Public Policy Exception in Arbitration

Public Policy Exception in Arbitration

The Public Policy Exception in Arbitration refers to a legal principle that allows courts to refuse to enforce an arbitration agreement or the resulting arbitration award if doing so would violate the public policy of the jurisdiction in which the enforcement is sought. This exception serves as a safeguard to ensure that arbitration does not contravene fundamental societal values or legal standards.

In practice, the Public Policy Exception is invoked when an arbitration agreement or award is found to be inconsistent with the law or public interest. For example, if an arbitration clause requires parties to arbitrate disputes arising from illegal activities, a court may refuse to enforce such an agreement on public policy grounds. Similarly, if an arbitration award involves punitive damages that are excessively disproportionate or violate statutory limits, a court could also refuse to confirm the award based on public policy.

The scope of the Public Policy Exception can vary by jurisdiction, and courts typically assess whether enforcing the arbitration agreement or award would undermine the integrity of the legal system or harm the public interest. Notably, this exception does not provide a broad avenue for litigants to challenge arbitration decisions; rather, it is reserved for clear and compelling cases where fundamental principles of justice and legality are at stake.