Ganesh A. Khemka

Not every violation of municipal law must be deemed to be either “patently illegal”  or contravening public policy.

This is the second post in a two part series. Click here to read the first post.

Globally, courts have adopted a deferential standard towards arbitral awards and courts in most developed countries, except in the absolutely extreme circumstances, have refused to intervene in the enforcement of awards. In doing so, courts have sought to preserve the autonomy of parties, being cognizant of the nature of international commerce, and have adopted “minimal curial intervention” to acknowledge primacy of the dispute resolution mechanism, expressly chosen by parties free to contract. [1] Most decisions have interpreted public policy narrowly, restricting intervention to substantial violations of procedure or substantive justice resulting in violation of fundamental principles of justice[2], or intolerable ignorance or corruption[3] or affecting very foundations of public and economic life.

Often times, enforcement of an award results in violation of municipal law, as a result of differences in national legislations. Hence, an award concerning a gambling contract might be legal in Macau, but not in India. Hence, countries restrict enforcement of arbitral awards, on grounds of violation of public policy. However, decisions across jurisdictions show that not every violation of mandatory law is unenforceable, [4] with some jurisdictions requiring the award to infringe provisions essential for society as a whole,  an approach also adopted by Croatian Courts.[5] However, there is a derogation in this uniformity of standard by developing countries like Kenya, which deem any award inconsistent with any law of Kenya, whether written or unwritten, contrary to public policy.

Further, Sec. 34 of Model Law, and its adaptation under the ACA uses the term “in conflict” as compared to “contrary to” used in Sec. 36 of the Model Law and its analogous Sec. 48 of the ACA. This, demonstrates that the public policy applicable to international commercial arbitration, differs not just in substance but also in degree. [6][7] Some Spanish courts have interpreted “patent illegality” as occurring when “principles absolutely mandatory for preservation of a societal model” are violated.

The need for having both differential categories and a higher standard for foreign awards is hence clear. Indian courts too must aim to assess the extent to which fundamental constitutional safeguards or principles of justice have been violated, with the aim of achieving a balance between commercial value and the effect on society and law in India.

This determination must be guided by the lack of precedential value of such awards, and consideration of public policy must keep in mind national aims, including increasing expediency in dispute resolution mechanisms, and enforceability of contracts. Accordingly, not every violation of municipal law must be deemed to be either “patently illegal” (even in context of domestic awards, post BALCO and Sec. 34(2A)) or contravening public policy, but only those which are fundamental to legal or social order, like the Indian Penal Code.

Ganesh A. Khemka is a 5th Year B.A., LL.B (Hons.) student at the National Law School of India University, Bengaluru

[1] CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK, Court of Appeal, Singapore, 13 July 2011, [2011] SGCA 3, para. 25.

[2] Zimbabwe Electricity Supply Authority v. Genius Joel Maposa, Supreme Court, Zimbabwe, 21 October and 21 December 1999.

[3] Re Corporación Transnacional de Inversiones, S.A. de C.V. et al. v. STET International, S.p.A. et al., Ontario Superior Court of Justice, Canada, 22 September 1999], [1999] CanLII 14819.

[4] Smart Systems Technology Inc. v. Domotique Secant Inc., Quebec Court of Appeal, Canada, 11 March 2008, [2008] Q.J. No. 1782.

[5] Supreme Court, Croatia, 30 May 2008, Gž 2/08-2.

[6] Bundesgerichtshof, Germany, III ZB 17/08, 30 October 2008.

[7] But see, AJT v. AJU, Court of Appeal, Singapore, 22 August 2011, [2011] SGCA 41, para. 37.

Image Source: The Straits Times