How is the law applicable to the substance determined? Is there a specific set of choice of law rules in your country?
International Arbitration (4th edition)
Argentine law allows the parties to choose between de iure arbitration and amiable composition. In case the parties remain silent on this issue in the arbitration agreement or if the arbitrators are not expressly authorized to decide the dispute on the basis of equity, it is understood that the parties have chosen de iure arbitration (Art. 1652 of the NCCC).
In de iure proceedings, the arbitral tribunal must abide by strict legal rules in deciding the dispute. Its award must be based on the chosen applicable law – i.e., inexorably Argentine law in domestic arbitration proceedings. By contrast, amiables compositeurs are not subject to any legal formalities except those agreed by the parties, and shall decide the dispute according to their best knowledge and understanding (Art. 769 of the CP).
Argentine private international law accepts the freedom of the parties to select the applicable law (Art. 2651 of the National Civil and Commercial Code (“NCCC”), with exclusions for cases of fraude à la loi (Art. 2598 NCCC); to ensure the application of international mandatory rules of immediate application (Art. 2599 NCCC); or when such application would lead to outcomes that could be incompatible with fundamental principles of public order (Art. 2600 NCCC).
Section 603 of the Austrian Code of Civil Procedure stipulates that the parties are free to choose the law applicable to the substance of the dispute. Unless otherwise agreed by the parties, the choice of a specific domestic law only refers to the substantive law (voie directe) and does not include the conflict of law rules (voie indirecte). In the absence of an agreement by the parties, the arbitral tribunal may choose the law it deems appropriate. Although the tribunal is not bound to apply any conflict of laws rule, it must choose the applicable law based on objective criteria. The tribunal may only decide on the dispute ex aequo et bono subject to an explicit authorisation by the parties.
According to ICAA, the arbitral award has to be based on the applicable law only and, thus, the arbitral tribunal may not decide ex aequo et bono or as amiable compositeur. Art.38 of ICAA generally provides that the arbitral tribunal applies the law selected by the parties and in the absence of choice – the law applicable according to the conflict of laws rules. As far as the seat of the arbitration is in Bulgaria, the arbitral tribunal will apply the Bulgarian rules of Private International Law.
The detailed provisions of Bulgarian Private International Law are codified in the IPLC, but following the accession of Bulgaria to the EU, in the area of the contractual obligations, they are substituted by Rome Regulation I for contracts entered into after December 17th, 2009. In any case, the arbitration tribunal applies the conditions of the contract and takes into consideration the trade customs.
The arbitration tribunal settles the dispute in conformity with the law selected by the parties. When the parties have not specified their choice of applicable law, the arbitration tribunal applies the law indicated applicable pursuant to Rome I Regulation. The general rule is that the law of the country, where the party, required to affect the characteristic performance of the contract, has his habitual residence (established by the IPLC and the Rome Convention), is considered as the applicable one and is combined with a very detailed set of conflict of law rules for a concrete type of contract.
The FAA is silent as to the choice of substantive law rules. Courts have held that the law designated by the parties in an agreement will generally govern the dispute. See Mastrobuono v. Shearson lehman Hutton, Inc., 514 U.S. 52, 58–62 (1995); Dr. Kenneth Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243 (5th Cir. 1998). Arbitrators have been found to act beyond their authority if they fail to adhere to a valid, enforceable choice of law provision in the parties’ arbitration agreement. Coutee v. Barington Cap. Grp., L.P., 336 F.3d 1128, 1134 (9th Cir. 2003). In some instances, courts have found that the parties impliedly consented to a choice of law, such as when the parties’ briefs assume that a certain law governs the issues of contract formation. See Aceros Prefabricados, S.A. v. TradeArbed, Inc., 282 F.3d 92, 102 n.4 (2d Cir. 2002). If there is no choice of law provision in the agreement, tribunals may determine the applicable substantive law to be applied to the dispute.
In general, the law applicable to the substance of the dispute is determined by the agreement of the parties. In the absence of an agreement of the parties, the arbitral tribunal may apply the law it considers appropriate in the circumstances. There is no specific set of choice of law rules. See, for example, s. 32(1) of the Alberta Arbitration Act and s. 32(1) of the Ontario Arbitration Act.
(a)According to Section 28 (1) of Law 101/1987, the parties to an international commercial arbitration will have the freedom to decide themselves the law which will apply to the substance of their dispute. Failing this, the Arbitral Tribunal will have the discretion to apply the law which it considers applicable to a particular dispute.
(b) In the absence of a choice of law of the parties, the Cyprus arbitration tribunal will apply by default Cyprus law.
Unless the parties elect the applicable law, the governing law will be decided by the arbitrator on the basis of the Czech rules governing the conflicting laws.
Also, if authorized by the parties, the arbitrators may render their determination based on the principle of equity.
The applicable law is normally stated within the underlying contract.
Where the parties have failed to agree, however, the following applies:
UAE- Federal Jurisdiction
Article 38 of the UAE Arbitration Law, requires the Arbitral Tribunal to apply those ‘substantive rules of law, which it considers to have the closest connection with the substance of the dispute’.
The merits of the dispute shall be decided by the Arbitral Tribunal, taking into consideration the ‘terms of contract, which is the subject of the dispute and any relevant usages applicable to the transaction and between the Parties’.
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.
UAE - Common Law 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.
The ADGM Regulations (Regulation 44) have adopted a similar approach to that of the DIFC Arbitration Law. The ADGM Regulations provides that:
‘In the absence of any designation by the parties, the arbitral tribunal shall decide the dispute in accordance with the rules of law it considers appropriate’ (Regulation 44(2)).
The ADGM Regulations further confirm that ‘the arbitral tribunal shall take trade usages into account’ (Regulation 44(3)).
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. In the absence of the parties’ agreement, there is no specific set of choice of law rules that an arbitral tribunal must apply. Instead, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable (s.46 of the 1996 Act).
Section 1051 ZPO sets forth the rules which substantive law applies to the merits of a dispute:
- The arbitral tribunal shall use the law chosen by the parties;
- Failing any such designation of the parties, the arbitral tribunal shall apply the law of the State to which the subject matter is most closely connected;
- The arbitral tribunal may decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so;
In any event, 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.
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:
Where the place of arbitration is situated in India,
- 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;
Therefore, in case of domestic arbitrations, Indian parties can only apply Indian law to the substance of the dispute.
- in international commercial arbitration—
- 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;
- 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;
- 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.
The arbitral tribunal shall decide ex aequo et bono or as amiable compositor only if the parties have expressly authorised it to do so.
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.
In principle, the parties’ choice of law under the main agreement will be honoured and applied owing to Indonesia contract law’s freedom of contract principle. Indonesia does not have a specific set of choice of law rules but when a conflict of law arises, a tribunal will need to determine the applicable law based on the most connecting factors in the merits of the case, such as the location of the parties, the location of the relevant project under the agreement, and whether the object of the dispute located in Indonesia.
The law applicable to the substance of the dispute is determined in accordance with the provisions of § 620 Liechtenstein CCP. Pursuant to said provision, the arbitral tribunal has to decide the dispute on the basis of the laws or legal rules chosen by the parties. A choice of law relates to the respective jurisdiction’s substantive laws to the exclusion of the provisions on conflict of laws.
If the parties have not chosen laws or legal rules to be applied by the arbitral tribunal, the arbitral tribunal will apply the laws which it considers to be appropriate. The arbitral tribunal must only decide on the basis of equitable principles if the parties have expressly authorized the tribunal to do so.
In respect to domestic arbitration, Section 30(1) of the Arbitration Act provides that unless otherwise agreed by parties, where the seat of arbitration is in Malaysia, the arbitral tribunal shall decide the dispute in accordance with the substantive law of Malaysia.
As for international arbitration, Section 30(2) of the Arbitration Act states that the arbitral tribunal shall decide the dispute in accordance with the substantive law agreed upon by parties.
According to article 1445 of the Commerce Code, the arbitral tribunal shall decide the dispute in accordance with the principles of law chosen by the parties, but if the parties does not choose the applicable law, the arbitral tribunal will decide it considering the characteristics and the nexus of the matter.
Article 33 of the ACA 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. There is no specific set of choice law rules in Nigeria apart from those established by the case law.
In the absence of an agreement between the parties regarding the substantive law applicable to the dispute, the arbitral tribunal will apply the substantive law determined by Norwegian private international law.
Norwegian private international law is influenced by the rules regarding choice of law in the European Union (ie, the Rome Convention and Rome I Regulation), and includes also mandatory rules of law to protect, for example, employees, consumers, insured parties and trade agents from entering into unfavourable (choice of law) agreements, in addition to the ordre public rule.
The choice of law governing the substance of the dispute depends on the contract between the parties. In the absence of contrary stipulation, any designation of the law or legal system of a given state shall be construed as directly referring to the substantive law of that state and not to its conflict of laws rules. If the parties fail to designate the law to govern the substance of the dispute, the arbitral tribunal shall apply the law determined by the conflict of laws rules, whichever it considers applicable. (Art. 4.28, IRR)
According to Article 38 of the Arbitration Law, subject to provisions of Sharia and public policy in the Kingdom, the parties are free to contractually agree to any substantive law as the governing law of the arbitration. If the parties fail to agree as to which substantive law will govern then the arbitration tribunal shall apply the substantive rules of the law it deems most connected to the subject matter of the dispute.
In international arbitration, the tribunal must decide the dispute in accordance with the rules of law chosen by the parties. Absent such choice, the tribunal may choose the rules of law it considers appropriate. The tribunal need not use specific conflict-of-law rules in doing so. However, it must, in all cases, consider trade usages (FCCP Article 1511). Parties may agree to exclude the application of mandatory French laws that are not part of international French public policy. In international arbitration, the parties may also empower the arbitral tribunal to rule as amiable compositeur, i.e. to have it decide the dispute ex aequo et bono (FCCP Article 1512).
In domestic arbitration, FCCP Article 1478 provides that the arbitral tribunal decides the dispute according to the rules of law, unless the parties have empowered the tribunal to rule as an amiable compositeur. The rules of law chosen by the parties cannot however breach French mandatory rules or rules of public policy. Where no rules of law have been chosen by the parties, general conflicts of law rules apply.
At the outset, the EAL recognises the principle of party autonomy where the parties are free to determine the law applicable to the substance of the dispute, subject to exceptional legislative constraints (as in technology transfer contracts and remuneration of Egyptian commercial agents, where application of Egyptian law is mandatory). This is confirmed by article 39.1 of the EAL which provides that the arbitral tribunal shall apply the rules chosen by the parties, and that if the parties agreed on the applicability of the law of a given state, only the substantive rules thereof shall be applicable excluding its rules of conflict of laws, unless otherwise agreed by the parties.
However, if the parties have not agreed on specific rules or law applicable to the substance of their dispute, the EAL provides that the arbitral tribunal shall apply the substantive rules of the law it considers having the closest connection to the dispute. (article 39.2)
The EAL has not provided for a specific set of connecting factors that the arbitrators shall follow in determining the substantive rules having the closest connection with the dispute. The choice of the applicable substantive rules will be dependent on the nature of the dispute and shall be determined on a case by case basis. For example, if the validity of a contract is disputed, hence the law having the closest connection with the dispute will be the law of the state where the contract has been concluded. Also, if the dispute is related to the performance of an obligation, then the law having the closest connection with the dispute is the law of the state where the obligation has been performed or that of the agreed place of performance of this obligation. It is also submitted that Egyptian law is considered having the closest connection with a dispute when all the elements of the legal relationship forming the dispute are Egyptian. (Fathi Waly, Arbitration in local and international commercial disputes, Munsha’at Al Ma’aref, 2014 ed., p. 537)
Furthermore, in an arbitration case administered by the CRCICA, an arbitral tribunal has listed how it determined the law applicable to the substance of the dispute as follows: the law of the place of arbitration; the law of the place of signing of the original contract; the law of residency of the parties to the contract; the law of the state where the contract is performed; the law of the language of the contract; and the law of the language of arbitration if it was different from the language of the contract. (Arbitration case no. 95 of 1997, hearing held on 12/3/1998 in Fathi Waly, Arbitration in local and international commercial disputes, Munsha’at Al Ma’aref, 2014 ed., p. 537)
The applicable law to the controversy is determined by the parties in the arbitration agreement or the contract. In absence of this choice, and if it is a local contract, the Ecuadorian law will be applicable. If the controversy arises from an international business, the parties can agree that the arbitration have an international nature so the applicable law may also be agreed by them. If the contract does not provide this and there is no agreement between the parties, the arbitrators shall decide.
Although there are no specific “choice of law” rules in Ecuador, Art. 7, numeral 18 of the Civil Code provides that all the rules that are in force at the time of the contract are understood incorporated to the contract, so that, if the contract was celebrated in Ecuador, it will be understood that all laws in force will be included to the contract so the governing law will be Ecuadorian. Additionally, the Private International Law Code also known as the “Sanchez Bustamante Code”, is in force in Ecuador since 1928.
According to the article 28 of the ICA Act, the parties can freely decide the law applicable to the merits of the case. The tribunal will decide on such law only if the parties fail to indicate it. In that case, the tribunal will decide the applicable law pursuant to the conflict-of-law provisions it deems to be applicable unless the relevant arbitration rules state otherwise.
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".
(1) The governing law over the arbitration agreement: If the parties have expressly agreed on the governing law for the arbitration agreement, their choice should in principle be followed and applied. However, if the parties agree to set the seat of arbitration within Taiwan but use foreign law for the arbitration agreement, and that the application of such foreign law would be contrary to the public order or morals of Taiwan, then Taiwan law may override the parties’ selection on governing law. If the parties have not agreed on the governing law for the arbitration agreement and a dispute arose over such governing law, Taiwan does not have a specific law on conflicts of law in arbitration agreements, so if foreign elements are involved, it should be based on the international private law rules on contracts at the place where the court is located; if the court is (or will be) in Taiwan, then the Act Governing the Choice of Law in Civil Matters Involving Foreign Elements apply, and the court will examine a wide variety of factors, such as the domicile of the parties, where the subject of the arbitration and other relevant assets are located, the location of the seat of arbitration, in determining the scope and effect of the arbitration agreement.
(2) The governing law over the arbitration procedure: If the parties have agreed to the governing law for the arbitration procedure, it should again apply in principle. If the parties have not specifically stipulated a governing law for the arbitration procedure, then the rules of the arbitration institution chosen are usually applied in a proceeding to set aside an arbitral award.
(3) The governing law over the arbitration award: Arbitration under law shall first and foremost apply the governing law that the parties have selected to determine the substantive legal relationship(s) in the dispute. If the parties did not specify a governing law even as they had agreed to submit disputes to arbitration, or otherwise authorize the arbitration institution to select the governing law, for an arbitration conducted by an arbitration institution, the tribunal shall apply the international private law of the place where the institution is located to determine the appropriate governing law for the arbitration, while in an ad hoc arbitration, the arbitrator shall apply the international private law of the place where the arbitration is taking place for better compliance with the parties’ intent in the arbitration agreement.
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 2735/1999 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. National private international law rules are to be found in the Second Chapter of the Greek Civil Code. EU respective Regulations obviously apply.
The parties are free to decide on the law applicable to the substance. If the parties do not designate any applicable law to the substance, the arbitral tribunal applies the laws of the State, which has the closest connection with the dispute.