Introduction
With the global rise in the use of arbitration, the concept of “Public Policy Exception” has often been debated as a safeguard or protective mechanism. However, neither the Model Law nor the New York Convention defines public policy, leaving the interpretation to individual states. Consequently, countries worldwide apply exceptions according to their own cultural and legal contexts.

In most jurisdictions, a dual standard of public policy is used, while Pakistan, progressing slowly, has been oscillating between narrow and broad approaches to its interpretation. This blog post analyzes how Pakistan’s monistic approach, applying the same standards for domestic and international “public policy” has proven to be a setback for its image as an arbitration-friendly state in light of certain past cases, and compares the current approach with global trends to highlight potential areas for reform.  

What is Public Policy?
Public policy, in the context of arbitration, refers to the fundamental legal and moral standards that a state follows. A state’s public policy is usually a culmination of its fundamental economic, religious, social, and political values curated carefully through laws or jurisprudence. These values are so essential to any state that they limit the enforcement and recognition of arbitration agreements, even in the most arbitration-friendly states. No arbitration agreement can be enforced or awards recognized if it contravenes the public policy of the forum state. Courts may use this safety valve to set aside any award at the seat of arbitration or rely on it to disallow the enforcement of any arbitral award.
The primary goal of the New York Convention is to facilitate the enforcement of arbitral awards across all countries that have recognized or enacted it.  which is why public policy is allowed as one of the defenses but with a narrow interpretation.
Over the years, several courts across different jurisdictions have interpreted public policy.  For example, the UK Supreme Court once defined “public policy” as the principle of law which prohibits every individual of the state from taking any action that might prove injurious to the public in general or be contrary to the public good. Similarly, the US courts in the Parsons case defined public policy as the forum state’s basic perceptions of morality and justice, which has since become a well-known standard. In addition, according to the International Law Association, actions that contravene or breach fundamental principles of law, good morals, national interests, and foreign relations are only some of the elements of this exception.
As public policy cultivates societal priorities, it remains flexible in nature and context-dependent, which is why courts interpret it cautiously.

Public Policy Levels
Given the lack of a uniform definition and divergent interpretations across jurisdictions, two distinct concepts of public policy have evolved over time: domestic and international public policy.
Domestic public policy refers to the norms and values operating within the territorial limits of the state and are of utmost importance to the state’s society. As it is based on a state’s own cultural and societal contexts, it is not possible for two states to have the same domestic public policy unless they share the same ethical standards, common values, culture, and social advancements.
International public policy, on the other hand, is a subset that allows a state court to approach any award through the lens of the values commonly practiced by state nationals in their international transactions including good faith, procedural fairness, and prohibition of fraud and corruption. Accordingly, international public policy operates within a narrower scope than domestic public policy.
However, a notable divergence arises in judicial practice. Courts in the United Kingdom and the United States have generally adopted a restrictive pro-enforcement approach applying international public policy while reviewing foreign arbitral awards. Pakistan, on the other hand, has tended to review such awards through the broader framework of domestic public policy. This approach is further complicated by the absence of a unified legal definition of domestic public policy giving courts more latitude in interpretation resulting, at times, in a more expansive application.

Public Policy Over the Years; Examples from the Past
Across the years, Pakistan’s judicial approach has been noticeably inconsistent. During the 1965-1972 time period, in various cases such as Manzoor Hussain vs. Wali Muhammad, (1965), Official Assignee of HC of West Pakistan vs. The Lloyds Bank Ltd. Karachi, (1969) and Sultan Textile Mills vs. Muhammad Yousaf Shami, (1972), courts supported the view that public policy can be interpreted but its scope should not be unnecessarily expanded thereby indicating a preferred approach of judicial restraint.
Certain aspects of public policy were then described by the Sindh High Court in the Nan Fung Textile Ltd. vs. Sadiq Traders Ltd., (1982) case where the  court stated that public policy includes rules pertaining to trade with an enemy during war, objects declared unlawful by state legislature or common law, actions that harm governance of a state domestically or internationally, acts that are contrary to the justice system and harm family life or contravene the economic wellbeing of the general public, providing a thematic expansion.
However, in Grosvenor Casine Ltd., vs. Abdul Malik Badruddin, (1998), the courts’ policy of narrowly interpreting public policy saw a shift and while judging the public policy exception, the injunctions of Islam were taken into consideration. This was followed by the expansive stance in HUBCO vs. WAPDA, (2000), where again the broad interpretation of public policy subjected national courts to sharp international criticism in leading arbitration commentary and investment reports.
The country, however, saw a reassuring and refreshing change  with a  pro-enforcement approach taken in cases like Orient Power Co. (Pvt) Ltd., vs. Sui Northern Gas Pipelines Ltd, 2019, POSCO International Corporation vs. Rikans International through Managing Partner/Director, Uber Technologies Inc. And Others Vs. David Heller, but? The Reko Diq case 2019 again raised concerns where similar criticism resurfaced. This impacted Pakistan’s image as an arbitration friendly state and drew criticism from the international community that warned of the judgments’ far-reaching implications that  could have chilling effects on foreign investment.[1]
The Supreme Court later emphasized that investment disputes should be resolved without judicial intervention, however, by then the damage to Pakistan’s reputation as a reliable state in honoring foreign investment and arbitration obligations had already been done.
In 2024, however, the Taisei Corporation v. A.M. Construction Company (PVT.) 2025, reflected a renewed judicial inclination towards restraint and which was widely recognized and welcomed.  A deeper look at all these cases highlights that instead of a consistent pattern, there is an oscillation which calls for a codified and predictable public policy.

Trends All Over the World
Across major jurisdictions, courts increasingly favor a pro-enforcement approach and explicitly differentiate between domestic and international public policy. In France, the Paris Court of Appeal defined international public policy as the values whose violation cannot be tolerated by the French legal order even in situations of international character’[50] and the Court of Cassation in Lautour case, defined it as the ‘principles of universal justice regarded in France as having an absolute international value’.[51] Similarly a 2016 Tehran court judgement clearly distinguished between domestic and international public policy for the purpose of an appropriate and effective  application of the New York Convention.
These examples illustrate that, even if there are no proper legal definitions of public policy, courts in their decisions clarify the scope of their pro-enforcement approach thus creating a strong standard. In Pakistan, however, even when the courts tend to take a pro-enforcement approach it remains inconsistent, because of no proper distinction between legislation and judicial interpretation.

Suggestions for Pakistan
To strengthen Pakistan’s arbitration framework some steps are recommended. Firstly, updated arbitration laws should be introduced that clearly distinguish between domestic and international public policy with the latter limited to common standards of justice, morality and fairness. Secondly, judges should adopt a pro-enforcement approach by providing clear judicial commentaries and guidelines to minimize the oscillation that leads to divergent interpretations. Thirdly, enforcement of awards should be made predictable following a uniform standard to allay concerns of foreign investors and bolster Pakistan’s credibility as an investment destination. Lastly, workshops, conferences and publications regarding the pro-enforcement approach should be organized to raise awareness and build capacity among relevant professionals.

Conclusion
Pakistani courts in their public policy approach have been oscillating between broad and narrow interpretations which has undermined the country’s image as an arbitration friendly jurisdiction. As foreign investors generally prefer pro-enforcement jurisdictions, along with clear distinction between domestic and international public policy, Pakistan now needs to undertake comprehensive reforms through capacity building, training and publications to make the arbitration framework consistent and predictable. This is especially urgent in view of the continued growth and wider adoption for resolving international commercial disputes.