How is the law applicable to the substance determined?
Regularly, the parties to the arbitration agreement are free to agree on the law applicable to the arbitration agreement. A parties’ choice of law regarding the main contract does not necessarily coincide with the law applicable to the (separable) arbitration clause.
In the absence of such a parties’ choice of law applicable to the arbitration agreement, according to the Austrian Supreme Court, the validity of an arbitration agreement is assessed in accordance with the law of the place of arbitration (lex fori). The personal capacity to conclude an arbitration agreement (subjective arbitrability) is determined according to the personal law of a party in question. The objective arbitrability of the subject matter of a dispute is determined by the lex fori.
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).
In national arbitration procedures, the arbitral tribunal shall decide in accordance with the national law, unless the parties determine otherwise in an agreement, that the arbitrators shall decide ex aequo et bono. The arbitrators may also decide the dispute by reverting to the composition of the parties on the basis of the balance of interests at hand. Portuguese scholarship shares some doubts about the exact meaning of this decision criterion, mainly on how to distinguish it from ex aequo et bono.
In international arbitration procedures, the parties may choose the rules of law to be applied by the arbitrators, if they have not authorised them to decide ex aequo et bono.
Failing any choice by the parties, the arbitral tribunal shall apply the law of the State with which the subject-matter of the dispute has the closest connection.
The arbitral tribunal applies the substantive law designated by the parties. If no law has been designated, the arbitral tribunal applies the law that it deems appropriate in light of the elements of the dispute. In all cases, the arbitral tribunal shall take into account the trade usages and professional rules.
An arbitrator can decide ex aequo et bono only if the parties have expressly authorised him or her to do so.
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.
New Zealand’s provisions on the choice of substantive law derive from the UNCITRAL Model Law (article 28 of Schedule 1 of the Act). Thus, parties are entitled to choose the substantive law. Where the parties do not choose the substantive law, the arbitral tribunal applies the law determined by conflict of laws rules which it considers applicable. (For the leading New Zealand decision on amiable composition, see A’s Co Ltd v Dagger HC Auckland M1482-SD00, 7 March 2003.)
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 CCP 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".
Priority is given to the parties’ choice of the substantive law applicable to their dispute, failing which the tribunal will determine the applicable law by reference to the appropriate choice of law rules. The tribunal may be guided in this exercise by the provisions of the UAE Civil Code.
As a general rule, tribunals in DIFC-seated arbitrations are required to apply the substantive law selected by the parties. In determining that law, 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. Absent any designation or agreement between the parties, the tribunal should apply the law determined by the conflict of laws rules which it considers applicable. In all cases, the tribunal must make determinations in accordance with the terms of the contract and applicable law, and take into account the usages of the trade.
The ADGM Arbitration Law requires the tribunal to decide the dispute in accordance with the law selected by the parties as applicable to the substance of the dispute. Further, 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. Where there is no agreement between the parties on the applicable law, the tribunal must decide the dispute in accordance with the rules of law it considers appropriate. In all cases, the tribunal must take into account trade usages.
Section 30, AA governs the law applicable to the substance of a dispute. Although the provision prescribes a different choice of law analysis for international and domestic arbitrations, it gives primacy to the choice of the parties in both types of arbitrations. In the case of a Malaysian-seated domestic arbitration, save a contrary agreement, the arbitral tribunal shall decide the dispute in accordance with Malaysian law. Where an international arbitration is concerned, the law applicable to the substance of the dispute is the chosen law of the parties. Absent such an agreement in an international arbitration, the arbitral tribunal shall apply the applicable law as determined by conflict of laws rules, which under Malaysian law, mirrors the conflict of laws principles as applied in other common law jurisdictions.
It is apposite to note that any designation by the parties of the law of a given state shall be construed as directly referring to the substantive law of that state rather than its conflict of laws rules unless otherwise stated.
Because there is no mandatory law on this question, arbitral tribunals apply the law chosen by the parties. If an arbitration agreement provides for ad hoc arbitration without specifying the applicable rules, arbitrators will determine the substantive law on the basis of ordinary conflict-of-laws principles.
Under the IAA, priority is given to the parties’ choice of the substantive law applicable to their dispute. IAA, First Schedule, Article 28. In determining that law, 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. Failing any designation by the parties, the arbitral tribunal will determine the applicable law by reference to the appropriate choice of law rules. IAA, First Schedule, Article 28. In all cases, the arbitral tribunal must decide in accordance with the terms of the contract and take into account the usages of the trade applicable to the transaction. IAA, First Schedule, Article 28.
In Brazil, the autonomy granted to parties contracting is large, to the point of the Arbitration Law (Law nº 9.307/96) allow them to choose the law (substantive or procedural) which they want to be applied, and as seen in item 7 above, the indication of the national law or corporate rules applicable to arbitration is one of the optional requirements that may be included in the compromissum. As optional clause of compromissum, the parties have the opportunity to indicate to the arbitrator the law that he should apply, and it is also possible the use of corporate rules (to be understood as the set of rules governing an activity or profession, and that may have character national or international), expression that the legislature did not use in Article 2 of Law nº 9.307/96, when treated exactly about the free will of parties, providing that the arbitration may be in law or in equity, at the discretion of the parties.
The agreement may establish applicable law. If there is no agreement on applicable law, the tribunal will apply the principles under Article 28 of the Model Law and domestic choice of law rules to determine the applicable substantive law.
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.
The first rule is the agreement and indication by the parties. However, in case of lack of agreement, it will be decided by the arbitrators under their own opinions as provided by art. 34 of the Arbitration Law.
According to the Law no. 4686 (for international arbitrations), the arbitral tribunal will constitute the award pursuant to the provisions of the agreements and chosen law by the parties. Unless otherwise agreed, if the parties specify any law under the agreement, it is accepted as the substantial law directly, not the conflicts of law or procedural law provisions. In case there is no such designation under the agreement, the arbitral tribunal will apply the law which is belong to the state that has the closest relation to the dispute.
According to Law no. 6100 (for domestic arbitrations), there is no provision regarding the designation of applicable law; since it is only applied to the disputes which have no foreign element.
Pursuant to section 1029 (1) ZPO, an arbitration agreement is an agreement by the parties that they subject themselves to the decision passed by an arbitral tribunal “on all or individual disputes that have arisen between them with regard to a specific legal relationship”. Thus, several disputes or claims under one contract (i.e. one specific legal relationship) can be brought before the same arbitral tribunal. If claims arising under or in connection with several contracts, they can be brought before the same arbitral tribunal only if the same arbitration agreement or arbitration clause applies to all claims and if the parties are the same.
There are no specific provisions under German law on the issue whether one arbitral tribunal may consolidate separate arbitral proceedings. Thus, the consolidation depends on the consent of the parties as an expression of their party autonomy. Institutional arbitration rules often contain provisions that and under which circumstances arbitral proceedings can be consolidated.
The merits of the dispute are decided in accordance with the applicable law under the contract. If the parties have not chosen the applicable law, it is determined in accordance with the conflict of laws rules.
By considering any express agreement or the application of conflict of laws rules. The tribunal may determine any procedural and evidential matters not agreed by the parties (section 34).
As a general rule, the law applicable to the substance of the dispute is determined by reference to the choice of law governing the agreement. If there is no express choice of law, the arbitrator may determine the governing law by reference to applicable international standards.
The arbitration law provides that the arbitral tribunal shall resolve the dispute under the law applicable to the underlying legal relationship, leaving the method of determining the applicable law to the tribunal.
In determining the applicable law, the tribunal should take into account the provisions of the contract and the established customs applicable to the given legal relationship.
It is generally recognized that the tribunal should always respect the parties’ choice of law, especially in light of art. VII of the European Convention of 1961. The choice of law is deemed to refer to substantive law only, and not conflict of law regulations.
The parties may also authorize the tribunal to resolve the dispute on the basis of general principles of law or equity, but in the case of consumer contracts the consumer must not be deprived of the protections afforded the consumer under mandatory rules of law.
In the absence of the parties’ choice of law, the arbitrators may decide to either apply conflict of law rules or determine the applicable substantive law independently, and consequently base their decision on the substantive legal rule they deem appropriate.
If the arbitrators decide to apply conflict of law rules, they may choose the conflict of law rules of lex fori, cumulative application of different conflict of law rules, application of general conflict of law rules, or the conflict of law rules which have the closest connection with the subject of the dispute or which they deem the most appropriate.