The plea of
violation of public policy as a ground
for refusing enforcement of an arbitral award
constitutes the
final and most serious obstacle facing successful parties in arbitration when commencing
enforcement proceedings within the Arab Republic of Egypt.
Although
international commercial arbitration provides companies with a swift and decisive means of resolving disputes,
foreign or domestic arbitral awards do not automatically become subject to compulsory enforcement unless
an enforcement order
(Exequatur) is obtained from the
national judiciary. The public policy defense represents the exception that enables enforcement courts to
intervene and refuse to confer enforceability upon the award, requiring investors
and multinational companies to have a precise understanding of the standards applied by the Egyptian judiciary in order to avoid
the loss of their financial and commercial rights.
The Legal Concept of Public Policy in Egyptian
Arbitration
The law does not
provide an exhaustive and specific definition of public policy; rather, its assessment is left to a substantive
and flexible standard applied by the judiciary according to the circumstances of each dispute and the requirements of the public interest. In the context of arbitration,
public policy refers to mandatory rules affecting the fundamental interests of the state, whether
economic, social, political, or moral, from which individuals may not derogate by agreement.
The concept of
public policy in the enforcement of arbitral awards is divided into two principal categories:
- Domestic public policy: Mandatory legislative rules governing the fundamental principles
of national law, which must be applied to domestic disputes. - International public policy (Egyptian): The minimum set of legal,
moral, and economic principles that the Egyptian legal system does not permit to be infringed, even where
the dispute involves a foreign element.
Legal Framework for Refusing Enforcement Due to Violation of
Public Policy
Refusal to
enforce an arbitral award in Egypt on grounds of violation of public policy is based on specific legislative provisions and international conventions
that grant the national judge authority to examine such violation of its own motion.
1. Egyptian Arbitration Law No. 27 of 1994
Article
(58) of the Egyptian Arbitration Law provides that enforcement of an arbitral award may not be ordered where the
award contains anything contrary to public policy in the Arab Republic of Egypt. Article (53) also permits
an action to set aside an arbitral award where the award contains anything contrary to public policy, and the court shall
rule on this ground of its own motion.
2. 1958 New York Convention
Pursuant to Article
V, paragraph (2/b), of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(New York Convention), the competent authority in the country where recognition and enforcement are sought
may refuse enforcement if it finds that recognition or enforcement of the arbitral award would be contrary to
the public policy of that country.
Practical Cases: When Is an Award Considered Contrary
to Public Policy?
There are various circumstances
in which the Egyptian judiciary may find a violation of public policy, and they can practically be divided into
substantive and procedural grounds.
Substantive Grounds
- Violation of mandatory economic rules: Such as provisions governing prohibited financial transactions or
interest rates exceeding the mandatory maximum legally permitted in civil contracts. - Unlawful activities: Where the subject matter of the dispute concerns contracts contrary
to public morals, commercial fraud, money laundering, or unlawful trade. - Conflict with a prior court judgment: Where the arbitral award conflicts with another judgment having
res judicata effect and issued by the Egyptian courts concerning the same subject matter and between the same parties.
Procedural Grounds: Due Process Guarantees and Rights of
Defense
- Violation of the adversarial principle and the right of defense: Failure to properly notify one of the parties of the commencement of arbitration proceedings
or the appointment of arbitrators, thereby depriving that party of the opportunity to present its defense. - Absence of reasons in the award: Issuance of the arbitral award without providing reasonable legal or
factual reasoning, particularly where reasoning is required by the arbitration agreement or the law of the seat of arbitration. - Lack of impartiality and integrity of the tribunal: The existence of a material and established conflict of interest involving the arbitrators
that affects the duty of independence and impartiality.
Commercial Implications and Practical Risks for
Companies
The issuance of an arbitral award
in favor of a company does not necessarily mean immediate recovery of rights; the most sensitive stage begins
at enforcement. Raising a public policy defense may have direct financial and operational
consequences.
- Loss of time and liquidity: Annulment actions or enforcement disputes
may delay recovery for extended periods, adversely affecting companies’ cash flows. - Loss of the award’s enforcement effect: Refusal to confer enforceability on the award renders it
incapable of actual enforcement within the state where the opposing party’s assets are located. - Additional costs: Lengthy and costly arbitration proceedings may ultimately
face refusal of enforcement due to a procedural or substantive error that could have been avoided in advance.
Considerations for International Clients and
Companies
Cross-border
practice requires consideration of the particular nature of the Egyptian legal system, especially
when planning to enforce an arbitral award issued abroad against assets located in Egypt.
- The local public policy standard in enforcement: Certain provisions may be acceptable under foreign
laws, such as punitive damages or certain forms of
compound interest, while their enforcement in Egypt may conflict with economic public policy rules. - Asset tracing strategy: The nature of the opposing party’s assets
located in Egypt should be verified in advance, together with whether attachment over them is subject to rules or prohibitions connected with public
policy. - Selecting highly prepared Local Counsel:
Foreign law firms
need to engage Local Counsel in Egypt from the
stage of drafting clauses and managing the dispute, in order to reduce procedural risks that may later be exploited
before the enforcement judge.
Common Errors When Commencing Enforcement
- Confusing domestic public policy with international
public policy:
Overextending the
classification of ordinary commercial matters as public policy without accurately distinguishing the scope of each. - Overlooking proper arbitration notices: Failing to establish formal service upon the other party in accordance with
the procedural rules prescribed by law. - Failure to address the drafting of the arbitration agreement: Including provisions that conflict with mandatory rules in
the anticipated state of enforcement.
Practical Best Practices for Preventing Refusal of
Enforcement
- Prior review of the arbitration agreement: Subjecting arbitration agreements to a detailed review that takes into account
the legal system of the state in which enforcement is intended. - Ensuring procedural integrity: Strict compliance with notification rules and providing
equal opportunities for both parties to present their defense. - Avoiding excessive claims: Drafting financial claims in a manner that observes the applicable limits
and mandatory economic and commercial rules in Egypt.
When Is the Involvement of a Specialized Lawyer or Local Counsel in Egypt Required?
Dealing with
the enforcement of arbitral awards requires a lawyer familiar with the nuances of Egyptian Court of Cassation judgments
and principles of international arbitration. The need for Local Counsel becomes particularly important at several sensitive stages.
- Before commencing
the procedures for filing the arbitral award and obtaining the enforcement order. - When facing
an annulment action based on violation of public policy. - When drafting
arbitration clauses in cross-border commercial contracts connected with the Egyptian market.
How Can Specialized Legal Support Help?
El Rouby Law
Firm provides an
integrated framework for protecting arbitration rights and managing enforcement proceedings.
- Regulatory compliance and risk management: Assessing foreign and domestic arbitral awards before
commencing enforcement to verify that they are free from any defect that may constitute a violation of public policy. - Contract drafting and dispute prevention: Designing robust arbitration clauses that support the protection of rights
and ease of future enforcement without conflicting with mandatory legislation. - Negotiation and representation before Egyptian authorities: Managing the procedures for obtaining the enforcement order (Exequatur), and defending against annulment actions and enforcement disputes
before the Egyptian courts.
You may contact
the international arbitration and advisory team at
El Rouby Law Firm to discuss your legal position and support the enforcement of
your company’s arbitral awards in Egypt and abroad in accordance with the applicable legal and professional standards.
Frequently Asked Questions (FAQ)
Does the Enforcement Court Examine the Merits of the Dispute When
a Public Policy Defense Is Raised?
No. The
enforcement court may not reconsider the merits of the dispute or reassess the evidence; rather,
its role is limited to verifying that the award does not conflict with mandatory rules and public policy in
the state.
May the Court Refuse Enforcement for Violation of Public
Policy of Its Own Motion?
Yes. Public
policy rules are mandatory matters that the court may raise of its own motion
even if none of the parties to the dispute relies upon them.
Does Invalidity of Part of the Award for Violating Public
Policy Invalidate the Entire Award?
If the part
that violates public policy is severable and divisible from the remainder of the award, enforcement
of only the offending part may be refused while enforcement of the other parts continues.
Is Compound Interest Considered Contrary to Public
Policy in Egypt?
Interest that
exceeds the mandatory limits prescribed under the Egyptian Civil Code, or forms
of unlawful compound interest, may be subject to refusal if considered contrary to economic public policy.
What Is the Difference Between Domestic Public Policy and International
Public Policy in the Enforcement of Arbitral Awards?
Domestic public
policy concerns mandatory rules applicable to domestic transactions, whereas international
public policy refers to a narrower set of fundamental principles that the legal system does not permit to be infringed
in cross-border relationships.
References
- Egyptian Arbitration
Law No. 27 of 1994 on Civil and Commercial Matters, as amended. - Convention on
the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). - Established judgments
of the Egyptian Court of Cassation relating to arbitration and public policy. - Cairo Regional
Centre for International Commercial Arbitration
(CRCICA).