Protection of Direct Foreign Investment: Public Policy Exception Impact on Foreign Direct Investments: 'Court (Non) Enforcement of Arbitration Decisions Based on Public Policy Exception'

Abstract

This paper is not a target by itself. It is part of a project to research and analyze certain aspects of foreign investments in different jurisdictions.

In certain countries, some industries, such as car manufacturing, are granted specific treatment, benefits or incentives resulting from a kind of international competition for new investments. A movement that, sometimes, results in more benefits to the industry than to the country or the community where they are located, and which has been properly described as a “race to the bottom”. When this phenomenon occurs within the boarder of a given country, some regulation may be effective. However, in the international context the questions gain much more complexity.

These are basically incentives to attract new investments and they are ordinarily granted to specific market agents. However, incentives may be a “Siren´s song”, attracting new entrepreneurs without giving them real protection for their ventures. In this sense, predictability and a stable legal framework may be an effective incentive for direct investments.

New problems emerge from international transactions involving technology companies as well. For instance, Amazon, a global player has started operations in different jurisdictions bringing several legal challenges regarding transactions taking place outside (virtual environment) the country were the services are rendered or goods delivered. In other words, how to deal with operations conducted by a company with local presence, including distribution and logistics systems, but closed outside the country?

In such context, it is essential that judicial decisions and arbitral awards be recognize as valid and enforced in different jurisdictions. In most of international deals, the parties elect specific rules for their businesses, such as CISG, UNIDROIT, Principles of European Contract Law, the law of one of the contracting parties or a “neutral law” from another country. At the same time, arbitration has been the most frequent method of dispute resolution in the international arena. Therefore, it is an important part of international transactions to enforce decisions taken in one jurisdiction in another country were the practical result is actually effective.

However, in most of the countries, a foreign award must be acknowledged by local courts in order to obtain the “exequatur” of such decision. Usually, the courts would evaluate only formal aspects to ensure that a local resident had the chance to present a proper defense according to a “due process of law” in the foreign jurisdiction (“loci arbitrii”). The merits of the cause should not be disputed again in the place of enforcement, except in very restrict matters. Public policy is certainly the most relevant one.