Recognition and enforcement of international arbitral awards in the New York

Convention – Public policy in particular

Art. V (2) (b) of the New York Convention enables the courts of a Contracting State to refuse
recognition and enforcement of an award when they find that such recognition or enforcement
would be contrary to its public policy. In this sense, public order can serve as a refuge, due to
the uncertainty and extent of this concept. Therefore, it is then necessary to clarify what may or
may not be included under the umbrella of public order.
This defense expressed in Article V (2) (b) has been the most frequently litigated. It will have
the effect of passing on the final decision on the effectiveness of the New York Convention to
the good faith of the Contracting State1.
Despite the imprecision of the concept in question, Gary Born defends that this misconception
of public policy doesn´t translate in frequent refusals of valid awards due to misinterpretation
by the courts2 3.

i) Meaning of Public Policy

The first step in trying to define the scope of the public order exception is understanding what
public policy is at its core.
National and international legislation tend to distinguish between “domestic public policy” and
“international public policy”, to elucidate that only a disagreement with international public
order, and not domestic public order, is a reason for refusing recognition or enforcement of a
foreign arbitral award. One of these examples is art.56º of the Portuguese Voluntary Arbitral
Law, which stipulates that the violation of international public policy constitutes a ground for
refusing the recognition and enforcement of a foreign arbitral award. Never referring to
domestic public order4.
The concept of domestic public policy has a French origin, coming from the 6th of the French
Civil Code of 1804, which was intended to safeguard the rules that traced private autonomy,
opposing imperative rules and supplementary rules, which culminated in the idea of an "existing
order in the society" resulting from a set of principles that governed the law, jurisprudence, and
constitutional values5.
We can then define domestic public order as a reason for restricting private autonomy. These
are norms and principles that cannot be removed by the will of the parties, acting as a limiting
mark on individual activity. Domestic public policy can be applied to hold businesses that
contradict minimum wages and businesses that evade inheritance rights.

1
Menezes Cordeiro, António in Tratado de Arbitragem, 1st Edition, Almedina, 2016, p.445.
2
B. Born, Gary in International Commercial Arbitration, 2nd edition, Kluwer Law International, April
2014, p.81.
3
With a contrary understanding, Jan Paulsson believes that the public policy exception “has been
interpreted erratically by the courts and is probably the most misused ground of all [in Article V]”,
Paulsson, Jan in The New York Convention in International Practice – Problems of Assimilation, in M.
Blessing (ed.), The New York Convention of 1958, p. 100,103.
4
“Recognition and enforcement of an arbitral award made in arbitration taking place in a foreign
country may only be refused: (…) b) If the court finds that: (…) ii) The recognition or enforcement of the
award would lead to a result clearly incompatible with the international public policy of the Portuguese
State.”
5
Menezes Cordeiro, António in Tratado de Arbitragem, 1st Editions, Almedina, 2016, pp. 444,446.
In contrast, the origin of international public policy goes back to canon law, having been later
taken advantage of by Savigny. In the opinion of this author, there was an obstacle to the
application of foreign law due to the imperative nature of certain laws or even for ethical
reasons. The international public order reserve began to be used as an instrument of Private
International Law6. It was portrayed as an exception that would hinder the application of
Foreign Law, when it resulted in an offense to laws that are strictly imperative and that
demonstrate the superior interests of the State 7. International public policy has concrete
manifestations, that is, a result of the application of foreign law or foreign awards. In this sense,
it would not be rigorous to predict whether a certain institute is contrary to international public
policy. We will have to simulate its application 8. In this sense, concreted situations justifying the
reservation of international public order would be, for example, the repudiation of the wife
(Talak) under Islamic Law, among other cases that legitimize gender inequality.
Contrasting the concept of domestic public policy with the concept of international public
policy, we find that they have different contents. Since domestic public policy translates into
imperative principles that cannot be removed by private businesses, and that international
public policy can lead to non-application of certain internal imperative principles when applying
foreign law, we conclude that international public order would be stricter. In this sense,
domestic public policy has a wider scope than international public policy:

Domestic
Public Policy

International
Public Policy

The fact that international public policy contains a more restricted content is justified by the
needs that international trades impose. When the object of a dispute is linked to other legal
orders, it makes sense that the judicial system of the seat of the arbitration is less demanding in
assuring the accordance of the award with its basic principles, than it would be facing a
domestic situation9.

ii) Meaning of Public Policy in article V(2)(b) of the New York Convention
The public policy was crucial in ensuring the participation and accession of most nations.

6
Menezes Cordeiro, António in Tratado de Arbitragem, 1st Editions, Almedina, 2016, p.446,447.
7
Lima Pinheiro, Luís in Direito Internacional Privado, Volume I, 2.ª edição, Almedina, 2009, p. 589.
8
In the words of Professor Menezes Cordeiro, "only the result is relevant: not the basis of the decision."
In Tratado de Arbitragem, 1st Editions, Almedina, 2016, p.448.
9
In this regard, Sampaio Caramelo, António, Anulação de sentença arbitral contrária à ordem pública in
Revista do Ministério Público, nº 126, p. 163.
One of its objectives is to serve as an escape route through which contracting states can avoid
disturbances with their legal systems. The ambiguity and uncertainty of the meaning of “public
policy” aligns with its function of escape route10.
Another important aspect is the fact that public policy in Article V(2)(b) can give way to
unwanted interferences, meaning that, due to its broad interpretation, contracting states can
refuse recognition and enforcement of any undesirable foreign arbitral awards 11. To try to avoid
this phenomenon, many scholars have tried to interpret and define the concept of public policy,
to narrow its scope, to decrease its unpredictability.
The text of article V(2)(b) expressly mentions to the public policy of “that country”, referring to
the enforcement State where recognition and enforcement is sought. According to Gary Born, it
is widely accepted that the “public order” which the article refers is international public policy 12.
Although this interpretation is not expressed in the article in question, it is consistent with the
Convention’s structure and purposes13.
Reinforcing this point, according to the intentionality of the legislator, underlined in the
preparatory work of the Convention, this ground for refusal of recognition must be interpreted
restrictively14. What further evidences that what is at stake here is the international public
policy. In this sense, the country's public order would encompass the constitutional and
international norms and principles that claim to apply to the case. The violation of norms and
principles relating to fundamental rights would only justify refusal of recognition if they were
universal rights of all human beings15.
This is the interpretation that most errors have caused within State Courts, which often refuse to
recognize foreign awards if they conflict with domestic public policy values of the country
where recognition is requested. However, it is admitted that the State Courts interpret
"international public policy" in the sense that it is the public policy of the recognition forum,
provided that these policies are consistent with international principles recognized in several
nations as vital constituents of public policy16.
iii) ILA’s Report on Public Policy
Due to the complications regarding this subject the International Law Association’s (ILA’s)
Committee on International Commercial Arbitration decided to conduct a study focusing on
10
Helena Hsi-Chia Chen calls this function a “safety-valve mechanism”, in Article V of the New York
Convention under Mainland China's Judicial Practice, Kluwer Law International; Kluwer Law
International 2017, p. 14.
11
Helena Hsi-Chia Chen calls this the “back door’” of public policy, in Chapter 2: The Meaning of
Public Policy', Predictability of 'Public Policy' in Article V of the New York Convention under Mainland
China's Judicial Practice, Kluwer Law International; Kluwer Law International 2017, p. 14.
12
Born, Gary B. in International Commercial Arbitration, 2nd edition Kluwer Law International; p.3655.
13
In this regard, the 2016 version of the United Nations’ Guide to the New York Convention tells us:
“Public policy is not a concept unique to the New York Convention. Rather, public policy forms part of a
wider range of tools, such as the mandatory rules of the forum that override private autonomy, that allow
a court to protect the integrity of the legal order to which it belongs. It is, therefore, impossible to sever
the concept of public policy in the sense of article V (2)(b) of the New York Convention from the concept
of public policy as is understood in international law.” In UNCITRAL Secretariat Guide on the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards retrieved from
https://newyorkconvention1958.org/pdf/guide/2016_Guide_on_the_NY_Convention.pdf.
14
Maurer, Anton in The Public policy Exception under the New York Convention, Huntington, 2012, p.
62.
15
Lima Pinheiro, Luís in Direito Internacional Privado, Volume III – Tomo II, 3.ª edição, 2019, AAFDL
Editora, p.322.
16
Born, Gary B. in International Commercial Arbitration, 2nd edition, Kluwer Law International, April
2014, p.3658.
public policy issues. They began after the Helsinki conference in 1996, and presented the initial
report in the Taiwan conference in 1998. The “interim report” was publicly presented in the
London conference in 2000. Lastly, after six years of study, the Committee presented the “final
report” in the New Delhi conference 2002.
The final report, which should be read together with the Interim Report, presents several
recommendations, and a brief commentary on each of these recommendations, for the
application of public policy by State Courts. This final report includes five chapters, addressing
general recommendations, fundamental principles, public policy rules, international obligations,
and conclusions. It should be noted that, as Professor Lima Pinheiro states, the
recommendations do not represent more than an opinion of a private association17.
In the first instance, Pierre Mayer and Audley Sheppard, authors of these recommendations,
established recommendations of a general nature, reinforcing the exceptional nature of the
refusal to recognize and enforce international arbitration awards, a refusal that should only
happen when there is a conflict with public policy 18. Generally, this set back should be clear and
evident, but the committee recognizes that there are certain cases in which a certain level of
scrutiny is justified, so it chooses not to use the term "manifest" to designate these offenses to
public policy19.
Regarding public policy, it was understood that this designation can be seen through three
categories, with different scopes: domestic public policy, international public policy and
transnational or truly international public policy 20:

Domestic Public
Policy

International
Public Policy

Transnational
Public
Policy

Concerning these categories, the ILA’s Final Report promotes the already established
International Public Policy to be employed by the courts when deciding to refuse the
enforcement of international arbitral awards on the grounds of public policy. When it comes to
17
Lima Pinheiro, Luís in Direito Internacional Privado, Volume III – Tomo II, 3.ª edição, AAFDL
Editora, 2019, p.322.
18
Recommendation 1 (a) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p.251: «… enforcement should be refused only in
exceptional circumstances». «Such exceptional circumstances may in particular be found to exist
if recognition or enforcement of the international arbitral award would be against international public
policy».
19
Recommendation 1 (b) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p. 253.
20
Recommendation 2 (b) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p. 259.
International Public Policy, it was associated with the public policy reserve related to private
international law, perceived as “that part of the public policy of a State which, if violated, would
prevent a party from invoking a foreign law or foreign judgment or foreign award” 21.
Transnational or truly international public policy, defined as public policy common to several
countries, includes fundamental rules of natural law, principles of universal justice, justice
cogens in public international law and the general principles of morality broadly accepted by
“civilized nations”.
The three categories of international public policy (fundamental principles, public policy rules
and international obligations) deserved separate treatment in own chapters.
When it comes to Fundamental Principles, this chapter concerns the basic principles of justice
or morality that the country in question conceives protection. This category is divided in
substantive fundamental principles and procedural fundamental principles.
The report offers as an example of substantive fundamental principles the principle of good
faith and the prohibition of abuse of rights. Other principles highlighted, as being the most cited
by the courts, are the principle pacta sunt servanda, prohibition against uncompensated
expropriation, prohibition against discrimination and the prohibition of activities that are
contra bonos mores 22 23.
In relation to procedural fundamental principles, the report pointed out the requirement of
arbitral tribunal’s impartiality, fraud or corruption in the award making process, the violation
of rules of natural justice and the inequality of the parties in the appointments of the arbitrators.
Also of note was the enforcement of an award that goes against a previously established court
judgment or arbitral award with res judicata effect in the enforcement State. As it is stated in
the report, procedural rules of public order can override the requirements of due process,
prescribed in Article V1 (b) of the New York Convention24.
Chapter three of the report focuses on Public Policy Rules25, meaning rules whose purpose is to
preserve the country's social, political, and economic interests. An award that is not consistent
with mandatory rules does not amount to a refusal of recognition and enforcement, this will
only happen if mandatory rules which are considered to be public policy rules are violated 26.
Examples of public policy rules cited are anti-trust law; currency controls; price fixing rules;
environmental protection laws; measure of embargo; blockade or boycott; tax laws; and laws
protecting parties presumed to have inferior negotiating position, as are consumer protection
laws27.Lastly, the chapter on International Obligations deals with the country’s own obligations
to other countries or international organizations, such as the United Nations Security Council’s
resolutions that impose sanctions, which are directly binding to member states according to
Article 25 of Chapter V of the United Nations Charter.

21
Recommendation 1 (b) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p.251.
22
Recommendation 1 (e) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p.256.
23
Meaning against good morals.
24
Recommendation 1 (e) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p.256.
25
Also called lois de police. And, among us, called normas de aplicação imediata ou necessária.
26
Recommendation 3 (a) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p.261.
27
Recommendation 1 (e) in Mayer & Sheppard, Final ILA Report on Public Policy as A Bar to
Enforcement of International Arbitral Awards, 2003, p.256.
It may sometimes be the case that certain international public policies fall into more than one
category. This is the case of bribery and corruption, the refusal of which will be a matter of
contra bonos mores, but may also be seen as public policy rules by legislative treatment.
It may seem that the position taken in Recommendation 1 (d) 28 is contrary to the position
emerging from the preparatory work for the Convention: As noted above, the intention of the
international legislator has been a restrictive interpretation of this ground for refusal of
recognition and enforcement. From the restrictive interpretation of this ground of refusal, it
follows that it cannot be invoked upon based on a breach of a public policy rule, contradicting
the position taken by the ILA.
However, the recommendations denote that a court should only refuse to recognize and enforce
an arbitration decision contrary to a "rule of public policy" when the recognition clearly
jeopardizes essential social, political, or economic interests.

iv) Case Law: Parsons & Whittemore Overseas Co. v. Socigti Generale de
Elndustrie du Papier (RAKTA)
In relation to public policy and the enforcement of arbitral awards, the decision in Parsons &
Whittemore Overseas Co. v. Socigti Generale de Elndustrie du Papier (RAKTA) is crucial.
The arbitral award in question ruled on a delay in completing a construction project under a
contract between Parsons & Whittemore, an American corporation, and RAKTA, an Egyptian
corporation. This delay was due to the Arab-Israeli Six Day War and the deterioration of US-
Egypt relations, which led Parsons & Whittemore to withdraw its work team from Egypt. In this
regard, Parsons & Whittemore invoked the "force majeure" clause in the contract with RAKTA
as an excuse for its delay. Disagreeing with this position, RAKTA proceeded with an arbitration
process, eventually obtaining a sentence that confirmed its right to compensation due to breach
of contract.

Prasons & Whittemore then filed a declaratory action in order to block the execution of the
arbitration award, invoking a public policy argument, claiming that American citizens in Egypt
had an obligation to abandon the construction when US-Egypt relations were severed.

However, the Court did not subscribe to this understanding, rather considering that “to read the
public policy defense as a parochial device protective of national political interests would
seriously undermine the Convention's utility 29''. The Court found no definitive guidelines in the
New York Convention's draft legislation nor any commentators' arguments to support this line
of defense of Prasons & Whittemore. The Court based its decision on its conclusions from the
full text of the New York Convention and not just on a given article, finally recognizing a
"narrow reading of the public policy defense 30".

The Tribunal ended up recognizing that if they agreed with the non-recognition of the arbitral
award, they would be making a defense of a reduced scope, in a great gap in the Convention's

28
«The international public policy of any State includes: (i) fundamental principles, pertaining to justice
or morality, that the State wishes to protect even when it is not directly concerned; (ii) rules designed to
serve the essential political, social or economic interests of the State, these being known as 'lois de police
' or 'public policy rules'; and (ill) the duty of the State to respect its obligations towards other States or
international organisations.»
29
Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA), 508 f.2nd
at 974.
30
Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA), 508 f.2nd
at 973.
enforcement mechanism. It was then understood that the purpose of the convention would not
be to protect national interests, but rather supernational interests.

v) Case Law: S.L.P v BB, Supremo Tribunal de Justiça

On March of 2017, the Portuguese Supreme Court ruled on the recognition of a Spanish award,
concerning an arbitration agreement between a Portuguese lawyer and the Portuguese law firm
where he worked and the Spanish law firm where he was also a partner.
BB, a Portuguese lawyer, was a partner in a Portuguese law firm and head of the banking and
insure section, AA & Associates R.L since 1998. In 2003, AA & Associates R.L signed a
cooperation agreement with AA, S.L.P, a Spanish law firm, where BB also became a partner in
2004. However, BB never stopped working for the Portuguese law firm.
In March of 2009, the Spanish law firm introduced several amendments to the firm’s by-laws
with the intention of intensifying the integration of the two law firms, and announced an
Agreement of Professional Integration of Partners’ Relations (The integration agreement),
which contained several non-competition clauses and penalty clauses sanctioning breaches of
the non-competition obligations. This agreement counted with the signature of all partners,
including BB. Among the clauses of the integration agreement was a arbitration clause that
stipulated that all disputes would be settled by a sole arbitrator to be nominated by the President
of the General Council of the Spanish Bar, and would be governed by Spanish law.
When BB resigned the Portuguese law firm to work for another Portuguese law firm, his
previous firms initiated arbitration proceedings against BB, claiming damages based on the
penalty clause for 4,901,352.60 € for breach of contract. BB challenged the arbitration clause,
and refuse to participate in the Spanish arbitration. In 2012 the General Council of the
Portuguese Bar stated that the arbitration agreement had no effect in Portugal since it had not
been registered with the Bar. Nonetheless, the sole arbitrator ruled in favor of the claimants and
issued an award rendering BB to pay 4,516,536.78 €. In 2013 the law firms sought recognition
of the award in Portugal, where the application was denied. One of the arguments for the refusal
to recognize the award was the contrary with the fundamental principle of the Portuguese
international public order aimed at correcting excesses or abuses arising from the exercise of
contractual freedom in terms of determining the consequences of non-compliance with
obligations. The law firms appealed to the Supreme Court, arguing that the Court of Appeal
went beyond what is commonly accepted as international public order, invoking the restrict
scope and interpretation of public order additionally stating there is no such principle of national
public policy in Portugal that imposes on the court a reduction of a conventionally manifestly
excessive penalty.
First, the Supreme Court made clear that, seeing how the concept of international public policy
as so unclear, it was up to the Courts to define it at the moment of its application. When it came
up to the case itself, the Court considered that a recognition of the Spanish award would
implicate a violation with the international public policy of Portugal, seeing how the result was
of the award would represent an enormous burden for BB. They considered it unacceptable that
BB, with an annual income of 180,000 €, had to pay over 4.5 million €. It would take BB up to
25 years to pay this amount, something that the Court considered a violation of the principle of
proportionality and the prohibition of excess under Portuguese law.
 vi) Conclusion
Comparing these two decisions, it is inevitable to conclude that we are facing two different
approaches to the same problem:
On the one hand, in the case Parsons & Whittemore Overseas Co. v. Socigti Generale de
Elndustrie du Papier, the decision of the United States Court is based on the principle that,
although the Court does not decree the execution of an award contrary to the public policy of
the United States, this does not mean that public policy must be evaluated with the United
States’ national public interest or national political interests.
It may be understood that this is a too narrow construction of the public policy exception, but it
should be noted that the intention of the legislator was to limit the application of this exception,
applying it only in cases “in which the recognition or enforcement of foreign arbitral award
would be distinctly contrary to the basic principles of the legal system of the country where the
award as invoked31”. A contrary interpretation, i.e., too broad, would undermine the strength
and effectiveness of this provision.
On the other hand, in the case S.L.P v BB, it is noted that the Portuguese Supreme Court of
Justice enshrined a broader interpretation of the article in question, claiming that there is no
definition of international public order, as it is a vague and fluid concept. However, it cannot be
said that the case examined by the Court involved a violation of the fundamental concepts of
morality and justice, much less a manifest violation of such concepts.
Although there are already some verdicts from the Supreme Court of Justice which have
explored the question of international public policy in the recognition and enforcement of
foreign arbitral awards and whose decision was commendable 32, the same cannot be said of this
decision, seeing how the concept of international public policy has not been correctly
interpreted, as it is not understood to be a limited and restricted concept that should only be used
in very exceptional circumstances.

31
U.N ESCOR, Report of the Committee on the Enforcement of International Arbitration Awards § 49,
U.N. Doc. E/2704 and Corr. I, E/AC.42/4/rev.1 (1995).
32
E.g AA, SA. v. Soc. BB, S.A of 23.10.2014.