Originally from American Review of International Arbitration - ARIA

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I. INTRODUCTION

It may be helpful to begin with first principles, even though these principles are not wholly uncontroversial. Arbitrators must apply mandatory rules of the seat of arbitration. This is, in most circles, accepted. If, for example, London is the seat of arbitration, Section 4 and Schedule 1 of the English Arbitration Act 1996 identify "mandatory provisions" "that have effect notwithstanding any agreement to the contrary" by the parties. Most of these provisions can be labeled arbitral procedure, but some are "mixed" procedure and substance. Section 60 of the Arbitration Act 1996 renders invalid an agreement made by the parties before the dispute in question has arisen that they shall share the costs of the arbitration regardless of the outcome of the case.1 Only a very bold "a-nationalist" arbitrator would uphold the parties’ agreement in these circumstances, thereby exposing the award to a challenge (and endangering his or her own future as an arbitrator) for the sake of purity of theory.

The governing law of the contract raises another mandatory rule "first principle," though one that is significantly less robust than that raised by the seat. An arbitrator should apply mandatory rules under the applicable substantive law, and failure to do so may place the enforceability of the award at some risk in some jurisdictions. However, as Professor Horacio Grigera Naón has observed, some international arbitrators have occasionally determined that a mandatory domestic rule of law "belonging to the proper law of the contract identified by the parties through a choice-of-law stipulation" should not be applied in an international case, which the arbitrators deem to be governed by contractual provisions adduced by the parties or by "transnational legal rules or principles without interference of mandatory or supplemental provisions of the proper law inappropriate to govern, for example, an international dispute."2 Failure to apply a mandatory rule of this type by an international commercial arbitrator is not often fatal to the award or to the arbitrator’s future employment, albeit it can endanger enforcement of the award in certain jurisdictions as well as render the arbitral process less credible to many users of international arbitration.