Since international arbitral tribunals are not bound by any kind of lex fori, arbitrators, when faced with a challenge to the arbitration agreement, tend to apply a body of law that is somehow related to arbitration because it has been chosen by the parties to govern another aspect of their agreements. As Florian Quintard explains, the parties in Enka v. Chubb had been negligent in drafting their contract and arbitration clause: the contract did not specify its applicable law and the arbitration clause did not specify the law governed by the arbitration agreement. However, the situation may differ in circumstances where the applicable substantive law prescribed by the conflict-of-laws rules of Qatari law differs from the law of the registered office under the arbitration agreement. Although such circumstances may be limited in practice, we have not yet seen how the law governed by the arbitration agreement is determined in these circumstances. The boundary between each of the three stages of the investigation is good, and the relative importance that should be attached to the choice of the law of the underlying contract on the one hand and the choice of the seat of arbitration on the other hand is something that has been blurred in English jurisprudence. It is midnight and you are in the final stages of negotiations in a complex international transaction. It`s a safe bet that the only thing that doesn`t keep you awake is a concern about the law that governs the arbitration clauses of these contracts. After all, why is the applicable law of an arbitration clause important? Will it not be the same law as the law governed by the underlying contract? Lord Justice Moore-Bick noted that an arbitration agreement in London has no close legal connection with the legal system governing insurance policies, the purpose of which has nothing to do with that of dispute settlement. Instead, it has its closest and most real connection to the law of the place where the arbitration is to take place and which will exercise the supporting and supervisory competence necessary to ensure the effectiveness of the proceedings. In this case, the arbitration agreement had its closest and most substantial connection to English law, so English law governed the arbitration agreement. Dubai-based Mark Raymont and Melissa McLaren said the position in the UAE depended on whether arbitration was subject to “onshore” law or in the “offshore” free zones, namely the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).
Since the lex arbitri – which is generally reflected in the arbitration laws of the seat – tends to have the closest connection with arbitration, the substantive law of the seat is generally best suited to govern the arbitration agreement if the parties do not choose an agreement. This conclusion is in line with the explanatory memorandum to the Convention when drafting Article V, paragraph 1(a). However, that interpretation should depend on whether such a right is favourable to arbitration in so far as such a right, where the parties have undoubtedly agreed on arbitration, is not applied to declare it invalid and to submit the dispute to the national courts. In other words, in the absence of a choice by the parties, where the law of the registered office governs the arbitration (lex arbitri), there is a rebuttable presumption that such a right is the one governing the arbitration agreement, but this presumption is rebuttable, taking into account the principle of validation, always respecting the express intention of the parties to submit their dispute to arbitration. As Jonathan Collier and Joseph Lee of Doha explain, arbitrations held in Qatar are governed by Qatari Law No. 2 of 2017 – the Qatari Arbitration Law. If the parties to an international settlement have agreed to arbitration, the legal framework for dispute settlement may lead to the application of a number of different laws. These laws include: (1) the law governing the material rights and obligations of the parties – generally expressly chosen and set forth in an applicable legal provision; and (2) the right to conduct arbitration (also known as the Law of the Curia) – determined by the choice of seat or place of arbitration. The law governed by the arbitration agreement governs matters of formal and substantive validity, establishment, termination, interpretation, assignment and waiver of the arbitration agreement. If it is not specified, a choice of law rule is applied to find it. The complainant, Kabab-Ji S.A.L.
(Kabab), entered into a franchise development agreement (FDA) with Al Homaizi Foodstuff Company (Al Homaizi). Following a restructuring of the company, Al Homaizi became a subsidiary of the defendant Kout Food Group (Kout). The first solution that comes to mind is to extend the law applicable to the underlying contract in which the arbitration clause exists.7 This is an interpretation of the choice of the parties, provided that they have implicitly chosen the law governing their arbitration agreement. This approach can be seen in the case of Sulamerica.8 Here, the main agreement – an insurance policy – applied exclusively to Brazilian law. London was chosen as the seat of arbitration. The insurers commenced arbitration without complying with a multi-level dispute resolution clause and, as a result, the insured companies filed a lawsuit in Brazil. The insurer then obtained an injunction from the English High Court to stay the proceedings in Brazil. The insured companies appealed the injunction, arguing that under Brazilian law, the arbitration clause could not be invoked against them without their consent. This question, namely whether the arbitration clause could be invoked, should be decided by the law governed by the arbitration agreement. The English High Court first understood that in the absence of an express choice of law applicable to the arbitration agreement, the parties intended that their entire relationship would be subject to the same legal system, i.e. the choice of law applicable to the underlying agreement. However, since the tribunal concluded that Brazilian law – which governed the main agreement – would invalidate the arbitration agreement, it concluded that the parties could not have implicitly chosen Brazilian law since they had effectively accepted the arbitration.
Thus, the court applied the law with the closest connection with the arbitration agreement, which was the law of the seat. In other words, the English High Court has held that there is a rebuttable presumption that, in the absence of an express choice of law, the choice made for the underlying agreement will apply to the arbitration agreement. Of all the approaches, none is individually perfect for determining which law to apply to the arbitration agreement if the parties do not do so beforehand. However, there is a good recipe behind most of the suggestions overall. On the other hand, the recent views of commentators tell a different story from the point of view of conflicts of laws. Graeme Johnston and Paul Harris SC, authors of “The Conflict of Laws in Hong Kong”, suggest that, based on the principles of legitimate expectation/business purpose and severability, “the Hong Kong court should conclude that the arbitration agreement is subject to the law of the place of arbitration”. One way to reduce the cost of arbitration is to write carefully. Disputes over the interpretation of an arbitration agreement are surprisingly common, and their resolution – through negotiations or injunctions – is an expensive matter. .