NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

(IX SEMESTER 2023-24)

ROLE OF PUBLIC POLICY IN INTERNATIONAL

COMMERCIAL ARBITRATION

SUBMITTED BY- SOUMYA VERMA

SUBMITTED TO – ASSO.PROF. MANISH YADAV

ROLL NO. – 2019BALLB35

ENROLMENT NO. - A-2077

 TABLE OF CONTENTS

INTRODUCTION 3
STATEMENT OF PROBLEM, HYPOTHESIS, RESEARCH 4-5
QUESTIONS, OBJECTIVES, LITERATURE REVIEW
CONVENTIONS AND TREATIES 5
WHAT IS PUBLIC POLICY

5-8

WHAT IS DOMESTIC AND INT’L PUBLIC POLICY

8-10
INVESTMENT AND GROWTH 11
CONCLUSION AND SUGGESTIONS 12-13
BIBLIOGRAPHY 14
 INTRODUCTION
International Commercial Arbitration is a way by which disagreements arising out of
international business contracts can be settled. When disputing a business transaction on a global
scale, you may want to resolve the matter through international commercial arbitration instead of
going to court. Most contracts include a language stating that the parties agree to submit any
disputes arising out of the contract to binding arbitration rather than to court. The parties to a
contract can choose the applicable law and forum at the time of the contract's creation.

Arbitration, in its simplest form, refers to a process in which a disagreement is settled in secret,
through the parties' agreement or with the help of a neutral third party. During the time of Greek
civilization and Roman law (the sixth century), the arbitral process was the norm. Although
historically corporations have not taken a particularly positive view of arbitration, this view has
changed in recent years. The courts are just too full to hear any more cases at this time. There are
more than 90 crore pending lawsuits in Indian courts, according to official data. It is not worth
the time and money to settle legal problems in court because it can take years before any
resolution is reached. Lawmakers and judges have established numerous tribunals and forums to
address the issue, but little has changed. All courts and arbitration boards are now so backed up
that they cannot process cases in a timely manner1.

The court develops a novel approach to conflict resolution to address this issue. Alternative
Dispute Resolution (ADR) is a fitting moniker for this approach. Conciliation, arbitration,
mediation, negotiation, and so on are all examples of alternative dispute resolution. Arbitration
takes the lead in this process. For these reasons, as well as the fact that arbitration avoids the
hyper legalism and complexity of judicial processes and subsequent appeals, it is more expedient
and less expensive than judicial resolution of the dispute. Internationally, parties can rest easy
entering the judicial system of the other party's native country thanks to arbitration, which
guarantees a neutral settlement of the dispute2.

1
M.S. Rawat, International Commercial Arbitration and Transnational Public Policy, Journal of ILI, Jan-Mar 2007,
at 60, 60-61.
2
Francis J. Higgins et al. Pitfalls in International Commercial Arbitration, The Business Lawyer, April 1980, at
1035,1036.
Arbitration is a private, contractually enforceable alternative to litigation. There are three phases
to the arbitration process: (1) the period before the dispute arises, (2) the arbitration hearing
itself, and (3) the issuance of the arbitral verdict. Both "ad hoc" and "institutional" forms of
arbitration exist. The arbitration process is set down in the contract. Ad hoc arbitration occurs
when the parties to a contract establish their own procedures for resolving disputes through the
use of an impartial third party. The parties in an ad hoc arbitration decide on the number of
forums, the number of arbitrators, the rules and process to be followed, and any other matters
pertaining to the administration of the arbitration. Institutional arbitration occurs when the parties
to a contract designate an existing organisation to oversee the resolution of a dispute. The
International Chamber of Commerce in Paris is the preeminent international organisation or
institution offering services for arbitration between parties of various nationalities. The Chamber
of Commerce in Zurich, Stockholm, etc., are only a few examples of similar institutions.

In order to help states update and modify their arbitral laws to meet the demands of international
commercial arbitration, the rules of international commercial arbitration are based on the
UNCITRAL Model Law. This model controls the whole arbitration procedure, including judicial
involvement, the arbitral tribunal's composition and jurisdiction, the arbitration agreement, and
the execution of the arbitral verdict. Important international arbitration practises that are
followed in the various legal or commercial systems around the world are also reflected in this
framework.

STATEMENT OF PROBLEM
Assessing the impact of public policy factors on the outcomes of international commercial
arbitration is the issue at hand.

HYPOTHESIS
This paper posits that the comprehensive implementation of public policy principles can either
facilitate or impede the execution of arbitral rulings, hence influencing the legitimacy and
efficacy of international commercial arbitration.

RESEARCH QUESTIONS
1. How do various jurisdictions apply public policy issues to international commercial
arbitration, and how does this affect arbitral award enforceability?
2. How do international arbitral institutions and conventions guide the incorporation of public
policy issues in arbitration proceedings, and how do they affect the process?
3. How do public policy issues in international commercial arbitration affect party autonomy
and arbitral award efficacy in the global business landscape?

OBJECTIVES OF STUDY
1. To examine certain states' jurisprudential and legislative frameworks to determine how
public policy is applied in international commercial arbitration.
2. To assess how international arbitral institutions and conventions shape public policy issues in
arbitration.
3. To examine case studies and real-world scenarios to determine how public policy in
international commercial arbitration affects arbitral awards, enforcement, and the global
business environment's use of arbitration.

LITERATURE REVIEW
BOOKS
1. “International Arbitration Law and Practice - Third Edition” by Gary B. Born.

When it comes to international commercial arbitration, no other resource compares to "The Law
and Practise of International Commercial Arbitration" by Alan Redfern and Martin Hunter. The
book explains the basics of arbitration in a way that's easy to understand, and it also delves into
the difficulties that real-world arbitrators encounter. It is still widely used as a reference by both
beginners and seasoned experts in the subject of international commercial arbitration due to its
comprehensive coverage and insightful analysis.

2. “The Law and Practice of International Commercial Arbitration” by Alan Redfern and
Martin Hunter.

When it comes to international commercial arbitration, no other resource compares to "The Law
and Practise of International Commercial Arbitration" by Alan Redfern and Martin Hunter. The
book explains the basics of arbitration in a way that's easy to understand, and it also delves into
 the difficulties that real-world arbitrators encounter. It is still widely used as a reference by both
beginners and seasoned experts in the subject of international commercial arbitration due to its
comprehensive coverage and insightful analysis.

PAPERS

1. Garcia de Enterria, J. (1989). The role of public policy in international commercial

arbitration. Law & Pol'y Int'l Bus., 21, 389.

Those interested in this intricate facet of international dispute resolution would do well to consult
Garcia de Enterria's article "The role of public policy in international commercial arbitration,"
which provides helpful insights into the significance and nuances of public policy considerations
in arbitration.

2. M.S. Rawat, International Commercial Arbitration and Transnational Public Policy,

Journal of ILI, Jan-Mar 2007, at 60, 60-61.

M.S. Rawat's article, "International Commercial Arbitration and Transnational Public Policy," is
a concise yet illuminating look at the relationship between arbitration and global public policy
issues that can be of use to academics and professionals in the field. Those interested in this
specialised field of international dispute resolution would benefit from reading his succinct
perspective.

______________________________________________________________________________

CONVENTIONS AND TREATIES

An award is easier to enforce in jurisdictions that adhere to international conventions and treaties
than in jurisdictions that follow transnational laws, which sometimes use public policy as a basis
for setting aside an award. Wide discrepancies and complexity in the laws and processes for the
execution of the award between nations are adverse to the development of international
commercial arbitration.

In an effort to find a solution to this issue and improve international trade as a result, numerous
attempts have been made in a variety of settings to achieve unification and clarity in the
enforcement of the award3. Multilateral conventions and treaties as well as regional arrangements
have periodically displayed encouraging signs towards their goals of removing all contentious
issues.[7] The following are examples of significant norms:

The award produced in the territory of the state others than the state where recognition and
enforcement of the award arising owing to the difference between the contracting parties shall be
governed by the New York Convention on the Recognition and Enforcement of the Foreign
Arbitral Award (1958).

This 1961 European Convention governs the recognition and enforcement of domestic
arbitration awards rendered between European Union members. With respect to the New York
Convention's grounds for setting aside an award, the European Convention represents an
improvement.

Articles 31–37 of the United Nations Commission on International Trade Law (UNCITRAL)
Arbitration Rules, 1976, govern the enforcement of arbitral awards. The Arbitration Rules of the
International Chamber of Commerce (article 19 rules) adhere to this majority rule since it is
favoured over an award by the arbitrator alone if no majority could be obtained. A separate
system of jurisdiction can be recognised and given effect by UNCITRAL regulations.

Convention of the International Bar Association on the Recognition and Enforcement of Foreign
Arbitral Awards (1996); Moscow Convention of 1972; Montevideo Treaty of 1889; ESCAP
Arbitration Rules of 1996; Arbitration Rules of Un/EC of 1996; The UNCITRAL Model Law on
International Commercial Arbitration of 1985; etc.

Justifications for Contesting Arbitration Decisions

The grounds for challenging an arbitral judgement vary from country to country. It is appropriate
to file such motions in the nations where the award was issued, provided that doing so does not
violate local law. Neither the New York Convention nor the UNCITRAL Model Law (1985)

3
Sameer Sattar, Enforcement of Arbitral Awards and Public Policy: Same Concept, Different
Approach? , https://www.ela.law/Templates/media/files/Misc%20Documents/Enforcement-of-Arbitral-Awards-
Public-Policy.pdf.
permit a challenge to an arbitral award to be heard. The arbitration must be given time to explore
the reason, why an award is annulled, before determining the location of the arbitration rather
than another. Following the conclusion of the investigation, the award is treated with the same
degree of finality as a court order4.

Incompetence of a party, non-applicability of the subject matter under the law of arbitration,
invalidity of the agreement, defects in the makeup of the arbitral panel, and incompatibility with
public policy are all reasons for setting aside an award.

WHAT IS PUBLIC POLICY IN THIS?

An arbitration award can be challenged by either party on the basis that it violates public policy.
Article V (2)(b) of the Convention provides the contracting states with a "safety valve" that
allows them to prohibit the enforcement of an award that is contrary to their legal system. In the
context of international arbitration, public policy remains a hotly contested, controversial, and
difficult issue due to the varying approaches used by national courts. Public policy exists for the
advantage of the parties, but national courts' perspective prevents them from doing so. This
mentality predominates in India, where judicial obstruction has stymied the spread of
internationally recognised public policy.

Almost every country, though some more than others, has recognised the undeniable role of
national courts in international arbitration. This is because arbitration is usually governed in
accordance with national legislation and works well with national courts. The national court
plays a larger part in the arbitration process after the award has been delivered. When an arbitral
award is ready to be enforced, it must meet certain statutory requirements. Article V of the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (commonly
known as the New York Convention) outlines the grounds on which a national court may refuse
to enforce an arbitral judgement. When it comes to interpreting the public policy defence, the
New York Convention offers little direction to national courts. So, the public policy clause is
interpreted by national courts according to their own view. Due to a lack of agreement on what

4
Ibid.
exactly constitutes international public policy, the International Law Association (ILA) has been
unable to create a widely agreed notion of International Public Policy to address this issue.

Although the term "public policy" has a different meaning in each jurisdiction, it is generally
agreed that an award may be nullified if it violates the basic principles of justice, honesty, and
fairness. That's why shady dealings are grounds for nullifying an award5.

The setting of the award on the basis of corruption would be deemed a proper ground in most
current law jurisdictions. This is also made very apparent by the Federal Arbitration Act (FAA)
of the United States. Award cannot be enforced under FAA if it is determined that the arbitrator
who rendered the award is corrupt, that the award was obtained through fraud, corruption, or
undue influences, or that the arbitrator engaged in misconduct. If there was a severe irregularity
in the tribunal, the proceeding, or the award, it could be nullified under the English Arbitration
Act.

WHAT ARE DOMESTIC AND INTERNATIONAL PUBLIC POLICY

Specific consequences of domestic and international public policy are at play in the context of
international commercial arbitration:
International Commercial Arbitration and Domestic Public Policy:
The principles of law and public policy in the country where the arbitration is being held ("seat")
are considered to be domestic public policy for the purposes of arbitration. These guidelines are
used to make sure that the arbitration process is consistent with the norms and legislation of the
nation hosting the proceedings.
If the dispute has any link to the host country, domestic public policy considerations could
include, for example, the arbitration agreement's validity, the fairness of the arbitration
processes, and the enforcement of local laws.
In International Commercial Arbitration, Public Policy at the Global Level:

5
Serap Zuvin & Mehmet Ali Akgun, Turkey: Public Policy Defence and Arbitration in International Commercial
Law, MONDAQ (Dec,16,2005,11:00 04
AM), http://www.mondaq.com/turkey/x/452312/Contract+Law/Public+Policy+Defence+And+Arbitration+In+Inter
national+Commercial+Law .
Scope: In the context of international commercial arbitration, "international public policy" refers
to concepts and practises that are generally recognised and respected across state boundaries. The
international community's shared values and interests are meant to be protected by these
guidelines6.
Examples: The enforcement of arbitral awards and the recognition of arbitration agreements are
typically issues encompassed by international public policy considerations, with a focus on
ensuring that neither awards nor agreements violate fundamental norms of justice, public order,
or morality on a global scale. An arbitral ruling that advocates for corruption or human rights
abuses, for instance, may run afoul of international public policy and hence be difficult to
implement.
The interplay between national and international public policy is essential in international
commercial arbitration. If an arbitral judgement goes against domestic public policy where the
case was heard, or international public policy, the award may be nullified or execution may be
refused. It is crucial to strike a balance between these factors in order to preserve the legitimacy
and efficacy of the international arbitration process in accordance with the principles and norms
of the host country and the international community at large.

INVESTMENT AND GROWTH

There are many ways in which the public policy provision of international commercial
arbitration influences investment and economic growth.
International enterprises and investors can be assured that their interests will be protected under
the law when a public policy provision is clear and well-defined. Foreign direct investment (FDI)
and GDP growth are both boosted when investors know their contracts will be upheld and
disputes will be settled fairly through arbitration.
The efficiency of international arbitration is enhanced when there is a well-defined public policy
provision to guide the proceedings. Businesses are better able to focus on their core
competencies when disputes are settled quickly and fairly, freeing up time and money that would
otherwise be spent on protracted legal fights. More overseas investors may be enticed to set up
shop in a country with such brisk dispute resolution procedures.

6
UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in
2006, UNCITRAL, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html.
Arbitral awards are not always enforceable because of public policy concerns. Awards rendered
by arbitrators are more likely to be recognised and enforced if they are consistent with the public
policy of the jurisdiction in which enforcement is sought. This fosters economic growth because
it increases the likelihood that disputing parties will follow through on verdicts made in
international arbitration.
The health, safety, and environmental interests of a nation can be protected by laws and
regulations. This can boost a country's image and bring in investments that are ethical and
compliant with international norms, both of which are beneficial to long-term economic
development.

Strong public policy provisions in international commercial arbitration help spread the rule of
law in cross-border deals. Foreign investors looking for secure and fair business environments
may be enticed by a country with a robust arbitration system.
Public policy concerns have the potential to deter illegal operations and practises in international
trade. An award may be unenforceable if, for instance, it encourages or condones corruption,
money laundering, or the violation of human rights in violation of international norms and
standards. The result is a more sustainable and healthy economy as businesses are encouraged to
operate within the law7.
In conclusion, the enforcement of awards, legal clarity, and investor confidence can all benefit
from a well stated and moderately applied public policy clause in international commercial
arbitration. Businesses are more likely to engage in cross-border transactions and settle disputes
through arbitration when these conditions exist, which is good for investment and economic
growth because litigation may be costly, time-consuming, and uncertain.

CONCLUSION AND SUGGESTION

There are many facets and complexities to consider when deciding how public policy should
factor into international commercial arbitration. As a potential source of challenges to the
legality of arbitral rulings, it ensures that the results are not fundamentally at odds with the
values and legal principles of a specific jurisdiction. International commercial arbitration will

7
Krishna Singhania & Alok Vajpeyi, Assignment in Arbitration: Scope and Issues in India , IndiaCorpLaw
(Feb,20,2019,11:00AM),https://indiacorplaw.in/2019/02/assignment-arbitration-scope-issues-india.html
continue to rely heavily on public policy concerns for its efficacy and legitimacy, even as the
global corporate sector changes.

It has been clear throughout our investigation how important it is to strike a balance between
allowing the arbitration process to remain independent and adhering to public policy. The
interpretation and implementation of public policy in arbitration can and should be improved
with the combined efforts of arbitrators, institutions, and policymakers.
SUGGESTIONS
There is a need for clear rules and training for arbitrators and legal professionals on the nuanced
application of public policy in international commercial arbitration, and this should be a
collaborative effort between arbitral institutions and practitioners. The results will be more
reliable and consistent as a result of this.

 Transparency: Making the arbitration process public can assist alleviate public policy
concerns. In order to make an educated judgement on the arbitration processes, all parties
involved should have access to all necessary information and documents.
 Public policy arbitration standards should continue to be a focus of efforts by international
organizations and states to harmonize these rules. When dealing with international legal
problems, this might assist lessen tensions and guarantee more assured outcomes.
 Taking Into Account Changing Public Policy Issues: It is essential that arbitration evolve
along with changing public policy concerns around the world, such as those surrounding
sustainability, human rights, and technology. Arbitrators and institutions need to be prepared
to deal with these new challenges within the context of public policy.
 A better knowledge of best practises and obstacles in international commercial arbitration
can be gained by encouraging research and academic inquiry into the changing role of public
policy in the field. Scholars and researchers have a role to play in shaping the conversation
surrounding this issue.
 Governments, NGOs, and trade groups can all benefit from being included in talks about
public policy and arbitration if they are to work together to solve issues and create answers.
 BIBLIOGRAPHY
BOOKS-

1. International Arbitration Law and Practice - Third Edition” by Gary B. Born.

2. The Law and Practice of International Commercial Arbitration” by Alan Redfern and Martin
Hunter.

ONLINE RESOURCES-

1. Susan Gualtier, International Commercial Arbitration, HAUSER GLOBAL LAW SCHOOL

PROGRAMME, NEW YORK UNIVERSITY SCHOOL OF LAW, ( Nov/Dec
2014,10:00AM), www.nyulawglobal.org/globalex/International_Commercial
2. Meghas, International Commercial Arbitration, LEGAL SERVICE
INDIA http://www.legalservicesindia.com/article/2196/International-Commercial-
Arbitration.html
3. Francis J. Higgins et al. Pitfalls in International Commercial Arbitration, The Business
Lawyer, April 1980, at 1035,1036
4. Krishna Singhania & Alok Vajpeyi, Assignment in Arbitration: Scope and Issues in India ,
IndiaCorpLaw (Feb,20,2019,11:00AM),https://indiacorplaw.in/2019/02/assignment-
arbitration-scope-issues-india.html
5. UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments
as adopted in 2006, UNCITRAL, http://www.uncitral.org/uncitral/en/uncitral_texts/
arbitration/1985Model_arbitration.html
6. M.S. Rawat, International Commercial Arbitration and Transnational Public Policy, Journal
of ILI, Jan-Mar 2007, at 60, 60-61
7. Sameer Sattar, Enforcement of Arbitral Awards and Public Policy: Same Concept, Different
Approach? , https://www.ela.law/Templates/media/files/Misc%20Documents/Enforcement-
of-Arbitral-Awards-Public-Policy.pdf
8. Serap Zuvin & Mehmet Ali Akgun, Turkey: Public Policy Defence and Arbitration in
International Commercial Law, MONDAQ (Dec,16,2005,11:00 04
AM), http://www.mondaq.com/turkey/x/452312/Contract+Law/Public+Policy+Defence+An
d+Arbitration+In+International+Commercial+Law .