Nidhi Singh
Advocate on Record, Supreme Court of India & Litigation & Trial Attorney, Los Angeles, USA
Non-Resident Fellow (Law), Dhirubhai Ambani School of Law, India
The growth of international commerce has made arbitration the preferred method for resolving cross-border disputes. Arbitration offers parties the ability to select their own arbitrators, choose applicable laws, and secure final, binding awards without protracted litigation. However, this finality is not absolute. The most debated exception is the challenge to arbitral awards on the ground of public policy—a principle that has come to be regarded both as a safety valve and an “unruly horse.”
A. Understanding the Public Policy Exception
Both the New York Convention on the Recognition and Enforcement of Arbitral Awards (1958) and the UNCITRAL Model Law (1985) permit courts to refuse recognition or enforcement of awards that violate public policy. The rationale is to safeguard fundamental principles of justice, morality, and sovereignty. Public policy exceptions were never meant to serve as a blanket tool for dissatisfied parties; rather, they were to be used sparingly, only when enforcement would compromise essential norms of the forum state.
Yet, the lack of a clear definition has led to divergent interpretations across jurisdictions. Public policy has been described as encompassing economic, legal, moral, political, and social standards so sacrosanct that they require protection at all costs. Its ambiguity has created space for misuse, with losing parties often invoking it as a delay tactic to resist enforcement.
B. Comparative Judicial Approaches
Different jurisdictions have developed distinct approaches to the application of public policy in arbitration:
- England: English courts recognize domestic public policy as paramount but retain discretion to enforce awards even when grounds for refusal exist. The courts tend to adopt a narrow interpretation, emphasizing that enforcement should not be denied unless it conflicts with fundamental notions of morality and justice.
- France: French courts have historically adopted a pro-enforcement stance. They differentiate between domestic and international public policy, often prioritizing international comity. An annulled award at the seat may still be recognized in France, underscoring its independence from rigid domestic interpretations.
- India: Indian jurisprudence initially interpreted public policy broadly, particularly in the ONGC v. Saw Pipes decision, which allowed annulment for “patent illegality.” This widened the scope far beyond the international standard. However, subsequent reforms and rulings, such as Shri Lal Mahal v. Progetto Grano, have sought to narrow the approach and align with global trends.
- Singapore: Singapore adopts a restrained view, invoking public policy only when enforcement would shock the conscience, injure the public good, or offend the most basic notions of justice. Courts avoid rehearing the merits of the case, focusing instead on whether recognition would violate core principles.
- China: Chinese courts often rely on the concept of “social and public interest.” While this can lead to expansive interpretations, as in cases rejecting awards for reasons such as offending “national sentiments,” recent rulings have demonstrated a gradual shift toward a narrower understanding consistent with international practice.
These variations demonstrate the tension between respecting international arbitration’s autonomy and protecting state sovereignty.
C. Substantive Norms in Public Policy Challenges
Certain substantive issues recur frequently in public policy debates:
- Excessive interest payments: Courts have struck down awards granting interest rates considered usurious or unconscionable.
- Competition and antitrust law: Awards conflicting with national or regional competition regimes, such as EU competition law, often raise public policy concerns.
- Insolvency rules: While insolvency typically bars enforcement of awards, some jurisdictions allow enforcement as a preliminary measure, leaving distribution to domestic insolvency processes.
- Foreign exchange controls: Awards involving currency restrictions may clash with domestic monetary regulations but can be accommodated through conversion provisions.
- Illegal contracts: Perhaps the clearest ground, awards enforcing contracts tainted by illegality, such as smuggling or corruption, are routinely denied enforcement.
These examples show that while public policy is invoked flexibly, there is some convergence around certain non-negotiable norms.
D. The Changing Trend
Internationally, there has been a push toward harmonization. Reports of the International Law Association and evolving Model Law jurisprudence advocate for a narrow and uniform interpretation of public policy, emphasizing its use only in exceptional circumstances.
Concepts such as international public policy—distinct from purely domestic concerns—have gained traction in jurisdictions like France and Switzerland. The principle of comity, which stresses respect for foreign legal systems and obligations, also supports a more restrained approach.
Delocalisation theory further strengthens this argument, suggesting that arbitral awards should not be tethered to any one national legal system but viewed as autonomous international instruments. Such an approach minimizes opportunities for forum shopping and conflicting interpretations.
E. The Road Ahead
Several proposals have been advanced to resolve the public policy conundrum:
- Defining Public Policy More Clearly: While a precise definition may be impossible, enumerating mandatory norms—such as illegality, corruption, or antitrust violations—would provide guidance.
- Regional and Multilateral Forums: Efforts at harmonisation, similar to OHADA in Africa or EU jurisprudence, could foster greater predictability. Organizations like UNCITRAL, OECD, or ASEAN may play pivotal roles.
- Procedural Integration: Public policy questions could be addressed during arbitration itself, with tribunals empowered to consider potential conflicts upfront rather than leaving them for post-award judicial review.
- Competence-Competence for Public Policy: Just as tribunals decide on their own jurisdiction, they could be entrusted to assess public policy challenges, limiting unnecessary judicial intervention.
- Reasoned Awards: Ensuring that arbitral awards provide clear reasoning enhances transparency and strengthens enforceability by reducing grounds for challenge.
F. Conclusion
Nearly two centuries after the English judiciary likened public policy to an unruly horse, the metaphor still resonates. Public policy remains unpredictable, capable of undermining the stability of arbitration if left unchecked. Yet, progress is evident. Courts across jurisdictions increasingly advocate narrow and internationally consistent interpretations, moving toward harmonization rather than divergence.
In the 21st century, where cross-border commerce dominates global relations, international arbitration must live up to its promise of finality. This is only possible if the public policy exception is applied sparingly, with clarity and consensus. By distinguishing between domestic sensitivities and international imperatives, empowering tribunals, and fostering cooperation among legal systems, arbitration can achieve true finality while preserving the core values of justice and sovereignty.
The safety valve must remain in place—but it must be used as intended: not as a tool for endless litigation, but as a last resort for protecting the most fundamental principles of law and morality.