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THE LAW APPLICABLE TO THE ARBITRATION AGREEMENT: TOWARDS TRANSNATIONAL PRINCIPLES

Published online by Cambridge University Press:  08 July 2016

Renato Nazzini
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Abstract

This article examines the problem of the law governing the validity of the arbitration agreement. The cases of Sulamérica in the English Court of Appeal and of FirstLink in the High Court of Singapore demonstrate that leading arbitration jurisdictions around the world can come to diametrically opposite results. In particular, there are currently diverging views as to whether the law applicable to the arbitration agreement should be the law chosen by the parties to govern their substantive legal relationship or the law of the seat of the arbitration. The issue is unlikely to be settled soon at international level. However, without embracing extreme approaches that purport to determine the validity of the arbitration agreement without reference to any national legal system, a more ‘transnational’ approach should be encouraged. This may emerge, based on three structured principles which would be desirable for international convergence, namely the non-discrimination principle, the estoppel principle and the validation principle. These principles can be developed without conflicting with the conventional conflicts-of-laws approach which was adopted by the English Court of Appeal in Sulamérica.

Keywords

applicable lawarbitration agreementcomparative lawconflicts of lawstransnational approach
Type
Articles
Information
International & Comparative Law Quarterly , Volume 65 , Issue 3 , July 2016 , pp. 681 - 703
Copyright
Copyright © British Institute of International and Comparative Law 2016 

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References

1 The problem may arise in several procedural contexts: see L Collins, ‘The Law Governing the Agreement and Procedure in International Arbitration in England’ in J Lew (ed), Contemporary Problems in International Arbitration (Martinus Nijhoff 1987) 127. Furthermore, different laws may govern these different aspects of the arbitration agreement. For a useful explanation of the various nuances see KP Berger, ‘Re-examining the Arbitration Agreement: Applicable Law – Consensus or Confusion?’ in AJ van den Berg (ed), International Arbitration 2006: Back to Basics? ICCA Congress Series No 13 (Montreal 2006) (Kluwer Law International 2007) 301, 303–6.

2 For the purposes of this article, it is proposed to give the adjective ‘transnational’ the widest possible (negative) meaning of anything that is different from the application of national rules applicable to domestic arbitration. The term ‘transnational’ is probably more correct than the widely used ‘international’ because the so-called ‘international’ arbitration is, in fact, an arbitration that transcends the boundaries of one given national legal system but is still governed by a set of national laws.

3 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664, 682, [1993] AC 334, 357–358.

4 P Bernardini, ‘Arbitration Clause: Achieving Effectiveness in the Law Applicable to the Arbitration Clause’ in A van den Berg (ed) Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, ICCA Congress Series No 9 (Paris 1998) (Kluwer Law International 1999) 197.

5 According to some commentators, for example, the nature of the arbitration agreement is both substantive and procedural, which is rather unhelpful as a guide to determining the law applicable to the agreement itself: see Bernardini (n 4) 199–200 and J Lew, ‘The Law Applicable to the Form and Substance of the Arbitration Clause’ in van den Berg (n 4) 114, 117.

6 Fiona Trust v Privalov [2007] UKHL 40, para 17; Hecht v Busiman's 4 July 1972, 99 Journal du Droit International (1972) 843 (French Supreme Court); Prima Paint Corp v Flood & Conklin Mfg Co 388 US (1967) 395, 403–404.

7 JF Poudret and S Besson, Comparative Law of International Arbitration (Sweet & Maxwell 2002) 258; J Lew, L Mistelis and S Kröll, Comparative International Arbitration (Kluwer Law International 2003) 106.

8 Hussman (Europe) Ltd v Al Almeen Development and Trade Co [2000] 2 Lloyd's Rep 83, para 1.

9 Derains, Y, ‘ICC Arbitral Process: Part VIII. Choice of Law Applicable to the Contract and International Arbitration’ (1995) 6(1) ICC International Court of Arbitration Bulletin 10, 16–17Google Scholar.

10 Similar wording is used in the European Convention on International Commercial Arbitration 1961, art VI(2).

11 Spanish Arbitration Act 2003, art 9(6), which follows Swiss law verbatim; Algerian Code of Civil Procedure, art 458 bis 1(3); Swedish Arbitration Act 1999, art 48.

12 See eg the Indian Supreme Court judgment in M/S Dozco India P Ltd v M/S Doosan Infracore Co [2010] INSC 839, paras 12–13; Thyssen Canada Ltd v Mariana Maritima SA [2000] 3 FC 398, para 22 (Canada, CA); Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192 (Australian Fed Ct).

13 Final Award in ICC Case No 6162 in (1992) 17 YBCA 153, 160–2; ICC Case No 8384 in KP Berger, The Practice of Transnational Law (Kluwer Law International 2002) 228; ICC Case No 8502, 1996, 10(2) ICC Bulletin 72; Final Award in ICC Case No 1507 in S Jarvin and Y Derains (eds), Collection of ICC Arbitral Awards 1974–1985 (Kluwer Law International 1990) 216.

14 As will be explained later, English courts apply common law rules when determining the law applicable to the arbitration agreement other than under art V(1)(a) of the New York Convention, which is given effect in English law by section 103(2)(b) of the Arbitration Act 1996. However, some national courts apply the conflict of laws rule under art V(1)(a) of the Convention also at pre-enforcement stages: see eg Della Sanara Kustvaart – Bevrachting & Overslagbedrijf BV v Fallimento Cap. Giovanni Coppola srl, in liquidation, Corte di Appello [Court of Appeal], Genoa, Not Indicated, 3 February 1990 (1992) 17 YBCA 542–4 and Insurance Company v Reinsurance Company, Tribunal Fédéral [Swiss Supreme Court], Not Indicated, 21 March 1995 (1997) 22 YBCA 800–6.

15 See eg Consortium member A v Consortium member B (Switzerland), Polimeles Protodikio [Court of First Instance, Multi-Judge Panel], Rodopi, Decision no 84 of 2005 (2008) 33 YBCA 552–4.

16 Lord Collins of Mapesbury and others (eds), Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet and Maxwell 2012) Rule 64, para 16R-001.

17 Abuja International Hotels Ltd v Meridien SAS [2012] EWHC 87 (Comm), [2012] 1 Lloyd's Rep 461; C v D [2007] EWCA Civ 1282, obiter, applying the closest connection test to a London arbitration clause in a contract that was expressly governed by New York law; and XL Insurance Ltd v Owens Corning [2001] 1 All ER (Comm) 530.

18 In line with previous authorities leaning towards the extension of the choice of the law of the matrix contract to the arbitration clause: Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd, paras 357–358; Sumitomo Heavy Industries v Oil and Natural Gas Commission [1994] 1 Lloyd's Rep 45; Sonatrach Petroleum Corp v Ferrell International Ltd [2002] 1 All ER (Comm) 627. English law is by no means alone in adopting this approach, for example see the Indian case of National Thermal Power Corporation v The Singer Company, and Others, Supreme Court, 1978, 7 May 1992 (1993) 18 YBCA 403–14; Eitzen Bulk A/S v Ashapura Minechem Limited AIR 2011 Guj 13 and Aastha Broadcasting Network Limited v Thaicom Public Company Ltd [2011]; Enercon India v Enercon GMBH [Civ App 2086/7 of 2014] (India). See also ICC Case No 2626 (1977) in S Jarvin and Y Derains (eds), Collection of ICC Arbitral Awards, Vol I (1974–1985) (Kluwer Law International 1994) 316; ICC Case No 6379 (1992) 17 YBCA 211–20; ICC Case No 6752 (1993) 18 YBCA 54–7.

19 Sulamérica CIA Nacional de Seguros SA and others v Enesa Engenharia SA and others [2013] 1 WLR 102, paras 1–6, 9 (Moore-Bick LJ).

20 ibid, para 9 (Moore-Bick LJ).

21 ibid, para 26.

22 ibid, paras 29–31.

23 ibid, para 30.

24 ibid, para 32.

25 ibid, para 59.

26 Trukhtanov, A, ‘The Proper Law of Arbitration Agreement – a Farewell to Implied Choice?’ (2012) 15 International Arbitration Law Review 140Google Scholar.

27 Charles, P, ‘The proper law of the arbitration agreement’ (2014) 80 Arbitration 55, 59–60Google Scholar.

28 Arsanovia Ltd & others v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), [2013] 2 All ER (Comm) 1 (QB).

29 ibid, paras 21–23.

30 Bernardini (n 4) 200; Poudret and Besson (n 7) 258.

31 Bernardini (n 4) 201.

32 ibid, 200. See generally KP Berger (n 1) 301–34. On the importance of the seat in international arbitration and the problems relating to the determination of the seat, see Hill, J, ‘Determining the Seat of an International Arbitration: Party Autonomy and the Interpretation of Arbitration Agreements’ (2014) 63 ICLQ 517CrossRefGoogle Scholar.

33 Prior to the Arbitration Act 1996, it was considered rare for the proper law of arbitration agreement to differ from the express choice of substantive law. See Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd; Sumitomo Heavy Industries Ltd v Oil and Natural Gas Commission, 57 (Potter J); Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd's Rep 446, 455. Following the Arbitration Act, see XL Insurance Ltd v Owens Corning; C v D; Shashoua and others v Sharma [2009] EWHC 957 (Comm); Abuja Hotels Ltd v Meridien SAS.

34 XL Insurance Ltd v Owens Corning.

35 Citing Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd; XL Insurance Ltd v Owens Corning, 507–508.

36 C v D.

37 ibid, para 22.

38 ibid, para 29.

39 ibid, para 28.

40 This approach was cited with approval in Abuja Hotels v Meridien SAS, para 21.

41 Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] EWHC 4071 (Comm).

42 ibid, paras 101–103.

43 Sulamérica, paras 29 and 32.

44 FirstLink Investments Corp Ltd v GT Payment Pte Ltd [2014] SGHCR 12.

45 ibid, para 13.

46 ibid.

47 ibid, para 14.

48 ibid.

49 ibid, para 15.

50 See Matermaco SA v PPM Cranes Inc, Legris Industries SA, Tribunal de Commerce [Court of First Instance] (2000) 25 YBCA 641–1164 (Belgium); Owerri Commercial Inc v Dielle Srl, Gerechtshof [Court of Appeal] The Hague, Not Indicated, 4 August 1993 (1994) 19 YBCA 703–7 and Petrasol BV v Stolt Spur Inc, Arrondissementsrechtbank [Court of First Instance] (1997) 22 YBCA 762–5 (Netherlands); Bulgarian Foreign Trade Bank Ltd v AI Trade Finance Inc, Swedish Supreme Court, T 1881–99, 27 October 2000 (2001) 26 YBCA 291–8 (Sweden); Insurance Company v Reinsurance Company, Tribunal Fédéral [Supreme Court], Not Indicated, 21 March 1995 (1997) 22 YBCA 800–6 (Switzerland); Government of the Republic of the Philippines v Philippine International Air Co [2007] 1 SLR 278 (Singapore).

51 Bernardini (n 4) 200.

52 E Gaillard and J Savage, Fouchard Gaillard Goldman on International Commercial Arbitration (Kluwer Law International 1999) 226–7; Berger (n 1) 321.

53 This is the approach adopted in England and Wales: International Tank and Pipe SAK v Kuwait Aviation Fuelling Co KSC [1975] QB 224; Mitsubishi Corporation v Castletown Navigation Ltd, The Castle Alpha [1989] 2 Lloyd's Rep 383.

54 Indeed, this is now expressly provided for in section 46(1)(b) of the Arbitration Act 1996. See also art 1496 of French Code of Civil Procedure, art 187(1) of the Swiss Federal Law on private international law and art 28 of the UNCITRAL Model Law. The International Law Association (ILA) expressly accepted such a choice in their 1992 Cairo Conference. ICC Case No 8502; Y Derains, The ICC Arbitral Process Part VIII: Choice of the Law Applicable to the Contract and International Arbitration (1995) 6 ICC International Court of Arbitration Bulletin 10, 14.

55 Deutsche Schachtbau-und Tiefbohrgesellschaft v Ras Al-Khaimah National Oil Co [1987] 3 WLR 1023.

56 ibid, 1035. The judgment was subsequently reversed by the House of Lords in DST v Rakoil [1988] 3 WLR 230, however the choice of transnational principles to govern the substantive dispute was still accepted.

57 Sulamérica case, para 9.

58 Halpern v Halpern [2006] 2 Lloyd's Rep 83.

59 ibid, para 52. This judgment was appealed successfully, however the Court of Appeal did not address this point in Halpern v Halpern [2007] EWCA Civ 291.

60 Halpern v Halpern [2006] 2 Lloyd's Rep 83, para 51. This view was restated with approval in Musawi v RE International (UK) Ltd [2008] 1 All ER (Comm) 607, para 19.

61 Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v Société Dalico, 1994 Rev arb 116, 117 (French Cour de cassation civ 1e).

62 Judgment of 8 July 2009, Société d’études et représentations navales et industrielles v Société Air Sea Broker Ltd, 2009 Rev arb 529 (French Cour de Cassation civ 1e); Judgment of 30 March 2004, Société Uni-Kod v Société Ouralkali, 2005 Rev arb 959 (French Cour de Cassation civ 1e); Judgment of 21 May 1997, Renault v V 2000, 1997 Rev arb 537 (French Cour de Cassation civ 1e); Judgment of 25 November 1999, SA Burkinabe des ciments et matériaux v Société des ciments d'Abidjan, 2001 Rev arb 165 (Paris Cour d'appel); Société d’études et representations navales et industrielles v Société Air Sea Broker Ltd, 2009 Rev arb 529 (French Cour de Cassation civ 1e); Judgment of 7 April 2011, 2011 Rev arb 747, 750 (Cour d'appel Paris).

63 P Lalive, ‘Transnational (or Truly International) Public Policy and International Arbitration’ in P Sanders (ed), Comparative Arbitration Practice and Public Policy in Arbitration (Kluwer 1987) 257, 278.

64 The Dow Chemical Company v ISOVER Saint Gobain, Interim Award, ICC Case No 4131, 23 September 1982 (1984) 9 YBCA 131.

65 ibid, 136

66 Dow Chemical France v ISOVER Saint Gobain, 21 October 1983, 110 (Cour d'appel Paris) Journal du droit international (Clunet) 899 (1983).

67 Blessing, M, ‘Choice of Substantive Law in International Arbitration’ (1997) 14 Journal of International Arbitration 39, 40–1Google Scholar.

68 Wortmann, B, ‘Choice of Law by Arbitrators: The Applicable Conflict of Laws System’ (1998) 14 Arbitration International 97, 101–2CrossRefGoogle Scholar.

69 Dow Chemical case, 131–137.

70 ICC Case No 3131, award of 26 October 1979 (1984) 9 YBCA 109 and ICC Case No 5103 in S Jarvin, Y Derains and JJ Arnaldez (eds), Collection of ICC Arbitral Awards, Vol II (1986–1990) (Kluwer Law International 1995) 361.

71 KIS France SA v SA Société Générale 31 October 1989, 1992 Rev arb 90 (Cour d'appel Paris); Société Korsnas Marma v Société Durand-Auzias 30 November 1988 (Cour d'appel Paris) and Société Ofer Brothers v The Tokyo Marine and Fire Insurance Co Ltd et autres 14 February 1989, 1989 Rev arb 691 (Cour d'appel Paris).

72 Peterson farms Inc v C&M Farming Ltd [2004] 1 Lloyd's Rep 603.

73 German Federal Supreme Court dated 8 May 2014 (Case Reference No III ZR 371/12).

74 Ledee v Ceramiche Ragno 684 F2d 184 (1st Cir 1982), 187.

75 ibid.

76 Rhone Mediterranee v Achille Lauro, 444 F Supp 481 (DVI 1982), 712 F2d 50 (3d Cir 1983).

77 ibid, para 19.

78 International Paper Co v Schwabedissen Maschinen & Anlagen GmbH, 206 F 3d 411, 417 n 4 (4th Cir 2000).

79 G Born, International Commercial Arbitration (2nd edn, Kluwer Law International 2014) 552–9.

80 Cremades, BM, ‘Good Faith in International Arbitration’ (2013) 27 AmUIntlRev 761Google Scholar.

81 Scherk v Alberto-Culver Co, 417 US 506, 519, 94 S Ct 2449, 2457, 41 L Ed 2d 270 (1974) (emphasis added).

82 In Re Chromalloy Aeroservices and the Arab Republic of Egypt, 939 F Supp 906 (DC Cir 1996)

83 Termo Rio SAESP v Electranta SP 06–7058, 2007 WL 1515069 (DC Cir 25 May 2007)

84 Baker Marine Ltd v Chevron Ltd (1999) 14(8) Mealey's International Arbitration Report D-1–D-2.

85 Corporación Mexicana de Mantenimiento Integral, S De RL de CV v Pemex-Exploración y Producción, No 10 Civ 206 (AKH), 2013 WL 4517225, (SDNY 27 August 2013).

86 Ministry of Public Works v Société Bec Fréres (Cour d'Appel de Paris) (1997) 22 YBCA 682, 686.

87 See extensively Born (n 79) 541–8 and Berger (n 1) 312–13.

88 Award in ICC Case No 11869 (2011) 36 YBCA 47, 57; see also J Lew, ‘The Law Applicable to the Form and Substance of the Arbitration Clause’ in van den Berg (n 4) 114, 139–40.

89 Rhone Mediterranee v Achille Lauro, para 21.

90 Judgment of 2 August 2008 (Austrian Oberster Gerichtshof) (2009) 34 YBCA 404, 405.

91 Pearson, S, ‘Sulamérica v Enesa: The Hidden Pro-validation Approach Adopted by the English Courts with Respect to the Proper Law of the Arbitration Agreement’ (2013) 29 Arbitration International 115CrossRefGoogle Scholar.

92 Fiona Trust v Privalov, paras 29–33.