Comparative Law Review 21 2016 Nicolaus Copernicus University

http://dx.doi.org/10.12775/CLR.2016.003

Bartłomiej Orawiec

THE PUBLIC POLICY EXCEPTION UNDER

THE NEW YORK CONVENTION ON THE RECOGNITION
AND ENFORCEMENT OF FOREIGN ARBITRAL
AWARDS (THE UK PERSPECTIVE)

Abstract
1
One of the main purposes of the New York Convention was to serve international trade
and commerce and to make it easier to enforce an arbitral award made in one Contracting State
in other states. Nonetheless, Article V(2)(b) permits the judge not to give effect to an award if its
st
enforcement would be contrary to public policy. In the 21 century, the courts in England are more
reluctant to refuse the enforcement of foreign arbitral awards under s68(2)(g) or s103(3) of the
2
Arbitration Act 1996 . As a result, the law surrounding the public policy exception has become more
predictable because the “pro enforcement bias” of the New York Convention has been more
faithfully observed. However, in other developed European states such as Switzerland, Hungary,
Austria, and Germany, courts have taken a more interventionist stance in recent years.

Keywords
public policy – exception – New York Convention


Currently a PhD Candidate at the Jagiellonian University. Also graduated with
LLB Law (Hons) from University of Northampton and was awarded “Certificate of
Commendation from the University of Northampton Law Board of Study for the
Outstanding Academic Achievement” and won “Shoosmiths prize for Outstanding
Contribution to Corporate Responsibility 2014”. He also completed LLM with LPC (Legal
Practice Course) at the University of Law, London; e-mail: [email protected].
1 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
of 10.06.1958.
2 S68(2)(g) lists “public policy” grounds as an example of a serious irregularity; the court
may set an award aside. The court may also refuse to recognise or enforce an arbitral award
under s103(3) if such recognition or enforcement would be contrary to public policy.
54 | Bartłomiej Orawiec

I. INTRODUCTION

Arbitration has become increasingly popular in international

commercial contracts and is widely regarded as the preferred method
of resolving international commercial disputes. Parties may be compelled
to enter into arbitration agreements because, as opposed to litigation,
international arbitration provides a speedy, neutral, and confidential
dispute resolution process mostly subject to the parties’ control3. “The idea
of arbitration is that of binding resolution of disputes accepted with
serenity by those who bear its consequences because of their special trust in
chosen decision-makers”4. However, the reality is that not all international
arbitral awards are voluntarily complied with.
International arbitral awards are given legal effect by a developed legal
framework of both international and national sources5. On an international
level, the main convention which addresses the substantive aspects
of enforcement of arbitral awards is the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention) of 10 June 19586. On a national level, arbitration statutes
provide substantive criteria for enforcing awards and procedural
mechanisms7.
The New York Convention is an established and successful
international agreement, which made a number of significant
improvements in the regime of the Geneva Protocol 1923 and Geneva
Convention 19278. One of its main purposes was to make it easier to
enforce an arbitral award made in one Contracting State in other states9.
It not only eliminated the “double exequatur” requirement10 for arbitral

3 G. Born, International Arbitration: Law and Practice, the Netherlands 2012, pp. 9-16.
4 J. Paulsson, The Idea of Arbitration, Oxford 2013, p. 1.
5 G. Born, International Commercial Arbitration, vol. II, the Netherlands 2009, p. 2334.
6 M. Mcilwrath, J. Savage, International Arbitration and Mediation, the Netherlands 2010,
p. 345.
7 Born, supra note 3, p. 275.
8 L. Mistelis, S. Brekoulakis, Arbitrability: International & Comparative Perspectives,
the Netherlands 2009, p. 85.
9 Born, supra note 5, p. 2336.
10 The requirement necessitated the confirmation of an award in the courts of the arbitral
seat (first “exequatur”) before it could be recognised abroad (second “exequatur”).
55 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

awards, but also imposed a general obligation on Contracting States

to recognise and enforce arbitral awards11, proposed a limited set of
grounds for non-recognition of an international arbitral award in Article V,
and limited the places in which an arbitral award may be annulled12.
Article V of the New York Convention lists limited grounds for non-
recognition of foreign arbitral awards. These include claims that the
arbitration agreement is not valid; that the losing party was not given
proper notice; that the arbitral award deals with a dispute beyond
the scope of the parties’ arbitration agreement; that the composition of the
arbitral authority or its procedures were not in accordance with the parties’
arbitration agreement; that the award is not capable of settlement by
arbitration; or that the enforcement or the recognition of the award would
be contrary to the public policy of the enforcing state13.
The purpose of the public policy exception is to permit the judge
not to give effect to an award which would be contradictory to the
fundamental principles of the judge’s social system 14. The term “public
policy” is ambiguous owing to its multiplicity of possible meanings; it is
usually defined by reference to the moral, political, or economic order
of the state, or to basic notions of justice and morality15. Burroughs J said
that, “Public policy – it is an unruly horse and when once you get astride
it, you never know where it will carry you. It may lead you from the sound
law. It is never argued at all but when other points fail”16. Hence he
argued that a public policy exception leads to unpredictable outcomes and
it would only be used if all the other options available to the party were

11 Article III of the New York Convention requires Contracting States to recognise foreign
arbitral awards no more onerous than those for domestic awards.
12 Born, supra note 5, pp. 2334-2336.
13 Article V(1)(a)(b)(c)(d)(e) and V(2) of the New York Convention on the Recognition
and Enforcement of Foreign Arbitral Awards of 10.06.1958; G. Born, International Arbitration
and Forum Selection Agreements: Drafting and Enforcing, the Netherlands 2013, pp. 156-158.
14 G. Cordero-Moss, International Commercial Arbitration: Different Forms and Their Features,
Cambridge 2013, pp. 20-21.
15 D. Otto, O. Elwan, Article V(2), [in:] H. Kronke, P. Nacimiento, Recognition and
Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention,
the Netherlands 2010, p. 365.
16 Richardson v. Mellish, 2 Bing. 229 (1824) at 303.
56 | Bartłomiej Orawiec

exhausted. In reality, it is frequently invoked as a basis for annulling

arbitral awards17.
England became a signatory of New York Convention in 1975 and this
had a profound effect on English arbitration law. The Arbitration Act 1975
implemented the New York Convention into English law and was later
replaced by the Arbitration Act 1996 (1996 Act), which is currently the most
updated arbitration statute in England. Part III of the 1996 Act gives
effect to England’s treaty obligations under the New York Convention.
The 1996 Act contains a coherent framework for international and
domestic arbitration and is influenced by the UNCITRAL Model Law
on International Commercial Arbitration18. Under s66(1) of the 1996 Act the
arbitral award may be enforced in the same way as a judgment or order of
the court19. However, s68 allows the parties to challenge an arbitral award
on the grounds of serious irregularity; and the award may be set aside
in whole or in part20. S68(2)(g) lists “public policy” grounds as an example
of a serious irregularity21. The court may also refuse to recognise or enforce
an arbitral award under s103(1) & (3) if such recognition or enforcement
would be contrary to public policy22.
Arbitration can be an effective alternative dispute resolution if
foreign arbitral awards are to be enforced abroad. Under the New York
Convention the contracting states are obliged to enforce awards except
in limited circumstances. This article will examine the extent to which
the public policy exception under Article V(2)(b) of the New York
Convention limits the enforcement of international arbitral awards in the
21st century. Although it will mainly focus on England, it will also consider
the position in European states such as Switzerland, Hungary, Austria,
and Germany.

17 Born, supra note 5, p. 2621.

18 D. Sutton, J. Gill, M. Gearing, Russell on Arbitration, London 2007, pp. 20-22.
NB: although the Arbitration Act 1996 was influenced by UNCITRAL Model Law, it differs
from it in some aspects.
19 S661(1) Arbitration Act 1996.
20 S68 and s68(3) Arbitration Act 1996.
21 S68(2)(g) Arbitration Act 1996.
22 S103(1) & (3) Arbitration Act 1996.
57 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

II. EARLY CASE LAW

One of the early cases regarding public policy was David Taylor &
Son v. Barnett Trading Co23 where the court refused to enforce an arbitral
award on the grounds of illegality24. In this case, the defendants (D) agreed
to sell to the plaintiffs (P) Irish stewed steak at a price which exceeded
the maximum price permitted by emergency legislation. When D failed
to deliver the steak, P claimed damages. The dispute which arose was
referred to arbitration. At first instance, D was ordered to pay damages
to P. The Court of Appeal held that the contract had been illegal and the
arbitral award was set aside because “The court [had] jurisdiction to set
aside an award based on an illegal contract, even where neither the umpire,
nor even the parties knew that it was illegal”25. The David Taylor case26
proves that before England became a signatory of the New York
Convention, judges were willing to refuse the enforcement of an arbitral
award where the parties’ contract was illegal and thus in conflict with
the public policy of the state27.
The leading case which defined public policy in an enforcement
proceeding under the New York Convention is Deutsche Schachtbau- und
Tiefbohrgesellschaft mbH v. Ras Al-Khaimah National Oil Co28. In this case
the plaintiffs (P) and the defendants (D) entered into an agreement
for the exploration of oil. A dispute arose and P commenced arbitration
proceedings. D responded by obtaining a judgment declaring
the arbitration null and void29. P did not accept this and continued with
the arbitration which resulted in an award in its favour registered
in England; it was not recognised in Ras Al-Khaimah. Since P had no assets
in England, the award could not be enforced. However, D later discovered

23 [1953] 1 W.L.R. 562.

24 The contract was illegal and this was contradictory to the fundamental principles
of the judge’s social system; therefore giving effect to the arbitral award would be contrary to
public policy; http://agc-blog.agc.gov.my/agc-blog/?p=1398 (official portal of the Attorney
General’s Chambers of Malaysia) [last accessed: 17.07.2014].
25 Denning L.J. in David Taylor & Son v. Barnett Trading Co. [1953] 1 W.L.R. 562 at 563.
26 David Taylor & Son v. Barnett Trading Co. [1953] 1 W.L.R. 562.
27 Supra note 24.
28 [1987] 3 W.L.R. 1023; [1987] 2 Lloyd’s Rep. 246.
29 This was not recognised in England.
58 | Bartłomiej Orawiec

that an English company, Shell Co., had become indebted to P and

obtained leave to enforce the arbitration award in England as a judgment 30.
D argued that it was contrary to public policy because the arbitrator
applied unclear international rules, rather than applying the substantive
law of a particular state31.
Sir John Donaldson M.R. disagreed with D and said that it was
not contrary to public policy for the arbitrator to use principles underlying
the law of the various nations governing contractual relations. He added
that in order to refuse the enforcement of the award on the grounds
of public policy there “has to be an element of illegality or that recognition
or enforcement of the award would be clearly injurious to the public good,
or, possibly, that recognition or enforcement would be wholly offensive
to the ordinary reasonable and fully informed member of the public
on whose behalf the powers of the State are exercised”32 which D had failed
to establish. Therefore if the enforcement of the award was not contrary
to the “most basic” notions of morality and justice and was not
clearly injurious to the public good which would outweigh the objectives
of the New York Convention, public policy would not be considered
as an obstacle to enforcement of the award33.
In Soleimany v. Soleimany34 the plaintiff (P) exported Persian carpets
from Iran in breach of Iranian law and the defendant (D) sold the carpets
in England and elsewhere. P and D fell into dispute which they agreed
to refer to the Beth Din, a rabbinical court of Judaism. The Beth Din made
an award in favour of P on the basis that the parties were entitled to a share
of the profits reflecting their contributions. P applied to register the award
as a judgment. D resisted enforcement of the award on the grounds that
illegality rendered the plaintiff’s claim unenforceable in England and that
it would be contrary to English public policy for an award founded
on an illegal agreement to be enforced.

30 T. Hartley, International Commercial Litigation: Text, Cases and Materials on Private

International Law, Cambridge 2009, pp. 767-769.
31 Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al-Khaimah National Oil
Co. [1987] 3 W.L.R. 1023 at 1023.
32 Sir John Donaldson M.R. Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras
Al-Khaimah National Oil Co. [1987] 3 W.L.R. 1023 at 1023 at 1035.
33 Paulsson, supra note 4, p. 217.
34 [1999] QB 785.
59 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

The Court of Appeal refused to enforce an arbitration award on the

grounds of public policy because the contract between the parties was
illegal in nature. Waller LJ said that, “The court is (…) concerned
to preserve the integrity of its process, and to see that it is not abused.
The parties cannot override that concern by private agreement. They
cannot by procuring arbitration (…) enforce an illegal contract. Public
policy will not allow it (…)”35. The breach of public policy was apparent:
the Beth Din had itself found that the contract was illegal under Iranian
law36. The arbitral award was unenforceable because enforcing the award
would tarnish the honour of the English judicial process37.
Waller LJ provided his (obiter) view as to what the reviewing court
ought to do where an arbitral tribunal has not found that there was
illegality38. He explained that if there is prima facie evidence of illegality,
then the judge should conduct a preliminary inquiry to determine
whether to give full faith and credit to the foreign arbitral award or else
“to embark on a more elaborate inquiry into the issue of illegality” 39.
In his commentary, Grierson argued that the Court of Appeal had left
open the difficult question of what such a preliminary inquiry should
involve – should the court review the evidence that had been submitted
to the arbitral tribunal, or should it merely conduct an audit of quality
of the tribunal’s review40?
Shortly after its decision in Soleimany41 the Court of Appeal revisited
the same issue in Westacre Investments Inc. v. Jugoimport SDPR Holding
Co. Ltd42. Academic comment on the Soleimany43 decision has been
generally sympathetic between its pronouncement and the decision

35 Soleimany v. Soleimany [1999] QB 785 at 800.

36 J. Grierson, Mealey’s International Arbitration Report: Court Review of Awards on Public
Policy Grounds: A Recent Decision of the English Commercial Court Throws Light on the Position
Under the English Arbitration Act 1996, International Arbitration Law Review 2009, vol. 24(1),
p. 28. Note: under the applicable law, which was Jewish law, the fact that the contract was
illegal under Iranian law had no effect on the enforceability of the contract.
37 http://agc-blog.agc.gov.my/agc-blog/?p=1398 [last accessed: 17.07.2014].
38 Grierson, supra note 36, p. 28.
39 Soleimany v. Soleimany [1999] QB 785 at 800.
40 Grierson, supra note 36, p. 28.
41 Soleimany v. Soleimany [1999] QB 785.
42 [2000] QB 288.
43 Soleimany v. Soleimany [1999] QB 785.
60 | Bartłomiej Orawiec

in Westacre44 owing to the extreme facts of the case; however, there was
concern over the interventionist stance taken in it45. In Westacre46
the plaintiff (P) entered into an agreement with the defendant (D) whereby
P was appointed as a D’s consultant for the sale of military equipment
to Kuwait. A dispute arose and the arbitration tribunal issued an award
in favour of P who obtained leave to enforce the award in England.
D argued that the enforcement would be contrary to English public policy
because P had bribed Kuwait government officials47. In this case, unlike
in Soleimany48, the arbitral tribunal had made no finding of either
corruption or influence peddling49.
The Court of Appeal was unanimous in holding that there was
no reason to refuse the enforcement of the award and made no finding
of either illegality or breach of public policy50. The Court of Appeal held
that although the contract involved commercial corruption, the policy
of giving effect to arbitral awards outweighed the policies against such
conduct51. The majority agreed with the Colman J who held that “although
commercial corruption is deserving of strong judicial and governmental
disapproval, few would consider that it stood in the scale of opprobrium
quite at the level of drug-trafficking”52. The majority strongly favoured
the enforcement of foreign awards unless there was conclusive evidence
(or at least a very strong suspicion) of serious illegality 53.

44 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
45 A. Johnson, Illegal Contracts and Arbitration Clauses, International Arbitration Law
Review 1999, vol. 2, p. 35; C. Rose, The Strange Case of the Persian Carpet-Runner, Commercial
Lawyer 1998, pp. 32-34; S. Wade, Westacre v. Soleimany: What Policy? Which Public?,
International Arbitration Law Review 1999, p. 99.
46 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
47 Ibidem, pp. 288-289.
48 Soleimany v. Soleimany [1999] QB 785.
49 Grierson, supra note 36, p. 28.
50 Ibidem.
51 Born, supra note 5, p. 2851.
52 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [1998] QB 740 at 773.
53 A. Sheppard, Case Comment: Whether Enforcement of a Foreign Award Should be Refused
as Being Contrary to English Public Policy, on the Ground that the Underlying Agreement Concerned
the Procurement of Personal Influence?, International Arbitration Law Review 1999, vol. 2(4),
no. 47, p. 47.
61 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

As for the preliminary inquiry proposed by Waller LJ in Soleimany54,

Mantell LJ held that, “For my part I have some difficulty with the concept
and even greater concerns about its application in practice”55 and Sir David
Hirst agreed with him. He noted that in the present case the attempt
to reopen the facts should be rebuffed because the arbitrators had
specifically found that the underlying contract was not illegal56. Hence,
where it is not possible to determine from the tribunal’s reasoning that the
award is contrary to public policy (e.g. tribunal held that the contract was
not illegal in its place of performance), then the English courts will uphold
the award, without conducting any kind of preliminary inquiry57.
It is argued that the decision in Westacre58 did little to develop
the law59; in his article, Grierson emphasised that Westacre60 left many
questions unanswered and the court had missed the chance to clarify the
law in relation to “preliminary inquiry” 61. Although concise, some of the
remarks made by the majority in the Court of Appeal shift the emphasis
away from the decision in Soleimany62. In his article published in 1999,
Wade concluded that the decision in Westacre63 and the rejection of Waller
LJ’s views on public policy “signifies a return to the emphasis normally
placed on the continued unhindered operation of the New York
Convention as an overriding policy in matters concerning international
arbitration”64. However, there is a danger that when an international
system develops rules of self-preservation that take precedent over
the legitimate concerns of states this may, in the long run, become self-
defeating65.
The courts’ approach towards the enforcement of foreign arbitral
awards was not clear and often contradictory prior to 2000. Even after

54 Soleimany v. Soleimany [1999] QB 785 at 800.

55 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288 at 316.
56 Ibidem.
57 Grierson, supra note 36, p. 28.
58 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
59 Wade, supra note 45, p. 97.
60 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
61 Grierson, supra note 36, p. 28.
62 Wade, supra note 59, p. 97.
63 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
64 Wade, supra note 59, p. 100.
65 Ibidem, p. 102.
62 | Bartłomiej Orawiec

England became a signatory to the New York Convention, there was no

consistency in the courts’ rulings; in some cases (e.g. Soleimany66) the court
was prepared to prevent the enforcement of the award on a public policy
ground while in others, for instance in Westacre67, it was not. Furthermore
since the law offered little certainty on the issue of “preliminary inquiry”,
there was a chance that the court would be allowed to review a decision
of the arbitral tribunal on the law or on the merits, in which case the speed
and, above all, the finality of the arbitral process would be lost68.

III. DEVELOPMENTS POST-WESTACRE

D NOT ENABLED TO HAVE THEIR CROSS-CLAIM TAKEN INTO ACCOUNT

In Tongyuan (USA) International Trading Group v. Uni-Clan Limited69

a contract was made for the sale of two sachet-filling machines. Both
machines were sold in the People’s Republic of China. There was
no express choice of law in the contract, but the arbitrators found that
it was governed by Chinese law. The buyers (P) alleged that the machine
was defective and referred the matter to arbitration. The sellers (D) took
no part in the proceedings. The tribunal ordered the arbitral award.
Mr Aylwin (instructed by D) submitted that it would be contrary to public
policy under s103 of the Arbitration Act 1996 for the court to allow
the award to be enforced in a manner which did not enable D to have their
cross-claim taken into account70.
Mr Justice Moore-Bick held that there was a very strong public
policy consideration in favour of enforcing awards and “it would require
a very strong and unusual case to render the enforcement of an award
in circumstances of this kind contrary to public policy”71. He noted that
he had seen nothing in the evidence which would lead him to such

66 Soleimany v. Soleimany [1999] QB 785 at 800.

67 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
68 A. Redfern, M. Hunter, Law and Practice of International Commercial Arbitration,
London 2004, p. 412.
69 [2001] WL 98036.
70 Tongyuan (USA) International Trading Group v. Uni-Clan Limited [2001] WL 98036 at 12.
71 Ibidem, p. 14.
63 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

conclusion; hence, D’s application was unsuccessful. Mr Justice Moore-Bick

reached similar conclusions to Waller LJ in Westacre72 who found that
the policy of giving effect to arbitral awards outweighed the policies
against P’s conduct.

ENFORCEMENT WOULD VIOLATE THE LAW OF THE FOREIGN COUNTRY

In Tamil Nadu Electricity Board v. ST-CMS Electric Co. Private Ltd73,

the agreement between the claimant (C) and defendant (D) was governed
by the law of India and was for the supply of energy and capacity from
an electricity plant. The agreement provided for the settling of disputes
by arbitration according to the laws of England. D applied to ICC74
and claimed that C had used an incorrect computation methodology for the
calculation of the tariff payable by C to D. C then applied to the court
under s72 of the Arbitration Act 1996 seeking a declaration that the matters
submitted by D to arbitration were not within the scope of the arbitration
agreement and an injunction restraining D from continuing the arbitration.
C submitted that the court should not enforce the arbitration agreement
because effect should be given to Indian substantive law and questions
of English public policy were involved75.
The applications were refused. The Honourable Mr Justice Cooke held
that the parties’ clear intention was that English law should prevail over
Indian law in determining the scope of the arbitration agreement, since the
arbitration clause was separable from the rest of the contract76. He noted
that it was not enough that the contract was contrary to public policy
according to the law of the foreign country in which it happened to be
made and explained that, for the contract to be contrary to English public
policy, “[it] must be unlawful by the law of the country in which, according
to its express or implied terms, [it] has to be performed”77. In this case,

72 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [1999] 2 Lloyd’s Rep. 65
at 80; the comment made by G.B. Born in: Born, supra note 5, p. 2851.
73 [2007] EWHC 1713 (Comm).
74 International Chamber of Commerce.
75 Tamil Nadu Electricity Board v. ST-CMS Electric Co. Private Ltd [2007] EWHC 1713
(Comm).
76 Ibidem, p. 32.
77 Ibidem, p. 47.
64 | Bartłomiej Orawiec

it was not necessary that performance took place in India itself 78; hence,
there was no public policy consideration relating to illegal performance
of the contract which would compel an English court to refrain from
enforcing the arbitral clause79.
In Tamil Nadu Electricity Board80 the court found that for the contract
to be contrary to public policy it must be unlawful in the country where
it has to be performed according to its express or implied terms; therefore
the court once again was reluctant to limit the enforcement of the
international arbitral award on public policy grounds. In his article
Gerhardt Will said that, “it would be entirely artificial if (…) a court
intervened in the face of clear evidence as to the autonomous intention
of the parties, and refused to enforce the arbitral agreement. By refraining
from such intervention, the English court has set arbitration clauses
on a firm footing, grounded on liberally-construed international policy
grounds”81; thus, he praised the judge for non-interventionist stance.

CONTRARY TO NATURAL JUSTICE

English public policy may be violated if an award was obtained

contrary to the rules of natural justice82. In Gater Assets Ltd v. Nak Naftogaz
Ukrainiy83 the defendant (D) applied to set aside an order permitting
the claimant (C) to enforce an arbitral award as a judgment. D distributed
gas supplied by Gazprom, which paid for transit of gas through Ukraine
by permitting D to withdraw a certain amount of gas from the pipeline.
In 1999 Gazprom alleged that D had taken a greater quantity of gas than
it was entitled to under the contract. As a result, Gazprom and its captive
insurer (Sogaz) entered into a reinsurance contract, which was not

78 G. Will, Case Comment: Jurisdiction and Public Policy in the Case of Tamlin Nadu Electricity
Board v. ST-CMS Electric Co. Private Ltd: a Policy of Caution is the Greatest Risk, International
Arbitration Law Review 2007, vol. 10(6), p. 66.
79 Ibidem, p. 68.
80 Tamil Nadu Electricity Board v. ST-CMS Electric Co. Private Ltd [2007] EWHC 1713
(Comm).
81 Will, supra note 78, p. 69.
82 G. Maurer, The Public Policy Exception under the New York Convention, JurisNet 2013, LLC,
p. 92.
83 [2008] EWHC 237 (Comm).
65 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

disclosed to ICAC84, with the intention of vesting in a subrogated non-

Russian reinsurer (M) the right to pursue Gazprom’s claim against D.
The ICAC issued an award in favour of M. In 2006, M assigned to the
claimant C the benefit of the ICAC award. D argued that enforcing
the award in England would be contrary to public policy because it had
been procured by dishonest means.
The Hon. Mr Justice Tomlinson agreed with Moore-Bick J.85 that where
a party who deliberately withheld an important document obtains
an award in his favour, the court could consider that the award was
procured in a manner contrary to public policy. However, he noted that
innocent failure to disclose a document, even an important one, could not
properly be described as acting contrary to public policy86. He held that,
“what would normally be required to be demonstrated, for the court
to conclude that an award has been procured by a party in a way which
is contrary to public policy, will be some form of reprehensible
or unconscionable conduct (…). That means conduct which we would
be comfortable in describing as fraud, conduct dishonestly intended
to mislead”87. Since D failed to prove that M had engaged in “reprehensible
or unconscionable” conduct in an attempt to mislead the arbitral
tribunal, the court could not set aside the order permitting enforcement
of the award.
Although the court defined a situation in which enforcement
of the arbitral award would be contrary to public policy, it was unwilling
to refuse the enforcement of it in this case. Therefore, if someone decided
to challenge the enforcement of a foreign arbitral award in a similar case,
he would need to prove that the other party deliberately failed to disclose
an important document; proving innocent failure would not suffice. In both
Westacre88 and in Gater Assets89 the court held that fraud would be contrary
to public policy. The only difference was that in the former case, Colman J

84 International Commercial Arbitration Court in Moscow.

85 Moore-Bick J in Profilati Italia Srl v. Painewebber Inc. [2001] 1 All E.R. (Comm) 1065 at 19.
86 The Hon. Mr Justice Tomlinson Gater Assets Ltd v. Nak Naftogaz Ukrainiy [2008] EWHC
237 (Comm) at 40.
87 The Hon. Mr Justice Tomlinson Gater Assets Ltd v. Nak Naftogaz Ukrainiy [2008] EWHC
237 (Comm) at 40-41.
88 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [1998] QB 740 at 775.
89 Gater Assets Ltd v. Nak Naftogaz Ukrainiy [2008] EWHC 237 (Comm) at 40.
66 | Bartłomiej Orawiec

called it a “universally condemned activity” while in the latter, Tomlinson J

described it as a “reprehensible or unconscionable conduct”.

CORRUPT PRACTICES

In R v. V90 the claimant (C) entered into a consultancy agreement with

the defendant (D) whereby D promised to assist and advise C’s subsidiary
in its negotiations with the Libyan national oil company with the purpose
of obtaining approval of certain development plans. In spite of the fact that
C made payments specified in the agreement following the approval of the
development plans, D claimed further payments for “strategic assistance”.
D referred the matter to arbitration. The tribunal ruled in favour of D and
ordered C to pay the remaining fee. C challenged the arbitration award and
claimed that the agreement was illegal under Libyan law and contrary
to English public policy pursuant to s68(2)(g) of the Arbitration Act 1996
in regard to influence peddling. The fact situation in R v. V91 was closer
to that in Westacre92 than that in Soleimany93: the arbitrators decided that the
agreement was contrary to neither the lex loci solutionis94 nor English public
policy and the parties had fully debated the illegality/public policy issue95.
David Steel J held that he would “accord the award full faith and
credit, even if it were appropriate to embark on any form of preliminary
inquiry”96 and noted that he was bound by the decision in Westacre97.
He reiterated the concerns expressed by the majority in Westacre98 about
the application of the “preliminary inquiry”. Although he held that
an inquiry into the alleged breach of public policy was not permissible,

90 [2008] EWHC 1531.

91 Ibidem.
92 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
93 Soleimany v. Soleimany [1999] QB 785.
94 Law of the place where performance occurs.
95 Grierson, supra note 36, p. 28.
96 R v. V [2008] EWHC 1531 at 31.
97 [2000] QB 288.
98 Ibidem.
67 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

he went on to review the merits and indicated that on the facts such
allegations were not sustainable99.
Even though the preliminary enquiry100 in R v. V101 was relatively
simple, it required a one-and-a-half-day hearing and substantial legal fees.
In other cases, the preliminary enquiry could be considerably more difficult
to perform102. If someone decided to pursue a case for the enforcement
of the foreign arbitral award in England, he should bear in mind
the commercial risks involved stemming from the court’s ability to reopen
the arbitral tribunal findings. The legitimacy and proper scope of such
an inquiry remain unclear103.
David Steel J held that in order for the contracts for the purchase
of personal influence not to be enforced in England, their performance
would need to be contrary to the domestic public policy of the country
of performance (Westacre104 applied)105; and that the tribunal’s conclusion
that the agreement was not illegal as a matter of Libyan law was
unimpeachable106. He agreed with the majority in Westacre107 and
Colman J108, who accorded “an appropriate level of opprobrium” at which
to place commercial corruption – “although commercial corruption
is deserving of strong judicial and governmental disapproval, few would
consider that it stood in the scale of opprobrium quite at the level of drug
trafficking”109. In Westacre110, the Court of Appeal concluded that acts such
as terrorism and drug trafficking would infringe public policy which

99 R v. V [2008] EWHC 1531 at 49; Public Policy and Enforcement of Awards, available online:
http://uk.practicallaw.com.lawdbs.lawcol.com/2-382-6040?q=%5B2008%5D+EWHC+1531
[last accessed: 1.08.2014].
100 As already explained above, an inquiry into the alleged breach of public policy was
not permissible; nonetheless, David Steel J went on to review the merits. “He found that
the tribunal’s conclusion that the [consultant] agreement was not illegal as a matter of
[the lexi loci solutionis was] unimpeachable” – Grierson, supra note 36, p. 3.
101 R v. V [2008] EWHC 1531.
102 Grierson, supra note 36, p. 28.
103 Public Policy and Enforcement of Awards, supra note 99.
104 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
105 R v. V [2008] EWHC 1531 at 27.
106 R v. V [2008] EWHC 1531 at 43.
107 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
108 Colman J in Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [1999] QB 740
at 773.
109 R v. V [2008] EWHC 1531 at 32.
110 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
68 | Bartłomiej Orawiec

would lead to non-enforcement of an arbitral award; nonetheless,

commercial corruption would not. In R v. V111 the court was once again
unwilling to refuse the enforcement of the foreign arbitral award on public
policy grounds.

MONEY LAUNDERING

In Nomihold Securities Inc. v. Mobile Telesystems Finance SA112,

the claimant (C) had sold the defendant (D) a majority shareholding
in a company (T), registered in The Seychelles, under a share purchase
agreement. Under that agreement C exercised its entitlement to sell
the remaining shares to D under a put option. Clause 4 of the POA113
provided that T would pass the necessary resolutions to register the new
ownership of its shares in the name of D. A dispute arose as D discovered
that T did not indirectly own shares in the Kyrghyz company (B).
Accordingly, the issues at arbitration were geared towards D extricating
itself from its obligation to purchase the remaining shares under the put
option on the basis that T no longer indirectly owned the shares in B.
The arbitrators found that C had been entitled to sell the shares to D,
so that the agreed purchase price had become due. Moreover,
T commenced proceedings in the Seychelles seeking directions as to
whether it could register the transfer of its shares in D’s name as it was
concerned that such a transfer could constitute a breach of Seychellois
money laundering provisions. D claimed, among other things, that
allegations of money laundering in the Seychelles meant that the award
ought not to be enforced in England on public policy grounds.
Burton J held that the alleged money laundering had not “contributed
in a substantial way” to C obtaining an award in its favour relating to the
breach of contract by D. “The fact that [T], which [D] controls, has not
registered the transfer of ownership from [C] to [D] does not (…) amount

111 R v. V [2008] EWHC 1531.

112 [2011] EWHC 2143.
113 Put Option Agreement. The arbitration related to whether C, having previously sold
to D 51 per cent of the shares of T by a Share Purchase Agreement dated 17.11.2005, to which
no challenge was made, was entitled to exercise its put option to sell to D the balance
of 49 per cent of shares in T under the POA, by an exercise of its put option on 18.11.2006.
69 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

to a reason why the English courts should not enforce the Award”114.
He noted that D had had over five months before the commencement
of the proceedings to articulate a case that there was any relevance
to the alleged money laundering which could prevent enforcement
of the award; nonetheless, D had not done so115. The application was
refused.
Therefore, in order for such claim to be successful, the alleged money
laundering must contribute in a “substantial way” to the other party
obtaining an award in its favour.
When advising clients on issues similar to the ones considered in the
aforementioned cases, the practitioner should bear in mind the following
points. First, it is unlikely that the court will refuse the enforcement of the
award on public policy grounds if the client argues that he was not able
to have his cross-claim taken into account116. Second, for the contract
to be contrary to English public policy, the contract must be unlawful
by the law of the country in which, according to express or implied terms,
it has to be performed. It is not enough that the contract is contrary
to public policy according to the law of the foreign country in which it
happens to be done117.
Third, where a party who deliberately withheld an important
document obtains an award in its favour, the court could consider that
award was procured in a manner contrary to public policy; nonetheless,
innocent failure to disclose a document would not be sufficient 118. Fourth,
commercial corruption does not infringe public policy119.
Fifth, there is a risk that the court will decide that it is appropriate
to embark on some form of preliminary inquiry to determine whether
to give full faith and credit to the foreign arbitral award and this may lead
to higher legal costs120; thus the law on “preliminary inquiry” remains
uncertain. Sixth, in order for the award not to be enforced in England

114 Burton J in Nomihold Securities Inv v. Mobile Telesystems Finance SA [2011] EWHC 2143
at 64.
115 Ibidem, p. 64.
116 Tongyuan (USA) International Trading Group v. Uni-Clan Limited [2001] WL 98036 at 14.
117 Tamil Nadu Electricity Board v. ST-CMS Electric Co. Private Ltd [2007] EWHC 1713 at 47.
118 Gater Assets Ltd v. Nak Naftogaz Ukrainiy [2008] EWHC 2372 at 40.
119 R v. V [2008] EWHC 1531 at 32.
120 Ibidem, p. 31.
70 | Bartłomiej Orawiec

because of money laundering, the alleged money laundering would need

to contribute substantially to the other party obtaining an award in its
favour. Also, the case should be brought to the court’s attention as soon
as possible as any delay may negatively affect the client’s chances of being
successful121.
In the 21st century, the courts in England and Wales are more reluctant
to refuse the enforcement of the foreign arbitral awards on the grounds of
public policy. It can be argued that since Westacre122, the law surrounding
the public policy exception has become more predictable because the
“pro enforcement bias” of the New York Convention has been more
faithfully observed. Even though in both Westacre123 and R v. V124
the concept of “preliminary inquiry” introduced by Waller LJ was
addressed, the legitimacy and proper scope of such an inquiry remain
unclear125.

IV. PUBLIC POLICY IN EUROPE

While English courts are unwilling to refuse the enforcement of foreign

arbitral awards under s68(2)(g) or s103(3) or the Arbitration Act 1996 in
21st century, some developed courts in Europe have set aside arbitral
awards on the basis of violation of public policy.

SWITZERLAND

Switzerland became a signatory of the New York Convention on

29 December 1958 and ratified it on 1 June 1965; it became effective
in Switzerland on 30 August 1965126. Article 194 of the Swiss Private
International Law Act states that, “The recognition and enforcement
of a foreign arbitral award is governed by the New York Convention

121 Nomihold Securities Inc. v. Mobile Telesystems Finance SA [2011] EWHC 2143 at 64.
122 Westacre Investments Inc. v. Jugoimport SDPR Holding Co. Ltd [2000] QB 288.
123 Ibidem.
124 R v. V [2008] EWHC 1531.
125 Public Policy and Enforcement of Awards, supra note 99.
126 UNCITRAL. Status: 1958-Convention on the Recognition and Enforcement of Foreign
Arbitral Awards – http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/
NYConvention_status.html [last accessed: 8.08.2016].
71 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

of 10 June 1958 (…)”127. In Switzerland, there is no implementing legislation

for the enforcement of the New York Convention. The Convention
is applied as a self-executing treaty and its provisions take precedence over
any federal or cantonal rules of law on the recognition and enforcement
of foreign arbitral awards128. Under Article 190(2)(e) of the Swiss Private
International Law Act (PILA) an arbitral award may be set aside if it is
incompatible with public policy.
For the first time, the Swiss Federal Tribunal set aside an arbitral
award on the basis of violation of public policy in Club Atletico de Madrid
SAD v. Sport Lisboa E Benfica – Futebol SAD129. In this case the underlying
dispute arose between Sport Lisboa (B) and Atletico de Madrid (A) when
a soccer player terminated his employment contract with B and transferred
to A. In 2001, B claimed compensation from FIFA. In 2002, FIFA awarded
B $2,5m and A appealed to the Commercial Court. In 2004, the Commercial
Court annulled the decision. A few months later B again claimed
compensation, but FIFA rejected the claim relying on 2004 judgment.
B appealed against the second FIFA decision to the Court of Arbitration
for Sports (CAS). CAS ordered A to pay compensation in the amount of
EUR 400,000. A filed a petition with the Swiss Federal Tribunal
and claimed that CAS violated procedural public policy as it disregarded
the binding effect of the 2004 judgment130.
In 2010, the Swiss Federal Tribunal131 held that the Commercial Court’s
decision annulling a resolution of FIFA bound not only FIFA and A (parties
to the proceedings), but also B. For that reason, B’s claim before CAS was
barred by res judicata132 even though B was not a party to the 2004

127 A. van den Berg, Yearbook: Commercial Arbitration, vol. XXVIII, the Netherlands 2003,
p. 837, fn 1.
128 Maurer, supra note 82, p. 176.
129 Judgment of 13.04.2010; case no. 4A_490/2009.
130 N. Voser, J. Menz, S. Wittmer, Swiss Federal Tribunal Sets Aside CAS Award for Violation
of Procedural Public Policy, 2010, available online: http://uk.practicallaw.com/5-502-
9576?source=relatedcontent [last accessed: 20.08.2014].
131 The Swiss Federal Tribunal, which is the Supreme Court in Switzerland, acts
as an appellate court, reviewing cases decided by lower federal courts and cantonal (state)
courts.
132 Res judicata – this doctrine prevents a party from re-litigating any claim or defence
already litigated, or that could have been litigated, previously. The doctrine is meant
72 | Bartłomiej Orawiec

judgment. Federal Tribunal confirmed that res judicata is a part of Swiss

procedural public policy, which CAS violated by granting B’s claim despite
the 2004 judgment133. The court noted that “disregard of [fundamental and
generally recognised procedural principles] contradicts the sense of justice
in an intolerable way, so that the decision appears absolutely incompatible
with the values and legal order of a state ruled by laws”134.
In their article published in 2010, Berger & Sun argued that since it was
the first decision by the Swiss Federal Tribunal to overturn an arbitration
award based on public policy, it is unclear how the decision would
be construed or applied by other courts in the future135. Voser & Menz
& Wittmer mentioned that Club Atletico de Madrid136 was a landmark
decision which would undoubtedly spawn much commentary in the Swiss
and international arbitration communities137.
It was not long after Club Atletico de Madrid138 that the Swiss Federal
Tribunal, once again, decided to refuse the enforcement of a foreign arbitral
award on public policy grounds. In Francelino da Silva Matuzalem v. FIFA139,
Matuzalem (M) terminated his contract with the Shaktar Donetsk (S)140
to play for the Spanish club Real Zaragoza (R). CAS141 ordered that M and
R were jointly and severally liable to pay to Shaktar Donetsk damages
of nearly EUR 12m. Setting aside proceedings were brought against
that award, but the Federal Tribunal dismissed the application and upheld
the award in 2010. As M and R were unable to pay the damages awarded,

to ensure the finality of judgments and conserve judicial resources by protecting litigants
from multiple litigation involving the same claims or issues.
133 Facts of the case found in J. Berger, C. Sun, Paul Hastings: Stay Current – A Client
Alert From Paul Hastings, 2010, available online: https://www.paulhastings.com/docs/
default-source/PDFs/1712.pdf [last accessed: 8.08.2016]; and in Voser, Menz, Wittmer, supra
note 130.
134 Translated judgment availabel online: http://www.swissarbitrationdecisions.com/
sites/default/files/13 avril 2010 4A 490 2009.pdf [last accessed: 8.08.2016]. Quote found
at para 2.1.
135 Berger, Sun, supra note 133.
136 Judgment of 13.04.2010 in case no. 4A_490/2009, Club Atletico de Madrid SAD v. Sport
Lisboa E Benfica – Futebol SAD.
137 Voser, Menz, Wittmer, supra note 130.
138 Judgment of 13.04.2010 in case no. 4A_490/2009, Club Atletico de Madrid SAD v. Sport
Lisboa E Benfica – Futebol SAD.
139 Judgment of 27.03.2012 in case no. 4A_558/2011.
140 Ukrainian football club.
141 Court of Arbitration for Sports.
73 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

the FIFA Disciplinary Committee threatened to ban M from any football

related activity until he paid the entire amount. On appeal, the decision
of FIFA was confirmed by CAS in 2011. M sought to have this new
CAS award set aside. M argued that the award, and more specifically
the underlying sanction of a potential playing ban, violated public policy
within the meaning of Article 190(2)(e) of the PILA142.
The Federal Tribunal held that the sanction was not necessary since
the CAS award ordering M to pay damages could be enforced under
the New York Convention on the Recognition and Enforcement of Arbitral
Awards of 1958. The threat of a ban from future football activities
constituted a serious interference with the player’s personal rights.
The abstract objective of enforcing compliance by football players with
the duties owed to their employees is insufficient to let the scales come
down in favour of a worldwide professional ban on the player. The Federal
Tribunal found that the CAS award was contrary to substantive public
policy and it was set aside143.
Lenz & Staehelin said in their article that this judgment was
of “paramount importance”144, while Voser & George & Wittmer noted
that this decision was to be welcomed, coming at a time when there was
an increasing call for checks and balances in sports arbitration145. In this
case, the Swiss Federal Tribunal considered the personality rights
of the player more important than the principle of keeping the agreement
he entered into (i.e. FIFA Disciplinary Code to which he agreed).
The Matuzalem v. FIFA146 case showed that the enormous compensation

142 Facts of the case found in N. Voser, A. George, S. Wittmer, Landmark Ruling of Swiss
Supreme Court Setting Aside CAS Award for Violation of Substantive Public Policy, 2012, available
online: http://uk.practicallaw.com/1-519-2649?q=public+policy+switzerland [last accessed:
21.08.2014]; Lenz, Staehelin, Newsflash May 2012: CAS Award Set Aside for Breach of Substantive
Public Policy, 2012, available online: http://www.lenzstaehelin.com/uploads/tx_netvlsldb/
Newsflash_May_2012.pdf [last accessed: 8.08.16].
143 Lenz, Staehelin, supra note 142.
144 Ibidem.
145 Voser, George, Wittmer, supra note 142.
146 Judgment of 27.03.2012 in case no. 4A_558/2011, Francelino da Silva Matuzalem v. FIFA.
74 | Bartłomiej Orawiec

which CAS used to order soccer players to pay to their former clubs for
terminating their contracts without just cause, may be difficult to enforce147.
“Public policy” remains very narrowly defined by the Swiss Federal
Tribunal148, however these two recent judgments can be seen as an
illustration of the more lenient approach adopted by Swiss courts towards
the public policy exception in sports cases.

HUNGARY

Hungary acceded to the New York Convention on 5 March 1962

and the Convention became effective in Hungary on 3 June 1962. The New
York Convention was implemented to Hungarian law by Law Decree 25
of 1962. In 2003, the Hungarian Supreme Court refused to enforce
an arbitral award based on the public policy exception in BH 2003, 127
(case reference number). The arbitral tribunal decided a dispute for the
value of 32 billion Forint and awarded to the claimant lawyers’ fees
in the amount of 290 million Forint for the proceedings which lasted
16 months. The plaintiff in the Hungarian proceedings argued that such
fees not only punished the losing party disproportionately, but also
harmed the sense of value of society and thereby was contrary to public
policy149. The Hungarian Supreme Court held that no breach of regulation
is necessary to determine that an arbitral award is contrary to public policy.
The Supreme Court reasoned that, “the 290 million Forint lawyers’ fee
is considered a disproportionately high sum. For such an award to remain
effective, it would have an unwanted negative effect on the Hungarian
legal practice that is a part of the legal order. Therefore, it is contrary
to public policy”150. Hence, the Supreme Court agreed with the plaintiff
and confirmed that such high legal fees would harm the sense of value
of society151.

147 R. Levy, Swiss Federal Tribunal Overrules CAS Award in a Landmark Decision, 2012,
available online: http://www.lawinsport.com/articles/regulation-a-governance/item/
swiss-federal-tribunal-overrules-cas-award-in-a-landmark-decision [last accessed: 8.08.2016].
148 Lenz & Staehelin, supra note 142.
149 BH 2003, 127 et seq. at 4.
150 BH 2003, 127 et seq. at 11.
151 Maurer, supra note 82, p. 122.
75 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

AUSTRIA

The New York Convention became effective in Austria on 31 July 1961

and it is directly applicable based upon the § 86(1) Execution Ordnance.
In Austria, the Supreme Court also set aside an award on public policy
grounds in 2005. In 3Ob221/04b (case reference number) the parties
concluded a contract under which the Yugoslav seller (S) undertook
to supply mushrooms to the Austrian buyer (B). A dispute arose between
the parties when B did not pay part of the sale price for a delivery
of mushrooms. S commenced arbitration and the tribunal rendered
an award in favour of S directing B to pay 22,500 DM to S and to pay
contractually agreed interest for late payment of 0.2 per cent per day with
daily capitalisation on a purchase price due in Deutsche Marks which
amounted to an effective annual interest rate of 107.35 per cent. S sought
enforcement of the award in Austria; B claimed that the award violated
public policy because the rate of interest was excessive152.
The Supreme Court held that “the relevant standard for an
autonomous public policy review of the foreign arbitral award (…)
is whether the arbitral award is irreconcilable with the fundamental
principles of the Austrian legal system because it is based on a foreign legal
principle that is totally irreconcilable with the domestic legal system” 153.
It reasoned that the interest rate of 107.35 per cent constitutes an excessive
abuse of private autonomy and as such is not only immoral and void under
Article 879(1) Austrian Civil Code, but is also contrary to Austrian public
policy because interest aims at protecting monetary value and cannot have
a punitive function154.
Although the law at the place of performance (Yugoslavia) allowed
such high interest payments owing to the exorbitant inflation rate of the
local currency, such a rate would have been illegal if applied to a “hard”
currency155. Therefore, the Supreme Court refused to enforce the arbitral

152 A. van den Berg, Yearbook: Commercial Arbitration, vol. XXX, the Netherlands 2006,
pp. 421-422.
153 Ibidem, p. 428; Maurer, supra note 82, p. 76.
154 Maurer, supra note 82, p. 76.
155 H. Kronke, P. Nacimiento, D. Otto, N.C. Port, Recognition and Enforcement of Foreign
Arbitral Awards: Global Commentary on The New York Convention, the Netherlands 2010, p. 392.
76 | Bartłomiej Orawiec

award because the agreed interest rate was irreconcilable with the
fundamental principles of the Austrian legal system156.

GERMANY

The New York Convention became effective in Germany on

28 September 1961. Section 1061(1) of the German Code of Civil Procedure
stipulates that, “Recognition and enforcement of foreign arbitral awards
shall be granted in accordance with the [New York] Convention of
June 10, 1958 (…)”157. In Germany, the Court of Appeals is competent
for decisions on application relating to a declaration of the enforceability
of an award158.
In 4 Z Sch 17/03 (case reference number) the parties concluded
a supply contract which contained an arbitration clause. The claimant (C)
commenced arbitration and at the arbitral tribunal’s suggestion, the parties
entered into settlement negotiations and agreed that C would withdraw
proceedings if the defendant (D) paid the amounts in dispute. D duly
paid the amounts, but C did not terminate the proceedings and obtained
a favourable award. C then sought enforcement in Germany159.
The Higher Court of Appeals of Bavaria160 denied enforcement
of an award made in Russia on the grounds of public policy because the
award had been made after the parties had reached a settlement which had
been concealed from the arbitrators 161. It held that the award “deviates
to a large extent from the norms and legal principles that are the
foundation of the German legal system (…) the principle of contractual
good faith would be violated in a manner that is irreconcilable with
the [German] legal system if [C] obtained enforcement”162.

156 Maurer, supra note 82, pp. 75-76.

157 Ibidem, p. 104.
158 Ibidem.
159 Facts of the case available in: New York Convention Guide, available online:
http://newyorkconvention1958.org/index.php?lvl=notice_display&id=271 [last accessed:
8.08.2016].
160 Bayerishes Oberstes Landesgericht – Higher Court of Appeals of Bavaria, often called
Bavarian Supreme Court.
161 Maurer, supra note 82, p. 111.
162 Ibidem, referring to A. van den Berg, Yearbook: Commercial Arbitration, vol. XXXII,
the Netherlands 2004, para 6, p. 773.
77 | The Public Policy Exception Under the New York Convention on the Recognition and Enforcement…

The violation in this case went beyond a mere procedural defect163.

The Higher Court of Appeals of Bavaria refused to enforce the award
because it was irreconcilable with fundamental principles of the German
legal system; thus, the award was set aside for the same reasons as in the
Austrian case number: 3Ob221/04b (above).

V. CONCLUSION

Even though the English courts attempted to define situations in which

arbitral awards would be contrary to public policy, they are reluctant
to refuse enforcement of the awards on that ground in the 21st century;
they “[continue] unhindered operation of the New York Convention
as an overriding policy in matters concerning international arbitration” 164.
Nonetheless, this is not the case in every European state. As seen from
the aforementioned cases, some developed courts in Europe take a more
interventionist stance than the English courts.
The Austrian Supreme Court in 3Ob221/04b and the German Higher
Court of Appeals of Bavaria in 4 Z Sch 17/03 both set aside an arbitral
award on the grounds of public policy because the awards were
irreconcilable with fundamental principles of their legal systems.
In the former case, the contractually agreed interest rate was excessive and
thus illegal; while in the latter case, the arbitral award could not
be enforced because it had been made after the parties had reached
a settlement which had been concealed from the arbitrators.
In Hungary, the Supreme Court concluded that an arbitral award was
contrary to public policy because the disproportionately high legal fees
awarded to the claimant would harm the sense of value of society 165.
In Switzerland, the two recent judgments of the Swiss Federal Tribunal can
be seen as an illustration of the more lenient approach adopted by Swiss

163 New York Convention Guide, available online: http://newyorkconvention1958.org/

index.php?lvl=notice_display&id=271 [last accessed: 8.08.2016].
164 Wade, supra note 45, p. 100
165 BH 2003, 127.
78 | Bartłomiej Orawiec

courts towards Article V(2)(b) of the New York Convention, in sports

cases166.
Hence, when advising a client who wishes to enforce a foreign arbitral
award in a European state other than England, a practitioner should inform
him that his chances of successfully enforcing a foreign arbitral award may
be significantly lower than in England, the litigation may last longer, and
as a consequence the client may incur much higher legal costs.

166 Judgment of 27.03.2012 in case no. 4A_558/2011, Francelino da Silva Matuzalem v. FIFA;
judgment of 13.04.2010 in case no. 4A_490/2009, Club Atletico de Madrid SAD v. Sport Lisboa
E Benfica – Futebol SAD.