Parties to a contract make their own law and parties are free to agree upon such terms as they may choose

Agreements that are intended to have a legal operation create legal rights and duties and legal rights and duties cannot exist in a vacuum but must have a place within a legal system

Like a contract, an arbitration does not exist in a legal vacuum. It is regulated first by the rules of procedure that have been agreed or adopted by the parties and the arbitral tribunal.

Secondly, it is regulated by the law of the place of arbitration

1. The law governing the arbitration agreement and the performance of that agreement;

2. The law governing the existence and proceedings of the arbitral tribunal—the lex arbitri;

3. The law, or the relevant legal rules, governing the substantive issues in dispute;

4. Other applicable rules and non-binding guidelines and recommendations; and

5. The law governing recognition and enforcement of the award.

In an international arbitration, from where does the agreement to arbitrate come from?

What should the agreement to arbitrate contain?

If no express designation as to this key point is made, how do we determine this? What choices are there?

Law of Contract Law of Seat/Place of Arbitration

The arbitration clause is generally governed by the same law as the rest of the contract

But an arbitration clause is taken to be autonomous and to be separable from other clauses in the agreementDoctrine of separability

Thus, it is possible that the arbitration clause is governed by a different law than the contract itself

Use of the law of the seat is common For example, in one case the court held

that by providing for arbitration in London under the auspices of the Arbitration Act, the parties had chosen English law to govern matters arising under the Act, but also issues concerning the formal validity of the arbitration clause and the jurisdiction of the arbitral tribunal

Why use the law of the seat of arbitration? What exactly does this mean?

A body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the conduct of the arbitration

Comprises the rules governing interim measures, the rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into difficulties and the rules providing for the exercise by the Court of its supervisory jurisdiction over arbitrations

The content of the lex arbitri is self determined by each state

the definition and form of an agreement to arbitrate whether a dispute is capable of being referred to

arbitration the constitution of the arbitral tribunal and any grounds

for challenge of that tribunal the entitlement of the arbitral tribunal to rule on its own

jurisdiction; equal treatment of the parties freedom to agree upon detailed rules of procedure; interim measures of protection statements of claim and defence hearings default proceedings court assistance if required the powers of the arbitrators the form and validity of the arbitration award the finality of the award, including any right to challenge it

in the courts of the place of arbitration

Note that there is a difference between the general provisions of the law governing the arbitration (the lex arbitri) and the detailed procedural rules that will need to be adopted, or adapted, for the fair and efficient conduct of the proceedings

The rules of the arbitral institutions, such as the ICC and the LCIA, provide an overall framework within which to operate

What is this difference?

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, to the extent that it contains mandatory provisions is binding on the parties

Note that an exception to this rule is in investment arbitrations run under the ICSID, where arbitrations are almost entirely insulated from the place of arbitration

In short, the seat of the arbitration is the territorial link between the arbitration itself and the law of the place in which that arbitration is legally situated

An arbitration is governed by the law of the place in which it is held, which is the ‘seat’ (or ‘forum’ or ‘locus arbitri’) of the arbitration

If London is the place of arbitration, this does not mean only a geographical location. It means that the arbitration is conducted within the framework of the law of arbitration of England

Although the choice of a ‘seat’ indicates the geographical place for the arbitration, this does not mean that the parties have limited themselves to that place. Hearings and meetings can be held elsewhere

Who chooses the applicable substantive law and what does it govern?

See eg. the Washington Convention:The Tribunal shall decide a dispute in

accordance with such rules of law as may be agreed by the parties

Are there any exceptions to the parties choosing their own rules?

National law Stabilisation clauses

Public international law Concurrent laws Lex mercatoria Equity and good conscience

Art. 42 ICSID: 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.

Art. 33 UNCITRAL arbitration rules The arbitral tribunal shall apply the law

designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

an obligatory choice of law clause determines that in the absence of agreement to the

contrary, a host State may be assured that its law is and will be applied as the choice of law

requires a careful examination of the law of the Contracting State party with regard to the issue in dispute

The law of the State, host to the foreign investment, must be understood broadly to include its statutory as well as judicially illuminated law

the law of the host State does not have to address the issue at hand. If it does and, as part of its law, has decided not to grant remedies in such matters then there is no remedy, as none is provided in the law that must be applied.

Only if there is a lacuna in the host state’s law, must we then proceed to search for a remedy in international law

Four situations: where the parties have so agreed; where the law of the Contracting State party

to the dispute calls for the application of international law, including customary international law;

where the subject matter or issue is directly regulated by international law, such as a treaty between the states party to the dispute

where the law of the Contracting State party to the dispute, or action taken under that law, violates international law

What is privity? Why is investment arbitration a form of

arbitration without privity?

Each Contracting Party hereby consents to submit to the International Centre for Settlement of Investment Disputes for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States opened for signature at Washington on 18 March 1965 any legal disputes arising between that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.

According to this provision, what is the applicable law?

Asian Agricultural Products Limited (AAPL) entered a joint venture agreement with a number of Sri Lankan Government Agencies and private individuals to establish Serendib Seafoods Ltd (SSL) to cultivate and export shrimps to Japan

During counter insurgency operations conducted by Sri Lankan Security Forces, SSL's farm was destroyed. In July 1987, AAPL filed a request for arbitration with ICSID in accordance with the United Kingdom/Sri Lanka Agreement for the Promotion and Protection of Investments 1980 (the BIT), claiming compensation for the destruction of the farm

Look at the parties intentions during the proceedings

The Bilateral Investment Treaty is not a self-contained closed legal system limited to provide for substantive material rules of direct applicability, but it has to be envisaged within a wider juridical context in which rules from other sources are integrated through implied incorporation methods, or by direct reference to certain supplementary rules, whether of international law character or of domestic law nature

Article 38 of the Statute of the International Court of Justice provides the sources of international law, including:

(a) international conventions, whether general or particular, establishing rules expressly recognized by the contesting States;

(b) international custom, as evidence of a general practice accepted as law;

(c) the general principles of law recognized by civilised nations;

(d) judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.