Introduction to Choice of Law Governing International Arbitration Agreements

An international arbitration agreement is presumptively separable from the underlying contract, therefore it is theoretically possible for the parties arbitration agreement to be governed by a different law than the one governing their underlying contract. It should be noted that the law applicable to the arbitration clause is not necessarily different from that applicable to the underlying contract.  By applying a law other than that governing the parties’ underlying contract, national and international tribunals have sought to safeguard international arbitration agreements against challenges to their validity based on local law, which is often idiosyncratic or discriminatory.

Different forums might apply different choice-of –law rules to international arbitration agreement and reach different results, these forums include arbitral proceedings, judicial enforcement forums (1) requested to enforce the arbitration agreement; (2)requested to annul the arbitral award ;(3) requested to recognize the arbitral award. 

The laws chosen by these forums range from the law chosen by the parties to govern their underlying contract, to the law of the arbitral seat, to the law of the judicial enforcement forum, to the law of the state with the “closest connection” or “most significant relationship.”

The existence of multiple choice-of-law rules creates unfortunate uncertainties about the substantive law applicable to arbitration agreements, as well as the risk of inconstant result in different forums. It also leads to delays and expense, resulting from the need to engage in choice-of-law debates, before both arbitral tribunals and national courts, when disputes arise concerning the formation or validity of arbitration agreements. This is inconsistent with parties’ expectations of an efficient, centralized dispute resolution mechanism in entering into international arbitration agreements. 

Moreover, different laws might apply to different issues relating to international arbitration agreements such as (a)formal validity of arbitration agreement; (b) capacity of parties to conclude arbitration agreement;(c) authority of parties’ representatives to conclude arbitration agreement;(d) formation and the existence of arbitration agreement; (e) substantive validity and legality of arbitration agreement; (f) “nonarbitrability” or “objective arbitrability”; (g) identities of the parties to an arbitration agreement; (h)effects of arbitration agreement; (i) means of enforcement of arbitration agreement; (j) interpretation of arbitration agreement; (k) termination and expiration of arbitration agreement; (l) assignment of arbitration agreement; (m) waiver of right to arbitration; and (n) interpretation of an international arbitration agreement.

For example, the law of a party’s domicile may apply to questions of capacity, while NYC applies to the questions of form, and the law selected by the parties or the law of the arbitral seat applies to the substantive validity. Likewise, the law of the place where a party commences judicial proceedings, in violation of an arbitration agreement may apply to questions of waiver, the law purporting to establish objective nonarbitrability applies to question of nonarbitrability.