A Choice of Public Law? Resolving the International Arbitration’s Dilemma – Vol. 20 No. 1

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Author: Tamieka Spencer Bruce*

Published: April 2010

Categories of Disputes
Commercial Disputes
Dispute Resolution and Litigation
Mandatory Rules



Globalization and the rise of the regulatory state have caused the mandatory rules of different States to come into conflict with greater frequency. In particular, antitrust and securities rules of a number of jurisdictions can be implicated in a single transaction. The expanded scope of arbitrability means that as parties frequently choose to resolve international commercial disputes by arbitration, the mandatory rules question becomes one not just for the national judge, but also for the international arbitrator. Where disputes arising out of such a transaction are litigated, national courts determine which mandatory rules to apply, based upon the conflict rules of their domestic system. However, the arbitrator faces a dilemma: as an agent of the parties, rather than the state, he owes no allegiance to the mandatory rules of a particular regime and he is bound to apply the law chosen by the parties; but he also has a duty to render an enforceable award, and ignoring a mandatory rule could put the award in jeopardy.

Perhaps a better approach would be to allow parties the choice of mandatory rules that govern their private relationship. This would be consistent with ensuring fairness and certainty between the parties, and creates systemic benefits as well. Transactions implicating a conflict of these laws tend to involve sophisticated parties, who have no need of the paternalistic protection of the state that justifies such laws. Further, the second rationale underlying mandatory public law rules– the protection of third parties–can still be achieved by regulators in the state of the affected third party. The consequences of breach of mandatory public law rules are usually two-fold: violators are subject to (quasi-)criminal penalty and the offending contract is declared void. It is not suggested that a private party could or should be able to contract out of the first (in any event, the contract would need to be with the state), but it is easier to see how it could be possible to contract out of the second.

This paper examines the approach of the courts to party autonomy (Part II), and the approach of the courts to arbitration (Part III). It then turns to a consideration of the arbitrator’s dilemma (Part IV) and an examination of why party choice of public law should be permitted (Part V).

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*Associate at Milbank, Tweed, Hadley & McCloy LLP in New York, member of the New York Bar, solicitor England & Wales (non-practicing), solicitor New South Wales, Australia (non-practicing). The views expressed here solely those of the author.