The Dampening Effect of ‘Foreign’ Mandatory Laws

Abstract

Party autonomy – a foundational facet of international arbitration – is often at loggerheads with public policy elements. A recurrent debate in international arbitration has been the extent of limits imposed by public policy on party autonomy. One aspect of this debate is when parties expressly opt for a law governing the merits of the dispute, can an arbitral tribunal derogate from such law and apply a mandatory rule which it finds to be relevant to the dispute? This issue has repercussions on the enforceability of arbitration agreements as well as arbitral awards where mandatory rules are involved. In this article, the author argues that arbitrators are bound to apply mandatory laws notwithstanding the fact that such a measure constitutes a departure from the lex contractus, since parties inherently lack the capacity to contract out of mandatory rules. To the extent that mandatory rules reflect public policy they now cast a limit to parties’ lex contractus.