in the arbitration diverged. While the ICC Court could have confirmed the appointment of Claimant’s arbitrator and appoint the arbitrator in lieu of Respondents, it took into account the teaching of the Dutco v. BKMI and Siemens, Judgment of the French Court of Cassation (First Civil Chamber) 89-18.708, 89-18.726, 7 January 1992 (where the French Cour de cassation set aside the award based on the unequal treatment of Respondent in the constitution of the tribunal that constituted a breach of Public Policy). As a result, the ICC Court appointed all three members of the arbitral tribunal. By doing so, the ICC Court guaranteed equal treatment amongst the parties and avoided the possibility of a breach of Public Policy.
Conclusion
The panelists extensively discussed historical and contemporary interpretations of Public Policy focusing on its application in different jurisdictions and the different measures many countries and arbitral institutions have adopted to ensure that arbitration awards remain enforceable. Even if, as highlighted by the speakers, fewer cases have been recorded over the past few decades, it is undeniable that a subject as important as Public Policy will remain at the forefront of international arbitration discussions.
ABOUT THE AUTHOR
Fernando Ayala is an Argentine lawyer who graduated from the University of Buenos Aires. He was an assistant professor of Private International Law and coach of international commercial arbitration and sports arbitration moots. He holds an LL.M. from Georgetown University with an International Arbitration & Dispute Resolution Certificate. He usually participates and manages commercial arbitrations administered by the ICC, HKIAC, SIAC, and CIETAC. He also acts as an assistant to Arbitral Tribunal in commercial and investment cases.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
