Originally from The American Review of International Arbitration (ARIA)

PREVIEW

I. INTRODUCTION

There are limits to the agreements private parties can make to resolve disputes among themselves. When parties agree to arbitrate, the effect of that agreement is to “waive each side’s right to invoke the jurisdiction of otherwise competent courts.”  But there are certain issues in respect of which the parties cannot waive the jurisdiction of a State’s courts or domestic dispute resolution procedures. Where private arbitration engages mandatory law issues—such as criminal law, bankruptcy or real property—State public policy interests are engaged, which can clash with, and impose limitations on, arbitration as a form of private dispute resolution.  The applicability of a mandatory law, however, is distinct from its arbitrability in “vitally-important respects”: the requirement of mandatory law, that particular substantive rules apply to a claim, does “not necessarily preclude the arbitrability of” that mandatory law claim.  Arbitrability in this context, and in this paper, refers to the suitability of the subject matter of the dispute to be resolved by an arbitral tribunal as opposed to a court of a relevant State, and non-arbitrability is an “exceptional escape mechanism” from arbitration. 

Arbitrability “establishes a dividing line between the transactional pursuit of private rights and the courts’ role as custodians and interpreters of the public interest.”  Indeed, the traditional position was that mandatory laws should “be considered so fundamental that their enforcement should be reserved for national courts of the country that established [the] mandatory rule and withheld from international arbitral tribunals.”  This bright line prohibition has eroded at an international level, as a number of jurisdictions have developed a pro-arbitration attitude and permitted the arbitrability of traditional mandatory law claims. But the adoption of a more flexible attitude has not been universal, and arbitral tribunals and national courts have varied in their approach to the arbitrability of mandatory laws in international commercial arbitration.

A dilemma can thus arise in an international commercial arbitration claim where the parties’ contract may implicate a number of legal systems with differing approaches to the problem of arbitrability. An issue that remains the subject of considerable differences of approach is which law should govern the question of arbitrability of a mandatory law claim or a mandatory law defense. At present, the law applied to arbitrability is generally very much dependent “upon the tribunal or court before which [the question of arbitrability] is raised,” what stage in the proceeding it arises, whether a tribunal or court is the forum in which the dispute is heard, and the jurisdiction in which the arbitrability question is being addressed.  On the one hand, national courts will apply the law of the forum—their national law—in the context of a party asserting non-arbitrability during the course of the arbitration, or post-award in setting aside or enforcement proceedings.  For arbitral tribunals, on the other hand, this is a “twilight issue,”  and tribunals may apply the law governing the arbitration agreement, and in some instances, the law of the seat of the arbitration.