Public Policy as a Ground Against Recognition and Enforcement of Foreign Arbitral Awards

One of the most common and controversial grounds invoked to prevent enforcement is that the enforcement would be contrary to public policy. In the case of the Mabuhay Holdings Corporation v. Sembcorp Logistics Limited, the Supreme Court adopted a narrow and restrictive approach in defining public policy:

“Mere errors in the interpretation of the law or factual findings would not suffice to warrant refusal of enforcement under the public policy ground. The illegality or immorality of the award must reach a certain threshold such that, enforcement of the same would be against Our State's fundamental tenets of justice and morality, or would blatantly be injurious to the public, or the interests of the society.”

The Court ruled against Petitioner Mabuhay’s argument that the Final Award was against public policy for recognizing a void stipulation in the Agreement. Petitioner Mabuhay contended that since it entered into a joint venture, it is akin to a partnership and thus, the Guaranteed Return sought by Sembcorp is contrary to Article 1799 of the Civil Code of the Philippines on sharing of losses of the partnership.

In ruling against Petitioner Mabuhay, the Court reasoned that a restrictive approach to public policy implies that not all violations of law are deemed contrary to public policy. Mere incompatibility of a foreign arbitral award with domestic law does not amount to a breach of public policy. In any case, the Court found no violation by the Final Award of the Philippine domestic law. Petitioner Mabuhay pursued a joint venture with Sembcorp and not a partnership.

Read the other issues raised in the case:

“Jurisdiction as a Ground Against Recognition and Enforcement of Foreign Arbitral Awards”

“Party-Autonomy as a Ground Against Recognition and Enforcement of Foreign Arbitral Awards”