Choice Of Law: Problems In International Commercial Arbitration

Author:Mr Amarendra Pratap Singh
Profession:Singh & Associates
 
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INTRODUCTION

  1. DETERMINATION OF THE APPLICABLE LAW BY THE PARTIES

    When an arbitrator has to decide which law to apply for the solution of the dispute, he may find a contractual clause providing an express choice of law1: "The validity, construction and performance of this contract shall be governed by and in accordance with the law of..." or similar provisions. The parties may provide for the application of some national law or for some nonnational set of rules.

    IF THE PARTIES CHOOSE A NATIONAL LAW

    In such situation, the arbitrator has to decide: should he test the autonomy of the parties in choosing the applicable law under a conflict of laws system or should he recognize that freedom without relying on any conflict of laws rule? The party autonomy is widely recognized both in common law and civil law. However, not every country gives parties unlimited freedom to choose the applicable law. Since every right, power or duty of a person has its root in the law of the nation, even the party autonomy principle as well as arbitration as a whole, must rely on and derive its existence from a national law system. The arbitrator must analyze the party autonomy under the conflict of laws of the lex fori and he can also disregard the choice of the parties if they did not select the national law with which the contract has its closest connection. In so doing they can find an agreement that they probably could not have reached if they had applied the national law of either party. Those factors make the choice of the parties "appropriate" - meaning that for those reasons the contract has sufficient connections with that law such as to admit that choice.

    (II) IF THE PARTIES CHOOSE A NON-NATIONAL SET OF RULES

    Non-national standard has been defined in different ways: international law, international customs or usages2, transnational law. In spite of all these different labels probably the same phenomenon reoccurs: a set of rules developed to regulate international trade in the merchants' community. The question is whether an arbitrator should respect the choice of the parties. Furthermore, not being a highly developed system, lex mercatoria does not cover all the matters which might be the object of a dispute.

  2. Determination of the Applicable Law by the Arbitrator When the Parties Do Not Make a Choice

    It so happens that an agreement is sound but when parties reach the stage of selecting the applicable law they face a difficult situation. They come from...

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