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American Review of International Arbitration - ARIA - Vol. 18 No. 1-2 2007 

American Review of International Arbitration - ARIA (U.S. Price)
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MANDATORY LAW IN ARBITRATION
Hans Smit*
 

I. INTRODUCTION

In the good old days, arbitrators did not adjudicate issues of mandatory law.
These were within the exclusive jurisdiction of the competent public authorities.1

The first change came with Scherk v. Alberto Culver.2 This was an
international arbitration between a U.S. company and a Liechtenstein entity that
manufactured cosmetics. In this oft-quoted decision, Justice Stewart, in rejecting a
plea that U.S. securities law gave exclusive jurisdiction to U.S. courts, wrote for a
divided court that, in an international dispute, U.S. courts could not invariably
insist on application of U.S. mandatory law.3 In The Bremen v. Zapata Off-Shore
Co., the Supreme Court, per Chief Justice Burger, had earlier rendered a similar
ruling in regard to an exclusive choice of forum clause designating a forum that
was likely not to apply otherwise applicable mandatory U.S. law.4 Of course, in
international cases, there is, by definition, a competing foreign law that may be
non-mandatory and that, under applicable choice-of-law rules, may vie for
application.5 However, these Supreme Court rulings did not consider whether,
under applicable choice-of-law rules, foreign non-mandatory law could be argued
to be applicable.

Once the Court had stepped over the line in international cases, a ruling that
arbitrators could apply mandatory law in domestic cases became more likely. And
that likelihood became a reality when the Supreme Court, in Rodriguez de Quijas
v. Shearson/American Express, Inc.,6 ruled that arbitrators could apply mandatory
securities law in a domestic case. That decision was followed by others in cases
involving age-discrimination, antitrust, RICO, and other statutes prescribing the
application of mandatory law.7 A remarkable aspect of all of the Supreme Court
rulings is that the court gave scant consideration to the fundamental differences
between judicial and arbitral adjudication. My thesis is that this failure has led the
Court too readily to sanction arbitral adjudication of mandatory law and that a
more nuanced approach is necessary, under which material issues of mandatory
law are ruled non-arbitrable and are referred to a single domestic court.8