21 - Mandatory Law: International Commercial and Investment Treaty Arbitration

Summary

This Chapter addresses how unexpected restrictions in municipal laws might frustrate parties’ autonomy by the application of “mandatory laws” that do not constitute fundamental principles of morality and justice. The Chapter analyses the definition of “mandatory law” and concludes that international commercial arbitration tribunals must follow the combined guidance of the ILA Final Report, with its emphasis on identification of “mandatory laws” as lois de police, and Article 9 of Rome I, with its limitation on applying only “overriding” mandatory laws – particularly when the allegedly mandatory laws of a third State are in question.

The Chapter also examines investment treaty disputes, where the application of mandatory laws of third States is less likely to be involved. However, treaty arbitrators are arguably in need of guidance from States and investors – perhaps as a prudential limit to arbitrators’ discretion – in assessing which of the increasing number of human rights provisions should be considered “mandatory law”.ICJ Judge Bruno Simma’s proposal regarding pre-investment “audits” of the law of the host State in relation to human rights is one way to provide such guidance. Absent guidance, uncertainties about the content of “international law” may well create uncertainties about “mandatory law” in investment treaty cases, to the detriment of ongoing public confidence in investor-State dispute resolution.