A global view of the law applicable to an arbitration agreement

Bizar Male

Case law supports an approach in line with that taken by the UK Supreme Court in the case of Enka v Chubb, that first, the contract including the arbitration clause must be examined to see if there was any agreement, express or implied, by the parties as to both the proper law of contract, or the governing law of the arbitration agreement. It is only if agreement cannot be found that the implication arises from the choice of the seat, that the law of that place would be the governing law of the arbitration agreement. It is not permissible to look at the arbitration agreement in isolation and regard should be had to the surrounding circumstances including the law governing the substantive agreement. The Hong Kong courts have thus expressly rejected the use of the separability principle, according to which an arbitration agreement should be considered as a different and separate agreement.

On the other hand, more recent views from commentators from a conflict of laws perspective tell a different story. Graeme Johnston and Paul Harris SC, authors of ‘The Conflict of Laws in Hong Kong’, suggest that, based on the legitimate commercial expectation/purpose and separability principles, “if the contract contains a governing law clause and identifies a place of arbitration, then the Hong Kong court should conclude that the arbitration agreement is governed by the law of the place of the arbitration”.

These commentators consider the analysis and conclusions provided for in case law to be wrong, being based on older English law decisions handed down before the enactment of the English Arbitration Act. However, they agree that where there is no express or implied choice of governing law under the contract but the arbitration agreement – expressly or impliedly – identifies a place of arbitration, then a Hong Kong court should conclude that the arbitration agreement is governed by the law of the place of arbitration. This is the same as the decision in the Enka v Chubb case.

This approach of focusing on the seat of arbitration, rather than the main contract, it can be argued, is consistent with the separability principle and section 34(1) of the Arbitration Ordinance (Cap. 609) in Hong Kong, which adopts Article 16 of the UNCITRAL Model Law and provides that “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract”.

Although there is room for doubt given the earlier case law and the English decision in the case of Enka v Chubb which may be of some persuasion, we consider the question would rightfully be answered by applying Hong Kong conflict of laws rules, such that even where a contract contained a governing law clause, the law governing the arbitration agreement would be the law of the seat of arbitration.

China

As Beijing-based Qing Nancy Ao explains, Article 18 of the Law of the People’s Republic of China on Choice of Law for Foreign-related Civil Relationships provides that the parties concerned may choose the laws applicable to arbitral agreement by agreement. In the absence of such a choice being made, the laws at the locality of the arbitral institution or the seat of the arbitration apply.

The issue is also considered in a report published by the Supreme People’s Court entitled ‘Provisions on Several Issues concerning Trying Cases of Arbitration-Related Judicial Review’.

That report said: “Parties shall make an express declaration of will when choosing by agreement the law applicable to the recognition of the effect of an arbitration agreement, and the law applicable solely to the contract as agreed upon may not be invoked as the law applicable to the recognition of the effect of the arbitration clause of the contract (Article 13).”

It also said: “A people’s court shall, when deciding the law applicable to the recognition of the effect of a foreign-related arbitration agreement under Article 18 of the Law of the People’s Republic of China on Choice of Law for Foreign-Related Civil Relationships, invoke the law recognising the effect of the arbitration agreement, where neither party chooses an applicable law and the application of the law in the place of the arbitral institution will lead to a conclusion regarding the effect of the arbitration agreement different from that of the law in the place of arbitration (Article 14).”

South Africa

Johannesburg-based Andrew Fawcett explains how the Enka v Chubb case would have been considered in South Africa.

Under South African law the parties to an international arbitration are free to agree the law applicable to the arbitration. Where the parties to an international contract have not agreed on which law applies, the general rule of South African private international law is to distinguish between the rules of procedural law and the rules of substantive law. The procedural law of arbitration is generally governed by the law of the place of arbitration, this being the International Arbitration Act 2017 in South Africa, and the rules of substantive law by the law most closely connected with the performance of the underlying contract, such as the law of the place where the agreement was concluded or was to be carried out.

If, however, there is an express choice of law to govern the arbitration agreement, that choice will be effective, irrespective of the law applicable to the contract as a whole. If there is no choice of law for the arbitration agreement but there is an express choice of law to govern the contract as a whole, the arbitration agreement will also normally be governed by that law: this is so whether or not the seat of the arbitration is stipulated, and irrespective of the place of the seat.

In the event of there being no choice of law for the underlying contract or for the arbitration agreement, then the law applicable to the arbitration agreement will be the law of the seat of the arbitration, and the law of the underlying contract will be the law most closely connected to the performance of the underlying contract.

Article 28 of the International Arbitration Act provides that the law designated by the parties is the substantive law unless otherwise expressed and that where the parties have not designated the applicable law the arbitral tribunal shall apply the law which it considers applicable.

The South African position therefore mirrors the position in English law as set out by the UK Supreme Court in the case of Enka v Chubb.

Spain

As Madrid-based Sofia Parra, Begona Charro and Claudia Fernández López-Areal explain, the law applicable to an arbitration agreement in Spain is regulated by Article 9.6 of the Spanish Arbitration Act 60/2003.

Far from choosing a preferred set of laws, whether the law of the seat or the law applicable to the dispute, Article 9.6 of the Act applies a “most favourable criteria” approach, whereby the agreement will be valid under Spanish law as long as it complies with either: the law chosen by the parties to govern the arbitration agreement; the law applicable to the substance of the dispute, or; Spanish law.

Therefore, the test will be applied in relation to those three legal systems and, as long as the arbitration agreement is valid under one of them, it will be considered valid under Spanish law. It is an approach similar to that of Article 178 of the Swiss Arbitration Law which seeks to preserve the validity of an arbitration clause.

However, this position is without prejudice to the effect that specific statute may have on arbitration agreements in some circumstances, such as the Spanish Insolvency Act, which contemplates expressly the possibility to suspend the validity of an arbitration agreement if certain conditions are met.

Germany

According to Munich-based Dr. Martin Eimer, the UK Supreme Court decision is largely in line with the approach taken by the Federal Supreme Court in Germany.

Where the parties to a contract do not express a choice in respect of the law applicable to the arbitration agreement contained therein, it is generally assumed, by reference to the choice of law governing the contract as such, that the parties also wanted this governing law to apply to the arbitration clause.

However, contrary to the findings of the UK Supreme Court, the default in case the main contract does not contain a choice of law provision either is not that the law governing the arbitration agreement ought to be determined by the closest connection principle. It is the firm position under German law that in these circumstances the law of the seat of the arbitration is applied – with one of the reasons for this being that this aligns with the principle expressed in Article V 1.(a) and II of the New York Convention. Since, according to the UK Supreme Court, the seat of the arbitration typically has the closest connection, the difference in practice is likely to be minimal.

Qatar

As Doha-based Jonathan Collier and Joseph Lee explain, arbitrations which take place in Qatar are governed by Qatari Law No.2 of 2017 – the Qatari Arbitration Law.

In addition, for an international commercial arbitration taking place outside of Qatar where the parties agreed that the arbitral proceedings shall be subject to the Qatari Arbitration Law, for instance by way of agreeing the seat of arbitration to be Qatar, then the Qatari Arbitration Law is also applicable.

Next Post

A New Australian Law Is the Wrong Answer to Big Tech | by Owen Williams | Feb, 2021

Google and Facebook are too powerful, but monetization won’t solve the core problems Image: Denis Charlet/AFP/Getty Images The Australian government is currently on track to pass a law that would require the largest online platforms to pay local media whenever they publish material from an article on their sites, or […]