Mandatory Rules and Public Policy as Limitations on the Applicable Law in International Arbitration

Abstract

The article examines the concepts of mandatory rules and public policy as limitations on party autonomy in the arbitral context. It highlights the differences between their application in international litigation and international arbitration, and considers the different bases for their application. It concludes that the mandatory rules that often find application in international litigation are not a given in international arbitration. In relation to application of the mandatory rules of the proper law, the article provides the context in which these mandatory rules could apply, namely, after a consideration of the wording of the choice-of-law clause. As to application of the mandatory rules of a third country, the article provides the reasoning on which the laws of third countries should be taken into consideration, but concludes that the mandatory rules most likely to find application, in this context, would be the law of the place of enforcement. Application of the mandatory rules of the arbitral seat is also considered. In this context, the article considers the overlap between the arbitrability of an issue and the mandatory rules. The article proposes, subject to the nature of the mandatory rules, that the mandatory rules of the arbitral seat may be taken into consideration. The consideration of their nature revolves predominantly around public-policy grounds. The point is made that the place where the arbitral proceedings are held (the place of enforcement of the agreement) affords the arbitral legal order the space and regulatory framework in which to conduct the arbitration, and its rules should therefore be respected. The place where an application is made in order for an arbitral award to be set aside is also usually the place of the legal seat of the arbitration. Both instances, therefore, refer to only one legal system. The only other legal system of potential applicability is the law of the place of enforcement.