Originally from The American Review of International Arbitration  (ARIA)

ABSTRACT

The lack of remedies for the violation of the parties’ chosen governing law is taken for granted but its sources and foundations are unexplored. This article argues that the tribunal must not deviate from the chosen law and if the deviation grossly impairs the right to fair trial the award can be resisted. In all other cases the award must stand. There are four arguments in respect of this position. First, the vast majority of domestic laws do not provide for an appellate procedure and there is no equivalent practice in transnational or international law. Second, the almost absolute control of arbitral proceedings by the parties militates against making mistakes pertaining to the substantive law foreseeable and acceptable. Third, the speed and efficiency of arbitration is counterbalanced by the likelihood of mistakes on the merits. Finally, public policy and mandatory rules further limit party autonomy and arbitrators are certainly authorized to enforce them even in defiance of the parties’ chosen governing law. The article contends that arbitral tribunals have an obligation to apply fundamental considerations of justice, just as the courts do.

I.     INTRODUCTION

The aim of this article is to decipher whether tribunals possess any authority to override the parties’ chosen governing law. From the outset it should be pointed out that this is a narrow question. Seasoned practitioners generally argue that the governing law of the contract is rarely contentious, and the vast majority of cases are very much decided on the facts and the terms of contracts. This is no doubt true. Where, however, the law turns out to be crucial for the determination of a particular set of facts, an awkward situation arises. Although the tribunal is obliged to adhere to the parties’ chosen governing law  it may decide not to do so, and there is little authority to set aside an award in which the tribunal defies the parties’ express choice, save if done arbitrarily and without sufficient merit.  Such defiance would be odd. It suggests that contravention of a prohibitive rule (i.e., that the tribunal must not defy the parties’ chosen law) may escape, at least universally, the normal legal consequence (i.e., annulment). Undoubtedly, there could well be other consequences, such as significant reputational damage for the arbitrators and even suits seeking damages for breach of contract or indemnity for tort. Be that as it may, for the parties to arbitral proceedings such suits are hardly the result they had hoped for.

To avoid misunderstanding, it is important to reiterate that the tribunal is generally obliged by the terms of its agreement with the parties, as well as the transnational law of arbitration to adhere to the parties’ chosen governing law.  There exists no discretion to disregard such law and there is certainly a trend (albeit limited) to allow the parties in institutional proceedings to agree to an appeal mechanism,  while some courts, especially in Switzerland, have engineered a doctrine suggesting that “surprise” actions by tribunals might well culminate in the annulment of their award on the basis of a violation of the right to be heard.  Even so, the case law of the European Court of Human Rights clearly suggests that this right is violated only where the tribunal issues an award on the basis of law or facts not discussed during the proceedings and which a diligent party could not have foreseen.  This author fully agrees with this line of thinking and hence the type of arbitral deviations discussed in this article concern processes not involving surprises.