KluwerArbitration
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Wolters Kluwer 1 Kluwer law
International
Author
Pierre Mayer
Jurisdiction
Source
Pierre Mayer, Chapter 2:
Effect of International
Public Policy in
International
Arbitration in Julian D.
M. Lew and Loukas A.
Mistelis (eds), Pervasive
Problems in International
Arbitration, International
Arbitration Law Library,
Volume 15 (© Kluwer
Law International; Kluwer
Law International 2006)
pp. 61 - 69
Pierre Mayer
(*)
I. Introduction
2-1 It is first necessary to clear up the ambiguity of the expression:
international public policy.
2-2 In civil law countries, the expression “ordre public international”
means: the concept of public policy as applied in private
international law. It is in fact the limited part of the public policy of a
State which may constitute an obstacle to the application of a
foreign law by the courts of that State, or to the recognition of a
foreign judgment or arbitral award by such courts. It is in that sense
that the expression is used in the “Resolution on public policy as a
bar to the recognition of international arbitral awards” adopted in
New Delhi in 2002 by the ILA (International Law Association).
(1)
2-3 In a second sense, international public policy is the part of
public policy which belongs to public international law. As an
example, an embargo decreed as a sanction against a State by the
Security Council of the United Nations
(2)
belongs to international
public policy in that sense. To avoid any confusion with international
public policy as a device used in private international law, it is
sometimes called “truly international public policy”.
page "61"
2-4 That leads me to distinguish truly international public policy from
a third notion: that of transnational public policy, although
unfortunately the two expressions are sometimes considered as
synonymous. Transnational public policy in international arbitration
is in fact the subject of my presentation, as I guess from the
examples which are given as illustrations in the programme.
2-5 I shall successively consider:
• First, the notion of transnational public policy
• Secondly, its nature
• Thirdly, as a link with the subject addressed by Donald Donovan,
the question whether, in a given case, an arbitrator should choose
to rely on transnational public policy or rather to apply the
mandatory rules of a State – the result being most often the
same.
II. Notion of Transnational Public Policy
Chapter 2: Effect of International Public
Policy in International Arbitration
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RL-76
2-6 “Transnational public policy” can be defined as the set of legal
principles, not belonging to the law of a particular State, which may
be relied upon by an arbitrator either as a bar to the enforcement of
an international commercial contract, or, in a less direct manner, as
an obstacle to the application of the State law normally applicable to
such contract. The concept was introduced by Pierre Lalive in his
famous report at ICCA in New York in 1986, and is now a classic.
(3)
2-7 Indeed, transnational public policy is a necessary device in
international arbitration. Since, unlike a court, an international
arbitrator is not an organ of a State – even the State where he sits –
it is neither easy nor satisfactory for him to rely on the public policy
of any given State. He needs to have his own public policy.
2-8 On what is it based? A succinct answer to that question was
given by the Institut de droit international at its session of Santiago
de Compostela in 1989. A Resolution was adopted, pursuant to
which page "62"
in no case shall an arbitrator violate principles of
international public policy as to which a broad
consensus has emerged in the international
community.
(4)
2-9 Evidence of such a consensus will most often result from a
scrutiny of the legal systems of the various States, or from the
existence of one or more international treaties. A typical example of
the way arbitrators reason is the famous award rendered by Judge
Lagergren in a case in which a party claimed the payment of a
commission, which in the circumstances clearly appeared to have
been promised as a reward for acts of corruption. Although the
defendant only raised objections based on the interpretation of the
contract, the arbitrator invoked transnational public policy to justify
its refusal to even enter into the merits of the case:
Such corruption is an international evil; it is contrary to
good morals and to an international public policy
common to the community of nations.
(5)
2-10 Other principles often cited by authors are those which
condemn:
• racial or religious discrimination
• drug trafficking
• terrorism
• trade in stolen art objects
• traffic in human organs.
2-11 The notion of transnational public policy thus appears
relatively clear; its nature is more ambiguous.
III. Nature of Transnational Public Policy
1. Proposed Analysis
2-12 Transnational public policy performs the same function as
State public policy or truly international public policy: it eliminates the
agreements, rules or decisions that would contravene certain
fundamental values or interests. But does page "63" it have the
same nature? When we say, for instance, French public policy, or
English public policy, we refer to a component of a given legal
system. That legal system imposes on its subjects the duty to
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comply with the principles and rules on which it confers a public
policy character, and in case of non-compliance it imposes on its
courts the duty to restore a situation that will be in accordance with
these principles and rules. Similarly, truly international public policy
is a part of international law, the part which even an agreement
between two States may not violate. Can the same be said of
transnational public policy? Is there a legal system, distinct from the
States and from international law, that imposes on its subjects the
duty to respect the principles and rules on which it confers a public
policy character?
2-13 Such a legal system has been said to exist. One of its finders,
or inventors, Professor Berthold Goldman, has given it the name of
lex mercatoria.
(6)
Others prefer to call it new law merchant, or
transnational law, although this last expression has also been given
other meanings, notably by Professor Philip Jessup.
(7)
Lex
mercatoria would be the legal system spontaneously emerging from
the society of international merchants, the so-called societas
mercatorum: ubi societas, ibi jus. And transnational public policy
would be the part of the lex mercatoria presenting the characters of
public policy.
(8)
2-14 It is important to decide whether transnational public policy is,
or is not, a part of a legal system, because its nature will not be
exactly the same.
2-15 I personally do not believe that a legal system corresponding
to the definition of lex mercatoria exists. Since this is not the time
and place for a demonstration, I shall just mention briefly the main
reason why I think that lex mercatoria may well be the name given to
a set of legal rules, but does not constitute a legal system.
2-16 A legal system is formed not only of rules, but, even more
importantly, of judges and of organs exercising a power of coercion.
Lex mercatoria lacks both. page "64" In particular, contrary to
what has been suggested by some authors,
(9)
arbitrators are not
empowered to adjudicate disputes by the society of merchants and
do not render their awards in the name of that society: they receive
their powers only from the parties in the particular dispute; and only
State courts and State organs of coercion are able to enforce arbitral
awards. It is even doubtful that there is a society of international
merchants; it requires more than doing business together to form a
society.
2-17 Now, even if there was a society of international merchants,
could the principles known as transnational public policy emanate
from that society? This would be surprising, since what these
principles accomplish is mainly to limit the freedom of trade, which is
not what merchants normally wish to do. If we take for instance the
prohibition of the traffic of illicit drugs, there are on the one hand
those who are involved in such trafficking, who do not want it to be
limited, and on the other hand those whose activities are totally
different, who simply do not care; or if they do, it is as ordinary
citizens, not as merchants.
2-18 The prohibition, as an element of transnational public policy,
therefore rests on the common feelings of ordinary citizens,
inscribed in the legislation of a majority of States, and/or in
international treaties drafted and signed by them. That does not
make it part of a legal system which would be distinct both from the
States and from international law.
2-19 What is transnational public policy then? And since it is not a
set of legal principles having a binding force, resting on a legal
system, where does its power to deprive a contract of its binding
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force, or to exclude the law chosen by the parties, come from? What
justifies that an arbitrator, who is supposed to order the parties to
abide by the terms of their agreement, refuses to do so on the
ground that these terms violate a principle which he declares to be
part of transnational public policy?
2-20 There is in my opinion only one possible answer to such
question, although it may seem disappointing: it is his position as an
arbitrator that gives him the freedom to invoke the principles which
he considers to be worthy of being respected. Transnational public
policy is not imposed on the arbitrator, it is page "65" imposed
by the arbitrator, by virtue of the powers conferred on him by the
parties.
2-21 Let me immediately qualify this statement. I am not saying that
the arbitrator is at liberty to do anything he pleases. He should act
reasonably, he should defend, and defend only, those principles
which are considered as inviolable by the community of men, or by a
majority of States having enacted legislation or entered into treaties
in order to protect them. That is his duty, it being observed that it is
not a legal duty since it is not sanctioned as such; it is a
professional, and to some extent a moral, duty.
(10)
2. Consequences of the Proposed Analysis
2-22 This approach leads to slightly different results from those to
which one is led if one considers transnational public policy as an
objective element of a transnational legal order. In the approach
which I favour, the arbitrator's duty is less strictly defined. He enjoys
a certain degree of liberty in his assessment of what is tolerable and
what is not.
2-23 When one mentions the necessity of a consensus between
States, how broad must the consensus be? It is for the arbitrator to
decide. When one insists that, to be part of transnational public
policy, a principle must be of paramount importance, who assesses
the importance of a given principle? It can only be the arbitrator.
There is no absolute truth: one arbitrator may consider that a certain
principle, which is shared by a majority of States, but rejected by an
important minority, does not deserve to be upheld, to the detriment
of the party who claims that the contract must be performed.
Another arbitrator may take the opposite view. Their respective
moral and even religious convictions play a role.
2-24 There is a famous case which illustrates that rather clearly: the
case of the ship “Le Créole”. It was a slave ship which carried slaves
belonging to American owners. The slaves revolted while the ship
was at sea, and sailed it to the Bahamas. When they arrived, the
English authorities set them free, slavery having been abolished in
England. The United States espoused the claim of their nationals,
and a mixed arbitral commission had to decide whether England, by
setting the slaves free, had violated international law.
page "66"
2-25 The award was rendered in 1855. It reads:
I do not need to cite authorities to demonstrate that
slavery, although odious and contrary to principles of
justice and humanity, can be established by the laws
of a country; and that, having been so established in
several countries, it cannot be against the law of
nations.
(11)
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2-26 The award, deciding a case between two States in accordance
with international law, may have been correct at the time. But
suppose the dispute had been brought before you, as an arbitrator,
by the owners claiming that their title be recognised and the slaves
returned to them, would you, even at the time, have counted how
many States had established slavery, how many ignored the
institution and how many condemned it? I suppose not. You would
have relied on the fact that slavery is “odious and contrary to
principles of justice and humanity”, because you would have shared
these principles.
2-27 Transnational public policy is not a definite part of a legal
system, which the arbitrator would have the duty to uphold; it is a
device which allows the arbitrator to refuse to enforce a contract, or
to apply a law, which contravenes values which he, in accordance
with a view shared by the community of men and endorsed by
legislators (national or international), deems to be essential.
IV. Choice between Reliance on Transnational Public Policy
and Application of Mandatory State Rules
2-28 Since transnational public policy must reflect a broad
consensus between the States, in most cases it will not differ from
the rules which are to be found in the applicable State law. Is it then
preferable to apply the mandatory rules of the State, or to invoke
transnational public policy?
2-29 I shall distinguish two situations, depending on whether the
mandatory State rule is present in the lex contractus, or is only
present, as a loi de police, in the law of another State, not chosen as
lex contractus by the parties.
2-30 In the first situation I do not see why the arbitrator would not
simply apply the lex contractus. A precise rule is preferable to a
vague principle. In addition, if page "67" the lex contractus has
been chosen by the parties it would even be strange not to apply it
without a major reason.
2-31 In the second situation it is more difficult to choose. The choice
is between reliance on transnational public policy on the one hand,
and on the other hand the méthode des lois de police, consisting of
the application of a law other than the lex contractus, based on its
mandatory character and on its close connection with the situation.
(12)
2-32 The second reasoning was adopted in an ICC arbitration
award in 1989. A contract had been concluded between a
Hungarian company and a foreign company, for the collection and
sale by the first party to the second, of certain glands to be taken
from dead human bodies in Hungary. The contract was subject to
Swiss law. It was argued by the buyer that the contract violated the
principle of the integrity of the human body. The arbitral tribunal
checked whether under Hungarian law – as the law of the territory –
such trade was licit or not; it found that it was licit.
(13)
2-33 If the tribunal had chosen to rely on transnational public policy,
it would not have found a precise answer to the problem because
the scope of the prohibition of the trade of human organs varies: in
some countries the prohibition is absolute, while in other countries it
depends on whether there is a payment, or even on who pays
whom. It is preferable to apply the precise rules of the State
concerned, rather than a vague principle which is not applied in the
same manner in the various countries.
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2-34 The same can be said of the prohibition of corruption. Where
there is a clear act of corruption, which is proven, the easy way, it is
true, is to apply the transnational public policy principle. But the limit
is not always clear between what is a licit commission and what is
corruption. For instance in some countries one has to distinguish
between innocent “facilitating payments” and corruption. Equally
since it is most often impossible to prove the existence of corruption,
there are sometimes legal provisions which prohibit the payment of
any commission, based on a presumption of corruption. Such
technical rules cannot page "68" be part of a transnational
principle; however, it may be justified to apply them if they serve
legitimate State interests.
2-35 Transnational public policy is a particularly convenient notion
when the public policy principle is universally recognised, and
where, at the same time, there is no doubt that it has been violated.
When it is not universally recognised, much depends on the
subjective views of the arbitrator; that cannot be avoided. Also,
where the exact scope of the principle is uncertain, other
mechanisms may have to be preferred. Transnational public policy
therefore undoubtedly appears as one, but only one, of the devices
which the international arbitrator may use to protect values which
the parties are not allowed to ignore.
page "69"
*
Professor at the University of Paris I (Panthéon-Sorbonne).
1
The text of the Resolution can be found in the Report of the New
Delhi Conference and in xxix YBCA 339 (2004), with a presentation
by Pierre Mayer and Audley Sheppard.
2
Such as the ones adopted against Iraq in 1990 and 1991.
3
Pierre Lalive, “Transnational (or Truly International) Public Policy
and International Arbitration”, in Comparative Arbitration Practice
and Public Policy in Arbitration, ICCA Congress Series no 3 (1986),
257.
4
The text of the Resolution can be found in 79 Revue critique de
droit international privé 191 (1990).
5
Award rendered in ICC case no. 1110, Argentine engineer v.
British company, 3 Arb Int 282 (1987). It has been partially published
by Julian D M Lew, Applicable Law in International Commercial
Arbitration (Oceana 1978), p 553. See also ICC case no 1110, ibid.
6
Berthold Goldman, “Frontières du droit et lex mercatoria”, (1964)
Archives de philosophie du droit, 177.
7
See Philip Jessup, Transnational Law (Yale University Press
1956).
8
Lalive, supra note 2; L Matray, “Arbitrage et ordre public
transnational”, in J Schultz and AJ van den Berg (eds), The Art of
Arbitration, Liber Amicorum Pieter Sanders (Kluwer Law and
Taxation 1982) p. 241.
9
See, for example, Philippe Fouchard, L'arbitrage commercial
international (Dalloz 1965), 403, according to whom arbitrators and
arbitral institutions are the “veritable prevoir jurisdictionnel de [la]
société internationale des commerçants”.
10
See Pierre Mayer, “La règle morale dans l'arbitrage international”,
in Etudes offertes à Pierre Bellet, Litec, p 379.
11
Recueil des arbitrages internationaux, edited by A de Lapradelle
and N. Politis, vol 1, (Paris, Les Editions Internationales 1954-1957)
p. 686.
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12
See Pierre Mayer, “Mandatory Rules of Law in International
Arbitration”, 2(4) Arb Int 274 (1986); Christophe Seraglini, Lois de
police et justice arbitrale internationale, (Dalloz 2001).
13
ICC Award no 5617, extracts in 121 Journal du droit international
(Clunet) 1041 (1994).
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