Ch 3 Application Laws Redfern Intl Arbitration

[Audio] Document information Publication Redfern and Hunter on International Arbitration (Seventh Edition) Bibliographic reference '3. Applicable Laws', in Nigel Blackaby , Constantine Partasides , et al., Redfern and Hunter on International Arbitration (Seventh Edition), 7th edition (© Kluwer Law International; Oxford University Press 2023) KluwerArbitration 3. Applicable Laws A. Overview (a) Introduction 3.01 Many disputes that are referred to arbitration are determined by arbitral tribunals with no more than a passing reference to the law. They turn on matters of fact: what was said and what was not said; what was promised and what was not promised; what was done and what was not done. 3.02 It would be wrong to deduce from this, however, that international arbitration exists in a legal vacuum. Billions of contracts—most of them made orally, rather than in writing —are made every day throughout the world. They may be as simple as the purchase of a bus ticket or the hire of a taxi, or they may be as complex as the purchase of a company with financing. Most are made, performed—and forgotten. Yet law governs each of these situations. The apparent simplicity of the purchase of a bus ticket or the hire of a taxi is deceptive. They are transactions that involve a contractual relationship and such relationships are underpinned by complex rules of law. These rules may not be referred to expressly, but they exist nonetheless: It is often said that the parties to a contract make their own law, and it is, of course, true that, subject to the rules of public policy and ordre public, the parties are free to agree upon such terms as they may choose. Nevertheless, agreements that are intended to have a legal operation (as opposed to a merely social operation) create legal rights and duties, and legal rights and duties cannot exist in a vacuum but must have a place within a legal system which is available for dealing with such questions as the validity, application and interpretation of contracts, and, generally, for supplementing their express provisions. 3.03 Like a contract, an arbitration does not exist in a legal vacuum. It is regulated, first, by any specific rules of procedure that have been agreed or adopted by the parties and the arbitral tribunal; secondly, it is regulated by the law of the place of arbitration. It is important to recognise at the outset (as even distinguished judges and commentators sometimes fail to do)—that this dualism exists. 3.04 For the most part, modern laws of arbitration are content to leave parties and arbitrators free to decide upon their own specific rules of procedure, so long as the parties are treated equally. Under these modern laws, it is accepted that the courts of law should be slow to intervene in an arbitration, if they intervene at all. Nevertheless, those rules need the sanction of law if they are to be effective and, in this context, the relevant law is the law of the place or seat of the arbitration. This is referred to as the lex arbitri. This is an important—and frequently misunderstood—topic, to which it will be necessary to return later in this chapter. (1) (2) (b) A complex interaction of laws 3.05 International arbitration, unlike its domestic counterpart, usually involves more than one system of law or of legal rules. Indeed, it is possible, without undue sophistication, to identify at least five different systems of law that, in practice, may have a bearing on an international arbitration: i. the law governing the arbitration agreement and the validity, scope, and enforcement of that agreement; ii. the law governing the existence and the proceedings of the arbitral tribunal (the lex arbitri or, as it is sometimes called, the curial law); iii. the law, or the relevant legal rules, governing the substantive issues in dispute (generally described as the 'applicable law', the 'governing law', the substantive law', or 'the proper law of the contract'); iv. other applicable rules and non-binding guidelines and recommendations; and v. the law governing recognition and enforcement of the award (which may, in practice, prove to be not one law, but two or more systems of law, if recognition and enforcement is sought in more than one country in which the losing party has, or is thought to have, assets). 3.06 This chapter deals with: the law governing the agreement to arbitrate; the law governing the arbitration itself (the lex arbitri); the law governing the substantive matters in dispute (the substantive law); the law or rules governing conflicts of law; and certain non-national guidelines and rules that are increasingly relied upon in international arbitration. Another relevant law, the law governing the parties' capacity to enter into an (3) (4) 1 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] arbitration agreement has been dealt with in Chapter 2, and issues relating to the laws governing the arbitral award (including challenge, recognition, and enforcement) are dealt with in Chapters 10 and 11. B. Law Governing the Agreement to Arbitrate (a) Introduction 3.07 An appropriate place to start is the law governing the parties' agreement to arbitrate. The chosen law is important, because it establishes the rules and norms that will determine any dispute over the validity, scope, or interpretation of that agreement. The following examples will illustrate this. i. The law of the arbitration agreement will be relevant if there is a dispute over whether the tribunal's jurisdiction extends to a particular issue. For example, under English law, tort claims related to contractual performance will generally fall within the scope of an arbitration agreement drafted appropriately, whereas under Russian law they may not. ii. The law of the arbitration agreement will be relevant to determining whether the arbitration agreement extends to third parties, such as the parent company of one of the parties. iii. The law of the arbitration agreement will determine the validity of the arbitration agreement. Some national laws may invalidate an arbitration agreement, in circumstances where others would find the same arbitration agreement to be enforceable. iv. The law of the arbitration agreement may also be relevant to deciding the applicable method of dispute resolution, where the parties' choice is not clearly set out, or where multiple methods are proposed in one arbitration agreement. An agreement to arbitrate, as discussed in Chapter 2, may be set out in a purpose-made submission agreement or—as is the case much more frequently—in an arbitration clause. Both submission agreements and arbitration clauses have been considered in detail in the previous chapter. 3.08 As to the law governing arbitration agreements, it might readily be assumed that this is the same law as that which the parties chose to govern the substantive issues in dispute—that is to say, the law governing the broader contractual relationship between the parties. Commercial parties may be less familiar with the possibility that multiple laws can cover different aspects of the same contract, and so might reasonably be taken to have assumed that one law governs all the contractual terms, including the agreement to arbitrate. 3.09 However, given the well-established principle of the separability and autonomy of an arbitration agreement, it is by no means certain that the parties intended that agreement to be treated just like any other agreement in the contract. Indeed, it is precisely the separability of an arbitration agreement that gives credence to the possibility, at least in principle, that the law governing the contract as a whole and the law governing the arbitration agreement might differ. 3.10 Given the potential that exists for parties to argue, as a preliminary issue, about which law applies to an arbitration agreement, the best course of action is for parties who are entering into an arbitration agreement to make clear what law is to apply to that agreement. This can easily be done, for example by stating the chosen law in the arbitration clause itself. So long as the choice of law is not contrary to public policy, parties are free to choose the law which is to govern their commercial relationship and the law that is to govern their agreement to arbitrate, which may (if they wish) be a different law. However, if there is no express choice of law (a situation that arises more frequently than not ), and it becomes necessary to determine the law applicable to the agreement to arbitrate, the question that then arises is: how is a court or an arbitral tribunal to identify the relevant law? 3.11 This is really two questions, because the answer may differ according to whether it is a court or tribunal that has to make the decision. If it is a national court, that court will be expected to decide the question in accordance with its own rules of private international law, which will usually contain binding rules to deal with the choice of law in cases involving a foreign element, and will search for a solution in accordance with those rules. However, if the question is posed to an international arbitral tribunal, the answer is less easy. As will be seen later in this chapter, it is often said that such a tribunal is not bound by any formal 'conflict of law' rules and is free to apply the law that it considers to be appropriate. (5) (b) The applicable choice of law rules 3.12 In deciding what law governs or is likely to govern an agreement to arbitrate, a good starting point is the New York Convention of 1958. Article V(1)(a) does not deal directly with the point, but states that if there is a plea before a national court to the effect that an arbitration agreement is invalid, it must be shown that it was invalid 'under the law to which the parties have subjected it or, failing any indication thereon, under the law of the 2 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] country where the award was made'. What this means, in effect, is that a national court should look first to the parties' express agreement; and if there is no agreement should apply the law of the seat, being the law of the country where the award was made. (While Article V(1)(a) applies specifically in the context of annulment or enforcement of awards, it would, arguably, be illogical to assume that different laws could apply to the validity of a particular award, depending on the timing of the analysis. ) 3.13 Given the wide acceptance of the New York Convention, we might expect to see conformity in the approach taken by courts in different jurisdictions to the question of which law applies to an arbitration agreement; and we might also expect international arbitral tribunals to do likewise, even if they are not bound to follow the same rules as national courts. At first glance, it might appear that they do. As discussed in more detail below, national laws and arbitral rules usually accept the parties' choice of appliable law, and some arbitral institutions have a default rule that the law of the seat applies in the absence of the parties' choice. On closer inspection, however, there are significant divergences in the specific approaches taken across different jurisdictions. 3.14 Take the national laws of the United Kingdom, France, and the People's Republic of China, for example. i. English common law looks in the first instance for the parties' express or implied choice of applicable law by reference to principles of English contract law, which establish a presumption that the law applicable to the contract as a whole also applies to the arbitration agreement. Where there is no applicable law clause, an English court will identify the system of law to which the arbitration agreement is 'most closely connected'—a test that, in the absence of strong indications to the contrary, assumes that the 'most closely connected' law is that stipulated by the parties to be the seat of the arbitration. ii. French law defers to the express choice of the parties and, in the absence of an express choice, will consider the parties' implied choice. However, unlike English law, in doing so, emphasis is placed on the autonomy of the arbitration agreement, its legal independence from the main contract that contains it, and the absence of any need to refer to a particular national law in seeking to ascertain and respect the intention of the parties. iii. Mainland Chinese law looks first for any expressly stated choice by the parties, but, in the absence of any express choice—and unlike English or French law—there is no search for the parties' implied choice. Instead, a court will apply the law of the seat of the arbitration, or, if even that is not stipulated, the law of the place of the relevant arbitral institution. 3.15 This lack of uniformity among major arbitral jurisdictions can have practical repercussions. The case of Kabab-Ji v Kout Food Group is illustrative. The relevant arbitration clause was found in a series of franchise agreements governed by English law and seated in Paris and concluded between a Kuwaiti company, Al Homaizi Foodstuff Company, and a Lebanese company, Kabab-Ji SAL. Al Homaizi was subsequently part of a restructuring that led to the formation of a holding company, Kout Food Group (KFG). A dispute arose under the agreements, and Kabab-Ji initiated arbitration ICC arbitration proceedings against KFG in France. While KFG participated in the arbitration, it contended that it was not a party to the franchise agreements or the arbitration agreements contained in them. This in turn required the tribunal to interpret the arbitration agreement and, in particular, to determine the applicable law. The tribunal found that French law, as the law of the seat, applied to the arbitration agreement and concluded that, under French law, KFG was a party to the arbitration agreements. The tribunal went on to conclude that KFG was in breach of the franchise agreements and awarded damages against the company of around US$6.7 million. 3.16 KFG brought an action in the French courts to annul the award on the grounds that it was not a party to the franchise agreements and not bound by the arbitration agreements. Meanwhile, Kabab-Ji brought enforcement proceedings in England. The Paris Court of Appeal dismissed the annulment action, finding that the arbitration agreement was governed by French law. The English courts reached a different conclusion, finding that the parties' choice of substantive law of their contract, English law, also governed their arbitration agreement. In the view of the English courts, under English law, KFG was not a party to the franchise agreements and not in breach of the franchise agreement. 3.17 This dichotomy between, on the one hand, jurisdictions applying to the arbitration agreement the substantive law of the contract and, on the other hand, jurisdictions applying the law of the seat, and the various rationales for doing so, is the theme to which we turn next. (6) (7) (8) (9) (10) (11) (12) (13) (14) (c) The law of the contract as the applicable law of the arbitration agreement (i) The commercial intent of the parties 3.18 As we have already said, it is not unreasonable to ask why, if the parties have expressly chosen a particular law to govern their contract, some other system of law, which the parties have not expressly chosen, should be applied to one of the clauses in 3 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] that contract, simply because it happens to be an arbitration clause? It might be thought that a better approach would be to assume that an express choice of law by commercial parties was intended to cover all the clauses of the contract. Such an approach would provide the parties with certainty that their 'applicable law' clause would be effective in relation to all the contractual rights and obligations. It would also help to ensure consistency in the interpretation of the parties' contract as a whole. Thus, it seems reasonable to say, as Professor Lew has said, that: There is a very strong presumption in favour of the law governing the substantive agreement which contains the arbitration clause also governing the arbitration agreement. This principle has been followed in many cases. This could even be implied as an agreement of the parties as to the law applicable to the arbitration clause. A French commentator has offered a similar view: The autonomy of the arbitration clause and of the principal contract does not mean that they are totally independent one from the other, as evidenced by the fact that acceptance of the contract entails acceptance of the clause, without any other formality. The UK Supreme Court has held similarly in relation to circumstances where a contract contains a governing law clause, as well as an arbitration clause: [I]t is natural to interpret such a governing law clause, in the absence of good reason to the contrary, as applying to the arbitration clause, for the simple reason that the arbitration clause is part of the contract which the parties have agreed is to be governed by the specified system of law. 3.19 Enka v Chubb is now the leading authority on the approach taken under English law to ascertain the law of the arbitration agreement. Given its prominence as an authority on the common law relating to this topic, it is worth discussing in more detail. 3.20 The underlying dispute concerned a contract under which Enka Insaat Ve Sanayi AS (Enka) was to perform works at a power plant in Russia. A Russian company, CJSC Energoproekt, was responsible for the design and construction of the power plant and entered into a subcontract for certain works with Enka. Energoproekt later transferred its rights and obligations under the contract to PSJC Unipro, the owner of the power station. Chubb Russia provided insurance to the owner of Unipro. After a fire caused significant damage to the plant, and Chubb Russia paid out approximately US$400 million, Chubb Russia became subrogated to Unipro's rights to claim compensation from third parties for damage caused by the fire. The contract contained an arbitration clause which provided for disputes to be resolved by arbitration in London under the ICC Rules. Chubb Russia filed a tort claim in the Moscow Arbitrazh Court against Enka (and others), claiming for the damage caused by the fire. Enka, in turn, sought an anti-suit injunction from the English High Court, to restrain Chubb Russia from further pursuing the Russian proceedings against Enka on the ground that this was in breach of the arbitration agreement. The question arose as to which law applied to the parties' arbitration agreement: under English law, Chubb's tort claim would fall within the scope of the arbitration clause, but under Russian law it would not. 3.21 The High Court rejected Enka's application on the grounds that the most appropriate forum to decide whether the claim fell within the arbitration agreement was the Moscow Arbitrazh Court. This finding was overturned on appeal, and the Court of Appeal issued an anti-suit injunction restraining Chubb from continuing the Russian proceedings. In doing so, it found that there was a strong presumption that the parties had impliedly chosen the law of the seat of the arbitration as the law that governed the agreement to arbitrate. Accordingly, there being no express substantive choice of the law and the place of arbitration having been chosen as London, the arbitration agreement was considered by the Court of Appeal to be governed by English law. 3.22 The UK Supreme Court disagreed with the reasoning of the Court of Appeal but (by a majority) not with their conclusion. Clarifying the position under English common law, the Supreme Court unanimously held that where the parties have made a choice of the law that is to govern their contract, this choice would generally be construed as a choice of the law governing the arbitration agreement as well, unless there was a good reason to conclude otherwise. Where, as in the case before it, there was no express choice of law, the court had to decide what law governed the arbitration agreement. In these circumstances, and contrary to the position taken by the Court of Appeal, the Supreme Court held that there was no presumption that by choosing a seat of arbitration the parties had impliedly chosen the law of that seat to govern the arbitration agreement. What the court had to do, in the absence of any express choice of law, was to look for the law with which the arbitration agreement had 'the closest and most real connection'. This, according to the majority of the Court, was 'the law of the country of the seat, being the place where the arbitration is to be held and which will exercise a supervisory jurisdiction necessary to ensure that the procedure is effective'. 3.23 The presumption that the governing law of a contract applies also to its arbitration (15) (16) (17) (18) (19) (20) (21) 4 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] agreement is made in other jurisdictions. For example, in BCY v BCZ, the Singapore High Court considered the law applicable to a sale and purchase agreement governing the sale of shares of BCY's company to BCZ and a co-purchaser. When BCY decided not to proceed with the sale of the shares, BCZ commenced arbitration. One of the issues in dispute was the existence of an agreement to arbitrate, which would have designated Singapore as the place of arbitration. The arbitrator found there to be a rebuttable presumption that the law of the contract, New York law, governed the arbitration agreement, and that there were no factors displacing that presumption in this instance. Applying New York law, the arbitrator found that the parties' words and conduct established an agreement to arbitrate. 3.24 BCY sought declaratory relief in the Singaporean courts, asserting that the arbitrator had no jurisdiction to hear the claim. That, in turn, required the Singaporean courts to confirm the law governing the arbitration agreement. In doing so, the High Court clarified the choice-of-law approach in Singapore: Where the arbitration agreement is a clause forming part of a main contract, it is reasonable to assume that the contracting parties intend their entire relationship to be governed by the same system of law. If the intention is otherwise, I do not think it is unreasonable to expect the parties to specifically provide for a different system of law to govern the arbitration agreement. In practice, parties rarely specify the law applicable to the arbitration agreement as distinct from the main contract […] When a choice of law (such as the one here) stipulates that the 'agreement' is to be governed by one country's system of law, the natural inference should be that parties intend the express choice of law to 'govern and determine the construction of all the clauses in the agreement which they signed, including the arbitration agreement' […] To say that the word 'agreement' contemplates all the clauses in the main contract save for the arbitration clause would in fact be inconsistent with its ordinary meaning. The High Court proceeded to apply New York law, under which, in its view, there was in fact no agreement to be bound by the arbitration clause. (22) (23) (24) (ii) Potential conflict with the autonomy of an arbitration clause 3.25 A conceptual difficulty in applying the law of the contract to all terms of the contract is that it arguably runs into conflict with the 'autonomy' of the arbitration clause. As we have previously stated, an arbitration clause is taken to be autonomous and to be separable from other clauses in the agreement. If necessary, it may stand alone. In this respect, it is comparable to a submission agreement. Even if it is presently not customary to find a clause in a commercial agreement which expressly specifies the law applicable to the arbitration clause in that contract, it is common for parties to agree on the seat of an arbitration, and this seat may well have its own distinct set of norms, which apply solely to arbitration clauses and not to the rest of a contract. Even those jurisdictions that apply a presumption that the contract and its arbitration agreement are governed by the same law recognise that this is not always the case. The separability of an arbitration clause therefore supports the argument that it is possible for it to be governed by a different law from that which governs the main agreement. 3.26 As noted above, the New York Convention points towards this conclusion. In the provisions relating to enforcement, the Convention stipulates that the agreement under which the award is made must be 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' (which will be the law of the seat of the arbitration). (25) (26) (27) (d) Law of the seat of the arbitration (i) The autonomy of an arbitration agreement 3.27 In those jurisdictions that search for what the parties have impliedly selected, there is division over the emphasis placed on the autonomy of the arbitration agreement. In Enka v Chubb, the UK Supreme Court rejected the proposition that the parties could be taken to have selected a governing law of the contract as a whole on the sole basis of their choice of an arbitral seat and found that, in the same way, the law of the seat did not necessarily imply a choice of law of the arbitration agreement. But that is a view not universally held. As two commentators note: [T]he consequence of choosing a seat is that many aspects of the arbitration agreement—and not merely the arbitration procedure—will be governed by the law of the seat in any event, regardless of which law applies to the matrix contract. […] In circumstances where many aspects of the arbitration agreement will in any event be governed by the law of the seat in this way, the natural inference is that the parties, by choosing a seat, intended the entirety of that agreement (i.e. the arbitration, not the matrix contract) to be governed by that law. 3.28 Likewise, in Kabab-Ji (Lebanon) v Kout Food Group (Kuwait), the Paris Court of Appeal (28) (29) 5 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] applied French rules of international arbitration law to identify the 'common will of the parties' in the absence of an express choice of law to govern an arbitration agreement. In that case, the parties had agreed a series of franchise agreements governed by English law with arbitration seated in Paris. The Paris Court of Appeal found that the parties had intended to apply French law to their arbitration agreement, in light of their choice of an arbitral seat. The court found further that, given the autonomy of an arbitration clause, it was not possible to infer that the parties intended English law—the law of the contract—to apply. (30) (31) (ii) The requirements of the law of the seat 3.29 There is also a possibility that the law of the seat itself stipulates that it is to be applied as the law governing the arbitration agreement. Again, in these instances, it might be said that the choice of the law of the seat reflects the parties' implied choice of the law of the arbitration agreement. 3.30 There are institutional and national laws providing that, where applicable as the law of the seat, the same national law will govern the arbitration agreement, absent agreement between the parties to the contrary. For example, the LCIA rules apply the law of the seat of the arbitration, absent the parties' express agreement to the contrary: [T]he law applicable to the Arbitration Agreement and the arbitration shall be the law applicable at the seat of the arbitration, unless and to the extent that the parties have agreed in writing on the application of other laws or rules of law and such agreement is not prohibited by the law applicable at the arbitral seat. 3.31 In the Bulbank case, the Supreme Court of Sweden confirmed that Swedish courts would look to the parties' express choice, absent which the Swedish Arbitration Act provides that the law of the seat will apply to the arbitration agreement. The case concerned a contract governed by Austrian law, which provided for arbitration seated in Stockholm. In ascertaining the law applicable to the arbitration agreement, the court placed no reliance on the parties' substantive choice-of-law clause, finding instead that Swedish law governed the arbitration: [N]o particular provision concerning the applicable law for the arbitration agreement itself was indicated [by the parties]. In such circumstances the issue of the validity of the arbitration clause should be determined in accordance with the law of the state in which the arbitration proceedings have taken place, that is to say, Swedish law. 3.32 In similar fashion, the law of Scotland provides that where parties have agreed to seat their arbitration in Scotland, but have failed to specify the law governing an arbitration, the arbitration agreement is to be governed by Scottish law. The position is the same under Turkish law. The US FAA also operates in this way with respect to arbitrations seated in the United States. The FAA supplies substantive legal rules for any written arbitration agreement that involves inter-state or foreign commerce or that falls within the US courts' admiralty jurisdiction (excluding in the context of employment contracts). For a US-seated arbitration, the FAA thus constitutes part of the law governing the arbitration agreement and pre-empts any conflicting rules of the state, or possibly also foreign law, that otherwise applies to the agreement. (32) (33) (34) (35) (36) (37) (38) (iii) The law of the seat as a means to avoid invalidity 3.33 The parties' implied choice of law to govern their arbitration agreement might also be the law of the seat, where the law of the contract as a whole would otherwise invalidate the parties' agreement to arbitrate. As the UK Supreme Court has stated: The principle that contracting parties could not reasonably have intended a significant clause in their contract, such as an arbitration clause, to be invalid is a form of purposive interpretation, which seeks to interpret the language of the contract, so far as possible, in a way which will give effect to—rather than defeat—an aim or purpose which the parties can be taken to have had in view. 3.34 Hamlyn v Talisker is an early but authoritative example in English law. The case concerned a contract between an English company and a Scottish company, to be performed in Scotland, and provided that disputes would be resolved by arbitration using two members of the London Corn Exchange. The parties' arbitration agreement was valid under English law but not under Scottish law, which required arbitrators to be named. The House of Lords reversed the finding of the Court of Session that the law of the contract as a whole was Scottish law and that the arbitration agreement was invalid. Instead, the House of Lords determined that English law applied to the arbitration agreement, for the following reasons: [T]he contract with reference to arbitration would have been absolutely null and voice if it were to be governed by the law of Scotland. That cannot have been the intent of the parties; it is not reasonable to attribute that intention (39) (40) 6 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] to them if the contract may be otherwise construed […] and because: It is more reasonable to hold that the parties contracted with the common intention of giving entire effect to every clause rather than of mutilating or destroying one of the most important provisions. 3.35 More recently, in Sulamérica Cia Nacional de Seguros SA and ors v Enesa Engenharia SA and ors, the English courts were required to consider a contract governed by Brazilian law containing an arbitration agreement that designated London as the seat of any arbitration, without any express choice of law governing the arbitration agreement itself. Under Brazilian law, the arbitration agreement would have been unenforceable, without the consent of the respondent party to submit the specific dispute to arbitration. The Court of Appeal found that the parties could not have intended to apply Brazilian law: I do not think that in this case the parties' express choice of Brazilian law to govern the substantive contract is sufficient evidence of an implied choice of Brazilian law to govern the arbitration agreement, because (if the insured are correct) there is at least a serious risk that a choice of Brazilian law would significantly undermine that agreement. […] this, it seems to me, reflects the fact that although one may start from the assumption that the parties intended the same law to govern the whole of the contract, including the arbitration agreement, specific factors may lead to the conclusion that that cannot in fact have been their intention. On this basis, the court determined that there was no express or implied agreement between the parties as to the law of the arbitration agreement, and it was necessary for the court to fill the lacuna. (41) (42) (43) (44) (e) Delocalisation—a French 'third way' 3.36 The solutions considered so far have focused on establishing the law governing the arbitration agreement by reference to a national law, whether it is the law of the contract or the law of the seat of arbitration. The French courts, however, have adopted a different approach, whereby the existence and scope of the arbitration agreement is determined exclusively by reference to the parties' discernible common intentions. In this way, the arbitration agreement remains independent of the various national laws that might, in other jurisdictions, be deemed to apply to it. This approach, which fundamentally envisages international arbitration as a truly autonomous system, has the advantage of avoiding the need to have regard to the particular, local 'conflict-of-law' rules developed by different states around the globe. It seeks instead to implement what the court or tribunal finds to be the common intention of the parties. 3.37 This French 'third way' was a result of a number of decisions by the Paris Court of Appeal, from the early 1970s through to the early 1990s, which culminated in the Court of Cassation's decision in Dalico in 1993: [B]y virtue of a substantive rule of international arbitration, the arbitration agreement is legally independent of the main contract containing or referring to it, and the existence and effectiveness of the arbitration agreement are to be assessed, subject to the mandatory rules of French law and international public policy, on the basis of the parties' common intention, there being no need to refer to any national law. 3.38 In this context, the reference to the legal independence of the arbitration agreement is a reference to the doctrine of separability of the arbitration agreement, which has already been discussed, and which leads to the arbitration agreement being regarded as being itself autonomous. The French Supreme Court stopped short of a complete delocalisation of the arbitration agreement, by subjecting it to the mandatory provisions of French law and international public policy. Moreover, it remains open to the parties, if such is their common intention, to expressly designate a national legal system or set of conflict laws, as the French Supreme Court clarified in the Uni-Kod decision. 3.39 The French approach was examined by the UK Supreme Court in its decision in Dallah Real Estate and Tourism Holding Co. v Ministry of Religious Affairs, Government of Pakistan. The decision concerned an agreement between Dallah Real Estate and a Pakistani government trust relating to commercial services for pilgrimages to Saudi Arabia. The agreement included an ICC arbitration clause, with the seat of the arbitration in Paris. Dallah initiated arbitration proceedings against both the government of Pakistan and against the trust. The arbitral tribunal in Paris accepted jurisdiction over Pakistan and rendered an award in favour of Dallah. The award itself was challenged in Paris, the seat of the arbitration; and its enforcement was challenged in the United Kingdom on the basis (among other things) that the tribunal had no jurisdiction over Pakistan, which was not a signatory to the agreement. The UK Supreme Court, applying French law, accepted that, as a starting point, French law (the law of the seat) refers to supranational law: (45) (46) (47) (48) (49) (50) 7 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] [Under French law,] arbitration agreements derive their existence, validity and effect from supra-national law, without it being necessary to refer to any national law. If so, that would not avoid the need to have regard to French law 'as the law of the country where the award was made' under Article V(1)(a) of the [New York] Convention and s. 103(2)(b) of the 1996 [English Arbitration] Act. The Cour de Cassation is, however, a national court, giving a French legal view of international arbitration; and Dallah and the Government agree that the true analysis is that French law recognises transnational principles as potentially applicable to determine the existence, validity and effectiveness of an international arbitration agreement, such principles being part of French law. (51) (f) Combining several approaches—a Swiss model 3.40 The final approach to determining the law or rules applicable to an arbitration agreement is to combine several approaches, as is the case in Switzerland, under the Swiss PIL which provides: As regards its substance, the arbitration agreement shall be valid if it conforms either to the law chosen by the parties, or to the law governing the subject-matter of the dispute, in particular the law governing the main contract, or if it conforms to Swiss law. 3.41 This formulation has the advantage of giving Swiss courts a very considerable opportunity to uphold the validity of an arbitration agreement. (52) C. Law Governing the Arbitration (a) Introduction 3.42 An international arbitration usually takes place in a country that is 'neutral', in the sense that none of the parties to the arbitration has a place of business or residence there. This means that, in practice, the procedural law of the country in whose territory the arbitration takes place—that is, the lex arbitri—will generally be different from the law that governs the substantive matters in dispute. An arbitral tribunal with a seat in the Netherlands, for example, may be required to decide the substantive issues in dispute between the parties in accordance with the law of Switzerland or the law of New York or some other law, as the case may be. Nevertheless, the arbitration itself, and the way in which it is conducted, will be governed (if only in outline) by the relevant Dutch law on international arbitration. 3.43 This difference between the lex arbitri (the law of the place, or 'seat', of the arbitration) and the law governing the substance of the dispute was part of the juridical tradition of continental Europe, but is now firmly established in international arbitration. 3.44 It is right that there should be a distinction between the lex arbitri and the substantive law of the contract. Where parties to an international arbitration agreement choose for themselves a seat of arbitration, they usually choose a place that has no connection with either themselves or their commercial relationship. They choose a 'neutral' place. By doing so, they do not necessarily intend to choose the law of that place to govern their relationship. Indeed, as well as choosing a place of arbitration, they may well choose a substantive law that has no connection with that place. 3.45 If the parties do not make an express choice of the place of arbitration, the choice will have to be made for them, either by the arbitral tribunal itself or by a designated arbitral institution. The UNCITRAL Rules, for instance, state: 'If the parties have not previously agreed on the place of arbitration, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case.' Similarly, Article 18.1 of the ICC Rules leaves the choice to the ICC Court. 3.46 In cases of this kind, the place of arbitration will usually be determined by reference to the priority of neutrality as between the parties, and choosing a place that can provide a supportive and reliable supervisory jurisdiction to the arbitration process. In such circumstances, it would be illogical to hold that the lex arbitri, as the law of the place of arbitration, was necessarily the law applicable to the issues in dispute. (53) (54) (55) (56) (57) (b) What is the lex arbitri? 3.47 It is appropriate, at this stage, to consider what is meant by the lex arbitri. The question was posed rhetorically by a distinguished English judge: What then is the law governing the arbitration? It is, as [the present authors] trenchantly explain,[ ] a body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the conduct of the arbitration. The law governing the arbitration comprises the rules governing interim measures (eg Court orders for the preservation or storage of goods), the rules empowering the exercise by the Court of supportive measures to (58) 8 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] assist an arbitration which has run into difficulties (eg filling a vacancy in the composition of the arbitral tribunal if there is no other mechanism) and the rules providing for the exercise by the Court of its supervisory jurisdiction over arbitrations (eg removing an arbitrator for misconduct). (59) (i) The content of the lex arbitri 3.48 Each state will decide for itself what laws it wishes to lay down to govern the conduct of arbitrations within its own territory. Some states will wish to build an element of consumer protection into their law, so as to protect private individuals. For example, the Swedish Arbitration Act provides that an arbitration agreement with a consumer involving goods or services for private use is invalid if made before a dispute arises. Similarly, the same Act provides that the arbitral tribunal may order the parties to pay the arbitrators' fees and, if it does so, must set out in its final award its decision as to the fees payable to each of the arbitrators. The arbitral tribunal must also provide clear instruction to the parties of the steps that must be taken to appeal to the district court against this decision. 3.49 In recognition of the distinction between domestic arbitration and international arbitration—in which the sums at issue are likely to be larger and the parties better able to look after themselves—some states have (sensibly, it may be thought) introduced a code of law specifically designed for international arbitrations. The French Code of Civil Procedure, for example, includes a specific chapter on international arbitration, Australia has adopted an International Arbitration Act 1974, and Switzerland has adopted the Swiss PIL. 3.50 Reference has already been made to the Model Law, which the authors have described as the baseline for any state wishing to modernise its law of arbitration. Many jurisdictions incorporate the Model Law into their national arbitration laws. Australia, for example, expressly incorporates the Model Law into Australian law. The provisions of the Model Law are drawn in relatively broad terms. They do not purport to lay down any detailed procedural rules as to the actual conduct of an arbitration—such as rules on the submission and exchange of witness statements, the order in which witnesses are to be called, the time to be allotted for the questioning and crossquestioning of witnesses, and so forth. Indeed, the Model Law expressly provides that: (1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. (2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence. 3.51 It may be helpful at this point to give examples of the matters with which the lex arbitri might be expected to deal, although the exact position under the relevant lex arbitri should be checked, particularly where these legal provisions are mandatory. With this qualification, the lex arbitri is likely to extend to: i. the definition and form of an agreement to arbitrate; ii. whether a dispute is capable of being referred to arbitration (that is, whether it is 'arbitrable' under the lex arbitri); iii. the constitution of the arbitral tribunal and any grounds for challenge of that tribunal; iv. the entitlement of the arbitral tribunal to rule on its own jurisdiction; v. equal treatment of the parties; vi. freedom to agree upon detailed rules of procedure; vii. interim measures of protection; viii. statements of claim and defence; ix. hearings, including the permissibility of virtual hearings; x. default proceedings; xi. court assistance, if required; xii. the powers of the arbitrators, including any powers to decide as amiables compositeurs; xiii. the form and validity of the arbitration award; and xiv. the finality of the award, including any right to challenge it in the courts of the place of arbitration. 3.52 These are all important aspects of international arbitration. They may well arise in practice and are all addressed later in this commentary. Three essential points should, however, be made now. 3.53 First, the effective conduct of an international arbitration may depend upon the provisions of the law of the place of arbitration. One way of illustrating this dependence is by reference to any provisions of the local law for judicial assistance in the conduct of the arbitration. Even if the arbitrators have the power to order interim measures of (60) (61) (62) (63) (64) (65) (66) 9 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] protection, such as orders for the preservation and inspection of property, they are unlikely to have the power to enforce such orders—particularly if the property in question is in the possession of a third party. For this, it is necessary to turn to national courts for assistance. 3.54 Second, the choice of a particular place of arbitration may have important and unintended consequences. This is because the law of that place may confer powers on the courts or on the arbitrators that the parties did not expect, or may deprive an arbitral tribunal of powers that the parties might otherwise have assumed existed. i. On this latter point, one example is the power to consolidate arbitrations. Whether or not a court or arbitral tribunal has the power to consolidate two or more arbitrations that involve the same basic issues of fact or law is a controversial question. In the present context, it is necessary to note only that such a power may exist under the lex arbitri and that this may come as a disagreeable surprise to a party who does not wish to have other parties joined in its arbitration. ii. Another example arises in the context of sanctions, since it may be that a tribunal is compelled to take into account legal sanctions relevant to the parties' dispute because they form part of the mandatory law of the lex arbitri. 3.55 Third, there is an obvious prospect of conflict between the lex arbitri and a different system of law that may be equally relevant. Consider, for example, the question of arbitrability—that is, whether or not the subject matter of the dispute is 'capable' of being resolved by arbitration. The concept of arbitrability, as we have already discussed, is basic to the arbitral process. Both the New York Convention and the Model Law refer explicitly to disputes that are 'capable of being resolved by arbitration'—that is to say, to disputes that are 'arbitrable' in the proper sense of that term. 3.56 On the question of arbitrability, it may be said that if a dispute is capable of being resolved by litigation in the courts, surely the same dispute is equally 'capable' of being resolved by arbitration? Theoretically, this may well be correct. In practice, however, every state reserves for itself, as a matter of public policy, what might be called a 'state monopoly' over certain types of dispute. Accordingly, whether or not a particular dispute —for example over the disposal of assets belonging to a bankrupt company—is legally 'capable of being resolved by arbitration' is a matter that each state will decide for itself. It is a matter on which states may well differ, with some taking a more restrictive attitude than others. This obviously results in an element of forum shopping; and incidentally may be 'good for business' for those jurisdictions adopting a liberal approach to what disputes are 'arbitrable'. It should be borne in mind, however (and this may be important if it becomes necessary to seek enforcement of an award) that a claim that is arbitrable both under the law governing the arbitration agreement and under the lex arbitri may not be regarded as arbitrable under the law of the place of enforcement. An award in such a case, although validly made under the lex arbitri, might prove to be unenforceable under the New York Convention. (67) (68) (69) (70) (ii) Procedural rules and the lex arbitri 3.57 The preceding discussion about the content of the lex arbitri indicates that most, if not all, national laws governing arbitration deal with general propositions, such as the need to treat each party equally, rather than with detailed rules of procedure, such as the time for exchange of witness statements or the submission of pre-hearing briefs. The Swiss PIL provides that '[t]he parties may, directly or by reference to arbitration rules, determine the arbitral procedure; they may also submit it to a procedural law of their choice'. Similarly, the English Arbitration Act 1996, provides that 'parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest'. 3.58 At some stage in the conduct of an arbitration—and, indeed, at a fairly early stage— the parties will need to know where they stand in terms of the detailed procedure to be followed. There are many points to be clarified: will the claimant's statement of claim simply outline the facts supporting the claim, or will it be accompanied by the documents that are relied upon and perhaps by legal submissions? When the respondent has submitted its defence, will the claimant have the right to submit a reply, or is that the end of the written submissions? What about the evidence of witnesses and experts? Will there be opportunities to make document production requests? 3.59 It is plainly necessary for the parties and the arbitral tribunal to know what procedural rules they are required to follow, particularly in an international arbitration in which the parties will usually come from different backgrounds with a different approach to such questions as the interviewing of witnesses, the production of documents, and so forth. All that needs to be understood at this point is that there is a great difference between the general provisions of the law governing the arbitration (the lex arbitri) and the detailed procedural rules that will need to be adopted, or adapted, for the fair and efficient conduct of the proceedings. The rules of the arbitral institutions, such as the ICC and the LCIA, provide an overall framework within which to operate, as do the UNCITRAL Rules. However, it is important to note that even these rules will need to be supplemented by more detailed provisions by the parties or the arbitral tribunal, as discussed in Chapter 6. (71) (72) 10 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] 3.60 It is therefore often advisable, particularly where parties and their counsel are from different legal backgrounds, to agree such rules at the outset of an arbitration. This may be done by agreement of the parties, or by order of the arbitral tribunal at the first procedural meeting. As part of this process, the parties may agree, or the arbitral tribunal may order, that they adopt or have regard to a pre-existing set of detailed rules, for example the IBA Rules on the Taking of Evidence in International Arbitration. By ensuring that the rules are clearly established early on, the administration of the case will (or at least should) be simplified, and the scope for delay and dilatory tactics reduced. 3.61 The choice of detailed procedural rules raises two issues relevant to this discussion of applicable law. The first is that, as noted in the foregoing, the detailed procedural rules do not displace the lex arbitri, rather they apply concurrently. This gives rise to the possibility of a conflict between the two sets of procedural rules and, in these circumstances a tribunal will need to ascertain which law prevails. Where the relevant provision of the lex arbitri is mandatory, it will prevail. Some institutional rules pre-empt this scenario: for example, the UNCITRAL Rules provide that the mandatory provisions of the lex arbitri shall prevail over the UNCITRAL Rules in the event of any conflict. 3.62 A second issue arises where the institutional rules adopted to govern an arbitration are subject to a requirement that they be interpreted in accordance with a particular national law that differs from the lex arbitri. The LCIA Rules, for example, must be interpreted in accordance with the laws of England. This is another source of concurrently applicable laws and, in theory at least, may give rise to conflicts. Thus, in an arbitration governed by LCIA Rules, a tribunal seated in a foreign jurisdiction will be obliged to interpret the LCIA Rules in accordance with the laws of England. As one commentator has noted: The highly specific inclusion of the laws of England as the means of interpretation of the LCIA Rules could potentially foreshadow arguments about their implementation in cases where the seat of arbitration is not England, and/or where the parties have chosen a specific law, which is not English law, to govern their Arbitration Agreement. Particularly, Arbitral Tribunals and/or other relevant foreign courts may encounter difficulties in reconciling the new requirements to interpret the LCIA Rules in accordance with English law while maintaining their obligations to apply the mandatory procedural law of the arbitral seat. (73) (74) (75) (76) (c) Seat theory 3.63 The concept that an arbitration is governed by the law of the place in which it is held, which is the 'seat' (or 'forum', or locus arbitri) of the arbitration, is well established in both the theory and practice of international arbitration. It has influenced the wording of international conventions from the Geneva Protocol of 1923 (the Geneva Protocol) to the New York Convention. 3.64 The Geneva Protocol states: 'The arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place'. The New York Convention maintains the reference to 'the law of the country where the arbitration took place' and, synonymously, to 'the law of the country where the award is made'. This continues the clear territorial link between the place of arbitration and the law governing that arbitration: the lex arbitri. This territorial link is again maintained in the Model Law: 'The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.' 3.65 Several modern laws on arbitration are clear on the link between the seat of the arbitration and the lex arbitri. Swiss law, for example, states: The provisions of this Chapter apply to arbitral tribunals that have their seat in Switzerland if, at the time that the arbitration agreement was concluded, at least one of the parties thereto did not have its domicile, its habitual residence or its seat in Switzerland. 3.66 Likewise, a majority of the provisions of German arbitration law apply only to arbitrations which have a place of arbitration in Germany. A similar approach is taken in Belgium, India, and Malaysia. In English law, certain provisions of the Arbitration Act apply only where the seat of the arbitration is in England, Wales, or Northern Ireland, whereas other provisions (for example, for the stay of court proceedings commenced in breach of an arbitration agreement) apply even if the seat of the arbitration is not in those countries or if no seat has been designated. The 'seat of the arbitration' is defined as 'the juridical seat of the arbitration' designated by the parties, or by an arbitral institution or the arbitrators themselves, as the case may be. Unless the parties agree otherwise, the seat of the arbitration must be stated in the award of the arbitrators. 3.67 As this introduction tries to make clear, the place, or 'seat', of the arbitration is not merely a matter of geography. It is the territorial link between the arbitration itself and (77) (78) (79) (80) (81) (82) (83) (84) (85) (86) (87) (88) (89) (90) 11 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] the law of the place in which that arbitration is legally situated: When one says that London, Paris or Geneva is the place of arbitration, one does not refer solely to a geographical location. One means that the arbitration is conducted within the framework of the law of arbitration of England, France or Switzerland or, to use an English expression, under the curial law of the relevant country. The geographical place of arbitration is the factual connecting factor between that arbitration law and the arbitration proper, considered as a nexus of contractual and procedural rights and obligations between the parties and the arbitrators. The seat of an arbitration is thus often intended to be its legal centre of gravity. This does not mean that all of the proceedings of the arbitration have to take place there, although preferably some should do so. Although the choice of a 'seat' also indicates the geographical place for the arbitration, this does not mean that the parties have limited themselves to that place. As is pointed out[ …] in a passage approved by the Court of Appeal in Naviera Amazonia Peruana SA v Compania Internacional de Seguros del Peru [1988] 1 Lloyd's Rep 116 at 121, it may often be convenient to hold meetings or even hearings in other countries. This does not mean that the 'seat' of the arbitration changes with each change of country. The legal place of the arbitration remains the same even if the physical place changes from time to time, unless of course the parties agree to change it. 3.68 Arbitrators and the parties to an international arbitration often come from different countries. It may not always be convenient for everyone concerned to travel to the country that is the seat of the arbitration for the purpose of a meeting or a hearing. There may be limitations on the ability of those involved in an arbitration to travel to a particular location. Alternatively, it may simply be easier and less expensive to meet elsewhere, or the parties and tribunal may be conscious of reducing, where practical and possible, the environmental footprint of their arbitral proceedings. In recognition of this reality, various procedural laws and rules now provide parties with the flexibility to hold meetings and hearings other than in-person and in the place (or seat) of the arbitration. For example, the ICC Rules read as follows: 1) The place of the arbitration shall be fixed by the Court, unless agreed upon by the parties. 2) The arbitral tribunal may, after consulting the parties, conduct hearings and meetings at any location it considers appropriate, unless otherwise agreed by the parties. 3) The arbitral tribunal may deliberate at any location it considers appropriate. 3.69 The ICC Rules further state that: The arbitral tribunal may decide, after consulting the parties, and on the basis of the relevant facts and circumstances of the case, that any hearing will be conducted by physical attendance or remotely by videoconference, telephone or other appropriate means of communication. 3.70 The UNCITRAL Rules allow arbitrators to meet at any appropriate locations for deliberations, and provides that meetings 'for any other purpose, including hearings may take place in any location, unless agreed otherwise by the parties'. The LCIA has a similar rule: If any hearing is to be held in person, the Arbitral Tribunal may hold such hearing at any convenient geographical place in consultation with the parties. If the Arbitral Tribunal is to meet in person to hold its deliberations, it may do so at any geographical place of its own choice. If such place(s) should be elsewhere than the seat of the arbitration, or if any hearing or deliberation takes place otherwise than in person (in whole or in part), the arbitration shall nonetheless be treated for all purposes as an arbitration conducted at the arbitral seat and any order or award as having been made at that seat. The Model Law also allows the arbitral tribunal to meet at any place it considers appropriate for its deliberations or to hear witnesses, unless the parties object. 3.71 These are sensible provisions. They recognise the realities of international arbitration, with parties, lawyers, and arbitrators likely to be based in different parts of the world. They give flexibility to the tribunal and to the parties in selecting a convenient location for procedural meetings, hearings, and deliberations or to decide to hold their proceedings virtually, either in part or in full. It may be, for example, that although the seat of the arbitration is Jakarta, the arbitral tribunal finds it convenient to meet to hold hearings in Singapore. In international construction disputes, it is often necessary for an arbitral tribunal sitting in one country to visit the site of the project in another country to carry out an inspection. Equally, it may be more convenient for an arbitral tribunal sitting in one country to conduct a hearing in another country or continent, for (91) (92) (93) (94) (95) (96) (97) (98) (99) (100) 12 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] example for the purpose of taking evidence. Virtual proceedings can help avoid delays if one or more arbitrator or party is unable to travel. 3.72 Enabling flexibility in the geographic location of hearings can also avoid practical difficulties created by mandatory provisions of the national law of the seat. As one commentary notes by way of example, local restrictions on who can appear as counsel in court and arbitral proceedings is a 'very important consideration'. In Nigeria, for example, only locally qualified 'legal practitioners' may appear as counsel at hearings. 3.73 An arbitral tribunal that visits another country must, of course, respect the law of that country. For example, if the purpose of the visit is to take evidence from witnesses, the arbitral tribunal should respect any provisions of the local law that govern the taking of evidence. However, each move of the arbitral tribunal does not of itself mean that the seat of the arbitration changes. The seat of the arbitration remains the place initially agreed by, or on behalf of, the parties. 3.74 What is the legal position if, as sometimes happens, the arbitral tribunal—having consulted the parties and perhaps against the objection of one of them—holds all meetings, hearings, and deliberations in a place that is not the seat of the arbitration or entirely remotely? To proceed in this manner reduces the seat of the arbitration to a legal fiction: a place of arbitration in which no physical meetings or hearings take place. In the light of the provisions set out above, and subject to any particular restrictions contained in the lex arbitri and the views of the parties, this would seem to be permissible. It conforms with the letter, if not the spirit, of the law or the applicable rules. As aptly stated by the UK Supreme Court: [T]he seat of an arbitration is a legal concept rather than a physical one. A choice of place as the seat does not dictate that hearings must be held, or that any award must actually be issued, in that place. […] The point of agreeing to a seat is to agree that the law and courts of a particular country will exercise control over an arbitration which has its seat in that country to the extent provided for by that country's law. (101) (102) (103) (104) (105) (i) Is the lex arbitri a procedural law? 3.75 In some countries, the law governing arbitration, including international arbitration, is part of a code of civil procedure. This is so, for example, in France and in Germany— and it is sometimes said that the lex arbitri is a law of procedure, as if that is all that it is. It is true, of course, that the lex arbitri may deal with procedural matters—such as the constitution of an arbitral tribunal where there is no relevant contractual provision—but the authors suggest that the lex arbitri is much more than a purely procedural law. Whilst also governing the procedure of the arbitration, it may, in addition, stipulate that a given type of dispute—over patent rights, for instance, or (as in Belgium and some Arab states) over a local agency agreement—is not capable of settlement by arbitration under the local law. This is surely not simply a matter of procedure? Or again, by way of example, an award may be set aside on the basis that it is contrary to the public policy of the lex arbitri. Once more, this would not seem to be merely a matter of procedure. One commentary has accordingly described the function of the lex arbitri as governing the 'internal' procedure of the arbitration as well as the 'external' oversight of the arbitration by national courts. 3.76 It is also sometimes said that parties have selected the procedural law that will govern their arbitration by providing for arbitration in a particular country. This is too elliptical and, as an English court itself held in Braes of Doune Wind Farm, it does not always hold true. What the parties have done is to choose a place of arbitration. That choice brings with it submission to the laws of that country, including any mandatory provisions of its law on arbitration. To say that the parties have 'chosen' that particular law to govern the arbitration is rather like saying that an English car driver who takes their car to France has 'chosen' French traffic law, which will oblige them to drive on the right-hand side of the road, to give priority to vehicles approaching from the right, and generally to obey traffic laws to which they may not be accustomed. 3.77 Parties may well choose a particular place of arbitration precisely because its lex arbitri is one that they find attractive. Nevertheless, once a place of arbitration has been chosen, it brings with it its own law. If that law contains provisions that are mandatory as far as arbitrations are concerned, those provisions must be obeyed. It is not a matter of choice, any more than the notional motorist is free to choose which local traffic laws to obey and which to disregard. (106) (107) (108) (109) (110) (111) (ii) Choice of another procedural law 3.78 The concept of subjecting an arbitration in one state to the procedural law of another has been the subject of much theoretical discussion. Thus, for example, an arbitration could be seated in Switzerland, but by agreement between the parties, made subject to the procedural law of Germany. In this regard, Swiss law provides that the parties to an arbitration may 'make the procedure subject to a procedural law of their choice'. Similarly, the French Code of Civil Procedure recognises the possibility that parties may choose a different law to apply to the procedure of arbitrations located in France, and (112) 13 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] that the French Code of Civil Procedure might apply as the procedural law in arbitrations located abroad. 3.79 It is not easy to understand why parties should wish to complicate the conduct of an arbitration in this way (unless, as is possible, they do not understand what they are doing). It means that the parties and the arbitral tribunal would need to have regard to two procedural laws: that of Germany, as the chosen procedural law; and that of Switzerland, to the extent that the provisions of Swiss law (such as the requirement of equality of treatment of the parties) are mandatory. Nor is this all: if it becomes necessary during the course of the arbitration to have recourse to the courts—for example on a challenge of one of the arbitrators—to which court would the complainant go? The Swiss court would presumably be reluctant to give a ruling on German procedural law; the German court might well prove unwilling to give a ruling on a procedural matter that it could not directly enforce, since the arbitration was not conducted within its territorial jurisdiction. 3.80 It is tempting to suggest that if the procedural law of a particular country is either so attractive or so familiar to the parties that they wish to adopt it, they would do better to locate their arbitration in that country. One needs only to consider the difficulties that a party would face in obtaining a subpoena against a reluctant witness, however, to recognise the problems inherent in a choice of foreign procedural law. 3.81 In a Peruvian insurance case, the English Court of Appeal considered a contract that had been held by the court of first instance to provide for an arbitration to be located in Peru, but subject to English procedural law. The Court of Appeal construed the contract as providing for arbitration in London under English law, but noted that a situation involving a choice of foreign procedural law was theoretically possible. However, practical difficulties were foreseen: There is equally no reason in theory which precludes parties to agree that an arbitration shall be held at a place or in country X but subject to the procedural laws of Y. The limits and implications of any such agreement have been much discussed in the literature, but apart from the decision in the instant case there appears to be no reported case where this has happened. This is not surprising when one considers the complexities and inconveniences which such an agreement would involve. Thus, at any rate under the principles of English law, which rest upon the territorially limited jurisdiction of our courts, an agreement to arbitrate in X subject to English procedural law would not empower our courts to exercise jurisdiction over the arbitration in X. (113) (114) (115) (116) (117) (d) Where an award is made 3.82 From time to time, it may become necessary to determine where an award is made. The point is an important one. For example, recognition and enforcement of an award may be refused on the basis that the arbitration agreement was not valid under the law of the country where the award was made, or on the basis that the award itself had been 'set aside or suspended' by a court of the country in which it was made. 3.83 In practice, it is rare for parties to stipulate the country in which an award is to be deemed made. Rather, it is more common for parties to identify the place of the arbitration, and for that national law to contain terms that indicate where an award is treated as being made. The English Arbitration Act, for example, provides that: Unless otherwise agreed by the parties, where the seat of the arbitration is in England and Wales or Northern Ireland, any award in the proceedings shall be treated as made there, regardless of where it was signed, despatched or delivered to any of the parties. 3.84 The Model Law contains a similar provision, as does the Netherlands Arbitration Act. Some arbitration rules also deal expressly with the place at which an award is 'made'. For example, the ICC Rules provide that an award is deemed to be made at the place (or seat) of the arbitration and on the date stated therein. The UNCITRAL Rules 2010 state similarly that an award 'shall be deemed to have been made at the place of arbitration'. The 2010 Rules differ from the 1976 Rules, which stated that an award 'shall be made at the place of arbitration', which commentators believed 'could have been construed to require the signing at the place of arbitration', contrary to the drafters' intention to establish a legal framework. 3.85 Automatically equating the place of an arbitration with the place where an award is made avoids the need for arbitrators to be physically present in one particular jurisdiction when signing the award. This is a sensible provision when arbitrators who live in different countries may well have agreed on the final terms of the award by email or other forms of communication. In an international arbitration, with a tribunal of three arbitrators, the award in its final form may well be signed in three different countries, each member of the tribunal adding his or her signature in turn. Even where not specifically provided for in the applicable procedural rules, there is a strong argument that, in such circumstances, the award should be deemed to have been made at the seat of the arbitration: (118) (119) (120) (121) (122) (123) (124) 14 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] The award, it is submitted, is no more than a part, the final and vital part of a procedure which must have a territorial, central point or seat. It would be very odd if, possibly without the knowledge of the parties or even unwittingly, the arbitrators had the power to sever that part from the preceding procedure and thus give a totally different character to the whole. (125) (e) Delocalisation (i) Introduction 3.86 An alternative to the 'seat' theory described above is one that delocalises arbitration from any national jurisdiction. As far as international arbitration is concerned, it would save considerable time, trouble, and expense if the laws governing arbitrations were the same throughout the world, so that there were—so to speak—a universal lex arbitri. There would then be a 'level playing field' for the conduct of international arbitrations wherever they took place. An arbitral tribunal would not have to enquire whether there were any special provisions governing arbitration that were peculiar to the law of the country that was the seat of the arbitration. On this aspect of the arbitral process, all laws would be the same. 3.87 In practice, however, the idea of a universal lex arbitri is as illusory as that of universal peace. Each state has its own national characteristics, its own interests to protect, and its own concepts of how arbitrations should be conducted in its territory. Although the Model Law offers states a simple, yet well-recognised approach to reaching a common standard for the practice of international arbitration, certain states that have adopted the Model Law have been unable to resist adding their own particular provisions to it. Also, states with a long history of arbitration, and a highly developed law and practice, are particularly unlikely to adopt simplified models that may, in themselves, create fresh problems. Nevertheless, it is inconvenient (to put it no higher) that the regulation of international arbitration should differ from one country to another—and this has led to the search for an escape route. 3.88 In this connection, two separate developments are seen. The first is for the state to relax the control that it seeks to exercise over international arbitrations conducted on its territory. This is the route taken by modern laws of arbitration. These laws take careful note of the theme of the Model Law, which is that their courts should not intervene in arbitrations unless authorised to do so. The role of the courts should be supportive, not interventionist. 3.89 The second development is to detach an international arbitration from control by the law of the place in which it is held. This is the so-called delocalisation theory, the idea being that instead of a dual system of control, first by the lex arbitri and then by the courts of the place of enforcement of the award, there should be only one point of control: that of the place of enforcement. In this way, the whole world (or most of it) would be available for international arbitrations, and international arbitration itself would be 'supranational', 'a-national', 'transnational', 'delocalised', or even 'expatriate'. More poetically, such an arbitration would be a 'floating arbitration', resulting in a 'floating award'. 3.90 A judicial manifestation of the delocalisation theory is provided by the French Court of Cassation, which, in enforcing an arbitral award set aside by the English High Court, held that: [A]n international arbitral award, which does not belong to any state legal system, is an international decision of justice and its validity must be examined according to the applicable rules of the country where its recognition and enforcement are sought. As noted earlier, this French approach was considered by the UK Supreme Court in Dallah Real Estate, in which, without endorsing such an approach under English law, the Court noted that, under French law, 'arbitration agreements derive their existence, validity and effect from supra-national law, without it being necessary to refer to any national law'. 3.91 The delocalisation theory takes as its starting point the autonomy of the parties—the fact that it is their agreement to arbitrate that brings the proceedings into being—and rests upon two basic (yet frequently confused) arguments. The first assumes that international arbitration is sufficiently regulated by its own rules, which are either adopted by the parties (as an expression of their autonomy) or drawn up by the arbitral tribunal itself. The second assumes that control should come only from the law of the place of enforcement of the award. These two arguments are considered in more detail, below. (126) (127) (128) (129) (130) (131) (132) (ii) Arguments in favour of delocalisation considered 3.92 The first argument is, in effect, that an international arbitration is self-regulating and that this is, or should be, sufficient. This is a view that finds some support in a decision of the Supreme Court of Canada, which has held that: 15 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] The neutrality of arbitration as an institution is one of the fundamental characteristics of this alternative dispute resolution mechanism. Unlike the foreign element, which suggests a possible connection with a foreign state, arbitration is an institution without a forum and without a geographical basis. […] Arbitration is part of no state's judicial system […] The arbitrator has no allegiance or connection to any single country […] In short, arbitration is a creature that owes its existence to the will of the parties alone. 3.93 It is true that the parties to an international arbitration will generally (but not always) have a set of procedural rules to follow, whether they are those of an arbitral institution or are formulated ad hoc. It is also true that the arbitral tribunal will generally (but again, not always) have the power to fill any gaps in these rules by giving procedural directions—and this set of rules, whether agreed by the parties or laid down by the arbitral tribunal, may perhaps be said to constitute 'the law of the arbitration', in the same way as a contract may be said to constitute 'the law of the parties'. Finally, when the arbitration is being administered by an arbitral institution (such as the ICC or LCIA), that institution may be said to have taken over the state's regulatory functions to a large extent, by itself laying down rules for the confirmation or removal of arbitrators, terms of reference, time limits, scrutiny of awards, and so on. 3.94 Most arbitrations are conducted without any reference to the law that governs them. Nonetheless, to repeat a point that has already been made, this law—the lex arbitri— exists. Its support may be needed not only to fill any gaps in the arbitral process (such as the appointment of arbitrators), but also to give the force of law to orders of the arbitral tribunal that reach beyond the parties themselves, for example for the 'freezing' of a bank account or for the detention of goods. More crucially, this law will confer its nationality on the award of the arbitral tribunal, so that it is recognised, for example, as a Swiss award or a Dutch award and may benefit from any international treaties (such as the New York Convention) to which its country of origin is a party. 3.95 The second argument in support of the delocalisation theory is that any control of the process of international arbitration should come only at the place of enforcement of the award. If this were the position, it would mean that the place of arbitration would be, in legal terms, irrelevant. This may or may not be a desirable solution—but it is significant that one state, Belgium, which had compulsorily 'delocalised' international arbitrations has since changed its mind. For the rest, the prevailing emphasis, both nationally and internationally, is on a necessary connection between the place of arbitration and the law of that place. This may be seen, as has already been demonstrated, in the New York Convention and in the Model Law. (133) (134) (135) (136) (137) (138) (iii) The position in reality 3.96 The delocalisation theory has attracted powerful and eloquent advocates. Professor Gaillard described this 'representation' of international arbitration as follows: [It] accepts the idea that the juridicity of arbitration is rooted in a distinct, transnational legal order, that could be labelled as the arbitral legal order, and not in a national system, be it that of the country of the seat or that of the place or places of enforcement. This representation corresponds to the international arbitrators' strong perception that they do not administer justice on behalf of any given State, but that they nonetheless play a judicial role for the benefit of the international community. 3.97 Seductive as such theories might be, the reality is that the delocalisation of arbitrations—other than those, like those of ICSID, which are governed directly by international law—is possible only if the local law (the lex arbitri) permits it. Assessing the theory of 'delocalisation', Professor Paulsson concludes in his treatise The Idea of Arbitration as follows: [T]he development of international arbitration owes a disproportionately large debt to French law and to the conceptual advances of French judges and scholars. Nowhere else have the twin lodestars of freedom and internationalization combined in the conception of a voluntary process that accommodates the reality of a transnational society, shone so bright. Yet the zeal of those who make extravagant claims may do more harm than the resistance of non-believers and scoffers. The proposition that an effective legal order may be built upon diaphanous ions like positive perspectives or transnational dynamics are more likely to impede than to facilitate respect for the arbitral process. (139) (140) (iv) Seat theory and the lex arbitri 3.98 The strength of the seat theory is that it gives an established legal framework to an international arbitration, so that instead of 'floating in the transnational firmament, unconnected with any municipal system of law', the arbitration is firmly anchored in a given legal system. Just as the law of contracts helps to ensure that contracts are performed as they should be and are not mere social engagements, so the lex arbitri helps to ensure that the arbitral process works as it should. The necessity for such (141) 16 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] support for (and control of) the arbitral process is, of course, reflected in the Model Law, which allows for certain functions (such as the appointment of arbitrators, where there is a vacancy) and for certain sanctions (such as the setting aside of an award) to be exercised by the courts of the place of arbitration. 3.99 For this reason, the English courts have held that although, under English law and subject to certain mandatory provisions, parties are free to agree the law and procedure that will govern how proceedings are conducted, the law chosen must indeed satisfy this function. In Halpern v Halpern, Jewish law as a religious law was deemed not to be a 'realistic candidate as the law of the arbitration', and in addition was said to lack any supervisory or appellate jurisdiction over arbitrations. 3.100 That different states have different laws governing international arbitration and that some of these laws may not be well suited to this task has two practical consequences. First, it means that, wherever an international arbitration is held, the provisions of the local law should be checked to see whether there are any particular mandatory rules that must be observed in order to obtain a valid award. Secondly, it means that not every country is a suitable situs for international arbitration and that a certain amount of 'forum shopping' is advisable. 3.101 The first point is almost self-evident. For example, if the local law requires an award to be made within a defined period of time or to be lodged with a local court for it to be valid, then the necessary action must be taken to conform to this requirement. The second point is less evident, but equally important. Since the law and practice of international arbitration differs from one state to the next (and may even differ from place to place within the same state), care should be taken to choose a place of arbitration in a state that is favourable, rather than in one that is unfavourable. This is a matter of considerable practical importance and should be considered at the time the parties are drafting their arbitration agreement. 3.102 One final comment is necessary before leaving the discussion of delocalisation and the lex arbitri. It seems, for now, that the movement in favour of total delocalisation, in the sense of freeing an international arbitration from control by the lex arbitri, remains aspirational. As the Belgian experiment showed, delocalisation is possible only to the extent that it is permitted by the lex arbitri, and parties to an arbitration may well prefer an arbitral tribunal that is subject to some rational legal control. However, there is still discontent amongst practitioners regarding the impact of local laws that are seen to operate unfairly and, at times, almost arbitrarily, and so there have been cases of what may perhaps be described as 'delocalisation by a side door'. 3.103 In Chromalloy, for example, the Egyptian court annulled an arbitral tribunal's award made in Cairo in favour of a US corporation. Despite this annulment by the courts of the place of arbitration, the award was granted recognition and enforcement by the US District Court in Washington, DC—'to the advantage of the home team', in the words of certain distinguished US commentators. And Chromalloy is but one example of national courts enforcing awards that have been annulled by the courts of the place of arbitration. 3.104 Then there are the problems caused by local courts that issue injunctions at the seat of the arbitration to prevent arbitral tribunals from carrying out their task. Some tribunals continue with the arbitral proceedings despite the injunction (even when they are within the territorial jurisdiction of the court concerned) on the basis that the injunction is not justified. In effect, these arbitrators 'delocalise' their arbitration by refusing to accept the rulings of the local court under the lex arbitri. (142) (143) (144) (145) (146) (147) (148) (149) D. Law Applicable to the Substance (a) Introduction 3.105 When questions of procedure have been settled, the principal task of the arbitral tribunal is to establish the material facts of the dispute. It does this by examining the agreement between the parties, by considering other relevant documents (including correspondence, minutes of meetings, and so on), and by hearing witnesses, if necessary. The arbitral tribunal then builds its award on this foundation of facts, making its decision either on the basis of the relevant law or exceptionally, and then only if expressly authorised by the parties, on the basis of what seems to be fair and reasonable in all of the circumstances. 3.106 Once the relevant facts have been established, the arbitral tribunal may not need to go outside the confines of the agreement originally made between the parties in order to determine the dispute. This agreement, particularly in international commercial transactions, will generally be quite detailed. For example, international construction contracts run to many hundreds of closely printed pages, accompanied by detailed drawings and specifications. Properly understood, such an agreement will generally make clear what the parties intended, what duties and responsibilities they each assumed, and therefore which of them must be held liable for any failure of performance that has occurred. 3.107 But, as already stated, an agreement intended to create legal relations does not 17 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] exist in a legal vacuum. It is supported by a system of law that is generally known as 'the substantive law', 'the applicable law', or 'the governing law' of the contract. These terms all denote the particular system of law that governs the interpretation and validity of the contract, the rights and obligations of the parties, the mode of performance, and the consequences of breaches of the contract. 3.108 Changes in the law applicable to the contract may bring about changes in the contract itself. For instance, a country may enact currency regulations; these regulations will then apply to contracts that are governed by the law of that country. This happened in a case in which the delivery of bearer bonds to their lawful owner was refused because, under the law of then Czechoslovakia, it had become illegal for the bonds to be delivered without the consent of the Central Bank. The Central Bank refused that consent. The owner of the bonds sued for their delivery, but was unsuccessful: If the proper law of the contract is the law of Czechoslovakia, that law not merely sustains but, because it sustains, may also modify or dissolve the contractual bond. The currency law is not part of the contract, but the rights and obligations under the contract are part of the legal system to which the currency law belongs. Accordingly, it is not enough to know what agreement the parties have made. It is also essential to know what law is applicable to that agreement. In a purely domestic contract, the applicable law will usually be that of the country concerned. However, where the contract is in respect of an international transaction, the position is more complicated: there may then be two, or more, different national systems of law capable of qualifying as the substantive law of the contract, and—although it is important not to exaggerate the possibilities—these different national systems may contain contradictory rules of law on the particular point or points in issue. 3.109 People who cross a national frontier on foot or by car, passport in hand, realise that they are moving from one country to another. The more percipient travellers may also realise that they are moving from one legal system to another—and indeed that what is lawful in one country is not necessarily so in another. 3.110 The transition from one legal system to another is less apparent, or at least more easily forgotten, when national frontiers are crossed by electronic signals from telephones or computers. For example, an oil trader in New York may enter into an agreement by telephone to buy crude oil on the spot market in Rotterdam, for shipment to a refinery in Germany. A bullion dealer in London may buy gold by an email from Zurich for delivery to a bank in Italy, on the basis that payment is to be made by an irrevocable letter of credit drawn on a bank in Chicago. These transactions cross national frontiers as unmistakably as travellers by road or train. Although there are no physical frontiers to go through, complex questions of law may still arise because of the crossing of national boundaries. Transactions such as these take place constantly; and rules of law govern each transaction. Yet problems still arise, first, in identifying what law applies, and secondly, in dealing with any conflict between the applicable laws. (150) (151) (152) (b) Autonomy of the parties 3.111 It is generally recognised that parties to an international commercial agreement are free to choose for themselves the law (or the legal rules) applicable to that agreement. The doctrine of party autonomy, which was first developed by academic writers and then adopted by national courts, has gained extensive acceptance in national systems of law: [D]espite their differences, common law, civil law and socialist countries have all equally been affected by the movement towards the rule allowing the parties to choose the law to govern their contractual relations. This development has come about independently in every country and without any concerted effort by the nations of the world; it is the result of separate, contemporaneous and pragmatic evolutions within the various national systems of conflict of laws. 3.112 The doctrine has also found expression in international conventions, such as the Rome I Regulation. The Rome I Regulation, which is applicable to contractual obligations within the European Union (EU), accepts as a basic principle the right of parties to a contract to choose, expressly or by implication, the law that is to govern their contractual relationship. 3.113 If national courts are prepared (as most of them are) to recognise the principle of party autonomy in the choice of the law applicable to a contract, then, a fortiori, arbitral tribunals should also be prepared to do so. An international arbitral tribunal owes its existence to the agreement of the parties and, in applying the law chosen by the parties, an arbitral tribunal is simply carrying out their agreement. (153) (154) (155) (156) (157) (i) Recognition by international conventions 3.114 Both international conventions and the model rules on international arbitration confirm that the parties are free to choose for themselves the law applicable to their 18 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] contract. For example, the ICSID Convention provides that '[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties'. The UNCITRAL Rules provide that '[t]he arbitral tribunal shall apply the rules of law designated by the parties as applicable to the substance of the dispute'. And, amongst the rules of arbitral institutions, the ICC Rules provide that: '[t]he parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute'. As one commentator has stated: There are few principles more universally admitted in private international law than that referred to by the standard terms of the 'proper law of the contract'—according to which the law governing the contract is that which has been chosen by the parties, whether expressly or (with certain differences or variations according to the various systems) tacitly. (158) (159) (160) (161) (162) (ii) Time of choice 3.115 At its origin, the rule of party autonomy related to the freedom of the parties to choose the applicable law at the time of making their contract. It now extends (under the international conventions and rules cited) to the right of the parties to choose the law as it is to be applied at the time of the dispute. 3.116 It is logical to allow the parties to choose the law that is to govern their contract at the time when they make it. In their contract, the parties set out the rights and duties that they undertake to uphold towards each other. It is appropriate that they should, at the same time, refer to the system of law by which that contract is to be governed, because that law forms an essential element of the bargain between them. 3.117 There is less logic in allowing the parties to choose the applicable law once a dispute has arisen and yet, in practice, it seems that parties may do so, even if their choice of law differs from that which they had chosen previously. Indeed, the Rome I Regulation makes express provision for this. If any justification for this delayed choice (or even change) of law is sought in legal philosophy, it must lie more generally in the concept of the autonomy of the parties. Parties are generally free to vary the terms of their contract by agreement; in the same way, they should be free to vary by agreement the law applicable to a dispute arising out of that contract. (163) (iii) Restrictions on party autonomy 3.118 For lawyers who practise in the resolution of international trade disputes and who are accustomed to wending their way through a maze of national laws, the existence of a general transnational rule of law supporting the autonomy of the parties is almost too good to be true. The natural inclination is to ask whether there are any restrictions on the rule, and if so, what? 3.119 The answer is that there may be limited restrictions on the rule, designed to ensure that the choice of law is bona fide and is not contrary to public policy. Thus the Rome I Regulation, for example, does not allow the choice of a foreign law to override the mandatory rules of law of a country towards which all of the factual elements of the contract point—so that, for example, the choice of a foreign law for the purposes of tax evasion or avoiding competition regulation would not be permissible. Thus, in Soleimany v Soleimany, the English Court of Appeal refused to enforce an award where the transaction was not illegal under the applicable law, but was illegal under English law. 3.120 The case concerned a contract between a father and son, which involved the smuggling of carpets out of Iran in breach of Iranian revenue laws and export controls. The father and son had agreed to submit their dispute to arbitration by the Beth Din, the Court of the Chief Rabbi in London, which applied Jewish law. Under the applicable Jewish law, the illegal purpose of the contract had no effect on the rights of the parties and the Beth Din proceeded to make an award enforcing the contract. In declining to enforce the award, the English Court of Appeal stated: The Court is in our view concerned to preserve the integrity of its process, and to see that it is not abused. The parties cannot override that concern by private agreement. They cannot by procuring an arbitration conceal that they, or rather one of them, is seeking to enforce an illegal contract. Public policy will not allow it. (164) (165) (166) (167) (c) The choice of applicable substantive law 3.121 Subject only to the qualifications of good faith, legality, and no public policy objection, the conventions and rules on arbitration that have been mentioned make it plain that the parties may choose for themselves the substantive law applicable to the dispute. Parties to an international commercial agreement should make full and proper use of this freedom, inserting a 'choice-of-law' clause into their contract and into any arbitration agreement in that contract. 3.122 If they fail to do so, it will almost certainly be a matter for regret should a dispute arise, since (as will be seen) the search for the proper law can be a long and expensive 19 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] process. A choice-of-law clause may be drawn in very simple terms. It is usually sufficient to say: 'This agreement shall in all respects be governed by the law of England' (or of Singapore, or of the State of New York, or of any other state that has in place a modern law of contract). 3.123 The question that then arises is: given a free choice, what system of law should the parties choose as the law applicable to the dispute? Is their choice limited to the choice of a national system of law, or may it extend beyond this, perhaps to rules of law such as those of the law merchant (lex mercatoria)? Indeed, are the parties limited to a choice of law or of legal rules? May they not, for instance, agree that the dispute should be decided according to considerations of equity and good conscience? 3.124 It is to these questions that attention must now be turned. The choices that may be available to the parties include: i. national law; ii. public international law (including the general principles of law); iii. concurrent laws (and combined laws—the tronc commun doctrine); iv. transnational law (including international development law, the lex mercatoria, codified terms and practices, and trade usages); and v. equity and good conscience. (i) National law 3.125 In most international commercial contracts, including those in which a state or state entity is one of the parties, it is usual for a given system of law to be chosen as the law applicable to the contract itself. There is much sense in such a choice. Parties who choose a law to govern their contract, or any subsequent dispute between them, will generally choose an autonomous system of law. Such a system is not merely a set of general principles or of isolated legal rules; rather, it is an interconnecting, interdependent collection of laws, regulations, and ordinances, enacted by or on behalf of the state, and interpreted and applied by the courts. It is a complete legal system, designed to provide an answer to any legal question that might be posed. Furthermore, a national system of law will, in principle, be a known and existing system, capable of reasonably accurate interpretation by experienced practitioners. 3.126 In law, as in life, there is no certainty. However, a national system of law provides a known (or at least determinable) legal standard against which the rights and responsibilities of the parties can be measured. In the event of a dispute, the parties can be advised with reasonable confidence as to their legal position—or, at the very least, they can be given a broad indication of their chances of success or failure. If, for example, parties to a dispute that is to be heard in Switzerland agree that the arbitral tribunal shall apply the law of France, then all concerned (arbitrators, parties, and advisers alike) know where they stand. The arbitrators will know to what system of law they have to refer, if such reference becomes necessary. The parties and their advisers will be able to evaluate their prospects of success against the known content of French law. They will know, too, what sort of legal arguments they will have to present and what sort of legal arguments (as to fault, compensation, and so on) they may be required to address. (168) Choice of a system of national law 3.127 The standard arbitration clauses recommended by arbitral institutions, such as the ICC, are usually followed by a note pointing out that, in addition to incorporating the arbitration clause in their agreement, the parties should also add a 'choice-of-law' clause. In-house lawyers and others who are concerned with the drafting of contracts will invariably do this, so that in most commercial contracts, it is usual to find an arbitration clause, in addition to a 'choice-of-law' clause, which should also be expressed to cover that arbitration clause. 3.128 Almost invariably, the law chosen is a national law. This may be because of that law's connection with the parties to the contract, or it may simply be because the parties regard it as a system of law that is well suited to governing their commercial relations. Indeed, many contracts incorporate the choice of a particular country's law, although they have no connection with that country. For example, commodity contracts, shipping and freight contracts, and contracts of insurance often contain a choice of English law, because the commercial law of England is considered to reflect, and to be responsive to, the needs of modern international commerce. For similar reasons, many major reinsurance contracts contain a choice of the law of the State of New York. 3.129 In an ideal world, almost any national system of law should be suitable, as long as that law has been drawn up, or has developed, in a manner that suits the requirements of modern commerce. In the real world, some national systems of law will be found to contain outdated laws and regulations that make them unsuitable for use in international contracts. 3.130 Indeed, even well-developed and modern systems of law are not necessarily best suited to the needs of international (as opposed to purely domestic) commerce. The law of a country reflects the social, economic, and (above all) political environment of that particular country. If a country habitually controls the import and export trade (perhaps 20 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] permitting such activities only through state corporations), and prohibits the free flow of currency across the exchanges, these restrictions will permeate the national law. This may or may not benefit the country concerned, but it is not an environment in which international trade and commerce is likely to flourish. A national law that does not permit the free flow of goods and services across national frontiers is probably not the most suitable law to govern international commercial contracts and the disputes that may arise from them. 3.131 Parties to an international commercial contract will need to bear these kinds of considerations in mind in choosing a given system of law to govern their contractual relationships. Even in countries that favour international trade and development, problems may arise, particularly where the contract is made with the state itself or with a state agency. The problem, shortly stated, is that the state (as legislator) may change the law and so change the terms of the contract lawfully, but without the agreement of the other party to the contract. The state may, for instance, impose labour or import restrictions, which render performance of the contract more expensive. Unless the contract has been drafted with such possible contingencies in mind—and such contingencies may be difficult to foresee—it is the private party who will suffer from this change in the equilibrium of the contract. 3.132 The problem of protecting a party from changes in the local law was considered in the Sapphire arbitration: Under the present agreement, the foreign company was bringing financial and technical assistance to Iran, which involved it in investments, responsibilities and considerable risks. It therefore seems normal that they should be protected against any legislative changes which might alter the character of the contract and that they should be assured of some legal security. This would not be guaranteed to them by the outright application of Iranian law, which it is within the power of the Iranian State to change. (169) (170) Precluding unfair treatment 3.133 Various devices have been borrowed from private law contracts in an attempt to maintain the balance of the contract. Historically, these have included revision clauses, hardship clauses, and force majeure clauses, all of which have played a part in helping to maintain the balance of the contractual relationship. (171) Stabilisation clauses 3.134 One method of maintaining the balance of a contract is by including a 'stabilisation clause', that is, a clause which stabilises (or protects) the agreed terms from subsequent changes in the governing law. Such stability may be particularly important in a long-term government contract governed by the law of the host state which the government may be in a position unilaterally to change. 3.135 The classic type of stability provision was the 'freezing' clause, by which the national law has been 'frozen' by means of the parties agreeing that the law of the state party will be applied as it stood on a given date. Strictly speaking, the state law does not then operate as the applicable law, but as an immutable code of law incorporated into the contract. It will not change no matter what amendments are made to the state law itself. 3.136 However, stabilisation clauses came under increasing scrutiny on the basis that private investors should not be in a position to limit a host state's ability to modernise its laws. 3.137 More recently, stabilisation clauses can be divided into broadly two distinct groups —namely, freezing clauses and economic equilibrium clauses, which are becoming more common. 3.138 As their name implies, 'economic equilibrium', or 'renegotiation', clauses attempt to maintain the original economic equilibrium of the parties at the time of contracting, where subsequent measures might otherwise alter the expected economic benefits to which the parties have subscribed. These clauses do not aim to freeze the law; thus newly enacted laws will apply to the investment. However, they will provide the investor with a contractual entitlement to be compensated for the cost of complying with new laws or, alternatively, may require the parties to negotiate in good faith to restore the original economic equilibrium of the contract. Avoiding any purported restriction on the development of local law, such clauses thereby steer clear of the principal ground of criticism of 'freezing' clauses. 3.139 Both categories of stabilisation clause therefore present different ways of allocating 'change of law' risk between investors and host states. Moreover, such clauses could support claims by investors pursuant to the 'expropriation', 'fair and equitable treatment', or 'umbrella' provisions in investment treaties. (172) (173) (174) (ii) Mandatory law 3.140 Although it is generally recognised that parties to an international commercial 21 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] agreement are free to choose for themselves the law (or legal rules) applicable to that agreement, there are limits to this freedom. Mandatory rules have been defined as those that 'cannot be derogated from by way of Contract', and may feature in the determination of a contractual dispute in addition to the governing law selected by the parties. 3.141 Thus, by way of example, Russian law may feature in the determination of corporate governance issues relating to a Russian company even if the arbitration arises from a shareholders' agreement governed by Swedish law. In the same way, again by way of example, US-quoted companies cannot exclude the application of the Foreign Corrupt Practices Act of 1977 from the operations simply by concluding an investment agreement in Kazakhstan that is subject to Kazakh law. Moreover, in yet another example that the authors have seen in practice in an ICC case in Paris, the commercial export of defence technology from the United States to the Gulf region will be subject to the US International Trade in Arms Regulations even if the supply contract in question is governed by the law of the United Arab Emirates. However, perhaps the most frequently encountered instance of the application of mandatory law is competition, or anti-trust, law, and the authors now proceed to use that as an illustration. 3.142 As already discussed in Chapter 2, at one time it was widely considered that the private forum of arbitration was not appropriate for the determination of claims under competition law. Landmark judgments such as that of the US Supreme Court in Mitsubishi Motor Corporation v Soler Chrysler-Plymouth, however, have long since confirmed the arbitrability of competition law issues. A decision of the Court of Justice of the European Union (CJEU) goes further, and suggests that, in Europe at least, arbitral tribunals may be duty-bound—or may at least have a discretion—to address issues of European competition law ex officio even where they have not been raised by the parties themselves, because such issues constitute a matter of public policy. 3.143 Another example of the impact of mandatory law is a decision of the CJEU that has called into question the enforceability of awards rendered by investment treaty tribunals where the law applicable to their dispute includes EU law. The case of Slovak Republic v Achmea concerned a Dutch insurance company that had established a subsidiary in Slovakia that was detrimentally affected by a change in the regulations concerning private health insurance in Slovakia. Achmea commenced treaty arbitration under the Czechoslovakia–Netherlands BIT, which stated that the law applicable to the dispute would include 'the law in force of the Contracting Party concerned' as well as 'the provisions of […] other relevant Agreements between the Contracting Parties'. 3.144 Achmea prevailed in the arbitration, and Slovakia sought to annul the award at the seat of the arbitration, in Germany. Slovakia submitted that the arbitration clause contained in the Czechoslovakia–Netherlands BIT was contrary to provisions of the Treaty for the Functioning of the European Union (TFEU), namely: (i) Article 344 TFEU, which prohibits EU Member States from submitting a dispute concerning the interpretation or application of EU law to any method of settlement other than those for which the EU Treaties provide (that is, excluding arbitration); and (ii) Article 267 TFEU, which provides for a preliminary ruling mechanism that ensures that only the CJEU gives a final, legally binding interpretation of EU law (and which an arbitral tribunal could not request). 3.145 The German courts referred these questions to the CJEU for a preliminary ruling, and the CJEU ruled that the arbitration clause in the Czechoslovakia–Netherlands BIT was contrary to Articles 267 and 344 TFEU. Of primary concern to the CJEU was the applicable law clause in the underlying BIT, which directed an arbitral tribunal to interpret and apply the law of the BIT parties (which includes EU law), contrary to the terms of the TFEU. Three years later, the CJEU made a similar ruling in September 2021, in the case of Komstroy, ruling that intra-EU arbitrations under the Energy Charter Treaty (ECT) are also incompatible with EU law. 3.146 It is important to understand what is behind the rulings of the CJEU, which have understandably caused much disquiet in the world of arbitration. The CJEU is concerned to be and to remain the ultimate authority on the law of the EU. To this end, national courts within the EU can refer a matter of EU law to the CJEU for a preliminary ruling, as the German court did in Achmea. This enables the CJEU to have the final word on issues of EU law. But there is no such mechanism of referral so far as arbitral tribunals are concerned, and this has led the CJEU to question whether arbitral tribunals applying EU law threaten the autonomy of the system of EU law, and the CJEU's supervision of that autonomy. (iii) Public international law, general principles of law, and public policy 3.147 Public international law is concerned primarily with states, but not exclusively so. As Dame Rosalyn Higgins, a former president of the International Court of Justice (ICJ) in The Hague, has contended, international law is a dynamic (not static) decisionmaking process, in which there are a variety of participants: Now, in this model, there are no 'subjects' and 'objects', but only participants. Individuals are participants, along with states, international organizations (such as the United Nations, or the International Monetary Fund (IMF) or the [International Labour Organization] ILO) [sic], multinational corporations, and (175) (176) (177) (178) (179) (180) (181) (182) (183) (184) 22 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] indeed private non-governmental groups. 3.148 Amongst the 'participants' to whom President Higgins referred are those individuals and corporations who brought claims before the Iran–United States Claims Tribunal and those 'investors' who seek to protect their investment through the machinery of ICSID. This has brought public international law into sharper focus as far as private individuals and corporations—and their lawyers—are concerned. Increasingly, 'international law' may be specified as the substantive law of a contract, particularly where that contract is with a state or state agency. The reference may be to 'international law' on its own, or it may be used in conjunction with a national system of law. Commentators have argued that international arbitral tribunals also have an inherent authority to apply general principles of law, and indeed that they routinely do apply nonstate law to resolve disputes between private parties, especially where the parties have no agreement on the lex contractus. 3.149 Reference has already been made to the freedom that parties (generally) have in selecting the law or the legal rules applicable to their contract. There is no reason, in principle, why they should not select public international law as the law that is to govern their contractual relationship. To quote President Higgins again: The increasing importance of international arbitration is an area that we should perhaps be watching. It is now commonplace for a foreign private corporation and a state who have entered into contractual relations to agree to international arbitration in the event of a dispute. (And, in principle, the private party could be an individual, though as such he will probably have less leverage than a foreign corporation and may well have to accept the local legal system rather than reference to international arbitration.) The applicable law clause may designate a national legal system, but more usually it will refer to 'general principles of law' or 'the law of country X and the relevant principles of general international law', or some such similar formula. At one bound, therefore, the private party has escaped the need to have his claim brought by his national government, and can invoke international law. Thus, if State X and Mr Y have a contract, State X's ability to vary the terms of that contract will be interpreted by reference to the relevant principles of international law; and compensation due to Mr Y will likewise be appraised by reference to international law […] Arbitral clauses which refer to international law as the applicable law effectively remove the alleged inability of individuals to be the bearer of rights under international law. This is being done by mutual consent, of course—but the point is that there is no inherent reason why the individual should not be able directly to invoke international law and to be the beneficiary of international law. 3.150 There are many sources of public international law, including international conventions and international custom, but probably the most relevant, as far as nonstate parties are concerned, are 'the general principles of law recognised by civilised nations'. These have been defined as 'the general principles of municipal jurisprudence, in particular of private law, in so far as they are applicable to relations of States'. 3.151 However, the problem of adopting public international law as the system of law that is to govern a commercial relationship is not a problem of principle, but of practice. Public international law, being concerned primarily with the relationships between states, is not particularly well equipped to deal with detailed contractual issues—such as mistake, misrepresentation, time of performance, the effect of bankruptcy or liquidation, force majeure, or the measure of damages, and so forth. The same criticism may be directed at the choice of 'general principles of law' as the governing law of a commercial contract. The problem with the general principles is they are just that: they deal with such topics as the principle of good faith in treaty relations, abuse of rights, and the concept of state and individual responsibility. They are excellent as generalisations (and, in this sense, can, as one commentary puts it, 'isolate the peculiarities of national law that may hinder the fair resolution of an individual case' ), but may lack sufficient detail to address all the complexities of contractual relations. That is why the authors suggest that if they are to be used in a contract, they should be used as a concurrent law, rather than on their own. 3.152 As another source of concurrently applicable law, some commentators view certain matters of international public policy as applying to the interpretation or application of a contract. International public policy considerations may apply, for example, where a tribunal is faced with concerns about a contract being a product of corruption, or where the performance of a contract may comprise part of a corrupt scheme. An illustrative example is the conclusion of the arbitral tribunal in World Duty Free Company Limited v The Republic of Kenya, which addressed the argument made by the government of Kenya that a contract with the claimant was tainted with illegality and thus unenforceable, because it was procured by the payment of a bribe from the claimant to the then President of Kenya. The tribunal, having surveyed the near universal condemnation of corruption, concluded that: (185) (186) (187) (188) (189) (190) (191) (192) (193) (194) (195) 23 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] In light of domestic laws and international conventions relating to corruption, and in light of the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy. Thus, claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by the Arbitral Tribunal. 3.153 The tribunal reached this conclusion, notwithstanding the submission of the claimant that 'it was routine practice to make such donations in advance of doing business in Kenya', and that the payments were 'regarded as a matter of protocol' such that 'domestic public policy' supported upholding the contract notwithstanding the bribe. 3.154 If an award does not adequately address indications of corruption, there is a risk that it may be challenged. This, in turn, suggests that an arbitrator's duty to render an enforceable award may be tied to that arbitrator's consideration, where relevant, of issues of international public policy, regardless (or indeed in furtherance) of a choice of law agreement. (196) (197) (198) (iv) Multiple applicable laws Dépeçage 3.155 A single contract may be governed by multiple laws, depending on the parties' choice of law and the context of their agreement. One example is where the parties agree that specific clauses or substantive issues are governed by distinct regimes, known as dépeçage. An example commonly referred to is the 'Bermuda Form' insurance policy, which applies New York law other than where specific issues are governed by English law. The 2019 Guide on the Law Applicable to International Commercial Contracts in the Americas, issued by the Inter-American Judicial Committee of the Organisation of American States (OAS), contains specific provisions on this matter and encourages adjudicators to permit dépeçage when granted discretion to do so. (199) (200) Concurrent laws, combined laws, and the tronc commun doctrine 3.156 In deciding on the 'law' applicable to their agreement, parties may expressly or tacitly adopt multiple laws or rules of law and apply them concurrently to their contractual relationship. As Paulsson and Petrochilos note, the parties' designation of an applicable law may not, on its true construction, cover all of the legal issues that pertain to the substance of a dispute; rather, 'a host of other rules/laws may need to be applied to resolve the substantive dispute'. 3.157 Modern procedural rules provide for this possibility. For example, while the UNCITRAL Rules 1976 provided that a tribunal 'shall apply the law designated by the parties' to their contractual relationship, the subsequently revised UNCITRAL Rules 2010 in Article 35.1 state that the tribunal 'shall apply the rules of law designated by the parties'. The reference to the plural 'enables the parties to designate as applicable to their case rules of more than one legal system, including rules of law which have been elaborated on the international level'. Similarly, and as discussed in further detail below, the Model Law provides that a 'law or legal system' may be designated as the law applicable to the substance of a dispute, while concurrently and '[i]n all cases', a tribunal 'shall take into account the usages of the trade applicable to the transaction' as well as principles of equity where the parties have provided authorisation to do so. 3.158 The concurrent application of laws to a commercial dispute involving a state or state party is illustrated by the role of international law. As already indicated in the discussion of contracts to which a state or state entity is a party, one of the main anxieties among commercial organisations engaged in trading or other business relationships with a sovereign state is that, after the bargain has been struck and the contract has been signed, the state may change its own law to the disadvantage of the private party. 3.159 One established safeguard against unfair or arbitrary action by the state party to the contract is to stipulate that the state's own law will apply only insofar as it accords with either public international law, the general principles of law, or some other system with accepted minimum standards. 3.160 The ICSID Convention, which established ICSID, makes use of this system of concurrent laws. The Convention provides for the resolution of disputes between a state (or a state entity) and a private party; it stipulates that if a dispute arises and there has been no express choice of law by the parties, the arbitral tribunal will apply the law of the contracting state party to the arbitration and 'such rules of international law as may be applicable'. Thus honour is satisfied: the state's own law is given proper recognition. Yet some fetter is imposed upon possibly unfair or arbitrary action by means of the reference to public international law. 3.161 This is a system of concurrent laws. For example, if a state were to terminate a longterm investment contract by an act of nationalisation, it would presumably do so in a way (201) (202) (203) (204) (205) (206) (207) (208) (209) 24 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] that would be valid under its own law. However, such an act of nationalisation would not be valid under international law unless it were shown to be non-discriminatory and to serve a public purpose, with proper compensation being offered. In this way, international law would be brought into play to set a minimum standard, which the arbitral tribunal would be empowered to uphold in its award. 3.162 Concurrent laws may also apply in circumstances of multiple applicable mandatory laws. This could occur where, for example, economic sanctions are part of mandatory public international law, such as those set by the Security Council of the United Nations, or where an arbitral tribunal applies the mandatory law of a third state. The latter is provided for in the Rome Convention, which provides: When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application. (210) (211) Libyan oil nationalisation arbitrations 3.163 The coupling of national law with international law is seen in the three arbitrations that arose out of the Libyan oil nationalisations, the Texaco, BP, and Liamco arbitrations, although it worked effectively in only one of them. 3.164 The choice-of-law clause was identical in the different concession agreements that came before three different arbitrators. It read as follows: This concession shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles of international law and, in the absence of such common principles, then by and in accordance with the general principles of law, including such of those principles as may have been applied by international tribunals. 3.165 In the event, this clause was interpreted in three different ways by the three different arbitrators: i. in the Texaco arbitration, the sole arbitrator held that the clause was primarily a choice of public international law; ii. in the BP arbitration, the sole arbitrator appears to have regarded it as a choice of the general principles of law; and iii. in the Liamco arbitration, the sole arbitrator held that the governing law of the contract was the law of Libya, but that the clause excluded any part of that law that was in conflict with the principles of international law. 3.166 The arbitral tribunal in the Aminoil arbitration arrived at a similar conclusion in respect of a concession agreement that had been brought to an end by an act of nationalisation, coupled with an offer of 'fair compensation'. Aminoil and the government of Kuwait agreed in the submission agreement that their dispute should be settled by arbitration 'on the basis of law', but left the choice of law to the tribunal, with the stipulation that the tribunal should have regard to 'the quality of the parties, the transnational character of their relations and the principles of law and practice prevailing in the modern world'. On this basis, Aminoil argued that the concession agreement was governed by transnational law, which it equated with the general principles of law, including the principles of pacta sunt servanda, reparation for injury, respect for acquired rights, the prohibition of unjust enrichment, and the requirement of good faith (including the prohibition against abuse of rights and estoppel or preclusion). The government, for its part, argued for the application of the law of Kuwait, of which public international law formed part. 3.167 It is useful to look at the tribunal's decision on the applicable law for two reasons. First, the state of Kuwait actually took part in the Aminoil arbitration, unlike Libya which effectively boycotted the Libyan arbitrations; secondly, and more relevantly for current practice, the dramatic increase in the number and importance of ICSID arbitrations has focused attention both on the involvement of national states in international arbitrations and on concurrent law clauses. 3.168 The tribunal in Aminoil stated that the question of the law applicable to the substantive issues in dispute before it was a simple one. The law of Kuwait applied to many matters with which it was directly concerned, but, as the government had argued, established public international law was part of the law of Kuwait and the general principles of law were part of public international law. The tribunal concluded: The different sources of the law thus to be applied are not—at least in the present case—in contradiction with one another. Indeed, if, as recalled above, international law constitutes an integral part of the law of Kuwait, the general principles of law correspondingly recognize the rights of the State in its capacity of supreme protector of the general interest. If the different legal (212) (213) (214) (215) (216) (217) (218) 25 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] elements involved do not always and everywhere blend as successfully as in the present case, it is nevertheless on taking advantage of their resources, and encouraging their trend towards unification, that the future of a truly international economic order in the investment field will depend. 3.169 The use of a system of concurrent laws, such as that envisaged by the ICSID Convention in the absence of an express choice of law by the parties to the dispute, seems to be the way forward for international contracts to which a state or state entity is a party. The reference to the law of the state concerned gives proper importance to the sovereign position of the state party, yet the reference to international law, or possibly to the general principles of law, provides a measure of protection to the private party to the contract. There is a balance to be struck between state law and international law. It is important that arbitral tribunals should be prepared to give due weight to both. 3.170 While this discussion has shown where the search for a 'neutral' law may lead, particularly in relation to state contracts, the search for such a law is not confined to state contracts. One solution, which has been canvassed in theory and occasionally adopted in practice, is to choose the national laws of both parties and so obtain the best (or possibly the worst) of both worlds. This tronc commun doctrine is based on the proposition that, if free to do so, each party to an international commercial transaction would choose its own national law to govern that transaction. If this proves unacceptable, why not go some way towards achieving this objective by identifying the common core of the two different systems of law and applying this to the matters in dispute? 3.171 The Sapphire arbitration has already been mentioned as an illustration of the problem of affording protection to the private party to a state contract against changes in the national law enacted by the state party. There was no express choice of law in the contract. There were, however, choice-of-law clauses in similar concession agreements previously made by the respondent, the National Iranian Oil Company, which were in the following terms: In view of the diverse nationalities of the parties to this Agreement, it shall be governed by and interpreted and applied in accordance with the principles of law common to Iran and the several nations in which the other parties to this Agreement are incorporated, and in the absence of such common principles then by and in accordance with principles of law recognised by civilised nations in general, including such of those principles as may have been applied by international tribunals. 3.172 This choice-of-law clause appears to be an adoption of the tronc commun solution to the choice-of-law problem. It would require the arbitrator to find out what principles existed in the law of Iran, which were also to be found in the national laws of the other parties to the agreement, and to apply those common principles to the matters in dispute before him or her. However, the arbitrator in the case adopted a different approach: he read the clause as entitling him to disregard the law of Iran (although this was specifically mentioned in the choice-of-law clause) and to apply the general principles of law. The arbitrator asserted: It is quite clear from the above that the parties intended to exclude the application of Iranian law. But they have not chosen another positive legal system and this omission is on all the evidence deliberate. All the connecting factors cited above point to the fact that the parties therefore intended to submit the interpretation and performance of their contract to principles of law generally recognised by civilised nations, to which article 37 of the agreement refers, being the only clause which contains an express reference to an applicable law. 3.173 Many years after the Sapphire arbitration, another important example of combined laws (or again, more correctly, of combined legal principles) came to be generally reported (and sometimes misreported). In the Channel Tunnel project, the concessionnaire Eurotunnel entered into a construction contract with a group of Anglo– French companies, known as Trans-Manche Link. Surprisingly, this agreement between two private entities referred not to the national law of either party, nor indeed to any national system of law, but instead to the common principles of both systems of law. The relevant clause provided that the contract would: in all respects be governed by and interpreted in accordance with the principles common to both English law and French law, and in the absence of such common principles by such general principles of international trade law as have been applied by national and international tribunals. 3.174 A dispute under the construction contract went to the English High Court, and this choice-of-law clause was considered both by the Court of Appeal and by the highest court in England, the House of Lords (now the UK Supreme Court). In the Court of Appeal, one of the judges said: Since both Eurotunnel and the contractors were partly French and partly (219) (220) (221) (222) (223) (224) (225) (226) 26 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] English, I wonder why they did not choose either English law or French law exclusively—and for that matter why they chose Brussels as the seat of any arbitration. The hybrid system of law which they did choose has a superficial attraction, but I suspect that it will lead to lengthy and expensive dispute. 3.175 This comment proved prescient. The search for common principles of English and French law meant that, for each dispute that arose under the construction contract— and there were many—teams of French and English lawyers on each side had to determine what the answer was likely to be under the applicable principles of their own law and then work out to what extent, if at all, these principles were common to both systems of law. As one of the construction group's external counsel has commented: The main reason for the difficulty in applying a clause providing for the application of common principles between English and French law is that although both systems tend to produce the same or very similar results, they fall short of providing the set of common principles which is necessary to cover all contractual disputes. 3.176 Although the Court of Appeal was, in passing, critical of this choice-of-law clause—as a hybrid system of law—it did not suggest that it was anything other than a binding and enforceable agreement. This emerges even more strongly in the decision of the House of Lords: The parties chose an indeterminate 'law' to govern their substantive rights; an elaborate process for ascertaining those rights; and a location for that purpose outside the territories of the participants. This conspicuously neutral, 'anational' and extra-judicial structure may well have been the first choice for the special needs of the Channel Tunnel venture. But whether it was right or wrong, it is the choice which the parties have made. 3.177 The Channel Tunnel project was one of the major international construction contracts of the twentieth century. Of course, even if only one system of law had been chosen as the applicable law, both French and English lawyers would have been needed to deal with the financing of the project, as well as 'domestic' issues such as staff accommodation on either side of the Channel, labour relations, and so on—but the dispute resolution process itself would have been simpler, less expensive, and, it is suggested, more predictable. 3.178 There are many large international projects in which lawyers from different countries are likely to be needed. In such major projects, the expense involved in searching for the common principles of two national systems of law, or for 'the common core' of these two national laws, may perhaps be justified (particularly if the two systems are known to have much in common). However, in ordinary trading contracts of the kind that constitute the day-to-day substance of international commerce, it must be doubtful whether the additional trouble and expense can be justified. 3.179 In summary, it is suggested that, in ordinary international commercial contracts, including construction contracts, the parties would do well to try to agree upon a given national law as the law of the contract. It may take time to reach agreement, but it will be time well spent. Where one of the parties to the contract is a state or a state agency, it may be necessary to adopt a system of concurrent laws (which may not be easy to operate, but which will probably be better than a system of combined laws). (227) (228) (229) (230) (231) (232) (v) Transnational law (including lex mercatoria, the UNIDROIT Principles, trade usages, and Shari'ah) Introduction 3.180 The reference to 'such rules of international law as may be agreed by the parties' (as in Article 42 of the ICSID Convention), or to 'the relevant principles of international law' (as in the Channel Tunnel Treaty) serve to remind us that it is not the whole corpus of law, but only certain specific rules of law that are likely to be relevant in any given dispute. For example, an international contract for the sale of goods governed by the law of Austria will usually bring into consideration only those provisions of Austrian law that deal with the sale of goods. An international construction project that is governed by the law of England will principally involve consideration of those particular areas of law that are concerned with construction contracts. This breaking down of the whole body of the law into specific, discrete sections is reflected by increased specialisation within the legal profession itself. Thus, for example, within an association of lawyers such as the IBA, there are specialist groups whose primary expertise is in energy law, or intellectual property, or construction law—and so forth. 3.181 In these circumstances, it seems appropriate to ask whether or not a particular group of bankers, or merchants, or traders may develop their own special rules of conduct that gradually acquire the force of law, either by themselves or by incorporation into national law or international treaty. Experience suggests that the answer to this question is a cautious 'yes'. Indeed, in the past, this is how much of our law (233) (234) 27 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] developed. Colombos, for example, tells of the early maritime codes such as the Rhodian Sea Law, which dated from the second or third century BC and which was 'of great authority in the Mediterranean, for its principles were accepted by both Greeks and Romans and its memory lasted for a thousand years'. This was an early form of transnational law, as indeed was the celebrated Consolato des Mare which, again according to Colombos, 'throughout the Middle Ages, reigned supreme in the Mediterranean until the advent of sovereign states, national legislation superseding the customary laws of the sea, so often incorporating many of its rules'. 3.182 It is significant that, within time, the 'customary laws of the sea' were superseded by legislation. As states evolve, this is almost inevitable. In the present-day world of sovereign states and complex legislation, it may be questioned whether there is still room for the crystallisation of customary practices into rules of law. Even if there is, it is likely to be confined to particular usages and to particular trades—and to grow, so to speak, in the interstices of existing laws, rather than to form one vast corpus of law. 3.183 There are many different communities carrying on activities that may be as diverse (and have as little in common) as the transport of goods or the establishment of an international telecommunications network. The rules of law that are relevant to these different commercial activities are in themselves likely to be very different. They may share certain basic legal concepts—such as the sanctity of contracts (pacta sunt servanda) —but even here different considerations are likely to apply. For example, an international contract for the sale of goods will be performed within a comparatively short timescale—but compare this to a major infrastructure project that will take many years to perform and during the course of which the basis upon which the original bargain was struck may change dramatically. 3.184 Given these words of caution, the approach adopted in this book is pragmatic, rather than theoretical. This is probably the most useful approach, since in practice lawyers and arbitrators are concerned with a particular dispute or series of disputes rather than with some 'general theory' of law. In a report on transnational rules, the author referred to the approach adopted by the International Law Association (ILA) formulated as follows: The Committee's approach in its continuing study of transnational law has been to step back from the highly contentious issues that arise from any theoretical consideration of transnational law, or lex mercatoria, as a discrete body of principles and to examine, in a pragmatic way, the application of individual identifiable principles at least as a phenomenon of international commercial arbitration, which it undoubtedly is. (235) (236) (237) Lex mercatoria 3.185 One of the more important developments in the field of transnational law has been that of the lex mercatoria. 3.186 This modern version of a 'law merchant' is taken to consist of rules and practices that have evolved within the international business communities. Professor Goldman, who named this new 'law' and who contributed greatly to its development, referred to it as having had 'an illustrious precursor in the Roman jus gentium', which he described as 'an autonomous source of law proper to the economic relations (commercium) between citizens and foreigners (peregrine)'. 3.187 The advantage of such a code of law is obvious: it would be adapted to the needs of modern international commerce and it would be of uniform application. The problem is whether such a system of law, which might have existed in Roman times or in the Middle Ages, can today arise spontaneously (as it were)—amongst states that already possess in full measure their own laws, orders, and regulations. Some commentators greeted the new lex mercatoria with approval. Others were politely sceptical, or (in the context of state contracts) dismissed it as an idea whose time has passed, since more sophisticated laws and rules now exist. Others still were openly hostile. What, then, is this new 'law' that has aroused so much controversy, and which, from time to time, has made its appearance in arbitral awards and in court proceedings? 3.188 For Professor Goldman, the distinguishing features of the lex mercatoria were its 'customary' and 'spontaneous' nature. It was his view that international commercial relationships: may perfectly well be governed by a body of specific rules, including transnational custom, general principles of law and arbitral case law. It makes no difference if this body of rules is not part of a legal order[ ] comporting its own legislative and judicial organs. Within this body of rules, the general principles of law are not only those referred to in Article 38(a) of the Statute of the International Court of Justice; there may be added to it principles progressively established by the general and constant usage of international trade. 3.189 It is not difficult to envisage rules developing in a particular area of international trade (such as documentary credits) and eventually being codified, either in national (238) (239) (240) (241) (242) (243) (244) (245) (246) (247) 28 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] legislation or by international treaty, so as to attain the force of law. But the custom in question is usually that of a particular trade or industry. The point has already been made that international traders do not constitute a homogeneous community. Instead they constitute myriad communities, each with their own different customary rules. How are these very different and specific rules to evolve into universal rules of international trade law? 3.190 Rather than pose these theoretical questions, it is perhaps more useful to ask: what is this new law? What principles does it embody? What specific rules does it lay down? In short, what is its content? 3.191 There appear to be two alternative approaches towards assessing the content of the new lex mercatoria: the 'list' method and the 'functional' approach. 3.192 List method As far as the 'list' method is concerned, various lists of rules or principles have been prepared over the past decade, drawing, amongst other things, upon the UNIDROIT Principles and the Principles of European Contract Law 1998, as updated in 2002 (the Lando Principles). The list process has been criticised as lacking flexibility. To counter this criticism, Professor Berger has proposed 'creeping codification': Creeping codification is to be distinguished from more formalized techniques for defining the lex mercatoria (UNIDROIT and Lando Principles): it is intended to avoid the 'static element' characteristic of other approaches and to provide the openness and flexibility required in order to take account of the rapid development of international trade and commerce. Creeping codification is intended to ensure that a list of transnational commercial principles is capable of being rapidly, and continually, revised and updated. Professor Berger established a database known as Translex, as the institutional framework within which to develop and update the list on an ongoing basis. 3.193 Functional approach The alternative approach involves identifying particular rules of the lex mercatoria as and when specific questions arise. This 'functional' approach regards the lex mercatoria as a method for determining the appropriate rule or principle. Professor Gaillard was a leading exponent of this approach, who emphasised that the controversy, which initially focused on the existence of transnational rules, has shifted. He said that it now focused: on the establishment in further detail of the content of those rules or the more systematic assessment of the means to do so. As a result, very significant differences of opinion on how such goals may be achieved have emerged. 3.194 According to Professor Gaillard, the functional approach presents the advantage that any claim made by a party in a given case would necessarily find an answer, which may not be the position under the list method. 3.195 As a practical matter, when arbitrators seek to identify the content of the lex mercatoria, they draw increasingly on the UNIDROIT Principles: If the Unidroit Principles embody concepts already in the lex mercatoria, […] these Principles would seem to provide a point of explicit reference for arbitral tribunals. And this is exactly what appears to be happening: the Unidroit Principles have already been referred to in about thirty ICC cases, it is recently reported, in order to identify general legal principles. 3.196 The usefulness of the UNIDROIT Principles and of the Lando Principles (which set out rules common to the main legal systems surveyed) has been recognised by other leading commentators, noting that '[t]he result—a concrete, usable list of principles and rules— addresses head-on the traditional concern of practitioners that the lex is too and impractical to be of any use in the real world.' 3.197 That the UNIDROIT Principles embody concepts within the lex mercatoria, but are not a source of it, has similarly been stressed by Professor Mayer in a useful survey of ICC awards on the issue: Each arbitral award stands on its own. There is no doctrine of precedence or of stare decisis as between different awards; and in general there is no appellate court to sort the wheat from the chaff. There is, in this sense, no formal control of the arbitral process. Arbitrators are free to decide as they choose. Conscientious arbitrators will obviously do their utmost to ensure that their decision is made in accordance with the law governing the contract. Their professional conscience will demand no less; and they will not decide ex aequo et bono without the express authorisation of the parties. But if the law governing the contract consists of those rules or principles which the arbitrators consider most appropriate, and which may conveniently be labelled as part of the lex mercatoria, those arbitrators are in effect free to decide in accordance with what they consider to be just and equitable, whilst purporting to decide in accordance with legal rules. (248) (249) (250) (251) (252) (253) (254) (255) (256) (257) (258) (259) 29 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] This is a pertinent observation. Under the guise of applying the lex mercatoria, an arbitral tribunal may in effect pick such rules as seem to the tribunal to be just and reasonable— which may or may not be what the parties intended when they made their contract. 3.198 The lex mercatoria has had some impact upon the law of international arbitration, and has been described by a leading authority as a body of 'substantive and procedural practices which parties and tribunals expect to apply and are applied in international arbitration'. It has also served to remind both the parties to international arbitration and the arbitral tribunals called upon to resolve their disputes that they are operating at an international level, and that different considerations may come into play from those to be found in purely national, or domestic, arbitrations. 3.199 Where the lex mercatoria is said to govern the parties' contract, either by agreement of the parties themselves or by a decision of the tribunal, will a court enforce that choice of law, if called upon to do so? And will such a court enforce an award made in conformity with the lex mercatoria, if called upon to do so? 3.200 In principle, the answer to both questions appears to be 'yes'. If the parties have agreed upon a particular method of dispute resolution, the court should be prepared to enforce that agreement following normal contractual principles. Again, if the arbitral tribunal has carried out the mission entrusted to it and has decided the case in accordance with the rules of law chosen by the parties, there would seem to be no reason why a court should refuse to enforce the award. The tribunal has simply done what the parties empowered it to do. As regards enforcement of the award, the ILA expressed the position that should sensibly be taken: The fact that an international arbitrator has based an award on transnational rules (general principles of law, principles common to several jurisdictions, international law, usages of trade, etc) rather than on the law of a particular State should not itself affect the validity or enforceability of the award: (i) where the parties have agreed that the arbitrator may apply transnational rules; or (ii) where the parties have remained silent concerning the applicable law. This position has been adopted by various national courts, including the French Court of Cassation, the Austrian Supreme Court, and the English Court of Appeal. (260) (261) (262) (263) (264) (265) UNIDROIT Principles 3.201 The influence of codified terms and practices in the concept and development of a new lex mercatoria has already been noted. For example, the ICC's Uniform Customs and Practice for Documentary Credits, formulated almost a century ago in 1933, have helped significantly in the move towards a single, uniform international standard for the interpretation of documentary credits—those valuable pieces of paper upon which much of international trade depends. Similarly, the ICC's International Rules for the Interpretation of Trade Terms (known as 'Incoterms') are intended to give a consistent, uniform meaning to terms that are in frequent use in international trade—so that expressions such as 'exw' (meaning 'ex works'), 'cif' (meaning cost, insurance, and freight), and 'fob' (meaning 'free on board') should mean the same to businessmen and traders in São Paulo as they do to those based in Paris or New York. 3.202 Reference has already been made to the UNIDROIT Principles, which are, in nature, a restatement of the general principles of contract law. The principles are comprehensive, covering not only the interpretation and performance of contractual obligations, but also the conduct of negotiations leading to the formation of a contract. They were developed to include new rules relating to failed contracts, illegality, and conditions, as well as the plurality of obligors and obligees. The emphasis is on good faith and fair dealing. The aim is to establish a neutral set of rules for use throughout the world without any particular bias to one system of law over another. As one experienced commentator has said: 'They were not drafted in the interest of a specific party or lobbying group. They will strike a fair balance between the rights and obligations of all parties to the contract.' 3.203 The UNIDROIT Principles 'represent a system of rules of contract law'. They apply only when the parties choose to apply them to their contract, or have agreed that their contract will be governed by 'general principles of law', the lex mercatoria, or the like. However, in practice, arbitral tribunals may themselves decide to refer to the UNIDROIT Principles as an aid to the interpretation of contract terms and conditions—or even as a standard to be observed, for example in the negotiation of a contract. 3.204 In a Swedish arbitration in which a governing law had not been specifically designated in the parties' contract, the European claimant argued in favour of Swedish law, basing itself on the choice of Sweden as the place of arbitration. The Chinese party argued in favour of Chinese law because China had the closest connection with the contract. The tribunal relied on Article 24.1 of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC Rules), which permitted it to apply 'the law or rules of law which the tribunal considers to be most appropriate'. Having decided that no common intention as to a particular national system of law could be found, the tribunal decided to adopt the only codification of trade law that had the status of an (266) (267) (268) (269) (270) (271) (272) (273) (274) (275) 30 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] internationally accepted code, namely: the UNIDROIT Principles of International Commercial Contracts […] The Tribunal determines that the rules contained therein shall be the first source employed in reaching a decision on the issues in dispute in the present arbitration. 3.205 An example of how the UNIDROIT Principles are intended to work is its treatment of clauses limiting liability. In many forms of contract, the party that bears the major responsibility for performance will seek either to limit its liability or even to exclude liability altogether. A clause in a construction contract, for example, may state that the contractor has no liability for loss of profit arising out of any breach of the contract, whether caused by negligence or any other breach of duty. The question then arises as to the scope of this clause and, in particular, whether, in specific circumstances, it may be set aside altogether. In relation to such a claim, the UNIDROIT Principles state: A clause which limits or excludes one party's liability for non-performance or which permits one party to render performance substantially different from what the other party reasonably expected may not be invoked if it would be grossly unfair to do so, having regard to the purpose of the contract. The effect of such a clause, in a dispute to which the UNIDROIT Principles are applicable, is to permit an arbitral tribunal to disregard the exemption clause in appropriate circumstances. In each case, it will be for the tribunal to decide what was the purpose of the contract and whether, in all of the circumstances, it would be 'grossly unfair' to apply the exemption clause. (276) (277) (278) Trade usages 3.206 As already mentioned, institutional rules (such as those of the ICC) and international arbitration rules (such as those of UNCITRAL) require an arbitral tribunal to take account of relevant trade usage. A similar requirement is to be found in the Model Law and in some national legislation, such as the Netherlands Arbitration Act. 3.207 The relevant trade usages will have to be established by evidence in any given case (unless the arbitrators are familiar with them and make this clear to the parties). However, as previously mentioned, organisations such as the ICC have been prominent in attempting to establish a commonly understood meaning for expressions that are in frequent use in international trade contracts and have developed Incoterms, in which the precise meaning and effect of such terms as 'exw', 'cif', and 'fob' are explained. It is obviously important that such terms should have the same meaning worldwide. To this end, the precise extent of these rights and obligations is spelt out in the Incoterms. 3.208 Standard form contracts are commonplace in many fields, including the shipping trade, the commodity markets, and the oil and gas industry. The step from the establishment of international terms and conditions to the establishment of uniform rules for the interpretation of these terms and conditions is a small, but important, one. Such uniform rules may apply only within the ambit of a national system of law. But if the same rules are uniformly applied by different national courts, or by arbitral tribunals, the basis is laid for the establishment of a customary law, which will have been created by merchants and traders themselves (rather than by lawyers) and which may achieve international recognition. (279) (280) (281) (282) Shari'ah law 3.209 Modern codes of law in Islamic countries take account of Shari'ah, often as a principal source of law. Shari'ah itself contains general principles that are basic to any civilised system of law, such as good faith in the performance of obligations and the observance of due process in the settlement of disputes. Although there are differences from country to country (partly as a result of the different schools of Islamic law and partly because some states are more open to Western influences than others), Islamic law, traditions, and language give these states a common heritage and, to some extent, a common approach to arbitration. 3.210 In a case that came before the English High Court, a financial transaction had been structured in a manner (an 'Estisna form') that ensured that the transaction conformed with orthodox Islamic banking practice. There was provision for any disputes to be settled by arbitration in London under the ICC Rules and there was a choice-of-law clause that provided for any dispute to be 'governed by the Law of England except to the extent it may conflict with Islamic Shari'ah, which shall prevail'. A dispute arose and the ICC appointed as sole arbitrator Mr Samir Saleh, an experienced lawyer and expert on Shari'ah law. The losing party challenged the arbitrator's award, but the English court rejected this challenge, holding that the award was a clear and full evaluation of the issues, and had all the appearances of being right. 3.211 According to Professor Fadlallah, however, 'the landscape was clouded' by three well-known awards, which, in his view, are not confined to history and (283) (284) (285) (286) (287) (288) (289) 31 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] continue to have 'harmful effects' on the development of Euro–Arab arbitration. In Sheikh Abu Dhabi v Petroleum Development Ltd, Ruler of Qatar v International Marine Oil Co. Ltd, and Aramco v Government of Saudi Arabia, the tribunals refused to apply Shari'ah on the ground that it did not contain a 'body of legal principles applicable to the construction of modern commercial instruments'. Ironically, according to Professor Fadlallah, the outcome in each case would have been the same even if Shari'ah had been applied. (290) (291) (292) (293) (294) (295) Authority to apply non-national law 3.212 The authority of an arbitral tribunal to apply a non-national system of law (such as the general principles of law, or the lex mercatoria) will depend upon (a) the agreement of the parties, and (b) the provisions of the applicable law. 3.213 The ICSID Convention, for example, is clear on this point. Article 42 states: 'The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties.' The reference to 'rules of law', rather than to 'law' or 'a system of law', is a coded reference to the applicability of appropriate legal rules even though these may fall short of being an established and autonomous system of law. 3.214 Within different states, different positions are adopted. France and Switzerland, for example, allow arbitrators to decide according to rules of law. By contrast, the Model Law, whilst leaving it to the parties to make an express choice of such 'rules of law' as they wish, requires an arbitral tribunal, if the choice is left to the tribunal, to apply 'the law determined by the conflict of laws rules which it considers applicable'. English law follows this approach: the arbitral tribunal has to decide the dispute (a) in accordance with the law chosen by the parties, or (b) if the parties agree, in accordance with 'such other considerations as are agreed by them or determined by the tribunal'; if there is no choice or agreement by the parties, the tribunal must apply 'the law' determined by the appropriate conflict rules. English courts have considered the meaning of 'such other considerations' under section 46(1)(b) of the English Arbitration Act in the following cases: i. in Musawi v R E International (UK) Ltd and ors, the court held that section 46(1) (b) of the English Arbitration Act entitled the parties to the arbitration to require the ayatollah arbitrator to apply Shari'ah law as the applicable law; and ii. in Halpern v Halpern, which concerned the application of Jewish law, the Court of Appeal ruled that if the seat of arbitration were England, then section 46(1)(b) of the English Arbitration Act would permit the tribunal to apply the parties' choice of some form of rules or non-national law to govern the merits of their dispute. Nevertheless, the meaning of 'such other considerations' is not yet entirely settled and it is difficult to transpose interpretations from other jurisdictions in which similar concepts may have different meanings. In Switzerland, for instance, ex aequo et bono is understood to mean the application of principles other than legal rules, while the concept of amiable compositeur requires the application of legal rules, but allows arbitrators to moderate the effect of such rules. In France, meanwhile, the two concepts are given a similar meaning. 3.215 The ICC Rules, on the other hand, clearly go further than the Model Law (and the English Arbitration Act). They not only allow the parties to choose the application of 'rules of law' to govern the dispute, but also allow the arbitral tribunal, in the absence of an agreement by the parties, to apply 'the rules of law which it determines to be appropriate'. Thus, by confirming their ability to choose rules of law other than those of a single state, the rules confer greater flexibility on both the arbitrators and the parties. (296) (297) (298) (299) (300) (301) (302) (303) (304) (vi) Equity and good conscience 3.216 Arbitrators may, from time to time, be required to settle a dispute by determining it on the basis of what is 'fair and reasonable', rather than on the basis of law. Such power is conferred upon them by so-called equity clauses, which state, for example, that the arbitrators shall 'decide according to an equitable rather than a strictly legal interpretation', or, more simply, that they shall decide as amiables compositeurs. 3.217 This power to decide 'in equity', as it is sometimes expressed, is open to several different interpretations. It may mean, for instance, that the arbitral tribunal: i. should apply relevant rules of law to the dispute, but may ignore any rules that are purely formalistic (for example a requirement that the contract should have been made in some particular form); or ii. should apply relevant rules of law to the dispute, but may ignore any rules that appear to operate harshly or unfairly in the particular case before it; or iii. should decide according to general principles of law; or iv. may ignore completely any rules of law and decide the case on its merits, as these strike the arbitral tribunal. 3.218 Commentators generally reject this fourth alternative. To the extent that they do agree, commentators seem to suggest that even an arbitral tribunal that decides 'in (305) 32 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] equity' must act in accordance with some generally accepted legal principles as well as any mandatory law applicable to the arbitration. For example, the Model Law requires that, even when authorised to act as amiable compositeur, a tribunal must still 'take into account the rules of the trade applicable to the transaction'. It is also doubtful that a tribunal acting as an amiable compositeur can disregard any or all of the express terms of the parties' agreement. Certain procedural rules, for example, may require a tribunal to 'take into account the relevant provisions of the contract, if any', and it seems difficult to conceive of many scenarios in which the draftsmen of a contract intended for an arbitrator to disregard those terms in the event of a dispute. 3.219 This is distinct from the possibility that an arbitrator might act to mitigate the consequences of a proper reading of the parties' contractual terms, for example by adjusting the reparation owed in light of a contractual breach. In ICC Case No. 3344, for example, two state entities entered into a three-year crude oil supply contract running from 1972 to 1974. At the end of 1973, the price of oil increased dramatically and the contract was renegotiated. Under the new terms, the parties agreed a provisional purchase price. The supplier then unilaterally fixed its own, higher price, by telex, to which the buyer did not respond. The tribunal held that on a strict legal analysis the buyer by its silence had accepted the higher price, but that equity allowed the tribunal to adjust the purchase price downward in order to moderate the undesirable effect of the rigid application of national law. This resonates with the approach taken in equity under the common law. 3.220 In many (or perhaps most) cases, an arbitral tribunal will reach its decision based largely on a consideration of the facts and on the provisions of the contract, whilst trying to ensure that these provisions do not operate unfairly to the detriment of one or the other of the parties or are not clearly contrary to the true intent of the parties. French law, for example, allows the arbitrators to act as amiables compositeurs, but requires them to satisfy certain standards. The Paris Court of Appeal has held that 'arbitrators acting as amiables compositeurs have an obligation to ensure that their decision is equitable or else they would betray their duty and give rise to a cause for annulment'. 3.221 In the case of Benvenuti & Bonfant v Republic of Congo, which concerned an alleged expropriation of a joint venture, the parties agreed that the ICSID tribunal could rule ex aquo et bono. In a passage illustrative of the boundaries that a tribunal is likely to apply to its powers to act in equity, the tribunal held: This principle of compensation in case of nationalization […] constitutes one of the generally recognized principles of international law as well as of equity. By reason of the above, the Government must therefore be ordered to pay B&B damages, the quantum of which will be determined ex aequo et bono. In addition to applying equitable principles in the quantification of damages, the tribunal also awarded the claimant moral damages (albeit reducing the amount awarded to one fifth of the amount claimed), and applied a rate of interest that it considered appropriate '[b]y virtue of its power to rule ex aequo et bono'. 3.222 For an 'equity clause' to be effective, there are, in principle, two basic requirements: first, that the parties have expressly agreed to it; and secondly, that it should be permitted by the applicable law. Both requirements are seen in the UNCITRAL Rules 1976, which provides: 'The arbitral tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have expressly authorised the arbitral tribunal to do so and if the law applicable to the arbitral procedure permits such arbitration.' (The UNCITRAL Rules 2010 has dropped the second requirement, making reference only to the parties' authorisation as a requirement.) The ICC Rules, LCIA Rules, and SCC Rules all contain a similar provision. 3.223 It is noteworthy that the UNCITRAL Rules refer to amiable compositeur and ex aequo et bono as distinct concepts. Although a historical distinction has been drawn between them, the increasing practice of international arbitral tribunals appears to be to view both concepts as granting a discretion to arbitral tribunals to put aside strict legal rules and (subject to what has already been said about the need to take account of trade rules, for instance) decide the dispute by reference to general principles of fairness. 3.224 The arbitration laws of some states go even further. They assume that the arbitrators will decide in equity unless it is expressly stated that they must decide in law. This recalls a time when arbitration was considered a 'friendly' method of dispute resolution, rather than the law-based process that it has become. If the arbitration is to take place in such a state, parties should take care to specify if they do not want the arbitrators to decide in accordance with principles of equity. (306) (307) (308) (309) (310) (311) (312) (313) (314) (315) (316) (317) (318) (319) (320) (321) (322) E. Conflict Rules and the Search for the Applicable Law (a) Introduction 3.225 As the foregoing discussion has endeavoured to make clear, parties to a contract 33 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] are entitled to choose the law that is to govern their contractual relationship, and parties should exercise this entitlement with proper care and consideration in any international commercial contract into which they may enter. In the event of a dispute, such care and consideration may prove to be very valuable in saving a potentially expensive and timeconsuming dispute about what law governs the contract or its arbitration clause. 3.226 The choices generally open to parties have been set out throughout this chapter. If disputes arise and no choice of law has been agreed, it is difficult to make a proper assessment of the rights and obligations of the parties, because there is no known legal framework within which to make this assessment. 3.227 If arbitration proceedings are commenced, one of the first tasks of the arbitral tribunal will be to do what the parties have failed to do—that is, to establish what law is applicable to the contract. In some cases, it might be appropriate for the arbitral tribunal to identify some non-national rule or custom to decide the issue in question, as opposed to a national law. This search for the applicable substantive law may be a time-consuming and unpredictable process. The next section indicates how arbitrators are likely to approach the task if obliged to do so. By way of general introduction, the ILA's Committee for International Commercial Arbitration has recognised the need for guidance and development of best practices for parties, counsel, and arbitrators in ascertaining the contents of the applicable law to an international commercial arbitration. The recommendations made in the report, Ascertaining of the Content of the Applicable Law in International Commercial Arbitration, are commended to arbitral tribunals, with a view to facilitating uniformity and consistency in identifying the potentially applicable laws or rules. (323) (324) (b) Implied or tacit choice 3.228 In the absence of an express choice of law, the arbitral tribunal will usually look first for the law that the parties are presumed to have intended to choose. This is often referred to as a 'tacit' choice of law. It may also be known as an implied, inferred, or implicit choice. There is a certain artificiality involved in selecting a substantive law for the parties and attributing it to their tacit choice, where (as often happens in practice) it is apparent that the parties themselves have given little or no thought to the question of the substantive law applicable to their contract and have not in fact made any choice. 3.229 The Rome I Regulation recognises this artificiality when it provides that a choice of law must be 'expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case'. The report by Professors Guiliano and Lagarde that was published alongside the Convention has a special status in its interpretation. The report states that the parties may have made a real choice of law, although not expressly stated in their contract, but the court may not be permitted to infer a choice of law that the parties might have made where they had no clear intention of making a choice. 3.230 Depending on the application of institutional rules, arbitral tribunals may be directed to determine the applicable law by applying 'the conflict of law rules it considers applicable' (granting a tribunal wide discretion as to how to determine the governing law), or to apply 'directly' the substantive law that the tribunal deems 'appropriate' (thereby bypassing altogether the need to apply any conflict of laws principles). 3.231 In such an event, the court—or the arbitral tribunal— may decide that the contract is to be governed by the law of the country with which it is most closely connected. It will be presumed that this is the country that is the place of business or residence of the party that is to effect the performance characteristic of the contract. However, this presumption does not apply if the place of characteristic performance cannot be determined. Indeed, it will be disregarded altogether if it appears that the contract is more closely connected with another country. 3.232 In practice, as already indicated, parties to an international commercial contract would do well to make a specific choice of law, rather than to leave the matter to be determined by a court or arbitral tribunal. (325) (326) (327) (328) (329) (330) (331) (c) Choice of forum as choice of law 3.233 One criterion for attributing a choice of law to the parties, in the absence of any express choice, is that of a choice of forum by the parties. If the parties make no express choice of law, but agree that any disputes between them shall be litigated in a particular country, it may be assumed that they intend the law of that country to apply to the substance of their disputes. This assumption is expressed in the maxim qui elegit iudicem forum elegit ius ('a choice of forum is a choice of law'). 3.234 The assumption makes sense when the reference is to a court of law. For instance, if the parties fail to put a choice-of-law clause into their contract, but provide for the resolution of any disputes by the courts of New York, it would seem to be a reasonable assumption that they intended those courts to apply their own law—that is, the law of the State of New York. The assumption is less compelling, however, when the dispute resolution clause provides for arbitration in a particular country, rather than litigation in 34 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] the courts of that country. As already discussed, a place of arbitration may be chosen for reasons that are unconnected with the law of that place. It may be chosen because of its geographical convenience to the parties, or because it is a suitably neutral venue, or because of the high reputation of the arbitration services to be found there, or for some other, equally valid reason. In one SCC arbitration, the tribunal highlighted the fallacy of the principle that a choice of forum is a choice of law in the context of arbitration in the following terms: [I]t is highly debatable whether a preferred choice of the situs of the arbitration is sufficient to indicate a choice of governing law. There has for several years been a distinct tendency in international arbitration to disregard this element, chiefly on the ground that the choice of the place of arbitration may be influenced by a number of practical considerations that have no bearing on the issue of applicable law. (332) (d) Conflict rules 3.235 In the absence of an express or implied choice by the parties, an arbitral tribunal is faced with the problem of choosing a system of law or a set of legal rules to govern the contract. It must first decide whether it has a free choice, or whether it must follow the conflict-of-law rules of the seat of the arbitration—that is, the conflict rules of the lex fori. 3.236 Every developed national system of law contains its own rules for the conflict of laws (sometimes called private international law, in the narrower sense of that phrase). These conflict rules usually serve to indicate what law is to be chosen as the law applicable to a contract. 3.237 To carry out this role, the relevant conflict rules generally select particular criteria that serve to link or connect the contract in question with a given system of law. These criteria are often referred to as 'connecting factors'. However, they differ from country to country; accordingly, the answer to the question 'what is the applicable law?' will also differ from country to country. Some of the rules that are applied to connect a particular contract with a particular national law or set of legal rules now look decidedly out of date. For example, under the conflict rules of some states, the applicable law (in the absence of an express or tacit choice) is likely to be the law of the place where the contract was concluded (the lex locus contractus). The place of conclusion of a contract may, at one time, have been a factor of some significance, since it would usually be the place of business or residence of one of the parties and might well also have been the place in which the contract was to be performed. However, with contracts now being concluded by telephone, email, or WhatsApp, or by meetings at an airport or some other location, the place in which the contract is finally concluded is often a matter of little or no significance. 3.238 A modern set of conflict rules is that adopted in the Rome I Regulation, which provides that, in the absence of an express choice by the parties, 'the contract shall be governed by the law of the country with which it is most closely connected'. In this regard, there is a rebuttable presumption that the contract is most closely connected with the country in which the party that is to effect the 'performance characteristic of the contract' has its central administration, principal place of business, or other place of business through which the performance is to be effected. (333) (334) (335) (e) Does an international arbitral tribunal have a lex fori? 3.239 As already stated, conflict-of-law rules differ from one country to another. A judge or arbitral tribunal in one country may select the applicable law by reference to the place where the contract was made, whereas in another country it may be selected by reference to the law with which the contract has the closest connection. In short, the same question may produce different answers, depending upon where the judge or arbitral tribunal happens to be sitting. 3.240 In the context of international arbitration, this is plainly unsatisfactory. The seat of the arbitration is invariably chosen for reasons that have nothing to do with the conflict rules of the law of the place of arbitration. This has led to the formulation of a doctrine that has found support in both arbitration statutes and rules—namely, that, unlike the judge of a national court, an international arbitral tribunal is not bound to follow the conflict-of-law rules of the country in which it has its seat. By way of notable example, the Model Law states that: Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable. 3.241 A leading commentator has spoken of 'the almost total abandonment of the application of the rules of conflict of the so-called arbitral forum', and the point was emphasised in the Sapphire arbitration, in which the tribunal commented that, unlike the judge of a national court, an international arbitral tribunal has no lex fori: Contrary to a State judge, who is bound to conform to the conflict law rules of the State in whose name he metes out justice, the arbitrator is not bound by (336) (337) (338) 35 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] such rules. He must look for the common intention of the parties, and use the connecting factors generally used in doctrine and in case law and must disregard national peculiarities. This was an early enunciation of what has come to be known as the 'direct choice' (voie directe) method of choosing the substantive law, which in reality gives arbitrators the freedom to choose as they please. (339) (f) International conventions, rules of arbitration, and national laws 3.242 The ICSID Convention states that, in the absence of any choice of the applicable or governing law of the contract by the parties, the arbitral tribunal must apply the law of the contracting state that is a party to the dispute, together with such rules of international law as may be applicable. The ICSID Convention, however, is necessarily concerned with states or state entities. Accordingly, it follows the traditional practice of giving weight to the law of the state party to a contract, in the absence of any choice of law. 3.243 Other conventions are content to leave the choice to the arbitral tribunal. Article VII of the European Convention of 1961, for instance, provides that '[f]ailing any indication by the parties as to the applicable law, the arbitrators shall apply the proper law under the rules of conflict that the arbitrators deem applicable'. Although the European Convention of 1961 refers to 'rules of conflict', these are not necessarily the rules of conflict of the country in which the arbitration has its seat; on the contrary, the reference is to the conflict rules that the arbitrators deem applicable. 3.244 A similar approach is adopted in some institutional rules, as well as the Model Law. The intention is to make it clear that the arbitral tribunal is entitled to choose the governing law of the contract in the absence of any express or implied choice of law by the parties themselves. In doing this, the arbitrators proceed objectively—but should they still be obliged to proceed by way of particular conflict rules? The point may be academic, since in practice an arbitral tribunal will seek to apply the law (or, if permitted, the rules of law) that it considers to be appropriate. Whether this choice is reached through conflict rules or more directly may not matter. 3.245 It should be noted, however, that French law omits any reference to conflict rules. This is both logical and sensible. French law states that: 'The arbitral tribunal shall decide the dispute in accordance with the rules of law chosen by the parties or, where no such choice has been made, in accordance with the rules of law it considers appropriate.' This provision contains two propositions: first, an international arbitral tribunal is not obliged to proceed to its choice of law by the adoption of any national conflict of laws rules; and secondly, it is not obliged to choose a system of law as the substantive law of the contract, but may instead choose such rules of law as it considers appropriate for the resolution of the dispute. The trail blazed by French law has since been followed by other countries, including Canada, India, Kenya, and the Netherlands. (340) (341) (342) (343) (344) (345) (g) Conclusion 3.246 In reaching its decision on the law to be applied in the absence of any choice by the parties, an arbitral tribunal is entitled (unless otherwise directed by the applicable rules or the lex arbitri) to select any of the systems or rules of law upon which the parties themselves might have agreed, had they chosen to do so. 3.247 When it comes to determining how an arbitral tribunal should proceed to its decision, then once again (as so often in international arbitration) no universal rule can be identified. Some systems of law insist that, in making its choice, an arbitral tribunal should follow the rules of conflict of the seat of the arbitration—an attitude that looks increasingly anachronistic. The modern tendency is for international conventions and rules of arbitration to give considerable latitude to arbitral tribunals in making their choice of law, whilst still requiring them to do so by way of appropriate or applicable conflict rules. Some national laws (including the French, the Swiss, and the Dutch) carry the matter to its logical conclusion: by abandoning the reference to conflict rules altogether, they allow an arbitral tribunal to decide for itself what law (or rules of law) the tribunal considers appropriate to settle the dispute. 3.248 This is an approach to be commended. If an arbitral tribunal can be trusted to decide a dispute, so too can it be trusted to determine the set of legal rules by which it will be guided in reaching its decision. If the parties do not wish the arbitral tribunal to have such freedom of action, the remedy is in their own hands: they should agree upon the applicable law or set of legal rules, preferably in their contract, but if not, then at any time after the dispute has arisen. If they do not do so, it will fall to the arbitral tribunal to make a decision that is likely to impact on the outcome of the arbitration. In order to reach this decision (which may be given as a ruling on a preliminary issue by way of an interim or partial award), the arbitral tribunal will usually have to consider detailed arguments of law and fact. This is an expense that could readily have been avoided if the parties had taken the time and the trouble to agree on one of the many choices open to them. 36 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] F. Specific Issues, Other Applicable Rules, and Guidelines (a) Legal privilege 3.249 Issues relating to legal privilege arise most commonly, though not exclusively, in international arbitration in the context of document production, where parties invoke attorney–client privilege or legal privilege as a defence to document production requests. In the context of document production or otherwise, parties are free to agree on the law applicable to legal privilege in their dispute. But in the absence of such a choice, and where there is a dispute as to the proper invocation of legal privilege, it falls to a tribunal to determine the applicable law. In this scenario, tribunals are, more commonly than not, faced with the fact that institutional rules do not provide an answer. Nor do national laws treat the matter uniformly: privilege is, in some jurisdictions, considered a substantive issue (the position adopted in many common law countries), while in others it is a procedural matter (particularly in civil law countries), and tends to be addressed as part of domestic litigation procedure rather than as a specific aspect of international arbitration. If the law of the seat and the law of the contract differ, which law should the tribunal apply? 3.250 The uncertainty resulting from the lack of clarity on this issue can have significant practical repercussions. As one commentator has noted: 'in a dispute involving the United States, France, Iran, and China, each and every party (and their lawyers)—where documents, transactions, and communications transcend borders—it is not necessarily clear which national (or international) norms govern privilege and confidentiality'. Thus, a party may enter into an arbitration assuming that certain in-house communications with another in-house colleague located in another country are protected from privilege, only to learn that, depending on the law governing privilege, those conversations may be discoverable and put into evidence in an arbitration. 3.251 In the absence of explicit or implied choice of law, tribunals may employ a closest connection test, looking at the law that has the closest connection to the relevant attorney–client relationship, such as the law of the country where the attorney–client relationship took place. 3.252 This approach resembles that taken by some courts. Such an approach could, however, result in different legal privileges applying to different parties. This has led some tribunals to apply a 'most-favoured privilege' rule approach, in which the tribunal adopts the law that grants the parties the highest standard of protection. Given their wide discretion as to which law to apply to the question of privilege, some tribunals have adopted a cumulative approach, applying all laws that might have a close connection to the arbitration and searching for commonalities between them. Other tribunals have adopted their own, autonomous standard. 3.253 The IBA set out sensible guidelines for counsel and tribunals concerned with issues of legal professional privilege, in its Rules on the Taking of Evidence in International Arbitration (the IBA Rules). The Rules state that at the request of a party or on its own initiative, an arbitral tribunal may exclude from evidence or production any document, statement, or oral testimony where there is 'legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable'. The matters that the tribunal is to take into account in considering pleas of legal privilege include (i) the protection of confidentiality, for the purposes of providing or obtaining legal advice; (ii) the protection of confidentiality for the purposes of settlement negotiations; (iii) 'the expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen'; (iv) possible waiver of privilege by consent, earlier disclosure, use of the relevant information, or otherwise; and (v) the need to maintain fairness and equality between the parties, 'particularly if they are subject to different legal or ethical rules'. 3.254 The IBA Rules, as we have said previously, form part of the 'soft law' of international arbitration, but it is increasingly common for experienced counsel and arbitrators to adopt them as part of the procedural rules for arbitrations in which they are engaged. Often, however, rather than make the arbitration subject to another set of rules that have to be obeyed, they will be adopted as guidelines. This avoids the risk of any conflict with other rules to which the arbitration may be subject, such as those of an arbitral institution. (346) (347) (348) (349) (350) (351) (352) (353) (354) (355) (356) (357) (b) Ethical rules 3.255 Much has been said and written about the duties to which arbitrators are subject. But what of arbitration practitioners who appear as counsel in international arbitrations, often outside their home jurisdictions? A lawyer appearing in a court action before his or her own local courts will clearly be subject to the rules of professional ethics of his or her local bar. But what if that lawyer practises outside his or her home jurisdiction? And what if he or she is appearing in an arbitration? And what if that arbitration is taking place in yet another different jurisdiction? Will the lawyer remain subject to his or her local bar rules? Will he or she also be subject to the ethical rules applying to lawyers practising in the jurisdiction in which he or she is now based? Will the lawyer also be subject to the ethical rules applying to lawyers conducting legal (358) 37 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] proceedings in the place of arbitration, if different? 3.256 The answers to these myriad questions can have a significant impact on the conduct of the arbitration. Let us consider, for example, the question of how much contact a lawyer should have with a witness prior to a hearing. In some jurisdictions, such as England, it is not permissible for a lawyer to 'coach' a witness on the evidence to be given at a hearing. In others, constraints on lawyers appear to be far more limited. In her comparison of standards of professional conduct, one commentator put it thus: 'An Australian lawyer felt that from his perspective it would be unethical to prepare a witness; a Canadian lawyer said it would be illegal; and an American lawyer's view was that not to prepare a witness would be malpractice.' Therein lies the problem: counsel in the same procedure, playing to very different rules, with a possible concrete impact on the substantive outcome of the arbitration. 3.257 Until recently, there had been little alternative for counsel other than to ascertain individually the answers to the following questions. i. 'Am I subject to my professional bar rules when I am acting in an arbitration, and even when I am acting in an arbitration abroad?' ii. 'If I am practising abroad, am I also subject to the professional ethical rules of the jurisdiction in which I am practising?' iii. 'If the seat of the arbitration is in a third jurisdiction, am I also subject to the ethical rules of a third bar?' 3.258 It is a matter of concern that the answers to these questions may not be the same for all counsel participating in the same arbitration proceedings. Commentators have for some time questioned whether professional bar rules might be harmonised to apply to practitioners in international arbitration. The idea is attractive, particularly for those concerned to ensure that the playing field for the participants in international arbitration is level. However, the changes necessary to achieve this should not be underestimated. National bar rules around the world would have to make express exceptions to their general codes for international practitioners. It seems certain that such changes are unlikely to happen quickly, if at all. 3.259 An alternative means of harmonisation lies in non-binding guidelines. Again, the IBA has taken a lead on this, publishing its Guidelines on Party Representation in International Arbitration in May 2013. The Guidelines, which are intended to provide practical assistance in dealing with ethical issues that arise in international arbitration, provide useful guidance in relation to some of the most frequent issues encountered by practitioners. 3.260 The Guidelines address five ethical issues that arise in practice, relating to: i. conflicts of interest (Guidelines 5 and 6); ii. ex parte communications with arbitrators (Guidelines 7 and 8); iii. misleading submissions to the arbitral tribunal (Guidelines 9–11); iv. improper information exchange and disclosure (Guidelines 12–17); and v. assistance to witnesses and experts (Guidelines 19–24). In relation to each, the Guidelines set out best practices and recommended approaches. They also propose certain remedies and sanctions, including admonishing the representative, drawing adverse inferences, and altering the apportionment of costs, as well as a broader reference to any 'other measures' that might ensure the fairness and integrity of proceedings. 3.261 The leading international arbitral institutions have also taken their first cautious steps towards regulating the conduct of counsel (and parties) in international arbitration. The ICC, for instance, envisages that an arbitral tribunal may sanction unreasonable conduct in making its award of costs. The ICC Rules provide that, in making a decision on costs, the tribunal shall take account of 'such circumstance as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner'. 3.262 More boldly, the LCIA Rules set out certain provisions governing a party's legal representatives. These include a provision that each party 'shall ensure that all its authorised representatives appearing by name before the Arbitral Tribunal have agreed to comply with the general guidelines contained in the Annex to the LCIA Rules, as a condition of such representation'. The general guidelines in the Annex are designed to promote 'the good and equal conduct of the parties' authorised representatives of the parties appearing by name within the arbitration', and they provide, for example, that a legal representative should not knowingly make any false statement to the arbitral tribunal, should not conceal or assist in the concealment of any document of which production is ordered, and should not initiate any undisclosed contact with an arbitrator. The LCIA Rules also give an arbitral tribunal the power to order sanctions for the violation of the guidelines, including (broadly) the taking of any measure 'necessary to fulfill within the arbitration the general duties required of the Arbitral Tribunal', as defined elsewhere in the Rules. (359) (360) (361) (362) (363) (364) (365) (366) (367) 38 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] References McNair, 'The general principles of law recognised by civilised nations' (1957) 33 BYIL 1, at 7. The lead is given by the UNCITRAL Model Law on International Commercial Arbitration Model Law on International Commercial Arbitration 1985 (as amended in 2006) (the Model Law), which states categorically that, '[i]​n matters governed by this Law, no court shall intervene except where so provided in this Law'. See Model Law, Art. 5. This judicial deference to pending arbitrations is generally widely applied in practice. Even states that have not adopted the Model Law per se have thought it appropriate to make a similar statement. For instance, Swiss law states that its courts will 'decline jurisdiction' where there is an agreement to arbitrate, except in limited circumstances; see Swiss Private International Law Act 1987 (as amended in 2021) (Swiss PIL), s. 7. The Swedish Arbitration Act 2019 (Swedish Arbitration Act) contains a similar provision, at s. 4, although ss. 5 and 6 contain exceptions to this rule. The French Code of Civil Procedure provides for the same at Art. 1458 and the Spanish Arbitration Act 2003, which is based on the Model Law with significant changes, states unequivocally at Art. 7 that, '[i]n matters governed by this Act, no court shall intervene except where so provided in this Act'. Similarly, while the primary federal statute governing arbitration in the United States, the Federal Arbitration Act of 1925 (FAA), pre-dates and is not modelled on the Model Law, US courts have interpreted the FAA's provisions in a manner that is consistent with the Model Law. Thus, in Stanton v Paine Webber Jackson & Curtis, Inc., 685 F.Supp. 1241, 1242 (S.D. Fla. 1988), the US District Court for the Southern District of Florida held that '[n]othing in the [FAA] contemplates interference by the court in an ongoing arbitration proceeding'. Sometimes referred to as the procedural 'soft law' of international arbitration: see Park, 'The procedural soft law of international arbitration: Nongovernmental instruments', in Mistelis and Lew (eds) Pervasive Problems in International Arbitration (Kluwer Law International, 2006), pp. 141–154. See Chapter 11. The UK Supreme Court has observed that '[i]​t is rare for the law governing an arbitration clause to be specifically identified (either in the arbitration clause itself or elsewhere in the contract)'. See Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [43]. New York Convention, Art. V(1)(a). See also Collins (ed.) Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell, 2018), paragraph 16-014 ('In the light of the pervasive reach of the New York Convention in modern times, this rule, although not itself prescribing a choice of law rule of general application, nevertheless provides a strong indication of one [. . .].') This is a view shared by Professor Albert Jan van den Berg in his pre-eminent text, The New York Arbitration Convention of 1958 (Kluwer Law International, 1981), pp. 126–127 ('A systematic interpretation of the Convention, in principle, permits the application by analogy of the conflict rules of article V(1)(a) to the enforcement of the agreement. It would appear inconsistent at the time of the enforcement of the award to apply the Convention's uniform conflict rules and at the time of the enforcement of the agreement to apply possibly different conflict rules of the forum.') As articulated most recently by the UK Supreme Court in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [170(iv)]. Ibid., at [193(iv)]. (c) Guidelines 3.263 Every international arbitration—at least in theory—is a microcosm of potential procedural reform. That potentiality is undoubtedly a quality of the arbitral process, but that quality has a price: procedural unpredictability. And it is a price that many in the expanding constituency of arbitration users are increasingly unwilling to pay. To address this unpredictability, in recent years there has been a steady growth in procedural guidelines and recommendations, which now occupy a prominent place in the practice of international arbitration. 3.264 These many rules and guidelines constitute the so-called 'soft law' of international arbitration. They do not seek to alter any local rules and regulations in relation to the conduct of party representatives, nor do they imbue arbitral tribunals with any of the powers held by national courts, professional societies, or other authorities to enforce such rules and regulations. Instead, they are intended by the parties and by the arbitral tribunal as a useful guide in the conduct of an international arbitration. Many of them feature prominently—side-by-side with the applicable laws—in the conduct of international arbitrations. That is why they are referred to, where appropriate, throughout this book. 1) 2) 3) 4) 5) 6) 7) 8) 9) 39 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] As stated most recently by the Paris Court of Appeal in Kabab-Ji (Lebanon) v Kout Food Group (Kuwait), cour d'appel de Paris, Pôle 1—chambre 1, 23 June 2020, Case No. 17/22943), pp. 5, 8 ('[e]​n vertu d'une règle matérielle du droit international de l'arbitrage, la clause compromissoire est indépendante juridiquement du contrat principal qui la contient directement ou par référence, et son existence et son efficacité s'apprécient, sous réserve des règles impératives du droit français et de l'ordre public international, d'après la commune volonté des parties, sans qu'il soit nécessaire de se référer à une loi étatique'). Interpretation of the SPC Concerning Some Issues on Application of the Arbitration Law 2006, as modified by the Law of the People's Republic of China on the Law Applicable to Foreign-Related Civil Relationships 2010, Art. 16. The arbitration and the findings of the tribunal are described by the UK Supreme Court in Kabab-Ji SAL v Kout Food Group [2021] UKSC 48, at [5]–[6]. Kabab-Ji (Lebanon) v Kout Food Group (Kuwait), cour d'appel de Paris, Pôle 1— chambre 1, 23 June 2020, Case No. 17/22943). At the time of writing, the appeal before the Court of Cassation is pending. Kabab-Ji SAL v Kout Food Group [2021] UKSC 48, at [39]. Lew, 'The law applicable to the form and substance of the arbitration clause' (1999) 9 ICCA Congress Series 114, at 143 (emphasis added). Other leading commentaries have expressed similar views. See Merkin, 'Arbitration Law', Issue 84 (Informa Subscriptions, 2020), paragraph 7.12 ('[E]​ven if there is no express contractual statement to that effect, a choice-of-law clause for the entire agreement is likely to be construed as extending to the arbitration clause. There are numerous decisions to this effect [. . .] However, that presumption may be ousted in appropriate circumstances [. . .]'); Collins (ed.) Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell, 2018), paragraph 16-017 ('If there is an express choice of law to govern the contract as a whole, the arbitration agreement may also be governed by that law'). Derains, 'The ICC arbitral process, Part VIII: Choice of law applicable to the contract and international arbitration' (2006) 6 ICC International Court of Arbitration Bulletin 10, at 16–17. Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [43], citing the sixth edition of this book, paragraph 3.12. Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb [2020] EWCA Civ 574, at [91]. Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [43]. Ibid., at [66] and [94]. Ibid., [101(6)]. The two dissenting judges would have regarded the choice of the seat as being tantamount to a choice of the law of that seat as the law governing the arbitration agreement. The arbitration is discussed in the court's judgment. See BCY v BCZ [2016] SGHC 249, at 3233. BCY v BCZ [2016] SGHC 249, at 59 (emphasis in original). Ibid., at 97. The Singapore Court of Appeal reached a similar conclusion in BNA v BNB and BNC [2019] SGCA 84. Separability is discussed in Chapter 2. See Fiona Trust & Holding Corporation and ors v Privalov and ors [2007] EWCA Civ 20; Fili Shipping Co. Ltd v Premium Nafta Products Ltd [2007] UKHL 40 (on appeal from Fiona Trust). The law governing the arbitration, including the law of the seat of an arbitration, is discussed further below at paragraphs 3.42ff. New York Convention, Art. V(1)(a). There is a similar provision in Model Law, Art. 34(2) (a). See discussion above at paragraph 3.12. Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [116]– [117]. Glick and Venkatesan, 'Choosing the law governing the arbitration agreement', in Kaplan and Moser (eds) Jurisdiction, Admissibility and Choice of Law in International Arbitration: Liber Amicorum Michael Pryles (Kluwer Law International, 2018), ch. 9, at pp. 142–143. Kabab-Ji (Lebanon) v Kout Food Group (Kuwait), cour d'appel de Paris, Pôle 1 chambre 1, 23 June 2020, Case No. 17/22943), p. 29. Ibid., p. 27. Under Malaysian conflict-of-law rules, in the absence of an express choice of law to govern the law of the arbitration agreement, the designation of a seat of the arbitration is a tacit designation of the law governing the arbitration agreement. See Thai-Lao Lignite Co Ltd and Anor v Government of the Lao People's Democratic Republic 6 AMR 219 (2017), at 244. LCIA Rules 2020, Art. 16.4. See also Art. 16.5 ('Notwithstanding Article 16.4, the LCIA Rules shall be interpreted in accordance with the laws of England.') Bulgarian Foreign Trade Bank Ltd v Al Trade Finance Inc., Case No. T1881–99, Swedish Supreme Court, 27 October 2000, (2001) XXVI YBCA 291. Swedish Arbitration Act, s. 48. Bulgarian Foreign Trade Bank Ltd v Al Trade Finance Inc., Case No. T1881–99, Swedish Supreme Court, 27 October 2000, (2001) XXVI YBCA 291, p. 293. 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33) 34) 35) 40 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] Arbitration (Scotland) Act 2010, s. 6 ('Where—(a) the parties to an arbitration agreement agree that an arbitration under that agreement is to be seated in Scotland, but (b) the arbitration agreement does not specify the law which is to govern it, then, unless the parties otherwise agree, the arbitration agreement is to be governed by Scots law'). Turkish International Arbitration Law 2001, Art. 4 ('The validity of an arbitration agreement is governed by the law selected by the parties to be applicable to the arbitration agreement, or failing any choice, by Turkish law'). See, e.g., Kindred Nursing Centers Limited Partnership v Clark, 137 S.Ct. 1421, 1426– 1429 (2017) (holding a rule of Kentucky law that disallowed an agent acting under a general power of attorney from entering into an arbitration agreement unless the power of attorney specifically empowered the agent to waive the principal's right to trial by jury to be pre-empted by the FAA); Marmet Health Care Center, Inc v Brown, 565 US 530, 532–533 (2012) (per curiam) (holding a rule of West Virginia law which rendered unenforceable any pre-dispute arbitration agreement insofar as it covered personal injury and wrongful death claims to be pre-empted by the FAA); AT&T Mobility LLC v Concepcion, 563 US 333, 344–352 (2011) (holding a rule of California law which deemed unconscionable an arbitration agreement barring a class arbitration in a consumer contract of adhesion to be pre-empted by the FAA); see also Moses H. Cone Memorial Hospital v Mercury Construction Corp, 460 US 1, 25 n. 32 (1983) ('The effect of [the FAA, s. 2] is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act'); Pedcor Mgt Co, Inc Welfare Benefit Plan v Nations Personnel of Texas, Inc. 343 F 3d 355 (5th Cir. 2003), 363 ('[I]​t is well established that the FAA pre-empts state laws that contradict the purpose of the FAA by "requiring a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration" '). Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [106]. Hamlyn & Co v Talisker Distillery [1894] AC 202. Ibid., p. 208 (per Lord Herschell). Hamlyn & Co v Talisker Distillery [1894] AC 202, p. 215 (per Lord Ashbourne). Sulamérica Cia Nacional de Seguros SA and ors v Enesa Engenharia SA and ors [2012] EWCA Civ 638. Ibid., at [31]. Municipalité de Khoms El Mergeb c/Sté Dalico, Cass. Civ. 1ere, 20 December 1993, [1994] Rev Arb 116. The case was brought by a Libyan municipal authority against a Danish contractor after the latter had initiated arbitration proceedings. The Libyan party argued that the arbitration agreement was governed by Libyan law and that it was invalid under Libyan law. The Paris Court of Appeal rejected these arguments without deciding what law applied. Municipalité de Khoms El Mergeb c/Sté Dalico, Cass. Civ. 1ere, 20 December 1993, [1994] Rev Arb 116, p. 117, as translated by Professor Gaillard in Savage and Gaillard (eds) Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999), p. 437. Professor Gaillard refers to the 'dual meaning' of 'autonomy' in Savage and Gaillard (eds) Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999), p. 388. See also ibid., pp. 420–421 and pp. 435–451, and in particular p. 441 for an endorsement of the French third way. Regarding the separability of the arbitration agreement from the main contract under French law, see Sté Omenex c/Hugon, Cass. Civ. 1ère, [2006] Rev Arb 103, in which the court held that an arbitration agreement survives the invalidity of the underlying agreement. Lew, Mistelis, and Kröll, Comparative International Commercial Arbitration (Kluwer Law International, 2003), paragraph 6–66. Uni-Kod c/Sté Ouralkali, Cass. Civ. 1ere, 30 March 2004, [2005] Rev Arb 959. Dallah Real Estate and Tourism Holding Co. v Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 4. Dallah Real Estate and Tourism Holding Co. v Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 4, at [15]. A few months later, the Paris Court of Appeal, in Gouvernement du Pakistan—Ministère des Affaires Religieuses v Dallah Real Estate and Tourism Holding Co., Case No. 09/28533, 17 February 2011, reached a different conclusion as to whether Pakistan, as a non-signatory to the contract, was bound by the arbitration clause. Swiss PIL, s. 178(2). 36) 37) 38) 39) 40) 41) 42) 43) 44) 45) 46) 47) 48) 49) 50) 51) 52) 41 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] A study into corporate attitudes on international arbitration has shown that factors such as 'formal legal infrastructure', including the neutrality and impartiality of its legal system, the national arbitration law, and the place's record in enforcing agreements to arbitrate and arbitral awards are key to parties' choice of the place of arbitration: see White & Case and Queen Mary School of International Arbitration, University of London, 2018, 'International Arbitration Survey: The Evolution of International Arbitration', available online at http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-InternationalArbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF. See also dicta by Lord Hoffman in delivering the leading judgment for the House of Lords in West Tankers v RAS (the Front Comor) [2007] 1 Lloyd's Rep 391, at [12]: in the case of arbitration, 'the situs and governing law are generally chosen by the parties on grounds of neutrality, availability of legal services and the unobtrusive effectiveness of the supervisory jurisdiction'. Savage and Gaillard (eds) Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999), p. 1428. Early recognition of this principle in English law may be seen in Compagnie Tunisienne de Navigation SA v Compagnie d'Armament Maritime SA [1971] AC 572, at 604. For choice of law governing the agreement to arbitrate, see paragraphs 3.18ff; for choice of law governing the contract, see paragraphs 3.105ff. UNCITRAL Rules 2010, Art. 18.1. ICC Rules 2021, Art. 18.1 ('The place of the arbitration shall be fixed by the Court, unless agreed upon by the parties.') The reference was to the second edition of this book. Smith Ltd v H International [1991] 2 Lloyd's Rep 127, p. 130. Swedish Arbitration Act, s. 6. Swedish Arbitration Act, s. 37. Swedish Arbitration Act, s. 41. It is an unattractive proposition for arbitrators whose work has been accomplished and whose role is over to face a possible challenge before the local courts in relation to their fees. French Code of Civil Procedure, Bk IV, Title II ('International arbitration'). See Chapter 1. Australian International Arbitration Act 1974, Div. 2, Art. 16(1). Model Law, Art. 19. See, e.g., Swiss PIL, Ch. 12, Art. 183, which provides that the arbitral tribunal may request the assistance of the court where a party does not voluntarily comply with a protective measure; the English Arbitration Act, s. 44(1) and (2), which gives the court the same powers to order the inspection, photocopying, preservation, custody, or detention of property in relation to an arbitration as it has in relation to litigation; and the Model Law, Art. 9, which allows a party to seek interim measures of protection from a court. It should be noted that while the courts of the seat play the lead role in supporting the arbitral process, inter alia, in terms of granting interim relief, it may also be necessary to seek relief from other courts beyond the seat, where, e.g., assets might be located. Various national laws (e.g., Dutch and German law) foresee this possibility, and courts in various other jurisdictions including Hong Kong have intervened in support of arbitrations being conducted overseas: see The Lady Muriel [1995] 2 HKC 320 (CA). British Columbia has adapted the Model Law, in the International Commercial Arbitration Act 1996, s. 27.01, to allow court-ordered consolidation where the parties to two or more arbitration agreements have agreed to consolidate the arbitrations arising out of those agreements. The Belgian Judicial Code 2013 (BJC), art. 1709(3) is unusual in that it provides that where a third party wishes to join proceedings, or is called to join, the arbitral tribunal's decision to allow proceedings in respect of this third party requires unanimity of the arbitrators. Shahani, 'Impact of Sanctions under the CISG' (2015) 33(4) ASA Bulletin (Kluwer Law International) at 854. See Chapter 1. Swiss PIL, art. 182(1). English Arbitration Act, s. 1(b). For a discussion on guidelines and similarly applicable standards, see paragraphs 249ff. UNCITRAL Rules 2010, Art. 1.3 ('These Rules shall govern the arbitration except that where any of these Rules is in conflict with a provision of the law applicable to the arbitration from which the parties cannot derogate, that provision shall prevail.') LCIA Rules 2020, Art. 16.5 ('[. . .] the LCIA Rules shall be interpreted in accordance with the laws of England.') Scherer, Richman, and Gerbay, Seat and Place of Arbitration in Arbitrating under the 2020 LCIA Rules: A User's Guide (Kluwer Law International, 2021), p. 27. See, e.g., Park, 'The lex loci arbitri and international commercial arbitration' (1983) 32 ICLQ 21; Jarvin, 'Le lieu de l'arbitrage' (1993) 4 ICC Bulletin 7; Born, International Commercial Arbitration (2nd edn, Kluwer Law International, 2014), pp. 1530–1531. See also Kaufmann-Kohler, 'Identifying and applying the law governing the arbitral procedure: The role of the law of the place of arbitration' (1999) 9 ICCA Congress Series 336. The Geneva Protocol, Art. 2 (emphasis added). 53) 54) 55) 56) 57) 58) 59) 60) 61) 62) 63) 64) 65) 66) 67) 68) 69) 70) 71) 72) 73) 74) 75) 76) 77) 78) 42 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] Which, by means of Art. VII(2), replaces the Geneva Protocol to the extent that contracting states become bound by the New York Convention. New York Convention, Art. V(1)(d). New York Convention, Art. V(1)(a) and (e). Model Law, Art. 1(2) (emphasis added). Arts 8 and 9 are concerned with enforcing the arbitration agreement and interim measures of protection respectively; Arts 35 and 36 are concerned with recognition and enforcement of the award. Swiss PIL, Ch. 12, Art. 176(1) (emphasis added). German Code of Civil Procedure 2005 (as amended in 2021) (German ZPO), bk. 10, s. 1, § 1025(1) ('The provisions of this book [on arbitration] shall apply if the place of arbitration within the meaning of § 1043(1) [i.e., the seat of the arbitration] is Germany.') BJC, Art. 1676(7). Indian Arbitration and Conciliation Act 1996 (as amended in 2021) (Indian Arbitration and Conciliation Act), s. 2(2). Malaysian Arbitration Act 2005 (as amended in 2018), s. 3(3). English Arbitration Act, s. 2. English Arbitration Act, s. 3. English Arbitration Act, s. 52(5). Reymond, 'Where is an arbitral award made?' (1992) 108 LQR 1, at 3. There is, however, no such 'curial' law in arbitration proceedings brought pursuant to the International Centre for Settlement of Investment Disputes (ICSID). In accordance with the ICSID Convention, Art. 62, the place of the proceedings is the seat of the Centre unless otherwise agreed, but this does not impose the curial law of Washington, DC. For the view that at least some hearings and meetings should preferably take place at the seat of the arbitration, see Paulsson and Petrochilos, UNCITRAL Arbitration (Kluwer Law International, 2017), pp. 153–154 ('The better view is that tribunals should not be too astute in deciding that various acts, such as hearings, should be outside the agreed seat. That the parties agreed on a seat or [. . .] the tribunal elected one, connotes an assessment or expectation that the seat has "appropriate" venues'). In the second edition of this book. Union of India v McDonnell Douglas Corporation [1993] 2 Lloyd's Rep 48. (The Peruvian case referred to in this citation is generally known as 'the Peruvian Insurance case'.) ICC Rules 2021, Art. 18. ICC Rules 2021, Art. 26.1. UNCITRAL Rules 2010, Art. 18.2. LCIA Rules 2020, Art. 16.3. Model Law, Art. 20(2). The Netherlands Arbitration Act 2015 (Netherlands Arbitration Act), s. 1037(3), is to like effect; cf. the law in the United States that requires that hearings be conducted in the place of the arbitration unless the parties agree otherwise: see, e.g., Spring Hope Rockwool v Industrial Clean Air Inc. 504 F.Supp. 1385 (EDNC 1981); Snyder v Smith, 736 F.2d 409 (7th Cir. 1984), cert. denied, 469 US 1037 (1984); Jain v de Méré 51 F.3d 686, 692 (7th Cir. 1995); National Iranian Oil Co. v Ashland Oil, Inc., 817 F.2d 326, 334 (5th Cir. 1987). Under the FAA, where the parties have not agreed on the location of the arbitration, a court may order the parties to conduct the arbitration in its own district: Clarendon National Insurance Co. v Lan, 152 F.Supp.2d 506, 524 (SDNY 2001). This was the case in PT Garuda Indonesia v Birgen Air [2002] 1 SLR 393 (CA), in which it was held that there was no legal nexus between the arbitration and Singapore simply because hearings were held there. See discussion in Paulsson and Petrochilos, UNCITRAL Arbitration (Kluwer Law International, 2017), p. 154. For example, the local law may not permit arbitrators to take evidence from witnesses on oath. The preceding two paragraphs were cited with approval by the court in Naviera Amazonia Peruana SA v Compania Internacional de Seguros del Peru [1988] 1 Lloyd's Rep 116. In ICC Case No. 10623 (2003) 21 ASA Bulletin 60 (including a summary by Professor Crivellaro), the tribunal held all meetings, etc., in Paris, although the seat of the arbitration was in Ethiopia. The Ethiopian government, a party to the arbitration, contested the tribunal's jurisdiction both by challenging it unsuccessfully before the ICC Court and by applying to its local courts, the interference of which the tribunal ignored. Interference by local courts is further discussed at paragraph 3.98. See also the decision of the Svea Court of Appeal in Titan Corporation v Alcatel CIT SA (Svea Court of Appeal), RH 2005:1 (T 1038-05) YCA XXX (2005), 139, in which the Court denied jurisdiction to consider an ex parte application to set aside an award that stated that the seat of arbitration was Stockholm. The Court based its decision in part on the fact that all of the hearings (in which one of the authors was counsel for the claimant) had taken place in Paris and in London, and not in Stockholm; hence, in its view, the arbitration could not be considered to have any connection to Sweden as required for the Swedish Arbitration Act of 1999 to apply. This decision was subsequently reversed (in relevant part) by the Swedish Supreme Court. 79) 80) 81) 82) 83) 84) 85) 86) 87) 88) 89) 90) 91) 92) 93) 94) 95) 96) 97) 98) 99) 100) 101) 102) 103) 104) 43 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [68]. Another good reason for not labelling the lex arbitri 'procedural' is that different countries have different notions of what is a matter of procedure and what is a matter of substance: cf. the treatment of time limits in English law, discussed in Chapter 4, paragraph 4.07. Collins (ed.) Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell, 2018), paragraphs 16-009, 16-029 ('In essence, the procedural law of an arbitration deals with two sets of issues: (a) the internal procedure of the arbitration itself: commencement of the arbitration, appointment of arbitrators, pleadings, provisional measures, evidence, hearings, and awards; and (b) the external intervention of national courts in the arbitral process'). See, e.g., the reference of Lord Diplock to the 'selection' of a particular lex arbitri by the choice of a place of arbitration, in Compagnie Tunisienne de Navigation SA v Compagnie d'Armament Maritime SA [1971] AC 572, at 604. The English Technology and Construction Court, in Braes of Doune Wind Farm (Scotland) v Alfred McAlpine Business Services [2008] EWHC 426 (TCC), stated that the parties' designation of 'Glasgow, Scotland' as the place of arbitration referred only to the place where it was intended to hold hearings. England was deemed to be the juridical seat owing to the fact that the parties had referred to the application of the English Arbitration Act. This case demonstrates that the parties' choice of procedural law may be determinative of the seat of the arbitration. According to the court, at [17], 'one needs to consider what, in substance, the parties agreed was the law of the country which would juridically control the arbitration'. See Chapter 6. See, e.g., consolidation under Dutch law and the mandatory provisions of other national laws governing arbitration, such as the mandatory provisions of the English Arbitration Act. Swiss PIL, Ch. 12, Art. 182; there are provisions in Dutch and Italian law to the same effect, and in the French Code of Civil Procedure, at art. 1509. However, noncompliance with public policy rules would be a ground for setting an award aside even if another procedural law were chosen. French Code of Civil Procedure, arts 1494–1495. Swiss PIL, Ch. 12, Art. 182(3). In many countries, an arbitrator has no power to issue a subpoena and the parties must rely upon the relevant court for such process: see, e.g., Model Law, Art. 27. The United States does allow for an arbitrator to summon a witness to attend and to bring any material documents or evidence, but the local federal district court must be called in to assist in compelling a reluctant witness to attend or to punish a witness who fails to attend: FAA, s. 7. See also Chapter 7. Naviera Amazonia Peruana SA v Compania Internacional de Seguros de Peru [1988] 1 Lloyd's Rep 116. Ibid., at 120. See also Union of India v McDonnell Douglas Corp. [1993] 2 Lloyd's Rep. 48, 50 (QB). In that case, the parties' agreement was to be conducted in accordance with the procedure provided in the Indian Arbitration Act of 1940, while the seat of the arbitration proceedings was to be London. The High Court interpreted the arbitration agreement as requiring the arbitration procedure to accord with Indian law, while the English courts would have jurisdiction to supervise the arbitration. The court acknowledged the 'at least theoretical possibility that the parties are free to choose to hold their arbitration in one country but subject to the procedural laws of another' notwithstanding that this arrangement was 'calculated to give rise to great difficulties and complexities'. New York Convention, Art. V(1)(e); Model Law, Art. 36(1)(a)(v). Note that these provisions are discretionary: recognition and enforcement may be refused. See also Chapter 10. English Arbitration Act, s. 53. Model Law, Art. 31(3). Netherlands Arbitration Act, Art. 1037(2). ICC Rules 2021, Art. 32.3. UNCITRAL Rules 2010, Art. 18.1. See discussion in Paulsson and Petrochilos, UNCITRAL Arbitration (Kluwer Law International, 2017), pp. 151–152. Mann, 'Where is an award "made"?' (1985) 1 Arb Intl 107, at 108. See also Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, at [68] ('A choice of place as the seat does not dictate that hearings must be held, or that any award must actually be issued, in that place'). An alternative view is that an award is 'made' at the place where it is signed—a view that may still prevail in some jurisdictions. The question is important and is discussed in more detail in Chapter 9. 105) 106) 107) 108) 109) 110) 111) 112) 113) 114) 115) 116) 117) 118) 119) 120) 121) 122) 123) 124) 125) 44 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] For example, Egypt has adopted the Model Law, but has added a provision that provides for annulment if the award fails to apply the law agreed by the parties— thus opening the way for the Egyptian courts to review awards on issues of law, which is not permitted under the Model Law. For an authoritative commentary on Egypt's arbitration law, see Atallah, 'The 1994 Egyptian Arbitration Law ten years on' (2003) 14 ICC Bulletin 16. In Latin America, while several states have now adopted the Model Law with limited modifications (Bolivia, Chile, Guatemala, Nicaragua, Paraguay, Peru, and Venezuela), Brazil and Costa Rica chose to tinker with the Model Law's formulation and have added their own customised elements. This was the view of the Mustill Committee, which recommended that the Model Law should not be adopted, but that the English law of arbitration should nevertheless take careful account of it—as has been done, in the English Arbitration Act. See, e.g., Mustill and Boyd, 'A survey of the 1996 Act', in Commercial Arbitration (2nd edn with 2001 Companion Volume, LexisNexis Butterworths, 2001), pp. 28–30, commenting on the English Arbitration Act. See also Mustill and Boyd, Commercial Arbitration (2nd edn with 2001 Companion Volume, LexisNexis Butterworths, 2001), Preface, where it is said that:The Act has however given English arbitration law an entirely new face, a new policy, and new foundations. The English judicial authorities [. . .] have been replaced by the statute as the principal source of law. The influence of foreign and international methods and concepts is apparent in the text and structure of the Act, and has been openly acknowledged as such. Finally, the Act embodies a new balancing of the relationships between parties, advocates, arbitrators and courts which is not only designed to achieve a policy proclaimed within Parliament and outside, but may also have changed their juristic nature. See in particular Lew, 'Achieving the dream: Autonomous arbitration' (2006) 22 Arb Intl 178, at 202; Fouchard, L'Arbitrage Commercial International (Litec, 1965), pp. 22– 27; Paulsson, 'Arbitration unbound: Award detached from the law of its country of origin' (1981) 30 ICLQ 358; Paulsson, 'Delocalisation of international commercial arbitration: When and why it matters' (1983) 32 ICLQ 53. For a continuation of the debate, see Nakamura, 'The place of arbitration: Its fictitious nature and lex arbitri' (2000) 15 Mealey's Intl Arb Rep 23; Rubins, 'The arbitral seat is no fiction: A brief reply to Tatsuya Nakamura's Commentary, "The place of arbitration: Its fictitious nature and lex arbitri" ' (2001) 16 Mealey's Intl Arb Rep 23; Pinsolle, 'Parties to an international arbitration with the seat in France are at full liberty to organise the procedure as they see fit: A reply to the article by Noah Rubins' (2001) 16 Mealey's Intl Arb Rep 30; Nakamura, 'The fictitious nature of the place of arbitration may not be denied' (2001) 16 Mealey's Intl Arb Rep 22. Authors' translation, emphasis added. See Société PT Putrabali Adyamulia v Société Rena Holding et Société Mnugotia Est Epices [2007] Rev Arb 507, p. 514 ('[L]​a sentence internationale, qui n'est rattachée à aucun ordre juridique étatique, est une décision de justice internationale dont la régularité est examinée au regard des règles applicables dans le pays où sa reconnaissance et son exécution sont demandées [. . .]'). Dallah Real Estate and Tourism Holding Co. v Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 4, at [15]. In this discussion, 'delocalisation' is used (as it was originally) to signify the detachment of international arbitration from control by the law of the place of arbitration. Somewhat confusingly, the term is now sometimes used to indicate not only detachment from the lex arbitri, but also the replacement of a national law governing the substance of the dispute by general principles or some other nonnational concept: see, e.g., Toope, Mixed International Arbitration (Grotius, 1990), p. 19, who states: 'Some [specialists] would preclude the delocalisation of procedure, but allow delocalisation of the substantive law, through the application of "general principles", "a lex mercatoria" or international law per se.' Dell Computer Corp v Union des consommateurs 2007 SCC 34, (2007) 284 DLR (4th) 577, at 51. See Fouchard, L'Arbitrage Commercial International (Litec, 1965), pp. 22–27. The point is no doubt so obvious as to need no comment, but the statement of Professor Weil seems particularly apt in this context: 'The principle of pacta sunt servanda and that of party autonomy do not float in space; a system of law is necessary to give them legal force and effect.' See Weil, 'Problèmes relatifs aux contrats passés entre un état et un particulier' (1969) 128 Hague Recueil 95, at 181 (authors' translation). By its law of 27 March 1985, a provision was added to the BJC, Art. 1717 to the effect that a losing party was not permitted to challenge in the Belgian courts an award made in an international arbitration held in Belgium, unless at least one of the parties had a place of business or other connection with Belgium. In the event, however, it appears that this legal provision discouraged parties from choosing Belgium as the seat of the arbitration and the law has since been changed. Belgian law now allows parties to an international arbitration to opt out of local control if they so wish, but no longer provides for compulsory delocalisations. See, BJC, Art. 1676(7) ('Part 6 of this Code [i.e., on arbitration] shall apply and the Belgian courts shall have jurisdiction when the place of arbitration as defined in article 1701, § 1 is located in Belgium or when the parties have so agreed.'). 126) 127) 128) 129) 130) 131) 132) 133) 134) 135) 136) 45 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] New York Convention, Art. V(1)(a) and (e). Model Law, Art. 36(1)(a)(i) and (v). Gaillard, Legal Theory of International Arbitration (Martinus Nijhoff, 2010), p. 35. Paulsson, The Idea of Arbitration (Oxford University Press, 2013), p. 44. Bank Mellat v Helliniki Techniki SA [1984] QB 291, p. 301. See Model Law, Arts 6 (which allocates various functions to the local courts) and 34 (which allows the local court to set aside awards made in its territory, on certain limited grounds). Halpern v Halpern [2006] EWHC 603 (Comm); affirmed on this point in Halpern v Halpern [2007] EWCA Civ 291. See Chapter 2. Chromalloy Aeroservices Inc. v Arab Republic of Egypt, 939 F.Supp. 907 (DDC 1996), (2003) 19 Arab Intl 424, (2003) 12 Intl Arab Rep 8. Brower, Brower, II and Sharpe, 'The coming crisis in the global adjudication system' (2003) 19 Arb Intl 415, at 424. See, e.g., Corporacion Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v PEMEXExploracion y Produccion, No. 10 Civ 206 (AKH) 2013 WL 4517225 (SDNY, 27 August 2013), in which the district court in the Southern District of New York confirmed a US$400 million arbitral award that had been set aside in the seat in Mexico City. Such examples are considered in greater detail in Chapter 11. See, e.g., Himpurna California Energy Ltd v Republic of Indonesia (2000) XXV YBCA 11, at 176, in which the tribunal, in its interim award dated 26 September 1999, ruled that an injunction (ordered by the Central District Court of Jakarta that arbitral proceedings be suspended) was 'the consequence of the refusal of the Republic of Indonesia to submit to an arbitration to which it [had] previously consented [and] therefore [it did] not, under Art. 28 of the UNCITRAL Rules [on the submission of evidence], excuse the Republic of Indonesia's default'. See also ICC Case No. 10623 (2003) 21 ASA Bulletin 60. This is discussed in more detail in Chapter 7, especially at paragraphs 7.56–7.62. In English private international law, it is also known as the 'proper law' of the contract. Compagnie Tunisienne de Navigation SA v Compagnie d'Armement Maritime SA [1971] AC 572, at 603 per Lord Diplock. Kahler v Midland Bank Ltd [1950] AC 24, at 56. Similar problems have arisen in relation to Argentine investments under which obligations payable in foreign currency were forcibly redenominated in Argentine pesos at a rate of one dollar to one peso. This applied only to contracts governed by Argentinian law. The point as to 'legal rules', by which is meant something other than a national system of law, is developed at paragraphs 3.147–3.224. The Model Law (and the UNCITRAL Rules) allows the parties to choose the 'rules of law' applicable to their contract (which may include, e.g., the lex mercatoria), but stipulates that if the parties fail to make such a choice, the arbitral tribunal shall apply 'the law' applicable to the dispute (which would not include the lex mercatoria). See, e.g., Brazilian Arbitration Act 1996 (as amended in 2015), s. 2; English Arbitration Act, s. 46(1); French Code of Civil Procedure, art. 1511; German ZPO, art. 1051(10); Indian Arbitration and Conciliation Act, s. 28(b); Russian International Arbitration Law 1993 (as amended in 2015), s. 28; Swiss PIL, art. 187(1). This approach is not universal, and parties should note that there are some jurisdictions that will not enforce choice-of-law agreements and instead prescribe the applicable law. Lew, Applicable Law in International Commercial Arbitration (Oceana/Sigthoff & Noorthoff, 1978), p. 75. Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations, OJ L 177/6, 4 July 2008 (Rome I Regulation). Rome I Regulation, Art. 3(1). The Regulation does not apply to arbitration agreements, but the subject under discussion here is not that of arbitration agreements, but of the contract between the parties under which a dispute has arisen. ICSID Convention, Article 42. UNCITRAL Rules 2010, Art. 35.1. Other examples include the Rules of the AAA 2013, International Centre for Dispute Resolution (ICDR) 2021, Art. 34.1; LCIA Rules 2020, Art. 22.3; the Rules of the Russian Federation's Chamber of Commerce and Industry 2017, Art. 23.1; the SCC Rules 2017, Art. 22.1; the WIPO Rules, Art. 61.a; the Hague Conference on Private International Law, Principles of Choice of Law in International Commercial Contracts, Art. 2.1. ICC Rules 2021, Art. 21.1. Lalive, cited in Lew, Applicable Law in International Commercial Arbitration (Oceana/Sigthoff & Noorthoff, 1978), p. 87. Rome I Regulation, Art. 3, provides that a choice of law, or a variation of a choice, can be made at any time after the conclusion of the contract by agreement between the parties. See Moss, 'Can an arbitral tribunal disregard the choice of law made by the parties?' (2005) 1 Stockholm Intl Arb Rev 6. 137) 138) 139) 140) 141) 142) 143) 144) 145) 146) 147) 148) 149) 150) 151) 152) 153) 154) 155) 156) 157) 158) 159) 160) 161) 162) 163) 164) 46 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] By way of illustration of the point, the European Court of Justice (ECJ), in Eco Swiss China Ltd v Benetton International NV [1999] ECR I–3055, ruled that a breach of EU competition law constitutes a violation of the ordre public. In Marketing Displays International Inc. v VR Van Raalte Reclame BV, Case Nos 04/694 and 04/695, 24 March 2005, the Dutch Court of Appeal upheld a lower court's refusal to grant exequatur to three US arbitral awards, because the awards were considered incompatible with Art. 81 of the Treaty establishing the European Community of 2002, and thus violated public policy. Soleimany v Soleimany [1999] QB 785. Ibid., p. 800. Which, in this context, will be referred to as a 'national' system of law, the term being intended to cover not merely a 'national law' properly so-called, such as that of France (and, with it, applicable EU law), but also the law of a 'state' within a federal system, such as New York or California. Sapphire International Petroleum Ltd v The National Iranian Oil Co. (1964) 13 ICLQ 1011. Ibid., at 1012. The UNIDROIT Principles provide examples of such clauses (see Art. 6.2.3 (Effects of Hardship) and Art. 7.1.7 (Force Majeure)). See Al Faruque, 'Typologies, efficacy, and political economy of stabilisation clauses: A critical appraisal' (2007) 4:5 OGEL 33; Maniruzzaman, 'Damages for breach of stabilisation clauses in international investment law: Where do we stand today?' [2007] IELTR 11; Bernardini, 'Stabilization and adaptation in oil and gas investments' (2008) 1 J World Energy L & Bus 98; Cotula, 'Reconciling regulatory stability and evolution of environmental standards in investment contracts: Towards a rethink of stabilization clauses' (2008) 1 J World Energy L & Bus 158. Maniruzzaman, in turn, divides economic equilibrium clauses into three categories: stipulated economic balancing provisions, non-specified economic balancing provisions, and negotiated economic balancing provisions. See Maniruzzaman, 'Damages for breach of stabilisation clauses in international investment law: Where do we stand today?' [2007] IELTR 11, at 127ff. For further discussion of economic equilibrium clauses, see Berger, 'Renegotiation and adaptation of international investment contracts: The role of contract drafters and arbitrators' (2003) 36 Vanderbilt J Transl L 1348; Al Qurashi, 'Renegotiation of international petroleum agreements' (2005) 22 J Intl Arb 261. Rome I Regulation, Art. 3(3). See Chapter 2, paragraphs 2.135ff. Mitsubishi Motor Corporation v Soler Chrysler-Plymouth (1986) XI YBCA 555. Eco Swiss China Ltd v Benetton Investment NV [1999] ECR I–3055. For a discussion of this subject, see Partasides and Burger, 'The Swiss Federal Tribunal's Decision of 8 March 2006: A deepening of the arbitrator's public policy dilemma?' (2006) 3 Concurrences 26. See also Berman, 'Navigating EU law and the law of international arbitration' (2012) 28 Arb Intl 397. Czechoslovakia–Netherlands BIT 1991, Art. 8(6). Slovak Republic v Achmea B.V., CJEU Case No. C-248/16, 6 March 2018, at 60 ('Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the BIT, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept'). Slovak Republic v Achmea B.V., CJEU Case No. C-248/16, 6 March 2018, at 40–42. Republic of Moldova v Komstroy, CJEU Case No. C-741/19, 2 September 2021, at 50–66. Achmea and Komstroy are discussed further in Chapter 8. Higgins, Problems Process: International Law and How We Use It (Clarendon Press, 1994), p. 39. Ibid., p. 50. See Chapter 8 in relation to the applicable law in disputes under investment treaties. See discussion in Kotuby and Sobota, General Principles of Law and International Due Process: Principles and Norms Applicable in Transnational Disputes (Oxford University Press, 2017), pp. 36, 44. Compare the observation of the court in Orion Compania Espanola de Seguros v Belfort Maatschappij Voor Algemene Verzekgringeen [1962] 2 Lloyd's Rep 257, at 264, a case brought many years ago:Thus, it may be, though perhaps it would be unusual, that the parties could validly agree that a part, or the whole, of their legal relations should be decided by the arbitral tribunal on the basis of a foreign system of law, or perhaps on the basis of principles of international law; e.g., in a contract to which a Sovereign State was a party. Higgins, Problems Process: International Law and How We Use It (Clarendon Press, 1994), p. 54. Article 38 of the Statute of the ICJ (which was established in 1945 and is generally known as the 'World Court') states that, in applying international law to the disputes before it, the Court is to apply, inter alia, those general principles of law. 165) 166) 167) 168) 169) 170) 171) 172) 173) 174) 175) 176) 177) 178) 179) 180) 181) 182) 183) 184) 185) 186) 187) 188) 189) 190) 47 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] Jennings and Watts, Oppenheim's International Law, Vol. I (9th edn, Oxford University Press, 1992), p. 29, cited with approval in Brownlie, Principles of Public International Law (Oxford University Press, 2012), p. 34. Professor Brownlie goes on to add that, in practice, tribunals exercise considerable discretion in how they choose, edit, and adapt elements of municipal jurisprudence: ibid., at p. 35. Kotuby and Sobota, General Principles of Law and International Due Process: Principles and Norms Applicable in Transnational Disputes (Oxford University Press, 2017), pp. 35–36. See also p. 37 ('general principles have been relied upon to guide or even correct the application of otherwise applicable domestic law when that law is underdeveloped, unsuited for a transnational dispute or—in extreme cases— unable to meet minimum standards of propriety and fairness'). For an excellent (and, it must be admitted, detailed) work on this topic, see Cheng, General Principles of Law as Applied by International Courts and Tribunals (Cambridge University Press, 1987). See discussion in Kotuby and Sobota, General Principles of Law and International Due Process: Principles and Norms Applicable in Transnational Disputes (Oxford University Press, 2017), p. 39 ('general principles may usefully play an auxiliary role, clarifying ambiguities and filling interstices'). See, e.g., the discussion in Zuberbuhler and Schregenberger, 'Corruption in Arbitration—The Arbitrator's Duty to Investigate', in Muller, Besson, and Rigozzi (eds) New Developments in International Commercial Arbitration 2016 (Schulthess, 2016), pp. 18–19. World Duty Free Company Limited v The Republic of Kenya, ICSID Case No. ARB/00/7 (Award of 4 October 2006), at [157]. Ibid., at [120]. See, e.g., Alstom v Alexander Brothers, cour d'appel de Paris, 28 May 2019, Case No. 16/11182 (in which Alstom challenged the enforcement of an arbitral award that ordered Alstom to pay outstanding invoices to Alexander Brothers, on the grounds that the underlying contracts were tainted by illegality. The Paris Court of Appeal refused to enforce the award because to do so would contravene international public policy). See, e.g., Rome Convention, Art. 3(1) ('By their choice the parties can select the law applicable to the whole or a part only of the contract'); Rome I Regulation, Art. 3(1). Part XIV of the Inter-American Juridical Committee, Guide on the Law Applicable to International Commercial Contracts in the Americas 2019, Organisation of the American States, available online at http://www.oas.org/en/sla/dil/docs/publications_Guide_Law_Applicable_Internati onal_Commercial_Contra.... Paulsson and Petrochilos, UNCITRAL Arbitration (Kluwer Law International, 2017), p. 318. Ibid., p. 315. See paragraph 3.206 below. Model Law, Art. 28. See paragraphs 3.131ff. See the discussion of this Convention in Chapter 1. Provided that the state has adopted the ICSID Convention. ICSID Convention, Art. 42(1). Rawding, 'Protecting Investments under state contracts: Some legal and ethical issues' (1995) 99 Arb Intl 341 describes this option as subjecting national law to 'international quality control'. The issue of applicable law in cases brought under investment treaties is addressed in Chapter 8. For examples of ICSID cases resolved on the basis of international law (to the extent that there were gaps in the applicable host state law, or where its application would have produced a result inconsistent with international law), see Klöckner Industrie-Anlagen v Republic of Cameroon, ICSID Case No. ARB/81/2, Decision of the Ad Hoc Committee, 3 May 1985; Amco Asia Corporation v Republic of Indonesia, ICSID Case No. ARB/81/1, Ad Hoc Committee Decision on the Application for Annulment, 16 May 1986; Wena Hotels Ltd v Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Annulment Application, 5 February 2002; Sempra Energy International v Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007. For a discussion of compensation, see Chapter 8. Rome Convention, Art. 7. Texaco Overseas Petroleum Co. v Government of Libyan Arab Republic (1978) 17 ILM 3; BP Exploration Co. (Libya) Ltd v Government of the Libyan Arab Republic (1979) 53 ILR 297; Libyan American Oil Co. (Liamco) v Government of the Libyan Arab Republic (1981) 20 ILM 1, (1981) VI YBCA 89. See also Greenwood, 'State contracts in international law: The Libyan oil arbitrations' (1982) 17 ILM 14; Rigaux, 'Des dieux et des héros: Réflexions sur une sentence arbitrale' [1978] Revue Critique de Droit International Privé 435; Stern, 'Trois arbitrages, un même problème, trois solutions' [1980] Rev Arb 3. For this text, see the Texaco arbitration, fn. 157. 191) 192) 193) 194) 195) 196) 197) 198) 199) 200) 201) 202) 203) 204) 205) 206) 207) 208) 209) 210) 211) 212) 213) 48 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] 'The governing system of law is what that clause expressly provides—namely, in the absence of principles common to the law of Libya and international law, the general principles of law, including such of those principles as may have been applied by international tribunals': BP, fn. 240, per Judge Lagergren. Liamco, at 143. The fact that three different arbitrators could arrive at three different conclusions on the meaning of the same choice-of-law clause highlights one of the weaknesses of the arbitral system, which is the possibility of conflicting awards on the same basic problem: see Stern, 'Trois arbitrages, un même problème, trois solutions' [1980] Rev Arb 3. American Independent Oil Co. Inc. (Aminoil) v Government of the State of Kuwait [1982] 21 ILM 976. Ibid., at 980. Ibid., at 1000. Ibid., at 1001. The tronc commun doctrine was first elaborated by Rubino-Sammartano in 1987: see Rubino-Sammartano, 'Le tronc commun des lois nationales en presence: Réflexions sur le droit applicable par l'arbitre international' [1987] Rev Arb 133; RubinoSammartano, International Arbitration Law and Practice (Kluwer Law International, 1990), p. 274. Sapphire International Petroleum Ltd v The National Iranian Oil Co. (1964) 13 ICLQ 1011. Quoted ibid., at 1014. Ibid., at 1015. It is surprising in that the tronc commun is generally chosen as the 'politically correct' choice of law in cases involving a foreign state, rather than cases involving only private parties. Channel Tunnel Group Ltd and France Manche SA v Balfour Beatty Construction Ltd and ors [1993] AC 334, at [347]. When Eurotunnel sought an injunction to prevent Trans-Manche from carrying out a threat to cease work on part of the project. Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1992] 1 QB 656, at [675]. Rubino-Sammartano, 'The Channel Tunnel and the tronc commun doctrine' (1993) 10 J Intl Arb 59, at 61, asserts that: 'The Channel Tunnel contract is an example of an express choice by the parties and as such it does not seem to leave the door open to possible argument. The view expressed by Staughton LJ, "I suspect it will lead to lengthy and expensive dispute" cannot consequently be shared.' In fact, as stated above, it was entirely accurate, in that two teams of lawyers, French and English, had to be engaged by each of the parties in order to advise on the many disputes that arose. It is true that the choice-of-law clause was clear; this is not the issue. What was not clear was what were the 'common principles' of French and English law that were applicable to the various different disputes that arose—including, e.g., disputes as to whether a particular claim was or was not barred (or extinguished) by lapse of time. Duval, 'English and French law: The search for common principles' (1997) 25 Intl Business Lawyer 181, at 182. Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, at 368. In the same judgment, Lord Mustill said, at 353, 'having promised to take their complaints to the experts and if necessary to the arbitrators, that is where the appellants should go'. For further comment on the House of Lords' decision, see Reymond, 'The Channel Tunnel case and the law of international arbitration' (1993) 109 LQR 337; Veeder, 'L'Arret Channel Tunnel de la Chambre des Lords' (1993) 4 Rev Arb 705. Rubino-Sammartano, 'The Channel Tunnel and the tronc commun doctrine' (1993) 10 J Intl Arb 59, at 61 ('[T]​he common part of these two national laws must be treated as that chosen by the parties'). The same division into specialist groups may be seen within law firms from which, increasingly, clients are seeking specialist business sector advice or expertise. This can be seen in White & Case and Queen Mary School of International Arbitration, University of London, 2010 International Arbitration Survey: Choices in International Arbitration, available online at https://arbitration.qmul.ac.uk/media/arbitration/docs/2010_InternationalArbitrati onSurveyReport.pdf, which indicated that 50 per cent of respondents have 'sometimes' used transnational laws and rules to govern contracts. Colombos, International Law of the Sea (6th edn, Prentice Hall Press, 1967). Ibid. Bowden, 'L'interdiction des se contredire au détriment d'autrui (estoppel) as a Substantive Transnational Rule in International Commercial Arbitration', in Gaillard (ed.) 'Transnational Rules in International Commercial Arbitration', ICC Publication No. 480/4 (ICC, 1993), p. 127. 214) 215) 216) 217) 218) 219) 220) 221) 222) 223) 224) 225) 226) 227) 228) 229) 230) 231) 232) 233) 234) 235) 236) 237) 49 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] See Goldman, 'Lex mercatoria' (1983) 3 Forum Internationale 21. The late Professor Goldman, having referred to the codification of international commercial practices, such as the ICC's Uniform Customs and Practice for Documentary Credits (UCP)and Incoterms, as evidence of the emergence of an international business practice (on which, see paragraph 3.201ff), stated, ibid., at 5:Commentators in the early 1960s began to take note of this evolution. Clive Schmithoff was the first in England to salute the new Law Merchant; in France, Philippe Kahn, with respect to international sales, Philippe Fouchard, with respect to international arbitration and Jean Stoufflet, with respect to documentary credits, undertook to study this law. As for myself, I concluded that a place could be acknowledged for the lex mercatoria—a name which stuck—within the boundaries of the law. Ibid., at 3. Ibid. Goldman, 'La lex mercatoria dans les contrats d'arbitrage internationaux: Réalité et perspectives' (1979) 106 Clunet J du Droit Intl 475; Lalive, 'Transnational (or truly international) public policy and international arbitration' (1986) 3 ICC Congress Series 257; see generally Gaillard (ed.) 'Transnational Rules in International Arbitration 1993', ICC Publication No. 480/4 (ICC, 1993) (a very helpful review of aspects of transnational law by distinguished contributors). See, e.g., Mustill LJ, 'The new lex mercatoria: The first twenty-five years' (1987) 4 Arb Intl 86, at 86, in which he notes that '[t]​he Lex Mercatoria has sufficient intellectual credentials to merit serious study, and yet is not so generally accepted as to escape the sceptical eye'. See, e.g., Delaume, 'The proper law of state contracts and the lex mercatoria: A reappraisal' (1988) 3 ICSID Rev—Foreign Investments LJ 79, at 106, where this experienced international practitioner suggests that the risk of changes in state law to the detriment of the private party to a state contract may be insured under the Convention Establishing the Multilateral Investment Guarantee Agency (1985) 24 ILM 1589, and that this is far more adapted to the commercial realities 'than the Lex Mercatoria which remains, both in scope and in practical significance, an elusive system and a mythical view of a transnational law of State Contracts whose sources are elsewhere'. See, e.g., Mann, 'The proper law in the conflict of laws' (1987) 36 ICLQ 437, at 448; Toope, Mixed International Arbitration (Grotius, 1990), in particular p. 96, where the author concludes: 'It would appear that the so-called lex mercatoria is largely an effort to legitimise as "law" the economic interests of Western corporations.' Goldman, 'La lex mercatoria dans les contrats d'arbitrage internationaux: Réalité et perspectives' (1979) 106 Clunet J du Droit Intl 475, at 481. Although Professor Goldman himself contended that it was part of a legal order. Goldman, 'La lex mercatoria dans les contrats d'arbitrage internationaux: Réalité et perspectives' (1979) 106 Clunet J du Droit Intl 475, at 496. Both the ICC Rules 2021, Art. 21.2, and the UNCITRAL Rules 2010, Art. 35.3, require arbitrators to take account of relevant trade usages. See, e.g., Berger, The Creeping Codification of the New Lex Mercatoria (Kluwer Law International, 2011). See also Mustill LJ, 'The new lex mercatoria: The first twenty-five years' (1987) 4 Arb Intl 86—although the author thought the results 'a modest haul for twenty-five years of international arbitration'. See too Paulsson, 'La lex mercatoria dans l'arbitrage de la CCI' [1990] Rev Arb 55; Dalhuisen, 'Legal orders and their manifestation: The operation of the international commercial and financial legal order and its lex mercatoria' (2006) 24 BJIL 129, at 179ff. Berger, The Creeping Codification of Lex Mercatoria (Kluwer Law International, 1999), p. 192. Translex is available online at http://www.trans-lex.org Fortier, 'The new, new lex mercatoria, or back to the future' (2001) 17 Arb Intl 121, at 126. Gaillard, 'Transnational law: A legal system or a method of decision-making?' (2001) 17 Arb Intl 62. Ibid., at 60; see also Fortier, 'The new, new lex mercatoria, or back to the future' (2001) 17 Arb Intl 121, at 126. Gaillard, 'Transnational law: A legal system or a method of decision-making?' (2001) 17 Arb Intl 62 at 64. Molineaux, 'Applicable law in arbitration: The coming convergence of civil and Anglo-Saxon law via Unidroit and lex mercatoria' (2000) 1 JWIT 127, at 130. Fortier, 'The new, new lex mercatoria, or back to the future' (2001) 17 Arb Intl 121, at 124–125. Except on procedural matters, which are not under consideration here. Mayer, 'The UNIDROIT Principles in contemporary contract practice' (2002) ICC Bulletin (Special Supplement) 111. For instance, in authorising arbitrators to choose the governing law of the contract, where the parties have not done so, without necessarily following the conflict rules of the place of arbitration. Lew, 'Is there a "global free-standing body of substantive arbitration law?" ', in van den Berg (ed.) International Arbitration: The Coming of a New Age? (Kluwer Law International, 2013), pp. 53–61. 238) 239) 240) 241) 242) 243) 244) 245) 246) 247) 248) 249) 250) 251) 252) 253) 254) 255) 256) 257) 258) 259) 260) 261) 50 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] Compare the statement of Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, at 353 ('[H]​aving promised to take their complaints to the experts and if necessary to the arbitrators, that is where the appellants should go'). At its conference in Cairo, April 1992. Quoted in ICC, Transnational Rules in International Commercial Arbitration, ICC Publication No. 480/4 (ICC, 1993), p. 247. Note, however, that if no choice of law has been made by the parties, the arbitral tribunal may not be free to choose anything other than national law. This is because the relevant rules of arbitration, or the relevant state law, may not allow any other option. Banque du Proche-Orient v Société Fougerolle, Cass. Civ. 2eme, 9 December 1981 (second decision) and Cass. Civ. 1ere, 22 October 1991; Judgment of the Austrian Supreme Court, 18 November 1982, reproduced in (1984) IX YBCA 161; Deutsche Schachtbau und Tiefbohrgesellschaft GmbH (F/Germ) v R'as Al Khaimah National Oil Co. (R'as Al Khaimah, UAE) Shell International Petroleum Co. Ltd (UK) [1987] 3 WLR 1023, rev'd on other grounds [1990] 1 AC 295. See also Rivkin, 'Enforceability of awards based on lex mercatoria' (1993) 19 Arb Intl 47. The current version of which is the UCP 600, published in 2007: ICC Publication No. 600. The latest version of which is the 2020 edition: ICC Publication No. E723E. Both Incoterms and documentary credits are discussed with trade usages at paragraph 3.206. See paragraphs 3.192, 3.195, and 3.196. The UNIDROIT Principles were revised in May 2016 and are available online at https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles2016/ For example, Article 1.7 states: '(1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty.' See van Houtte, 'The UNIDROIT Principles of International Commercial Contracts' (1995) 11 Arb Intl 373, at 374. UNIDROIT has published a commentary on the revised principles entitled UNIDROIT Principles of International Commercial Contracts, 2016, available online at https://www.unidroit.org/wp-content/uploads/2021/06/Unidroit-Principles-2016English-i.pdf . More precisely, the opening words to the Preamble to the UNIDROIT Principles state:These Principles set forth general rules for international commercial contracts. They shall be applied when the parties have agreed that their contract be governed by them. They may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like. They may be applied when the parties have not chosen any law to govern their contract. They may be used to interpret or supplement international uniform law instruments. They may be used to interpret or supplement domestic law. They may serve as a model for national and international legislators. For a review of the application of the UNIDROIT Principles in arbitration practice, see Piers and Erauw, 'Application of the UNIDROIT Principles of International Commercial Contracts in Arbitration' (2012) 8 J Priv Intl L 441. Now Art. 27.1 of SCC Rules 2017 ('The Arbitral Tribunal shall decide the merits of the dispute on the basis of the law(s) or rules of law agreed upon by the parties. In the absence of such agreement, the Arbitral Tribunal shall apply the law or rules of law that it considers most appropriate'). See Arbitration Institute of the SCC, Stockholm Arbitration Report (SCC, 2002), p. 59, with commentary by Fernandez-Armesto. In the same manner as an exemption clause might be disregarded under domestic legislation to protect consumers. UNIDROIT Principles, Art. 7.1.6. ICC Rules 2021, Art. 21.2; UNCITRAL Rules 2010, Art. 35.3. Model Law, Art. 28(4). Netherlands Arbitration Act, Art. 1054(4). See paragraph 3.197 above. For example, the constitutions of Yemen, Qatar, and Egypt state that Shari'ah is a primary source of law. See Majeed, 'Good faith and due process: Lessons from the Shari'ah' (2004) 20 Arb Intl 97. See Darwazeh, 'Arbitration in the Arab world: An interview with Professor Ahmed Sadek El-Kosheri' (2008) 25 J Intl Arb 203. Sanghi Polyesters Ltd (India) v The International Investor KCFC (Kuwait) [2000] 1 Lloyd's Rep 480. See also Musawi v R E International (UK) Ltd and ors [2007] EWHC 2981, discussed at paragraph 3.214. Fadlallah, 'Arbitration facing conflicts of culture: The 2008 Freshfields Lecture' (2009) 25 Arb Intl 303. 262) 263) 264) 265) 266) 267) 268) 269) 270) 271) 272) 273) 274) 275) 276) 277) 278) 279) 280) 281) 282) 283) 284) 285) 286) 287) 288) 51 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] See, e.g., Beximco Pharmaceuticals Ltd and ors v Shamil Bank of Bahrain EC [2004] EWCA Civ 19, discussed by Fadlallah, ibid. Also of interest is a question posed in the English parliament on 15 December 2008 regarding which 'Islamic tribunals' have authority to act under the English Arbitration Act. The Minister for Business, Enterprise and Regulatory Reform responded that there is 'no specific provision in the Arbitration Act 1996 for "Islamic Tribunals" ', but that '[t]​he Act allows all parties to have their disputes decided by a set of principles of their choice rather than by national law': HC Deb, 15 December 2008, cols 465–466W. He also referred to the Muslim Arbitration Tribunal (MAT), established in 2007 to provide an alternative route to resolve civil issues in accordance with Shari'ah principles. The MAT operates according to the principles of the English Arbitration Act. Fadlallah, ibid., at fn. 320. Sheikh Abu Dhabi v Petroleum Development Ltd [1952] ICLQ 247. Ruler of Qatar v International Marine Oil Co. Ltd (1956) 20 Int L Rep 534. Aramco v Government of Saudi Arabia (1963) 27 Int L Rep 117. Sheikh Abu Dhabi v Petroleum Development Ltd [1952] ICLQ 247. Fadlallah, 'Arbitration facing conflicts of culture: The 2008 Freshfields Lecture' (2009) 25 Arb Intl 303. Emphasis added. French Code of Civil Procedure, art. 1496; Swiss PIL, art. 187. The ICC Rules 2021 also now refer to 'the rules of law' (in Art. 21) rather than to 'the law' to be applied. Model Law, Art. 28(2). Despite the early approach of the common law to require tribunals to apply a fixed and recognisable system of law, the adoption of the Model Law in various common law countries, including Australia, Canada, Hong Kong, and New Zealand, means that there is now growing express recognition of the concept. English Arbitration Act, s. 46. Musawi v R E International (UK) Ltd and ors [2007] EWHC 2981. Halpern v Halpern [2007] EWCA Civ 291. As noted earlier, however, an arbitration agreement must be governed by the law of a country (in this case, Swiss or English law—the decision was never made) and cannot be governed by Jewish law. ICC Rules 2021, Art. 21.1 ('The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.') For example, they may choose general principles of law, or the lex mercatoria, or the UNIDROIT Principles. Several civil law countries provide for the possibility that an arbitrator can act as an amiable compositeur. For example, Italian civil procedure provides for the courts to decide the merits of a dispute in equita when the dispute concerns rights which the parties are entitled to waive and the parties jointly request the court to do so. See Codice di Procedura Civile (as amended in 2021), s. 114. The same authority is given to arbitrators in s. 822. There is a similar provision in the Swiss PIL, art. 187(2). Egypt's arbitration law refers to both the power to act as an amiable compositeur as well as the power to 'adjudicate the merits of the dispute in conformity with the rules of justice and fairness (ex aequo et bono)'. See Egyptian Arbitration Act, 1994, Art. 39(4). Model Law, Art. 28(3) and (4). For the view that such a departure is or ought to be permissible in the interests of fairness and justice, see Kiffer, 'Amiable Composition and ICC Arbitration' (2007) 18(1) ICC Court of Arbitration Bulletin 50. The Court of Appeal of Quebec, Canada, took the opposite view in the case of Coderre v Coderre (2008 QCCA 888), Court of Appeal of Quebec, 13 May 2008. In that case, the court found that an arbitrator had exceeded his mandate as amiable compositeur under the Model Law by deciding to ignore two provisions of the parties' contractual accounting formula. ICC Rules 2021, Art. 21.2. ICC Award No. 3344 of 1981 noted in Jarvin and Derains, Collection of ICC Arbitral Awards 1974–1985, Vol. I (Kluwer Law & Taxation/ ICC Publishing, 1990), p. 444. See, e.g., Cavendish Square Holding BV v Talal El Makdessi; PakingEye Limited v Beavis [2015] UKSC 67, at [32] where the UK Supreme Court upheld the common law position that a liquidated damages clause can be struck down as penal where 'the clause imposes a detriment on the contract breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation'. See Loquin, L'Amiable Compositeur en Droit Comparé et International: Contribution à l'Étude du Non-Droit dans l'Arbitrage International (Librairie Techniques, 1980). Cour d'appel de Paris, 11 January 1996, 351. Benvenutit and Bonfant SARL v The Government of the People's Republic of Congo, ICSID Case No. ARB/77/2, Award, 8 August 1980, at [4.65]. Ibid., at [4.96] ('[. . .] the Tribunal considers it equitable to award [B&B] the sum of CFA 5,000,000 as damages for intangible loss'). Ibid at [4.98]. UNCITRAL Rules 1976, Art. 33.2. UNCITRAL Rules 2010, Art. 35.2. ICC Rules 2021, Art. 21.3; LCIA Rules 2020, Art. 22.4; SCC Rules 2017, Art. 27.3. 289) 290) 291) 292) 293) 294) 295) 296) 297) 298) 299) 300) 301) 302) 303) 304) 305) 306) 307) 308) 309) 310) 311) 312) 313) 314) 315) 316) 317) 318) 52 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] Paulsson and Petrochilos, UNCITRAL Arbitration (Kluwer Law International, 2017), p. 320 ('These terms appear as separate, alternate concepts in both the 1976 and 2010 Rules, because the Working Group hoped to accommodate the different terms existing in various legal systems and literature.') See Rubino-Sammartano, 'Amiable compositor (joint mandate to settle) and ex bono et aequo (discretional authority to mitigate strict law): Apparent synonyms revisited' (1992) 9 J Intl Arb 5. See Grierson and van Hooft, Arbitrating under the 2012 ICC Rules (Kluwer Law International, 2012), pp. 319–335 (glossary entries for amiable compositeur and ex aequo et bono); Halsbury's Laws of England, Vol. 2 (5th edn, LexisNexis, 2008), footnote to para. 1208; Born, International Commercial Arbitration (2nd edn, Kluwer Law International, 2014), pp. 2770–2776. See, e.g., the Ecuador Arbitration and Mediation Law 1997 (as amended in 2021), Art. 3 ('Las partes indicarán si los árbitros deben decidir en equidad o en derecho, a falta de convenio, el fallo será en equidad', or 'The parties will decide whether the arbitrator shall decide in law or in equity. Unless otherwise agreed, the award shall be in equity' (authors' translation)). See Mayer, 'Reflections on the international arbitrator's duty to apply the law: The 2000 Freshfields Lecture' (2001) 17 Arb Intl 235, at 237–240, for a discussion of how arbitrators may not be bound to apply the law. The report issued after the ILA's Seventy-third Conference, held in Rio in August 2008. The Annex Resolution No. 6/2008 contains guidance split into the following sections: general considerations; acquiring information relevant to the ascertainment of the applicable law; interaction with the parties; making use of information about the law's content; and guidance in special circumstances, e.g. where public policy is implicated. Recommendations of particular note are: Recommendation 4, that the rules governing the ascertainment of the contents of law by national courts are not necessarily suitable for arbitration and that arbitrators should not rely on unexpressed presumptions as to the contents of the applicable law, including any presumption that it is the same as the law best known to the tribunal or to any of its members, or even that it is the same as the law of the seat of arbitration; Recommendation 5, that arbitrators should primarily receive information about the contents of the applicable law from the parties; and Recommendation 6, that arbitrators should not introduce legal issues (propositions of law that may bear on the outcome of the dispute) that the parties have not raised. Rome I Regulation, Art. 3(1) (emphasis added). Giuliano and Lagarde, Council Report on the Convention on the Law Applicable to Contractual Obligations, OJ C 282/1, 31 October 1980. Ibid., at p. 17 (emphasis added). See also Collins (ed.) Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell, 2018), pp. 1809ff. UNCITRAL Rules 1976, Art. 33.1. UNCITRAL Rules 2010, Art. 35.1; ICC Rules 2021, Art. 21.1. See, e.g., Swiss PIL, art. 187(1). Rome I Regulation, Art. 4; see also Collins (ed.) Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell, 2018), pp. 1818ff, for a commentary on this provision of the Convention, which is based on Swiss and, subsequently, Dutch law. See Arbitration Institute of the SCC, Stockholm Arbitration Report (SCC, 2002), p. 59, with commentary by Fernandez-Armesto. It is worth noting that arbitral agreements are expressly excluded from the scope of the Convention by Art. 1(2)(d), but the discussion in the present section is about contracts as a whole and not about a separate (or separable) agreement to arbitrate. Rome I Regulation, Art. 4(1). Rome I Regulation, Art. 4(2). Model Law, Art. 28. Goldman, 'La lex mercatoria dans les contrats et l'arbitrage internationaux: Réalité et perspectives' [1979] J du Droit Intl 475, at 491. Sapphire International Petroleum Ltd v The National Iranian Oil Co. (1964) 13 ICLQ 1011. Ibid. ICSID Convention, Art. 42(1). See, e.g., the UNCITRAL Rules 2010, Art. 35.1 ('The arbitral tribunal shall apply the rules of law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law which it determines to be appropriate' (emphasis added)). Model Law, Art. 28(2). French Code of Civil Procedure, art. 1511. The same formulation is now used at Art. 35 of the UNCITRAL Rules 2010. ICC Rules 2021, Art. 21.1; LCIA Rules 2020, Art. 22.3. The SCC Rules 2017, Art. 27.1, and WIPO Rules, Art. 59.a, also endorse the direct approach. 319) 320) 321) 322) 323) 324) 325) 326) 327) 328) 329) 330) 331) 332) 333) 334) 335) 336) 337) 338) 339) 340) 341) 342) 343) 344) 53 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] In Canada, by the Ontario International Commercial Arbitration Act 2017, s. 7; in India, the Arbitration and Conciliation Act 1996 (as amended in 2022), s. 28(1)(b)(iii); in Kenya, the Arbitration Act 1995 (as amended in 2010), s. 29(3); in the Netherlands, the Arbitration Act 2015, s. 1054(2). Swiss law also comes close to the same position, in the Swiss PIL, s. 187. This may be ex ante or ex post. For example, none of the ICC, LCIA, nor UNCITRAL Rules provide any guidance in this respect. One exception is the ICDR Rules 2021, which provide in Art. 25 that the arbitral tribunal should (to the extent possible) give 'preference to the rule that provides the highest level of protection'. See discussion in Mockesch, Attorney–Client Privilege in International Arbitration (Oxford University Press, 2016), at paragraphs 8.16–8.17. See also paragraph 8.28 ('There appears to be no national arbitration legislation which expressly mentions the issue of privilege'). Franck, 'International arbitration and attorney–client privilege: Conflict of laws approach' (2019) 51(3) Arizona State Law Journal 938. Ibid., at 938–939. If the client and the attorney live in different countries, this law can be either the client's place of business or the attorney's domicile. See Catelli and Brueggemann, 'Evidentiary objections', in Klaesner, Magal, and Neuhaus (eds) The Guide to Evidence in International Arbitration (Global Arbitration Review, 2021), p. 96. See, e.g., Wellin v Wellin, 211 F Supp 3d 793 (DSC 2016), where the US District Court of South Carolina used conflicts principles to determine which US state jurisdiction had the 'most significant relationship' with the legal privilege in question. See, e.g., Blanco v United Mexican States, ICISD Case No. UNCT/17/1, Procedural Order No. 5 at [17], [19] (the tribunal was 'concerned that applying different standards on the matters of privilege could affect the balance and equality of treatment of the Parties'). For an in-depth analysis of the advantages and disadvantages of each approach, see Stouten and Jansen, 'Legal privilege issues: At the mercy of the arbitral tribunal', 3 June 2021, International Bar Association, available online at https://www.ibanet.org/legal-privilege-arbitral-tribunal. See, e.g., ICC Case No. 13054, (2014) 25 ICC ICArb Bull Suppl 14. See, e.g., Bank for International Settlements: Procedural Order No 6 (Order with Respect to the Discovery of Certain Documents for Which Attorney-Client Privilege Has Been Claimed), 11 June 2002, Recueil des Sentences Arbitrales, Vol. XXIII, pp. 169–182 (in which the tribunal defined the scope of legal privilege without reference to any national law). IBA Rules, Art. 9.2. IBA Rules, Art. 9.4. Indeed, this is discussed in Chapter 5. Bar Council of England and Wales Code of Conduct, Pt. VII, s. 705(a). See, e.g., R v Momdou and anor [2005] EWCA Crim 177 at [45] ('There is no place for witness training in this country, we do not do it. It is unlawful'). Miller, 'Zip to nil? A comparison of American and English lawyers' standards of professional conduct' (1995) CA 32 ALI-ABA 199, at 204. van Houtte, 'Counsel–witness relations and professional misconduct in civil law systems' (2003) 19 Arb Intl 457. Professor van Houtte argues that Art. 4 ('Applicable Rules of Conduct in Court') of the Code of Conduct for European Lawyers has the effect that whenever the seat of the arbitration is within the EU, the ethical standards of the seat apply. For standards that should apply to participants in the arbitral process, see Veeder, 'The 2001 Goff Lecture: The lawyer's duty to arbitrate in good faith' (2002) 18 Arb Intl 431. In many jurisdictions, it is a requirement for foreign lawyers practising in the jurisdiction to register with the local bar. Paulsson, 'Standards of conduct for counsel in international arbitration' (1992) 3 Am Rev Intl Arb 214. In a similar vein, the Code of Conduct for European Lawyers was originally drawn up and adopted in 1998 by the Conseil des Barreaux de la Communauté Européene (CCBE). The Brussels Bar Rules contain such express exceptions. For a further discussion of the issue, see van Houtte, 'Counsel–witness relations and professional misconduct in civil law systems' (2003) 19 Arb Intl 457. ICC Rules 2021, Art. 38.5. LCIA Rules 2020, Art. 18.5. LCIA Rules 2020, Art. 18.6. 345) 346) 347) 348) 349) 350) 351) 352) 353) 354) 355) 356) 357) 358) 359) 360) 361) 362) 363) 364) 365) 366) 367) 54 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..

[Audio] KluwerArbitration © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved. Kluwer Arbitration is made available for personal use only. All content is protected by copyright and other intellectual property laws. No part of this service or the information contained herein may be reproduced or transmitted in any form or by any means, or used for advertising or promotional purposes, general distribution, creating new collective works, or for resale, without prior written permission of the publisher. If you would like to know more about this service, visit www.kluwerarbitration.com or contact our Sales staff at [email protected] or call +31 (0)172 64 1562. 55 © 2023 Kluwer Law International, a Wolters Kluwer Company. All rights reserved..