Originally from American Review of International Arbitration - ARIA

Preview Page

A CHOICE OF PUBLIC LAW?
RESOLVING THE INTERNATIONAL ARBITRATOR’S DILEMMA
Tamieka Spencer Bruce*

I. INTRODUCTION

Globalization and the rise of the regulatory state have caused the mandatory
rules of different States to come into conflict with greater frequency. In particular,
antitrust and securities rules of a number of jurisdictions can be implicated in a
single transaction. The expanded scope of arbitrability means that as parties
frequently choose to resolve international commercial disputes by arbitration, the
mandatory rules question becomes one not just for the national judge, but also for
the international arbitrator. Where disputes arising out of such a transaction are
litigated, national courts determine which mandatory rules to apply, based upon
the conflict rules of their domestic system. However, the arbitrator faces a
dilemma: as an agent of the parties, rather than the state, he owes no allegiance to
the mandatory rules of a particular regime and he is bound to apply the law chosen
by the parties; but he also has a duty to render an enforceable award, and ignoring
a mandatory rule could put the award in jeopardy.

Perhaps a better approach would be to allow parties the choice of mandatory
rules that govern their private relationship. This would be consistent with ensuring
fairness and certainty between the parties, and creates systemic benefits as well.
Transactions implicating a conflict of these laws tend to involve sophisticated
parties, who have no need of the paternalistic protection of the state that justifies
such laws. Further, the second rationale underlying mandatory public law rules--
the protection of third parties--can still be achieved by regulators in the state of
the affected third party. The consequences of breach of mandatory public law
rules are usually two-fold: violators are subject to (quasi-)criminal penalty and the
offending contract is declared void. It is not suggested that a private party could or
should be able to contract out of the first (in any event, the contract would need to
be with the state), but it is easier to see how it could be possible to contract out of
the second.

This paper examines the approach of the courts to party autonomy (Part II),
and the approach of the courts to arbitration (Part III). It then turns to a
consideration of the arbitrator’s dilemma (Part IV) and an examination of why
party choice of public law should be permitted (Part V).