The Governing Law of the Arbitration Agreement

Introduction

In the realm of commercial arbitration law and practice there seem to be primarily five legal frameworks that play a significant role, in shaping the arbitration process and its results. These include; (a) The law applicable to the contract; (b) law that the arbitration agreement is governed; (c) law which will be governed the procedure of arbitral proceeding; (d) The law governing the competence of parties to enter into an arbitration agreement; and (e) The law of the country where enforcement of the arbitral award is sought(1). Finally, it is usually suggested that the first three laws are articulated in simple language so that continuation with the other two laws may be easy.

But then actual problem arises where the parties to a contract have not specified any of the either of the first three laws clearly, then the courts and tribunals all over the world have to refer to previous judgment or attempt to infer the law through certain doctrines

The ultimate and perhaps contentious conclusion reached by courts and tribunals is as follows; (a) the arbitration agreement is governed by the law controlling the principal contract. (b) the law of the seat of the arbitral tribunal governs the arbitration agreement.

Analysing of New York Convention by different Judges

Judges have pointed out article V(1)(a) of New York Convention as the provision that applies in the determination of the law that should govern the arbitration clause. Article V(1)(a) of the said convention provides that recognition or enforcement of an award may be refused if “the arbitration” agreement “is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”(2).It can be said that there are two limbs to identifying the applicable law governing the arbitration agreement are as follows-: (i) the law that the parties have agreed to and (ii) the law of the seat if there is no such agreement.

Questions that arise, that are considered debatable

Still, as straightforward as this may seem, various professionals have reached opposite conclusions on the matter of what constitutes agreement on the governing law of an arbitration agreement. For instance, does it involve express and implied ones? In that case while the parties have opted on the governing law of the main contract or the seat of arbitration should it mean that the parties have agreed that the governing law of the main contract or the lex arbitri of the be the governing law of the arbitration agreement? Or are other factors necessary for such an implicit agreement to be formed? Such questions sometimes remain unanswered.

(Lex arbitri means law chosen by the parties to govern arbitral procedure, or the procedural law governing the conduct of the arbitration. It is also known as the curial law)

Landmark Cases which tried to solve the Problem

In the Enka v Chubb(3) and Kabab JI Kabab JI SAL v Kout Food Group(4) the UK Supreme Court supported the principle that if parties, to a contract haven't specified the law in an arbitration clause the contracts law typically governs the arbitration agreement. The French courts have consistently ruled in cases before (as seen in Kabab Ji) stating that simply agreeing on the governing law of the main contract does not automatically mean agreement, on the governing law of the arbitration agreement as well. According to their stance far.

Lex arbitri should be considered as the governing law of the arbitration agreement; however, this judgment isn't always accurate. In essence; various courts have their approach when deciding on a case.

Problems in India and How Indian Courts analysis’s it

In India there was a similar problem that arose but in a different manner. According to Indian Courts the contract is seen as a whole and the law chosen by the parties to the contract makes it an implied choice of the parties. Which eventually means Law of the seat eventually becomes the law of the arbitration agreement.

The Indian courts and in case of Bhatia International v. Bulk Trading SA (5), saw the closest connection that the contract has. The judgement of the case was more Seat-centric and not Contract-Centric. It also laid down that Part 1 of Arbitration and Conciliation Act (A&C Act) applies to international commercial arbitrations conducted in India, unless the parties agree to exclude it. Then comes Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc, in (6)which the courts actually considered the New-York Convention and overruled the Bhatia Case by stating that law depends upon the contract and not on seat. This judgement has been refereed in all such disputes till then.

But the governing law of the arbitration agreement still remains a debatable topic both in India and World-Wide.

References

1) Redfern and Hunter, Law and Practice of International Commercial Arbitration, 4ed., 2004(The Laws Governing an Arbitration | Singapore International Arbitration Blog)

2) https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=730&opac_view=-1

3) Enka v. Chubb UKSC 38

4) Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48

5) Bhatia International vs Bulk Trading S. A. & Anr (2002) 4 SCC 105

6) Bharat Aluminium Company Limited. v. Kaiser Technical Service, Inc (2012) 9 SCC 552