Ethics and the Law Applicable to the Merits in Arbitration

This essay intends to discuss the four facets of the application of the law to the merits in arbitration. The first and more classic one is a conflict of laws issue. What law (or laws) or rules (or sets of rules) should, or can, the arbitrator apply to the merits of the dispute? The second is that of how, having identified the applicable law or set of rules, arbitrators go about ascertaining the content of the law or rules to be applied to the merits. The third facet is how arbitrators should actually apply the law and rules to the merits, once they have identified them and ascertained their content. The fourth facet, which straddles the others, is that of mandatory rules: when, why and how should arbitrators apply mandatory rules and which ones should they apply? Specific legal rules exist only in relation to the first of these facets, and even those leave a great discretion to arbitrators. An inquiry into the criteria for the exercise of that discretion in relation to all the aspects of the application of substantive law – and the relevance of ethics in this context – is therefore fundamental to determine the proper conduct of arbitrators as well as for the outcome of the arbitral process. Indeed, except in the marginal case of ex aequo et bono arbitration, together with the assessment of the facts the identification and application of the rules applicable to the merits is the most crucial aspect of an arbitration, the aim of which is the settlement of the dispute by application of the law. For the purposes of the present discussion, the term ethics is not used in its technical and philosophical sense of rules of behavior based on ideas about what is morally good and bad. It is used in the mundane sense in which it used in arbitration, as shorthand for the unwritten duties of the participants in the arbitral process, particularly arbitrators, with regard to the fair and efficient conduct of the arbitration in the absence of enforceable legal obligations. Also with regard to the application of the law to the merits ethics can be seen to encompass the duty of the arbitrators to “do a good job” as arbitrators. Spelled out, this is the duty to conform to the legitimate expectations of the parties and to standards of predictability, render a just and enforceable decision, avoid arbitrariness and respect general interests.