THE AUTHOR:
Lara Fernanda Yokota, Associate at Toledo Marchetti Advogados
As part of the 2025 Paris Arbitration Week (“PAW”), Derains & Gharavi hosted the 8th Edition of the Lusophones’ Arbitration Meeting. This year, the participants discussed “The Application of Mandatory Rules in International Arbitration” in two panels.
The first panel, chaired by Ana Gerdau de Borja Mercereau (Citadelle Disputes), addressed “The Control of the Application of Mandatory Rules by the Arbitrator”. This panel featured Gabriel Costa (Shell), José Miguel Júdice (Independent Arbitrator), Márcio Guimarães (Márcio Guimarães Advogados), and Patrícia Ferraz (ICC).
The second panel, moderated by Eduardo Silva da Silva (Dispute Resolution Office), explored “The Control of the Application of Mandatory Rules by State Courts”. Speakers included Beatriz Nóbrega (Advocacia-Geral da União), Bruno Sousa Rodrigues (Sciences Po), Héctor Anaya Mondragón (Gritwood Dispute Resolution S. C.), and Maria América dos Santos (Independent Arbitrator).
Opening remarks were delivered by Yves Derains (Derains & Gharavi), and closing remarks were given by Diego Alexandre-García Fernández (ICC). Both presentations emphasized the growing significance of the Lusophone community in international arbitration. According to recent data from the ICC (International Chamber of Commerce), Portuguese has become the fourth most chosen language in arbitration proceedings, and Brazilian parties now rank as the second most frequent users of ICC arbitration.
* This post outlines key takeaways from both panels. As this report follows the Chatham House Rule, the speakers were not identified. Further, the opinions of one speaker do not necessarily reflect the views of all panelists.
The Control of the Application of Mandatory Rules by the Arbitrator
The first panel examined the challenges arbitral tribunals face when dealing with mandatory rules. First, the panel addressed the need for the arbitral tribunal to distinguish between mandatory rules and rules that merely constrain the arbitral tribunal’s discretion without constituting mandatory rules. The panel then examined some of the situations in which arbitral tribunals are commonly confronted with mandatory rules.
On the first point, one speaker emphasized the importance of distinguishing mandatory rules from their “false cognates” in international disputes. This is because rules deemed mandatory in one jurisdiction may not hold the same status in another. For example, rules concerning the reduction of penalty clauses (redução da cláusula penal) are considered as pertaining to public policy in some jurisdictions but not in others.
Regarding the second point, the panel also discussed:
- Arbitrations involving public administration entities;
- Arbitrations in which one party is undergoing insolvency proceedings; and
- Disputes in highly regulated sectors.
One panelist noted that, in Brazil, arbitrations involving public entities trigger the application of mandatory rules governing the advance payment of arbitration costs. While it is now accepted that the private party must advance all such costs, this was not always the case. One of the earliest relevant provisions, Rio de Janeiro Decree No. 46.245, stated: “The costs of conducting the arbitration shall be paid in advance by the contracted party when it is the claimant in the arbitration proceedings, including the arbitrators’ fees, any costs of expert opinions and other costs of the proceedings”. This led to an arbitral tribunal ordering the public administration to pay its share of the advance costs due to the assertion of counterclaims. As the panelist noted, subsequent statutory regulations at federal, state and municipal level have consistently required the private party to bear these costs upfront.
Another panelist discussed when mandatory rules come into play in arbitrations involving parties undergoing insolvency proceedings. In such cases, the arbitral tribunal may need to determine if the arbitration should be stayed, which claims the arbitral tribunal has jurisdiction over (as opposed to which claims should be submitted to the insolvency judge), and how to ensure equal treatment despite the economic limitations of the party in crisis. A party involved in an insolvency proceedings may be subject to an insolvency plan; This party may face difficulties in hiring an expert witness or paying a tribunal-appointed expert, for example. In these situations, an arbitral tribunal could hear both parties and, where appropriate, adopt procedural measures to allow the party subject to insolvency proceedings to obtain approval of the insolvency administrator to procure these services.
As noted by another speaker, arbitral tribunals must also navigate mandatory rules when a dispute arises in heavily regulated industries. A frequent issue is determining whether certain administrative actions constitute mandatory rules or are enforceable as public policy. For example:
- Are all regulatory measures issued by public authorities binding in arbitration?
- Should they be treated as mandatory rules?
These are some of the complex questions arbitral tribunals must address in highly regulated sectors such as the energy sector.
The Control of the Application of Mandatory Rules by State Courts
The second panel examined the various methods by which state courts regulate the application of mandatory rules. First, the panel discussed the limitations that mandatory rules impose on party autonomy. The panel then examined the control exercised by state courts in relation to both interim measures and final awards. In the latter case, the panel further debated the revision and the refusal to recognize and enforce arbitral awards.
The first speaker began by noting that International Law limits party autonomy in light of the mandatory law provision foreseen in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”). The Convention restricts parties’ choice of law by listing the violation of public policy as grounds for refusal of recognition and enforcement of arbitral awards. This means that, despite the law chosen by the parties, a different one, known as the mandatory rule, may determine the outcome of the arbitral procedure. Besides the New York Convention, other international rules provide similar rules on the grounds for refusal of recognition and enforcement of awards
The panel then turned to the role of courts in the application of mandatory rules. With respect to interim measures, one panelist highlighted three main points of contention: the form of the interim measure, the collateral effect of mandatory rules in arbitral proceedings, and the residual prerogative of the state court in analyzing the legality of the interim measure ordered by the arbitral tribunal.
Regarding the form of the interim measure, the question is whether its enforcement depends on the adoption of a particular form (i.e., procedural order or partial award). The collateral effect of mandatory rules in arbitration proceedings was illustrated by the economic sanctions imposed on Russia. Russian parties may face difficulties in finding legal representation in international arbitrations because various law firms have fled the country due to economic sanctions. This could lead to allegations of violation of due process due to a lack of adequate representation.
Regarding the residual prerogative of state courts in analyzing the legality of interim measures, the issue lies in the enforcement procedure. For example, Brazilian law provides for an instrument of cooperation between arbitral tribunals and state courts: the arbitral letter (carta arbitral). According to Article 267(I) of the Brazilian Code of Civil Procedure, judges may refuse to comply with the arbitral letter if it “does not meet the legal requirements”. A panelist noted that, in addition to form requirements, state courts may assess the merits of the arbitral letter to some extent, evaluating each case individually.
As for final awards, another speaker noted that the control of the application of mandatory rules by state courts is exercised through the refusal of recognition and enforcement of awards that violate public policy rules. The revision of the arbitral awards, as indicated by this panelist, could hinder legal security and jeopardize arbitration as a method of dispute resolution. Hence, greater emphasis was placed on recognition and enforcement.
According to one speaker, the New York Convention has created a common basis for the recognition and enforcement of arbitral awards. Nevertheless, some countries tend to be more lenient. With respect to public policy rules, common law countries are more tolerant than civil law countries, which tend to favor control via the application of international public policy rules. In Angola, for example, there is no consolidated jurisprudence on the subject; however, recent decisions in annulment actions regarding domestic arbitral awards have shown that the competent court clearly promotes the sustainability of arbitration. It asserts that the principle of the exhaustive nature of the grounds for annulment is intended to prevent judicial courts from controlling the merits of the arbitral award. This is particularly relevant given the abusive use of annulment actions by lawyers when the arbitral tribunal’s decision is unfavorable to them, especially when the parties have previously waived their right to appeal. Moreover, it considers that the Angolan State’s substantive and procedural public policy has not been violated based on the principles of proportionality, certainty, and legal security.
Conclusion
As both panels demonstrated, the application of mandatory rules in international arbitration is ensured by both the arbitral tribunal in issuing awards and by state courts in controlling the recognition and enforcement of these awards. Control by State courts may also be exercised in relation to interim measures granted by the arbitral tribunal.
As discussed by the first panel, an arbitral tribunal may encounter mandatory rules in arbitrations involving public entities, parties undergoing insolvency proceedings, and parties operating in highly regulated industries. In such situations, it is important for the arbitral tribunal to distinguish between mandatory rules and those that limit its discretion. The second panel then explored how state courts control the application of mandatory rules through their residual prerogative in analyzing the legality of interim measures and through the refusal of the recognition and the enforcement of arbitral awards.
ABOUT THE AUTHOR
Lara Fernanda Yokota is a Doctoral student at the University of São Paulo. She is an Associate (Arbitration) at Toledo Marchetti Advogados. She holds a bachelor’s degree in law from the University of São Paulo and a master’s degree in conflict of laws and international business law from the University Paris 1 – Panthéon Sorbonne.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
