Public Policy In International Arbitration

International arbitration has become the preferred method for resolving cross-border business disputes. It offers neutrality, confidentiality, flexibility, and enforceability across many jurisdictions, thanks to treaties such as the New York Convention. Yet a final safeguard is reserved for even the most arbitration-friendly courts: public policy. This concept operates as a limit on what courts will tolerate when asked to recognize or enforce an arbitral award. For non-experts (and even some experts), "public policy" can feel like a black box—open-ended and unpredictable.

Functionally, public policy marks the outer boundary of what courts will countenance when supervising, recognizing, or enforcing awards. The focal questions are often the scope of public policy (domestic vs. international ordre public), the standard of review, the interaction between public policy and mandatory rules, and remedial responses when breaches of public policy are identified, such as annulment, refusal to enforce, severance, and remittal of a decision.

This article explains what public policy means, why it matters, where it applies, and how parties can manage the risks it presents.

What does public policy mean in international arbitration?

Public policy, in this context, refers to a state's fundamental legal and moral principles—those norms so essential that courts will not give effect to outcomes that contravene them. In international arbitration, public policy appears in three main settings.

• Arbitrators may consider it when deciding the merits if mandatory rules of law are implicated.
• Courts may invoke it to set aside an award at the seat of arbitration (see, e.g., UNCITRAL Model Law, Art. 34(2)(b)(ii)).
• Third, and most commonly discussed, courts may rely on it to refuse recognition or enforcement of an award where enforcement is sought (see, e.g., New York Convention art. V(2)(b).

Importantly, public policy in international arbitration is typically understood in a narrow sense. Courts generally distinguish between ordinary errors of law or fact, which are not grounds to refuse enforcement, and violations of fundamental principles - such as prohibitions on corruption and fraud, basic procedural fairness, and certain competition or sanction regimes. Public policy is not a license for a losing party to re-litigate the case. It is a safety valve for truly unacceptable outcomes.

At a high level, public policy in arbitration denotes a state's fundamental principles - legal and moral - whose breach the courts will not endorse. Contemporary practice distinguishes: (1) domestic ordre public (internal public policy), (2) international public policy (ordre public international), and (3) transnational public policy (a more contested set of widely accepted norms). International arbitration typically engages the second category.

How do national courts apply public policy in international arbitration?

Public policy operates differently depending on the jurisdiction and the procedural posture. The seat of arbitration determines the court with primary supervisory authority, which may set aside an award based on local arbitration law.

Separately, when a party seeks to enforce an award in another country, that country's courts apply their own understanding of international public policy to decide whether to recognize and enforce the award.

Most jurisdictions apply a high threshold. Courts tend to ask whether enforcement would be clearly incompatible with the forum's most basic notions of morality and justice. That approach balances deference to arbitral autonomy with the state's interest in upholding fundamental norms. As a result, successful public policy challenges are relatively rare and often involve egregious facts, such as bribery, perjury, money laundering, sham transactions, or serious denial of due process.

What is the difference between substantive and procedural public policy?

A helpful distinction is between substantive and procedural public policy. Substantive public policy concerns the content of the award: does it uphold transactions or conduct that the state deems illegal or immoral? For example, courts have refused to enforce awards premised on contracts tainted by corruption or bids rigging or where enforcement would breach sanctions. They have been cautious about awards that would facilitate criminal acts, frustrate export controls, or disregard competition law in a way that undermines core market policies.

Procedural public policy relates to how the arbitration was conducted. Here, the focus is on due process and the integrity of the proceedings. Typical issues include lack of notice, inability to present one's case, improper constitution of the tribunal, undisclosed conflicts of interest, violations of equality of arms, or departures from agreed procedures so serious that they affect the outcome. The key question is whether the procedural defect was so grave that it renders the award fundamentally unfair.

What are the roles of mandatory laws and transnational norms?

Public policy in international arbitration is not confined to any single statute. It draws on mandatory laws, constitutional principles, and sometimes transnational public policy. Mandatory rules are laws that apply regardless of the parties' agreement, such as criminal prohibitions, antitrust rules, sanctions, or certain financial regulations. Arbitrators and courts alike give effect to these rules when they form part of the forum's public policy.

Transnational public policy is a concept that captures widely accepted international norms, such as prohibitions on bribery and money laundering, basic procedural fairness, and respect for due process. While the precise content of transnational public policy is debated, tribunals sometimes invoke it where multiple legal systems converge on a principle, even if the seat's law is not explicit. That said, the court asked to enforce an award will ultimately apply its own public policy standards, which limits the practical reach of transnational notions.

The New York Convention and the narrow exception to enforcement

The New York Convention, the cornerstone of international arbitration enforcement, allows courts to refuse recognition and enforcement of an arbitral award if doing so would be contrary to the public policy of the enforcing country. This is one of only a few limited defences. The drafters intended the exceptions to enforcement to be applied sparingly to protect the Convention's goal of facilitating the free movement of arbitral awards. Most national courts have followed that intent by interpreting public policy narrowly and requiring clear and compelling evidence.

Even so, the public policy exception is flexible. It evolves with societal priorities. In recent years, courts have scrutinized awards more closely where sanctions, human rights considerations, or serious compliance issues are implicated. The trend underscores that public policy is not static; it reflects current legal and moral baselines.

Common scenarios where public policy concerns arise

Several recurring themes animate public policy objections. Allegations of corruption arise frequently, especially in infrastructure and extractive industries. If a tribunal ignores compelling evidence of bribery, an enforcing court may refuse recognition: see for instance the English High Court decision in Nigeria v P&ID, where Nigeria successfully challenged a USD 11 billion arbitral award on the basis that it was procured by fraud and conduct contrary to public policy, including bribery of a witness, improper retention of privileged documents and perjury by a key witness.

Sanctions compliance is another area of heightened sensitivity; an award that requires performance contrary to international or domestic sanctions may be unenforceable. Competition law issues can also surface, particularly if the award endorses anti-competitive conduct that undermines a jurisdiction's core market safeguards. On the procedural side, disputes over impartiality and independence of arbitrators feature prominently - undisclosed relationships that cast doubt on a tribunal's neutrality could trigger public policy concerns, especially if they affected the outcome.

Finally, there are issues specific to particular sectors. In investor-state arbitration, for example, public policy arguments may intersect with sovereign prerogatives, regulatory measures, or allegations of treaty abuse. While the legal framework may differ from commercial arbitration, the underlying tension is similar: reconciling the finality of arbitration with a state's duty to uphold fundamental norms.

Balancing party autonomy and State interests

Arbitration is grounded in party autonomy: the parties choose their tribunal, procedure, seat, and law. Public policy functions as a boundary to that autonomy. Courts generally avoid second-guessing the merits of arbitral decisions. They defer to the tribunal's competence and the parties' choices. Yet states maintain a compelling interest in preventing their courts from being used to validate unlawful conduct or unfair proceedings. The modern approach attempts to strike a balance - respecting arbitral finality while preserving a narrow escape hatch for extreme cases.

That balance is reflected in remedies. Even when courts find a public policy issue, they may tailor outcomes. Some jurisdictions permit partial enforcement, thereby recognizing uncontested portions of the award while refusing parts that violate public policy. Others may remit the award to the tribunal to cure a procedural defect, if possible. The availability of such measures depends on the seat's law and the enforcing court's practice.

Practical risk management for parties

From a practical perspective, parties can take steps to minimize public policy risk. Selecting a reputable arbitral institution and a widely recognized seat with arbitration-friendly courts supports predictability. Drafting robust arbitration clauses reduces procedural pitfalls, including clear rules on notice, constitution of the tribunal, and applicable law. During the arbitration, maintaining rigorous compliance protocols, especially around sanctions and anti-corruption, is critical. Documenting procedures that safeguard equal treatment and the right to be heard helps insulate the award from procedural challenges.

On the merits, parties should be prepared to address any mandatory rules and present evidence that their conduct meets applicable standards. If red flags exist - such as intermediary arrangements in high-risk jurisdictions - proactive transparency and credible controls can be decisive. Where potential public policy issues are unavoidable, early legal analysis can shape strategy, including choice of seat, potential enforcement venues, and how to structure claims and defences.

Trends and evolving themes

Three developments are shaping public policy analysis. First, compliance-driven scrutiny is intensifying. Global enforcement against corruption, sanctions breaches, and money laundering has increased, and courts are more attuned to these risks when considering enforcement. Second, technological change is affecting procedure. Virtual hearings and digital evidence raise new fairness and security questions; tribunals must ensure due process in a remote environment, or risk procedural challenges. Third, societal values - such as human rights, environmental protection, and responsible business conduct - are drawing greater attention. While their integration into public policy remains uneven, there is a discernible movement toward considering these factors where they intersect with core legal norms.

Conclusion

Public policy is not a backdoor appeal. It is a narrow safeguard that protects a state's fundamental legal principles. For most commercial awards, public policy poses a manageable risk, provided parties adhere to due process and avoid arrangements that implicate mandatory prohibitions. The best protection is foresight: choose a supportive seat and institution, draft clear procedures, ensure transparency and compliance, and anticipate how an enforcing court will view the award through the lens of its own public policy. By doing so, parties can enjoy the benefits of arbitration - speed, neutrality, and global enforceability—without being blindsided at the enforcement stage by avoidable public policy objections.

In short, public policy is both a boundary and a barometer. It marks the limits of what states will endorse, and it signals the issues that matter most in contemporary commerce and governance. Understanding those limits helps businesses structure deals, manage disputes, and secure awards that will stand up not only in the tribunal room, but in courts around the world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.