Sanctions in Arbitration and Lex Mercatoria Development

This article discusses the development of the theory of lex mercatoria in the context of trade, economic and financial sanctions in arbitration. It is argued that the recent spike in the scale and outreach of international sanctions will result in a more widespread use of lex mercatoria as a governing law in arbitration proceedings, especially where a party from a sanction-affected state is involved. Not least this is because such parties seemingly view lex mercatoria as a safe and neutral choice of law, which excludes the application of sanctions that would otherwise be part of an applicable national law regime. The article will use examples drawn from arbitration practice and scholarship from Russia, Belarus and Iran to illustrate how lex mercatoria, in combination with a preference to ad hoc arbitration, is being used (or suggested to be used) for avoiding any negative impact of sanctions. It is further argued that while the number of arbitration cases where lex mercatoria is used may rise substantially in the near future, this may be detrimental for further development of the theory and its perception.