Public and Mandatory Law in International Arbitration - Part 1 - Chapter 1 - Towards A Uniform International Arbitration Law?
Daniel Hochstrasser is a Partner, Bär & Karer, Zürich.
Does an arbitral tribunal have the duty or the power to apply public law, mandatory rules, or public policy other than the substantive law applicable to the dispute?
A choice of law made by the parties could be thought to set the rules to be applied by the arbitral tribunal in its decision on the dispute arising out of the relationship governed by that choice of law. Experience in the last twenty years has shown, however, that in a growing number of cases other provisions of law, rules, sanctions, conventions, etc., that do not stem directly from the legal system chosen by the parties (or determined by the arbitral tribunal in application of the appropriate conflict of law rules), are invoked and applied. They include (i) mandatory provisions in the legal system chosen by the parties, (ii) mandatory provisions from a legal system other than the one chosen by the parties, (iii) rules and legal provisions arising out of international sources (such as conventions), and (iv) rules contained in supra-national sources (such as UN sanctions). Most of these rules can be described as being of a “public law” nature, as opposed to private law (under the distinction drawn in continental European legal tradition).
The problem arises in cases where the parties had agreed on a choice of law clause in favor of one particular national law or where the conflicts of law rules applied by the arbitral tribunal point to that law, but where public mandatory rules of a legal system other than the one chosen by the parties (“foreign” mandatory rules) are invoked by one of the parties, or at least known to the arbitral tribunal. The question is whether the parties’ choice of law limits the arbitral tribunal with respect of the applicable law to such provisions, which are part of the legal system designated by the parties as the lex contractus.