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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

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
Arbitration
The 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 ChryslerPlymouth 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 delocalisation


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.