THE LAW GOVERNING THE ARBITRATION PROCEEDINGS

THE LAW GOVERNING THE ARBITRATION PROCEEDINGS

The issue of choosing the law governing the arbitration proceedings depends on the fact whether the arbitration agreement refers a matter to the permanent arbitration institution or to the ad hoc arbitration.

Basically, if the matter is referred to permanent arbitral institution, proceedings are held in accordance with the rules of said institution. For example, if the dispute is referred to ICC International Court of Arbitration, the proceeding is governed by their rules.

In ad hoc tribunals, the law governing the arbitration proceedings is determined from the seat of arbitration, meaning that the governing law in this case is the law of the seat of arbitration. If the parties have not designated the seat of arbitration, the proceedings are governed by the express choice of law of the merits of the dispute.

THE LAW GOVERNING THE MERITS OF THE DISPUTE

Arbitration tribunals are required to apply the choice of law rules of the seat of arbitration. Many countries have foreign arbitration laws that include a statutory provision setting out special choice of law principles to be applied by arbitration tribunals. This provision was introduced, for example, into English law by the Arbitration Act 1996. Previous to this English arbitrators were bound to apply the choice of law rules which were binding on the English courts only.

The choice of law rules of the Arbitration Act 1996 deal with three types of situations: situations in which the parties make a choice of law, situations in which the parties choose ´other considerations` instead of making a traditional choice of law and situations in which the parties fail to make a choice of law.

Choice of law

This principal means that the arbitration tribunal will decide the dispute submitted to it according to the law which the parties have chosen as applicable governing the dispute. In other words, if the parties choose a specific law to govern their contract, the arbitration tribunal is obligated to comply with the decision (express choice of law clause).

Choice of other considerations

Instead of making an express choice of law the parties may agree that the contract is governed by principles common to the laws of both parties, or they also may agree when making a choice of law clause that the contract is governed by principles common to the laws of some other country as well as public international law. The Arbitration Act also allows the parties to make a choice of law clause stipulating that the contract will be governed by internationally accepted principles of law governing contractual relations (also referred to as lex mercatoria), an non-national corpus of rules, such as the UNIDROIT Principles of International Commercial Contracts, and finally, it is also permitted to choose a religious law to govern the contract, such as Jewish law or Sharia law. Under the Arbitration Act it is also possible, if the parties so wish, for the arbitration tribunal to apply to the dispute the principle of equity or fairness instead of strict rules of law.

Absence of choice

If the parties have not made a choice of law, it is up to the arbitration tribunal to decide the proper choice of law applicable to the particular dispute, and this law is determined on the basis of the conflict of rules the tribunal considers applicable. In these situations it is possible, for example, to apply the choice of law rules contained in the Rome Convention on the Law Applicable to Contractual Obligations.

In other words, where the parties have not made a choice of law, the arbitration tribunal will decide what the applicable law is. There is, however, a traditional choice of law methodology to be followed despite the considerable freedom the arbitration tribunals can exercise in choosing the applicable law. According to the traditional choice of law methodology the arbitration tribunal must first decide what choice of law rules are applicable, and then apply those rules to identify the law of a country as the applicable law. The European Convention on International Commercial Arbitration (entered into force in 1964) provides also that where the arbitrators choose the applicable law they shall take into account of the terms of the contract and trade usages while doing so (Article VII – Applicable Law).