Originally from American Review of International Arbitration - ARIA

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I.     INTRODUCTION

The application of mandatory rules has been described as one of the most difficult issues in international commercial arbitration.  By “mandatory rule,” I mean an imperative rule of law that cannot be excluded by agreement of the parties.  This article does not seek to provide a comprehensive analysis of the topic.  It has the more modest objective of explaining from an English law  perspective why arbitral tribunals need to be aware of the issue and to suggest an approach that tribunals might follow to satisfy themselves – as best they can – that the procedure they adopt and the award(s) they issue do not violate any applicable mandatory rules that could render the award unenforceable.

Mandatory rules might be found in various legal systems potentially applicable in an international arbitration (e.g. the law of the seat, the governing substantive law, the law governing the arbitration agreement, the law of the parties’ domicile or place of business, the law of the place of performance, the law of a supra-national legal system, and international law) and might apply to both the procedural and substantive aspects of the arbitration.

Some commentators contend that mandatory rules have no application in international arbitration, because their application is inconsistent with the doctrine of party autonomy and the right of the parties to select the procedural and substantive rules that should apply to their relationship. An argument sometimes advanced is that the arbitrator is a service provider whose role is to determine a dispute according to the rules selected by the parties and only those rules, and therefore only applicable rules of the governing substantive law and procedural laws of the seat are relevant. The counter-argument is that an arbitral tribunal is given legitimacy and its award is made enforceable through national law and an arbitral tribunal must have regard to the same issues of lawfulness and comity that would be relevant in domestic courts, otherwise tribunals, the arbitral process and/or arbitral awards will not maintain their privileged status.  This author prefers the latter approach: arbitral tribunals may not ignore mandatory rules. In my view, that conclusion is inevitable because an award may be set aside or its enforcement refused if it violates a State’s international public policy (which includes certain mandatory rules), Eco Swiss v. Benetton  being the best-known European example. The critical question is not whether an arbitrator must have regard to mandatory rules, but how does the arbitrator determine what constitutes a mandatory rule for the purposes of the specific dispute and arbitration.