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V(2) / V(2)(b) / 2. ANALYSIS (V(2)(b)) / B. Application / c. Relationship with article V(1) / §45
45. Other courts have simply acknowledged this duplication of grounds on which the same matter could be raised. For example, in the words of the Court of Final Appeal of Hong Kong, “[i]t has become fashionable to raise specific grounds in […] Article V.1(b) […], which are directed to procedural irregularities, as public policy grounds (Article V.2(b)). There is no reason why this course cannot be followed”.93 Several courts have followed this approach. They simply address under article V(2) the allegations of procedural irregularities, without taking issue with the fact that they could also be properly brought under one of the grounds of article V(1).94
94. See, Inter-Arab Investment Guarantee Corporation v. Banque Arabe et Internationale d’Investissement, Court of Appeal of Brussels, Belgium, 24 January 1997, XXII Y.B. COM. ARB. 643 (1997), at 654; Oberlandesgericht [OLG] Frankfurt, Germany, 27 August 2009, 26 SchH 03/09; Oberlandesgericht [OLG] Munich, Germany, 22 June 2009, 34 Sch 26/08; Kammergericht [KG] Berlin, Germany, 17 April 2008, 20 Sch 02/08; Oberlandesgericht [OLG] Frankfurt, Germany, 18 October 2007, 26 Sch 1/07; Goldtron Ltd. v. Media Most B.V., Rechtbank, Amsterdam, Netherlands, 27 August 2002, XXVIII Y.B. COM. ARB. 814 (2003); Shaanxi Provincial Helath Products I/E Corporation v. Olpesa S.A., Supreme Court, Spain, 7 October 2003, 112/2002, XXX Y.B. COM. ARB. 617 (2005); Federal Tribunal, Switzerland, 28 July 2010, 4A_233/2010; G. S.A. v. T. Ltd., Federal Tribunal, Switzerland, 12 January 1989. See also, Albert Jan van den Berg, The New York Convention of 1958: An Overview, in ENFORCEMENT OF ARBITRATION AGREEMENTS AND INTERNATIONAL ARBITRAL AWARDS, THE NEW YORK CONVENTION IN PRACTICE 39, at 57-58 and 64 (E. Gaillard, D. Di Pietro, eds. 2008); Herman Verbist, Challenges on Grounds of Due Process Pursuant to Article V(1)(b) of the New York Convention, in ENFORCEMENT OF ARBITRATION AGREEMENTS AND INTERNATIONAL ARBITRAL AWARDS, THE NEW YORK CONVENTION IN PRACTICE 679 (E. Gaillard, D. Di Pietro, eds., 2008).
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46. Indeed, nothing in article V prevents a party from putting forward an argument under article V(2)(b) that could also properly be brought under one of the grounds of article V(1). To the contrary, there is some support in the travaux préparatoires for the proposition that parties wishing to argue that their procedural rights had been violated should be free do so on the basis of a violation of public policy.95 It should be noted that courts have generally taken a restrictive interpretation of public policy and implemented a high standard of proof in that respect, by comparison to the standard of proof under article V(1). One notable difference between the two paragraphs of article V is that article V(2)(b) allows a complaint to be examined by the court ex officio96 whereas a complaint under article V(1) can only be brought by the party seeking to oppose recognition and enforcement of an award.
95. See Travaux préparatoires, Report of the Committee on the Enforcement of International Arbitral Awards, E/AC.42/4/Rev.1, at. 10; Comments of the Representative of the Egyptian Government, Mr. Osman: Summary Record of the Sixth Meeting, E/AC.42/SR.6, p. 4.
96. See below, paras. 53-61.
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47. The question has arisen whether a party may be estopped from raising the defense of article V(2)(b) of the New York Convention where, to the extent possible, it has failed to do so before the arbitral tribunal.
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48. In some instances, courts have held that failure of a party to raise a defect in procedure or on the merits of the award amounts to a waiver of its right to avail itself of this ground of complaint at the recognition and enforcement stage. One court however indicated that although a party may be precluded from raising complaints at the recognition and enforcement stage that it could have raised before the arbitral tribunal, this does not apply to complaints brought under article V(2)(b) of the New York Convention.97
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49. Certain courts have endorsed the proposition that a substantive complaint will not be entertained as a public policy complaint at the enforcement stage if it existed at the time of the arbitral proceedings and it could have been raised before the arbitral tribunal,98 or if it has been raised and rejected on the merits by the arbitral tribunal.99
98. See Soinco SACI & anor. v. Novokuznetsk Aluminium Plant & Ors., Court of Appeal, England and Wales, 16 December 1997, [1998] CLC 730; Oberlandesgericht [OLG] Saarbrücken, Germany, 30 May 2011, 4 Sch 03/10; Epis S.A. v. Roche Diagnostics GmbH, District Court of Jerusalem, Israel, 23 November 2004, XXXI Y.B. COM. ARB. 786 (2006).
99. See Bundesgerichtshof [BGH] Germany, 18 January 1990, III ZR 269/88.
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5. In the words of the often-quoted judgment of the Second Circuit of the United States Court of Appeals in Parsons “[e]nforcement of foreign arbitral awards may be denied on [the basis of public policy] only where enforcement would violate the forum state’s most basic notions of morality and justice”.5 Several jurisdictions outside the United States have relied on this passage when assessing the public policy exception.6
5. Parsons & Whittemore Overseas v. Société Générale de l’Industrie du Papier (RAKTA), Court of Appeals, Second Circuit, United States of America, 23 December 1974, 508 F.2d 969. Dealing with the argument of the party resisting enforcement that its actions had been dictated by the severance of diplomatic relations between the United States and Egypt, the Second Circuit of the United States Court of Appeals stated that “[t]o read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention’s utility. This provision was not meant to enshrine the vagaries of international politics under the rubric of ‘public policy’”. See also, National Oil Corp. v. Libyan Sun Oil Co., District Court, District of Delaware, United States of America, 15 March 1990, XVI Y.B. COM. ARB. 651 (1991), at 658, para. 23 (concerning an award whose recognition end enforcement was alleged to violate the U.S. sanctions against Libya). See also, Ameropa A.G. v. Havi Ocean Co. LLC, District Court, Southern District of New York, United States of America, 16 February 2011, 2011 WL 570130 (concerning an award whose recognition end enforcement was alleged to violate the U.S. sanctions against Iran). See also Linda Silberman, The New York Convention After Fifty Years: Some Reflections on the Role of National Law, 2009-2010 GA. J. INT’L. & COMP. L. 25, at 35.
6. See, e.g. BCB Holdings Limited and The Belize Bank Limited v. The Attorney General of Belize, Caribbean Court of Justice, Appellate Jurisdiction, 26 July 2013, [2013] CCJ 5 (AJ); Traxys Europe S.A. v Balaji Coke Industry Pvt Ltd., Federal Court, Australia, 23 March 2012, [2012] FCA 276; Uganda Telecom Ltd. v. Hi-Tech Telecom Pty Ltd., Federal Court, Australia, 22 February 2011, [2011] FCA 131; Petrotesting Colombia S.A. & Southeast Investment Corporation v Ross Energy S.A., Supreme Court of Justice, Colombia, 27 July 2011; Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd., Court of Final Appeal, Hong Kong, 9 February 1999, [1999] 2 HKC 205; Renusagar Power Co. Ltd. v. General Electric Company & anor., Supreme Court, India, 7 October 1993; Brostrom Tankers AB v. Factorias Vulcano S.A., High Court, Dublin, Ireland, 19 May 2004, XXX Y.B. COM. ARB. 591 (2005).
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50. This conclusion is more commonly reached with regard to procedural irregularities. For example, in a case where it was alleged that the award was procured through fraud, the English courts held that it would not be appropriate to refuse recognition if the relevant evidence was available at the hearing before the arbitral tribunal or if the allegation has been raised with the tribunal and has been rejected.100 Other common law jurisdictions have also held that a party that failed to raise a procedural irregularity with the arbitral tribunal, while it could do so, has waived its right to do so at the enforcement stage.101
100. See Westacre Investments Inc. v. Jugoimport-SDPR Holding Co. Ltd., Court of Appeal, England and Wales, 12 May 1999, [2000] QB 288; Minmetals Germany GmbH v. Ferco Steel Ltd., High Court of Justice, Queen’s Bench Division, Commercial Court, England and Wales, 20 January 1999, [1999] CLC 647; Omnium de Traitement et de Valorisation S.A. v. Hilmarton Ltd., High Court of Justice, Queen’s Bench Division, Commercial Court, England and Wales, 24 May 1999, [1999] 2 Lloyd’s Rep. 222.
101. See, e.g., Gao Haiyan & anor. v. Keeneye Holdings Ltd. & anor., Court of Appeal, Hong Kong, 2 December 2011, CACV 79/2011; Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, Court of Appeals, Fifth Circuit, United States of America, 23 March 2004, 364 F.3d 274; Europcar Italia S.p.A. v. Maiellano Tours Inc., Court of Appeals, Second Circuit, United States of America, 2 September 1998, 156 F.3d 310; AAOT Foreign Economic Association (VO) Technostroyexport v. International Development & Trade Services Inc., Court of Appeals, Second Circuit, United States of America, 23 March 1998, XXIV Y.B. COM. ARB. 813 (1999).
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51. Similarly, civil law jurisdictions have considered that a party that has failed to seize the arbitral tribunal of a procedural irregularity should be barred from doing so at the enforcement stage.102 By contrast, where the party has lodged the complaint with the arbitral tribunal and reserved its rights, the French Court of Cassation held that that party ought to be permitted to raise the same complaint at the enforcement stage.103
102. See, e.g., SAS C22 v. Soc. John K. King & Sons Limited Frontier Agriculture Ltd., Court of Appeal of Paris, France, 10 April 2008. See also, Bundesgerichtshof [BGH], Germany, 14 April 1988, III ZR 12/87, where the German Court of Cassation held that there is no breach of public policy where a party fails to raise a procedural irregularity in a timely manner with the tribunal or the institution administering the arbitration. See also Bundesgerichtshof [BGH], Germany, 6 March 1969, VII ZR 163/68; K.S. A.G. v. C.C. S.A., Execution and Bankruptcy Chamber of Tessin, Switzerland, 19 June 1990, XX Y.B. COM. ARB. 762 (1995); Oberlandesgericht [OLG] Hamm, Germany, 2 November 1983, 20 U 57/83.
103. See Siemens A.G. v. BKMI Industrienlagen GmbH, Court of Cassation, France, 7 January 1992, XVIII Y.B. COM. ARB. 140 (1993).
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52. Certain courts have accepted that procedural irregularities may not be raised at the enforcement stage if the party opposing recognition and enforcement has failed to raise them in annulment proceedings brought before the courts of the seat of the arbitration.104 Given the rejection by the New York Convention of the double exequatur requirement105, this line of case-law seems somewhat at odds with the text and spirit of the Convention which enables a party to rely on an irregularity in the procedure before the arbitral tribunal in order to oppose recognition and enforcement under the New York Convention.
104. Oberlandesgericht [OLG] Frankfurt, Germany, 18 October 2007, 26 Sch 1/07.
105. See the commentary on article V(1)(e) of the New York Convention.
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53. Article V(2)(b) of the New York Convention provides that a foreign award may be refused recognition if the court where recognition and enforcement is sought “finds that” that the recognition and enforcement is contrary to the public policy of the forum where recognition and enforcement is sought. The question has thus arisen as to whether the courts can review an award on grounds of public policy ex officio, the identity of the party which bears the burden of proof, and the standard of proof to be met.
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54. Regarding the ability of a court to review a foreign award on public policy grounds ex officio, there is a notable difference in wording between article V(1) and V(2) of the New York Convention. Article V(1) states that recognition and enforcement of an award may be refused “at the request of the party against whom it is invoked”. By contrast, article V(2)(b) provides that recognition and enforcement may be refused “if the competent authority in the country where recognition and enforcement is sought finds that […] the recognition and enforcement of the award would be contrary to the public policy of that country”.106
106. During the negotiation of the Convention, the Netherlands Government pointed out that courts are allowed to proceed to an ex officio review of public policy: see Travaux préparatoires, Recognition and Enforcement of Foreign Arbitral Awards: Comments by Governments on the Draft Convention on the Recognition and Enforcement of Foreign Arbitral Awards, E/CONF.26/3/Add.1, at 4. The same view was expressed by the Swedish Government: Summary Record of the Seventeenth Meeting, E/CONF.26/SR.17, at. 2. See also Albert Jan van den Berg, The New York Convention of 1958: An Overview, in ENFORCEMENT OF ARBITRATION AGREEMENTS AND INTERNATIONAL ARBITRAL AWARDS, THE NEW YORK CONVENTION IN PRACTICE 39, at 55679 (E. Gaillard, D. Di Pietro, eds. 2008).
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56. However, the ability to review an award for breach of public policy does not solely arise out of the difference in wording of paragraphs (1) and (2) of article V. It is also linked to the essence of public policy as a concept that allows the courts to reject a violation of it most fundamental norms of justice. The English courts have thus held that “the defence that enforcement would be contrary to public policy is stated without an express burden of proof […]. This is no doubt because it must always be open to the court to take a point of public policy of its own motion”.108
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59. In a case heard by the Court of Appeal of Hong Kong, it was held there was no proof of actual bias in a case where one of the arbitrators had had dinner with a person related to the respondent in the arbitration in the context of mediation, even though that would have been seen as bias in Hong Kong, because such dinners were normal course of business in the context of mediation at the place of the arbitration.112 The Court of Final Appeal of Hong Kong held that what is required is proof of actual bias and not of mere impartiality.113
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6. Similarly, the Federal Court of Australia has recently decided that “it is only those aspects of public policy that go to the fundamental, core questions of morality and justice in [the] jurisdiction [where enforcement is sought] which enliven this particular statutory exception to enforcement”.7 In the same vein, the Hong Kong Court of Final Appeal defined an award that violates public policy as an award that is “so fundamentally offensive to [the enforcement jurisdiction]’s notions of justice that, despite its being party to the Convention, it cannot reasonably be expected to overlook the objection”.8
8. Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd., Court of Final Appeal, Hong Kong, 9 February 1999, [1999] 2 HKC 205. For a similar definition, see Karaha Bodas Company LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara and P.T. PLN (Persero), Alberta Court of Queen’s Bench, Canada, 9 December 2004, 2004 ABQB 918. For an insistence on the “essential” nature of the legal principles that public policy seeks to protect, see Soc. Des Ciments d’Abijan v. Soc. Burkinabè des Ciments et Matérieux, Court of First Instance, Ouagadougou, Burkina Faso, 13 June 2001.
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60. Although it is not clear whether other courts would have followed the reasoning of the courts of Hong Kong in assessing the existence of bias by reference to the standard existing at the place where the relevant facts took place, rather than the standard existing under their own law, several courts have demanded that the party alleging fraud should present clear and convincing evidence to that effect, show that the fraud in question was not discoverable during the arbitration and that it was materially related to an issue in the arbitration. In other words, in cases of fraud or bias, where the public policy exception under the New York Convention is invoked, courts often require an additional fact to be proven, namely that the defect is such to influence the outcome of the arbitration.114
114. See, e.g., Westacre Investments Inc. v. Jugoimport-SPDR Holding Ltd & others, Court of Appeal, England and Wales, 12 May 1999, [2000] 1 QB 288; Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Petarmina), Court of Appeal, Hong Kong, 9 October 2007, CACV 121/2003; Karaha Bodas Co. LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, Court of Appeals, Fifth Circuit, United States of America, 23 March 2004, 364 F.3d 274. It is worth noting that the German courts apply the same approach as to fraud, namely that it should be such to influence the outcome of the arbitration, also to due process violations: see, Hanseatisches Oberlandesgericht [OLG] Bremen, Germany, 30 September 1999, (2) Sch 04/99; Bundesgerichtshof [BGH] Germany, 15 May 1986, III ZR 192/84.
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61. This heightened standard of proof is compatible with the exceptional nature of the public policy defense as well as with the fact that article V(2)(b) provides a mere facility to the courts and not an obligation. Although courts may proceed to an ex officio review of the award for a breach of public policy, the fact that they place the burden of proof on the party opposing recognition and enforcement as well as the heightened standard of proof demonstrate an international consensus as to the pro-enforcement bias of the New York Convention and the conservative manner in which the public policy defense should be employed.
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62. The sanction for an award that is found to be contrary to public policy is that the courts of a Contracting State may refuse to grant recognition and enforcement. While that power is discretionary in the sense that the New York Convention does not require that recognition and enforcement be refused (“[r]ecognition and enforcement of an arbitral award may also be refused”), certain courts have decided that, where it is possible to sever the part of the award which is contrary to public policy, the rest of the award will be recognized and enforced.
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63. The High Court of Hong Kong was faced with this issue in a case concerning an award which had been challenged on the ground of fraud and in particular that a witness had been kidnapped and forced to make a false affidavit. The High Court held that “[i]f an award contained an objectionable part it would be absurd if the remainder of the award was to fail as well”.115 It thus allowed the enforcement of the award insofar as it related to the reimbursement of a deposit for the sale of undelivered goods, an issue which in its view would not be affected by the public policy challenge.
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64. While article V(2)(b) of the New York Convention does not explicitly limit itself to the part of the award which is challenged under public policy, the High Court of Hong Kong considered that such an interpretation was appropriate and compatible with article V(1)(c), which provides for the severability of the part of the award that “deals with a difference not contemplated by or falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”.
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65. Other examples of awards where the part contrary to public policy was severed and the recognition and enforcement was granted to the rest of the award include cases where the award ordered the payment of interest of such magnitude that was considered contrary to public policy. In those cases, the courts severed either the part of the award on interest as a whole116 or the part of the interest sum exceeding what would be considered appropriate in the enforcement State.117
116. See Laminoires-Trefileries-Cablerie de Lens S.A. v. Southwire Co. and Southwire International Corp., District Court, Northern District of Georgia, United States of America, 18 January 1980, 484 F.Supp. 1063 (1980); Oberster Gerichtshof, Austria, 26 January 2005, 3Ob221/04b, XXX Y.B. Com. Arb. 421 (2005).
117. See Harbottle Co. Ltd. v. Egypt for Foreign Trade Co., Court of Cassation, Egypt, 21 May 1990, 815/52.
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7. The Swiss courts have also defined the public policy exception under the Convention by reference to the concept of justice. In a seminal judgment regarding the definition of public policy, albeit in the context of an action to set aside, the Swiss Federal Tribunal held that an award contravenes public policy “if it disregards essential and widely recognized values which, according to the conceptions prevailing in Switzerland, should form the basis of any legal order”.9 In more recent decisions, the Swiss Federal Tribunal has defined an award which is contrary to public policy as an award which violates the Swiss concepts of justice in an “intolerable manner”.10
9. X S.p.A. v. Y S.r.l., Federal Tribunal, Switzerland, 8 March 2006, Arrêts du Tribunal Fédéral (2006) 132 III 389; Paolo Michele Patocchi, The 1958 New York Convention: The Swiss Practice, 1996 ASA BULLETIN 145, at 188-196. For a similar definition, see Kersa Holding Co. Luxembourg v. Infancourtage Famajuk Investment & Isny, Superior Court of Justice, Luxembourg, 24 November 1993, XXI Y.B. COM. ARB. 617 (1996), at 624, para 23.
10. See, e.g., Federal Tribunal, Switzerland, 10 October 2011, 5A_427/2011; Federal Tribunal, Switzerland, 28 July 2010, 4A_233/2010. For a similar definition, see Supreme Court, Austria, Case 3Ob221/04b, 26 January 2005, XXX Y.B. COM. ARB. 421(2005), at 427, para. 15: it is for the Austrian courts to decide “whether the arbitral award is irreconcilable with the fundamental principles of the Austrian legal system because it is based on a foreign legal principle which is totally irreconcilable with the domestic legal system”.
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8. The French courts have taken a similar approach. For example, the Court of Appeal of Paris defined international public policy as “the body of rules and values whose violation the French legal order cannot tolerate even in situations of international character”.11
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9. The German courts have considered that an award contravenes public policy when it violates a norm which affects the basis of German public and economic life or irreconcilably contradicts the German perception of justice.12 The Supreme Court of Cyprus also interpreted public policy exception under the Convention to mean the fundamental principles which a society recognizes, at a given time, as governing transactions as well as other manifestations of the life of its members, and on which the legal order to which the enforcement court belongs is based.13
12. See, e.g., Oberlandesgericht [OLG] Munich, Germany, 28 November 2005, 34 Sch 019/05; Oberlandesgericht [OLG] Düsseldorf, Germany, 21 July 2004, VI Sch (Kart) 1/02; Hanseatisches Oberlandesgericht [OLG] Bremen, Germany, 30 September 1999, (2) Sch 04/99; Bundesgerichtshof [BGH] Germany, 18 January 1990, III ZR 269/88.
13. The Attorney General of the Republic of Kenya v. Bank für Arbeit und Wirtschaft AG, Supreme Court, Cyprus, 28 April 1999, XXV Y.B. COM. ARB. 641 (2000), at 698, para. 18. See also for a similar definition, Court of Cassation, Greece, 30 June 2009, 1665/2009, XXXVI Y.B. COM. ARB. 284(2011); Misr Insurance Co. v. Alexandria Shipping Agencies Co., Court of Cassation, Egypt, 23 December 1991, 547/51; BCB Holdings Limited and The Belize Bank Limited v. The Attorney General of Belize, Caribbean Court of Justice, Appellate Jurisdiction, 26 July 2013, [2013] CCJ 5 (AJ).
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