Originally from American Review of International Arbitration - ARIA

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 Public policy may play a part in international arbitration in several respects: (1)
the arbitration agreement may violate public policy; (2) the conduct of the
arbitration may violate public policy; (3) the law the arbitrators apply may violate
public policy; and (4) enforcement of the award may violate public policy. In all
four situations, the question arises what the substantive content of the term is.
The New York Convention, in Article V(1)(b), provides that recognition of an
arbitral award may be refused if its enforcement would be “contrary to the public
policy of the country in which enforcement is sought.” Other provisions in the
Convention refer to public policy only indirectly. Article II(3) provides that the
court shall refer the parties to arbitration unless it finds that the arbitration
agreement is “null and void, inoperative or incapable of being performed.” Of
course, an agreement that violates public policy comes within the quoted terms.
Similarly, Article V(1)(a) provides that an arbitral award may be refused
recognition if the arbitration agreement is “not valid under the law to which the
parties have subjected it or… under the law of the country where the award was
made.” Here again, an agreement is not valid under either law if it violates public
policy. And Article V(1)(b), (c) and (d) give examples of situations in which
public policy was not observed in the conduct of the arbitration.
In all of the instances, it is typically the public policy of the local forum that is
applied. Indeed, Article V(1)(b) makes that explicit.
This is regrettable. In the context of enforcing international arbitration
agreements or awards, it is international public policy, not local public policy that
should provide the applicable standard.
This has generally been recognized in the United States. In Parsons &
Whittemore Overseas Co. v. Société Générale de l’Industrie du Papier, 1 the
Second Circuit resolutely rejected the argument that the award violated public
policy because American law forced it to abandon the contract. It was
international public policy that was decisive in the premises and that policy was
not violated, the Court ruled. Similarly, in Mitsubishi Motors Corp. v. Soler