One perk of international arbitration is the possibility to avoid choice-of-law complexities that inevitably arise in an international dispute, although choice of law in international commercial arbitration can pose an issue.
There are four different choice-of-law issues in international arbitration that arise:
- Determination of the substantive law applicable to the merits of the case
- Determination of the substantive law applicable to the arbitration agreement
- Determination of the procedural law applicable to the arbitral proceedings
- The conflict of law rules applicable to determine each of the above-mentioned laws.
Difficulties arise when one or more of the four laws is different.
First, regarding the law applicable to the merits of the case, arbitrators will determine it according to the parties’ agreements, unless a mandatory national law, or public policy, trumps such an agreement. In the alternative, where parties have failed to agree, the arbitral tribunal will choose the law applicable depending on the facts of the case at hand, using criteria such as selecting the law with the closest connection to the dispute.
Second, regarding the law applicable to the arbitration agreement itself, parties may also agree on such law, which can be different from the others on the basis of the presumption of separability. If the parties have not agreed on an applicable law, then the law applicable to the arbitration agreement is often found to be the law of the arbitral seat, but may also be found to be the law governing the parties’ contract or international principles.
Third, the procedural law applicable will in most cases be the domestic arbitration law of the seat of arbitration. This law will govern all issues relating to the arbitration proceeding, such as the appointment of arbitrators, the issue of provisional relief, the procedural timetable and provisions related to the award. In most jurisdictions, this law provides significant freedom to arbitrators in relation to the conduct of the proceedings, as long as due process is respected.
Finally, the arbitral tribunal may decide the conflict-of-law rules that will apply for each applicable law. The tribunal may resort, for instance, to applying the arbitral seat’s conflict of law rules, or international conflict of law rules.
Thus, while frequently less complex than choice-of-law issues before domestic courts, choice of law in international commercial arbitration can, at times, not be as straightforward as one would hope. The easiest manner to avoid this complexity is to explicitly specify that all laws relating to the merits, arbitration agreement and arbitration procedure are identical in the parties’ contract, and that no conflict of law rules are applicable.
