The Concept of Public Policy in Law: Revisiting the Role of the Public Policy Doctrine in the Enforcement of Private Legal Arrangements

• Publication year: 2021
• Citation: Vol. 94

94 Nebraska L. Rev. 685. The Concept of Public Policy in Law: Revisiting the Role of the Public Policy Doctrine in the Enforcement of Private Legal Arrangements

The Concept of Public Policy in Law: Revisiting the Role of the Public Policy Doctrine in the Enforcement of Private Legal Arrangements

Farshad Ghodoosi(fn*)

TABLE OF CONTENTS

I. Introduction .......................................... 686

II. Public Policy v. Public Policy .......................... 691
A. Paradigm Shift .................................... 691
B. Unruliness of Public Policy ........................ 695
C. Definition ......................................... 698
D. Taxonomy ......................................... 701

III. Does Public Policy Promote Efficiency? ................ 708
A. Protecting Parties ................................. 711
B. Protecting Third Parties ........................... 713
C. Protecting Redistributive Justice ................... 715

IV. The Leading Role of Public Policy ..................... 717
A. Incompleteness of the Law and Economics Approach ......................................... 717
B. Policy Arguments in Courts ....................... 720

V. Which Public? ........................................ 723
A. Public Interest: Balancing ......................... 724
B. Public Morality: Educating ........................ 726
C. Public Security: Protecting ........................ 729

1

D. Epilogue .......................................... 733

VI. Conclusion ............................................ 735

I. INTRODUCTION

There is a peculiar thread that links vast and incongruent cases: the man who restricted his own freedom to trade, a fellow who bet on Napoleon's life,(fn1) a parent who fettered his estate for perpetuity, a married man who proposed to another woman while he was still in the process of divorce,(fn2) a company that appointed an employee as trustee in an insolvency proceeding to make the company a creditor of itself,(fn3) and an arbitral award delivered in favor of a country with strained political relation with the country of the court's proceedings.(fn4) In most instances mentioned here, contracts or awards were found to be unenforceable. Yet, these cases-and many more similar ones-hardly shed any light on this peculiar thread called public policy. It is only through redefining and revisiting the concept of public policy that we can finally begin to make sense of this historically convoluted and often-neglected doctrine.

In a liberal democracy it is well settled now that public order is as important as individual freedom. Creating a public sphere and accessing it by citizens require certain limitations on the liberty of the citizens. In the language of John Rawls, "[M]aintenance of public order is understood as a necessary condition for everyone's achieving his ends . . . ."(fn5) Liberal democracy is a public dialogue(fn6) with preconditions that limit the scope of the very same public dialogue.(fn7) For better or worse, and because of a lack of any viable alternatives, it is through the government apparatus that those limits are placed in society. The limits appear and are justified in various forms: public order, public security, public health, public interest, public policy, and so forth. All these forms are designed to save, maintain, and potentially expand the public sphere for citizens.(fn8)

2

Yet, what remains unclear is the extent to which the limits mandated by the public sphere(fn9) constrain the private legal acts of citizens. In other words, it remains unsettled which aspects of our public life- for instance certain economic policies related to antitrust-render contrary private legal acts such as contracts unenforceable, and through which logic. It is precisely the cross section of public-affair mandates and private law that is the focus of this Article and that I refer to as the doctrine of public policy.

The concept of public policy exists in almost all legal systems. Yet, it is one of the most elusive concepts in law given the contradictory case law and convoluted literature. It is pleaded on a daily basis in various courts before various national and international judges. A simple search of U.S. case law, for instance, shows that in the last twelve months, the term "public policy" has been used in more than 7,000 cases.(fn10) Globally, in the area of international arbitration, for example, a search reveals that more than 160 arbitral awards-at least those that have been made public(fn11)-have referred to the term "public policy."(fn12) Similarly, a brief survey of the U.N. Treaty database indicates that the phrase "public policy" has been inserted in more than 1,600 international instruments.(fn13) Furthermore, the doctrine of public policy is a truly trans-substantive doctrine in law. The specter of public policy hovers over a multitude of subfields of law-for instance contract law, conflict of laws, arbitration, employment law, and family law.(fn14)

Recently, we have witnessed a resurgence of the discussion surrounding public policy. This is largely due to its critical impact on the developing alternative dispute resolution system, both domestically and in an increasingly globalized world.(fn15) The conceptualization of

3

public policy determines, to a large extent, the role of arbitrators and mediators in matters involving public policy concerns. The extent to which arbitrators and mediators can assess public policies, as they come up during proceedings, remains highly unsettled. Furthermore, the scope of authority afforded to judges and national courts that review and enforce public policies has proven to be highly discretionary.(fn16) Discussing each topic requires a separate analysis and this Article will not address these questions in depth. However, the discussion put forward in this Article is a critical first step that yields direct and important implications for the discussion of public policy in alternative and international dispute resolution among other areas.

The objective of this Article is to open the black box of public policy and unravel its components. It aims to re-conceptualize the doctrine in a way that is more accessible to lawyers and judges. Public policy is generally perceived as an elusive concept, which is "but a shifting and variable notion appealed to only when no other argument is available . . . ."(fn17) However, I believe one of the most important reasons that public policy has become an elusive concept and "the 53rd card in the

4

deck"(fn18) is the lack of serious academic and intellectual engagement with this doctrine. Additionally, the exceptional and ambiguous nature of public policy-which might empower judges and arbitrators- reduces the incentive of the courts and tribunals to lower their potential authority by clearly delineating the doctrine of public policy.

In this Article, I argue that public policy is not a monolithic concept but rather consists of three distinct-yet intertwined-notions of public. These three categories are public interest, public morality, and public security. The public interest category views the private arrangement of citizens as equal to public arrangements and tries to strike a balance between the two. The majority of cases, I posit, fall into the public interest category, which calls for less court engagement and a balancing approach. The public security category aims to protect citizens from outside threats that might endanger their well-being and consequently eliminate the public sphere. The public morality category, however, attempts to safeguard the ties and mutual identities between citizens that shape and maintain societal life. In cases involving public morality and public security, which are rare and extreme cases, the courts should play a more active role and apply methods other than balancing.(fn19) The reason for calling these instances "extreme" rests on the idea that the trumping capacity of public life over private arrangements is at its highest when involving cases of public security and morality.

In order to tackle this challenging topic, it is imperative that the doctrine of public policy be situated in legal history and legal theory. Part II provides a brief history of the notion of public policy in common law, as well as its historical paradigm shifts. It shows how the doctrine of public policy evolved from a community-based notion to a modern statehood tool exerting mandates of public order. The extent to which the doctrine of public policy follows the logic of efficiency is the focus of Parts III and IV. These two Parts attempt to show the good, bad, and ugly aspects of the doctrine of public policy in light of the law and economics approach. Part III lays out the economic justifications for the doctrine of public policy in order to discover the best interpretation of this doctrine under the law and economics approach. Part IV discusses the shortcomings of the law and economics approach in its failure to fully grasp all aspects of the doctrine of public policy. It shows why courts need to play a more active role in certain cases involving public policy concerns. It also investigates the reasons that

5

judicial systems need a multi-level analysis of the doctrine of public policy.

After the historical (diachronic) as well as a-historical (synchronic) analysis of the doctrine, Part V dissects the notion of...