Meaning
The specific international treaty provision that allows a domestic court to refuse the enforcement of an arbitral award if it violates the public policy of that country constitutes a necessary safeguard in international arbitration. Under New York Convention Article V2b, a court can deny execution if the dispute is not arbitrable under local law or if enforcement would run contrary to fundamental justice. This exception is applied sparingly to prevent the frustration of international trade.
Public Policy
The definition of public policy varies across jurisdictions but generally involves essential moral or legal principles. In the context of employment, an award that ignores mandatory labor rights may be deemed contrary to public policy. This allows the state to protect its citizens.
Judicial Discretion
Courts retain the final authority to evaluate whether an award meets this high threshold. They do not review the merits of the case but focus on the impact of enforcement. This discretion is exercised to protect the integrity of the judicial system.
Enforcement Hazard
A winning party faces the risk of a worthless award if it fails this public policy test. This creates a need for careful drafting of the arbitration agreement and the submission. It ensures that the arbitration respects the core laws of the execution forum.
