How is the law applicable to the substance determined?

International Arbitration (2nd Edition)

Chile Small Flag Chile

Under Article 223 of the Code of Judicial Organization, there are three different types of arbitration, on which will depend the applicable law to the substance of the arbitration. First, there is de jure or in law arbitration, in which the arbitrator shall apply Chilean law, both in substance and procedure. Second, there is the ex aequo et bono or arbitration in equity, where the arbitrator shall resolve the dispute in accordance with his o hers best judgment and equity, and apply the procedural rules determined by the parties. Finally, there is mixed arbitration, where the arbitrator shall decide the merits of the case based in Chilean substance law while acting as an ex aequo et bono arbitrator regarding the arbitral procedure.

In international arbitration, the applicable law to the substance is the one determined by the parties, as stated in Article 28(1) of the International Commercial Arbitration Law No. 19.971 (ICAL). In case the parties do not determine the law applicable to the substance of the arbitration, Article 28(2) of ICAL provides that “the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable”. Finally, Article 28(3) states that the arbitrators may act ex aequo et bono or as amiable compositeur, only in those cases where the parties have expressly authorize them to do so.

Portugal Small Flag Portugal

As a rule, the arbitral tribunal shall decide the dispute in accordance with the law, unless the parties agree that it shall decide ex aequo et bono.

In international arbitration, the parties may choose the rules of law to be applied by the arbitrators, if they have not authorised them to rule ex aequo et bono. Any choice of the law or legal system of a given State shall be construed, unless otherwise expressly agreed, as directly referring to the substantive law of that State and not to its rules on conflict of laws. In the absence of choice by the parties, the arbitral tribunal shall apply the law of the State to which the subject matter of the dispute has the closest connection. In both cases, the arbitral tribunal shall take into consideration the contractual terms agreed by the parties and the relevant trade usages. (art. 52 LAV).

Luxembourg Small Flag Luxembourg

The parties to an arbitration may freely decide on the law applicable to the merits of the case, if they agree to deviate from the Luxembourg rules, or authorise the arbitral tribunal to decide as ‘amiable compositeur’ (ie, equitably).

There are no rules in the articles of the NCPC relating to arbitration on how the arbitral tribunal is to decide on the law applicable to the merits of the case if no such agreement between the parties exists. In practice, the arbitral tribunal will determine the applicable law applying the principles of private international law.

Switzerland Small Flag Switzerland

According to art. 187 para 1 PILA the law applicable to the substance in international arbitration is primarily determined by the parties' explicit or implicit choice of law. In the absence of such choice, the arbitral tribunal applies the rules of law with which the underlying agreement has its closest connection.

In domestic arbitration, art. 381 CPC provides for the arbitral tribunal to decide either according to the rules of law chosen by the parties or based on equity if authorised by the parties. In a subsidiary manner, the arbitral tribunal "shall decide according to the law that an ordinary court would apply".

Germany Small Flag Germany

Pursuant to section 1051 (1) ZPO, the applicable law is to be determined by the parties, either expressly, or through designation of a particular legal system of conflict of laws rules.

Absent a party agreement, the tribunal is to apply the law of that state to which the subject matter of the proceeding has the closest ties (section 1051 (2) ZPO). If the parties expressly authorize the tribunal, it may determine the applicable law as per the tribunal’s reasonable discretion (section 1051 (3) ZPO).

In any event, the tribunal needs to decide in accordance with the provisions of the underlying contract and has to take any existing commercial practice into account (section 1051 (4) ZPO).

Ukraine Small Flag Ukraine

According to the general rule the arbitral tribunal shall apply the rules of law chosen by the parties. In absence of such choice the arbitral tribunal determines the applicable rules of law based on the conflict of laws rules which it considers applicable in the particular case. In Ukraine, such rules of conflict of laws are mostly established in the PILA. Meanwhile, notwithstanding the parties' choice of law the mandatory provisions of Ukrainian law prevail and, therefore, shall be applied by the arbitral tribunal.

Panama Small Flag Panama

Under the Panama Arbitration Law, the law applicable to the substance is determined by the parties. Failing an agreement by the parties, the arbitral tribunal shall apply the rules of law it considers appropriate.

Moreover, in Panama, the arbitral tribunal shall decide the dispute as “amiable compositeur” or “ex aequo et bono” only when the parties have expressly authorized it to do so.

In all cases, the arbitral tribunal shall decide the dispute in accordance with the terms of the contract and shall take into account the usages of trade applicable to the transaction, and for international arbitration proceedings, the arbitral tribunal shall also take into consideration the UNIDROIT principles on international commercial contracts.

UAE Small Flag UAE

The applicable law is normally stated within the underlying contract. Where it is not however, the following applies:

UAE
The DIAC Rules (Article 33) provide for an Arbitral Tribunal to decide on the rule of law which the Arbitral Tribunal considers as most appropriate to be applied. Any designation of the law of a given state shall be construed (unless expressly stated otherwise) as the applicable law.

The Arbitral Tribunal shall, in all cases, take into consideration the terms of the contract and trade usage applicable when deciding on the applicable law.

UAE Off-Shore Jurisdictions
The DIFC Arbitration Law (Article 35) provides that ‘Any designation of the law or legal system of a given State or jurisdiction shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State or jurisdiction and not to its conflict of laws rules’.

In the absence of such designation, the Arbitral Tribunal shall apply the law as determined by the conflict of law rules which the Arbitral Tribunal considers applicable, ‘provided that the parties shall be free to agree in writing that the Arbitral Tribunal may apply the law or rules of law which it considers to be most appropriate in the facts and circumstances of the dispute’.

In all cases, the Arbitral Tribunal will apply the principles of equity and good conscience, only if the parties have authorised the Arbitral Tribunal to do so.

The Arbitral Tribunal will take into account the terms of the contract and the trade usages applicable.

Sweden Small Flag Sweden

Under the Arbitration Act, the starting point is that the law of the arbitration agreement is the law chosen by the parties to govern the arbitration agreement.

If there is no choice of law, the modern view in Sweden is that the arbitrators must not go through a conflict of laws system to find the applicable law. The Arbitration Act has no such requirements. Rather, the arbitrators may directly determine the law applicable to the substance of the dispute. For example, the SCC Rules stipulate that the tribunal “shall apply the law or rules of law which it considers to be most appropriate” (cf. the UNCITRAL Model Law). It is, however, fair to say that the Swedish conflict of laws rules will often serve as a point of departure in the search for the applicable substantive law.

The new Arbitration Act (not yet in force) will include specific provisions on the determination of the applicable law.

Spain Small Flag Spain

The parties to an arbitration agreement may determine which law or rules of law will be applicable to the substance, and, therefore, the arbitral tribunal shall decide the dispute in accordance with such provisions (Section 34 of the SAA). Only if the parties authorize the arbitrator to decide a matter ex aequo et bono, may the arbitrator solve the dispute according to the solution which he/she considers most equitable.

Any designation of the law or legal system of a State is deemed to refer directly to the substantive laws of the respective State. In the absence of a relating agreement by the parties, the arbitral tribunal may directly – without resorting to conflict-of-law rules – apply the law it considers most appropriate.

Serbia Small Flag Serbia

As a matter of principle, substantive law in arbitration is the law selected by the parties. In case that a provision governing substantive law points to an application of a particular substantive law, it shall be considered that the law in question shall be applied without regard to the conflict-of-law provisions (unless the parties explicitly predicted differently). If the parties did not determine which substantive law is to be applied, the sole arbitrator/tribunal shall determine the applicable law based on conflict of laws provision they deem most appropriate. Finally, the arbitration may decide ex aequo at bono if the parties explicitly agreed to this.

Philippines Small Flag Philippines

The Philippines follows Article 28 of the 1985 UNCITRAL Model Law, that is:

(1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.

(2) 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) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so.

(4) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

India Small Flag India

For the arbitration, section 28 of the Arbitration and Conciliation Act, 1996 prescribed for the law applicable to the substance of dispute. The law relating to the same is as follows:

10.1. Where the place of arbitration is situated in India,

(i) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

(ii) in international commercial arbitration—

a) the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;

b) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;

c) failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.

10.2. The arbitral tribunal shall decide ex aequo et bono or as amiable compositor only if the parties have expressly authorised it to do so.

10.3. While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.

Ecuador Small Flag Ecuador

The law applicable to the substance is the law governing the legal relationship between the parties. In domestic arbitrations, the contract between the parties and the subject of the dispute are governed by the local laws. If the arbitration is in law, the arbitrators shall decide the dispute in accordance with the universal principles of law, the jurisprudence, and the doctrine. If the arbitration is in equity, the arbitrators shall decide based on their true knowledge and belief, and the rules of sound judgment. In international arbitration, the parties to an international arbitration agreement are free to stipulate the applicable law and jurisdiction.

Egypt Small Flag Egypt

Primarily through the agreement of the Parties as reflected in the applicable contract. If the contract is silent, then the rules of conflicts of law are applied to determine the law with the closest connection. In practice, where the contract is silent, but is being implemented in Egypt, Egyptian law would be deemed to be the law governing the substance of the dispute.

Norway Small Flag Norway

The parties normally indicate the law applicable to the substance in the arbitration agreement, and this law shall be applied by the arbitral tribunal. Accordingly, the Arbitration Act states that the arbitral tribunal shall apply the rules of law that have been chosen by the parties as applicable to the material issues of the case. A reference in the arbitration agreement to the law or legal system of a country shall, unless otherwise indicated, by construed as a reference to the substantive law of that country and not to its rules on choice of law.

If the parties have not chosen a law in the arbitration agreement, the arbitral tribunal shall apply the rules of law as designated by applying Norwegian choice of law rules. The arbitral tribunal shall only decide a case on the basis of fairness if the parties have expressly authorized it to do so.

Croatia Small Flag Croatia

The arbitration agreement is governed by the law designated by the parties and, failing such designation, by the law applicable to the merits or Croatian law.

Cyprus Small Flag Cyprus

The parties to an international commercial arbitration are free to choose for themselves the law applicable to the substance of the dispute. In the case that no choice of law has been made by the parties, then the Tribunal will apply the law determined by the conflict of laws rules which it considers applicable. Nevertheless, in certain circumstances mandatory Cyprus law provisions will prevail over the choice of law of the parties e.g. in cases dealing with the existence, winding up and administration of a Cyprus Company or related to immovable property situated in Cyprus.

France Small Flag France

French law provides that, in domestic arbitration, the arbitral tribunal has to decide disputes in accordance with the law, unless the parties have empowered it to rule as amiable compositeur (Article 1478, CCP). The principle of party autonomy is recognized under French law, and arbitral tribunals should abide by the provisions agreed upon by the parties, even if they do not accord with French law, unless they infringe upon mandatory rules or rules of public policy in France. Where no law is chosen, normal conflicts of law rules are generally applied.

In international arbitration, French law provides that arbitrators have to decide the dispute in accordance with the rules of law chosen by the parties. If the parties have not chosen the applicable law in relation to a particular issue, arbitrators have the right to choose whatever rules of law they consider appropriate, regardless of conflict of laws rules. In any event, arbitrators have to take trade usages into account (Article 1511, CCP).

If the parties empower the arbitral tribunal to rule as amiable compositeur, then it has to rule as such (Article 1512, CCP).

Italy Small Flag Italy

The substantive law of the dispute is determined according to the parties’ express choice. Absent any indication, arbitral tribunals sitting in Italy follow different approaches, including relying on the conflict of rules of the forum.

Nigeria Small Flag Nigeria

Article 33 of the Arbitration Rules in the First Schedule to the ACA provides that the substantive law of the dispute is determined by the parties’ agreement. Where there is no express agreement, Nigerian law will apply in cases of domestic arbitration. In cases of international arbitration, the conflict of law rules applied by the tribunal will determine the law to be applied. Under such circumstances generally, the arbitral tribunal is to decide the substantive law, in accordance with the terms of the contract in all cases, taking into account the usage of the trade applicable to the transaction.

Austria Small Flag Austria

There may be choices of law by the parties and it may be distinct from the one to be applied to the contract the arbitration agreement forms part of or relates to (as noted, arbitration clauses are considered separable).

If the parties have not made such choice of law, it is the jurisprudence of the Austrian Supreme Court that the law of the place of arbitration (lex fori) determines the validity of the arbitration agreement including whether it relates to an arbitrable matter. The capacity of the parties to enter into such agreement is ascertained in accordance with the respective personal law(s).

United States Small Flag United States

The FAA and its state law counterparts generally do not address the issue of choice of substantive law. Arbitral tribunals apply the law or laws chosen by the parties. Where the parties’ agreement is silent, U.S. courts have held that an arbitrator has broad authority to determine the appropriate choice of law rules. In practice, the tribunal often will apply the choice-of-law rules of the law of the seat of arbitration.

Greece Small Flag Greece

In domestic arbitration, pursuant to article 890 para. 1 of GrCCP the arbitral tribunal shall apply the substantive provisions of Greek law unless the arbitration agreement provides otherwise. The parties may agree on the application of foreign law or vest in the arbitral tribunal the authority to decide ex aequo et bono. Party autonomy as to the choice of applicable substantive law is nevertheless limited in the sense that according to para. 2 of the same article parties may not evade the application of Greek public order provisions.

In international commercial arbitral proceedings having their seat in Greece, article 28 of Law 2735/1996 provides that the arbitral tribunal shall apply the substantive rules of law chosen by the parties. Even a tacit choice of law suffices. The parties are not obliged to designate the substantive law of a particular State. The choice of lex mercatoria is also available to them. The parties’ choice of substantive law is nevertheless limited by Greek public order provisions in the sense that the application of the latter may not be evaded. Under the interpretational rule provided for in para. 1, unless it is otherwise provided, the designation of the law of a particular State is deemed as direct reference to its substantive rules and not to its conflict of law rules. Absent such a designation of applicable substantive rules of law by the parties, the arbitral tribunal shall determine the applicable substantive law on the basis of the conflict of law rules that it deems appropriate to the dispute at hand. The arbitral tribunal may decide the case ex aequo et bono only if the parties have explicitly vested such authority in it. It is also provided that, in any event, the arbitral tribunal shall take into account and decide in accordance with the terms of the contract and with the usages of the trade applicable to the transaction at hand.

Israel Small Flag Israel

In general, the parties to the arbitration agreement are free to determine as they wish as to the applicable law to the arbitration agreement. Thus, the parties may determine whether the substantive law or any other law would apply to the arbitration or even exempt the arbitrator from the applicability of a certain law. According to the Israeli laws, when the arbitration agreement contains a lacuna with respect of the applicable law, then, according to the addendum to the Arbitration Law, the arbitrator will be authorized to act in the way he deems fit and just and is not obligated to act in accordance with the substantive law or evidence laws.

United Kingdom Small Flag United Kingdom

The arbitral tribunal will decide the dispute either (a) in accordance with the law chosen by the parties as applicable to the substance of the dispute, or (b) if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal. A choice of law is understood to refer to the substantive laws of a country and not its conflict of law rules. If or to the extent that there is no such choice or agreement, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable (s.46 of the 1996 Act).

Updated: November 15, 2017