Originally from The Impact of EU Law on Commercial Arbitration

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INTRODUCTION

The position of mandatory law and public policy in arbitration has been extensively discussed for quite a number of years. While there is consensus that public policy aspects in particular cannot be ignored, views differ on the extent to which overriding mandatory rules should be taken into account. The application of overriding mandatory rules (i.e. rules that are applicable regardless of the law otherwise applicable to the merits) may overstep the parties’ autonomy to select the applicable substantive law, which is key in arbitral proceedings.  Some authors argue that in order not to limit party autonomy the application of overriding mandatory law should be kept to the very minimum or should even be excluded. Others view the application of mandatory rules primarily from the perspective that arbitration does not exist in a legal vacuum and that the existence of those rules – as part of the lex loci arbitri – may necessarily limit party autonomy.  It nevertheless seems clear that despite the pivotal role of party autonomy and the wide discretion of arbitrators it is widely accepted that public policy and mandatory rules do play a role in arbitration.  As evidenced by the Eco Swiss v. Benetton ruling of the CJEU, ignoring those rules may affect arbitrability and lead to annulment of the arbitral award.  
Another question that arises is which mandatory rules or public policy rules may or should be applied, considering the denationalization and delocalization of arbitration. In the conflict of laws discourse, overriding mandatory rules are considered an exception to the application of the choice of law or the lex causae designated by objective conflict rules, and result from a close connection between the case and the overriding mandatory rule. For instance, under Art. 9 of the Rome I Regulation on the law applicable to contractual obligations  (Rome I), overriding mandatory rules belonging to the law of the forum or closely connected to overriding provisions of the law of the country where the contract has to be performed come into the picture. As regards public policy, conflict of law regimes refer to the law of the forum.  In arbitral proceedings, the applicable set of conflict rules is not self-evident due to delocalization , or – at least at the surface – conflict rules do not play a direct role at all.  This complicates the framing of overriding mandatory rules, at least from the perspective of a private international law lawyer.