THE AUTHOR:
Eddy Marek Leks, Partner of Leks&Co and Arbitrator at BANI Arbitration Center
Despite different standards of arbitration clause, or no compulsory form of arbitration agreement for international commercial arbitration, there are some key choices of laws that are crucial to be considered prior to or while drafting the arbitration clause. They are the choice of law governing the arbitration agreement, the substantive law, the law of the seat, and the lex arbitri. This article will discuss on the choice of law of the arbitration agreement with divergent views examples by English and French courts.
It might be safe to assume that the choice of substantive law of the underlying agreement will be the law governing the agreement to arbitrate despite no express choice of law. In Sulamerica Cia Nacional de Seguros SA and ors v Enesa Engenharia SA and ors, the English Court of Appeal observes, “…in the absence of any indication to the contrary [no express choice of law governing arbitration agreement], the parties intended the whole of their relationship to be governed by the same system of law [substantive law of contract]”(See, Sulamerica v Enesa [2012] EWCA Civ 638). Nevertheless, since an arbitration agreement is separable from the other terms and conditions of the agreement, that separability opens the way for the possibility that such agreement is governed by a different law from the substantive law of an agreement (See, Nigel Blackaby et al., Redfern and Hunter on International Arbitration (6th edn, OUP, 2015) 159).
Another view is by looking at the law of the seat agreed by the parties. This approach has been adopted in the London Court of International Arbitration (LCIA) Arbitration Rules (2020) under 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,…” Similar to the LCIA Rules, in Sulamérica v Enesa [2012] EWCA Civ 638, the English Court of Appeal held that English law was the governing law of an arbitration agreement even though the governing law of the contract was Brazilian law and the Brazilian courts had exclusive jurisdiction. The court’s application of English law as the governing law of the arbitration agreement stemmed from the contract’s explicit provision for London-seated arbitration under the Aida Reinsurance and Insurance Arbitration Society (ARIAS) Arbitration Rules (Supra, 159). The English Court of Appeal held that the arbitration agreement was to be determined by a three-stage enquiry under common law, namely:
- when there is an express choice of law, that choice would be effective
- if there is no express choice of law, which law impliedly chosen by the parties, and
- if implication is not possible, which law with the ‘closest and most real connection’ with the arbitration agreement (Supra, 160).
The other approach referred to as the ‘third way’ by the French courts, is based on the parties’ common intention. The French courts consider that the existence and scope of the arbitration agreement are determined exclusively by reference to the discernible common intention of the parties (Supra, 161). This approach can also be seen as a consideration of supra-national law without the need to refer to any national law. In Dalico v. Khoms El Mergeb, Judgment of the French Court of Cassation (First Civil Chamber) 91-16.828, 20 December 1993, the Cour de Cassation’s considers, “…the existence and effectiveness of the arbitration agreement are to be assessed, … on the basis of the parties’ common intention, there being no need to refer to any national law.” In Unikod’s decision, the Cour d’appel de Paris found that the arbitration agreement is legally independent from the underlying contract and it is to be interpreted under the law of the seat unless a clear objective common will of the parties exists (See, Hamish Lal et al., ‘The Law of an Arbitration Agreement: Is it the Law of the Seat or the Law of the Underlying Contract? – Paris Contradicts London’ (Akingump , 29 June 2020)).
The divergent approaches of English and French courts create uncertainty for international parties intending to resolve their disputes. This uncertainty stems from the absence of clear choice-of-law provisions governing the arbitration agreements. Without explicit choices of law, courts may apply either the substantive law, the law of the seat, or other laws as indicated by the common will of the parties governing the arbitration agreement. This multiplicity of potential applicable laws undermines legal certainty in international arbitration.
Conclusion
Accordingly, learning from previous case laws, one should be sensitive when drafting the law governing an international arbitration agreement. For existing arbitration clauses, parties should consider amendments to explicitly specify the law governing the arbitration agreement. The same applies for any new and upcoming international agreement with an international arbitration as its dispute resolution. An express choice of law for an arbitration agreement is now of practical importance.
ABOUT THE AUTHOR
Dr Eddy Marek Leks, FCIArb, is the founder and managing partner of Leks&Co. He has obtained his doctorate degree in philosophy (Jurisprudence) and has been practising law for more than 15 years and is a registered arbitrator of BANI Arbitration Centre. Aside to his practice, he is also a lecturer at Universitas Atma Jaya, and author and editor of several legal books; as well as being a contributor to Lexology on Litigation. He led the contribution on the ICLG Construction and Engineering Law 2023 and ICLG International Arbitration 2024. He was requested as a legal expert on contract/commercial law and real estate law before the court.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
