Determination of the governing law of arbitration agreement

It is not infrequent for the parties to fail to specify the governing law of the arbitration agreement (clause) they include in the contract.

If the parties fail to identify the substantive law governing their arbitration agreement, then, depending on the jurisdiction, the arbitration tribunal can choose any substantive law from the following:

  1. The law governing the contract;
  2. The law of the forum;
  3. The law of jurisdiction best suited for resolving the dispute to be arbitrated.

The governing law of the contract. 

As far as we are aware, an arbitration agreement is treated as a separate arrangement independent from the principal contract. Therefore, the law applicable to the arbitration agreement does not have to be the same as the law governing the contract. However, where the arbitration clause does not specify the applicable law, the arbitration tribunal can, based on the parties’ choice, adjudicate the dispute under the governing law of the contract. For example, an arbitral award, as reported by S. Jarvin and Y. Derains, says: “it is commonly accepted that the choice of law applicable to the principal contract also tacitly governs the situation of the arbitration clause, in the absence of a specific provision”.[1] In other words, in incorporating an arbitration agreement (clause) in their contract, the parties assumed/intended that the arbitration agreement would be subject to the same law as the principal contract.

The law of the forum.

To expedite the determination of the governing law of arbitration agreement, some arbitral institutions have provided in their rules of procedure for the law of their jurisdiction to apply to the arbitration agreement.

The Arbitration Rules of the London Court of International Arbitration (LCIA) state that “the law applicable to the Arbitration Agreement and the arbitration shall be the law applicable at the seat of the arbitration, unless [and to the extent that] the parties have agreed in writing on the application of other laws or rules [of law] and such agreement is not prohibited by the law applicable at the arbitral seat”.[2] 

Moreover, this rule is used by courts in practice to uphold the arbitration clause. For example, in a lawsuit of 05.12.2007 to set aside an arbitral award, the Royal Court of London ruled as follows: “the choice of England as the seat of the arbitration was determinative of the matter in as much as the parties had, by that agreement, expressly (or perhaps impliedly) agreed that any proceedings seeking to attack or set aside the Partial Award would only be those permitted by English law.”[3].

The law of jurisdiction best suited for resolving the dispute to be arbitrated.

The arbitration rules of most arbitral institutions[4], including in Kazakhstan, grant the tribunal the discretion to choose the governing law of arbitration agreement pursuant to the choice of laws rules deemed applicable.

In choosing the applicable law, the arbitration tribunal takes into account not only the law of the principal contract or the jurisdiction of arbitration, but also the law of the jurisdiction where the arbitral award is to be enforced.

In determining the law applicable to the arbitration, the arbitration tribunal normally has regard to the following considerations: the parties’ choice, express or implied, and the law with which the contract has the closest and most real connection. These three considerations have gained wide acceptance as a result of the judgment of the Royal Court of London in Sulamerica CIA National de Seguros SA and others v. Enesa Engenharia SA.[5]

Therefore, to avoid protracted proceedings to determine the governing law of arbitration agreement, it is recommended to specify the law applicable to the arbitration agreement in the arbitration agreement (clause).

[1] ICC Award in Case No.2626, S.Jarvin and Y.Derains, Collection of ICC Arbitral Awards, 1974-1985 (1990), 316.

[2] http://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2014.aspx#Article%201

[3] http://www.bailii.org/ew/cases/EWCA/Civ/2007/1282.html

[4] The Arbitration Rules of ICC, Arbitration Rules of the Stockholm Chamber of Commerce etc.

[5] http://www.bailii.org/ew/cases/EWCA/Civ/2012/638.html

Maksud Karaketov

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