KluwerArbitration
Applying “Foreign” Mandatory Laws in International
Arbitration Despite the Parties’ Choice of Law: A
Necessary Evil?
Document information
Publication
Nadia Smahi
ASA Bulletin
(*)
Bibliographic
reference
Nadia Smahi, 'Applying
“Foreign” Mandatory Laws in
International Arbitration
Despite the Parties’ Choice
of Law: A Necessary Evil?', in
Matthias Scherer (ed), ASA
Bulletin, (© Kluwer Law
International; Kluwer Law
International 2021, Volume
39 Issue 3) pp. 570 - 591
Mandatory Laws – Mandatory Rules – Foreign Mandatory Laws – Overriding Mandatory Laws –
Public Policy – International Public Policy – Transnational Public Policy – Party Autonomy –
Recognition and Enforcement – Challenge – Setting Aside – Finality of Arbitral Awards
I. Introduction
In international arbitration, the law applicable to the merits of a dispute can either result from a
choice of law made by the parties (1) or, failing such agreement, from a designation of the
applicable law by arbitrators. (2) The liberty enjoyed by the parties in choosing the applicable law is
a direct consequence of the principle of party autonomy, (3) which is of paramount importance in
international arbitration.
Yet, the designation of the applicable law by the parties does not always fully answer the question of
which law arbitrators will and should apply to solve the dispute: sometimes, mandatory laws that do
not belong to the law chosen by the parties, the so-called “foreign mandatory laws”, come
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into play. (4) While cases involving mandatory laws generally remain arbitrable, (5) the extent to which
arbitrators should apply foreign mandatory laws in addition to (or as opposed to certain provisions
of) the substantive law chosen by the parties remains open. (6)
In this regard, it is very often said that since, contrary to national judges, international arbitrators
have no forum (and accordingly, no lex fori in the private international law meaning of the term), all
mandatory laws are foreign to them. (7) Consequently, do arbitrators have complete discretion in
deciding which mandatory laws to apply or take into account? Or are there some mandatory laws
that ought to always be complied with, even in the presence of a different choice of law?
The present article aims to examine the incentives that may exist for arbitrators to consider and
apply foreign mandatory laws in the context of international commercial arbitration, despite the
conflict that may exist with the principle of party autonomy, in order to protect the finality of the
arbitral
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award. (8) The analysis is limited to the specific scenario where arbitrators are faced with having to
decide whether to deviate from the law chosen by the parties (9) and apply a foreign mandatory law
invoked by one party but rejected by the other (under the presumption that the dispute is arbitrable
and falls under the scope of their jurisdiction). As a result, this article does not address the issue of
whether arbitrators should examine the application of mandatory laws ex officio and/or raise the
issue sua sponte. (10)
It is also important to note that, within this article, the foreign mandatory laws that are considered are
always those with legitimate grounds to apply, even though the “method” to determine which ones
do have such grounds is not discussed here. Indeed, attempts to come up with such method have
already been successfully undertaken by several commentators, to which the author refers here. (11)
In general, depending on where they are sitting, arbitrators may seek guidance from the Rome
Convention (Article 7), the Rome I Regulation (Articles 3(3) and 9) or other relevant codifications.
(12) Arbitrators sitting in Switzerland may have regard to the debate surrounding
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the application, by analogy, of Article 19 of the Swiss Private International Law Act (“PILA”) to
arbitration. (13)
After having established the terminology used herein, the below analysis addresses the conflict
between the principle of party autonomy and the application of foreign mandatory laws, before
examining to what extent said application would ensure or, to the contrary, jeopardise the finality of
the arbitral award.
II. The Different Types of Mandatory Laws
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A. General Considerations
What constitutes “public policy” and what can be characterised as “mandatory laws” varies from one
jurisdiction to another, as well as from one commentator to another. (14) It is thus worth noting that
the below reflects the author’s understanding of the matter and is not meant to provide a dogmatic
approach to a complex issue.
In terms of content, mandatory laws usually regulate public interests. (15) They may concern either a
social policy interest (for instance, the protection of the weaker party in employment law, consumer
law and tenancy law), (16) an
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economic policy interest (for instance, the regulation of issues relating to “competition, international
trade, exchange controls, the surveillance of economic sectors such as banking, finance, insurance,
stock exchanges, as well as sanctions, embargoes and the control of trade with the enemy in
situation of international conflicts”) (17) or other interests (for instance, the protection of “human
dignity, health, cultural property and the environment, among others”). (18) As highlighted by Voser,
mandatory laws “serve global or general state, social or economic goals” and, in this context, “[t]he
interest of private parties is inferior, or perhaps not even considered at all”. (19)
Various types of mandatory laws exist and may be distinguished depending on their (national or
international) origin and on whether or not they belong to public policy.
B. Distinction between Mandatory Laws and Public Policy
Although they are often discussed together, the concepts of “mandatory laws” and “public policy” are
not identical and must be distinguished. (20)
While some mandatory laws constitute public policy in the state that enacted them, not all of them
do. (21) The concept of public policy is thus narrower than the concept of mandatory laws. (22) The
distinction is of significant practical relevance, as public policy constitutes a ground to resist the
recognition and enforcement of arbitral awards under the 1958 Convention on the Recognition and
Enforcement of Foreign Arbitral Awards
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(the “New York Convention”) and to challenge international awards at the seat of the arbitration
under national leges arbitrae, including those based on the 1985 UNCITRAL Model Law on
International Commercial Arbitration, with its 2006 amendments (the “UNCITRAL Model Law”).
Given the practical importance of the distinction, it is necessary to precisely determine what
constitutes public policy. (23) Assimilating the concepts of mandatory laws and public policy in an
imprecise way would defeat that goal.
In addition, the distinction between mandatory laws and public policy is also justified because of the
“fundamentally different nature and function” of these concepts. (24) Public policy has a negative
effect, as it excludes the application of the otherwise applicable law. (25) In contrast, mandatory laws
have a positive effect because they impose their application purely based on their compulsory
nature. (26) In other words, public policy operates as a shield, while mandatory laws function as a
sword. (27)
As shown below, a further distinction must be made between the domestic public policy and the
international public policy of a state, which in turn differs from transnational (or truly international)
public policy.
C. Mandatory Laws of National v. International Origin
1. National Origin
As explained by Lalive, the legal order of each state consists of “both its domestic private law (with
its “domestic public policy” and its mandatory rules) and its private international law with its
“international public policy” (which is also, but in a broad sense, “domestic” or “municipal”)”
(emphasis in the original). (28)
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Domestic mandatory laws are considered mandatory within a national legal order: while their
application cannot be avoided in a domestic setting, such mandatory laws might not prevail in
international situations. (29)
Within a national legal order, domestic mandatory laws may constitute domestic public policy, (30)
which can be defined as the “local standards of morality and justice” of a state. (31) As a result,
mandatory laws that form part of domestic public policy may not necessarily be fit for international
settings and “should be disregarded in international relations in order to make way for more
appropriate and less prohibitive rules”. (32)
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Lastly, mandatory laws may form part of a state’s international public policy. This concept, which is
of national origin, (33) “comprises only fundamental principles the violation of which would outrage
everyone’s sense of justice or decency or shock good morals”. (34) While the concept may vary from
one state to another, most states seem to have a “rather convergent vision” of the matter and what
constitutes international public policy does not significantly vary from one state to another. (35) It is
possible for a mandatory law to be part of both the domestic and international public policy of a
given legal order. (36)
2. International Origin
While the above defined mandatory laws were of national origin, others may be of international
origin: these usually stem from a state’s regional obligations or are issued by supranational entities
(or both). A typical example of such regional mandatory laws can be found in the laws enacted by
the European Union. (37) Another can be found in resolutions of the UN Security Council. (38)
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Another type of mandatory laws of international origin are those that belong to “truly international” or
“transnational” public policy. (39) This concept has been discussed at length by commentators
during the past decades. (40) Unlike international public policy, transnational public policy is of
international origin: it “emanates directly from the collectivity of states and from the collectivity of
international merchants” (41) and is made up of “fundamental rules recognised as such by the
majority of states – which makes them transnational – rather than a particular given state”. (42)
Although it is difficult to precisely define what constitutes transnational public policy, commentators
seem to agree that the following form part of it: the opposition to racial, sexual and religious
discrimination, to bribery, corruption, drug trafficking, terrorism, genocide, paedophilia, slavery,
human trafficking and organ trafficking, as well as the protection of cultural heritage. (43)
The existence of a “transnational public policy” has been questioned for several reasons, it being
seen by some as “useless”, (44) of unclear origin (45) and scope (46) and in view of its common
association with lex mercatoria. (47) While good arguments exist against each of these criticisms, it
is sufficient to note here that the concept of transnational public policy is recognised and/or used in
practice by both state judges and international arbitrators. (48) This, in itself, appears to be sufficient
to establish the “tangible” existence of transnational public policy in the context of international
commercial arbitration.
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D. “Foreign” Mandatory Laws and “Overriding” Mandatory
Laws
In the framework of a specific contract and/or dispute, the above described (national or
international) mandatory laws may either be “uncontroversial” mandatory laws, if, from a procedural
perspective, they are mandatory provisions of the lex arbitri (49) or if, from a substantive viewpoint,
they belong to the applicable law chosen by the parties. (50) If they do not belong to the chosen
applicable law, they are, on the contrary, “foreign” mandatory laws. (51) Accordingly, such “foreign
mandatory laws” are to be understood as the mandatory laws of another national legal system,
whether they are part of the latter’s public policy or not. (52)
The term “overriding” mandatory laws, which for instance appears in Article 9 of the Rome I
Regulation, (53) is frequently used by commentators in this field, often in relation to Mayer’s definition
according to which a mandatory rule is an “imperative provision of law which must be applied to an
international relationship irrespective of the law that governs that relationship”. (54) Accordingly,
some “foreign” mandatory laws, as described above, may be considered to be “overriding”
mandatory laws as well if, depending on various criteria, they shall be deemed to apply regardless
of the chosen applicable law.
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III. The Principle of Party Autonomy and the
Application of “Foreign” Mandatory Laws
In international arbitration, applying foreign mandatory laws intuitively conflicts with the principle of
party autonomy. As Mayer noted, when a mandatory law issue arises, arbitrators are “confronted,
unlike the national judge, with a conflict between the will of the [s]tate having promulgated the
mandatory rule of law, on the one hand, and, on the other hand, the will of the parties – from which
indeed [their] authority is derived”. (55)
Accordingly, the principle of party autonomy, considered in the framework of the application of
foreign mandatory laws, must be examined.
When it comes to the applicable law, party autonomy offers the parties the possibility to choose the
(56)
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applicable law to govern the procedure and the merits. (56) This possibility is recognised by most
leges arbitrae and institutional rules. Party autonomy also allows the parties to opt for a law that has
nothing to do with their state of origin or with the contract at hand. (57)
Parties’ choices of law appear in the majority of international arbitration contracts (58) and are, as a
rule, binding upon arbitrators. (59) In that regard, arbitrators faced with the possible application of
foreign mandatory laws encounter difficulties with respecting the principle of party autonomy, that
the parties expressed through a choice of law. (60)
In this context, arbitrators shall be aware that, when it comes to mandatory laws, the principle of
party autonomy is not absolute and can be restricted. (61) This is particularly the case in two main
scenarios: (62) (i) when the
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finality of the award may be compromised and/or (ii) when more abstract but noteworthy interests
may be at stake. (63)
Despite these considerations, derogations to party autonomy should ideally remain as rare as
possible in practice and only occur when fully justified. Allowing too many infringements could
indeed harm the parties’ satisfaction and expectations, as well as the popularity enjoyed by
international arbitration as a dispute resolution method. (64)
Before analysing the application of foreign mandatory laws despite a conflict with the principle of
party autonomy, it must be noted that the application of foreign mandatory laws does not always
lead to a conflict with said principle. This can be the case, for instance, if a foreign mandatory law is
simply “taken into account” (without being properly applied) by arbitrators, e.g. as a force majeure
defense, (65) or if it is applied because it reflects the parties’ legitimate intentions. (66)
IV. The Application of “Foreign” Mandatory Laws to
Safeguard the Finality of Arbitral Awards
As rightly highlighted by Racine, an arbitral award is “deemed efficient when it contains no
deficiency that could lead to its annulment or a refusal of its enforcement”. (67) This is particularly
relevant in the present context: where an arbitrator renders an award involving a foreign mandatory
law issue (regardless of whether said mandatory law has been applied or dismissed), several
complications as to the finality of the award could occur.
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The grounds that could jeopardise the finality of the award are examined below pursuant to the New
York Convention (in relation to recognition and enforcement issues) and to the UNCITRAL Model
Law (in relation to challenge issues).
A. The Application of “Foreign” Mandatory Laws to
Respect Public Policy
1. Public Policy as a Ground to Resist the Recognition and Enforcement of
Arbitral Awards
According to Article V(2)(b) of the New York Convention, the recognition and enforcement of an
arbitral award may be refused if the competent authority in the country where recognition and
enforcement are sought finds that the recognition or enforcement of the award would be contrary to
the public policy of that country. (68) While this ground is one of the most frequently relied upon to
resist the enforcement of arbitral awards under the New York Convention, the exception of public
policy is in practice rarely upheld by national courts. (69)
There is no definition of what constitutes public policy under the New York Convention, (70) which is
troublesome given the vagueness of the concept. Nevertheless, it is today mostly acknowledged
that this provision should not refer to the domestic public policy of a state, but to its “international
public policy”. (71) This then leads to the question as to whether the international public policy of said
state is relevant or whether transnational public policy should be considered in this context. (72)
While commentators have different opinions on the subject, (73) the answer actually depends on the
state where the
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enforcement will be sought. In any event, as some foreign mandatory laws may form part of a state’s
public policy (including its international public policy), arbitrators should bear the enforcement stage
in mind when dealing with their possible application to the case before them.
To illustrate this matter, reference to case law may be useful. For instance, following a 1999
decision of the European Court of Justice in the Eco Swiss China Time Ltd. case, (74) European
competition laws are considered in many countries to be part of public policy. (75) As a result,
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national courts may refuse to enforce awards that violate European competition law. This happened
for example in the Marketing Displays International Inc. case, (76) where a Dutch Court refused to
enforce three US awards settling a dispute subject to the “law of the State of Michigan” and the “law
of the United States” after establishing that the license agreement out of which the dispute arose
violated a competition law provision of the Treaty Establishing the European Community. This
example shows that ignoring foreign mandatory laws may compromise the enforcement of an
arbitral award; it appears, however, that this issue had not been dealt with during the arbitration and
had not been invoked by the objecting party during the proceedings. (77)
As is often said (and as appears in many arbitration rules), (78) arbitrators have a “duty to ensure
that [their] award will be enforceable” (79) or at least, to “do [their] best to render an enforceable
award”, (80) the exact scope of this “duty” being debated. (81) In the context at hand, this means that
arbitrators
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should have an incentive to apply foreign mandatory laws of public policy at the most probable
place of enforcement of the award to safeguard its finality (82) (given that arbitrators cannot predict
in advance exactly where said enforcement will be sought). (83) While arbitrators might, by doing so,
deviate from the will of the parties as to the applicable law, they will still fulfil their mission as it is in
the interest of the parties to obtain a final and enforceable award. For that purpose, it will be
necessary to look at the place of enforcement’s practice and attitude towards the public policy
exception in international arbitration – whether liberal or more restrictive. (84) In these
circumstances, arbitrators must consider “the principles of public policy as they stand at the time of
the judgment”, given that this concept evolves over time. (85)
2. Public Policy as a Ground to Challenge Arbitral Awards
Article 34(2)(b)(ii) of the UNCITRAL Model Law, which mirrors Article V(2)(b) of the New York
Convention, provides that an arbitral award may be set aside if the award conflicts with the public
policy of the state where the challenge is brought forward. “Public policy” within the meaning of this
provision shall not be understood as being “equivalent to the political stance or international policies
of a [s]tate”, but as including “the fundamental notions and principles of justice”. (86) Accordingly, the
mandatory laws of public policy at the seat of arbitration may be relevant in this context.
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A case law example worth mentioning here is the Argentinian Algavi case. (87) Following arbitration
proceedings between Algavi S.A. and Esso S.A. regarding alleged breaches of a purchase
agreement for the transfer of a fuel station, the arbitral tribunal rejected Algavi’s claims related to
Esso’s purported soil contamination. Subsequently, the National Court of Appeals in Commercial
Matters declared the arbitral award null and, interestingly, “held that the Environmental Law 25.675
was a mandatory rule and [that] the rights and obligations established therein were not available for
derogation by the parties. It is forbidden for the parties to a contractual agreement to be released
from their environmental responsibilities”. (88) Even though the conclusion reached by the Court was
inter alia that cases involving environmental matters were not arbitrable (a question which falls
outside of the scope of the present analysis), it is interesting to note that arbitrators who would
ignore a similar law raised by one party could potentially endanger the finality of their award.
Another concrete illustration of the setting aside of an award in relation to public policy issues can
be found in the famous first award of the Hilmarton case, (89) which has been discussed in depth in
the field of mandatory laws. (90) In this case, an arbitrator sitting in Geneva and ruling on a dispute
subject to Swiss law decided, upon request of one of the parties, to take into account an Algerian
mandatory law (relating to the fight against bribery through intermediaries contracts) to declare the
contract null and void under the Swiss Code of Obligations and contrary to Swiss public policy. (91)
His award was subsequently set aside by the Geneva Court of Appeal, whose decision was then
upheld by the Swiss Federal Supreme Court. (92)
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The Hilmarton case suggests that sometimes, taking into account a foreign mandatory law can be
more harmful than helpful and may even compromise the finality of an arbitral award. (93) This
conclusion should not, however, be drawn too fast in relation to this specific case. As highlighted by
Seraglini, the Swiss courts did not plainly disapprove of the consideration of the Algerian mandatory
law despite a choice of law in favor of Swiss law; they merely disagreed with the arbitrator’s
application and interpretation of Swiss law. (94) In fact, the Swiss Courts seem to have implicitly
acknowledged the idea of the application of foreign mandatory laws; they simply considered that
such application was not warranted in the case at hand. (95) Accordingly, the Hilmarton case should
not be taken as an incentive to avoid the application of foreign mandatory laws.
In light of the above, arbitrators should still consider applying and/or taking into account foreign
mandatory laws, provided that they constitute public policy at the seat of the arbitration (i.e. where
setting aside proceedings could be brought forward), to safeguard the finality of the award. (96)
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In this context, whether or not the invoked foreign mandatory law does indeed constitute public
policy at the seat of the arbitration is decisive. For instance, in the Swedish Dirland Télécom v.
Viking Telecom case, (97) Dirland
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tried to have an arbitral award set aside on the basis that the award was contrary to the foundations
of the Swedish legal system and incompatible with the Swedish Arbitration Act, as it “allow[ed]
parties to incorporate in their contract the requirements of mandatory regulations and then limit the
consequences of any infringement thereof contractually”, which meant that the award upheld a
contractual agreement that ignored mandatory EU law and breached the French Penal Code. The
Court of Appeal of Western Sweden however rejected Dirland’s setting aside petition. The Court
noted that “ordre public is applied narrowly in Sweden and […] is reserved only for highly offensive
cases in which there is an issue of failing to consider a particularly important legal standard”. (98)
Other examples of the importance of this analysis can be found in French (99) and Swiss case law.
For instance, in a 2006 decision, (100) the Swiss Federal Supreme Court rejected a challenge
against an arbitral award that was allegedly in breach of public policy, firmly stating that competition
law, whether European or Italian, did not fall under the scope of the public policy exception of Article
190(2)(e) PILA. (101)
In conclusion, arbitrators faced with deciding on the application of a foreign mandatory law should
examine whether disregarding it could open the door to successful challenge proceedings at the
seat of arbitration. This would be the case if the foreign mandatory law invoked forms part of the
public policy at the seat, which shall be cautiously analysed. In this regard, whether the foreign
mandatory law at stake is a domestic one only and/or solely forms part of the state’s domestic (and
not international) public policy is inter alia relevant. (102) It must also be noted that, in some
jurisdictions, the courts may, in their analysis, distinguish between the application and the taking into
account of a relevant foreign mandatory law by the arbitrators. (103)
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B. The Application of “Foreign” Mandatory Laws and the
Potential Danger to the Finality of Arbitral Awards
While the public policy ground under the New York Convention and the UNCITRAL Model Law
should be an incentive to apply foreign mandatory laws where appropriate, diligent arbitrators will
also consider whether, by doing so, they may on the contrary compromise the finality of their award.
This could be the case, for instance, if applying a foreign mandatory law would be regarded as
being in excess of the terms of the arbitrators’ mandate and/or in breach of the parties’ agreement,
which, in turn, could constitute grounds to challenge the award or to resist its recognition and
enforcement. Both hypotheses are examined in turn below.
1. Excess of Mandate as a Ground to Resist Enforcement or to Challenge
Arbitral Awards
Article V(1)(c) of the New York Convention provides that recognition and enforcement may be
refused if the award deals with a difference not contemplated by or not falling within the terms of the
“submission to arbitration”, or if it contains decisions on matters beyond the scope of the latter. (104)
In relation to the present study, this raises the question of whether arbitrators exceed their mandate
by applying a foreign mandatory law despite a clear choice of law by the parties.
It is true that Article V(1)(c) of the New York Convention enshrines the principle that the arbitral
tribunal’s authority stems from the parties’ consent and that accordingly, arbitrators are “entitled to
exercise no more power than the parties’ agreement allows”. (105) In this context, it is the parties’
claims and corresponding prayers for relief that determine the arbitral tribunal’s mandate. (106)
This should, however, not be a concern in relation to the scenario studied here. (107) Where one
party invokes a mandatory law and the other party rejects it, this will generally appear in the parties’
claims or prayers for relief submitted to the arbitrators and, accordingly, form part of the
“submission to
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arbitration” as per Article V(1)(c) of the New York Convention. As a result, this provision should not
create a ground for refusal of enforcement if arbitrators decide to apply the invoked foreign
mandatory law. It is worth noting that this conclusion might, however, be different in situations where
arbitrators would raise and apply foreign mandatory laws on their own initiative, a scenario that falls
outside the scope of the present article.
The same considerations should also apply to challenges brought under Article 34(2)(a)(iii) of the
UNCITRAL Model Law. (108) Pursuant to this provision, an arbitral award may be set aside if it deals
with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or
contains decisions on matters beyond the scope of the latter. Accordingly, as soon as one of the
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parties relies on a foreign mandatory law, either to assert a claim or as a defence, arbitrators will
not have exceeded their mandate by addressing the issue. In such scenario, there would be no risk
of the award being set aside under Article 34(2)(a)(iii) of the UNCITRAL Model Law.
2. Breach of the Parties’ Agreement as a Ground to Resist Enforcement or to
Challenge Arbitral Awards
According to Article V(1)(d) of the New York Convention, the recognition and enforcement of an
arbitral award may be refused if the composition of the arbitral authority or the arbitral procedure
was not in accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place. (109)
Article V(1)(d) can only be relied upon as a ground to resist the enforcement in situations where
there have been serious procedural irregularities (for instance, concerning the choice of the arbitral
seat, of institutional arbitration rules, the language of the arbitration or the number of arbitrators and
means of appointment). (110) This raises the question of whether
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arbitrators, by applying foreign mandatory laws in violation of the parties’ choice of law, can be
deemed to have committed a serious procedural error of the sort referred to in Article V(1)(d).
This concern may be dismissed. While losing parties may try to resist recognition and enforcement
by arguing that the arbitrators did not comply with a choice of law clause, such claims do not fall
under the scope of Article V(1)(d). (111) As noted by Born, this provision “is concerned with the
procedures for selecting the arbitral tribunal and conducting the arbitration, not with the choice of
substantive legal rules governing the parties’ underlying dispute. These claims are properly
considered (and rejected) under Article V(1)(c) [of the New York Convention]”. (112)
In view of the above, arbitrators should not be concerned about the finality of the award in relation to
Article V(1)(d) of the New York Convention if they apply a foreign mandatory law raised by one of
the parties. For the same reasons, there should be no risk of challenge under Article 34(2)(a)(iv) of
the UNCITRAL Model Law, according to which an arbitral award may be set aside if the
composition of the arbitral tribunal or the arbitral procedure was not in accordance with the
agreement of the parties. (113)
C. Safeguarding the Finality of Arbitral Awards –
Concluding Remarks
In sum, one of the interests in applying foreign mandatory laws lies in ensuring the finality of arbitral
awards. The above analysis reveals that the arbitrator’s decision to ignore a foreign mandatory law
could lead to refusal of recognition and enforcement and/or successful setting aside proceedings if
the result of the award is contrary to public policy. (114) At the time of publication of this article,
however, not many case law examples of this specific scenario seem to be available: most of them
relate to the issue of foreign mandatory laws rendering disputes non-arbitrable and/or arbitration
clauses invalid, (115) a different matter than the scenario discussed here.
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Putting aside public policy considerations, it appears that, in the scenario analysed here, applying a
foreign mandatory law does not – or in theory at least, should not – create grounds to resist the
recognition and enforcement of an arbitral award or to challenge it. As long as the foreign
mandatory law was invoked by one of the parties, arbitrators should not be deemed to have
exceeded the terms of their mandate. Further, the appropriate application or taking into account of
a foreign mandatory law should not mean that arbitrators have failed to conduct the proceedings as
per the parties’ agreement regarding the applicable procedure.
V. Conclusion
The application of foreign mandatory laws is a complex issue, with concrete practical importance
when it comes to the recognition, enforcement and challenge of arbitral awards. While different
types of mandatory laws and distinct public policy aspects come into play, it all boils down to the
principle of party autonomy and the restrictions that exist in this regard. The autonomy enjoyed by
parties to commercial arbitrations is indeed not infinite, but rather limited when interests protected
by public policy and/or by mandatory laws are at stake. Indeed, the concept of party autonomy, and
the process of arbitration itself, results from the states’ trust and the arbitration-empowering laws
enacted by them. In the words of Calavros, “the parties’ autonomy as to the choice of applicable law
is given effect only to the extent recognized and afforded by the law itself”. (116) Disregarding this
trust may lead to compromising the finality of arbitral awards by opening the door to challenges and
by creating grounds to resist recognition and enforcement in relation to public policy.
Yet, party autonomy remains one of the most attractive aspects of arbitration. (117) Accordingly, the
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above conclusion does not mean that arbitrators should apply or take into account any and all
foreign mandatory laws invoked by the parties either. On the contrary, arbitrators should be aware of
the issue and proceed with caution, considering only the foreign mandatory laws that have genuine
reasons to apply. Criteria as to which
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mandatory laws should apply and when have been carefully analysed and presented by renowned
commentators over the past decades. (118)
In conclusion, and based on all the above, it appears that applying foreign mandatory laws in
international arbitration is indeed a mal pour un bien or a “necessary evil”. While restrictions to the
principle of party autonomy are undesirable, they sometimes still need to occur for the greater good,
i.e. the finality of arbitral awards.
Nadia SMAHI, Applying “Foreign” Mandatory Laws in International Arbitration Despite the Parties’
Choice of Law: A Necessary Evil?
Summary
In international arbitration, the designation of the applicable law by the parties does not always fully
answer the question of which law arbitrators should apply to solve the dispute: sometimes,
mandatory laws (or mandatory rules) that do not belong to the chosen applicable law, i.e. “foreign”
mandatory laws, come into play. The question of whether and to what extent arbitrators should or
can deviate from the parties’ choice of law (which is a direct consequence of the principle of party
autonomy) and apply foreign mandatory laws has been debated at length during the past decades.
This article focuses on the scenario where arbitrators have to decide whether to apply a foreign
mandatory law invoked by one party but rejected by the other. It aims to determine the incentives
and potential risks that may exist in doing so, in particular in relation to the finality of the arbitral
award in view of possible public policy concerns at the recognition, enforcement or setting aside
stage.
P 591
References
*)
LL.M., Attorney-at-law (Switzerland), Associate at Bär & Karrer Ltd. This article is partially based on
the author’s (unpublished) LL.M. thesis at Stockholm University under the supervision of Prof.
Patricia Shaughnessy, whom the author thanks for her guidance. The author is also very grateful to
Dr Mercédeh Azeredo da Silveira and to Mr Fabricio Fortese for their insightful comments on
earlier drafts of this article, and to Mr Ibrahim Shehata for his helpful input on certain aspects of the
topic. The views expressed here are solely the author’s and do not necessarily reflect the views of
Bär & Karrer Ltd.
1)
Marc Blessing, Choice of Substantive Law in International Arbitration, 14 Journal of International
Arbitration 39, 39 (1997); Ole Lando, The law applicable to the merits of the dispute, 2 Arbitration
International 104, 107 (1986).
2)
Gabrielle Kaufmann-Kohler and Antonio Rigozzi, International Arbitration, Law and Practice in
Switzerland, 361 (Oxford University Press 2015); Lando, supra n. 1, at 110-112.
3)
Emmanuel Gaillard and John Savage (eds), Fouchard, Gaillard, Goldman On International
Commercial Arbitration, 785 (Kluwer Law International 1999); Kaufmann-Kohler/Rigozzi, supra n.
2, at 352.
4)
Daniel Hochstrasser, Choice of Law and “Foreign” Mandatory Rules in International Arbitration,
11 Journal of International Arbitration 57, 57 (1994); Marc Blessing, Mandatory Rules of Law
versus Party Autonomy in International Arbitration, 14 Journal of International Arbitration 23, 23
(1997). In the present contribution, the term “mandatory laws” uniformly refers to both “mandatory
rules” of law and “mandatory laws”.
5)
8
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5)
It can generally be taken for granted that arbitrators have the authority to solve disputes involving
mandatory laws and public policy issues. In this regard, see e.g. Luca G. Radicati di Brozolo,
Arbitrage commercial international et lois de police, Considérations sur les conflits de juridictions
dans le commerce international, 363, 438, 489 (Martinus Nijhoff Publishers 2006); Christophe
Seraglini, Lois de police et justice arbitrale internationale, 421 (Dalloz 2001); Jean-Baptiste
Racine, L’arbitrage commercial international et l’ordre public, 569 (Librairie Générale de Droit et
de Jurisprudence 1999); Nathalie Voser, Mandatory Rules of Law as a Limitation on the Law
Applicable in International Commercial Arbitration, 7 American Review of International Arbitration
319, 330-331 (1996); Pierre Mayer, Mandatory rules of law in international arbitration, 2
Arbitration International 274, 277 (1986). This is however not the case in all jurisdictions and must
be verified on a case-by-case basis.
6)
Hochstrasser, supra n. 4, at 57. It must be noted that this article focuses on international commercial
arbitration only, excluding investment arbitration.
7)
Emmanuel Gaillard, Legal Theory of International Arbitration, 1 (Martinus Nijohff Publishers 2010);
Pierre Lalive, Transnational (or Truly International) Public Policy and International Arbitration, in
Pieter Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration, 3 ICCA
Congress Series, 257, 271 (Kluwer Law International 1987); Serge Lazareff, Mandatory
Extraterritorial Application of National Law, 11 Arbitration International 137, 138 (1995); Seraglini,
supra n. 5, at 3, 24; Voser, supra n. 5, at 330. For a contrary opinion, see e.g. Jean-François
Poudret and Sébastien Besson, Comparative Law of International Arbitration, 114-115 (Stephen
V. Berti and Annette Ponti (transl), 2nd ed., Sweet & Maxwell 2007).
8)
Accordingly, this article does not examine the other noteworthy interests that may exist in applying
foreign mandatory laws, for instance to promote arbitration as trustworthy dispute resolution method
or to contribute to the efficiency of international commercial relations (e.g. by preventing that
arbitration becomes a way for parties to avoid otherwise applicable mandatory laws). On this
aspect, see inter alia Racine, supra n. 5, at 280 ff., 436; Hochstrasser, supra n. 4, at 76-77, 85-86;
Radicati di Brozolo, supra n. 5, at 292.
9)
As a result, this article focuses on situations where the parties have chosen the governing law, and
not on scenarios where, failing such choice, arbitrators have had to designate it.
10)
It is worth noting that most commentators admit such a possibility, even though it is not always
considered an obligation or duty of the arbitrators. On this question, see e.g. George A. Bermann,
The Origin and Operation of Mandatory Rules, in George A. Bermann and Loukas Mistelis (eds),
Mandatory Rules in International Arbitration, 20 (JurisNet, LLC 2011); Racine, supra n. 5, at 289;
Radicati di Brozolo, supra n. 5, at 439-440; Voser, supra n. 5, at 355-356; Mayer, supra n. 5, at
280.
11)
See in particular Andrew Barraclough and Jeff Waincymer, Mandatory Rules of Law in
International Commercial Arbitration, 6 Melbourne Journal of International Law 205, 224 ff. (2005);
Seraglini, supra n. 5, at 215 ff.; Voser, supra n. 5, at 337 ff.; Hochstrasser, supra n. 4, at 85-86.
More recently, see Marcus Commandeur and Sebastian Gössling, The determination of
mandatory rules of law in International Arbitration – An attempt to set out criteria, 12 SchiedsVZ
12, 15 ff. (2014).
12)
See Ibrahim Shehata, Overriding mandatory rules and international commercial arbitration: the
Swiss and French perspectives, 4 Netherlands Journal of Private International Law (NIPR) 669, 670
(2020). Shehata (ibidem) points out that outside of the European Union, twenty-four codifications
explicitly address the issue of overriding mandatory laws of the forum state. Whether such
codifications, the Rome Convention and/or the Rome I Regulation apply in international arbitration
and to what extent shall not be further examined here.
13)
See e.g. Bernhard Berger and Franz Kellerhals, International and Domestic Arbitration in
Switzerland, 498-501 (3rd ed., Stämpfli Publishers Ltd 2015); Kaufmann-Kohler/Rigozzi, supra n. 2,
at 384-385; Voser, supra n. 5, at 329-330; Hochstrasser, supra n. 4, at 60 ff.
14)
9
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14)
As pointed out by Bernard Hanotiau and Olivier Caprasse, Public Policy in International
Commercial Arbitration, in Emmanuel Gaillard and Domenico Di Pietro (eds), Enforcement of
Arbitration Agreements and International Arbitral Awards, The New York Convention in Practice,
788 (Cameron May Ltd 2008); Ireneu Strenger, The Application by the Arbitrator of Public Policy
Rules to the Substance of the Dispute, in Pieter Sanders (ed.), Comparative arbitration practice
and public policy in arbitration, 3 ICCA Congress Series 1986, 353, 353 (Kluwer Law International
1987); Jan Kleinheisterkamp, Overriding Mandatory Laws in International Arbitration, 67
International & Comparative Law Quarterly 903, 905 (2018); Lalive, supra n. 7, at 259; Mayer, supra
n. 5, at 275.
15)
Mercédeh Azeredo da Silveira, Trade Sanctions and International Sales, An Inquiry into
International Arbitration and Commercial Litigation, 56 (Kluwer Law International 2014); Voser,
supra n. 5, at 325. For a detailed analysis of these public interests, see Belkis Vural çelenk,
Application of Third Country Overriding Mandatory Rules – Analytical Comparison of Swiss,
Turkish and EU Law, 24 ff. (Jörg Schmid (ed.), Schulthess Juristische Medien AG 2019).
16)
Kaufmann-Kohler/Rigozzi, supra n. 2, at 383. See also Dirk Otto and Omaia Elwan, Article V(2), in
Herbert Kronke, Patricia Nacimiento and others (eds), Recognition and Enforcement of Foreign
Arbitral Awards: A Global Commentary on the New York Convention, 384 (Kluwer Law
International 2010); Blessing, supra n. 1, at 61; Mayer, supra n. 5, at 275.
17)
Kaufmann-Kohler/Rigozzi, supra n. 2, at 383. See also Barraclough/Waincymer, supra n. 11, at
206; Blessing, supra n. 1, at 61; Mayer, supra n. 5, at 275; Otto/Elwan, supra n. 16, at 384-387;
Seraglini, supra n. 5, at 1; Voser, supra n. 5, at 325. See also Loukas A. Mistelis, Mandatory Rules
in International Arbitration, Too Much Too Early or Too Little Too Late?, in George A. Bermann
and Loukas Mistelis (eds), Mandatory Rules in International Arbitration, 292 (JurisNet, LLC 2011).
18)
Kaufmann-Kohler/Rigozzi, supra n. 2, at 383.
19)
Voser, supra n. 5, at 325. See also Racine, supra n. 5, at 8, with regards to public policy, however.
20)
See e.g. Carmen Tamara Ungureanu, Overriding Mandatory Rules in International Commercial
Contracts Dispute Resolution, A Romanian Perspective, 12 Cuadernos de Derecho
Transnacional 784, 794 (2020); François Perret, Resolving Conflicts between Contractual
Clauses and Specific Rules of the Governing Law, Strict Application of the Law or Flexible
Approach, in Fabio Bortolotti and Pierre Mayer (eds), The Application of the Substantive Law by
International Arbitrators, 109 (ICC Publications 2014); Voser, supra n. 5, at 322, 349; Seraglini,
supra n. 5, at 4; Kaufmann-Kohler/Rigozzi, supra n. 2, at 383.
21)
Azeredo da Silveira, supra n. 15, at 57, 187; Blessing, supra n. 4, at 23-24; Radicati di Brozolo,
supra n. 5, at 341.
22)
See Radicati di Brozolo, supra n. 5, at 341; Voser, supra n. 5, at 322.
23)
For an extensive analysis of the issue under the New York Convention, see Anton G. Maurer, The
Public Policy Exception under the New York Convention (JurisNet, LLC 2012).
24)
Radicati di Brozolo, supra n. 5, at 289 (author’s translation).
25)
Catherine Kessedjian, Mandatory Rules of Law in International Arbitration: What Are Mandatory
Rules?, 18 American Review of International Arbitration 147, 151 (2007); Berger/Kellerhals, supra
n. 13, at 497; Radicati di Brozolo, supra n. 5, at 289-290; Lalive, supra n. 7, at 261-262; Seraglini,
supra n. 5, at 4; Hanotiau/Caprasse, supra n. 14, at 792.
26)
Audley Sheppard, Mandatory Rules in International Commercial Arbitration: An English Law
Perspective, in George A. Bermann and Loukas Mistelis (eds), Mandatory Rules in International
Arbitration, 177 (JurisNet, LLC 2011); Radicati di Brozolo, supra n. 5, at 290; Berger/ Kellerhals,
supra n. 13, at 497; Voser, supra n. 5, at 322; Kessedjian, supra n. 25, at 151.
27)
Shehata, supra n. 12, at 672.
28)
Lalive, supra n. 7, at 261.
29)
Kessedjian, supra n. 25, at 149; Voser, supra n. 5, at 321. See also Seraglini, supra n. 5, at 170.
30)
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30)
See Lalive, supra n. 7, at 275.
31)
Kenneth-Michael Curtin, Redefining Public Policy in International Arbitration of Mandatory
National Laws, 64 Defense Counsel Journal 271, 281 (1997).
32)
Lalive, supra n. 7, at 275.
33)
Racine, supra n. 5, at 353; Radicati di Brozolo, supra n. 5, at 334-335, 338; Lalive, supra n. 7, at
261.
34)
Kaufmann-Kohler/Rigozzi, supra n. 2, at 382.
35)
Radicati di Brozolo, supra n. 5, at 338 (author’s translation).
36)
In this sense, see Curtin, supra n. 31, at 281.
37)
Kessedjian, supra n. 25, at 149. See also Bermann, supra n. 10, at 5; Blessing, supra n. 4, at 27;
Commandeur/Gössling, supra n. 11, at 13.
38)
Blessing, supra n. 4, at 27; Sheppard, supra n. 26, at 190.
39)
On this terminology, see Lalive, supra n. 7, at 259. See also Poudret/Besson, supra n. 7, at 616.
40)
For an extensive analysis of the concept, see Lotfi Chedly, Arbitrage commercial international et
ordre public transnational (Centre de Publication Universitaire 2002). See also Lalive, supra n. 7,
at 257 ff., and Racine, supra n. 5, at 355 ff.
41)
Racine, supra n. 5, at 353 (author’s translation). See also Hanotiau/Caprasse, supra n. 14, at 794.
42)
Poudret/Besson, supra n. 7, at 616. See also Barraclough/Waincymer, supra n. 11, at 218;
Hanotiau/Caprasse, supra n. 14, at 794; Racine, supra n. 5, at 353, 367.
43)
See Barraclough/Waincymer, supra n. 11, at 218; Voser, supra n. 5, at 350; Seraglini, supra n. 5, at
297.
44)
As pointed out by Racine, supra n. 5, at 356-357.
45)
Idem, at 357 ff.
46)
Barraclough/Waincymer, supra n. 11, at 219; Racine, supra n. 5, at 357, 360.
47)
See e.g. Kessedjian, supra n. 25, at 151, who considers transnational mandatory rules to be “the
ones pertaining to the system of lex mercatoria (for those who believe such a thing exists)”. See
also Curtin, supra n. 31, at 281, who considers that “transnational public policy is a hybrid between
international public policy and the lex mercatoria”. The common connection between the concepts
of transnational public policy and lex mercatoria is also noted by Racine, supra n. 5, at 364-366
and Seraglini, supra n. 5, at 280-281. The existence of a lex mercatoria falls outside of the scope of
the present contribution and shall not be further discussed here.
48)
As pointed out by Racine, supra n. 5, at 367; Lalive, supra n. 7, at 311.
49)
See Constantin Calavros, The application of substantive mandatory rules in International
Commercial Arbitration from the perspective of an EU UNCITRAL Model Law jurisdiction, 34
Arbitration International 219, 220 ff. (2018). See also Poudret/Besson, supra n. 7, at 114-115;
Barraclough/Waincymer, supra n. 11, at 223-224, 228-229; Voser, supra n. 5, at 346.
50)
In this sense, see Barraclough/Waincymer, supra n. 11, at 219-222; Kaufmann-Kohler/Rigozzi,
supra n. 2, at 383; Lazareff, supra n. 7, at 138; Poudret/Besson, supra n. 7, at 609;
Commandeur/Gössling, supra n. 11, at 15. For a detailed analysis of the application or rejection of
mandatory laws belonging to the law applicable to the merits, see Ibrahim Shehata, Application of
Overriding Mandatory Rules in International Commercial Arbitration: An Empirical Analysis, 11
World Arbitration & Mediation Review 383, 391 ff. (2017).
51)
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51)
Hochstrasser, supra n. 4, at 57; Berger/Kellerhals, supra n. 13, at 497. A similar distinction between
“domestic public policy rules of the lex contractus” and “mandatory rules from elsewhere” can be
found in Yves Derains, Public Policy and the Law Applicable to the Dispute in International
Arbitration, in Pieter Sanders (ed.), Comparative arbitration practice and public policy in
arbitration, 3 ICCA Congress Series 1986, 227, 254 (Kluwer Law International 1987). For a
contrary opinion regarding the relevance of the distinction, see Seraglini, supra n. 5, at 339 ff.
52)
It can also be argued that a mandatory law enacted by the state of the applicable law after the
parties’ choice of law is not to be considered as part of the designated applicable law, but rather as
a “foreign” one (see, with regards to trade sanctions, Azeredo da Silveira, supra n. 15, at 179).
53)
See above I. Introduction.
54)
Mayer, supra n. 5, at 275. See e.g. Shehata, supra n. 12, at 670.
55)
Mayer, supra n. 5, at 276. In the same sense, see Barraclough/Waincymer, supra n. 11, at 206;
Bermann, supra n. 10, at 3; Radicati di Brozolo, supra n. 5, at 484; Ungureanu, supra n. 20, at 791.
56)
Bermann, supra n. 10, at 2; Blessing, supra n. 1, at 39; Radicati di Brozolo, supra n. 5, at 386;
Kleinheisterkamp, supra n. 14, at 909.
57)
See Lando, supra n. 1, at 107.
58)
Bermann, supra n. 10, at 2; Voser, supra n. 5, at 342; Poudret/Besson, supra n. 7, at 570.
59)
Poudret/Besson, supra n. 7, at 570; Racine, supra n. 5, at 239; Voser, supra n. 5, at 342.
60)
See Voser, supra n. 5, at 342. See also Hochstrasser, supra n. 4, at 57. The situation might differ if
the arbitrators have designated the law themselves, in the absence of a choice of law by the parties.
61)
See e.g. Barraclough/Waincymer, supra n. 11, at 206; Berger/Kellerhals, supra n. 13, at 493;
Kaufmann-Kohler/Rigozzi, supra n. 2, at 383-384; Hochstrasser, supra n. 4, at 84; Mistelis, supra n.
17, at 297, 298; Ungureanu, supra n. 20, at 785; Hanotiau/Caprasse, supra n. 14, at 787.
62)
In the same sense, see Voser, supra n. 5, at 333-337; Commandeur/Gössling, supra n. 11, at 1415. See also Racine, supra n. 5, at 272 ff.
63)
With regards to the other noteworthy interests at stake, see footnote 8 above.
64)
In this sense, see Barraclough/Waincymer, supra n. 11, at 217.
65)
Regarding the “taking into account” of mandatory laws, see e.g. Alexander K.A. Greenawalt, Does
International Arbitration Need a Mandatory Rules Method?, in George A. Bermann and Loukas
Mistelis (eds), Mandatory Rules in International Arbitration, 163 (JurisNet, LLC 2011); Mayer,
supra n. 5, at 281; Racine, supra n. 5, at 300 ff.; Seraglini, supra n. 5, at 10, 423 ff.; Voser, supra n.
5, at 323-325; Barraclough/Waincymer, supra n. 11, at 218. See also Bermann, supra n. 10, at 1718.
66)
Regarding the application of foreign mandatory laws as part of the parties’ legitimate expectations,
see Derains, supra n. 51, at 251; Racine, supra n. 5, at 346-347; Seraglini, supra n. 5, at 240 ff.
See also Tarek F. Riad, How to Comply with the Applicable Law while Taking into Account the
Expectations of the Parties and the Needs of International Commerce, in Fabio Bortolotti and
Pierre Mayer (eds), The Application of the Substantive Law by International Arbitrators, 143-144
(ICC Publications 2014).
67)
Racine, supra n. 5, at 273 (author’s translation). In that sense, see also Seraglini, supra n. 5, at 248.
68)
In the same sense, see art. 36(1)(b)(ii) of the UNCITRAL Model Law.
69)
Otto/Elwan, supra n. 16, at 365. See also Gary B. Born, International Commercial Arbitration,
3999, 4015 ff. (3rd ed., Kluwer Law International 2021).
70)
As pointed out by Barraclough/Waincymer, supra n. 11, at 215; Racine, supra n. 5, at 475.
71)
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71)
Born, supra n. 69, at 4009-4013; Voser, supra n. 5, at 334; Gaillard/Savage, supra n. 3, at 862.
Born, supra n. 69, at 4006, however specifies that “the correct view is that the public policy
contemplated by Article V(2)(b) requires consideration of both domestic and international
principles, with the Convention imposing international limits on national law public policies that are
applicable in the recognition forum”. Countries that consider “international public policy” to be
relevant under Article V(2)(b) include e.g. France, Portugal, Algeria and Lebanon (according to
Born, supra n. 69, at 4010).
72)
On this distinction, see above II. The Different Types of Mandatory Laws.
73)
For commentators in favor of the international public policy of the state of enforcement, see e.g.
Born, supra n. 69, at 4009. For commentators in favor of transnational public policy, see e.g.
Gaillard/Savage, supra n. 3, at 862. For a commentator explicitly against transnational public policy,
see Maurer, supra n. 23, at 55. For a commentator generally in favor of a “complementary
approach” of both concepts in international arbitration, see Racine, supra n. 5, at 234-235.
74)
European Union No. 1, Eco Swiss China Time Ltd., Court of Justice of the European
Communities, C-126/97, 1 June 1999, 24 Yearbook Commercial Arbitration XXIVa 629, 629 ff.
(1999).
75)
This is however not the case in Switzerland, where competition law does not form part of public
policy under the Swiss lex arbitri, see Swiss Federal Supreme Court Decision 132 III 389
(4P.278/2005 of 8 March 2006), para. 3.2.
76)
Netherlands No. 29, Marketing Displays International Inc. v. VR Ran Raalte Reclame B.V.,
Voorzieningenrechter, Rechtbank, The Hague, 27 May 2004 and Gerechtshof, The Hague, 24
March 2005, 31 Yearbook Commercial Arbitration XXXI 808, 808 ff. (2006).
77)
Idem, at 820.
78)
As pointed out by Shehata, supra n. 12, at 673; Barraclough/Waincymer, supra n. 11, at 215.
79)
Voser, supra n. 5, at 333. See also Barraclough/Waincymer, supra n. 11, at 215; Shehata, supra n.
50, at 386.
80)
Nadia Smahi, The Arbitrator’s Liability and Immunity Under Swiss Law - Part I, 34 ASA Bulletin
876, 886 (2016). See also Seraglini, supra n. 5, at 248.
81)
In this regard, see e.g. Jeffrey Maurice Waincymer, Procedure and Evidence in International
Arbitration, 97 ff. (Kluwer Law International 2012); Martin Platte, An Arbitrator’s Duty to Render
Enforceable Awards, 20 Journal of International Arbitration 307, 307 ff. (2003); Günther J. Horvath,
The Duty of the Tribunal to Render an Enforceable Award, 18 Journal of International Arbitration
135, 135 ff. (2001).
82)
See Voser, supra n. 5, at 335; Racine, supra n. 5, at 280. Racine (ibidem) highlights that most of
the time, the enforcement will only take place in one state, and that even if the losing party’s assets
are located in different states, “there is always one place where the most important assets are
located, such as the place of the seat or of the principal address of one the parties” (author’s
translation). Accordingly, the mandatory laws of public policy of the place where most of the assets
are located should ideally be respected, as it is probably where the enforcement will be sought
(ibidem). In the same sense, see also Ungureanu, supra n. 20, at 793; Shehata, supra n. 12, at 673.
83)
As pointed out by Barraclough/Waincymer, supra n. 11, at 215; Radicati di Brozolo, supra n. 5, at
469; Racine, supra n. 5, at 278; Seraglini, supra n. 5, at 264; Voser, supra n. 5, at 335, 347.
84)
In the same sense, see Strenger, supra n. 14, at 356: “It would be perfect if the arbitrator […] knew
the trends prevailing in the countries of the parties to the dispute, while ascertaining the character of
the public policy rules, in order to avoid unsolvable situations at the enforcement of the decision”.
85)
Azeredo da Silveira, supra n. 15, at 182.
86)
Peter Binder, International Commercial Arbitration and Mediation in UNCITRAL Model Law
Jurisdictions, 450 (4th ed., Kluwer Law International 2019).
87)
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87)
Federico Godoy, Algavi S.A. v. Esso S.R.L, Court of Appeals in Commercial Matters of the
Federal District, Chamber C, Case Date 4 July 2013, A contribution of the ITA Board of Reporters.
Based on the English summary, it is unclear whether the mandatory law at stake was a “foreign
mandatory law” and whether its application had been dealt with during the arbitration proceedings.
88)
Ibidem.
89)
Société H. v société O., Award, ICC Case No. 5622, 19 August 1988, 1993 Revue de l’arbitrage
327, 327 ff. (1993), also available in English (Broker v Contractor, Final Award, ICC Case No.
5622, 1988, 19 Yearbook Commercial Arbitration XIX 105, 105 ff. (1994)).
90)
See e.g. Greenawalt, supra n. 65, at 163-164; Gaillard/Savage, supra n. 3, at 854; Radicati di
Brozolo, supra n. 5, at 377-378; Racine, supra n. 5, at 333 ff., 452 ff.; Seraglini, supra n. 5, at 93,
115 ff., 134-135, 143-144, 304-305; Kleinheisterkamp, supra n. 14, at 914.
91)
On the arbitrator’s reasoning in the Hilmarton case, see Racine’s analysis, supra n. 5, at 334. See
also Seraglini, supra n. 5, at 134-135.
92)
Omnium de Traitement et de Valorisation – OTV (France) v. Hilmarton (UK), Court of Appeal of
the Canton of Geneva, 17 November 1989 and Federal Supreme Court of Switzerland, 17 April
1990, 19 Yearbook Commercial Arbitration XIX 214, 214 ff. (1994), excerpts).
93)
In the same sense, sometimes dismissing a foreign mandatory law may not compromise the finality
of the award, as illustrated by the US case Northrop Corporation v Triad International Marketing
SA, 811 F.2d 1265, 1270, where the US Court of Appeals (9th Circuit) “rejected the argument that
the arbitrators should have applied Saudi Arabian law”, under which “intermediary contracts” are
forbidden, and “insisted on the exclusive application of the chosen Californian law”
(Kleinheisterkamp, supra n. 14, at 914).
94)
See Seraglini, supra n. 5, at 143.
95)
Idem, at 144. See in particular Swiss Federal Supreme Court Decision (supra n. 92), at 221: “Even
if it is not illicit from the point of view of Swiss law, a contract violating a foreign legal provision can
be considered, under certain conditions, an affront of morality according to Swiss law […]. For this
to be the case it would be necessary that that provision be of such relevance, that accepting its
violation would result in such a confusion of moral notions in Switzerland as to affect the public good
and, at the same time, Swiss public policy”. See also Geneva Court of Appeal Decision (supra n.
92) at 218.
96)
In the same sense, see Thomas Granier, Recent developments in the french courts’ approach to
arbitral awards involving public interests, 16 Revista Brasileira de Arbitragrem 65, 66 (2019);
Shehata, supra n. 50, at 386. This may also prove useful in relation to the finality of the award under
Article V(1)(e) of the New York Convention, which, as pointed out by Barraclough/Waincymer (supra
n. 11, at 223), “allows nonenforcement if an award has been set aside or suspended by a
competent authority of the country in which it was made”.
97)
Dirland Télécom S.A. (France) v. Viking Telecom AB (publ) (Sweden), Court of Appeal for
Western Sweden, T 4366-02, Decision of 29 December 2003, A contribution by the ITA Board of
Reporters.
98)
Ibidem.
99)
For illustrations, see in particular Granier, supra n. 96, at 65 ff.; Shehata, supra n. 12, at 681 ff.
100)
Swiss Federal Supreme Court Decision 132 III 389 (4P.278/2005 of 8 March 2006).
101)
On this decision, see e.g. Shehata, supra n. 12, at 677-678. It must be noted that the chances to
have an arbitral award set aside for public policy reasons in Switzerland are extremely low (more
precisely, of 0.9% based on recent statistics established by Felix Dasser and Piotr Wòjtowicz,
Swiss International Arbitral Awards Before the Federal Supreme Court, Statistical Data 19892019, 39 ASA Bulletin 7, 19 (2021)).
102)
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102)
On the distinction between these concepts, see above at II. The Different Types of Mandatory
Laws. For other relevant criteria, see the references to “methods” developed by commentators at
footnote 11 above.
103)
See Shehata, supra n. 12, at 684.
104)
In the same sense, see Article 36(1)(a)(iii) of the UNCITRAL Model Law.
105)
Nicola Christine Port, Scott Ethan Bowers and Bethany Davis Noll, Article V(1)(c), in Herbert
Kronke, Patricia Nacimiento and others (eds), Recognition and Enforcement of Foreign Arbitral
Awards: A Global Commentary on the New York Convention, 259 (Kluwer Law International 2010).
106)
Mercédeh Azeredo da Silveira and Laurent Lévy, Transgression of the Arbitrator’s Authority:
Article V(1)(c) of the New York Convention, in Emmanuel Gaillard and Domenico Di Pietro (eds),
Enforcement of Arbitration Agreements and International Arbitral Awards, The New York
Convention in Practice, 644, 653 (Cameron May Ltd 2008).
107)
See above I. Introduction.
108)
See Born, supra n. 69, at 3438-3439 as well as Howard M. Holtzmann and Joseph E. Neuhaus, A
Guide to the UNCITRAL Model Law On International Commercial Arbitration: Legislative History
and Commentary, 911 (Kluwer Law and Taxation Publishers 1989): given that the similarity
between the grounds provided under the New York Convention to resist the enforcement of an
award and those under the UNCITRAL Model Law to challenge it is a deliberate choice, it is
generally admitted that the authorities relating to Article V of the New York Convention are relevant
and compelling under Article 34 of the UNCITRAL Model law as well.
109)
This ground is mirrored in Article 36(1)(a)(iv) of the UNCITRAL Model Law.
110)
See Born, supra n. 69, at 3910-3919. See also Patricia Nacimiento, Article V(1)(d), in Herbert
Kronke, Patricia Nacimiento and others (eds), Recognition and Enforcement of Foreign Arbitral
Awards: A Global Commentary on the New York Convention, 294 ff. (Kluwer Law International
2010).
111)
Born, supra n. 69, at 3919.
112)
Ibidem.
113)
On the relevance of authorities relating to Article V of the New York Convention with regards to
Article 34 of the UNCITRAL Model law, see footnote 108 above.
114)
In the same sense, see Mayer, supra n. 5, at 284; Ungureanu, supra n. 20, at 792.
115)
See e.g. UK No. 88, Accentuate Limited (UK) v. Asigra Inc (Canada), High Court of Justice,
Queen’s Bench Division, CC/2009/APP/0395, 30 October 2009, 35 Yearbook Commercial
Arbitration XXXV 460, 460 ff. (2010); see however the considerations at paras 31-32 of the
excerpt. See also Belgium No. 1/E1, Audi-NSU Auto Union A.G. v. S.A. Adelin Petit & Cie, Cour
d’Appel de Liège, 12 May 1977, 4 Yearbook Commercial Arbitration IV 254, 254 ff, (1979).
116)
Calavros, supra n. 49, at 226.
117)
In this sense, see Barraclough/Waincymer, supra n. 11, at 217.
118)
See references at footnote 11 above.
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