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YSIAC Lunchtime Talk with Gary Born: Choice of Law Issues in International Arbitration


7 March 2019
YSIAC Lunchtime Talk with Gary Born: Choice of Law Issues in International Arbitration
By Jill Ann Koh, Senior Associate, WongPartnership LLP


The YSIAC hosted a lunchtime talk with Mr Gary Born on 7 March 2019 at WongPartnership LLP. The talk was met with an overwhelming response of 350 registrants within just one week, which led Mr Born to express his surprise at the number of “international arbitration geeks” willing to spend lunch discussing the topic at hand – Choice of Law Issues in International Arbitration.

Over the course of an hour, Mr Born discussed the following three categories of choice of law issues.

Law governing international arbitration agreements

The first category arises primarily from the oft-cited presumption of separability, which recognises the arbitration agreement as an autonomous, independent agreement. A consequence of this presumption is the possibility that a different law, and thus a different choice of law analysis, can be applied to the arbitration agreement from that of the underlying contract.

In searching for the applicable choice of law rule, the rules governing the refusal of recognition or enforcement of an arbitral award in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention) and the UNCITRAL Model Law on International Commercial Arbitration (1985, with amendments as adopted in 2006) (Model Law) provide some guidance. These state that an award may be denied recognition or enforcement if the agreement on which the award is based is not valid according to the parties’ chosen law, or failing any indication of this, the law of the country where the award was made. At first glance, this prescribes a seemingly sensible two-stage approach that, in the first stage, gives effect to party autonomy, and in the second stage, applies by default the law of the seat.

Problems can however arise from this.

First, a question arises as to whether a choice of law rule which is to apply at the end of the arbitral process (at the recognition and enforcement stage) can be interpreted to also apply at the start of the arbitral process.

The authorities are divided on this – half take the view that the strict wording of the New York Convention and Model Law does not permit this, and parties should be free to apply any choice of law rule at the beginning of the process. The other half adopt the opposite view that the same choice of law rule should apply at both ends of the arbitral process, as it would otherwise be incongruous that an arbitration agreement can be valid in some circumstances but not others.

The second problem arises from the reality that parties very often do not select a law specifically applicable to the arbitration agreement. Should the general choice of law clause in the underlying contract be interpreted to also extend to parties’ arbitration agreement? Again, the authorities diverge, with half taking the position, quite pragmatically, that the general choice of law clause should also apply to the arbitration agreement, since the separability doctrine would be unheard of to most businessmen.

Mr Born proffered his view of the best approach to take: that of the Swiss courts and legislature in applying a validation principle. This provides that an international arbitration agreement will be valid provided it is valid under either the law applicable to the underlying contract or the law of the seat. Such an approach selects and applies the law which will give effect to the arbitration agreement, which, as Mr Born opined, best comports with parties’ true intention that the arbitration agreement will be a valid and effective means of resolving their dispute.

Law governing the merits of the parties’ dispute

In choosing the law applicable to the substance of the parties’ dispute, Mr Born referred to Article 28 of the Model Law, which provides for a tribunal to apply either the rule of law chosen by the parties (Article 28(1)) or, absent an explicit or implicit choice by the parties, the law chosen by the tribunal (Article 28(2)).

Several observations were made. First, in referring to parties’ choice of a “rule of law” in Article 28(1) as distinguished from the “law” selected by the tribunal in Article 28(2), it is clear that the first limb of Article 28 permits parties to select other non-national rules of law, such as the UNIDROIT principles.

Second, Article 28(2) specifies that the tribunal must conduct a choice of law analysis, and it cannot simply directly apply a national law. Mr Born voiced his support for this approach, as choice of law rules do provide predictability and structure to parties’ relationship.


2 E6239B87-AAEB-49CF-9916-12E9924B7BEA
Members of the audience

Left to Right: Wendy Lin, Lim Seok Hui, Gary Born and Andre Maniam, SC

Law governing the arbitral process

In contrast, issues relating to the procedural law are much simpler.

While the majority of cases apply the law of the seat as the procedural law of the arbitration, a rare few apply some other law where parties (who are in principle free to do so) have made such a choice.

Mr Born emphasised that as the procedural law governs not just the conduct of the arbitral proceedings but also the relationship between the arbitration and national courts, the selection of a foreign procedural law raises questions about practical application and enforceability, making this, in his view, a terrible choice. Courts have therefore repeatedly strived to reach an interpretation that parties did not intend to select a foreign procedural law.

Conclusion

It appears that a dominant theme in choice of law issues is the tussle between respecting party autonomy and requiring predictability in a structured set of rules. From the Singapore perspective, the Singapore courts’ approach in stipulating a presumption that the substantive law of the contract shall be taken as parties’ implied choice of the law governing the arbitration agreement, which presumption can be rebutted if the substantive law would invalidate the arbitration agreement, is arguably a structured approach to the choice of law governing the arbitration agreement which bears resemblance to the validation principle, and which also gives primacy to party autonomy.

Given the very diverse approaches across the board, it will be interesting to see how tribunals and national courts will continue to develop these issues, and whether the validation principle – with Mr Born as a proponent – will be shown increasing favour.

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