Arbitration is a private dispute resolution process where the parties in conflict agree to give authority to a few credible individuals to decide on their case after listening to both ideas and gathering enough evidence. It is a procedure where disputes are resolved outside the courts. Once decided, the arbitration award (decision) is binding on both sides involved, and also has to be enforced by the courts. The process of arbitration might seem similar to that of litigation but is different mainly because here the cases are privately decided while litigation calls for procedures in public. Due to the arbitrations mostly revolving around commercial issues, a separate branch of international arbitration emerged which solely deals with disputes arising from commercial transactions between private parties. Generally, commercial arbitration was utilized in settling debates between traders in fairs and commercial centers in England and the rest of Europe.[1]
The scope of commercial arbitration broadened after the national courts were allowed to enforce the party's agreement to arbitrate. Though there exist international arbitration laws to regulate the dispute resolution through arbitration each country has its domestic arbitration regime as well for the implementation of arbitration awards following the countries' local laws and policies. As arbitration is an alternative way of dispute resolution for the parties who do not prefer to go to courts then there exist chances that a country's national laws and the undesired involvement of local bodies might hinder the enforcement. This calls for an effort to harmonize the law and practice to remove any sort of peculiarities.[2] But harmonization of international and national arbitration laws is not easy and one of the chief reasons behind this is the opposition of states themselves. Besides, public policy has also remained quite possibly the most discussed and touchy ideas in the enforcement of arbitral awards. The public policy serves the role of a defense tool and challenges the enforcement of commercial arbitral awards nationally. This is a matter of real concern as it is not only impacting the parties involved but the overall credibility of international commercial arbitration. The paper aims at discussing public policy
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as a major reason behind the refusal of "foreign arbitral awards in international commercial arbitration in the USA". The research is qualitative and opts for a content analysis approach to find out the connection of public policy with the arbitration and highlights the potential reasons behind refusal.
Any arbitral award has to go through several stages to assess it following the domestic laws before enforcement. This was initially called a double exequatur, a phenomenon not accepted by the US or Russia after the second great war. But as the international trade increased, so in 1958 New York Convention was signed by the US and Russia, being the primary signatories of the agreement. Later, the agreement was ratified by over 150 countries in the world to regulate the process of arbitration domestically.[3] The Convention provides the way forward for the acknowledgment and implementation of commercial or other arbitral awards in an alternate signatory state. The Convention set forth certain conditions for the refusal of the implementation of foreign arbitral awards. These incorporate invalid arbitration arrangements or the gatherings involved, an improper notice of the appointment of the arbitrators, arbitration award falling outside the scope of arbitration terms, the ill-advised creation of the arbitral tribunal, and non-final or non-binding arbitral honors. The most important clause of the New York Convention was on public policy that an arbitral award or understanding will be refused if its acknowledgment and authorization conflict with the public policy of the nation. The Convention accepts the public policy which includes the national laws and public procedures and policies as a refusal to implementation of arbitration. The US is the only country in the world that enforces arbitration awards through a treaty i.e. New York Convention as discussed here.[4]
Public policy is one major ground used by the parties to resist the enforcement of arbitral awards. One of the reasons behind this is the approach adopted by the local courts to deal with public policy and commercial arbitration together. The New York Convention did provide a clause that an arbitral award could be rejected or refused if it goes against public policy or domestic laws but fails to address the procedure of refusal. This leaves it up to the discretion of the national laws on what procedure they opt for refusing arbitral awards to from being enforced in their countries particularly. Interpretation and public policy are generally in the favor of arbitral honors like in the US and China. This demeanor itself is called public policy.
For a dispute to be referred to arbitration in the United States, the parties involved in the dispute have to mutually agree to submit their case to arbitration. The parties majorly do this when any conflict arises or predecide it while getting into a contract
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with each other. In the US, arbitration is referred to as a much speedier process as compared to litigation due to its slow nature. Arbitration agreements in the United States are enforced through the Federal Arbitration Act passed in 1925. The act was re-interpreted in the 1980s and 1990s by the US Supreme Court to allow it to cover the full scope of interstate commerce. This was the time when arbitration took the shape of consumer or commercial arbitration. In 1983, under the case of Moses Memorial Hospital vs Mercury Construction[5], the congress of America made a "declaration of a liberal federal policy favoring arbitration agreements." The country has separate commercial arbitration laws particularly for the enforcement of arbitration awards related to commerce. The states have embraced the Uniform Arbitration Act of 1955 which was advanced by the officials of uniform state laws just as the American Bar Association. Under the 1955 act, the judicial enforcement of commercial arbitration is provided. It calls the arbitration decision irrevocable under the common law. This is a modern concept of harmonizing international arbitration law with national laws to involve the local institutions in the enforcement of arbitration agreements.
Anusornsena (2012) in her article says that though the FAA provides legal safeguards to the process of arbitration uncertainty or arbitration still occurs even after its promulgation.[6] Even after the amendment of 1955 and the agreement to "the New York Convention", public policy remained an important obstacle in restricting arbitration in the US. The FAA does not provide a proper procedure on what to do with the arbitral awards if they are invalid to be implemented or violated the public policy but requires the courts to put the proceedings to stay. Later under the Convention, the courts were given the chance to deny the enforcement of arbitral honors on the off chance that they negate the country's public policy.
US courts have opted for quite a "conservative approach to the issue of public policy" and refusal or enforcement of international arbitral awards. Before adapting to the "New York Convention", the US courts had a very narrow view of interpreting arbitral awards following Article 5 (2b) of the FAA, the country was more inclined towards protecting national interests. This is visible in some of the important cases of the arbitration including Wilko vs Swan case[7] where the arbitral awards were refused as it challenged the US security laws and came in conflict with federal statute hence it was non-arbitrable. In another case of Breman vs Zapata Offshore Company[8], the companies agreed to resolve the dispute through arbitration, but their contract included an exculpatory clause which conflicted with the public policy.
The United States has a strong bias in terms of the enforcement of arbitral awards. It started developing a favor-
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able view towards arbitration with time. It is observed that there are several defenses available in the United States other than public policy exception for the acknowledgment and implementation. Yet so far, no case has ascended under the "New York Convention" and FAA that the courts in the states have declined to enforce or recognize. Several cases in the arbitration history of America highlight the pro-arbitration public policy of the country. The revolutionary attitude of the United States can be observed in cases such as that of Scherk vs Alberto Co.[9] The Supreme court while enforcing the arbitral award put forth an important point that is, "We cannot have trade and commerce in the world market and waters based on our terms and laws". This first makes it essential to acknowledge the international laws, also to recognize the arbitration agreements for the smooth working of the commerce and economy majorly. The US courts again showed a pro-arbitration attitude in the case of American Construction Machinery vs Mechanized Construction of Pakistan Ltd[10]. About public policy and the authorization of arbitral awards, In Parsons case[11], it was made clear that arbitral awards can be refused in case it violates the basic notion of "morality and justice" in the country.[12] The Parsons case proved to be a landmark case that set a standard for dealing with future arbitral awards by narrowly construing public policy. The US courts have been very restrictive when it comes to the public policy defense of the arbitral agreements. The courts have made sure that the publie policy interference by the national courts on the international arbitration should be negligible and that the public policy protection under the "New York Convention" should be deciphered barely.[13]
Though the United States has adopted a pro-arbitration attitude one thing is notable here that the foreign judgment or award cannot be enforced in the United States if it goes against the set standards and procedures by the country itself.[14] One of the key issues that lack due process is the language in which the proceedings or award is received or sent to the state where it has to be enforced.[15] The law of the state is quite well established as stated above when it comes to the enforcement of foreign agreements. The decline or refusal only comes in the case where international agreements or awards vary in quality and effectiveness. This issue has been addressed in the Julen vs Larson case[16] where the Swiss judgment was not enforced in the state of California because the service of the process was in German without an English translation provided to the defendant to satisfy the due process. This was one major occasion where the court stopped the enforcement of default judgment because Swiss courts did not provide the defendant with adequate time to satisfy the requirements of due process of the law and just aimed at imposing the arbitration decision on him. In another case Qingdao Intl. Trading vs P and S Intl. (2009)[17], the latter could not understand the documents issued by the former related to the arbitration proceedings, this led to the absence of P and S
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from the proceeding resulting in the issuance of the default arbitral award against them. The award was declared to be unenforceable because of P and S Intl. did not receive the due process of the arbitration. From this perspective, it is noticeable that there exist similarities between US arbitration law and the "New York Convention" with regards to the refusal of authorization of arbitral honors.
Kuck and Nelson (2020) in their article states that US courts are very prompt and efficient while enforcing arbitral awards.[18] They keep in focus all safeguards to domestic laws and policy while doing so. US companies while entering into cross-border agreements add the clause of arbitration as an easier and fast way to deal with any dispute that might arise. The New York Convention is enshrined in the Federal Arbitration Act, and America follows it religiously which is why in many recent cases the courts have rejected the attempts by the losing parties to resist enforcement of foreign awards. The pro-arbitration limits and conditions were further demonstrated in 2019 in the case of Al-Qarqani vs Chevron US Corporation[19]. Here it was argued that the arbitration proceedings and the tribunal must not violate the arbitration agreement to get it enforced once decided. Otherwise, US courts may decline to enforce the arbitral award. Keeping this in focus, the "Convention on the Recognition or Enforcement of Foreign Judgements in Civil and Commercial matters" was set to open for signature but received close to no adherence afterward.[20]
Appadoo (2013) lists down various reasons which have also become the chief ground of the international commercial arbitral awards being refused. US courts have, in recent years, declined the arbitral awards because they lacked personal jurisdiction.[21] It is the primary requirement of the enforcement for the courts or circuits to demonstrate personal or quasi in rem jurisdiction. Also, the doctrine of forum non conveniens, a non-legislative requirement, bars the enforcement of the arbitral awards. These two notions oppose the idea of harmonization of international commercial arbitration while also goes against "the New York Convention" which stresses the fact of unifying the local standards for enforcing arbitral awards.
Commercial Arbitration remains the most widely used dispute resolution in the United States besides public policy refusal especially when it comes to resolving business disputes. It is because of the easy arbitration and enforcement process after the New York Convention mainly. The United States public policy is clear and straight when it comes to the recognition, refusal, and interpretation of international arbitral awards. The country itself has created specific laws solely responsible for the proper implementation of the agreements so they may not contradict both domestic and foreign laws. Every enforcement that has to take place within the United States has to be in harmony with the
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public policy and domestic laws for which the American courts are trying their level best. In the case discussed in the paper, the views of the United States in the matter of arbitrarily seem to be very narrow. At the same time, the states have limited their public policy and national laws to provide arbitration a wider ground to operate. The approach of the American courts has not changed since the Parsons case and continues to give the Public Policy defense a narrow room for interpretation. The scope of public policy is gradually and slowly decreasing. It is believed that, within the next few years, the US will also opt for the Model Law and doctrine of harmonization of International Commercial Arbitration with the domestic laws. ■
JEGYZETEK
[1] Martin Domke: Arbitration Law. Encyclopedia Britannica, 2019, https://www.britannica.com/topic/arbitration#ref212248 (downloaded on: 19 December 2020).
[2] Renata Brazil-David: Harmonization and De-localization of International Commercial Arbitration. Journal of International Arbitration 28(5), 2011. 445466.
[3] J. Stewart McClendon: Enforcement of Foreign Arbitral Awards in the United States. Northwestern Journal of International Law and Business 4, 1982. 58.
[4] Yunus Emre: A refusal reason of recognition and enforcement of foreign arbitral awards: public policy. Zbornik radova Pravnog fakulteta u Splitu 56(2), 2019. 503-522.
[5] Case Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983).
[6] Veena Anusornsena: Arbitrability and Public Policy in Regard to the Recognition and Enforcement of Arbitral Award in International Arbitration: the United States, Europe, Africa, Middle East and Asia, 2012.
[7] Case Anthony Wilko v. Joseph E. Swan, et al, 346 U.S. 427, 74 S. Ct. 182 (1953).
[8] Case The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).
[9] Case Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)
[10] Case American Const. MacHinery & Equipment Corp. v. Mechanised Const. of Pakistan, 659 F. Supp. 426 (S.D.N.Y. 1987).
[11] Case Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA) and Bank of America, 508 F.2d 969 (2d Cir. 1974).
[12] Sameer Sattar: Enforcement of Arbitral Awards and Public Policy: Same Concept, Different Approach. Transitional Dispute Management Journal 8(5), 2011. 6.
[13] McLaughlin-Joseph T.-Laurie Genevro: Enforcement of arbitral awards under the New York Convention-practice in US courts. International Tax and Business Lawyer 3, 1985. 249.
[14] May Lu: The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards: Analysis of the Seven Defenses to Oppose Enforcement in the United States and England. Arizona Journal of International and Comparative Law 23, 2005. 747.
[15] M Christie Helmer-Jovita T Wang: Enforcement Of Foreign Arbitration Awards in The United States: English Language Notification of Initiation Of Proceedings May Be Needed To Satisfy Due Process. Newsletter of the International Bar Association Legal Practice Division, 2012. 75-77.
[16] Case Julen v. Larson, 101 Cal. Rptr. 796 (Cal. Ct. App. 1972).
[17] Case Qingdao Free Trade Z Genius Int'l Trading v P&S Intl, No 08-1292-HU. (D Or 16 September 2009).
[18] Lea Haber Kuck-Timothy G. Nelson: Enforcing International Arbitration Awards: US Courts Achieve Prompt And Efficient Enforcement, With Safeguards. Skadden's 2020 Insights, 2020. https://www.skadden.com/insights/publications/2020/01/2020-in-sights/enforcing-international-arbitration-awards (downloaded on: 21 December 2020).
[19] Case Al-Qarqani, et. al. v. Chevron Corporation et al, 4:18-cv-03297.
[20] Issues Relating To Challenging And Enforcing Arbitration Awards: Grounds To Refuse Enforcement, Norton Rose Fulbright, 2019, https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-en-forcement (downloaded on: 14 December 2020).
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[21] Krishnee Appadoo: Enforcement of International Commercial Arbitral Awards: Redress Mechanisms in the Event of Non-Compliance, 2013, http://dx.doi.org/10.2139/ssrn.2244872 (downloaded on: 13 December 2020).
Lábjegyzetek:
[1] The Author is PhD Student, Géza Marton Doctoral School of Legal Studies University of Debrecen.
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