B. The Application of Mandatory Rules By Arbitrators
2. Mandatory Rules of the lex causae
a) In the case, the applicable law has been chosen by the parties
As examined above, an arbitrator first and foremost owes allegiance to the parties will when determining the applicable law. If the parties have chosen the applicable law in their contract, they will in nearly all cases refer to a national law using language such as
“… this contract shall be governed by Swiss law.” The question that arises from this language is: Did the parties, when choosing a specific national law to govern their contract also chose its mandatory rules?
Clearly, if the parties have explicitly chosen also the (or certain) mandatory rules of the lex causae, these mandatory rules are applicable prima facie. Nevertheless, the facts of the case must fulfil the prerequisites set out in the mandatory rules for their application.
If, e.g. the parties to a contract with no connection to Germany subject their contract to German currency export law, it does not necessarily follow that these rules apply. Only if the prerequisites formulated by the German legislator are fulfilled, can these laws be applied.
If the parties have not expressly opted for the application of the mandatory rules of the lex causae, which will mostly be the case, a far spread opinion in arbitral literature nevertheless considers them applicable. Several notable authors consider it to be a matter of course that the mandatory rules of the lex voluntatis apply.306 The reason put forward to support this is that the arbitrator is bound to apply the law chosen by the parties, which, obviously is considered to entail also the application of its mandatory rules. Consequently, however, the parties must also have the possibility to exclude the applicability of certain mandatory rules of the lex voluntatis, though this must be done explicitly.307 Also arbitral awards reflect this opinion.308
This approach has found reception in the jurisprudence of the Swiss Supreme Court, which has stated that the mandatory rules of the law the parties have chosen are included in the choice-of-law of the parties.309 The Swiss Supreme Court seems to follow the “Schuldsstatutstheorie” elaborated on above, when it comes to the
306 Derains, ICCA Congress Series No. 3 (1987) 227 (244); Lazareff, ArbInt 11 (1995) 137 (138); Lörcher, BB 1993, IV 12, 4; Juenger, FS Rittner, 242.
307 Derains, ICCA Congress Series No. 3 (1987) 227 (244); Mayer, ArbInt 1986, 274 (280).
308 ICC Case No. 7047, reprinted in Collection of ICC Arbitral Awards 1996 – 2000, 32,41 (Arnaldez et al eds., 2003) in which the arbitral tribunal held that the law chosen by the parties (which was Swiss law) was the only law applicable to the contract and that article 19 of the Swiss Law on Private International Law was not applicable to the case if the parties had contractually agreed on a specific law (for an examination of this case see infra section VI.B.3.a); ICC Case No. 8385, Collection IV, 474, 483, in which the arbitral tribunal held that the an American mandatory rule (in that case the RICO Act) could be applicable only due to the choice of New York Law by the Parties. It considered however that the choice of law of the parties did not include the mandatory rules of New York law.
309 Judgement of the BGE 118 II 193.
application of mandatory rules of the lex voluntatis by arbitrators.310 Several Swiss scholars share the opinion of the Supreme Court.311
It is submitted that in the case the parties have not expressly included the mandatory rules of the lex voluntatis in their choice of law the arbitrators must interpret the contract and determine whether or not the parties could have intended to include the mandatory rules and must not apply them automatically.312 The arbitrators will have to examine carefully, whether the parties actually had any intent to include the mandatory rules of the lex causae or even had any knowledge of them.313 In doubt, it is submitted that the parties will usually not have wanted to include the mandatory rules of the lex causae in their choice of law. Mandatory rules intervene in the contractual relationship of the parties; they may modify the parties’ obligations or may even render the contract void. Therefore it will hardly have been the intent of the parties to include these rules in their choice of law. It can hardly be expected that the parties would have subjected their contract to a legal order under which it is not valid or not valid as concluded.314 To the contrary, the parties to international contracts will invariably have chosen a law applicable to their contract for reasons of neutrality that has no connection with their contract at all. There is no legitimate reason to apply the mandatory rules of a legal order that is only applicable because it has no connection to the case. Firstly, the parties will hardly have conceived that these rules would apply. Secondly, the mandatory rules of the lex voluntatis will by their legislative intent hardly apply to a case which has no connection to the case. The enacting state will regularly have no interest in their application.
310 Schnyder, RabelsZ 59 (1995) 292 (298); Karrer in Kommentar zum SchwPrivatrecht, Art 187 no 135.
311 Rüede/Hadenfeldt, 277; Blessing, Das neue internationale Schiedsgerichtsrecht in der Schweiz 13, 61 who argues for application of mandatory rules of the lex voluntatis and of such that one party has invoked, but states that the application of third states mandatory rules ex officio is „questionable“.
312 Beulker, Eingriffsnormenproblematik 231ss; Aden, RIW 1984, 936.
313 Aden, RIW 1984, 936.
314 Beulker, Eingriffsnormenproblematik 232ss.
The reason for the application of mandatory rules of the lex causae is therefore not respect for the autonomy of the parties. It is also not respect for the interests of the states enacting the mandatory rules.
b) In the case the lex causae is determined by the arbitrator
If the parties leave the determination of the applicable law to the arbitrators, the basis for the application of the mandatory rules of the lex causae cannot be found in the will of the parties. Therefore, even if one would agree that the choice of a specific legal system includes its mandatory rules, the lex causae determined by an arbitral tribunal cannot include these rules. 315
The reason for this is, as detailed above, that the conflict of laws rules, be it those applicable before a national court or rudimentary rules applicable before arbitral tribunals (such as s.1051(2) German CCP) designed for the determination of the lex contractus are inadequate for determining the applicability of mandatory rules. These rules fall outside the law designated by the classic conflict of laws rules and therefore are not included in the law to which they point.
It is submitted that in the case the parties have not chosen the applicable law, the mandatory rules of the lex contractus do not take priority over mandatory rules of any other legal order and are not automatically applicable. Regarding the mandatory rules of the lex causae, the arbitrators must follow the same approach (detailed below) that is taken to the application of third states mandatory rules. 316
315 Derains, ICCA Congress Series No. 3 (1987) 227 (245); Beulker, Eingriffsnormenproblematik 241; Juenger, FS Rittner 233 (242).
316 Derains, ICCA Congress Series No. 3 (1987) 227 (246); cf. also Heini in ZürchKomm IPRG² Art 187 no 19, who states that there should generally be no difference between the application of mandatory rules of the lex causae and those of third states; Beulker, Eingriffsnormenproblematik 242; Kreuzer, Ausländisches Wirtschaftsrecht 85..