There are several different laws that are applicable to an international arbitration. Such laws include the law governing the arbitration (Section A), the law applicable to the merits of the dispute (Section B), the law applicable to the arbitration agreement (Section C), the law governing the parties’ capacity to arbitrate (Section D) and the law(s) of the place(s) of the enforcement of an arbitral award (Section E). In international arbitration, it is possible for each of these laws to be that of a different State.
A) The Law Governing the Arbitration (“lex arbitri”)
The lex arbitri (also called the “procedural law” of the arbitration, the “curial law” or the “loi de l’arbitrage“) is a body of national rules that sets the general framework for the conduct of an international arbitration. This is almost always the law of the seat of the arbitration.
The lex arbitri regulates important matters, including the procedure for the annulment of arbitration awards, the allocation of competence to decide jurisdictional challenges between domestic courts and arbitral tribunals, judicial assistance in relation to the constitution of the arbitral tribunal, the grounds for challenging arbitrators, judicial assistance in ordering evidence-taking, interlocutory judicial review (if permitted) of procedural rulings of the arbitral tribunal, the availability of interim measures of protection, as well as the extent of the powers of the arbitrators, amongst others.
The lex arbitri normally does not specify in detail how an arbitration is to be conducted, however. The detailed arbitral procedure is determined mainly by the applicable institutional rules (e.g., 2021 ICC Rules) or ad hoc rules (e.g., the 2013 UNCITRAL Arbitration Rules), the tribunal’s procedural orders and the arbitration agreement itself.
Each country has its own lex arbitri, which forms part of its domestic law and may be found incorporated into its Code of Civil Procedure, as is the case, for instance, in France (French Arbitration Law) and Germany (German Arbitration Law), or as an “autonomous” piece of legislation, as is the 1996 English Arbitration Act (see also our commentary on the 1996 English Arbitration Act here). A comprehensive list of most domestic arbitration laws may be found here.
84 States and a total of 117 jurisdictions have based their lex arbitri on the 1985 UNCITRAL Model Law on International Commercial Arbitration and its 2006 revised version (see UNCITRAL Model Law status here). This has resulted in a welcome level of uniformity amongst the various domestic lex arbitri, which enhances legal certainty and encourages the use of international arbitration by commercial parties for the resolution of their disputes.
B) The Law Applicable to the Merits of the Dispute (“lex contractus”)
The lex contractus, or governing law of the contract, is the substantive law which applies to the merits of the parties’ dispute. The lex contractus governs the existence, validity and interpretation of the main contract. It also governs any non-contractual claims (e.g., tort claims), which may be brought before an arbitral tribunal, depending on the scope of the arbitration agreement.
Parties in international arbitration generally have considerable freedom to choose the law they wish to govern their contract. Such law does not necessarily have to be the official law of a State. The parties may empower the arbitrators to take into account rules of law, such as trade usages, the 2016 UNIDROIT Principles of International Commercial Contracts, the lex mercatoria or Sharia law, amongst others. It is even possible for the arbitrators, if expressly empowered to do so, to decide a case “ex aequo et bono” or as “amiable compositeur”, i.e., with the natural sense of justice, without the need to refer to any legal rules (see, e.g., Article 28(3) of 2006 UNCITRAL Model Law). It is also not uncommon for arbitral tribunals to rule on a dispute with no more than a passing reference to the law, when such dispute depends largely on matters of fact (for example, in international construction arbitrations or construction dispute board proceedings.)
It is essential for parties in contracts with an international element to include a governing law to enhance predictability and avoid the cost and wasted time of arguing over the applicable law, should a dispute arise.
In the absence of a governing law clause, arbitrators (and courts) will be called to determine the most appropriate law to be applied, which will normally be the law with which the dispute has the closest connection (see also a discussion on the relevance of the Rome I and Rome II Regulations for determining the law applicable to the merits of an international arbitration).
Notably, many lex arbitri, as well as applicable institutional rules, empower arbitrators, when determining the lex contractus, to apply directly the law (or rules of law) they deem appropriate (the so-called direct approach). This is envisaged, for instance, in Article 1511 of the French Code of Civil Procedure (see also a brief discussion here, question 6), Article 21(1) of the 2017 ICC Rules, as well as Article 22(3) of the 2020 LCIA Rules. This also means that, unlike national judges, arbitrators are generally not bound to follow the conventional conflict-of-laws path (the so-called indirect approach), even though, in practice, they might stand guided by widely accepted conflict-of-laws rules.
It is also worth mentioning in this respect that the terms lex fori (i.e., the law of the court where proceedings are brought) and lex causae (i.e., a foreign law chosen to be applied by the forum court), which are widely used in conflict of laws, are not easily transposable to the international arbitration context. That is because, unlike judges, arbitrators are not organs of any legal forum, which means that they do lack a proper lex fori, whilst any law is arguably equally “foreign” to them.
C) The Law Applicable to the Arbitration Agreement Itself
In practice, parties usually do not specify the law applicable to their arbitration agreement. This law governs the existence, validity and interpretation of the arbitration agreement itself (see also our recommendations for drafting an arbitration clause in 2021).
Where the seat of arbitration is in a different jurisdiction from the law governing the contract, a failure to specify the law applicable to the arbitration agreement may lead to inconsistent outcomes before domestic courts. For instance, in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait)( EWCA Civ 6), the English court (applying English law as the law governing the arbitration agreement) found that a party had not become an additional party to an arbitration agreement and refused recognition and enforcement of an arbitral award, whereas a French court ruling upon the same legal issue in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) (CA Paris, 23 June 2020, n°17/22943) refused to set aside the award after applying French law to the arbitration agreement.
This issue arises as it is almost undisputed today that the arbitration clause is a separate agreement from the main contract in which it is contained (the so-called principle of autonomy or separability of the arbitration clause). This means that, in the absence of a choice by the parties, the law applicable to the arbitration agreement need not necessarily be the law governing the main contract, yet such a law is an option usually considered, along with the law of the seat.
The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) favors the law of the seat as the default option, absent a parties’ express or implied choice, as envisaged under its Article V(1)(a), which provides that the arbitration “agreement [needs to be] valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”, i.e., under the law of the seat. This default option has also been adopted by many institutional rules, for instance, the 2020 LCIA Rules, which provide in Article 16(4) that “the law applicable to the Arbitration Agreement and the arbitration shall be the law applicable at the seat of the arbitration” (see also our commentary on the key changes introduced by the 2020 LCIA Rules here).
D) The Law Applicable to the Parties’ Capacity to Arbitrate
The New York Convention again gives guidance in this respect in Article V(1)(a), which establishes as a ground for refusing recognition of an award the case where the “parties to the [arbitration] agreement […] were, under the law applicable to them, under some incapacity”. In terms of corporate entities, which are the parties usually involved in international commercial arbitrations, “the law applicable to them” is normally the law of the State of their incorporation.
E) The Law of the Place of Enforcement of an Award (“lex executionis”)
Under the New York Convention, which today counts 166 State parties, the latest one being Sierra Leone, an arbitral award that falls under its scope may be enforced in almost any jurisdiction where the losing party has assets. The New York Convention sets out only the general framework for enforcement, in other terms, the minimum standards that need to be met, however.
One should bear in mind in this respect that, as a general rule, recognition and enforcement of an award, on the one hand, and actual execution against the debtor’s assets, on the other hand, are two distinct and consecutive proceedings. The former is governed by the New York Convention in conjunction with the national procedural law of the country in which recognition is sought, while the latter is governed exclusively by the national law of the country where execution against the award debtor’s assets is pursued.
This means that award creditors should bear in mind that domestic enforcement rules and court procedures will also be applicable, in the State where they will seek to enforce an arbitral award and actually seize the assets of the liable party. While this may seem complex, this is advantageous as compared to litigation, where a court decision may not be enforceable in a foreign jurisdiction at all.
In sum, there are several different laws that may have a bearing on an international arbitration. To avoid unnecessary conflicts, it is advisable for parties to make an explicit and clear choice of the seat of arbitration, the law of which will govern the arbitration procedure (“lex arbitri”), the law governing the merits of a dispute (“lex contractus”), and ideally the law governing the arbitration agreement itself when the lex arbitri and lex contractus are different.