This article is from The American Review of International Arbitration.

© JurisNet, LLC 2007 www.arbitrationlaw.com

INTRODUCTION:
MANDATORY RULES OF LAW IN
INTERNATIONAL ARBITRATION

George A. Bermann*

The notion of mandatory rules of law has long been of interest in private
international law. It is no wonder that the subject has also emerged as something
of a preoccupation of those who are involved in the world of international
commercial arbitration. As both legal academics and international arbitrators, the
editors of this special issue of the American Review of International Arbitration
took a keen interest in how mandatory rules might “fit” into the international
arbitration picture.
To better understand the phenomenon of mandatory rules (and to gauge
whether its importance might possibly even be exaggerated in the international
arbitral context), the editors convened at Columbia Law School in June 2007 a
workshop under the joint auspices of Columbia and the School of International
Arbitration at Queen Mary University of London. The workshop gathered a small
number of leading academics and practitioners to consider whether the notion of
mandatory rules of law has a place in international arbitration and, if so, how it
might best be accommodated. In fact, as shown by the articles that follow in this
issue, the participants display a range of views on how the notion of mandatory
rules of law should be approached and treated.
In this Introduction, I mean to raise only the most essential questions
pertaining to the place of mandatory rules of law in international commercial
arbitration. Because the notion of mandatory rules of law has arisen primarily in
the context of private international law, any discussion of them in arbitration
appropriately starts with its usage in international civil litigation.

I. WHAT IS A MANDATORY RULE OF LAW?

I begin with a matter of definition. In the private international law literature, a

norm or rule of law is most often described as “mandatory” when a court must
apply it, even if the court, under the operation of its conflict of laws rules, would
ordinarily apply some other body of law (often referred to casually as “the
otherwise applicable law”).1 As indicated in several of the articles in this issue,
other terms – often in other languages (lois de police in French, for example) –
capture much the same idea.
On other occasions, authors define as “mandatory” those rules of law that
cannot be derogated from by private parties in the exercise of their party

*
Jean Monnet Professor of European Union Law and Walter Gellhorn Professor of
Law, Columbia Law School.
1
See Bjorklund, infra at 175, Buxbaum, infra at 21 (both quoting Pierre Mayer,
Mandatory Rules of Law in International Arbitration, 2 ARB. INT’L 274 (1986)).
1
2 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

autonomy. They are, in other words, rules of law that the parties cannot, as the
saying goes, “contract around.”2 As Donald Donovan has put it, mandatory rules
are those that “arise outside the contract, apply regardless of what the parties agree
to, and are typically designed to protect public interests that the state will not
allow the parties to waive.”3
It is easy to discern the close kinship between these two formulations of the
idea of mandatory law. Very often in private international law – and in
international arbitration as well – the parties will by contract have designated a
choice of law to govern their contractual relationship and the disputes arising out
of or related to it; the inclusion of a choice-of-law clause in a contract is very
much an exercise of party autonomy. Since under virtually all jurisdictions’
conflict of laws rules, courts should presumptively respect an expression of party
autonomy in the choice of law, the law chosen by the parties is indeed “the
otherwise applicable law.” In this way, a rule that starts out reading
“notwithstanding the ordinary rules of conflict of laws” may end up reading
“notwithstanding a contrary agreement between the parties.”
The advantage of this transformation of the notion of mandatory rules of law
from overriding “the otherwise applicable law” to overriding “the intent of the
parties” is that it more clearly suggests the tension between mandatory rules, on
the one hand, and party autonomy, on the other. That is an aspect of mandatory
rules that, as many of the articles in this volume illustrate,4 needs to be borne in
mind.
But there is one disadvantage to the transformation. To designate mandatory
rules of law as ones from which the parties cannot derogate by agreement suggests
that there is nothing at all that the parties can do to escape the application of these
rules (or, to put the matter differently, that the parties have no possibility
whatsoever of “opting out” of them, no matter how clearly and unequivocally they
manifest their intention to do so, as well as no possibility of waiving them or
acquiescing in their displacement). Yet, there is a suggestion in more than one of
the articles in this volume that, while a rule might well be mandatory in the sense
of displacing the “otherwise applicable law” (as identified through the ordinary
play of conflict of laws rules), it may nevertheless be one around which the parties
may still be permitted to contract or one whose advantages the party meant to
benefit from the mandatory rule may waive. It seems to me useful to leave very
much open the possibility that a rule of law may be mandatory in the sense of
being applicable, notwithstanding “the otherwise applicable law,” but nevertheless
subject to being derogated from by parties who clearly enough express that
intention.5

2
See Kessedjian, infra at 147.
3
Donovan, infra at 205, quoting Donald F. Donovan & Alexander K.A. Greenawalt,
Mitsubishi After Twenty Years: Mandatory Rules before Courts and International
Arbitrators, in PERVASIVE PROBLEMS IN INTERNATIONAL ARBITRATION 1, 13 (Loukas
Mistelis & Julian D.M. Lew eds., 2006).
4
See in particular Bjorklund, infra at 175.
5
See the discussion at notes 68-70, infra and accompanying text.
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 3

The fact is that, despite the rich literature on mandatory rules, the exact
difference between (a) rules that are “imperative” because they command their
application, notwithstanding the otherwise applicable law, and (b) rules that are
“imperative” because they cannot be derogated from by agreement between the
parties (and very likely cannot be waived) remains to be more fully explored and
better understood. A recital in the new 2008 Regulation of the European Union
on the Law Applicable to Contractual Obligations suggests that there may indeed
be a difference between these two notions.6

II. MANDATORY RULES AND “PUBLIC POLICY”

American lawyers, not particularly conversant with the term mandatory rules
of law, may well find themselves translating the term in their minds as “public
policy” – a term that manages to capture both of the conceptions of mandatory
rules of law set out above.7 That is to say, “public policy” can both prevent
application of “the otherwise applicable law” and also bar the possibility of party
agreement to the contrary. French private international law draws an important
further distinction within the realm of public policy between those norms (ordre
public interne) that are mandatory only when the legal relationship or transaction
facing the judge is governed by French law, on the one hand, and those norms
(ordre public international) that are mandatory even when the legal relationship
or transaction is or has been subjected to a law other than the law of France.
Norms of the latter kind should consist only of the most essential and fundamental
– even universal – of norms, worthy of binding parties not only when the parties
have subjected themselves to French law, but in all cases that come
before a French court.8
The ordre public of a jurisdiction, it should be noted in passing, is subject to
considerable expansion to the extent that the State is a member of a regional legal
system whose own legal norms are deemed to be directly applicable in, and part

6
Regulation on the Law Applicable to Contractual Obligations, infra note 18. Recital
37 reads:
Considerations of public interest justify giving the courts of the Member States
the possibility, in exceptional circumstances, of applying exceptions based on
public policy and overriding mandatory provisions. The concept of ‘overriding
mandatory provisions’ should be distinguished from the expression ‘provisions
which cannot be derogated from by agreement’ and should be construed more
restrictively (emphasis added).
7
See Donovan, infra at 205, Kessedjian, infra at 147. Kessedjian regards the
distinction between mandatory rules and rules of public policy as, from a practical point of
view, “unnecessary.”
8
Audley Sheppard draws a parallel distinction in U.K. private international law
between “domestic mandatory rules” and “international mandatory rules.” In principle,
only the latter have application to “international relationships.” Sheppard, infra at 121.
Donovan offers as illustrations of norms of ordre public international the prohibition
of apartheid or trafficking in drugs. Donovan, infra at 205.
4 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

of, the national legal order. The United States may not be a member of any such
regional organization (NAFTA certainly does not meet that standard), but plenty
of other countries are, notably the Member States of the European Union.9 For an
EU Member State, not only are certain bodies or principles of European Union
law capable of constituting ordre public (whether interne or international),10 but a
regional court such as the European Court in Luxembourg may feel entitled to tell
the courts of that Member State authoritatively which EU legal norms they should
regard as ordre public and which not.
In civil litigation, a French court faced with a dispute governed by French law
will presumably feel bound to give effect to any and all relevant principles of
French ordre public, be they interne or international. (So too, presumably, will
the courts of other countries, once they determine French law to be the applicable
law in a case before them.) But if a French court will feel bound by the principles
of ordre public of French law (including EU law), it may not feel so bound if it
considers that the dispute is governed by a law other than the law of France (or of
another EU Member State). On the other hand, a French court will feel duty
bound to give effect to the rules that enter into the category of ordre public
international, irrespective of what the proper law governing the dispute may be.
That is the difference between a public policy norm being international as
opposed to “merely” interne.
The distinction between ordre public interne and ordre public international,
which was devised primarily with international civil litigation in mind, applies
less readily in the context of international arbitration. An international arbitral
tribunal may have a harder time deploying the distinction. This is because an
international arbitral tribunal is not an organ of a State that is deemed to be
possessed of something we call “public policy.” To be sure, the tribunal will (or
at least should) apply norms of both French ordre public interne and ordre public
international, whenever it deems French law to be applicable to the case before it.
But otherwise, what is the source from which the tribunal is to draw its ordre
public? Surely it does not have its own ordre public. So should it draw only upon
the ordre public of the particular jurisdiction whose law the tribunal has identified
as the governing law, or of the jurisdiction where it sits? Or is there some other
way of identifying the rules of ordre public to which the tribunal should feel
bound to give effect, irrespective of “the otherwise applicable law”?11 I shall

9
Kessedjian, infra at 149, referring to “regional mandatory rules.”
10
See Audit, infra at 37. The EU’s new 2008 Regulation on the Law Applicable to
Contractual Obligations (see note 18 infra) makes explicit the obligation of Member State
courts to apply mandatory rules of law established at the EU level: “Where all other
elements relevant to the situation at the time of the choice are located in one or more
Member States, the parties’ choice of applicable law other than that of a Member State
shall not prejudice the application of provisions of Community law, where appropriate as
implemented in the Member State of the forum, which cannot be derogated from by
agreement.” This is largely consistent with established European Court of Justice case
law. See Ingmar GB v. Eaton Leonard Technologies, Case C-381/98, [2000] ECR I-9305.
11
On this issue, see in particular Kessedjian, infra at 147.
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 5

come back to these questions at least twice below: first, on the occasion of
discussing the possibility that an arbitral tribunal might give effect to the
mandatory rules of law of a jurisdiction other than the one whose law the tribunal
has designated as the applicable law; and second, on the occasion of determining
whether international law itself may be a source of mandatory rules of law for
arbitrators.

III. WHAT MAKES A RULE OF LAW MANDATORY?

We may well understand the definition of a mandatory rule of law and the
effect it is supposed to have, without having a very good idea of the criteria by
which to decide whether in fact a given rule of law falls within this category.
While one could indulge in purely circular reasoning (i.e. “a rule of law is
mandatory if it is one that a court must apply, irrespective of the otherwise
applicable law including a law chosen by the parties”), it would be nice to have a
way of identifying mandatory rules of law in advance and upon encountering
them. The reality is that only some statutes unambiguously announce their
mandatory character, and some rules are undoubtedly mandatory without taking
written form at all.12 When a court or tribunal seeks to characterize a rule of law
as mandatory (or not), it has little choice but to try to gauge the strength and depth
of the attachment of the legal system in question to the values that the rule of law
is thought to embody.13 The difficulty entailed in making this determination
should not be underestimated.14

IV. MANDATORY RULES OF THE ARBITRAL SITUS

There is widespread agreement that, irrespective of what the generally

applicable law might be, an international arbitral tribunal is bound to apply or
otherwise respect the mandatory rules of arbitral procedure of the place of
arbitration.15 This requirement is deemed to be the price (and occasionally the
advantage) of having chosen one arbitral situs rather than another. Mandatory
rules of procedure of the situs essentially tell the parties which procedural norms
they must respect if they expect to validly arbitrate on the territory, and they tell
the arbitral tribunal which procedural norms it must respect if it expects to render
an award that is safe from local annulment. To underscore the importance of
mandatory rules in the lex arbitri, Audley Sheppard reports that the English
Arbitration Act 1996 contains no fewer than 26 of them.16

12
Audit, infra at 37.
13
Kessedjian, infra at 147.
14
Buxbaum, infra at 21.
15
See Rau, infra, at 51, Sheppard, infra at 121, Shore, infra at 91.
16
Sheppard, infra at 121. The English Act specifically enumerates in an annexed
schedule the provisions of the Act that are mandatory.
6 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

Matters become more interesting when we move from the realm of mandatory
procedural rules of the situs to that of mandatory substantive rules of the situs. Of
course, the situation is simple where the dispute is substantively governed, as a
matter of conflict of laws, by the situs’ own law. The substantive mandatory rules
of law of the situs are for that reason alone immediately applicable where relevant.
But where the applicable law is another country’s law, what claim does the situs
have to demand that its substantive legal norms be respected? None of the
contributors to this volume rules out that possibility – and some specifically
contemplate it17 – though what remains unclear is (a) what kind of nexus to the
forum will be required to justify such a demand, above and beyond the fact that
the arbitration is taking place there, and (b) how compelling must be the values
underlying these substantive mandatory rules of the arbitral situs to warrant their
application.
Several of the authors urge us to dwell a little bit longer than we otherwise
might on the question whether the jurisdiction whose mandatory rules of law are
in question (here, the arbitral situs) really mean to have those rules applied to the
situation at hand or whether, on the contrary, the mandatory rule in question
simply does not apply. This might be the case, for example, when the particular
setting is so “transnational” that application of the rule would be unacceptably
“extraterritorial.”18 All of this is, at bottom, a matter of legal construction of the
mandatory law itself and in particular its “reach.”19 Bernard Audit plausibly
suggests that the situs can expect only norms that enter into its ordre public

17
See Audit, infra at 37, Bjorklund, infra at 175, Buxbaum, infra at 21, Shore, infra at
91.
18
See Audit, infra at 37, Bjorklund, infra at 175, Kessedjian, infra at 147, Shore, infra
at 91. Sheppard suggests that Article 7(2) of the Rome Convention on the Law Applicable
to Contractual Obligations, 1980 O.J. (L 266), which pertains to mandatory rules of law of
the forum, is broadly interpreted in the U.K. so as to include, among other things,
competition law, consumer protection law, carriage of goods by sea law, employment law,
and the Financial Services and Markets Act of 2000. Sheppard, infra at 121.
Article 7(2) of the Convention reads: “Nothing in this Convention shall restrict the
application of the rules of the law of the forum in a situation where they are mandatory
irrespective of the law otherwise applicable to the contract.”
The Rome Convention was recently converted into directly applicable European
Union legislation in the form of a regulation. Regulation 593/2008 of the European
Parliament and of the Council on the Law Applicable to Contractual Obligations, 2008
O.J. (L 177/6) (July 4, 2008). The parallel provision (Art. 9.3) reads: “Nothing in this
Regulation shall restrict the application of the overriding mandatory provisions of the law
of the forum.”
19
See Rau, infra at 51, citing the example of a tribunal’s refusal to apply the RICO
legislation of the U.S., not merely because the parties had not adopted U.S. law as
governing, but because the tribunal rejected the notion that the drafters of RICO intended
to impose liability under that statute for conduct that neither took place in the U.S. nor had
an effect on U.S. markets. ICC Case No. 6320, XX Y.B. COM. ARB. 62 (1992).
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 7

international (rather than merely its ordre public interne) to qualify for
application by the tribunal as mandatory substantive rules of law.20

V. MANDATORY RULES OF THE CHOSEN LAW

Where the parties to an international arbitration have selected a particular

body of law to govern disputes arising out of or related to that transaction, we can
mostly rest assured that the tribunal will consider the mandatory rules of the
chosen law as figuring among the applicable legal norms.21 The only possible
reasons not to do so would be (a) if, as suggested above, the mandatory rule of law
is for some reason, even in the eyes of its enactor, not meant to be applied to a
situation like the one at hand,22 or (b) if there is in play some other contrary and
overriding mandatory norm that would be offended.23 A fortiori, attention should
be paid to the mandatory rules of law of the country whose law (the lex arbitri)
the parties have explicitly chosen to govern the arbitration agreement, in those
cases where they have established both a law of the contract and a law of the
arbitration.24

VI. MANDATORY RULES OF A “THIRD COUNTRY”

Still more interesting of course is the prospect of an arbitral tribunal reaching

beyond both “the otherwise applicable law” (typically the law chosen by the
parties as applicable) and the law of the situs to discover and apply the mandatory
rules of law of some other, or “third,” jurisdiction.25 This situation is highly
analogous to the one in which a national court judge in country A, applying as a
matter of its own conflict of laws the substantive law of country B (which, let us
assume, the parties have selected in their contract), is tempted on a particular issue
to apply, as somehow mandatory, the law of country C (being neither the forum
nor the country whose law would ordinarily be applicable). Both the Rome
Convention on Choice of Law in Contracts26 and the Restatement (Second) of

20
Audit, infra at 37.
21
See Bjorklund, infra at 175, Kessedjian, infra at 147, Sheppard, infra at 121, Shore,
infra at 91.
22
Audit, infra at 37.
23
Professor Bjorklund specifically identifies as two situations in which a court or
tribunal may refuse to enforce a rule of law that purports to be mandatory (a) the situation
where application of the mandatory rule of law seems to the court or tribunal to be
impermissibly extraterritorial and (b) the situation where application of a mandatory rule
of law of another country would offend a mandatory rule of law of the forum. Bjorklund,
infra at 175.
24
Sheppard, infra at 121.
25
See, e.g., Bjorklund, infra at 175, Buxbaum, infra at 21, Shore, infra at 91.
26
Rome Convention on the Law Applicable to Contractual Obligations, 1980 O.J. (L
266), Art. 7.1. As noted, supra note 18, the European Union adopted the Convention as a
directly applicable regulation in June 2008. Article 7.1 of the Convention, with slight
8 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

Conflict of Laws27 invite precisely a move of this kind on the part of the forum,
albeit only in exceptional circumstances.
Here, at last, the national judge and international arbitrator find themselves in
analogous situations. Both the judge and the arbitrator sitting in country A should
feel bound in principle to apply the substantive law of country B (the chosen law),
but they both may nevertheless wonder whether country C might possibly have a
strong enough claim on the facts to have its mandatory rules of law on a given
issue applied as well. (To put the proposition in ordre public terms, we must in
this scenario imagine that the mandatory law of country C reaches the level of
ordre public international and thus warrants mandatory application.)
The question of course is what will it take to persuade an arbitrator to go
outside the chosen law and apply the mandatory rules of a third State? To this it is
difficult to give a reliably informative answer.
One might expect, to begin with, a certain hesitation to apply third countries’
mandatory rules, particularly among those who subscribe to an “a-national” notion
of international arbitration. Such an individual may well consider it anomalous
for an arbitral tribunal to apply any mandatory rules of law other than those that
may be found in the body of law that the parties previously adopted as their
governing law (or possibly in the body of arbitral law of their chosen situs). To
apply in any measure the law of a jurisdiction whose law the parties did not select
would thwart the value of party autonomy which underlies the very notion of “a-
national” arbitration.28 However, I sense that most commentators reject so
categorical a view, preferring to leave the door open, at least theoretically, to the
application of a third country’s mandatory rules of law.29 The premise of that
position must be that, even in the context of purely private commercial disputes,
an arbitral tribunal has a public role and function to perform, and cannot remain
categorically deaf to the values underlying truly mandatory rules of law, whatever
their source or origin may be. (The political function of international arbitral
tribunals is of course at its most palpable in investor/state arbitration.)
The contributors to this volume come at this question in a variety of ways.
Lawrence Shore proposes basically a “rule of reason” which would take into
account, among other things, the strength of country C’s nexus to the case, the
tribunal’s sense of the mandatory rule’s “application-worthiness,” and the
appropriateness of the result if country C’s mandatory rule of law were to be

modification of language, has become Article 9.3 of the new Regulation. For the text of
Article 7.1 of the Convention and Article 9.3 of the 2008 Regulation, see infra note 36.
27
RESTATEMENT (SECOND) OF THE CONFLICT OF LAWS, § 187(2)(b).
28
This position is well stated, though not necessarily subscribed to, by Professor
Bjorklund. Bjorklund, infra at 175. While Alan Rau professes little interest in the
supposed tension between arbitrators as “servants of the parties” (i.e., the contract model)
and as persons concerned with “the public interest” (i.e., the jurisdictional model), he
concedes that if forced to choose, he would choose the former. See also Rau, infra at 51.
29
See, e.g., Sheppard, infra at 121.
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 9

applied.30 Alan Rau counsels arbitrators to pay special heed not only to the
mandatory rules of law of the situs (see above), but also to those of the
jurisdictions where the eventual arbitral award is likely to be brought for
enforcement,31 an admonition energetically joined in by others.32 Alexander
Greenawalt goes furthest, floating what he calls the “maximal option,” according
to which all mandatory rules of law should be applied (though only of course
within their proper scope of application), whatever their source, provided the
agreement between the parties has not excluded their application.33 This is a
rather extreme position; even the adventurous Rome Convention34 made the
forum’s application of a third state’s mandatory rules of law essentially
discretionary.35
If we were to judge by the frequency with which national courts in civil
litigation enforce the mandatory rules of law of third countries, the prospects for
arbitral tribunals actually taking the step of applying a mandatory rule of country
C would not seem to be very great. Bernard Audit finds it to be the rare case
indeed that a national court takes that step; indeed he can find no national court
decision actually employing Article 7.1 of the Rome Convention – the provision
that invites national courts to do just that.36 Hannah Buxbaum expresses much the

30
Shore, infra at 96 (making special reference to the “legitimate expectations” of the
parties). In this, Shore invokes the support of Marc Blessing and the latter’s influential
article, Mandatory Rules of Law versus Party Autonomy in International Arbitration,
14(4) J. INT’L ARB. 23, 28-33 (1997) (setting out six criteria). See also Andrew
Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial
Arbitration, 6 MELBOURNE J. INT’L L. 205, 227-35 (2005). Barraclough and Waincymer
advocate taking no fewer than eight separate factors into account, including concern for
the enforceability of the award, the closeness of the connection between the dispute and
the State whose mandatory law is under consideration, the universality of the norm, the
degree of importance of the norm to the enacting State, and the norm’s appropriateness to
the situation.
Andrea Bjorklund regards it as “well-accepted that arbitral tribunals do have the
authority to apply mandatory laws,” but concedes that the tribunal’s decision whether to
exercise that authority “depends on the circumstances.” Bjorklund, infra at 175.
31
Rau, infra at 51.
32
See id. Shore, infra at 91.
33
Greenawalt, infra at 103. Note that this very proposition implies that there are at
least some mandatory rules of law whose application the parties have the right to exclude.
34
See note 18 supra and note 35 infra. As noted, supra note 18, the European Union
in June 2008 adopted a Regulation based heavily on the Rome Convention.
35
According to Article 7.1 of the Convention, “… effect may be given to the
mandatory rules of law of another country …” (emphasis added). Note that when the
European Union in June 2008 adopted a Regulation on the basis of the Rome Convention
(see note 18 supra), it retained the discretionary “may” (Art. 9.3).
36
See generally Audit, infra at 37. In fact, the Rome Convention allows ratifying
States to opt out of Article 7.1 upon ratification, and several (including Germany and the
U.K.) did so.
Article 7.1 of the Rome Convention (supra note 18) reads in full as follows:
10 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

same view, tracing the rarity of such cases to a range of factors including, among
others, both the difficulty of confidently identifying a third country’s “truly”
mandatory rules of law and the prevalence of the so-called “public law taboo,”
according to which courts need not and indeed should not entertain legal actions
by which a foreign government seeks to assert its sovereign interests in another
country’s courts.37
There is certainly nothing in the new 2008 European Regulation on the Law
Applicable to Contractual Obligations,38 replacing for the EU the 1980 Rome
Convention, to suggest that this pattern will change. Worth noting is the fact that
the Regulation gives some “mixed signals” as to the scope of the mandatory rule

When applying under this Convention the law of a country, effect may be
given to the mandatory rules of law of another country with which the
situation has a close connection, if and insofar as, under the law of the latter
country, those rules must be applied whatever the law applicable to the
contract. In considering whether to give effect to these mandatory rules,
regard shall be had to their nature and purpose and to the consequences of their
application or non-application.
(Emphasis added). However, Article 3.3 defines mandatory rules as “rules … which
cannot be derogated from by contract” (emphasis added). The two italicized formulations
reflect the two different renditions of mandatory rules of law set out above. (See notes 1-6
supra and accompanying text.)
The analogue to Article 7.1 of the Rome Convention is Article 9.3 of the 2008 EU
Regulation on the subject (supra note 18). Article 9.3 reads:
Effect may be given to the overriding mandatory provisions of the law of the
country where the obligations arising out of the contract have to be or have
been performed, in so far as those overriding mandatory provisions render the
performance of the contract unlawful. In considering whether to give effect to
those provisions, regard shall be had to their nature and purpose and to the
consequences of their application or non-application.
The analogue to Article 3.3 in the new Regulation is Article 9.1, which defines
“overriding mandatory provisions” as: “provisions the respect for which is regarded as
crucial by a country for safeguarding its public interests, such as its political, social or
economic organisation, to such an extent that they are applicable to any situation falling
within their scope, irrespective of the law otherwise applicable to the contract under this
Regulation” (emphasis added). Note that the Regulation now consistently defines
mandatory rules as ones that are applicable, notwithstanding the law otherwise applicable
to the contract. No further reference is made to “rules which cannot be derogated from by
contract.”
37
Buxbaum, infra at 21. Part of the problem, according to Buxbaum, is the absence
of meaningful, workable and predictable criteria for differentiating between those
mandatory laws of a foreign state worthy of enforcement by the forum and those unworthy
of forum enforcement.
38
See note 18 supra. Note that the U.K. and Denmark, acting pursuant to existing
Protocols to the Treaty Establishing the European Community and the Treaty on European
Union, have exercised their option not to participate in the adoption of the Regulation and
are neither bound by nor subject to it. See Recitals 45 and 46 in the Preamble to the
Regulation.
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 11

of law exception in choice of law. On the one hand, Article 9.3 of the Regulation
– the closest counterpart to Article 7.1 of the Convention – could be construed as
limiting the freedom of Member State courts to apply the mandatory rules of
States other than the forum or the State whose law is the “otherwise applicable”
law. This is because in place of Article 7.1’s reference to “the mandatory rules of
law of another country with which the situation has a close connection” (emphasis
added), Article 9.3 of the Regulation invites the forum to apply only “the
overriding mandatory provisions of the law of the country where the obligations
arising out of the contract have to be or have been performed, in so far as those
overriding mandatory provisions render the performance of the contract unlawful”
(emphasis added). Not only does the provision cite only the country of the place
of performance (rather than simply “another country”) as the source of mandatory
rules, but the mandatory rule must be one that renders performance of the contract
unlawful. On the other hand, other provisions of the Regulation – such as Article
339 – speak in much broader terms. Moreover, several recitals in the Preamble to
the Regulation suggest that States may indeed apply mandatory rules of law of
countries other than the country of the place of performance.40 The European
Court of Justice will certainly have occasion to bring some clarifications to the
matter.41

39
Article 3 (captioned “Freedom of choice”) reads in part as follows:
3. Where all other elements relevant to the situation at the time of the
choice are located in a country other than the country whose law has been
chosen, the choice of the parties shall not prejudice the application of
provisions of the law of that other country which cannot be derogated from by
agreement.
40
Recital 15 in the Preamble speaks in much broader terms:
Where a choice of law is made and all other elements relevant to the situation
are located in a country other than the country whose law has been chosen, the
choice of law should not prejudice the application of provisions of the law of
that country which cannot be derogated from by agreement.
Even broader is scope is Recital 20:
Where the contract is manifestly more closely connected with a country other
than that indicated [as the presumptive “otherwise applicable” law] in Article
4(1) or (2) [of the Regulation], an escape clause should provide that the law of
that other country is to apply.
Recital 37 speaks in general terms of applying “public policy” norms and “overriding
mandatory provisions,” without restricting the jurisdictions whose norms or provisions
may thereby be applied:
Considerations of public interest justify giving the courts of the Member States
the possibility, in exceptional circumstances, of applying exceptions based on
public policy and overriding mandatory provisions.
An addendum to Recital 37 states cryptically that “[t]he concept of ‘overriding mandatory
provisions’ should be distinguished from the expression ‘provisions which cannot be
derogated from by agreement’ and should be construed more restrictively.”
41
Complicating matters still further is Article 21 of the new Regulation, according to
which “[t]he application of a provision of the law of any country specified by this
12 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

But perhaps international commercial arbitrators will prove not to be as

cautious as national judges when it comes to enforcing the mandatory rules of law
of countries other than the arbitral situs or the country of the applicable law. One
need not adopt a full-bodied “a-national” theory of international arbitration in
order to recognize the simple fact that international arbitrators have a lesser degree
of obligation as decisionmakers to any given State and, consequently, may prove
more receptive to the mandatory law claims of third countries.42
One reason why international arbitrators may find themselves headed in this
direction is that, as keenly observed by Alexander Greenawalt, arbitration clauses
often sweep considerably more broadly than the choice-of-law clauses that are
found in the very same contracts.43 The fact that an arbitration clause vests
arbitrators with decisional authority over a significantly broader set of claims than
those encompassed in a more narrowly drawn choice-of-law clause may entitle the
arbitrators to entertain claims arising out of the mandatory rules of law of a State
other than the one whose law was chosen for the determination of contract-based
claims. As Greenawalt points out, this is precisely the pathway to which the
United States Supreme Court was pointing in its seminal Mitsubishi decision,44
where the Court felt comfortable assuming that the arbitrators sitting in Tokyo
would read the arbitration clause broadly enough to encompass claims arising out
of the U.S. antitrust laws, while reading the choice-of-law clause designating
Swiss law narrowly enough to apply to contract and contract-based claims only.
As Alan Rau rightly asks, “Why should we conclusively presume that the law that
may govern the performance of the substantive terms of [the parties’] bargain tells
us everything we need to know about the merits of … extra-contractual causes of
action?”45

VII. MANDATORY RULES OF A THIRD COUNTRY AS “DATUM”

In searching for the place of mandatory rules in international arbitration, one

should not overlook the fact that courts in many jurisdictions manage to “give
effect” to the mandatory rules of law of third countries, not by applying them
directly, but by treating those rules basically as data – facts, really – for purposes
of applying legal principles drawn from the law that the parties in fact chose. A

Regulation may be refused only if such application is manifestly incompatible with the
public policy (ordre public) of the forum.”
42
Audit rightly observes that, by comparison with international arbitrators, national
judges are simply “not neutral” as regards mandatory rules of law. Audit, infra at 37.
43
Greenawalt, infra at 115 (“[A]rbitrators facing [a] standard pairing of a broad
arbitration provision with a narrow choice-of-law clause need not limit their consideration
of mandatory rules to those arising under the parties’ chosen contractual law”).
44
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).
For further discussion of Mitsubishi, see Smit, infra at 155.
45
Rau, infra at 65, citing FOUCHARD, GAILLARD, GOLDMAN ON INTERNATIONAL
COMMERCIAL ARBITRATION 859-60 (Emmanuel Gaillard & John Savage eds., 1999).
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 13

classic example of merely “tak[ing] into consideration” foreign mandatory law46

arises when a court of country A, consonant with its choice-of-law rules (or with a
choice of law made by the parties), applies the law of contracts of country B
(including its prohibition on the enforcement of contracts that are illegal in the
place of performance), but then looks to the law of country C to determine
whether performance would in fact be illegal in country C, inasmuch as country C
would be the place of performance.47 Country A without doubt thereby “gives
effect” to the mandatory rules of country C, without however “applying” or
“enforcing” the law of any jurisdiction other than B, the proper law of the
contract. The distinction between “applying” a third country’s mandatory rules of
law, on the one hand, and “merely taking that country’s mandatory rules of law
into account,” on the other, is a subtle one. The fact remains that in this fashion
much can be accomplished by way of effectuating the fundamental public policies
of third countries.48 There is no reason to suppose that this technique will be any
less appealing to international arbitrators than it appears to be to national judges. 49

VIII. MIGHT MANDATORY RULES OF LAW, BY

THEIR NATURE, BE NON-ARBITRABLE?

At one point or another, we stumble upon the following paradox. The very
values that may be considered so fundamental as to impose themselves
(irrespective of the otherwise applicable law) on a decisionmaker as a mandatory
rule of law may also be considered so fundamental that their enforcement should
be reserved for national courts of the country that established that mandatory rule
and withheld from international arbitral tribunals.50 This brings us to the question
of “arbitrability” in the narrow sense of the term, viz. the question whether a claim
is one that, by virtue either of express statutory language or the nature of the cause
of action itself, should be deemed actionable only in a court of law of the enacting
State and not in arbitration. Some commentators, like Hans Smit, believe that
arbitrators should not entertain claims arising under mandatory rules of law, on

46
Audit, infra at 44.
47
See Greenawalt, infra at 103; see also Shore, infra at 91, citing Pierre Mayer, supra
note 1.
48
Rau offers as an example the case of Northrop Corp. v. Triad Int’l Marketing S.A.,
811 F.2d 1265 (9th Cir. 1987).
49
As Professor Kessedjian observes, arbitrators may find it more palatable to “give
effect” to third countries’ mandatory laws than to “apply” them. Kessedjian, infra at 147.
50
See Smit, infra at 155, exploring this traditional view. Of course, claims based on
mandatory rules of law were not only considered “off-limits” to arbitral tribunals; they
were also considered off-limits to national courts of countries other than the country that
enacted the mandatory rule. Audit, infra at 45, invokes “the ancient principle that a court
shall not enforce the public laws of another State,” citing DICEY, MORRIS & COLLINS, THE
CONFLICT OF LAWS (14th ed. 2006) (Rule 3: “The exclusion of foreign law”). On the so-
called “public law taboo,” see Buxbaum, infra at 21; William S. Dodge, Breaking the
Public Law Taboo, 43 HARV. INT’L L. J. 161 (2002).
14 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

the view that claims of that kind require decisionmakers such as national judges
who are unquestionably committed to, and capable of, a proper interpretation and
application of such laws (particularly of course when the mandatory law in
question is a law of the jurisdiction to which the judge belongs).51 Yet we know
from the unswerving Mitsubishi line of cases52 that this is decidedly not the
position that the United States Supreme Court has adopted on this question.
Under the Court’s steady jurisprudence, virtually all non-penal statutes appear to
be eligible for arbitral enforcement.53 The law in many other countries is equally,
if not more, pro-arbitration in this regard.
But even if a court in the United States or elsewhere were to hold that a
particular cause of action is non-arbitrable in this sense, that is unlikely to keep
arbitrators from “taking account” of the legislation as a datum in their
consideration of cases otherwise coming before them. It is entirely possible for an
arbitral tribunal (if it comes to that) to decline to adjudicate directly a statutory
claim on behalf of the claimant, without necessarily having to ignore the existence
of the underlying statute when adjudicating a cause of action that is properly
before it and to which the statute might bear some relevance. The best example,
once again, is a tribunal’s willingness to entertain a defense of illegality to a
contract claim based upon a piece of foreign mandatory legislation that the
tribunal would not, however, itself directly enforce through an action based on
that legislation. That is how I would reconcile the non-arbitrability of a particular
statutory claim with the notion that the statute nevertheless constitutes mandatory
law for the arbitrators. It is just that the statute would not have mandatory
application under all circumstances.

51
Smit, infra at 155. Professor Smit sets forth a variety of reasons (among them the
arbitrators’ flexibility in choice of law, the lack of requirement of arbitral reasoning and
the absence of judicial review) that render arbitral tribunals significantly inferior to
national courts as interpreters and appliers of mandatory rules of law and raise the risk of
“arbitral misapplication or non-application of properly applicable mandatory law.” He
concludes that “mandatory law issues should not be arbitrated and the [arbitration should
be] limited to claims and defenses based on non-mandatory law.” Id. at 168. Moreover,
when mandatory law is pleaded as a defense in arbitration to a claim based on non-
mandatory law, “the arbitrators should reject the defense and refer the party asserting the
defense to the normally competent court.” Id. at 169. Thus arbitrators would be precluded
from ruling on issues of mandatory law either as the basis of a cause of action or as the
basis of a defense.
52
See, in particular, Smit, infra at 155.
53
This is not to say that the U.S. Congress could not intervene to provide statutorily
that claims arising out of one or more important pieces of federal legislation, or categories
of pieces, shall not be subject to arbitration, but rather reserved to a judicial forum.
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 15

IX. MUST ARBITRATORS INITIATE THE APPLICATION

OF A THIRD COUNTRY’S MANDATORY LAWS?

If ever international arbitrators should feel obliged to apply a mandatory rule

of law of a third country, must they do so on their own initiative, that is, even if
neither party has called upon them to do so? It is, in my view, far from
established that national courts are bound ex officio to identify and apply the
mandatory rules of law of a jurisdiction other than the forum and other than the
jurisdiction whose law is the proper law of the contract. If national courts may
leave to the parties the burden of adducing the mandatory rules of law of third
countries, it is difficult to see why international arbitrators should not feel free to
do so as well.
Those contributors who addressed the issue in this symposium seem to
concur. They would appear to go no further than to permit arbitrators to raise
third countries’ mandatory rules sua sponte, and would stop short of requiring that
they do so,54 though that may not be a universally held view.55

X. MANDATORY RULES OF “INTERNATIONAL LAW” ORIGIN

Up to now, I have been envisioning the possibility of arbitrators applying

mandatory rules deriving solely from domestic law – be it the law of the situs, the
proper law of the contract, or the law of a third country. In international
arbitration, however, the question is bound to arise whether arbitrators may and
possibly must give effect to mandatory rules deriving from international law. (By
international law, I mean norms created not by a State acting alone, but rather via
conventions, resolutions, enactments of international bodies of various sorts,56 or
the consistent enough practices of a sufficient number of States acting out of some
sense of obligation so as to give rise to norms of customary international law.57)
International law’s eligibility as a source of mandatory law should be a non-
question in those legal systems that directly incorporate international law into
their domestic law, for then mandatory rules of international origin will

54
See Sheppard, infra at 121, Shore, infra at 91.
55
Marc Blessing has acknowledged that Article 7.1 of the Rome Convention (supra
notes 18, 36) states that a court merely “may” give effect to mandatory rules ex officio, but
opines that it will feel it has a duty to do so in some fields, such as competition law, citing
several ICC awards (Case No. 7181 (1992), Case No. 7315 (1992), Case No. 7539
(1996)). Blessing, supra note 30, at 35-38.
56
Kessedjian, infra at 147.
57
Customary international law would by definition include any norms that qualify as
ius cogens. Id. Laurence Shore raises the prospect of the UNIDROIT Principles giving
rise to international mandatory law. Shore, infra at 91. However, the UNIDROIT
Principles contain few provisions that could possibly rise to the level of mandatory law. I
would say the same of lex mercatoria, though the principle of good faith is an example of
one that certainly might. See Kessedjian, infra at 147.
16 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

automatically constitute mandatory rules of law within the domestic legal order.58
It should also be a non-issue to the extent that the parties have adopted
international law as the governing law of the contract – something they may do
either directly (as by an appropriately phrased choice of law clause) or indirectly
(by opting for ICSID arbitration without a designated choice-of-law).59
An interesting question, not fully explored in the articles that follow, is the
extent to which mandatory rules of law of international origin impose themselves
above and beyond the law chosen by the parties, even when the chosen law does
not expressly embrace international law and international law has not otherwise –
directly or indirectly – been adopted by the parties as governing.60 As Kessedjian
and Donovan both show, support is emerging both in international arbitral practice
and in the literature for recognition of at least some mandatory principles
denominated international or (to more clearly signify their binding effect in
relations between private parties) “transnational.”

XI. THE SPECIAL CASE OF INVESTOR/STATE ARBITRATION

What of the increasingly important realm of investor/state arbitration,

particularly the sort that arises not out of an arbitration clause found in a
concession or other State contract, but rather out of a bilateral investment treaty or
a regional organization treaty containing investor protection provisions?
Intuitively, mandatory rules have no place in that realm since such disputes are
presumptively governed exclusively by the international law principles that the
treaty embodies (e.g. national treatment, fair and equitable treatment, protection
from expropriation without prompt and adequate compensation) – principles that
we tend to think of as having their own independent treaty-based existence.61
These are the principles that govern investor/state arbitrations of this type,
whether we term them mandatory or not. Moreover, in treaty-based arbitrations –
in which obligations by definition flow from an international undertaking – a State
should not be allowed to invoke either its own national law (or indeed the law of
another country, however mandatory) so as to escape those obligations.62
Andrea Bjorklund nevertheless demonstrates that, for a variety of quite
different reasons, mandatory rules of law may enter importantly into consideration
in investor/state arbitration. For example, even investment treaties require
interpretation, and mandatory rules of law may emerge as aids to the

58
Kessedjian, infra at 147.
59
Convention on the Settlement of Investment Disputes Between States and Nationals
of Other States (ICSID), Art. 42.
60
Professor Kessedjian would distinguish from “international” mandatory norms a
separate category of “transnational” mandatory norms – norms that may be drawn from
such private law sources as the lex mercatoria, an example being the principle of “good
faith” (codified in Article 1.7 of the UNIDROIT Principles of International Commercial
Contracts).
61
Bjorklund, infra at 175.
62
Donovan, infra at 205.
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 17

understanding of treaty rights and obligations. We may also expect to find that
some of the incidental issues that are bound to arise in investment arbitration – for
example, norms governing access to information, environmental laws, or foreign
exchange control regulations – potentially implicate a country’s mandatory rules
of law.63
Even Donald Donovan, who is more skeptical about the utility in
investor/state arbitration of the notion of mandatory rules, envisions situations in
which the outcome of an investment dispute may be altered on account of a
powerful rule of law that is fully external to the investment treaty. Such an
outcome-determinative rule, external to the treaty regime, may flow from other
treaty obligations,64 from a notion of “transnational public policy,”65 or even from
a mandate of national law.66 Donovan is right to question whether a tribunal’s
application of such external norms is truly an “override” of the otherwise
applicable law. Might it still not represent nothing more than application of the
norms that the “otherwise applicable law” (international law) itself chooses to
treat as legally relevant?67

XII. WAIVER OF MANDATORY RULES

I raised earlier the possibility that a rule of law might be deemed mandatory
by a court or arbitral tribunal, in the sense of being applicable irrespective of the
forum’s ordinary choice-of-law rules, and still possibly be the subject either of an
agreement between the parties to the contrary or of waiver or acquiescence. (It is,

63
Bjorklund, infra at 175. Bjorklund of course further observes that some investment
arbitrations are contract-based rather than treaty-based, and that the transaction will
therefore be subject not only to the lex causae but potentially to the mandatory laws of
third countries. Moreover, respondent States may interpose counterclaims or setoffs in an
investment arbitration that, in the view of those States at least, implicate their own
mandatory rules of law.
64
Donovan imagines, by way of example, a State defending its violation of an
investment treaty obligation by invoking a United Nations Security Council resolution
combating piracy on the high seas. Donovan, infra at 205.
65
In the World Duty Fee case, ICSID Case No. ARB/00/7 (Oct. 4, 2006), discussed
by Donovan, infra at 205, the tribunal found that both the relevant national laws (English
and Kenyan) and transnational public policy forbade the assertion of claims based on
contracts procured by bribery or corruption, and so the outcome would be the same under
both sets of norms. Donovan is correct in suggesting that even if it were necessary to rely
on transnational public policy to justify the outcome, that “move” could be considered as
an application of international law, and thus not an override of the otherwise applicable
law. Much the same is true of the case of Inceysa Vallisoletana S.L. v. Republic of El
Salvador, ICSID Case No. ARB/03/26 (Aug. 2, 2006), also discussed by Donovan, infra at
205.
66
Donovan, like Bjorklund, envisions that mandatory rules of national law on issues
such as property rights could enter into consideration in investor/state arbitration and even
prove outcome-determinative. Id..
67
Id..
18 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

as I have noted,68 much more difficult to imagine contracting around a mandatory

rule, or deeming it waived, when mandatory rules are defined as ones from which
the parties actually lack the power to derogate.) Uncomfortable though the notion
of waiving, or agreeing to displace, a mandatory rule may be, the possibility
should not be categorically excluded. Audley Sheppard gives the example of
Article 6 of the European Human Rights Convention, guaranteeing the right to a
fair hearing.69 Article 6 may well be mandatory in the sense of binding on courts
and arbitral tribunals, but that does not in itself mean that under no circumstances
may the parties contract otherwise or waive the protections of the rule. To be
sure, the European Court of Human Rights may need to be fully convinced that
the agreement or waiver was both knowing and unequivocal before honoring it,
but that goes more to the standard of proof of party agreement or waiver than to its
permissibility.70

XIII. CONCLUSION

Where arbitrators have been left free of any choice of law by the parties, most
institutional rules invite the arbitrators to apply the law they deem most
appropriate (if only by way of consulting the choice-of-law principles they deem
most appropriate). This, it seems to me, places arbitrators in an enviable position
so far as their freedom to bring mandatory rules of law to bear is concerned.
Unlike national judges, they do not – in the absence of a choice of law by the
parties – have an “otherwise applicable law” the override of which they obviously
must be able to justify. They therefore may (and indeed should) apply any
relevant mandatory laws of the arbitral situs, inasmuch as the parties may properly
be deemed to have subjected themselves to those laws by directing that an
arbitration be conducted on the territory of one State rather than another. But the
latitude of the arbitrators in identifying the applicable law (or laws) also enables
them, in their discretion, to bring to bear mandatory rules of law having other
sources, such as foreign (i.e. third country) or international law. To consider them
as precluded from doing so would be contrary not only to the generalized
flexibility inherent in arbitration, but to the fact that the parties evidently saw fit,
in an exercise (or non-exercise) of party autonomy, to refrain from designating an
applicable law.

68
See notes 1-6 supra and accompanying text.
69
Sheppard, infra at 121.
70
So too, as Bjorklund points out, States may waive (presumably mandatory)
principles of customary international law vis-à-vis one another, provided they clearly
enough express their agreement to do so. Bjorklund, infra at 175.
For further examples of the possible waiver of mandatory laws – even mandatory laws
of the law that the parties had chosen – see Audit, infra at 49 (“A court may find that in
[deviating from mandatory rule of the chosen law on a given point] the parties intended to
derogate from their own choice-of-law on the specific point, basing its decision on
‘substantive party autonomy’ in international transactions”).
2007] INTRODUCTION: MANDATORY RULES OF LAW IN INTERNATIONAL ARBITRATION 19

The presence of a choice-of-law provision unquestionably changes the

calculation. International arbitrators do well to remember that, at least as a matter
of principle, their authority to conduct the arbitration in the first place derives
from party agreement, and that they should accordingly apply to the dispute
before them the law, if any, that that same agreement instructs them to apply. But
when, on the margins of applying that law (including of course that law’s own
mandatory rules), may arbitrators also apply mandatory rules of law emanating
from other authorities? As seemed likely to us from the outset, that question does
not lend itself to easy answers. Rather, reflection suggests that arbitrators should
instead ask themselves a series of questions foreshadowed in the preceding pages
and meaningfully explored in the articles that follow.
For example, may the choice-of-law clause be understood as governing a
relatively bounded range of issues (issues of contract construction or breach, for
example), thus leaving over issues, claims and even causes of action as to which it
may be only appropriate to apply the mandatory rules of law emanating from a
different source? Might it not only be possible, but in fact appropriate, to invoke
the mandatory rules of one jurisdiction as a relevant datum in applying the law of
the jurisdiction whose law was chosen or is otherwise applicable? May
mandatory rules of international law origin make their way into the body of
applicable law because the applicable law can be said, in one way or another, to
have embraced or at least invited them? Would disregard of the mandatory laws
of a jurisdiction where an eventual award is bound to be brought for enforcement
so imperil the validity and efficacy of the award as to make it unthinkable that the
parties, who after all invited the arbitration, meant for those mandatory laws to be
disregarded? Does a jurisdiction other than the one whose law the parties chose
possibly have such a weighty and obvious interest in having its mandatory rules of
law applied to the case at hand that the parties may be treated as if they authorized
– or at least would not object to – their application? And, are there some precepts
that embody values – such as human dignity or good faith – so profoundly
important to society (i.e. so international or transnational) that arbitrators simply
cannot be expected to leave them out of consideration?
Asking all these questions (and possibly others) is useful not only because it
assists in deciding what to do with rules of law that are ostensibly mandatory, but
because doing so also demonstrates how far a court or arbitral tribunal can go in
giving effect to such laws without necessarily overriding the parties’ choice of
law. The proposition is put emphatically by Donald Donovan:

[M]any of the situations that are discussed as applications of mandatory rules are
in fact situations in which the rules are applied without in any way overriding the
parties’ choice, either because the arbitration clause encompasses disputes that
the governing law clause does not encompass; because the chosen law itself
20 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 18

requires consideration of the rules, mandatory or not, of another legal system;

because an unchosen national law constitutes, in effect, an underlying fact …; or
because the conflict of laws rules of the chosen law, if not excluded, require
application of the mandatory rules of another legal system.71

Of course, if arbitrators go too far in manipulating the chosen law in these and
other ways so as to justify enforcing mandatory laws derived from other sources,
they could well run afoul of their basic mandate, which is to effectuate the intent
of the parties as to the law to be applied to their transaction. Of this, international
arbitrators should be mindful whenever called upon by a party to apply one or
another legal norm that happens to be deemed mandatory in the legal system to
which it is attached.

71
Donovan, infra at 205.