One of the main problems faced by the arbitrator when it comes to choice of law is the question of mandatory rules of law. A mandatory rule, as defined by Professor Mayer, refers to “an imperative provision of law which must be applied to an international relationship irrespective of the law that governs that relationship… It is the imperative nature per se of such rules that make them applicable… In matters of contract, the effect of a mandatory rule of law of a given country is to create an obligation to apply such a rule, or indeed simply a possibility of so doing, despite the fact that the parties have expressly or implicitly subjected their contract to law of another country.”1 Examples of this include competition law, securities regulation, blockade or boycott law, currency control, and confiscation and nationalization.
This poses a problem to the extent that the mandatory rules of law are in conflict with the contracting parties' wishes as expressed in the main contract and the arbitration agreement. In this case, there is a fundamental tension between the arbitration of private interests and the need to address public concerns, and how one responds to the situation depends on whether one views international arbitration through the lens of contract or the lens of jurisdiction
[...] Notably, international arbitration conventions such as the New York Convention and the Geneva Convention are silent on the issue, as are the more sophisticated national arbitration laws like the French New Code of Civil Procedure. Hence, it remains to be seen how parties to international arbitration will come to balance private interests with public concerns in the domain of mandatory rules. Bibliography Baniassadi, Mohammad Reza. Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration.” Berkeley Journal of International Law (2012): 59-84. http://scholarship.law.berkeley.edu/bjil/vol10/iss1/2 Guzman, Andrew T. “Arbitrator Liability: Reconciling Arbitration and Mandatory Rules.” Duke Law Journal (2000):1279-1334. [...]
[...] This draws from the fundamental notion of freedom of contract, which is one way of looking at arbitration. Thus the problem surfaces that the contracting parties might use the notion of party autonomy in international arbitration to escape from mandatory rules of law, by contracting out of or around them. (In contrast, the problem of mandatory rules of law does not crop up under domestic arbitration because the outer boundaries of any given contract are still delineated by the respective national law.) Put from another 1 Mayer, 274-5 perspective, there is a conflict also because mandatory rules of law threaten to limit this contractual freedom by its very nature—they are meant to be imperative, and not just default rules that are optional and open to the parties to choose. [...]
[...] Public law disputes used to be decided exclusively by domestic courts. The scope of arbitrability of international disputes has thus grown only insofar as domestic courts have allowed it to. II. The arbitrator's point of view Following the same train of thought, it used to be that arbitrators who wanted to attract business would have an incentive to enforce mandatory rules over the law chosen by the parties. This way, the enforcement and recognition of the award would not run into obstacles, and the credibility of their arbitration proceedings would be assured, thereby cementing their reputation. [...]
[...] Choice of Law by the Arbitrator One of the main problems faced by the arbitrator when it comes to choice of law is the question of mandatory rules of law. A mandatory rule, as defined by Professor Mayer, refers to imperative provision of law which must be applied to an international relationship irrespective of the law that governs that relationship It is the imperative nature per se of such rules that make them applicable In matters of contract, the effect of a mandatory rule of law of a given country is to create an obligation to apply such a rule, or indeed simply a possibility of so doing, despite the fact that the parties have expressly or implicitly subjected their contract to law of another country.”1 Examples of this include competition law, securities regulation, blockade or boycott law, currency control, and confiscation and nationalisation. [...]
[...] Yet the problem remains due to the obligations that the arbitrator owes to the contracting parties on the other side; after all, his authority derives from their contract. Furthermore, the arbitrator also has to juggle with upholding the principle of party autonomy, since this is also another aspect that fuels the institution of international arbitration and thus, his earnings; without it, arbitration would lose a considerable amount of its appeal to contracting parties. Hence, the arbitrator, in this sense, finds himself in a dilemma of sorts, and the question is left hanging as to whether he owes his allegiance more to the parties that appointed him, or to the States that support his decision. [...]
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