The Applicable Law

• There may be more than one national system of law bearing on international arbitration:

• The procedure of an arbitration may be regulated by the rules chosen by the parties

• but the procedural law is that of the place of arbitration

• and, any mandatory provisions are binding on the parties

Channel Tunnel v. Balfour Beatty [1993] AC 334, 357

• The proper law of the contract;• The law of the arbitration agreement

concerned with its validity and interpretation and performance,

• The curial law of the arbitration, • The lex arbitri, (including the conflict of law

rules of that state).

Applicable law may be

• National law • Public international law (Treaties in the case

of Investment Arbitration)• Concurrent laws • Lex mercatoria • Equity and good conscience

The law of the arbitral agreement

• The law of the Arbitral agreement may not be the same as the law of the contract

• The law of the contract and the law of the arbitral agreement may both contain rules about whether the contract is valid etc

• There may be some disagreement as to whether a matter is governed by the procedural law or the substantive law

The procedural law of the arbitration (the lex arbitri)

• The procedural rules to be followed might be set out in the contract

• The Arbitrator may be given the power to decide how the arbitration will proceed

• But there may be mandatory rules that must be followed which will differ depending on where the seat of the arbitration is.

• The lex arbitri is the arbitration law of the country where the arbitration has it legal place.

• This may be different from the physical location where the tribunal holds its hearings

The Lex arbitri

• Rules of the State which govern the conduct of the arbitration E,G the arbitration act 1996• The lex arbitri is external to the arbitration agreement,

and the wishes of the parties• The lex arbitri is determined by each state Some state

rules allow greater party autonomy than others• Lex arbitri rules govern court support such as interim

measures• lex arbitri rules govern how far the court will intervene

in the arbitration process.

Difference between procedure and procedural

• Although most states allow the parties to chose their own procedure

• If there are mandatory procedures contained within State Law these will take priority

Investment Arbitration does not follow this approachArt. 42 ICSID: see later notes on Investment ArbitrationThe arbitral tribunal shall decide the dispute in accordance with such

rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.

Difficulty in reaching agreement as to which substantive law is to be applied

• If the arbitration agreement needs to specify which approach should be taken in deciding the appropriate substantive law

Different Rules take different approaches

• Model Law, art. 28.2, AA1996, s. 46(3).gives the tribunal discretion to choose conflict of law rules and apply it

• France, NCCP, art 1496, ICC Rules, art 17(1) tribunal discretion to choose the applicable law it considers appropriate

• Swiss PILA, art. 187with which the case has the closest connection

Lesotho Highlands v. Impreglio SpA [2005] UKHL 43 (HL).

• Contract governed by the law of Lesotho and provided for payment in Maloti (Lesotho currency)

• Arbitration agreement, provided for ICC arbitration under the Arbitration Act 1996.

• The tribunal concluded there were governed by ss. 48 and 49. It ordered payment in various European Currencies

• House of Lords decided that, the tribunal had erred in law in deciding that it had discretion under s. 48 to disregard the substantive law in relation to the currency of damages,

Public policy considerations

• State rules based can be based on public policy• A choice of law that would avoid these public

policy considerations will not be acceptable• The State in question will not enforce an award

that is contrary to public policy• Mitsubishi Motors Corp v. Soler Chrysler-

Plymouth Inc YB Comm Arb XI, 555 (US Supreme Court)

Public policy avoided

• Accentuate v. Asigra Inc [2009] EWHC 2655 (QB)

• held that the arbitration agreement provided for a substantive law

• and the place of arbitration (Ontario, Canada)• That did not have to apply an E U directive.

The directive therefore was void

Reasons for choosing a seat

• It is convenient to both parties• It is neutral

Delocalisation and territoriality Theory

•Arbitration should be divorced from all municipal systems of law and should not be subject to state court control or interference at any level. •International Arbitration should be self regulating because it is a private arrangement based on party autonomy

Conflict of law Rules

• Conflict of law rules need not apply• If the Arbitrator is choosing the seat of the

arbitration

Delocalisation

• There should not be two legal systems supervising the arbitration

• First at the place of arbitration• Then at the place of enforcement• It is argued that only the law of enforcement

should be considered to be relevant.

But de-localisation from State court procedure is possible

• 1998 ICC Rules, article 15(1)),9• subject to any mandatory procedural rules at• the seat (place) of arbitration, eg AA1996, s.

4(1).

Is delocalisation desirable

• Should Arbitration be controlled by the local law of the place where the arbitration is heard

• Should a state interfere in the business of citizens who are not necessarily their subjects

Some measure of de-localisation

• The arbitration system created by the Washington Convention 1965.• Some measure of de-localisation

• This will be dealt with later in the course

Arguments against delocalisation

• Arbitration should conform to the standards of the territory in which the arbitration takes place

• A country has the right to make law which governs all aspect of behaviour in its territory

• Countries where it is not possible to set aside an arbitral decision have not been popular places to hold an arbitration.

State supervision only to be expected State support is required

• For the appointment of arbitrators• Emergency relief• Preserving evidence • Enforcing the award

Delocalisation

• Partial failure and partial success Andrew Tweedledale and Karen Tweedledale

• Having run into the ground Alan Redfern and Martin Hunter et al Law and practice of commercial arbitration.

Partially delocalised

• Margaret Moses points out that Sports arbitration is partially delocalised (see Margaret L Moses Principals and Practices of International Arbitration p58 para2)

The effect of on line arbitration

• The Hong Kong International Arbitration Centre have Electronic Transaction Arbitrational Rules

• Proceedings can be conducted by any means of electronic communication.

• However the seat is Hong Kong

The Lex mercatoria (international principles of law)

• Many local laws permit such a choice: eg. France, NCCP, art. 1496;

• Swiss PILA, art

• 187(1); Model law, art 28, AA1996, s. 46(1)(b).

The law of the arbitration agreement

Can either be • The procedural law of the arbitration (the lex

arbitri Redfern & Hunter support this approach (3rd Edition), 158ff

• XL Insurance v. Owens Corning [2001] 1 All ER (Comm) 529

• The law of the substantive agreement New York Convention, art. V(1)(a).

Uncertainty.

• Are there legal principles that are generally followed by the international commercial community?

• Are rules are uncertain and vague?• When drafting an arbitration clause there may

be some reluctance to include such a clause

Lex Mercatoria

• if no specific is law is identified then Lex Mercatoria can apply

• On the grounds that an arbitration clause is legally independent of the main contract

• Dalico(1993) Cour de Cassation, Dec 1993 (France)

No Universally recognised definition of Lex Mercatoria

• Emmanual Gaillard defined the priciple as Customary commercial law.

• A Party to a contract can state that they are adopting certain customary rules.

Equity Clauses

• UNCITRAL The model law• The Arbitral Tribunal shall decide ex aequo et

bono or as amiable compositeur only if the parties have expressly authorised it do so

The duty to apply the substantive law

• But in the United Kingdom it can, if the parties agree, have regard to other considerations, AA1996, s. 46.

• This is known as equity clauses• Deutsche Schachtbau-und Tiefbohr GmbH v. Ras

Al Khaimah National Oil Co[1990] 1 AC 2958(CA), • Reversed by HL on other grounds) Hong-lin-Yu

(2000) 17(1) J Int Arb 79.

Equity clauses

• The difficulty in the Harbour case is that both parties would have to ask the arbitrator to decide the dispute on some other law, other than the 1996 Arbitration Act. Which should be possible and in line with section 46(1) (b) Unless it could be said that this is not in the public interest in accordance with s1(b) but this would not then seem in line with the DAC Report that the intentions of the parties are paramount.

Equity clauses

• If the parties had invoked s46 (1) (b) of the Arbitration Act 1996 S46 if the parties so agree, in accordance with such other considerations are agreed by them or determined by the criteria, it should be possible for them to agree that the arbitrator acts in the spirit of fair dealing between the parties, and have total jurisdiction over all matters.

• Arbitrator S46 (1) (b) is intended to cover arbitration “ex aequo et bono”. It may be argued that “other considerations” is wide enough to allow the arbitrators to apply any rule, as he thinks fit .

Equity clauses

• Merkin states s46 (1) (b) authorises equity clauses of all types and however widely cast. This approach would reflect the primary objective of the act; to give parties involved in the dispute, party autonomy.

• Russell points out that “ There must be no Alsatia in England where the Kings writ does not run” no longer applies to English Arbitration Law. Party autonomy has been formally enshrined in the Arbitration Act. 1996.

Equity clauses

• Merkin states that when equitable clauses have come before the courts “any attempt to oust substantive rules of law threaten the certainty of the clause and possibly the entire contract for ousting the jurisdiction of the courts. Equitable arbitration authorises the arbitrator to disregard express words within a contract wording or rules of construction.

Equity clauses• If this approach is taken and the arbitrator produced a result that

neither party though was fair, the parities may be putting themselves in a position whereby they have delegated their party autonomy to the arbitrator.

• If this approach is taken and the arbitrator produced a result that neither party though was unfair, if arbitrators are given total control, they cannot then complain if the arbitrator adopts a legal process or law which produces an outcome, with which they are less than happy.

• Parties have the ability in line with section 46(1) b to specify which rules or law they wish to apply, if they do not exercise that option, to complain at a later date may be difficult.

Equity clauses

• The DAC reports stated “the parties can only escape from their Arbitral bargain if events arise which can, in effect, clearly be said to fall outside that bargain but it has also been applied in practice.

Equity clauses

• Professor Pierre Mayor States that companies seek certainly which will only result in arbitrators applying the law

• therefore they are reluctant to allow ex aequo et bono clauses

• An Award can be challenged if an Arbitrator exceeds their power.